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Project Report on SWOT analysis of

S yn op si s
Chapter 1:- introduction to project report
• general introduction
• objectives of the study
• research design

Chapter 2:- theoretical aspect of mutual funds


• introduction to mutual funds
• history of mutual fund industry
• different schemes of mutual funds
• players of mutual fund industry

Chapter 3:- profile of lic mutual funds


• history of lic mutual fund
• different schemes of lic mf’s

Chapter 4:- a valuation of NAV’s & swot analyis

• valuations of nav’s

• brief about swot analysis

Chapter 5:- evaluation & swot analysis of lic


mutual fund

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Chapter 6:- findings & suggestions


Bibliography
QUESTIONERIE

Chapter 1:- introduction to project report

• general introduction
• objectives of the study
• research design

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General introduction to mutual fund

The Indian capital market has witnessed


unprecedented developments and innovations
particularly during the decades of 80s and 90s.
These innovations, inter-alia, relate to new financial
instruments, new financial institutions such as
mutual funds, and a variety of financial services like
merchant banking, credit rating, factoring etc. In
the changed environment the mutual funds are
playing a vital role in financial intermediation,
development of capital markets and the growth of
the corporate sector. Despite the fact that Indian
mutual fund industry is relatively new, it has grown
at a rapid speed, influencing various sectors of the
financial market and the national economy. Infact,
mutual funds have now become an important medium
of investment for the average Indian investor. By
enabling the investor to indirectly participate in the
capital markets and to reap the gains of adequate
diversification and professional management, mutual
funds have become an important constituent of the
Indian financial system.

Conceptually, a mutual fund is a single large


professionally managed investment organization that
combines the money of many individual investors
having similar investment objectives. It invests this
money in a wide variety of securities and individual

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investors share its income and expenses, its profits


and losses, its capital appreciation and growth in
proportion to their shareholdings.

Objectives towards project report study;-

1. TO KNOW ABOUT THE MUTUAL FUND

INDUSTRY

2. TO KNOW ABOUT THE MUTUAL FUND

PERFORMANCE

3. T O K N O W A B O U T T H E S W O T A N A LY S I S O F

LIC MUTUAL FUND

4. T O K N O W A B O U T T H E N A V ’ S O F M UT U A L

FUND

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RESEARCH DESIGN
Descriptive research design is used for the survey.

SAMPLE DESIGN: Samples are selected randomly in

Bellary city.50 samples are surveyed for the purpose of

study for MUTUAL FUND OF LIC MUTUAL FUND and other

company’s data was collected from web site.

DATA COLLECTION

The information is based on the primary data and

secondary data

PRIMARY DATA

It is collected from the investors through

Questionnaires and interviews.

SECONDARY DATA

It is obtained from the past records and files of

the organization journals, newspaper, magazines and

web site.

The information is classified and tabulated and

suitable charts are drawn for the analysis. The

inferences are made based on these charts and figures

and conclusions are drawn.

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SCOPE OF STUDY

The study covers those investors who have

invested in MUTUAL FUND SCHEMES as well as some

non-investors. It is restricted to Bellary city.

Chapter 2:- theoretical aspect of


mutual funds

• introduction to mutual funds


• history of mutual fund industry
• different schemes of mutual funds
• players of mutual fund industry

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INTRODUCTION TO MUTUAL FUND

A Mutual Fund is a trust that pools the savings


of a number of investors who share a common
financial goal. The money thus collected is invested
by the fund manager in different types of securities
depending upon the objective of the scheme. These
could range from shares to debentures to money
market instruments. The income earned through
these investments and the capital appreciations
realized by the scheme are shared by its unit
holders in proportion to the number of units owned
by them (pro rata). Thus a Mutual Fund is the most
suitable investment for the common man as it offers
an opportunity to invest in a diversified,
professionally managed portfolio at a relatively low
cost. Anybody with an inventible surplus of as little
as a few thousand rupees can invest in Mutual
Funds. Each Mutual Fund scheme has a defined
investment objective and strategy.

A mutual fund is the ideal investment vehicle


for today’s complex and modern financial scenario.
Markets for equity shares, bonds and other fixed
income instruments, real estate, derivatives and
other assets have become mature and information
driven. Price changes in these assets are driven by
global events occurring in faraway places. A typical

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individual is unlikely to have the knowledge, skills,


inclination and time to keep track of events,
understand their implications and act speedily. An
individual also finds it difficult to keep track of
ownership of his assets, investments, brokerage
dues and bank transactions etc.

A mutual fund is the answer to all these


situations. It appoints professionally qualified and
experienced staff that manages each of these
functions on a full time basis. The large pool of
money collected in the fund allows it to hire such
staff at a very low cost to each investor. In effect,
the mutual fund vehicle exploits economies of scale
in all three areas - research, investments and
transaction processing. While the concept of
individuals coming together to invest money
collectively is not new, the mutual fund in its
present form is a 20th century phenomenon. In fact,
mutual funds gained popularity only after the
Second World War. Globally, there are thousands of
firms offering tens of thousands of mutual funds
with different investment objectives. Today, mutual
funds collectively manage almost as much as or
more money as compared to banks.

A draft offer document is to be prepared at the


time of launching the fund. Typically, it pre
specifies the investment objectives of the fund, the

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risk associated, the costs involved in the process


and the broad rules for entry into and exit from the
fund and other areas of operation. In India, as in
most countries, these sponsors need approval from
a regulator, SEBI (Securities exchange Board of
India) in our case. SEBI looks at track records of the
sponsor and its financial strength in granting
approval to the fund for commencing operations.

A sponsor then hires an asset management


company to invest the funds according to the
investment objective. It also hires another entity to
be the custodian of the assets of the fund and
perhaps a third one to handle registry work for the
unit holders (subscribers) of the fund.

In the Indian context, the sponsors promote the


Asset Management Company also, in which it holds a
majority stake. In many cases a sponsor can hold a
100% stake in the Asset Management Company
(AMC). E.g. Birla Global Finance is the sponsor of
the Birla Sun Life Asset Management Company Ltd.,
which has floated different mutual funds schemes
and also acts as an asset manager for the funds
collected under the schemes.

Mutual funds refer to the funds raised by


financial service companies by pooling the savings
of the public and investing them in a diversified

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portfolio. They provide investment avenues for small


investors who cannot participate in the equities of
big companies. Mutual funds have been floated by
some sector banks, lic, gic and recently by private
sector also.

It is a capital market intermediary under


organized sector & generally a secondary market or
securities.

Organized market: In the organized markets,


1.
there are standardized rules and regulations
governing their financial dealings. There is also a
high degree of institutionalization and
instrumentalisation. These markets are subject to
strict supervision and control by RBI or other
regulatory bodies.
These organized markets can be further classified
into two. They are:
i. Capital market
ii. Money market

Capital market: The capital market is a market


2.
for financial assets which have a long or
indefinite maturity. Generally, it deals with long
term securities which have a maturity period of
above one year. Capital market may be further
divided into three namely:
i. Industrial securities market

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ii. Government securities market and


iii. Long term loans market

Secondary market or securities: These are


3.
securities issued by some intermediaries called
Financial Intermediaries to the ultimate
savers.eg, UTI, LIC and Mutual funds issue
securities in the form of units to public and the
money pooled is invested in companies.
Again these securities may be classified on the
basis of duration as follows:
i. Short-term securities
ii. Medium term securities
iii. Long-term securities

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Mutual Funds Industry in India


The origin of mutual fund industry in India is with

the introduction of the concept of mutual fund by UTI in

the year 1963. Though the growth was slow, but it

accelerated from the year 1987 when non-UTI players

entered the industry.

In the past decade, Indian mutual fund industry

had seen a dramatic improvement, both qualities wise

as well as quantity wise. Before, the monopoly of the

market had seen an ending phase; the Assets Under

Management (AUM) was Rs.67bn. The private sector

entry to the fund family raised the AUM to Rs.470 bn in

March 1993 and till April 2004; it reached the height of

1,540bn.

Putting the AUM of the Indian Mutual Funds

Industry into comparison, the total of it is less than the

deposits of SBI alone, constitute less than 11% of the

total deposits held by the Indianbankingindustry.

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The main reason of its poor growth is that the

mutual fund industry in India is new in the country.

Large sections of Indian investors are yet to be

intellectuated with the concept. Hence, it is the prime

responsibility of all mutual fund companies, to market

the product correctly abreast of selling.

The mutual fund industry can be broadly put into

four phases according to the development of the sector.

Each phase is briefly described as under.

First Phase - 1964-87

U nit Trus t of India (U TI) was es ta blis he d on 1963

by a n Ac t of Pa rlia m e nt. It wa s se t up by the Re s e rv e

Ba nk of India and func tione d unde r the Re gula tory a n d

a dm inis tra tiv e c ontrol of the Re s e rv e Ba nk of India . In

1978 U TI wa s de - link e d from the RBI and the Indus tria l

De v e lopm e nt Ba nk of India ( IDBI) took ov e r th e

re gula tory and a dm inis tra tiv e c ontrol in pla c e of RBI.

The firs t s c he m e la unc he d by U TI was U nit Sc he m e

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1964. At the e nd of 1988 U TI ha d Rs .6,700 c rore s of

a ss e ts unde r m a na ge m e nt.

Second Phase - 1987-1993 (Entry of Public Sector

Funds)

Entry of non-UTI mutual funds. SBI Mutual Fund

was the first 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 in 1989 and GIC in

1990. The end of 1993 marked Rs.47,004 as assets

under management.

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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

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several mergers and acquisitions. As at the end of

January 2003, there were 33 mutual funds with total

assets of Rs.1, 21,805 crores. The Unit Trust of India

with Rs.44, 541 crores of assets under management was

way ahead of other mutual funds.

Fourth Phase - since February 2003

This phase had bitter experience for UTI. It was

bifurcated into two separate entities. One is the

Specified Undertaking of the Unit Trust of India with

AUM of Rs.29,835 crores (as on January 2003). The

Specified Undertaking of Unit Trust of India,

functioning under an administrator and under the rules

framed by Government of India and does not come

under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored

by SBI, PNB, BOB and LIC. It is registered with SEBI and

functions under the Mutual Fund Regulations. With the

bifurcation of the erstwhile UTI which had in March

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2000 more than Rs.76,000 crores of AUM and with the

setting up of a UTI Mutual Fund, conforming to the SEBI

Mutual Fund Regulations, and with recent mergers

taking place among different private sector funds, the

mutual fund industry has entered its current phase of

consolidation and growth. As at the end of September,

2004, there were 29 funds, which manage assets of

Rs.153108 crores under 421 schemes.

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

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Mutual Fund Operation Flow Chart

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A Mutual Fund provides an opportunity to invest in


a diversified professionally managed basket of
securities at a relative low cost. It is an alternative
investment product, wherein investments in income
funds may offer better prospects in comparison to
fixed deposits /debentures/bonds. However, since
the portfolio of a growth oriented fund includes
substantial investments in equities, its exposure to
market risk is higher than that of a bank deposit.

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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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ORGANIZATION OF A MUTUAL FUND

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Several parties are involved in the organization


and operation of a mutual fund, including:

Mutual Fund Manager: Establishes one or more


mutual funds, markets them and oversees their
general administration

Portfolio Adviser: The professional money manager


appointed by the Mutual Fund Manager to direct the
fund's investments. The Mutual Fund Manager also
often acts as the Portfolio Adviser

Principal Distributor: Coordinates the sale of the


fund to investors, either directly or through a
network of registered dealers

Custodian: The bank or trust company appointed by


the Mutual Fund Manager to hold all of the
securities owned by the fund

Transfer Agent and Registrar: The group responsible


for maintaining a list of all investors in the fund

Auditor: The independent accountants retained by


the Mutual Fund Manager to audit each year, and
report on the financial statements of the fund

Trustee: The entity that has title to the securities


owned by the fund (when the fund is organized as a

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trust, instead of as a corporation) on behalf of the


unitholders

A Mutual Fund is set up in the form of a trust,


which has Sponsor, Trustees, Asset Management

Company (AMC) and custodian.

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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. Regular
expenses like custodial fees, cost of dividend
warrants, register fees, AMC Fee is borne by the
individual schemes. However these regular expenses
cannot exceed 2.5% of the assets of a scheme in a
year in case of equity schemes and 2.25% of assets
in case of debt schemes.

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 register with SEBI
before they launch any scheme.

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AMC gets an annual fee for managing the funds.


This fee is fixed by SEBI at a maximum of 1.25% of
the funds managed. However for funds managed in
excess of Rs.100 crores this fees can be maximum
of only 1%.

SEBI GUIDELINES FOR MUTUAL FUND


AUTHORISATION
To bring transparencies in the matter of
authorization of mutual fund, the Securities and
Exchange Board of India (SEBI) has outlined the
board framework of authorization process and
selection criteria. Accordingly, the authorization for
the mutual fund will be granted in two steps.

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The first step will involve approval and


1.
eligibility of each of the constituents of the
mutual fund Sponsors, Trustees, Asset
Management Company (AMC) and custodian.
For this purpose the interested parties would
required to submit necessary information only in
formats which could be obtained from SEBI’s
office on a written request.
The second stage will involve formal
2.
authorization of the mutual funds for business.
For this the sponsor or the AMC would be required
to apply to SEBI in an application form for
authorization along with an application fee to be
specified later.

The authorization shall be granted subject to


conditions as may be considered necessary by SEBI
and payment of authorization fee as may be
specified. It shall be SEBI’s endeavour to advise an
application within 10 to 15 working days of receipt
of his letter/application form regarding status of his
application.

The eligibility of the sponsor will be examined


with respect to the following:
a) Sponsor could be a registered company,
scheduled bank or all India or state level financial
institution.

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b) More than one registered company can also act


as sponsor for a mutual fund.
c) Joint sponsorship with any of the entities in (a)
above will also be eligible,and
d) Sponsoring registered companies could be
private or public limited companies either listed
or unlisted.

Sponsor and where there is more than one


sponsor, each of the sponsoring entities, must have
a sound track record as evidenced by;
a) Audited balance sheet and profit loss account
for last five years;
b) A positive net worth and consistent record of
profitability and a good financial standing during
the last five years;
c) Good credit record with banks and financial
institutions;
d) General reputation in market;
e) Organization and management, and
f) Fairness in business transactions.

Sponsor or more than one sponsor put together


should have a 40 percent stake in the paid-up
equity of the AMC.

The AMC will be authorized by SEBI on the basis


of the criteria indicated in the guidelines.

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SEBI REGULATIONS
SEBI regulations clearly state that all funds and
schemes operational under them would be bound by
their regulations. SEBI has recently taken following
steps for the regulation of mutual funds:

Formation: Certain structural changes have also


1)
been made in the mutual fund industry, as part of
which mutual funds are required to set up asset
management companies with fifty percent of
independent directors, separate board of trustee
companies, consisting of a minimum fifty percent of
independent trustees and to appoint independent
custodians. This is ensure an arm’s length
relationship between trustees, fund managers and
custodians, and is in contrast with the situation
prevailing earlier in which all three functions were
often performed by one body which was usually the
sponsor of the fund or a subsidiary of the sponsor.
Thus, the process of forming and floating mutual
funds has been made a tripartite exercise by
authorities. The trustees, the asset management
companies (AMCs) and the mutual fund shareholders
form the three legs. SEBI guidelines provide for the
trustees to maintain an arm’s length relationship with
the AMCs and do all those things that would secure
the right of investors.
With funds being managed by AMCs and custody of
assets remaining with trustees, an element of

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counter-balancing of risks exists as both can keep


tabs on each other.

Registration : In January 1993, SEBI prescribed


2)
registration of mutual funds taking into account track
record of a sponsor, integrity in business transactions
and financial soundness while granting permission.
This will curb excessive growth of the mutual funds
and protect investor’s interest by registering only the
sound promoters with a proven track record and
financial strength. In February 1993, SEBI cleared six
private sector mutual funds viz.20 t h Century Finance
Corporation, Industrial Credit & Investment
Corporation of India, Tata Sons, Credit Capital
Finance Corporation, Ceat Financial Services and
Apple Industries.

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Documents : The offer documents of schemes


3)
launched by mutual funds and the scheme particulars
are required to be vetted by SEBI. A standard format
for mutual fund prospectuses is being formulated.

Code of advertisement : Mutual funds have been


4)
required to adhere to a code of advertisement.

Assurance on returns : SEBI has introduced a


5)
change in the Securities Control and Regulations Act
governing the mutual funds was. Now the mutual
funds were prevented from giving any assurance on
the kind of returns they would be providing. However,
under pressure from the mutual funds, SEBI revised
the guidelines allowing assurances on return subject
to certain conditions. Hence, only those mutual funds
which have been in the market format least five
years are allowed public sector mutual funds an
advantage against the newly set up private mutual
funds.
As per basic tenets of investment, it can be
justifiably argued that investments in the capital
market carried a certain amount of risk, and any
investor investing in the markets with an aim of
making profit from capital appreciation, or otherwise,
should also be prepared to bear the risks of loss.

Minimum corpus : The current SEBI guidelines on


6)
mutual funds prescribe a minimum start-up corpus of

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Rs.50 crore for an open-ended scheme, and Rs.20


crore corpuses for closed-ended scheme, failing
which application money has to be refunded.
The idea behind forwarding such a proposal to SEBI
is that in the past, the minimum corpus requirements
have forced AMC’s to solicit funds from corporate
bodies, thus reducing mutual funds into quasi-
portfolio management outfits. In fact, the Association
of Mutual Funds in India (AMFI) has repeatedly
appealed to the regulatory authorities for scrapping
the minimum corpus requirements.

Institutionalization : The efforts of SEBI have, in


7)
the last few years, been to institutionalization the
market introducing proportionate allotment and
increasing the minimum deposit amount to Rs.5000
etc. These efforts are to channel the investment of
individual investors into the mutual funds.

Investment of funds mobilized : In November


8)
1992, SEBI increased the time limit from six months
to nine months within which the mutual funds have to
invest resources raised from the latest tax saving
schemes. The guidelines was issued or protect the
mutual funds from the disadvantage of investing
funds in the bullish market at very high prices and
suffering from poor NAV thereafter.

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Investment in money market : SEBI guidelines


9)
say that mutual funds can invest a maximum of 25
percent of resources mobilized into money-market
instruments in the first six months after closing the
funds and a maximum of 15 percent of the corpus
after six months to meet short term liquidity
requirements. Private sector mutual funds, for the
first time, were allowed to invest in the call money
market after this year’s budget.
As SEBI regulations limit their exposure to money
markets, mutual funds are not major players in the
call money market. SEBI also conclude that mutual
funds were not responsible for the unprecedented
shooting up of call money rates.
Some funds exceeded their limits in an effort to
improve their sagging net asset values (NAVs).
Usually, funds can early only about 9-12 percent.
Thus, the prospect of earning more than 40
percent may have been tempting.

Valuation of investment : SEBI should work in


10)
tandem with the Institute of Chartered Accounts of
India (ICAI) to take up a fresh look at mutual fund
regulations enacted in 1993. The valuation of
investments a key aspect of fund accounting, an on
balance sheet date, need review. SEBI regulations
1993, give discretionary powers to the fund
managers as far as the valuation of the investment
portfolio on the balance sheet date is concerned.

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There are no accounting standards or guidelines


prescribed by the ICAI for the valuation of a mutual
fund’s investment portfolio.

The mutual funds are clearly taking advantage of


this situation and valuing the portfolio at cost of
acquisition. The subsequent depreciation in the
investment portfolio are not accounted for. Thus, the
mutual funds may be able to show profits in balance
sheet even if there is severe erosion in the value of
the investment portfolio. This as on the balance
sheet date. But the accounts of the mutual funds do
not reveal the same.

The objective of the accounting in case of a


mutual fund should be besides showing details of
income, expenses, assets and liabilities, has to reveal
the true value of the fund. The value of the fund is
already reflected in its NAV and the balance sheet is
expected to be in consonance with this values. This
requires that the investment portfolio be calculated
at market values, providing for any depreciation or
appreciation.

The transparent and well understood declaration


or Net Asset Values (NAVs) of mutual fund schemes is
an important issue in providing investors with
information as to the performance of the fund. SEBI
had warned some mutual funds earlier of unhealthy

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market practices, and is currently working on a


common format for calculating the net asset values
(NAVs) of mutual funds, which are done in various
ways by them at present.

Inspection : SEBI inspect mutual funds every year.


11)
A full SEBI inspection of all the 27 mutual funds was
proposed to be done by the March 1996 to streamline
their operations and protect the investor’s interests.
Mutual funds are monitored and inspected by SEBI to
ensure compliance with the regulations.

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Underwriting : In July 1994, SEBI permitted


12)
mutual funds to take up under writing of primary
issues as a part of their investment activity. This step
may assist the mutual funds in diversifying their
business.
Conduct : In September 1994, it was clarified by
13)
SEBI that mutual funds shall not offer buy back
schemes or assured returns to corporate investors.
The regulations government Mutual Funds and
Portfolio Managers ensure transparency in their
functioning.

Voting rights : In September 1993, mutual funds


were allowed to exercise their voting rights.
Department of Company Affairs has reportedly
granted mutual funds the right to vote as full-
fledged shareholders in companies where they
have equity investments.

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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.

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Types of Mutual Fund:-

Mutual fund schemes may be classified on the basis


of its structure and its investment objective.

By Structure:-

Op e n- e nd ed Fund s

An open-end fund is one that is available for


subscription all through the year. These do not have
a fixed maturity. Investors can conveniently buy and
sell units at Net Asset Value ("NAV") related prices.
The key feature of open-end schemes is liquidity.

Closed- ended Funds

A closed-end fund has a stipulated maturity period


which generally ranging from 3 to 15 years. The
fund is open for subscription only during a specified
period. Investors can invest in the scheme at the
time of the initial public issue and thereafter they
can buy or sell the units of the scheme on the stock
exchanges where they are listed. In order to provide
an exit route to the investors, some close-ended
funds give an option of selling back the units to the
Mutual Fund through periodic repurchase at NAV
related prices. SEBI Regulations stipulate that at
least one of the two exit routes is provided to the
investor.

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Interval Funds

Interval funds combine the features of open-ended


and close-ended schemes. They are open for sale or
redemption during pre-determined intervals at NAV
related prices.

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By Investment Objective:

Growth Funds

The aim of growth funds is to provide capital


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

Income Funds

The aim of income funds is to provide regular and


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

Balanced Funds

The aim of balanced funds is to provide both growth


and regular income. Such schemes periodically
distribute a part of their earning and invest both in
equities and fixed income securities in the
proportion indicated in their offer documents. In a
rising stock market, the NAV of these schemes may

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not normally keep pace, or fall equally when the


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

Money Market Funds

The aim of money market funds is to provide easy


liquidity, preservation of capital and moderate
income. These schemes generally invest in safer
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.

Load Funds

A Load Fund is one that charges a commission for


entry or exit. That is, each time you buy or sell
units in the fund, a commission will be payable.
Typically entry and exit loads range from 1% to 2%.
It could be worth paying the load, if the fund has a
good performance history.

No-Load Funds

A No-Load Fund is one that does not charge a


commission for entry or exit. That is, no commission

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is payable on purchase or sale of units in the fund.


The advantage of a no load fund is that the entire
corpus is put to work.

OTHER SCHEMES:

Tax Saving Schemes

These schemes offer tax rebates to the investors


under specific provisions of the Indian Income Tax
laws as the Government offers tax incentives for
investment in specified avenues. Investments made
in Equity Linked Savings Schemes (ELSS) and
Pension Schemes are allowed as deduction u/s 88 of
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.

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Special Schemes

Industry Specific Schemes

Industry Specific Schemes invest only in the


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

Index Schemes

Index Funds attempt to replicate the performance of


a particular index such as the BSE Sensex or the
NSE 50

Sectoral Schemes

Sectoral Funds are those, which invest exclusively in


a specified industry or a group of industries or
various segments such as 'A' Group shares or initial
public offerings.

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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:

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• This mutual fund association of India maintains a


high professional and ethical standard 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
association.

• AMFI interacts with SEBI and works according to


SEBIs guidelines in the mutual fund industry.

• Associations of Mutual Fund of India do represent


the Government of India, the Reserve Bank of India
and other related bodies on matters relating to the
Mutual Fund Industry.

• 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 investor’s in order to promote proper
understanding of the concept and working of mutual
funds.

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• At last but not the least association of mutual fund


of India also disseminate information’s on Mutual
Fund Industry and undertakes studies and research
either directly or in association with other bodies.

The sponsor 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.

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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.

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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.

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Association of Mutual Funds in India Publications

AMFI publishes mainly two types of bulletin. One is on

the monthly basis and the other is quarterly. These

publications are of great support for the investors to

get intimation of the know how of their parked money.

The mailing address of Association of Mutual

Funds in India

Association of Mutual Funds in India

106, Free Press House,

Free Press Journal Marg,

Nariman Point,

Mumbai - 400 021,

India.

Telephone : 91-22-5637 39 07 / 5637 39 08

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Fax : 91-22-5637 3909

Website:-http://www.amfiindia.com/

The activities of the association are


generally carried out by various
committees:-

LISTOF COMMITTEES AND ITS MEMBERS:-

COMMITTEE ON VALUATION:-

Milind Brave CHAIRMAN

Amandeep MEMBER

Dhawal Dalal MEMBER

Ashish Kumar MEMBER

A.Balasubramanian MEMBER

Santosh Kamath MEMBER

Rajiv Anand MEMBER

Sandesh Kirkire MEMBER

Nilesh MEMBER

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COMMITTEE ON BEST PRACTICES:-

Mr. S V Prasad CHAIRMAN

Mr. A K Sridhar MEMBER

Mr. Milind Brave MEMBER

Mr. Naval B Kumar MEMBER

Mr. Pankaj Razdan MEMBER

Mr. Ravi Mehrotra MEMBER

Mr. T P Raman MEMBER

COMMITTEE ON RBI RALATED MATTERS:-

CHAIRMAN AMFI CHAIRMAN

Milind Brave MEMBER

Nilesh Shah MEMBER

COMMITTEE ON REGISTRATION OF AMFI CERTIFIED

DISTRIBUTORS:-

Mr. Saurab sonthalia CHAIRMAN

Mr. Anthony Heredia MEMBER

Mr. Ashok Survarna MEMBER

Mr. John Mathews MEMBER

Mr. K Madhava Kumar MEMBER

Mr. Vijay Venkatram MEMBER

Mr. Waqar Naqvi MEMBER

Mr. A M Kurian MEMBER

Mr. M Vankataraman MEMBER

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Mutual Fund Companies in India


The concept of mutual funds in India dates back to
the year 1963. The era between 1963 and 1987 marked
the existence of only one mutual fund company in India
with Rs.67bn assets under management (AUM), by the
end of its monopoly era, the Unit Trust of India (UTI). By
the end of the 80s decade, few other mutual fund
companies in India took their position in mutual fund
market.

The new entries of mutual fund companies in India


were SBI Mutual Fund, Canbank Mutual Fund, Punjab
National Bank Mutual Fund, Indian Bank Mutual Fund,
Bank of India Mutual Fund.

The succeeding decade showed a new horizon in


Indian mutual fund industry. By the end of 1993, the
total AUM of the industry was Rs.470.04 bn. The private
sector funds started penetrating the fund families. In
the same year the first Mutual Fund Regulations came
into existence with re-registering all mutual funds
except UTI. The regulations were further given a revised
shape in 1996.

Kothari Pioneer was the first private sector mutual


fund company in India which has now merged with
Franklin Templeton. Just after ten years with private
sector player’s penetration, the total assets rose up to

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Rs.1218.05 bn. Today there are 33 mutual fund


companies in India.

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Major Mutual Fund Companies in India

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 A G is the custodian of ABN
AMRO Mutual Fund.

Birla Sun Life Mutual Fund


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

Bank of Baroda Mutual Fund (BOB Mutual Fund)

Bank of Baroda Mutual Fund or BOB Mutual Fund

was setup on October 30, 1992 under the sponsorship of

Bank of Baroda. BOB Asset Management Company

Limited is the AMC of BOB Mutual Fund and was

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incorporated on November 5, 1992. Deutsche Bank AG

is the custodian.

HDFC Mutual Fund

HDFC Mutual Fund was setup on June 30, 2000 with

two sponsorers namely Housing Development Finance

Corporation Limited and Standard Life Investments Ltd

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HSBC Mutual Fund

HSBC Mutual Fund was setup on May 27, 2002 with

HSBC Securities and Capital Markets (India) Private

Limited as the sponsor. Board of Trustees, HSBC Mutual

Fund acts as the Trustee Company of HSBC Mutual

Fund.

ING Vysya Mutual Fund

ING Vysya Mutual Fund was setup on February 11,

1999 with the same named Trustee Company. It is a

joint venture of Vysya and ING. The AMC, ING

Investment Management (India) Pvt. Ltd. was

incorporated on April 6, 1998.

Prudential ICICI Mutual Fund

The mutual fund of ICICI is a joint venture with

Prudential Plc. of America, one of the largest life

insurance companies in the US of A. Prudential ICICI

Mutual Fund was setup on 13th of October, 1993 with

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two sponsorers, 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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SAHARA MUTAL FUND

Sahara Mutual Fund was set up on July 18, 1996

with Sahara India Financial Corporation Ltd. as the

sponsor. Sahara Asset Management Company Private

Limited incorporated on August 31, 1995 works as the

AMC of Sahara Mutual Fund. The paid-up capital of the

AMC stands at Rs.25.8 crore.

State Bank of India Mutual Fund

State Bank of India Mutual Fund is the first Bank

sponsored Mutual Fund to launch offshore fund, the

India Magnum Fund with a corpus of Rs.225 cr.

approximately. Today it is the largest Bank sponsored

Mutual Fund in India. They have already launched 35

Schemes out of which 15 have already yielded

handsome returns to investors. State Bank of India

Mutual Fund has more than Rs.5,500 Crores as AUM.

Now it has an investor base of over 8 Lakhs spread over

18 schemes.

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Tata Mutual Fund

Tata Mutual Fund (TMF) is a Trust under the Indian

Trust Act, 1882. The sponsorers for Tata Mutual Fund

are Tata Sons Ltd., and Tata Investment Corporation

Ltd. The investment manager is Tata Asset Management

Limited and its Tata Trustee Company Pvt. Limited. Tata

Asset Management Limited's is one of the fastest in the

country with more than Rs.7,703 crores (as on April 30,

2005) of AUM.

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Kotak Mahindra Mutual Fund

Kotak Mahindra Asset Management Company

(KMAMC) is a subsidiary of KMBL. It is presently having

more than 1,99,818 investors in its various schemes.

KMAMC started its operations in December 1998. Kotak

Mahindra Mutual Fund offers schemes catering to

investors with varying risk - return profiles. It was the

first company to launch dedicated gilt scheme investing

only in government securities.

Unit Trust of India Mutual Fund

UTI Asset Management Company Private Limited,

established in Jan 14, 2003, manages the UTI Mutual

Fund with the support of UTI Trustee Company Private

Limited. UTI Asset Management Company presently

manages a corpus of over Rs.20000 Crore. The

sponsorers 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

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schemes of UTI Mutual Fund are Liquid Funds, Income

Funds, Asset Management Funds, Index Funds, Equity

Funds and Balance Funds.

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eliance Mutual Fund

Reliance Mutual Fund (RMF) was established as

trust under Indian Trusts Act, 1882. The sponsor of RMF

is Reliance Capital Limited and Reliance Capital Trustee

Co. Limited is the Trustee. It was registered on June 30,

1995 as Reliance Capital Mutual Fund which was

changed on March 11, 2004. Reliance Mutual Fund was

formed for launching of various schemes under which

units are issued to the Public with a view to contribute

to the capital market and to provide investors the

opportunities to make investments in diversified

securities.

Standard Chartered Mutual Fund

Standard Chartered Mutual Fund was set up on

March 13, 2000 sponsored by Standard Chartered Bank.

The Trustee is Standard Chartered Trustee Company

Pvt. Ltd. Standard Chartered Asset Management

Company Pvt. Ltd. is the AMC which was incorporated

with SEBI on December 20, 1999.

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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 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 it’s leading in the market in securities,

investment management and credit services. Morgan

Stanley Investment Management (MISM) was established

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in the year 1975. It provides customized asset

management services and products to governments,

corporations, pension funds and non-profit

organizations. Its services are also extended to high net

worth individuals and retail investors. In India it is

known as Morgan Stanley Investment Management

Private Limited (MSIM India) and its AMC is Morgan

Stanley Mutual Fund (MSMF). This is the first close end

diversified equity scheme serving the needs of Indian

retail investors focusing on a long-term capital

appreciation.

Escorts Mutual Fund

Escorts Mutual Fund was setup on April 15, 1996

with Escorts Finance Limited as its sponsor. The Trustee

Company is Escorts Investment Trust Limited. Its AMC

was incorporated on December 1, 1995 with the name

Escorts Asset Management Limited.

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Alliance Capital Mutual Fund

Alliance Capital Mutual Fund was setup on

December 30, 1994 with Alliance Capital Management

Corp. of Delaware (USA) as sponsored. The Trustee is

ACAM Trust Company Pvt. Ltd. and AMC, the Alliance

Capital Asset Management India (Pvt) Ltd. with the

corporate office in Mumbai.

Benchmark Mutual Fund

Benchmark Mutual Fund was setup on June 12,

2001 with Niche Financial Services Pvt. Ltd. as the

sponsored and Benchmark Trustee Company Pvt. Ltd. as

the Trustee Company. Incorporated on October 16, 2000

and headquartered in Mumbai, Benchmark Asset

Management Company Pvt. Ltd. is the AMC.

Canbank Mutual Fund

Canbank Mutual Fund was setup on December 19,

1987 with Canara Bank acting as the sponsor. Canbank

Investment Management Services Ltd. incorporated on

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March 2, 1993 is the AMC. The Corporate Office of the

AMC is in Mumbai.

Chola Mutual Fund

Chola Mutual Fund under the sponsorship of

Cholamandalam Investment & Finance Company Ltd.

was setup on January 3, 1997. Cholamandalam Trustee

Co. Ltd. is the Trustee Company and AMC is

Cholamandalam AMC Limited.

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LIC Mutual Fund

Life Insurance Corporation of India set up LIC

Mutual Fund on 19th June 1989. It contributed Rs.2

Crores towards the corpus of the Fund. LIC Mutual Fund

was constituted as a Trust in accordance with the

provisions of the Indian Trust Act, 1882. . The Company

started its business on 29th April 1994. The Trustees of

LIC Mutual Fund have appointed Jeevan Bima Sahayog

Asset Management Company Ltd as the Investment

Managers for LIC Mutual Fund.

GIC Mutual Fund

GIC Mutual Fund, sponsored by General Insurance

Corporation of India (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

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accordance with the provisions of the Indian Trusts Act,

1882.

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Mutual Fund Investing vs. Stock


Investing

It seems strange to compare mutual funds to


stocks since mutual funds are primarily composed of
stocks, but it is important to distinguish the two
because there are some notable advantages to using
mutual funds.

Get Focused
I will admit that investing in individual stocks
can be fun because each company has a unique
story. However, it is important for people to focus
on making money. Investing isn't a game. Your
financial future depends on where you put you hard
earned dollars and it shouldn't be taken lightly.

Diversification
There is no greater advantage to using mutual
funds than diversification. Do you honestly believe
wealthy investors purchase just a couple of stocks?
Of course not! If they are not using mutual funds
(many do), than they are purchasing a large number
of stocks. Smart investors diversify because it
greatly reduces risk without sacrificing returns. If
the idea of diversification is new to you, I
recommend this article.

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Professional Management
By purchasing mutual funds, you are essentially
hiring a professional manager at an especially
inexpensive price. It would be a bit cocky to think
that you know more than mutual fund manager.
These managers have been around the industry for a
long time and have the academic credentials to back
it up. Saying you could outperform a mutual fund
manager is similar to a football fan sitting on their
couch saying "I could have made that catch"
-possible, but not likely.
Even if some of us are better at picking stocks than
a professional and their support staff, most of us
would not want to spend the amount of time it takes
to watch, research and trade the market on a daily
basis.
Efficiency
By pooling investors' monies together, mutual
fund companies can take advantage of economies of
scale. With large sums of money to invest, they
often trade commission-free and have personal
contacts at the brokerage firms.

Ease of Use
Can you imagine keeping track of a portfolio
consisting of hundreds of stocks? The bookkeeping
duties involved with stocks are much more
complicated than owning a mutual fund. If you are

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doing your own taxes, or are short on time, this can


be a big deal.

Liquidity
If you find yourself in need of money in a short
amount of time, mutual funds are highly liquid.
Simply put in your order during the day and when
the market closes a check will be sent to you or you
can have it wired to a bank account. Stocks can be
much more difficult depending on what kinds of
stocks you are invested in. CD's offer no liquidity
(not without a hefty fee) and bonds can be difficult,
too. Some mutual funds also carry check writing
privileges, which means you can actually write
checks from the account, similar to your checking
account at the bank.

Cost
Mutual funds are excellent for the new
investors because you can invest small amounts of
money and you can invest at regular intervals with
no trading costs. Stock investing, however, carries
high transaction fees making it difficult for the
small investor to make money. If an investor wanted
to put in $100 a month into stocks and the broker
charged $15 per transaction, their investment is
automatically down 15 percent every time they
invest. That is not a good way to start off!

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Wealthy stock investors get special treatment


from brokers and wealthy bank account holders get
special treatment from the banks, but mutual funds
are non-discriminatory. It doesn't matter whether
you have $50 or $500,000, you are getting the exact
same manager, the same account access and the
same investment.

Risk

In general, mutual funds carry much lower risk


than stocks. This is primarily due to diversification
(as mentioned above). Certain mutual funds can be
riskier than individual stocks, but you have to go
out of your way to find them.

With stocks, one worry is that the company you


are investing in goes bankrupt. With mutual funds,
that chance is next to nil. Since mutual funds
typically hold anywhere from 25-5000 companies, all
of the companies that it holds would have to go
bankrupt.

I won't argue that you shouldn't ever invest in


individual stocks, but I do hope you see the
advantages of using mutual funds and make the
right choice for the money that you really care
about

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Markets alone lost around 9% over the day. The


Indian markets could not sustain the beating it got
from both ends and saw the maximum decline
witnessed in the last eight months. The market was
around 200 points down after the markets opened
for the day. But the announcement of the FM to hike
dividend distribution tax saw another fall of more
than 300 points which the markets was not able to
recover till the end of the day. Among the major
sectors Cement is clearly the most hit, and to some
extent IT services also got hit, because of bringing
both the sector under MAT.

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The announcement of MAT of 11.3 % on IT


companies was misinterpreted by the market on the
budget day, by responding in negative, but saw
some recovery, in the next trading day when
markets realized that MAT can be used as a deferred
tax asset by IT companies post FY 2010 to offset
taxes, Secondly SEZs are still MAT free. Hence the
impact is not severe as was thought on the budget
day. Secondly, as per Finance Minister FBT on ESOP
is still under notification.

The Indian Mutual Fund industry also suffered


on announcement of the hike in dividend
distribution tax. The DDT for the money market and
liquid mutual funds has been proposed to be brought
at par at 25%. Currently the rate is 12.5% for retail
investor and 23% for institutional investors. The FM
said that this was being done to restrict the
arbitrage opportunities used by these schemes.

Another proposal put up by the Finance Minister


was for Mutual Funds to play a bigger role in
infrastructure development by launching and
operating dedicated infrastructure funds which
would directly invest into core sector projects. The
Indian Mutual Fund industry already have schemes
which are sector specific and invest into
infrastructure sector through equities. Now after

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this particular proposal Mutual Funds can directly


invest into infrastructure projects.

FM also allowed delivery based short selling for


institutional participants. Mostly in all developed
countries short selling is allowed. In India, till
recently only the retail investors were allowed to
enjoy this. Along with FII, Mutual Fund houses are
also allowed for delivery based short selling.

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FM has proposed to bring the asset


management services offered by individuals under
the service tax bracket. The individuals who provide
investment fund management advisory services will
now have to pay service tax. The managers will have
to register themselves with the Central Excise
department and have to pay service tax, if their
service fee is more than Rs.8 lakh per annum.

Along with the above the FM also proposed for


the retail investor to invest abroad through Mutual
Funds. Currently the industry has quite a few mutual
fund schemes which invest dedicatedly abroad. A
few more schemes invest partially abroad.

On a whole, the budget other than the DDT hike


for the liquid and the money market mutual funds
and the infrastructure funds didn’t have much in
store for the Mutual Fund industry.

To summarize, the Budget will sustain high


economic growth through larger investments,
increased savings and building of manpower
capabilities.

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Performance Measures of Mutual Funds

Mutual Fund industry today, with about 34


players and more than five hundred schemes , is one
of the most preferred investment avenues in India.
However, with a plethora of schemes to choose from,
the retail investor faces problems in selecting funds.
Factors such as investment strategy and management
style are qualitative, but the funds record is an
important indicator too. Though past performance alone
can not be indicative of future performance, it is,
frankly, the only quantitative way to judge how good a
fund is at present. Therefore, there is a need to
correctly assess the past performance of different
mutual funds.

Worldwide, good mutual fund companies over are


known by their AMCs and this fame is directly linked to
their superior stock selection skills. For mutual funds to
grow, AMCs must be held accountable for their selection
of stocks. In other words, there must be some
performance indicator that will reveal the quality of
stock selection of various AMCs.

Return alone should not be considered as the basis


of measurement of the performance of a mutual fund
scheme, it should also include the risk taken by the
fund manager because different funds will have
different levels of risk attached to them. Risk

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associated with a fund, in a general, can be defined as


variability or fluctuations in the returns generated by it.
The higher the fluctuations in the returns of a fund
during a given period, higher will be the risk associated
with it. These fluctuations in the returns generated by a
fund are resultant of two guiding forces. First, general
market fluctuations, which affect all the securities,
present in the market, called market risk or systematic
risk and second, fluctuations due to specific securities
present in the portfolio of the fund, called unsystematic
risk. The Total Risk of a given fund is sum of these two
and is measured in terms of standard deviation of
returns of the fund. Systematic risk, on the other hand,
is measured in terms of Beta , which represents
fluctuations in the NAV of the fund vis-à-vis market. The
more responsive the NAV of a mutual fund is to the
changes in the market; higher will be its beta. Beta is
calculated by relating the returns on a mutual fund with
the returns in the market. While unsystematic risk can
be diversified through investments in a number of
instruments, systematic risk can not. By using the risk
return relationship, we try to assess the competitive
strength of the mutual funds vis-à-vis one another in a
better way.

In order to determine the risk-adjusted returns of


investment portfolios, several eminent authors have
worked since 1960s to develop composite performance
indices to evaluate a portfolio by comparing alternative

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portfolios within a particular risk class. The most


important and widely used measures of performance
are:

Ø The Treynor Measure

Ø The Sharpe Measure

Ø Jenson Model

Ø Fama Model

The Treynor Measure

Developed by Jack Treynor, this performance measure


evaluates funds on the basis of Treynor's Index. This
Index is a ratio of return generated by the fund over
and above risk free rate of return (generally taken to be
the return on securities backed by the government, as
there is no credit risk associated), during a given period
and systematic risk associated with it (beta).
Symbolically, it can be represented as:

Treynor's Index (Ti) = (RI - RF)/Bi.

Where, RI represents return on fund, RF is risk free rate


of return and Bi is beta of the fund.

All risk-averse investors would like to maximize this


value. While a high and positive Treynor's Index shows
a superior risk-adjusted performance of a fund, a low

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and negative Treynor's Index is an indication of


unfavorable performance.

The Sharpe Measure

In this model, performance of a fund is evaluated


on the basis of Sharpe Ratio, which is a ratio of returns
generated by the fund over and above risk free rate of
return and the total risk associated with it. According to
Sharpe, it is the total risk of the fund that the investors
are concerned about. So, the model evaluates funds on
the basis of reward per unit of total risk. Symbolically,
it can be written as:

Sharpe Index (Si) = (RI - RF)/Si

Where, Si is standard deviation of the fund.

While a high and positive Sharpe Ratio shows a


superior risk-adjusted performance of a fund, a low and
negative Sharpe Ratio is an indication of unfavorable
performance.

Comparison of Sharpe and Treynor

Sharpe and Treynor measures are similar in a way,


since they both divide the risk premium by a numerical
risk measure. The total risk is appropriate when we are
evaluating the risk return relationship for well-
diversified portfolios. On the other hand, the systematic
risk is the relevant measure of risk when we are

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evaluating less than fully diversified portfolios or


individual stocks. For a well-diversified portfolio the
total risk is equal to systematic risk. Rankings based on
total risk (Sharpe measure) and systematic risk (Treynor
measure) should be identical for a well-diversified
portfolio, as the total risk is reduced to systematic risk.
Therefore, a poorly diversified fund that ranks higher on
Treynor measure, compared with another fund that is
highly diversified, will rank lower on Sharpe Measure.

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Jenson Model

Jenson's model proposes another risk adjusted


performance measure. This measure was developed by
Michael Jenson and is sometimes referred to as the
Differential Return Method. This measure involves
evaluation of the returns that the fund has generated
vs. the returns actually expected out of the fund given
the level of its systematic risk. The surplus between the
two returns is called Alpha, which measures the
performance of a fund compared with the actual returns
over the period. Required return of a fund at a given
level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf)

Where, Rm is average market return during the given


period. After calculating it, alpha can be obtained by
subtracting required return from the actual return of
the fund.

Higher alpha represents superior performance of the


fund and vice versa. Limitation of this model is that it
considers only systematic risk not the entire risk
associated with the fund and an ordinary investor can
not mitigate unsystematic risk, as his knowledge of
market is primitive.

Fama Model

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The Eugene Fama model is an extension of Jenson


model. This model compares the performance,
measured in terms of returns, of a fund with the
required return commensurate with the total risk
associated with it. The difference between these two is
taken as a measure of the performance of the fund and
is called net selectivity.

The net selectivity represents the stock selection


skill of the fund manager, as it is the excess return over
and above the return required to compensate for the
total risk taken by the fund manager. Higher value of
which indicates that fund manager has earned returns
well above the return commensurate with the level of
risk taken by him.

Required return can be calculated as:

Ri = Rf + Si/Sm*(Rm - Rf)

Where, Sm is standard deviation of market


returns. The net selectivity is then calculated by
subtracting this required return from the actual return
of the fund.

Among the above performance measures, two


models namely, Treynor measure and Jenson model use
systematic risk based on the premise that the
unsystematic risk is diversifiable. These models are
suitable for large investors like institutional investors

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with high risk taking capacities as they do not face


paucity of funds and can invest in a number of options
to dilute some risks. For them, a portfolio can be spread
across a number of stocks and sectors. However, Sharpe
measure and Fama model that consider the entire risk
associated with fund are suitable for small investors, as
the ordinary investor lacks the necessary skill and
resources to diversify. Moreover, the selection of the
fund on the basis of superior stock selection ability of
the fund manager will also help in safeguarding the
money invested to a great extent. The investment in
funds that have generated big returns at higher levels
of risks leaves the money all the more prone to risks of
all kinds that may exceed the individual investors' risk
appetite

Mutual Funds: hope floats

The new millennium brought with itself what


had rarely been seen in the market. Burgeoning
growth. Riding on the ICE boom, the market touched
great heights. Also touching new heights were the
returns generated by equity funds. But as the saying
goes, what goes up has to come down and the
higher one goes the steeper is the fall.

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This is exactly what the equity funds have


experienced over the last one year as they have
been robbed of their valuables by the volatile
markets. The fall out of the volatile market
conditions is reflected in significant erosion of the
total assets under management of the equity funds.

As can be seen, in the last one-year, equity


funds have lost almost 18 percent of the wealth they
had started the year with. Yet, surprisingly, they
have managed to stay above the market that lost
almost 26 percent in the same duration. So despite
the fact that people have lost money in this year at
a rate greater than the rate of depreciation of
market capitalization of the index, the funds have
received some fresh inflows. The industry on the
whole saw a cumulative inflow of Rs.5962 crores

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through new issues and Rs.81,210 crores through


existing schemes in the year but also saw
redemption of Rs.68,514 crores in the same period.

The same trends can be observed if we dissect


the industry across different categories of fund
houses. Assets under management of different
categories of fund houses have moved diversely.
The industry finished with lower assets under
management as it lost almost 2 percent in the year
while the industry giant UTI lost about 4.5 percent
followed by Indian Joint Ventures at 4.1 percent.
However, the category to have lost maximum in the
year was that of Bank sponsored mutual funds that
lost almost 56 percent. The poor performance in this
category was not just due to the ICE bust as many
would like to believe but also due to redemption of

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many schemes in the sector. However, the industry


saw shifting patterns in the investor’s preferences.
The private sector mutual funds and foreign joint
ventures struck big time this year and have emerged
as the biggest gainers despite the market crash.
Both the categories gained in excess of 30 percent
and defied the general trend in the industry. This
stresses the point that returns as well as quality of
services matter to the investor. This had hitherto
been not too significant till now but has become
apparent now.

This is indeed reflective of maturing investors,


though only just. Investors have been known to
follow the herd mentality and sell off when the
principal amount is under pressure. Although people
have redeemed money from their investments in
equity, by and large, more money has also flown in
to the industry. With the markets looking to revive,
the industry can still hope for better days, as
investors seem to gradually understand that despite
the correlation between the market and mutual
funds, they are better placed with their risks
reduced in mutual funds.

Risk Return Grid

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Risk
Suitable Benefits offered
Tolerance/Return Focus
Products by MFs
Expected

Bank/ Company
Liquidity, Better
Low Debt FD, Debt based
Post-Tax returns
Funds

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

Capital Market, Diversification,


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

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Chapter 3:- profile of lic mutual funds

• history of lic mutual fund


• different schemes of lic mf’s

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PROFILE

OBJECTIVE OF THE COMPANY


The LIC Mutual Fund was launched with the
basic objectives of mobilizing savings from
investors spread across the country, who had no
easy access to the capital market, with a view to
providing them a vehicle for investment of their
funds there by ensuring safety, security, easy
liquidity and reasonably good returns.

SET UP OF THE FUND

Life Insurance Corporation of India set up


LIC Mutual Fund on 19th June 1989 and
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 settler is not

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responsible for the management of the Trust. The


settler is also not responsible or liable for any
loss or shortfall resulting in any of the schemes
of LIC Mutual Fund.

The Trustees of the LIC Mutual Fund have


exclusive ownership of Trust Fund and are vested
with general power of superintendence,
discretion and management of the affairs of the
Trust. LIC Mutual Fund Asset Management
Company Ltd. was formed on 20th April 1994 in
compliance with the Securities and Exchange
Board of India (Mutual Funds) Regulations, 1993.
The Company commenced business on 29th April
1994. The Trustees of LIC Mutual Fund have
appointed LIC Mutual Fund Asset Management
Company Ltd. as the Investment Managers for LIC
Mutual Fund. The Trustees are responsible for
appointing a Custodian. The Trustees should also
ensure that the activities of the Trust and the
Asset Management Company are in accordance
with the Trust Deed and the SEBI Mutual Fund
Regulations as amended from time to time. The
Trustees have also to report periodically to SEBI
on the functioning of the Fund.

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The investors under the schemes can obtain


a copy of the Trust Deed, the text of the
concerned Scheme as also a copy of the Annual
Report, on a written request made to the LIC
Mutual Fund Asset Management Company Ltd. at
a nominal price of Rs.10/-.
The LIC Mutual Fund was set up as a
separate Trust by the Life Insurance Corporation
of India having its central office at Yogakshema,
Jeevan Bima Marg, Mumbai 400201.
The Trust deed date-20.4.89 was modified
through a deed of modification as mentioned in
schedule lll of SEBI (Mutual Fund) Regulations,
1996. The Trust deed will not be modified
without the prior approval of SEBI and Unit
holders approval will be obtained where it affects
the interest of the Unit holders.

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LIC has made an initial contribution of Rs.2


crore towards the trust Fund. The LIC Mutual
Fund Trustee co.pvt.ltd. is formed and appointed
to supervise the activities of the Fund. The
Trustee Company has entrusted the work of
management of the Fund to Jeevan Bima Sahayog
Asset Management Company Ltd., which is a
company promoted by the Life Insurance
Corporation of India with an authorized capital of
Rs.25 crores. The day-to-day operations of JBS
AMC Ltd., the investment manager to LICMF, are
looked after by senior officials on deputation
form the LIC of India.

The LIC Mutual Fund mobilized over Rs.8750


crores gross collection in the Financial Year i.e.,
2003-2004 and managing Assets Under
Management of Rs.4375 crore (as on
31.07.2004). The LIC Mutual Fund mobilized had
redeemed 22 of the close ended schemes giving
fairly goods returns to the investors. It has
pioneered open-ended schemes in the industry.
For the Financial Year 2004-2005 from
fifteen diverse open-ended schemes. Mobilized
over Rs.12,800 crore (gross). It investors base of
around 2.5 lakh’s as on 31.03.2005.

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And for the Financial Year 2005-2006 from


fifteen diverse open-ended schemes with
mobilized over Rs.44,485 crore (gross). It had a
investor base of around 2.10 lakh’s as on
31.03.2006.
Asset Under Management (AUM) of LIC
Mutual Fund as on 31.07.2004 (for F/Y 2003-04)
was Rs.4375 crores. And for F/Y 2004-2005 AUM
was Rs.2890.38 crore.
AUM of LIC Mutual Fund as on 31-03.2006
was Rs.5228.90 crore as against the
corresponding previous year figure there by
registering growth of 80.91%. LIC Mutual Fund
launched six fixed maturity plans (close-ended
scheme) and mobilized around under these plans.

The below chart shows details of Mobilized &


AUM for three Financial Year 2003-04, 2004-05 &
2005-06.

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45,000
40,000
35,000
30,000
25,000 2003-04
20,000 2004-05
15,000 2005-06
10,000
5,000
0
GROSS AMOUNT OF
MOBILISED IN (CRORES)

GROSS AMOUNT
OF MOBILISED IN
YEARS (CRORES)

2003-04 8,750

2004-05 12,800

2005-06 44,485

The above chart shows the growth in mobilizing


from investors for three financial years are as
follows:-
1. There was a low growth rate of 46.29% for the
financial year 2004-05.
2. But there was a good rate of 247.54% for the
financial year 2005-2006.

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ASSET UNDER MANAGEMENT OF LIC


MUTUAL FUND

6,000
5,000
4,000 2003-04
3,000 2004-05
2,000 2005-06
1,000
0
AUM

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AUM
2003-04 4,375
2004-05 2,890.38
2005-06 5,228.90

The above chart explains about the Asset Under


Management for the financial years:-
1. For the F/Y 2004-05 was a decline in AUM was
Rs.2890.38 crs @ 33.93% from F/Y 2003-04 was
Rs.4375 crs.
2. In the financial year 2005-2006 there was an
against to last F/Y’s because the growth rate
was 80.91% for Rs.2890.38 crs in F/Y of 2004-
05 the amount was Rs.5228.90 crs

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L I C M u t u a l F u n d T ru s t e e s C o m p a n y
Private Limited
NAME OF THE DIRECTORS &
ADDRESS

SHRI D.K Mehrotra


Managing Director,
LIC of India
Central Office,
Mumbai

SHRI P. N. Mehta
Chartered Accountant
607, Akash Deep,
26-A, Barakhamba Road,
New Delhi - 110 001

SHRI P. N. Shah
Chartered Accountant
Maker Bhavan - 2,
18, New Marine Lines,
Mumbai - 400 020

SHRI V.G. Subramanyam


A/5, Swami Shivananda CHS.,
Chakala Road, Andheri(E)
Mumbai - 400 099

SHRI V. Raghavendra

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C-5/104, Saket Complex


Thane (W)
Thane - 400 601

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Board of Directors of LICMF- AMC


LIMITED
NAME &
ADDRESS

SHRI T S Vijayan
Chairman
LIC of India
Central Office,
Mumbai

SHRI C. R. Thakore
Director LICMF-AMC
Mrudul-8,
Jeevan Prakash Society,
St. Xavier High School Road,
P.O: Navajeevan
Ahmedabad - 380 014

SHRI D. M. Sukthankar
Director LICMF-AMC
NO.5 , 'PRIYA', Abdul
Ghaffar Khan Marg,
Worli Sea Face ,
MUMBAI-400 025

SHRI R. M. Honavar
Director LICMF-AMC

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"LAKSHMI KAMAL", 20 Chintamani


Co-operative Housing Society
Karve Nagar,
PUNE - 411 052

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Shri. S.K Mitter


Chief Executive
LIC Housing Finance Ltd.
Bombay Life Building,
2nd Floor,
45/47, Near Nariman Road,
MUMBAI - 400 001

Shri. T.S.Vishwanath
Chartered Accountant
Flat No: 10
Sankar Market,
Konnaught Circus,
New Delhi - 110 001

Shri. H.N.Motiwalla
Chartered Accountant
508, Sharada Chambers,
15 A, New Marine Lines,
Mumbai - 400 002.

Shri. N. Mohan Raj


Chief Executive
LICMF-AMC Ltd
Industrial Assurance Bldg.,
4th Floor, Opp. Churchgate Station,
Mumbai - 400 020.

Shri. N.N Vohra

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1805, sector-17-A,
Gurgoan-122001,
Haryana.

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Experience/Exposure of The Key


Personnel

Shri. N. Mohan Raj

Shri. N. Mohan Raj is a post-graduate in


Economics from Madras University. He started his
career as a Direct Recruit Officer of 10th batch
of LIC of India from Ahmedabad, Divisional
Office. His varied experience encompasses Senior
Divisional Manager (I/C) of Thiruvananthapuram
and Salem Divisions. He has held various
important positions in LIC of India, including
Chief (Investment), Corporate Office, Mumbai as
well as Zonal Manager, Central Zone, Bhopal. In
November 2002, he represented LIC of India in
the Seminar of Asian Insurance Review held at
Singapore.

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Schemes
LIC Mutual fund schemes may be classified on the
basis of its structure and its investment objective.

1. Debt
Name of Open Ended schemes
I. LICMF Bond Fund
II. LICMF Children's Fund
III. LICMF Floater MIP - Plan A
IV. LICMF Floater MIP - Plan B
V. LICMF Floating Rate Fund
VI. LICMF Govt Securities Fund
VII. LICMF Liquid Fund
VIII. LICMF Monthly Income Plan
IX. LICMF Short Term Plan
Name of Close Ended schemes
I. LICMF Fixed Maturity Plan: Series - I - ONE
Year Plan
II. LICMF Fixed Maturity Plan: Series - I - SIX
Month Plan
III. LICMF Fixed Maturity Plan: Series – II
IV. LICMF Fixed Maturity Plan: Series – III

2.Balanced
Name of Open Ended schemes
I. LIC MF Balance Fund ( Formerly known as
Dhansahayog)

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3.Equity
Name of Open Ended schemes
I. LIC MF Opportunities Fund
II. LIC MF Growth Fund (Formerly Known as
Dhansamriddhi)
III. LICMF Equity Fund (Formerly Known as
Dhanvikas1)
IV. LICMF Index Fund Nifty Plan
V. LICMF Index Fund Sensex Advantage Plan
VI. LICMF Tax Plan

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Name of Close Ended schemes


I. Dhan Tax Saver 1996

4. Others
Name of Open Ended schemes
I. LIC MF Unit Linked Insurance Scheme

4. Redeemed
NAME OF DATE OF REDEMPTION PRICE

SCHEME REDEMPTION

Dhan 80 CC (1) 31-JAN-95 Rs.21.82

Dhanashree 89 31-Oct-96 Rs.10.00

Option (1) Rs.10.00

Dhanvarha (3) 30-Nov-96 Option (2) Rs.10.00

Option (3) Rs.20.30

Option (4) Rs.20.30

Dhanalakshmi 1-Feb-97 Rs.10.75

(1)

Dhanashree 90 31-Aug-97 Rs.10.73

Option (1) Rs.10.00

Dhanavarsha 1-Apr-98 Option (2) Rs.10.00

(4) Option (3) Rs.25.00

Option (4) Rs.25.00

Option (1) Rs.10.10

Dhanavarsha 31-Jul-98 Option (2) Rs.10.10

(5) Option (3) Rs.25.10

Option (4) Rs.25.10

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Dhanashree 91 30-Sep-98 Rs.10.65

Dhanavarsha 1-Nov-99 Rs.10.00

(1) Roll Over

(Rolled over on

01/11/1995)

Dhanvriddhi 15-May-00 Rs.10.00

1989

Dhanavarsha Option (1) Rs.10.00

(2) Roll Over 7-Jul-00 Option (2) Rs.10.00

(Rolled over on Option (3) Rs.16.52

01/06/1996)

Dhanavarsha 30-Nov-00 Rs.10.00

(6)

Option (1) Rs.10.01

Dhanavarsha 31-Jan-01 Option (2) Rs.10.01

(9) Option (3) Rs.17.12

Option (1) Rs.10.00

Option (2) Rs.10.00

Dhanavarsha 31-Mar-01 Option (3) Rs.10.00

(7) Option (4) Rs.10.00

Option (5) Rs.17.97

Option (1) Rs.9.26

Dhan 80 CCB 31-Mar-01 Option (2) Rs.9.26

(1) Option (3) Rs.27.00

Option (1) Rs.10.00

Dhanvarsha 31-Aug-01 Option (2) Rs.10.00

(10) Option (3) Rs.16.00

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Option (1) Rs.10.00

Dhanvarsha (8) 30-Sep-01 Option (2) Rs.10.00

Option (3) Rs.19.08

Option 1 - 10.00,

Dhanvarsha 28-Feb-02 Option 2 - 10.00 ,

(11) Option 3 - 15.3757

Dhan 80 CCB 1-Apr-02 4.7882 Plan C -

(2) Rs6.5619

Dhanvarsha 30-Sep-02 For Monthly Option

(13) Rs.10. For Yearly

Cumulative Option Rs.10.

Cummulative

Option Rs.15.4687

Dhan 88 (1) 31-Mar-03 Rs.4.9826

Monthly:Rs.10.482

Dhanvarsha 31-May-03 0

(12) Yearly:Rs.10.4820

Cumulative:Rs.16.7

160

Dhanvidya 15-Dec-03 Rs.10.00

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Services

The data of the investors like their names,


certificate and folio numbers, addresses etc., are
stored in electronic form by our registrars duly
appointed by us. We offer a variety of after sales
services. All kinds of services are basically handled
by our registrars and accordingly the investors have
to write to the registrars in the first instance. We
handle services at our Area Centers also, but that
activity is restricted to LIC Bond Fund and
Government Securities Fund, the open ended funds.

It is very essential to quote the Certificate


Number, Folio Number and Scheme Name as they
appear in the certificate in case of any complaint /
correspondence.

For all payments like premature encashment /


redemption, a proper discharge either at the back of
the unit certificate or through a separate discharge
form if blank discharge form is not provided at the
back of the certificate duly signed by all the holders
and witnessed shall be given. Submission of the unit
certificate or in lieu of that a original valid proof of
holding at the specified offices is a must for
settlement of such payments.

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In case of repurchases, the unused warrants


including the warrant pertaining to the month in
which the repurchase is preferred shall be sent
along with the duly discharged certificate.

The performance of our registrars is closely and


regularly monitored by a team of officials of the
Corporate Office.

The investors may register their complaints


with the Corporate Office, in respect of any of the
listed after sales service items herein, if they do not
get the required service within reasonable time from
the respective registrars.

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After sales service

• CHANGE OF ADDRESS
• CORRECTION/CHANGE OF NAME IN THE CERTIFICATE
• NON-RECEIPT OF CERTIFICATE
• NON-RECEIPT OF
DIVIDEND/REDEMPTION/REPUTCHASE/REFUND
WARRANTS.
• REDEMPTION TRANSFER OF HOLDING
• STATEMENT OF ACCOUNTS
• REVALIDATION / CORRECTION OF WARRANTS
• CHANGE OF NOMINEE
• SPLIT OF UNIT CERTIFICATES
• REGISTRATION/CANCELLATION OF LIEN
• DEATH CLAIMS
• LOSS OF UNIT CERTIFICATES
• LOSS OF WARRANTS
• BANK MANDATE
• REPURCHASE

The investors may contact any of our offices to


know more information about the various aspects
of the above services.
Benefits

Tax Benefits
Tax Treatment of Investment in Mutual funds:

Taxation: The following summary outlines the tax benefits available to the Unitholders

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The following information is provided for general information only. However, in view of
the individual nature of the tax benefits, each investor is advised to consult with his/her own tax
advisor with respect to the specific tax implications arising out of his/her participation in the
schemes of the fund.

Tax Implications For All Unitholders

Income Tax:
Consequent upon the amendments made by the Finance Act, 2002 to the Income Tax Act, 1961,
w.e.f. 1.4.2002 income in respect of units of Mutual Funds is now taxable in the hands of the
investors at their applicable rate of tax on total income. Such income will now be also subject to
deduction of tax at source.

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Tax Concessions:
Accordingly, all residents and non residents (if units are bought through payment from non-
resident ordinary account) who are individuals and Hindu Undivided Families (HUFs) will enjoy
deduction under section 80L of the Act from their gross total income upto an overall limit of Rs.
9,000/- in respect of income from units of the fund.

Tax Rebate:
Under section 88 of the Act, subscriptions / contributions made in the following plans of LIC
Mutual Fund by individuals and HUFs will be eligible for tax rebate:
contribution to Dhanaraksha 1989 (being unit-linked insurance plan as notified by the
Central Government) in the name of the individual himself/herself, spouse and any child of such
individual in case of individual and in case of HUF, in the name of any member of HUF.
subscription to units of LIC Mutual Fund Tax Plan ( being a plan formulated in accordance
with the scheme notified by the Central Government) not exceeding Rs.10,000/-.

The quantum of rebate and maximum eligible amount for the same are mentioned
below:
Tax Rebate @30% if- income chargeable under the head “Salaries” (before giving deduction u/s.
16) is not more than Rs.1 lac; and such income is at least 90% of gross total income

Tax Rebate @20% if- gross total income does not exceed Rs. 1.5 lacs;

Tax Rebate @15% if- gross total income is between Rs. 1.5 lacs and Rs. 5 lacs

Tax Rebate NIL if gross total income exceeds Rs. 5 lacs

Maximum qualifying amount for rebate in respect of contribution/ subscription to


our plans (i) to (ii) above is Rs. 70,000

2. Residents:
(a) Deduction of Tax at source: Under the re-introduced section 194K, Mutual
Fund is required to deduct income tax at source @ 10% + 5% sur charge
from the income payable to investors, if such income exceeds Rs.1,000 per
scheme during the financial year.

(b) No Deduction of Tax: Investors (not being a company or a firm), desiring receipt of income
without deduction of tax at source should furnish to the Mutual Fund a declaration in writing, in
duplicate, in the prescribed Form No. 15H and verified in the prescribed manner to the effect that
the tax on his/its estimated total Income of the relevant year will be nil in accordance with the
Income tax rules. The prescribed Form No. 15H for non deduction of tax at source should be
submitted alongwith the application and for subsequent years at least three months before the
dispatch of income distribution warrants, failing which tax will be deducted at source as per
prevalent tax laws.
However, Form No. 15H will not be acceptable by the Mutual Fund if the income paid or likely to
be paid to the investor exceeds Rs. 50,000 (maximum amount not chargeable to tax) in the
financial year.

(c) Long Term Capital Gains:


For Individuals, HUFs, Partnership Firms, Indian Companies:
Long-term capital gains in respect of units held for a period of more than twelve months will be
chargeable under Section 112 of the Act, at concessional rate of tax, at 20% as increased by the
applicable sur charge. The following amounts are deductible from the full value of consideration,
to arrive at the amount of such capital gains:-
Under section 88 of the Act, subscriptions / contributions made in the following plans of LIC
Mutual Fund by individuals and HUFs will be eligible for tax rebate:
Cost of acquisition of units as adjusted by Cost Inflation Index notified by the Central
Government, and expenditure incurred wholly and exclusively in connection with such transfer.

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However, where the tax payable on such long-term capital gains, computed before indexation,
exceeds 10% as increased by the applicable sur charge, of the amount of capital gains, such
excess tax shall not be payable by the unit holder.

In a case, where taxable income, as reduced by long term capital gains, is below the exemption
limit, the long term capital gains will be reduced to the extent of the short fall and only the
balance long term capital gains will be charged at the flat rate 20% plus surcharge, as may be
applicable.

(d) Short Term Capital Gains:


Short-term capital gains in respect of units held for a period of not more than 12 months is added
to the total income. Short-term capital gains are chargeable to tax as per the relevant slab rates.
The maximum tax rates applicable to different categories of assesses are as follows:

Individuals and HUF 30% plus surcharge

Partnership firms 35% plus surcharge

Indian companies 35% plus surcharge

(e) Tax deduction at source on capital gains:


No tax is required to be deducted at source on capital gains arising to any resident unit holder
(under section 194K) wide circular No. 715 dated August 8, 1995 issued by the Central Board of
Direct Studies (CBDT).

(f) Exemption of capital gains

(i) Section 54 EC of the Act:


According to the provisions of section 54 EC of the Act, gains arising from the transfer of long-
term capital assets (including units held for a period of more than 12 months prior to the date of
transfer/redemption), are not chargeable to tax provided the said gains are invested in specific
assets within six months of such transfer.

A specified asset has been defined to mean any bond redeemable after three years, issued on or
after April, 1 2000 by a National Bank for Agriculture and Rural

Development or by the National Highways Authority of India. The Act provides that bonds
redeemable after three years, issued on or after a April 1, 2001 by the Rural Electrification
Corporation Ltd will also qualify as a specified asset. Similarly Bonds issued after April 1, 2002 by
National Bank or by SIDBI also qualify for such investment.

(ii) Section 54 ED of the Act:

3. Non-Residents:

(a) Tax on Income on units:


Section 115 E provides for concessional tax at the rate of 20% plus applicable surcharge in
respect of investment income of Non Resident Indian.
Section 115 AB provides for tax at the rate of 10% in respect of investment income in respect of
units purchased in foreign currency by an Offshore Fund.

(b) Deduction of Tax at source:


Section 196A of the Income Tax Act 1961, provides for deduction of tax at source at the rate of
20% on income received by a Non Resident in respect of units of the Mutual Fund.

Section 196B of the Income Tax Act 1961, provides for deduction of tax at source at the rate of
10% plus applicable surcharge on income received by Offshore Fund and FIIs as defined in
section 115AB in respect of units of the Mutual Fund.

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(c) Long Term Capital Gains:

(i) For Non Residents and Foreign companies


Under section 115 E of the Act, in case of non-resident Indians, income by way of the long-term
capital gains, in respect of units, each chargeable at the rate of 20% plus applicable surcharge.
Such long-term capital gains would be calculated without indexation of cost of acquisition.

(iii) For Overseas Financial Organization, including Overseas Corporate Body and
Foreign Institutional Investor fulfilling conditions laid down under section 115 AB
(Offshore Fund) under section 115 AB of the Act, long-term capital gains in respect of
units held for a period of more than 12 months will be chargeable at the rate of 10% plus
surcharge, as may be applicable. Such gains would be calculated without indexation of
cost of acquisition.

(d) Short Term Capital Gains:


Short-term capital gains in respect of units held for a period of not more than 12 months is added
to the total income. Such capital gains are chargeable to tax as per the relevant slab rates. The
maximum tax rates applicable to different categories of assessees are as follows:

Foreign companies 40% plus surcharge


Non-resident Indians 30% plus surcharge

(e) Tax deduction at source on capital gains:

Under section 195 of the Act and shall be deducted at source as under:

(a) In case of non-resident other than a Company:


Long-term capital gains 20% plus surcharge
Short-term capital gains 30% plus surcharge

(a) Tax on Income on units:

(b) In case of foreign companies


Short-term capital gains 40% plus surcharge
Long-term capital gains 20% plus surcharge

(c) In case of Offshore Fund and FIIs as defined in 115 AB

Long-term capital gains 10%

However, recentlly Delhi High Court has held that deduction of tax at source as per the provisions
of DTAA can not be done at a concessional rate. The Court has held that the concessional rate
can apply only at the time of final assessment.
As per CBDT circular No. 728 dated October 30, 1995, in the case of remittance to a country with
which a Double Taxation Avoidance Agreement (DTAA) is in force, the tax should be deducted at
the rate provided in the Finance Act of the relevant year or at the rate provided in the DTAA
whichever is more beneficial to the assessee. In order to obtain the benefit of a lower rate
available under DTAA, the unitholder is required to provide the mutual fund with a certificate
obtained from his/her assessing officer stating his/her eligibility for the lower rate.

(f) Exemption of capital gains:

Section 54 EC of the Act:

According to the provisions of section 54 EC of the Act, gains arising from the transfer
of long-term capital assets (including units held for a period of more than 12 months

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prior to the date of transfer/redemption), are not chargeable to tax provided the said
gains are invested in specific assets within six months of such transfer.

A specified asset has been defined to mean any bond redeemable after three years,
issued on or after April, 1 2000 by a National Bank for Agriculture and Rural
Development or by the National Highways Authority of India. The Act provides that
bonds redeemable after three years, issued on or after a April 1, 2001 by the Rural
Electrification Corporation Ltd will also qualify as a specified asset. Similarly Bonds
issued after April 1, 2002 by National Bank or by SIDBI also qualify for such
investment.

Section 54 ED of the Act:

Section 54 ED of the Act provides that gains arising from transfer of long-term capital assets
being listed securities or units, shall not be chargeable to income-tax, if such capital gains are
invested in equity shares by way of a public issue within six months from the date of such
transfer. However, such shares will be locked in for a period of one year and will not be entitled
to be sold or transferred during the lock-in period.

Religious and Charitable Trusts:


Investment in the units of the Mutual Fund by Religious and Charitable Trusts is an eligible
investment under section 11 (5) of the Act, read with Rule 17C of the Income tax Rules, 1962.

Wealth Tax and Gift Tax benefits

Units held under the schemes of the Mutual Fund are not treated as chargeable assets under
section 2(ea) within the meaning of the Wealth Tax Act, 1957 and therefore are not liable to
wealth tax. Similarly, gift of the units held under the schemes are also not chargeable to Gift Tax
under the Gift tax Act, 1958 after 1.10.1998.

TAX IMPLICATIONS FOR THE MUTUAL FUND


Tax benefit to the fund:

Our Mutual Fund is duly registered with SEBI and as such the entire income of the fund is exempt
from income tax under section 10 (23D) of the Act and is entitled to receive its income without
any deduction of tax at source.

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Chapter 4:- a valuation of NAV’s & swot


analyis

• valuations of nav’s
• brief about swot analysis

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Calculating Net Asset Value (NAV)


Learn how to calculate this popular mutual fund
number

You may have heard the term Net Asset Value


(NAV) used when referring to mutual funds. Now's
your chance to learn how to calculate a mutual
fund's NAV and understand what it really means.

Treat a mutual fund's net asset value as its


price per share. If you see a fund NAV as $14, then
you can expect to buy the fund for $14 or sell it for
$14 (although some loaded funds don't follow this
logic). Since mutual funds hold a number of
securities, the net asset value must be calculated at
the end of day on a daily basis (as opposed to
stocks that change prices by the second).

Calculating NAVs

Calculating mutual fund net asset values is easy.


Simply take the current market value of the fund's
net assets (securities held by the fund minus any
liabilities) and divide by the number of shares
outstanding. So if a fund had net assets of $50
million and there are one million shares of the fund,
then the price per share (or NAV) is $50.00.

How to Use Net Asset Values

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NAVs are helpful in keeping an eye on your mutual


fund's price movement, but NAVs are not the best
way to keep track of performance. The reason for
this is mutual fund distributions. Mutual funds are
forced by law to distribute at least 90% of its'
realized capital gains and dividend income each
year. When a fund pays out this distribution, the
NAV drops by the amount paid.

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This is important because an investor may become


frightened when they see their fund's NAV drop by
$3 even though they haven't lost any money (the
$3 was paid out to the shareholder). For a better
understanding of mutual fund distributions.

The most important thing to keep in mind is that


NAVs change daily and are not a good indicator on
how your portfolio is doing because things like
distributions mess with the NAV (it also makes
mutual funds hard to track)

HOW THE NET ASSET VALUE OF FUND IS


DETERMINED

Market value of the stocks & bonds in the fund


10,000,000

Minus total liabilities


-130,000

Net worth
99,870,000

Number of shares outstanding


7,500,000

Net asset value 13.316


(99,870,000/7,500,000)

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The net asset value changes daily because of


market fluctuations of the stock & bond prices in the
fun. NAV’s are important because:-
The NAV is used to determine the value of your
holdings in the mutual fund (the number of shares held
multiplied by the NAV price per share)

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HOW TO DETERMINE THE EFFECTIVE LOAD


CHARGE:-

A mutual fund quotes its load charge as a percentage of


its offer price, which understates the real charge paid
by investor in load funds. For ex, for a mutual fund with
a load charge of 5% & NAV quoted in the newspaper of
25 per share, the offer price is determined as follows:-

Offer price=net asset value (NAV)


(1-Load %)

= 25
(1-0.05)

= 26.32

The investor pays a load fee of 1.32 per


share(26.32-25), which is a 5% charge of the offer
price. However, this load charge as a % of the NAV is
higher than 5%.

Effective load charge= Load charge


Net asset value

= 1.32
25.00

= 5.28%

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Conducting a SWOT or (OTSW)

What is it?

The granddaddy of focus group data gathering


processes is the traditional SWOT and its updated
offspring, OTSW Analysis. You can SWOT (or OTSW) a
concept, a program, a department, a school, or a
new initiative. You can even SWOT a person,
although one must be careful when doing so.

When doing SWOT Analysis, remember that the


S and the W are INTERNAL and the O and T are
external. Traditionally, facilitators begin with the
organization’s Strengths and Weaknesses and
then move out to the external Opportunities and
Threats. Recent thinking prompts consideration
first of the opportunities and threats existing in the
"outside world" against which the institution can
leverage its strengths and find conviction to correct
its weaknesses. We like this reversal of the
traditional order because it helps an organization
place itself in context.

Method

Group Process Technique: Brainstorming

Purpose: To generate a large quantity of ideas in


response to a stated problem or question.

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The group is asked to generate as many responses


to the following questions within a limited time
frame (10-20 minutes per question). All responses
are recorded verbatim and ideas are not judged
until evaluation time.

Group Size: Can be used with any number of


participants (large groups can be broken into
smaller groups of 6-10 to maximize output)

Resources: Flip chart and markers

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Procedure

1. Explain basic rules of brainstorming:


a. Don’t evaluate the idea; defer judgment.
b. Quantity is the goal.
c. The wilder the better.
d. Record each idea verbatim.
e. Tagging on or combining ideas is okay.

2. Begin brainstorming by asking the following


questions:

a. What opportunities exist in our external


environment?

b. What threats to the institution exist in our


external environment?

Brainstorm these along the lines of:

• Political, economic, social, technology


• Market size and behavior
• Constituent behavior
• Benefits sought
• Potential new entrants
• Direct competitors’ performance,
strategies, capabilities, intentions

c. What are the strengths of our institution?

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d. What are the weaknesses of our institution?

Brainstorm these along the lines of:

• Ability to design/innovate
• Ability to source and produce
• Ability to market and service
• Ability to finance
• Ability to manage

4. Record all ideas verbatim.

5. After all ideas have been storyboarded and the


time limit is up, categorize ideas into thematic
groupings.

Facilitator Notes to Wrap Up

Prioritization is a key factor in obtaining useful


SWOT (OTSW) data, as the output from
brainstorming will be significant.

At the end of the small group reports, reduce the


list of strengths and weaknesses to no more than
five distinctive competencies and debilitating
weaknesses:

1. Strengths that are distinctive


competencies

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Are those few things that your institution does


best that constituents really care about and
that set it apart from other market entries.
Core competencies usually attract widespread
agreement. An organization will focus on
capitalizing on its distinctive competencies.

2. Weaknesses that are debilitating

Are those areas in which constituents expect


and demand performance or competency and
the institution is dangerously lacking?
Debilitating weaknesses frequently attract
widespread agreement. An organization will
focus on correcting its debilitating weaknesses.

Reduce threats and opportunities to the five


most critically important of each.

Questions to Consider when evaluating OTSWs or


SWOTs:

1. What will the institution gain if it does


nothing? What will it lose?
2. What will the institution gain if it launches
a successful initiative? What will it lose if it
does not?

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SWOT (OTSW) MATRIX

1. What are the Threats and Opportunities


present in the external marketplace that effect
this school, department, program, and project?
2. What are the Strengths and Weaknesses
present inside the institution that effect this
school, department, program, and project?

Opportunities Threats

Strengths Weaknesses

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SWOT Analysis

Swot analysis is used to conduct a general and


quick examination of a firm’s current position so it
can identify its position in the market and likely
directions for the future. It involves looking at the
internal strengths and weaknesses of a business and
the external opportunities and threats.

Firstly the firm will identify it’s strengths, these are


things which:

• They are effective at


• They are well known for
• Make money
• Generate a reputation
• Cause repeated business from the same
customers
• Cause other businesses to learn from them

Then the Firm will look at its internal weaknesses.


This includes any causes for disputes, loses,
complaints etc.

Opportunities are directions that the firm could


take into the future and make a profit from them.

Threats to a business arise from the activities of


competition and from failing to build on arising

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opportunities Also threats can come from a lack of


profit perhaps due to a rise in costs

Swot analysis is usually done as a brainstorming


event as it is an effective way of gathering
information. Swot Analysis is often used in the
marketing department as a method of which to
produce its marketing strategy.

Chapter 5:-

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• evaluation &
• swot analysis of lic mutual
fund

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Performance of Mutual Funds in India

Let us start the discussion of the performance


of mutual funds in India from the day the concept of
mutual fund took birth in India. The year was 1963.
Unit Trust of India invited investors or rather to
those who believed in savings, to park their money
in UTI Mutual Fund.

For 30 years it goaled without a single second


player. Though the 1988 year saw some new mutual
fund companies, but UTI remained in a monopoly
position.

The performance of mutual funds in India in the


initial phase was not even closer to satisfactory
level. People rarely understood, and of course
investing was out of question. But yes, some 24
million shareholders were accustomed with
guaranteed high returns by the beginning of
liberalization of the industry in 1992. This good
record of UTI became marketing tool for new
entrants. The expectations of investors touched the
sky in profitability factor. However, people were
miles away from the preparedness of risks factor
after the liberalization.

The Assets Under Management of UTI was


Rs.67bn. by the end of 1987. Let me concentrate

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about the performance of mutual funds in India


through figures. From Rs.67bn. the Assets Under
Management rose to Rs.470 bn. in March 1993 and
the figure had a three times higher performance by
April 2004. It rose as high as Rs.1,540bn.

The net asset value (NAV) of mutual funds in


India declined when stock prices started falling in
the year 1992. Those days, the market regulations
did not allow portfolio shifts into alternative
investments. There were rather no choices apart
from holding the cash or to further continue
investing in shares. One more thing to be noted,
since only closed-end funds were floated in the
market, the investors disinvested by selling at a
loss in the secondary market.

The performance of mutual funds in India


suffered qualitatively. The 1992 stock market
scandal, the losses by disinvestments and of course
the lack of transparent rules in the whereabouts
rocked confidence among the investors. Partly owing
to a relatively weak stock market performance,
mutual funds have not yet recovered, with funds
trading at an average discount of 1020 percent of
their net asset value.

The supervisory authority adopted a set of


measures to create a transparent and competitive

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environment in mutual funds. Some of them were


like relaxing investment restrictions into the
market, introduction of open-ended funds, and
paving the gateway for mutual funds to launch
pension schemes.

The measure was taken to make mutual funds


the key instrument for long-term saving. The more
the variety offered, the quantitative will be
investors.

At last to mention, as long as mutual fund


companies are performing with lower risks and
higher profitability within a short span of time, more
and more people will be inclined to invest until and
unless they are fully educated with the dos and
don’ts of mutual funds.

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Future of Mutual Funds in India

By December 2004, Indian mutual fund industry


reached Rs.1,50,537 crore. It is estimated that by
2010 March-end, the total assets of all scheduled
commercial banks should be Rs.40,90,000 crore.

The annual composite rate of growth is


expected 13.4% during the rest of the decade. In
the last 5 years we have seen annual growth rate of
9%. According to the current growth rate, by year
2010, mutual fund assets will be double.

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Let us discuss with the following table:

Source – RBI

Aggregate deposits of Scheduled Com Banks in India (Rs.Crore)

Mar-
Month/Year Mar-98 Mar-00 Mar-01 Mar-02 Mar-03 Sep-04 4-Dec
04

Deposits 605410 851593 989141 1131188 1280853 - 1567251 1622579

Change in
% over last 15 14 13 12 - 18 3
yr

AGGREGATE DEPOSITS OF COM


BANKS IN INDIA

Mar-98
Mar-00
1-Mar
2-Mar
3-Mar
4-Mar
4-Sep
4-Dec

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Source - AMFI

Mutual Fund AUM’s Growth

Mar- Mar- Mar- Mar- Mar-


Month/Year Mar-04 Sep-04 4-Dec
98 00 01 02 03

MF AUM's 68984 93717 83131 94017 75306 137626 151141 149300

Change in
% over last 26 13 12 25 45 9 1
yr

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MUTUAL FUND AUM's GROWTH

5%
7% Mar-98
25% Mar-00
6%
1-Mar
2-Mar
7%
3-Mar
4-Mar
6%
12% 4-Sep
4-Dec
10% 5-Mar
11% 6-Dec
11%

Some facts for the growth of mutual funds in


India:-

• 100% growth in the last 6 years.

• Number of foreign AMC's are in the que to enter


the Indian markets like Fidelity Investments, US

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based, with over US$1trillion assets under


management worldwide.

• Our saving rate is over 23%, highest in the


world. Only channelizing these savings in mutual
funds sector is required.

• We have approximately 29 mutual funds which


is much less than US having more than 800. There
is a big scope for expansion.

• 'B' and 'C' class cities are growing rapidly.


Today most of the mutual funds are concentrating
on the 'A' class cities. Soon they will find scope in
the growing cities.

• Mutual fund can penetrate rurals like the Indian


insurance industry with simple and limited
products.

• SEBI allowing the MF's to launch commodity


mutual funds.

• Emphasis on better corporate governance.

• Trying to curb the late trading practices.

• Introduction of Financial Planners who can


provide need based advice.

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Union Budget 2007- 08 & the Mutual


Fund industry

The 2007-08 budget presented by the Finance


Minister was also a low impact budget, compared
with the last year, whose fundamental message was
for overall growth of the economy and a positive
emphasis to be put on agricultural and rural
development, as well as education, which will
certainly give a long term boost to the growth of the
economy. The reduction in fiscal deficit is also a
positive step and the government will also increase
spending on education by 34%.

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Markets have seen a major correction over the


last few trading sessions. On 28th the markets was
hit hard from both sides, internally as well as
externally. The budget had a few shockers when the
dividend distribution tax was hiked, and on the
other side the global market saw major meltdown
with the Asian market were beaten the most,
Chinese

Why Invest In India?

Indian Economy-High Growth Rates, Low


Inflation and Soaring Foreign Investments.

India has had robust economic growth since


1991 when the government reversed its socialist-
inspired policy of a large public sector with
extensive controls on the private sector and began
to liberalize the economy. The economy has
responded well by posting strong growth in many
sectors. A 2003 report by Goldman Sachs predicts
that India's economy would be the third largest by
2050.

Indian Financial Sector-New Opportunities

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The far-reaching changes in the Indian economy


since liberalization in the early 1990s have had a
deep impact on the Indian financial sector. The
financial sector has gone through a complex
restructuring, capitalizing on new opportunities as
well as responding to new challenges.

Capital Markets - Mature Systems

The Indian capital markets have witnessed a


transformation over the last decade. India is now
placed among the mature markets of the world. Key
progressive initiatives in recent years include:

• The depository and share dematerialization


systems that have enhanced the efficiency of the
transaction cycle
• The InfoTech-driven National Stock Exchange
(NSE) with a national presence (for the benefit of
investors across locations) and other initiatives to
enhance the quality of financial disclosures.
• Indian capital markets have rewarded Foreign
Institutional Investors (FIIs) with attractive
valuations and increasing returns.
• Many new instruments have been introduced in
the markets, including index futures, index
options, derivatives and options and futures in
select stocks. (Broking industry consolidation has
to be brought out)

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Indian capital markets-The Opportunities


Today

With over 20 million shareholders, India has the


third largest investor base in the world after the
USA and Japan. Over 9,000 companies are listed on
the stock exchanges, which are serviced by
approximately 7,500 stockbrokers. The Indian
capital market is significant in terms of the degree
of development, volume of trading and its
tremendous growth potential. India's market
capitalization was amongst the highest among the
emerging markets.

Mutual fund industry has become a dominant


player in the market. As of end-December 2006, the
assets under management by the Indian MF industry
stood at a staggering Rs.3,23,601 crore.

There is a large presence of FIIs in the Indian


capital market with over 1044 FIIs (as of 3rd January
2007). The cumulative investment of FIIs in the
Indian stock market stood at US$ 50 billion as on
3rd January 2007.

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S W O T A N A L Y S I S O F L I C M UT U A L F U N D W I T H
OTHER MUTUAL FUND’S

About SWOT analysis we discussed in above


chapter 4th. Here analyses of Strength’s, Weak
ness’s, Opportunity’s & Threat’s of LIC Mutual Fund
with competitor’s of other mutual fund:-

When compared with strengths of LIC Mutual Fund


with other mutual fund we can find those are

• THEY HAVE HIGH NETWORK WITH BACKGROUND


OF THERE LIC INSURANCE CO.,
• THERE GOODWILL IN MARKET WITH THE LINK OF
LIC INS CO.,
• THEY HAVE NUMBER OF AGENTS TO MEET THE
CUSTOMERS.
• THEY HAVE HIGHLY EXECUTIVE MEMBERS WITH
LOTS OF EXPERIENCE.
• THEY HAVE OLD CUSTUMERS LINKED TO LIC
INSURANCE CO., WITH THAT THEY CAN CONVIENCE
TO THOSE CUSTOMERS
• THERE STAFF HAVING AN INNOVATIVE POWER.
WHICH THEY RESENTLY RELEASED SCHEME WAS
ULIP (UNIT LINKED INSURANCE SCHEME) WHICH

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HAS BECOME MORE POPULARISED SCHEME IN


MUTUAL FUND INDUSTRY

When compared with weak nesses of LIC Mutual


Fund with other mutual fund we can find those are:-

• THEY DON’T HAVE ANY TRAINING INSTITUTE FOR


SHORT TERM PLAN TO AGENTS
• THEY DON’T HAVE ANY SPECIFIED OFFICE FOR
CONTACT PURPOSE TO CUSTOMERS LIKE OTHER
FINANCIAL SERVICE SECTORS HAVE.

We find OPPORTUNITIES in LIC Mutual Fund with


other mutual fund those are:-

• WITH OVER 20 MILLION SHAREHOLDERS, INDIA


HAS THE THIRD LARGEST INVESTOR BASE IN THE
WORLD AFTER THE USA & JAPAN.
THERE IS A LARGE PRESENCE OF FIIS IN THE

INDIAN CAPITAL MARKET WITH OVER 1044 FIIS (AS
OF 3RD JANUARY 2007).
• INDIAN CAPITAL MARKETS HAVE REWAREDED
FOREIGN INSTITUTIONAL INVESTORS (FIIs) WITH
ATTRACTIVE VALUATIONS AND INCREASING
RETURNS.
• MANY NEW INSTRUMENTS CAN BEEN
INTRODUCED IN THE MARKETS, INCLUDING INDEX
FUTURES, INDEX OPTIONS, DERIVATIVES AND
OPTIONS AND FUTURES IN SELECT STOCKS

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• THEY HAVE INNUMEROUS OF OPPORTUNITES IN


FINANCIAL SERVICE SECTORS TO DIVERSIFY.
• AT THE PRESENT SECNARIO THE REALESTATE,
RETAILING SECTORS HAVE TREMONDOUS GROWTH
IN INDIA TO PORTFOLIO THE INVESTMENTS
• THEY CAN LIVE FURTHER FUNDS LINKED TO
INSURANCE.
• THEY CAN GIVE DIRECT ONLINE IPO TO
CUSTOMERS TO SUBSCRIBE THE MUTUAL FUND
SCHEME WITH EASY FILLING FORM.

We find some of the threats faced by LIC Mutual


Fund they are:-

• WE FIND 34 PLAYERS IN MUTUAL FUND


INDUSTRY COMPARE TO EARLIER.
• WE FIND NUMBER OF SCHEMES OUTCOMING DAY
BY DAY DIFFERENT TYPES OF OPTIONS IN MARKET.

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Opportunities

• 20 million
shareholders
T h re a t s
• Large presence of
fii’s • 34 players in
• Many instruments Indian mutual
can be introduce fund
• Diversification • Number of
• Real estate, schemes
retailing sectors
• Further funds like
ulip
• Online ipo

Strengths Weaknesses

Network • Training

• Goodwill institute
• No of agents • Specified office
• Experience
• Old customers

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• I n n o v a t i v e p o w er

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Evaluations are based in questionnaires:-

Analysis of Survey

The following table shows the distributions on their profession

Profession No. of %age


S.L. No
Respond
1 Businessman 9 18%
2 Govt. Employees 22 44%
3 Pvt Employees 13 26%
4 Others 6 12%
Total 50 100%

The following graph shows the distributions on their


profession

Others Businessman
12% 18%

Pvt Employees
26%

Govt. Employees
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The following table source on the basis of distribution of

investors on the basis of monthly income of the family.

S.l. No No. of % age


Monthly Income
Investors
1 Below 6000 8 16%
2 6000 to 12000 21 42%
3 12000 to 18000 11 2%
4 Above 18000 10 20%
Total 50 100%

The following graph source on the basis of distribution

of investors on the basis of monthly income of the

family.

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20% 16%

22%
42%

Below 6000 6000 to 12000 12000 to 18000 Above 18000

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The following table shows distribution investments among

different financially institutions

Sl.No No. of %age


Financial Institutions Investors
1 LIC & UTI 20 40%
2 LIC & Commercial Bank 12 24%
3 LIC & Others 3 6%
4 LIC & UTI& Others 4 8%
5 LIC, UTI & Commercial Bank 11 22%
Total 50 100%

The following graph shows distribution investments

among different financially institutions

20
20

18

16

14
12
12 11

10

6
4
4 3

0
LIC & UTI LIC& Commercial LIC & Others LIC&UTI & Othes LIC, UTI &
Bank Commercial Bank

1 2 3 4 5

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Distribution of money investments among different

financial institution.

SL. NO PARTICULARS NO.OF % AGE


INVESTORS
1 Advertisement 10 20%
2 Friends 10 20%
3 Agents 24 48%
4 Advt.and agents 06 12%
TOTAL 50 100%

Distribution of money investments among different

financial institution.

12% 20%

20%

48%

1 Advertisement 2 Friends 3 Agents 4 Advt.and agents

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Following table shows the position of the 4

important schemes

S.l. No Schemes & plan No. of Investor % age

1 ULIP 12 24%
2 RBP 6 12%
3 MASTER SHARE 11 22%
4 MASTER VALUE FUND 5 10%

5 OTHER SCHEME 16 32%


Total 50 100%

Following graph shows the position of the 4 important


schemes

16
16

14
12
12 11

10

8
6
6
5

0
ULIP EQUITY GROWTH BALANC ED OTHER
FUNDS FUNDS FUNDS SC HEME

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Following table shows in which manner they are not

satisfied with the Return:-

SL.NO NO.OF % AGE


OPINION
INVESTORS
1 Interest 8 16%
2 Dividend 15 30%
3 Services 20 40%
4 Others 07 14%
TOTAL 50 100%

Following graph shows in which manner they are not

satisfied with the Return :-

20
20

18
15
16

14

12

10 8
7
8

0
Interest Dividend Services Others

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FOLLOWING TABLE SHOWS THE SERVICES PROVIDED BY


LIC COMPARED WITH OTHER FINANCIAL INSTITUTIONS:-

SL.NO OPINION NO.OF %AGE


RESPONDENTS
1 EXCELLENT 06 12%
2 SATISFACTORY 25 50%
3 GOOD 15 30%
4 BAD 04 08%
TOTAL 50 100%

Following graph shows the services provided by LIC

compared with other financial institutions

8% 12%

30%

50%

EXCELLENT SATISFACTORY GOOD BAD

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Chapter 6:- findings & suggestions


QUESTIONERIE
Bibliography

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FINDINGS & SUGGESTIONS ARE BASED ON TWO


TYPES:-

1. ON GENERAL INFORMATION COLLECTED


2. BASED ON QUESTIONAIRIE

FINDINGS ON GENERAL INFORMATION COLLECTED:-

Mutual Fund industry today, with about 34


1.
players and more than five hundred
schemes, is one of the most preferred
investment avenues in India. However, with a
plethora of schemes to choose from, the retail
investor faces problems in selecting funds.
Factors such as investment strategy and
management style are qualitative, but the
funds record is an important indicator too.
2. Worldwide, good mutual fund companies over
are known by their AMCs and this fame is
directly linked to their superior stock selection
skills.
3. The new millennium brought with itself what
had rarely been seen in the market.
Burgeoning growth. Riding on the ICE boom,
the market touched great heights. Also
touching new heights were the returns

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generated by equity funds. But as the saying


goes, what goes up has to come down and the
higher one goes the steeper is the fall. This is
exactly what the equity funds have
experienced over the last one year as they
have been robbed of their valuables by the
volatile markets. The fall out of the volatile
market conditions is reflected in significant
erosion of the total assets under management
of the equity funds.

SUGGESTIONS ON GENERAL INFORMATION COLLECTED:-

1. Though past performance alone can not be


indicative of future performance, it is, frankly,
the only quantitative way to judge how good a
fund is at present. Therefore, there is a need
to correctly assess the past performance of
different mutual funds.

2. For mutual funds to grow, AMCs must be held


accountable for their selection of stocks. In
other words, there must be some performance
indicator that will reveal the quality of stock
selection of various AMCs.

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3. Return alone should not be considered as


the basis of measurement of the performance
of a mutual fund scheme, it should also include
the risk taken by the fund manager because
different funds will have different levels of risk
attached to them. Risk associated with a fund,
in a general, can be defined as variability or
fluctuations in the returns generated by it. The
higher the fluctuations in the returns of a fund
during a given period, higher will be the risk
associated with it. These fluctuations in the
returns generated by a fund are resultant of
two guiding forces.
a. First, general market fluctuations, which
affect all the securities present in the
market, called market risk or systematic risk
and
b. second, fluctuations due to specific
securities present in the portfolio of the
fund, called unsystematic risk.

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FINDINGS & SUUGESTIONS BASED ON


QUESTIONNAIRIE:-

PROBLEM FACED BY LIC WHILE DEALING WITH ITS

CUSTOMERS

Since many of a scheme are decentralized and different

registrars at different places has led unit scheme to feel difficulty in

following up with them is laborious.

Normally customers do not read offer document but invest on

the words of agents and friends and expect excessive return from the

investment, which lead dissatisfaction. They expect regular return

from equity oriented schemes in which LIC invest 80% of fund in share

'market and 20% in money market.

Some investors opt for change of option during the scheme,

which is difficult for LIC to respond to their needs

A few customers take undue advantage of duplicate certificate

issued in leave or original certificate, which is reported last by selling

the original certificate in the market.

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SUGGESTIONS

 Educating the customer about LIC and its scheme and plans for

creating customer awareness.

 The LIC have to improve in their services by adopting modern

technology like computerization

 Its performance is good only in some schemes but there is a lot

to improve in its schemes.

 In the area of customer Service, the leadership is provided by

the branch manager. The working group on customer service is

rightly observed. It is a job of branch manager to stimulate and

motivate his subordinates. Ideally, branch manager should have

proper orientations and his relationship with his service tasks, rules

and regulations and procedures so amending to deploy the entire

collection centers in attending to customer during business hours.

 There must be a good and quick correspondence between

branch office and collection centers.

 The person who wish to become an agent of LIC should have a

good communication skill, capacity of hard working, attractive

personality, good knowledge of rules and regulations of LIC and its

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schemes and plans along with SEBI rules & regulations, and as well

as he should be very prompt in his duty.

Request letter to the investor

(respondent)

Please take some time to fill out


the questionnaire

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QUESTIONNAIRE

1. NAME:-

2. ADDRESS:-

3. QUALIFICATION:-

4. PROFESSION

 GOVT. EMPLOYEE ( )

 PVT. EMPLOYEE ( )

 BUSINESS MAN ( )

 OTHERS ( )

5. SEX

 MALE ( )

 FEMALE ( )

6. MARITAL STATUS

 MARRIED ( )

 UNMARRIED ( )

7. MONTHLY INCOME

 BELOW 6,000/- ( )

 RS 6,000/-12,000/- ( )

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 RS 12,000/-18,000/- ( )

 ABOVE 18,000/- ( )

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8. DO YOU INTENDED TO SAVE MONEY FOR FUTURE

 YES ( )

 NO ( )

9. IF YES, IN WHICH OF THE FOLLOWING SAVINGS

 LIC ( )

 UTI ( )

 COMMERCIAL BANK ( )

 OTHERS ( )

10. HOW DO YOU KNOW ABOUT THE UTI & ITS

SCHEMES?

 ADVERTISEMENT ( )

 FRIENDS ( )

 AGENTS ( )

 OTHER SOURCES ( )

11. IF YOU ARE A CUSTOMER OF LIC, IN WHICH

SCHEME YOU INVESTED?

 EQUITY FUNDS ( )

 GROWTH FUNDS ( )

 BALANCED FUNDS ( )

 ULIP ( )

 OTHERS ( )

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12. ARE YOU SATISFIED WITH THE RETURNS

GIVEN BY THE LIC?

 YES ( )

 NO ( )

13. IF YES, IN WHICH WHAT MANNER?

 INTEREST ( )

 DIVIDEND ( )

 SERVICES ( )

 OTHERS ( )

14. WHAT IS YOUR OPINION ABOUT THE

SERVICES OF LIC?

 EXCELLENT ( )

 SATISFACTORY ( )

 GOOD ( )

 BAD ( )

15. WHAT IS YOU OPINION ABOUT THE RATE OF


INTEREST GIVEN BY THE LIC?
 GOOD ( )
 SATISFACTORY ( )
 NON-SATISFACTORY ( )

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16. HOW DO YOU RATE THE AFTER SALES


SERVICES PROVIDED LIC?
 EXCELLENT ( )
 SATISFACTORY ( )
 GOOD ( )
 BAD ( )

17. WHAT IS YOUR OPINION ABOUT THE TAX


EXEMPTION PROVIDED UNDER VARIOUS LIC
SCHEMES?
 GOOD ( )
 SATISFACTORY ( )
 NON-SATISFACTORY ( )

18. SUGGESTION IF ANY,


a).................................................................................
b).................................................................................

c).................................................................................

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BIBLIOGRAPHY

 FINANCIAL MARKETS & SERVICES

• By: MALOTHRA

 AGENTS OF MANUAL LIC

 ANNUAL REPORT OF LIC

 APPLICATION FORMS OF LICSCHEMES

 LIC BULLETIN PLUS

 NEWSPAPERS & MAGAZINE

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