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2010 Mutual funds

Submitted to: Shaheed Sukhdev College of business studies, University Of delhi

Submitted by:

Sanchi Padia (4808)

Diksha Choudhary (4818)

FINANCIAL Jaspreet Kaur (4843)



Sanchi Padia (4808)
Diksha Choudhary (4818)
Jaspreet Kaur Sethi (4843)

This project is a part of the practicum of ‘FINANCIAL MANAGEMENT,
BBS, Fourth Semester. We would like to thank our project guide, Mrs.
Neha Matlani, for her unconditional support and guidance, at all stages
of the making of this project. It is due to her constant help only that
we were able to complete this project successfully.














13. RETURNS 28










23. JARGON 58


The Indian mutual fund industry in recent years, has experienced
exponential growth and yet it is still at a very nascent stage. We
believe that the mutual fund industry has grown in terms of size or
choices available, but is a long distance from being regarded as a
mature one. To understand this one has to look at the global scenario.
If one looks at the global mutual fund industry, one can see that
assets have grown by 185% between 2000 and 2006. In comparison,
Indian assets outgrew at a staggering 446%, where as the US only
grew by 158% and Europe by 242%.

As our economy continues to grow at a spectacular rate there is a
huge amount of wealth creating opportunities surfacing everywhere.
Financial Planners have an immensely responsible role to play by
identifying these opportunities and channeling them into wealth
,creating initiatives that would enable people to address their financial
needs. To give an overview of a recent study conducted by Invest
India, there are about 321.8 millions paid workers in India. Of this only
5.3 millions have an exposure to mutual funds. This is less than 2% of
total work force. Even more interesting fact is that 77% of them reside
in super metros and Tier I cities. Again, about 4 millions come in the
Rs 90,000-5 lack income bracket. The penetration among the less than
Rs 90,000 and more than Rs.5 lack income bracket is very low. The
need for the hour is to expend the market boundaries and expand
scope in Tier II and Tier III cities.

India is also one of the fastest growing markets for mutual funds,
attracting a host of global players. Hence, investors will have an even
wider range of products to choose from. The combination of the
increase in number of fund houses along with new schemes and the
increase in the number of people parking their saving in mutual funds
has resulted in per cent during April-December 2007. This now stands
at Rs.30314 billions as against Rs.13476 billions for the corresponding
period last year.

As on January 31, 2008, Indian assets stood at $ 137 billions and are
growing. We already have many experts expressing their
concentration at the frequency of NFO launches. Yet we have less than

1000 schemes in India, compared to 15000 in the US and 36000 in
Europe. The gap is significant and has to be filled up with unique and
better priced products.

There has also been a rapid rise in the HNI segment. India stands only
second-best to Korea in the Asia- Pacific region in terms of percentage
growth. The total HNWI (High Net Worth Individual) assets stood at
about Rs.12 trillion and their assets are distributed over various assets
classes. To top them MFs will have to come up with structured
products, real estate funds, commodity based funds, art funds and the

Indian house holds have also increased their exposure to the capital
market. Very interestingly, the MF proportion in this has increased. In
fact, there has been more than 2000% growth in the assets coming to
MFs in the last 3 years. Statistics reveal that a higher portion of
investors’ savings is now invested in market-linked avenues like
mutual funds as compared to earlier times.

We have always read that fund industry has seen three phases – the
UTI phase, the public sector phase and the post – UTI phase. But if we
study a bit more closely, there have been four clear stages.

- UTI Phase (1964 – 1987)

- Public sector phase (1987 – 1993), during which the likes of
SBI,BOB and Canara Bank comes in to existence

- The emergence phase (1993 – 2003), when international players
come in to India. Some have wound up their operations and a
few of them are looking for re-entry.

- Post UTI phase (2003 – 2007), when domestic players along
with some global players have consolidated the MF industry.

And now we are entering Phase V of the industry, when not only are
newer players readying to enter the market but are also looking at
penetration and market expansion.

All in all, this is a win-win situation for Indian investors. We have also
come up a long way from plain vanilla equity funds to hybrid funds,
from balanced funds to arbitrage funds, from sectoral funds to quant

Today’s investor is quite young and very unlike the older generation.
He follows a contrarian’s approach. He buys when the market flips and
books profit when it rallies. While the market corrected by almost 22%
during the January mayhem, mutual funds were net buyers to the tune
of Rs.4,200 crores. Much of this support came from domestic
investors. The retail participation in equity schemes has also increased
tremendously. The total AUM of 330 schemes in December last year
stood at Rs.2,157 billions as compared to 197 schemes and Rs92
billions In march 2000. Also in the last three years, mobilizations from
NFOs stood at Rs.95,000 crores. Although many complain that the
industry is still brokerage driven, the trends clearly suggest that
investors prefer NFOs to enter equities.

Our economy is booming, we have now a sustained GDP growth of
8%, which is likely to remain at this level for years to come, our per
capita income is about to touch $ 1000 by the end of 2008. The
number of AMCs is increasing. Their presence across India is
expanding. Distributors too are expanding their networks. Besides, the
regulator has taken up measures to safeguard investor interests.
These are all drivers for the fund industry. Together, these greet
investor warmly. The need of the investor populace has changed,
resulting in a change in asset management styles. In a way, this is
leading to the design of new and competitively-priced products,
implying greater emphasis on higher quality of intermediation. This in
itself is both an opportunity and a challenge. As our economy
continuous to grow at a spectacular rate there is a huge amount of
wealth creating opportunities surfacing everywhere. Financial Planners
have an immensely responsible role to play by identifying these
opportunities and channeling them into wealth creating initiatives that
would enable people to adequately address their financial needs.

A mutual fund is a professionally-managed form of collective
investments that pools money from many investors and invests it in
stocks, bonds, short-term money market instruments, and/or other
securities. In a mutual fund, the fund manager, who is also known as
the portfolio manager, trades the fund's underlying securities, realizing
capital gains or losses, and collects the dividend or interest income.
The investment proceeds are then passed along to the individual
investors. The value of a share of the mutual fund, known as the net
asset value per share (NAV) is calculated daily based on the total value
of the fund divided by the number of shares currently issued and

Legally known as an "open-end company" under the Investment
Company Act of 1940(the primary regulatory statute governing
investment companies), a mutual fund is one of three basic types of
investment companies available in the United States. Outside of the
United States (with the exception of Canada, which follows the U.S.
model), mutual fund may be used as a generic term for various types
of collective investment vehicle. In the United Kingdom and Western
Europe (including offshore jurisdictions), other forms of collective
investment vehicle are prevalent, including unit trusts, open-ended
investment companies (OEICs), SICAVs and unitized insurance funds.
In Australia and New Zealand the term "mutual fund" is generally not
used; the name "managed fund" is used instead.

Mutual funds belong to the class of firms known as investment
companies. While companies may offer a "family" of funds under a
single umbrella name and common administration - for example, the
Vanguard Group, Fidelity Investments, or Strong Funds - each fund
offered is a separately incorporated investment company. These are
entities that pool investor money to buy the securities that make up
the fund’s portfolio. The idea behind this pooling of investor money is
to give each investor the benefits that come from the ownership of a
diversified portfolio of securities chosen and monitored daily by
experience, professional advisers.
The funds create and sell new shares on demand. Investors` shares
represent a portion of the fund’s portfolio and income proportional to
the number of shares they purchase. Individual shareholders of the
mutual funds have voting rights in the operation of the fund, just as
most holders of common stocks in corporations have the right to vote
on certain issues involving the running of the company. The key
attribute of a mutual fund, regardless of how it is structured, is that
the investor is entitled to receive on demand, or within a specified
period after demand, an amount computed by reference to the value
of the investor’s proportionate interest in the net assets of the mutual
fund. This means that the owner of mutual fund shares can "cash in,"
or redeem his or her shares at any time.

Mutual funds, therefore, are considered a liquid investment. The
investor’s selling (redemption) price may be higher or lower than the
purchase price. It all depends on the performance of the fund’s
portfolio. The fund has an adviser who charges a fee for managing the
portfolio. The adviser decides when and what securities to buy and
sell, and is responsible for providing or causing to be provided all
services required by the mutual fund in carrying on its day-to-day
activities. All fund investors get this built-in portfolio management
whether they own 50 shares or 10,000.The adviser generally
purchases many different securities for the portfolio, since investment
theory holds that diversification reduces risk. It is this diminished risk
that is one of the attractions of mutual funds. The fund also has a

custodian, usually a financial institution such as a bank, which holds all
cash and securities for the fund.


The Evolution

The formation of Unit Trust of India marked the evolution of the Indian
mutual fund industry in the year 1963. The primary objective at that
time was to attract the small investors and it was made possible
through the collective efforts of the Government of India and the
Reserve Bank of India. The history of mutual fund industry in India can
be better understood divided into following phases:

Phase 1. Establishment and Growth of Unit Trust of
India - 1964-87

Unit Trust of India enjoyed complete monopoly when it was
established in the year 1963 by an act of Parliament. UTI was set up
by the Reserve Bank of India and it continued to operate under the
regulatory control of the RBI until the two were de-linked in 1978 and
the entire control was transferred in the hands of Industrial
Development Bank of India (IDBI). UTI launched its first scheme in
1964, named as Unit Scheme 1964 (US-64), which attracted the
largest number of investors in any single investment scheme over the

UTI launched more innovative schemes in 1970s and 80s to suit the
needs of different investors. It launched ULIP in 1971, six more
schemes between 1981-84, Children's Gift Growth Fund and India
Fund (India's first offshore fund) in 1986, Master share (India’s first
equity diversified scheme) in 1987 and Monthly Income Schemes
(offering assured returns) during 1990s. By the end of 1987, UTI's
assets under management grew ten times to Rs.6700 crores.

Phase II. Entry of Public Sector Funds - 1987-1993

The Indian mutual fund industry witnessed a number of public sector
players entering the market in the year 1987. In November 1987, SBI

Mutual Fund from the State Bank of India became the first non-UTI
mutual fund in India. SBI Mutual Fund was later followed by Canbank
Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India
Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the
assets under management of the industry increased seven times to Rs.
47,004 crores. However, UTI remained to be the leader with about
80% market share.

Amou Assets ion as %
1992- nt Under of gross
93 Mobili Manage Domesti
sed ment c

UTI 38,247 5.2%

1,964 8,757 0.9%

Total 47,004 6.1%

Phase III. Emergence of Private Sector Funds - 1993-

The permission given to private sector funds including foreign fund
management companies (most of them entering through joint
ventures with Indian promoters) to enter the mutual fund industry in
1993, provided a wide range of choice to investors and more
competition in the industry. Private funds introduced innovative
products, investment techniques and investor-servicing technology. By
1994-95, about 11 private sector funds had launched their schemes.

Phase IV. Growth and SEBI Regulation - 1996-2004

The mutual fund industry witnessed robust growth and stricter
regulation from the SEBI after the year 1996. The mobilization of
funds and the number of players operating in the industry reached

new heights as investors started showing more interest in mutual

Inventors’ interests were safeguarded by SEBI and the Government
offered tax benefits to the investors in order to encourage them. SEBI
(Mutual Funds) Regulations, 1996 was introduced by SEBI that set
uniform standards for all mutual funds in India. The Union Budget in
1999 exempted all dividend incomes in the hands of investors from
income tax. Various Investor Awareness Programmes were launched
during this phase, both by SEBI and AMFI, with an objective to
educate investors and make them informed about the mutual fund

In February 2003, the UTI Act was repealed and UTI was stripped of
its Special legal status as a trust formed by an Act of Parliament. The
primary objective behind this was to bring all mutual fund players on
the same level. UTI was re-organized into two parts:
1. The Specified Undertaking,
2. The UTI Mutual Fund

Phase V. Growth and Consolidation - 2004 Onwards

The industry has also witnessed several mergers and acquisitions
recently, examples of which are acquisition of schemes of Alliance
Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual
Fund by Principal Mutual Fund. Simultaneously, more international
mutual fund players have entered India like Fidelity, Franklin
Templeton Mutual Fund etc. There were 29 funds as at the end of
March 2006. This is a continuing phase of growth of the industry
through consolidation and entry of new international and private sector


1. Schemes according to Maturity Period:-
A mutual fund scheme can be classified into open-ended
scheme or close-ended scheme depending on its maturity


An open-ended fund or scheme is one that is available for subscription
and repurchase on a continuous basis. These schemes do not have a
fixed maturity period. Investors can conveniently buy and sell units at
Net Asset Value (NAV) related prices which are declared on a daily
basis. The key feature of open-end schemes is liquidity.


A close-ended fund or scheme has a stipulated maturity period e.g. 5-
7 years. The fund is open for subscription only during a specified
period at the time of launch of the scheme. 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 the
units 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 i.e. either repurchase facility or through listing
on stock exchanges. These mutual funds schemes disclose NAV
generally on weekly basis.

2. Schemes according to Investment Objective:-
A scheme can also be classified as growth scheme, income scheme, or
balanced scheme considering its investment objective. Such schemes
may be open-ended or close-ended schemes as described earlier. Such
schemes may be classified mainly as follows:


The aim of growth funds is to provide capital appreciation over the
medium to long- term. Such schemes normally invest a major part of
their corpus in equities. Such funds have comparatively high risks.
These schemes provide different options to the investors like dividend
option, capital appreciation, etc. and the investors may choose an
option depending on their preferences. The investors must indicate the
option in the application form. The mutual funds also allow the
investors to change the options at a later date. Growth schemes are
good for investors having a long-term outlook seeking appreciation
over a period of time.


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, Government securities and
money market instruments. Such funds are less risky compared to
equity schemes. These funds are not affected because of fluctuations
in equity markets. However, opportunities of capital appreciation are
also limited in such funds. The NAVs of such funds are affected
because of change in interest rates in the country. If the interest rates
fall, NAVs of such funds are likely to increase in the short run and vice
versa. However, long term investors may not bother about these


The aim of balanced funds is to provide both growth and regular
income as such schemes invest both in equities and fixed income
securities in the proportion indicated in their offer documents. These
are appropriate for investors looking for moderate growth. They
generally invest 40-60% in equity and debt instruments. These funds

are also affected because of fluctuations in share prices in the stock
markets. However, NAVs of such funds are likely to be less volatile
compared to pure equity funds.


These funds are also income funds and their aim is to provide easy
liquidity, preservation of capital and moderate income. These schemes
invest exclusively in safer short-term instruments such as treasury
bills, certificates of deposit, commercial paper and inter-bank call
money, government securities, etc. Returns on these schemes
fluctuate much less compared to other funds. These funds are
appropriate for corporate and individual investors as a means to park
their surplus funds for short periods.


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 other economic factors as is the
case with income or debt oriented schemes.


Index Funds replicate the portfolio of a particular index such as the
BSE Sensitive index, S&P NSE 50 index (Nifty), etc. These schemes
invest in the securities in the same weightage comprising of an index.
NAVs 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
disclosures in this regard are made in the offer document of the
mutual fund scheme.

3. Sector specific funds/schemes:-
These are the funds/schemes which invest in the securities of only
those sectors or industries as specified in the offer documents. e.g.
Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG),
Petroleum stocks, etc. The returns in these funds are dependent on
the performance of the respective sectors/industries. While these
funds may give higher returns, they are more risky compared to
diversified funds. Investors need to keep a watch on the performance
of those sectors/industries and must exit at an appropriate time. They
may also seek advice of an expert.

4. Tax Saving Schemes:-
These schemes offer tax rebates to the investors under specific
provisions of the Income Tax Act, 1961 as the Government offers tax
incentives for investment in specified avenues. e.g. Equity Linked
Savings Schemes (ELSS). Pension schemes launched by the mutual
funds also offer tax benefits. These schemes are growth oriented and
invest pre-dominantly in equities. Their growth opportunities and risks
associated are like any equity-oriented scheme.

5. Fund of Funds (FoF) scheme:-
A scheme that invests primarily in other schemes of the same mutual
fund or other mutual funds is known as a FoF scheme. An FoF scheme
enables the investors to achieve greater diversification through one
scheme. It spreads risks across a greater universe.

6. Load or no-load Fund:-
A Load Fund is one that charges a percentage of NAV for entry or exit.
That is, each time one buys or sells units in the fund, a charge will be
payable. This charge is used by the mutual fund for marketing and
distribution expenses. Suppose the NAV per unit is Rs.10. If the entry
as well as exit load charged is 1%, then the investors who buy would
be required to pay Rs.10.10 and those who offer their units for
repurchase to the mutual fund will get only Rs.9.90 per unit. The
investors should take the loads into consideration while making
investment as these affect their yields/returns. However, the investors
should also consider the performance track record and service

standards of the mutual fund which are more important. Efficient funds
may give higher returns in spite of loads. A no-load fund is one that
does not charge for entry or exit. It means the investors can enter the
fund/scheme at NAV and no additional charges are payable on
purchase or sale of units.

Systematic Investment Plan (SIPs):

These are best suited for young people who have started their careers and
need to build their wealth. SIPs entail an investor to invest a fixed sum of
money at regular intervals in mutual fund scheme the investor has
chosen. For instance an investor opting for SIP in xyz mutual fund scheme
will need to invest a certain sum of money every month / quarter /half
year in the scheme.

Systematic Withdrawal Plan (SWPs):

These plans are best suited for people nearing retirement. In these plans
an investor invests in a mutual fund scheme and is allowed to withdraw a
fixed sum of money at regular intervals to take care of expenses.

Systematic Transfer Plan (STPs):

They allow the investors to transfer on a periodic basis a specified amount
from one scheme to another within the same fund family meaning two
schemes belonging to the same mutual fund. A transfer will be treated as
redemption of units from the scheme from which the transfer is made
.Such redemption or investment will be at the applicable NAV. This service
allows the investor to manage his investment actively to achieve his
objectives. Many funds do not even charge even any transaction feed for
this service an added advantage for the active investor.



 Risk
 Returns
 Liquidity
 Expense Ratio
 Composition of Portfolio

Risks Associated With Mutual Funds

Investing in mutual funds as with any security, does not come without
risk. One of the most basic economic principles is that risk and reward are
directly correlated. In other words, the greater the potential risk, the
greater the potential return. The types of risk commonly associated with
mutual funds are:

Market Risk:

Market risk relate to the market value of a security in the future. Market
prices fluctuate and are susceptible to economic and financial trends,
supply and demand, and many other factors that cannot be precisely
predicted or controlled.

Political Risk:

Changes in the tax laws, trade regulations, administered prices etc. is
some of the many political factors that create market risk. Although
collectively, as citizens, we have indirect control through the power of our
vote, individually as investors, we have virtually no control.

Inflation Risk:

Inflation or purchasing power risk, relates to the uncertainty of the future
purchasing power of the invested rupees. The risk is the increase in cost of
the goods and services, as measured by the Consumer Price Index.

Interest Rate Risk:

Interest Rate risk relates to the future changes in interest rates. For
instance, if an investor invests in a long term debt mutual fund scheme
and interest rate increase, the NAV of the scheme will fall because the
scheme will be end up holding debt offering lowest interest rates.

Business Risk:

Business Risk is the uncertainty concerning the future existence, stability
and profitability of the issuer of the security. Business Risk is inherent in
all business ventures. The future financial stability of a company can not
be predicted or guaranteed, nor can the price of its securities. Adverse
changes in business circumstances will reduce the market price of the
company’s equity resulting in proportionate fall in the NAV of mutual fund
scheme, which has invested in the equity of such a company.

Economic Risk :

Economic Risk involves uncertainty in the economy, which, in turn can
have an adverse effect on a company’s business. For instance, if
monsoons fall in a year, equity stocks of agriculture bases companies will
fall and NAVs of mutual funds, which have invested in such stocks, will fall

There are 3 different methods with the help of which we can measure the

I. Beta Coefficient Measure Of Risk :

Beta relates a fund’s return with a market index. It basically measures the
sensitivity of funds return to changes in market index.
If Beta = 1
Fund moves with the market i.e. Passive fund
If Beta < 1
Fund is less volatile than the market i. e Defensive Fund
If Beta > 1
Funds will give higher returns when market rises & higher losses when
market falls i.e. Aggressive Fund

II. Ex –Marks or R-squared Measure Of Risk :

Ex –Marks represents co relation with markets. Higher the Ex-marks
lower the risk of the fund because a fund with higher Ex-marks is better
diversified than a fund with lower Ex-marks.

III. Standard Deviation Measure Of Risk :

It is a statistical concept, which measures volatility. It measures the
fluctuations of fund’s returns around a mean level. Basically it gives you
an idea of how volatile your earnings are. It is broader concept than BETA.
It also helps in measuring total risk and not just the market risk of the

The investors’ funds are deployed in a portfolio of securities by the fund
manager. The value of these investments keeps changing as the market
price of the securities change. Since investors are free to enter and exit
the fund at any time, it is essential that the market value of their
investments is used to determine the price at which such entry and exit
will take place. The net assets represent the market value of assets, which
belong to the investors, on a given date.
Net Asset Value or NAV of a mutual fund is the value of one unit of
investment in the fund, in net asset terms.

NAV = Net Assets of the scheme / Number of Units Outstanding

Where Net Assets are calculated as:-

(Market value of investments + current assets and other assets + Accrued
income – current liabilities and other liabilities – less accrued expenses) /
No. of Units Outstanding as at the NAV date

NAV of all schemes must be calculated and published at least weekly for
closed-end schemes and daily for open-end schemes.

The major factors affecting the NAV of a fund are:

 Sale and purchase of securities
 Sale and repurchase of units
 Valuation of assets
 Accrual of income and expenses

SEBI requires that the fund must ensure that repurchase price is not lower
than 93% of NAV (95% in the case of a closed-fund). On the other side, a
fund may sell new units at a price that is different from the NAV, but the
sale price cannot be higher than 107 % of NAV. Also the difference
between the repurchase price and the sale price of the unit is not
permitted to exceed 7% of the sale price.

We can measure mutual fund’s performance by different method:

• Absolute Return Method:

Percentage change in NAV is an absolute measure of return, which finds
the NAV appreciation between two points of time, as a percentage.
e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 12 months then
Absolute return = (22 – 20)/20 X 100 =10%

• Simple Annual Return Method :

Converting a return value for a period other than one year, into a value for
one year, is called as annualisation. In order to annualize a rate, we find
out what the return would be for a year, if the return behaved for a year,
in the same manner it did, for any other fractional period.
E .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months then
Annual Return = (22 – 20) /20 X 12/6 X 100 = 20%

• Total Return Method:

The total return method takes into account the dividends distributed by
the mutual fund, and adds it to the NAV appreciation, to arrive at returns.
Total Return =
(Dividend distributed + Change in NAV)/ NAV at the start X 100
e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months if in
between dividend of Rs.4 has been distributed then
Total Return = {4 + (22 – 20)}/20 X 100 = 30%

• Total Return when dividend is reinvested:

This method is also called the return on investment (ROI) method. In this
method, the dividends are reinvested into the scheme as soon as they are
received at the then prevailing NAV (ex-dividend NAV).
= ((Value of holdings at the end of the period/ value of the holdings at the
beginning) – 1)*100
E.g. An investor buys 100 units of a fund at Rs. 10.5 on January 1, 2007.
On June 30, 2007 he receives dividends at the rate of 10%. The ex-

dividend NAV was Rs. 10.25. On December 31, 2007, the fund’s NAV was
Rs. 12.25.
Value of holdings at the beginning period= 10.5*100= 1050
Number of units re-invested = 100/10.25 = 9.756
End period value of investment = 109.756*12.25 = 1344.51 Rs.
Return on Investment = ((1344.51/1050)-1)*100
= 28.05%

• Compounded Average Annual Return Method:

This method is basically used for calculating the return for more than 1
year. In this method return is calculated with the following formula:
A = P X (1 + R / 100) N
Where P = Principal invested
A = maturity value
N = period of investment in years
R = Annualized compounded interest rate in %
R = {(Nth root of A / P) – 1} X 100
E. g: If amount invested is Rs.100 & in the end we get return of Rs. 200
& period of investment is 10 years then annualized compounded return is
200 = 100 (1 + R / 100) 10
Rate = 7.2 %

Returns have to be studied along with the risk. A fund could have earned
higher return than the benchmark. But such higher return may be
accompanied by high risk. Therefore, we have to compare funds with the
benchmarks, on a risk adjusted basis. William Sharpe created a metric for
fund performance, which enables the ranking of funds on a risk adjusted

Sharpe Ratio = Risk Premium
Funds Standard Deviation
Treynor Ratio = Risk Premium
Funds Beta
Risk Premium = Difference between the Fund’s Average return and Risk
free return on government security or treasury bill over a given period .


Most of the funds being sold today are open-ended. That is, investors can
sell their existing units, or buy new units, at any point of time, at prices
that are related to the NAV of the fund on the date of the transaction.
Since investors continuously enter and exit funds, funds are actually able
to provide liquidity to investors, even if the underlying markets, in which
the portfolio is invested, may not have the liquidity that the investor


Expense ratio is defined as the ratio of total expenses of the fund to the
average net assets of the fund. Expense ratio can actually understate the
total expenses, because brokerage paid on transactions of a fund are not
included in the expenses. According to the current SEBI norms, brokerage
commissions are capitalized and included in the cost of the transactions.

Expense ratio = Total Expenses
Average Net Assets


Credit quality of the portfolio is measured by looking at the credit ratings
of the investments in the portfolio. Mutual Fund fact sheets show the
composition of the portfolio and the investments in various asset classes
over time.

Portfolio turnover rate is the ratio of lesser of asset purchased or sold by
funds in the market to the net assets of the fund.
If Portfolio ratio is 100% means portfolio has been changed fully. When
Portfolio ratio is high means expense ratio is high.

Portfolio Ratio = Total Sales & Purchase
Net Assets of fund

In order to meaningfully compare funds some level of similarity in the
following factors has to be ensured:

 Size of the funds
 Investment objective
 Risk profile
 Portfolio composition
 Expense ratios

Funds can be evaluated against some performance indicators which are
known as benchmarks.
There are various types of benchmarks:
 Relative to market as whole
 Relative to other comparable financial products
 Relative to other mutual funds
 Relative to market as whole:

There are different ways to measure the performance of fund with respect
to market as
Equity Funds
• Index Fund – An Index fund invests in the stock comprising of the
index in the same ratio. This is a passive management style.
For example,

Market Index Fund - BSE Sensex

Nifty Index Fund - NIFTY

The difference between the return of this fund and its index benchmark
can be explained by “TRACKING ERROR”.

• Active Equity Funds:
The fund manager actively manages this fund. To evaluate performance
in such case we have to select an appropriate benchmark.

Large diversified equity fund - BSE 100

Sector fund - Sectoral Indices

• Debt Funds:
Debt fund can also be judged against a debt market index e.g. I-BEX

 Relative to other comparable financial

Schemes Return Safety Volatility Liquidity

Equity High Low High High

FI Bonds Moderate High Moderate Moderate

Corporate Moderate Moderate Moderate Low
Debentures Low

Company Fixed
Moderate Low Low Low
Deposits Moderate

Bank Deposits Low High Low High

PPF Moderate High Low Moderate

Life Insurance Low High Low Low

Gold Moderate High Moderate Moderate

Real Estate High Moderate High Low

Mutual Funds High High Moderate High

Schemes Investment Risk Investment
Objective Tolerance Horizon
Equity Term Capital Appreciation High Long

FI Bonds Income Low Medium to
Long term

Corporate Income High Moderate Medium to
Debentures Long term
Company Fixed
Income Moderate Low Medium

Bank Deposits Income Generally Flexible all terms

PPF Income Low Long

Life Insurance Risk Cover Low Long

Gold Inflation Hedge Low Long

Real Estate Inflation Hedge Low Long


Tax benefits of investing in the Mutual Fund

As per the taxation laws in force as at the date of the Offer Document,
some broad income tax implications of investing in the units of the
Scheme are stated below. The information so stated is based on the
Mutual Fund's understanding of the tax laws in force as of the date of
the Offer Document, which have been confirmed by its auditors. The
information stated below is only for the purposes of providing general
information to the investors and is neither designed nor intended tobe
a substitute for professional tax advice. As the tax consequences are
specific to each investor and in view of the changing tax laws, each
investor is advised to consult his or her or its own tax consultant with
respect to the specific tax implications arising out of his or her or its
participation in the Scheme.

Implications of the Income-tax Act, 1961 as amended by the Finance
Act, 2006

To the Unit holders

(a.) Tax on Income

In accordance with the provisions of section 10(35)(a) of the Act,
income received by all categories of unit holders in respect of units of
the Fund will be exempt from income-tax in their hands.
Exemption from income tax under section 10(35) of the Act would,
however, not apply to any income arising from the transfer of these

(b.) Tax on capital gains:

As per the provisions of section 2(42A) of the Act, a unit of a Mutual
Fund, held by the investor as a capital asset, is considered to be a
short-term capital asset, if it is held for 12 months or less from the
date of its acquisition by the unit holder. Accordingly, if the unit is held
for a period of more than 12 months, it is treated as a long-term
capital asset.

Capital gains on transfer of units will be computed after taking into
account the cost of their acquisition. While calculating long-term
capital gains, such cost will be indexed by using the cost inflation index
notified by the Government of India.
Individuals and HUFs, are granted a deduction from total income,
under section 80C of the Act upto Rs.100,000, in respect of specified
investments made during the year (please also refer paragraph d).

Long-term capital gains
As per Section 10(38) of the Act, long-term capital gains arising from
the sale of unit of an equity oriented fund entered into in a recognized
stock exchange or sale of such unit of an equity oriented fund to the
mutual fund would be exempt from income-tax, provided such
transaction of sale is chargeable to securities transaction tax.
Pursuant to an amendment made in the Finance Act, 2006, effective 1
April 2006, companies would be required to include such long term
capital gains in computing the book profits and minimum alternated
tax liability under section 115JB of the Act.

Short -term capital gains
As per Section 111A of the Act, short-term capital gains from the sale
of unit of an equity oriented fund entered into in a recognized stock
exchange or sale of such unit of an equity oriented fund to the mutual
fund would be taxed at 10 per cent, provided such transaction of sale
is chargeable to securities transaction tax.

The said tax rate would be increased by a surcharge of:
- 10 per cent in case of non-corporate Unit holders, where the total
income exceeds Rs.1,000,000,
- 10 per cent in case of resident corporate Unit holders, and
- 2.5 per cent in case of non-resident corporate unit holders
irrespective of the amount of taxable income.

Further, an additional surcharge of 2 per cent by way of education cess
would be charged on amount of tax inclusive of surcharge.
In case of resident individual, if the income from short term capital
gains is less than the maximum amount not chargeable to tax, then
there will be no tax payable.

Further, in case of individuals/ HUFs, being residents, where the total
income excluding short-term capital gains is below the maximum
amount not chargeable to tax1, then the difference between the
current maximum amount not chargeable to tax and total income
excluding short-term capital gains, shall be adjusted from short-term
capital gains. Therefore only the balance short term capital gains will
be liable to income tax at the rate of 10 percent plus surcharge, if
applicable and education cess.

In case of non-resident unit holder who is a resident of a country with
which India has signed a Double Taxation Avoidance Agreement
(which is in force) income tax is payable at the rates provided in the
Act, as discussed above, or the rates provided in the such agreement,
if any, whichever is more beneficial to such non-resident unit holder.

Investment by Minors
Where sale / repurchase is made during the minority of the child, tax
will be levied on either of the parents, whose income is greater, where
the said income is not covered by the exception in the proviso to
section 64(1A) of the Act. When the child attains majority, such tax
liability will be on the child.

Losses arising from sale of units
- As per the provisions of section 94(7) of the Act, loss arising on
transfer of units, which are acquired within a period of three months
prior to the record date (date fixed by the Fund for the purposes of
entitlement of the unit holder to receive the income from units) and
sold within a period of nine months after the record date, shall not be
allowed to the extent of income distributed by the Fund in respect of
such units.

- As per the provisions of section 94(8) of the Act, where any units
("original units") are acquired within a period of three months prior to
the record date (date fixed by the Fund for the purposes of entitlement
of the unit holder to receive bonus units) and any bonus units are
allotted (free of cost) based on the holding of the original units, the
loss, if any, on sale of the original units within a period of nine months
after the record date, shall be ignored in the computation of the unit

holder's taxable income. Such loss will however, be deemed to be the
cost of acquisition of the bonus units.

--Each Unit holder is advised to consult his / her or its own
professional tax advisor before claiming set off of long-term
capital loss arising on sale / repurchase of units of an equity
oriented fund referred to above, against long-term capital gains
arising on sale of other assets.

- Short-term capital loss suffered on sale / repurchase of units
shall be available for set off against both long-term and short-
term capital gains arising on sale of other assets and balance
short-term capital loss shall be carried forward for set off against
capital gains in subsequent years.

- Carry forward of losses is admissible maximum upto eight
assessment years.

(c.) Tax withholding on capital gains

Capital gains arising to a unit holder on repurchase of units by the
Fund should attract tax withholding as under:

- No tax needs to be withheld from capital gains arising to a FII
on the basis of the provisions of section 196D of the Act.

- In case of non-resident unit holder who is a resident of a
country with which India has signed a double taxation avoidance
agreement (which is in force) the tax should be deducted at
source under section 195 of the Act at the rate provided in the
Finance Act of the relevant year or the rate provided in the said
agreement, whichever is beneficial to such non-resident unit
holder. However, such a nonresident unit holder will be required
to provide appropriate documents to the Fund, to be entitled to
the beneficial rate provided under such agreement.

- No tax needs to be withheld from capital gains arising to a
resident unit holder on the basis of the Circular no. 715 dated 8
August 1995 issued by the CBDT.

Subject to the above, the provisions relating to tax withholding in
respect of gains arising from the sale of units of the various schemes
of the fund are as under:

- No tax is required is to be withheld from long term capital
gains arising from sale of units in equity oriented fund schemes,
that are subject to securities transaction tax.

- In respect of short-term capital gains arising to foreign
companies (including Overseas Corporate Bodies), the Fund is
required to deduct tax at source at the rate of 10.46 per cent
(10 per cent tax plus 2.5 per cent surcharge thereon plus
additional surcharge of 2 per cent by way of education cess on
the tax plus surcharge). In respect of short-term capital gains
arising to non-resident individual unit holders, the Fund is
required to deduct tax at source at the rate of 11.22 per cent
(10 per cent tax plus 10 per cent surcharge thereon2 plus
additional surcharge of 2 per cent by way of education cess on
the tax plus surcharge).

(d.) Wealth Tax

Units held under the Schemes of the Fund are not treated as assets
within the meaning of section 2(ea) of the Wealth Tax Act, 1957 and
therefore, not liable to wealth-tax.

(e.) Securities Transaction Tax

Nature of Transaction Current tax rate Tax rate effective (%) 1 June
2006 (%) Delivery based purchase transaction in equity shares or
units of equity oriented fund entered in a recognized stock exchange
0.1 0.125 Delivery based sale transaction in equity shares or units of
equity oriented fund entered in a recognized stock exchange 0.1 0.125
Non-delivery based sale transaction in equity shares or units of equity
oriented fund entered in a recognized stock exchange. 0.02 0.025 Sale
of units of an equity oriented fund to the mutual fund 0.2 0.25 Value
of taxable securities transaction in case of units shall be the price at
which such units are purchased or sold.
A deduction in respect of securities transaction tax paid is not
permitted for the purpose of computation of business income or capital
However, if the total income of an assessee includes any business
income arising from taxable securities transactions, he shall be entitled
to a rebate3 from income-tax of an amount equal to the securities

transaction tax paid by him in respect of the taxable securities
transactions entered during the course of his business.

The maximum amounts of total income, not chargeable to tax are as
Type of person Maximum amount of income not chargeable to tax

Women Rs.135,000
Senior citizens Rs.185,000
Other individuals and HUFs Rs.100,000

A mutual fund is set up in the form of a trust, which has sponsor,
trustees, Asset Management Company (AMC) and custodian. The trust
is established by a sponsor or more than one sponsor who is like
promoter of a company. The trustees of the mutual fund hold its
property for the benefit of the unit holders. Asset Management
Company (AMC) approved by SEBI manages the funds by making
investments in various types of securities. Custodian, who is registered
with SEBI, holds the securities of various schemes of the fund in its
custody. The trustees are vested with the general power of
superintendence and direction over AMC. They monitor the
performance and compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of
trustee company or board of trustees must be independent i.e. they
should not be associated with the sponsors. Also, 50% of the directors
of AMC must be independent. All mutual funds are required to be
registered with SEBI before they launch any scheme.

Association of Mutual Funds in India (AMFI)
With the increase in mutual fund players in India, a need for mutual
fund association in India was generated to function as a non-profit
organization. Association of Mutual Funds in India (AMFI) was
incorporated on 22nd August, 1995.AMFI is an apex body of all Asset
Management Companies (AMC) which has been registered with SEBI.
Till date all the AMCs are that have launched mutual fund schemes are
its members. It functions under the supervision and guidelines of its
Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual
Fund Industry to a professional and healthy market with ethical lines
enhancing and maintaining standards. It follows the principle of both
protecting and promoting the interests of mutual funds as well as their
unit holders.

The objectives of Association of Mutual Funds in India: ---

The Association of Mutual Funds of India works with 30 registered
AMCs of the country. It has certain defined objectives which
juxtaposes the guidelines of its Board of Directors. The objectives are
as follows:-

 This mutual fund association of India maintains high
professional and ethical standards in all areas of operation of
the industry.

 It also recommends and promotes the top class business
practices and code of conduct which is followed by members
and related people engaged in the activities of mutual fund
and asset management. The agencies who are by any means
connected or involved in the field of capital markets and
financial services also involved in this code of conduct of the

 AMFI interacts with SEBI and works according to SEBIs
guidelines in the mutual fund industry.

 Association of Mutual Fund of India does represent the
Government of India, the Reserve Bank of India and other
related bodies on matters relating to the Mutual Fund

 It develops a team of well qualified and trained Agent
distributors. It implements a programme of training and
certification for all intermediaries and other engaged in the
mutual fund industry.

 AMFI undertakes all India awareness programme for investors
in order to promote proper understanding of the concept and
working of mutual funds.

At last but not the least association of mutual fund of India also
disseminate information on Mutual Fund Industry and undertakes
studies and research either directly or in association with other bodies.

The sponsors of Association of Mutual Funds in India: ---

- Bank Sponsored

- SBI Fund Management Ltd.

- BOB Asset Management Co. Ltd.

- Canbank Investment Management Services Ltd.

- UTI Asset Management Company Pvt. Ltd.

Institutions -

- GIC Asset Management Co. Ltd.

- Jeevan Bima Sahayog Asset Management Co. Ltd.

Private Sector: -

Indian -

- BenchMark Asset Management Co. Pvt. Ltd.

- Cholamandalam Asset Management Co. Ltd.

- Credit Capital Asset Management Co. Ltd.

- Escorts Asset Management Ltd.

- JM Financial Mutual Fund

- Kotak Mahindra Asset Management Co. Ltd.

- Reliance Capital Asset Management Ltd.

- Sahara Asset Management Co. Pvt. Ltd

- Sundaram Asset Management Company Ltd.

- Tata Asset Management Private Ltd.

- Predominantly India Joint Ventures:-

- Birla Sun Life Asset Management Co. Ltd.

- DSP Merrill Lynch Fund Managers Limited

- HDFC Asset Management Company Ltd.

Predominantly Foreign Joint Ventures:-

- ABN AMRO Asset Management (I) Ltd.

- Alliance Capital Asset Management (India) Pvt. Ltd.

- Deutsche Asset Management (India) Pvt. Ltd.

- Fidelity Fund Management Private Limited

- Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.

- HSBC Asset Management (India) Private Ltd.

- ING Investment Management (India) Pvt. Ltd.

- Morgan Stanley Investment Management Pvt. Ltd.

- Principal Asset Management Co. Pvt. Ltd.

- Prudential ICICI Asset Management Co. Ltd.

- Standard Chartered Asset Mgmt Co. Pvt. Ltd.

1. Determine your financial objectives and how much money
you have to invest. Make sure the fund’s objectives coincide with
your own. Don’t change your objectives or exceed the amount set
aside for investment unless you have good reason.

2. Always obtain all available information before you invest.
Request the prospectus, the Statement of Additional Information and
the latest shareholder report from each fund you are considering.

3. Never invest in periodic payment plans unless you are
virtually certain that you will not have to redeem early. If you
redeem early or do not complete the plan, you may have to pay sales
charges of up to 51% of your investment.

4. Be on the alert for incorporation by reference. You will have
"no excuse" for not knowing this information, if a problem arises. You
may be legally presumed to know materials incorporated by reference
in a prospectus or other documents.

5. Always determine all sales charges, fees and expenses
before you invest. Fees such as 12b-1 fees can cost you dearly and
charges for reinvestment of dividends and capital gains distributions
can substantially add to your costs. Shop around among the many
funds offered and compare the various fees and costs connected with
funds that appeal to you.

6. Learn the costs of redemption. Sometimes investors are
surprised to learn that they have to pay to get out of funds through
back-end loads or redemption fees. Find out the redemption costs
before you invest so you won’t be unpleasantly surprised when you
redeem your shares.

7. Never treat the risks of investment in a fund lightly. Weigh
the risks of the funds you want to buy against your ability to tolerate
the ups and downs of the market and your investment goals. Be extra
cautious when considering investing in funds with high yield/high risk
portfolios. Junk bond problems, for example, invariably affect the

fund’s performance.

8. Don’t be misled by the name of a fund. Some funds have been
given names denoting safety, stability and low risk, despite the fact
that the underlying investments in the portfolio are volatile and highly


This study is conducted in order to find out:-

- Current trends of mutual funds in the Indian market.

- Investor’s perception towards mutual funds investment option.

- Different views of professional advisors.

The study of this nature is being conducted on the behalf of IDFC AMC
(Standard charted) for prediction of future of mutual funds in Indian
emerging market. A high level of competition entering the mutual
funds sector, companies need to catch up with the ever changing
demands of the industry. The study is being conducted to get an edge
over other MFs houses in the mutual fund industry. It is also done in
order to know as to how much knowledge and money the consumers
contribute in the MFs schemes.

Survey Methodology
Survey comprises collecting, organizing, and evaluating data, reaching
at a specific conclusion and at the same time careful evaluation of the
conclusion. Collection of data has been done by two ways (1) primary
data collection; and (2) secondary data collection, through
questionnaires and websites. Area of data collection was HDFC Bank
branches at Chandni chowk, Ashok vihar (Delhi). Analysis of data has
been done with the help of spss software. Conclusion is drown from
result of different data processing and articles analyzation.


The survey was conducted in chandni chowk and ashok vihar. The
standard of living, per capita income of people, earning style, etc. of

this region is different from other areas. Therefore, the inferences
drawn from the survey can’t be generalized.

Another major limitation was unwillingness of respondents to reveal
information. Due to lack of sufficient time and hesitation to reveal
information regarding their investments, it was a difficult task to
extract information from them.
Sample size was also small i.e. 100. Therefore, it is very difficult to
infer correct conclusions from small sample.


1. This graph clearly shows that young people are more likely to visit
bank branches. Thus more chances of getting long term, more risk
taker and aggressive investors.

Figure 1

Age group

2. Here data shows that people are willing to earn more return than
that of they earn in traditional ways of investment.

Figure 2

Expected returns

3. This graph predicts that generally consumers keep a smaller part of
their disposable income aside for different investment options.

Figure 3

% of disposable income

4. This graphical representation clearly shows that investors give
smaller part of their investment pool to mutual funds investment.

Figure 4

% of total investment

5. These pillars provide a clear thought to our mind that in India
professional advisors are more reliable source to get mutual funds
related information.

Figure 5

No. of persons

6. This chart is showing that Indian investors are willing to stay
invested for time duration of more than 12 months. They have
patience, they want to earn more money on their investment, and this
is a bright sign for mutual funds industry.

Figure 6

# Study found that more young people are likely to involved in financial
activities. They frequently visit banks and meet financial advisors. This
is an opportunity for mutual funds houses to attract these people.

# More than 50% of surveyed persons were willing to take high risk
for high rate of return. This indicates that riskier investment options
can also attract big pool of money if investors are properly convinced.

# Study shows professional advisors are considered to be a more
reliable source of mutual funds information, not because they provide
human touch to investor but others are not aggressively proposed,
advertised, availed and used.

# An observation made by study was, many a time advisors
themselves do not get timely updates from AMCs. This leads them to
not offer some of schemes that may give good returns.

# Technological advancements are at a nascent stage. Therefore these
channels will take time to come into the picture. In other words these
are seems to narrow ways to walk.

# Surveyed persons do not have knowledge of more than 10 AMCs
names and not more than 7 schemes of any one of mutual fund
houses. This requires an aggressive marketing of funds, so that
awareness levels of investor can be improved.

Professional advisors think that investors are not educated properly.
They (investor) rely on what others say or what they (advisors) say.
It’s easy to convince them for investment but not so easy to make
them clear about market affecting factors. “Stock market is going low
and I am already losing, you are asking for investment in market,
sorry I am not interested.” an investor grievance.

India is an emerging market. Consumption level is rising with rising
earning level. Economic indicators - micro and macro both show a sky
facing arrows. Data shows that there will be more number of
billionaires from India than any of other country.

We know that Indians are earning more, therefore spending more, but
the question is how much they save/invest in order to secure their
future. There are numbers of traditional ways of saving. They give
guaranteed return with low risk. High risk associated investment
options was not considered a right decision. India is a young country
having a considerably big part of young people. They need a right
direction for investment options.

Mutual funds industry is enlarging its size in India. JVs, foreign JVs and
acquisitions are in trend. AUM has gone to $8 trillion, number of
investors is rising, and number of AMCs is going up. These changes
are likely to happen. Indian monetary policy is supporting new
business. Private sector is aggressively participating in mutual funds
business. Numbers of schemes are much more than earlier.

With such shining sides, double digit inflation rate, bearish stock
market, RBI’s high bank rates, squeezing liquidity and other dark sides
putting pressure on consumers saving. This situation pushes investors
back from investment. They wait and hold cash rather than investing.
This study found that investors are willing to invest with high rate of
return. They know high return always adhere to high risk but market
still is not in correction mode. It will take time.

Indian market potential is high, investors are willing to pour money in
mutual funds, despite some temporary restraints, other economic
factors are in favorable mode. Thus we need proper management of
advisory services, more schemes, financial advisors and institutions to
cater untouched markets.

The industry needs to revise its business strategy. Investor’s
perception is not prioritized yet. Instead of completing targets,
advisors working under institutions should consider the requirement of
investors. We need to change pattern of selling mutual funds schemes.


For staff of Standard Chartered (Sansad Marg)

1. How long have you been selling mutual funds?

2. By what way did you used to communicate to your clients?

3. Do you still follow the same modes?

4. Industry is changing, consumer`s perception is changing,
Indian economy is also dynamic, growing, how do you justify
your job with such a changing scenario?

5. How do you describe ‘technological innovation in mutual
funds ‘, by what extent seen and foreseen changes are caused
by it?

6. If I keep all recommendations aside and simply ask you,
what factors do you consider before suggesting any scheme to a
prospective client?

7. Demand and supply mechanism moreover is applicable to
buying and selling, what is the present seen of this mechanism
for mutual funds in India?

8. Data says that in US number of mutual funds schemes are
more than that of number of listed companies at stock exchange
whereas in India not more than 1000 schemes. How do you
react on this situation?

9. One side double digit inflation rate, RBI’s norms for curbing
liquidity from market, high price of fuel, are putting pressure on
consumer’ s savings, on the other side SEBI and RBI are relaxing
norms for AMCs business. How these two repelling poles can
stand simultaneously?

10. Number of distribution channels is increasing just to cater
untouched market. What do you think?

11. Finally, where do you see this industry in coming 10years


For clients of Standard Chartered Priority(Sansad


1. Which of the following age bands do you fall in to?

 Less than 21

 21 to 25

 25 to 35

 35 to 60

 Above 60

2. What is your primary source of income?

 Your pension

 Your salary

 Income from your business

 Rental income from investment properties

3. What is your return expectation on your investment?

 Up to 8%

 Between 8% to 18%

 Above 18%

4. How would you describe/rate your level of knowledge of
financial products?

 Low level of knowledge

 Medium level of knowledge

 High level of knowledge

5. What level of risk are you willing to accept on your investment?

 I want to protect my capital

 I am comfortable with a small degree of risk

 I am comfortable accepting the fact that investment
could decline

 I am willing to tolerate putting my principal at risk by
investing in volatile investments

6. What percent of your disposable income do you keep aside for
different investment options?

 0% to 5%

 5% to 10%

 10% to 15%

 15% to 20%

 20% to 30%

 Above 30%

7. What percent of above mentioned percentage part do you
invest in mutual funds?

 0% to 5%

 5% to 10%

 10% to 20%

 20% to 30%

 30% to 50%

 Above 50%

8. Which of the following source of mutual funds information do
you like to opt for?

 Professional advisory

 Company advisory

 Mutual fund prospects

 Newspaper, magazine, television

 Mutual fund rating service

9. How long are you planning to stay invested?

 Long term > 12 months

 Medium term 6 – 12 months

 Short term < 6 months

10. How likely are you stay invested during volatile times?

 Unlikely you will stay invested

 Likely you will stay invested

 Highly likely to remain invested

The following is a list of words associated with mutual funds
and their meanings.

Back-end Load - Charge imposed by a mutual fund when an
investor redeems shares. Redemption fees and contingent
deferred sales charges are examples.

Contingent Deferred Sales Charges - Back-end load imposed on
an investor who redeems shares. It is usually expressed as a
percentage of the original purchase price or of the value of
shares redeemed. In most cases, the longer the investor holds
his shares, the smaller the deferred sales charge.

Distribution - Payments made to shareholders by the mutual
fund. Interest and stock dividends earned by the fund’s portfolio
are passed to shareholders as dividends, while capital gains are
passed as capital gains distributions.

Dividend Reinvestment Fee - Fee charged when an investor uses
dividends paid by a mutual fund to purchase additional shares of
the mutual fund.

Exchange Fee - Fee charged when an investor switches from one
mutual fund to another in the same family of funds.

Front-end Load - Sales charge applied at the time the investor
purchases shares.

Investment Companies - The companies that pool investor
monies to purchase securities. The Investment Company Act of
1940 created three types of investment companies: face-amount
certificate companies, unit investment trusts and management

Management Companies - There are two types: open-end and

closed-end. Open-end funds, which sell and buy shares back on
demand, are called mutual funds. Closed-end funds have a fixed
number of shares. After the initial public offering, shares in
closed-end funds trade only on exchanges. The price is
determined by the market and does not necessarily reflect the
net asset value of the shares.

Management Fee - A fee paid by the mutual fund to its
investment adviser and charged against fund assets, generally
1% or less per year.

Net Asset Value - In effect, the share price of a fund computed
daily by adding the value of the fund’s securities and other
assets, subtracting liabilities, and dividing by the number of
shares outstanding. For a mutual fund with a front-end load, net
asset value is identical to the "asked price" or "offering price."

Prospectus - A disclosure document which should provide the
investor with full and complete disclosure of all material
information needed by the investor to make a decision whether
or not to invest. The prospectus generally incorporates the SAI
by "reference." (See SAI definition.)

Redemption Fee - A fee charged to an investor who redeems
shares. It is generally expressed as a percentage of the value of
shares redeemed.

Rule 12b-1 Fee - An asset-based sales load, permitted by SEC
Rule 12b-1, representing annual charges of up to 1-1/4% for
specific sales or promotional activities of the mutual fund. Over
time, the amount paid in Rule 12b-1 fees can surpass the
amount paid in sales fees charged by load funds.

SAI - A disclosure document called a Statement of Additional
Information. The SAI is not required to be furnished by mutual
funds to investors unless investors specifically request it.
Investors are responsible for information in the SAI, even if they
don’t request it.

Total Return -A computation of mutual fund performance which
measures changes in total value over a specified time period.
Included in the computation are distributions paid to investors,
capital gains distributions and unrealized capital gains and
losses. Since all fund activity which has an effect on net asset
value is represented, this measure provides a picture of
performance which is more complete than yield.

Yield - A measure of mutual fund performance, which is figured
by dividing the income generated (dividends, capital gains
distribution, etc.) per share for a specific time period by the
fund’s current price per share. For example if, during a year, a
single share of a fund had paid income totaling $1 and its share
price was $10, the annual yield for that year would be figured by
dividing 1 by 10, which equals one tenth, or a yield of 10%.