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ACKNOWLEDGEMENT

An old Chinese proverb says; “When eating your bamboo sprouts, remember the men

who planted them.”

Now that my sprouts are ready to eat, it is time for me to express my deepest gratitude to

all those who have made it possible. Many of the ideas that have leaded to design and

develop this project report resulted from a distillation of experience and opinions of many

people. It is prudent to commence this report with a sincere tribute to all those who have

played an indispensable role in the accomplishment of this work by providing whenever

and wherever their able guidance was required.

I take this opportunity to thank my college, Indian Business Academy, Bangalore, for giving
me a chance to do a summer project, adding the experience of practical knowledge so
important to understand and to try and bridge the gap between theoretical and practical
knowledge.

Firstly, I would like to thanks to Mr. Raveendran E. K. (Zonal Head-South, Investment
products) who not only served as a guide to me, but also encouraged and challenged me to put
in nothing but my best, throughout the project. His enthusiasm was contagious and it was
stimulating to work alongside him.

I express my sincere gratitude to my project guide Mr. Deepak M. N. (Relationship Manager,
Investment Products) for guiding me through out the project

A special note of thanks to Dr. Subhash Sharma (Dean, IBA) for his constant inputs and his
patient guidance which not only helped the quality of my study but also the learning from it.

Jitendra Kumar

Indian Business Academy, Bangalore

Executive Summary

Investment, like a medical check-up, is something we keep putting off even when we know
that it’s very much required and it’s better to start early. Most of us would agree that we tend to
sit over investment decisions, much to the chagrin of money managers.

I approached the investors keeping this “something laid back attitude” in mind. I advised them
that the key to building wealth is to start investment early. Start early. Keep investing
regularly, and that’s for the longer duration. These regular amounts of savings no matter, how
ever, small they may be shall possibly go a long way into creating a substantial amount of
wealth over a long term. This was for people who were looking at Mutual Fund as a Recurring
Deposit.

And to people who are looking to “park” their funds for a higher return than a savings account
or a fixed deposit where advised to diversify their risk by investing Lump sum amounts in
different schemes.

This report gives an explanation on Mutual Funds from the scratch. Right from what is a
mutual fund to the different returns under heads like Growth Option or Dividend Option. It
also gives an understanding of the different terms used in a Mutual Fund to make them simpler
to understand.

Section 1

Before an investor invests in Mutual Fund, it is very important to have a basic knowledge
about Mutual Fund. Chapter One under Section One deals with the ABC of Mutual Funds.
There are many jargons used in a Mutual Fund and this section defines few of the basic jargons
to help understand about Mutual Funds.

Chapter Two deals with the types of Mutual Funds available which are differentiated based on
investment objectives, nature of participation etc.

Chapter Three gives a complete understanding of how to go about investing in Mutual Funds.
It explains Key Information Memorandum (KIM) and the Offer Document (OD), two of the
most important documents, in detail.

Chapter Four gives a view of the rights and obligations of an investor. The saying “Ignorance
is no excuse” is also applicable to Mutual Funds.

Chapter Five deals with the very important tax aspects, the Net Asst Value (NAV) and the
pricing of Mutual Funds

Chapter Six deals with the advantages and disadvantages of Mutual Funds, in general.

Section 2

The chapter under this section deals in detail about the history of Mutual Funds and tracks the
investment increase in Mutual Funds.

Section 3

This section deals in detail with the Indian Debt and the Money Market and the economic
fundamentals with respect to Mutual Funds in different chapters.

Section 4

This section gives a detailed introduction about Mahindra & Mahindra Financial Services
Limited.

Section 5

This section gives a brief introduction of Birla Sun Life Equity Growth fund and HDFC
Growth Fund with a comparative analysis of both these funds.

Section 6

This section deals with the Findings, Recommendations and Conclusions observed about
Mutual Funds during the project duration.

Topic Page No. Types of Mutual Funds 12 2.Table of Contents Chapter No. Economic Fundamentals 59 SECTION – 4 11. History of Mutual Funds in India 43 SECTION . Brief Introduction of Birla Sun Life Equity Growth Fund 71 . Advantage and Disadvantage of Mutual Funds 38 SECTION .3 8. Concepts related to Indian Debt Market 51 9. ABC of Mutual Funds 6 2. Investing in Mutual Funds: Understanding the Process 21 3. Acknowledgement 1 Executive Summary 2 SECTION – 1 1. NAV and Pricing of Mutual Funds 33 5. An introduction to Mahindra & Mahindra Financial Services 62 Limited SECTION – 5 12.2 7. Concepts related to Indian Money Market 57 9. Rights and Obligations of Investor 26 4. Tax Aspects.

13. Brief Introduction of HDFC Growth Fund 75 14. Comparative Analysis 82 SECTION – 6 15. Findings. Recommendations & Conclusions 87 Bibliography 90 SECTION ONE ABC OF MUTUAL FUND AND MUTUAL FUND INDUSTRY IN INDIA .

It is therefore a pool of investor’s funds. is actually seeking investors willing to invest in a pool that would invest predominantly in money market instruments. The term mutual means that the investors contribute to the pool. a mutual fund.Chapter One ABC OF MUTUAL FUND Mutual Fund: Concept A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. which sells a “money market mutual fund”. the investors. the investors appoint professional investment managers. For example. This product represents a share in the pool. and offer it for investment to the investors. A mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. A mutual fund is created when investors put their money together. A mutual fund’s business is to invest the funds thus collected. professionally managed basket of securities at a relatively low cost. and pre-states investment objectives. There are no other claimants to the funds. according to the wishes of the investors who created the pool. The most important characteristic of a mutual fund is that the contributors and the beneficiaries of the fund are the same class of people. The pool of funds held mutually by investors is the mutual fund. The same objective is achieved when professional investment managers create a “product”. The flow chart below describes broadly the working of a mutual fund: . Usually. to manage their funds. In many market these wishes are articulated as “investment mandates”. and also benefit from the pool. viz.

Business Structure of a Mutual Fund There are many entities involved in the organization of a Mutual Fund as shown below Sponsors . • Value of the portfolio & holdings alter with change in the market value of investments. • Investment professionals manage the fund for a fee for the investors who own the Mutual Fund. Mutual Fund Operation Flow Chart Characteristics of a Mutual Fund • A mutual fund actually belongs to the investors who have pooled their funds. • The value of portfolio is updated every day. • Funds are invested in a portfolio of marketable securities reflecting the investment objectives.

• Should be in Financial Service Business with 5 year track record and a 3 year profit making record with 40% capital contribution in AMC Trustees • Fiduciary Relationship for investor funds • Appointed by Sponsor with SEBI approval • Registered ownership of investments is with the trust • At least 4 trustee out of which 2/3 should be independent • Trustee of one Mutual Fund can not be trustee of another Mutual Fund Asset Management Company • Responsible for operational aspects of the Mutual Fund • Investment management agreement with trustees and periodic reporting • Rs. • AMC of one Mutual Fund can not be trustee of another Mutual Fund. 10 crore of net worth to be maintained at all times. making allotments. . • Can not have any other business interests and is structured as a private limited company. and in accordance with SEBI regulations. • At least 50% of the board members should be independent. Registrar / Transfer Agent The Registrar or Transfer Agent is the investment back-office who takes care of filing applications. receiving redemption requests etc. • Promoter of the Mutual Fund • Establishes the Mutual Fund • Registers the Mutual Fund with SEBI • Sponsor appoints the trustee. Other Constituents Custodian The custodian is holder of the investments on behalf of the Mutual Fund / Trustees. custodians and the AMC with prior approval of SEBI.

which is the value. Some agencies cross sell mutual fund products to the clients. This gives rise to the concept of net asset value per unit. On instructions from the custodian. Depository Participant (DP) in Mutual Funds: Depository Participants hold the securities of the Mutual Fund in dematerialized form. Net Assets of the Scheme = Market value of Investments + Receivables + Other Accrued Income + Other Assets Accrued Expenses – Other Payables – Other Liabilities LOAD Load is a charge on the NAV . if the fund is dissolved or liquidated. they deliver/receive securities from the company in dematerialized form. for example. In other words. Some agencies use direct marketing to sell mutual fund products. Selling agents are usually individuals who bring in investor’s fund for a commission. It is calculated simply by dividing the net asset value of the fund by the number of units. Selling and Distributing Agents: Mutual Fund s products are reached to investors across the country through selling agents and distributors. by selling off all the assets in the fund. They also communicate the custodian’s instructions on corporate actions of the company. NET ASSET VALUE (NAV) The NAV of a fund is the cumulative market value of the fund’s assets net if it’s liabilities. the amount that the shareholders would collectively own after paying all the liabilities would be he NAV. Distributors are institutions that appoint agents and other mechanisms to mobilize funds from investors. They work with the custodian and handle the operational aspects of actually making / receiving delivery of securities into account of the mutual funds. NAV = Net Assets of the Scheme / Number of Outstanding Units The most important part of the calculation is the valuation of the assets owned by the fund. to whom they are already offering other financial products. represented by the ownership of one unit in the fund. tend to offer mutual fund products to their chosen customers. Banks that function as distributors.Auditors There should be a separate auditor for the AMC and the Mutual Fund.

5*2. Sectoral Funds 4. the following are thee types of products offered by Mutual Funds: o Equity Funds o Debt Funds o Balanced Funds Equity Funds Equity Funds are those funds that invest pre-dominantly in equity shares of companies.245 = 24. Index Funds 5. Other Equity Funds .25% and the NAV of the scheme is Rs. the investor who purchases his units. 24.5*1/100) = 24. will get a price that is: • 24.255 Chapter Two TYPES OF MUTUAL FUND Depending on the investment portfolio that is created.5 + (24. 24.25/100) = 24. There are varieties of ways in which an equity portfolio can be created for investors. The following choices in equity funds are: 1. Simple Equity Funds 2.5 – 0. • Entry load is charged on NAV and increases the sale price • Exit load is charged on NAV and reduces the purchase price Entry Load If the entry load for a scheme is 2. Primary Market Funds 3.5 + 0. He will pay: • 24. the investor who wants to buy the units will not be able to buy at Rs.5512 = 25.5 – (24.50.50.0512 Exit Load If a fund imposes an exit load of 1 %.

1. . These sectors could vary depending on the investor preference and the return risk attributes of the sector. The portfolio in this case can be composed from the universe of equity shares available to the fund manager. whose investment objective was to invest in few chosen sectors such as Information Technology. In most cases about 80 – 90% of their investments are in equity shares. The risk in active fund management is that the fund manager’s view of companies and their performance can turn out to be right or wrong. These funds. during the technology boom in stock markets. Sectoral funds are not as diversified as simple equity funds. up to a maximum of Rs.000. Primary Market Funds: The primary market funds invest in equity shares. by investing in Sectoral funds. Sectoral Funds: Sectoral funds choose to invest in one or more chosen sectors of the equity markets. that invests at least 90% of its funds in equity and equity. either through a public issue or through private placements. and invest in these companies. 00. under section 80C of the Income Tax Act. when prices of IT companies were rising sharply. For example. Media and Telecommunications. One variation of the simple funds is the ELSS (Equity Linked Saving Schemes). in order to avail the tax rebate. 4. 3.linked investments is eligible for tax rebates. These funds have the freedom to invest both in primary and secondary markets for equity. This style of creating an equity fund is called active fund management. but do so only when a primary market offering is available. 1. according to his understanding of the valuations and returns in equity markets. The caveat here is investors have to hold their units for a lock – in period of three years. are equity funds formed under a special scheme notified by Government of India in 1990. named variously in the mutual fund industry. Simple Equity Funds: These funds invest a pre-dominant portion of the funds mobilized in equity and equity related products. According to the provisions of this notification. 2. investor who wanted to participate in this sector could do so. the fund manager has the mandate to create an investment portfolio of equity shares. In other words the fund manager takes a view on the companies that are expected to perform well. investment in a specially formed mutual fund. They can exhibit very volatile returns. as they tend to focus on fewer sectors in equity markets. The focus is on capturing the opportunity to buy those companies which issue their equity in primary markets. Index Funds: In simple equity fund.

For example. Debt Funds Debt funds are those that are pre-dominantly invest in debt securities. these are small stock funds. and short term instruments such as call money lending. These are PSU Schemes which specialize in investing only in PSU stocks. which invests from the universe of stocks comprising the A group companies of the Bombay Stock Exchange. The portfolio is pre-dominantly made of debt securities.An alternative approach to creating an equity portfolio for investors is to avoid taking views on the performance of companies. and instead focus on creating a diversified portfolio. which invest only in equity shares of small companies. public financial institutions and private sector companies. public sector organizations. There are Top 200 Schemes. All these products try to define sub-set in equity market. market indices of a subset of trading stocks is created. This strategy is also called passive fund management. The following choices available for the debt fund investors are: . without the investor having to bear the risk and costs arising from the market views that a fund manager may take. 5. The costs of this strategy are lower. these funds are also known as Income Funds. and tend to focus on that segment. in terms of size and other attributes. Since most debt securities pay periodic interest to investors. There is a 30 stock fund that limits the number of stocks in its portfolio to 30 stocks. There is a select equity fund. in the same proportion as in the index. The CNX Nifty is one such index of 50 large and liquid stocks. Other Variations of Equity Funds: Equity funds can also be created to invest in equity shares of companies with specific attributes. and the fund performance virtually tracks the market index. Certificate of Deposit and Treasury Bills. that simply replicates an existing market index. it must be remembered that funds investing in debt products can also offer a growth option to their investors. which invest in companies within the universe of Top 200 equity stocks. he is creating an Index Fund. An index fund provides an ideal exposure to equity markets. Commercial Papers. However. The universe of the debt securities comprises of long term instruments such as bonds issued by central and state governments. In order o track the return performance of markets. Debt fund tend to create a variety of options for more of these segments of the debt market in their investment portfolio.

Liquid Funds and Money Market Funds These Debt Funds invest only in instruments with maturities less than a year such as Treasury Bills (TB). Simple Debt Funds 4. there are debt funds that would invest only in AAA rated debt securities issued by the corporate sector. Serial Plans or Fixed Term Plans This is a variation to simple debt fund of debt market. Simple Debt Funds Theses funds invest in a portfolio of debt securities chosen from the universe of debt securities indicated above. 2. as well as the long and short term. The investment portfolio is very liquid. 4. 1. Gilt Funds 3. Certificate of Deposits (CD). the funds also provide investors with cheque writing facility (only self cheques). where the objective is to match the holding period horizon of the investor. The . Sectoral Debt Funds 5. For example. 5. In some cases. 3. Sectoral Debt Funds These funds invest in a pre specified subset of the debt markets. A variety of serial plans that enable investors to choose from 14 days to 5 days are available. These funds invest in short and long term securities issued by government. The fund manager has the freedom to choose from the universe of debt securities. which are otherwise large – ticket whole sale market. The fund pre-dominantly invests in money market instruments and provides investors the returns that are available on these instruments. government and others. Liquid Funds and Money Market Funds 2. and enables investors to hold their investments for very short horizons of a day or more. Gilt Funds A Gilt Fund invests only in securities that are issued by the government. and therefore does not carry any credit risk. within the maturity of the investments. Commercial Paper (CP) and Inter Bank Call Money. Serial Funds or a Fixed Term Plans 1. as an additional facility or liquidity. These funds are preferred by the institutional investors who have to invest only in government securities.

Growth and Reinvestment of Dividends. Balanced Schemes Those funds which are invested in both debt and equity market are known as Balanced Funds. as the case may be. and the segments of the various markets in which the funds are invested. Monthly. Quarterly or Annual. A Balanced Fund also tends to provide investor exposure to both equity and debt market in a one product. These funds seek to enhance the income potential of their equity component. Weekly. Similarly. there is a choice of funds to the investors. Open Ended Schemes . A typical balanced fund would be almost equally invested in both the markets. • Nature of Income Distributions: Dividend.investment portfolio can be made up either purely of government debt. there are pre-dominantly debt funds (over 70% in debt securities) which invest in equity. Investor can also choose from varying periodicity for distributions of Dividend – Daily. Closed Ended and Interval Based Funds. Depending on the investment portfolio that is created. The variations are fund invested that invest pre-dominantly in equity (about 70%) and keep a smaller part of their portfolio in debt securities. Mutual Funds can offer further generic choices to investors in terms of nature of participation and nature of income distributions and that are as follows: • Nature of Participation: Open Ended. Various other types of Mutual Funds Mutual Funds are investment portfolio that invests in financial market instruments. Therefore the benefits of diversification get further enhanced. or a combination of debt securities. as equity and debt market have different risk and return profiles. by bringing in debt. usually dominants in units. to provide some growth potential to their funds. to cater to varied the risk and return requirements of investor. There are varieties of ways in which mutual funds are created. which matures on a date that matches the horizon of the plan. Theses portfolios are created by pooling investor’s contributions.

As at the end of March 001. at NAV linked prices. in the manner in which the returns from their investment are structured. in the secondary markets. Investor perceived MF to be akin to equity shares. o Initial issue for limited funds o Continuous sale and repurchase o Size of fund keeps changing as investors enter and exit o NAV based pricing Closed Ended Schemes • Sale of units only during NFO • Listing on exchange & liquidity for investors • Size of fund is kept constant • Option of selling the units back to the Mutual Fund Interval Schemes • Combines features of Open ended & Closed ended • Open for sale or redemption during pre-determined intervals • NAV based pricing Composition of the Industry between Open and Closed Ended Funds In earlier days of Mutual Fund industry. At a broad level. to the NAV. However. and were listed in the stock exchange. the investors have two options and that are: . The next problem was the discount at which MFs were priced. MFs have been open repurchase windows. because the issue process was similar to that of equity shares: a limited initial offer period and subsequent listing in stock exchanges. was the apprehension that the underlying may not be liquid enough to support frequent changes in the size of investment portfolio. most MFs were closed ended. The Options for Structuring Returns to an Investor in a Mutual Fund Mutual funds offer a variety of options to the investors. This perception created unrealistic return expectations from mutual funds. Most MF units were priced at steep discounts (15 to 45%). Since the mid 1990s. 75% of the assets was managed by the Indian Mutual Fund Industry were Open ended funds. One of the reasons fund managers chose to have close ended funds. for their closed ended funds. closed ended funds presented a set of other problems.

Growth Option Investors who do not require periodic income distributions can choose a growth option. The NAV of the investor choosing this option will vary with the value of investment portfolio. which can vary from daily. weekly. Investors can choose the frequency of the dividends which suits their requirements. choose this option. monthly. and limited requirements for income. investor can choose an income distribution frequency from the choices available in a particular mutual fund product. and allowed to grow. Investors choosing this option. The return to the investor who chooses a growth option is rate at which his initial investment has grown over a period for which he was invested in the fund. periodicity of dividend is left to the fund managers. back into the fund itself. and the impact of the proportion of income earned by the fund. while the number of units held will remain constant. half yearly and annual. The variants to the normal dividend plans are pre-specific distribution schedules. Though investors know that they would earn a dividend income from their investment. Investors re-invest the dividends that are declared by the mutual fund. Investors with long term investment horizons. as and when such dividends are declared. where the incomes earned are retained in the investment portfolio. the number of units held by the investors will change with every re-investment. and earn incomes in the investments. Re. In this option. The differential tax treatment of dividends and capital gains will also impact the choice made by the investors. Dividends are paid in the form of warrants. . the timing of the payout is decided by the fund managers. The NAV of these investors’ holdings will vary with changes in the value of portfolio. rather than being distributed to the investors. The value of the units will be similar to that under the dividend option. In a normal dividend plan. or are directly credited to investors’ bank account.Investment Option Mutual Fund also provides another option to investor in the form of re-investment of the dividends declared. will receive dividends from the mutual fund. There are further choices in the distribution of dividend. quarterly. • Dividend Option • Growth Option • Re – Investment Option Dividend Option Investor. at NAV that is prevalent at the time of re-investment. who may pay annual and/or interim dividend. Not all mutual funds provide all of these frequencies as choices. to what is actually distributed as dividend. who chooses a dividend option on their investments. The choice of income options is dependent not only on the investor’s requirements for income and growth. have a fixed number of units invested I the fund. Though. but also on his tax status. Mutual Funds provide investors the option of receiving dividend at predetermined frequencies.

Examples of some major changes are: • Change in the AMC or sponsor of the mutual fund • Changes in the load structure • Changes in the fundamental attributes of the schemes • Changes in the investment options to the investors. It also contains operational details about how to apply and the want are the rights and obligation of the investors. and such changes have to be notified to SEBI and investors. The Offer Document – Its Importance and the Broad Contents The offer document is very detailed and can run into pages or more. The document is also called as prospectus or the OFFER DOCUMENT (OD). It usually contains all information about the scheme that is being sold. and the sale and repurchases procedures. the offer document also contains details regarding the structure of the mutual fund. inclusion or deletions of options. Apart from this core information. the asset allocation. and is very detailed and contains most of the relevant information that an investor would be needed. in a prescribed format is appended to the application form which is also called as the KEY INFORMATION MEMORANDUM (KIM). and the performance of existing schemes of mutual fund. in a prescribed format that provides all the information about the fund and the scheme. the load and expanse structure and accounting and valuation policies. the objectives of the scheme. Investors have the right to ask for a free copy of the Offer Document. In the case of closed ended schemes the offer document is issued during the New Fund Offer (NFO). An abridged version of the document. . namely. and is required to be revised at least once in 2 years.Chapter Three INVESTING IN MUTUAL FUNDS Understanding the process The Mutual Fund is required to file with SEBI a detailed information memorandum. In the case of open ended funds the offer document is valid through out the life of the scheme. Generally an offer document is valid until it is changed. it also consists.

fees and . SEBI also provides for investors to exit the fund. c. • Offer documents is a legal documents that specifies the details of the offer made by the mutual fund. o Details of Fund constitutions. in the case of open ended funds. once these numbers begin to be available. an investor must read and understand the terms of the offer. which defines the terms used. b. SEBI also provides for addendum to offer documents. at NAV without any exit load. and its fundamental attributes. in summary form. SEBI requires that investors be notified through individual communication and through publication of changes in a national daily. o Standard and scheme specific risk factors pertaining to the scheme being offered. and before the mutual fund product. details of sponsor. investment pattern. Scheme Attributes o Fundamental attributes of the scheme. before the changes are enforced. o Mandatory disclaimer clauses as required by SEBI. the scheme and the terms of the offer. trustees and AMC o Financial History of sponsors for 3 years. whenever any changes as mentioned above are made. o Glossary of terms in the offer document. Therefore it forms the basics for the investor decisions.In all these cases. o Director of boards and the trustees and the AMC o Details of Key personnel of the AMC. are specified in the offer documents. Preliminary Information o Summary information about the MF. Fund Specific Information o Constitution of fund. Importance of Offer Document for the Investors Offer document is very important for the following reasons- • Information about the scheme. This includes type. The Broad Contents of the Offer Documents The following are the summary contents of the offer documents: a. Addendum is also required for abridged financial information. and terms of the scheme with regard to liquidity. investment objective.

with comparison of actual with terms in the original offer document. d. e. Unit Holder Rights o Rights of unit holders with regards to services. for both current scheme and past scheme. g. o Summary information on investment made by mutual fund schemes in associate company securities. o Condensed financial information of past schemes for the past 3 years. Mandatory Summary Disclosures to be made on the Cover page of the Offer Document . o Eligibility for investing and documentation required. o Documents available for inspection. o Special facilities to investors and plans being offered. Loads. redemption. valuation norms and accounting policies and investment restrictions. Associate Transactions o Summary information on associated companies being used as constituents and service providers with details of fees paid. information and protection rights and problem resolution. expanses. Details of the scheme being offered o Dates of NFO and details regarding sale and repurchase. o Procedures for applying and subsequent operation relating to transfer. o Initial issue expanses. o Details of information disclosure and their periodicity. f. o Details of pending litigation and penalties. pledge and mode of holding of units. if any. Fee Structure and Expanses o Load and the annual recurring expanses proposed for the scheme being offered and for the other schemes being managed by the AMC. o Summary information of associates investing in schemes of the mutual funds. nomination. o Minimum subscription and face value.

closing and earliest closing date of the offer o Mandatory Statement Mandatory Statement to be disclosed on the cover page of the Offer Document The following statement must appear on the cover page of the offer document: • A statement to the effect that offer document sets forth concisely. The Fundamental Attributes of a Scheme: • Types of scheme • Investment objective • investment pattern • Terms of scheme with regard to liquidity • Fees and expanses • Valuation norms and accounting policies • Investment restrictions .The Cover page of the offer document should contain the following information: o Name of the mutual fund o Name of the scheme o Type of scheme o Name of the AMC o Classes of units offered for sale o Price of units o Name of the guarantor in case of assured return schemes o The opening. as amended till date and filled by SEBI and the units being offered for public subscription have not been approved or disapproved by SEBI nor has the SEBI certified the accuracy or adequacy of the offer document. the information about the scheme that the prospective investor ought to know before investing and the offer document should be retained for future reference. • A statement to the effect that the scheme particulars have been prepared in accordance with the SEBI (Mutual fund) Regulations.

Chapter Four RIGHTS AND OBLIGATION OF INVESTORS Investors buy the Units of a mutual fund. For example. These restrictions are usually not applicable to inter-scheme and inter option switchers and reinvestments.The number of units bought by an investor represents his “holdings” in a mutual fund. it is not feasible for the mutual funds to provide them all prospective investor. by investing Rs. 23. For example. an investor wanting to buy 1000 units will be able to do so. along with the Application Form. This is usually offers units at a price of 10 Rs. 2005. This calculation assumes that there is no sales load(Entry/Exit) applicable to the investor. if the sale price of XYZ equity fund was Rs. SEBI regulation allows mutual funds to summaries The key points in a summary document called as Key Information Memorandum. On the other hand. if a mutual fund may specify that minimum investment is Rs. the price is announced by the mutual fund every day. All mutual fund schemes specify the minimum amount that has to invested and the multiples thereof. is announced by the mutual fund. will buy 100 (1000/10) units.2005. Buying Units form a Mutual Fund The buying procedures for the investors are different for different scheme. An investor wanting to invest Rs. given a price. The price.25000 on December 14. These are usually of two types: • Buying Units for an Open Ended Scheme • Buying Units for a Closed Ended Scheme . In an existing mutual fund scheme.49 on December 14. each. at which each unit is being sold. 1000 in this scheme. The investor can either buy a fixed number of units. if the investor decides to invest Rs. he will be allotted 1064. and is based on the NAV of the fund.1000 and subsequent investment have to be in the multiple of 500.23490.2826 units. It is mandatory that the key information memorandum is made available to all investors.Key Information Memorandum Since the offer document is very detailed. or can invest a fixed sum of money.

the mutual fund closes further direct sales to investors. Closed-ended funds have to list their units on a stock exchange to enable this. Distribution Channel for the Mutual Fund There are four channels which are currently used by the mutual fund and that are: • Individual Agents • Distribution Agents • Banks and NBFCc. Some agents tend to pass on the initial commission to the investor in the form of an incentive or rebate. the mutual fund has a new fund offer period. Investors who want to invest in a closed ended fund. These are at present no mandatory registrations for distributors are applicable. it is quite possible that the units are not regularly traded on the stock exchange. investors can buy units at a price which is fixed. • Direct marketing channels. There is also no regulatory requirement regarding who can be an agent. After a closure of the NFO. The Commission Structure for Mutual Funds Agents Mutual Fund agent’s commission has two components: Initial Commission and Trial Commission. . or the fees and commissions payable to them.10 or Rs. at the price quoted by the mutual fund. for the whole period. Buying Units for a Closed Ended Scheme If the fund is closed ended. However. During this period. Mutual funds have their own internal guidelines on the appointment and terms of these distributing agencies. Usually mutual funds have a distribution network. who sell units on behalf of the mutual fund. though till now there is no regulation to ban it. the quoted price of traded mutual funds is usually published. investors service centers and branched networks. An investor can buy units of the fund from any of these agencies. 100 per unit. made up of distribution agents.Buying Units for an Open Ended Scheme If the scheme is open ended. Initial commission is paid as fixed percentage of amount mobilized by the agents. This practice of rebating is widely condemned by the industry. the investor on any given day. resulting in units not being available when an investor wants to buy them. after the NFO have to buy units from the stock markets. In the financial papers. In many cases the price is Rs.

Trial commission is paid periodically, on the funds that remain invested in the scheme. Every
agent has a unique member by which he is identified. This number is quoted on the application
forms collected by him. Mutual funds pays trail on the period, for which an investor brought in
by the agent, stays invested in the scheme. Trial is an effective way to restrict the practice of
rebating and link commissions to the period for which the fund mobilized is actually available
to the mutual fund. The rates of commission are decided by the mutual fund themselves, and
are not subject to regulation by SEBI or AMFI.

The Category of investors who are Eligible to buy Mutual Funds

The following categories of investors are usually eligible to invest in Mutual Funds:

o Resident Individual
o Indian companies
o Indian trust and Charitable institutions
o Banks
o Non-banking Finance Companies
o Insurance companies
o Provident Funds
o Non- Resident Indians
o Overseas Corporate Bodies
o SEBI Registered Foreign Institutional Investors

Agents should check the list of eligible investors, before accepting an application form from a
prospective investor.

Holding Rights for the Investors have in Respect of Service Standards

Some of the important rights that investors in mutual funds have are:

• Investors are entitled to receive dividends declared in a scheme, with in 30 days.
• Redemption proceeds have to be sent to the investors with in 10 business days form the
date of receipt of such request by the AMC. Delays in this respect will lead to the AMC
paying a penal interest on the proceeds, at a rate specified by the SEBI from time to
time. The Current rate is 15% and is to be borne by the AMC and not the fund.
• If the investor fails to claim the dividend or redemption proceeds, he has the rights to
claim it upto a period of 3 years, from the due date, at the prevailing at the end of 3rd
year.
• Mutual fund has to allot the units within 30 days of the NFO and also open the scheme
for redemption, if it is an open ended scheme.

• Mutual fund has to publish their half yearly results in at least one national daily and
publish their entire portfolio, at least once in 6 months. Such disclosures should be done
with 30 days from the six monthly account closing dates of the fund.
• Trustees will have to insure that the information having a material on the unit holder’s
investments should be made public by the mutual fund.
• If 75% of the unit holders so decide:

 A scheme can be wound up
 Meeting of unit holders can be called
 Appointment of the AMC of the mutual fund can be terminated.

• If there is any change in any fundamental attribute of the scheme, the unit holders have
to be notified through a letter. They also have the right to repurchase at NAV, without
any load, before such a change is effected.
• Units holders have the right to inspect the following documents:

 Copies of trust deed, investment management agreement and agreements
worth fund considerations.
 Memorandum and articles of association of the AMC.
 Unabridged balance sheet of the mutual fund schemes sponsor and AMC
 Text of SEBI regulations

Limitations of the Rights of Investors

These are the limitation of the investors:

• Investor can not sue a trust, as they are not distinct from the trust, which is only a
registered owner of their fund.
• Investors can lodge complaints against trustees (with a registrar of the public trusts) or
the AMC (with the company law board). Investors also lodge complaints against with
SEBI for non compliance with SEBI regulations, by sponsor, AMC or the trustees.
• Investors cannot be compensated of the performance of fund is below expectations.
Investors have to fully bear the risk associated with the schemes. Only explicit
guarantees provided in the offer documents by sponsor or AMC is enforceable under
the law.
• There are no legal remedies to a prospective investor. In order to enjoy any of the above
rights, he must be registered investor in the fund.

Investment Plans and their Types

Investment plans are the different ways to invest or reinvest in a scheme by the investors.

These are the services offered by the different mutual funds to their investors. These plans
provide variable degree of convenience could be in form of freedom to invest at regular
intervals or making withdrawals periodically. Similarly flexibility may be offered by allowing
investor to transfer from one scheme to another. There are four types of investment plans
available for the investors:

• Systematic Investment Plan (SIP)
• Automatic Reinvestment Plan (ARP)
• Systematic Transfer Plan (STP)
• Systematic Withdrawal Plan (SWP)

Systematic Investment Plan (SIP)

This is a plan based on the concept of “Rupee Costing Averaging Method”. In this plan the
investor is allowed to invest a fixed amount at regular intervals. This gives the investor a way
to save and invest in a disciplined and phased manner. The investment could be made by
giving post-dated cheques in advance or by the facility of direct debit to the investor’s salary
accounts.

Automatic Reinvestment Plan (ARP)

As we already know that a scheme may have two broad options- dividend option and growth
option. In the dividend option the income earned by the fund is distributed to the unit holders.
The automatic reinvestment plan allows the investors to reinvest the amount of dividend of
receiving in cash. This reinvestment will happen at the ex-dividend NAV reinvestment the
investor will receive additional units equivalent to the amount of dividend divided distributed
tax (if any).

Systematic Transfer Plan (STP)

This plan gives investor the facility to transfer on periodic basis a specific amount from one
scheme to another scheme of the mutual fund. A transfer from one scheme means redemption
of units from that scheme and it would be considered as an investment in units from that

1961. If the investor chooses the growth option. under section 10 (23D) of the IT Act. investment and investment would happen at applicable NAV’s.scheme to which the transfer is made. He will receive additional units to the extent of reinvestment less dividend distribution tax based on whether it is scheme with>50% in debt or >50% in equity. the different between the acquisitions the redemption price is subjected to capital gain tax. Mutual fund which is registered under the SEBI (mutual fund) Regulations. as explained above. In the investor chooses the dividend option. the dividend income is tax free. income is not taxed in the hands of the mutual fund. Systematic Withdrawal Plan (SWP) This is a plan whereby an investor can make systematic withdrawals from his fund investment accounts on periodic basis. In this plan the investor agrees a certain amount to be withdrawn is treated as redemption of units by investor and the units are calculated using are calculated using the applicable NAV as specified in the offer document. Since it is only a pass through entity. namely dividends declared from time to time by mutual fund and capital gain arising out of redemption of mutual fund units. This redemption. Both these incomes are subjected to the provisions on the Income Tax Act. This plan gives investor the leverage to manage his funds among different scheme to achieve his objectives. and tax free. 1996 is fully exempted from paying tax on its income. On the sale of additional units he will be subjected to capital gained. . If the investor chooses the re-investment is treated as dividend income. NAV AND PRICING Investors receive two types of incomes from his investment in mutual fund. This facility helps him to ensure regular cash inflow. Investment in units of mutual funds is not considered as wealth tax act and therefore shall not be chargeable to wealth tax. Chapter Five TAX ASPECTS.

i. upto a maximum limit of Rs. the dividend distribution tax is not to be paid. • In the case of the mutual fund scheme with more than 50% in debt. at the same marginal rate of taxation the investor is subjected to. Investment in ELSS Investment in specific Equity Liked Savings scheme. Therefore. a dividend distribution tax on 10% plus surcharge has to be paid by the mutual funds. If the holding period is higher than 12 months. The cost of acquisition includes costs incurred on the transaction. brokerage or commission. such gains are short term capital gain. the investor has an option to calculate his long term capital gains tax in either of the following two ways: • The investor can index the acquisition price according to the cost of inflation index published by the CBDT and pay a capital gains tax at 20% (+Surcharge) • If the investor chooses not to index the acquisition price. applicable after the Finance Act 2003-04: Dividends: • Dividends from mutual funds for the year 2003-04 are tax free in the hand of the investors. • In case of mutual fund with more than 50% in equity. at a price that is higher than the acquisition price. holdings beyond 12 months are considered as long term. any holdings that is for less than 12 months is considered short –term. is eligible for tax rebate under section 80C. are subject to tax. as notified by the Government of India. Taxes on Capital Gain: Mutual funds are securities under the Securities Contract Regulation Act. he can pay capital gains tax on the entire difference between acquisition price and redemption value. the investor earn a capital gain.e.100000 on the investment. The rebate is available according to the taxable income of the investor. If the holding period is higher than 12 months. If units are redeemed by an investor.Income Tax Provisions for the Dividends Income The following are the tax provisions. at a rate of 10% (+Surcharge) .

Load and Pricing of the Mutual funds Net Asset Value (NAV): The Net Asset Value of the fund is the cumulative market value of the assets fund net of its liabilities. Further dividends being tax free save tax over all. the amount of dividend distribution tax based on whether it is a scheme with >50% in debt or 50% in equity. It provided that if a buys units within a period of 3 months before record date and sells the same within the a period of 3 months after such record date. At the end of the business day. This gives rise to the concept of net asset value per unit. and on the AMFI website (www. If the investor chooses the growth option. Net Assets of the scheme = Market value of investment + Receivables + Other Accrued Income + Other Assets – Accrued Expenses + Other payables – Other Liabilities Most Mutual Funds make NAV of their schemes available over phone. which the investor could offset against the short term gain. In other words. the difference between the acquisition and redemption price is subjected to capital gain tax.com). This could result in short term capital loss.If the investor chooses the dividend option.Hour voice mail facility. Section 94(7) of Income Tax Act. NAV. This phenomenon is known as dividend stripping. Dividend Stripping When dividends are distributed by a scheme. as explained above. If the investor chooses the re-investment option. which is the value. A number of investor used this to their advantage by buying units just before the dividend record date and selling them immediately after the record date a lower NAV. NAV = NET ASSET OF THE SCHEME / NUMBER OF OUTSTANDING UNITS The most important part of the calculation is the valuation of the assets owned by the fund. this is the amount that the shareholders would collectively own. than any loss arising from such buying and selling shall be ignored in the computation of the taxable income of that person. 1961 has prohibited this. fund NAV are also made available on the websites on the funds. On the sale of these additional units he will be subject to capital gains. using the 24. It is calculated simply by dividing the net asset value of the fund by the number of units. Load: . by selling off all the assets in the fund. represented by the ownership of one unit in the fund. the NAV of the scheme falls down. if the fund is dissolved or liquidated. amfiindia. the dividend income is tax free. Business newspaper also publishes the NAV’s on the next day in the security prices pages.

or only the sales load. . Maximum Load a Mutual Fund Can Charge SEBI regulates the load mutual fund can charge. Mutual funds have a choice. need not bear this cost. for the additional sales. That is maximum load can be only 7%. • The repurchase price can not be less than the 7% limit applies to the sale and repurchase price. Therefore it may decide to impose this cost on the new investors by increasing the price at which they can buy units. this represents a cost incurred by the mutual fund. Mutual funds may decide to impose no loads. If there are no loads.Load is a factor that is applied to NAV of a scheme to arrive at the price. and not imposed on the mutual fund scheme. If a commission is paid to the agents. This is called the “Entry Load” or the “Sales Load”. charged depending on duration of stay in the fund. This is called an “Exit Load”. to bring in new business. In case of closed ended scheme the repurchase price of units shall not be lower than 95% of the NAV. the fund may incur some cost in liquidating the portfolio and paying off this investor. Loads are subject to SEBI Regulation and vary depending on Industry practice. CDSC is a variable exit load. There are two regulatory requirements: • The sale price can not be more than 7% of NAV and repurchase price can not be less than 7% of NAV. the exit load. though the fund is free to impose the load on either them or both. who are already in the scheme. The fund may want to impose the cost of this operation on existing investor. then the cost associated with sales and repurchase are borne by the AMC. Load is defined as a percentage (%). Similarly. if an investor stays in a fund for a short while and decides to repurchase his units. in the form of a load. the fund may therefore that investors.

delayed payments and follow up with brokers and companies. custodial and other fees translate into lower costs for investors. Diversification MF invests in a number of companies across a broad cross-section of industries and sectors. Return Potential Over a medium to long term. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. Convenient Admiration Investing in a MF reduces paperwork and helps avoid many problems such as bad deliveries. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. MF have the potential to provide a higher return as funds are invested in a diversified basket of selected securities Low Costs MF are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage. backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Liquidity .Chapter Six ADVANTAGES AND DISADVANTAGES OF MUTUAL FUNDS Advantages of Mutual Funds Professional Management MF provide the services of experienced and skilled professionals. MF saves time and makes investing easy and convenient.

advertisements costs. Choice of Schemes: MFs offer a family of schemes to suit varying needs over a lifetime. regular withdrawal plans and dividend reinvestment plans. The operations of MFs are monitored by SEBI. Affordability Investors individually may lack sufficient funds to invest in high grade stocks. Well Regulated All MFs are registered with SEBI and they function within the provision of strict regulation designed to protect the interest of investors. the units can be sold on a stock exchange at the prevailing market price or the investor can avail the facility of direct repurchase at NAV related prices by the MF. the investor gets the money back promptly at net asset value related prices from the MF. Transparency Regular information is made available on the value of the investments in addition to disclosure on the specific investments made by the scheme. A MF because of its large corpus allows even a small investor to take benefit of its investment strategy. the proportion invested in each class of assets and fund manager’s investment strategy and outlook. Disadvantages of Mutual Funds No Control over costs Often various cost incurred by Asset Management Company are billed to the unit holders. custodian fees etc.In open-end schemes. costs incurred for sending periodic communication. In closed end schemes. Flexibility Through features such as regular investment plans. MFs allow systematic investment of funds according to needs. No Tailor Made Portfolio . More so. are transferred to unit holders.

investment strategies and set portfolio. Risk Scale of Mutual Funds Sector based schemes have the highest risk and Gilt schemes have the least risk on a scale of 10. .There are no tailor made portfolios. the unit holders are required to invest in schemes bought out by Mutual Fund companies which have specific objectives. What are a Mutual Fund’s Expenses? • Investment Management Fees • Custodian’s Fees • Trustee Fees • Registrar & Transfer Agent’s Fees • Marketing & distribution Fees • Operating Expenses • Audit Fees • Legal Expenses • Costs of mandatory advertisements and communications to investors.

SECTION TWO MUTUAL FUND INDUSTRY IN INDIA .

SBI mutual fund was the first non-UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87). 47. 1993 was the year in which the first Mutual Fund Regulations came into being. The history of mutual funds can be broadly divided into four distinct phases- First phase – 1964-1987 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). Also. at the initiative of the government of India and Reserve Bank of India. Punjab National Bank Mutual Fund (Aug 89). Third Phase – 1993-2003 (Entry of Private Sector funds) With the entry of private sector funds in 1993. At the end of 1993. giving the Indian investors a wider choice of fund families. The erstwhile Kothari Pioneer (now registered with Franklin Templeton) was the first private sector fund registered in July 1993.Chapter Seven MUTUAL FUNDS INDUSTRY IN INDIA History of mutual funds in India The mutual fund industry in India started in 1963 with the formation of Unit Trust of India. At the end of 1988 UTI had Rs. LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. the mutual fund industry had assets under management of Rs. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. Bank of Baroda Mutual Fund (Oct92). In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. except UTI were to be registered and governed. . Bank of India Mutual Fund (Jun 90). Indian Bank Mutual Fund (Nov 89). The first scheme launched by UTI was Unit Scheme 1964. It was set up by the Reserve Bank of India and functioned under the regulatory and administrative control of the Reserve Bank of India. 6700 crores of assets under management. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund regulations in 1996. Second Phase – 1987-1993 (Entry of Public Sector funds) 1987 marked the entry of non-UTI.004 crores. a new era started in the Indian mutual fund industry. under which all mutual funds.

equity. 153108 crores under 421 schemes.835 crores as at the end of January 2003.The number of mutual fund houses went on increasing. is the biggest scheme with a corpus of about Rs. the mutual fund industry has entered its current phase of consolidation and growth. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. and with the recent mergers taking place among different private sector funds. which manage assets of Rs. BOB and LIC. PNB. Structure of the Indian Mutual Fund Industry The Indian mutual fund industry is dominated by the Unit Trust of India which has a total corpus of Rs. As at the end of January 2003.e. 1. 76. which is a balanced fund. conforming to the SEBI Mutual Fund Regulations. 44.805 crores. assured return and certain an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. following the repeal of the UTI Act 1963. GROWTH IN ASSETS UNDER MANAGEMENT (AUM) Note:- Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from Feb 2003.000 crores of assets under management and with the setting up of a UTI Mutual Fund. The Unit scheme 1964 commonly referred to as US 64. The UTI has many funds/schemes in all categories i. income etc with some being open ended and some being close ended. Fourth Phase – Since February 2003 In Feb 2003. representing broadly. One is the Specified Undertaking of the Unit trust of India with assets under management of Rs. 21. with many foreign mutual fund setting up funds in India and also the industry has witnessed several mergers and acquisitions. there were 33 mutual funds with total assets of Rs. balanced. The asset under management of the Specified Undertaking of the Unit trust of India has therefore been excluded from the total assets of the industry as a whole from Feb 2003 onwards. the assets of US 64 Scheme. The UTI with Rs. As at the end of September. 200 billion. 2004. The graph indicates the growth of assets over the years. sponsored by SBI. The second is the UTI Mutual Fund Ltd. UTI was bifurcated into two separate entities. 29. It is registered with SEBI and functions under the Mutual Fund Regulations. UTI was floated . 700 billion collected from more than 20 million investors. there were 29 funds.541 crores of assets under management was way ahead of other mutual funds.

The aggregate corpus of funds managed by this category of AMCs is about Rs. MFs have also able to perform inline with the Sensex. Encouraged by record foreign capital inflows and strong support by the local funds.by financial institutions and is governed by a special Act of Parliament. The third largest category of mutual funds is the one floated by the private sector and by the foreign asset management companies. While UTI has always been a dominant player on the bourses as well as the debt markets. The largest of these are Prudential ICICI AMC and Birla Sun Life AMC. Fund managers. MFs remained the net buyers in equities at the end of the year with investment of Rs. By rewarding honest and transparent management with higher valuations. Impact of Mutual Fund Industry The industry is also having a profound impact on financial markets. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs. In the year 2005 Equity Diversified Funds have given 48% compounded annualized average returns and they have outperformed S&P CNX Nifty and BSE 500 Indices by healthy margins. a system of risk-reward has been created where the corporate sector is more transparent then before. to touch a high of 9442. by their selection criteria for stocks have forced corporate governance on the industry. The second largest category of mutual funds is the one floated by nationalized banks. which have generated 38% & 44% compounded annualized returns respectively. 150 billion. Recent trends in Mutual Fund Industry 2005 – The Year of equity funds: Mutual Funds (MFs) have proved that it is the best investment option available for retail investors. 40331 crores in debt segment. 12000 crores in a year 2005 where as MFs have invested over Rs. Conservative companies have also started investing in equity Mutual Fund in a big way as it offers more safety than direct equity market investing. the new generation private funds which have gained substantial mass are now seen flexing their muscles. If investors can hold MFs for longer duration they can give better returns than the market. while legally incorrect. which. . CANBank Asset Management floated by Canara Bank and SBI Funds Management floated by the State Bank of India are the largest of these. is true for all practical purposes. GIC AMC floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones.8 in 2005. Most of its investors believe that UTI is government owned and controlled. the Sensex breached one milestone after the other. The Sensex gained close to 2800 points or more than 42% in the 12 months and was easily among the best-performing index in the world. 250 billion.

It is just that Mutual Funds are going to change the way banks do business in the future. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99. mutual fund assets are not even 10% of the bank deposits. The fund mobilization trend by mutual fund in the current year indicates that money is going to mutual funds in a big way.1 lakh None . 7819. Risk Low Moderate Investment Less More Options Network High penetration Low but improving Liquidity At a cost Better Quality of Not transparent Transparent assets Interest Minimum balance Everyday th th calculation between 10 & 30 of month Guarantee Maximum Rs. In India. The basic fact lies that banks cannot be ignored and they will not close down completely.34 crore during the first nine months of the year as against a net inflow of Rs. This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in gilt funds and some other assets which improves liquidity and reduces risk. Indeed private MFs saw a net inflow of Rs. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. Their role as intermediaries can not be ignored. India is at the first stage of revolution that has already peaked in the US. The power shift towards mutual funds has become obvious. but this trend is beginning to change. 604. Mutual Funds are now also competing with commercial banks in the race for retail investors savings and corporate float money.What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than the public sector mutual funds. Many investors are realizing that investments in savings account are as good as locking up their deposits in a closet. BANKS VERSUS MUTUAL FUNDS Basis Banks Mutual Funds Returns Low Better Administrative High Low Exp. The US boasts of an asset base that is much higher than its bank deposits.40 crores in case of public sector MFs.

Some of the older public and private sector players will either close shop or be taken over. Some big names like Fidelity have entered the market while Principal and Old mutual fund are looking at Indian market seriously. But this does not mean there is no room for other players. Out of ten public sector players five will sell out. In the private sector this trend has already started with mergers and acquisitions. One important reason for it is that most players already have presence here and hence these big names would hardly like to get left behind. on deposits FUTURE SCENARIO The assets base will continue to grow at an annual rate of about 30 to 35% over the next few years as investor’s shift their assets from banks and other traditional avenues. Here too some of them will close down in the near future to come. The market will witness a flurry of new players entering the arena and large number of offers from various asset management companies in the time to come. close down or merge with stronger players in three to four years. SECTION THREE .

PSU Bonds etc. debt issuance is necessarily quasi-synonymous with floatation of government bonds. Typical Debt Market instruments available to the investor include Government Bonds. given that government securities constitute around 80% of the Indian Debt Market. Corporate Bonds. CONCEPTS RELATED TO THE DEBT AND MONEY MARKET Chapter Eight THE DEBT MARKET In the Indian context. Public Sector Undertaking (PSU) Bonds Market and the Corporate Debt Market. Features Debt market is a financial market where long-term (one year or more) debt securities are issued and traded. They issue fixed income securities to borrow money from the investors. Major Borrowers • Government of India • Corporate Why does the Government / Corporate Borrow? . The Indian debt market is conventionally classified into three segments viz. Government securities Market.

• One of the factors that make the bonds appealing is that they pay a set amount of interest on regular basis. Bonds are considered to be one of the main sources of refinancing. or life of the bond. • The market for newly-issued bonds is referred to as the primary market. investors can sell their bonds at any time until maturity. The bond’s maturity date is the date on which the last payment is due. A Bond can be described by following attributes: • Te issue date is the date on which the life of a bond starts. The market where bonds are bought and sold (exchanged or traded) among investors is called as the secondary market. The term to maturity defines the period of time. • The coupon rate is the nominal annual rate of interest that is paid to the bondholder on a regular basis. • Financing of Gross Fiscal deficit • Capital Expenditure • Repayment of External Borrowings • Servicing of Outstanding Borrowings Fixed Income Securities They are investments that provide a return in the form of fixed periodic payments. • The face value (also called par value or principal sum) of a bond represents t he amount that will be repaid to the bondholder at maturity. 7.15% GOI 2015 Coupon Rate Issuer Maturity Date Overview of Bonds • A Bond is a written conditional promise to pay a specific principal sum at a determined future date and interest (coupon payments) on fixed intervals. It is usually expressed as a percentage of the face value (coupon . After a bond has been issued. • Bonds are a type of investment vehicle that can provide investors with two kinds of returns: current income (coupon payments) and capital gains.

rate). it is a risk that the borrower will be unable to fulfill its commitment in form of periodic interest payments and repayment of the principal amount. As interest rate moves up the prices of bonds come down and vice versa. • The purchase price is the price the investor pays to buy the bond. 3. Inflation Risk A factor affecting all securities is purchasing power risk also known as inflation risk. which may impact the valuation of the particular bond. i. the greater the impact of change in interest rates can have on its price. This is the chance that the purchasing power of invested rupees will decline or the risk that the return on your investments will not keep pace with rising consumer prices.e. Credit Risk Credit risk refers to the financial soundness of the issuer or borrower. This is more likely to be associated with corporate bonds or debentures than government securities as debentured are less likely to be traded in the secondary market than government securities. Interest Rate Risk There exists an inverse relationship between interest rates and the price of bonds. Liquidity Risk This is the risk that it will be difficult to sell a bond in the secondary market. making the old or outstanding bonds less attractive.. Corporate bonds have got varying level of credit risk depending upon the issuer’s financial profile. Various risks that are associated with bonds are as follows: 1. Government bonds have no credit risk. If the yield on an investment is lower than the rate of inflation the investor’s money will have less purchasing power as time passes. Risk Factors associated with Bonds A bond faces various types of risk between the date when it is issued and the date when it matures. to receive this series of cash flows (coupon and face value). The coupon rate is either fixed or variable can be paid annually or semi- annually. . 4. This risk exists because new bonds are likely to be issued with higher coupon rate as interest rates increase. 2. The longer a bond’s maturity. Credit risk also includes the risk of downgrade.

This risk is especially relevant in a falling interest rate environment. the investor’s interest payments cease and they receive their principal early. This is especially prevalent in the mortgage-backed securities market. If this happens. one that is more consistent with prevailing interest rates. the investors in the underlying pool of mortgage backed bonds receive their principal back sooner than expected. it is beneficial for the issuer to buy back its callable bonds and issue new bonds at lower coupon rates. Reinvestment Risk This is the risk that investor may not be able to reinvest the cash flows generated from the bond at the same rate as the yield from the bond. prevailing rates. This will lower monthly interest payments. However. thereby changing the expected payment schedule of the bonds. the bond before the maturity date of the bond. volatility in the prices of such securities varies with the yield. of course. An optimal bond portfolio should be able to effectively factor in such volatilities and keep resulting price risk to a minimal. 7.01%). estimation of such volatilities in the bond price is not easy. . this volatility. Therefore. Prepayment Risk Some classes are subject to prepayment risk. Call Risk A callable bond has a provision that allows the issuer to call. and must reinvest at lower. holds well even on the positive side. Price Value of a Basis Point Price value of a basis point refers to the change in the price of the bond if the yield changes by 1 basis point (0. that is when price of security B rises more than that of security A for the same fall in yield. or repay. If the price of security A falls by 20 paise when the yield rises by 0. Measures of Bond Price Volatility Bond Price Volatility refers to the fluctuations in the price of a bond due to changes in the various underlying factors. investors will have to accept a lower coupon rate.01%and the price of security B fall by 25 paise for the same rise in the yield. In case of a falling interest rate environment. 6. where a drop in mortgage rates can initiate a refinancing wave. Moreover. various measures of such estimation need to be resorted to. This is the risk that issuer of a security will repay principal prior to the bond’s maturity date. Thus to effectively estimate volatility of a portfolio. which is somewhat similar to call risk. then security B would be said to be more volatile than security A. If the principal value is then reinvested. a portfolio manager’s job is to optimize positive volatility while minimizing the downside volatility. maturity and the duration of these respective securities. When homeowners refinance their mortgages.5.

The present values of the cash flows are taken as the weights for calculating the duration of the bond. The concept can be used effectively to manage portfolio volatility since the modified duration of a bond and the sensitivity of its price to interest rate movements are inversely related. the investor receives interest payments before the maturity date and hence the duration of the bond is lower than its tenor. Duration of the Bond Duration of the Bond. The smaller the yield value. Modified Duration Modified Duration establishes a direct mathematical relationship between bond price and the interest rate changes. the price volatility would be greater since even a small change in the yield would change the price considerably. It is a measure of the bond’s price risk. since the actual yield curve is usually convex. Mathematically. Higher the duration of the bond. . It is a direct measure of the interest rate sensitivity of the bond. The concept is of extreme importance in the context of bond volatility. In case of a bond having fixed term to maturity with no intermittent coupon payments. However. higher is the bond’s sensitivity to the market interest rate movements. percentage change in bond price is the product of modified duration of the bond and the change in its yield. in simple terms. It is the rate of change of duration with a change in the yield. the duration of bond is simply its tenor to maturity. measurement of the bond risk using its duration may not give a perfect picture. is the measure of time to its maturity. However in case of coupon paying bonds. Convexity takes into account the shape of the price yield relationship when making price sensitivity calculations.Yield value of a Price change Yield Value of a Price change refers to the change in the yield of a security for a specified change in the price of security. Convexity Duration and Modified Duration of the bond assume a linear relationship between price and yield.

Chapter Nine THE MONEY MARKET Features o Money market is a financial market where short term (one year or less) debt securities are issued and traded. o These debt obligations are much like cash because they are highly liquid. Commercial Papers (CP) Commercial Papers unsecured short term borrowings by Corporate. Certificates of Deposits (CD) A CD is a document of title to a time deposit. o Typical Money Market instruments available to the investor include treasury bills. having a maturity of 15 days to one year. Commercial Papers (CP). Notice Money Notice Money is an instrument where the tenor is more than 1 day and less than 15 days. o The Money Market provides the financial institutions and large corporations with quick cash for short term needs. o Investments in the Money Market involve actual cash or short term debt obligations. They are freely transferable from one person to another by .5 lakh thereafter. o (TB’s). CDs are discounted instruments issued by banks and eligible financial institutions.5 lakh and in multiples of Rs. They are issued subject to minimum of Rs. FIIs. Primary Dealer’s. Certificates of Deposits (CD’s). Types of instruments Call Money Call Money is essentially a money market instrument wherein funds are borrowed / lent for a tenor of one day/overnight (excluding Sunday/holidays). Inter bank Term Money Money lent for a fixed tenor of 15 days or more is called term money.

and other businesses to borrow to invest in equipment. Treasury Bills (T-Bills / TB) Treasury Bills are short term GOI Securities issued by government of India.1000 crore.500 crore. . CDs are always traded at a spread over a Treasury Bill of the same maturity as the investor carry some credit risk which is not associated with TB. An auction for the 364 day T-bill is conducted every alternate Wednesday.endorsement and delivery. such as furniture and appliances. manufacturers. Purchases of homes. Increased business investment. leaving them with more of their income to spend on goods and services. increase the demand for other items. and buildings. The notified amount for the same is Rs. Chapter Ten ECONOMIC FUNDAMENTALS How Do Interest Rates affect the Economy? • Lower interest rates make it easier for people to borrow in order to buy cars and homes. Reverse Repo Transaction A sells security to B while agreeing to repurchase it at a later date. in turn. The rate was hiked to the present level from 4. in turn.75% in the new annual policy released on April 28th 05. makes the economy to grow faster. That gives business more of an incentive to invest when rates are low. 364 days. 91 days. The notified amount is Rs. Reverse Repo Interest Rates are an indicator as to the liquidity facto in the country’s liquidity. as productivity increases faster. thus providing an additional boost to the economy. • Also. At present. This becomes a spot & forward agreement simultaneously. inventories. • Lower interest rates make it easier farmers. control inflation in the short term. They are issued for different maturities viz. • Lower interest rates mean that consumers spend less on interest costs. the Reverse Repo Rate is 5 %. the returns that investments will produce in future years are worth more today when rates are low than when rates are high. An auction for the 91 day Treasury bill is conducted every Wednesday.

Instead. The longer a bond’s maturity. the more its price tends to fluctuate as market interest rate changes.How Do Interest Rates affect the Bond Prices? General interest rates are constantly changing. . while longer-term bonds tend to fluctuate in value more than shorter-term bonds. they also tend to have higher yields to compensate for the risk. but the rate of interest on many bonds is fixed. their market prices change when general interest rates go up or down. However.

5 billion conglomerate and a leading manufacturer of multi-utility vehicles with significant . The Mahindra Group is a US $4. SECTION 4 AN INTRODUCTION TO MAHINDRA & MAHINDRA FINANCIAL SERVICES LIMITED CHAPTER 11 AN INTRODUCTION TO MMFSL Mahindra Finance is a subsidiary of M&M.

and Infrastructure Development (Mahindra GESCO. Bristlecone). Mahindra World City). a leading tractor and UV manufacturer with over 60 years experience in the Indian market.). infrastructure. tractors and cars with largest network of branches covering these areas. The company branched out into manufacturing light commercial vehicles and agricultural tractors. a product of its JV with Renault SA. Mahindra Ugine). flexible and speedy lending services. information technology and financial services. Information Technology (Tech Mahindra. they have continued to expand their lending in respect of non-M&M vehicles. M&M is the fourth largest tractor company in the world. tractors and cars. They principally finance UVs used both for commercial and personal purposes. The company’s goal is to be the preferred provider of retail financing services in the rural and semi-urban areas of India. Mahindra & Mahindra rapidly grew from being a maker of army vehicles and tractors to a major automobile manufacturer with a growing global appetite. While they predominantly finance M&M UVs and tractors. Forbes has ranked the Mahindra Group in its Top 200 list of the World’s Most Reputable Companies and in the Top 10 list of Most Reputable Indian companies. Set up in 1945 to make general-purpose utility vehicles. Company Overview: Mahindra Finance is one of India’s leading non-banking finance companies focused on the rural and semi-urban sector providing finance for utility vehicles. presence in key sectors like farm equipment.Trade and Financial Services (Mahindra Intertrade. It is a subsidiary of M&M. Two Group companies Mahindra Finance and Tech Mahindra made their debut on the bourses in 2006 in line with the commitment that each of the business segments would have flagship companies that will be listed. Now the Group has a leading presence in many other key sectors -. Systems & Technologies (Mahindra Engineering Services. Club Mahindra Holidays. The Group recently made a milestone entry into the passenger car segment with Logan. The Group completed 60 years in 2005. They seek to position themselves between the organized banking sector and local money lenders. Mahindra & Mahindra Financial Services Ltd. . offering their customers competitive. The company’s strategy is to provide a range of financial products and services to their customers through their nationwide distribution network. M&M first became known as the maker of the iconic Jeep in India.

During Fiscal 2005. 3. 4.1 million as of March 31. As of December 31.079 to 336.047. 2005 they entered into an agreement with HPCL whereby they have granted permission to establish outlets in selected petrol stations owned or franchised by them. in its first year of operations. 2005. As of December 31. they expanded their branch network from 195 to 255 branches providing services to customers in 25 states and two Union Territories across India.7% of Total Assets.3 million as of March 31. their net NPA constituted 3.7 million as of December 31.6 million for Fiscal 2005 at a compound annual growth rate of 28. which grew from Rs. 2.983.3 million.6 million as of March 31. The company intends to use these outlets to make new loans and provide payment services in respect of existing loans. 2003 to Rs. 822. 2004. In addition.628.300 customer contracts. 36. MMFSL has 398 branches (as on 31st Dec 2006) servicing its customers. 2005 their total income was Rs.459.7 and they had Rs. In the three years ended March 31. During the same period. 441. Their total income increased from Rs.6 million for Fiscal 2003 to Rs. MIBL earned an income of Rs 34.819.702.026. 26. on September 16.310. Mahindra Insurance Brokers Limited. CHART SHOWING THE ESTIMATED VALUE OF ASSETS .5%.7 million at a compound annual growth rate of 36. 17. In May 2004. as a supplement to their lending business they started an insurance broking business through their wholly owned subsidiary.106.0 million.8 million to Rs.4 million and achieved a profit after tax of Rs. As of December 31.1 million of share capital and reserves. 2005. 4.3% during the same period their profit after tax increased from Rs. 2005. they had 295 branches in 25 states and two Union Territories in India and had entered into 430. 17. M&MFSL (Mahindra & Mahindra Financial Services Ltd. the cumulative number of customer contracts entered into grew from 161. As their geographical reach and market penetration have expanded. 2005 and to Rs. to Rs. 610.) operates in various locations of the country to have a faster response to the needs of all customers for finance and in particular the Dealers & Customers for M&M products. 2005. their profit after tax was Rs. 11. so too have their Loan Assets.

.mahindrafinance. Source: www.com The above chart shows the estimated value of assets and in the year 2006 it was 4478(cr).It showed an increasing trend with 596 crore in 2006. CHART SHOWING THE GROWTH IN INCOME The above chart shows the growth income of the company from 2002-2006.The companies income pattern shows a favorable trend which indicates the effective management of the organization with loyal customer community.

It shows that the company is having a sound financial position.com The above diagram shows the growth in income from the year 2002 to 2006.CHART SHOWING THE GROWTH IN PROFIT Source: www.mahindrafinance.Both profit before tax and profit after tax shows an increasing trend. CHART SHOWING THE EPS .

Source: www.mahindrafinance.com The above diagram shows that the eps basic as well as diluted shows an increasing trend from the year 2002-2006 CHART SHOWING THE TOTAL ASSETS .

com Products 1. Source: www. Source: www.mahindrafinance. Tractors 2.mahindrafinance.com The above diagram shows an increasing trend in the total assets from 2002-2006. Mahindra Utility Vehicles .

Cars 5.3. . Three Wheelers 6. Other Services o Mutual Fund Distribution Mahindra Finance also provides other services like mutual fund distribution and financial advisory services. Mahindra Finance with due permissions from RBI. Used Vehicles 7. distributes Mutual Fund products through its network and thus contributes to the asset allocations of its customers while participating in their liability requirements as well. Mahindra Light Commercial Vehicles 4.

Launched in August 1998 (as Alliance Equity Fund and subsequently taken over by Birla . SECTION 5 A BRIEF INTRODUCTION AND COMPARATIVE ANALYSIS OF BIRLA SUN LIFE EQUITY GROWTH FUND & HDFC GROWTH FUND CHAPTER 12 AN INTRODUCTION TO BIRLA SUN LIFE EQUITY GROWTH FUND About the fund Birla Sun Life Equity Fund is a diversified equity fund enabling investors to capitalize on the immense growth opportunities provided by the stock market while at the same time minimizing the risk.

18) BSE 200 4. 202. Returns are CAGR for 1 year or more and absolute for less than 1 year.82% FUND .GROWTH (NAV: Rs.27-Aug-1998.61% 30. . 2005).13% 19. Significant portion of the scheme is invested in sectors with high growth prospects. Load has not been considered for computation of returns.17% 46.91% Inception .05% 33.85% 27. Fund Performance Comparison BIRLA SUN LIFE EQUITY 1 Year 3 Years 5 Years Since FUND . Past performance may or may not be sustained in the future.Mutual Fund on Sep 24.GROWTH Inception BIRLA SUN LIFE EQUITY 0. The fund also takes medium-term bets on certain sectoral trends to ride on the growth momentum. It dynamically shifts weightages between large-cap and mid-cap stocks depending on the market outlook. Fund Performance Simulator The below graph simulates the values of Rs. The Fund invests in a wide cross-section of sectors thereby offering adequate diversification to investors. Returns calculated for Growth option as on 30-May-2008. The large in-house research team is especially helpful in identifying such stocks. Additional focus is kept in identifying sunrise industries / concept stocks.54% 35. the fund is an open-ended growth scheme with a Multicap theme.1 Lac invested in the above scheme and its benchmark index.

Past performance may or may not be sustained in future. Rs 1 lac invested on 20-Jun-2003 in BIRLA SUN LIFE EQUITY FUND - GROWTH is worth Rs.) of SIP in Returns (%) Investment BSE 200 Birla Sun BSE 200 Birla Sun (Rs. A similar investment in the benchmark would have been worth Rs. 680962 as on 19-Jun-2008.Relative Performance on a base of 1 lac starting 20-Jun-2003.GROWTH Investment Period Total Value (Rs. BIRLA SUN LIFE EQUITY FUND .1000 invested systematically in the above scheme and its benchmark indices. Performance as on 19-Jun- 2008.) Life Equity Life Equity . NAV Movement SIP Performance Simulator The below table simulates the values of Rs. 418480.

88 Last 1 year 12000 10460 10209. Fund * Fund * Since Inception 118000 381004. Load & taxes have not been considered for computation of returns.79 32.25 132074.19 32. Returns are CAGR for 1 year or more and absolute for less than 1 year.08 -25. Inception Date: 27-Aug-1998.69 24. Past performance may or may not be sustained in the future.58 Last 3 years 36000 44202.27 14.28 14.94 Last 5 years 60000 108005.09 -27.95 Returns as on 19-Jun-2008.7 636474. Last monthly SIP installment date assumed to be the above date (or the previous day when NAV was declared if the above day is not a working day). * CAGR Returns are computed after accounting for the cash flow by using the XIRR method (investment internal rate of return) .04 44691.77 22.

5 Crore in value.5000 and any amount thereafter (Other than Systematic Investment Plan (SIP)/ Systematic For existing investors : Rs. no Entry Load Application not routed through any distributor/ag Nil Exit Load  (as a % of the Applicable NAV) respect of each purchase / switch-in of Units le (Other than Systematic Investment Plan (SIP)/ Systematic Crore in value. Basic Scheme Information Nature of Scheme Open Ended Growth Scheme Inception Date September 11.5 crore in value. no Exit Load Minimum Application Amount For new investors :Rs.  respect of each purchase / switch-in of Units e greater than Rs. an Exit Load of 1% is payable Transfer Plan (STP)) redeemed / switched-out within 1 year from th allotment. 1000 and any amount ther Transfer Plan (STP)) Lock-In-Period Nil Net Asset Value Periodicity Every Business Day. . 2000 Option/Plan Dividend Plan.Growth Plan.25% is paya  respect of each purchase / switch-in of Units e greater than Rs. an Entry Load of 2. CHAPTER 13 AN INTRODUCTION TO HDFC GROWTH FUND Investment Objective The primary investment objective of the Scheme is to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments. Entry Load Application routed through any distributor/agent/b (as a % of the Applicable NAV) (Other than Systematic Investment Plan (SIP)/ Systematic  Transfer Plan (STP)) respect of each purchase / switch-in of Units le crore in value. The Dividend Plan offers Payout and Reinvestment Facility.

in order to manage its liquidity requirements from time to time. the AMC may invest the funds of the Scheme in short term deposits of scheduled commercial banks.6370 Investment Pattern The corpus of the Scheme will be invested primarily in equity and equity related instruments.No. Investment Strategy The investment approach will be based on a set of well established but flexible principles that emphasise the concept of sustainable economic earnings and cash return on investment as the means of valuation of companies.Redemption Proceeds Normally despatched within 3 Business days Tax Benefits Please click for details (As per present Laws) Plan Name NAV Date NAV Amount Dividend Plan 19 Jun 2008 29. Five basic principles serve as the foundation for this investment approach. They are as follows : .3710 Growth Plan 19 Jun 2008 59. The Scheme may invest a part of its corpus in debt and money market instruments. Type of Instruments Normal Allocation Normal Deviation Risk Profile (% of Normal (% of Net Asset) Allocation) 1 Equity & Equity related 80 . Money 0 .100 0 Medium to instruments High 2 Debt Securities. and under certain circumstances.20 0 Low to Market instruments & Cash Medium (including money at call) Pending deployment of funds of the Scheme in securities in terms of the investment objective of the Scheme. The asset allocation under the Scheme will be as follows : Sr. to protect the interests of the Unit holders.

In order to implement the investment approach effectively. at a reasonable price". in an effort to preserve capital and generate superior growth. The Scheme may invest in listed / unlisted and/or rated / unrated debt or money market . • Maintain a margin of safety The benchmark for determining relative attractiveness of stocks would be the intrinsic value of the business. it would be important to periodically meet the management face to face. offers superior returns. sustainable competitive advantage. industry structure and margins and quality of the management. in the view of the Investment Manager. The Investment Manager would endeavor to purchase stocks that represent a discount to this value. • Investments confer proportionate ownership The approach to valuing a company is similar to making an investment in a business. • Maintain a balanced outlook on the market The investment portfolio would be regularly monitored to understand the impact of changes in business and economic trend as well as investor sentiment. • Focus on the long term There is substantive empirical evidence to suggest that equities provide the maximum risk adjusted returns over the long term. • Disciplined approach to selling The decision to sell a holding would be based on either the anticipated price appreciation being achieved or being no longer possible due to a change in fundamental factors affecting the company or the market in which it competes. investments would be made with a long term perspective. there is a need to have a comprehensive understanding of how the business operates. In an attempt to take full advantage of this phenomenon. the Investment Strategy is expected to be a function of extensive research and based on data and reasoning. These meetings would also be useful in assessing key determinants of management quality such as orientation to minority shareholders. The key issues to focus on are growth opportunities. Therefore. The objective will be to identify "businesses with superior growth prospects and good management. rather than current fashion and emotion. ability to cope with adversity and approach to allocating surplus cash flows. While short- term market volatility would affect valuations of the portfolio. this is not expected to influence the decision to own fundamentally strong companies. Discussion with management would also enable benchmarking actual performance against stated commitments. This would provide an understanding of their broad vision and commitment to the long-term business objectives. In summary. or due to the availability of an alternative that.

08 Bharti Airtel Ltd.66 Biocon Ltd. The details of such investments would be communicated by the AMC to the Trustee in their periodical reports.44 . MFD/ CIR/9/120/2000 dated November 24. 2000.89 Bharat Heavy Electricals Ltd. in case any unrated debt security does not fall under the parameters.00 Net Assets (Rs.97 Total of Top Ten Equity Holdings 46. Anand Laddha . It would also be clearly mentioned in the reports. Pharmaceuticals 3. Telecom .82 Grand Total 100.18 Other Current Assets (Including Reverse Repos' / CBLO) 13.Services 4. Industrial Capital Goods 3. Banks 4.securities subject to limits indicated in the investment pattern.Dedicated Fund Manager .93 ITC Ltd. Pursuant to SEBI Circular No.12 Sun Pharmaceutical Industries Ltd.$ Finance 3.04 Housing Development Finance Corporation Ltd. Fund Manager:- Mr Srinivas Rao Ravuri Mr.30 Total Equity Related Holdings 86. Consumer Non Durables 6.54 State Bank of India Banks 5. Petroleum Products 7.84 ICICI Bank Ltd. the prior approval of Board of AMC and Trustee shall be sought. In Lakhs) 97580. Pharmaceuticals 2. Investment in unrated debt securities will be made after obtaining the prior approval of the Board of the AMC and Trustees as per the SEBI Regulations.23 Divi?s Laboratories Ltd. The Scheme may invest in listed / unlisted and / or rated / unrated debt or money market securities subject to limits indicated in the investment pattern. the AMC may constitute committee(s) to approve proposals for investments in unrated debt instruments. Pharmaceuticals 4. The AMC Board and the Trustee shall approve the detailed parameters for such investments.Foreign Securities Portfolio – Top 10 Holdings (as on April 30. 2008) Company Industry % to NAV Equity & Equity Related Reliance Industries Ltd. However. how the parameters have been complied with.

Portfolio Holdings Returns HDFC Growth (NAV as at evaluation date.85** 13. Since Inception (2818 10. 16. 2005 Last 3 Years (1096 days) 25.02** May 30.31** 35.A.813 Fund unit) Date Period NAV Returns(%) $$ Benchmark ^ Returns(%)# March 30.332 35. 2007 Last 1 Year (366 days) 52.59** 38. 1998 Last 10 Years (3654 days) N.895 -16.461 31.13* -15.09** September 11.000 26.22* 2007 May 30. Rs. 2003 Last 5 Years (1827 days) 9.87** May 30.A N.3840 19.49** November 30. Per 62.83** 21.583 45. 2007 Last 427 days 45.87** 17.6** 2000 days) * Absolute Returns ** Compounded Annualised Returns # SENSEX ~ Due to an over all sharp rise in the stock prices ^ Past performance may or may not be sustained in the future . Last Six months (182 days) 74.8** May 29.

55% 35. Equity: Below Avg.33 1.64% -3.00 12.Both the funds are performing equally well and are rated same in the mutual fund industry.94% Benchmark Returns (Annualised) (%) # 28.98 Equity 1998 Diversified Avg.20% 26.10 2000 Diversified Avg.66% -4. As the returns for the Birla Sun life equity growth fund is above average compared to its above average risk profile and HDFC growth fund is giving average returns with an average risk profile.00 Market Value as on May 30.60% Past performance may or may not be sustained in the future • Load is not taken into consideration and the Returns are of Growth Plan / Option.000. Snapshot:.84 11. Since there is not a much difference in the expense ratio of both the funds they both are actively managed funds. Both these funds are good options to invest.000.000. .00 60.26 2. NAV Movement CHAPTER 14 COMPARATIVE ANALYSIS Launch Category Rating Risk Return 1 year Expense Fund Name Date grade Grade return Ratio Birla Sun Life Aug.SIP Returns SIP Investments Since Inception 5 Year 3 Year 1 Year Total Amount Invested (Rs. Investors are advised to refer to the Relative Performance table furnished as above for non-SIP return. But the expense ratio of both the funds is slightly greater than the average industry expense ratio of 1.000.Equity: Avg. Above 1.00 36. 2008 396. HDFC Growth Aug. 6.21% 30.54 52.33% 22.83 141.) 93.74 Returns (Annualised)*% 36.5%.

28 66. Whenever investing in mutual funds it is always advised to invest for longer period because mostly funds give negative returns in shorter period.63 7/61 Sun Life Equity Performance Analysis:.396.33 64/170 29.55 975.26 35/170 31. Portfolio:- Fund Fund P/E Ratio P/B Ratio Market Turnover(%) Assets Top 5 Name Style Cap (Rs Cr) Holdings (Rs Cr) (%) Birla Sun 30.34 4.85 20.80 28.96 31/111 46.15 21/61 Growth Birla -12.98 25. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers.68 21/111 41.80 Life Equity HDFC 23.Fund 1.67 138.HDFC growth fund has performed better when short term returns are considered whereas 5 year returns show that Birla Sun life equity growth fund has given greater returns. it is only a good investment if those higher returns do not come with too much additional risk. 6. the better its risk- adjusted performance has been.42 89/190 1.237.87 58/205 -23.62 Growth Risk & Volatility:- The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. Looking at the return profiles of both the funds HDFC is ranked 21 out of 61 mutual funds in the same category for 5 year whereas Birla Sun Life Equity fund is ranked 7.00 1. The greater a portfolio's Sharpe ratio.82 6. 6.523.83 36/190 6. 1-Year 1-Year 3-Year 3-Year 5-Year 5-Year Name Month Month Month Month Return Rank Return Rank Return Rank Return Rank Return Rank (%) (%) (%) (%) (%) HDFC -11. 1. It is calculated using the formula- .20 20.42 78/205 -28.

11 0.91 4.Alpha. An R-squared of 100 means that all movements of a security are completely explained by movements in the index.88 Equity HDFC Growth Below 24. For example.It is a measure of performance on a risk-adjusted basis. Correspondingly. R-squared values range from 0 to 100. A higher R-squared value will indicate a more useful beta figure. Fund Name Fund risk Standard Sharpe Beta Alpha R-Squared grade Deviation Ratio Birla Sun Life Avg. A fund with a low R-squared (70 or less) doesn't act much like the index. .07 1. it is most likely offering higher risk- adjusted returns. a similar negative alpha would indicate an underperformance of 1%. 26.0 means the fund has outperformed its benchmark index by 1%. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.00 2. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A low R-squared means you should ignore the beta.02 0.27 1.82 1. R.A statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index.Beta measures the responsiveness of a security to movements in the market portfolio. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index.17 0. if a fund has an R-squared value of close to 100 but has a beta below 1.Squared. A positive alpha of 1.89 Avg. Beta.

09 82.97 Aug 23.Investment Details:- Fund Expense Front-End Back-End CDSC Mim Portfolio Tenure Name Ratio % Load % Initial Manager (Yrs.25 0.65 Jun 10. 2008 198.25 0.000 Mahesh 3 Life Equity Patil HDFC 2.02 315.) Load % Inv. from 52 Weeks As on 52 Weeks As On Name previous High Low Birla Sun 202.00 Yes 5.13 Jan 7. Growth-G 2008 2007 . -4. 2008 53.96 Jan 4.000 Srinivas 2 Growth Rao Ravuri NAV Details:- Fund NAV As on Chg. (Rs) Birla Sun 1. Life 2008 2008 Equity-G HDFC 57.00 Yes 5.10 2. -2.98 2.18 Jun 19.54 Jun 20.

SECTION 6 FINDINGS RECOMMENDATIONS & CONCLUSIONS FINDINGS • Globalisation of the financial market has led to a manifold increase in the investment. • The rate of return from the mutual funds is higher when compared to the other investment options. the mutual funds are playing a vital role in the capital market in India. • Presently. Thus this clearly shows that mutual funds are a better investment avenue to trade off between risk and return. .

• Lastly. efficient and transparent market to investors using a electronic communication network. aggressive growth. It is thus very important for an advisor to understand the financial goals of an investor in depth. balanced growth and maximum growth have been designed to suit investors with different profiles. income and moderate growth. income. This certainly proves that mutual funds help to get better returns by optimizing risk. income and balanced funds will give positive returns in accordance with the investor’s objectives. • An ideal portfolio should be one that synchronizes with the market as well as the investors needs. since there has been an increase in the cost of living. • The models based on safety. This can be easily achieved by an investor if right investment is made in the right kind of mutual funds thus ensuring a portfolio of mutual funds would help an investor to trade off between risk and return. • Indian capital market has a very large investor population and ever increasing volume of investment in mutual funds. • It has to provide a fair. • The example of model portfolio has demonstrated that the appropriate mix of growth. . Recommendations: • It has to improve the liquidity in the market in terms of depth and breadth. investors should start saving early so as to get maximum returns.

Each of us also need to invest one’s savings intelligently in order to have enough money available for funding the higher education of one’s children. Saving money is not enough. for buying a house. some funds show conformity with the linear relationship of return and risk. . Some funds don’t demonstrate this relationship. However some funds exhibited superior performance in terms of systematic risk but did not do so in respect of total risk. or for one’s own golden years.Conclusions: It is examined that investment performance of Indian Mutual funds in terms of performance measure. because of high risk and market instability. The study will guide the new investor who wants to invest in equity and mutual fund schemes by providing knowledge about how to measure the risk and return of particular scrip or mutual fund scheme. The study recommends new investors to go for mutual funds rather than equities.

amfiindia.com • www.myiris.com • www.moneycontrol.valueresearchonline.com • www.com • www.mutualfundindia.com • www.bseindia.investopedia.BIBLIOGRAPHY WEBSITES • www.hdfc.com .birlasunlife.google.com • www.com • www.com • www.com • www.

• www.com • www.com JOURNAL • Value Research Online .mahindrafinance.nseindia.