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  • Projectsformba.blogspot.com ACKNOWLEDGEMENT Before we get into thick of things, Iwould like to add a few words of appreciation for thepeople who have been a part of this projectright from its inception. The writing of this projecthas been one of the significant academicchallenges I have faced and without the support,patience, and guidance of the people involved,this task would not have been completed. It is tothem I owe my deepest gratitude. It gives meImmense pleasure in presenting this project report on "COMPARATIVESTUDY OF MUTUALFUNDS IN INDIA". It has been my privilege to have a team of projectguide who have assistedme from the commencement of this project. The success of this projectis a result of sheer hardwork, and determination put in by me with the help of my project guide.I hereby take thisopportunity to add a special note of thanks for ………………., who undertookto act as mymentor despite her many other academic and professional commitments. Herwisdom,knowledge, and commitment to the highest standards inspired and motivated me.Without herinsight, support, and energy, this project wouldnt have kick-started and neitherwould havereached fruitfulness. I also feel heartiest sense of obligation to my library staff members &seniors, whohelped me in collection of data & resource material & also in its processing as wellas in draftingmanuscript. The project is dedicated to all those people, who helped me while doingthis project. 45. Projectsformba.blogspot.comNEED FOR THE STUDY: The main purpose of doing thisproject was to know about mutual fund and itsfunctioning. This helps to know in details aboutmutual fund industry right from its inceptionstage, growth and future prospects. It also helps inunderstanding different schemes of mutual funds. Because my studydepends upon prominentfunds in India and their schemes like equity, income, balance as well asthe returns associatedwith those schemes. The project study was done to ascertain the asset allocation, entry load, exitload,associated with the mutual funds. Ultimately this would help in understanding the benefitsofmutual funds to investors.OBJECTIVE: To give a brief idea about the benefits availablefrom Mutual Fund investment. To give an idea of the types of schemes available. To discussabout the market trends of Mutual Fund investment. To study some of the mutual fundschemes. To study some mutual fund companies and their funds. Observe the fundmanagement process of mutual funds. Explore the recent developments in the mutual funds inIndia. To give an idea about the regulations of mutual funds.LIMITATIONS • The lack ofinformation sources for the analysis part. • Though I tried to collect some primary data but theywere too inadequate for the purposes of the study. • Time and money are critical factors limitingthis study. • The data provided by the prospects may not be 100% correct as they too have theirlimitations. • The study is limited to selected mutual fund schemes. 56. Projectsformba.blogspot.com EXECUTIVE SUMMERY A mutual fund is a scheme in whichseveral people invest their money for a commonfinancial cause. The collected money invests inthe capital market and the money, which theyearned, is divided based on the number of units,which they hold. The mutual fund industry started in India in a small way with the UTI Actcreating whatwas effectively a small savings division within the RBI. Over a period of 25 years
  • this grewfairly successfully and gave investors a good return, and therefore in 1989, as the nextlogicalstep, public sector banks and financial institutions were allowed to float mutual funds andtheirsuccess emboldened the government to allow the private sector to foray into this area. Theadvantages of mutual fund are professional management, diversification, economiesof scale,simplicity, and liquidity. The disadvantages of mutual fund are high costs, over-diversification,possible taxconsequences, and the inability of management to guarantee a superior return. Thebiggest problems with mutual funds are their costs and fees it include Purchase fee,Redemptionfee, Exchange fee, Management fee, Account fee & Transaction Costs. There aresome loadswhich add to the cost of mutual fund. Load is a type of commission depending on thetype offunds. Mutual funds are easy to buy and sell. You can either buy them directly from thefundcompany or through a third party. Before investing in any funds one should consider somefactorlike objective, risk, Fund Manager‟s and scheme track record, Cost factor etc. There aremany, many types of mutual funds. You can classify funds based Structure(open-ended & close-ended), Nature (equity, debt, balanced), Investment objective (growth,income, money market)etc. A code of conduct and registration structure for mutual fund intermediaries, whichweresubsequently mandated by SEBI. In addition, this year AMFI was involved in a numberofdevelopments and enhancements to the regulatory framework. 67. Projectsformba.blogspot.com The most important trend in the mutual fund industry is theaggressive expansion of theforeign owned mutual fund companies and the decline of thecompanies floated by nationalizedbanks and smaller private sector players. Reliance MutualFund, UTI Mutual Fund, ICICI Prudential Mutual Fund, HDFC MutualFund and Birla Sun LifeMutual Fund are the top five mutual fund company in India. Reliance mutual funding isconsidered to be most reliable mutual funds in India. Peoplewant to invest in this institutionbecause they know that this institution will never dissatisfy themat any cost. You should alwayskeep this into your mind that if particular mutual funding schemeis on larger scale then nexttime, you might not get the same results so being a careful investoryou should take your majorstep diligently otherwise you will be unable to obtain the highreturns. 78. Projectsformba.blogspot.com INDEX PAGE SRNO. TOPICS NO 1. INTRODUCTION OFMUTUAL FUND 01 2. WORKING OF MUTUAL FUND 25 3. MUTUAL FUND IN INDIA 334. RELIANCE MUTUAL FUND vs. UTI MUTUAL FUND 37 5. MUTUAL FUND vs. OTHERINVESTMENT 60 6. FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA 67 MFJARGON 68 CONCLUSION 69 BIBLOGRAPHY 70 89. Projectsformba.blogspot.com Chapter: 1 INTRODUCTION OF MUTUAL FUNDThere are alot of investment avenues available today in the financial market for an investor withaninvestable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bondswherethere is low risk but low return. He may invest in Stock of companies where the risk ishigh andthe returns are also proportionately high. The recent trends in the Stock Market haveshown thatan average retail investor always lost with periodic bearish tends. People began optingforportfolio managers with expertise in stock markets who would invest on their behalf. Thus
  • wehad wealth management services provided by many institutions. However they proved toocostlyfor a small investor. These investors have found a good shelter with the mutualfunds.CONCEPT OF MUTUAL FUND: A mutual fund is a common pool of money into whichinvestors place their contributionsthat are to be invested in accordance with a stated objective.The ownership of the fund is thusjoint or “mutual”; the fund belongs to all investors. A singleinvestor‟s ownership of the fund isin the same proportion as the amount of the contribution madeby him or her bears to the totalamount of the fund. 910. Projectsformba.blogspot.com Mutual Funds are trusts, which accept savings from investorsand invest the same indiversified financial instruments in terms of objectives set out in the trustsdeed with the view toreduce the risk and maximize the income and capital appreciation fordistribution for themembers. A Mutual Fund is a corporation and the fund manager‟s interest isto professionallymanage the funds provided by the investors and provide a return on them afterdeductingreasonable management fees. The objective sought to be achieved by Mutual Fund is toprovide an opportunity forlower income groups to acquire without much difficulty financialassets. They cater mainly tothe needs of the individual investor whose means are small and tomanage investors portfolio in amanner that provides a regular income, growth, safety, liquidityand diversificationopportunities.DEFINITION: “Mutual funds are collective savings andinvestment vehicles where savings of small(or sometimes big) investors are pooled together toinvest for their mutual benefit and returnsdistributed proportionately”. “A mutual fund is aninvestment that pools your money with the money of an unlimitednumber of other investors. Inreturn, you and the other investors each own shares of the fund.The funds assets are investedaccording to an investment objective into the funds portfolio ofinvestments. Aggressive growthfunds seek long-term capital growth by investing primarily instocks of fast-growing smallercompanies or market segments. Aggressive growth funds are alsocalled capital appreciationfunds”. 1011. Projectsformba.blogspot.comWhy Select Mutual Fund? The risk return trade-off indicatesthat if investor is willing to take higher risk thencorrespondingly he can expect higher returnsand vise versa if he pertains to lower riskinstruments, which would be satisfied by lower returns.For example, if an investors opt forbank FD, which provide moderate return with minimal risk.But as he moves ahead to invest incapital protected funds and the profit-bonds that give out morereturn which is slightly higher ascompared to the bank deposits but the risk involved alsoincreases in the same proportion. Thus investors choose mutual funds as their primary means ofinvesting, as Mutual fundsprovide professional management, diversification, convenience andliquidity. That doesn‟t meanmutual fund investments risk free. This is because the money that ispooled in are not invested only in debts funds which areless riskier but are also invested in thestock markets which involves a higher risk but can expecthigher returns. Hedge fund involves avery high risk since it is mostly traded in the derivativesmarket which is considered very volatile.RETURN RISK MATRIX HIGHIER RISK HIGHER RISK MODERATE RETURNS
  • HIGHIER RETURNS Venture Capital Equity Bank FD Mutual Funds Postal Savings LOWERRISK LOWER RISK LOWER RETURNS HIGIER RETURNS 1112. Projectsformba.blogspot.comHISTORY OF MUTUAL FUNDS IN INDIA: The mutual fundindustry in India started in 1963 with the formation of Unit Trust ofIndia, at the initiative of theGovernment of India and Reserve Bank. The history of mutual fundsin India can be broadlydivided into four distinct phasesFIRST PHASE – 1964-87: Unit Trust of India (UTI) wasestablished on 1963 by an Act of Parliament. It was set upby the Reserve Bank of India andfunctioned under the Regulatory and administrative control ofthe Reserve Bank of India. In 1978UTI was de-linked from the RBI and the IndustrialDevelopment Bank of India (IDBI) took overthe regulatory and administrative control in placeof RBI. The first scheme launched by UTI wasUnit Scheme 1964. At the end of 1988 UTI hadRs.6,700 crores of assets undermanagement.SECOND PHASE – 1987-1993 (ENTRY OF PUBLIC SECTOR FUNDS): 1987marked the entry of non- UTI, public sector mutual funds set up by public sectorbanks and LifeInsurance Corporation of India (LIC) and General Insurance Corporation of India(GIC). SBIMutual Fund was the first non- UTI Mutual Fund established in June 1987 followedby CanbankMutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian BankMutual Fund(Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LICestablished itsmutual fund in June 1989 while GIC had set up its mutual fund in December1990. At the end of1993, the mutual fund industry had assets under management of Rs.47,004crores.THIRDPHASE – 1993-2003 (ENTRY OF PRIVATE SECTOR FUNDS): With the entry of privatesector funds in 1993, a new era started in the Indian mutual fundindustry, giving the Indianinvestors a wider choice of fund families. Also, 1993 was the year inwhich the first Mutual FundRegulations came into being, under which all mutual funds, exceptUTI were to be registered andgoverned. The erstwhile Kothari Pioneer (now merged withFranklin Templeton) was the firstprivate sector mutual fund registered in July 1993. 1213. Projectsformba.blogspot.com The 1993 SEBI (Mutual Fund) Regulations were substituted bya more comprehensiveand revised Mutual Fund Regulations in 1996. The industry now functionsunder the SEBI(Mutual Fund) Regulations 1996. The number of mutual fund houses went onincreasing, with many foreign mutual fundssetting up funds in India and also the industry haswitnessed several mergers and acquisitions. Asat the end of January 2003, there were 33 mutualfunds with total assets of Rs. 1,21,805 crores.The Unit Trust of India with Rs.44,541 crores ofassets under management was way ahead ofother mutual funds.FOURTH PHASE – SINCEFEBRUARY 2003: In February 2003, following the repeal of the Unit Trust of India Act 1963UTI wasbifurcated into two separate entities. One is the Specified Undertaking of the Unit Trustof Indiawith assets under management of Rs.29,835 crores as at the end of January 2003,representingbroadly, the assets of US 64 scheme, assured return and certain other schemes. TheSpecifiedUndertaking of Unit Trust of India, functioning under an administrator and under therulesframed by Government of India and does not come under the purview of the MutualFundRegulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
  • LIC. It isregistered with SEBI and functions under the Mutual Fund Regulations. With thebifurcation ofthe erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assetsundermanagement and with the setting up of a UTI Mutual Fund, conforming to the SEBIMutualFund Regulations, and with recent mergers taking place among different private sectorfunds, themutual fund industry has entered its current phase of consolidation and growth. As atthe end ofSeptember, 2004, there were 29 funds, which manage assets of Rs.153108 crores under421schemes. 1314. Projectsformba.blogspot.comThe graph indicates the growth of assets under managementover the years. GROWTH IN ASSETS UNDER MANAGEMENT (Source:www.amfiindia.com) 1415. Projectsformba.blogspot.comADVANTAGES OF MUTUAL FUNDS: If mutual funds areemerging as the favorite investment vehicle, it is because of the manyadvantages they have overother forms and the avenues of investing, particularly for the investorwho has limited resourcesavailable in terms of capital and the ability to carry out detailedresearch and market monitoring.The following are the major advantages offered by mutualfunds to all investors:1. PortfolioDiversification: Each investor in the fund is a part owner of all the fund‟s assets, thus enablinghim tohold a diversified investment portfolio even with a small amount of investment thatwouldotherwise require big capital.2. Professional Management: Even if an investor has a bigamount of capital available to him, he benefits from theprofessional management skills broughtin by the fund in the management of the investor‟sportfolio. The investment management skills,along with the needed research into availableinvestment options, ensure a much better returnthan what an investor can manage on his own.Few investors have the skill and resources of theirown to succeed in today‟s fast moving, globaland sophisticated markets.3.Reduction/Diversification Of Risk: When an investor invests directly, all the risk of potentialloss is his own, whether heplaces a deposit with a company or a bank, or he buys a share ordebenture on his own or in anyother from. While investing in the pool of funds with investors,the potential losses are alsoshared with other investors. The risk reduction is one of the mostimportant benefits of acollective investment vehicle like the mutual fund. 1516. Projectsformba.blogspot.com4. Reduction Of Transaction Costs: What is true of risk as alsotrue of the transaction costs. The investor bears all the costs ofinvesting such as brokerage orcustody of securities. When going through a fund, he has thebenefit of economies of scale; thefunds pay lesser costs because of larger volumes, a benefitpassed on to its investors.5. Liquidity:Often, investors hold shares or bonds they cannot directly, easily and quickly sell. Whentheyinvest in the units of a fund, they can generally cash their investments any time, by sellingtheirunits to the fund if open-ended, or selling them in the market if the fund is close-end.Liquidity ofinvestment is clearly a big benefit.6. Convenience And Flexibility: Mutual fund managementcompanies offer many investor services that a direct marketinvestor cannot get. Investors caneasily transfer their holding from one scheme to the other; getupdated market information and soon.7. Tax Benefits: Any income distributed after March 31, 2002 will be subject to tax in the
  • assessment ofall Unit holders. However, as a measure of concession to Unit holders of open-ended equity-oriented funds, income distributions for the year ending March 31, 2003, will betaxed at aconcessional rate of 10.5%. In case of Individuals and Hindu Undivided Families adeduction upto Rs. 9,000 from theTotal Income will be admissible in respect of income frominvestments specified in Section 80L,including income from Units of the Mutual Fund. Units ofthe schemes are not subject toWealth-Tax and Gift-Tax.8. Choice of Schemes:Mutual Fundsoffer a family of schemes to suit your varying needs over a lifetime. 1617. Projectsformba.blogspot.com9. Well Regulated:All Mutual Funds are registered with SEBIand they function within the provisions of strictregulations designed to protect the interests ofinvestors. The operations of Mutual Funds areregularly monitored by SEBI.10. Transparency:You get regular information on the value of your investment in addition to disclosure on thespecific investments made by your scheme, the proportion invested in each class of assets andthe fund managers investment strategy and outlook.DISADVANTAGES OF INVESTINGTHROUGH MUTUALFUNDS:1. No Control Over Costs: An investor in a mutual fund has nocontrol of the overall costs of investing. The investorpays investment management fees as longas he remains with the fund, albeit in return for theprofessional management and research. Feesare payable even if the value of his investments isdeclining. A mutual fund investor also paysfund distribution costs, which he would not incur indirect investing. However, this shortcomingonly means that there is a cost to obtain the mutualfund services.2. No Tailor-Made Portfolio:Investors who invest on their own can build their own portfolios of shares and bonds andothersecurities. Investing through fund means he delegates this decision to the fund managers.Thevery-high-net-worth individuals or large corporate investors may find this to be a constraintinachieving their objectives. However, most mutual fund managers help investors overcomethisconstraint by offering families of funds- a large number of different schemes- within theirownmanagement company. An investor can choose from different investment plans andconstructs aportfolio to his choice. 1718. Projectsformba.blogspot.com3. Managing A Portfolio Of Funds: Availability of a largenumber of funds can actually mean too much choice for theinvestor. He may again need adviceon how to select a fund to achieve his objectives, quitesimilar to the situation when he hasindividual shares or bonds to select.4. The Wisdom Of Professional Management: Thats right,this is not an advantage. The average mutual fund manager is no better atpicking stocks than theaverage nonprofessional, but charges fees.5. No Control: Unlike picking your own individualstocks, a mutual fund puts you in the passenger seatof somebody elses car6. Dilution: Mutualfunds generally have such small holdings of so many different stocks thatinsanely greatperformance by a funds top holdings still doesnt make much of a difference in amutual fundstotal performance.7. Buried Costs: Many mutual funds specialize in burying their costs and inhiring salesmen who do notmake those costs clear to their clients. 1819. Projectsformba.blogspot.comTYPES OF MUTUAL FUNDS SCHEMES IN INDIA Widevariety of Mutual Fund Schemes exists to cater to the needs such as financialposition, risk
  • tolerance and return expectations etc. thus mutual funds has Variety of flavors,Being a collectionof many stocks, an investors can go for picking a mutual fund might be easy.There are overhundreds of mutual funds scheme to choose from. It is easier to think of mutualfunds incategories, mentioned below. 1920. Projectsformba.blogspot.comA).BY STRUCTURE1. Open - Ended Schemes: An open-endfund is one that is available for subscription all through the year. These donot have a fixedmaturity. Investors can conveniently buy and sell units at Net Asset Value("NAV") relatedprices. The key feature of open-end schemes is liquidity.2. Close - Ended Schemes: A closed-endfund has a stipulated maturity period which generally ranging from 3 to 15years. The fund isopen for subscription only during a specified period. Investors can invest inthe scheme at thetime of the initial public issue and thereafter they can buy or sell the units ofthe scheme on thestock exchanges where they are listed. In order to provide an exit route to theinvestors, someclose-ended funds give an option of selling back the units to the Mutual Fundthrough periodicrepurchase at NAV related prices. SEBI Regulations stipulate that at least oneof the two exitroutes is provided to the investor.3. Interval Schemes: Interval Schemes are that scheme, whichcombines the features of open-ended and close-ended schemes. The units may be traded on thestock exchange or may be open for sale orredemption during pre-determined intervals at NAVrelated prices. 2021. Projectsformba.blogspot.comB).BY NATURE1. Equity Fund: These funds invest amaximum part of their corpus into equities holdings. The structureof the fund may vary differentfor different schemes and the fund manager‟s outlook on differentstocks. The Equity Funds aresub-classified depending upon their investment objective, asfollows: • Diversified Equity Funds •Mid-Cap Funds • Sector Specific Funds • Tax Savings Funds (ELSS) Equity investments aremeant for a longer time horizon, thus Equity funds rank high onthe risk-return matrix.2. DebtFunds: The objective of these Funds is to invest in debt papers. Government authorities,privatecompanies, banks and financial institutions are some of the major issuers of debt papers.Byinvesting in debt instruments, these funds ensure low risk and provide stable income totheinvestors. Debt funds are further classified as: • Gilt Funds: Invest their corpus in securitiesissued by Government, popularly known as Government of India debt papers. These Funds carryzero Default risk but are associated with Interest Rate risk. These schemes are safer as theyinvest in papers backed by Government. • Income Funds: Invest a major portion into variousdebt instruments such as bonds, corporate debentures and Government securities. • MIPs: Investsmaximum of their total corpus in debt instruments while they take minimum exposure inequities. It gets benefit of both equity and debt market. These scheme ranks slightly high on therisk-return matrix when compared with other debt schemes. 2122. Projectsformba.blogspot.com • Short Term Plans (STPs): Meant for investment horizon forthree to six months. These funds primarily invest in short term papers like Certificate of Deposits(CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporatedebentures. • Liquid Funds: Also known as Money Market Schemes, These funds provides easy
  • liquidity and preservation of capital. These schemes invest in short-term instruments likeTreasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3months. These schemes rank low on risk-return matrix and are considered to be the safestamongst all categories of mutual funds.3. Balanced Funds: As the name suggest they, are a mixof both equity and debt funds. They invest in bothequities and fixed income securities, which arein line with pre-defined investment objective ofthe scheme. These schemes aim to provideinvestors with the best of both the worlds. Equity partprovides growth and the debt part providesstability in returns.Further the mutual funds can be broadly classified on the basis of investmentparameter viz,Each category of funds is backed by an investment philosophy, which is pre-defined in theobjectives of the fund. The investor can align his own investment needs with thefunds objectiveand invest accordingly. 2223. Projectsformba.blogspot.comC).BY INVESTMENT OBJECTIVE:Growth Schemes: GrowthSchemes are also known as equity schemes. The aim of these schemes is toprovide capitalappreciation over medium to long term. These schemes normally invest a majorpart of their fundin equities and are willing to bear short-term decline in value for possiblefutureappreciation.Income Schemes: Income Schemes are also known as debt schemes. The aim ofthese schemes is to provideregular and steady income to investors. These schemes generallyinvest in fixed incomesecurities such as bonds and corporate debentures. Capital appreciation insuch schemes may belimited.Balanced Schemes: Balanced Schemes aim to provide both growthand income by periodically distributing apart of the income and capital gains they earn. Theseschemes invest in both shares and fixedincome securities, in the proportion indicated in theiroffer documents (normally 50:50).Money Market Schemes: Money Market Schemes aim toprovide easy liquidity, preservation of capital andmoderate income. These schemes generallyinvest in safer, short-term instruments, such astreasury bills, certificates of deposit, commercialpaper and inter-bank call money.Load Funds: A Load Fund is one that charges a commission forentry or exit. That is, each time youbuy or sell units in the fund, a commission will be payable.Typically entry and exit loads rangefrom 1% to 2%. It could be worth paying the load, if the fundhas a good performance history.No-Load Funds: A No-Load Fund is one that does not charge acommission for entry or exit. That is, nocommission is payable on purchase or sale of units in thefund. The advantage of a no load fundis that the entire corpus is put to work. 2324. Projectsformba.blogspot.comOTHER SCHEMESTax Saving Schemes: Tax-saving schemesoffer tax rebates to the investors under tax laws prescribed from timeto time. Under Sec.88 of theIncome Tax Act, contributions made to any Equity Linked SavingsScheme (ELSS) are eligiblefor rebate.Index Schemes: Index schemes attempt to replicate the performance of a particularindex such as the BSESensex or the NSE 50. The portfolio of these schemes will consist of onlythose stocks thatconstitute the index. The percentage of each stock to the total holding will beidentical to thestocks index weightage. And hence, the returns from such schemes would be moreor lessequivalent to those of the Index.Sector Specific Schemes:These are the funds/schemes
  • which invest in the securities of only those sectors or industries asspecified in the offerdocuments. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods(FMCG), Petroleumstocks, etc. The returns in these funds are dependent on the performance ofthe respectivesectors/industries. While these funds may give higher returns, they are more riskycompared todiversified funds. Investors need to keep a watch on the performance of thosesectors/industriesand must exit at an appropriate time. 2425. Projectsformba.blogspot.comNET ASSET VALUE (NAV): Since each owner is a part ownerof a mutual fund, it is necessary to establish the value ofhis part. In other words, each share orunit that an investor holds needs to be assigned a value.Since the units held by investor evidencethe ownership of the fund‟s assets, the value of the totalassets of the fund when divided by thetotal number of units issued by the mutual fund gives usthe value of one unit. This is generallycalled the Net Asset Value (NAV) of one unit or oneshare. The value of an investor‟s partownership is thus determined by the NAV of the number ofunits held.Calculation of NAV: Letus see an example. If the value of a fund‟s assets stands at Rs. 100 and it has 10investors whohave bought 10 units each, the total numbers of units issued are 100, and the valueof one unit isRs. 10.00 (1000/100). If a single investor in fact owns 3 units, the value of hisownership of thefund will be Rs. 30.00(1000/100*3). Note that the value of the fund‟sinvestments will keepfluctuating with the market-price movements, causing the Net Asset Valuealso to fluctuate. Forexample, if the value of our fund‟s asset increased from Rs. 1000 to 1200,the value of ourinvestors holding of 3 units will now be (1200/100*3) Rs. 36. The investmentvalue can go up ordown, depending on the markets value of the fund‟s assets. 2526. Projectsformba.blogspot.comMUTUAL FUND FEES AND EXPENSES Mutual fund feesand expenses are charges that may be incurred by investors who holdmutual funds. Running amutual fund involves costs, including shareholder transaction costs,investment advisory fees, andmarketing and distribution expenses. Funds pass along these coststo investors in a number ofways.1. TRANSACTION FEES i) Purchase Fee: It is a type of fee that some funds charge theirshareholders when they buy shares. Unlike a front-end sales load, a purchase fee is paid to thefund (not to a broker) and is typically imposed to defray some of the funds costs associated withthe purchase. ii) Redemption Fee: It is another type of fee that some funds charge theirshareholders when they sell or redeem shares. Unlike a deferred sales load, a redemption fee ispaid to the fund (not to a broker) and is typically used to defray fund costs associated with ashareholders redemption. iii) Exchange Fee: Exchange fee that some funds impose onshareholders if they exchange (transfer) to another fund within the same fund group or "family offunds."2. PERIODIC FEES i) Management Fee: Management fees are fees that are paid out offund assets to the funds investment adviser for investment portfolio management, any othermanagement fees payable to the funds investment adviser or its affiliates, and administrative feespayable to the investment adviser that are not included in the "Other Expenses" category. Theyare also called maintenance fees. 26
  • 27. Projectsformba.blogspot.com ii) Account Fee: Account fees are fees that some fundsseparately impose on investors in connection with the maintenance of their accounts. Forexample, some funds impose an account maintenance fee on accounts whose value is less than acertain dollar amount.3. OTHER OPERATING EXPENSES Transaction Costs: These costs areincurred in the trading of the funds assets. Funds with a high turnover ratio, or investing inilliquid or exotic markets usually face higher transaction costs. Unlike the Total Expense Ratiothese costs are usually not reported.LOADSDefinition of a load Load funds exhibit a "SalesLoad" with a percentage charge levied on purchase or sale ofshares. A load is a type ofCommission (remuneration). Depending on the type of load a mutualfund exhibits, charges maybe incurred at time of purchase, time of sale, or a mix of both. Thedifferent types of loads areoutlined below.Front-end load: Also known as Sales Charge, this is a fee paid when shares arepurchased. Also known asa "front-end load," this fee typically goes to the brokers that sell thefunds shares. Front-endloads reduce the amount of your investment. For example, lets say youhave Rs.10,000 and wantto invest it in a mutual fund with a 5% front-end load. The Rs.500 salesload you must paycomes off the top, and the remaining Rs.9500 will be invested in the fund.According to NASDrules, a front-end load cannot be higher than 8.5% of your investment. 2728. Projectsformba.blogspot.comBack-end load: Also known as Deferred Sales Charge, this is afee paid when shares are sold. Alsoknown as a "back-end load," this fee typically goes to thebrokers that sell the funds shares. Theamount of this type of load will depend on how long theinvestor holds his or her shares andtypically decreases to zero if the investor holds his or hershares long enough.Level load / Low load: Its similar to a back-end load in that no sales chargesare paid when buying the fund.Instead a back-end load may be charged if the shares purchasedare sold within a given timeframe. The distinction between level loads and low loads as opposedto back-end loads, is thatthis time frame where charges are levied is shorter.No-load Fund: Asthe name implies, this means that the fund does not charge any type of sales load. But,as outlinedabove, not every type of shareholder fee is a "sales load." A no-load fund may chargefees that arenot sales loads, such as purchase fees, redemption fees, exchange fees, and accountfees. 2829. Projectsformba.blogspot.comSELECTION PARAMETERS FOR MUTUAL FUNDYourobjective: The first point to note before investing in a fund is to find out whether yourobjectivematches with the scheme. It is necessary, as any conflict would directly affect yourprospectivereturns. Similarly, you should pick schemes that meet your specific needs. Examples:pensionplans, children‟s plans, sector-specific schemes, etc.Your risk capacity and capability:This dictates the choice of schemes. Those with no risk tolerance should go for debtschemes, asthey are relatively safer. Aggressive investors can go for equity investments.Investors that areeven more aggressive can try schemes that invest in specific industry orsectors.Fund Manager‟sand scheme track record: Since you are giving your hard earned money to someone to manage it,it is imperativethat he manages it well. It is also essential that the fund house you choose hasexcellent trackrecord. It also should be professional and maintain high transparency inoperations. Look at theperformance of the scheme against relevant market benchmarks and its
  • competitors. Look at theperformance of a longer period, as it will give you how the scheme faredin different marketconditions.Cost factor: Though the AMC fee is regulated, you should look atthe expense ratio of the fund beforeinvesting. This is because the money is deducted from yourinvestments. A higher entry load orexit load also will eat into your returns. A higher expenseratio can be justified only bysuperlative returns. It is very crucial in a debt fund, as it will devoura few percentages from yourmodest returns. 2930. Projectsformba.blogspot.com Also, Morningstar rates mutual funds. Each year end, manyfinancial publications list theyears best performing mutual funds. Naturally, very eager investorswill rush out to purchaseshares of last years top performers. Thats a big mistake. Remember,changing market conditionsmake it rare that last years top performer repeats that ranking for thecurrent year. Mutual fundinvestors would be well advised to consider the fund prospectus, thefund manager, and thecurrent market conditions. Never rely on last years top performers.Typesof Returns on Mutual Fund: There are three ways, where the total returns provided by mutualfunds can be enjoyed byinvestors: • Income is earned from dividends on stocks and interest onbonds. A fund pays out nearly all income it receives over the year to fund owners in the form ofa distribution. • If the fund sells securities that have increased in price, the fund has a capitalgain. Most funds also pass on these gains to investors in a distribution.If fund holdings increasein price but are not sold by the fund manager, the funds shares increasein price. You can then sellyour mutual fund shares for a profit. Funds will also usually give youa choice either to receive acheck for distributions or to reinvest the earnings and get moreshares. 3031. Projectsformba.blogspot.comRISK FACTORS OF MUTUAL FUNDS:1. The Risk-ReturnTrade-Off: The most important relationship to understand is the risk-return trade-off. Higher theriskgreater the returns / loss and lower the risk lesser the returns/loss. Hence it is upto you, theinvestor to decide how much risk you are willing to take. Inorder to do this you must first beaware of the different types of risks involved with yourinvestment decision.2. Market Risk:Sometimes prices and yields of all securities rise and fall. Broad outside influencesaffecting themarket in general lead to this. This is true, may it be big corporations or smallermid-sizedcompanies. This is known as Market Risk. A Systematic Investment Plan (“SIP”) thatworks onthe concept of Rupee Cost Averaging (“RCA”) might help mitigate this risk.3. Credit Risk: Thedebt servicing ability (may it be interest payments or repayment of principal) of acompanythrough its cashflows determines the Credit Risk faced by you. This credit risk ismeasured byindependent rating agencies like CRISIL who rate companies and their paper. A„AAA‟ rating isconsidered the safest whereas a „D‟ rating is considered poor credit quality. Awell-diversifiedportfolio might help mitigate this risk.4. Inflation Risk: Things you hear people talk about:"Rs.100 today is worth more than Rs. 100 tomorrow.""Remember the time when a bus ride costed 50paise?""Mehangai Ka Jamana Hai."The root cause, Inflation. Inflation is the loss of purchasingpower over time. A lot of timespeople make conservative investment decisions to protect theircapital but end up with a sum ofmoney that can buy less than what the principal could at the timeof the investment. This happens 31
  • 32. Projectsformba.blogspot.comwhen inflation grows faster than the return on your investment.A well-diversified portfolio withsome investment in equities might help mitigate this risk.5.Interest Rate Risk: In a free market economy interest rates are difficult if not impossible topredict. Changesin interest rates affect the prices of bonds as well as equities. If interest rates risethe prices ofbonds fall and vice versa. Equity might be negatively affected as well in a risinginterest rateenvironment. A well-diversified portfolio might help mitigate this risk.6. Political /Government Policy Risk: Changes in government policy and political decision can change theinvestmentenvironment. They can create a favorable environment for investment or vice versa.7.Liquidity Risk: Liquidity risk arises when it becomes difficult to sell the securities that onehaspurchased. Liquidity Risk can be partly mitigated by diversification, staggering of maturitiesaswell as internal risk controls that lean towards purchase of liquid securities. 3233. Projectsformba.blogspot.com Chapter: 2 WORKING OF MUTUAL FUNDS The mutualfund collects money directly or through brokers from investors. The money isinvested in variousinstruments depending on the objective of the scheme. The income generatedby selling securitiesor capital appreciation of these securities is passed on to the investors inproportion to theirinvestment in the scheme. The investments are divided into units and thevalue of the units willbe reflected in Net Asset Value or NAV of the unit. NAV is the marketvalue of the assets of thescheme minus its liabilities. The per unit NAV is the net asset value ofthe scheme divided by thenumber of units outstanding on the valuation date. Mutual fundcompanies provide daily net assetvalue of their schemes to their investors. NAV is important, asit will determine the price at whichyou buy or redeem the units of a scheme. Depending on theload structure of the scheme, youhave to pay entry or exit load. 3334. Projectsformba.blogspot.comSTRUCTURE OF A MUTUAL FUND: India has a legalframework within which Mutual Fund have to be constituted. In Indiaopen and close-end fundsoperate under the same regulatory structure i.e. as unit Trusts. AMutual Fund in India is allowedto issue open-end and close-end schemes under a common legalstructure. The structure that isrequired to be followed by any Mutual Fund in India is laid downunder SEBI (Mutual Fund)Regulations, 1996.The Fund Sponsor: Sponsor is defined under SEBI regulations as any personwho, acting alone or incombination of another corporate body establishes a Mutual Fund. Thesponsor of the fund isakin to the promoter of a company as he gets the fund registered withSEBI. The sponsor forms atrust and appoints a Board of Trustees. The sponsor also appoints theAsset ManagementCompany as fund managers. The sponsor either directly or acting through thetrustees will alsoappoint a custodian to hold funds assets. All these are made in accordance withthe regulationand guidelines of SEBI. 3435. Projectsformba.blogspot.com As per the SEBI regulations, for the person to qualify as asponsor, he must contribute atleast 40% of the net worth of the Asset Management Company andpossesses a sound financialtrack record over 5 years prior to registration.Mutual Funds as Trusts:A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The Fundsponsoracts as a settlor of the Trust, contributing to its initial capital and appoints a trustee tohold the
  • assets of the trust for the benefit of the unit-holders, who are the beneficiaries of thetrust. Thefund then invites investors to contribute their money in common pool, by scribing to“units”issued by various schemes established by the Trusts as evidence of their beneficialinterest in thefund. It should be understood that the fund should be just a “pass through” vehicle. UndertheIndian Trusts Act, the trust of the fund has no independent legal capacity itself, rather it istheTrustee or the Trustees who have the legal capacity and therefore all acts in relation to thetrustsare taken on its behalf by the Trustees. In legal parlance the investors or the unit-holders arethebeneficial owners of the investment held by the Trusts, even as these investments are held inthename of the Trustees on a day-to-day basis. Being public trusts, Mutual Fund can inviteanynumber of investors as beneficial owners in their investment schemes.Trustees: A Trust iscreated through a document called the Trust Deed that is executed by the fundsponsor in favourof the trustees. The Trust- the Mutual Fund – may be managed by a board oftrustees- a body ofindividuals, or a trust company- a corporate body. Most of the funds in Indiaare managed byBoards of Trustees. While the boards of trustees are governed by the IndianTrusts Act, where thetrusts are a corporate body, it would also require to comply with theCompanies Act, 1956. TheBoard or the Trust company as an independent body, acts as aprotector of the of the unit-holdersinterests. The Trustees do not directly manage the portfolio ofsecurities. For this specialistfunction, the appoint an Asset Management Company. They ensurethat the Fund is managed byht AMC as per the defined objectives and in accordance with thetrusts deeds and SEBIregulations. 3536. Projectsformba.blogspot.comThe Asset Management Companies: The role of an AssetManagement Company (AMC) is to act as the investment managerof the Trust under the boardsupervision and the guidance of the Trustees. The AMC is requiredto be approved and registeredwith SEBI as an AMC. The AMC of a Mutual Fund must have anet worth of at least Rs. 10Crores at all times. Directors of the AMC, both independent and non-independent, should haveadequate professional expertise in financial services and should beindividuals of high moralestanding, a condition also applicable to other key personnel of theAMC. The AMC cannot act asa Trustee of any other Mutual Fund. Besides its role as a fundmanager, it may undertakespecified activities such as advisory services and financial consulting,provided these activitiesare run independent of one another and the AMC‟s resources (such aspersonnel, systems etc.) areproperly segregated by the activity. The AMC must always act in theinterest of the unit-holdersand reports to the trustees with respect to its activities.Custodian and Depositories: Mutual Fundis in the business of buying and selling of securities in large volumes.Handling these securities interms of physical delivery and eventual safekeeping is a specializedactivity. The custodian isappointed by the Board of Trustees for safekeeping of securities orparticipating in any clearancesystem through approved depository companies on behalf of theMutual Fund and it must fulfillits responsibilities in accordance with its agreement with theMutual Fund. The custodian shouldbe an entity independent of the sponsors and is required tobe registered with SEBI. With theintroduction of the concept of dematerialization of shares thedematerialized shares are kept withthe Depository participant while the custodian holds thephysical securities. Thus, deliveries of a
  • fund‟s securities are given or received by a custodian ora depository participant, at theinstructions of the AMC, although under the overall direction andresponsibilities of theTrustees.Bankers: A Fund‟s activities involve dealing in money on a continuous basis primarilywith respectto buying and selling units, paying for investment made, receiving the proceeds fromsale of theinvestments and discharging its obligations towards operating expenses. Thus theFund‟s banker 3637. Projectsformba.blogspot.complays an important role to determine quality of service that thefund gives in timely delivery ofremittances etc.Transfer Agents: Transfer agents are responsiblefor issuing and redeeming units of the Mutual Fund andprovide other related services such aspreparation of transfer documents and updating investorrecords. A fund may choose to carry outits activity in-house and charge the scheme for theservice at a competitive market rate. Where anoutside Transfer agent is used, the fund investorwill find the agent to be an important interface todeal with, since all of the investor services thata fund provides are going to be dependent on thetransfer agent.REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA: The structureof mutual funds in India is guided by the SEBI. Regulations, 1996.Theseregulations make itmandatory for mutual fund to have three structures of sponsor trustee andasset ManagementCompany. The sponsor of the mutual fund and appoints the trustees. Thetrustees are responsibleto the investors in mutual fund and appoint the AMC for managing theinvestment portfolio. TheAMC is the business face of the mutual fund, as it manages all theaffairs of the mutual fund. TheAMC and the mutual fund have to be registered with SEBI. 3738. Projectsformba.blogspot.comSEBI REGULATIONS:• As far as mutual funds are concerned,SEBI formulates policies and regulates the mutual funds to protect the interest of the investors.•SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored byprivate sector entities were allowed to enter the capital market.• The regulations were fullyrevised in 1996 and have been amended thereafter from time to time.• SEBI has also issuedguidelines to the mutual funds from time to time to protect the interests of investors.• All mutualfunds whether promoted by public sector or private sector entities including those promoted byforeign entities are governed by the same set of Regulations. The risks associated with theschemes launched by the mutual funds sponsored by these entities are of similar type. There isno distinction in regulatory requirements for these mutual funds and all are subject to monitoringand inspections by SEBI.• SEBI Regulations require that at least two thirds of the directors oftrustee company or board of trustees must be independent i.e. they should not be associated withthe sponsors.• Also, 50% of the directors of AMC must be independent. All mutual funds arerequired to be registered with SEBI before they launch any scheme.• Further SEBI Regualtions,inter-alia, stipulate that MFs cannot gurarnatee returns in any scheme and that each scheme issubject to 20 : 25 condition [I.e minimum 20 investors per scheme and one investor can holdmore than 25% stake in the corpus in that one scheme].• Also SEBI has permitted MFs to launchschemes overseas subject various restrictions and also to launch schemes linked to Real Estate,Options and Futures, Commodities, etc. 38
  • 39. Projectsformba.blogspot.comASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI):With the increase in mutual fund players in India, a need for mutual fund association inIndia wasgenerated to function as a non-profit organisation. Association of Mutual Funds inIndia (AMFI)was incorporated on 22nd August, 1995. AMFI is an apex body of all Asset ManagementCompanies (AMC) which has beenregistered with SEBI. Till date all the AMCs are that havelaunched mutual fund schemes are itsmembers. It functions under the supervision and guidelinesof its Board of Directors. Association of Mutual Funds India has brought down the IndianMutual Fund Industry toa professional and healthy market with ethical lines enhancing andmaintaining standards. Itfollows the principle of both protecting and promoting the interests ofmutual funds as well astheir unit holders.The Objectives of Association of Mutual Funds inIndia: The Association of Mutual Funds of India works with 30 registered AMCs of thecountry.It has certain defined objectives which juxtaposes the guidelines of its Board ofDirectors. Theobjectives are as follows: • This mutual fund association of India maintains high professional andethical standards in all areas of operation of the industry. • It also recommends and promotes thetop class business practices and code of conduct which is followed by members and relatedpeople engaged in the activities of mutual fund and asset management. The agencies who are byany means connected or involved in the field of capital markets and financial services alsoinvolved in this code of conduct of the association. • AMFI interacts with SEBI and worksaccording to SEBIs guidelines in the mutual fund industry. • Association of Mutual Fund ofIndia do represent the Government of India, the Reserve Bank of India and other related bodieson matters relating to the Mutual Fund Industry. • It develops a team of well qualified andtrained Agent distributors. It implements a programme of training and certification for allintermediaries and other engaged in the mutual fund industry. 3940. Projectsformba.blogspot.com • AMFI undertakes all India awareness programme forinvestors in order to promote proper understanding of the concept and working of mutual funds.• At last but not the least association of mutual fund of India also disseminate informations onMutual Fund Industry and undertakes studies and research either directly or in association withother bodies.AMFI Publications:AMFI publish mainly two types of bulletin. One is on themonthly basis and the other isquarterly. These publications are of great support for the investorsto get intimation of theknowhow of their parked money. 4041. Projectsformba.blogspot.com Chapter: 3 MUTUAL FUNDS IN INDIA In 1963, the day theconcept of Mutual Fund took birth in India. Unit Trust of Indiainvited investors or rather to thosewho believed in savings, to park their money in UTI MutualFund. For 30 years it goaled withouta single second player. Though the 1988 year saw somenew mutual fund companies, but UTIremained in a monopoly position. The performance of mutual funds in India in the initial phasewas not even closer tosatisfactory level. People rarely understood, and of course investing wasout of question. But yes,some 24 million shareholders were accustomed with guaranteed highreturns by the beginning ofliberalization of the industry in 1992. This good record of UTIbecame marketing tool for newentrants. The expectations of investors touched the sky in
  • profitability factor. However, peoplewere miles away from the preparedness of risks factor afterthe liberalization. The net asset value (NAV) of mutual funds in India declined when stock pricesstartedfalling in the year 1992. Those days, the market regulations did not allow portfolio shiftsintoalternative investments. There was rather no choice apart from holding the cash or tofurthercontinue investing in shares. One more thing to be noted, since only closed-end fundswerefloated in the market, the investors disinvested by selling at a loss in the secondary market.The performance of mutual funds in India suffered qualitatively. The 1992 stock marketscandal,the losses by disinvestments and of course the lack of transparent rules in thewhereabouts rockedconfidence among the investors. Partly owing to a relatively weak stockmarket performance,mutual funds have not yet recovered, with funds trading at an averagediscount of 1020 percent oftheir net asset value. The securities and Exchange Board of India (SEBI) came out withcomprehensiveregulation in 1993 which defined the structure of Mutual Fund and AssetManagementCompanies for the first time. The supervisory authority adopted a set of measures tocreate a transparent andcompetitive environment in mutual funds. Some of them were likerelaxing investment 4142. Projectsformba.blogspot.comrestrictions into the market, introduction of open-ended funds,and paving the gateway formutual funds to launch pension schemes. The measure was taken tomake mutual funds the key instrument for long-term saving.The more the variety offered, thequantitative will be investors. Several private sectors Mutual Funds were launched in 1993 and1994. The share of theprivate players has risen rapidly since then. Currently there are 34 MutualFund organizations inIndia managing 1,02,000 crores. At last to mention, as long as mutual fundcompanies are performing with lower risks andhigher profitability within a short span of time,more and more people will be inclined to investuntil and unless they are fully educated with thedos and don‟ts of mutual funds. Mutual fund industry has seen a lot of changes in past few yearswith multinationalcompanies coming into the country, bringing in their professional expertise inmanaging fundsworldwide. In the past few months there has been a consolidation phase going onin the mutualfund industry in India. Now investors have a wide range of Schemes to choose fromdependingon their individual profiles. 4243. Projectsformba.blogspot.comMUTUAL FUND COMPANIES IN INDIA: The concept ofmutual funds in India dates back to the year 1963. The era between 1963and 1987 marked theexistance of only one mutual fund company in India with Rs. 67bn assetsunder management(AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By theend of the 80sdecade, few other mutual fund companies in India took their position in mutualfund market. Thenew entries of mutual fund companies in India were SBI Mutual Fund, CanbankMutual Fund,Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of IndiaMutual Fund. Thesucceeding decade showed a new horizon in Indian mutual fund industry. By the endof 1993, thetotal AUM of the industry was Rs. 470.04 bn. The private sector funds startedpenetrating thefund families. In the same year the first Mutual Fund Regulations came intoexistance with re-registering all mutual funds except UTI. The regulations were further given arevised shape in
  • 1996. Kothari Pioneer was the first private sector mutual fund company in India which hasnowmerged with Franklin Templeton. Just after ten years with private sector players penetration,thetotal assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies inIndia.Major Mutual Fund Companies in India• ABN AMRO Mutual Fund • Standard CharteredMutual Fund• Birla Sun Life Mutual Fund • Franklin Templeton India Mutual Fund• Bank ofBaroda Mutual Fund • Morgan Stanley Mutual Fund India• HDFC Mutual Fund • Escorts MutualFund• HSBC Mutual Fund • Alliance Capital Mutual Fund• ING Vysya Mutual Fund •Benchmark Mutual Fund• Prudential ICICI Mutual Fund • Canbank Mutual Fund• State Bank ofIndia Mutual Fund • Chola Mutual Fund• Tata Mutual Fund • LIC Mutual Fund• Unit Trust ofIndia Mutual Fund • GIC Mutual Fund• Reliance Mutual Fund 4344. Projectsformba.blogspot.com For the first time in the history of Indian mutual fund industry,Unit Trust of India MutualFund has slipped from the first slot. Earlier, in May 2006, thePrudential ICICI Mutual Fund wasranked at the number one slot in terms of total assets. In thevery next month, the UTIMF had regained its top position as the largest fund housein India.Now, according to the current pegging order and the data released by Association ofMutualFunds in India (AMFI), the Reliance Mutual Fund, with a January-end AUM of Rs39,020 crorehas become the largest mutual fund in India On the other hand, UTIMF, with an AUM of Rs37,535 crore, has gone to secomdposition. The Prudential ICICI MF has slipped to the thirdposition with an AUM of Rs 34,746crore.It happened for the first time in last one year that aprivate sector mutual fund house has reachedto the top slot in terms of asset under management(AUM). In the last one year to January, AUMof the Indian fund industry has risen by 64% to Rs3.39 lakh crore. According to the data released by Association of Mutual Funds in India (AMFI),thecombined average AUM of the 35 fund houses in the country increased to Rs 5,512.99 billioninApril compared to Rs 4,932.86 billion in March Reliance MF maintained its top position as thelargest fund house in the country with Rs74.25 billion jump in AUM to Rs 883.87 billion atApril-end.The second-largest fund house HDFC MF gained Rs 59.24 billion in its AUM at Rs638.80billion. ICICI Prudential and state-run UTI MF added Rs 46.16 billion and Rs 57.35billion rerespectively to their assets last month. ICICI Prudential`s AUM stood at Rs 560.49billion at theend of April, while UTI MF had assets worth Rs 544.89 billion. The other fundhouses which saw an increase in their average AUM in April include-Canara Robeco MF, IDFCMF, DSP BlackRock, Deutsche MF, Kotak Mahindra MF and LICMF. 4445. Projectsformba.blogspot.com Chapter: 4 RELIANCE MUTUAL FUND Vs UTI MUTUALFUNDRELIANCE MUTUAL FUND Reliance Mutual Fund (RMF) was established as trustunder Indian Trusts Act, 1882. Thesponsor of RMF is Reliance Capital Limited and RelianceCapital Trustee Co. Limited is theTrustee. It was registered on June 30, 1995 as Reliance CapitalMutual Fund which was changedon March 11, 2004. Reliance Mutual Fund was formed forlaunching of various schemes underwhich units are issued to the Public with a view to contributeto the capital market and to provideinvestors the opportunities to make investments in diversifiedsecurities. RMF is one of India‟s leading Mutual Funds, with Average Assets Under
  • Management(AAUM) of Rs. 88,388 crs (AAUM for 30th Apr 09) and an investor base of over71.53 Lacs.Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is oneof thefastest growing mutual funds in the country. RMF offers investors a well-rounded portfolioofproducts to meet varying investor requirements and has presence in 118 cities across thecountry. Reliance Mutual Fund constantly endeavors to launch innovative products andcustomerservice initiatives to increase value to investors. "Reliance Mutual Fund schemes aremanaged byReliance Capital Asset Management Limited., a subsidiary of Reliance CapitalLimited, whichholds 93.37% of the paid-up capital of RCAM, the balance paid up capital beingheld byminority shareholders."Sponsor : Reliance Capital Limited.Trustee : Reliance CapitalTrustee Co. Limited. 4546. Projectsformba.blogspot.comInvestment Manager : Reliance Capital Asset ManagementLimited. The Sponsor, the Trustee and the Investment Manager are incorporated undertheCompanies Act 1956.Vision Statement “To be a globally respected wealth creator with anemphasis on customer care and aculture of good corporate governance.”Mission Statement Tocreate and nurture a world-class, high performance environment aimed at delightingourcustomers.The Main Objectives Of The Trust: • To carry on the activity of a Mutual Fund asmay be permitted at law and formulate and devise various collective Schemes of savings andinvestments for people in India and abroad and also ensure liquidity of investments for the Unitholders; • To deploy Funds thus raised so as to help the Unit holders earn reasonable returns ontheir savings and • To take such steps as may be necessary from time to time to realise the effectswithout any limitation. 4647. Projectsformba.blogspot.comSCHEMESA).EQUITY/GROWTH SCHEMES: The aim ofgrowth funds is to provide capital appreciation over the medium to long-term. Such schemesnormally invest a major part of their corpus in equities. Such funds havecomparatively highrisks. Growth schemes are good for investors having a long-term outlookseeking appreciationover a period of time.1. Reliance Infrastructure Fund(Open-Ended Equity): The primaryinvestment objective of the scheme is to generate long term capital appreciation by investingpredominantly in equity and equity related instruments of companies engaged in infrastructure(Airports, Construction, Telecommunication, Transportation) and infrastructure related sectorsand which are incorporated or have their area of primary activity, in India and the secondaryobjective is to generate consistent returns by investing in debt and money marketsecurities.Investment Strategy: The investment focus would be guided by the growth potentialand other economic factors of the country. The Fund aims to maximize long-term total return byinvesting in equity and equity-related securities which have their area of primary activity inIndia.2. Reliance Quant Plus Fund/Reliance Index Fund (Open-Ended Equity): The investmentobjective of the Scheme is to generate capital appreciation through investment in equity andequity related instruments. The Scheme will seek to generate capital appreciation by investing inan active portfolio of stocks selected from S & P CNX Nifty on the basis of a mathematicalmodel. An investment fund that approach stock selection process based on quantitative
  • analysis.3. Reliance Natural Resources Fund (Open-Ended Equity): The primary investmentobjective of the scheme is to seek to generate capital appreciation & provide long-term growthopportunities by investing in companies principally engaged in the discovery, development,production, or distribution of natural resources and 4748. Projectsformba.blogspot.com the secondary objective is to generate consistent returns byinvesting in debt and money market securities. Natural resources may include, for example,energy sources, precious and other metals, forest products, food and agriculture, and other basiccommodities.4. Reliance Equity Linked Saving Fund (A 10 Year Close-Ended Equity ): Theprimary objective of the scheme is to generate long-term capital appreciation from a portfoliothat is invested predominantly in equities along with income tax benefit. The scheme may investin equity shares in foreign companies and instruments convertible into equity shares of domesticor foreign companies and in derivatives as may be permissible under the guidelines issued bySEBI and RBI.5. Reliance Equity Advantage Fund (Open-Ended Diversified Equity): Theprimary investment objective of the scheme is to seek to generate capital appreciation & providelong-term growth opportunities by investing in a portfolio predominantly of equity & equityrelated instruments with investments generally in S & P CNX Nifty stocks and the secondaryobjective is to generate consistent returns by investing in debt and money market securities.6.Reliance Equity Fund (Open-Ended Diversified Equity) : The primary investment objective ofthe scheme is to seek to generate capital appreciation & provide long-term growth opportunitiesby investing in a portfolio constituted of equity & equity related securities of top 100 companiesby market capitalization & of companies which are available in the derivatives segment fromtime to time and the secondary objective is to generate consistent returns by investing in debt andmoney market securities. 4849. Projectsformba.blogspot.com7. Reliance Tax Saver (ELSS) Fund (Open-Ended Equity): Theprimary objective of the scheme is to generate long-term capital appreciation from a portfoliothat is invested predominantly in equity and equity related instruments.Tax Benefits: •Investment upto Rs 1 lakh by the eligible investor in this fund would enable you to avail thebenefits under Section 80C (2) of the Income-tax Act, 1961. • Dividends received will beabsolutely TAX FREE. • The dividend distribution tax (payable by the AMC) for equity schemesis also NIL8. Reliance Growth Fund (Open-Ended Equity): The primary investment objective ofthe Scheme is to achieve long term growth of capital by investment in equity and equity relatedsecurities through a research based investment approach.9. Reliance Vision Fund (Open-EndedEquity) : The primary investment objective of the Scheme is to achieve long term growth ofcapital by investment in equity and equity related securities through a research based investmentapproach.10. Reliance Equity Opportunities Fund (Open-Ended Diversified Equity): Theprimary investment objective of the scheme is to seek to generate capital appreciation & providelong-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 investingin debt and money market securities.11. Reliance NRI Equity Fund (Open-Ended Diversified
  • Equity): The Primary investment objective of the scheme is to generate optimal returns byinvesting in equity or equity related instruments primarily drawn from the Companies in the BSE200 Index. 4950. Projectsformba.blogspot.com12. Reliance Long Term Equity Fund (Open-Ended DiversifiedEquity): The primary investment objective of the scheme is to seek to generate long term capitalappreciation & provide long-term growth opportunities by investing in a portfolio constituted ofequity & equity related securities and Derivatives and the secondary objective is to generateconsistent returns by investing in debt and money market securities. It is a 36-month close endeddiversified equity fund with an automatic conversion into an open ended scheme on expiry of 36-months from the date of allotment. It aims to maximize returns by investing 70-100% in Equitiesfocusing in small and mid cap companies.13.Reliance Regular Savings Fund (Open-EndedEquity): Reliance Regular Savings Fund provides you the choice of investing in Debt, Equity orHybrid options with a pertinent investment objective and pattern for each option. Invest as littleas Rs.100/-every month in the Reliance Regular Savings Fund. For the first time in India, yourmutual fund offers instant cash withdrawal facility on your investment at any VISA-enabledATM near you. With a choice of three investment options, the fund is truly, the smart new wayto invest.B).DEBT/INCOME SCHEMES: The aim of income funds is to provide regular andsteady income to investors. Suchschemes generally invest in fixed income securities such asbonds, corporate debentures,Government securities and money market instruments. Such fundsare less risky compared toequity schemes. These funds are not affected because of fluctuations inequity markets.However, opportunities of capital appreciation are also limited in such funds. TheNAVs of suchfunds are affected because of change in interest rates in the country. If the interestrates fall,NAVs of such funds are likely to increase in the short run and vice versa. However,long terminvestors may not bother about these fluctuations. 5051. Projectsformba.blogspot.com1. Reliance Monthly Income Plan : (An Open Ended Fund,Monthly Income is not assured & is subject to the availability of distributable surplus) ThePrimary investment objective of the Scheme is to generate regular income in order to makeregular dividend payments to unit holders and the secondary objective is growth of capital.2.Reliance Gilt Securities Fund - Short Term Gilt Plan & Long Term Gilt Plan : (Open-endedGovernment Securities Scheme) The primary objective of the Scheme is to generate optimalcredit risk-free returns by investing in a portfolio of securities issued and guaranteed by thecentral Government and State Government.3. Reliance Income Fund : (An Open-ended IncomeScheme) The primary objective of the scheme is to generate optimal returns consistent withmoderate levels of risk. This income may be complemented by capital appreciation of theportfolio. Accordingly, investments shall predominantly be made in Debt & Money marketInstruments.4. Reliance Medium Term Fund : (An Open End Income Scheme with no assuredreturns) The primary investment objective of the Scheme is to generate regular income in orderto make regular dividend payments to unit holders and the secondary objective is growth ofcapital5. 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 horizonby investing in Fixed Income Securities of short term maturity.6. Reliance Liquid Fund : (Open-ended Liquid Scheme) The primary investment objective of the Scheme is to generate optimalreturns consistent with moderate levels of risk and high liquidity. 5152. Projectsformba.blogspot.com Accordingly, investments shall predominantly be made in Debtand Money Market Instruments.7. Reliance Floating Rate Fund : (An Open End Liquid Scheme)The primary objective of the scheme is to generate regular income through investment in aportfolio comprising substantially of Floating Rate Debt Securities (including floating ratesecuritised debt and Money Market Instruments and Fixed Rate Debt Instruments swapped forfloating rate returns). The scheme shall also invest in fixed rate debt Securities (including fixedrate securitised debt, Money Market Instruments and Floating Rate Debt Instruments swappedfor fixed returns.8. Reliance NRI Income Fund : (An Open-ended Income scheme) The primaryinvestment objective of the Scheme is to generate optimal returns consistent with moderatelevels of risks. This income may be complimented by capital appreciation of the portfolio.Accordingly, investments shall predominantly be made in debt Instruments.9. Reliance LiquidityFund : (An Open - ended Liquid Scheme) The investment objective of the Scheme is to generateoptimal returns consistent with moderate levels of risk and high liquidity. Accordingly,investments shall predominantly be made in Debt and Money Market Instruments.10.RelianceInterval Fund : (A Debt Oriented Interval Scheme) The primary investment objective of thescheme is to seek to generate regular returns and growth of capital by investing in a diversifiedportfolio11.Reliance Liquid Plus Fund: (An Open-ended Income Scheme) The investmentobjective of the Scheme is to generate optimal returns consistent with moderate levels of risk andliquidity by investing in debt securities and money market securities. 5253. Projectsformba.blogspot.com12.Reliance Fixed Horizon Fund–I: (A closed ended Scheme)The primary investment objective of the scheme is to seek to generate regular returns and growthof capital by investing in a diversified portfolio.13. Reliance Fixed Horizon Fund –II: (A closedended Scheme.) The primary investment objective of the scheme is to seek to generate regularreturns and growth of capital by investing in a diversified portfolio.14. Reliance Fixed HorizonFund –III: (A Close-ended Income Scheme.) The primary investment objective of the scheme isto seek to generate regular returns and growth of capital by investing in a diversifiedportfolio.15.Reliance Fixed Tenor Fund : (A Close-ended Scheme) The primary investmentobjective of the Plan is to seek to generate regular returns and growth of capital by investing in adiversified portfolio.16.Reliance Fixed Horizon Fund -Plan C : (A closed ended Scheme.) Theprimary investment objective of the scheme is to seek to generate regular returns and growth ofcapital by investing in a diversified portfolio.17. Reliance Fixed Horizon Fund - IV: (A Close-ended Income Scheme.) The primary investment objective of the scheme is to seek to generateregular returns and growth of capital by investing in a diversified portfolio. 5354. Projectsformba.blogspot.com18.Reliance Fixed Horizon Fund - V: (A Close-ended IncomeScheme.) The primary investment objective of the scheme is to seek to generate regular returns
  • and growth of capital by investing in a diversified portfolio of: Central and State Governmentsecurities and Other fixed income/ debt securities normally maturing in line with the time profileof the scheme with the objective of limiting interest rate volatility19. Reliance Fixed HorizonFund – VI : (A Close-ended Income Scheme) The primary investment objective of the scheme isto seek to generate regular returns and growth of capital by investing in a diversified portfolio of:- Central and State Government securities and Other fixed income/ debt securities normallymaturing in line with the time profile of the series with the objective of limiting interest ratevolatility20. Reliance Fixed Horizon Fund – VII : (A Close-ended Income Scheme.) The primaryinvestment objective of the scheme is to seek to generate regular returns and growth of capital byinvesting in a diversified portfolio of: - Central and State Government securities and Other fixedincome/ debt securities normally maturing in line with the time profile of the series with theobjective of limiting interest rate volatility.C).SECTOR SPECIFIC SCHEMES: These are thefunds/schemes which invest in the securities of specified sectors orindustries e.g.Pharmaceuticals, Software, FMCG, Petroleum stocks, etc. The returns in thesefunds aredependent on the performance of the respective sectors/industries. While these fundsmay givehigher returns, they are more risky compared to diversified funds. 5455. Projectsformba.blogspot.com1. Reliance Banking Fund : Reliance Mutual Fund has an Open-Ended Banking Sector Scheme which has the primary investment objective to generatecontinuous returns by actively investing in equity / equity related or fixed income securities ofbanks.2. Reliance Diversified Power Sector Fund : Reliance Diversified Power Sector Scheme isan Open-ended Power Sector Scheme. The primary investment objective of the Scheme is toseek to generate consistent returns by actively investing in equity / equity related or fixed incomesecurities of Power and other associated companies.3. Reliance Pharma Fund : Reliance PharmaFund is an Open-ended Pharma Sector Scheme. The primary investment objective of the Schemeis to generate consistent returns by investing in equity / equity related or fixed income securitiesof Pharma and other associated companies.4. Reliance Media & Entertainment Fund : RelianceMedia & Entertainment Fund is an Open-ended Media & Entertainment sector scheme. The theprimary investment objective of the Scheme is to generate consistent returns by investing inequity / equity related or fixed income securities of media & entertainment and other associatedcompanies.D).RELIANCE GOLD EXCHANGE TRADED FUND:(An open-ended GoldExchange Traded Fund) The investment objective is to seek to providereturns that closelycorrespond to returns provided by price of gold through investment inphysical Gold (and Goldrelated securities as permitted by Regulators from time to time).However, the performance of thescheme may differ from that of the domestic prices of Gold dueto expenses and or other relatedfactors. 5556. Projectsformba.blogspot.comUNIT TRUST OF INDIA MUTUAL FUND Unit Trust of Indiawas created by the UTI Act passed by the Parliament in 1963. Formore than two decades itremained the sole vehicle for investment in the capital market by theIndian citizens. In mid-1980s public sector banks were allowed to open mutual funds. The realvibrancy and competition
  • in the MF industry came with the setting up of the Regulator SEBI andits laying down the MFRegulations in 1993.UTI maintained its pre-eminent place till 2001,when a massive decline inthe market indices and negative investor sentiments after KetanParekh scam created doubts aboutthe capacity of UTI to meet its obligations to the investors.This was further compounded by twofactors; namely, its flagship and largest scheme US 64 wassold and re-purchased not at intrinsicNAV but at artificial price and its Assured Return Schemeshad promised returns as high as 18%over a period going up to two decades. In order to distance Government from running a mutualfund the ownership wastransferred to four institutions; namely SBI, LIC, BOB and PNB, eachowning 25%. UTI lost itsmarket dominance rapidly and by end of 2005,when the new share-holders actually paid theconsideration money to Government its market share had come down toclose to 10%. A new board was constituted and a new management inducted. Systematic studyof itsproblems role and functions was carried out with the help of a reputed internationalconsultant.Once again UTI has emerged as a serious player in the industry. Some of the fundshave wonfamous awards, including the Best Infra Fund globally from Lipper. UTI has been abletobenchmark its employee compensation to the best in the market. Besides running domestic MFSchemes UTI AMC is also a registered portfolio managerunder the SEBI (Portfolio Managers)Regulations. 5657. Projectsformba.blogspot.com This company runs two successful funds with largeinternational investors being activeparticipants. UTI has also launched a Private EquityInfrastructure Fund along with HSH NordBank of Germany and Shinsei Bank of JapanVision:Tobe the most Preferred Mutual Fund.Mission:• The most trusted brand, admired by allstakeholders.• The largest and most efficient money manager with global presence• The best inclass customer service provider• The most preferred employer• The most innovative and bestwealth creator• A socially responsible organisation known for best corporate governanceAssetsUnder Management: UTI Asset Management Co. LtdSponsor: • State Bank of India • Bank ofBaroda • Punjab National Bank • Life Insurance Corporation of IndiaTrustee: UTI Trustee Co.Limited.Reliability UTIMF has consistently reset and upgraded transparency standards. All thebranches,UFCs and registrar offices are connected on a robust IT network to ensure cost-effective quickand efficient service. All these have evolved UTIMF to position as a dynamic,responsive,restructured, efficient and transparent entity, fully compliant with SEBI regulations.5758. Projectsformba.blogspot.comSCHEMESA).EQUITY FUND1. UTI Energy Fund (OpenEnded Fund): Investment will be made in stocks of those companies engaged in the followingare: a) Petro sector - oil and gas products & processing b) All types of Power generationcompanies. c) Companies related to storage of energy. d) Companies manufacturing energydevelopment equipment related ( like petro and power ) e) Consultancy & Finance Companies2.UTI Transportation And Logistics Fund (Auto Sector Fund) (Open Ended Fund): InvestmentObjective is “capital appreciation” through investments in stocks of the companies engaged inthe transportation and logistics sector. At least 90% of the funds will be invested in equity and
  • equity related instruments. Atleast 80% of the funds will be invested in equity and equity relatedinstruments of the companies principally engaged in providing transportation services,companies principally engaged in the design, manufacture, distribution, or sale of transportationequipment and companies in the logistics sector. Upto 10% of the funds will be invested incash/money market instruments.3. UTI Banking Sector Fund (Open Ended Fund): An open-ended equity fund with the objective to provide capital appreciation through investments in thestocks of the companies/institutions engaged in the banking and financial services activities.4.UTI Infrastructure Fund (Open Ended Fund): An open-ended equity fund with the objective toprovide Capital appreciation through investing in the stocks of the companies engaged in thesectors like Metals, Building 5859. Projectsformba.blogspot.com materials, oil and gas, power, chemicals, engineering etc. Thefund will invest in the stocks of the companies which form part of Infrastructure Industries5. UTIEquity Tax Savings Plan (Open Ended Fund): An open-ended equity fund investing a minimumof 80% in equity and equity related instruments. It aims at enabling members to avail tax rebateunder Section 80C of the IT Act and provide them with the benefits of growth.6. UTI GrowthSector Fund – Pharma (Open Ended Fund): An open-ended fund which exclusively invests in theequities of the Pharma & Healthcare sector companies. This fund is one of the growth sectorfunds aiming to invest in companies engaged in business of manufacturing and marketing of bulkdrug, formulations and healthcare products and services.7. UTI Growth Sector Fund – Services(Open Ended Fund): An open-ended fund which invests in the equities of the Services Sectorcompanies of the country. One of the growth sector funds aiming to provide growth of capitalover a period of time as well as to make income distribution by investing the funds in stocks ofcompanies engaged in service sector such as banking, finance, insurance, education, training,telecom, travel, entertainment, hotels, etc.8. UTI Growth Sector Fund – Software (Open EndedFund): An open-ended fund which invests exclusively in the equities of the Software Sectorcompanies. One of the growth sectors funds aiming to invest in equity shares of companiesbelonging to information technology sector to provide returns to investors through capital growthas well as through regular income distribution9. UTI Master Equity Plan Unit Scheme (CloseEnded Fund): The scheme primarily aims at securing for the investors capital appreciation byinvesting the funds of the scheme in equity shares of companies with good growth prospects. 5960. Projectsformba.blogspot.com10. UTI Master Plus Unit Scheme (Open Ended Fund): Anopen-ended equity fund with an objective of long-term capital appreciation through investmentsin equities and equity related instruments, convertible debentures, derivatives in India and also inoverseas markets.11.UTI Master Value Fund (Open Ended Fund): An open-ended equity fundinvesting in stocks which are currently undervalued to their future earning potential and carrymedium risk profile to provide Capital Appreciation.12.UTI Equity Fund (Open Ended Fund):UTI Equity Fund is open-ended equity scheme with an objective of investing at least 80% of itsfunds in equity and equity related instrument with medium to high risk profile and upto 20% indebt and money market instruments with low to medium risk profile.13.UTI Top 100 Fund
  • (Open Ended Fund): An open-ended equity fund for investment in equity shares, convertible &non- convertible debentures and other capital and money market instruments with a provision toinvest upto 50% of its corpus in PSUs equities and equity related products. The fund aims toprovide unit holders capital appreciation & income distribution.14.UTI Mastershare Unit Scheme(Open Ended Fund): An Open-end equity fund aiming to provide benefit of capital appreciationand income distribution through investment in equity.15.UTI Mid Cap Fund (Open Ended Fund):An open-ended equity fund with the objective to provide Capital appreciation by investingprimarily in mid cap stocks. 6061. Projectsformba.blogspot.com16.UTI MNC Fund (Open Ended Fund): An open-ended equityfund with the objective to invest predominantly in the equity shares of multinational companiesin diverse sectors such as FMCG, Pharmaceutical, Engineering etc.17. UTI Dividend Yield Fund(Open Ended Fund): It aims to provide medium to long term capital gains and/or dividenddistribution by investing predominantly in equity and equity related instruments which offer highdividend yield.18.UTI Opportunities Fund (Open Ended Fund): This scheme seeks to generatecapital appreciation and/or income distribution by investing the funds of the scheme in equityshares and equity-related instruments. The focus of the scheme is to capitalise on opportunitiesarising in the market by responding to the dynamically changing Indian economy by moving itsinvestments amongst different sectors as prevailing trends change.19.UTI Leadership EquityFund (Open Ended Fund): This scheme seeks to generate capital appreciation and / or incomedistribution by investing the funds in stocks that are "Leaders" in their respective industries /sectors / sub- sector.20.UTI Contra Fund (Open Ended Fund): An open ended equity schemewith the objective to provide long term capital appreciation/dividend distribution throughinvestments in listed equities & equity related instruments. The fund offers an opportunity tobenefit from the impact of non- rational investors behaviour by focussing on stocks that arecurrently undervalued because of emotional & behavioural patterns present in the stock market.6162. Projectsformba.blogspot.com21.UTI SPREAD Fund (Open Ended Fund): The investmentobjective of the scheme is to provide capital appreciation and dividend distribution througharbitrage opportunities arising out of price differences between the cash and derivative market byinvesting predominantly in equity & equity related securities, derivatives and the balance portionin debt securities. However, there can be no assurance that the investment objective of thescheme will be realised.22.UTI Wealth Builder Fund (Close Ended Fund): The objective of thescheme is to achieve long term capital appreciation by investing predominantly in a diversifiedportfolio of equity and equity related instruments.23.UTI Long Term Advantage Fund - Series I(Close Ended Fund): The investment objective of the scheme is to provide medium to long termcapital appreciation along with income tax benefit.24.UTI India Lifestyle Fund (Close EndedFund): The investment objective of the scheme is to provide long term Capital appreciation and /or income distribution from a diversified portfolio of equity and equity related instruments ofcompanies that are expected to benefit from changing Indian demographics, Indian Lifestyle and
  • rising consumption pattern. However, there can be no assurance that the investment objective ofthe scheme will be achieved. A).INDEX FUND: 1. UTI Master Index Fund (Open Ended Fund):UTI MIF is an open-ended passive fund with the primary investment objective to invest insecurities of companies comprising the BSE sensex in the same weightage as these companieshave in BSE sensex. The fund strives to minimise performance difference with the sensex bykeeping the tracking error to the minimum. 6263. Projectsformba.blogspot.com2. UTI Gold Exchange Traded Fund (Open Ended Fund): Toendeavour to provide returns that, before expenses, closely track the performance and yield ofGold. However the performance of the scheme may differ from that of the underlying asset dueto racking error. There can be no assurance or guarantee that the investment objective of UTI-Gold ETF will be achieved.3. UTI Sunder (Open Ended Fund): To provide investment returnsthat, before expenses, closely correspond to the performance and yield of the basket of securitiesunderlying the S & P CNX Nifty Index.C).ASSETS FUND UTI Variable Investment Scheme:UTI VIS-ILP is an open ended scheme with the objective of providing the investors with aproduct that would enable them to diversify their risks through a suitable allocation between debtand equity asset classes and thereby generate superior risk-adjusted returns through a dynamicasset allocation process.D).BALANCED FUND:1. UTI Mahila Unit Scheme (Open EndedFund): To invest in a portfolio of equity/equity related securities and debt and money marketinstruments with a view to generate reasonable income with moderate capital appreciation. Theasset allocation will be Debt : Minimum 70%, Maximum 100% Equity : Minimum 0%,Maximum 30%.2. UTI Balanced Fund (Open Ended Fund): An open-ended balanced fundinvesting between 40% to 75% in equity /equity related securities and the balance in debt (fixedincome securities) with a view to generate regular income together with capital appreciation. 6364. Projectsformba.blogspot.com3. UTI Retirement Benefit Pension Fund (Open Ended Fund):The objective of the scheme is to provide pension to investors particularly self- employedpersons after they attain the age of 58 years, in the form of periodical cash flow upto the extentof repurchase value of their holding through a systematic withdrawal plan.4. UTI Unit LinkInsurance Plan (Open Ended Fund): To provide return through growth in the NAV or throughdividend distribution and reinvestment thereof5. UTI CCP (Children Career Plan) AdvantageFund (Open Ended Fund): An open ended balanced fund with 70-100% investment in Equity.Investment can be made in the name of the children upto the age of 15 years so as to providethem, after they attain the age of 18 years, a means to receive scholarship to meet the cost ofhigher education / or help them in setting up a profession, practice or business or enabling themto set up a home or finance, the cost of other social obligations.6. UTI Charitable, ReligiousTrust And Registered Society (Open Ended Fund): Open-ended debt oriented Income schemewith an objective of investing not more than 30% of the funds in equity related instruments andthe balance in debt and money market instruments with low to medium risk profile. The schemeis catering to the Investment needs of Charitable, Religious and Educational Trusts as well asRegistered societies with the goal of providing regular income.E).INCOME FUND (DEBT
  • FUND)1. UTI Bond Fund (Open Ended Fund): Open-end 100% pure debt fund, which invests inrated corporate debt papers and government securities with relatively low risk and easy liquidity.6465. Projectsformba.blogspot.com2. UTI Floating Rate Fund STP (Open Ended Fund): Togenerate regular income through investment in a portfolio comprising substantially of floatingrate debt / money market instruments and fixed rate debt / money market instruments.3. UTI GiltAdvantage Fund LTP(Open Ended Fund): To generate credit risk-free return throughinvestments in sovereign securities issued the Central and / or a State Government.4. UTI GiltAdvantage Fund STP (Open Ended Fund): To generate credit risk-free return through investmentin sovereign securities issued the Central and / or a State Government.5. UTI G-SEC STP (OpenEnded Fund): An open-end Gilt-Fund with the objective to invest only in Central Governmentsecurities including call money, treasury bills and repos of varying maturities with a view togenerate credit risk free return with a stated objective of maintaining the average maturity of theportfolio at less than 3 years.6. UTI G-Sec-Investment Plan (Open Ended Fund): An open-endGilt-Fund with the objective to Invests only in Central government securities including callmoney, treasury bills and repos of varying maturities with a view to generatie credit risk freereturn. While selecting the maturity profile of the investment in government securities the needfor maximisation of the returns and meeting of the liquidity requirements of the scheme is kept inview.7. UTI Treasury Advantage Fund (Open Ended Fund): It aims to generate attractive returnsconsistent with capital preservation and liquidity 6566. Projectsformba.blogspot.com8. UTI Monthly Income Scheme (Open Ended Fund): This is anopen-end debt oriented scheme with no assured returns. The scheme aims at distributing income,if any, periodically.9. UTI Mis Advantage Plan (Open Ended Fund): Endeavours to makeperiodic income distribution to unitholders through investments in fixed income securities andequity & equity related instruments.10.UTI Short Term Income Fund (Open Ended Fund): TheScheme seeks to generate steady & reasonable income with low risk & high level of liquidityfrom a portfolio of money market securities & high quality debt.11.UTI Capital ProtectionOriented Scheme (Open Ended Fund): The investment objective of the scheme is to endeavour toprotect the capital by investing in high quality fixed income securities as the primary objectiveand generate capital appreciation by investing in equity and equity related instruments assecondary objective.F). LIQUID FUND (DEBT FUND):1. UTI Liquid Cash Plan (Open EndedFund): The scheme seeks to generate steady & reasonable income with low risk & high level ofliquidity from a portfolio of money market securities & high quality debt.2. UTI Money MarketFund (Open Ended Fund): An open-ended pure debt liquid plan seeking to provide highestpossible current income by investing in a diversified portfolio of short-term money marketsecurities. 6667. Projectsformba.blogspot.com RELIANCE MUTUAL UTI MUTUAL FUND FUNDWhenStarted? Established in 1995, Established in 1964. Currently, number one company in Firstmutual fund company in India. IndiaHow they came into Registered with SEBI as trust under By
  • the UTI Act passed by thebusiness Indian Trusts Act, 1882 Parliament in 1963.Minimuminvestment. Rs. 500 Rs.1000Investment. Equity Equity Bank: 8-15% Financial Service: 16-22%Software: 8-19% Energy: 12-18% Petroleum Products: 4-8% Consumer goods: 08-14%Pharmaceuticals: 6-10% invest in 12-20 sectors which invest in 7-15 sectors which include:include: Auto , Auto Ancillaries, Finance, IT, Telecom, Automobile, Industrial Capital Goods,Telecom- Cement Products, Derivatives, Services, Power, Construction Textile, Metals etcProject, Hotels, Retailing, Media & Entertainment, Transportation etcMain Funds. UTI Dividendyield Fund, Reliance Diversified Fund, UTI Opportunity Fund, Reliance Equity OpportunityFund, Reliance Regular Saving FundsType of fund offered Equity Fund, Debt Fund, SectorEquity Fund, Index Fund, Specific Fund and Gold Exchange Asset Fund, Balanced Fund, TradedFund. Debt Fund (Income, Liquid)Numbers of schemes 106 schemes 107schemes.offeredDistribution • Online and internet based • Tie-up with Post offices distribution.branches. • Reliance outlets and branches. • UTI outlets and branches.Is any other venture? • LifeInsurance • UTI Bank • General Insurance • Pan card • Broking & Distribution • BankRecruitment • Consumer Finance • ULIP • Private Equity • Assets Reconstruction. 6768. Projectsformba.blogspot.com Chapter: 5 MUTUAL FUNDS VS. OTHERINVESTMENTSFrom investors‟ viewpoint mutual funds have several advantages such as: •Professional management and research to select quality securities. • Spreading risk over a largerquantity of stock whereas the investor has limited to buy only a hand full of stocks. The investoris not putting all his eggs in one basket. • Ability to add funds at set amounts and smallerquantities such as $100 per month • Ability to take advantage of the stock market which hasgenerally outperformed other investment in the long run. • Fund manager are able to buysecurities in large quantities thus reducing brokerage fees.However there are some disadvantageswith mutual funds such as: • The investor must rely on the integrity of the professional fundmanager. • Fund management fees may be unreasonable for the services rendered. • The fundmanager may not pass transaction savings to the investor. • The fund manager is not liable forpoor judgment when the investors fund loses value. • There may be too many transactions in thefund resulting in higher fee/cost to the investor - This is sometimes call "Churn and Earn". •Prospectus and Annual report are hard to understand. • Investor may feel a lost of control of hisinvestment dollars.There may be restrictions on when and how an investor sells/redeems hismutual fundshares. 6869. Projectsformba.blogspot.comCompany Fixed Deposits versus Mutual Funds Fixed depositsare unsecured borrowings by the company accepting the deposit. Creditrating of the fixed depositprogram is an indication of the inherent default risk in the investment. The moneys of investorsin a mutual fund scheme are invested by the AMC in specificinvestments under that scheme.These investments are held and managed in-trust for the benefitof scheme‟s investors. On theother hand, there is no such direct correlation between acompany‟s fixed deposit mobilisation,and the avenues where these resources are deployed. A corollary of such linkage betweenmobilisation and investment is that the gains andlosses from the mutual fund scheme entirely
  • flow through to the investors. Therefore, there canbe no certainty of yield, unless a namedguarantor assures a return or, to a lesser extent, if theinvestment is in a serial gilt scheme. On theother hand, the return under a fixed deposit iscertain, subject only to the default risk of theborrower.Both fixed deposits and mutual funds offer liquidity, but subject to some differences:The provider of liquidity in the case of fixed deposits is the borrowing company. Inmutual funds,the liquidity provider is the scheme itself (for open-end schemes) or the market (inthe case ofclosed-end schemes). The basic value at which fixed deposits are encashed is not subject to amarket risk.However, the value at which units of a scheme are redeemed depends on the market.Ifsecurities have gained in value during the period, then the investor can even earn a return thatishigher than what he anticipated when he invested. But he could also end up with a loss. Earlyencashment of fixed deposits is always subject to a penalty charged by thecompany that acceptedthe fixed deposit. Mutual fund schemes also have the option of charginga penalty on “early”redemption of units (through by way of an „exit load‟,) If the NAV hasappreciated adequately,then even after the exit load, the investor could earn a capital gain on hisinvestment. 6970. Projectsformba.blogspot.comBank Fixed Deposits verses Mutual Fund: Bank fixed depositsare similar to company fixed deposits. The major difference is thatbanks are generally morestringently regulated than companies. They even operate under stricterrequirements regardingStatutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). While the above are causes forcomfort, bank deposits too are subject to default risk.However, given the political and economicimpact of bank defaults, the government as well asReserve Bank of India (RBI) try to ensure thatbanks do not fail. Further, bank deposits upto Rs 100,000 are protected by the Deposit Insuranceand CreditGuarantee Corporation (DICGC), so long as the bank has paid the required insurancepremiumof 5 paise per annum for every Rs 100 of deposits. The monetary ceiling of Rs 100,000is for allthe deposits in all the branches of a bank, held by the depositor in the same capacity andright. BANKS MUTUAL FUNDSReturns Low BetterAdministrative exp. High LowRisk LowModerateInvestment options Less MoreNetwork High penetration Low but improvingLiquidityAt a cost BetterQuality of assets Not transparent Transparent QuarterlyInterest calculation EveryMonth i.e. 3rd, 6th, 9th & 12th.Guarantor Guarantor is needed. Guarantor is not needed.AccountNeeded. Not Needed. 7071. Projectsformba.blogspot.comBonds and Debentures versus Mutual Funds As in the case offixed deposits, credit rating of the bond / debenture is an indication ofthe inherent default risk inthe investment. However, unlike FD, bonds and debentures aretransferable securities. While aninvestor may have an early encashment option from the issuer (for instancethrough a “put”option), generally liquidity is through a listing in the market.Implications of this are: • If thesecurity does not get traded in the market, then the liquidity remains on paper. In this respect, anopen-end scheme offering continuous sale / re-purchase option is superior. • The value that theinvestor would realise in an early exit is subject to market risk. The investor could have a capitalgain or a capital loss. This aspect is similar to a MF scheme. It is possible for a professionalinvestor to earn attractive returns by directly investing inthe debt market, and actively managing
  • the positions. Given the market realities in India, it isdifficult for most investors to activelymanage their debt portfolio. Further, at times, it is difficultto execute trades in the debt marketeven when the transaction size is as high as Rs 1 crore. Inthis respect, investment in a debtscheme would be beneficial. Debt securities could be backed by a hypothecation or mortgage ofidentified fixed and /or current assets (secured bonds / debentures). In such a case, if there is adefault, the identifiedassets become available for meeting redemption requirements. Anunsecured bond / debenture isfor all practical purposes like a fixed deposit, as far as access toassets is concerned. The investments of a mutual fund scheme are held by a custodian for thebenefit ofinvestors in the scheme. Thus, the securities that relate to a scheme are ring-fenced forthebenefit of its investors. 7172. Projectsformba.blogspot.comEquity versus Mutual FundsInvestment in both equity andmutual funds are subject to market risk. An investor holding an equity security that is not tradedin the market place has aproblem in realising value from it. But investment in an open-endmutual fund eliminates thisdirect risk of not being able to sell the investment in the market. Anindirect risk remains,because the scheme has to realise its investments to pay investors. TheAMC is however in abetter position to handle the situation Another benefit of equity mutual fundschemes is that they give investors the benefit ofportfolio diversification through a smallinvestment. For instance, an investor can take anexposure to the index by investing a mere Rs5,000 in an index fund.Advantages Of Mutual Funds Over Stocks? • A mutual fund offers a greatdeal of diversification starting with the very first dollar invested, because a mutual fund may owntens or hundreds of different securities. This diversification helps reduce the risk of loss becauseeven if any one holding tanks, the overall value doesnt drop by much. If youre buying individualstocks, you cant get much diversity unless you have $10K or so. • Small sums of money get youmuch further in mutual funds than in stocks. First, you can set up an automatic investment planwith many fund companies that lets you put in as little as $50 per month. Second, thecommissions for stock purchases will be higher than the cost of buying no-load fund (Of course,the funds various expenses like commissions are already taken out of the NAV). Smaller sizedpurchases of stocks will have relatively high commissions on a percentage basis, although withthe $10 trade becoming common, this is a bit less of a concern than it once was. • You can exit afund without getting caught on the bid/ask spread. • Funds provide a cheap and easy method forreinvesting dividends. • Last but most certainly not least, when you buy a fund youre in essencehiring a professional to manage your money for you. That professional is (presumably)monitoring the economy and the markets to adjust the funds holdings appropriately. 7273. Projectsformba.blogspot.com Advantages Of Stock Over Mutual Funds? • The opposite ofthe diversification issue: If you own just one stock and it doubles, you are up 100%. If a mutualfund owns 50 stocks and one doubles, it is up 2%. On the other hand, if you own just one stockand it drops in half, you are down 50% but the mutual fund is down 1%. Cuts both ways. • If youhold your stocks several years, you arent nicked a 1% or so management fee every year(although some brokerage firms charge if there arent enough trades). • You can take your profits
  • when you want to and wont inadvertently buy a tax liability. (This refers to the common practiceamong funds of distributing capital gains around November or December of each year. See thearticle elsewhere in this FAQ for more details.) • You can do a covered write option strategy.(See the article on options on stocks for more details.) • You can structure your portfoliodifferently from any existing mutual fund portfolio. (Although with the current universe of fundsIm not certain what could possibly be missing out there!) • You can buy smaller cap stockswhich arent suitable for mutual funds to invest in. • You have a potential profit opportunity byshorting stocks. (You cannot, in general, short mutual funds.) • The argument is offered that thefunds have a "herd" mentality and they all end up owning the same stocks. You may be able topick stocks better. 7374. Projectsformba.blogspot.comLife Insurance versus Mutual Fund Life insurance is a hedgeagainst risk – and not really an investment option. So, it wouldbe wrong to compare lifeinsurance against any other financial product. Occasionally on account of market inefficienciesor mis-pricing of products in India, lifeinsurance products have offered a return that is higherthan a comparable “safe” fixed returnsecurity – thus, you are effectively paid for getting insured!Such opportunities are notsustainable in the long run. 7475. Projectsformba.blogspot.comFUTURE PROSPECT OF MUTUAL FUNDS IN INDIAFinancial experts believe that the future of Mutual Funds in India will be very bright. Ithas beenestimated that by March-end of 2010, the mutual fund industry of India will reach Rs40,90,000crore, taking into account the total assets of the Indian commercial banks. In thecoming 10 yearsthe annual composite growth rate is expected to go up by 13.4%. • 100% growth in the last 6years. • Number of foreign AMCs are in the queue to enter the Indian markets like FidelityInvestments, US based, with over US$1trillion assets under management worldwide. • Oursaving rate is over 23%, highest in the world. Only channelizing these savings in mutual fundssector is required. • We have approximately 29 mutual funds which is much less than US havingmore than 800. There is a big scope for expansion. • B and C class cities are growing rapidly.Today most of the mutual funds are concentrating on the A class cities. Soon they will find scopein the growing cities. • Mutual fund can penetrate rurals like the Indian insurance industry withsimple and limited products. • SEBI allowing the MFs to launch commodity mutual funds. •Emphasis on better corporate governance. • Trying to curb the late trading practices. •Introduction of Financial Planners who can provide need based advice. Looking at the pastdevelopments and combining it with the current trends it can beconcluded that the future ofMutual Funds in India has lot of positive things to offer to itsinvestors. 7576. Projectsformba.blogspot.comMF JARGONNet Asset Value (NAV) Net Asset Value is themarket value of the assets of the scheme minus its liabilities. Theper unit NAV is the net assetvalue of the scheme divided by the number of units outstanding onthe Valuation Date.Sale PriceSale price is the price you pay when you invest in a scheme. Also called Offer Price. Itmayinclude a sales load.Repurchase Price Is the price at which a close-ended scheme repurchases itsunits and it may include aback-end load. This is also called Bid Price.Redemption Price It is the
  • price at which open-ended schemes repurchase their units and close-endedschemes redeem theirunits on maturity. Such prices are NAV related.Sales Load It is a charge collected by a schemewhen it sells the units. Also called as „Front-end‟load. Schemes that do not charge a load arecalled „No Load‟ schemes.Repurchase or „Back-end‟ Load It is a charge collected by a schemewhen it buys back the units from the unit holders. 7677. Projectsformba.blogspot.com CONCLUSION Mutual Funds now represent perhaps mostappropriate investment opportunity for mostinvestors. As financial markets become moresophisticated and complex, investors need afinancial intermediary who provides the requiredknowledge and professional expertise onsuccessful investing. As the investor always try tomaximize the returns and minimize the risk.Mutual fund satisfies these requirements byproviding attractive returns with affordable risks.The fund industry has already overtaken thebanking industry, more funds being under mutualfund management than deposited with banks.With the emergence of tough competition in thissector mutual funds are launching a variety ofschemes which caters to the requirement of theparticular class of investors. Risk takers forgetting capital appreciation should invest in growth,equity schemes. Investors who are in need ofregular income should invest in income plans. The stock market has been rising for over threeyears now. This in turn has not onlyprotected the money invested in funds but has also to helpedgrow these investments. This has also instilled greater confidence among fund investors who areinvesting moreinto the market through the MF route than ever before. Reliance India mutualfunds provide major benefits to a common man who wants tomake his life better than previous.Indias largest mutual fund, UTI, still controls nearly 80 per cent of the market. Also, themutualfund industry as a whole gets less than 2 per cent of household savings against the 46 percentthat go into bank deposits. Some fund managers say this only indicates the sectors potential."Ifmutual funds succeed in chipping away at bank deposits, even a triple digit growth ispossibleover the next few years. 7778. Projectsformba.blogspot.com BIBLIOGRAPHYREFERENCE BOOK:FINANCIALMARKET AND SERVICES -Gordon and NatarajanWEBSITE: www.utimf.comwww.reliancemutual.com www.amfiindia.comSEARCH ENGINE: www.google.comwww.altavista.com www.yahoo.com 78