My new mf (2)[1]

CHAPTER-1
INTRODUCTION
1.1 Object of the Project
1.2 Introduction of the topic
1.3 Objective of study
1.4 Scope of the study
1.5 Rationale/ contribution of the study
1.6 Limitation of the study

1.1 Object of the Project
 Summer internship program [SIP] is integral part of the MMS program.
 It gives an opportunity to test our interest and aptitudes in a particular career before
permanent commitments are made.
 Student can develop skills in the application of theory to practical work situation.
 Internship will provide students the opportunity to develop attitudes conducive to
effective interpersonal relationship.
 Main objective of the project is we come to know the real life of the organisational
problems.
 Internship will increase a student’s sense of responsibility.
 Internship student will be prepared to enter into full-time employment in their area of
specialization upon graduation.
 Internship students will acquire good work habits.
 There is ample time to get into a regular work routine and gain valuable knowledge and
skills.

1.2 Introduction of the topic
Mutual Fund is a financial intermediary, just like a bank. However, the claim an investor obtains
while making investment thorough a mutual fund is quite different from the one he gets by
depositing money in a bank. Mutual Funds are pools of money that are managed by an
investment company. They provide the investor a variety of goals, depending on the fund and its
investment. They seek to generate income on a regular basis. Others seek to preserve an
investor’s money.According to Shakespeare ‘out of this nettle, danger, we pluck this flower,
safety'. The economic development model adopted by India in the post-independence era has
been characterized by mixed economy with the public sector playing a dominating role and the
activities in private industrial sector control measures emaciated from time to time. The
industrial policy resolution was introduced by the government in the 1948, immediately after the
independence.
In few years Mutual Fund has emerged as a tool for ensuring one‘s financial wellbeing.
Mutual Funds have not only contributed to the India growth story but have also helped families
tap into the success of Indian Industry. As information and awareness is rising more and more
people are enjoying the benefits of investing in mutual funds. The main reason the number of
retail mutual fund investors remains small is that nine in ten people with incomes in India do not
know that mutual funds exist. But once people are aware of mutual fund investment
opportunities, the number who decide to invest in mutual funds increases to as many as one in
five people. With emphasis on increase in domestic savings and improvement in deployment of
investment through markets, the need and scope for mutual fund operation has increased
tremendously.
The spread of the banking system has been a major factor in promoting financial
intermediation in the economy and in the growth of financial savings. With progressive
liberalization of economic policies, there has been a rapid growth of capital market, money
market and financial services industry including merchant banking, leasing and venture capital.
Thus in the financial sector, the mutual fund industry has also come to occupy an important
place.

1.3 Objectives of the Study
 To give a brief idea about the benefits available from Mutual Fund investment
 To give an idea of the types of schemes available.
 Anticipation of future for Mutual funds in the economy.
 To discuss about the market trends of Mutual Fund investment.
 To Observe the fund management process of mutual funds
 To Explore the recent developments in the mutual funds in India
 To give an idea about the regulations of mutual funds
 To know mutual fund investors behavior regarding risk factor involved in mutual fund
 To find out the Preferences of the investors for Asset Management Company.
 To find out the most preferred channel.
1.4 Scope of the Study
The study titled “MUTUAL FUND AS AN INCREASING WEALTH” is descriptive work of
research involving both qualitative and quantitative methods of research. The research aims to
study and describe the investment patterns of sample relating mutual funds in India. The universe
of my study was business professional and salaried persons. The sampling techniques involved
were purposive and convenience sampling and for which 50 samples were finalized. The 50
samples were 36 were salaried people and another 14 were businessmen. The methods for data
collection included both primary as well as secondary data methods. Primary data collection was
administered through face to face interviews and questionnaires were mailed. Secondary data
was collected from various official publications, internet websites, research papers/ literature
available on the topic of study.
The study mainly aimed to focus the describing/ examining the investment patterns/ choices of
samples selected for the study for the time period of two months spanning from 01/05/2014 to
30/06/2014.The study is beneficial in the sense that it will add value to the existing literatures
available on the topic and also help in policy decision making by the concerned AMC’s and

Government as well. The study covers all the information related to the Equity fund, Debt fund
and how to manage themutual funds Portfolio.
1.5 Rationale/ contribution of the study
Among various financial products, mutual fund ensures the minimum risks and maximum return
to the investors, growth and developments of various mutual funds products in the Indian capital
market has proved to be one of the most catalytic instruments in generating momentous
investment growth in the capital market.This study, basically, deals is about investment patterns
of the investors and how mutual funds is increasing wealth also it deals with different schemes of
mutual funds that are offered for investment by the various fund houses in India, This study
mainly focused on the performance of selected mutual fund schemes in terms of risk- return
relationship and comparing different schemes of mutual funds with the help of various statistical
parameters such as (alpha, beta, standard deviation, Sharpe ratio etc;)
1.6 Limitation of the study
The project aimed to study about various changes that have been done in today’s 21’s
century also got to know various investment patterns of investors and it was moderately
successful in doing so, and it was a learning experience for me but, I also faced certain
difficulties in conducting the project by way of non-response from samples, non-
availability of substantial data, non-reliable websites, time constraints. Duration of project
was not enough to make our conclusion on such a vast subject. Time constraint has become
a major limitation.The performance of mutual funds schemes are subject to market risk and
hence returns given in past may not substantiate for the future.

CHAPTER 2
PROFILE OF THE ORGANISATION
2.1 History & general information
2.2 Company profile
2.3 Competitors Analysis

2.1 History & general information
History
The Pentad Group emerged as the result of the merging of two financial planning practices,
namely Quintain Advisory Services and Bailey Livermore Financial Services, in July 2001.
Roger Bailey and Chris Heyworth began talking about joining forces many years ago when they
found they had a common approach to their profession and shared high ethical standards and
similar visions for the future.At the time Roger was managing a law firm’s financial planning
division and Chris had established a financial planning business as a division of an accounting
practice.In 1998 each went out on his own to establish their own businesses. They operated
alongside each other in the original premises at Camber well and shared some office resources
and staff.Roger brought in two partners, Lance Livermore and Russell Warmington, and
operated as Bailey Livermore Financial Services while Chris founded Quintain Advisory
Services.
Talks of a merger were continuous as both businesses consolidated and grew. Common themes
emerged during the discussions and all parties believed that a high standard of ethics and
commitment to the client were essential ingredients for success. The principals decided that a
larger – but still compact – business would be better able to cover the financial planning field if
they joined forces. A ‘boutique’ operation catering for a select list of clients for whom a wide
range of services was provided was considered the best way of moving forward. The preferred
client being either a retiree, a person with a good level of capital to invest or the higher paid
executive.It all came to fruition on July 1, 2001 when Quintain Advisory Services and Bailey
Livermore Financial Services commenced operating as the Pentad Group.Pentad is not a mass
provider of financial advice, instead concentrating on those clients who are seeking the most
effective way to progress from where they are today to where they want or need to be in the
future.
Roger retired in March 2003, leaving Chris Heyworth, Russell Warmington& Lance Livermore
as principals and directors.Four further advisers have since joined the firm, namely Robert
Syben, John Robson, Ken Maher and Morgen Harris.In July 2010, Pentad's self managed

superannuation fund team joined forces with accounting firm CHN Herold Ross to form a
specialisedself managed superannuation fund administration company, Moneta Super.In October
of that same year, Pentad merged with HRM Financial Services situated in
Ringwood.The Pentad Group is wholly owned by the Principals – Christopher Heyworth, Lance
Livermore, Russell Warmington and Senior Adviser - Ken Maher as well as Mark Herold and
Andrew Morris, the previous owners of HRM Financial Services.
2.2 Company Profile
 Pentad securities
The Pentad Group is a successful and growing financial planning service located in Camber well,
Victoria. Our clients include senior executives and professionals of all ages, business owners and
retirees.
Through our seven experienced advisers and our own internal specialized investment committee,
we have the breadth of experience, services and resources that are essential to effectively
conduct a financial planning service. We are licensed through Capricorn Investment Partners
Limited and are a member of the Financial Planning Association.Pentad is a boutique financial
planning organization committed to helping our clients achieve their lifestyle through strategic
financial management.
 Vision
A pentad is literally a group or series of five. The Pentad Group is based around the following
key aspects of strategic financial management.
1. Strategic financial planning for the most effective way for our clients to progress to where
they want and need to be in the future

2. Investment advice to achieve the financial goals and objectives through a tailored and
diversified portfolio of individual investments
3.Retirement planning and superannuation including the administration of self-managed
superannuation funds to give clients their chosen degrees of involvement in investment
management and control of their affairs
4.Tax-effective wealth accumulation for the future, and
5. Peace of mind through effective organization and management of affairs including estate
planning and life insurance
 Mission
The Pentad Group is a boutique financial planning practice. We are independently owned, and
are not aligned to, or bound by the requirements of, any providers of investments or products we
recommend.
Our sole mission is to help you achieve ’lifestyle through strategic financial management’.To
help you achieve this goal, we offer a defined process in which we identify your lifestyle
aspirations, and then develop specific strategies and investment recommendations tailored to
help achieve those aspirations.Invariably your circumstances and needs will change over time.
So too will the legislative landscape as well as economic and investment market conditions. We
therefore also offer to provide you with a highly personalized review service.
 Services
We believe that achieving your goals and objectives depends on a number of essential elements,
including advice on the following areas:
 Self-managed superannuation fund. The Pentad Group offers a service designed to deliver
the benefits of having your own self-managed superannuation fund while guiding you
through compliance and reporting obligations.
 Retirement and pre-retirement advice, assisting you to clearly identify and prioritize
realistic objectives, then helping you to identify appropriate strategies.

 Superannuation advice is to provide you with a better understanding of the variety of
components and rules relating to this valuable retirement vehicle.
 Estate planning advice is about making sound and well informed decisions to ensure that
your assets can be professionally managed and effectively distributed according to your
wishes.
 Investment advice. Pentad provides a comprehensive range of services to meet your
individual needs. Our investment recommendations consider a variety of factors such as your
attitude to risk, short term and long term goals and the economic climate.
 Wealth protection & personal risk advice, to protect you and your family from financial
hardship in the event of unforeseen disability or death.
 Financial risk tolerance profiling is an important part of our planning process for which we
employ a highly developed profiling system.
 Tax-effective strategies, to enhance your wealth creation.
 Pentad's Financial Planning Process
The Pentad Group believes that financial planning is simply a process designed to help you
achieve your lifestyle objectives.
As with any successful process there are clearly defined steps, which can be summarized as
follows:
Step 1 – Understanding where you are right now
Before we can work out how best to achieve your lifestyle objectives, we need to have a
thorough understanding of your ‘starting point’. What are your assets; what do you owe; what is
your income; what income do you actually need; what do you know about different types of
investments; and, how comfortable are you with them?
We will spend time with you in order to build up an accurate picture of your current situation.
Step 2 – Where do you want to go?
Also fundamental to working out how best to achieve your lifestyle objectives, is an
understanding of where it is you want to go; what are your lifestyle and financial objectives this

next, next year, and in ten years time. Most of us have a notion of what we would like our future
to look like. We can help turn these notions into specific objectives.
Step 3 – What can stop you from getting to where you want to go?
Having established where you are right now and where it is you want to go, we will identify any
issues that might prevent you from achieving your objectives. Sometimes these issues can be
resolved, other times your objectives may need to be reviewed.
Step 4 – Your ‘Wealth Plan’
The above three steps form the basis of the ‘Wealth Plan’ that we will then proceed to prepare
for your consideration. Your Wealth Plan will provide clear recommendations in terms of the
specific strategy, structure, and investments that will help you achieve your lifestyle objectives.
Step 5 – Implementing your Wealth Plan
Having prepared your Wealth Plan, we will then present it to you, stepping you through the key
features and benefits of our recommendations. If we have done our job properly your Wealth
Plan should capture the issues and considerations relevant to you, and be one that you are
comfortable in implementing. We will, of course, be pleased to implement our recommendations,
or assist you in doing so.
Step 6 – Ensuring that everything continues to go according to your Wealth Plan
Implementing your Wealth Plan is not the end of the process. It is however, the ‘end of the
beginning’. Over time, as your circumstances and objectives change (and they will), we will
review how your overall strategy is ‘tracking’ in meeting your objectives, and if necessary,
recommend amendments to your overall strategy as appropriate.
2.3 Competitors Analysis
Share Markets could be very lucrative way to make money. However, if you are a novice player
then you could lose a lot of money without any knowledge about the stock markets. So you need

to gain enough knowledge before you think of buying and selling stocks. You have to consult
some of the best brokerage companies in India if you want to succeed in share markets.
Although there are number of companies or brokerage firms operating online and offline.
However, only few firms are reputed. I have jot down a list of some brokerage firms which is
competitor to Pentad securities Pvt ltd in India.
1. Sharekhan Limited
ShareKhan is an online trading company of SSKI group. It has presence in over 170 cities
of the country and India’s most trusted brokerage firms.
Head Office: Mumbai, India
Number of Terminals: 2000 to 2500
Number of Sub Brokers: 200 to 300
Number of Branches: 510 offices
Number of Employees: 1000 to 2000
Account Opening Fee: Rs 750/- for Classic Account and Rs 1000/- for Trade Tiger
Website: www.sharekhan.com
2. India Bulls
India bulls was founded by Sameer Gehlaut in the year 2000. India bull has a net worth of
Rs 17,000 crore.
Head Office: Gurgaon, Haryana
Number of Branches: 414 to 450
Account Opening Fee: Rs 1200/- (Rs 250/- for equity + Rs 200/- for Demat + R750/- for
software)
Website: www.indiabulls.com

3. Angel Broking Limited
Angel is counted among top 3 broking firms in India. It was founded in the year 1987 and
it offers various services like ebroking, commodity Trading and other wealth
management services.
Head Office: Mumbai, India
Account Opening Fee: Stock Trading Account + Demat Account = Rs 500/-,
Commodity Trading = Rs 625/-
Website: www.angelbroking.com
4. Reliance Money
Reliance money is India’s number one broking firm. It has over 3.5 million customers
with more than 6000 outlets around the country.
Head Office: Lower Parel, Mumbai
Account Opening Fee: Trading + Demat = Rs 750/- and for foreign nationals it is
Rs 1000/-
Website: www.reliancemoney.com
5. India Infoline Limited
India Infoline was started in year 1996 and has over 2 million customers.
Head Office: Andheri, Mumbai

Account Opening Fee: Trading + Demat = Rs 750/-
Website: www.indiainfoline.com
6. Kotak Securities Limited
Kotak Securities was incorporated in 1994 and it is subsidiary of Kotak Mahindra. Head
Office: Nariman Point, Mumbai
Account Opening Fee: Derivative brokerage Rs 150 per contract and delivery brokerage
is .45%
Website: www.kotaksecurities.com
7. ICICI Direct
ICICI Direct is a stock Trading company of ICICI bank.
Head Office: Mumbai, Maharashtra
Account Opening Fee: Rs 750/- for share Trading account, wise investment, active
trader account
Website: www.ICICIdirect.com

Chapter 3:
Review of Literature
3.1 Meaning & Concepts of the topic
3.2 Research on the selected topic
3.3 Basic theories of the topic

3.1 Meaning & concepts of topics
What Is Mutual Fund
Before we understand what is mutual fund, it’s very important to know the area in which mutual
funds works, the basic understanding of stocks and bonds.
Stocks:
Stocks represent shares of ownership in a public company. Examples of public companies
include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned
investment traded on the market.
Bonds:
Bonds are basically the money which you lend to the government or a company, and in return
you can receive interest on your invested amount, which is back over predetermined amounts of
time. Bonds are considered to be the most common lending investment traded on the market.
There are many other types of investments other than stocks and bonds (including annuities, real
estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.
A mutual fund is just the connecting bridge or a financial intermediary that allows a group
of investors to pool their money together with a predetermined investment objective. The mutual
fund will have a fund manager who is responsible for investing the gathered money into specific
securities(stocks or bonds). When you invest in a mutual fund, you are buying units or portions
of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.
Mutual funds are considered as one of the best available investments as compare to others they
are very cost efficient and also easy to invest in, thus by pooling money together in a mutual
fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to
do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing
risk & maximizing returns.Thus a Mutual Fund is the most suitable investment for the common
man as it offers an opportunity to invest in a diversified, professionally managed basket of
securities at a relatively low cost. The flowchart below describes broadly the working of a
mutual fund.

Origin:
Mutual funds go back to the times of the Egyptians and Phonenicianswhen they sold shares in
caravans and vessels to spread the risk of theseventures. The foreign and colonial government
Trust of London of 1868 isconsidered to be the fore-runner of the modern concept of mutual
funds. TheUSA is, however, considered to be the mecca of modern mutual funds. Bythe early -
1930s quite a large number of close - ended mutual funds werein operation in the U.S.A. Much
latter in 1954, the committee on finance forthe private sector recommended mobilisation of
savings of the middle classinvestors through unit trusts. Finally in July 1964, the concept took
root inIndia when Unit Trust of India was set up with the twin objective of mobilizing household
savings and investing the funds in the capital market for industrialgrowth. Household sector
accounted for about 80 percent of nation’s savingsand only about one third of such savings was
available to the corporatesector, It was felt that UTI could be an effective vehicle for
channelizing progressively larger shares of household savings to productive investments inthe
corporate sector. The process of economic liberalization in the eightiesnot only brought in

dramatic changes in the environment for Indian industries,Corporate sector and the capital
market but also led to the emergenceof demand for newer financial services such as issue
management, corporatecounselling, capital restructuring and loan syndication. After two decades
ofUTI monopoly, recently some other public sector organisations like LIC(1989), GIC (1991 ),
SBI (1987), Can Bank (1987), Indian Bank (1990),Bank of India (1990), Punjab National Bank
(1990) have been permitted toset up mutual funds. Mr. M.R. Mayya the Executive Director of
BombayStock Exchange opined recently that the decade of nineties will belong tomutual funds
because the ordinary investor does not have the time, experienceand patience to take independent
investment decisions on his own.
HISTORY 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 phases
FIRST 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.6,700crores
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 followedbyCanbank
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
Importance of Mutual Fund
Small investors face a lot of problems in the share market, limited resources,lack of professional
advice, lack of information etc. Mutual fundshave come as a much needed help to these
investors. It is a special type ofinstitutional device or an investment vehicle through which the
investorspool their savings which are to be invested under the guidance of a team ofexperts in
wide variety of portfolio’s of Corporate securities in such a way,so as to minimize risk, while
ensuring safety and steady return on investment.It forms an important part of the capital market,
providing the benefitsof a diversified portfolio and expert fund management to a large
number,particularly small investors. Now a days, mutual fund is gaining its popularitydue to the
following reasons :
l. With the emphasis on increase in domestic savings and improvement indeployment of
investment through markets, the need and scope for mutualfund operation has increased
tremendously. The basic purpose of reformsin the financial sector was to enhance the generation
of domestic resources by reducing the dependence on outside funds. This calls fora market based
institution which can tap the vast potential of domesticsavings and channelize them for profitable
investments. Mutual funds arenot only best suited for the purpose but also capable of meeting
this
challenge.
2. An ordinary investor who applies for share in a public issue of anycompany is not assured of
any firm allotment. But mutual funds whosubscribe to the capital issue made by companies get
firm allotment ofshares. Mutual fund latter sell these shares in the same market and tothe

Promoters of the company at a much higher price. Hence, mutualfund creates the investors
confidence.
3. The phyche of the typical Indian investor has been summed up by Mr.S.A. Dave, Chairman of
UTI, in three words; Yield, Liquidity and Security.The mutual funds, being set up in the public
sector, have giventhe impression of being as safe a conduit for investment as bank
deposits.Besides, the assured returns promised by them have investors hadgreat appeal for the
typical Indian investor.
4. As mutual funds are managed by professionals, they are considered tohave a better knowledge
of market behaviors. Besides, they bring acertain competence to their job. They also maximise
gains by properselection and timing of investment.
5. Another important thing is that the dividends and capital gains are reinvestedautomatically in
mutual funds and hence are not fritted away.The automatic reinvestment feature of a mutual fund
is a form of forcedsaving and can make a big difference in the long run.
6. The mutual fund operation provides a reasonable protection to investors.Besides, presently all
Schemes of mutual funds provide tax relief underSection 80 L of the Income Tax Act and in
addition, some schemesprovide tax relief under Section 88 of the Income Tax Act lead to
thegrowth of importance of mutual fund in the minds of the investors.
7. As mutual funds creates awareness among urban and rural middle classpeople about the
benefits of investment in capital market, through profitableand safe avenues, mutual fund could
be able to make up a largeamount of the surplus funds available with these people.
8. The mutual fund attracts foreign capital flow in the country andsecure profitable investment
avenues abroad for domestic savings throughthe opening of off shore funds in various foreign
investors. Lastly anothernotable thing is that mutual funds are controlled and regulated byS E B I
and hence are considered safe. Due to all these benefits theimportance of mutual fund has been
increasing.

Advantages of mutual fund:
Small investments: Mutual funds help you to reap the benefit of returns by a portfolio spread
across a wide spectrum of companies with small investments.
Professional Fund Management: Professionals having considerable expertise, experience and
resources manage the pool of money collected by a mutual fund. They thoroughly analyse the
markets and economy to pick good investment opportunities.
Spreading Risk: An investor with limited funds might be able to invest in only one or two
stocks/bonds, thus increasing his or her risk. However, a mutual fund will spread its risk by
investing a number of sound stocks or bonds. A fund normally invests in companies across a
wide range of industries, so the risk is
diversified.
Transparency: Mutual Funds regularly provide investors with information on the value of their
investments. Mutual Funds also provide complete portfolio disclosure of the investments made
by various schemes and also the proportion invested in each asset type.
Choice: The large amount of Mutual Funds offer the investor a wide variety to choose from. An
investor can pick up a scheme depending upon his risk/ return profile.
Regulations: All the mutual funds are registered with SEBI and they function within the
provisions of strict regulation designed to protect the interests of the investor.
Variety: Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two
ways: first, it offers different types of schemes to investors
Tax Benefits: Depending on the scheme of mutual funds, tax shelter is also available. As per the
Union Budget-99, income earned through dividends from mutual funds is 100% tax free.

Disadvantages of mutual fund:
No control over cost: Since investors do not directly monitor the fund’s operations, they cannot
control the costs effectively. Regulators therefore usually limit the expenses of mutual funds.
No tailor-made portfolio: Mutual fund portfolios are created and marketed by AMCs, into
which investors invest. They cannot made tailor made portfolio.
Managing a portfolio of funds: As the number of funds increase, in order to tailor a portfolio
for himself, an investor may be holding portfolio funds, with the costs of monitoring them and
using hem, being incurred by him.
Delay in Redemption: The redemption of the funds though has liquidity in 24-hours to 3 days
takes formal application as well as needs time for redemption. This becomes cumbersome for the
investors.
Non-availability of loans: Mutual funds are not accepted as security against loan. The investor
cannot deposit the mutual funds against taking any kind of bank loans though they may be his
assets.
MUTUAL FUND – FOR WHOM & WHY
For Whom
These funds can survive and thrive only if they can live up to the hopes and trusts of their
individual members. These hopes and trusts echo the peculiarities which support the emergence
and growth of such insecurity of such investors who come to the rescue of such investors who
face following constraints while making direct investments:
 Limited resources in the hands of investors quite often take them away from stock market
transactions.
 Lack of funds forbids investors to have a balanced and diversified portfolio.

 Lack of professional knowledge associated with investment business unable investors to
operate gainfully in the market. Small investors can hardly afford to have ex-pensive
investment consultations.
 To buy shares, investors have to engage share brokers who are the members of stock
exchange and have to pay their brokerage.
 They hardly have access to price sensitive information in time.
 It is difficult for them to know the development taking place in share market and corporate
sector.
 Firm allotments are not possible for small investors on when there is a trend of over
subscription to public issues.
Why Select Mutual
Fund?
The risk return trade-off
indicates that if investor is
willing to take higher risk
then correspondingly he
can expect higher returns
and vise versa if he
pertains to lower risk
instruments, which would
be satisfied by lower
returns. For example, if an investors opt for bank FD, which provide moderate return with
minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that
give out more return which is slightly higher as compared 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 funds provide professional management, diversification,
convenience and liquidity. That doesn’t mean mutual fund investments risk free. This is because
the money that is pooled in are not invested only in debts funds which are less riskier but are also
invested in the stock markets which involves a higher risk but can expect higher returns. Hedge

fund involves a very high risk since it is mostly traded in the derivatives market which is
considered very volatile.
The goal of mutual fund
The goal of a mutual fund is to provide an individual to make money. There are several thousand
mutual funds with different investments strategies and goals to chosen from. Choosing one can
be over whelming, even though it need not be different mutual funds have different risks, which
differ because of the fund’s goals fund manager, and investment style. The fund itself will still
increase in value, and in that way you may also make money therefore the value of shares you
hold in mutual fund will increase in value when the holdings increases in value capital gains and
income or dividend payments are best reinvested for younger investors Retires often seek the
income from dividend distribution to augment their income with reinvestment of dividends and
capital distribution your money increase at an even greater rate. When you redeem your shares
what you receive is the value of the share.
Short Comings in Operation of Mutual Fund
The mutual fund has been operating for the last five to six years. Thus,it is too early to evaluate
its operations. However one should not lose sightto the fact that the formation years of any
institution is very important toevaluate as they could be able to know the good or bad systems
get evolvedaround this time. Following are some of the shortcomings in operation ofmutual
fund.
1. The mutual funds are externally managed. They do not have employeesof their own. Also
there is no specific law to supervise the mutual fundsin India. There are multiple regulations.
While UTI is governed by itsown regulations, the banks are supervised by Reserved Bank of
India,the Central Government and insurance company mutual regulations fundsare regulated by
Central Government
2. At present, the investors in India prefer to invest in mutual fund as asubstitute of fixed
deposits in Banks, About 75 percent of the investorsare not willing to invest in mutual funds
unless there was a promise ofa minimum return,

3. Sponsorship of mutual funds has a bearing on the integrity and efficiencyof fund management
which are key to establishing investor'sconfidence. So far, only public sector sponsorship or
ownership ofmutual fund organisations had taken care of this need.
4. Unrestrained fund rising by schemes without adequate supply of scrip’scan create severe
imbalance in the market and exacerbate the distortions
5. Many small companies did very well last year, by schemes withoutadequate imbalance in the
market but mutual funds cannot reap theirbenefits because they are not allowed to invest in
smaller companies.Not only this, a mutual fund is allowed to hold only a fixed
maximumpercentage of shares in a particular industry.
6. The mutual fund in India are formed as trusts. As there is no distinctionmade between
sponsors, trustees and fund managers, the trustees playthe roll of fund managers.
7. The increase in the number of mutual funds and various schemes haveincreased competition.
Hence it has been remarked by Senior Broker“mutual funds are too busy trying to race against
each other”. As aresult they lose their stabilizing factor in the market.
8. While UTI publishes details of accounts their investments but mutualfunds have not published
any profit and loss Account and balance sheeteven after its operation.
9. The mutual fund have eroded the financial clout of institutionin the stock market for which
cross transaction between mutual fundsand financial institutions are not only allowing
speculatorsto manipulate price but also providing cash leading to the distortion ofbalanced
growth of market.
10. As the mutual fund is very poor in standard of efficiency in investorsservice; such as dispatch
of certificates, repurchase and attending toinquiries lead to the detoriation of interest of the
investors towardsmutual fund.

11. Transparency is another area in mutual fund which was neglected tillrecently. Investors have
right to know and asset management companieshave an obligation to inform where and how his
money has been deployed.But investors are deprived of getting the information.
TYPES OF MUTUAL FUND
Mutual funds are classified in the following manner:
(a) On the basis of Objective
Equity Funds/ Growth Funds
Funds that invest in equity shares are called equity funds. They carry the principal objective of
capital appreciation of the investment over the medium to long-term. They are best suited for
investors who areseeking capital appreciation. There are different types of equity funds such as
Diversified funds, Sector specific funds and Index based funds.
Diversified funds
These funds invest in companies spread across sectors. These funds are generally meant for risk-
averse investors who want a diversified portfolio across sectors.
Sector funds
These funds invest primarily in equity shares of companies in a particular business sector or
industry. These funds are targeted at investors who are bullish or fancy the prospects of a
particular sector.
Index funds
These funds invest in the same pattern as popular market indices like S&P CNX Nifty or S&P
CNX 500. The money collected from the investors is invested only in the stocks, which represent
the index. For e.g. a Nifty index fund will invest only in the Nifty 50 stocks. The objective of
such funds is not to beat the market but to give a return equivalent to the market returns.

Tax Saving Funds
These funds offer tax benefits to investors under the Income Tax Act. Opportunities provided
under this scheme are in the form of tax rebates under the Income Tax act.
Debt/Income Funds
These funds invest predominantly in high-rated fixed-income-bearing instruments like bonds,
debentures, government securities, commercial paper and other money market instruments. They
are best suited for the medium to long-term investors who are averse to risk and seek capital
preservation. They provide a regular income to the investor.
Liquid Funds/Money Market Funds
These funds invest in highly liquid money market instruments. The period of investment could
be as short as a day. They provide easy liquidity. They have emerged as an alternative for
savings and shorttermfixed deposit accounts with comparatively higher returns. These funds are
ideal for corporate, institutional investors and business houses that invest their funds for very
short periods.
Gilt Funds
These funds invest in Central and State Government securities. Since they are Government
backed bonds they give a secured return and also ensure safety of the principal amount. They are
best suited for the medium to long-term investors who are averse to risk.

Balanced Funds
These funds invest both in equity shares and fixed-income-bearing instruments (debt) in some
proportion. They provide a steady return and reduce the volatility of the fund while providing
some upside forcapital appreciation. They are ideal for medium to long-term investors who are
willing to take moderate risks.
b) On the basis of Flexibility
Open-ended Funds
These funds do not have a fixed date of redemption. Generally they are open for subscription and
redemption throughout the year. Their prices are linked to the daily net asset value (NAV). From
theinvestors' perspective, they are much more liquid than closed-ended funds.
Close-ended Funds
These funds are open initially for entry during the Initial Public Offering (IPO) and thereafter
closed for entry as well as exit. These funds have a fixed date of redemption. One of the
characteristics of the close-ended schemes is that they are generally traded at a discount to NAV;
but the discount narrows as maturity nears. These funds are open for subscription only once and
can be redeemed only on the fixed date of redemption. The units of these funds are listed on
stock exchanges (with certain exceptions), are tradable and the subscribers to the fund would be
able to exit from the fund at any time through the secondary market.
MUTUAL FUND STRUCTURE
The Structure Consists:
The structure of mutual funds in India is governed by the SEBI Regulations, 1996. These
regulations make it mandatory for mutual funds to have a 3-tier structure of Sponsors-Trustee-
AMC (Asset Management Company). The Sponsor is the promoter of mutual fund, and appoints
the Trustee. The Trustees are responsible to the investors in the mutual funds, and appoint the
AMC for managing the investment portfolio. The AMC is the business face of the mutual funds,
as it manages all the affairs of mutual funds. The mutual funds and AMC have to be registered
by the SEBI.

Sponsor
Sponsor is the person who acting alone or in combination with another body corporate
establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the
Investment Managed and meet the eligibility criteria prescribed under the Securities and
Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or
liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial
contribution made by it towards setting up of the Mutual Fund
Trust
The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts
Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.

Trustee
Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The
main responsibility of the Trustee is to safeguard the interest of the unit holders and inter-alia
ensure that the AMC functions in the interest of investors and in accordance with the Securities
and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust
Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee
are independent directors who are not associated with the Sponsor in any manner.
Asset Management Company (AMC)
The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC
is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an
asset management company of the Mutual Fund. At least 50% of the directors of the AMC are
independent directors who are not associated with the Sponsor in any manner. The AMC must
have a net worth of at least 10 crores at all times.
Registrar and Transfer Agent
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the
Mutual Fund. The Registrar processes the application form, redemption requests and dispatches
account statements to the unit holders.
Custodian
A custodian handles the investment back office of a mutual fund. Its responsibilities include
receipt and delivery of securities, collection of income, distribution of dividends, and segregation
of assets between schemes. The sponsor of a mutual fund cannot act as a custodian to the fund.
For example, Deutsche Bank is a custodian, but it cannot service Deutsche Mutual Fund, its
mutual fund arm.
Depository
Indian capital markets are moving away from having physical certificates for securities, to
ownership of these securities in ‘dematerialized’ form with a Depository.

Types of Risk in Mutual Fund:
Mutual Funds do not provide assured returns. Their returns are linked totheir performance. They
invest in shares, debentures, bonds etc. All theseinvestments involve an element of risk. The unit
value may vary dependingupon the performance of the company and if a company defaults in
paymentof interest/principal on their debentures/bonds the performance of the fundmay get
affected. Besides incase there is a sudden downturn in an industryor the government comes up
with new a regulation which affects a particularindustry or company the fund can again be
adversely affected. All thesefactors influence the performance of Mutual Funds.
Some of the Risk to which Mutual Funds are exposed to is given below:
Type of Risk Type of Investment affected How the fund could lose
money
Market Risk All types
The value of its investments
decline because of
unavoidable risks that affect
the entire market.
Liquidity Risk All types
The fund can’t sell an
investment that’s declining in
value because there are no
buyers.
Credit Risk Fixed Income Securities
If a bond issuer can’t repay a
bond, it may end up being a
worthless investment
Interest Rate Risk Fixed Income Securities
The value of fixed income
securities generally falls when
interest rates rise.
Country Risk Foreign Investment
The value of a foreign
investment declines because
of political changes or
instability in the country
where the investment was
issued.
Currency Risk
Investment denominated in a
currency other than the
Canadian dollar
If the other currency declines
against the Canadian dollar,
the investment will lose value.

Other risks can be like:
The risk-return trade-off: The most important relationship to understand is the risk-return
trade-off. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss. Hence
it is up to you, the investor to decide how much risk you are willing to take. In order to do this
you must first be aware of the different types of risks involved with your investment decision.
Political/government policy risk:Changes in government policy and political decision can
change the investment environment. They can create a favorable environment for investment or
vice versa.
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 cost 50
paisa?“MehangaiKaJamanaHai.”Inflation is the loss of purchasing power over time. A lot of
times people make conservative investment decisions to protect their capital but end up with a
sum of money that can buy less than what the principal could at the time of the investment. This
happens when inflation grows faster than the return on your investment. A well-diversified
portfolio with some investment in equities might help mitigate this risk.

Types of returns:
There are three ways, where the total returns provided by mutual funds can be enjoyed by
investors:
•Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly
allincome 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
fundsalso pass on these gains to investors in a distribution.
•If fund holdings increase in price but are not sold by the fund manager, the fund's sharesincrease
in price. You can then sell your mutual fund shares for a profit. Funds will also usuallygive you a
choice either to receive a check for distributions or to reinvest the earnings and get more shares.
RISK V/S. RETURN:
Interpretation:

In the above graph we see that as the risk is increasing return is also increasing. We can say that
risk isdirectly proportional to the return. Here, we see that in liquid funds, debt fund, balanced
fund risk is less so return is also less. While inindex funds, equity funds, sectoral funds risk is
high so return is also high
WHO MANAGES INVESTOR’S MONEY?
This is the role of the Asset Management Company (the Third tier).Trustees appoint the Asset
Management Company (AMC), to manageinvestor’s money. The AMC in return charges a fee
for the services providedand this fee is borne by the investors as it is deducted from the
moneycollected from them. The AMC’s Board of Directors must have at least 50% ofDirectors
who are independent directors. The AMC has to be approved bySEBI. The AMC functions under
the supervision of it’s Board of Directors, andalso under the direction of the Trustees and SEBI.
It is the AMC, which in thename of the Trust, floats new schemes and manage these schemes by
buyingand selling securities. In order to do this the AMC needs to follow all rules andregulations
prescribed by SEBI and as per the Investment ManagementAgreement it signs with the
Trustees.If any fund manager, analyst intends to buy/ sell some securities, thepermission of the
Compliance Officer is a must. A compliance Officer is one of the most important persons in the
AMC. Whenever the fund intends to launcha new scheme, the AMC has to submit a Draft Offer
Document to SEBI. Thisdraft offer document, after getting SEBI approval becomes the
offerdocument of the scheme. The Offer Document (OD) is a legal document andinvestors rely
upon the information provided in the OD for investing in themutual fund scheme. The
Compliance Officer has to sign the Due DiligenceCertificate in the OD. This certificate says that
all the information providedinside the OD is true and correct. This ensures that there is
accountability andsomebody is responsible for the OD. In case there is no compliance
officer,then senior executives like CEO, Chairman of the AMC has to sign the duediligence
certificate. The certificate ensures that the AMC takes responsibilityof the OD and its contents.
Equity versus Mutual Funds

Investment 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 realizing 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 realize 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.
ASSET MANAGEMENT COMPANY
A firm that invest the pooled funds of retail investors in securities in line with the
statedinvestment objectives. For a fee, the investment company provides more diversification,
liquidity, and professional service that are normally available to individual investors.
Asset Management Company is:
Constituted as a Company under the Indian Companies Act
Minimum Net worth of Rs. 10 crores for AMC
Minimum contribution of sponsor: 40% of share capital of AMC
At least 50% of Directors of AMC to be independent
AMC can do only the following businesses
 Asset Management Services
 Portfolio Management Services
 Portfolio Advisory Services
 AMC can be terminated/changed with the consent of
 Majority of Trustees or
 At least 75% majority of Unit holders
Role of AMC
AMC is the Fund Manager for managing Mutual Fund Assets
AMC floats different MF schemes
AMC accountable to the Trustees

AMC charges Asset Management Fees subject to ceiling prescribed by SEBI.
Asset Management Agreement between AMC and Trustee
Obligations of AMC
 Limit of 5% of aggregate purchase and sales of Securities under all its scheme per broker
per quarter.
 As far as possible AMC to avoid services of its sponsor.
 All Security transactions with a Sponsor and his associates to be disclosed
 Disclosure of transactions with a company which has invested more than 5% of NAV in
any scheme.
Working of Asset Management Company:
It is not required that AMC performs all its function of its own. It can hire service of outside
agencies as per its requirements or performs all function of its own. Registrars and Transfers
Agents are assigned the job of receiving and processing the application forms of investors,
issuing units certificate, sending refunds orders, according all transfers of units and maintaining
all such records, repurchasing the units, redemption of units. Issuing divided or income warrants.
For such service they are entitled to a fee, which is in proportion to numbers of units - holders
and numbers of transaction etc. Tata mutual fund proposes to pay of 0.60 percent of schemes
weekly net assets for this service. Such fee is charged by AMC from the mutual fund and is paid
to the agents. In India almost all AMC engage such agents.
Registrar &
Transfer
Agent
Fund
Accounting
Lead
Manager
Investment
Advisors
Legal
Advisors
Fund
Manager
Advisors
Asset Management company

Functions of asset Management Company
Investment: -
The major strength of any AMC lies its investment functions is a specialized function which,
depending on operational strategies, such as under.
Fund Manager:-
Asset Management companies manage the investment of fund through a fund manager. It is
desirable to have independent fund manager for each scheme handled by it and this is the
practice in U.S.A. But in India the practice is otherwise. A single fund manager handles many
schemes simultaneously. It is so because size of schemes is not to big. Each AMC may evolve its
own criterion for number of fund managers. Individual fund manager’s capacity varies between
individuals. One’s expertise and experience in investment handling decided the size of total
corpus one can handle. His basic function is to decide about which, when, how much securities
are to be sold or bought. To a great extent the success of any scheme depends on the calibre of
the fund manager.
Research and Planning Cell
This department plays a crucial role. It performs a very sensitive and technical assignment.
Depending again on the operational policies, such units can be created by AMC of its own or
research finding can be borrowed. The research can be with respect of securities as well as
positive investment. The fund manager can contribute to the bottom line of mutual fund by
spotting significant changes in securities ahead of the crowed. In India at present many funds
depends on outsiders. Such outsiders need not be technical analyst. Even brokers provide tips to
mutual fund.
Such strategy saves a lot of funds to be invested in small corpus can hardly afford to have their
own database. But there are mutual fund following the philosophy “your expertise is your
original research”. This section also assists planning new schemes and designing innovations in
schemes.

Dealers:-
To execute the sale and purchase transactions in capital or money market, a separate section may
be created in under the charge of a person called dealer having deep understanding of a stock
market operations. Sometimes this division is under the charge of marketing division of AMC.
Dealers are to comply with all formalities of sale and purchase through brokers. Such brokers are
to be approved by Board Of Directors of AMC. It is B.O.D., which lays down the guidelines for
allocation of business to different brokers. Many big mutual funds have their own dealing rooms.
For making sales or purchase at different stock exchanges, dealer may have his staff deputed at
such centers.
Underwriter:-
Mutual fund have been permitted by SEBI to go in for underwriting of public issues to generate
additional income for their schemes, Mutual fund have to make an application to SEBI for
registration under SEBI (underwriters) Rules and Regulations 1993.
Any underwriting decision by any scheme shall be in conformity with the provisions of the SEBI
of India (mutual fund) Regulation. An underwriting commitment by the Mutual Fund will be
made as if the Mutual Fund is actually investing the amount under any scheme.
Marketing
Marketing is a big challenge in business especially for mutual fund. Mutual funds deals with
small investors’ hard earn money, a sensitive commodity and only service is involved in selling
the product. The main challenge of marketing to mutual fund is that with same product,
customers with diversified profile viz. Demographics, socio-economic background, life style and
psychographics are to be served. Since mutual funds are to interact with lacks of investors who
are likely to be associated for a longer tenure. Post issue services play an important role in
customer’s satisfaction.It is the marketing division which complies with the formulates to market
the product i.e. a new scheme. It seeks permission from agencies like Ministry Of Finance,
Reserve Bank of India, Securities and Exchange Board of India etc. Gazette notification of
scheme is also its assignment. Marketing division is to pursue the appointment of Registrar to the
issue. Appointment of solicitors, Auditors, custodians and transfer agents is also looked after by

this division. Ones a scheme is approved, the related printing of application forms, offer
documents, banker statement forms, stationery for unit certificates, commission cheques, refund
order etc. This stationery is to be distributed at appropriate time to the concerned agencies.
Marketing people also evolve a target amount of a scheme. The most crucial “marketing
strategy’ is evolved to the best advantage of the fund Advertisement strategy is also designed by
it.Marketing division has to evaluate the market potentials, strength and weakness. For each
scheme, what is its market shear is very crucial question to design its future strategies. To
identify which section of society is under serviced, is another important assignment of marketing
division.
How important is an AMC (Asset Management Company) behind a mutual
fund?
AMC controls the operations and functioning of a mutual fund. It is very critical to the
performance of a mutual fund as it decides on the style of functioning, people who are going to
manage the funds, the commitment to service quality and overall supervision.The financial
strength and the commitment of the AMC sponsors to the business are very key issues. This is
because most AMCs lose money in the first few years of operations. In most cases, these losses
are much more than the capital requirements stipulated by SEBI. Hence, a sponsor which is
financially weak or which cannot capital to the business either because of its inability or
unwillingness will result in an unhealthy operation. There will be a tendency to cut corners and
unwillingness to spend money to expand operations. This is the last place where high quality
persons would want to remain and work. The AMC then remains stunted and the sponsors lose
interest. The worst affected are the investors. This is exactly what has happened with some
AMCs promoted by Indian business houses.This is also a problem that has afflicted some of the
AMCs floated by nationalized banks. In these organizations, the traditional thinking is prevalent
which can be summarized as "money is power". Since mutual fund business did not have access
to too much money, a posting in the AMC became punishment postings for some personnel who
were not doing well in the parent organization or who lost out in the organizational politics. The
management of the banks also did not allow these AMCs to become independent viable
businesses. The CEO’s of the AMCs did not have any clue of the mutual fund business and
neither were they interested in it – the entire effort was spent in getting a posting back in the

parent. The fund managers had no experience in the activity making a mockery of "professional
management". The sad results are there to see. Some of the parents had to provide funds to
bridge the gap in "assured return schemes". It looks extremely likely that some of these AMCs
will no longer exist in a few years.
Exchange-traded fund(ETF):
An exchange-traded fund as a mutual fund that trades like a stock.Just like an index fund, an
ETF represents a basket of stocks that reflect anindex such as the Nifty. An ETF, however, isn't a
mutual fund; it trades justlike any other company on a stock exchange. Unlike a mutual fund that
hasits net-asset value (NAV) calculated at the end of each trading day, an ETF'sprice changes
throughout the day, fluctuating with supply and demand. It isimportant to remember that while
ETFs attempt to replicate the return onindexes, there is no guarantee that they will do so
exactly.By owning an ETF, you get the diversification of an index fund plus theflexibility of a
stock. Because, ETFs trade like stocks, you can short sellthem, buy them on margin and purchase
as little as one share. Anotheradvantage is that the expense ratios of most ETFs are lower than
that of theaverage mutual fund. When buying and selling ETFs, you pay your broker.
E.g., a Nifty ETF will look to replicate CNX Nifty returns.ETFs are popular world over with
nearly 60% of trading volumes on the American Stock Exchange (AMEX) captured by all types
of ETFs. At the end of June 2011, the global ETF industry comprised 2,825 ETFs from 146
providers on 49 exchanges around the world with total assets of US$1.49 trillion.
The ETF advantage
Trade like stocks - You can buy and sell an ETF during market hours on a real time basis as
well as put advance orders on purchase such as limits or stops. In case of conventional mutual
funds, purchase or sale can be done only once a day after the fund NAV is calculated.
Low cost of investment - The passive investment style with low turnover helps keep costs low.
ETFs are known to have among the lowest expense ratios compared to others schemes.

Diversification benefit - In case of Nifty ETF, you own the complete basket of 50 stocks and
remain diversified.
Simple and transparent - The underlying securities are known and quantities are pre-defined
(In case of conventional mutual fund schemes, one needs to wait for the monthly factsheet). No
form filling is required if you transact in the secondary market. Investment can be made directly
from the fund house or the exchange.
Supports small ticket investments - ETFs are a great tool for investors wanting to start with a
small corpus. The minimum ticket size is 1 unit (in case of IIFL Nifty ETF, 1 unit is
approximately 1/10th of Nifty level, i.e Rs500, when Nifty is at 5000). Premium and discount
also tends to be higher in the futures segment, than in ETFs.
ETFs are taxed like stocks - Investors can take advantage of special rates for short term and
long-term capital gains.
Target audience
 Long term investors
 First time investors
 Investors looking for a low cost diversified portfolio
 Traders who do not have enough capital to invest in index futures
 Institutional investors looking to temporarily park cash during portfolio transition
 Arbitrageurs to carry out operations with low impact cost
Tracking error
The extent to which the NAV of the scheme moves in a manner inconsistent with the movements
of the underlying Index on any given day or over any given period of time due to any cause or
reason whatsoever including but not limited to expenditure incurred by the scheme, dividend
payouts if any, all cash not invested at all times as it may keep a portion of funds in cash to meet
redemption, purchase price different from the closing price of securities on the day of rebalance
of Index, etc.

Points to note before investing in ETFs
Invest in ETFs with ample secondary market liquidity - Fund houses do depend on market
makers and arbitrageurs to maintain liquidity to keep the price in line with the actual NAV.
ETFs track the target index – Any investor wanting an exposure to a particular target index
like Nifty will do well by investing in ETFs. The objective of ETF is to be the index rather than
beat the Index.
Always invest in key benchmarks ETFs rather than sectoral funds - Investing in sectoral
ETFs is prone to higher volatility compared to key benchmark ETFs like Nifty.
Cost of trading on the exchange - Investor will have to bear the cost of brokerage and other
applicable statutory levies e.g, Securities Transaction Tax, etc, when the units are bought or sold
on the stock exchange.
INVESTMENT STRATEGY
1. Systematic Investment Plan:
Under this a fixed sum is invested each month on afixed date of a month. Payment is made
through post datedcheques or direct debit facilities. The investor gets fewer units when the NAV
is high and more units when the NAV is low. This is called as the benefit of Rupee Cost
Averaging (RCA)
2. Systematic Transfer Plan:
Under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum,
at a fixed interval, to an equity scheme of thesame mutual fund.
3. Systematic Withdrawal Plan:
If someone wishes to withdraw from a mutual fundthen he can withdraw a fixed amount each
month.

Classes of Funds
Many mutual funds offer more than one class of shares. For example, you may have seen a fund
that offers "Class A" and "Class B" shares. Each class will invest in the same "pool" (or
investment portfolio) of securities and will have the same investment objectives and policies. But
each class will have different shareholder services and/or distribution arrangements with
different fees and expenses. As a result, each class will likely have different performance results.
A multi-class structure offers investors the ability to select a fee and expense structure that is
most appropriate for their investment goals (including the time that they expect to remain
invested in the fund). Here are some key characteristics of the most common mutual fund share
classes offered to individual investors:
 Class A Shares — Class A shares typically impose a front-end sales load. They also tend
to have a lower 12b-1 fee and lower annual expenses than other mutual fund share
classes. Be aware that some mutual funds reduce the front-end load as the size of your
investment increases. If you're considering Class A shares, be sure to inquire about
breakpoints.
 Class B Shares — Class B shares typically do not have a front-end sales load. Instead,
they may impose a contingent deferred sales load and a 12b-1 fee (along with other
annual expenses). Class B shares also might convert automatically to a class with a lower
12b-1 fee if the investor holds the shares long enough.
 Class C Shares — Class C shares might have a 12b-1 fee, other annual expenses, and
either a front- or back-end sales load. But the front- or back-end load for Class C shares
tends to be lower than for Class A or Class B shares, respectively. Unlike Class B shares,
Class C shares generally do not convert to another class. Class C shares tend to have
higher annual expenses than either Class A or Class B shares.

Clearing & Settlement - MFs
The settlement for Mutual Funds Service System is carried out by NSCCL through the
depository and bank interface.The clearing and settlement mechanism provides for settlement of
funds and mutual fund units in case of subscription and redemption orders. The transfer of funds
and units in respect of redemptions and subscriptions, respectively, is effected to the
broker/Clearing Members' settlement / pool account. Investors receive redemption amount (if
units are redeemed) and units (if units are purchased) through broker/clearing members' pool
account.All requests for subscription and redemption are settled on individual basis and only to
the extent of the funds/units paid in by participants/clients on the settlement day. Receipt and
transfer of funds and units for subscription are done on a T+1 day basis. . Receipt and transfer of
mutual fund units for redemption is done on T day and is conducted for units in dematerialised
form only. The transfer of funds for redemption is carried out on a T+1, T+2 and T+3 basis
depending upon the category of funds.
The settlement cycles are in accordance with the settlement schedules issued by NSCCL from
time to time.
NSCCL is only a facilitator and not a counter party for the subscription and redemption of units.
Subscription of units:
Participants have to open a separate clearing bank account for the purpose of settlement of funds
for subscription.
depository pool accounts of the Participants in the cash segment are used for the purpose
of settlement of subscription units.
-in confirmation files are downloaded to participants on the T day for units
subscribed.
ovide funds in their settlement accounts by 8.30 a.m. on the T+1 day.
identifying transactions for which payments have been received and transactions for which
payments have not been received. Wherever the funds collected from the bank account fall short
of the amount indicated in the details provided by the participant, the details are considered
defective and are not further processed. In such cases, the funds collected, if any, are returned to
the designated bank account of the participant.A client-wise receivable obligation report (DLVR)

is downloaded to participants on T+1 day for units allotted under subscription.A Demat Final
Receipt Statement (DFRS) is downloaded to Participants after the release of payout of
subscription units to their respective pool accounts on the T+1 day.
Redemption of units
Investors are required to transfer units for their transacted orders to the NSCCL pool account on
the T day by 4.30 p.m. under settlement type “U” (Normal Redemption). The details on such
instructions and settlement procedure of redemption orders are given in the circular
NSE/CMPT/16506 dated December 10, 2010 and NSE/CMPT/18823 dated September 08, 2011
respectively.Demat Final Delivery Statement (DFDS) is downloaded to Participants on the T day
after units are received by NSCCL. A client-wise funds receivable obligation report (FNDS) is
downloaded to Participants on T+1 day for redemption proceeds receivable on the T+1 , T+2 and
T+3 days.Funds payout for redemption is effected to the Participants' clearing bank account as
per the settlement schedule issued for the various settlement types.
Major Players OF Mutual Funds in India
At present following are the main players in the Mutual Fund Industry:-
1.Unit Trust of India.
2. ABN Amro Mutual Fund.
3.Benchmark Mutual Fund.
4.Birla Sun life Mutual Fund.
5.Can bank Mutual Fund.
6.DBSChola Mutual Fund.
7.DSP Merrill Lynch Mutual Fund.
8.Deutsche Mutual Fund.
9.Escorts Mutual Fund.
10.Fidelity Mutual Fund.
11.HDFC Mutual Fund

12.HSBC Mutual Fund.
13.ICICI Prudential Mutual Fund.
14.INGVysya Mutual Fund.
15.Kotak Mahindra Mutual Fund.
16.LIC Mutual Fund.
17.Lotus India Mutual Fund.
18.Optimix Mutual Fund.
19.Principal Mutual Fund.
20.Quantum Mutual Fund.
21.Reliance Mutual Fund.
22.SBI Mutual Fund.
23.Sahara Mutual Fund.
24.Sundaram BNP Paribas Mutual Fund.
25.Tata Mutual Fund.
26.Taurus Mutual Fund.
How to manage mutual fund portfolio
A mutual fund is an investment avenue for small and large investors alike. The investors’ money
is pooled, professionally managed & invested by professional fund managers. This benefits
investors as they can get the advantages of scale as well as returns from a professionally
managed portfolio at a fraction of the cost. Through this diversification, one’s portfolio risk is
reduced; thus enhancing the Risk Adjusted Returns. In short, mutual funds helps to generate
wealth through capital appreciation in the long term (depending on one’s investment horizon and
goals) through a diversified portfolio at a low cost and lower risk.
 One can invest in both equity and debt funds at a low cost and without the need for daily
monitoring. Ideally, one should look at investing 70% in equity funds and 20% in debt
funds, and 10% in gold funds (either via ETF or gold funds) – the mentioned allocation is
suitable for a person who has risk appetite of moderate – high and is willing to stay

invested for a long term. The best way to invest in a mutual fund is first to understand
one’s risk profile and based on the risk profile, one should select the appropriate asset
allocation (Debt, Equity, Gold, etc.). If one loses sleep over the ups and downs in the
stock market, it will be better to avoid any significant exposure to equity funds. However,
if the investor is willing to take risks and has the ability to hold on to the investment for a
reasonable period, equity funds are the best option to reach one’s financial goal. Also
within the equity holdings, funds can be further diversified to Large/Mid &
Small/Balanced funds.
 However managing one's diversified portfolio needs adequate disciplined approach of
investment and maintenance. Here are the few methods that can be followed in-order to
manage one's mutual fund portfolio.
 Diversify the holdings
In practice, not all funds invested in different portfolios such as bonds, debt instruments, stocks,
etc. incur similar profit all the time; as some funds can give substantial returns and others might
not. So it is essential for an individual to look into the mutual fund category before investing, the
type of fund i.e. Large/Mid&Small/Balanced/Gold/Debt etc, returns generated in the past and
also the associated risk.. You can choose some of these funds based on your portfolio mix
keeping in mind your risk appetite and financial plans.A high performing fund for a particular
year may not perform well in the future years or vice versa, and basing investment decisions on
this will not bode well for the long term. For example, if one invests money across several funds
equally, and if one fund (Fund A) does badly, while the others give moderate returns and Fund B
yields very high returns; then the losses made in Fund A will be offset by the gain in Fund B –
hence it would be advisable to diversify/invest in multiple funds in order to reduce the risk.
 Risk Profile
Before investing one should know whether you are a risk taker or averse to risk. Risk tolerance is
measured by how much market risk (fluctuations/volatility) you can handle at a given period of

time, and the higher your risk tolerance you can have a higher allocation towards equity oriented
avenues as compared to debt, bonds etc, whereas if the risk tolerance level is low then your
portfolio should have a lower allocation towards equity in relation to debt instruments.
 Time Horizon
This is a very important factor to consider, since this is based on one's financial goals – the
shorter the time frame for the goal is (e.g. higher education) it is better to invest in debt
instruments, and for longer time frame goals it is better to invest in equities (via mutual funds). If
one is willing to invest for the long term, then equity mutual funds are the right investment
decision. As holding the investments for a longer term period will benefit the investors, due to
the power of compounding, as well as zero long term capital gains tax for equity instruments.
 Performance
A very crucial step towards managing your mutual fund portfolio is to revisit your portfolio from
time to time, and make check/measure the performance. If the performance is inline with the
market condition and expected returns, then one can continue holding the same portfolio mix.
However if the portfolio has not been successful in delivering the expected returns then one can
consider small modification in the same. However it is advisable to stay invested in an equity
oriented avenue for a longer time before making any switch.
Tax Consequences
When you buy and hold an individual stock or bond, you must pay income tax each year on the
dividends or interest you receive. But you won't have to pay any capital gains tax until you
actually sell and unless you make a profit.
Mutual funds are different. When you buy and hold mutual fund shares, you will owe income
tax on any ordinary dividends in the year you receive or reinvest them. And, in addition to owing
taxes on any personal capital gains when you sell your shares, you may also have to pay taxes

each year on the fund's capital gains. That's because the law requires mutual funds to distribute
capital gains to shareholders if they sell securities for a profit that can't be offset by a loss.
Tax Exempt Funds
If you invest in a tax-exempt fund — such as a municipal bond fund — some or all of your
dividends will be exempt from federal (and sometimes state and local) income tax. You will,
however, owe taxes on any capital gains.
Bear in mind that if you receive a capital gains distribution, you will likely owe taxes — even if
the fund has had a negative return from the point during the year when you purchased your
shares. For this reason, you should call the fund to find out when it makes distributions so you
won't pay more than your fair share of taxes. Some funds post that information on their websites.
SEC rules require mutual funds to disclose in their prospectuses after-tax returns. In calculating
after-tax returns, mutual funds must use standardized formulas similar to the ones used to
calculate before-tax average annual total returns. You'll find a fund's after-tax returns in the
"Risk/Return Summary" section of the prospectus. When comparing funds, be sure to take taxes
into account.
Tax Reckoner 2013-14
The rates are applicable for the Financial Year 2013-14.
A. Applicable Income Tax Rates – Investments in Mutual Fund Schemes
Tax Implication on Dividend received by Unit holders
Resident Individual/HUF Domestic corporates NRI
Dividend
Equity Oriented
Schemes
Tax Free Tax Free Tax Free

Other than
Equity Oriented
Schemes
Tax Free Tax Free Tax Free
Dividend Distribution Tax (Payable by the Scheme)
Equity Oriented
Schemes*
Nil Nil Nil
Money Market &
Liquid Schemes
25%+ 10%
Surcharge+ 3% Cess
= 28.325%
30%+ 10%
Surcharge+ 3% Cess
= 33.99%
25%+ 10%
Surcharge+ 3% Cess
= 28.325%
Other than Equity
Oriented Schemes
Applicable Upto 31st May, 2013
12.5%+ 10%
Surcharge+ 3% Cess
= 14.1625%
30%+ 10%
Surcharge+ 3% Cess
= 33.99%
12.5%+ 10%
Surcharge+ 3% Cess
= 14.1625%
Applicable from 1st June, 2013
25%+ 10%Surcharge
+ 3%Cess
= 28.325%
30%+ 10%Surcharge
+ 3%Cess
= 33.99%
25%+ 10%Surcharge
+ 3%Cess
= 28.325%
Capital Gain Taxation

Resident
Individual/HUF
Domestic
Corporates
NRI **
Long Term Capital Gains (Units held for more than 12 months)
Equity Schemes* Nil Nil Nil
Other than Equity
Oriented Schemes
(listed)
10% without
indexation or 20%
with indexation
whichever is lower +
10% Surcharge $ +
3% Cess
10% without
indexation or 20%
with indexation
Surcharge as
applicable $$ + 3%
Cess
10% without
indexation or 20%
with indexation
10% Surcharge $ +
3% Cess ***
Without Indexation = 11.33% =10.815% or 11.33% = 11.33%
With Indexation = 22.66% = 21.63% or 22.66% = 22.66%
Schemes other than
Equity oriented
schemes (unlisted)
10% without
indexation or 20%
with indexation
10% Surcharge $+ 3%
Cess
10% without
indexation or 20%
with indexation
Surcharge as
applicable $$ + 3%
Cess
10% without
indexation ^^ + 10%
Surcharge $ + 3%
Cess
Without Indexation = 11.33% =10.815% or 11.33% = 11.33%
With Indexation = 22.66% = 21.63% or 22.66% = Not Applicble
Short Term Capital Gains (Units held for 12 months or less)
Equity Oriented
Schemes*
15%+ 10% Surcharge
$ + 3% Cess
15% + Surcharge as
applicable $$ + 3%
15% + 10% Surcharge
$ + 3% Cess

= 16.995% Cess
= 16.223% or
16.995%
= 16.995%
Other than Equity
Oriented Schemes
30%^ + 10%
Surcharge $ + 3%
Cess
= 33.99%
30% + Surcharge as
applicable $$ + 3%
Cess
=32.445% or 33.99%
30%^+ 10%
Surcharge $ + 3%
Cess
=33.99%
Tax deducted at source pertaining to NRI Investors #
Short Term Capital Gain Long Term Capital Gain
Equity Oriented Schemes 16.995% ## Nil
Other than Equity Oriented
schemes (Listed)
33.99% 22.66%@
Other than Equity Oriented
schemes (Unlisted)
33.99% 11.33%
*STT will be deducted on equity oriented schemes at the time of redemption and switch to the
other schemes. Mutual Fund would also pay securities transaction tax wherever applicable on the
securities sold
$ Surcharge at the rate of 10% shall be levied in case of individual / HUF unit holders where
their income exceeds Rs 1 crore.
$$ Surcharge at the rate of 5% shall be levied for domestic corporate unit holders where the
income exceeds Rs 1 crore but less than 10 crores and at the rate of 10%, where income exceeds
10 crores.

** The tax rates are subject to DTAA benefits available to NRI’s. As per the Finance Act 2013,
submission of tax residency certificate (“TRC”) will be necessary for granting Double Taxation
Avoidance Agreement (“DTAA”) benefits to non-residents. A taxpayer claiming DTAA benefit
shall furnish a TRC of his residence obtained by him from the Government of that country or
specified territory. Further, in addition to the TRC, the non-resident shall also provide such other
documents and information subsequently, as may be prescribed by the Indian Tax Authorities.
*** These are the tax rates applicable to capital gains, in case the rate of tax is lower than 20%
and if the NRI does not have a Permanent Account Number, then for the purpose of TDS, the
withholding tax rate would be 20%
# As per the Finance Act 2012, with effect from July 1, 2012, a list of transactions is proposed to
be specified, wherein the rate for tax deduction at source needs to be determined by the assessing
officer. In case the transaction of sale of mutual fund units by an NRI gets covered within such
list, then an application would be required to be made to the assessing officer to determine the
tax deduction at source rate
## Subject to NRI’s having Permanent Account Number in India
^^ In case of transfer of unlisted securities by non-resident, the tax rates in case of long term
capital gains shall be 10% (plus surcharge and cess) without indexation
^Assuming the investor falls into the highest tax bracket
@ after providing for indexation
B. Income Tax Rates
(i) For Individual, Hindu Undivided Family, Association of Persons, Body of Individuals and
Artificial juridical persons.
Taxable Income Tax Rates (%)Upto Rs.2,00,000 (a)(b) Nil Rs. 2,00,001 to Rs. 5,00,000
(c) (d) 10% Rs. 5,00,001 to Rs.10,00,000 (c) 20% Rs. 10,00,000 and above (c) (e) 30%
a. In the case of a resident individual of the age of sixty years or above but below eighty
years, the basic exemption limit is Rs.2,50,000.
b. In the case of a resident individual of the age of eighty years or above, the basic
exemption limit is Rs.5,00,000/-
c. Education cess is applicable at the rate of 3 percent of income-tax. No Surcharge is
applicable.

d. The Finance Act 2013 provides a rebate of Rs.2,000 for individual having Total Income
uptoRs. 5 lakhs.
e. As per the Finance Act, 2013, surcharge at the rate of 10% is applicable on income
exceeding Rs. 1 crore; Marginal relief for such person is available.
(ii) Securities Transaction Tax (STT) STT is levied on the value of taxable securities
transactions as under:
TransactionRatesPayable By Purchase/ Sale of equity shares
0.1%* Purchaser/Seller Purchase of units of equity oriented mutual fund (delivery based )
on recognized stock exchange # Nil Purchaser Sale of units of equity oriented mutual fund
(delivery based ) on recognized stock exchange # 0.001% Seller Sale of equity shares, units of
equity oriented mutual fund (non delivery based) 0.025% Seller Sale of an option in securities
0.017% Seller Sale of an option in securities, where option is exercised 0.125% Purchaser Sale
of a futures in securities # 0.010% Seller Sale of unit of an equity oriented scheme to the Mutual
Fund # 0.001% Seller # Effective from 1st June, 2013.
(iii) Capital Gain
Particulars Short Term
capital gains tax
rates (a)
Long Term capital
gains tax rates (a)
Sale transactions of equity shares / units of
an equity oriented scheme which attract STT
15% Nil
Sale transaction of other listed units other
than units mentioned above (without STT)
Individuals (resident and non-resident) Progressive slab
rates – as per B
above
20% with indexation
10% without indexation
( for units)
Firms including LLP (resident and non-
resident)
30%
Resident Companies 30%
Overseas financial organisations specified in
section 115AB
40% (Corporate)
30% (non-
corporate)
10% for units purchased
in foreign currency @@
FIIs 30% 10%@@
Other Foreign Companies 40% 20% with indexation
Local Authorities 30% 20% with indexation
10% without indexationCo-Operative Society Rates Progressive Slab
Sale transaction of un-listed units
Individuals (resident and non-resident) Progressive slab 20% with indexation

rates– as per B
above
**
Firms including LLP (resident and non-
resident)
30%
Resident Companies 30%
Overseas financial organisations specified in
section 115AB
40% (Corporate)
30% (non-
corporate)
10% for units purchased
in foreign currency @@
FIIs 30% 10%@@
Local Authorities 30% 20% with indexation
10% without indexationCo-Operative Society Rates Progressive Slab
Any other non-resident 40% 10% without indexation
These rates will further increase by surcharge, if applicable & education cess
@@without indexation
** In case of Non resident, long term capital gains arising from transfer of unlisted units will
be taxable at the rate of 10% (plus surcharge and cess) without indexation.
SIPs best way to create wealth via mutual funds
At the very basic, wealth creation refers to the process of deploying your money in a manner that
there is real-value accretion over the long run. In other words, you should deploy your savings in
such a way that the rate of return on your money beats the rate of inflation.
For example, today you spend Rs 100 to buy Product A. Now the rate of inflation in the
economy is, say, 8% per annum. So we can assume that one year from now, the cost of the same
Product A will be Rs 108. So to create real value, you should deploy your Rs 100 today in such a
way and in such products that after a year, after paying for taxes if any, you should still have
more than Rs 108. If your savings after one year is just Rs 108, you have not created any value,
while if the value of your savings is less
than Rs 108, you have actually destroyed
value in real terms.
The idea here is to invest in such a way that
your purchasing power is always more than
what the rate of inflation is able to destroy.
It is true that you may not be able to beat
the rate of inflation in the short term, like

in every year. But the aim should be to beat the inflation rate over the long term, that is over 10,
15, 20 years. In India, over the past several years, stocks, gold and real estate have
beaten the rate of inflation, while instruments like bank fixed deposits and bonds have not been
able to do that in any significant way. So financial planners advise their clients, who are not very
financially savvy, to take the equities route for wealth creation with some parts of the money
going into debt, gold and real estate.
The illiquidity factor attached to real estate — which is your not being able to sell your
property exactly when you need the money and also at the right price — is one of the most
limiting factors for any decision to invest in this investment product. And for investing in equity
and debt, financial planners advise their clients to take the mutual fund route.
For example, according to a note prepared by BhavinSangoi and BhuvanaSreeram of
freedom Financial Planners, in the last five years, a portfolio of five mutual fund schemes —
consisting of four equity schemes investing in large-, medium- and small-cap stocks and one
debt scheme — returned about 12.70% on a compounded annual basis. So a systematic
investment plan (SIP) of Rs 10,000 every month for five years in these funds amounted to about
Rs 8.3 lakh. In comparison, if the same Rs 10,000 was put in a monthly recurring deposit for five
years, the total corpus would be Rs 7.44 lakh, the note shows.
And this return in the mutual funds came despite the fact that the stock market has mostly
remained flat on a point-to-point basis over this five-year period. "The important thing here is to
invest regularly and stay away from reacting to market volatility. Undisputedly, mutual funds are
a great wealth-creation vehicle," the note by Sangoi and Sreeram says.
To follow this route, financial planners and advisers say that the SIP route to invest in
mutual funds is the best way: It inculcates discipline in one's approach to investment, helps the
investor negotiate volatility and has a strong potential to create wealth in the long run.
3.2 Basic theories of the topic
What is NAV?
Net Asset Value (NAV) represents a fund's per share market value. This is the price at which
investors buy ("bid price") fund shares from a fund company and sell them ("redemption price")
to a fund company.Buying and selling intofunds is done on the basis of NAV-related prices.The

NAV of a mutual fund are required to be published in newspapers. TheNAV of an open end
scheme should be disclosed on a daily basis and theNAV of a close end scheme should be
disclosed at least on a weekly basis. It is derived by dividing the total value of all the cash and
securities in a fund's portfolio, less any liabilities, by the number of shares outstanding. An NAV
computation is undertaken once at the end of each trading day based on the closing market prices
of the portfolio's securities. For example;
Scheme ABN
Scheme Size Rs. 5, 00, 00,000 (Five Crores), Face Value of Units Rs.10/-
Scheme Size 5, 00, 00,000
--------------------------- = ------------------- = 50, 00,000
Face value of units 10
The fund will offer 50, 00,000 units to Public.
Investments: Equity shares of Various Companies.
Market Value of Shares is Rs.10, 00, 00,000 (Ten Crores)
Rs. 10, 00, 00,000
NAV = -------------------------- = Rs.20/-
50, 00,000 units
Thus each unit of Rs. 10/- is Worth Rs.20/-
It states that the value of the money has appreciated since it is more than the face value
Basis of Comparison of various schemes of mutual funds
1. BETA
BETA measures the sensitivity of the stock to the market. For example if beta =1.5, it means the
stock price will change by 1.5% for every 1% change in sensex. It is also used to measures the

systematic risk. Systematic risk means risks which are external to the organization like competition,
government policies. They are non-diversifiable risks.
Beta is calculated using regression analysis; Beta can also be defined as the tendency of a security's
returns to respond to swings in the market. A beta of 1 indicates that the security's price will move
with the market. A beta less than 1 it means that the security will be less volatile than the market. A
beta greater than 1 indicates that the security's price will be more volatile than the market. For
example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.
Beta>11thenxaggressivexstocks
If1beta<1xthen1defensive1stocks
If beta=1 then neutral
So, it’s a measure of the volatility, or systematic risk, of a security or a portfolio in comparison
to the market as a whole. Many utilities stocks have a beta of less than 1. Conversely, most hi-
tech NASDAQ-based stocks have a beta greater than 1, offering the possibility of a higher rate of
return but also posing more risk.
2. Standard Deviation
A measure of the dispersion of a set of data from its mean. The more spread apart the data, the
higher the deviation. Standard deviation is calculated as the square root of variance.
In finance, standard deviation is applied to the annual rate of return of an investment to measure
the investment's volatility. Standard deviation is also known as historical volatility and is used by
investors as a gauge for the amount of expected volatility. Standard deviation is a statistical
measurement that sheds light on historical volatility. For example, a volatile stock will have a
high standard deviation while the deviation of a stable blue chip stock will be lower. A large
dispersion tells us how much the return on the fund is deviating from the expected normal
returns.
3. Sharpe Ratio
A ratio developed by Nobel Laureate Bill Sharpe to measure risk-adjusted performance. It is
calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the
result by the standard deviation of the portfolio returns.

The Sharpe ratio tells us whether the returns of a portfolio are because of smart investment decisions
or a result of excess risk. This measurement is very useful because although one portfolio or fund can
reap higher returns than its peers, it is only a good investment if those higher returns do not come
with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted
performance has been.
4. Treynor Ratio
The treynor ratio, named after Jack Treynor, is similar to the Sharpe ratio, except that the risk
measure used is Beta instead of standard deviation. This ratio thus measures reward to volatility.
Treynor Ratio = (Return from the investment – Risk free return) / Beta of the
investment. The scheme with the higher treynor Ratio offers a better risk-reward equation for the
investor. Since Treynor Ratio uses Beta as a risk measure, it evaluates excess returns only with
respect to systematic (or market) risk. It will therefore be more appropriate for diversified
schemes, where the non-systematic risks have been eliminated. Generally, large institutional
investors have the requisite funds to maintain such highly diversified portfolios. Also since Beta
is based on capital asset pricing model, which is empirically tested for equity, Treynor Ratio
would be inappropriate for debt schemes.
5. Expense Ratio
Among other things that an investor must look at before finalising a scheme, is that he must
check out the Expense Ratio. Expense Ratio is defined as the ratio of expenses incurred by a
scheme to its Average Weekly Net Assets. It means how much of investors money is going for
expenses and how much is getting invested. This ratio should be as low as possible. Assume that
a scheme has average weekly net assets of Rs 100 cr. and the scheme incurs Rs. 1 cr as annual
expenses, then the expense ratio would be 1/ 100 = 1%. In case this scheme’s expense ratio is

comparable or better than its peers then this scheme would qualify as a good investment, based
on this parameter only. If this scheme performs well and its AUM increases to Rs. 150 cr in the
next year whereas its annual expenses increase to Rs. 2 cr, then its expense would be 2/ 150 =
1.33%. It is not enough to compare a scheme’s expense ratio with peers. The scheme’s expense
ratio must be tracked over different time periods. Ideally as net assets increase, the expense ratio
of a scheme should come down.
6. Exit Load
Exit Loads, are paid by the investors in the scheme, if they exit one of the scheme before a
specified time period. Exit Loads reduce the amount received by the investor. Not all schemes
have an Exit Load, and not all schemes have similar exit loads as well. Some schemes have
Contingent Deferred Sales Charge (CDSC). This is nothing but a modified form of Exit Load,
wherein the investor has to pay different Exit Loads depending upon his investment period. If the
investor exits early, he will have to bear more Exit Load and if he remains invested for a longer
period of time, his Exit Load will reduce. Thus the longer the investor remains invested, lesser is
the Exit Load. After some time the Exit Load reduces to nil; i.e. if the investor exits after a
specified time period, he will not have to bear any Exit Load.
7. Manager Tenure
Manager Tenure refers to the amount of time, usually measured in years, a mutual fund manager
or management team has been managing a particular mutual fund. Managers of actively-
managed funds are actively trying to outperform a particular benchmark, such as the S&P 500;
whereas the manager of a passively-managed fund is only investing in the same securities as the
benchmark. When looking at a mutual fund's historic performance is sure to confirm the manager
or management team has been managing the fund for the time frame you are reviewing. For
example, if you are attracted to the 5-year return of a mutual fund but the manager tenure is only
one year, the 5-year return is not meaningful in making the decision to buy this fund.
3.3 Research on the selected topic
Mutual funds garner 1.5 trillion in May, 2014:

My new mf (2)[1]

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