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GlobeOp Financial Services Private Ltd SIP Project 2005


ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

At the outset, I would like to thank GlobeOp for giving me the
approval to do this project in the organization. I am grateful to Mrs
Asmalata, HR Manager of GlobeOp for giving me an opportunity
to work with GlobeOp and understand its corporate culture.

I thank my company guide, Mr.Glenn Suares for his

encouragement and contribution to time, counsel and materials.
I thank my faculty guide Mr Ashish Deshmukh for coordinating
the project work and giving me the guidance. This project would
not have been possible without his help.

Iam very grateful to Mr Pankaj Arjunwadkar, our finance faculty,

for his assistance.I also wish to recognize and thank our Principal,
Mr S.S.Mokashi for inspiring me to take the best of the
opportunity provided.

Iam thankful to many individuals in the INDMC department of

GlobeOp for their encouragement and professional assistance
during the tenure of the On the Job Training.

Last but not the least I would like to convey my special thanks to
all the faculty members of ICFAI National College, Thane, for
giving me this opportunity to work on this project and for
providing us the computer lab and library facilities.

Shailesh Bhavsar

ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

“Money doesn't just make the world go 'round. It also keeps the
presses humming and the subpoenas flying.”
ValuaResearchOnline, CEO
Dhirendra Kumar

Mutual fund is an option for the long-term investment choices.

Like all kinds of freedom, the freedom of investment that budget
2005 gives out can be used to make good choices or bad choices.
Good choices will mean a huge retirement bonanza but bad choices
will mean disaster.

This choice issue also points at a potential problem in the new tax
regime. For this freedom of choice to be really meaningful,
investors should be able to switch investments from one instrument
to another without losing the tax-exempt status. Today, if you
make an investment in an ELSS fund with the intention of saving
for your retirement, then you have to stay with that same fund till
you retire. If the fund starts doing badly at some point in the future,
you would surely want to switch to another fund and you can,
because the mandated lock-in in the ELSS is only three years.
However, if you switch to another investment, then that new
investment will not have the tax-exempt status of the old ones.
When the second investment is eventually en-cashed, the returns
you make on it will be taxable.

We think that to fully enable investors to use the new freedom,

they should be permitted to switch their investments between
different instruments. Such a move would be completely revenue
neutral for the government. It would also keep the fund companies
on their toes as declining performance would make investors
switch to other funds without suffering any tax penalty.
ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

It’s now almost two years since the Kelkar committee’s report on
Tax reforms was made public. During this period, there have been
three budgets presented by two governments, which supposedly
have a very different approach to economic reforms. Yet, we find
that the most significant tax reforms that have been undertaken
have been very much along the lines of the Kelkar committee’s
recommendations. It is reasonable to infer that future reforms may
well be further implementations of Kelkar recommendations. A re-
reading of that committee’s report suggests that we are generally
headed for fewer tax exemptions and an even simpler exemptions

Eventually, we are likely to end up with an EET structure. Under

EET, investments would be exempt, as would be the returns from
those investments, but the original invested amount would be taxed
on redemption. Under EET (unlike the current EEE arrangement
where all three- investments, accumulation and redemption are
exempt), there would be no logic in having any lock-in.

Also, the government could afford to offer a higher limit than the
current one lakh because tax is simply getting deferred rather than
permanently exempt. In such a regime, the returns you get from
tax-break investments would become even more important it would
only be those returns that would tax-exempt. Investing in a low
return avenue would hardly mean any gains.

Clearly, personal tax is entering a new phase of reforms in which

saving alone is not enough; the savings have to be invested wisely
to get the real benefits.

ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Chapter I


ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005


1. To understand the concept of mutual funds and know how

they are traded through various sources.
2. To learn about the performance measures undertaken to
measure the feasibility and credibility of equity mutual funds.
3. To advice the investors about the investment strategies and
also managing their portfolio of investment and yield
maximum rate of return.
4. To undertake On-the Job Training as a company’s employee
and achieve the targets assigned on the regular basis during
the project.
5. To conduct a comparative analysis of Mutual Fund Returns
with that of BSE-100 Sensex returns.

6. To analyze the results of the study-work conducted and

propose recommendations to develop the supplement-so that
the existing investors and corporates derive maximum returns
and boost the investment economy of India.
7. To understand the corporate culture and work culture of the
organization and suggest some improvements managerial
aspects without criticizing the existing activities if required.

ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Though the present study is aimed to achieve the above mentioned
objectives in full earnest and accuracy, it was hampered due to
certain limitations. Some of the limitations of this study may be
summarized as follows:

1. The most important limitation is that mutual fund is measured

in comparison with BSE Sensex and it is always showing its
volatility and making the future uncertain.
2. And it is always mentioned in a mutual fund company
advertisement that all investments are subject to market risks
and the NAV (net asset value) of the scheme may go up or
down depending upon the factors and forces affecting the
securities market including the fluctuations in the interest
rates. But till now mutual fund has proved itself as the safest
investment option.
3. Mutual fund investing also depends upon the tax structure
which changes every year with the budget announced. The
recommendations mentioned may or may not be feasible for
the next year investing patterns.
4. Mutual funds can be measured by various characteristics
which make it suitable with the risk taking ability and returns
expected from a particular investor. This study is based on
ELSS (equity linked savings scheme). Therefore the study
conducted on Mutual Fund is hardly 5% of the whole mutual
fund industry.

ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Chapter II

-Industry Profile- An Introduction

-Industry Snapshots
-Workforce Issues
-Skill Sets
-Key Advantages
-Leading Companies

ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Industry Profile- An Introduction

Money doesn't just make the world go 'round. It also keeps the
presses humming and the subpoenas flying. Just ask a few of the
companies that have found themselves unwillingly in the media
spotlight during recent years.

Sure, there have always been scandals and brouhahas in the

financial services industry. (Remember the S&L crisis? How about
the Great Depression?) But the early years of the 21st century have
produced a bumper crop.

While investigations of the financial services industry continue,

some remedies have been sought and put into place, such as the
formation of the SEC's PCAOB (Public Company Accounting
Oversight Board) and other provisions of the Sarbanes-Oxley Act.
With Spitzer and other crusaders on the warpath, it's a good bet
that more remedies, more fines, and more subpoenas are on the
A growing number of blue-chip investors including leading UK
high street banks such as Abbey Halifax and HBOS plc and US
corporations such as Allstate and Liberty IT are benefiting from
having chosen India as their preferred location for a broad range of
operations in the financial services sector.

Back office and CRM

This sector has grown rapidly as leading banks and insurance firms
cash in on India’s reputation as Asia’s top location for customer
care operations

ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Business outsourcing

India is now an established location for the outsourcing of a wide

range of business functions and processes.

Software development

Thanks to the strength and innovation of its indigenous software

companies, together with significant investment from a number of
foreign-owned blue-chip investors, India has emerged as a leading

Shared services

India offers an unparalleled combination of high quality skills and

low operating costs, making it an ideal location for Shared
Service Centres (SSCs).

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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Industry Snapshots:
1. The financial services industry is composed of three primary
sectors: banking, securities and commodities, and insurance. (
Bureau of Labor Statistics)
2. The financial industry’s annual rate of growth (1.2% annually
between 2002 and 2012) represents 964,000 new jobs created
by 2012. (Business Today, Monthly Labor Review, February
3. The 2003 Gross Domestic Product generated by the financial
industry was over $2.5 trillion in current dollars, a 20.4%
share of the total GDP ( Bureau of Economic Analysis)
4. The following financial services occupations are expected to
increase in employment by over 18% from 2002 to 2012:
personal financial advisors (34.6%), financial analysts
(18.7%), and credit analysts (18.7%). (Bureau of Labor
5. Employment growth is expected in management and
professional jobs in banking, customer service representatives
as well as securities and financial services sales
representatives. ( Bureau of Labor Statistics)
6. Growing areas of the insurance industry are medical services
and health insurance in addition to the industry’s expansion
into the broader financial services field. ( Bureau of Labor

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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Workforce Issues:
1. The combined effects of technology, deregulation, and
mergers will continue to affect total employment growth and
the mix of occupations in the banking sector.
2. Deregulation of the financial services industry allows banks
to offer a variety of financial and insurance products that they
were once prohibited from selling. The need to develop,
analyze, and sell these new services will spur demand for
securities and financial services sales representatives,
financial analysts, and personal financial advisors.
3. As workers retire and insurance providers diversify and
expand into financial services, positions will be available for
new workers to enter the field. Medical services and health
insurance is the field within the insurance sector predicted to
grow the most in the next decade.

Skills Sets
1. Office and administrative occupations in insurance typically
require a high school education, but many institutions make
educational opportunities available to encourage in-house
advancement. Managerial, sales and professional occupations
typically require at least a bachelor’s degree.
2. Bank tellers and other clerks usually need only a high school
education. Most banks seek people who have good basic
math and customer service skills.
3. Financial services sales agents usually need a college degree;
a major or courses in finance, accounting, economics,
marketing, or related fields serve as excellent preparation.
Sales agents selling securities need to be licensed by the
National Association of Securities Dealers, and agents selling
insurance also must obtain licensure by state.

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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Key Advantages
1. Companies save money by moving jobs from the front office
to more cost-effective, back-office locations in India. This
trend is on the rise due to merger activity and advancements
in Internet technology and e-commerce.
2. India’s financial-services sector is projected to grow by more
than 25% over the next decade.
3. Compared to New York City and Philadelphia, back office
advantages of India include:
a. Less employee turnover
b. Shorter employee commute
c. Lower utility costs
d. Lower corporate taxes
e. Lower cost of living
4. The skill set required for back office jobs are readily
available in India at a reasonable cost.
5. Due to technological advancement it is possible to the clients
to get access of their portfolio information from the server
situated different countries.
6. Highly specialized systems are created to make its easy
access to the user client as well as the data base management
7. The current data is extracted from a standard system which is
identical to all the people in the world. But its cost is more to
an individual. Therefore financial service providers which
extract bulk data in less cost and provide the same to their

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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Leading Companies:
• Prudential Financial
• Chubb Corporation
• Dun & Bradstreet Corporation
• Dow Jones Information Services
• Merrill Lynch & Company
• Equitable Companies
• HP Financial Services
• Toa Re Reinsurance Company Of America
• National Westminster Bank
• Bank of Tokyo
• U.S. Federal Reserve
• Chase Manhattan Bank
• Bank of New York
• CIT Financial
• Mellon Bank
• Paine Weber Group
• Morgan Stanley
• Dean Witter Reynolds
• First Chicago Trust
• Barclays PLC
• Brown Brothers Harriman
• Dumitomo Bank
• Deutsche Bank
• Prudential Insurance
• ICICI Onesource
• E-Serve Financial Services

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GlobeOp Financial Services Private Ltd SIP Project 2005

Chapter III
Company Profile-Introduction
An overview
Services Offered
-Trade Administration
-Middle and Back Office
-Fund Administration
-Risk Reporting
-Client Web Access

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GlobeOp Financial Services Private Ltd SIP Project 2005

Company Profile – An Introduction

GlobeOp® Financial Services (GFSSM) offers automated,
State-Of-The-Art Middle and Back-Office Support Services and
Fund Administration for Hedge Funds, Fund Managers and High
Net Worth Family Wealth Managers. Headquartered in New York
and London, GlobeOp provides independent services essential to
the successful launch and operation of private investment entities
with activities ranging across a wide spectrum of traded
Company expertise is drawn from senior levels of
international banking and fund management and encompasses a
wide range of relevant experience. Our experienced team and
extensive use of technology resources enables GlobeOp to provide
an unparalleled level of service to our clients. Combining "off-the-
shelf" software with proprietary systems and technology, clients
enjoy the benefits of state-of-the-art systems that can be
customized for their individual needs. Applying Internet
technology, GlobeOp can provide a "virtual office" that enables
clients to manage funds from anywhere in the world. Investment
managers primarily start a private investment fund in order to
manage investments.
By and large, they may not want to manage the back-office,
technology resources and accounting processes or all of the people-
related issues encompassed in these functions. These activities are
generally considered a distraction from their primary purpose. It is
also very difficult to properly scale this side of the business. It
takes a substantial investment to reach critical mass in back-office,
technology and accounting, and because of this the back-office
may be an underutilized asset that cannot be levered. Furthermore,
regulators, credit officers and investors are increasingly
scrutinizing the quality of this aspect of the business.
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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

An Overview
GlobeOp® Financial Services (GFSSM) delivers independence,
choice and flexibility to the specialized middle and back office,
administration and risk measurement needs of hedge funds, fund of
funds, family wealth managers, institutional investors, proprietary
trading desks and corporate treasury departments.

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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Services Offered
GlobeOp® offers fund managers the ability to implement a world-
class operational infrastructure through customizable outsourced
solutions. The up-front investment for fund managers is minimal,
and the speed and convenience of implementation is greater than
what could be achieved by architecting and building solutions in-
house. In each customer relationship, GlobeOp works flexibly,
collaboratively, and responsively to support each customer's
growth and success. GlobeOp provides:

1) The hardware, software, communications links, and support

staff to maintain, manage, and upgrade technology

2) Teams of trained and skilled people to support critical

applications - around the clock and around the world

3) Management of processes and people, including process

refinement and human resource functions

4) Strategy-specific risk analyses combined with position gathering

and pricing capabilities

GlobeOp therefore affords our customers the ability to focus on

what they do best to grow their capital bases and generate investor
returns. Investors are often attracted to our clients because they
recognize the benefits of using GlobeOp, including our
independence, technical expertise, and operational excellence.
The three core services, which GlobeOp delivers separately or in
fully integrated offerings, are Middle and Back Office,
Administration, and Risk Reporting.

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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Trade Data Acquisition

GlobeOp® provides trade data acquisition services in support of
various types of clients, including Hedge Funds, Funds of Funds,
Family Wealth Offices, and Institutional Investors. Some of these
clients rely on GlobeOp's Trade Data Acquisition Services to
enable accurate financial reporting and/or Risk Services. By
leveraging its enormous investment in infrastructure and
technology, GlobeOp is able electronically to upload transaction
data from trading desks or prime brokers, and automatically to
format the data for use by various applications including GlobeOp
Risk and Advent Geneva™.

1. Trade Capture
2. Real Time Analytics
3. Multiple Systems Support
4. Data Aggregation

Trade Capture

• Automated trade capture enables fund managers using GFS’s

Middle and Back Office Services to generate trade tickets for
virtually any type of instrument, including over-the-counter
• Via Straight Through Processing from trade entry to
accounting, trade tickets automatically update the general
ledger and trades are electronically routed to prime brokers
and clearers.
• GlobeOp provides confirmation, clearing, document tracking,
and margin and collateral management for over-the counter
• Ticket generation is enabled through an electronic link to
Reuter’s Kondor+™, or managers have the option of using
other trading systems and uploading their trades to GlobeOp.
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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Real Time Analytics

• Through Reuter’s Kondor+™, managers can monitor their

trade and position blotters, and view detailed information
about their positions and cash flows.
• Hundreds of reports are available through Kondor+™ to
support critical decisions in the front office.

Managers can import virtually any type of analytical data into


Multiple Systems Support

• GlobeOp supports automated upload of trade data from many

popular Trade Order Management Systems.

Through flexible development capabilities, GlobeOp develops

customized interfaces to support individual trade entry systems.

Data Aggregation

• GlobeOp offers the power of its infrastructure to acquire

trade and position details from fund managers directly, or
from their Prime Brokers, Clearers or Administrators. This
data is used for financial and risk reporting.
• GlobeOp provides trade file formats for uploading critical
information covering all Exchange traded products and most
derivative positions.
• GlobeOp rigorously maintains our own security master on
behalf of our customers and does not require the download of
any security master or historic data from any counter party in
the data aggregation process.
• Hedge Funds using GFSSM for back-office can offer
authorized investors direct access to financial reports, and an
easily export and email reports that investors might require.
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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Middle and back office:

GlobeOp® offers tailored outsourcing solutions that are designed
to enable fund managers and investors to focus on investing, at a
fraction of the cost of managing staff and technology in-house.
Using fully integrated technology solutions incorporating some of
the most advanced systems and processes available,
1. Straight Through Processing: Straight-through-processing
(STP) ensuring trades flow directly from fund managers' desks
into GlobeOp's operations management and general ledger
system, Advent Geneva™. GFSSM employees never have to re-
key trades so the potential for error is minimal.
2. OTC Operations: Over the Counter Derivative operations
support includes confirmation and daily reconciliation with
counterparties, margin and collateral management, and pricing
support for even the most complex derivatives with full
flexibility for automating the uploads of client-specified market
data sources.
3. Electronic Prime Broker Links: Over 300 electronic interfaces
with prime brokers worldwide provide timely trade, position and
cash reconciliations. Automated reconciliation reduces the
likelihood of human error. Client Service Groups in which trade
operations and accounting professionals are co-located in one
team that is knowledgeable about and dedicated to each client's
support requirements.
4. Global Support: A truly global business with Client Service
Groups in London, New York, and Mumbai working around the
clock to deliver information efficiently and accurately.
5. Security Master and Pricing: Data Services Group maintains a
global, centralized security master and also processes all
corporate actions. Independent pricing for even the most
complex financial instruments ensures accurate daily mark-to-
market support for precise P&L reporting from any pricing
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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Fund administration:
GlobeOp®'s focus on hedge funds, emphasis on technology, and
deep knowledge of complex financial instruments, uniquely
positions us to provide truly independently derived NAVs and
best-practices administration support for domestic and offshore
1) Fund Valuation: NAV Calculation on a monthly, weekly or
daily basis. Investors receive the comfort of GlobeOp's
independent pricing and valuation. Investment in technology such
as Koger System’s N*TAS™ to handle investor allocation and
statement production helps us increase our speed in reporting to
investors without sacrificing quality. GFSSM supports series
accounting and equalization.

2) Investor Communications: Investor communications includes

statement generation and integration of manager reports. Investor
inquiries are handled promptly and professionally. Tax reporting
including K1 preparation and wash-sale.

3) Share Registry and Transfer Agency: GFS offers share

registry and transfer agency services, onshore and offshore. GFS
provides support for handling all subscriptions and redemptions
and provides certain AML compliance checks. GFS supplies a
Cayman Registered Office and Corporate Secretarial Services for
funds needing them.

4) Audit Support: Quality Assurance teams provide full

documentation and support to fund auditors.

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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

Risk reporting:
GlobeOp’s Risk Services provide a fully integrated solution
supporting all post-trade risk analysis needs. The services are
targeted towards the hedge fund community and investors. It
capitalizes on our experience with a diverse client base spanning
all types of hedge fund strategies such as equity long/short, relative
value fixed income, convertible arbitrage, macro, credit arbitrage,
emerging markets, etc.
1) Full Services: GlobeOp’s Risk Services end products are the
risk results available through our internet based report writer.
GlobeOp handles all necessary tasks: security master & historical
data maintenance, risk engine configuration, risk calculations
performed on GlobeOp's computation servers and report writer
maintenance. Full support and training is provided.
2) Sophistication and Flexibility: GlobeOp's Risk Services
include: position and exposure reporting using advanced factor
models; scenario analysis; stress testing; strategy specific risk
modeling; model based VaR computations, style monitoring.
GlobeOp Risk offers a high degree of flexibility in both reporting
and modeling.
Through its integration with GlobeOp Financial Services, GlobeOp
Risk clients benefit from a state-of-the-art infrastructure for data
aggregation that enables us to do high quality, position level risk
analysis. No other risk analytics service provider has such an
infrastructure in place. This integration is particularly beneficial for
funds of funds where position aggregation for underlying funds is a
key requirement.
3) Complete Transparency: In cases where transparency is an
issue GlobeOp Risk can provide third party performance data on
risk to hedge fund investors, without revealing the actual position
4) Individual Level Customization: Factor models can be
customized to meet the manager needs for investigating and
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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005

measuring specific exposures. Scenario analyses and stress tests

can be highly specific, with any combination of shocks to
individual instruments, markets, or risk factors affecting P&L.
Flexible, web-based reporting (OLAP) that allows fund managers
to fully customize their P&L and risk reports, and view their data
at whatever level of detail they choose.
OLAP allows users to create and "bookmark" reports for later use,
and export them to excel, PDF and/or email them automatically to
third parties internally or externally.

Client web access:

Through a single secure web site, GlobeOp®’s clients can view
critical data necessary to run their businesses. The site is
customized for each client, and is a portal to financial and risk
reports (OLAP); front office trade capture and reporting
(Kondor+™); corporate actions affecting fund positions and other
security master information; and web-based client reporting.
1) On-line Analytical Processing (OLAP): A highly flexible,
web-based reporting tool (OLAP) allows fund managers to
customize their daily P&L and risk reports, and view their data at
whatever level of detail they choose. OLAP allows users to create
and 'bookmark' reports for later use, and export them to excel, PDF
and/or post them automatically to third parties internally or
externally, by e-mail.
2) Kondor+™: Integrated deal capture, real-time position keeping,
pricing and risk management system designed to handle a wide
range of instrument types.
3) Security Master: Access to view and download information
about corporate actions that are coming up in the near future.
A facility to send Security Master setup requests directly to the
GlobeOp Data Maintenance and Control Group
4) Client Reporting: Access to client statements through Koger
Systems E*TAS™.
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ICFAI National College
GlobeOp Financial Services Private Ltd SIP Project 2005


In a service business GlobeOp recognize that their assets are their

people. GlobeOp® takes pride in the talent and passion of its team.
The company stress upon the use of technology and adherence to
the highest standards in all that they do.
GlobeOp provides invaluable exposure to cutting-edge processes,
systems and financial products. As a firm, it takes an active interest
in the career development of all its associates, and offer a superior
foundation from which it is possible to gain opportunities for
management and leadership - they believe more rapidly than at
most other enterprises.
The company owes its growth and success to the intense dedication
and effort that its associates provide to the clients and their jobs. Its
team-based environment affords significant interaction with senior
management, leading to well-rounded experiences and career
The confidence the company earns with its clients is of paramount
importance, and it holds themselves to the highest ethical standards
to ensure that trust.
The company also provides recreation facilities like carom board
and table tennis to refresh the working environment. It has a well
developed spacies cafeteria equipped with Microwave Owen,
nutritious food at reasonable rates, wending machine and television
sets to enjoy the refreshment with some news or video songs.
The company believes is “no criticism” at any level of
management. This makes a healthy working environment among
the employees and better interpersonal relationships.

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GlobeOp Financial Services Private Ltd SIP Project 2005

Chapter IV

On-the Job Training

-Description: Data Cleaning.
-About Bloomberg.
-Work flow chart.
-Key learnings.
-Sample Pages.

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GlobeOp Financial Services Private Ltd SIP Project 2005

Brief Description:

GlobeOp® Financial Services (GFSSM) delivers independence,

choice and flexibility to the specialized middle and back office,
administration and risk measurement needs of hedge funds, fund of
funds, family wealth managers, institutional investors, proprietary
trading desks and corporate treasury departments. Therefore I am
basically involved in database management. For every back office
support provider, data integration and data consistency plays and
important very important role. GlobeOp manages the portfolio of
US companies.
It uses three systems named as Bloomberg, CSM and Kondor.
And the data should be consistent for the clients as well as
GlobeOp to manage the portfolio in an efficient manner. My job is
to extract the data from the standard system (Bloomberg), take its
printout and match the information in it with the CSM (companies
own system). And then update the data if required and export it to
the client system (Kondor). It requires utmost care while export the
updated data to the client system because any wrong information
transfer affects the data consistency and later affects the relation of
the client with the company.
There were some instance were I was supposed to mail the client
about the changes made in the accounts. In rare case such as
dividend frequency change (yearly or half-yearly) the changes
could be made only if the client wishes to. A client account is
handled by a separate team which represents on behalf of the
client. This team is thoroughly known about the client
requirements and works accordingly.

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GlobeOp Financial Services Private Ltd SIP Project 2005

About Bloomberg

Bloomberg is the leading global provider of data, news and

analytics. The Bloomberg terminal and Bloomberg's media
services provide real-time and archived financial and market data,
pricing, trading, news and communications tools in a single,
integrated package to corporations, news organizations, financial
and legal professionals and individuals around the world

The core of Bloomberg

Available 24 hours a day to more than 260,000 professionals in
more than 125 countries, the Bloomberg Professional service
seamlessly integrates data, news, analytics, multimedia reports and
e-mail onto a single platform. It is used by market professionals
around the world to make informed decisions and to complete
transactions in any currency.

It offers all of this assistance and functionality on one platform for

its clients to use in any way that works for them. It meets the
individual needs of our 260,000 users, while providing an
unparalleled depth of data, enabling access to more than 3.6
million financial instruments. In addition, it offers 24-hour,
worldwide customer support to all our users. Financial
professionals around the world recognize the Bloomberg
Professional service as the definitive tool for achieving their goals.

Access Bloomberg Anywhere

This feature allows Bloomberg users to access their Bloomberg
Professional service from any computer in the world. Clients can
keep an eye on their positions, check e-mail and get the critical
information they need whenever and wherever they have Internet

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GlobeOp Financial Services Private Ltd SIP Project 2005

Tomorrow's front-page now

Bloomberg News® is a central element of the Bloomberg
Professional service, with more than 1,600 journalists and editors
reporting from 94 bureaus. Conceived as an electronic newspaper
with unlimited updates and editions, Bloomberg combines market-
moving headlines and stories with in-depth features, executive
profiles and more than 30 regular columns and features. All stories
are illustrated with Bloomberg analytics, audio reports or
documents filed with regulators.

More than just data:

An intrinsic feature of the Bloomberg Professional service is its
analytical ability, helping clients understand the markets by means
of real-time tools. More than 1,000 data analysts maintain the data
feed to the Bloomberg Professional service, which is the most
comprehensive, timely and accurate financial database available.

Benefit from the strongest asset – our people

To support such an intricate network of information and tools,
Bloomberg employs a highly trained, multilingual team that finds
solutions to any problems clients may have. Clients who contact
the Bloomberg Global Customer Support desk receive a response
within minutes — 24 hours a day, seven days a week, 365 days a

Bloomberg University
To support the Bloomberg Professional service, we provide a
comprehensive range of customer support and training facilities for
each and every user. These free-of-charge services and seminars
are accessible online, on-site and even through conference calls to
help users get the most from our products. It's all part of our

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Take Printout of the equity

from Bloomberg

Open the static information of the equity in the

CSM (company’s system)

Compare the CSM info with that of

Bloomberg and modify accordingly.

If there are updates, mail the clients and the

Geneva team to action accordingly.

If there are changes in currency or dividend

frequency inform the client first and wait for
reply before exporting.

Before updating or exporting any info check the

currency and dividend frequency in the client
Kondor System Accounts.


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Key learnings:

1. It was great experience to learn about the systems used in

maintaining the data of the clients for their portfolio
2. The corporate culture is again good experience to be
mentioned as I am working with an MNC. It is the American
based company which gives an exposure to the work culture
in US.
3. I have attended various training sessions about dealing with
the request from the clients and new systems coming in
practice that is far better than the existing one.
4. The intranet is such a thing which itself takes time to
understand the working. Many terms and workings of the file
transfer through intranet is a learning experience. I also came
to know the various benefits and facilities that intranet
5. One of the key learning also includes the data base
management and the way a portfolio of a client is managed
up to his expectations.
6. The work culture and communication pattern plays an
important role in a back office support division. For me it
was very exciting to know that one can call the company
associate sitting in America by simply dialing his extension
7. I also came across the right use of the intranet and Reuter’s
messenger. These facilities are only provided to better and
quick communication with the concerned people and not to
be used for personal use.

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Sample Pages of the company’s system:

Static Data Details
Status VALID Last Modified Date 31-Jan-2005
Last Modifier rshetty

GID 150798
Short Name CA25385Q1046 Currency CAD
Exchange TOR - Toronto Stock Exchange
Comments Modified by rshetty on 31-Jan-2005 at 05:59 and the data was clean
Kondor Name DIGITAL DISPATCH Kondor Short Name CA25385Q1046
Short Name (R3000) Country CA
SEDOL 2166416 ISIN CA25385Q1046
Bloomberg Unique ID Bloomberg ID DD CN
Bloomberg Name Bloomberg Yellow Key Equity
Bloomberg Short Name Bloomberg Number
Security CA25385Q1046 Security Description DIGITAL DISPATCH

Equity Specific Details

Dividend Frequency NONE Share Class COMMON

Type of Equity COMMNLST Legal Status COMMNLST
Clearing Mode D Counterparty Issuer CA_EQYLST
Is Dividend Growth N Dividend Growth Rate 0.0
No of Equities Issued 0 Nominal Value 0
Withholding Rate 0.0 Round Lot 0
Dividend Cover Method DPS Annual Method
Def Index for Beta 0 Face Value 0.0
Risk Sector WIREEQUI (Wireless Equipment)

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Update Confirmation Page

Action Update
Kondor Short Name KR7032390007

Changes that this update will apply to the Kondor+ installation

Field Name Current Value New Value


Currency USD KRW

Financial Center US KR

Market OTC_E KSC_E

RIC 32390.KQ 032390.KS

Bloomberg Id KTFTF US 032390 KS

Counterparty Issuer KR_EQYLST

Risk Sector CELLTELE

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Deals on Securities Page:

Listed below are the installations that have the Equities: CA6565681021
Number Instrument
GID Kondor Name Currency Exchange
of Deals Type



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1. The training provided to the newly joined should be given by

only one person. Because the information provided by more
than one can be inconsistent and this may confuse the trainee
about the exact procedure.

2. The newly joined should also be told about the different

departments in the organization and their functions. This
make him/her aware about the organization structure and
different activities handled at each department.

3. The client request can be of any type. It is difficult to

interpret the request from the client and so it takes long time
to ask its meaning and ways to complete the request. If each
case, one on each day, is dealt in the conference room in front
of all the concerned employees, then time and energy can be
saved if both who has a doubt and who clears the doubt. This
can also be done at the tea time spend in the conference hall
while enjoying the drink.

4. The company can also keep an experienced person specially

to clear the issues at individual level. In the free time he can
work on the task assigned to him.

5. The trainer should be ready with a list of items taught to the

trainee so that not a single info is left. This saves the time of
the trainee and the trainer spend is solving the doubts during
the actual work is performed.

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Chapter V:

Project Work
-Background of the study
-Scope and methodology
-Personal Taxation
- Concluding Observations

Background of the Study

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Mutual funds are popular financial intermediaries and manage

disposable income of the investors so as to bring them the benefits
of equity investment. History of mutual funds management in India
is rather new, vis-à-vis, mutual funds in USA or UK. Yet, the
mutual fund industry in India has caught the attention of millions
of investors with diverse interests around the basic principles of
investments vis-à-vis the Bombay Stock Exchange-100 (BSE-100)
National Index during the period 2004-2005. The BSE 100
National Index has been chosen as proxy for market portfolio in
our analysis.

Equity mutual funds predominantly invest in company equities,

and hence, are risky investments. While choosing to invest in
equity mutual funds, the investors expect not only risk premium
but also better returns than the market portfolio. Risk premium
refers to the returns earned by the investment in excess of risk-free
returns. Thus, the investors expect equity mutual funds to earn
better returns than the risk free returns as also the market returns. A
sample of 10 equity mutual funds has been drawn from various
asset management companies belonging to both private and public
sectors. The sample is a true representative of the universe, as it
constitutes more than two-thirds of the total equity mutual funds
operating in India in terms of number as well as assets
management. The sample has been classified into two groups based
on ownership pattern, namely, Private Sector Company sponsored
equity mutual funds and public sector undertaking sponsored
equity mutual funds.

The objective is to assess the financial performance of equity

mutual funds in terms of profitability for a nine-year period, 2004-
05. Rate of return is the commonly accepted measure for assessing
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the profitability of equity mutual funds. The rates of return of

equity mutual funds depend upon the choice of equities in the
mutual fund portfolio. Equities are high-risk investments, hence,
investors expect risk premium on their investments in equity
mutual funds. Thus, risk premiums as well as better returns than
the market returns are win expectations of the investors. The
rationale of investing through mutual funds, as financial
intermediaries, is that an investor can earn a better rate of return
through them due to their unique features such as expert
management and broad diversification of the portfolio and so on.

Scope and Methodology

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The most appropriate and commonly applied tool for assessing the
financial performance is tracking the “Net Asset Value” (NAV) per
unit of mutual funds. The net asset value can be defined as the
aggregate market value of the invested portfolio of equity mutual
funds plus the ‘cash’ or ‘its equivalent’ in hand less total external
Since equity mutual funds issue units (akin to shares issued by
companies) to the subscribers, the aggregate market value of
invested portfolio is marked against the total number of units
issued by the equity mutual funds outstanding in the books of
accounts of equity mutual funds at any given time. Numerically, it
is the same as the number of units subscribed by the investors.
NAV per unit at any given time is computed dividing market value
(net of fund’s liabilities) of invested portfolio of mutual funds and
cash in hand by the total number of outstanding units at that point
of time.
In the project, month-end values form the basis of NAV per unit.
NAV’s per unit have been adjusted for dividend, bonus and rights
issues for appropriate comparison and include all income and
profits/loss on value of financial assets held under the mutual funds
during period of our study. Bonus factor has been calculated by
dividing “the number units after the bonus issue” with “the number
of units before the bonus issue”, for instance, bonus factor for issue
of two bonus units for every three units held will be taken as 5/3.
Ex-rights net asset value per unit has been calculated dividing “net
asset value of units held just before the right issue plus the value
paid for subscribing the right entitlement” with “the number of
units held by the investor after the rights issue”. Dividend, if any,
has been taken as reinvested at the internal rate of return.

Monthly returns have been on month-end NAV’s per unit. The

monthly returns for each of the single periods so computed have

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been compounded to get single compounded monthly rates of

return of the mutual fund portfolio as per equation 1.

Rjn = NAVn + NAVn-1/2

Rjn = single period return on fund ‘j’ for nth month.
NAVn-1 = net asset value at the end of (n-1)th month.
NAVn = net asset value at the end of nth month.

The monthly returns so computed for different single periods have

been compounded to get compounded quarterly rates of return of
equity mutual funds. The expression shown in equation 2 has been
used to compute monthly compounded rates of return, R, for fund

R = (Rj1 X Rj2 X Rj3 X ….. Rjn) 1/n -1

R = compounded quarterly rate of return on fund ‘j’ for ‘n’
Rj1 = monthly return on fund ‘j’ in 1st month.
Rj2 = monthly return on fund ‘j’ in 2nd month and so on …
N =number of months

The study period, 2004-05, has been segregated into two phases,
phase-1 (April 2004- September 2004) and phase-2 (October 2004-
March 2005), to ascertain whether their performances varied
during the two phases. Thus, the compounded rate of return for
sample funds has been computed for 2004-05 on an aggregative
basis and for two phases, phase-1 and phase-2 on disaggregate

The sample has been classified into two groups, namely, private
sector and public sector undertaking equity mutual funds. The
observations considered for each fund are from the date of
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inception of the funds to March 2005. The study relates of 10

equity mutual funds. The sample comprises of 3 public sector
undertaking (PSU) and 7 private company sponsored equity mutual

All equity mutual funds in the sample have been in operation for
more than three years as on March 2005. Besides, the period may
be considered adequate for peer group comparison of rates of

Rate of return of BSE-100 National Index has been used as a proxy

for market return. The index has been used as surrogate measure
for market portfolio in the study. The rationale for the same is as
1. The index is broad-based, consisting of 100 actively traded
equity shares on the BSE.
2. These 100 shares in the index constitute 71% of the total
market capitalization of companies listed on the BSE as on
March 2005.
3. The BSE-100 index is widely considered as market proxy or
benchmark for the purpose of academics, research and by
practicing fund managers.
4. BSE-30 share index comprises of only 30 shares that
constitute 45% of total market capitalization of BSE listed
companies as on March 2005, hence, not preferred over BSE-
100 index as surrogate measure for market portfolio.
5. RBI index has not been used as it has been discontinued with
effect from 1999-2000 and does not have practical utility in
the present context.

The expression, shown in equation 3, has been used to calculate

monthly returns on BSE-100 index.
Rm = Ivn / IV n-1
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Rm =Return on market portfolio (BSE-100 National
Index) for nth month.
IVn = BSE-100 index value at the end of nth month.
IV (n-1) = BSE-100 index value per unit at the of (n-1) th

Finally, rates of return are on pre-tax basis for two major reasons:
1. The tax rates differ among investors and
2. It is better to exclude the impact of taxes on the performance
of equity mutual funds.

Rates of return of equity mutual funds:

The aim of this is to compute monthly returns generated by sample
equity mutual funds over nine-year period, 2004-2005, and
compare the same with BSE-100 National Index. Rates of return
has been used as measure of financial performance of equity
mutual funds are risky investment, the investors expect risk
premium, i.e., they expect higher returns than risk-free returns.
This section examines
i) Whether the equity mutual funds have been able to provide
higher returns than the risk-free returns in the form of risk
premium and
ii) Whether the equity mutual funds have earned higher returns
than the market returns.

Personal taxation

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Replacement of rebate under section 88 by deduction under section

80C: 4.1) Sec 88 allowed rebate from tax payable, a specified
percentage (viz., 15%, 20% or 30%) of the investments made
during the year in eligible investments.
4.2) Sec 88 is proposed to replaced by sec 80C, whereby the
amounts invested in eligible investments shall be allowed as
deduction from the gross total income (instead of rebate from the
tax payable). [Clause 21 & 29 of FY 2005]
4.3) Individuals and HUF are eligible for deduction under
proposed sec 80C irrespective of the amount of income. Under
existing sec 88, no rebate was permissible to individual/HUF
having total income exceeding Rs. 5 lakhs. Such individual/HUF
shall also be eligible for deduction u/s.80C
4.4) Investments eligible for rebate u/s.88 are proposed to
remain in effect as eligible investments for the purpose of sec 80C
4.5) Eligible investments are required to be made out of
taxable income only. Such a condition did exist for the purpose of
sec 88 up to A.Y.2002-03 but it was withdrawn from A.Y.2003-04.
Now it is proposed to be re-introduced for the purpose of sec 80C.
4.6) Maximum deduction available is Rs. 1 lakh. Investments
shall be eligible for deduction without any further distinction
between investments in infrastructure bonds or otherwise.
4.7) These investments shall be eligible for deduction without
any sub-limit that existed under sec 88 [e.g. 20,000 in case of
purchase or construction of house or repayment of loan in respect
thereof, Rs.12, 000 in case tuition fees, Rs.10, 000 in case of
subscription to certain mutual funds].
4.8) Sec 80CCE is also proposed to be introduced by which
subscription to pension funds under sec 80CCC & 80CCD have
also been brought under the overall ceiling of Rs.1 lakhs specified
under sec 80C. Thus, the aggregate deduction under sec 80C,
80CCC & 80CCD cannot exceed Rs.1 lakhs [Clauses 22, 23 and
24 of FY 2005]

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4.9) Sections 54EC and 54ED are proposed to be amended to

provide that if any investment is considered in allowing exception
under this sections, the same shall not be eligible again for
allowance of rebate under sec88 or deduction under sec80C.
[Clauses 17 and 18 of FY 2005].
4.10) In its earlier version, section 80C provided for separate
limits for various investments and rules could be made for
prescribing the same in accordance with sec295. in view of
absence of such need under the proposed sec80c, the said provision
is proposed to be deleted.[Clause 64 of FY 2005].
4.11) Erstwhile sec 88 was designed on a progressive
taxation basis; i.e., as the income slab increases, the benefits tend
to curtail. However, under the proposed section 80C, the tax
benefit available shall be according to the marginal rate of tax that
a person is liable to pay; i.e., as the income slab increases, the
benefits tend to increase.
4.12) The Finance Minister in his speech has indicated that
the government is proposing to move towards the EET method of
savings. The same has also been elaborated in memorandum
explaining the provisions of Finance Bill. In such a scenario, where
the deduction is granted at the time of investment and the interest is
not taxable, then the withdrawal of investment would be made
taxable. However, no such steps have been introduced in the
present Finance Bill, 2005

Deletion of deduction in respect of interest, etc. [Section 80L]

6.1) Existing section 80L allows deduction from the Gross
Total Income of an Individual/ HUF of income by way of interest
of government securities, national savings certificates, interest on
deposits with banks etc. subject to limit of Rs.12, 000. An
additional deduction for Rs.3,000 is allowed with respect to
interest on government securities.

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6.2) Section 80L is proposed to be omitted and therefore no

deduction is respect of interest on securities, bank interest, etc.
shall be available under sec 80L
6.3) Section 80L was the only section providing income
based deduction to Individual or HUF under chapter VI-A. Thus,
effective benefit of raising threshold limit has been partially
curtailed by omission of section 80L.[Clause 28 of FY 2005].

Taxing Times for NRIs:

The IT department continues to deduct TDS at 2003-04 rates
for NRIs
Despite trying to woo the NRI with events like Pravasi Bharat
Divas or the announcement of dual citizenship, the government
seems to be faltering in delivering the basics.
According to Finance Act, 2004, short-term capital gains on
shares and equity funds are to be taxed at 10 percent, while long-
term capital gains tax stands abolished. But according to the IT
department, the mutual fund company has to deduct 30 percent
TDS (tax deducted at source) for equity fund units held by an NRI
in case of short-term capital gains. Thankfully, long-term capital
gains on mutual funds are exempt from TDS. Perhaps, this is
because long-term capital gains tax on shares and equity funds was
removed in 2003-04 for a year. In debt funds, the applicable tax
rate is 10 percent on long-term capital gains tax without
considering the indexation benefit. But here, 20 percent TDS will
be deducted for an NRI. If an NRI sells mutual fund units in
either of the above two situations, he will have to go through the
hassle of claiming a refund as his TDS is higher than the applicable
tax. Not a very pleasant thing to do. Such anomalies only make
investing more cumbersome for NRIs. Instead of attracting NRI
investments into the country, such tax laws should be amended lest
we discourage NRIs from investing.
Concluding observations:
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The main conclusions emerging from the foregoing discussions

may now be summarized as follows:

In sharp contrast to the above findings, comparison with market

portfolio (BSE-100 index) displays different picture. The data
shows that overall performances of equity mutual funds (mean
monthly return of) have been far superior to the market portfolio
return (mean monthly return of). In numbers, majority of the funds
or nearly 2/3 of the sample funds has outperformed market
portfolio returns during the aggregative period, 2004-05.

Major characteristics of the financial position;

(a) greater transparency and competitiveness in financial sector in
India, (b) thrust of globalization of financial and technological
sectors, (c) new avenues of investments in technology and financial
sector companies, (d) continued stock market and capital market
reforms including introduction of derivatives trading, (e)
competitive interest rates regime and (f) restructuring of financial
system, etc.

Based on the similarities of ownership pattern, the funds were

placed in two different categories, namely, privately and PSU
equity mutual funds and their financial performance were
evaluated in terms of rates of return. The notable finding is that
funds sponsored by private companies have performed much better
than PSU sponsored equity mutual funds during the period of the
study. The available data also discloses that private sector
sponsored mutual funds have been able to earn returns much higher
than the market returns, too. The private equity mutual funds seem
to have followed superior fund management practices backed by
well-researched ‘stock selection’ and ‘timing’ skills.

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In the case of public sector sponsored mutual funds, the fund

managers seem to have followed poor investment strategies that
may have resulted in inferior performances by the PSU sponsored
equity mutual funds. They also seem to have lacked the skills to
identify superior stocks for their portfolios.

The fund managers leading to their poor performances may not

have followed the crux of investment strategy that ‘funds should be
invested when the market is low and financial assets should be
liquidated when the market is high’. The fund managers also do not
seem to have utilized “stock selection” and “market timing”
strategies well, leading to unsatisfactory performance by these

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Chapter VI:

Related Literature
-Ground Rules of MF Investing
-When to say Goodbye to MFs
-Advantages & Disadvantages of MF
-Do’s and Don’ts for Investors
-Things to be known while investing

Ground Rules of Mutual Fund Investing

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Moses gave to his followers 10 commandments that were to be

followed till eternity. The world of investments too has several
ground rules meant for investors who are novices in their own right
and wish to enter the myriad world of investments. These come in
handy for there is every possibility of losing what one has if due
care is not taken.

1. Assess yourself: Self-assessment of one’s needs;

expectations and risk profile is of prime importance failing
which; one will make more mistakes in putting money in
right places than otherwise. One should identify the degree of
risk bearing capacity one has and also clearly state the
expectations from the investments. Irrational expectations
will only bring pain.
2. Try to understand where the money is going: It is
important to identify the nature of investment and to know if
one is compatible with the investment. One can lose
substantially if one picks the wrong kind of mutual fund. In
order to avoid any confusion it is better to go through the
literature such as offer document and fact sheets that mutual
fund companies provide on their funds.
3. Don't rush in picking funds, think first: one first has to
decide what he wants the money for and it is this investment
goal that should be the guiding light for all investments done.
It is thus important to know the risks associated with the fund
and align it with the quantum of risk one is willing to take.
One should take a look at the portfolio of the funds for the
purpose. Excessive exposure to any specific sector should be
avoided, as it will only add to the risk of the entire portfolio.
Mutual funds invest with a certain ideology such as the
"Value Principle" or "Growth Philosophy". Both have their
share of critics but both philosophies work for investors of
different kinds. Identifying the proposed investment

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philosophy of the fund will give an insight into the kind of

risks that it shall be taking in future.
4. Invest. Don’t speculate: A common investor is limited in the
degree of risk that he is willing to take. It is thus of key
importance that there is thought given to the process of
investment and to the time horizon of the intended
investment. One should abstain from speculating which in
other words would mean getting out of one fund and
investing in another with the intention of making quick
money. One would do well to remember that nobody could
perfectly time the market so staying invested is the best
option unless there are compelling reasons to exit.
5. Don’t put all the eggs in one basket: This old age adage is
of utmost importance. No matter what the risk profile of a
person is, it is always advisable to diversify the risks
associated. So putting one’s money in different asset classes
is generally the best option as it averages the risks in each
category. Thus, even investors of equity should be judicious
and invest some portion of the investment in debt.
Diversification even in any particular asset class (such as
equity, debt) is good. Not all fund managers have the same
acumen of fund management and with identification of the
best man being a tough task; it is good to place money in the
hands of several fund managers. This might reduce the
maximum return possible, but will also reduce the risks.
6. Be regular: Investing should be a habit and not an exercise
undertaken at one’s wishes, if one has to really benefit from
them. As we said earlier, since it is extremely difficult to
know when to enter or exit the market, it is important to beat
the market by being systematic. The basic philosophy of
Rupee cost averaging would suggest that if one invests
regularly through the ups and downs of the market, he would
stand a better chance of generating more returns than the
market for the entire duration. The SIPs (Systematic
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Investment Plans) offered by all funds helps in being

systematic. All that one needs to do is to give post-dated
cheques to the fund and thereafter one will not be harried
later. The Automatic investment Plans offered by some funds
goes a step further, as the amount can be
directly/electronically transferred from the account of the
7. Do your homework: It is important for all investors to
research the avenues available to them irrespective of the
investor category they belong to. This is important because
an informed investor is in a better decision to make right
decisions. Having identified the risks associated with the
investment is important and so one should try to know all
aspects associated with it. Asking the intermediaries is one of
the ways to take care of the problem.
8. Find the right funds: Finding funds that do not charge much
fees is of importance, as the fee charged ultimately goes from
the pocket of the investor. This is even more important for
debt funds as the returns from these funds are not much.
Funds that charge more will reduce the yield to the investor.
Finding the right funds is important and one should also use
these funds for tax efficiency. Investors of equity should keep
in mind that all dividends are currently tax-free in India and
so their tax liabilities can be reduced if the dividend payout
option is used. Investors of debt will be charged a tax on
dividend distribution and so can easily avoid the payout
9. Keep track of your investments: Finding the right fund is
important but even more important is to keep track of the way
they are performing in the market. If the market is beginning
to enter a bearish phase, then investors of equity too will
benefit by switching to debt funds as the losses can be
minimized. One can always switch back to equity if the
equity market starts to show some buoyancy.
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10. Know when to sell your mutual funds: Knowing when to

exit a fund too is of utmost importance. One should book
profits immediately when enough has been earned i.e. the
initial expectation from the fund has been met with. Other
factors like non-performance, hike in fee charged and change
in any basic attribute of the fund etc. are some of the reasons
for to exit.
11. Investments in mutual funds too are not risk-free and so
investments warrant some caution and careful attention of the
investor. Investing in mutual funds can be a dicey business
for people who do not remember to follow these rules
diligently, as people are likely to commit mistakes by being
ignorant or adventurous enough to take risks more than what
they can absorb. This is the reason why people would do well
to remember these rules before they set out to invest their
hard-earned money.

Source: Mutualfundsindia Research Team

When to say Goodbye to Mutual Funds

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The others did not know when to exit and so we are just trying to
put forward some situations when the investor should consider
withdrawing their investments from the funds.

1) Fund is not performing

This reason for selling, although valid in certain conditions, is
where most investors make a mistake. When calculating
performance one shouldn’t look at good enough reason to sell it.
One should compare the returns posted by his fund with that of the
peers across various horizons such as 1-year, 3-year and above. A
short-term view can often lead to committing hara-kiri, as it
doesn’t present the full picture. If it has underperformed the
average of its peers in all cases, then it sure is one of the better
reasons to exit from the fund.
2) A change in life stage
Investments are done with a certain objective in mind and life
stages are often a determining factor of what a person needs. A
young man can afford to take more risks than a person nearing his
retirement can. In such cases, it pays to withdraw money from the
equity investments made earlier and put them in safer, more
conservative debt funds that offer stable returns without
compromising on risk. So a change in life stages would be one
such reason to consider switching into a fund that matches with
one’s needs. As one nears retirement, one might want to consider
more conservative funds. If one gets married, one might need to
compromise one’s risk tolerance and desired returns with that of
the spouse. This could trigger off the need to exit.
3) A major change in any basic attribute of the fund
When the fund changes any basic attribute as mentioned by it in its
offer documents, the investors have a choice of getting out of it.
Even SEBI has provided for an exit route being made available to
the investors. Changes like a change in Asset Management
Company or in investment style of fund or change of structure say
from closed-end to open-end etc. are good enough reasons for an
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investor to consider switching or exiting from it as they are

certainly likely to affect the fund in a major way.
4) Fund doesn’t comply with its objective
One of the important parameters in the selection of the fund is
alignment of the risk profiles of the investor and fund. The
objective of the fund says a lot about how the fund plans to invest.
If the objective is not being complied with, it is one of the exit
points worth considering. For example, the three funds discussed
above, Alliance Equity, Birla Advantage and ING Growth all claim
to be diversified equity funds yet they had huge exposures to select
ICE sector scrip’s that not only added volatility than is expected
out of diversified funds but also in a way, went against their stated
5) The Fund's Expense Ratio Rises
A small rise in an expense ratio is not a big deal, however a
significant rise can result in substantial reduction of yields and so it
would be better to exit the fund. In the case of bond funds or
money market funds, it is highly unlikely that the fund can increase
its returns enough to justify an increase in the fund's expenses.
6) The Fund Manager Has Changed
A simple change of fund managers, in itself, is not enough reason
to sell a fund on a short-term basis. If it is a passively managed
fund (index fund) then one has little to no reason to worry.
However, if it is an actively managed fund, then has to keep the
eyes open on the new manager. Observing the styles, stock picking
and risks undertaken by the new manager is important for it
discloses a lot about how the fund might fare in the future. If
satisfied, one will have no reason to complain later but the process
needs time and so an investor has to observe the fund manager for
some time before one takes a decision.

7) Enough has been earned

However, nothing is as important as to rein the horses in time. The
primary principle behind safety of investment is to take risks that
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can be tolerated. The principle also is specific on the expectations

that the investor must have from any investment. Just as it is
important to set realistic targets that one hopes to achieve from the
investment, it is also important to exit when target as expected has
been achieved irrespective of the fact that it might be generating
better returns in a short-term. Waiting longer might not prove
beneficial, as one need not be lucky all the time. Equity
investments are volatile and it doesn’t take long for the moods in
the markets to swing either way. So, it would only be wise to move
out when the going is still good. Otherwise, the investors sanguine
of generating even higher returns than what the fund generated in
its peak days would be cursing themselves for not exiting.

The above list is certainly not exhaustive and individuals will have
other better reasons to quit as well. It’s just that most don’t know
when to apply thought and so these would come in handy.

Source: Mutualfundsindia Research Team

Advantages and Disadvantages of MFs

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Every investment has advantages and disadvantages. But it's

important to remember that features that matter to one investor
may not be important to you. Whether any particular feature is an
advantage for you will depend on your unique circumstances. For
some investors, mutual funds provide an attractive investment
choice because they generally offer the following features:

Professional Management — Professional money managers
research, select, and monitor the performance of the securities the
fund purchases.

Diversification — Diversification is an investing strategy that can

be neatly summed up as "Don't put all your eggs in one basket."
Spreading your investments across a wide range of companies and
industry sectors can help lower your risk if a company or sector
fails. Some investors find it easier to achieve diversification
through ownership of mutual funds rather than through ownership
of individual stocks or bonds.

Affordability — Some mutual funds accommodate investors who

don't have a lot of money to invest by setting relatively low dollar
amounts for initial purchases, subsequent monthly purchases, or

Liquidity — Mutual fund investors can readily redeem their shares

at the current NAV — plus any fees and charges assessed on
redemption — at any time.

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Costs despite Negative Returns — Investors must pay sales

charges, annual fees, and other expenses (which we'll discuss
below) regardless of how the fund performs. And, depending on
the timing of their investment, investors may also have to pay taxes
on any capital gains distribution they receive — even if the fund
went on to perform poorly after they bought shares.

Lack of Control — Investors typically cannot ascertain the exact

make-up of a fund's portfolio at any given time, nor can they
directly influence which securities the fund manager buys and sells
or the timing of those trades.

Price Uncertainty — with an individual stock, you can obtain

real-time (or close to real-time) pricing information with relative
ease by checking financial websites or by calling your broker. You
can also monitor how a stock's price changes from hour to hour —
or even second to second. By contrast, with a mutual fund, the
price at which you purchase or redeem shares will typically depend
on the fund's NAV, which the fund might not calculate until many
hours after you've placed your order. In general, mutual funds must
calculate their NAV at least once every business day, typically
after the major U.S. exchanges close.

Do’s and Don’ts for the investors

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• Don't deal with unregistered intermediaries, as this would

expose you to counter party risk.
• Give clear and unambiguous instructions to your Broker /
• Keep a record of all instructions issued to the Broker / Sub-
• Confirm with your Broker / Sub-broker whether delivery is in
physical or demat form before selling shares.
• Don't fall prey to promises of unrealistic high returns.
• Don't indulge in speculative trading, go by fundamentals.
• Trade within your predetermined limits.
• Use the investor Grievance Redressal system of the
Exchanges to redress your grievances if any.
• Understand the working of the Investor Service Cell for
complaint against listed companies / Brokers.
• The Customer Protection Fund of Exchange compensates
upto Rs.10 Lakhs per investor against possible Broker
• You can trade on your own through Internet based trading by
registering with a Broker.

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Things to be known before investing

What is a Mutual Fund?

Mutual fund is a mechanism for pooling the resources by issuing

units to the investors and investing funds in securities in
accordance with objectives as disclosed in offer document.

Investments in securities are spread across a wide cross-section of

industries and sectors and thus the risk is reduced. Diversification
reduces the risk because all stocks may not move in the same
direction in the same proportion at the same time. Mutual fund
issues units to the investors in accordance with quantum of money
invested by them. Investors of mutual funds are known as unit

The profits or losses are shared by the investors in proportion to

their investments. The mutual funds normally come out with a
number of schemes with different investment objectives which are
launched from time to time. A mutual fund is required to be
registered with Securities and Exchange Board of India (SEBI)
which regulates securities markets before it can collect funds from
the public.

What is the history of Mutual Funds in India and role of SEBI

in mutual funds industry?

Unit Trust of India was the first mutual fund set up in India in the
year 1963. In early 1990s, Government allowed public sector
banks and institutions to set up mutual funds.

In the year 1992, Securities and exchange Board of India (SEBI)

Act was passed. The objectives of SEBI are – to protect the interest
of investors in securities and to promote the development of and to
regulate the securities market.
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As far as mutual funds are concerned, SEBI formulates policies

and regulates the mutual funds to protect the interest of the
investors. SEBI notified regulations for the mutual funds in 1993.
Thereafter, mutual funds sponsored by private sector entities were
allowed to enter the capital market. The regulations were fully
revised in 1996 and have been amended thereafter from time to
time. SEBI has also issued guidelines to the mutual funds from
time to time to protect the interests of investors.

All mutual funds whether promoted by public sector or private

sector entities including those promoted by foreign entities are
governed by the same set of Regulations. There is no distinction in
regulatory requirements for these mutual funds and all are subject
to monitoring and inspections by SEBI. The risks associated with
the schemes launched by the mutual funds sponsored by these
entities are of similar type. It may be mentioned here that Unit
Trust of India (UTI) is not registered with SEBI as a mutual fund
(as on January 15, 2002).

How is a mutual fund set up?

A mutual fund is set up in the form of a trust, which has sponsor,

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

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SEBI Regulations require that at least two thirds of the directors of

trustee company or board of trustees must be independent i.e. they
should not be associated with the sponsors. Also, 50% of the
directors of AMC must be independent. All mutual funds are
required to be registered with SEBI before they launch any
scheme. However, Unit Trust of India (UTI) is not registered with
SEBI (as on January 15, 2002).

What is Net Asset Value (NAV) of a scheme?

The performance of a particular scheme of a mutual fund is

denoted by Net Asset Value (NAV).

Mutual funds invest the money collected from the investors in

securities markets. In simple words, Net Asset Value is the market
value of the securities held by the scheme. Since market value of
securities changes every day, NAV of a scheme also varies on day
to day basis. The NAV per unit is the market value of securities of
a scheme divided by the total number of units of the scheme on any
particular date. For example, if the market value of securities of a
mutual fund scheme is Rs 200 lakhs and the mutual fund has issued
10 lakhs units of Rs. 10 each to the investors, then the NAV per
unit of the fund is Rs.20. NAV is required to be disclosed by the
mutual funds on a regular basis - daily or weekly - depending on
the type of scheme.

What are the different types of mutual fund schemes?

Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or

close-ended scheme depending on its maturity period.

Open-ended Fund/ Scheme:An open-ended fund or scheme is

one that is available for subscription and repurchase on a
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continuous basis. These schemes do not have a fixed maturity

period. Investors can conveniently buy and sell units at Net Asset
Value (NAV) related prices which are declared on a daily basis.
The key feature of open-end schemes is liquidity.

Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g.

5-7 years. The fund is open for subscription only during a specified
period at the time of launch of the scheme. Investors can invest in
the scheme at the time of the initial public issue and thereafter they
can buy or sell the units of the scheme on the stock exchanges
where the units are listed. In order to provide an exit route to the
investors, some close-ended funds give an option of selling back
the units to the mutual fund through periodic repurchase at NAV
related prices. SEBI Regulations stipulate that at least one of the
two exit routes is provided to the investor i.e. either repurchase
facility or through listing on stock exchanges. These mutual funds
schemes disclose NAV generally on weekly basis.

Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme,

or balanced scheme considering its investment objective. Such
schemes may be open-ended or close-ended schemes as described
earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the

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

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income

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

Balanced Fund

The aim of balanced funds is to provide both growth and regular

income as such schemes invest both in equities and fixed income
securities in the proportion indicated in their offer documents.
These are appropriate for investors looking for moderate growth.
They generally invest 40-60% in equity and debt instruments.
These funds are also affected because of fluctuations in share
prices in the stock markets. However, NAVs of such funds are
likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy
liquidity, preservation of capital and moderate income. These
schemes invest exclusively in safer short-term instruments such as
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treasury bills, certificates of deposit, commercial paper and inter-

bank call money, government securities, etc. Returns on these
schemes fluctuate much less compared to other funds. These funds
are appropriate for corporate and individual investors as a means to
park their surplus funds for short periods.

Gilt Fund

These funds invest exclusively in government securities.

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

Index Funds

Index Funds replicate the portfolio of a particular index such as the

BSE Sensitive index, S&P NSE 50 index (Nifty), etc These
schemes invest in the securities in the same weightage comprising
of an index. NAVs of such schemes would rise or fall in
accordance with the rise or fall in the index, though not exactly by
the same percentage due to some factors known as "tracking error"
in technical terms. Necessary disclosures in this regard are made in
the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual
funds which are traded on the stock exchanges.

What are sector specific funds/schemes?

These are the funds/schemes which invest in the securities of only

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

What is Tax Saving Schemes?

These schemes offer tax rebates to the investors under specific

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

What is a Load or no-load Fund?

A Load Fund is one that charges a percentage of NAV for entry or

exit. That is, each time one buys or sells units in the fund, a charge
will be payable. This charge is used by the mutual fund for
marketing and distribution expenses. Suppose the NAV per unit is
Rs.10. If the entry as well as exit load charged is 1%, then the
investors who buy would be required to pay Rs.10.10 and those
who offer their units for repurchase to the mutual fund will get
only Rs.9.90 per unit. The investors should take the loads into
consideration while making investment as these affect their
yields/returns. However, the investors should also consider the
performance track record and service standards of the mutual fund
which are more important. Efficient funds may give higher returns
in spite of loads. A no-load fund is one that does not charge for
entry or exit. It means the investors can enter the fund/scheme at
NAV and no additional charges are payable on purchase or sale of

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Can a mutual fund impose fresh load or increase the load

beyond the level mentioned in the offer documents?

Mutual funds cannot increase the load beyond the level mentioned
in the offer document. Any change in the load will be applicable
only to prospective investments and not to the original investments.
In case of imposition of fresh loads or increase in existing loads,
the mutual funds are required to amend their offer documents so
that the new investors are aware of loads at the time of

What is a sale or repurchase/redemption price?

The price or NAV a unitholder is charged while investing in an

open-ended scheme is called sales price. It may include sales load,
if applicable.

Repurchase or redemption price is the price or NAV at which an

open-ended scheme purchases or redeems its units from the
unitholders. It may include exit load, if applicable.

What is an assured return scheme?

Assured return schemes are those schemes that assure a specific

return to the unitholders irrespective of performance of the scheme.

A scheme cannot promise returns unless such returns are fully

guaranteed by the sponsor or AMC and this is required to be
disclosed in the offer document.

Investors should carefully read the offer document whether return

is assured for the entire period of the scheme or only for a certain
period. Some schemes assure returns one year at a time and they
review and change it at the beginning of the next year.

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Can a mutual fund change the asset allocation while deploying

funds of investors?

Considering the market trends, any prudent fund managers can

change the asset allocation i.e. he can invest higher or lower
percentage of the fund in equity or debt instruments compared to
what is disclosed in the offer document. It can be done on a short
term basis on defensive considerations i.e. to protect the NAV.
Hence the fund managers are allowed certain flexibility in altering
the asset allocation considering the interest of the investors. In case
the mutual fund wants to change the asset allocation on a
permanent basis, they are required to inform the unitholders and
giving them option to exit the scheme at prevailing NAV without
any load.

How to invest in a scheme of a mutual fund?

Mutual funds normally come out with an advertisement in

newspapers publishing the date of launch of the new schemes.
Investors can also contact the agents and distributors of mutual
funds who are spread all over the country for necessary
information and application forms. Forms can be deposited with
mutual funds through the agents and distributors who provide such
services. Now a days, the post offices and banks also distribute the
units of mutual funds. However, the investors may please note that
the mutual funds schemes being marketed by banks and post
offices should not be taken as their own schemes and no assurance
of returns is given by them. The only role of banks and post offices
is to help in distribution of mutual funds schemes to the investors.

Investors should not be carried away by commission/gifts given by

agents/distributors for investing in a particular scheme. On the
other hand they must consider the track record of the mutual fund
and should take objective decisions.

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Can non-resident Indians (NRIs) invest in mutual funds?

Yes, non-resident Indians can also invest in mutual funds.

Necessary details in this respect are given in the offer documents
of the schemes.

How much should one invest in debt or equity oriented


An investor should take into account his risk taking capacity, age
factor, financial position, etc. As already mentioned, the schemes
invest in different type of securities as disclosed in the offer
documents and offer different returns and risks. Investors may also
consult financial experts before taking decisions. Agents and
distributors may also help in this regard.

How to fill up the application form of a mutual fund scheme?

An investor must mention clearly his name, address, number of

units applied for and such other information as required in the
application form. He must give his bank account number so as to
avoid any fraudulent encashment of any cheque/draft issued by the
mutual fund at a later date for the purpose of dividend or
repurchase. Any changes in the address, bank account number, etc
at a later date should be informed to the mutual fund immediately.

What should an investor look into an offer document?

An abridged offer document, which contains very useful

information, is required to be given to the prospective investor by
the mutual fund. The application form for subscription to a scheme
is an integral part of the offer document. SEBI has prescribed
minimum disclosures in the offer document. An investor, before
investing in a scheme, should carefully read the offer document.
Due care must be given to portions relating to main features of the
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scheme, risk factors, initial issue expenses and recurring expenses

to be charged to the scheme, entry or exit loads, sponsor’s track
record, educational qualification and work experience of key
personnel including fund managers, performance of other schemes
launched by the mutual fund in the past, pending litigations and
penalties imposed, etc.

When will the investor get certificate or statement of account

after investing in a mutual fund?

Mutual funds are required to dispatch certificates or statements of

accounts within six weeks from the date of closure of the initial
subscription of the scheme. In case of close-ended schemes, the
investors would get either a demat account statement or unit
certificates as these are traded in the stock exchanges. In case of
open-ended schemes, a statement of account is issued by the
mutual fund within 30 days from the date of closure of initial
public offer of the scheme. The procedure of repurchase is
mentioned in the offer document.

How long will it take for transfer of units after purchase from
stock markets in case of close-ended schemes?

According to SEBI Regulations, transfer of units is required to be

done within thirty days from the date of lodgment of certificates
with the mutual fund.

As a unitholder, how much time will it take to receive

dividends/repurchase proceeds?

A mutual fund is required to dispatch to the unitholders the

dividend warrants within 30 days of the declaration of the dividend
and the redemption or repurchase proceeds within 10 working days
from the date of redemption or repurchase request made by the
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In case of failures to dispatch the redemption/repurchase proceeds

within the stipulated time period, Asset Management Company is
liable to pay interest as specified by SEBI from time to time (15%
at present).

Can a mutual fund change the nature of the scheme from the
one specified in the offer document?

Yes. However, no change in the nature or terms of the scheme,

known as fundamental attributes of the scheme e.g. structure,
investment pattern, etc. can be carried out unless a written
communication is sent to each unitholder and an advertisement is
given in one English daily having nationwide circulation and in a
newspaper published in the language of the region where the head
office of the mutual fund is situated. The unitholder have the right
to exit the scheme at the prevailing NAV without any exit load if
they do not want to continue with the scheme. The mutual funds
are also required to follow similar procedure while converting the
scheme form close-ended to open-ended scheme and in case of
change in sponsor.

How will an investor come to know about the changes, if any,

which may occur in the mutual fund?

There may be changes from time to time in a mutual fund. The

mutual funds are required to inform any material changes to their
unit holders. Apart from it, many mutual funds send quarterly
newsletters to their investors.

At present, offer documents are required to be revised and updated

at least once in two years. In the meantime, new investors are
informed about the material changes by way of addendum to the
offer document till the time offer document is revised and

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How to know the performance of a mutual fund scheme?

The performance of a scheme is reflected in its net asset value

(NAV) which is disclosed on daily basis in case of open-ended
schemes and on weekly basis in case of close-ended schemes. The
NAVs of mutual funds are required to be published in newspapers.
The NAVs are also available on the web sites of mutual funds. All
mutual funds are also required to put their NAVs on the web site of
Association of Mutual Funds in India (AMFI)
and thus the investors can access NAVs of all mutual funds at one

The mutual funds are also required to publish their performance in

the form of half-yearly results which also include their
returns/yields over a period of time i.e. last six months, 1 year, 3
years, 5 years and since inception of schemes. Investors can also
look into other details like percentage of expenses of total assets as
these have an affect on the yield and other useful information in the
same half-yearly format.

The mutual funds are also required to send annual report or

abridged annual report to the unitholders at the end of the year.

Various studies on mutual fund schemes including yields of

different schemes are being published by the financial newspapers
on a weekly basis. Apart from these, many research agencies also
publish research reports on performance of mutual funds including
the ranking of various schemes in terms of their performance.
Investors should study these reports and keep themselves informed
about the performance of various schemes of different mutual

Investors can compare the performance of their schemes with those

of other mutual funds under the same category. They can also

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compare the performance of equity oriented schemes with the

benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc.

On the basis of performance of the mutual funds, the investors

should decide when to enter or exit from a mutual fund scheme.

How to know where the mutual fund scheme has invested

money mobilized from the investors?

The mutual funds are required to disclose full portfolios of all of

their schemes on half-yearly basis which are published in the
newspapers. Some mutual funds send the portfolios to their

The scheme portfolio shows investment made in each security i.e.

equity, debentures, money market instruments, government
securities, etc. and their quantity, market value and % to NAV.
These portfolio statements also required to disclose illiquid
securities in the portfolio, investment made in rated and unrated
debt securities, non-performing assets (NPAs), etc.

Some of the mutual funds send newsletters to the unitholders on

quarterly basis which also contain portfolios of the schemes.

Is there any difference between investing in a mutual fund and

in an initial public offering (IPO) of a company?

Yes, there is a difference. IPOs of companies may open at lower or

higher price than the issue price depending on market sentiment
and perception of investors. However, in the case of mutual funds,
the par value of the units may not rise or fall immediately after
allotment. A mutual fund scheme takes some time to make
investment in securities. NAV of the scheme depends on the value
of securities in which the funds have been deployed.

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If schemes in the same category of different mutual funds are

available, should one choose a scheme with lower NAV?

Some of the investors have the tendency to prefer a scheme that is

available at lower NAV compared to the one available at higher
NAV. Sometimes, they prefer a new scheme which is issuing units
at Rs. 10 whereas the existing schemes in the same category are
available at much higher NAVs. Investors may please note that in
case of mutual funds schemes, lower or higher NAVs of similar
type schemes of different mutual funds have no relevance. On the
other hand, investors should choose a scheme based on its merit
considering performance track record of the mutual fund, service
standards, professional management, etc. This is explained in an
example given below.

Suppose scheme A is available at a NAV of Rs.15 and another

scheme B at Rs.90. Both schemes are diversified equity oriented
schemes. Investor has put Rs. 9,000 in each of the two schemes. He
would get 600 units (9000/15) in scheme A and 100 units
(9000/90) in scheme B. Assuming that the markets go up by 10 per
cent and both the schemes perform equally good and it is reflected
in their NAVs. NAV of scheme A would go up to Rs. 16.50 and
that of scheme B to Rs. 99. Thus, the market value of investments
would be Rs. 9,900 (600* 16.50) in scheme A and it would be the
same amount of Rs. 9900 in scheme B (100*99). The investor
would get the same return of 10% on his investment in each of the
schemes. Thus, lower or higher NAV of the schemes and allotment
of higher or lower number of units within the amount an investor is
willing to invest, should not be the factors for making investment
decision. Likewise, if a new equity oriented scheme is being
offered at Rs.10 and an existing scheme is available for Rs. 90,
should not be a factor for decision making by the investor. Similar
is the case with income or debt-oriented schemes.

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On the other hand, it is likely that the better managed scheme with
higher NAV may give higher returns compared to a scheme which
is available at lower NAV but is not managed efficiently. Similar is
the case of fall in NAVs. Efficiently managed scheme at higher
NAV may not fall as much as inefficiently managed scheme with
lower NAV. Therefore, the investor should give more weightage to
the professional management of a scheme instead of lower NAV of
any scheme. He may get much higher number of units at lower
NAV, but the scheme may not give higher returns if it is not
managed efficiently.

How to choose a scheme for investment from a number of

schemes available?

As already mentioned, the investors must read the offer document

of the mutual fund scheme very carefully. They may also look into
the past track record of performance of the scheme or other
schemes of the same mutual fund. They may also compare the
performance with other schemes having similar investment
objectives. Though past performance of a scheme is not an
indicator of its future performance and good performance in the
past may or may not be sustained in the future, this is one of the
important factors for making investment decision. In case of debt
oriented schemes, apart from looking into past returns, the
investors should also see the quality of debt instruments which is
reflected in their rating. A scheme with lower rate of return but
having investments in better rated instruments may be safer.
Similarly, in equities schemes also, investors may look for quality
of portfolio. They may also seek advice of experts.

Are the companies having names like mutual benefit the same
as mutual funds schemes?

Investors should not assume some companies having the name

"mutual benefit" as mutual funds. These companies do not come
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under the purview of SEBI. On the other hand, mutual funds can
mobilize funds from the investors by launching schemes only after
getting registered with SEBI as mutual funds.

Is the higher net worth of the sponsor a guarantee for better


In the offer document of any mutual fund scheme, financial

performance including the net worth of the sponsor for a period of
three years is required to be given. The only purpose is that the
investors should know the track record of the company which has
sponsored the mutual fund. However, higher net worth of the
sponsor does not mean that the scheme would give better returns or

Where can an investor look out for information on mutual


Almost all the mutual funds have their own web sites. Investors
can also access the NAVs, half-yearly results and portfolios of all
mutual funds at the web site of Association of mutual funds in
India (AMFI) AMFI has also published
useful literature for the investors.

Investors can log on to the web site of SEBI and

go to "Mutual Funds" section for information on SEBI regulations
and guidelines, data on mutual funds, draft offer documents filed
by mutual funds, addresses of mutual funds, etc. Also, in the
annual reports of SEBI available on the web site, a lot of
information on mutual funds is given.

There are a number of other web sites which give a lot of

information of various schemes of mutual funds including yields
over a period of time. Many newspapers also publish useful
information on mutual funds on daily and weekly basis. Investors

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may approach their agents and distributors to guide them in this


If mutual fund scheme is wound up, what happens to money


In case of winding up of a scheme, the mutual funds pay a sum

based on prevailing NAV after adjustment of expenses.
Unitholders are entitled to receive a report on winding up from the
mutual funds which gives all necessary details.

How can the investors redress their complaints?

Investors would find the name of contact person in the offer

document of the mutual fund scheme that they may approach in
case of any query, complaints or grievances. Trustees of a mutual
fund monitor the activities of the mutual fund. The names of the
directors of asset Management Company and trustees are also
given in the offer documents. Investors can also approach SEBI for
redressal of their complaints. On receipt of complaints, SEBI takes
up the matter with the concerned mutual fund and follows up with
them till the matter is resolved. Investors may send their
complaints to:

Securities and Exchange Board of India

Mutual Funds Department
Mittal Court ‘B’ wing, First Floor,
224, Nariman Point,
Mumbai – 400 021.
Phone: 2850451-56, 2880962-70

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1. Investments in equities should be restricted to the risk capital.

2. Before investing a proper financial planning process should
be undertaken, this helps the investors to understand financial
needs for the next few years.
3. To invest 80 minus of your age in equities or equity oriented
funds and the balance in safer instruments like liquid funds or
bank deposits.etc
4. To maintain percentage ratio between equities and other risky
investments. There should be a constant process of asset
reallocation to book profits when the market scales upwards.

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1. Mutual Fund Insight magazine/15 March-14 April
edition/Editor: Mr.Dhirendra Kumar.

2. Finance Bill-An Analytical Overview/2004-05/

Published by Income tax department.

3. Treasury Management/ July Edition/ ICFAI

Publication/ By K Sitapati.






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Literature on mutual fund performance evaluation is enormous. A few research studies

that have influenced the preparation of this paper substantially are discussed in this

Sharpe, William F. (1966) suggested a measure for the evaluation of portfolio

performance. Drawing on results obtained in the field of portfolio analysis, economist
Jack L. Treynor has suggested a new predictor of mutual fund performance, one that
differs from virtually all those used previously by incorporating the volatility of a fund's
return in a simple yet meaningful manner.

Michael C. Jensen (1967) derived a risk-adjusted measure of portfolio performance

(Jensen’s alpha) that estimates how much a manager’s forecasting ability contributes to
fund’s returns. As indicated by Statman (2000), the e SDAR of a fund portfolio is the
excess return of the portfolio over the return of the benchmark index, where the portfolio
is leveraged to have the benchmark index’s standard deviation.

S.Narayan Rao , et. al., evaluated performance of Indian mutual funds in a bear market
through relative performance index, risk-return analysis, Treynor’s ratio, Sharpe’s ratio,
Sharpe’s measure , Jensen’s measure, and Fama’s measure. The study used 269 open-
ended schemes (out of total schemes of 433) for computing relative performance index.
Then after excluding funds whose returns are less than risk-free returns, 58 schemes are
finally used for further analysis. The results of performance measures suggest that most
of mutual fund schemes in the sample of 58 were able to satisfy investor’s expectations
by giving excess returns over expected returns based on both premium for systematic risk
and total risk.

Bijan Roy, et. al., conducted an empirical study on conditional performance of Indian
mutual funds. This paper uses a technique called conditional performance evaluation on a
sample of eighty-nine Indian mutual fund schemes .This paper measures the performance
of various mutual funds with both unconditional and conditional form of CAPM,
Treynor- Mazuy model and Henriksson-Merton model. The effect of incorporating
lagged information variables into the evaluation of mutual fund managers’ performance is
examined in the Indian context. The results suggest that the use of conditioning lagged
information variables improves the performance of mutual fund schemes, causing alphas
to shift towards right and reducing the number of negative timing coefficients.
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Mishra, et al., (2002) measured mutual fund performance using lower partial moment. In
this paper, measures of evaluating portfolio performance based on lower partial moment
are developed. Risk from the lower partial moment is measured by taking into account
only those states in which return is below a pre-specified “target rate” like risk-free rate.
Kshama Fernandes(2003) evaluated index fund implementation in India. In this paper,
tracking error of index funds in India is measured .The consistency and level of tracking
errors obtained by some well-run index fund suggests that it is possible to attain low
levels of tracking error under Indian conditions. At the same time, there do seem to be
periods where certain index funds appear to depart from the discipline of indexation.

K. Pendaraki et al. studied construction of mutual fund portfolios, developed a multi-

criteria methodology and applied it to the Greek market of equity mutual funds. The
methodology is based on the combination of discrete and continuous multi-criteria
decision aid methods for mutual fund selection and composition. UTADIS multi-criteria
decision aid method is employed in order to develop mutual fund’s performance models.
Goal programming model is employed to determine proportion of selected mutual funds
in the final portfolios.

Zakri Y.Bello (2005) matched a sample of socially responsible stock mutual funds
matched to randomly selected conventional funds of similar net assets to investigate
differences in characteristics of assets held, degree of portfolio diversification and
variable effects of diversification on investment performance. The study found that
socially responsible funds do not differ significantly from conventional funds in terms of
any of these attributes. Moreover, the effect of diversification on investment performance
is not different between the two groups. Both groups underperformed the
Domini 400 Social Index and S & P 500 during the study period.

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