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A project report on comparative study of mutual funds in india
 

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A project report on comparative study of mutual funds in india

A project report on comparative study of mutual funds in india

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    A project report on comparative study of mutual funds in india A project report on comparative study of mutual funds in india Document Transcript

    • Projectsformba.blogspot.com UNIVERSITY OF MUMBAI PROJECT ON COMPARATIVE STUDY OF MUTUAL FUNDS IN INDIA SUBMITTED In Partial Fulfillment of the requirements For the Award of the Degree of Bachelor of Management BY PROJECT GUIDE BACHELOR OF MANAGEMENT STUDIES SEMESTER V (2009-10) V.E.S. COLLEGE OF ARTS, SCIENCE & COMMERCE, SINDHI SOCIETY, CHEMBUR, MUMBAI – 400071. 1
    • Projectsformba.blogspot.com DECLARATION I, ____________________________, the student of Bachelor ofManagement Studies - Semester V (2009-10) hereby declare that I havecompleted this project on _________________________________________. The information submitted is true & original to the best of myknowledge. Student’s Signature ( ) 2
    • Projectsformba.blogspot.com CERTIFICATE This is to certify that Mr. _______________________________ ofBachelor of Management Studies - Semester V (2009-10) hassuccessfully completed the project on _______________________________________________under the guidance of ________________________.Course Coordinator PrincipalProject Guide/ Internal ExaminerExternal Examiner 3
    • Projectsformba.blogspot.com ACKNOWLEDGEMENT Before we get into thick of things, I would like to add a few words of appreciation for thepeople who have been a part of this project right from its inception. The writing of this projecthas been one of the significant academic challenges 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 me Immense pleasure in presenting this project report on "COMPARATIVESTUDY OF MUTUAL FUNDS IN INDIA". It has been my privilege to have a team of projectguide who have assisted me from the commencement of this project. The success of this projectis a result of sheer hard work, and determination put in by me with the help of my project guide.I hereby take this opportunity to add a special note of thanks for ………………., who undertookto act as my mentor despite her many other academic and professional commitments. Herwisdom, knowledge, and commitment to the highest standards inspired and motivated me.Without her insight, support, and energy, this project wouldnt have kick-started and neitherwould have reached 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 well as in draftingmanuscript. The project is dedicated to all those people, who helped me while doing this project. 4
    • Projectsformba.blogspot.comNEED FOR THE STUDY: The main purpose of doing this project was to know about mutual fund and itsfunctioning. This helps to know in details about mutual fund industry right from its inceptionstage, growth and future prospects. It also helps in understanding different schemes of mutual funds. Because my studydepends upon prominent funds in India and their schemes like equity, income, balance as well asthe returns associated with those schemes. The project study was done to ascertain the asset allocation, entry load, exit load,associated with the mutual funds. Ultimately this would help in understanding the benefits ofmutual funds to investors.OBJECTIVE:  To give a brief idea about the benefits available from Mutual Fund investment.  To give an idea of the types of schemes available.  To discuss about the market trends of Mutual Fund investment.  To study some of the mutual fund schemes.  To study some mutual fund companies and their funds.  Observe the fund management process of mutual funds.  Explore the recent developments in the mutual funds in India.  To give an idea about the regulations of mutual funds.LIMITATIONS • The lack of information sources for the analysis part. • Though I tried to collect some primary data but they were too inadequate for the purposes of the study. • Time and money are critical factors limiting this study. • The data provided by the prospects may not be 100% correct as they too have their limitations. • The study is limited to selected mutual fund schemes. 5
    • Projectsformba.blogspot.com EXECUTIVE SUMMERY A mutual fund is a scheme in which several people invest their money for a commonfinancial cause. The collected money invests in the 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 Act creating 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 next logicalstep, public sector banks and financial institutions were allowed to float mutual funds and theirsuccess emboldened the government to allow the private sector to foray into this area. The advantages 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. The biggest problems with mutual funds are their costs and fees it include Purchase fee,Redemption fee, Exchange fee, Management fee, Account fee & Transaction Costs. There aresome loads which add to the cost of mutual fund. Load is a type of commission depending on thetype of funds. Mutual funds are easy to buy and sell. You can either buy them directly from the fundcompany or through a third party. Before investing in any funds one should consider some factorlike objective, risk, Fund Manager’s and scheme track record, Cost factor etc. There are many, 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, which weresubsequently mandated by SEBI. In addition, this year AMFI was involved in a number ofdevelopments and enhancements to the regulatory framework. 6
    • Projectsformba.blogspot.com The most important trend in the mutual fund industry is the aggressive expansion of theforeign owned mutual fund companies and the decline of the companies floated by nationalizedbanks and smaller private sector players. Reliance Mutual Fund, UTI Mutual Fund, ICICI Prudential Mutual Fund, HDFC MutualFund and Birla Sun Life Mutual Fund are the top five mutual fund company in India. Reliance mutual funding is considered to be most reliable mutual funds in India. Peoplewant to invest in this institution because they know that this institution will never dissatisfy themat any cost. You should always keep this into your mind that if particular mutual funding schemeis on larger scale then next time, you might not get the same results so being a careful investoryou should take your major step diligently otherwise you will be unable to obtain the highreturns. 7
    • Projectsformba.blogspot.com INDEX PAGE SRNO. TOPICS NO 1. INTRODUCTION OF MUTUAL FUND 01 2. WORKING OF MUTUAL FUND 25 3. MUTUAL FUND IN INDIA 33 4. RELIANCE MUTUAL FUND vs. UTI MUTUAL FUND 37 5. MUTUAL FUND vs. OTHER INVESTMENT 60 6. FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA 67 MF JARGON 68 CONCLUSION 69 BIBLOGRAPHY 70 8
    • Projectsformba.blogspot.com Chapter: 1 INTRODUCTION OF MUTUAL FUNDThere are a lot of investment avenues available today in the financial market for an investor withan investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds wherethere is low risk but low return. He may invest in Stock of companies where the risk is high andthe returns are also proportionately high. The recent trends in the Stock Market have shown thatan average retail investor always lost with periodic bearish tends. People began opting forportfolio managers with expertise in stock markets who would invest on their behalf. Thus wehad wealth management services provided by many institutions. However they proved too costlyfor a small investor. These investors have found a good shelter with the mutual funds.CONCEPT OF MUTUAL FUND: A mutual fund is a common pool of money into which investors 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 single investor’s ownership of the fund isin the same proportion as the amount of the contribution made by him or her bears to the totalamount of the fund. 9
    • Projectsformba.blogspot.com Mutual Funds are trusts, which accept savings from investors and invest the same indiversified financial instruments in terms of objectives set out in the trusts deed with the view toreduce the risk and maximize the income and capital appreciation for distribution for themembers. A Mutual Fund is a corporation and the fund manager’s interest is to professionallymanage the funds provided by the investors and provide a return on them after deductingreasonable management fees. The objective sought to be achieved by Mutual Fund is to provide an opportunity forlower income groups to acquire without much difficulty financial assets. They cater mainly tothe needs of the individual investor whose means are small and to manage investors portfolio in amanner that provides a regular income, growth, safety, liquidity and diversificationopportunities.DEFINITION: “Mutual funds are collective savings and investment vehicles where savings of small(or sometimes big) investors are pooled together to invest for their mutual benefit and returnsdistributed proportionately”. “A mutual fund is an investment that pools your money with the money of an unlimitednumber of other investors. In return, you and the other investors each own shares of the fund.The funds assets are invested according to an investment objective into the funds portfolio ofinvestments. Aggressive growth funds seek long-term capital growth by investing primarily instocks of fast-growing smaller companies or market segments. Aggressive growth funds are alsocalled capital appreciation funds”. 10
    • Projectsformba.blogspot.comWhy Select Mutual Fund? The risk return trade-off indicates that if investor is willing to take higher risk thencorrespondingly he can expect higher returns and 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 more return which is slightly higher ascompared to the bank deposits but the risk involved also increases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutual fundsprovide professional management, diversification, convenience and liquidity. That doesn’t meanmutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which areless riskier but are also invested in the stock markets which involves a higher risk but can expecthigher returns. Hedge fund involves a very 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 LOWER RISK LOWER RISK LOWER RETURNS HIGIER RETURNS 11
    • Projectsformba.blogspot.comHISTORY OF MUTUAL FUNDS IN INDIA: The mutual fund industry in India started in 1963 with the formation of Unit Trust ofIndia, at the initiative of the Government of India and Reserve Bank. The history of mutual fundsin India can be broadly divided into four distinct phasesFIRST PHASE – 1964-87: Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set upby the Reserve Bank of India and functioned under the Regulatory and administrative control ofthe Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the IndustrialDevelopment Bank of India (IDBI) took over the regulatory and administrative control in placeof RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI hadRs.6,700 crores of assets under management.SECOND PHASE – 1987-1993 (ENTRY OF PUBLIC SECTOR FUNDS): 1987 marked the entry of non- UTI, public sector mutual funds set up by public sectorbanks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India(GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followedby Canbank Mutual 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 its mutual fund in June 1989 while GIC had set up its mutual fund in December1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004crores.THIRD PHASE – 1993-2003 (ENTRY OF PRIVATE SECTOR FUNDS): With the entry of private sector funds in 1993, a new era started in the Indian mutual fundindustry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year inwhich the first Mutual Fund Regulations came into being, under which all mutual funds, exceptUTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged withFranklin Templeton) was the first private sector mutual fund registered in July 1993. 12
    • Projectsformba.blogspot.com The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensiveand revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI(Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual fundssetting up funds in India and also the industry has witnessed several mergers and acquisitions. Asat the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores.The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead ofother mutual funds.FOURTH PHASE – SINCE FEBRUARY 2003: In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI wasbifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of 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. The SpecifiedUndertaking of Unit Trust of India, functioning under an administrator and under the rulesframed by Government of India and does not come under the purview of the Mutual FundRegulations. 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 the bifurcation ofthe erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets undermanagement and with the setting up of a UTI Mutual Fund, conforming to the SEBI MutualFund Regulations, and with recent mergers taking place among different private sector funds, themutual fund industry has entered its current phase of consolidation and growth. As at the end ofSeptember, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421schemes. 13
    • Projectsformba.blogspot.comThe graph indicates the growth of assets under management over the years. GROWTH IN ASSETS UNDER MANAGEMENT (Source: www.amfiindia.com) 14
    • Projectsformba.blogspot.comADVANTAGES OF MUTUAL FUNDS: If mutual funds are emerging as the favorite investment vehicle, it is because of the manyadvantages they have over other forms and the avenues of investing, particularly for the investorwho has limited resources available 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. Portfolio Diversification: Each investor in the fund is a part owner of all the fund’s assets, thus enabling him tohold a diversified investment portfolio even with a small amount of investment that wouldotherwise require big capital.2. Professional Management: Even if an investor has a big amount of capital available to him, he benefits from theprofessional management skills brought in 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 return than what an investor can manage on his own.Few investors have the skill and resources of their own to succeed in today’s fast moving, globaland sophisticated markets.3. Reduction/Diversification Of Risk: When an investor invests directly, all the risk of potential loss is his own, whether heplaces a deposit with a company or a bank, or he buys a share or debenture 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 most important benefits of acollective investment vehicle like the mutual fund. 15
    • Projectsformba.blogspot.com4. Reduction Of Transaction Costs: What is true of risk as also true of the transaction costs. The investor bears all the costs ofinvesting such as brokerage or custody of securities. When going through a fund, he has thebenefit of economies of scale; the funds 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. Whenthey invest in the units of a fund, they can generally cash their investments any time, by sellingtheir units to the fund if open-ended, or selling them in the market if the fund is close-end.Liquidity of investment is clearly a big benefit.6. Convenience And Flexibility: Mutual fund management companies offer many investor services that a direct marketinvestor cannot get. Investors can easily transfer their holding from one scheme to the other; getupdated market information and so on.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 be taxed at aconcessional rate of 10.5%. In case of Individuals and Hindu Undivided Families a deduction upto Rs. 9,000 from theTotal Income will be admissible in respect of income from investments specified in Section 80L,including income from Units of the Mutual Fund. Units of the schemes are not subject toWealth-Tax and Gift-Tax.8. Choice of Schemes:Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. 16
    • Projectsformba.blogspot.com9. Well Regulated:All Mutual Funds are registered with SEBI and they function within the provisions of strictregulations designed to protect the interests of investors. 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 the specific investments made by your scheme, the proportion invested in each class of assets and the fund managers investment strategy and outlook.DISADVANTAGES OF INVESTING THROUGH MUTUALFUNDS:1. No Control Over Costs: An investor in a mutual fund has no control of the overall costs of investing. The investorpays investment management fees as long as he remains with the fund, albeit in return for theprofessional management and research. Fees are payable even if the value of his investments isdeclining. A mutual fund investor also pays fund distribution costs, which he would not incur indirect investing. However, this shortcoming only 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 andother securities. Investing through fund means he delegates this decision to the fund managers.The very-high-net-worth individuals or large corporate investors may find this to be a constraintin achieving their objectives. However, most mutual fund managers help investors overcome thisconstraint by offering families of funds- a large number of different schemes- within their ownmanagement company. An investor can choose from different investment plans and constructs aportfolio to his choice. 17
    • Projectsformba.blogspot.com3. Managing A Portfolio Of Funds: Availability of a large number of funds can actually mean too much choice for theinvestor. He may again need advice on how to select a fund to achieve his objectives, quitesimilar to the situation when he has individual 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 the average nonprofessional, but charges fees.5. No Control: Unlike picking your own individual stocks, a mutual fund puts you in the passenger seatof somebody elses car6. Dilution: Mutual funds generally have such small holdings of so many different stocks thatinsanely great performance by a funds top holdings still doesnt make much of a difference in amutual funds total performance.7. Buried Costs: Many mutual funds specialize in burying their costs and in hiring salesmen who do notmake those costs clear to their clients. 18
    • Projectsformba.blogspot.comTYPES OF MUTUAL FUNDS SCHEMES IN INDIA Wide variety 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 collection of many stocks, an investors can go for picking a mutual fund might be easy.There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutualfunds in categories, mentioned below. 19
    • Projectsformba.blogspot.comA).BY STRUCTURE1. Open - Ended Schemes: An open-end fund is one that is available for subscription all through the year. These donot have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value("NAV") related prices. The key feature of open-end schemes is liquidity.2. Close - Ended Schemes: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15years. The fund is open for subscription only during a specified period. Investors can invest inthe scheme at the time of the initial public issue and thereafter they can buy or sell the units ofthe scheme on the stock exchanges where they are listed. In order to provide an exit route to theinvestors, some close-ended funds give an option of selling back the units to the Mutual Fundthrough periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least oneof the two exit routes is provided to the investor.3. Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale orredemption during pre-determined intervals at NAV related prices. 20
    • Projectsformba.blogspot.comB).BY NATURE1. Equity Fund: These funds invest a maximum part of their corpus into equities holdings. The structureof the fund may vary different for different schemes and the fund manager’s outlook on differentstocks. The Equity Funds are sub-classified depending upon their investment objective, asfollows: • Diversified Equity Funds • Mid-Cap Funds • Sector Specific Funds • Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon, thus Equity funds rank high onthe risk-return matrix.2. Debt Funds: 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 to theinvestors. Debt funds are further classified as: • Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government. • Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. • MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. 21
    • Projectsformba.blogspot.com • Short Term Plans (STPs): Meant for investment horizon for three 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 corporate debentures. • Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury 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 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.3. Balanced Funds: As the name suggest they, are a mix of both equity and debt funds. They invest in bothequities and fixed income securities, which are in line with pre-defined investment objective ofthe scheme. These schemes aim to provide investors with the best of both the worlds. Equity partprovides growth and the debt part provides stability in returns.Further the mutual funds can be broadly classified on the basis of investment parameter 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 the funds objectiveand invest accordingly. 22
    • Projectsformba.blogspot.comC).BY INVESTMENT OBJECTIVE:Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is toprovide capital appreciation over medium to long term. These schemes normally invest a majorpart of their fund in equities and are willing to bear short-term decline in value for possiblefuture appreciation.Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provideregular and steady income to investors. These schemes generally invest in fixed incomesecurities such as bonds and corporate debentures. Capital appreciation in such schemes may belimited.Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing apart of the income and capital gains they earn. These schemes invest in both shares and fixedincome securities, in the proportion indicated in their offer documents (normally 50:50).Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital andmoderate income. These schemes generally invest in safer, short-term instruments, such astreasury bills, certificates of deposit, commercial paper and inter-bank call money.Load Funds: A Load Fund is one that charges a commission for entry 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 fund has a good performance history.No-Load Funds: A No-Load Fund is one that does not charge a commission for entry or exit. That is, nocommission is payable on purchase or sale of units in the fund. The advantage of a no load fundis that the entire corpus is put to work. 23
    • Projectsformba.blogspot.comOTHER SCHEMESTax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from timeto time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked SavingsScheme (ELSS) are eligible for rebate.Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSESensex or the NSE 50. The portfolio of these schemes will consist of only those stocks thatconstitute the index. The percentage of each stock to the total holding will be identical to thestocks index weightage. And hence, the returns from such schemes would be more or 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 offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods(FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance ofthe respective sectors/industries. While these funds may give higher returns, they are more riskycompared to diversified funds. Investors need to keep a watch on the performance of thosesectors/industries and must exit at an appropriate time. 24
    • Projectsformba.blogspot.comNET ASSET VALUE (NAV): Since each owner is a part owner of a mutual fund, it is necessary to establish the value ofhis part. In other words, each share or unit that an investor holds needs to be assigned a value.Since the units held by investor evidence the ownership of the fund’s assets, the value of the totalassets of the fund when divided by the total number of units issued by the mutual fund gives usthe value of one unit. This is generally called the Net Asset Value (NAV) of one unit or oneshare. The value of an investor’s part ownership is thus determined by the NAV of the number ofunits held.Calculation of NAV: Let us see an example. If the value of a fund’s assets stands at Rs. 100 and it has 10investors who have bought 10 units each, the total numbers of units issued are 100, and the valueof one unit is Rs. 10.00 (1000/100). If a single investor in fact owns 3 units, the value of hisownership of the fund will be Rs. 30.00(1000/100*3). Note that the value of the fund’sinvestments will keep fluctuating with the market-price movements, causing the Net Asset Valuealso to fluctuate. For example, if the value of our fund’s asset increased from Rs. 1000 to 1200,the value of our investors holding of 3 units will now be (1200/100*3) Rs. 36. The investmentvalue can go up or down, depending on the markets value of the fund’s assets. 25
    • Projectsformba.blogspot.comMUTUAL FUND FEES AND EXPENSES Mutual fund fees and expenses are charges that may be incurred by investors who holdmutual funds. Running a mutual fund involves costs, including shareholder transaction costs,investment advisory fees, and marketing and distribution expenses. Funds pass along these coststo investors in a number of ways.1. TRANSACTION FEES i) Purchase Fee: It is a type of fee that some funds charge their shareholders when they buy shares. Unlike a front-end sales load, a purchase fee is paid to the fund (not to a broker) and is typically imposed to defray some of the funds costs associated with the purchase. ii) Redemption Fee: It is another type of fee that some funds charge their shareholders when they sell or redeem shares. Unlike a deferred sales load, a redemption fee is paid to the fund (not to a broker) and is typically used to defray fund costs associated with a shareholders redemption. iii) Exchange Fee: Exchange fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group or "family of funds."2. PERIODIC FEES i) Management Fee: Management fees are fees that are paid out of fund assets to the funds investment adviser for investment portfolio management, any other management fees payable to the funds investment adviser or its affiliates, and administrative fees payable to the investment adviser that are not included in the "Other Expenses" category. They are also called maintenance fees. 26
    • Projectsformba.blogspot.com ii) Account Fee: Account fees are fees that some funds separately impose on investors in connection with the maintenance of their accounts. For example, some funds impose an account maintenance fee on accounts whose value is less than a certain dollar amount.3. OTHER OPERATING EXPENSES Transaction Costs: These costs are incurred in the trading of the funds assets. Funds with a high turnover ratio, or investing in illiquid or exotic markets usually face higher transaction costs. Unlike the Total Expense Ratio these costs are usually not reported.LOADSDefinition of a load Load funds exhibit a "Sales Load" with a percentage charge levied on purchase or sale ofshares. A load is a type of Commission (remuneration). Depending on the type of load a mutualfund exhibits, charges may be incurred at time of purchase, time of sale, or a mix of both. Thedifferent types of loads are outlined below.Front-end load: Also known as Sales Charge, this is a fee paid when shares are purchased. Also known asa "front-end load," this fee typically goes to the brokers that sell the funds shares. Front-endloads reduce the amount of your investment. For example, lets say you have Rs.10,000 and wantto invest it in a mutual fund with a 5% front-end load. The Rs.500 sales load 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. 27
    • Projectsformba.blogspot.comBack-end load: Also known as Deferred Sales Charge, this is a fee paid when shares are sold. Alsoknown as a "back-end load," this fee typically goes to the brokers that sell the funds shares. Theamount of this type of load will depend on how long the investor holds his or her shares andtypically decreases to zero if the investor holds his or her shares long enough.Level load / Low load: Its similar to a back-end load in that no sales charges are paid when buying the fund.Instead a back-end load may be charged if the shares purchased are sold within a given timeframe. The distinction between level loads and low loads as opposed to back-end loads, is thatthis time frame where charges are levied is shorter.No-load Fund: As the name implies, this means that the fund does not charge any type of sales load. But,as outlined above, not every type of shareholder fee is a "sales load." A no-load fund may chargefees that are not sales loads, such as purchase fees, redemption fees, exchange fees, and accountfees. 28
    • Projectsformba.blogspot.comSELECTION PARAMETERS FOR MUTUAL FUNDYour objective: The first point to note before investing in a fund is to find out whether your objectivematches with the scheme. It is necessary, as any conflict would directly affect your prospectivereturns. 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, as they are relatively safer. Aggressive investors can go for equity investments.Investors that are even more aggressive can try schemes that invest in specific industry orsectors.Fund Manager’s and 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 has excellent trackrecord. It also should be professional and maintain high transparency in operations. 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 fared in different marketconditions.Cost factor: Though the AMC fee is regulated, you should look at the expense ratio of the fund beforeinvesting. This is because the money is deducted from your investments. A higher entry load orexit load also will eat into your returns. A higher expense ratio can be justified only bysuperlative returns. It is very crucial in a debt fund, as it will devour a few percentages from yourmodest returns. 29
    • Projectsformba.blogspot.com Also, Morningstar rates mutual funds. Each year end, many financial publications list theyears best performing mutual funds. Naturally, very eager investors will 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 the current year. Mutual fundinvestors would be well advised to consider the fund prospectus, the fund manager, and thecurrent market conditions. Never rely on last years top performers.Types of Returns on Mutual Fund: There are three ways, where the total returns provided by mutual funds can be enjoyed byinvestors: • Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. • If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.If fund holdings increase in price but are not sold by the fund manager, the funds shares increasein price. You can then sell your mutual fund shares for a profit. Funds will also usually give youa choice either to receive a check for distributions or to reinvest the earnings and get moreshares. 30
    • Projectsformba.blogspot.comRISK FACTORS OF MUTUAL FUNDS:1. The Risk-Return Trade-Off: The most important relationship to understand is the risk-return trade-off. Higher the riskgreater the returns / loss and lower the risk lesser the returns/loss. Hence it is upto you, the investor to decide how much risk you are willing to take. Inorder to do this you must first be aware 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 the market in general lead to this. This is true, may it be big corporations or smallermid-sized companies. This is known as Market Risk. A Systematic Investment Plan (“SIP”) thatworks on the concept of Rupee Cost Averaging (“RCA”) might help mitigate this risk.3. Credit Risk: The debt servicing ability (may it be interest payments or repayment of principal) of acompany through its cashflows determines the Credit Risk faced by you. This credit risk ismeasured by independent rating agencies like CRISIL who rate companies and their paper. A‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered poor credit quality. Awell-diversified portfolio 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 50 paise?""Mehangai Ka Jamana Hai."The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of timespeople make conservative investment decisions to protect their capital but end up with a sum ofmoney that can buy less than what the principal could at the time of the investment. This happens 31
    • 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 to predict. Changesin interest rates affect the prices of bonds as well as equities. If interest rates rise the prices ofbonds fall and vice versa. Equity might be negatively affected as well in a rising interest rateenvironment. A well-diversified portfolio might help mitigate this risk.6. Political / Government Policy Risk: Changes in government policy and political decision can change the investmentenvironment. 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 one haspurchased. Liquidity Risk can be partly mitigated by diversification, staggering of maturities aswell as internal risk controls that lean towards purchase of liquid securities. 32
    • Projectsformba.blogspot.com Chapter: 2 WORKING OF MUTUAL FUNDS The mutual fund collects money directly or through brokers from investors. The money isinvested in various instruments depending on the objective of the scheme. The income generatedby selling securities or capital appreciation of these securities is passed on to the investors inproportion to their investment in the scheme. The investments are divided into units and thevalue of the units will be reflected in Net Asset Value or NAV of the unit. NAV is the marketvalue of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value ofthe scheme divided by the number of units outstanding on the valuation date. Mutual fundcompanies provide daily net asset value of their schemes to their investors. NAV is important, asit will determine the price at which you buy or redeem the units of a scheme. Depending on theload structure of the scheme, you have to pay entry or exit load. 33
    • Projectsformba.blogspot.comSTRUCTURE OF A MUTUAL FUND: India has a legal framework within which Mutual Fund have to be constituted. In Indiaopen and close-end funds operate under the same regulatory structure i.e. as unit Trusts. AMutual Fund in India is allowed to issue open-end and close-end schemes under a common legalstructure. The structure that is required 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 person who, acting alone or incombination of another corporate body establishes a Mutual Fund. The sponsor of the fund isakin to the promoter of a company as he gets the fund registered with SEBI. The sponsor forms atrust and appoints a Board of Trustees. The sponsor also appoints the Asset ManagementCompany as fund managers. The sponsor either directly or acting through the trustees will alsoappoint a custodian to hold funds assets. All these are made in accordance with the regulationand guidelines of SEBI. 34
    • Projectsformba.blogspot.com As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute atleast 40% of the net worth of the Asset Management Company and possesses 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 Fundsponsor acts 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. The fund 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 the fund. It should be understood that the fund should be just a “pass through” vehicle. Under theIndian Trusts Act, the trust of the fund has no independent legal capacity itself, rather it is theTrustee or the Trustees who have the legal capacity and therefore all acts in relation to the trustsare taken on its behalf by the Trustees. In legal parlance the investors or the unit-holders are thebeneficial owners of the investment held by the Trusts, even as these investments are held in thename of the Trustees on a day-to-day basis. Being public trusts, Mutual Fund can invite anynumber of investors as beneficial owners in their investment schemes.Trustees: A Trust is created through a document called the Trust Deed that is executed by the fundsponsor in favour of the trustees. The Trust- the Mutual Fund – may be managed by a board oftrustees- a body of individuals, or a trust company- a corporate body. Most of the funds in Indiaare managed by Boards of Trustees. While the boards of trustees are governed by the IndianTrusts Act, where the trusts are a corporate body, it would also require to comply with theCompanies Act, 1956. The Board or the Trust company as an independent body, acts as aprotector of the of the unit-holders interests. The Trustees do not directly manage the portfolio ofsecurities. For this specialist function, the appoint an Asset Management Company. They ensurethat the Fund is managed by ht AMC as per the defined objectives and in accordance with thetrusts deeds and SEBI regulations. 35
    • Projectsformba.blogspot.comThe Asset Management Companies: The role of an Asset Management Company (AMC) is to act as the investment managerof the Trust under the board supervision and the guidance of the Trustees. The AMC is requiredto be approved and registered with SEBI as an AMC. The AMC of a Mutual Fund must have anet worth of at least Rs. 10 Crores at all times. Directors of the AMC, both independent and non-independent, should have adequate professional expertise in financial services and should beindividuals of high morale standing, a condition also applicable to other key personnel of theAMC. The AMC cannot act as a Trustee of any other Mutual Fund. Besides its role as a fundmanager, it may undertake specified activities such as advisory services and financial consulting,provided these activities are run independent of one another and the AMC’s resources (such aspersonnel, systems etc.) are properly segregated by the activity. The AMC must always act in theinterest of the unit-holders and reports to the trustees with respect to its activities.Custodian and Depositories: Mutual Fund is in the business of buying and selling of securities in large volumes.Handling these securities in terms of physical delivery and eventual safekeeping is a specializedactivity. The custodian is appointed by the Board of Trustees for safekeeping of securities orparticipating in any clearance system through approved depository companies on behalf of theMutual Fund and it must fulfill its responsibilities in accordance with its agreement with theMutual Fund. The custodian should be an entity independent of the sponsors and is required tobe registered with SEBI. With the introduction of the concept of dematerialization of shares thedematerialized shares are kept with the 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 the instructions of the AMC, although under the overall direction andresponsibilities of the Trustees.Bankers: A Fund’s activities involve dealing in money on a continuous basis primarily with respectto buying and selling units, paying for investment made, receiving the proceeds from sale of theinvestments and discharging its obligations towards operating expenses. Thus the Fund’s banker 36
    • Projectsformba.blogspot.complays an important role to determine quality of service that the fund gives in timely delivery ofremittances etc.Transfer Agents: Transfer agents are responsible for issuing and redeeming units of the Mutual Fund andprovide other related services such as preparation of transfer documents and updating investorrecords. A fund may choose to carry out its activity in-house and charge the scheme for theservice at a competitive market rate. Where an outside Transfer agent is used, the fund investorwill find the agent to be an important interface to deal with, since all of the investor services thata fund provides are going to be dependent on the transfer agent.REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA: The structure of mutual funds in India is guided by the SEBI. Regulations, 1996.Theseregulations make it mandatory for mutual fund to have three structures of sponsor trustee andasset Management Company. The sponsor of the mutual fund and appoints the trustees. Thetrustees are responsible to the investors in mutual fund and appoint the AMC for managing theinvestment portfolio. The AMC is the business face of the mutual fund, as it manages all theaffairs of the mutual fund. The AMC and the mutual fund have to be registered with SEBI. 37
    • 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 by private sector entities were allowed to enter the capital market.• The regulations were fully revised in 1996 and have been amended thereafter from time to time.• SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors.• All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI.• SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors.• Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.• Further SEBI Regualtions, inter-alia, stipulate that MFs cannot gurarnatee returns in any scheme and that each scheme is subject to 20 : 25 condition [I.e minimum 20 investors per scheme and one investor can hold more than 25% stake in the corpus in that one scheme].• Also SEBI has permitted MFs to launch schemes overseas subject various restrictions and also to launch schemes linked to Real Estate, Options and Futures, Commodities, etc. 38
    • 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 was generated 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 Management Companies (AMC) which has beenregistered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are itsmembers. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry toa professional and healthy market with ethical lines enhancing and maintaining standards. Itfollows the principle of both protecting and promoting the interests of mutual funds as well astheir unit holders.The Objectives of Association of Mutual Funds in India: 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. The objectives are as follows: • This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry. • It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. • AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. • Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. • It develops a team of well qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry. 39
    • Projectsformba.blogspot.com • AMFI undertakes all India awareness programme for investors 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 on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.AMFI Publications:AMFI publish mainly two types of bulletin. One is on the monthly basis and the other isquarterly. These publications are of great support for the investors to get intimation of theknowhow of their parked money. 40
    • Projectsformba.blogspot.com Chapter: 3 MUTUAL FUNDS IN INDIA In 1963, the day the concept of Mutual Fund took birth in India. Unit Trust of Indiainvited investors or rather to those who believed in savings, to park their money in UTI MutualFund. For 30 years it goaled without a single second player. Though the 1988 year saw somenew mutual fund companies, but UTI remained in a monopoly position. The performance of mutual funds in India in the initial phase was not even closer tosatisfactory level. People rarely understood, and of course investing was out of question. But yes,some 24 million shareholders were accustomed with guaranteed high returns by the beginning ofliberalization of the industry in 1992. This good record of UTI became marketing tool for newentrants. The expectations of investors touched the sky in profitability factor. However, peoplewere miles away from the preparedness of risks factor after the liberalization. The net asset value (NAV) of mutual funds in India declined when stock prices startedfalling in the year 1992. Those days, the market regulations did not allow portfolio shifts intoalternative investments. There was rather no choice apart from holding the cash or to furthercontinue investing in shares. One more thing to be noted, since only closed-end funds werefloated 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 rocked confidence 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 of their net asset value. The securities and Exchange Board of India (SEBI) came out with comprehensiveregulation in 1993 which defined the structure of Mutual Fund and Asset ManagementCompanies for the first time. The supervisory authority adopted a set of measures to create a transparent andcompetitive environment in mutual funds. Some of them were like relaxing investment 41
    • 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 to make mutual funds the key instrument for long-term saving.The more the variety offered, the quantitative will be investors. Several private sectors Mutual Funds were launched in 1993 and 1994. The share of theprivate players has risen rapidly since then. Currently there are 34 Mutual Fund organizations inIndia managing 1,02,000 crores. At last to mention, as long as mutual fund companies 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 the dos and don’ts of mutual funds. Mutual fund industry has seen a lot of changes in past few years with multinationalcompanies coming into the country, bringing in their professional expertise in managing fundsworldwide. In the past few months there has been a consolidation phase going on in the mutualfund industry in India. Now investors have a wide range of Schemes to choose from dependingon their individual profiles. 42
    • Projectsformba.blogspot.comMUTUAL FUND COMPANIES IN INDIA: The concept of mutual funds in India dates back to the year 1963. The era between 1963and 1987 marked the existance 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 80s decade, few other mutual fund companies in India took their position in mutualfund market. The new 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. The succeeding decade showed a new horizon in Indian mutual fund industry. By the endof 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds startedpenetrating the fund 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 has nowmerged 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 in India.Major Mutual Fund Companies in India• ABN AMRO Mutual Fund • Standard Chartered Mutual Fund• Birla Sun Life Mutual Fund • Franklin Templeton India Mutual Fund• Bank of Baroda Mutual Fund • Morgan Stanley Mutual Fund India• HDFC Mutual Fund • Escorts Mutual Fund• HSBC Mutual Fund • Alliance Capital Mutual Fund• ING Vysya Mutual Fund • Benchmark Mutual Fund• Prudential ICICI Mutual Fund • Canbank Mutual Fund• State Bank of India Mutual Fund • Chola Mutual Fund• Tata Mutual Fund • LIC Mutual Fund• Unit Trust of India Mutual Fund • GIC Mutual Fund• Reliance Mutual Fund 43
    • 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, the Prudential ICICI Mutual Fund wasranked at the number one slot in terms of total assets. In the very 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 ofMutual Funds in India (AMFI), the Reliance Mutual Fund, with a January-end AUM of Rs39,020 crore has become the largest mutual fund in India On the other hand, UTIMF, with an AUM of Rs 37,535 crore, has gone to secomdposition. The Prudential ICICI MF has slipped to the third position with an AUM of Rs 34,746crore.It happened for the first time in last one year that a private 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 Rs 3.39 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 billion inApril compared to Rs 4,932.86 billion in March Reliance MF maintained its top position as the largest fund house in the country with Rs74.25 billion jump in AUM to Rs 883.87 billion at April-end.The second-largest fund house HDFC MF gained Rs 59.24 billion in its AUM at Rs 638.80billion. ICICI Prudential and state-run UTI MF added Rs 46.16 billion and Rs 57.35 billion rerespectively to their assets last month. ICICI Prudential`s AUM stood at Rs 560.49 billion at theend of April, while UTI MF had assets worth Rs 544.89 billion. The other fund houses which saw an increase in their average AUM in April include-Canara Robeco MF, IDFC MF, DSP BlackRock, Deutsche MF, Kotak Mahindra MF and LICMF. 44
    • Projectsformba.blogspot.com Chapter: 4 RELIANCE MUTUAL FUND Vs UTI MUTUAL FUNDRELIANCE MUTUAL FUND Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. Thesponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is theTrustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changedon March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes underwhich units are issued to the Public with a view to contribute to the capital market and to provideinvestors the opportunities to make investments in diversified securities. 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 over 71.53 Lacs.Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of thefastest growing mutual funds in the country. RMF offers investors a well-rounded portfolio ofproducts to meet varying investor requirements and has presence in 118 cities across the country. Reliance Mutual Fund constantly endeavors to launch innovative products and customerservice initiatives to increase value to investors. "Reliance Mutual Fund schemes are managed byReliance Capital Asset Management Limited., a subsidiary of Reliance Capital Limited, whichholds 93.37% of the paid-up capital of RCAM, the balance paid up capital being held byminority shareholders."Sponsor : Reliance Capital Limited.Trustee : Reliance Capital Trustee Co. Limited. 45
    • Projectsformba.blogspot.comInvestment Manager : Reliance Capital Asset Management Limited. The Sponsor, the Trustee and the Investment Manager are incorporated under theCompanies Act 1956.Vision Statement “To be a globally respected wealth creator with an emphasis on customer care and aculture of good corporate governance.”Mission Statement To create and nurture a world-class, high performance environment aimed at delightingour customers.The Main Objectives Of The Trust: • To carry on the activity of a Mutual Fund as may be permitted at law and formulate and devise various collective Schemes of savings and investments for people in India and abroad and also ensure liquidity of investments for the Unit holders; • To deploy Funds thus raised so as to help the Unit holders earn reasonable returns on their savings and • To take such steps as may be necessary from time to time to realise the effects without any limitation. 46
    • Projectsformba.blogspot.comSCHEMESA).EQUITY/GROWTH SCHEMES: The aim of growth funds is to provide capital appreciation over the medium to long-term. Such schemes normally invest a major part of their corpus in equities. Such funds havecomparatively high risks. Growth schemes are good for investors having a long-term outlookseeking appreciation over a period of time.1. Reliance Infrastructure Fund(Open-Ended Equity): The primary investment objective of the scheme is to generate long term capital appreciation by investing predominantly in equity and equity related instruments of companies engaged in infrastructure (Airports, Construction, Telecommunication, Transportation) and infrastructure related sectors and which are incorporated or have their area of primary activity, in India and the secondary objective is to generate consistent returns by investing in debt and money market securities.Investment Strategy: The investment focus would be guided by the growth potential and other economic factors of the country. The Fund aims to maximize long-term total return by investing in equity and equity-related securities which have their area of primary activity in India.2. Reliance Quant Plus Fund/Reliance Index Fund (Open-Ended Equity): The investment objective of the Scheme is to generate capital appreciation through investment in equity and equity related instruments. The Scheme will seek to generate capital appreciation by investing in an active portfolio of stocks selected from S & P CNX Nifty on the basis of a mathematical model. An investment fund that approach stock selection process based on quantitative analysis.3. Reliance Natural Resources Fund (Open-Ended Equity): The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in companies principally engaged in the discovery, development, production, or distribution of natural resources and 47
    • Projectsformba.blogspot.com the secondary objective is to generate consistent returns by investing 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 basic commodities.4. Reliance Equity Linked Saving Fund (A 10 Year Close-Ended Equity ): The primary objective of the scheme is to generate long-term capital appreciation from a portfolio that is invested predominantly in equities along with income tax benefit. The scheme may invest in equity shares in foreign companies and instruments convertible into equity shares of domestic or foreign companies and in derivatives as may be permissible under the guidelines issued by SEBI and RBI.5. Reliance Equity Advantage Fund (Open-Ended Diversified Equity): The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio predominantly of equity & equity related instruments with investments generally in S & P CNX Nifty stocks and the secondary objective 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 of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity & equity related securities of top 100 companies by market capitalization & of companies which are available in the derivatives segment from time to time and the secondary objective is to generate consistent returns by investing in debt and money market securities. 48
    • Projectsformba.blogspot.com7. Reliance Tax Saver (ELSS) Fund (Open-Ended Equity): The primary objective of the scheme is to generate long-term capital appreciation from a portfolio that 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 the benefits under Section 80C (2) of the Income-tax Act, 1961. • Dividends received will be absolutely TAX FREE. • The dividend distribution tax (payable by the AMC) for equity schemes is also NIL8. Reliance Growth Fund (Open-Ended Equity): The primary investment objective of the Scheme is to achieve long term growth of capital by investment in equity and equity related securities through a research based investment approach.9. Reliance Vision Fund (Open-Ended Equity) : The primary investment objective of the Scheme is to achieve long term growth of capital by investment in equity and equity related securities through a research based investment approach.10. Reliance Equity Opportunities Fund (Open-Ended Diversified Equity): The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity securities & equity related securities and the secondary objective is to generate consistent returns by investing in debt and money market securities.11. Reliance NRI Equity Fund (Open-Ended Diversified Equity): The Primary investment objective of the scheme is to generate optimal returns by investing in equity or equity related instruments primarily drawn from the Companies in the BSE 200 Index. 49
    • Projectsformba.blogspot.com12. Reliance Long Term Equity Fund (Open-Ended Diversified Equity): The primary investment objective of the scheme is to seek to generate long term capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity & equity related securities and Derivatives and the secondary objective is to generate consistent returns by investing in debt and money market securities. It is a 36-month close ended diversified 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 Equities focusing in small and mid cap companies.13.Reliance Regular Savings Fund (Open-Ended Equity): Reliance Regular Savings Fund provides you the choice of investing in Debt, Equity or Hybrid options with a pertinent investment objective and pattern for each option. Invest as little as Rs.100/-every month in the Reliance Regular Savings Fund. For the first time in India, your mutual fund offers instant cash withdrawal facility on your investment at any VISA-enabled ATM near you. With a choice of three investment options, the fund is truly, the smart new way to invest.B).DEBT/INCOME SCHEMES: The aim of income funds is to provide regular and steady income to investors. Suchschemes generally invest in fixed income securities such as bonds, corporate debentures,Government securities and money market instruments. Such funds are less risky compared toequity schemes. These funds are not affected because of fluctuations in equity markets.However, opportunities of capital appreciation are also limited in such funds. The NAVs of suchfunds are affected because of change in interest rates in the country. If the interest rates fall,NAVs of such funds are likely to increase in the short run and vice versa. However, long terminvestors may not bother about these fluctuations. 50
    • Projectsformba.blogspot.com1. Reliance Monthly Income Plan : (An Open Ended Fund, Monthly Income is not assured & is subject to the availability of distributable surplus) The Primary investment objective of the Scheme is to generate regular income in order to make regular dividend payments to unit holders and the secondary objective is growth of capital.2. Reliance Gilt Securities Fund - Short Term Gilt Plan & Long Term Gilt Plan : (Open-ended Government Securities Scheme) The primary objective of the Scheme is to generate optimal credit risk-free returns by investing in a portfolio of securities issued and guaranteed by the central Government and State Government.3. Reliance Income Fund : (An Open-ended Income Scheme) The primary objective of the scheme is to generate optimal returns consistent with moderate levels of risk. This income may be complemented by capital appreciation of the portfolio. Accordingly, investments shall predominantly be made in Debt & Money market Instruments.4. Reliance Medium Term Fund : (An Open End Income Scheme with no assured returns) The primary investment objective of the Scheme is to generate regular income in order to make regular dividend payments to unit holders and the secondary objective is growth of capital5. Reliance Short Term Fund : (An Open End Income Scheme) The primary investment objective of the scheme is to generate stable returns for investors with a short investment horizon by investing in Fixed Income Securities of short term maturity.6. Reliance Liquid Fund : (Open-ended Liquid Scheme) The primary investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risk and high liquidity. 51
    • Projectsformba.blogspot.com Accordingly, investments shall predominantly be made in Debt and 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 a portfolio comprising substantially of Floating Rate Debt Securities (including floating rate securitised debt and Money Market Instruments and Fixed Rate Debt Instruments swapped for floating rate returns). The scheme shall also invest in fixed rate debt Securities (including fixed rate securitised debt, Money Market Instruments and Floating Rate Debt Instruments swapped for fixed returns.8. Reliance NRI Income Fund : (An Open-ended Income scheme) The primary investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risks. This income may be complimented by capital appreciation of the portfolio. Accordingly, investments shall predominantly be made in debt Instruments.9. Reliance Liquidity Fund : (An Open - ended Liquid Scheme) The investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risk and high liquidity. Accordingly, investments shall predominantly be made in Debt and Money Market Instruments.10.Reliance Interval Fund : (A Debt Oriented Interval Scheme) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio11.Reliance Liquid Plus Fund: (An Open-ended Income Scheme) The investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risk and liquidity by investing in debt securities and money market securities. 52
    • 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 growth of capital by investing in a diversified portfolio.13. Reliance Fixed Horizon Fund –II: (A closed ended Scheme.) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio.14. Reliance Fixed Horizon Fund –III: (A Close-ended Income Scheme.) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio.15.Reliance Fixed Tenor Fund : (A Close-ended Scheme) The primary investment objective of the Plan is to seek to generate regular returns and growth of capital by investing in a diversified portfolio.16.Reliance Fixed Horizon Fund -Plan C : (A closed ended Scheme.) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio.17. Reliance Fixed Horizon Fund - IV: (A Close-ended Income Scheme.) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio. 53
    • Projectsformba.blogspot.com18.Reliance Fixed Horizon Fund - V: (A Close-ended Income Scheme.) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio of: Central and State Government securities and Other fixed income/ debt securities normally maturing in line with the time profile of the scheme with the objective of limiting interest rate volatility19. Reliance Fixed Horizon Fund – VI : (A Close-ended Income Scheme) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio of: - Central and State Government securities and Other fixed income/ debt securities normally maturing in line with the time profile of the series with the objective of limiting interest rate volatility20. Reliance Fixed Horizon Fund – VII : (A Close-ended Income Scheme.) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio of: - Central and State Government securities and Other fixed income/ debt securities normally maturing in line with the time profile of the series with the objective of limiting interest rate volatility.C).SECTOR SPECIFIC SCHEMES: These are the funds/schemes which invest in the securities of specified sectors orindustries e.g. Pharmaceuticals, Software, FMCG, Petroleum stocks, etc. The returns in thesefunds are dependent on the performance of the respective sectors/industries. While these fundsmay give higher returns, they are more risky compared to diversified funds. 54
    • Projectsformba.blogspot.com1. Reliance Banking Fund : Reliance Mutual Fund has an Open-Ended Banking Sector Scheme which has the primary investment objective to generate continuous returns by actively investing in equity / equity related or fixed income securities of banks.2. Reliance Diversified Power Sector Fund : Reliance Diversified Power Sector Scheme is an Open-ended Power Sector Scheme. The primary investment objective of the Scheme is to seek to generate consistent returns by actively investing in equity / equity related or fixed income securities of Power and other associated companies.3. Reliance Pharma Fund : Reliance Pharma Fund is an Open-ended Pharma Sector Scheme. The primary investment objective of the Scheme is to generate consistent returns by investing in equity / equity related or fixed income securities of Pharma and other associated companies.4. Reliance Media & Entertainment Fund : Reliance Media & Entertainment Fund is an Open-ended Media & Entertainment sector scheme. The the primary investment objective of the Scheme is to generate consistent returns by investing in equity / equity related or fixed income securities of media & entertainment and other associated companies.D).RELIANCE GOLD EXCHANGE TRADED FUND:(An open-ended Gold Exchange Traded Fund) The investment objective is to seek to providereturns that closely correspond to returns provided by price of gold through investment inphysical Gold (and Gold related securities as permitted by Regulators from time to time).However, the performance of the scheme may differ from that of the domestic prices of Gold dueto expenses and or other related factors. 55
    • Projectsformba.blogspot.comUNIT TRUST OF INDIA MUTUAL FUND Unit Trust of India was created by the UTI Act passed by the Parliament in 1963. Formore than two decades it remained 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 MF Regulations in 1993.UTI maintained its pre-eminent place till 2001,when a massive decline in the market indices and negative investor sentiments after KetanParekh scam created doubts about the capacity of UTI to meet its obligations to the investors.This was further compounded by two factors; namely, its flagship and largest scheme US 64 wassold and re-purchased not at intrinsic NAV 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 mutual fund the ownership wastransferred to four institutions; namely SBI, LIC, BOB and PNB, each owning 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 to close to 10%. A new board was constituted and a new management inducted. Systematic study of itsproblems role and functions was carried out with the help of a reputed international consultant.Once again UTI has emerged as a serious player in the industry. Some of the funds have wonfamous awards, including the Best Infra Fund globally from Lipper. UTI has been able tobenchmark its employee compensation to the best in the market. Besides running domestic MF Schemes UTI AMC is also a registered portfolio managerunder the SEBI (Portfolio Managers) Regulations. 56
    • Projectsformba.blogspot.com This company runs two successful funds with large international investors being activeparticipants. UTI has also launched a Private Equity Infrastructure Fund along with HSH NordBank of Germany and Shinsei Bank of JapanVision:To be the most Preferred Mutual Fund.Mission:• The most trusted brand, admired by all stakeholders.• The largest and most efficient money manager with global presence• The best in class customer service provider• The most preferred employer• The most innovative and best wealth creator• A socially responsible organisation known for best corporate governanceAssets Under Management: UTI Asset Management Co. LtdSponsor: • State Bank of India • Bank of Baroda • Punjab National Bank • Life Insurance Corporation of IndiaTrustee: UTI Trustee Co. Limited.Reliability UTIMF has consistently reset and upgraded transparency standards. All the branches,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. 57
    • Projectsformba.blogspot.comSCHEMESA).EQUITY FUND1. UTI Energy Fund (Open Ended Fund): Investment will be made in stocks of those companies engaged in the following are: a) Petro sector - oil and gas products & processing b) All types of Power generation companies. c) Companies related to storage of energy. d) Companies manufacturing energy development equipment related ( like petro and power ) e) Consultancy & Finance Companies2. UTI Transportation And Logistics Fund (Auto Sector Fund) (Open Ended Fund): Investment Objective is “capital appreciation” through investments in stocks of the companies engaged in the 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 related instruments of the companies principally engaged in providing transportation services, companies principally engaged in the design, manufacture, distribution, or sale of transportation equipment and companies in the logistics sector. Upto 10% of the funds will be invested in cash/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 the stocks 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 to provide Capital appreciation through investing in the stocks of the companies engaged in the sectors like Metals, Building 58
    • Projectsformba.blogspot.com materials, oil and gas, power, chemicals, engineering etc. The fund will invest in the stocks of the companies which form part of Infrastructure Industries5. UTI Equity Tax Savings Plan (Open Ended Fund): An open-ended equity fund investing a minimum of 80% in equity and equity related instruments. It aims at enabling members to avail tax rebate under Section 80C of the IT Act and provide them with the benefits of growth.6. UTI Growth Sector Fund – Pharma (Open Ended Fund): An open-ended fund which exclusively invests in the equities of the Pharma & Healthcare sector companies. This fund is one of the growth sector funds aiming to invest in companies engaged in business of manufacturing and marketing of bulk drug, 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 Sector companies of the country. One of the growth sector funds aiming to provide growth of capital over a period of time as well as to make income distribution by investing the funds in stocks of companies engaged in service sector such as banking, finance, insurance, education, training, telecom, travel, entertainment, hotels, etc.8. UTI Growth Sector Fund – Software (Open Ended Fund): An open-ended fund which invests exclusively in the equities of the Software Sector companies. One of the growth sectors funds aiming to invest in equity shares of companies belonging to information technology sector to provide returns to investors through capital growth as well as through regular income distribution9. UTI Master Equity Plan Unit Scheme (Close Ended Fund): The scheme primarily aims at securing for the investors capital appreciation by investing the funds of the scheme in equity shares of companies with good growth prospects. 59
    • Projectsformba.blogspot.com10. UTI Master Plus Unit Scheme (Open Ended Fund): An open-ended equity fund with an objective of long-term capital appreciation through investments in equities and equity related instruments, convertible debentures, derivatives in India and also in overseas markets.11.UTI Master Value Fund (Open Ended Fund): An open-ended equity fund investing in stocks which are currently undervalued to their future earning potential and carry medium 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 its funds in equity and equity related instrument with medium to high risk profile and upto 20% in debt 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 to invest upto 50% of its corpus in PSUs equities and equity related products. The fund aims to provide 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 appreciation and 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 investing primarily in mid cap stocks. 60
    • Projectsformba.blogspot.com16.UTI MNC Fund (Open Ended Fund): An open-ended equity fund with the objective to invest predominantly in the equity shares of multinational companies in 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 dividend distribution by investing predominantly in equity and equity related instruments which offer high dividend yield.18.UTI Opportunities Fund (Open Ended Fund): This scheme seeks to generate capital appreciation and/or income distribution by investing the funds of the scheme in equity shares and equity-related instruments. The focus of the scheme is to capitalise on opportunities arising in the market by responding to the dynamically changing Indian economy by moving its investments amongst different sectors as prevailing trends change.19.UTI Leadership Equity Fund (Open Ended Fund): This scheme seeks to generate capital appreciation and / or income distribution 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 scheme with the objective to provide long term capital appreciation/dividend distribution through investments in listed equities & equity related instruments. The fund offers an opportunity to benefit from the impact of non- rational investors behaviour by focussing on stocks that are currently undervalued because of emotional & behavioural patterns present in the stock market. 61
    • Projectsformba.blogspot.com21.UTI SPREAD Fund (Open Ended Fund): The investment objective of the scheme is to provide capital appreciation and dividend distribution through arbitrage opportunities arising out of price differences between the cash and derivative market by investing predominantly in equity & equity related securities, derivatives and the balance portion in debt securities. However, there can be no assurance that the investment objective of the scheme will be realised.22.UTI Wealth Builder Fund (Close Ended Fund): The objective of the scheme is to achieve long term capital appreciation by investing predominantly in a diversified portfolio 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 term capital appreciation along with income tax benefit.24.UTI India Lifestyle Fund (Close Ended Fund): 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 of companies 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 of the 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 in securities of companies comprising the BSE sensex in the same weightage as these companies have in BSE sensex. The fund strives to minimise performance difference with the sensex by keeping the tracking error to the minimum. 62
    • Projectsformba.blogspot.com2. UTI Gold Exchange Traded Fund (Open Ended Fund): To endeavour to provide returns that, before expenses, closely track the performance and yield of Gold. However the performance of the scheme may differ from that of the underlying asset due to 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 returns that, before expenses, closely correspond to the performance and yield of the basket of securities underlying 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 a product that would enable them to diversify their risks through a suitable allocation between debt and equity asset classes and thereby generate superior risk-adjusted returns through a dynamic asset allocation process.D).BALANCED FUND:1. UTI Mahila Unit Scheme (Open Ended Fund): To invest in a portfolio of equity/equity related securities and debt and money market instruments with a view to generate reasonable income with moderate capital appreciation. The asset allocation will be Debt : Minimum 70%, Maximum 100% Equity : Minimum 0%, Maximum 30%.2. UTI Balanced Fund (Open Ended Fund): An open-ended balanced fund investing between 40% to 75% in equity /equity related securities and the balance in debt (fixed income securities) with a view to generate regular income together with capital appreciation. 63
    • Projectsformba.blogspot.com3. UTI Retirement Benefit Pension Fund (Open Ended Fund): The objective of the scheme is to provide pension to investors particularly self- employed persons after they attain the age of 58 years, in the form of periodical cash flow upto the extent of repurchase value of their holding through a systematic withdrawal plan.4. UTI Unit Link Insurance Plan (Open Ended Fund): To provide return through growth in the NAV or through dividend distribution and reinvestment thereof5. UTI CCP (Children Career Plan) Advantage Fund (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 provide them, after they attain the age of 18 years, a means to receive scholarship to meet the cost of higher education / or help them in setting up a profession, practice or business or enabling them to set up a home or finance, the cost of other social obligations.6. UTI Charitable, Religious Trust And Registered Society (Open Ended Fund): Open-ended debt oriented Income scheme with an objective of investing not more than 30% of the funds in equity related instruments and the balance in debt and money market instruments with low to medium risk profile. The scheme is catering to the Investment needs of Charitable, Religious and Educational Trusts as well as Registered 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 in rated corporate debt papers and government securities with relatively low risk and easy liquidity. 64
    • Projectsformba.blogspot.com2. UTI Floating Rate Fund STP (Open Ended Fund): To generate regular income through investment in a portfolio comprising substantially of floating rate debt / money market instruments and fixed rate debt / money market instruments.3. UTI Gilt Advantage Fund LTP(Open Ended Fund): To generate credit risk-free return through investments in sovereign securities issued the Central and / or a State Government.4. UTI Gilt Advantage Fund STP (Open Ended Fund): To generate credit risk-free return through investment in sovereign securities issued the Central and / or a State Government.5. UTI G-SEC STP (Open Ended Fund): An open-end Gilt-Fund with the objective to invest only in Central Government securities including call money, treasury bills and repos of varying maturities with a view to generate credit risk free return with a stated objective of maintaining the average maturity of the portfolio at less than 3 years.6. UTI G-Sec-Investment Plan (Open Ended Fund): An open-end Gilt-Fund with the objective to Invests only in Central government securities including call money, treasury bills and repos of varying maturities with a view to generatie credit risk free return. While selecting the maturity profile of the investment in government securities the need for maximisation of the returns and meeting of the liquidity requirements of the scheme is kept in view.7. UTI Treasury Advantage Fund (Open Ended Fund): It aims to generate attractive returns consistent with capital preservation and liquidity 65
    • Projectsformba.blogspot.com8. UTI Monthly Income Scheme (Open Ended Fund): This is an open-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 make periodic income distribution to unitholders through investments in fixed income securities and equity & equity related instruments.10.UTI Short Term Income Fund (Open Ended Fund): The Scheme seeks to generate steady & reasonable income with low risk & high level of liquidity from a portfolio of money market securities & high quality debt.11.UTI Capital Protection Oriented Scheme (Open Ended Fund): The investment objective of the scheme is to endeavour to protect the capital by investing in high quality fixed income securities as the primary objective and generate capital appreciation by investing in equity and equity related instruments as secondary objective.F). LIQUID FUND (DEBT FUND):1. UTI Liquid Cash Plan (Open Ended Fund): The scheme seeks to generate steady & reasonable income with low risk & high level of liquidity from a portfolio of money market securities & high quality debt.2. UTI Money Market Fund (Open Ended Fund): An open-ended pure debt liquid plan seeking to provide highest possible current income by investing in a diversified portfolio of short-term money market securities. 66
    • Projectsformba.blogspot.com RELIANCE MUTUAL UTI MUTUAL FUND FUNDWhen Started? Established in 1995, Established in 1964. Currently, number one company in First mutual 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.Minimum investment. 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 etc Project, Hotels, Retailing, Media & Entertainment, Transportation etcMain Funds. UTI Dividend yield Fund, Reliance Diversified Fund, UTI Opportunity Fund, Reliance Equity Opportunity Fund, Reliance Regular Saving FundsType of fund offered Equity Fund, Debt Fund, Sector Equity Fund, Index Fund, Specific Fund and Gold Exchange Asset Fund, Balanced Fund, Traded Fund. Debt Fund (Income, Liquid)Numbers of schemes 106 schemes 107 schemes.offeredDistribution • Online and internet based • Tie-up with Post offices distribution. branches. • Reliance outlets and branches. • UTI outlets and branches.Is any other venture? • Life Insurance • UTI Bank • General Insurance • Pan card • Broking & Distribution • Bank Recruitment • Consumer Finance • ULIP • Private Equity • Assets Reconstruction. 67
    • Projectsformba.blogspot.com Chapter: 5 MUTUAL FUNDS VS. OTHER INVESTMENTSFrom investors’ viewpoint mutual funds have several advantages such as: • Professional management and research to select quality securities. • Spreading risk over a larger quantity of stock whereas the investor has limited to buy only a hand full of stocks. The investor is not putting all his eggs in one basket. • Ability to add funds at set amounts and smaller quantities such as $100 per month • Ability to take advantage of the stock market which has generally outperformed other investment in the long run. • Fund manager are able to buy securities in large quantities thus reducing brokerage fees.However there are some disadvantages with mutual funds such as: • The investor must rely on the integrity of the professional fund manager. • Fund management fees may be unreasonable for the services rendered. • The fund manager may not pass transaction savings to the investor. • The fund manager is not liable for poor judgment when the investors fund loses value. • There may be too many transactions in the fund 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 his investment dollars.There may be restrictions on when and how an investor sells/redeems his mutual fundshares. 68
    • Projectsformba.blogspot.comCompany Fixed Deposits versus Mutual Funds Fixed deposits are unsecured borrowings by the company accepting the deposit. Creditrating of the fixed deposit program is an indication of the inherent default risk in the investment. The moneys of investors in 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 the other 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 between mobilisation 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 named guarantor assures a return or, to a lesser extent, if theinvestment is in a serial gilt scheme. On the other hand, the return under a fixed deposit iscertain, subject only to the default risk of the borrower.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 of closed-end schemes). The basic value at which fixed deposits are encashed is not subject to a market 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 that ishigher than what he anticipated when he invested. But he could also end up with a loss. Early encashment of fixed deposits is always subject to a penalty charged by thecompany that accepted the 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. 69
    • Projectsformba.blogspot.comBank Fixed Deposits verses Mutual Fund: Bank fixed deposits are similar to company fixed deposits. The major difference is thatbanks are generally more stringently regulated than companies. They even operate under stricterrequirements regarding Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). While the above are causes for comfort, bank deposits too are subject to default risk.However, given the political and economic impact of bank defaults, the government as well asReserve Bank of India (RBI) try to ensure that banks do not fail. Further, bank deposits upto Rs 100,000 are protected by the Deposit Insurance and CreditGuarantee Corporation (DICGC), so long as the bank has paid the required insurance premiumof 5 paise per annum for every Rs 100 of deposits. The monetary ceiling of Rs 100,000 is for allthe deposits in all the branches of a bank, held by the depositor in the same capacity and right. BANKS MUTUAL FUNDSReturns Low BetterAdministrative exp. High LowRisk Low ModerateInvestment options Less MoreNetwork High penetration Low but improvingLiquidity At a cost BetterQuality of assets Not transparent Transparent QuarterlyInterest calculation Every Month i.e. 3rd, 6th, 9th & 12th.Guarantor Guarantor is needed. Guarantor is not needed.Account Needed. Not Needed. 70
    • Projectsformba.blogspot.comBonds and Debentures versus Mutual Funds As in the case of fixed deposits, credit rating of the bond / debenture is an indication ofthe inherent default risk in the investment. However, unlike FD, bonds and debentures aretransferable securities. While an investor 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 the security does not get traded in the market, then the liquidity remains on paper. In this respect, an open-end scheme offering continuous sale / re-purchase option is superior. • The value that the investor would realise in an early exit is subject to market risk. The investor could have a capital gain or a capital loss. This aspect is similar to a MF scheme. It is possible for a professional investor 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 actively manage their debt portfolio. Further, at times, it is difficultto execute trades in the debt market even when the transaction size is as high as Rs 1 crore. Inthis respect, investment in a debt scheme would be beneficial. Debt securities could be backed by a hypothecation or mortgage of identified fixed and /or current assets (secured bonds / debentures). In such a case, if there is a default, the identifiedassets become available for meeting redemption requirements. An unsecured bond / debenture isfor all practical purposes like a fixed deposit, as far as access to assets is concerned. The investments of a mutual fund scheme are held by a custodian for the benefit ofinvestors in the scheme. Thus, the securities that relate to a scheme are ring-fenced for thebenefit of its investors. 71
    • Projectsformba.blogspot.comEquity versus Mutual FundsInvestment in both equity and mutual funds are subject to market risk. An investor holding an equity security that is not traded in the market place has aproblem in realising value from it. But investment in an open-end mutual fund eliminates thisdirect risk of not being able to sell the investment in the market. An indirect risk remains,because the scheme has to realise its investments to pay investors. The AMC is however in abetter position to handle the situation Another benefit of equity mutual fund schemes is that they give investors the benefit ofportfolio diversification through a small investment. For instance, an investor can take anexposure to the index by investing a mere Rs 5,000 in an index fund.Advantages Of Mutual Funds Over Stocks? • A mutual fund offers a great deal of diversification starting with the very first dollar invested, because a mutual fund may own tens or hundreds of different securities. This diversification helps reduce the risk of loss because even if any one holding tanks, the overall value doesnt drop by much. If youre buying individual stocks, you cant get much diversity unless you have $10K or so. • Small sums of money get you much further in mutual funds than in stocks. First, you can set up an automatic investment plan with many fund companies that lets you put in as little as $50 per month. Second, the commissions 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 sized purchases of stocks will have relatively high commissions on a percentage basis, although with the $10 trade becoming common, this is a bit less of a concern than it once was. • You can exit a fund without getting caught on the bid/ask spread. • Funds provide a cheap and easy method for reinvesting dividends. • Last but most certainly not least, when you buy a fund youre in essence hiring a professional to manage your money for you. That professional is (presumably) monitoring the economy and the markets to adjust the funds holdings appropriately. 72
    • Projectsformba.blogspot.com Advantages Of Stock Over Mutual Funds? • The opposite of the diversification issue: If you own just one stock and it doubles, you are up 100%. If a mutual fund owns 50 stocks and one doubles, it is up 2%. On the other hand, if you own just one stock and it drops in half, you are down 50% but the mutual fund is down 1%. Cuts both ways. • If you hold 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 practice among funds of distributing capital gains around November or December of each year. See the article 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 portfolio differently from any existing mutual fund portfolio. (Although with the current universe of funds Im not certain what could possibly be missing out there!) • You can buy smaller cap stocks which arent suitable for mutual funds to invest in. • You have a potential profit opportunity by shorting stocks. (You cannot, in general, short mutual funds.) • The argument is offered that the funds have a "herd" mentality and they all end up owning the same stocks. You may be able to pick stocks better. 73
    • Projectsformba.blogspot.comLife Insurance versus Mutual Fund Life insurance is a hedge against risk – and not really an investment option. So, it wouldbe wrong to compare life insurance against any other financial product. Occasionally on account of market inefficiencies or mis-pricing of products in India, lifeinsurance products have offered a return that is higher than a comparable “safe” fixed returnsecurity – thus, you are effectively paid for getting insured! Such opportunities are notsustainable in the long run. 74
    • Projectsformba.blogspot.comFUTURE PROSPECT OF MUTUAL FUNDS IN INDIA Financial experts believe that the future of Mutual Funds in India will be very bright. Ithas been estimated that by March-end of 2010, the mutual fund industry of India will reach Rs40,90,000 crore, taking into account the total assets of the Indian commercial banks. In thecoming 10 years the annual composite growth rate is expected to go up by 13.4%. • 100% growth in the last 6 years. • Number of foreign AMCs are in the queue to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide. • Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. • We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion. • B and C class cities are growing rapidly. Today most of the mutual funds are concentrating on the A class cities. Soon they will find scope in the growing cities. • Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products. • SEBI allowing the 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 past developments and combining it with the current trends it can beconcluded that the future of Mutual Funds in India has lot of positive things to offer to itsinvestors. 75
    • Projectsformba.blogspot.comMF JARGONNet Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. Theper unit NAV is the net asset value of the scheme divided by the number of units outstanding onthe Valuation Date.Sale Price Sale price is the price you pay when you invest in a scheme. Also called Offer Price. Itmay include a sales load.Repurchase Price Is the price at which a close-ended scheme repurchases its units 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 their units on maturity. Such prices are NAV related.Sales Load It is a charge collected by a scheme when it sells the units. Also called as ‘Front-end’load. Schemes that do not charge a load are called ‘No Load’ schemes.Repurchase or ‘Back-end’ Load It is a charge collected by a scheme when it buys back the units from the unit holders. 76
    • Projectsformba.blogspot.com CONCLUSION Mutual Funds now represent perhaps most appropriate investment opportunity for mostinvestors. As financial markets become more sophisticated and complex, investors need afinancial intermediary who provides the required knowledge and professional expertise onsuccessful investing. As the investor always try to maximize the returns and minimize the risk.Mutual fund satisfies these requirements by providing attractive returns with affordable risks.The fund industry has already overtaken the banking 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 of schemes which caters to the requirement of theparticular class of investors. Risk takers for getting capital appreciation should invest in growth,equity schemes. Investors who are in need of regular income should invest in income plans. The stock market has been rising for over three years now. This in turn has not onlyprotected the money invested in funds but has also to helped grow these investments. This has also instilled greater confidence among fund investors who are investing moreinto the market through the MF route than ever before. Reliance India mutual funds 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, themutual fund industry as a whole gets less than 2 per cent of household savings against the 46 percent that go into bank deposits. Some fund managers say this only indicates the sectors potential."If mutual funds succeed in chipping away at bank deposits, even a triple digit growth is possibleover the next few years. 77
    • Projectsformba.blogspot.com BIBLIOGRAPHYREFERENCE BOOK:FINANCIAL MARKET AND SERVICES -Gordon and NatarajanWEBSITE: www.utimf.com www.reliancemutual.com www.amfiindia.comSEARCH ENGINE: www.google.com www.altavista.com www.yahoo.com 78