PREFACE MBA is a stepping-stone to the management carrier and to develop good manager it is necessary that the theoretical

must be supplemented with exposure to the real environment. Theoretical knowledge just provides the base and it’s not sufficient to produce a good manager that’s why practical knowledge is needed. Therefore the research product is an essential requirement for the student of MBA. This research project not only helps the student to utilize his skills properly learn field realities but also provides a chance to the organization to find out talent among the budding managers in the very beginning. In accordance with the requirement of MBA course I have summer training project on the topic “Comparitive Analysis of Mutual funds and Ulips”. The main objective of the research project was to study the two instruments and make a detailed comparison of the two. For conducting the research project sample size of 50 customers of SBIMF and SBOP was selected. The information regarding the project research was collected through the questionnaire formed by me which was filled by the customers there.




Though it is perhaps the smallest segment of the industry. as the next logical step. Yet it has been the subject of perhaps the most elaborate and prolonged regulatory effort in the history of the country. when a number of mistakes were made and hence the mutual fund schemes. The mutual fund is structured around a fairly simple concept. has not yet returned to the industry in a big way. public sector banks and financial institutions were allowed to float mutual funds and their success emboldened the government to allow the private sector to foray into this area.INDUSTRY PROFILE The mutual fund industry is a lot like the film star of the finance business. From those days to today the retail investor. which invested in lesser-known stocks and at very high levels. which is achieved by the pooling of a number of small investments into a large bucket. 4 . became loss leaders for retail investors. it is also the most glamorous – in that it is a young industry where there are changes in the rules of the game everyday. Over a period of 25 years this grew fairly successfully and gave investors a good return. and there are constant shifts and upheavals. which can make the retail investor feel more secure. the mitigation of risk through the spreading of investments across multiple entities. A little history: The mutual fund industry started in India in a small way with the UTI Act creating what was effectively a small savings division within the RBI. The initial years of the industry also saw the emerging years of the Indian equity market. the industry too has focused on brining in the large investor. for whom the mutual fund is actually intended. But to be fair. and therefore in 1989. so that it can create a significant base corpus.

32% in April. As per data released by Association of Mutual Funds in India. were at 32 basis points in 2006-07.67 lakh crore of assets under management. in the same time frame. it is at par with fund houses in developed economies. As of now. While the revenue and profit (PAT) pools of Indian AMCs are pegged at $542 million and $220 million respectively. the first month of the current fiscal. the total AUM of the Indian mutual fund industry could grow to $350-440 billion by 2012. the asset base of all mutual fund combined has risen by 7. while the number was 12 bps in UK. Operating profits for AMCs in India. 17 bps in Germany and 18 bps in the US. expanding 33% annually.The Indian MF industry has Rs 5. there are 33 fund houses in the country including 16 joint ventures and 3 whollyowned foreign asset managers. According to a recent McKinsey report. 5 . as a percentage of average assets under management.

2008 July 31. of Mutual Fund Name ABN AMRO M F AIG GlobalM F SBI Mutual Fund Birla Mutual Fund BOB Mutual Fund Canara Robeco Mutual Fund DBS Chola Mutual Fund Deutsche Mutual Fund DSP Merrill Lynch Mutual Fund Escorts Mutual Fund Fidelity Mutual Fund Franklin Templeton Investments HDFC Mutual Fund HSBC Mutual Fund ICICI Prudential Mutual Fund ING Mutual Fund JPMorgan Mutual Fund Kotak Mahindra Mutual Fund LIC Mutual Fund Lotus India Mutual Fund Morgan Stanley Mutual Fund PRINCIPAL Mutual Fund Quantum Mutual Fund Reliance Mutual Fund Sahara Mutual Fund Mirae asset mutual fund Sundaram Mutual Fund Tata Mutual Fund Taurus Mutual Fund UTI Mutual Fund 371 221 431 262 9 185 112 216 3 151 6 345 45 255 219 389 14 315 Schemes* 337 54 177 343 22 54 80 187 211 26 39 230 As on Corpus July 31.00 20.00 7464. 2008 July 31. 2008 July 31.00 18.00 2546.00 19483.00 7831.00 24441.359. 2008 July 31.385.00 10792. 2008 Feb 29.00 84.00 175. 2008 July 31.00 .00 7091. 2008 Feb 29.00 50. 2008 July 31.00 4576. 2008 July 31. 2008 July 31. 2008 July 31. 2008 July 31. 2008 July 31.120. 2008 July 31.00 11.00 56.564. 2008 July 31. 2008 July 31. 2008 July 31.782. 2008 July 31.00 1853.00 17.752.898.814.00 66. 2008 July 31.00 37497.00 16.499. 2008 July 31. 2008 July 31.No. 2008 7803 3513 29151. 2008 July 31. 2008 July 31. 2008 Mar 31.00 2.00 11.00 55.443.161. 2008 July 31.00 3054. 2008 July 31. 2008 July 31. 2008 July 31.00 177.00 Major players in Indian mutual fund industry and their AUM 6 46. 2008 July 31.00 289.

700 crores of assets under management. Second Phase – 1987-1993 (Entry of Public Sector Funds) 7 . The first scheme launched by UTI was Unit Scheme 1964.6. At the end of 1988 UTI had Rs. In 1978 UTI was delinked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI.HISTORY OF MUTUAL FUND 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. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases: - First Phase – 1964-87 An Act of Parliament established Unit Trust of India (UTI) on 1963.

SBI Mutual Fund was the first non. Indian Bank Mutual Fund (Nov 89). Also. Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993. except UTI were to be registered and governed. following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities.47. Bank of Baroda Mutual Fund (Oct 92). At the end of 1993.UTI. a new era started in the Indian mutual fund industry.004 crores. 1993 was the year in which the first Mutual Fund Regulations came into being.1987 marked the entry of non.UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87). One is the Specified Undertaking of 8 . LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. Fourth Phase – since February 2003 In February 2003. the mutual fund industry had assets under management of Rs. Punjab National Bank Mutual Fund (Aug 89). under which all mutual funds. public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). giving the Indian investors a wider choice of fund families. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. Bank of India (Jun 90).

As at the end of September.835 crores as at the end of January 2003.29. representing broadly.153108 crores under 421 schemes. conforming to the SEBI Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. which manage assets of Rs.000 crores of assets under management and with the setting up of a UTI Mutual Fund. 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. It is registered with SEBI and functions under the Mutual Fund Regulations. BOB and LIC. The Specified Undertaking of Unit Trust of India. the assets of US 64 scheme. GROWTH IN ASSETS UNDER MANAGEMENT 9 .the Unit Trust of India with assets under management of Rs. and with recent mergers taking place among different private sector funds. The second is the UTI Mutual Fund Ltd. sponsored by SBI. the mutual fund industry has entered its current phase of consolidation and growth. there were 29 funds. 2004. PNB.76. assured return and certain other schemes.

2004 (Rs. 1505 billion) in terms of AUM. 10 . 1993 (Rs. 470 billion) to December.ECONOMIC ENVIRONMENT GROWTH OF MUTUAL FUND INDUSTRY IN INDIA While the Indian mutual fund industry has grown in size by about 320% from March. 152 billion in March 1999 to $ 148 billion as at March 2008. the AUM of the sector excluding UTI has grown over 8 times from Rs.

There is a big scope for expansion. The growth rate of Indian mutual fund industry has been increasing for the last few years. Number of foreign AMC’s is in the queue to enter the Indian markets. Introduction of Financial Planners who can provide need based advice. Trying to curb the late trading practices. We have approximately 29 mutual funds which is much less than US having more than 800. highest in the world. • • • • • • Recent trends in mutual fund 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 the nationalized banks and smaller private sector players.12% in the year of 1999 and it is noticed 0. Only channelizing these savings in mutual funds sector is required.25% in 2004 in terms of AUM as percentage of global AUM . its AUM as a proportion of the global AUM has steadily increased and has doubled over its levels in 1999. Emphasis on better corporate governance. Some facts for the growth of mutual funds in India • • • 100% growth in the last 6 years. Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products. It was approximately 0. Our saving rate is over 23%. 11 . SEBI allowing the MF's to launch commodity mutual funds.Though India is a minor player in the global mutual fund industry.

12 . float new schemes etc. Few hired specialized staff and generally chose to transfer staff from the parent organizations. Most of these AMCs have not been able to retain staff. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as a difference between the guaranteed and actual returns.Many nationalized banks got into the mutual fund business in the early nineties and got off to a start due to the stock market boom was prevailing. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. The service levels were also very bad. The performance of most of the schemes floated by these funds was not good.

Systematic withdrawal and deposit facility. Cheque writing facilities. Added features like accident insurance cover. during the last one decade brought out several innovations in their products and is offering value added services to their investors. 13 . Holding the investment in electronic form. • • ONLINE MUTUAL FUND TRADING The innovation the industry saw was in the field of distribution to make it more easily accessible to an ever increasing number of investors across the country.TECHNOLOGICAL ENVIRONMENT IMPACT OF TECHNOLOGY Mutual fund. Investment and re-purchase facility through internet. For the first time in India the mutual fund start using the automated trading. clearing and settlement system of stock exchanges for sale and repurchase of open-ended de-materialized mutual fund units. doing away with the traditional form of unit certificates. Some of the value added services that are being offered are: • • • • Electronic fund transfer facility. mediclaim etc.

AMFI is an apex body of all Asset Management Companies (AMC). which has been registered with SEBI. It functions under the supervision and guidelines of board of directors. Till date all the AMCs are that have launched mutual fund schemes are its members. AMFI has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. SWP was designed to ensure that investors who wanted a regular income or cash flow from their investments were able to do so with a predefined automated form. SIP ensures that there is a regular investment that the investor makes on specified dates making his purchases to spread out reducing the effect of the short term volatility of markets. LEGAL AND POLITICAL ENVIRONMENT ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI) With the increase in mutual fund players in India. Today the SW facility has come in handy for the investors to reduce their taxes. a need for mutual fund association in India was generated to function as a non-profit organization.Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP) were options introduced which have come in very handy for the investor to maximize their returns from their investments. It follows the principle of both protecting and promoting the interest of mutual funds as well as their unit holders. 14 . Association of Mutual Funds in India (AMFI) was incorporated on 22 nd August 1995.

Today. debate and participate in creating their own regulatory framework. OBJECTIVES:  To define and maintain high professional and ethical standards in all areas of operation of mutual fund industry  To recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and asset management including agencies connected or involved in the field of capital markets and financial services. Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry.It has been a forum where mutual funds have been able to present their views.  To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry. AMFI works through a number of committees. The association was created originally as a body that would lobby with the regulator to ensure that the fund viewpoint was heard. it is usually the body that is consulted on matters long before regulations are framed. These committees consist of industry professionals from among the member mutual funds.  To represent to the Government. and it often initiates many regulatory changes that prevent malpractices that emerge from time to time. There is now some thought that AMFI should become a self-regulatory organization since it has worked so effectively as an industry body. 15 . some of which are standing committees to address areas where there is a need for constant vigil and improvements and other which are adhoc committees constituted to address specific issues.

 To undertake nation wide investor awareness programme so as to promote proper understanding of the concept and working of mutual funds. 16 . To develop a cadre of well trained Agent distributors and to implement a programme of training and certification for all intermediaries and other engaged in the industry.  To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies.

UTI Asset Management Company Ltd o Institutions 1.MEMBERS OF AMFI: o Bank Sponsored 1. SBI Funds Management Private Limited 2. Canara Robeco Asset Management Company Limited 2.Predominantly Indian 1. Joint Ventures . LIC Mutual Fund Asset Management Company Limited 17 . Baroda Pioneer Asset Management Company Limited 2. Others 1.

Quantum Asset Management Co. 3. Ltd. Private Ltd. Reliance Capital Asset Management Ltd. 4. 11. Benchmark Asset Management Company Pvt. DBS Cholamandalam Asset Management Ltd. 10. 2. Tata Asset Management Limited 13. Indian 1. Deutsche Asset Management (India) Pvt. Escorts Asset Management Limited 6. Sahara Asset Management Company Private Limited 12. Ltd. Edelweiss Asset Management Limited 5. Kotak Mahindra Asset Management Company Limited(KMAMCL) 9.o Private Sector 1. IDFC Asset Management Company Private Limited 7. JM Financial Asset Management Private Limited 8. Taurus Asset Management Company Limited 18 .

ABN AMRO Asset Management (India) Pvt. Birla Sun Life Asset Management Company Limited 2. Ltd. 19 . Franklin Templeton Asset Management (India) Private Limited 4. Foreign 1. HSBC Asset Management (India) Private Ltd. 2. Sundaram BNP Paribas Asset Management Company Limited 4. FIL Fund Management Private Limited 3. DSP Merrill Lynch Fund Managers Limited 3. Joint Ventures .Predominantly Indian 1. 3. Mirae Asset Global Investment Management (India) Pvt. HDFC Asset Management Company Limited 4. Ltd. AIG Global Asset Management Company (India) Pvt. Bharti AXA Investment Managers Private Limited 3. Joint Ventures . 2.2.Predominantly Foreign 1.Company Limited 5. ICICI Prudential Asset Mgmt. Ltd.

Mutual Fund industry in India was set up and functioned exclusively in the state monopoly represented by the Unit Trust of India.4. Private Ltd. allowing the Indian investor the option to choose between different service providers. Principal Pnb Asset Management Co. Ltd. Lotus India Asset Management Co. but it was only in the year 1993. By the year 2000 there came to be established in the market 34 mutual funds offerings a variety of about 550 schemes. Unit Trust was a statutory corporation governed by its own incorporating act. ING Investment Management (India) Pvt. 8. that the industry was opened to competition from private and foreign players. 5. There was no separate regulatory authority up to the time SEBI was made a statutory authority in 1992. 7. JPMorgan Asset Management India Pvt. Ltd. 20 . 6. when a government took a policy decision to deregulate Indian Economy from government control and to transform it market oriented. This monopoly was diluted in the eighties by allowing nationalized banks and insurance companies (LIC & GIC) to set up their institutions under the Indian Trusts Act to transact mutual fund business.Ltd. Ltd. Pvt. REGULATORY MEASURES BY SEBI Like Banking & Insurance up to the nineties of the last century. Morgan Stanley Investment Management Pvt.

1996 The fast growing industry is regulated by Securities and Exchange Board of India (SEBI) since inception of SEBI as a statutory body. The SEBI mutual fund regulations contain ten chapters and twelve schedules. SEBI initially formulated “SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) REGULATIONS. about inspection. general obligation of MFs. about schemes/products to be designed. 1996”. about investment of funds collected. asset management company.SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) REGULATIONS. 1993” providing detailed procedure for establishment. Chapters containing material subjects relating to regulation and conduct of business by Mutual Funds. constitution. audit etc. 21 . The said regulations as amended from time to time are in force even today. management of trustees. based on experience gained and feedback received from the market SEBI revised the guidelines of 1993 and issued fresh guidelines in 1996 titled “SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) REGULATIONS. registration.

Furnishing information 4. For the purpose of grant of a certificate of registration. namely :— (a) the sponsor should have a sound track record and general reputation of fairness and integrity in all his business transactions.— (i) be carrying on business in financial services for a period of not less than five 22 . The Board may require the sponsor to furnish such further information or clarification as may be required by it. An application which is not complete in all respects shall be liable to be rejected: Provided that. the applicant has to fulfill the following. Eligibility criteria 5. the applicant shall be given an opportunity to complete such formalities within such time as may be specified by the Board. Explanation : For the purposes of this clause “sound track record” shall mean the sponsor should. Application fee to accompany the application 2. An application for registration of a mutual fund shall be made to the Board in Form A by the sponsor.REGISTRATION OF MUTUAL FUND: Application for registration 1. before rejecting any such application. Application to conform to the requirements 3. Every application for registration under regulation 3 shall be accompanied by nonrefundable application fee as specified in the Second Schedule.

23 . (d) the sponsor or any of its directors or the principal officer to be employed by the mutual fund should not have been guilty of fraud or has not been convicted of an offence involving moral turpitude or has not been found guilty of any economic offence. including the fifth year. (f) appointment of asset management company to manage the mutual fund and operate the scheme of such funds in accordance with the provisions of these regulations. (e) appointment of trustees to act as trustees for the mutual fund in accordance with the provisions of the regulations. interest and tax in three out of the immediately preceding five years. (b) in the case of an existing mutual fund.years. and (ii) the networth is positive in all the immediately preceding five years. (g) appointment of a custodian in order to keep custody of the securities 10[or gold and gold related instruments and carry out the custodian activities as may be authorized by the trustees. and (iv) the sponsor has profits after providing for depreciation. such fund is in the form of a trust and the trust deed has been approved by the Board. (c) the sponsor has contributed or contributes at least 40% to the net worth of the asset management company: Provided that any person who holds 40% or more of the net worth of an asset management company shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria specified in these regulations. and (iii) the networth in the immediately preceding year is more than the capital contribution of the sponsor in the asset management company.

(b) the mutual fund shall forthwith inform the Board. Rejection of application 11. which have a bearing on the registration granted by it. Terms and conditions of registration 10. (d) payment of fees as specified in the regulations and the Second Schedule. Where the sponsor does not satisfy the eligibility criteria mentioned in regulation 7. if any information or particulars previously submitted to the Board was misleading or false in any material respect. The Board may register the mutual fund and grant a certificate in Form B on the applicant paying the registration fee as specified in Second Schedule. the sponsor. A mutual fund shall pay before the 15th April each year a service fee as specified in the Second Schedule for every financial year from the year following the year of registration: 24 . may on receipt of all information decide the application. the asset management company and the custodian shall comply with the provisions of these regulations. The registration granted to a mutual fund under regulation 9. The Board. shall be subject to the following terms and conditions: (a) the trustees. of any material change in the information or particulars previously furnished.Consideration of application 8. the Board may reject the application and inform the applicant of the same. (c) the mutual fund shall forthwith inform the Board. Payment of annual service fee: 12. Grant of Certificate of Registration 9.

Provided that the Board may. 25 . on being satisfied with the reasons for the delay permit the mutual fund to pay the service fee at any time before the expiry of two months from the commencement of the financial year to which such fee relates.

Failure to pay annual service fee 13. so far as may be. (2) The appointment of an asset management company can be terminated by majority of the trustees or by seventy-five per cent of the unitholders of the scheme. (1) The sponsor or. The Board may not permit a mutual fund who has not paid service fee to launch any scheme. Appointment of an asset management company 15. if so authorised by the trust deed. (1) The application for the approval of the asset management company shall be made in Form D. 6 and 8 shall. apply to the application made under sub-regulation (1) as they apply to the application for registration of a mutual fund. the trustee. 26 . which has been approved by the Board under sub-regulation(2) of regulation 21. shall appoint an asset management company. (2) The provisions of regulations 5. CONSTITUTION AND MANAGEMENT OF ASSET MANAGEMENT COMPANY AND CUSTODIAN Application by an asset management company 14. (3) Any change in the appointment of the asset management company shall be subject to prior approval of the Board and the unitholders.

(aa) the asset management company is a fit and proper person. general reputation and fairness in transactions. (1) For grant of approval of the asset management company the applicant has to fulfill the following :— (a) in case the asset management company is an existing asset management company it has a sound track record.Eligibility criteria for appointment of asset management company 16. or associated in any manner with. (e) the Chairman of the asset management company is not a trustee of any mutual fund. (f) the asset management company has a networth of not less than rupees ten crores : Provided that an asset management company already granted approval under the provisions of Securities and Exchange Board of India (Mutual Funds) Regulations. Explanation: For the purpose of this clause sound track record shall mean the networth and the profitability of the asset management company. 1993 shall within a period of twelve months from the date of notification of these regulations increase its networth to rupees ten crores : 27 . (b) the directors of the asset management company are persons having adequate professional experience in finance and financial services related field and not found guilty of moral turpitude or convicted of any economic offence or violation of any securities laws. who are not associate of. the sponsor or any of its subsidiaries or the trustees. (c) the key personnel of the asset management company 27[have not been found guilty of moral turpitude or convicted of economic offence or violation of securities laws or worked for any asset management company or mutual fund or any intermediary 29[during the period when its] registration has been suspended or cancelled at any time by the Board. (d) the board of directors of such asset management company has at least fifty per cent directors.

grant approval to the asset management company. intangible assets and accumulated losses. (b) the asset management company shall forthwith inform the Board of any material change in the information or particulars previously furnished. Terms and conditions to be complied with 17. (2) The Board may. which have a bearing on the approval granted by it. after considering an application with reference to the matters specified in sub-regulation (1).Provided [further] that the period specified in the first proviso may be extended in appropriate cases by the Board up to three years for reasons to be recorded in writing : Provided further that no new schemes shall be allowed to be launched or managed by such asset management company till the networth has been raised to rupees ten crores. 28 . has been obtained. The approval granted under sub-regulation (2) of regulation 21 shall be subject to the following conditions. “networth” means the aggregate of the paid up capital and free reserves of the asset management company after deducting therefrom miscellaneous expenditure to the extent not written off or adjusted or deferred revenue expenditure. namely:— (a) any director of the asset management company shall not hold the office of the director in another asset management company unless such person is an independent director referred to in clause (d) of sub-regulation (1) of regulation 21 and approval of the Board of asset management company of which such person is a director. Explanation : For the purposes of this clause.

venture capital funds.(c) no appointment of a director of an asset management company shall be made without prior approval of the trustees. (ii) a written communication about the proposed change is sent to each unitholder and an advertisement is given in one English daily newspaper having nationwide circulation and in a newspaper published in the language of the region where the Head Office of the mutual fund is situated.] management and advisory services to offshore funds. Restrictions on business activities of the asset management company 19.— (i) prior approval of the trustees and the Board is obtained. and (iii) the unitholders are given an option to exit on the prevailing Net Asset Value without any exit load. management of insurance funds. the Board may reject the application. (d) the asset management company undertakes to comply with these regulations. Where an application made under regulation 19 for grant of approval does not satisfy the eligibility criteria laid down in regulation 21. financial consultancy and exchange of 29 . The asset management company shall— (1) not act as a trustee of any mutual fund. provident funds. (2) not undertake any other business activities except activities in the nature of portfolio management services. (e) no change in the controlling interest of the asset management company shall be made unless. pension funds.] (f) the asset management company shall furnish such information and documents to the trustees as and when required by the trustees. Procedure where approval is not granted 18.

back office. Asset management company and its obligations 20. bank and securities accounts are segregated activity-wise and there exist systems to prohibit access to inside information of various activities : Provided further that asset management company shall meet capital adequacy requirements. (2) The asset management company shall exercise due diligence and care in all its investment decisions as would be exercised by other persons engaged in the same business.research on commercial basis if any of such activities are not in conflict with the activities of the mutual fund : Provided that the asset management company may itself or through its subsidiaries undertake such activities if it satisfies the Board that the key personnel of the asset management company. if any. (3) The asset management company shall not invest in any of its schemes unless full disclosure of its intention to invest has been made in the offer documents 34[in case of schemes launched after the notification of these regulations : Provided that an asset management company shall not be entitled to charge any fees on its investment in that scheme. 30 . (1) The asset management company shall take all reasonable steps and exercise due diligence to ensure that the investment of funds pertaining to any scheme is not contrary to the provisions of these regulations and the trust deed. if necessary under the relevant regulations. separately for each such activity and obtain separate approval. the systems.

(6A) The Chief Executive Officer (whatever his designation may be) of the asset management company shall ensure that the mutual fund complies with all the provisions of these regulations and the guidelines or circulars issued in relation thereto from time to time and that the investments made by the fund managers are in the interest of the unit holders and shall also be responsible for the overall risk management function of the mutual fund. (5) The trustees at the request of the asset management company may terminate the assignment of the asset management company at any time: Provided that such termination shall become effective only after the trustees have accepted the termination of assignment and communicated their decision in writing to the asset management company. Explanation.(3) The asset management company shall be responsible for the acts of commission or omission by its employees or the persons whose services have been procured by the asset management company. (4) The asset management company shall submit to the trustees quarterly reports of each year on its activities and the compliance with these regulations.—For the purpose of this sub-regulation. 1996 as amended from time to time. the asset management company or its directors or other officers shall not be absolved of liability to the mutual fund for their acts of commission or omission. the words “these regulations” shall mean and include the Securities and Exchange Board of India (Mutual Funds) Regulations. 31 . while holding such position or office. (6) Notwithstanding anything contained in any contract or agreement or termination.

purchase or sell securities. (b) An asset management company shall not purchase or sell securities through any broker [other than a broker referred to in clause (a) of subregulation (7) which is average of 5 per cent or more of the aggregate purchases and sale of securities made by the mutual fund in all its schemes. employees or their relatives. unless the asset management company has recorded in writing the justification for exceeding the limit of 5 per cent and reports of all such investments are sent to the trustees on a quarterly basis : Provided that the aforesaid limit shall apply for a block of three months. (7) (a) An asset management company shall not through any broker associated with the sponsor.(6B) The fund managers (whatever the designation may be) shall ensure that the funds of the schemes are invested to achieve the objectives of the scheme and in the interest of the unit holders. the aggregate purchase and sale of securities shall exclude sale and distribution of units issued by the mutual fund : Provided further that the aforesaid limit of 5 per cent shall apply for a block of any three months. for the purpose of any securities transaction and distribution and sale of securities : Provided that an asset management company may utilise such services if disclosure to that effect is made to the unitholders and the brokerage or commission paid is also disclosed in the half-yearly annual accounts of the mutual fund : Provided further that the mutual funds shall disclose at the time of declaring halfyearly and yearly results : 32 . (8) An asset management company shall not utilise the services of the sponsor or any of its associates. which is average of 5 per cent or more of the aggregate purchases and sale of securities made by the mutual fund in all its schemes : Provided that for the purpose of this sub-regulation.

the investment made by that scheme or by any other scheme of the same mutual fund in that company or its subsidiaries shall be brought to the notice of the trustees by the asset management company and be disclosed in the half-yearly and annual accounts of the respective schemes with justification for such investment 40[provided the latter investment has been made within one year of the date of the former investment calculated on either side. (12) The asset management company shall file with the trustees and the Board— (a) detailed bio-data of all its directors along with their interest in other companies within fifteen days of their appointment. (ii) devolvement. (11) In case any company has invested more than 5 per cent of the net asset value of a scheme. (9) The asset management company shall file with the trustees the details of transactions in securities by the key personnel of the asset management company in their own name or on behalf of the asset management company and shall also report to the Board. if any. (10) In case the asset management company enters into any securities transactions with any of its associates a report to that effect shall be sent to the trustees at its next meeting. (iv) subscription to any issue of equity or debt on private placement basis where the sponsor or its associate companies have acted as arranger or manager.(i) any underwriting obligations undertaken by the schemes of the mutual funds with respect to issue of securities associate companies. as and when required by the Board. 33 . (iii) subscription by the schemes in the issues lead managed by associate companies.

(13) Each director of the asset management company shall file the details of his transactions of dealing in securities with the trustees on a quarterly basis in accordance with guidelines issued by the Board. by the mutual fund during the said quarter. and (c) a quarterly report to the trustees giving details and adequate justification about the purchase and sale of the securities of the group companies of the sponsor or the asset management company. prior approval of the trustees shall be obtained and reasons for charging higher rates shall be disclosed in the annual accounts. Appointment of custodian 21. as the case may be. (15) The asset management company shall appoint registrars and share transfer agents who are registered with the Board: Provided if the work relating to the transfer of units is processed in-house.(b) any change in the interests of directors every six months. 34 . (1) The mutual fund shall appoint a Custodian to carry out the custodial services for the schemes of the fund and sent intimation of the same to the Board within fifteen days of the appointment of the Custodian: Provided that in case of a gold exchange traded fund scheme. the charges at competitive market rates may be debited to the scheme and for rates higher than the competitive market rates. (16) The asset management company shall abide by the Code of Conduct as specified in the Fifth Schedule. (14) The asset management company shall not appoint any person as key personnel who has been found guilty of any economic offence or involved in violation of securities laws. the assets of the scheme being gold or gold related instruments may be kept in custody of a bank which is registered as a custodian with the Board.

Agreement with custodian 22. terms and appointment of the custodian shall be entered into with the prior approval of the trustees. the service contract.(2) No custodian in which the sponsor or its associates hold 50 per cent or more of the voting rights of the share capital of the custodian or where 50 per cent or more of the directors of the custodian represent the interest of the sponsor or its associates shall act as custodian for a mutual fund constituted by the same sponsor or any of its associates or subsidiary company. The mutual fund shall enter into a custodian agreement with the custodian. The investors share is denominated by ‘units’ whose value is called as Net Asset Value (NAV) which changes everyday. • The investment portfolio is created according to the stated investment objectives of the fund. 35 . which shall contain the clauses which are necessary for the efficient and orderly conduct of the affairs of the custodian: Provided that the agreement. • It is managed by a team of investment professionals and other service providers. CHARACTERISTICS OF MUTUAL FUNDS • The ownership is in the hands of the investors who have pooled in their funds. • • The pool of funds is invested in a portfolio of marketable investments.

Professional Management Mutual funds provide the services of experienced and skilled professionals. In open-ended schemes of mutual fund.ADVANTAGES OF MUTUAL FUNDS The advantages of mutual funds are given below: - Portfolio Diversification Mutual funds invest in a number of companies. So this is the main advantage of mutual funds. Low Costs Mutual funds are a relatively less expensive way to invest as compare to directly investing in a capital markets because of less amount of brokerage and other fees. 36 . that is whenever an investor needs money he can easily get redemption. assisted by investment research team that analysis the performance and prospects of companies and select the suitable investments to achieve the objectives of the scheme. which is not possible in most of other options of investment. the investor gets the money back at net asset value and on the other hand in close-ended schemes the units can be sold in a stock exchange at a prevailing market price. Liquidity This is the main advantage of mutual fund. This diversification reduces the risk because it happens very rarely that all the stocks decline at the same time and in the same proportion.

37 . A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.Transparency In mutual fund. the proportion of money invested in each class of assets and the fund manager’s investment strategy Flexibility Flexibility is also the main advantage of mutual fund. investors get full information of the value of their investment. Convenient Administration Investing in a mutual fund reduces paperwork and helps investors to avoid many problems like bad deliveries. delayed payments and follow up with brokers and companies. Affordability Investors individually may lack sufficient funds to invest in high-grade stocks. Through this investors can systematically invest or withdraw funds according to their needs and convenience like regular investment plans. The operations of mutual funds are regularly monitored by SEBI. regular withdrawal plans. dividend reinvestment plans etc. Mutual funds save time and make investing easy. Well Regulated All mutual funds are registered with SEBI and they function with in the provisions of strict regulations designed to protect the interest of investors.

financial consultants. the value of mutual fund shares will go down as well. Even if you don’t use a broker or other financial advisor. no matter how balanced the portfolio. or financial planners. anyone who invests through mutual fund runs the risk of losing the money. Taxes During a typical year. 38 . even you reinvest the money you made. However. Some funds also charge sales commissions or loads to compensate brokers. you will pay a sales commission if you buy shares in a Load Fund. you will pay taxes on the income you receive. most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales.DISADVANTAGES OF MUTUAL FUNDS Mutual funds have their following drawbacks: No Guarantees No investment is risk free. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. If the entire stock market declines in value. Fees and Commissions All funds charge administrative fees to cover their day to day expenses.

Management Risk When you invest in mutual fund. Of course. 39 . you depend on fund manager to make the right decisions regarding the fund’s portfolio. you forego management risk because these funds do not employ managers. you might not make as much money on your investment as you expected. If the manager does not perform as well as you had hoped. if you invest in index funds.

STRUCTURE OF MUTUAL FUND There are many entities involved and the diagram below illustrates the structu re of mutual funds: - Structure of Mutual Funds SEBI The regulation of mutual funds operating in India falls under the preview of authority of the “Securities and Exchange Board of India” (SEBI). Any person proposing to set up a mutual fund in India is required under the SEBI (Mutual Funds) Regulations. 40 . 1996 to be registered with the SEBI.

registrar etc. The sponsor or any of its directors or the principal officer employed by the mutual fund should not be guilty of fraud or guilty of any economic offence. 4. Trustees The mutual fund is required to have an independent Board of Trustees. 100 million. Under the mutual fund regulations. auditors. The sponsor must have at least 40% stake in the AMC. Asset Management Company The sponsors or the trustees are required to appoint an AMC to manage the assets of the mutual fund. However. have been appointed prior to the launch of any scheme. all key personnel. 1. i. the applicant must satisfy certain eligibility criteria in order to qualify to register with SEBI as an AMC. An AMC or any of its officers or employees are not eligible to act as a trustee of any mutual fund. two third of the trustees should be independent persons who are not associated with the sponsors in any manner.Sponsor The sponsor should contribute at least 40% to the net worth of the AMC.e.inter alia – ensuring that the AMC has all its systems in place. 2. The AMC should have and must at all times maintain a minimum net worth of Cr. The chairman of the AMC is not a trustee of any mutual fund. if any person holds 40% or more of the net worth of an AMC shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria in the Mutual Fund Regulations. The director of the AMC should be a person having adequate professional experience. The trustees are responsible for . 3. 41 .

5. The board of directors of such AMC has at least 50% directors who are not associate of or associated in any manner with the sponsor or any of its subsidiaries or the trustees.

The Transfer Agents
The transfer agent is contracted by the AMC and is responsible for maintaining the register of investors / unit holders and every day settlements of purchases and redemption of units. The role of a transfer agent is to collect data from distributors relating to daily purchases and redemption of units.

The mutual fund is required, under the Mutual Fund Regulations, to appoint a custodian to carry out the custodial services for the schemes of the fund. Only institutions with substantial organizational strength, service capability in terms of computerization and other infrastructure facilities are approved to act as custodians. The custodian must be totally delinked from the AMC and must be registered with SEBI.

Unit Holders
They are the parties to whom the mutual fund is sold. They are ultimate beneficiary of the income earned by the mutual funds.


TYPES OF MUTUAL FUND SCHEMES In India, there are many companies, both public and private that are engaged in the trading of mutual funds. Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. Investment can be made either in the debt Securities or equity .The table below gives an overview into the existing types of schemes in the Industry.


By structure

By Investment Objectives

Other Schemes

Open-ended Schemes

Debt Schemes

Equity Schemes

Tax saving fund

Close Ended Schemes Interval Schemes

MM Mutual fund FMP

Large cap fund

Sector specific fund

Mid cap Fund

Index Schemes

Other Debt Schemes

Small cap fund

Any Other Equity Fund 43

Generally two options are available for every scheme regarding dividend payout and growth option. By opting for growth option an investor can have the benefit of long-term growth in the stock market on the other side by opting for the dividend option an investor can maintain his liquidity by receiving dividend time to time. Some time people refer dividend option as dividend fund and growth fund. Generally decisions regarding declaration of the dividend depend upon the performance of stock market and performance of the fund.







Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices. According to Structure Open – Ended Funds An open – ended fund is one that is available for subscription all through the year. standing Mandate etc. SIP can be started in the any open-ended fund if there is provision of it. An investor can make payment by regular payments by issuing cheques. In order to provide an exit route to the investors. Close – Ended Funds A close – ended fund has a stipulated maturity period which generally ranging from 3 to 15 years. These do not have a fixed maturity. The fund is open for subscription only during a specified period. ECS. post dated cheques. There are some entry and exit load barriers for discontinuation and redemption of the fund before the said period. In the case it is convenient for salaried class and middle-income group. Investors can invest in the scheme at the same time of the initial public issue and thereafter they can buy and sell the units of the scheme on the stock exchanges where they are listed. some close – ended funds give an option of selling 45 . The key feature of open – ended schemes is liquidity. In this case on regular interval units of specified amount is created.Systematic Investment Plan (SIP) Systematic investment plan is like Recurring Deposit in which investor invests in the particular scheme on regular intervals.

Such schemes normally invest a majority of their corpus in equities.back the units to the mutual fund through periodic repurchase at NAV related prices. Interval Funds Interval funds combine the features of open – ended and close – ended schemes. corporate debentures and government securities. Such schemes generally invest in fixed income securities such as bonds. It has been proven that returns from stocks are much better than the other investments had over the long term. Income Funds The aim of the income funds is to provide regular and steady income to investors. 46 . According to Investment Objective: Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long term. They are open for sales or redemption during pre-determined intervals at their NAV. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time. Income funds are ideal for capital stability and regular income.

certificates of deposit. commercial paper and inter – bank call money. 1961.Balanced Funds The aim of balanced funds is to provide both growth and regular income. Investments made in Equity Linked Saving Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act. 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. The Act also provides opportunities to investors to save capital gains. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. 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. In a rising stock market. These schemes generally invest in safe short term instruments such as treasury bills. Money Market Funds The main aim of money market funds is to provide easy liquidity. These are ideal for corporate and individual investors as a means to park their surplus funds for short periods. 47 . 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. preservation of capital and moderate income.

Bond Schemes It seeks investment in bonds.Special Schemes: Index Schemes Index funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. Sector Specific Schemes Sector 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. debentures and debt related instrument to generate regular income flow. 48 .

49 . Diversification – The policy of spreading investments among a range of different securities to reduce the risk.Net Asset Value is the market value of the assets of the scheme minus its liabilities. It may include a sales load.Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Net Asset Value (NAV) . Schemes that do not charge a load are called ‘No Load’ schemes. Sales Price .FREQUENTLY USED TERMS Advisor .Is employed by a mutual fund organization to give professional advice on the fund’s investments and to supervise the management of its asset.Is a charge collected by a scheme when it sells the units. Such prices are NAV related. Sales Load .Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price. Also called ‘Front-end’ load. Redemption Price .Is the price you pay when you invest in a scheme. Also called Offer Price. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. Repurchase Price .

ULIPS 50 .

Money back etc. Whole life . All these products are based on following basic platforms or structures viz. the difference in product features makes one wonder about the basis on which these products are designed . Each of the policy holder contributes his contribution (premium) into the common large fund is managed by the company on behalf of the policy holders. This module is aimed at clarifying these underlying concepts and simplifying the different products available in the market. although the generic names may find similar .  Traditional Life  Universal Life or Unit Linked Policies 3.1 TRADITIONAL LIFE – AN OVERVIEW The basic and widely used form of design is known as Traditional Life Platform. insurance come in different forms and shapes .PLATFORMS OF LIFE INSURANCE- UNIT LINKED INSURANCE PLANS World over . We have many products like Endowment . It is based on the concept of sharing . Indian customer has suddenly found himself in a market place where he is bombarded with a lot of jargon as well as marketing gimmicks with a very little knowledge of what is happening . 51 .With insurance market opened up .

 Company is responsible for the protection as well as maximization of the policyholder’s funds. 3.1 FEATURES OF TL :  This is the simplest way of designing product as far as concerned. 52 . it was need of the hour to have an Instrument that offers all these features bundled into one. SPWLIP) It helps to maintain a smooth growth and protects against the vagaries of the market. investment plans etc. He has no other responsibility but to pay the premium regularly. the same concept of sharing and a common fund was extended to different areas like saving . In other words it minimizes the risk of investments for an average individual.(e.It was the responsibility of the company to administer schemes for benefit of the policyholders. He shares his risk with a group of like-minded individuals.  There is a common fund where in all the premiums paid are accumulated.  Based on the end objective .1.  Companies carry out the valuation of the fund periodically to ascertain the position. ULIP is the Product Innovation of the conventional Insurance product. It is also a practice to increase the minimum possible guarantee under a policy every year in the form of declaring and attaching bonuses to the sum assured on the basis of this valuation. Expenses incurred as well as claims paid are then taken out of this fund. With the decline in the popularity of traditional Insurance products & changing Investor needs in terms of life protection. investment etc. In the course of time . Policyholders played a very passive roll . Endowment . companies may offer different plans like saving plans. periodicity.Administration of that common fund in the interest of everybody was entrusted to the insurance company .g. returns & liquidity. Declaration of bonuses is not mandatory .

In India The first unit linked Insurance Plan . another Unit Linked Product was launched by the LIC Mutual Fund called by the name of “DHANARAKSHA” which was more or less on the line of ULIP of UTI . In other words. while UTI . Unit Linked Insurance Plans came into play in the 1960s and became very popular in Western Europe and Americas. as a mutual was taking care of investing the unit holders money in the capital market and giving them a fair return . In the event of the insured person's untimely death. popularly known as ULIP – Unit Linked Insurance Plan in India was brought out by Unit Trust Of India in the year 1971 by entering into a group insurance arrangement with LIC o provide for life cover to the investors . Presently a number of private life insurance companies have launched Unit Linked Insurance Products with a variety of new features. ULIP attempts to fulfill investment needs of an investor with protection/insurance needs of an insurance seeker. It saves the investor/insurance-seeker the hassles of managing and tracking a portfolio or products. Subsequently in the year 1989 . More importantly ULIPs offer investors the opportunity to select a product which matches their risk profile. it enables the buyer to secure some protection for his family in the event of his untimely death and at the same time provides him an opportunity to earn a return on his premium paid. Thereafter LIC itself came out with a Unit Linked Insurance Product known by name “BIMA PLUS “ in the year 2001-02 . 53 .A Unit Link Insurance Policy (ULIP) is one in which the customer is provided with a life insurance cover and the premium paid is invested in either debt or equity products or a combination of the two. his nominees would normally receive an amount that is the higher of the sum assured or the value of the units (investments). To put it simply.

However. superannuation and leave encashment. sales and marketing. How ULIPs work ULIPs work on the lines of mutual funds. The premium paid by the client (less any charge) is used to buy units in various funds (aggressive. The plan promises the policyholder that at least the premium paid will be returned at maturity. Apart from unit-linked plans for individuals. the guarantee is not provided on the actual premium paid but only on that portion of the premium that is net of expenses (mortality.. administration). group unit linked plans are also available in the market. But the guaranteed amount is payable only when the policy's maturity value is below the total premium paid by the individual till maturity. are aimed at taking care of their educational and other needs. The pension plans come with two variations — with and without life cover — and are meant for people who want to generate returns for their sunset years. the key ones are pension. The other important category of ULIPs is capital guarantee plans. The Group linked plans are basically designed for employers who want to offer certain benefits for their employees such as gratuity. on the other hand. The children plans.TYPES OF ULIP There are various unit linked insurance plans available in the market. group and capital guarantee plans. balanced or conservative) floated by the insurance companies. children. However. Units are bought according 54 .

The payment period too can be regular or variable. etc. some schemes pay the sum assured plus the prevailing value of the investments.KEY FEATURES • Premiums paid can be single. balanced to debt or gilt to equity. The money parked in a ULIP plan is returned either on the insured's death or in the event of maturity of the policy. some restrict the number to just three or four. While some companies allow any number of free switches to the policyholder. This facility is termed "top-up". a certain charge is levied. Individuals can also make additional investments (besides premium) from time to time to increase the savings component in their plan. regular or the plan chosen by the policyholder. • The policyholder can switch between schemes. balanced funds. • As in all insurance policies. • The maturity benefit is not typically a fixed amount and the maturity period can be advanced or extended. 55 . • Investments can be made in gilt funds. money market funds. the risk charge (mortality rate) varies with age. The policyholder can also switch among the funds as and when he desires. the amount that the beneficiary is paid is the higher of the sum assured (insurance cover) or the value of the units (investments). The risk cover can be increased or decreased. for instance. On every additional premium. ULIP . If the number is exceeded. growth funds or bonds. In case of the insured person's untimely death. However. more units are allotted to his fund.

• • • ULIP products are exempted from tax and they provide life insurance. To that extent. balanced and equity funds. The costs in ULIP are higher because there is a life insurance component in it as well. Multiple investment options ULIPS offer a lot more variety than traditional life insurance plans. USP of ULIPS Insurance cover plus savings ULIPs serve the purpose of providing life insurance combined with savings at market-linked returns. ULIPS generally come in three broad variants: 56 . Investor gets an option to choose among debt. Provides capital appreciation. So there are multiple options at the individual’s disposal. • Being transparent the policyholder gets the entire episode on the performance of his fund. • Insurance companies have the discretion to decide on their investment portfolios. in addition to the investment component.• • The maturity benefit is the net asset value of the units. ULIPS can be termed as a two-in-one plan in terms of giving an individual the twin benefits of life insurance plus savings.

Individuals can opt for a variant based on their risk profile. Works like an SIP Rupee cost-averaging is another important benefit associated with ULIPS. Some insurance companies allow a certain number of ‘free’ switches. Flexibility The flexibility with which individuals can switch between the ULIP variants to capitalise on investment opportunities across the equity and debt markets is what distinguishes it from other instruments. Aggressive ULIPS (which can typically invest 80%-100% in equities. another levies a flat rate. They can shift from an Aggressive to a Balanced or a Conservative ULIP as they approach retirement. the exact debt/equity allocations may vary across insurance companies. If one company calculates administration cost by a formula. balance in debt) Balanced ULIPS (can typically invest around 40%-60% in equities) Conservative ULIPS (can typically invest upto 20% in equities)   Although this is how the ULIP options are generally designed. This is a reflection of the change in their risk appetite as they grow older. There was also the problem of a varying cost structure with age 57 . If one company allows a range of the sum assured (SA). Switching also helps individuals on another front. individuals invest their monies regularly over time intervals of a month/quarter and don’t have to worry about ‘timing’ the stock markets. With an SIP. another allows only a multiple of the premium. HURDLES OF ULIP NO STANDARDIZATION All the costs are levied in ways that do not lend to standardisation.

some companies were not including the mortality cost while calculating the yield. However. some insurance companies do not allow the individual to fix the life cover that he needs. so each company also gives a post-cost return at the 10 per cent illustration. But there are costs. Though most companies use Sensex. INTERNALLY MADE SALES ILLUSTRATION During the process of collecting information. These rely on a multiplier that is fixed by the insurer OVERSTATING THE YIELD Insurance companies work on illustrations. they are. on most counts. This amounts to overstating the yield. They are allowed to show you how much your annual premium will be worth if it grew at 10 per cent per annum. calling it the yield. it was found that the sales benefit illustration shown was not conforming to the Insurance Regulatory and Development Authority (Irda) format. BSE 100 or the Nifty as the 58 .LACK OF FLEXIBILITY IN LIFE COVER ULIP is known to be more flexible in nature than the traditional plans and. in many locations30 per cent return illustrations are still rampant NOT ALL SHOW THE BENCHMARK RETURN To talk about returns without pegging them to a benchmark is misleading the customer.

some companies are not using any benchmark at all. or the measuring rod of performance. the worse off is the investor since he ends up redeeming a high-front-load product and is then encouraged to move into another higher cost product at that stage. 59 . The earlier the exit. EARLY EXIT OPTIONS The Ulip product works over the long term. An early exit also takes away the benefit of compounding from insured.benchmark.

that is.CREEPING COSTS Since the investors are now more aware than before and have begun to ask for costs. will have a front load of just 8 per cent. there are plans that charge this amount. some companies have found a way to answer that without disclosing too much. People are now asking how much of the premium will go to work. There are others that charge a multiple of this amount and that too grows 60 . but it grows by as much as 5 per cent a year over time. While most insurance companies charge an annual fee of about Rs 600 as administration costs. There are plans that are able to say 92 per cent will be invested. that stay fixed over time. What they do not say is the much higher policy administration cost that is tucked away inside (adjusted from the fund value).


balanced funds and debt funds to name a few. investors in ULIPs are allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis. i. half-yearly. ULIPs can be termed as mutual fund schemes with an insurance component. i.e.COMPARISON BETWEEN ULIPS AND MUTUAL FUNDS: Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning. Mode of investment/ investment amounts Mutual fund investors have the option of either making lump sum investments or investing using the systematic investment plan (SIP) route which entails commitments over longer time horizons. quarterly or monthly basis. determining the premium paid is often the starting point for the investment activity. Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain. In ULIPs. Generally speaking. ULIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route. As is the case with mutual funds. However it should not be construed that barring the insurance element there is nothing differentiating mutual funds from ULIPs. The minimum investment amounts are laid out by the fund house.e. Points of difference between the two: 1. making premium payments on an annual. 62 . diversified equity funds.

The only 63 . administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India. Entry loads are charged at the timing of making an investment while the exit load is charged at the time of sale. Expenses In mutual fund investments. For example equity-oriented funds can charge their investors a maximum of 2. any expense above the prescribed limit is borne by the fund house and not the investors. ULIP investors also have the flexibility to alter the premium amounts during the policy's tenure. This explains the complex and at times 'unwieldy' expense structures on ULIP offerings.e. Similarly funds also charge their investors entry and exit loads (in most cases. the Insurance Regulatory and Development Authority. The freedom to modify premium payments at one's convenience clearly gives ULIP investors an edge over their mutual fund counterparts. conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP).5% per annum on a recurring basis for all their expenses. expenses charged for various activities like fund management. Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator. For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested.This is in stark contrast to conventional insurance plans where the sum assured is the starting point and premiums to be paid are determined thereafter. i. sales and marketing. either is applicable). 2.

ULIP-related expenses have been dealt with in detail in the article "Understanding ULIP expenses".restraint placed is that insurers are required to notify the regulator of all the expenses that will be charged on their ULIP offerings. Some insurance companies do declare their portfolios on a monthly/quarterly basis. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio. Portfolio disclosure Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis. Expenses can have far-reaching consequences on investors since higher expenses translate into lower amounts being invested and a smaller corpus being accumulated. However the lack of transparency in ULIP investments could be a cause for concern considering that the amount invested in insurance policies is essentially meant to provide for contingencies and for long-term needs like retirement. the other believes that there is no legal obligation to do so and that insurers are required to disclose their portfolios only on demand. 3. While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory. 64 . albeit most fund houses do so on a monthly basis. There is lack of consensus on whether ULIPs are required to disclose their portfolios. regular portfolio disclosures on the other hand can enable investors to make timely investment decisions. During our interactions with leading insurers we came across divergent views on this issue.

On the other hand most insurance companies permit their ULIP inventors to shift investments across various plans/asset classes either at a nominal or no cost (usually. a 60:40 allotment in equity and debt instruments (balanced funds) and those investing only in debt instruments (debt funds) can be found in both ULIPs and mutual funds. Tax benefits ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds good. 65 . offerings in both the mutual funds segment and ULIPs segment are largely comparable. for example in a bull market when the ULIP investor's equity component has appreciated. only investments in tax-saving funds (also referred to as equity-linked savings schemes) are eligible for Section 80C benefits. On the other hand in the mutual funds domain. If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the same fund house. Flexibility in altering the asset allocation As was stated earlier. For example plans that invest their entire corpus in equities (diversified equity funds). a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches). he could have to bear an exit load and/or entry load. irrespective of the nature of the plan chosen by the investor. he can book profits by simply transferring the requisite amount to a debt-oriented plan.4. Effectively the ULIP investor is given the option to invest across asset classes as per his convenience in a cost-effective manner. 5. This can prove to be very useful for investors.

debt-oriented funds attract a long-term capital gains tax @ 10%. the gains are tax free. if the investments are held for a period over 12 months.Maturity proceeds from ULIPs are tax free. while a short-term capital gain is taxed at the investor's marginal tax rate. Similarly. 66 . it is vital for investors to be aware of the nuances in both offerings and make informed decisions. Despite the seemingly similar structures evidently both mutual funds and ULIPs have their unique set of advantages to offer. balanced funds). conversely investments sold within a 12-month period attract short-term capital gains tax @ 10%. As always. In case of equity-oriented funds (for example diversified equity funds.

because of the inherently high equity component of these schemes. the charges do not affect the NAV. the lower the real returns. as they have been generated during the biggest bull run in recent stock market history. The shorter the term. such tax incentives may not last. You might have access to daily NAVs but your real returns may be substantially returns might be only 9 per cent. The various charges on your policy are deducted either directly from premiums before investing in units or collected on a monthly basis by knocking off units. A rough calculation shows that if our investments earn a 12 per cent annualised return over a 20-year period in a growth fund. Look beyond NAVs The appreciation in the net asset value (NAV) of ULIPs barely indicate the actual returns earned on your investment. Either way.Investing in ulips? Remember ………… The high returns (above 20 per cent) are definitely not sustainable over a long term. when measured by the change in NAV. but the number of units in your account suffers. the real pre. 67 . While a debt-oriented ULIP scheme might be superior to a debt option in a conventional mutual fund due to tax concessions that insurance companies enjoy. The free hand given to ULIPs might prove risky if the timing of exit happens to coincide with a bearish market phase.

marketing and broker commissions. Premium allocation charges are usually very high (5-65 per cent) in the first couple of years.25 per cent for a debt plan respectively. withdrawals. but taper off later. These charges could be as high as 65 per cent of the first year premiums. Insurance companies explain that charges get evened out over a long term. If we want to withdraw from the plan.5 per cent for an equity plan and 2. switches. The front-loading of charges does have an impact on overall returns as we lose out on the compounding benefit. The high initial charges mainly go towards funding agent commissions. you lose out. Insurance companies have the discretion to structure their expenses structure whereas a mutual fund does not have that luxury. The charges are higher for a linked plan than a non-linked plan. The expense ratios in their case cannot exceed 2. as the former require lot more servicing than the latter. which could be as high as 40 per cent of the initial premium as per IRDA (Insurance Regulatory and Development Authority) regulations. and so on.How charges dent returns An initial allocation charge is deducted from our premiums for selling. as you will have to pay withdrawal charges up to a certain number of years. The lack of regulation on the expense front works to the detriment of investors in ULIPs. the lower our real returns. Thus we are forced to stay with the plan for a longer tenure to even out the effect of initial charges as the shorter the tenure. re-direction of premiums. 68 . such as regular disclosure of investments.

69 . Evaluate alternative options As an investor we have to evaluate alternative options that give superior returns before considering ULIPs. If risk cover is your primary objective. Insurance companies argue that comparing ULIPs with mutual funds is like comparing oranges with apples. When we choose a mutual fund. despite the promise of flexibility and liquidity. we look for an established track record of three to five years of consistent returns across various market cycles to judge a fund's performance. investing substantially in linked plans might not be advisable at this juncture. Thus. we are stuck with one fund management style. Most ULIPs give us the choice of a minimum investment cover so that we can direct maximum premiums towards investments.In effect. as the objectives are different for both the products. when we lock in our money in a ULIP. This is all the more reason to look for an established track record before committing our hard-earned money. both ULIPs and mutual funds target the same customers. pure insurance plans are less expensive. It is early days for insurance companies on this score.

the cost per Rs 1. A lower life cover could yield better returns. if you pay in Rs 100 as a top up. effectively increasing your overall insurance costs.000 sum assured increases. Risk charges are charged on a daily or monthly basis depending on the daily amount at risk. Reduce life cover The price of the life cover attached to a ULIP is higher than a normal term plan. 70 . the amount at risk for the insurance company decreases. Rates are not locked and are charged on a one-year renewal basis. As accumulation increases. For instance. These top-ups are charged at a much lower rate — usually one to two per cent. If you keep the regular premiums to the minimum and increase your top ups. the actual allocation to units will be Rs 101. The expenses incurred on a top-up including agent commissions are much lower than regular premiums. Our life cover charges would depend on the accumulation in your investment account. you can save up on charges. enhancing returns in the long run.Try top-ups Insurance companies allow us to make lump-sum investments in excess of the regular premiums. Some companies also give a credit on top-ups. with increasing age. However.

but way Unit Linked Insurance schemes are sold by insurance company representative's and insurance advisors is not correct. ULIP's as an investment is a very good vehicle for wealth creation .Stay away from riders Any riders. such as accident rider or critical illness rider.) b) Fund Management Charges ( expenses for managing your fund) 71 . Advertising. distributors fee etc. Opting for these riders with a plain insurance cover could provide better value for money. are also charged on a one-year renewal basis. ULIP's usually have following charges built into it : a) Up-front Charges b) Mortality Charges ( Charges for providing the risk cover for life) c) Administrative Charges d) Fund Management Charges Mutual Fund's have the following charges : a) Up-front charges ( Marketing.

barring ELSS (equity-linked savings schemes). irrespective of whether the investment was in a balanced or debt plan. is that if you invest in a debt plan through a ULIP. if applicable . as debt funds are taxed at 10% without indexation benefits.Besides the premium. can be redeemed at any time. According to guidelines of the Insurance Regulatory and Development Authority (IRDA). Exit loads. because your investment is eligible for exemption under Section 80C of the Income Tax Act (subject to a limit of Rs 1 lakh). The point. The surrender value of a ULIP is low in the initial years. You can make partial withdrawals after three years. Debt mutual funds don’t charge such costs. 72 . though. are generally for six months to a year in equity funds. ULIPs are essentially long-term products that make sense only if your time horizon is 10 to 20 years. despite its tax-efficiency your post-tax returns will be low. since the insurer deducts a large part of your premium as marketing and distribution costs. and 20% with indexation benefits. So they do have an edge on mutual funds.A few aspects of investing in ULIPs versus mutual funds. Mutual fund investments. So mutual funds score substantially higher on liquidity. Liquidity ULIPs score low on liquidity. Tax efficiency ULIPs are often pitched as tax-efficient . But investments in ELSS schemes of mutual funds are also eligible for exemption under the same section . because of high front-end costs. ULIPs have a minimum term of five years and a minimum lockin of three years. on the other hand. the maturity amount in ULIPs is also tax-free .

000 you paid.730. say 20%. On the other hand.500 of your money is invested in the first year.5% in the third and fourth year and 5% thereafter.5% in subsequent years. Different ULIPs have varying charges.000—much lower than the Rs 10. if you invest Rs 10. and dropping to 10% and 7. as it risks a loss if the policy lapses. So even if the NAV of the fund rises. uniform for all schemes. 73 . averaging more than 20% of the first year’s premium. Rs 225 is deducted . If the scheme’s NAV rises 20%. that year.Expenses Insurance agents get high commissions for ULIPs. So the insurer recovers most charges from you in the initial years. and they get them in the initial years.25% on entry. If your annual premium is Rs 10. (And this is after investors balked when charges were as high as 65%!) Compare this with mutual funds’ fees of 2.000 in an equity scheme with a 2. This shows how ULIPs work out expensive for investors. your portfolio is worth Rs 11. and the rest is invested. Deduct the cost of a term policy from the mutual fund returns. your portfolio would be worth only Rs 9. insurers levy enormous selling charges. an agent who sells you a ULIP may get 25% of your first year’s premium. and you’re still left with a sizeable difference. 10% in the second year. 7. it means only Rs 7. For instance. not staggered over the term.25% entry load.000 and the agent’s commission in the first year is 25%. Typically . often not made clear to investors.

74 .

Chapter – 2 SBI Mutual Fund Company Profile Awards & Achievements Products Major Funds of SBI Mutual Fund 75 .

one of the world’s leading fund management companies that manages over US$ 500 Billion worldwide.STATE BANK OF INDIA MUTUAL FUND Proven Skills in Wealth Generation SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation.India’s largest banking enterprise. The fund traces its lineage to SBI . The institution has grown immensely since its inception and today it is India's largest bank. patronised by over 80% of the top corporate houses of the country. SBI Mutual Fund is a joint venture between the State Bank of India and Société Générale Asset Management. 76 .

Schemes of the Mutual fund have consistently outperformed benchmark indices and have emerged as the preferred investment for millions of investors and HNI’s. The fund serves this vast family of investors by reaching out to them through network of over 130 points of acceptance. the fund has launched 38 schemes and successfully redeemed fifteen of them. SBI Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent India Opportunities Fund. the fund manages over Rs. Growth through innovation and stable investment policies is the SBI MF credo. Today. 46 investor service desks and 56 district organisers.Exploiting expertise. compounding growth In twenty years of operation.794 crores of assets and has a diverse profile of investors actively parking their investments across 36 active schemes. In the process it has rewarded it’s investors handsomely with consistently high returns. 31. 28 investor service centers.4 million investors have reposed their faith in the wealth generation expertise of the Mutual Fund. A total of over 5. 77 .

Chief Executive Officer Ms.KEY PERSONNEL: Mr. Achal K. Mr. Aparna Nirgude Chief Risk Officer Mr.Customer Service. C A Santosh Chief Manager . Didier Turpin Dy. Parijat Agrawal Head – Fixed Income 78 . Gupta Managing Director & Chief Executive Office Mr. Ashwini Kumar Jain Chief Operating Officer Mr. Ashutosh P Vaidya Company Secretary & Compliance Officer Mr. Sanjay Sinha Chief Investment Officer Mr.

18 Crisil Mutual Fund of the Year Award 2007 CNBC AWAAZ CONSUMER AWARDS 2007 79 .Awards and achievements: • SBI Mutual Fund (SBIMF) has been the proud recipient of the: ICRA Online Award .8 times The Lipper Award (Year 2005-2006) CNBC TV .

Equity Funds include diversified Equity Funds. Sectoral Funds and Index Funds.IT Fund MSFU .Emerging Businesses Fund MSFU . Diversified Equity Funds invest in various stocks across different sectors while sectoral funds which are specialized Equity Funds restrict their investments only to shares of a particular sector and hence. are riskier than Diversified Equity Funds. Index Funds invest passively only in the stocks of a particular index and the performance of such funds move with the movements of the index • • • • • • • • • • • Magnum COMMA Fund Magnum Equity Fund Magnum Global Fund Magnum Index Fund Magnum MidCap Fund Magnum Multicap Fund Magnum Multiplier Plus 1993 Magnum Sector Funds Umbrella MSFU . However they are also exposed to the volatility and attendant risks of stock markets and hence should be chosen only by such investors who have high risk taking capacities and are willing to think long term.PRODUCTS EQUITY FUNDS: The investments of these schemes will predominantly be in the stock markets and endeavor will be to provide investors the opportunity to benefit from the higher returns which stock markets can provide.Pharma Fund 80 .

Contra Fund MSFU .Series I SBI Magnum Taxgain Scheme 1993 SBI ONE India Fund SBI TAX ADVANTAGE FUND .SERIES I DEBT SCHEMES Debt Funds invest only in debt instruments such as Corporate Bonds. • • • Magnum Children`s Benefit Plan Magnum Gilt Fund Magnum Gilt Fund (Long Term) 81 . At the same time the expected returns from debt funds would be lower.FMCG Fund SBI Arbitrage Opportunities Fund SBI Blue chip Fund SBI Infrastructure Fund . Hence they are safer than equity funds. Such investments are advisable for the risk-averse investor and as a part of the investment portfolio for other investors. Government Securities and Money Market instruments either completely avoiding any investments in the stock markets as in Income Funds or Gilt Funds or having a small exposure to equities as in Monthly Income Plans or Children's Plan.• • • • • • • • MSFU .

Short Term Fund 82 .• Magnum Gilt Fund (Short Term) • • • • • • • • • • • • • • • Magnum Income Fund Magnum Income Plus Fund Magnum Income Plus Fund (Saving Plan) Magnum Income Plus Fund (Investment Plan) Magnum Insta Cash Fund Magnum InstaCash Fund -Liquid Floater Plan Magnum Institutional Income Fund Magnum Monthly Income Plan Magnum Monthly Income Plan Floater Magnum NRI Investment Fund SBI Capital Protection Oriented Fund .Series I SBI Premier Liquid Fund SBI Short Horizon Fund SBI Short Horizon Fund .Liquid Plus Fund SBI Short Horizon Fund .

but is looking for higher returns than those provided by debt funds. but at the same time provide commensurately lower returns. • • Magnum Balanced Fund Magnum NRI Investment Fund .BALANCED SCHEMES Magnum Balanced Fund invest in a mix of equity and debt investments.FlexiAsset Plan 83 . They provide a good investment opportunity to investors who do not wish to be completely exposed to equity markets. Hence they are less risky than equity funds.

30% 0% .MAJOR FUNDS OF SBI MF (EQUITY FUND) Investment Objective The objective of the scheme would be to generate opportunities for growth along with possibility of consistent returns by investing predominantly in a portfolio of stocks of companies engaged in the commodity business within the following sectors . Metals.30% High Medium Low 84 . Materials & Agriculture and in debt & money market instruments Asset Allocation % of Portfolio of Plan A & B Instrument Equity and equity related instruments of commodity based companies Foreign Securities/ADRs/GDRs of commodity based companies Fixed/Floating Rate Debt instruments including derivatives Money Market instruments* Risk Profile within 65% – 100% High 0% .Oil& Gas.10% 0% .

2. 1000 Dividend and Growth options available. Long term capital gains to be completely tax-free. 1000 1. An open-ended equity scheme investing in stocks of commodity based companies 2. 3. 5 crore.Reinvestment and payout facility available.An open-ended equity scheme investing in stocks of commodity based companies.Dividends will be completely tax-free. 5000 and in multiples of Rs.Reinvestment and payout facility available. Investments below Rs. 5 crore. 5000 and in multiples of Rs. Long term capital gains to be completely tax-free.20% at the time of repurchase. 5 crore and above– Nil 85 . 5000 and in multiples of Rs. STT would be at the rate of 0. STT would be at the rate of 0. Investments of Rs.25% Investments of Rs.5 crores and above NIL Exit Load Investments below Rs.Minimum Investment Rs.5%. 1000 Dividend and Growth options available.Dividends will be completely tax-free. 5 crore. 5 crores-2.Minimum Investment Rs. Investments below Rs. 3. exit within 6 months from the date of allotment – 1%. exit after 12 months from the date of allotment – Nil. Minimum Application Rs.20% at the time of repurchase Entry Load Investments below Rs.Scheme Highlights 1. exit between 6 months & 12 months from the date of allotment – 0.

1000/month . Rs.6months.12 months Rs.500/month .12 months A minimum of Rs.SIP Rs. 86 .1500/quarter . 500 can be withdrawn every month or quarter by indicating in the application form or by issuing advance instructions to the Registrars at any time.

in accordance with their requirements. Asset Allocation Instrument Corporate debentures & Bonds/PSU/FI/Govt. returns that would be higher than the returns offered by comparable investment avenues through investment in debt & money market securities. through capital gains or through regular dividends.(DEBT FUND) Investment Objective The objective of the scheme is to provide the investors an opportunity to earn. Guaranteed Bonds / Other including Securitised Debt Securitized Debt Government Securities Cash & Call Money Money Market Instruments Units of other mutual funds Not more than 10% of in debt Upto 90% Upto 25% Upto 25% Upto 5% Low High Medium Mediom Low Upto 90% High % of Portfolio of Plan A & B Risk Profile 87 .

This facility of switchover to other schemes is not available to NRIs and FIIs 88 . 3.Scheme Highlights 1. switchover facility at the NAV related prices to other openend schemes of SBI Mutual Fund is available. :Also. PSU/FI/Govt guaranteed bonds). No dividends shall be declared under this Plan. Dividend & Weekly Dividend)Long Term (Regular (Dividend & Growth) Long Term (Institutional (Dividend & Growth) 2. repos. The Growth Plan / Option will give returns through capital gains only. Following Plans are available to the investors :(A) Growth Plan (B) Dividend Plan (C) Bonus Plan (D) Floating Rate Plan Options available under Floating Rate Plan Short Term (Growth. There shall be no investment in equity. certificates of deposit. shortterm bank deposits. The Plans will invest their entire corpus in high quality debt (Corporate debentures.Open ended Debt Scheme 2. Govt securities and money market instruments (commercial paper. The Dividend Option in Floating Rate Short Term Plan will endeavour to declare dividends on a monthly basis while the dividend option under the Floating Rate Plan Long Term (Regular and Institutional) Plan will declare dividends on a quarterly basis. etc). depending on the NAV at that point of time. bills rediscounting. T-bills. 4 Switchover between the Plans at NAV. The Dividend Plan will endeavour to declare regular dividends every half year.

50 lacs : Nil SIP SWP Rs. switchover facility at the Rs.Entry Load Nil Exit Load Up Rs. Above Rs. upto 6 months.12 months Investors have the facility to switchover between Rs.12 months NAV related prices to other openend schemes of SBI Mutual Fund is available.1000/month .5%.6months the Plans at NAV.500/month . Also. 50 lacs : 0. This facility of switchover to other schemes is not available to NRIs and FIIs 89 .1500/quarter .

bonds. 90 . The scheme will invest in a diversified portfolio of equities of high growth companies and balance the risk through investing the rest in a relatively safe portfolio of debt. Asset Allocation Instrument Equities Debt Instruments like debentures. Securitized Debt Money Market Instruments % of Portfolio of Plan A & B At least 50% Up to 40% Not more than 10% of investments in debt Balance Medium to High Low Risk Profile Medium to High Scheme Highlights 1.khokhas. etc.An open-ended scheme investing in a mix of debt and equity instruments.Magnum Balanced Fund Investment Objective To provide investors long term capital appreciation along with the liquidity of an open-ended scheme by investing in a mix of debt and equity. Investors get the benefit of high expected-returns of equity investments with the safety of debt investments in one scheme.

On an ongoing basis.12 Investments of Rs. on a fully repatriable basis for NRIs and. 4. Sale and repurchase price on a daily basis. whereby investors can withdraw a minimum amount of Rs. 5 crore. exit after 12 months from the date of allotment – Nil.500/month . 6. 3.2. Indian Corporates.5%. 7.Rs. exit within 6 crores . 91 . The scheme will declare NAV. 5. There is also a facility of a Monthly Pension Plan. Nomination facility available for individuals applying on their behalf either singly or jointly upto three. Overseas Corporate Bodies. Investments below Rs.12 months any time.NIL months from the date of allotment – 1%. exit between 6 months & 12 months from the date of allotment – 0.2.25% to the NAV. 5 crore. SIP Rs. 500 can be withdrawn every month or quarter 6months Rs. Entry Load Exit Load Investments below Rs. 5 crore. 500/. Scheme open for Resident Indians.25% Investments of Rs. 5 crore and above– Nil SWP Systematic Withdrawal Plan (SWP): A minimum of months Rs. 5 Investments below Rs.1500/quarter by issuing advance instructions to the Registrars at .1000/month . Facility to reinvest dividend proceeds into the scheme at NAV available.5 crores and above . Investments below Rs. Switchover facility to any other open-ended schemes of SBI Mutual Fund at NAV related prices.every month. Trusts. magnums will be allotted at an entry load of 2.

92 .

. marital status and annual income. To study the approach of investors towards mutual funds and ulips. age. To study the behavior of the investors whether they prefer mutual funds or ulips? SCOPE OF THE STUDY: • Subject matter is related to the investor’s approach towards mutual funds and ulips.RESEARCH METHODOLOGY OBJECTIVES: • • • To study about the mutual funds industry. qualification. Demographics include names. • • • STEPS OF RESEARCH DESIGN: • Define the information needed:This first step states 93 that what is the information that is actually required. occupation. People of age between 20 to 60 Area limited to Chandigarh.

e mutual funds or ulips. Also. the information sought and information generated is only possible after defining the information needed.Information in this case we require is that what is the approach of investors while investing their money in mutual funds and ulips e. Where as pretesting refers to the testing of the questionnaire on a small sample of respondents in order to identify and eliminate potential problems. Both nominal and interval scales have been used for this purpose. the research design is explorative in nature. It details the procedures necessary for obtaining the information needed to solve research problems. So. • Specify the scaling procedures:.Scaling involves creating a continuum on which measured objects are located. Population 94 . what do they consider while deciding as to invest in which of the two i. it studies the extent to which the investors are aware of the various costs that one bears while making any investment. In this project. • Construct and pretest a questionnaire:A questionnaire is a formalized set of questions for obtaining information from respondents.g. • Design the research:- A research design is a framework or blueprint for conducting the research project.

books. both. • Sample Unit Investors and non-investors. • Plan for data analysis : Analysis of data is planned with the help of mean.All the clients of State bank of India and State bank of Patiala who are investing money in mutual funds and ulips. 95 . • Sample Size This study involves 50 respondents. chi-square technique and analysis of variance. • Secondary sources The secondary sources of data were taken from the various websites . • Sampling Technique: The sample size has been taken by non-random convenience sampling technique • • • Data Collection: Data has been collected both from primary as well as secondary sources as described below: Primary sources Primary data was obtained through questionnaires filled by people and through direct communication with respondents in the form of Interview. articles etc. This mainly provided information about the mutual fund and ulips industry in India. journals reports.

• The result is based on primary and secondary data that has it’s own limitations. • The study only covers the area of Chandigarh that may not be applicable to other areas.LIMITATIONS: No study is free from limitations. The limitations of this study can be: • Sample size taken is small and may not be sufficient to predict the results with 100% accuracy. 96 .

97 .

COMPARATIVE ANALYSIS OF MUTUAL FUNDS AND ULIPS : What do investors prefer? • Do you invest in Mutual Funds ? response Frequenc Yes No total y 19 31 50 Percentage 62% 38% 100 38% yes no 62% INTERPRETATION: 62% of the people invest in mutual funds. 98 .

post office schemes  Options Fixed deposits Post office schemes Recurring deposits Total frequency 11 9 4 24 percentages 45. please specify. 99 . then what other option(s) do you prefer to invest? Fixed deposits  Recurring deposits  If others.• If not.83 37.66 100 Others: 7 .5 16.

Hence.25 133 (observedexpected)²/e 7.5 -3.98 10.64 expected at 3 degree of freedom.25 . H0 is rejected 100 .5 -.5 -5.64 expected frequency= 50/4= 12.25 12. df(3)=7.22 .815.42 .5 chi square= ∑ │observed-expected│² = 10.5 (observedexpected)² 90.25 30.02 2. thus the calculated value is greater than the table value.what is the mode of information that you use for insurance companies? a) Advertisement b) Agents c) Seminar d) Work shops  Options Advertisement s Agents Seminar Workshop total Frequenc y 22 12 7 9 50 percentage 44% 24% 14% 18% 100 options Advertisement s Agents Seminar Workshop Total Frequenc y 22 12 7 9 50 (observedexpected 9.

18% 44% 14% 24% advertisement agents seminar workshops Interpretation: It means that all the modes of information are not the same. Advertisement is more popular 101 .

16 0.16 0.32 y Government 27 sector Private sector total 23 50 102 .(observedexpected 2 -2 -2 expected)² 4 4 8 expected)²/e 0.In which sector do you prefer to invest your money? Options Government sector Private sector total Frequenc y 27 23 50 Percentages 54 46 100 frequency 46% 54% government sector private sector Options Frequenc Observed.(Observed.

chi square= ∑ │observed-expected│² = 0.32 expected at df(1), the table value is 3.841 which is greater than the calculated value. Hence, H0 is accepted. . Interpretation: People prefer both the sectors equally.

At which rate do you want your investment to grow?

options Steadily At an average rate fast total

frequenc y 17 13 20 50

percentages 34 26 40 100





steadily at an average rate fast


interpretation: 40% of the respondents want their investments to grow fastly


Which factor do you consider before investing in mutual fund or Ulips (tick)

Options Safety of principal Low risk Higher returns Maturity period Terms and conditions Total

frequency percentages 14 28 15 14 4 3 50 30 28 8 6 100





safety of principal low risk high returns

28% 30%

maturity period terms and conditions


6 4.2 expected at df(4).5 1.(Observed. the table value is 9.488 which is less than the calculated value.2 chi square= ∑ │observed-expected│² = 14. 106 . Hence .9 conditions total 50 142 14.6 3.(observedexpected 4 5 4 -6 -7 expected)² 16 25 16 36 49 expected)²/e 1. H0 is rejected Interpretation: people prefer low risk as the most important factor before investing in mutual funds or ulips.Options Safety of principal Low risk Higher returns Maturity period Terms and frequenc y 14 15 14 4 3 Observed.6 2.

Imagine that stock market drops immediately after you invest in it then what will you do? Options Wait and watch Invest more in it frequency 26 16 Withdraw your money 8 frequency 32% 16% withdraw your money wait and watch invest more in it 52% 107 .

108 . A.Interpretation: 26% of the respondents will wait and watch even if the share market drops. Do you have any other investment/insurance policy? Options Yes No total frequency 34 16 50 frequency Percentages 68 32 100 32% Yes No 68% Interpretation: 68 % of the people had bought other investment policies.

How often do you monitor your investment? Options Daily Monthly frequency 15 25 Occasionally 10 frequency 20% 30% daily monthly occasionally 50% Options Daily Monthly Occasionally frequency 15 25 10 total 50 Percentages 30 50 20 100 109 .

5 (Observedexpected)² 12.000 6 13 19 24 26 50 -2.0002.50. 20% of the people monitor their investment occasionally. 50% prefer monitoring their investment on monthly basis.00.50.000 1.0004. Do you invest your money in share market? Annual Income Below Share Market Yes Total No 12 3 15 Total Annual income Below 1.000 2.000 3 4 7 2.e.25 6.5 -.961 0.i.50.000 3 6 9 Above 4.50.5 110 .25 0.50.000 Above 4.000 Frequency(yes) Observed3 4 6 13 expected -3.50.25 42.25 (observedexpected)²/e 1.Interpretation: It shows that most of the people .0002.038 6.5 6.884 0.00.

Interpretation: it states that with the rise in 26 0 61 9.5 chi square= ∑ │observed-expected│² = 9. the table value is 7.383 expected at df(3).815 which is less than the calculated value. H0 is rejected.383 Expected=26/4= 6.5% 5-10% 10-15% total y 26 13 11 50 percentages 52 26 22 100 111 . Hence. What percentage of your income do you invest? Options Frequenc 0. the percentage of people investing in share market also increases.

5 Dx=MV-7.5+ -15/20 * 5= 6% INTERPRETATION: people invest around 6% of their income. 112 .5 7.5/5 -1 0 1 FdX -26 0 11 -15 MEAN= 7.5 12.frequency 22% upto 5% 52% 26% 5-10% 10% % above Options 0-5 5-10 10-15 total Frequency 26 13 11 50 Mv 2.

67 0.0709 1.6667 (observedexpected)²/e 1.751 2.9479 113 .How long have you been investing in mutual funds Options Frequenc Percentages 44 34 12 100 y 1-5 years 22 5-10 years 17 10-15 years 11 total 50 frequency 22% 44% 1-5 years 5-10 years 10-15 years 34% Options 1-5 years 5-10 years 10-15 years total Frequenc y 9 7 3 19 Observedexpected 2.67 3.126 0.1289 0.4489 11.33 (Observedexpected)² 7.0889 18.

9479 expected at df(2). H0 is accepted. In the past. gold frequency 18 6 3 1 5 4 13 50 Percentages 36 12 6 2 10 8 26 100 total 114 . you have invested mostly in (choose one): options Savings A/cs & PO schemes Mutual funds investing in bonds Mutual funds investing in stocks Balanced mutual funds Individual stocks & bonds Ulips Other instruments like real estate.991 which is greater than the calculated value. Hence. Interpretation: This shows that people normally tend to invest for longer term.chi square= ∑ │observed-expected│² = 2. There’s not much of a difference between the various time periods. the table value is 5.

gold Interpretation: In the past maximum percentage of the respondents i.frequency Savings A/cs & PO schemes Mutual funds investing in bonds Mutual funds investing in stocks Balanced mutual funds Individual stocks & bonds Ulips 18% 6% 50% 3% 1% 5% 4% 13% Other instruments like real estate. 115 .e 36% of the respondents have invested in saving a/c’s and po’s.

Xp│= │2.675 Standard error = standard deviation = √n 2.84-3│= 0.07 Z= │Xs . Stable. σ = √ ∑ ƒ x² .You would describe your financial situation as being: Very unstable.96.675 = 0.3783 7.4229 S. 116 .e 1. Options (X) Very unstable(1) Somewhat unstable(2) Moderately stable(3) Stable(4) Very stable(5) total Frequency ( ƒ) 11 12 9 10 8 50 ƒX 11 24 27 40 40 142 ƒ x² 11 48 81 160 200 500 Sample mean = ∑Fx = 142 = 2.05) i.84 ∑f 50 Standard deviation.3783 SINCE THE CALCULATED VALUE IS LESSER THAN THE TABLE VALUE AT (.∑ƒx ∑ƒ ∑ƒ = 2. Moderately stable.E 0. Very stable Somewhat unstable.

Your comfort level in making investment decisions can best be described as: options Low Moderat e high total frequenc y 14 18 12 50 Percentages 32 41 27 100 frequency 27% 32% Low Moderate high 41% 117 . INTERPRETATION: the financial situation is moderately stable.Ho is accepted.

INTERPRETATION: 41% of the respondents are moderately comfortable in making investment decisions. If in the near future if you ever plan to invest in your money in any of the mutual fund company. which would be your choice? Options Sbi mutual fund HDFC mutual fund Reliance mutual fund ABN AMRO mutual fund others total frequenc y 7 8 14 11 10 50 percentages 14 16 28 22 20 100 118 .

4 1.6 0.frequency 20% 14% 16% Sbi mutual fund HDFC mutual fund Reliance mutual fund ABN AMRO mutual fund 22% 28% others Options Sbi mutual fund HDFC mutual fund Reliance mutual fund ABN AMRO mutual fund others total Frequency (O) 7 8 14 11 10 50 (O-E) -3 -2 4 1 0 0 (O-E)² 9 4 16 1 0 30 (O-E)²/E 0.1 3.0 119 .9 0.

0 expected At df(4). H0 is accepted. Hence.chi square= ∑ │observed-expected│² = 3. Interpretation: People mostly prefer all the brands equally for their future investments. the table value is 9. 120 .488 which is greater than the calculated value.

17% of the people are under graduate. 25% are professionals.50.DEMOGRAPHICS 58% of people belong to 25-35 age group and on the other hand only 17% of people belong to above 40 age group. 8% are housewives. 24% of the people belong to below 1. 52% of the people are graduates. 31% of the people are salaried.000 income group. 55% of the people are married 45% of the people are unmarried. 5% are retired. 121 . 31% of the people are having their own business. and 31% of the people are post graduates.

50.50. Only 7% of the people belong to above 4.000 – 4. 33% of the people belong to 2.000 income group.000 income group.00.50. 122 .36% of the people belong to1.00.000 income group.000 – 2.

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A mutual fund is the ideal investment vehicle for today’s complex and modern financial scenario. Markets for equity shares, bonds and other fixes income instruments, real estate, derivatives and other assets have become mature and information driven. Today each and every person is fully aware of every kind of investment proposal. Everybody wants to invest money, which entitled of low risk, high returns and easy redemption. In my opinion before investing in mutual funds, one should be fully aware of each and everything. At the same time Ulips as an investment avenue is good for people who has interest in staying for a longer period of time, that is around 10 years and above. Also in the coming times, Ulips will grow faster. Ulips are actually being publicized more and also the other traditional endowment policies are becoming unattractive because of lower interest rate. It is good for people who were investing in ULIP policies of insurance companies as their investments earn them a better return than the other policies.



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Highest number of investors comes from the salaried class. Highest number of investors comes from the age group of 2535. Most of the people have been investing their money n the share market belong to Rs.400000 and above income group. Mostly investors prefer monitoring their investment on monthly basis. Most of the people invest upto 6% of their annual income in mutual funds. Most of the people between the age group of 25– 35 invest their money in share market.


The performance of the mutual fund depends on the previous years Net Asset Value of the fund. All schemes are doing well. But the future is uncertain. So, the AMC (Asset under Management Companies) should take the following steps: 1. The people do not want to take risk. The AMC should launch more diversified funds so that the risk becomes minimum. This will lure more and more people to invest in mutual funds. 2. The expectation of the people from the mutual funds is high. So, the portfolio of the fund should be prepared taking into consideration the expectations of the people. 3. Try tp reduce fund charges, administration charges and other charges which helps to invest more funds in the security market and earn good returns. 4. Diffferent campaigns should be launched to educate people regarding mutual funds. 5. companies should give regular dividends as it depicts profitability. 6. Mutual funds should concentrate on differentiating the portfolio of their MF than their competitors MF 7. Companies should give handsome brokerage to brokers so that they get attracted towards distribution of the funds.


com 127 .com www.sebi.investorsguide.BIBLIOGRAPHY • • • • • • •

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then what other option(s) do you prefer to invest? Fixed deposits  Recurring deposits  If others. Do you invest in Mutual Funds or Ulips? Yes  No  If not. As a part of the curriculum I am doing research on “COMPARATIVE ANALYSIS OF MUTUAL FUNDS AND ULIPS”. Mohali.QUESTIONNAIRE I am Priyanka Manocha pursuing MBA from Gian Jyoti institute of management and technology. Kindly help me in the same by filling the Questionnaire. post office schemes  How do you get the information of the various Insurance Companies? a) Advertisement b) Agents c) Seminar d) Work shops  129 . please specify. Your response would be kept strictly confidential and would be used only for academic research.

In which sector do you prefer to invest your money? a) Private Sector ( ) b) Government Sector ( ) At which rate do you want your investment to grow? o Steadily o At an average rate o Fast Which factor do you consider before investing in mutual fund or Ulips? (tick) • • • • Safety of principal Low risk High returns Maturity period Terms and conditions Do you invest your money in share market? Yes ( ) no( ) Imagine that stock market drops immediately after you invest in it then what will you do?    Withdraw your money Wait and watch Invest more in it 130 .

Do you have any other investment/insurance policy? Yes ( ) No ( ) How often do you monitor your investment? o Daily o Monthly o Occasionally What percentage of your income do you invest? 0-5% ( ) 5-10% ( ) 10-15% ( ) How long have you been investing in mutual funds? o For the last 1-5 years o For the last 5-10 years o For the last 10 – 15 years 131 .

which would be your choice? Sbi mutual fund ( ) Reliance mutual fund ( ) HDFC mutual fund ( ) ABN AMRO mutual fund ( ) others ( ) 132 . Very stable ( ) ( ) ( ) Somewhat unstable ( ). Moderately stable.In the past. ( ) Your comfort level in making investment decisions can best be described as Low ( ) moderate ( ) high ( ) If in the near future if you ever plan to invest in your money in any of the mutual fund company. Stable. gold ( ) You would describe your financial situation as being: Very unstable. you have invested mostly in (choose one): Savings A/cs & PO schemes ( ) Mutual funds investing in stocks ( ) Individual stocks & bonds ( ) Mutual funds investing in bonds ( ) Balanced mutual funds ( ) Ulips ( ) Other instruments like real estate.

000.PERSONAL DETAILS Name: ……………………………………………………………… Age Group:  Below 20  Between 20-30  Between 30-40  Above 40 Qualification:  Under graduate  Graduate  Post graduate Occupation:  Salaried  Professional  Business  Retired   Housewife Other: _________  Other:_______________ Marital status:  Single  Married Annual income:  Below Rs 1.50.000  Rs 1.50.Rs2.000 133 .50.

000  Above Rs 4.000 134 .50. Rs 4.