ON

INVESTORS AWARENESS OF MUTUAL FUND AGAINST CONVENTIONAL INVESTMENT OPTIONS

RELI

NCE MUTUAL FUND

SUBMITTED FOR PARTIAL FULFILMENT OF THE AWARD FOR THE DEGREE OF MASTER IN BUSINESS ADMINISTRATION

UNDER GUIDANCE OF FACULTY GUIDE Dr.NIMESH SINGH

FACULTY RITM, LUCKNOW

SUBMITTED BY NEHA TIWARI

MBA, 2nd YEAR ROLL NO.0935870031

(2009-2011) RAMESHWARAM INSTITUTE OF TECHNOLOGY & MANAGEMENT, LUCKNOW

ACKNOWLEDGEMENT
I would like to convey my heartiest gratitude to several people, for their support and guidance which helped me complete my Summer Internship.

First and foremost, I would like to thank RELIANCE MUTUAL FUND, LUCKNOW for giving me an opportunity to do my internship in their esteemed organization. My special appreciation extends to the Mr.Akash Singh Rana Regional Head, Reliance Mutual fund Lucknow and Mr.Shashi Ranjan Cluster Head for their constant encouragement throughout this period. I also extend my gratitude to my Project Guide a Mr. Anant Mohan, Relationship Manager, Reliance Mutual Fund Lucknow, who instructed us with the work procedures and dealt with us with patience at all times.

This internship would not be complete without the support of Mr. Nimesh Singh, Faculty, MBA Department, Rameshwaram Institute of Management and Technology, Lucknow.

My special thanks to my co-students and dear friends who being a part of the same internship, supported me throughout my Internship and with whose help I could complete my work efficiently and effectively. Their consistent help kept me motivated and going.

Date: / /2010

(NEHATIWARI)

DECLARATION

I, Neha Tiwari, student of MBA II year (2009-11), hereby, declare that the work INVESTORS

AWARENESS

OF

MUTUAL

FUND

AGAINST

CONVENTIONAL INVESTMENT OPTIONS presented in the form of this report is

my own effort and is genuine to the best of my knowledge.

Place: Lucknow Date:

NEHA TIWARI

PREFACE
As a part of course M.B.A. from Rameshwaram Institute of Technology and Management, Lucknow, I had to go thoroughly eight weeks training in any reputed organization which leads to develop my Managerial Skill of a sort of practical training.

For this purpose I had undergone training from 25nd June to 10nd August, 2010 at RELIANCE MUTUAL FUND, LUCKNOW.

The subject of the training was to study the INVESTORS AWARENESS OF MUTUAL FUND AGAINST CONVENTIONAL INVESTMENT OPTIONS .

The project work is divided in four sections. The first section deals with the Industry Background, the second section comprises of the project profile, third is about the projects background and methodology while the fourth part is all about analysis and findings.

A sincere effort has been made to present the information in a very lucid manner.

TABLE OF CONTENTS

COMPANY CERTIFICATE COLLEGE CERTIFICATE ACKNOWLEDGEMENT DECLARATION PREFACE EXECUTIVE SUMMARY COMPANY PROFILE INTRODUCTION TO MUTUAL FUND INTRODUCTION AND ABOUT MUTUAL FUND CLASSIFICATION OF MUTUAL FUND SCHEMES TYPES OF MUTUAL FUNDS ADVANTAGE OF MUTUAL FUND DRAWBACKS OF MUTUAL FUNDS RESEARCH METHODOLOGY ANALYSIS OF DATA COLLECTED FINDINGS LIMITATIONS CONCLUSION RECOMMENDATIONS BIBLIOGRAPHY ANNEXURE

i ii iii iv v 1 2 17

68 77 95 97 98 100 101 10

EXECUTIVE SUMMARY:-

The project titled INVESTORS AWARENESS OF MUTUAL FUND AGAINST CONVENTIONAL INVESTMENT OPTIONS is being carried out for RELIANCE MUTUAL FUND, LUCKNOW.

Reliance Mutual Fund operates in financial product and service of Mutual Funds. The evaluation of financial planning has been increased through decades, which is best seen in customer rise. Now a days investment of saving has assumed great importance.

According to the study of the Market, it is being observed that markets are doing well in investments like, Mutual funds, Shares etc. In near future a proper financial planning is required to invest money in all type of financial product because there is good potential in market to invest.

The main objective of this project is to know the current scenario of investment and the peoples awareness of various instruments available for Tax planning and Personal Financial advising facility provided by RELIANCE MUTUAL FUND.

IT and Retail sector have been given more emphasis for the study of the project because it is the only sector where all types of age group, Income class and different level of people are represented.

Reliance Mutual Fund

Reliance Mutual Fund is a group company of Reliance Capital, one of India's leading and fastest growing private sector financial services companies, ranking among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital is a part of the Reliance Anil Dhirubhai Ambani Group.

Reliance Mutual Fund is a comprehensive electronic transaction platform offering a wide range of asset classes. Its endeavour is to change the way India transacts in financial markets and avails financial services.

Reliance Mutual Fund is a single window, enabling you to access, amongst others in Equities, Equity & Commodities Derivatives, Mutual Funds, IPOs, Life & General Insurance products, Offshore Investments, Money Transfer, Money Changing and Credit Cards.

RELIANCE CAPITAL

Reliance Capital Ltd (RCL) is a registered as a depository participant with National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996. RCL has sponsored the Reliance Mutual Fund within the framework of the Securities and Exchange Board of India (Mutual Fund) regulations, 1996. RCL primarily focuses on funding projects in the infrastructure sectors and supports the growth of its subsidiary companies, Reliance Capital Asset Management Limited, Reliance Capital Trustee Co. Limited, Reliance General Insurance Company Limited and Reliance Life Insurance Company Limited. As of March 31,2005, the companys investment in infrastructure projects stood at Rs.1071 Crores. The investment portfolio of RCL is structured in a way that realizes the highest Dhirubhai Ambani Group, and is ranked among the 15 most valuable private companies in India. Reliance Capital is one of India's leading and fastest growing private sector financial services companies, and ranks among the top 3 private sector financial services and banking groups, in terms of net worth. Reliance Capital has interests in asset management and mutual funds, life and general insurance, private equity and investments, stock broking, depository services, distribution of financial products, consumer finance activities in financial service.

s v

CHAIRMAN'S PROFILE:

Regarded as one of the foremost corporate leaders of contemporary India, Shri Anil Dhirubhai Ambani is the chairman of all listed companies of the Reliance ADA Group, namely, Reliance Communications, Reliance Capital, Reliance Energy, Reliance Natural Resources and Reliance Power.

He is also Chairman of the Board of Governors of Dhirubhai Ambani Institute of Information and Communication Technology, Gandhi Nagar, Gujarat. Till recently, he also held the post of Vice Chairman and Managing Director in Reliance Industries Limited (RIL), India's largest private sector enterprise.

Anil Dhirubhai Ambani joined Reliance in 1983 as Co-Chief Executive Officer, and was centrally involved in every aspect of the company's management over the next 22 years. 4

He is credited with having pioneered a number of path-breaking financial innovations in the Indian capital markets. He spearheaded the country's first forays into the overseas capital markets with international public offerings of global depositary receipts, convertibles and bonds. Starting in 1991, he directed Reliance Industries in its efforts to rise over US$ 2 billion. He also steered the 100-year Yankee bond issue for the company in January 1997.

Anil Dhirubhai Ambani is a member of:

Wharton Board of Overseers, The Wharton School, USA Central Advisory Committee, Central Electricity Regulatory Commission Board of Governors, Indian Institute of Management, Ahmedabad Board of Governors Indian Institute of Technology, Kanpur

In June 2004, he was elected for a six-year term as an independent member of the Rajya Sabha, Upper House of Indias Parliament a position he chose to resign voluntarily on March 25, 2006.

AWARDS AND ACHIEVEMENTS:

Conferred the CEO of the Year 2004 in the Platts Global Energy Awards

Rated as one of Indias Most Admired CEOs for the sixth consecutive year in the Business Barons TNS Mode opinion poll, 2004

Conferred The Entrepreneur of the Decade Award by the Bombay Management Association, October 2002

Awarded the First Wharton Indian Alumni Award by the Wharton India Economic Forum (WIEF) in recognition of his contribution to the establishment of Reliance as a global leader in many of its business areas, December 2001

Selected by Asia week magazine for its list of Leaders of the Millennium in Business and Finance and was introduced as the only new hero in Business and Finance from India, June 1999.

COMPANY HISTORY
Reliance Group Holdings has grown from a small office data-processing equipment firm in 1961 into a major insurance and financial-services group in one generation under one chief. The holding company is best known for its insurance group, which includes separate subsidiaries for property and casualty insurance, life insurance, and title and mortgage insurance. Reliance's insurance operations constitute the nation's 27th-largest property and casualty operation. The parent company also includes a development subsidiary in commercial real estate. Reliance's international consulting group contains several subsidiaries in energy, environment, and natural resources consulting. A financial arm invests in other businesses, primarily television stations. By the time he received a bachelor of science degree in economics from the University of Pennsylvania's Wharton School of Finance in 1959, Saul Steinberg was already in the business of leasing computers, then a new concept. In 1961, at age 22, Steinberg founded the Leasco Data Processing Equipment Corporation. The company grew rapidly, expanded its capabilities, and in 1965 went public. By 1968, Leasco sought to diversify its fields of business. Among its major purchases in the last two years of the 1960s was Reliance Insurance Companies of Philadelphia, which included Reliance Insurance Company and its subsidiaries. Leasco bought 91% of Reliance in September 1968, and the balance in winter 1981. Reliance insurance had been writing insurance since 1817, officially incorporating in 1820, and became the company's largest subsidiary. Reliance Insurance started as the Fire Association of Philadelphia in 1817, organized by 5 hose and 11 engine fire companies. It became the nation's first association of volunteer fire 7

departments. Its office was the front room of Caleb Carmalt, one of the founders. The association first met in his house on September 17, 1817. Michael Fox, president of Diligent Engine Company, was elected chairman. The new group took the place of several previous associations that had never succeeded because of internal squabbles among members. The association started with no money, and trustees pledged their property as security. The founders agreed not to pay dividends until the company accumulated $15,000 in capital. The original 13 trustees agreed that dividends should go to the unpaid firemen. As a benefit, members received a 5% discount on their own property fire insurance. In addition to underwriting fire insurance, the association served as mediator between its member engine and hose companies; as rivals to get to a fire first to collect the commission, fire companies often damaged each other's equipment and assaulted each other. The association adopted a fire mark with a fireplug attached to a hose and the initials F.A. on both sides for homeowners to place on their facades to let firefighters--and potential arsonists-know the houses were insured. Samuel Bleight, a storeowner with a weaving business in his basement, bought the first policy for his three-story building. The company took ten risks its first year. The first time the association applied to the state legislature for a charter, it failed after the representative from Philadelphia stated that "the petitioners were men unworthy of public confidence and destitute alike of public spirit and mental worth." Association members immediately launched a successful campaign to defeat the representative in his next bid for reelection. Existing insurance companies also fought the charter. They "may have feared the Fire Association's influence on their own business, though they gave as their real cause of opposition . . 8

. the fact that the new organization was without cash capital," according to The Fire Association of Philadelphia, a corporate history published in 1917 to celebrate its first century. On March 27, 1820, the governor of Pennsylvania signed a charter for The Trustees of the Fire Association of Philadelphia. The company wrote 29 risks the first year of its charter. Business grew steadily, and by 1832, it wrote 583 policies. Although the first companies joined the association without charge, it subsequently imposed an entrance fee. By November 1829, 44 companies were members. By 1850, the association amassed a surplus of $100,000. That year, the Great Fire of Philadelphia started at a store and spread to a warehouse where it caused an explosion and created panic. The fire spread so fast that it could be seen across the Delaware River in Trenton, New Jersey, and tremors were felt in Wilmington, Delaware. The largest fire in Philadelphia history up to that time, it destroyed 367 buildings, killed between 17 and 33 people, some drowning after jumping into the river. More than 100 people were reported injured, and losses were valued at $1.5 million, of which the association owed about $100,000, enough to wipe out the surplus it had accumulated. The trustees, however, promptly secured a loan based on their own personal liability, and paid all claims. This step created so much goodwill that its business expanded rapidly in the next few years. During the Civil War, association members operated ambulances to transport the wounded to hospitals when they arrived in Philadelphia. In 1871, the city of Philadelphia organized its own fire department. The trustees voted to continue the association as a stock company under an amended charter. The state legislature approved the new charter on May 5, 1871. Four of the previous trustees and nine other stockholders were elected to the board of directors. At that time, 9

the association became solely an insurance company and started writing policies outside Philadelphia. Its assets at the time totaled $1.71 million. Business got a boost as a result of the Great Chicago Fire of 1871. The association soon developed a field of agents to write policies across the country. For the first two years, shareholders received dividends twice a year of $5 a share, which increased gradually to $10 in 1876. As the company history reported, the association was able to pay large claims promptly when they came due. These included $309,000 after the great Baltimore Fire in 1904 and $1.84 million following the 1906 San Francisco Earthquake and Fire. By 1917, the association reported business of $4 million a year. It had expanded its coverage to include marine, tourist baggage, registered mail, explosion, sprinkler leakage, tornado, earthquake, and automobile insurance. In 1919, the association started a subsidiary, Victory Fire Insurance Company, which had the same officers as the parent company. In the 1920s, it founded another subsidiary, Reliance Insurance Company and added riot and civil commotion insurance to its offerings. The year of the 1929 stock market crash, the association made $93,605 in underwriting profit, but this sum was more than offset by its $410,000 losses in investments. World War II took its toll on the insurance business, including the association, which lost money between 1942 and 1946. By 1947, it broke even, and 1949 "was by far the banner year in the company's long history," Best's Insurance Reports, 1950-1951 editions, stated. In 1950, the association merged its subsidiaries into the parent company. The Fire Association of Philadelphia changed its name to Reliance Insurance Company in 1958.

10

From then on, the insurance company grew both through acquisition and establishment of subsidiaries. In the property and casualty field, it bought General Casualty Company of Wisconsin in 1956--sold in 1990 to Winterthur Swiss Insurance Company for $630 million--and United Pacific Insurance Company in 1967. Reliance also started Eureka Insurance Company in Wisconsin in 1959, which changed its name to Planet Insurance Company in 1963. Since 1973, Planet has written Reliance's commercial mass-marketing business. In 1976, Planet took over Reliance's standard business in Texas. Another subsidiary, Regent Insurance Company, also started in 1963 in Wisconsin, writes auto, fire, inland marine, workers' compensation, and other insurance. Reliance started General Casualty Company of Illinois, sold in 1990, and Reliance Insurance Company of Illinois. The property and casualty operations evolved so that Reliance Insurance Company handled most eastern operations; General Casualty was responsible for most mid western business until its sale; and United Pacific took care of the West. The company's strategy was expansion in selected specialty lines. In 1971, the parent company formed Reliance Financial Services Corporation, an intermediate holding company for its insurance branches. The insurance operations are governed by a complicated structure, in which Reliance Group Holdings owns Reliance Group, Inc., which in turn owns Reliance Financial Services Corporation, which in turn owns Reliance Insurance Company and its subsidiaries. In 1972, the Reliance insurance group divided its pool so that Reliance Insurance Company and its subsidiaries handled most standard lines, while United Pacific Insurance Company handled the nonstandard and other operations. Other property and casualty subsidiaries included Reliance Insurance Company of New York, founded in 1978, and Reliance Lloyds, founded in 1980. 11

In December 1973 Leasco Corporation changed its name to Reliance Group, Inc. The move represented corporate strategy to move away from computer-related services and into financial ones in the early 1970s, and recognition that insurance constituted the biggest part of the group. Three years later, Reliance Group founded Commonwealth Land Title Insurance Company, which would become the lead company in the group for mortgage and title insurance. In 1981, Steinberg, still chairman of the board and chief executive officer decided to make the company private. He founded Reliance Group Holdings, Inc., a holding company for his and his family's stock that acquired all outstanding shares of Reliance Group, Inc., through cash purchase, debentures, or preferred shares of Reliance Group Holdings. In 1982, Reliance insurance group expanded its life insurance business, as United Pacific Life Insurance Company marketed annuities for savings and retirements. The same year, the company incorporated Reliance Life Insurance Company of Rhode Island. The next year, it founded United Pacific Reliance Life Insurance Company of New York. In 1986 the company went public again. Reliance Group Holdings, Inc. sold slightly more than 20% of its stock with a 15 million-share offering. Steinberg, his family and their trust retained the rest. To find specialty markets suitable for Reliance's selective growth strategy, the group founded Reliance National Insurance Company late in 1987. It entered insurance markets of professional liability, construction, transit, health, technical property, and risk management. The value of Reliance's investments took a nose dive with the stock market crash of 1987. The company's net income per share decreased from $1.68 in 1987 to 32s; in 1988 and to 29s; in

12

1989. Like the insurance market in general, Reliance's underwriting market worsened in the late 1980s, as a result of disaster payments from hurricanes and the 1989 San Francisco earthquake. In 1989, the insurance group included these divisions: property and casualty, life, and title and mortgage. Property and casualty wrote $1.79 million in premiums in 1989, using more than 3,000 independent agents. Reliance Insurance Company remained the biggest part of the group, which also included specialized risk and surety companies such as Reliance National Insurance Company, bought by the company in 1988 to write specialty lines. It was originally known as Hanseco Reinsurance Company, then John Hancock Reinsurance Company until Reliance changed the name in 1989 to make it sound like part of the family. Also writing specialty property and casualty coverage were Reliance Reinsurance Corporation and Cananwill, a premium finance company. Reliance aimed to be a sole source for its agents by giving them all of the lines they needed through one subsidiary or another. Expansion continued in 1989. The life insurance group founded United Pacific Financial Services, which offered securities and insurance to financial institutions through its broker-dealer, Reliance Life Distributors, and its insurance agency, Reliance Marketing Management. That year the life insurance group's assets totaled $5.77 billion. In 1989 the California Department of Insurance (CDI) accused United Pacific Life Insurance of earning an annual rate of return about $10 million in excess of what it determined to be "fair and reasonable." However, CDI deferred the case while it reexamined its method of determining fair rates of return. The title and mortgage-insurance branch grew with the purchase of Transamerica Title Insurance Company from Transamerica Corporation in 1990. The move boosted the size of the 13

operation by almost 50%. In previous years the business of this segment had contracted; pretax income fell from $27.5 million in 1987 to $25.3 million in 1988 to $20.5 million in 1989. Reliance's 1989 annual report attributed the decline to "a decrease in commercial and residential real estate activity and increased price competition in commercial title insurance." Additionally in the mid-1980s Commonwealth Mortgage Assurance Company, the mortgage insurance arm, had experienced losses because of declines in the real estate market. At the same time that the insurance business was growing, Reliance Group Holdings and its predecessors were developing other areas of business. The company bought Container Transport International in the 1960s, and turned it into the world's largest container transport company before selling it in 1979. Leasco purchased several specialized management consulting firms, which became the Reliance Consulting Group. The group provided three types of consulting: energy, environment, and natural resources; professional personnel services; and commercial productivity. The branches included RCG International, Inc., which, like Reliance Insurance, grew through acquisition of select specialized companies. Two more divisions, Herbert W. Davis & Company and Werner International, provided quality and cost-control consulting to manufacturers. The consulting group grew steadily, netting $67 million in revenues and $3 million in pretax profits in 1989. In 1977, the company moved into real estate, forming Continental Cities Corporation, which became Reliance Development Group, Inc. This division handled all real estate operations of the parent company and other subsidiaries. The subsidiary additionally designed, developed, and managed commercial buildings. Projects the firm was developing in 1989 included office complexes in Tucson, Arizona, and Fort Worth, Texas. The group was working on residential and retail facilities, including ten shopping centers in the United States. Additional projects included 14

the Oriental Warehouse in San Francisco's financial district, involving renovation of a historic brick structure combined with new construction of 420 apartments and commercial space, and mixed-use development for a tract of more than 500 acres in the Dulles International Airport corridor near Washington, D.C. Reliance Capital Group, L.P. constituted the investment branch of the Reliance conglomerate. Its major holding consisted of Telemundo Group, Inc., a 36-station Spanish television network headquartered in New York, including the largest television station in Puerto Rico. In December 1989, Reliance Capital sold its investment, Days Corporation, parent company of Days Inn of America, the world's third-largest hotel chain; it had been purchased in 1984. The company nearly tripled the value of its investment in the sale, netting a $20 million pretax profit. The company planned to continue its long-time strategy of growth through selective acquisitions and expansion. Under this strategy, it developed from a young man's computer leasing company into a major conglomerate. Principal Subsidiaries: Reliance Insurance Company; Reliance National Insurance Company; General Casualty Companies; Reliance Surety Company; Reliance Reinsurance Corporation; Cananwill; United Pacific Life Insurance Company; United Pacific Reliance Life Insurance Company of New York; United Pacific Financial Services; Commonwealth Land Title Insurance Company; Transamerica Title Insurance Company; Commonwealth Mortgage Assurance Company; Commonwealth Relocation Services, Inc.; Reliance Development Group, Inc.; RCG International, Inc.; RCG/Hagler Bailly; RCG/Moody-Tottrup; RCG/Personnel Sciences;

RCG/Vectron; Herbert W. Davis & Company; Werner International, Inc.; Telemundo Group, Inc.

15

VISION OF THE COMPANY

To be a globally respected wealth creator with an emphasis on customer care and a culture of good corporate governance. A globally Indian financial services brand. The most trusted financial services company. The most preferred employer in financial services.

MISSION OF THE COMPANY

To create and nurture a world-class, high performance environment aimed at delighting our customers.

16

INTRODUCTION OF MUTUAL FUND:

Mutual funds are for everyone. Around the world, millions of investor invests in mutual funds because of their safety, ease of investing and the many advantages they offer. A mutual fund is financial intermediary that pools the saving of investors for collective investment in a diversified portfolio of securities. A fund is mutual as all of its returns, minus its expenses, are shared by the fund investors. The securities and Exchange Board of India(Mutual Fund) Regulation, 1996 defines a mutual fund as a a fund established in the form of a trust to raise money through the sale of units to the public or a section of the public under one or more schemes for investing in securities, including money market instrument. According to this definition, a mutual fund in India can raise resources through the sale of units to the public. It can be set up in the form of Trust under the Indian Trust Act, 1882. The definition has been further extended by allowing mutual fund to diversify their activities in the areas under: Portfolio management services Management of offshore funds Providing advice to offshore funds Management of pension or provident funds Management of venture capital funds Management of money market funds Management of real estate funds 17

A mutual fund serves as a link between the investors and the securities market by mobilizing savings from the investors and investing them in the securities to generate returns. Thus, a mutual fund is akin to portfolio management services (PMS). Although, both are conceptually same, they are different from each other. Portfolio management services are offered to high net worth individuals; taking into account their risk profile, their investment are managed separately. In the case of mutual funds, saving of small investors is pooled under a scheme and the returns are distributed in the same proportion in which the investments are made by the investors/unit holders.

Mutual Fund is collective saving scheme. Mutual Fund plays an important role in mobilizing the savings of small investors and channelizing the same for productive venture in the Indian economy.

Mutual Fund Operation Flow Chart

18

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund:

Organisation of a Mutual Fund

Mutual Funds and You:

What is a mutual fund?

A mutual fund is a type of financial intermediary that pools the funds of investors who seek the same general investment objective and invests them in a number of different types of financial claims (e.g. equity shares, bonds, money market instrument). These pooled funds provide thousands of investors with proportional ownership of diversified managed by professional investment managers.

19

 Where do mutual funds invest?

Broadly, mutual funds invest basically in three types of asset classes:

Stocks:
Stocks represent ownership or equity in a company. These are also called as shares.

Bonds:
These represent debt from companies, financial institutions or govt. agencies.

Money Market Instruments:

These include short term debt instrument such as treasury bills, certificates of deposits and inter bank money.

History of Mutual Funds in India:

The history of Mutual Funds, dates back to 19th century Europe, in particular, Great Britain. Robert Fleming set up in 1868th first investment trust called Foreign and Colonial Investment Trust which promised to manage the finances of the moneyed classes of Scotland by spreading the 20

investment over a number of different stocks. This investment trust and other investment trusts which were subsequently set up in Britain and the US, resembled toadys close-ended mutual funds. The first mutual fund in the US, Massachusetts Investors trust, was set up in March1924. This was the first open-ended mutual fund.

The stock market crash in 1929, the Great Depression, and the outbreak of Second World War slackened the pace of growth of the mutual fund industry. Innovations in products and services increased the popularity of mutual funds in the 1950s and 1960s.The first international stock mutual fund was introduced in the U.S. in the 1940s.In 1976,the first tax- exempt municipal bond funds emerged and in 1979,the first money market mutual fund were created. The latest additions are the international bond fund in 1986 and arm funds in 1990s.This industry witnessed substantial growth in the eighties and nineties when there was a significant increase in the number of mutual fund, schemes, assets and shareholders. In the U.S.,the mutual fund industry registered a ten fold growth in the eighties (1980-1990) only, with 25 percent of the household sectors investment in financial assets made through them. Fund assets increased from less than $150 billion in 1980 to over $4trillion by the end of1997.Since 1996, mutual fund assets have exceeded bank deposits. The mutual fund industry and the banking industry virtually rival each other in size.

In India the setting up of Unit Trust of India (UTI) in 1963 marked the advent of mutual fund industry. Unit Trust of India was set up by an Act of Parliament. The purpose of establishing of Unit Trust of India was to give a fillip to the equity market. In the wake of Indo-China war of 1962, there was shortage of savings going into industrial investment for economic development. There was a need to mobilize adequate amount of risk capital for industrial enterprise. The 21

household savings were sought to be channelized into primary and secondary market through units. However, in the initial years, the emphasis in UTI was on income product. Master Share launched in 1986 ushered in the equity-oriented schemes in India. Unit Trust of India launched a variety of innovative products suited to meet diverse needs of investors, virtually the complete life cycle of investors.

Evolution of Mutual Fund in India:

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

1. Phase 1 (1964-1987) 2. Phase 2 (1987-1993) 3. Phase 3 (1993-2003) 4. Phase 4 (Since February 2003)

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First Phase 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under managemet.

Second Phase: 1987-1993 (Entry of Public Sector Funds) Entry of Public Sector Funds
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. These mutual funds helped enlarge the investor community and the investible funds. From 1987 to 23

1992-93, the fund industry expanded nearly seven times in terms of Assets under Management, as seen in the following figures:

1992-1993 Amount Mobilised (Rs. Crores) UTI Public Sector 11,057 1,964 Assets Under Management (Rs. Crores) 38,247 8,757

Total

13,021

47,004

Third Phase: 1993-2003 (Entry of Private Sector Funds) Entry of Private Sector Funds & SEBI Regulation for Mutual Funds
With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families and increasing competition for the existing public sector funds. Quite significantly, foreign fund management companies were also allowed to operate mutual funds, most of them coming into India through joint ventures with Indian promoters. These private funds have brought in with them the latest product innovations, investment management techniques and investor servicing technology that make the Indian mutual fund industry today a vibrant and growing financial intermediary. 24

Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. During the year 1993-94, five private sector mutual funds launched their schemes followed by six others in 1994-95. Initially, the mobilization of funds by the private mutual funds was slow. But, this segment of the fund industry now has been witnessing much greater investor confidence in them. One influencing factor has been the development of a SEBI driven regulatory framework for mutual funds. But another important factor has been the steadily improving performance of several funds themselves. Investors in India now clearly see the benefits of investing through mutual funds and have started becoming selective. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The entire mutual fund industry in India, despite initial hiccups, has since scaled new heights in terms of mobilization of funds and number of players. Deregulation and liberalization of the Indian economy has introduced competition and provided impetus to the growth of the industry. Finally, most investors small or large have started shifting towards mutual funds as opposed to banks or direct market investments. More investor friendly regulatory measures have been taken both by SEBI to protect the investor and by the government to enhance investors returns through tax benefits. A comprehensive set of regulations for all mutual funds operating in India was introduced with SEBI (Mutual Fund) Regulations, 1996. These regulations set uniform standards for all mutual funds and will eventually be applied in full to Unit Trust of India as well, even though UTI is governed by its 25

own UTI Act. In fact, UTI has been voluntarily adopting SEBI guidelines for most of its schemes. Similarly, the 1999 Union Government Budget took a big step in exempting all mutual fund dividends from income tax in the hands of the investors. Both the 1996 regulations and the 1999 Budget must be considered historic importance, given their far-reaching impact on the fund industry and investors. 1999 marks the beginning of a new phase in the history of the mutual fund industry in India, a phase of significant growth in terms of both amounts mobilized from investors and assets under management. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.

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MUTUAL FUND MOBILIZATION AND ASSETS UNDER MANAGEMENT

Mutual Fund Mobilisation
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1987-88 1992-93 1998-99 1999-00 Public Sector Private Sector UTI

Period

Mutual Fund Assets Under Management

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Public Sector Private Sector UTI

1987-88

1992-93

1998-99

1999-00

Period

27

Fourth Phase: Since 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

28

The graph indicates the growth of assets over the years

Note:

Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets 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 February 2003 onwards.

29

TYPES OF MUTUAL FUNDS: -

Mutual Funds have specific investment objectives such as growth of capital, safety of principal current income or tax exempt income, one can select one fund or any number of different funds to help one meets ones specific goals. In general mutual fund fall under 3 general categories: -

Equity fund invest in shares of common stocks. Fixed income funds invest in government or corporate securities which offer fixed rate of returns. Balanced fund invest in a combination of both stocks and bonds.

30

EQUITY

Equity mutual funds are also known as stock mutual funds. Equity mutual funds invest pooled amounts of money in the stocks of public companies. Stocks represent part ownership, or equity, in companies, and the aim of stock ownership is to see the value of the companies increase over time. Stocks are often categorized by their market capitalization (or caps), and can be classified in three basic sizes: small, medium, and large. Many mutual funds invest primarily in companies of one of these sizes and are thus classified as large-cap, mid-cap or small-cap funds. Equity fund managers employ different styles of stock picking when they make investment decisions for their portfolios. Some fund managers use a value approach to stocks, searching for stocks that are undervalued when compared to other similar companies. Another approach to picking is to look primarily at growth, trying to find stocks that are growing faster than their competitors, or the market as a whole. Some managers buy both kinds of stocks, building a portfolio of both growth and value stocks. Since equity funds invest in stocks, they have the potential to generate more returns. On the other hand they carry greater risks too. Equity funds can be classified into diversified equity funds and sectoral equity funds.

DEBT FUNDS

Investment pool, such as a mutual fund or exchange-traded fund, in which core holdings are fixed income investments. A debt fund may invest in short-term or long-term bonds, securitized products, money market instruments or floating rate debt. The fee ratios on debt funds are lower, on average, than equity funds because the overall management costs are lower.

31

The main investing objectives of a debt fund will usually be preservation of capital and generation of income. Performance against a benchmark is considered to be a secondary consideration to absolute return when investing in a debt fund.

It consists of

Certificate of deposits. Non Convertible debentures. Zero coupon bonds etc.

BALANCED / HYBRID FUNDS

A fund that combines a stock component, a bond component and, sometimes, a money market component, in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity component) or conservative (higher fixed-income component) orientation. A balanced fund is geared toward investors who are looking for a mixture of safety, income and modest capital appreciation. The amounts that such a mutual fund invests into each asset class usually must remain within a set minimum and maximum. Although they are in the "asset allocation" family, balanced fund portfolios do not materially change their asset mix. This is unlike life-cycle, targetdate and actively managed asset-allocation funds, which make changes in response to an investor's changing risk-return appetite and age, or overall investment market conditions. 32

AGGRESSIVE GROWTH FUNDS :These funds seek to provide maximum growth of capital with secondary emphasis on dividend or interest income. They invest in common stocks with a high potential for rapid growth and capital appreciation.

Aggressive growth funds are suitable for those investors who can afford to assume the risk of potential loss in value of their investment in the hope of achieving substantial and rapid gains. They are not suitable for investors who must conserve their principal or who must maximize their current income.

GROWTH FUNDS:Like aggressive growth funds, growth fund generally invests in stocks for growth rather than income. They are considered more conservative in their approach because they usually invest in established companies to achieve long-term growth. Growth fund provides low current income but the investor principal is more stable then it would be in an aggressive growth fund. While the growth potential may be less over the short term, many growth funds have superior long-term performance records.

These funds are suitable for growth oriented investors but not investors who are unable to assume risk or who are dependent on maximizing current income from there investments.

33

GROWTH AND INCOME FUNDS:Growth and income funds seek long-term growth of capital as well as current income. The investments strategies use to reach these goals vary among funds. Growth and income funds have low to moderate stability of principal and moderate potential for current income and growth. They are suitable for investors who can assume some risk to achieve growth of capital but want to maintain a moderate level of current income.

FIXED INCOME FUNDS:-

The goal of fixed income fund is to provide high current income consistent with the level of capital. Growth of capital is of secondary importance.

Fixed income funds offer a higher level of current income than money market funds, but a lower stability of principal. Fixed income funds are suitable for investors who want to maximize current income and who can assume a degree of capital risk in order to do so.

MONEY MARKET FUNDS/ LIQUID FUNDS:-

34

For the cautious investors these funds provide a very high stability of principal while seeking a moderate to high current income. They invest in highly liquid; virtually risk free, short-term debt securities of agencies of the Indian government, banks and corporation and treasury bills. Because of their short-term investments, money market mutual funds are able to keep a virtually constant unit price; only the yield fluctuates.

Money market funds are suitable for those investors who want high stability of principal and current income with immediate liquidity.

SPECIALITY / SECTOR FUNDS:These funds invest in securities of a specific industry or sector of the economy such as health care, technology, leisure, utilities or precious metals. The funds enable investor to diversify holding among many companies within an industry, a more conservative approach than investing directly in one particular company.

Sector funds offer a opportunity for sharp capital gains in cases where the funds industry is in favor but also entail the risk of capital losses when the industry is out of favor. While sectors funds restrict holdings to a particular industry, other specialty funds such as index funds gives investors a broadly diversified portfolio and attempt to mirror the performance of various market averages.

35

STRUCTURE OF FUNDS

36

OPEN ENDED SCHEMES:Open-ended schemes do not have a fixed maturity period. Investors can buy or sell units at NAV- related prices from and to the mutual fund on any business day. These schemes have unlimited capitalization, open-ended schemes do not have a fixed maturity, there is no cap on the amount you can buy from the fund and the unit capital keep growing. These funds are not generally listed on any exchange.

Open-ended schemes are preferred for their liquidity. Such funds can issue and redeem units any time during the life of schemes. Hence unit capital of open-ended funds can fluctuate on a daily basis. The advantages of open ended schemes are: -

1. Any time exit option 2. Any time enter option.

CLOSE ENDED SCHEMES:Close-ended schemes have fixed maturity periods. Investors can buy into these funds during the period when these funds are open in the initial issue. After that such scheme cannot issue new units except in case of bonus or right issue. However after the initial issue you can buy or sell units of the schemes on the stock exchange where they are listed. The market price of the unit could vary from the NAV of the schemes due to demand and supply factor

37

SIP ( SYSTEMATIC INVESTMENT PLAN)

What is the Facility?

Reliance SIP Insure provides free life insurance cover to investors at no extra cost. In the unfortunate event of the demise of an investor during the tenure of the SIP, the insurance company will pay for the sum assured as per the terms and conditions of the facility. Thus, the nominee* would be able to continue in the scheme without having to make any further contribution. Investors long term financial planning and objective of investing through SIP could still be fulfilled as per the targeted time horizon, even if he/she dies prematurely.

Reliance SIP Insure- Benefits to the investor **The benefit of Long Term Equity Investment

Equities provide relatively better returns among all asset over a longer period of time

**The benefit of Systematic Investment Plan: 38

Inculcates Savings Habit Rupee Cost Averaging & Eliminates the need to time the market

**Free Life Insurance Cover

Helps to complete the planned investments Maturity Proceeds at NAV based prices

**Flexibility

Wide choice of eligible schemes

**Convenience

Auto Debit from 4 banks namely ICICI bank, HDFC bank, AXIS bank & HSBC ECS facility across 65 locations

39

RELI NCE MUTUAL FUND

Reliance Mutual Fund has, over the years, built for itself a great reputation in the market by offering to its investors not just consistently high returns but also a highly innovative and diversified portfolio of products and services, and an unmatched track record of integrity. Not surprisingly, we have emerged as leaders in winning both the hearts and minds of investors across the country. The last two years have been particularly exceptional. In June 2005, we managed barely Rs 6,000 crore of assets. Today, we handle nearly Rs 60,000 crore. This represents an average inflow of Rs 110 crore for every single working day over the past two years. It is no surprise that during FY 06-07, Reliance Mutual Fund emerged as India's No.1 mutual fund, and is now universally regarded by market participants as the undisputed leader. In Feb 2007, we became the first Indian fund to cross the US $10 billion mark. In the next few weeks, we will be the first to reach the US$15 billion mark. The rapid increase in our fund corpus is matched by an equally dramatic rise in the number of people who have chosen to invest with us. At the end of March 2007, Reliance Mutual Fund had over 3.2 million investors - up from barely half a million investors in June 05 the largest body of investors amongst all private sector mutual funds in the country today.

40

This figure is set to go up even higher, with our distribution reach doubling from 300 cities to 600 cities by the end of the year. Integrity and trust are the key values that lie at the heart of any investment decision. The growing recognition at home is now matched by the accolades abroad. In November 2006, Reliance Growth and Reliance Vision, two flagship equity funds managed by RMF, were ranked as the top two funds globally, based on performance over the previous 5 years. The rankings were decided by the internationally acclaimed fund tracking agency, Lipper, and covered the entire global universe of open-ended equity funds. In March 2007, RMF bagged six awards at the Lipper Fund Award Gulf 2007 for consistent fund outperformance across a range of categories. With increasing awareness about mutual funds as a safe and attractive investment haven for small investors, the AUM of the Indian mutual industry has registered a growth of over 400 per cent in the past three years. Despite this growth, the current size of the Indian Mutual fund industry is small. It is pegged at US$ 100 billion, with an incremental addition of US$20 billion to the kitty every year from the annual savings pie of over US$ 320 billion. Reliance Mutual Fund, a part of the Reliance Anil Dhirubhai Ambani Group (R-ADAG) is one of the fastest growing mutual funds in the country . Reliance Mutual Fund offers investors a well rounded portfolio of products of meet varying investor requirements . Reliance Mutual Fund has a presence in over 115 cities across the country , an investor base of over 3.1 Million and manages assets over Rs. 39019 crore as on 31 Jan 2007. Reliance
st

Mutual Fund constantly endeavors to launch innovative products and customer service initiatives to increase value to investors.

41

Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Ltd. A wholly owned subsidiary of Reliance Capital Ltd. Reliance Capital is one of Indias leading and fastest growing private sector financial services companies, and ranks among the top 3 private sector financial services and banking companies, in terms of net worth . Reliance Capital has interests in asset management and mutual funds , life and general insurance , private equity and proprietary investments , stock broking and other financial services .

MISSION:To create and nurture a world class ,high performance environment aimed at delighting our customers. There are three types of schemes which are provided to the investors under these mutual funds and they are as follows.

Equity / Growth Schemes.

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

42

schemes are good for investors having a long term outlook seeking appreciation over a period of time .

Reliance Natural Resources Fund :

(An Open Ended Equity Scheme) The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in companies principally engaged in the discovery, development, production, or distribution of natural resources and the secondary objective is to generate consistent returns by investing in debt and money market securities.

Reliance Equity Fund :

(An open-ended diversified Equity Scheme.) The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity & equity related securities of top 100 companies by market capitalization & of companies which are available in the derivatives segment from time to time and the secondary objective is to generate consistent returns by investing..

Reliance Equity Opportunities Fund :

43

(An Open-Ended Diversified Equity Scheme.) The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity securities & equity related securities and the secondary objective is to generate consistent returns by investing in debt and money market securities.

Reliance Vision Fund :

(An Open-ended Equity Growth Scheme.) The primary investment objective of the Scheme is to achieve long term growth of capital by investment in equity and equity related securities through a research based investment approach.

Reliance Growth Fund :

(An Open-ended Equity Growth Scheme.) The primary investment objective of the Scheme is to achieve long term growth of capital by investment in equity and equity related securities through a research based investment approach.

Reliance Regular Savings Fund:

(An Open-ended Scheme.) Equity Option : The primary investment objective of this option is to seek capital appreciation and/ or to generate consistent returns by actively investing in Equity &Equity-related Securities. 44

Balanced Option : The primary investment objective of this option is to generate consistent returns and appreciation of capital by investing in mix of securities comprising of equity, equity related instruments & fixed income instruments.

Reliance Long Term Equity Fund:

( An close-ended Diversified Equity Scheme ) The primary investment objective of the scheme is to seek to generate long term capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity & equity related securities and Derivatives and the secondary objective is to generate consistent returns by investing in debt and money market securities

Debt/ Income Schemes

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds. Corporate debentures,

Government securities an money market instruments . Such funds are less risky compared to equity schemes. These funds markets. However, opportunities are not affected of capital because of fluctuations in equity also limited in such

appreciation are

funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Reliance Monthly Income Plan :

45

(An Open Ended Fund . Monthly Income is not assured & is subject to the availability of distributable surplus ) The Primary investment objective of the Scheme is to generate regular income in order to make regular dividend payments to unit holders and the secondary objective is growth of capital.

Reliance Gilt Securities Fund - Short Term Gilt Plan & Long Term Gilt Plan :
Open-ended Government Securities Scheme) The primary objective of the Scheme is to generate Optimal credit risk-free returns by investing in a portfolio of securities issued and guaranteed by the central Government and State Government

Reliance Income Fund :

(An Open-ended Income Scheme) The primary objective of the scheme is to generate optimal returns consistent with moderate levels of risk. This income may be complemented by capital appreciation of the portfolio. Accordingly, investments shall predominantly be made in Debt & Money market Instruments.

Reliance Medium Term Fund :

(An Open End Income Scheme with no assured returns.) The primary investment objective of the Scheme is to generate regular income in order to make regular dividend payments to unit holders and the secondary objective is growth of capital

46

Reliance Short Term Fund :

(An Open End Income Scheme) The primary investment objective of the scheme is to generate stable returns for investors with a short investment horizon by investing in Fixed Income Securities of short term maturity.

Reliance Liquid Fund :

(Open-ended Liquid Scheme). The primary investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risk and high liquidity . Accordingly, investments shall predominantly be made in Debt and Money Market Instruments.

Reliance Liquidity Fund :

(An Open - ended Liquid Scheme) The investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risk and high liquidity . Accordingly, investments shall predominantly be made in Debt and Money Market Instruments.

Reliance Interval Fund :

(A Debt Oriented Interval Scheme) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio.

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Sector Specific Schemes

These are the funds / schemes which invest in the securities of only those sectors or industries as specified in the offer documents . e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods ( FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the respective sectors / industries.

Re

liance Banking Fund :

Reliance Mutual Fund has an Open-Ended Banking Sector Scheme which has the primary investment objective to generate continuous returns by actively investing in/ equity related or fixed income securities of banks. 48

Reliance Diversified Power Sector Fund :

Reliance Diversified Power Sector Scheme Scheme. The primary investment objective of the Scheme is to seek to generate consistent returns by actively investing in equity / equity related or fixed income securities of Power and other associated companies. is an Open-ended Power Sector

Reliance Pharma Fund :

Reliance Pharma Fund is an Open-ended Pharma Sector Scheme. The primary investment objective of the Scheme is to generate consistent returns by investing in equity / equity related or fixed income securities of Pharma and other associate companies.

Reliance Media & Entertainment Fund :

Reliance Media & Entertainment Fund is an Open-ended Media & Entertainment sector scheme. The primary investment objective of the Scheme is to generate consistent returns by investing in equity / equity related or fixed income securities of media & entertainment and other associated companies.

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ADVANTAGE OF MUTUAL FUND:-

The advantages of investing in a Mutual Fund are:

Diversification: The best mutual funds design their portfolios such that individual
investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value.

Professional Management: Most mutual funds pay topflight professionals to manage

their investments. These managers decide what securities the fund will buy and sell.

Regulatory oversight: Mutual funds are subject to many government regulations that
protect investors from fraud. 50

Liquidity: It's easy to get your money out of a mutual fund. Write a check, make a call,
and you've got the cash.

Convenience: You can usually buy mutual fund shares by mail, phone, or over the
Internet.

Low cost: Mutual fund expenses are often no more than 1.5 percent of your investment.
Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index.

Transparency: Mutual Fund schemes are said to be Transparent because they show the
clear allocation of Funds to Investors.

Flexibility: Mutual funds are flexible because they change time to time and also if an
Investor wants his money back before the maturity of the Fund can easily redeem it

DRAWBACKS OF MUTUAL FUNDS:51

Mutual funds have their drawbacks and may not be for everyone:

No Guarantees: No investment is risk free. If the entire stock market declines in value,
the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money.

Fees and commissions: All funds charge administrative fees to cover their day-to-day
expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund.

Taxes: During a typical year, most actively managed mutual funds sell anywhere from
20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made.

Management risk: When you invest in a mutual fund, you depend on the fund's
manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers. .

52

STUDY OF INDIAN MARKET AND INVESTING PATTERN OF INVESTOR

With increasing affluences of Indian investor, their disposable income is also increasing and bracket of lower income group is decreasing and middle income group is increasing, since this group has highest investment caliber due to its numbers, from company point of view and risk taking capability they are the targeted customer for mutual fund.

As we can see from figure, where upper middle and affluent group are less in number and they are bit risk taker because of their income, so they mostly invest their fund either directly in infrastructure or in equity share market .since they have large amount to invest ,if they can be convinced they will give a company huge investment. Software professional are the group which are increasing day by day due to increasing FDI in software company because of its profitable return ,looking at CAGR of GDP it shows increase from 266bn to 412bn

Looking at the growing pattern of available cash and financial asset shows huge opportunity for mutual fund.

Now above numbers shows that still Indian public try to keep their saving which is 52% and total mutual fund has 3 % only it means if customer were convinced to invest in mf

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CONVENTIONAL INVESTMENT OPTIONS

Conventional investment options are those investment schemes which are opted by huge number of investors for investing there money from a long time.Such conventional schemes are most popular among investors from past decades .Now investors are looking after new investment horizon like mutual fund.

KINDS OF CONVENTIONAL INVESTMENT OPTIONS

BANK FIXED DEPOSITS

Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a certain sum of money is deposited in the bank for a specified time period with a fixed rate of interest. The rate of interest for Bank Fixed Deposits depends on the maturity period. It is higher in case of longer maturity period. There is great flexibility in maturity period and it ranges from 15days to 5 years. The interest can be compounded quaterly, half-yearly or annually and varies from bank to bank. Minimum deposit amount is Rs 1000/- and there is no upper limit. Loan / overdraft facility is available against bank fixed deposits. Premature withdrawal is permissible but it involves loss of interest.

Advantages of Fixed Deposit

Fixed deposits with the banks are nearly 100% safe as all the banks

operating in the country, irrespective of whether they are nationalised, private, or foreign, are governed by the RBI's rules and regulations, and give due weightage to the interest of the investor. Till recently, all bank deposits were insured under the Deposit Insurance & Credit Guarantee Scheme of India, which has now been
54

made optional. Nonetheless, bank deposits are among the safest modes of investment.

One can get loans up to 75- 90% of the deposit amount from banks against

fixed deposit receipts. Though the interest charged will be slightly more than the interest earned by the deposit.

TAX SAVING BOND

Tax-saving bonds are designed to partially or fully release a bond holder from the burden of taxes. The tax-saving bonds in India are issued by the Reserve bank of India, the nationalized banks, and certain private sector banks also.

The Reserve Bank of India issues special tax savings bonds in India, with the aid of the Public debt Offices. These bonds are known as 6.5% Savings Bonds, 2003 and the term of these savings bonds is 5 years. As the name suggests, the rate of interest of these bonds is 6.5% per annum and the interest is paid off on a halfyearly basis. These bonds are issued in the form of Stock Certificates and the Bank Ledger Account facility is provided by the Reserve Bank of India, the commercial banks, and private sector banks. There are no specifications made as to the maximum limit of investment on this bond by an investor.

Recurring Deposits

Under a Recurring Deposit account (RD account), a specific amount is invested in bank on monthly basis for a fixed rate of return. The deposit has a fixed tenure, at the end of which the principal sum as well as the interest earned during that period is returned to the investor. Recurring Bank Account provides the element of compulsion to save at high rates of interest applicable to Term Deposits along with liquidity to access those savings any time. Since a recurring deposit offers a fixed rate of return, it does not provide protection against inflation.
55

There is great flexibility in period of deposit with maturity ranging from 6 months to 120 months. The minimum monthly deposit varies from bank to bank. In most of the public sector banks, one can start a Recurring Deposit Account with a monthly installment of Rs. 100/- only. There is no upper limit on investing. The rate of interest varies between 7 and 11 percent depending on the maturity period. Loan/overdraft facility is also available against Recurring Bank Deposits. The deposit for RD account is paid in monthly installments and each subsequent monthly installment has to be made before the end of the calendar month and is equal to the first deposit. In case of default in payment, penalty is levied for delayed deposit at the rate of Rs. 1.50/- for every Rs. 100/- per month for deposits up to 5 years and Rs. 2/- per Rs. 100/- in case of longer maturities. In case of Recurring Deposit being closed before completing the original term of the deposit, interest will be paid at the rate applicable on the date of deposit, for the period for which the deposit has remained with the Bank. Premature withdrawal is also permissible but penalty is levied. TDS is not applicable on Recurring Deposits.

CHIT FUND
A Chit fund is a kind of savings scheme practiced in India. A Chit fund company means a company managing, conducting or supervising, as foremen, agent or in any other capacity, chits as defined in Section 2 of the Chit Funds Act, 198. According to Section 2(b) of the Chit Fund Act, 1982, "Chit means a transaction whether called chit, chit fund, chitty, kuri or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount". [1]

PROBLEM STATEMENT:-

Due to the falling Rate of Interest on Bank deposits, it is obvious that Investment in Mutual Fund will grow in year to come. However lack of Awareness of Mutual Fund is a hindering factor in expected growth of Mutual Fund Business. Under noted problems are envisaged in this area: 56

Difficult in convincing people for investment.

Difficult to change mind of the investor according to age and Profession.

Difficult to make an approach to investors.

Difficult to take an appointment with professional people.

Difficult to get the documents required for formalities from investors

Difficult to overcome an impassionate person who wants return in less time.

Difficult to follow up the people whose names are being stored in a data.

57

OBJECTIVE OF STUDY:In view of the problem cited above, the study aims at analyzing the following major issues:

To know the awareness of MUTUAL FUND among people.

To know the different Asset management companies involve in MUTUAL FUND.

To know the different aspects of MUTUAL FUND according to different age, profession etc.

To see the interest of people in investing in MUTUAL FUNDS.

To know the future of MUTUAL FUNDS in India.

To know the different attitudes of people regarding risk, rate of return, period of investment etc.

To study the diversification of mutual fund.

58

RESEARCH METHODOLOGY

METHODOLOGY OF STUDY:

Research can be defined as a systemized effort to gain new knowledge. A research is carried out by different methodologies which have their own pros and cons. Research methodology is a way to solve research in study and solving research problems along with logic behind them are defined through research methodology. Thus while talking about research methodologies we are not only talking of research methods but also consider the logic behind the methods. We are in context of our research studies and explain why it is being used a particular method or technique and why the others are not used. So that research result is capable of being evaluated either by researcher himself or by others.

RESEARCH METHODOLOGY: Research has its special significance in solving various operational and planning problem of business and industry. Research methodology is a way to systematically analyze the research problem.

ASSUMPTIONS: 1. It has been assumed that sample of hundred represents the whole population 2. The information given by the customer is unbiased

59

LITERATURE SURVEY: The project is based on pure findings of facts

Development of Working Hypothesis: The hypothesis could be developed by discussing with the consulting department heads and guides about this exploratory research and reach to the conclusion that the data is to be collected by personal interaction with the clients, asking them about their investment planning and their need for financial advisory service from RELIANCE MUTUAL FUND.

COLLECTION OF DATA: This research is solely based on primary research done by means of questionnaires targeted to respondents who primarily belong to the business and service sector. The sample size is 100.

a. Sampling Methods: A sample is the representative of the populations which will predict the behaviors of the whole universe b. The sampling size put under 2 categories: Probability Sampling and Non Probability Sampling.

60

SAMPLE DESIGN

A sample design is a definite plan for obtaining a sample from a given population. It refers to the technique or the procedure the researcher would adopt in selecting items from the sample. Sample is the representative of the total selected population.

UNIVERSE: HDFC BANK BRANCHES LUCKNOW

SAMPLING FRAME:
Aminabad. Hazartganj Indiranagar Pranay TowerVidhan Sabha marg

SAMPLING METHOD:

Simple Random Sampling

Sample Size
The sample of at least 15 customers was taken from each area in research process.

61

The research methodology took place on the basis of following two methods:1) 2) Questionnaires Interview Method

Questionnaire
The Questionnaire is a list of question to be asked from the respondents. It also contains a suitable space where answers can be recorded.

The term questionnaires usually refers to a self-administered process where by the respondent himself reads the questions and records the answers without the assistance of an interviewer. This is a narrow definition of a questionnaire.

A questionnaire is a method of obtaining specific information about a defined so that the data after analysis and interpretation, results in a better appreciation of the problem. The questionnaire form is completely filled by the interviewer.

Types of Questionnaire
1) 2) 3) 4) Structured, non-disguised Non-structured, non-disguised Non-structured, disguised Structured, disguised 62

1)

Structured, Non-disguised Questioning: It is the first type of questionnaire which

includes a formal list of questions. Answers are frequently limited to a list of alternatives, which is stated or implied. Structured, non-disguised studies can be handled by telephone, mail or personal interview.

2)

Non-structured, Non-disguised Questioning: More than anything else, marketers

want to know why people buy and do not buy their products. Direct questions dealing with motives rarely elicit useful answers. As pointed out above most people do not have clear idea why they make specific marketing decisions. Direct Questions do not measure the relative importance of the various types of reasons, and many individuals will not report motives that might be considered base or socially unacceptable. To overcome these difficulties, researchers have developed depth interviews and focus-group interviews. Instead of approaching respondents with a fixed list of questions, the interviewer attempts t get respondents to talk freely about the subject of interest.

3)

Non-structured, Disguised Questioning: Many people are either unwilling or

unable to give accurate report s as to there own attitudes and difficulty, clinical psychologist have developed disguised method of gathering such data. Disguised methods are designed so that the respondents do not know the objective of the study is. Such disguised methods may also be non-structured.

63

4)

Structured, disguised Questioning: Questioning of the structured, disguised type has

the advantage of disguise that were pointed out above-primarily that respondents do not know what is being measured and, hence are not biased in their answers. The advantages of structure lie in the reduction of interviewer and interpreter bias, in quick and less costly interviewing, and in easier tabulation of results.

Interview Method
The Interview Method of collecting data involves presentation of oral-verbal stimuli and reply in terms of oral-verbal responses. The method can be use through personal interviews and, if possible, through telephone interviews.

Types of Interview
1)

Personal Interview: Personal or face to-face interviewing is a core function of

marketing research, much of the quality of the entire research process rests on its effectiveness.

A personal interview is a face to face communication with the respondent. The interviewer gets in touch with the respondent, asks the questions, and records the answers obtained. It is the interviewers responsibility to record the answer either during the interview or after the interview. The interview may be conducted at any place, but it is appropriate to meet the 64

respondent at his place of work at his residence. The main purpose of this consideration is that the answer must be recorded clearly and correctly. The personal interview may be either structured or unstructured.

2) Telephone Interview: The telephone interview is used when the information to be

collected is limited. The telephone interview is used in lieu of personal interview. It is most frequently used when the information has to be collected quickly. However, it is not as versatile as personal interview.

3) Mail Interview: The mail interview places a great deal of importance of the construction
of questionnaire because there is no interviewer in mail survey to ask question and record answer.

4) Panel Interview: A panel interview may be composed of either individuals or corporate

units. It is convenient method of obtaining information about the continuing behavior of group or panel of respondents.

Survey
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The survey took place at Lucknow (U.P). The survey done in a proper manner with the help of questionnaires and through interview method. First of all the survey was started on the basis of questionnaires. At this primary stage, it was really required for the market researcher to take information what customers know about financial products. There were a number of questions which made the survey complicated as what customers know about financial products? Do they invest somewhere, if yes, then where?

There were near about 100 questionnaires, 80 out of which gave good response, another 20 of which gave average response and the rest of all were remained o.k. The interview method was started simultaneously with the filling of questionnaires.

Generally, the questions were involved in questionnaires were direct. The market researcher never tried to put the individual in the state of dilemma. The reason for this is really simple as this type of survey had not been ever done before there so a large number of group of customers were not having proper knowledge of these types of surveys.

During research process, personal interview and telephone interview were taken place mainly.

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EXECUTION OF PROJECT
It is very essential in the research process to know the accuracy of the findings which depends on how systematically the study has been carried out so that it can make sense. We have executed the project after prior discussion with our guide and structured in the following steps:

a. Preparation of a questionnaire

b. The focal point of the designing the questionnaire was to comprehend the current investment scenario.

c. This questionnaire was primarily aimed to respondents who belong to the service and business class people.

d. The questionnaires were discussed through personal interface with the respondents.

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Is there any difference between saving and investment ? Yes No

Analysis :It has been observed that approximately 80% of the correspondents know the difference between saving and investment while 20% value only savings.

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1. What investment strategy you adopt before investing ? a. Earn appreciation b. Earn regular income c. Safeguard your investment d. Balanced Strategy

60% 60% 50% 40% 30% 20% 10% 10% 0% 5% E arn E arn re g ularS afe g uard B alan c e d ap p re c iatio n inc o m e yo ur s trate g y inve s tm e nt 25% E arn ap p re c ia tio n E arn re g ular inc o m e S af e g ua rd yo ur inve s tm e n t B alanc e d s trate g y

Analysis :About 60% of the people before investing consider to earn regular income from the investment while 25% people want to safeguard their investment and other 5% and 10% choose other strategies.

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3. In which Schemes are you investing in ? a.Bank fixed deposits b.Post Office monthly income Plan c.Recurring deposit d.ULIP e.Chit fund

30%

25%

20%

Bank fixed deposit 15% 25% 20% 15% 5% 10% 30% Post office monthly income plan Recurring Deposit ULIP Chit Fund

10%

0% Bank fixed deposit Post office monthly income plan Recurring Deposit ULIP Chit Fund

Analysis : 30% of the people are investing in recurring deposit while 20-25% in bank
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f.d and post office MIS only 10-15% are investing in ULIP and CHIT Fund.

4. While investing what all parameters do you keep in consideration ? a. Performance of scheme b.Need and objectives c.Surplus income

70% 60% 50% 40% 30% 20% 10% 0% Performance of Scheme Need and objectives Surplus income 20% 10% Performance of Scheme Need and objectives Surplus income

70%

Analysis :At the time of investment 70% of the people consider need &objectives as most important parameter while20-10% consider surplus income and
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performance of scheme. You save tax in..schemes/instruements ? Insurance Elss tax saver Tax saving Bank F.D

Analysis :A major chunk who have been interviewed it has been observed that almost 57% have some kind of insurance policy. ELSS have shown growing importance among investors for tax savings as compared to Insurance schemes. 72

5.

You find mutual fund scheme ?

Risky return oriented Diversification

Analysis :The percentage of person who say that mutual fund is Risky is 55%, and those who say it is return oriented is 30% only 15% say it is diversified.. These are people who say that mutual funds are high risk and high gain or even people who have no opinion.

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For regular income you invest in ? MIP

Post office MIS pension schemes

Analysis :Most of the investors have invested in post office MIS and 30% in monthly income plan while 20% go for pension scheme.

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For investment above2 years , your investment will be in ? Debt scheme equity Fixed Deposit

Analysis :-

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For investment above 2 years most of the people prefer to take Bank F.D in comparison to equity and Debt Scheme.

9. For every month your small saving go into a. Recurring deposit b. Systematic investment plan

60% 50% 40% 30% 20% 10% 0% Recurrig deposit SIP 60% 40% Recurrig deposit SIP

Analysis :Most of the Respondents choose Recurring deposit for their small monthly Saving and 40% choosen Systematic investment plan as their small monthly Saving.
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77

10. Do you know benefits of SIP ? Yes NO

Analysis :About 70% of the Respondents are unaware about the benefits of SIP only 30% are aware about the benefits of SIP.

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PROJECT FINDINGS:

There is great opportunity for Mutual Fund companies as there is a is a rise in number of people who want to invest in share market but dont have time and knowledge to do so, also these people want to take less risk .

With booming market and falling interest rate of bank deposits, people see mutual funds as an attractive financial tool which provide a high return rate at lower risk as compared to equity market.

Young people these days are particularly more interested in mutual funds because they see mutual fund as safe bet. Also these people have large disposable incomes and risk taking capability too.

The bad part is people are still ignorant about mutual funds and different schemes about mutual funds, hence it is very necessary to educate them about mutual funds

Advertising can also play a major part as it has been seen that people buy mutual fund looking at the brand name.

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SWOT ANALYSIS Strength

Reliance is a brand name so the company can take benefit of it as it will not take much time to make the customer understand. The company can capture whole market frequently with the help of its low brokerage option of Rs. 12 per trade in equity and commodities market.

Weakness
The advertising has not been done in proper manner. A large group of customers were not well aware about the way to invest.

Opportunity
Lucknow has a vast market place for the marketing of financial products. Businessmen are very much keen to invest in equity and commodity derivatives as well as in mutual funds so this group of customers should be taken in more consideration. Share trading is being much preferred in Lucknow

Threat
Domestic players are emerging in the market in a large number so the company will

have to become more attentive toward it. In some areas it was remained difficult to make the customer understand for what

purpose the survey is going on.

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RECOMMENDATIONS:
India is passing through a tremendous growth phase with an average growth rate of 7-8% per annum. With this growth phase there is growth in each and every sector, hence there is rush to by shares and equities. It is also a very good time for mutual fund companies but it is advisable for them and their brokers that they dont just sell mutual funds but sell the right kind of scheme which is comfortable to a person nature of taking risk and need,

There is a general ignorance and questions about, what are mutual funds? What are different schemes of mutual funds? How to invest in a mutual? And many more. This thing should be handled by mutual fund companies and their brokers to provide knowledge to their clients.

It has been seen that there is a major increase in the percentage of young investors who have large amount of disposable income with them and want to invest, these type of prospective clients should be tapped at an early stage.

Small towns, villages are still untapped and can also acts as an business area of very huge potential.

Now even co-operative society can invest up to 10% of their capital in mutual funds which open the door to new and very important client base.

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CONCLUSION

In India, the mutual funds have a lot of potential to grow. Mutual fund companies have to create and market innovative products and frame distinct marketing strategies. Product innovation will be one of the key determinants to success. The mutual fund industry has to bring many innovative concepts such as high yield bond fund, principal protected fund, long short fund, arbitrate funds, dynamic funds, precious metal fund, and so on. The penetration of mutual funds can be increased through investor education, providing investor oriented value added services, and innovative distribution channels. Mutual funds have failed during the bearish market conditions.

To sell successfully during the bear market, there is no need to educate the investor about risk-adjusted return and total portfolio return to enable them to take informed decision. Mutual funds need to develop a wide distribution network to increase its reach and tap investment from all corners and segments. Increased use of internet and development of alternative channels such as financial advisors can play a vital role in increasing the penetration of mutual funds. Mutual funds have come a long way, but a lot more can be done.

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LIMITATIONS
Every work has its own limitations. Limitations are extent to which the process should not exceed. The following limitations for the project are: Duration of project was not enough to make our conclusion on such a vast subject. Time constraints has also become a major limitation

The sample size taken for drawing the conclusion was not sizeable

Investor ignorance was faced during discussions with respondents

The Advertising has not been done in a proper manner.

A large group of customer was not well aware about the way to invest.

Entry of domestic players also influenced the whole market scenario.

The trust of customer mainly on government institution.

Sometime the customer did not give right information about himself.

Sometime the gap of communication was come in between the interaction.

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DEMOGRAPHICS
NAME OCCUPTION.. NO.OF FAMILY MEMBERS.. AGE.MOBILE NO

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QUESTIONNAIRE

1. Is there any difference between savings and investment ? a.Yes b. No 2. What investment strategy you adopt before investing ? a. Earn appreciation b. Earn regular income c. Safeguard your investment
d.Balanced Strategy

3. In which Schemes are you investing in ? a.Bank fixed deposits b.Post Office monthly income Plan c.Recurring deposit d.ULIP e.Chit fund 4. While investing what all parameters do you keep in consideration ? a. Performance of scheme b.Need and objectives c.Surplus income

5. You Save tax in..Scheme\ instrument. a. Insurance b. Elss Tax saver c. Tax saving Bank Fixed deposit 85

6. You find Mutual fund Scheme ? a. Risky b.Return oriented c.Diversification

7. For Regular income, you invest in? a.Monthly income Plan b.Post office c.Pension Scheme 8. For investment above 2 years your investment will be in a.Debt Scheme b.Equity c.Bank fixed deposit 9. For every month your small saving go into a.Recurring deposit b.Systematic investement plan

10. Do you know benefits of Systematic investement plan? a.Yes b.No

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BIBLIOGRAPHY

WEB:
www.reliancemutualfund.com www.sundermutual.com www.njindiainvest.com www.moneycontrol.com www.amfiindia.com www.indiamutual.com

BOOKS
Mutual Fund Product And Services---- Taxman Amfi Course Book Indian Mutual Funds Handbook-Sunder Sankaran

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