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Objectives

For every problem there is a research. As all the


researches are based on some and my study is also based
upon some objective and these are as follows:
➢ To give a comprehensive view of mutual fund industry in India.
➢ Comparative study of returns given by various AMC.
➢ To understand the risk profile of the customer.
➢ To know the awareness of investors about schemes provided by various
AMCs.
➢ To find out the Preferences of the investors for Asset
Management Company.

➢ To know the Preferences for the portfolios.

➢ To know why one has invested or not invested in JM


Mutual fund.

➢ To find out the most preferred channel.

➢ To find out what should do to boost Mutual Fund


Industry.

This project provides better understanding to the reader by giving


insights on Indian Mutual Fund Industry through comparative
analysis of different Asset Management Companies and their
schemes in India. To do a comparative analysis of six major
Mutual Funds of India namely

JM Financial Mutual Fund


Kotak Mutual Fund
HDFC Mutual Fund

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UTI Mutual Fund
Reliance Mutual Fund
ICICI Prudential Mutual Fund

Research Methodology
This report is based on primary as well secondary data,
however primary data collection was given more importance
since it is overhearing factor in attitude studies. One of the most
important users of research methodology is that it helps in
identifying the problem, collecting, analyzing the required
information data and providing an alternative solution to the
problem .It also helps in collecting the vital information that is
required by the top management to assist them for the better
decision making both day to day decision and critical ones.

Data sources:
Research is totally based on primary data. Secondary data can be
used only for the reference. Research has been done by primary
data collection, and primary data has been collected by
interacting with various people. The secondary data has been
collected through various journals and websites.

Sampling:
Sampling procedure:
The sample was selected of them who are the customers/visitors
of JM Financial, irrespective of them being investors or not or

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availing the services or not. It was also collected through personal
visits to persons, by formal and informal talks and through filling
up the questionnaire prepared.

Sample size:

The sample size of my project is limited to 150 people only. Out


of which only 120 people had invested in Mutual Fund. Other 30
people did not have invested in Mutual Fund.

Sample design:

Data has been presented with the help of bar graph, pie charts,
line graphs etc.

Limitation:

➢ Some of the persons were not so responsive.

➢ Possibility of error in data collection because many of


investors may have not given actual answers of my
questionnaire.

➢ Sample size is limited.

➢ Size may not adequately represent the whole market.

➢ Some respondents were reluctant to divulge personal


information which can affect the validity of all responses.

➢ The research is confined to a certain part of Jaipur.

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Chapter-1
Introduction

CONCEPT
Individuals or institutions when have surplus money, i.e.
savings, would like to invest with the common and logical motive
of growing money by getting returns on the investments. There
are various avenues to park money towards fulfillment of your
objective of return on investment.

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One can invest money either where you can get assured returns
& hence the risk is low but returns also are low compared to the
high risk investments.
The other way is through investing in shares i.e. equity market.
Generally the returns on equity investments are higher than debt
investment but risk also is higher. To get good returns one really
needs to understand the economy and performance of companies
where you are investing money. For a common man it may be
cumbersome while managing own profession, job or business.
Hence the concept of mutual fund has evolved to manage the
funds i.e. on behalf of the investor; fund managers will be taking
decisions to maximize the investor’s returns.

A Mutual fund is a common pool of money into which investors


place their contributions that are to be invested in accordance
with a stated objective. The ownership of the fund is thus joint or
“mutual”; the fund belongs to all investors. A single investor’s
ownership of the fund is in the same proportion as the amount of
the contribution made by him bears to the total amount of the
fund.

A mutual fund uses the money collected from investors to buy


those assets, which are specifically permitted by its stated
investment objective. Thus, an equity fund would buy mainly
equity assets-ordinary shares, preference shares, warrants, etc. a
bond fund would mainly buy debt instruments, such as
debentures, bonds, or government securities. It is these assets,
which are owned by the investors in the proportion of their
investments.
When an investor subscribes to a mutual fund, he or she buys a
part of the assets or the pool of funds that are outstanding at that
time. It is no different from buying “shares” of a joint stock

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company, in which case the purchase makes the investor a part
owner of the company and its assets. In fact, in the USA, a mutual
fund is constituted as an investment company and an investor
“buys in to the fund” meaning he buys the shares of the fund. In
India, a mutual fund id constituted as a trust an investor
subscribes to the “units” issued by the fund, which is where the
term Unit Trust comes from. . Mutual funds issues units to the
investors in accordance with quantum of money invested by
them. Investors of Mutual funds are known as Unit Holders.

Investments in securities are spread across a wide cross-section


of industries and sectors and thus the risk is reduced.
Diversification reduces the risk because all stocks may not move
in the same direction in the same proportion at the same time.
The profits and losses are shared by the investors in proportion to
their investments. Mutual funds normally come out with a number
of schemes with different investments objectives which are
launched from time to time. A mutual fund is required to be
registered with Securities and Exchange Board of India which
regulates securities markets before it can collect funds from
public.

However, whether the investor gets funds shares or units is only


a matter of legal distinction. In any case, a mutual fund
shareholder or unit holder is a part owner of the fund’s assets.
The term unit-holder includes the mutual fund account-holder or
closed-end fund shareholder. A unit holder in Unit Trust of India
US-64 scheme is the same as a UTI Master shareholder or an
investor in an alliance
Each share or unit that an investor holds needs to be assigned a
value. Since the units held by investor evidence the ownership of

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the assets, the value of the total assets of the fund when divided
by the total number of units issued by the mutual fund gives us
the value of one unit. This is generally called the Net Asset Value
(NAV) of one unit or one share. The value of an investor’s part
ownership is the determined by the NAV of the number of units
held.
Example: If the value of a fund’s assets stands at Rs 1000 and it
has 10 investors who have bought 10 units each, the total
numbers of units issued are 100, and the value of one unit is Rs
10 (1000/100). If a single investor in fact owns 3 units, the value
of his ownership of the fund will be Rs 30 (1000/100*3). Note that
the value of the fund’s investments will keep fluctuating with the
market price movements, causing the NAV also fluctuate. For
example, if the value of our funds assets increased from Rs 1000
to Rs 1200, the value of our investors holding of 3 units
(1200/100*3) Rs 36. The investment value can go up and down,
depending on the market value of the fund’s assets.
Advantages of Mutual Funds

If mutual funds are emerging as the favorite investment


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

i) Portfolio Diversification
Mutual Funds spread the investment across different
securities (stocks, bonds, money market instruments, real estate,
fixed deposits etc.) by investing in a number of companies across
a broad cross-section of industries and sectors (auto, textile,
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information technology etc.). This kind of a diversification may
add to the stability of your returns and reduces the risk with far
less money than you can do on your own. For example during one
period of time equities might underperform but bonds and money
market instruments might do well enough to offset the effect of a
slump in the equity markets.

ii) Convenient Administration


Investing in a Mutual Fund reduces paperwork and helps you
avoid many problems such as bad deliveries, delayed payments
and follow up with brokers and companies.

iii) Professional Management


Qualified investment professionals who seek to maximize
returns and minimize risk monitor investor's money. The
investment professional has experience in making investment
decisions. It is the Fund Manager's job to (a) find the best
securities for the fund, given the fund's stated investment
objectives; and (b) keep track of investments and changes in
market conditions and adjust the mix of the portfolio, as and
when required.

iv) Liquidity
In open-end schemes, the investor gets the money back
promptly at net asset value related prices from the Mutual Fund.
In closed-end schemes, the units can be sold on a stock exchange
at the prevailing market price or the investor can avail of the
facility of direct repurchase at NAV related prices by the Mutual
Fund.

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

vi) Variety
Mutual funds offer a tremendous variety of schemes. This
variety is beneficial in two ways: first, it offers different types of
schemes to investors with different needs and risk appetites;
secondly, it offers an opportunity to an investor to invest sums
across a variety of schemes, both debt and equity.

vii) Tax Benefits


In case of Individuals and Hindu Undivided Families a
deduction up to Rs. 9,000 from the Total Income will be
admissible in respect of income from investments specified in
Section 80L, including income from Units of the Mutual Fund.
Units of the schemes are not subject to Wealth-Tax and Gift-Tax.

viii) Transparency
Open-ended mutual funds disclose their Net Asset Value
(NAV) daily and the entire portfolio monthly. This level of
transparency, where the investor himself sees the underlying
assets bought with his money, is unmatched by any other
financial instrument.

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Disadvantages of Mutual Funds

While the benefits of investing through mutual funds far


outweigh the disadvantages, an investor and his advisor will do
well to be aware of few shortcomings of using the mutual fund as
an investment vehicle.

i) No Tailor-made-Portfolios
Investing through funds means, the investor delegates the
decision of investing through which securities to fund manager.
The very high-net-worth individuals or large corporates may find
this as a constraint in achieving their objectives. However this
constraint can be overcome to some extent by offering families of
schemes to investor, within the same fund.

ii) No control over costs


Investor pays the investment management fees as long as
he remains within the fund. Fees are usually payable as a
percentage of the value of his investments, whether the fund
value is rising or declining. The investor also pays the fund
distribution cost, which he would not incur in direct investment.

iii) Managing a Portfolio of Funds


Availability of a large number of options from mutual funds
can actually mean too much choice for the investor. He may
again need advice on how to select a fund to achieve his
objectives.

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

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an


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

Second Phase – 1987-1993 (Entry of Public Sector Funds)

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

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era


started in the Indian mutual fund industry, giving the Indian
investors a wider choice of fund families. Also, 1993 was the year
in which the first Mutual Fund Regulations came into being, under
which all mutual funds, except UTI were to be registered and
governed. The erstwhile Kothari Pioneer (now merged with
Franklin Templeton) was the first private sector mutual fund
registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a


more comprehensive and revised Mutual Fund Regulations in
1996. The industry now functions under the SEBI (Mutual Fund)
Regulations 1996.

The number of mutual fund houses went on increasing, with


many foreign mutual funds setting up funds in India and also the
industry has witnessed several mergers and acquisitions. As at

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the end of January 2003, there were 33 mutual funds with total
assets of Rs. 1,21,805 crores. The Unit Trust of India with
Rs.44,541 crores of assets under management was way ahead of
other mutual funds.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of


India Act 1963 UTI was bifurcated into two separate entities. One
is the Specified Undertaking of the Unit Trust of India with assets
under management of Rs.29,835 crores as at the end of January
2003, representing broadly, the assets of US 64 scheme, assured
return and certain other schemes. The Specified Undertaking of
Unit Trust of India, functioning under an administrator and under
the rules framed by Government of India and does not come
under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB
and LIC. It is registered with SEBI and functions under the Mutual
Fund Regulations. With the bifurcation of the erstwhile UTI which
had in March 2000 more than Rs.76,000 crores of assets under
management and with the setting up of a UTI Mutual Fund,
conforming to the SEBI Mutual Fund Regulations, and with recent
mergers taking place among different private sector funds, the
mutual fund industry has entered its current phase of
consolidation and growth.

The graph indicates the growth of assets over the years.

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Major Mutual Fund Companies in India:

JM Financial Asset Management Private Limited


JM Financial Asset Management Private Limited, JM
Financial group’s asset management company for its
mutual fund business, is one of India’s oldest private
sector mutual fund houses, having commenced
operations in 1994. Our distributor-base of 10,000 covers
52 locations in India. We offer a range of 30 products
across the entire risk-return spectrum, serving the needs
of more than 4 lakh investors, both institutional and
individual.

Kotak Mahindra Mutual Fund


Kotak Mahindra Asset Management Company (KMAMC) is a
subsidiary of Kotak Mahindra Bank Limited (KMBL). It is presently
having more than 1,99,800 investors in its various schemes.
KMAMC started its operations in December 1998. Kotak Mahindra
Mutual Fund offers schemes catering to investors with varying
risk - return profiles. It was the first company to launch dedicated
gilt scheme investing only in government securities.

HDFC Mutual Fund


HDFC Asset Management Company Ltd (AMC) was
incorporated under the Companies Act, 1956, on December 10,

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1999, and was approved to act as an Asset Management
Company for the HDFC Mutual Fund by SEBI vide its letter dated
June 30, 2000. HDFC Mutual Fund was setup with two sponsors
namely Housing Development Finance Corporation Limited and
Standard Life Investments Limited.

Unit Trust of India Mutual Fund


UTI Asset Management Company Private Limited,
established in Jan 14, 2003, manages the UTI Mutual Fund with
the support of UTI Trustee Company Private Limited. UTI Asset
Management Company presently manages a corpus of over
Rs.67252 Crores. The sponsors of UTI Mutual Fund are Bank of
Baroda (BOB), Punjab National Bank (PNB), State Bank of India
(SBI), and Life Insurance Corporation of India (LIC). The schemes
of UTI Mutual Fund are Liquid Funds, Income Funds, Asset
Management Funds, Index Funds, Equity Funds and Balance
Funds.

ICICI Prudential Mutual Fund


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

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

ABN AMRO Mutual Fund


ABN AMRO Mutual Fund was setup on April 15, 2004 with
ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The
AMC, ABN AMRO Asset Management (India) Ltd. was incorporated
on November 4, 2003. Deutsche Bank AG is the custodian of ABN
AMRO Mutual Fund.

Birla Sun Life Mutual Fund


Birla Sun Life Mutual Fund is the joint venture of Aditya Birla
Group and Sun Life Financial. Sun Life Financial is a global
organization evolved in 1871 and is being represented in Canada,
the US, the Philippines, Japan, Indonesia and Bermuda apart from
India. Birla Sun Life Mutual Fund follows a conservative long-term
approach to investment. Recently it crossed AUM of Rs. 10,000
crores.
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Bank of Baroda Mutual Fund (BOB Mutual Fund)
Bank of Baroda Mutual Fund or BOB Mutual Fund was setup
on October 30, 1992 under the sponsorship of Bank of Baroda.
BOB Asset Management Company Limited is the AMC of BOB
Mutual Fund and was incorporated on November 5, 1992.
Deutsche Bank AG is the custodian.

HSBC Mutual Fund


HSBC Mutual Fund was setup on May 27, 2002 with HSBC
Securities and Capital Markets (India) Private Limited as the
sponsor.

ING Vysya Mutual Fund


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

State Bank of India Mutual Fund


State Bank of India Mutual Fund is the first Bank sponsored
Mutual Fund to launch offshore fund, the India Magnum Fund with
a corpus of Rs. 225 cr. approximately. Today it is the largest Bank
sponsored Mutual Fund in India. They have already launched 35
Schemes out of which 15 have already yielded handsome returns
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to investors. State Bank of India Mutual Fund has more than Rs.
5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs
spread over 18 schemes.

Tata Mutual Fund


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

Standard Chartered Mutual Fund


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

Franklin Templeton India Mutual Fund


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

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Equity schemes, Open end Hybrid schemes, Open end Tax Saving
schemes, Open end Income and Liquid schemes, Closed end
Income schemes and Open end Fund of Funds schemes to offer.

Morgan Stanley Mutual Fund India


Morgan Stanley is a worldwide financial services company
and its leading in the market in securities, investment
management and credit services. Morgan Stanley Investment
Management (MISM) was established in the year 1975. It provides
customized asset management services and products to
governments, corporations, pension funds and non-profit
organizations. Its services are also extended to high net worth
individuals and retail investors. In India it is known as Morgan
Stanley Investment Management Private Limited (MSIM India) and
its AMC is Morgan Stanley Mutual Fund (MSMF).

Escorts Mutual Fund


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

Alliance Capital Mutual Fund

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Alliance Capital Mutual Fund was setup on December 30,
1994 with Alliance Capital Management Corp. of Delaware (USA)
as sponsor. The Trustee is ACAM Trust Company Pvt. Ltd. and
AMC, the Alliance Capital Asset Management India Private Ltd.
with the corporate office in Mumbai.

Chola Mutual Fund


Chola Mutual Fund under the sponsorship of Cholamandalam
Investment & Finance Company Ltd. was setup on January 3,
1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company
and AMC is Cholamandalam AMC Limited.

LIC Mutual Fund


Life Insurance Corporation of India set up LIC Mutual Fund on
19th June 1989. It contributed Rs. 2 Crores towards the corpus of
the Fund. LIC Mutual Fund was constituted as a Trust in
accordance with the provisions of the Indian Trust Act, 1882. .
The Company started its business on 29th April 1994. The
Trustees of LIC Mutual Fund have appointed Jeevan Bima
Sahayog Asset Management Company Ltd as the Investment
Managers for LIC Mutual Fund.

GIC Mutual Fund

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GIC Mutual Fund, sponsored by General Insurance
Corporation of India (GIC), a Government of India undertaking and
the four Public Sector General Insurance Companies, viz. National
Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA),
The Oriental Insurance Co. Ltd (OIC) and United India Insurance
Co. Ltd. (UII) and is constituted as a Trust in accordance with the
provisions of the Indian Trusts Act, 1882.

The Bodies of the Mutual Fund Industry


The players in the Indian Mutual Funds Industry are similar
to some extent to the players in other financial services industry.
The players are as follows:

SEBI
The Securities Exchange Board of India (SEBI) is the
regulatory authority for all the mutual funds sponsored by the
public/private sector banks, financial institutions, private sector
companies, non- banking finance companies and foreign
institutional investors. SEBI has laid down the rules and
regulations regarding the obligations of the entities involves in a

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mutual fund, its establishment and launch of different schemes,
investments and valuation, financial reporting, conduct and
operations of mutual funds.

Asset Management Company (AMC)


Its role is highly significant in the mutual funds operation.
They are the fund managers i.e. they invest the investors money
in various securities after proper research and analysis. They also
look after the administrative functions of a mutual fund for which
they charge management fee.

Intermediaries
They act as a link between the mutual fund companies and
the investors. The intermediaries include brokers, sub- brokers,
and investment houses. The other intermediary- registrar and
transfer agents perform activities, which are associated with
maintaining records concerning units already issued or to be
issued by the company. The registrar also performs other
activities such as dividend payment, investor grievance, etc.

Investors
Investors subscribe to the units issued by the mutual funds
in the hope of getting a return commensurate with the risk
involved. SEBI protects the interest of the investors through the
guidelines laid down under SEBI (Disclosure and Investor

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Protection) Guidelines, 2000. The mutual fund investor mainly
includes individual, HUF, corporate and trusts.

Mutual Fund Operation Flow Chart

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ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below


illustrates the organizational set up of a mutual fund:

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Types of Mutual Fund Schemes
Wide variety of Mutual Fund Schemes exists to cater to the
needs such as financial position, risk tolerance and return
expectations etc. The table below gives an overview into the
existing types of schemes in the Industry.

By Structure
i) Open-ended Funds
An open-end fund is one that is available for subscription all
through the year. These do not have a fixed maturity. Investors
can conveniently buy and sell units at Net Asset Value (NAV)
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related prices. Hence, the unit capital of the schemes keeps
changing each day. Such schemes thus offer very high liquidity to
investors and are becoming increasingly popular in India. Please
note that an open-ended fund is NOT obliged to keep
selling/issuing new units at all times, and may stop issuing further
subscription to new investors. On the other hand, an open-ended
fund rarely denies to its investor the facility to redeem existing
units.

ii) Closed-ended Funds


A closed-end fund has a stipulated maturity period which
generally ranging from 3 to 15 years. The fund is open for
subscription only during a specified period. Investors can invest in
the scheme at the time of the initial public issue and thereafter
they can buy or sell the units of the scheme on the stock
exchanges where they are listed. In order to provide an exit route
to the investors, some close-ended funds give an option of selling
back the units to the Mutual Fund through periodic repurchase at
NAV related prices. SEBI Regulations stipulate that at least one of
the two exit routes is provided to the investor.
Closed-ended schemes are usually more illiquid as compared to
open-ended schemes and hence trade at a discount to the NAV.
This discount tends towards the NAV closer to the maturity date
of the scheme.

iii) Interval Funds


Interval funds combine the features of open-ended and
close-ended schemes. They may be traded on the stock exchange
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or may be open for sale or redemption during pre-determined
intervals at NAV based prices.

By Investment Objective

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

ii) Income Funds


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

iii) Balanced Funds


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

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are ideal for investors looking for a combination of income and
moderate growth.

iv) Money Market Funds


The aim of money market funds is to provide easy liquidity,
preservation of capital and moderate income. These schemes
generally invest in safer short-term instruments such as treasury
bills, certificates of deposit, commercial paper and inter-bank call
money. Returns on these schemes may fluctuate depending upon
the interest rates prevailing in the market. These are ideal for
Corporate and individual investors as a means to park their
surplus funds for short periods.

Other Schemes

i) Sectoral Schemes
Sectoral Funds are those, which invest exclusively in a
specified industry or a group of industries or various segments
such as 'A' Group shares or initial public offerings. In these funds
or schemes the investor invests in the securities of only those
sectors or industries which are specified in the offer documents.
E.g. Pharmaceuticals, software, Fast Moving Consumers goods
(FMCG), petroleum stocks, etc. the return on these funds is
dependent on the performance of the respective
sector/industries. While these funds may give higher returns, they
are more risky compared to the diversified funds. Investors need
to keep a watch on the performance of these sectors and must
exit at an appropriate time. They may seek an advice of an
expert.

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

iii) Index Funds

Index Funds replicate the portfolio of a particular index such


as the BSE sensitive index, S&P NSE 50 index (Nifty).These
schemes invest in the securities in the same weight age
comprising of an index. NAV’s of such schemes would rise or fall
in accordance with the rise or fall in the index, though not exactly
by the same percentage due to some factors known as
“Tracking Error” in technical terms. Necessary disclosure in this
regard is made in the offer document of the mutual fund scheme.
There are also exchange traded index funds launched by the
mutual funds which are traded on the stock exchanges.

iv) Special schemes

Industry Specific Schemes

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

Gilt Fund

These funds invest exclusively in government


securities. Government securities have no default risk. NAVs
of these schemes also fluctuate due to change in interest
rates and economic factors as is the case with income or
debt oriented schemes.

RISK V/S. RETURN

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Advertisements of Mutual Funds
➢ Advertisements through Holdings/Posters

It is essential for the investors to read the Offer


Documents & Risk Factors before investing in the mutual
funds scheme to take well informed investment decisions.
Considering that the investors get very little time to read the
advertisements through hoardings/posters, etc. while
passing by, it is clarified that such advertisements may carry
only the following statement apart from copy of
advertisement:

“Mutual Fund investments are subject to market


risks, read the offer document carefully before
investing”

The above statement shall be displayed in black letters of at


least 8 inches height or covering 10% of the display area on
white blackboard. The compliance officers shall ensure that
the statement appearing in such advertisements are in
legible font.

➢ Advertisements through Audio-Visual Media

Advertisements through audio-visual media like


television, a statement “Mutual Fund investments are
subject to market risks, read the offer document
carefully before investing” shall be displayed on the
screen for at least 2 seconds, in a clearly legible font-size

34
covering at least 80% of the total screen space and
accompanied by a voice-over reiteration. The remaining
20% space can be used for the name of the mutual fund or
logo or name of scheme, etc.

➢ Performance Advertisements

• Disclosure of Benchmarks in Advertisements: All


performance advertisements disclosing return statistics
shall mention the returns on the benchmark indices,
during the same time periods.

• Performance of Money Market Schemes: The investors


in cash/liquid/money market schemes have short
investment horizon therefore the mutual funds while
advertising simple annualized returns of such schemes
based on a period of 30 days can also advertise simple
annualize returns based on 15 days period.

• Impact of Distribution Taxes: While advertising returns


by assuming reinvestment of dividends, if distribution
taxes are excluded while calculating the returns, this
should also be disclosed.

• Pay-out of Dividends: While advertising pay-out


dividends, it shall be disclosed that after the payment
of dividend, the NAV will fall to the extent of the payout

35
and distribution taxes (if applicable), in the main body
of the advertisement.

➢ Fund of Fund’s Advertisement

In case of Fund of Fund’s scheme, the mutual funds


shall disclose in the offer document as well as in the
advertisements that the investors are bearing the recurring
expenses of the scheme in addition to the expenses of other
schemes in which Fund of Fund’s scheme makes
investment.

Distribution Model

AMC

36
IFAs
Banks

Direct Sales Brokers Tied Internet


Agency

Institutional
Brokers

Large Corporate Corporate HNW Retail


Customer Customer

Customer Segments

37
Multi - Channel Distribution

Distribution Channels
In highly competitive environment, product innovation or
development has become a necessity for mutual fund players to
stay ahead. Increasing commoditization and growing needs of the
customers are forcing players to shift to solution based models
from production based ones. In either model, the role of
distribution channel remains critical as it helps stave off
competition by maintaining relationships, providing advisory
services and customizing need-based solution

Relationship plays a vital role while selling mutual fund products.


An agent is essential channel between investors and mutual fund
products. However it is difficult for AMCs to manage and monitor
large agent force. So they take shelter in third-party distribution
AMCs like KARVY, Niyojit Financial, and Integrated Enterprises
etc. These AMCs in turn, appoint their agents to sell the MF to
AMCs products. Agents advise the customer on the kind of
product that caters to the needs of the client. To unload their
work, the companies bear a huge market expense in the form of
higher commission to lure investors.

To control increasing operational costs, AMCs are opting for the


services of large distributors to sell their products by leveraging
their value chain, which comprises of a brokers, sub brokers and
agents. However mutual fund players have to bear splurging
marketing expenses to push their product against others. In
addition mutual fund AMCs are also using banks and Non –

38
Banking Financial AMCs (NBFC) as distribution channels to
leverage their reach and huge client base. UTI is distributing its
offerings through selected branches of Indian Bank, Corporation
Bank, Bank of India an Allahabad Bank, besides, they are also
appointing sales personnel to meet investors, educate them and
sell their products and JM using Distribution houses like Niyojit
Financial.

The contribution of direct marketing to the total sales is


miniscule, but the cost burden is huge. The post office is also
used as a channel of Distribution by mutual funds AMCs, given
the fact that the post office has the largest network then many
other institution or bank in the country. As far as retail
penetration is concerned, the post office plays a vital role
because its offices are distributed through the country. Mutual
fund industry is also using the internet to distribute their products
because of the cost advantages and increased communication.
However, the fact is that internet has its limits in providing
customized advice to individuals; restrict its use on large scale.

Challenges in Distribution
➢ Lack of awareness
➢ Risk aversion
➢ Extensive availability of the central govt. assured return
➢ Delay (in Liquidity)
➢ Tardy inter-city payment system
➢ Transaction cost of establishing contact centers

39
It has been a big challenge for the Mutual Fund Industry. As
most of the investors are still not aware how it functions. They
sometime feel that it is a costly affair. Educating investors about
the advantages of investing in mutual funds compared to risk-
free savings instrument is a big task for the industry. According to
the Securities Market Infrastructure- Leveraging Expert (SMILE),
the transaction cost of establishing contact centers, delay in fund
transfer and tardy inter-city payment system are the major
impediments. So enhancing the reach through the existing
distribution model will require more investments.

As of now, mutual fund investments are confined to the metros,


tier 1 and 2 cities (about 50 cities). A major reason for this is high
cost of developing retail infrastructure. So, scaling up the
operation by increasing investment in other cities doesn’t seem
feasible.

There is also a regulatory entanglement in fund realization.


Allotment of units Net Asset Value (NAVs) is done before
realization of funds, except in liquid and money market schemes.
Such delay is quite pervasive in smaller towns, where it can be 3-
5 days or more. Such hassle could prevent investors from
investing in mutual funds. However, these problems are being
resolved with appointment of registrars to meet the time-lines of
recording the transactions. In addition, technological
advancements of remittance instruments such as Electronic
clearing Services (ECS), Electronic Funds Transfer (FT) and Real-
Time Gross settlement System (RTGS), is a making the process
fast and reducing delay in fund transfer across cities.

40
The extensive availability of the central govt. assured return on
small products are restricting the competition as well as
penetration of wide variety of mutual fund products, particularly
in the smaller towns where investors are not willing to take risk.
This poses a great challenge for the industry to realize its
potential.

Curbing unethical practices


The industry faces challenge to control certain practices.
AMCs are wooing the distributors by offering more commission to
push their products. In the hope of getting more incentives,
distributors may opt for unfair practices like false projections to
sell unsuitable products, motivate the investors to shift from one
fund to another, namely high net worth investors and persuade
them to over invest. However, the client’s concern and his needs
should be of prime importance while selling. To curb such
unethical practices, the Association of Mutual Funds in India
(AMFI) has prescribed that agents/distributors must have AMFI
certification. Such regulations are required to be more effective
to stop such unethical practices.

Spreading the Mutual Fund Culture

41
Though the Indian Mutual Fund industry has a huge
potential, it is yet to be realized. To realize its growth potential,
industry will have to focus on its reach in the retail segment.
According to Chairman of AMFI there are about 180 million
households in India, of which just 11.8 millions invest in mutual
funds, making it penetration of 6.7% in the urban areas 13.7% of
the households invest in mutual funds; in rural areas this
percentage is just 3.8%. So there is a need to focus on rural
penetration for future growth. To achieve its growth, educating
the customer about the mutual funds as a saving vehicle will be
critical. More efforts are required from the regulators and the
industry to manage the wealth of individuals to further propel the
growth of the industry by popularizing the use of mutual funds.
The govt. should properly regulate and monitor the regulation so
that a favorable climate can be created. Regulations should be
tightened to curb unethical practices. They should also develop a
comprehensive risk management system so that it can induce
more investment. The industry should focus on product
innovation and maintain transparency, flexibility, service and
innovation to realize its potential.

42
Offer Document
When an AMC or a Fund Sponsor wishes to launch a new
mutual fund scheme, they are required to formulate the details of
the schemes and register it with SEBI before announcing the
scheme and inviting the investors to subscribe to the fund.
Launch of a new mutual fund scheme is called a New Fund Offer
(NFO). The document containing the details of the new fund offer
that the AMC or the Sponsor prepares and circulates to the
prospective investors is called the Offer Document.

Offer Document issued by mutual funds serve the same purpose


of inviting investors and giving them the information about the
new fund offer. The offer document of the closed-end fund is
issued only once at the time of issue, as the units are normally
not re-purchasable for investors. But, the open-end fund could
issue and repurchase units on an ongoing basis. This means that
the offer document of the open-end funds is valid for all the time,
until amended, though it will be first issued at the time of launch
of the scheme. SEBI requires the offer document of the open-end
fund to be revised every two years.

Options Offered to Investors:


➢ Dividend Option:

43
The investor can choose to receive a part of the profits
of the mutual fund at some intervals before their
redemption. This option is Dividend Option. Investors who
choose dividend option can again have 2 sub options:

• Dividend Payout Option: Investors who choose the


dividend payout option on their investments will
receive dividends as and when such dividends are
declared by the scheme. Dividends are paid out
to the investors in the form of warrants or are
directly credited to the investor’s bank account.

• Dividend Re-investment Option: Investors who opt


for the dividend reinvestment option do not take
the amount of dividend out of the scheme. They
re-invest the dividends that are declared by the
mutual funds back into the mutual funds itself, at
a NAV that is prevalent immediately after the
declaration of dividend or the NAV at the time of
re-investment. This NAV is known as ex-div NAV.

➢ Growth Option:

The investors who do not want to receive any part of


profits of the mutual fund before its redemption. Rather they
want to retain the profits made in the pool and want their
returns to grow by being compounded. Whenever they need

44
to get some money or profits back, they would sell a part of
their units. This is Growth Option.

Investor Earning Opportunities:


Dividend Dividend Growth
Payout Reinvestmen Option
t

Dividend Yes Yes No


Change in Yes Yes Yes
NAV

Lock-in Period Options:


Mutual funds usually do not have lock-in periods, during which
investors cannot exit the fund. Mutual funds may create products
with lock-in periods. Repurchase information can be found in the
offer document. There are 2 normal situations when investors are
restricted from exiting the fund:

➢ An open-ended fund may announce an initial offer period,


during which time it will only sell units. There may be no
repurchase during that period. The fund will announce a
date from which further sales and repurchases will take
place.

➢ Some specific funds scheme can be designed to have a


minimum period of investment.

45
Example: Investments in special “Equity Linked Savings
Scheme” are eligible for tax rebates. In order to enjoy the
tax rebate, the investor is required to stay invested for a
period of 3 years.

In extra-ordinary situations, mutual funds can, with notice to


the investors through a national daily, impose temporary
lock-in periods. Investors have to check the offer document
to see if the mutual fund has sought such a right for itself.

Regulations regarding Cutoff Timings


➢ All funds except liquid funds

• Purchases:

46
In respect of valid applications received upto 3
p.m. by the Mutual Fund, same day’s closing NAV shall
be applicable.

In respect of valid applications received after 3 p.m. by


the Mutual Fund, the closing NAV of the next business
day shall be applicable.

• Redemption:

In respect of valid applications received upto 3


p.m. by the Mutual Fund, same day’s closing NAV shall
be applicable.

In respect of valid applications received after 3 p.m. by


the Mutual Fund, the closing NAV of the next business
day shall be applicable.

➢ Liquid funds

• Purchases:

In respect of valid applications, closing NAV of the


day immediately before the day on which funds are
available for utilization by the fund shall be applicable.
However, in respect of any application received after 1
p.m. by the Mutual Fund and the funds are available for
utilization by the fund on the same day, closing NAV of
the same day shall be applied.

• Redemption

In respect of valid applications received upto


10:00 a.m. by the Mutual Fund, previous day’s closing

47
NAV shall be applicable. In respect of valid applications
received after 10:00 a.m.by the Mutual Fund, same
day’s NAV shall be applicable.

Net Asset Value


Net Asset Value (NAV) represents a fund's per share market
value. This is the price at which investors buy (bid price) fund
shares from a fund company and sell them (redemption price)
to a fund company. Dividing the total value of all the cash and
securities in a fund’s portfolio, less any liabilities, by the
number of shares outstanding, derives it. The NAV computation
is undertaken once at the end of each trading day based on
the closing market prices of the portfolio's securities.

NAV: Net Assets of the Scheme/ Number of Units Outstanding


Or
(Market Value of Investment + Receivables + Other
Accrued Income + Other Assets – Accrued Expenses –
Other Payables – Other Liabilities)/Number of Units
Outstanding on the Valuation Date

For the purpose of NAV calculation, the day on which NAV is


calculated by a fund is known as the Valuation Date. NAV of all
schemes must be calculated and published at least every
Wednesday for Closed-end schemes and daily for Open-end
schemes. The day’s NAV must be posted on AMFI website by
8:00 p.m. that day. This applies to both Open-end & Closed-
end schemes.

48
Investment Plans
The term “investment plans” generally refers to the portfolio
flexibility that the funds to investors offering different ways to
invest or reinvest. The different investment plans are an
important consideration in the investment decision, because they
determine the level of flexibility available to the investor. Also,
the investment plan offered by a fund allows the investors
freedom with respect to investing one time or at regular intervals,
making transfers to different schemes within the same fund
family, or receiving income at specified intervals or accumulating
distributions. These are some of the investment plans offered by
mutual funds in India:

• Automatic Reinvestment Plans (ARP):


Many funds offer 2 options under the same scheme-
the Dividend Option & the Growth Option. The ARP allows
the investor to reinvest the amount of dividends or other
distributions made by the fund in the same fund & receive
additional units, instead of receiving them in cash.

49
• Systematic Investment Plan (SIP):
These require the investor to invest a fixed sum
periodically, thereby letting the investor save in a
disciplined and phased manner. The mode of investment
could be though direct debit to the investor’s salary or bank
account. A modified version of SIP is the Voluntary
Accumulation Plan (VAP) that allows the investor flexibility
with respect to the amount and frequency of investment.

• Systematic Withdrawal Plan (SWP):


Such plans allows the investor to make systematic
withdrawals from his fund investment account on a periodic
basis, thereby providing the same benefit as regular
income. The investor must withdraw a specific minimum
amount with the facility to have withdrawal amounts sent
to his residence by a cheque or credited directly into the
bank account. The amount withdrawn is treated as
redemption of units at the applicable NAV as specified in
the offer document. The investor is usually required to
maintain a minimum balance in his fund account under this
plan.

• Systematic Transfer Plan (STP):


These plans allow the investor to transfer on a periodic
basis a specified amount from one scheme to another with
the same fund family- meaning two schemes managed by
the same AMC and belonging to the same mutual fund. A
transfer will be treated as redemption of units from the
scheme from which the transfer is made, and as
investment in units of the scheme into which the transfer is
50
made. Such redemption or investment will be at the
applicable NAV for the respective schemes as specified in
the offer document. The investor is usually required to
maintain a minimum balance in his fund account under this
plan for which the transfer is made.

Tax Provisions
Income earned by any mutual fund registered with SEBI
(Mutual Fund) Regulation, 1996 is fully exempt from tax under
section 10 (23D) of the IT act.

51
➢ However, income distributed to unit-holders by a closed-end
or debt fund is liable to a dividend distribution tax at a rate
stipulated by the Government. This tax is not applicable to
distributions made by open-end-equity-oriented funds (funds
with more than 50% of their portfolio in Equity).

➢ Dividend Distribution Tax is payable by the fund on its


distributions and out of its income, the investor pays
indirectly since the fund’s NAV and the value his investment
will come down by the amount of tax paid by the fund.

Example: If a closed-end or a debt fund declares a dividend


distribution of Rs.100, Rs.10.20 (Tax Rate 10.2%) will be the
tax in the hands of the fund. While the investor will get
Rs.100, the fund will have Rs.10.20 less to invest. The fund’s
current cash flow diminish by Rs.10.20 paid as tax, and its
impact will be reflected in the lower value of the fund’s NAV
and hence investor’s investment on a compound basis in
future periods.

➢ Since the tax is on distributions, it makes income schemes


less attractive in comparison to growth schemes, as the
objective of income schemes is to pay regular dividends.

➢ The fund cannot avoid the tax even if the investor chooses
to reinvest the distribution back into the fund.

Example: The fund will still pay Rs.10.20 tax on the


announced distribution, even if the investor chooses to
reinvest his dividends in the concerned scheme.

52
Tax Benefits to the Investor
➢ Dividends Received from Mutual Funds:

• Income distributed by a fund is exempted in the


hands of investors

• No TDS on any income distribution by mutual fund

➢ Capital Gains on Sale of Units:

• If the investor sells his units and earn ‘Capital Gains’,


the investor is subject to the Capital Gains Tax as
under:

• If units are held for more than 12 months, they will


be treated as short term capital asset, otherwise as
long term capital asset.

Tax law definition of Capital Gains:

• Sale Consideration – (Cost of Acquisition + Cost of


Improvements + Cost of Transfer)

• If the units were held for over one year, the investor
gets the benefit of “Indexation”, which means his
purchase price is marked up by an inflation index, so
his capital gain amount is less than otherwise.
Purchase Price of a long term capital asset after
indexation is computed as:

53
Cost of Acquisition or Improvement:

Actual Cost of Acquisition or Improvement * Cost


Inflation Index for year of transfer/ Cost Inflation
Index for year of Acquisition or Improvement or for
1981, whichever is later.

Restrictions on Investments
➢ A mutual fund scheme shall not invest more than 15% of its
NAV in debt instruments issued by a single issuer, which are
rated not below investment grade by a credit rating agency
authorized to carry out such activity under the Act. Such
investment limit may be extended to 20% of the NAV of the
scheme with the prior approval of the Board of Trustees and
the Board of Asset Management Company.
➢ A mutual fund scheme shall not invest more than 10% of its
NAV in unrated debt instruments issued by a single issuer
and the total investment in such instruments shall not
exceed 25% of the NAV of the scheme. All such investments
shall be made with the prior approval of the Board of
Trustees and the Board of Asset Management Company.
➢ No mutual fund under all its schemes should own more than
10% of any company's paid up capital carrying voting rights.
➢ Such transfers are done at the prevailing market price for
quoted instruments on spot basis. The securities so
transferred shall be in conformity with the investment

54
objective of the scheme to which such transfer has been
made.
➢ A scheme may invest in another scheme under the same
asset management company or any other mutual fund
without charging any fees, provided that aggregate inter
scheme investment made by all schemes under the same
management or in schemes under the management of any
other asset management company shall not exceed 5% of
the net asset value of the mutual fund.
➢ The initial issue expenses in respect of any scheme may not
exceed 6% of the funds raised under that scheme.
➢ Every mutual fund shall buy and sell securities on the basis
of deliveries and shall in all cases of purchases, take delivery
of relative securities and in all cases of sale, deliver the
securities and shall in no case put itself in a position
whereby it has to make short sale or carry forward
transaction.
➢ Every mutual fund shall, get the securities purchased or
transferred in the name of the mutual fund on account of the
concerned scheme, wherever investments are intended to
be of long-term nature.
➢ No mutual fund scheme shall make any investment in;
• Any unlisted security of an associate or group
company of the sponsor; or
• Any security issued by way of private
placement by an associate or group
company of the sponsor; or

55
• The listed securities of group companies
of the sponsor which is in excess of 30%
of the net assets (of all the schemes of
a mutual fund)
➢ No mutual fund scheme shall invest more than 10 per cent
of its NAV in the equity shares or equity related instruments
of any company. Provided that, the limit of 10% shall not be
applicable for investments in index fund or sector or industry
specific scheme.
A mutual fund scheme shall not invest more than 5% of its NAV in
the equity shares or equity related investments in case of open-
ended scheme and 10% of its NAV in case of close-ended
scheme.

Asset Allocation Principles


Asset allocation means determining the percentage of your
investment to be held in equities, bonds and money market/cash

56
instruments. It has been observed that 90% of a managed
portfolio comes from right levels of asset allocation between
stocks and bonds/cash.

➢ Benjamin Graham’s 50/50 Balance

Benjamin Graham advocates 50/50 split between


equities & bonds, the common approach to start with. When
value of equities goes up, balance can be restored by
liquidating part of the equity portfolio and vice versa. This is
the basic defensive or conservative investment approach.
But it is good to get half a return of a rising market and to
avoid the full losses of a falling market.

➢ 50/50 Portfolio of Mutual Funds

Bogle suggested the following combinations

1. A Basic Managed Portfolio: 50% in diversified Equity Value


Funds
25% in a Government
Securities Fund
25% in High Grade Corporate
Bond Funds
2. A Basic Indexed Portfolio: 50% in Total Stock Market/Index
Funds
50% in Total Bond Market
Value
3. A Simple Managed Portfolio: 85% in Balanced 60/40 Fund

57
15% in Medium Term Bond
Fund
4. A Complex Managed Portfolio: 20% in Diversified Equity
Fund
20% in Aggressive
Growth Funds
10% in Specialty Funds
30% in Long-Term Bond
Funds
20% in Short-Term Bond
Funds
5. A Readymade Portfolio: Single Index Fund with 60/40
Equity/Bond holding
➢ Strategic Asset Allocation

Graham’s 50/50 is the basic asset allocation. Bogle


recommends adjusting the percentages for each group in
terms of their lifecycle phases. During the Accumulation
Phase, an investor would be building assets by periodic
investments of capital & reinvestment of all dividends
received. During the Distribution Phase, he will stop adding
assets and start receiving dividends as income. Considered
with conjunction with the investor’s age, he recommends
the following strategic allocations:

1. Investor in Accumulation Phase:

Diversified Equity & 65 - 80%


Balanced Fund

58
Income & Gilt Funds 15 – 30%

Liquid Funds & Bank 5%


Deposits
2. Investor in Distribution Phase:

Diversified Equity & 15 – 30%


Balanced Fund

Income & Gilt funds 65 – 80%

Cash Funds 5%

Bogle gives a nice rule of thumb for asset allocation: Debt portion
of an investor’s portfolio should be equal to his age.

For Example: A 30 year old investor will make 70/30 (Equity/Debt)


Asset Allocation, and 50 year will make a 50/50 (Asset/Debt)
Asset Allocation.

➢ Model Portfolios (By Jacobs)

In preparing an Investment Portfolio, the advisor would


have to deal with investors at different stages of their life-

59
cycle and with different needs. Therefore, Jacobs gives 4
different models:

Investor Recommended Model Portfolio

Young, Unmarried 50% in Aggressive Equity Funds


Professional
25% in High Yield Bond Funds,
Growth & Income Funds

25% in Conservative Money Market


Funds

Young Couple with 2 10% in Money Market


Incomes & 2 Children
30% in Aggressive Equity Funds

25% in High Yield Bond Funds & Long


Term Growth Funds

35% in Municipal Bond Funds

Other Couple, Single 30% in Short-Term Municipal Funds


Income
35% in Long-Term Municipal Funds

25% in Moderately Aggressive Equity

10% in Emerging Growth Equity

60
Recently Retired Couple 35% in Conservative Equity Funds for
Capital Preservation/Income

25% in Moderately Aggressive Equity


for Modest Capital Growth

40% in Money Market Funds

➢ Wealth Cycle Classification

Stage Financial Needs Investment Preferences

Accumulation Investing for long term Growth options and long term
Stage
61
identified financial goals products. High risk appetite.

Transition Stage Near term needs for funds as Liquid and medium term
pre-specified needs draw investments. Lower risk
closer appetite

Reaping Stage Higher Liquidity requirement Liquid and medium term


investments. Preference for
income and debt products

Inter-Generational Long term investment of Low liquidity needs. Ability to


Stage inheritance take risk and invest for long
term

Sudden Wealth Medium to Long term Wealth preservation.


Stage Preference for low risk
products.

62
Comparison of Investment Products
Investors tend to constantly compare one form of investment
with another. There are 2 kinds of comparisons possible among
different investment options.

1. By Nature of Investment: Investor look for the Best returns


on different options. However, to determine which option is
better, the comparison should be made in terms of other
benefits that the investor ought to look for in any
investment.

Return Safety Volatility Liquidity


Convenien
ce

Equity High Low High High


FI Bonds Moderate High Moderate Moderate
Corporate Moderate Moderate Moderate Low
Debenture
s
Company Moderate Low Low Low
Fixed
Deposits
Banks Low High Low High
Deposits
PPF Moderate High Low Moderate

63
Life Low High Low Low
Insurance
Gold Moderate High Moderate Moderate
Real High Moderate High Low
Estate
Mutual High High Moderate High
Funds

2. By Performance: The comparison on the basis of


performance highlights the flexibility offered by mutual
funds from the investor’s perceptive. An investor can choose
from a wide variety of funds to suit his risk tolerance,
investment horizon & investment objective.

Investment Risk Investment


Objective Tolerance Horizon

Equity Capital High Long Term


Appreciation

FI Bonds Income Low Medium-Long


Term
Corporate Income High-Medium- Medium-Long
Debentures Low Term
Company Income High-Medium- Medium
Fixed

64
Deposits Low
Bank Income Generally Low Flexible-All
Deposits Times

PPF Income Low Long Term


Life Risk Cover Low Long Term
Insurance
Gold Inflation Hedge Low Long Term
Real Estate Inflation Hedge Low Long Term
Mutual Funds Capital High-Medium- Flexible-All
Growth, Low Times
Income

Risk Return Grid

Risk Focus Suitable Benefits


Tolerance/Re Products offered by
turn MFs
Expected

Low Debt Bank/ Liquidity,


Company FD, Better Post-Tax
Debt based returns
Funds

65
Medium Partially Debt, Balanced Liquidity,
Partially Equity Funds, Some Better Post-Tax
Diversified returns, Better
Equity Funds Management,
and some debt Diversification
Funds, Mix of
shares and
Fixed Deposits

High Equity Capital Market, Diversification,


Equity Funds Expertise in
(Diversified as stock picking,
well as Liquidity, Tax
Sectoral) free dividends

Bank V/S Mutual Fund


BANKS MUTUAL FUNDS

Returns Low Better

66
Administrative High Low
Expenses
Risk Low Moderate
Investment Less More
Options
Network High penetration Low but improving
Liquidity At a cost Better
Quality of Not transparent Transparent
Assets
Interest Minimum balance between Everyday
calculation 10th
& 30th. of every
month
Guarantee Maximum Rs.1 lakh on None
deposits

67
Recent Trends in the Mutual Fund
Industry
➢ Funds betting on Natural Resources

○ Since Indian regulations do not permit mutual funds to


invest directly in commodities, fund houses go for
schemes that invest in stocks of mining companies.

○ At least five funds, keen on investing in natural


resources, are set to hit the market, as per documents
filed with the stock market regulator SEBI. There are
two funds from ING and one each from Mirae Asset
Management, Tata AMC and HSBC MF.

Systematic Transfer Plans lower Volatility Risk

○ Systematic Transfer Plan (STP) helps in reaching the


financial goals by investing a fixed sum in the chosen
fund for a pre-determined number of installments. STP
offers an investor the security of a liquid fund while
trying to enhance returns by investing a part of the
funds in equity. This helps mitigate any risk arising
from volatility or improve the fund’s returns in a boom.
Thus, an investor can match his risk appetite with that
of the equity scheme.

○ Most fund houses are already offering this STP facility


to investors. An amount predetermined by the investor
would be transferred periodically (daily, weekly,

68
monthly or quarterly) from this fund to any of the
existing equity schemes.

○ STP is definitely going to gain ground as aspirations,


possibilities and opportunities increase among the
youth. However, fund managers feel, STP is yet to be
promoted in India to its full extent. Investors need to
be adequately informed about it.

➢ Mutual Fund industry to tap Entertainment space

○ To cash the bullish growth of the entertainment &


media industry in the country financial institutions are
rolling out a slew of mutual funds focusing on these
spaces.

○ Many of the funds will cover a wide range of areas


within the entertainment arena such as retail,
shopping malls, mobile content providers, lifestyle
beyond the conventional media like television, film,
print advertising and multiplex.

○ Global media giants like Viacom, Walt Disney, BBC, J C


Decaux and Astro are already in the country or looking
at it. The industry has already witnessed deals such as
Walt Disney-UTV, Blackstone-Eenadu and Adlabs-ADAG
(Anil Dhirubhai Ambani Group).

➢ Brand name works for Mutual Funds

69
○ A brand image is very important for mutual funds and
investors base their decisions on known and
dependable brands. Brand-building exercises are
mostly taken up by foreign players and big industrial
houses which have deep pockets, while fund houses
with lower corpus can only attract investors by
showing good performance.

○ Fund mobilization trend in mutual funds space


suggests that brand play an important role in helping
fund houses attract investors initially although in the
long term it boils down to the performance of the
schemes.

○ Country's MF industry holds immense potential for the


existing as well as the new players entering or those
envisaging an entry into the space, but firms with a
strong brand presence definitely has a competitive
advantage.

➢ Mutual Fund Industry’s AUM increases by 24% in July

○ The asset base of the industry has grown by 24% to


Rs. 7.20 lakh Crores.

○ Compared to the last month, July has been great for


the mutual fund industry.

70
Impact on Mutual Fund Industry of the
Union Budget
Easing in Income Tax slabs

71
Threshold limit of Income Tax exemption for individuals rose as follows -

Up to Rs.160,000 - NIL

Rs.160,001 to Rs.310,000 - 10%

Rs.310,001 to Rs.510,000 - 20%

Rs.510,001 and above - 30%

Impact
This is expected to increase the disposable income in the hands of the
individuals to some extent which could translate into increased retail investments
in mutual funds.

Concentrating on infrastructure for Development


The government of INDIA concentrating on infrastructure
because this time infrastructure position is not at the good point.
The government want to increase it.

In this position reliance has launched the infrastructure


fund new fund offer (NFO).

Impact
People are investing in infrastructure. The infrastructure is
developing.

Reliance has received Rs. 2350 crore investment for the


fund.

72
Decision of SEBI for Mutual Fund
Industry

No entry load for investing in the fund.

Before this if anyone want to invest or buy the mutual fund that
he has to pay the entry load for the fund.

Example: If any person wants to buy JM Basic Fund of Rs.100000.

Then he will pay 2250(2.25*100000/100) as a entry load for that


fund than rest of amount Rs. 97750 will invest in scheme by
company.

73
Chapter-2
Company Profile

74
Vision
To be the most trusted partner for every
stakeholder in the financial world.

We believe:

➢ Earning trust is a process (it can be gained


and lost every day!)

➢ Sharing trust creates great teams (whether


between employees or between
organizations)

➢ Being trust worthy is the most efficient way of generating


and retaining long-term business

➢ Self–trust is the starting point of trusting others

Profile
75
JM Financial Trustee Company Private Limited
JM Financial Trustee Company Private Limited (formerly
known as J.M. Trustee Company Private Limited)
Chairman: Mr.
has been promoted by J.M. Financial & Investment Nimesh N.
Kampani
Consultancy Services Pvt. Ltd. and JM Financial
Ltd. JM Financial Trustee Company Pvt. Ltd. is registered under
the Companies Act, 1956 and was incorporated on 9th June 1994.
The Sponsors have executed a Trust Deed on 1st September
1994 appointing JM Financial Trustee Company Pvt. Ltd. as
Trustee Company of JM Financial Mutual Fund.

JM Financial Asset Management Private Limited, JM


Financial group’s asset management company for its mutual fund
business, is one of India’s oldest private sector mutual fund
houses, having commenced operations in 1994. Our distributor-
base of 10,000 covers 52 locations in India. We offer a range of
30 products across the entire risk-return spectrum, serving the
needs of more than 4 lakh investors, both institutional and
individual.

Corporate Profile
JM Financial Mutual Fund is one of India 's first private
sector mutual funds-an integral part of the first wave that
commenced operations in 1993-94. We are a part of JM Financial
Group , which has a rich heritage,built over three decade. We are
one of the many successful companies that have emerged out of
JM Financial Group's strong foundation in financial services.

76
Our Group's origins can be traced back to the 1950s when the
Kampani family began to get involved in India's then nascent
capital markets. JM Financial & Investment Consultancy Services
was founded on September 15, 1973. Under the leadership of
Chairman Nimesh N. Kampani, the JM Financial Group has
played a stellar and multi-faceted role in the development of
India's capital markets. Apart from helping companies raise
finance, the Group has also been instrumental in educating a
burgeoning and prospering middle class about the advantages of
investing in blue chip companies.

JM Financial Asset Management Private Limited, the Asset


Management Company of JM Financial Mutual Fund is sponsored
by JM Financial Limited. JM Financial Asset Management Private
Limited started operations in December 1994 with a
simultaneous launch of three funds-JM Liquid Fund (now JM
Income Fund), JM Equity Fund and JM Balanced Fund. Today, JM
Financial Mutual Fund offers a bouquet of funds that caters to the
diverse needs of both its institutional and individual investors.

Our mission is to manage risk effectively while generating top


quartile returns across all product categories. We believe that to
cultivate investor loyalty, we must provide a safe haven for their
investments. We are focussed on helping our investors realize
their investment goals through prudent advice, judicious fund
management, impeccable research, and strong systems of
managing risk scientifically.

We strive to give our family of investors many reasons to


celebrate.

77
Awards
Year Name of Award Details
2008 Outlook Money Best Merchant
NDTV Profit Banker -
Awards Runners Up

2007 Finance Asia Best India Deal


Achievement – for
Awards Vodafone’s $12
billion
acquisition of
HTIL

2007 Finance Asia Best Secondary


Achievement Offering – for
Awards ICICI’s $4.6
billion
simultaneous
follow-on of
ADRs and
domestic
shares

78
2007 ICRA Mutual Open Ended
Funds Awards Sectoral–
Healthcare-1
year
performance
(till 31.12.
2006), Gold - JM
Healthcare
Sector Fund
2006 CNBC TV18 – Floating Rate
CRISIL Mutual Plan - JM
Fund Awards Floater Short
Term Plan

Euro Money
Awards of Best M&A
Excellence House, India

2005 Finance Asia Best Follow-on


Offering - ICICI
Bank USD1.75
billion
concurrent ADR
and domestic
share sale

Finance Asia

79
Best India Deal
- Reliance
Industries USD
4.8 billion
restructuring
2004 Finance Asia Best India
Deal - USD 1.2
billion Tata
Consultancy
Services IPO

Asset Asian
Awards Best
Privatisation -
USD 2.4 billion
ONGC follow-on
offering

Asia Money
Best Deal in
India - OIL &
Asia Money Natural Gas
Corporation

Best Overall
Strategy –
Asia Money Brokers

80
Best Overall
Macroeconomic
s – Brokers
2002 Crisil Best Fund Best
Awards Performing
Open-end Debt
Scheme - JM
Income Fund

2001 Crisil Best Fund Best


Awards Performing
Open-end Debt
Scheme - JM
Income Fund

CSR (Corporate Social Responsibility)


JM Financial Foundation (formerly JM Morgan Stanley
Foundation, new name subject to approval by concerned

81
authorities), the philanthropic arm of the JM Financial Group
believes in strengthening and uplifting the lesser privileged
communities by enabling them to be self reliant. It does this by
adopting a dual platform of ‘education for children’ & ‘health for
all’. The Foundation has partnered with several NGOs to work on
a number of outreach initiatives.

Every year, JM Financial organises an annual Walkathon, to raise


funds for the JM Financial Foundation. The event – a 6-km walk on
Marine Drive, Mumbai, from NCPA Apartments to Mafatlal Bath
and back, attracts enthusiastic participation from employees of
the JM Financial group companies, other corporates, children and
citizens. The funds raised have supported projects undertaken by
KC Mahindra Trust’s Nanhi Kali, Sunbeam Foundation, Jai Vakeel
School and Round Table India, among many others.

The Group has Project Drishti, in aid of the blind. Every month, JM
Financial employees collect all their old glossy magazines and
brochures and donate these to a school meant for the visually
challenged. The school uses this material for preparing Braille, a
method used by the visually challenged to read and write. Braille
is best on glossy material, which most magazines/ brochures use.
The Group has also organised an Eye Donation Awareness camp
in association with Eye Bank Donation and Coordination Centre,
an NGO, to educate people about donating eyes and encourage
them to do it.

JM Financial Group encourages employee participation through its


employee volunteering initiative `Sparsh’. The Group had tied up
with Akanksha and HelpAge India for this initiative where

82
employees can volunteer as individuals and also form groups to
assist these NGOs.

JM Financial Group continues to contribute regularly towards


several relief

operations carried out during calamities or disasters that impact


our society.

Market Share
Market share of the JM Financial Asset Management
Company Pvt. Ltd.

is 8000 Crores.

Total Asset Under Management is 7.20 lakh crores.

83
SWOT Analysis

84
85
Chapter-3
Main Chapter
(Comparative
Analysis)

86
87
Funds which have been compared are:
➢ JM Financial
Category Fund
Equity Fund Scheme JM Equity – Dividend
Debt Fund Scheme JM Floater Fund - Long Term -
Premium – Dividend
Tax Shield Scheme JM Tax Gain Fund – Dividend
Income Plan JM Income – Dividend
Balanced Fund JM Balanced – Dividend
Gilt Fund JM G Sec Regular Plan –
Dividend

➢ Kotak
Category Fund
Equity Fund Scheme Kotak 30 – Dividend
Debt Fund Scheme Kotak Floater - Long Term -
Monthly Dividend
Tax Shield Scheme Kotak TaxSaver – Dividend
Income Plan Kotak Income Plus - Monthly
Dividend

88
Gilt Fund Kotak Gilt - Investment
Regular Plan – Growth
Balanced Fund Kotak Balance – Dividend

➢ HDFC
Category Fund
Equity Fund Scheme HDFC Equity Fund-Dividend
Debt Fund HDFC Floating Rate Income
Fund - Long Term Fund –
Dividend
Balanced Fund HDFC Balanced Fund-Dividend
Tax Shield Scheme HDFC TaxSaver – Dividend
Income Plan HDFC Income Fund – Dividend
Gilt Fund HDFC Gilt Fund Long Term Plan
– Dividend

➢ UTI
Category Fund
Equity Fund Scheme UTI Equity Fund – Dividend
Debt Fund Scheme UTI - MIS - Advantage Fund -
Monthly Dividend

89
ELSS Tax Saver UTI Equity Tax Savings Plan –
Dividend
Monthly Income Plan UTI Monthly Income Scheme –
Dividend
Balanced Fund UTI Balanced Fund – Dividend
Gilt Fund UTI Gilt Advantage Fund - Long
Term - Provident Fund Plan -
Dividend

➢ ICICI
Category Fund
Equity Fund Scheme ICICI Prudential Blended Plan -
Option A – Dividend
Debt Fund Scheme ICICI Prudential Floating Rate
Fund - Plan A – Dividend
Tax Shield Scheme ICICI Prudential Tax plan –
Dividend
Income Plan ICICI Prudential Flexible
Income Plan - Premium - Daily
Dividend
Gilt Fund ICICI Prudential Gilt Fund
Investment Plan – Dividend
Balanced Fund ICICI Prudential Balanced –

90
Dividend

➢ Reliance
Category Fund
Equity Fund Scheme Reliance Equity Fund – Dividend
Debt Fund Scheme Reliance Floating Rate Fund –
Dividend
Tax Shield Scheme Reliance Tax Saver Fund –
Dividend
Income Plan Reliance Income Fund - Retail -
Annual

Gilt Fund Reliance Gilt Securities Fund -


Retail – Dividend
Balanced Fund Reliance Regular Savings Fund -
Balanced – Growth

Risk
Risk can be defined as the potential for harm. But when
anyone analyzing mutual funds uses this term, what is actually
being talked about is volatility.
Volatility is nothing but the fluctuation of the Net Asset Value
(price of a unit of a fund). If there is high volatility, then there will
be greater fluctuations in NAV.

91
Generally, past volatility is taken as an indicator of future risk and
for the task of evaluating a mutual fund, this is an adequate
approximation.
How risk is measured?
There are 2 ways in which you can determine how risky a fund
is.
➢ Standard Deviation
Standard Deviation is a measure of how much the
actual performance of a fund over a period of time deviates
from the average performance.
Since Standard Deviation is a measure of risk, a low
Standard Deviation is good.
➢ Sharpe Ratio
The Sharpe Ratio of a fund measures whether the
returns that a fund delivered were commensurate with the
kind of volatility it exhibited.
This ratio looks at both, returns and risk, and delivers a
single measure that is proportional to the risk adjusted
returns.
Since Sharpe Ratio is a measure of risk-adjusted
returns, a high Sharpe Ratio is good.

Measurement of Mutual Fund


Performance
• Standard Deviation

92
Standard Deviation allows you to evaluate the volatility
of the fund. Volatility is often a direct indicator of the risks
taken by the fund. The standard deviation of a fund
measures this risk by measuring the degree to which the
fund fluctuates in relation to its mean return, the average
return of a fund over a period of time. A security that is
volatile is also considered higher risk because its
performance may change quickly in either direction at any
moment. A fund that has a consistent four-year return of
3%, for example, would have a mean, or average, of 3%.
The standard deviation for this fund would then be zero
because the fund's return in any given year does not differ
from its four-year mean of 3%. On the other hand, a fund
that in each of the last four years returned -5%, 17%, 2%
and 30% will have a mean return of 11%. The fund will also
exhibit a high standard deviation because each year the
return of the fund differs from the mean return. This fund is
therefore more risky because it fluctuates widely between
negative and positive returns within a short period.

• Beta
Beta is a fairly commonly used measure of risk. It
basically indicates the level of volatility associated with the
fund as compared to the benchmark. So quite naturally the
success of Beta is heavily dependent on the correlation
between a fund and its benchmark.

A beta that is greater than one means that the fund is more
volatile than the benchmark, while a beta of less than one

93
means that the fund is less volatile than the index. A fund
with a beta very close to 1 means the fund's performance
closely matches the index or benchmark. If, for example, a
fund has a beta of 1.03 in relation to the BSE Sensex, the
fund has been moving 3% more than the index. Therefore,
if the BSE Sensex increased 10%, the fund would be
expected to increase 10.30%.

• R-Squared
The R-squared of a fund advises investors if the beta of
a mutual fund is measured against an appropriate
benchmark. Measuring the correlation of a fund's
movements to that of an index, R-squared describes the

94
level of association between the fund's volatility and
market risk, or more specifically, the degree to which a
fund's volatility is a result of the day-to-day fluctuations
experienced by the overall market.

R-squared values range between 0 and 1, where 0


represents no correlation and 1 represents full correlation.
If a fund's beta has an R-squared value that is close to 1,
the beta of the fund should be trusted. On the other hand,
an R-squared value that is less than 0.5 indicates that the
beta is not particularly useful because the fund is being
compared against an inappropriate benchmark.

95
Each dot represents a fund’s return plotted against the market
returns in the same period.

The line is the beta of the returns. While the beta is the same in
both, it is far more

Representative in the left graph than in the right graph.

Alpha

Alpha = (Fund return-Risk free return) - Funds beta


*(Benchmark return- risk free return).

Alpha is the difference between the returns one would


expect from a fund, given its beta, and the return it actually
produces. An alpha of -1.0 means the fund produced a
return 1% higher than its beta would predict. An alpha of
1.0 means the fund produced a return 1% lower. If a fund
returns more than its beta then it has a positive alpha and
if it returns less than it has a negative alpha. Once the beta
of a fund is known, alpha compares the fund's performance
to that of the benchmark's risk-adjusted returns. It allows
you to ascertain if the fund's returns outperformed the
market's, given the same amount of risk. The higher a
funds risk level, the greater the returns it must generate in
order to produce a high alpha.

96
Important Points:
➢ Don't just look at the NAV, also look at the risks-
returns
Kotak 30 has 3 stars & Kotak Opportunities has 4 stars.
That does not mean that their NAV is approximately the
same. In fact, the NAV of Kotak 30 is 90.22 & NAV of Kotak
Opportunities is 40.48
However, Kotak 30 took a below average risk and delivered
an above average return, while Kotak Opportunities took an
average risk to get the high returns. So, don’t just look at
the NAV also consider the risks-returns of the fund.
➢ Higher rating does not mean better returns
A fund with more stars does not indicate a higher
return when compared with the rest. All it means is that you
will get a good return without putting your money at too
much risk.
ICICI Prudential Liquid Fund has a 4-star rating while ICICI
Prudential Growth Fund has a 3-star rating. However, the
fund with the 3-star rating has a higher NAV (109.08) than
the one with the 4-star rating (11.73).
➢ Higher rating does not mean more risk
HDFC Top 200 has an NAV of 140.47 while UTI
Infrastructure has an NAV of 36.60
This does not necessarily mean that HDFC Top 200 is
offering a higher risk since the return is higher.

97
In fact, according to the ratings, HDFC Top 200, a 5-star fund
has a low risk while UTI Infrastructure, a 5-star fund has an
average risk.

Comparison of the Schemes on the basis


of
Risk & Return
Equity Fund Scheme
1) JM Equity – Dividend

2) Kotak 30 – Dividend

3) HDFC Equity Fund-Dividend

4) UTI Equity Fund – Dividend

5) ICICI Prudential Blended Plan - Option A – Dividend

6) Reliance Equity Fund – Dividend

Risk Measures
Standar Beta Alpha R- Rating
d Squared
Deviatio
n
Jm 41.94 1.15 -9.48 0.93 Above
98
Avg.
Kotak 32.43 0.90 1.94 0.97 Below
Avg.
HDFC 36.38 1.00 3.34 0.95 Avg.
UTI 29.33 0.81 1.32 0.96 Below
Avg.
ICICI 1.38 0.09 2.30 0.00 Below
Avg.
Reliance 29.54 0.81 0.15 0.94 Low

Compari ICICI JM JM Kotak


son

Return Measures
1 Month 6 Month 1 Year 5 Year Since
Inceptio
n
Jm 8.29 51.21 5.45 28.16 17.96

Kotak 8.29 51.21 5.45 28.16 17.96

HDFC 8.53 80.84 23.67 30.72 14.78

99
UTI 11.96 56.69 15.38 23.37 9.10

ICICI 0.08 1.48 6.66 NA 7.10

Reliance 7.10 54.31 12.83 NA 10.36

Compari UTI HDFC HDFC HDFC JM/Kota


son k

Analysis
According to Risk JM have high Beta and low Alpha and
have above average rating in the Risk Measures. According to the
list and rating JM is good for investment.

But according to the Return HDFC have good return in 6


month, 1 year and in 5 year and UTI in 1 month and JM/Kotak
since inception.

Debt Fund Scheme


1) JM Floater Fund - Long Term - Premium – Dividend

2) Kotak Floater - Long Term - Monthly Dividend

3) HDFC Floating Rate Income Fund - Long Term Fund –


Dividend

100
4) UTI - MIS - Advantage Fund - Monthly Dividend

5) ICICI Prudential Floating Rate Fund - Plan A – Dividend

6) Reliance Floating Rate Fund – Dividend

Risk Measures
Standar Beta Alpha R- Rating
d Squared
Deviatio
n
Jm 0.24 0.01 1.81 0.00 Below
Avg.
Kotak 0.27 0.51 2.15 0.49 Low
HDFC 0.73 0.15 4.02 0.01 Above
Avg.
UTI 7.84 0.72 3.12 0.65 Above
Avg.
ICICI 0.26 0.59 1.43 0.70 Above
Avg.
Reliance 0.20 0.42 2.38 0.63 Below
Avg.

101
Compari Reliance UTI ICICI ICICI
son

Return Measures
1 Month 6 Month 1 Year 5 Year Since
Inceptio
n
Jm 0.39 2.26 5.80 NA 5.14

Kotak 0.39 2.68 7.17 NA 5.54

HDFC 0.41 3.60 7.97 6.29 4.93

UTI 2.08 15.08 17.28 11.19 9.05

ICICI 0.31 2.19 5.82 NA 5.11

Reliance 0.35 2.42 6.16 NA 5.26

Compari UTI UTI UTI UTI UTI


son

Analysis

102
According to the Risk ICICI have low alpha and High R-
Square & have above average rating in the Risk Measures. Other
2 schemes of HDFC and UTI also have above average rating but
in the list ICICI is good for investment.

According to the return in all 1 month, 6 month, 1 year, 5


year and since inception UTI is the best in the return basis and
good for investment.

Tax Shield Scheme


1) JM Tax Gain Fund – Dividend

2) Kotak Tax Saver – Dividend

3) HDFC Tax Saver Fund-Dividend

4) UTI Equity Tax Savings Plan – Dividend

5) ICICI Prudential Tax plan – Dividend

6) Reliance Tax Saver Fund – Dividend

Risk Measures

103
Standar Beta Alpha R- Rating
d Squared
Deviatio
n
Jm 6.68 1.07 -1.50 0.93 Above
Avg.
Kotak 37.78 1.03 -1.35 0.92 Avg.
HDFC 34.29 0.94 -1.10 0.95 Below
Avg.
UTI 32.21 0.89 -3.93 0.96 Low
ICICI 37.85 1.00 -4.17 0.87 Above
Avg.
Reliance 29.54 0.81 0.15 0.94 Below
Avg.

Compari JM JM ICICI UTI


son

Return Measures
1 Month 6 Month 1 Year 5 Year Since

104
Inceptio
n
Jm 2.00 55.78 -24.50 NA -30.45

Kotak 7.43 60.52 1.95 NA 12.30

HDFC 10.35 73.46 19.37 30.70 21.20

UTI 8.19 54.77 2.97 18.44 14.61

ICICI 10.22 75.99 8.29 27.34 18.03

Reliance 8.25 60.53 19.18 NA 12.03

Compari HDFC ICICI HDFC HDFC HDFC


son

Analysis
According to the Risk JM have lowest standard deviation and
highest beta have above average rating. ICICI also have lowest
Alpha and have above average rating but according to the list JM
is good for investment.

According to the Return HDFC is good in return in 1 month,


1 year, and 5 year and since inception and ICICI in 6 month.

105
Income Plan
1) JM Income – Dividend

2) Kotak Income Plus - Monthly Dividend

3) HDFC Income Fund – Dividend

4) UTI Monthly Income Scheme – Dividend

5) ICICI Prudential Flexible Income Plan - Premium - Daily


Dividend

6) Reliance Income Fund - Retail - Annual

Risk Measures
Standar Beta Alpha R- Rating
d Squared
Deviatio
n
Jm 3.13 0.23 -10.60 0.13 Avg.
Kotak 6.90 0.57 -6.28 0.53 Above
Avg.
HDFC 0.73 0.15 4.02 0.01 Above
Avg.
UTI 5.29 0.50 4.06 0.70 Below
Avg.
ICICI 1.38 0.09 2.30 0.00 Below

106
Avg.
Reliance 29.54 0.81 0.15 0.94 Above
Avg.

Compari HDFC Reliance JM Reliance


son

Return Measures
1 Month 6 Month 1 Year 5 Year Since
Inceptio
n
Jm -0.43 -4.55 -3.93 1.27 5.73

Kotak 2.49 7.40 2.08 6.04 5.03

HDFC 0.05 3.51 15.89 5.55 6.21

UTI 2.34 10.98 14.39 8.17 6.59

ICICI 0.39 2.74 7.05 6.09 4.03

Reliance 0.71 1.10 17.82 8.28 7.05

Compari Kotak UTI Reliance UTI Reliance


son

107
Analysis
According to the Risk Reliance have highest Beta and
Highest R-Squared and have above average rating. Kotak and
HDFC also have above average rating and HDFC have lowest
Standard deviation. But according to the list Reliance is good for
investment.

According to the Return UTI gave good return in 6 month


and 1 year and Reliance in 1 year and since inception and Kotak
in 1 month.

Balanced Fund
1) JM Balanced – Dividend

2) Kotak Balance – Dividend

3) HDFC Balanced Fund – Dividend

4) UTI Balanced Fund – Dividend

5) ICICI Prudential Balanced – Dividend

6) Reliance Regular Savings Fund - Balanced – Growth

108
Risk Measures
Standar Beta Alpha R- Rating
d Squared
Deviatio
n
Jm 34.85 1.27 -8.54 0.89 High
Kotak 25.55 0.96 -0.30 0.95 Avg.
HDFC 25.31 0.93 0.96 0.90 Below
Avg.
UTI 25.64 0.97 -0.87 0.96 Avg.
ICICI 24.73 0.94 -3.95 0.96 Avg.
Reliance 29.54 0.81 0.15 0.94 Avg.

Compari ICICI JM JM UTI/ICICI


son

Return Measures

109
1 Month 6 Month 1 Year 5 Year Since
Inceptio
n

Jm 4.59 53.44 -3.18 13.26 7.71

Kotak 6.54 41.92 9.73 23.20 14.96

HDFC 5.90 50.21 14.75 18.70 13.31

UTI 7.12 48.22 14.76 16.84 10.65

ICICI 6.31 37.09 3.85 17.61 10.72

Reliance 7.15 65.36 31.47 NA 13.89

Compari Relianc Relianc Relianc Kotak Kotak


son e e e

Analysis
According to the Risk JM have highest Beta and lowest Alpha
and also have High rating. According to the rating and list JM is
good for investment.

According to the Return Reliance gave good return in 1


month, 6 month and 1 year and Kotak in 5 year and since
inception.

110
Gilt Fund Scheme
1) JM G Sec Regular Plan – Dividend

2) Kotak Gilt - Investment Regular Plan – Growth

3) HDFC Gilt Fund Long Term Plan – Dividend

4) UTI Gilt Advantage Fund - Long Term - Provident Fund Plan -


Dividend

5) ICICI Prudential Gilt Fund Investment Plan – Dividend

6) Reliance Gilt Securities Fund - Retail – Dividend

Risk Measures
Standar Beta Alpha R- Rating
d Squared
Deviatio
n
Jm 8.35 0.40 11.84 0.30 Below
Avg.
Kotak 12.52 0.59 3.22 0.29 Above
Avg.

111
HDFC 12.01 0.50 -1.48 0.23 Avg.
UTI 14.23 0.62 2.19 0.25 Avg.
ICICI 14.61 0.63 8.75 0.24 High
Reliance 29.54 0.81 0.15 0.94 Above
Avg.

Compari JM Reliance HDFC Reliance


son

Return Measures
1 Month 6 Month 1 Year 5 Year Since
Inceptio
n
Jm 0.96 2.76 29.30 8.34 7.72

Kotak 0.59 0.08 20.90 7.10 10.95

HDFC 5.90 50.21 14.75 18.70 13.31

UTI -0.51 -4.84 17.05 6.51 5.13

ICICI 0.09 0.39 29.04 9.27 8.18

Reliance -0.01 -2.49 NA NA 15.70

112
Compari HDFC HDFC JM HDFC Reliance
son

Analysis
According to the Risk Reliance have high Beta and High R-
Squared and have above average rating and Kotak also had
above average rating also. According to return Reliance is good
for investment.

According to Return HDFC gave good return in 1 month, 6


month and 5 year and JM in 1 year and Reliance since inception.

113
Chapter-4
Analysis &
Findings

Analysis & Findings


1. Age distribution of the Investors

114
Age <= 31-35 36-40 41-45 46-50 >50
Group 30

No. of 12 28 40 34 20 16
Investor
s

Findings:

According to this chart out of 150 Mutual Fund investors the

most are in the age group of 36-40 yrs. i.e. 25%, the second most

investors are in the age group of 41-45yrs i.e. 20% and the least

investors are in the age group of below 30 yrs.

115
2. Educational Qualification of investors

Educational Number of
Qualification Investors
Graduate/ Post Graduate 98

Under Graduate 34

Others 18

Total 150

Findings:

116
Out of 150 Mutual Fund investors 65% of the investors are

Graduate/Post Graduate, 23% are Under Graduate and 12% are others

(under HSC).

3. Occupation of the investors of

Occupation No. of
Investors
Govt. Service 35

Pvt. Service 55

Business 50

Agriculture 4

Others 6

117
Findings:

In Occupation group out of 150 investors, 37%

are Pvt. Employees, 33% are Businessman, 23% are Govt.

Employees, 3% are in Agriculture and 4% are in others.

1. Monthly Family Income of the Investors

Income Group No. of


Investors
<=10,000 10
10,001-15,000 17

118
15,001-20,000 38
20,001-30,000 53
>30,000 32

Findings:

In the Income Group of the investors, out of 150


investors, 36% investors that is the maximum investors are in
the monthly income group Rs. 20,001 to Rs. 30,000, Second
one i.e. 21% investors are in the monthly income group of
more than Rs. 30,000 and the minimum investors i.e. 7% are
in the monthly income group of below Rs. 10,000.

119
5. Investors invested in different kind of investments.

Kind of No. of
Investments Respondents
Saving A/C 150
Fixed deposits 30
Insurance 100
Mutual Fund 120
Post office 10
(NSC)
Shares/Debent 100
ures
Gold/Silver 40
Real Estate 30

120
Findings:

From the above graph it can be inferred that out of 150

people, 100% people have Saving A/c, 67% have insurance,

20% have Fixed Deposits, 80% have Mutual Fund, 20% have

Post Office schemes, 67% have Shares or Debentures, 33%

have Gold/Silver and 27% in Real Estate.

121
6. Preference of factors while investing

Factors (a) (b) Low (c) High (d)

Liquidity Risk Return Trust

No. of 34 50 50 16

Responde

nts

122
Findings:

Out of 150 People, 33% People prefer to invest where

there is High Return, 33% prefer to invest where there is Low

Risk, 23% prefer easy Liquidity and 11% prefer Trust

7. Awareness about Mutual Fund and its Operations

123
Response Yes No
No. of 135 15

Respondents

Findings:

124
From the above chart it is inferred that 90%

People are aware of Mutual Fund and its operations and 10%

are not aware of Mutual Fund and its operations.

8. Source of information for customers about Mutual

Fund

Source of No. of

information Respondents
Advertisement 18
Peer Group 20
Bank 30
Financial Advisors 72

125
Findings:

From the above chart it can be inferred that the


Financial Advisor is the most important source of information
about Mutual Fund. Out of 140 Respondents, 48% know about
Mutual fund Through Financial Advisor, 20% through Bank,
13% through Peer Group and 12% through Advertisement.

9. Investors invested in Mutual Fund

Response No. of
Respondents
YES 120
NO 30

126
Findings:

Out of 150 People, 80% have invested in

Mutual Fund and 20% do not have invested in Mutual Fund.

127
10. Reason for not invested in Mutual Fund

Reason No. of

Respondents
Not Aware 15
Higher Risk 10
Not any Specific 5

Reason

Findings:

128
Out of 30 people, who have not invested in Mutual Fund,

81% are not aware of Mutual Fund, 33% said there is likely to

be higher risk and 17% do not have any specific reason.

11. Investors invested in different Assets Management

Co. (AMC)

Name of AMC No. of Investors


JM 25
UTI 11
HDFC 12
Reliance 18
ICICI Prudential 14
Kotak 15
Others 25

129
Findings:

The Investors mostly preferred JM and Reliance Mutual

Fund. Out of 120 Investors 79% have invested in each

of them and 21% in others, only 21% have invested in

JM and 15% in Reliance.

12. Reason for invested in JM

Reason No. of

Respondents

130
Trust 10
Good Return 5
Agent’s Advice 10

Findings:

Out of 25 investors of JM 40% have invested because of

Trust, 40% invested on Agent’s Advice, 20% invested

because of good return.

131
13. Preference of Investors for future investment in

Mutual Fund

Name of AMC No. of Investors


JM 20
UTI 15
HDFC 15
Reliance 25
ICICI Prudential 20
Kotak 15
Others 10

132
Findings:

Out of 120 investors, 21% prefer to invest in Reliance,

17% in ICICI Prudential, 17% in SBIMF, 8% in others.

14. Channel Preferred by the Investors for Mutual

Fund Investment

Channel Financial Bank AMC

Advisor
No. of 72 18 30

Respondent

133
Findings:

Out of 120 Investors 60% preferred to invest through

Financial Advisors, 25% through AMC and 15% through Bank.

134
15. Mode of Investment Preferred by the Investors

Mode of One time Systematic Investment

Investment Investment Plan (SIP)


No. of 78 42

Respondents

Findings:

135
Out of 120 Investors 65% preferred One time

Investment and 35 % Preferred through Systematic

Investment Plan.

16. Preferred Portfolios by the Investors

Portfolio No. of Investors


Equity 56
Debt 20
Balanced 44

136
Findings:

From the above graph 46% preferred Equity Portfolio,

37% preferred Balance and 17% preferred Debt portfolio.

17. Option for getting Return Preferred by the

Investors

Option Dividend Dividend Growth

Payout Reinvestme

nt
No. of 25 10 85

Respondent

137
Findings:

From the above graph 71% preferred Growth Option,

21% preferred Dividend Payout and 8% preferred Dividend

Reinvestment Option.

138
Chapter-5
Conclusion &
Recommendatio
ns

Conclusion
139
Running a successful Mutual Fund requires complete
understanding of the peculiarities of the Indian Stock Market and
also the psyche of the small investors. This study has made an
attempt to understand the financial behavior of Mutual Fund
investors in connection with the preferences of Brand (AMC),
Products, Channels etc. I observed that many of people have fear
of Mutual Fund. They think their money will not be secure in
Mutual Fund. They need the knowledge of Mutual Fund and its
related terms. Many of people do not have invested in mutual
fund due to lack of awareness although they have money to
invest. As the awareness and income is growing the number of
mutual fund investors are also growing.

“Brand” plays important role for the investment. People invest in


those Companies where they have faith or they are well known
with them. There are many AMCs in India but only some are
performing well due to Brand awareness. Some AMCs are not
performing well although some of the schemes of them are giving
good return because of not awareness about Brand. Reliance,
UTI, SBIMF, ICICI Prudential etc. They are well known Brand, they
are performing well and their Assets under Management are
larger than others whose Brand name is not well known like
Principle, Sunderam, etc.

Distribution channels are also important for the investment in


mutual fund. Financial Advisors are the most preferred channel
for the investment in mutual fund. They can change investor’s
mind from one investment option to others. Many of investors
directly invest their money through AMC. Only those people

140
invest directly who know well about mutual fund and its
operations and those have time.

Recommendations
The most vital problem spotted is of ignorance. Investors
should be made aware of the benefits. Nobody will invest until
and unless he is fully convinced. Investors should be made to
realize that ignorance is no longer bliss and what they are losing
by not investing.

Mutual funds offer a lot of benefit which no other single option


could offer. But most of the people are not even aware of what
actually a mutual fund is? They only see it as just another
investment option. So the advisors should try to change their
mindsets. The advisors should target for more and more young
investors. Young investors as well as persons at the height of
their career would like to go for advisors due to lack of expertise
and time.

Mutual Fund Company needs to give the training of the Individual


Financial Advisors about the Fund/Scheme and its objective,
because they are the main source to influence the investors.

By considering these four things they can take the customers into
consideration-:

141
➢ Younger people aged under 30 will be a key new customer
group into the future, so making greater efforts with
younger customers who show some interest in investing
should pay off.

➢ Customers with graduate level education are easier to sell to


and there is a large untapped market there. To succeed
however, advisors must provide sound advice and high
quality.

➢ Systematic Investment Plan (SIP) is one the innovative


products launched by Assets Management companies. SIP is
easy for monthly salaried person as it provides the facility of
do the investment in EMI. Though most of the prospects and
potential investors are not aware about the SIP. There is a
large scope for the companies to tap the salaried persons.

➢ And the last is the campaigning. The AMCs should campaign


for awareness of people.

142
Appendices

143
Questionnaire
1. What is the Age distribution of the Investors?

(a) <= 30 (b) 31-35 (c) 36-

40

(d) 41-45 (e) >50

2. What is the Educational Qualification of investors?

(a) Graduate/ Post Graduate (b) Under

Graduate

(c) Others

3. What is the Occupation of the investors?

(a) Govt. Service (b) Pvt. Service (c)

Business

(d) Agriculture (e) Others

4. What is the Monthly Family Income of the Investors?

144
(a) <=10000 (b) 10,001-15,000 (c)

15,001-20,000

(d) 20,001-30,000 (e) >30,000

145
5. In which sector you want to Invest your money?

(a) Savings A/c (b) FD (c) Insurance

(d) Mf (e) Post office

(f)Shares/Debentures

(g) Gold/Silver (h) Real estate

6. What is the Preference of factors while investing?

(a) Liquidity (b) Low risk (c)

High return (d) Financial advisors

7. Do You Aware about Mutual Fund and its Operations?

(a) Yes (b) No

8. Which is the best Source of information for customers

about Mutual Fund?

(a) Advertisement (b) Peer group

(c)Bank (d) Financial advisors

146
9. Do you have Mutual Fund?

(a) Yes (b) No

10.Why you don’t want invest in Mutual Fund?

(a) Not aware (b) Higher risk (c) Not any

specific reason

11.Which mutual fund do you have already?

(a) JM Financial (b) UTI (c) HDFC

(d) Reliance (e) Kotak (f) ICICI

Prudential

(g) Others

12.Why you don’t want to invest in mutual funds?

(a) Not aware (b) Less return (c)

Agent’s advice

13.In which AMC do you want to invest in future?

(a) JM Financial (b) UTI (c) HDFC

147
(d) Reliance (e) Kotak (f) ICICI

Prudential

(g) Others

14.Which Channel do Preferred to by the Mutual Fund?

(a) Financial Advisor (b) Bank (c)

AMC

15.Which Mode do you prefer to invest in mutual fund?

(a) One time Investment (b) Systematic

Investment plan

16.Which Portfolio do you prefer for the Investment?

(a) Equity (b) Debt (c)

Balanced (d) Income (e) Tax Saving

(f) Gilt

17.Which Option do you take for getting Return?

(a) Dividend Payout (b) Dividend Reinvestment (c)

Growth

148
149
List of Tables

I. Investment Earning Opportunity


35
II. Investment in accumulation phase
46
III. Investment in Distribution phase
46
IV. Model Portfolios 47
V. Wealth Cycle classification 49
VI. Comparison of Investment product 50
VII. Risk & Return grid 52
VIII. Bank V/S Mutual Fund 53
IX. Awards 62-64
X.Funds Which have been
Compared on the basis of

150
Risk & Return 69-
71
XI. Comparison of the Schemes
77-88

151
Glossary
AMC - Asset Management Company

Appetites - A feeling of craving something

Burgeoning - Grow and flourish

Curb - To put down by force or authority

Delegates - A person appointed or elected to represent others

Derives - Develop or evolve from a latent or potential state

Divulge - Make known to the public information that was previously known only to a few people or that
was meant to be kept a secret

Entanglement - An intricate trap that entangles or ensnares its victim

Evidence - Your basis for belief or disbelief; knowledge on which to base belief

Impediments - Something immaterial that interferes with or delays action or progress

Letting - Make it possible through a specific action or lack of action for something to happen

Miniscule - Very small

Mitigate - Make less severe or harsh

NAV – Net Asset Value

Outweigh - Be heavier than

Peculiarities - A distinguishing trait

Pervasive - Spreading or spread throughout

Prevalent - Most frequent or common

Prospering - Very lively and profitable

Psyche - Become scared or over stressed

Reluctant - Unwillingness to do something contrary to your custom

Remittance - A payment of money sent to a person in another place

152
Spectrum - A broad range of related objects or values or qualities or ideas or activities

Splurging - Indulge oneself

Tardy inter-city payment system

Wooing – To attract

Bibliography

➢ News Papers

➢ Fact Sheets and Statements

➢ www.mutualfundsindia.com

➢ www.moneycontrol.com

➢ www.amfiindia.com

➢ www.valueresearchonline.com

➢ www.jmfinancial.in

➢ www.jmfinancialmf.com

➢ www.investopedia.com

➢ Newspapers ( Economic Times ,Times of India)


➢ Magazines ( Business World)

153
154