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By
Manaswi Gandhi
IBS Mumbai
FINAL REPORT ON
+om,a& !uide:
Dee,ali Pa"-a" (Relatio&'%i, Ma&a.e") Ma%i&d"a Fi&a&ce*
(IBS) Mumbai*
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Acknowledgement:
T%i' "e,o"t i' a ' &e".i'tic ,"oduct o# ma& mi&d'$ It be.a& o& 25"d Feb"ua" ) 2114) t%e da I /a' i&ducted a' a 'umme" t"ai&ee at MA6INDRA FINAN+E$ A' a& Amateu" to t%e co",o"ate e&7i"o&me&t) t%i' t"ai&i&. at MA6INDRA FINAN+E %a' bee& a 7e" i&'i.%t#ul$ I am ."ate#ul #o" t%e i&',i"atio& a&d /i'dom o# ma& ,eo,le #o" t%ei" i&'i.%t' a&d e&cou"a.eme&t$ I me&tio& t%e &ame' o# all t%o'e ,eo,le /%o %a7e e&"ic%ed a&d im,"o7ed m t%i&-i&. t%"ou.% t%ei" co&7e"'atio&'$ T%e team membe"' i& t%e mutual #u&d' a"e Dee,ali Pa"-a" (Relatio&'%i, Ma&a.e"*) M"'$ U88a/la) Mi'' +%et&a 9ot/al$ But /it%out t%e &ame' o# 'ome ,eo,le t%i' ,"o8ect "e,o"t /ould &ot be ,o''ible$ T%i' "e,o"t %a' bee& a&al :ed a&d '%a",e&ed b t%e i&tellectual ,"oce''$ Fi"'t a&d #o"emo't) I /ould li-e to e;,"e'' m 'i&ce"e "e.a"d' to m ,"o8ect .uide Dee,ali Pa"-a" (Relatio&'%i, Ma&a.e"*$ 6e" 7i'io& a&d t%e 7aluable time t%at '%e '%a"ed /it% me /ill al/a ' be a 'ou"ce o# i&',i"atio& #o" me$ T%e& I /ould to t%a&- ou" #acult .uide) M"$ Mo%a&da' Nai" (P"o#e''o") IBS) Mumbai* /%o let me to i&itiate t%e ,"o8ect a&d ,"o7ided 7aluable 'u..e'tio& a&d .uida&ce du"i&. t%e /%ole ,"o8ect$ 6i' ,e"',ecti7e %a' e&cou"a.ed me to i&co",o"ate a di##e"e&t dime&'io& to t%e ,"o8ect$ I al'o e;,"e'' m 'i&ce"e t%a&-' to m #ello/ 'tude&t' du"i&. t%e ,"o8ect) 'ta## o# MA6INDRA FINAN+E) a&d all ,eo,le "elated to me #o" t%ei" co&ti&ued 'u,,o"t < a,,"eciatio&
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Table of Contents
S. No. 3$ 2$ 5$ >$ =$ @$ 2$ 4$ ?$ 31$ 33$ 32$ 35$ 3>$ 3=$ 3@$ 32$ 34$ Contents E;ecuti7e Summa" +om,a& B"ie# Ab't"act I&t"oductio& 6i'to" o# Mutual Fu&d Mutual Fu&d St"uctu"e T ,e' o# Mutual Fu&d A% Mutual Fu&dB Mutual #u&d 6ou'e' i& I&dia Ri'- A&al 'i' +alculatio& O# Ri'Ri'- Ad8u'ted Pe"#o"ma&ce Ri'- a&d Retu"& !lobal Mutual #u&dCI&dia& Mutual Fu&d T%e ELSS Ad7a&ta.e Ne/ +o&ce,t Fact' a&d Fi.u"e Re#e"e&ce' Page No. 13 12 1= 12 1? 33 3> 34 52 55 5@ >1 >2 >@ =1 =2 @= @2
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!ecuti"e Summa#y
I %a7e do&e m SIP /it% MA6INDRA FINAN+E #"om 25 "d Feb"ua" ) 2114 to 2>t% Ma 2114$ I /a' a''i.&ed t%e #ollo/i&. ,"o8ect':- $esea#c% Analysis of Mutual Fund &ndust#y. - Dist#ibution of Mutual Funds. P#ofile key #esult a#ea 0 U&de"'ta&di&. T%e Im,o"ta&ce o# A&al 'i' o# Mutual Fu&d I&du't" $ $e'o#ting:- I %a7e to "e,o"t Dee,ali Pa"-a" (Relatio&'%i, Ma&a.e"*) /%o acted a' a me&to" #o" t%e ,"o8ect (ow did & a''ly my lea#ning at &)S* Du"i&. t%e ,"o8ect m lea"&i&. i& cla''"oom (ca'e 'tud ) a''i.&me&t* ,"o7ed to be 7e" u'e#ul$ At time' I "e#e""ed to m &ote' a&d 'tud mate"ial$ +ea#ning du#ing S&P: I lea"&t a lot du"i&. t%e ,"o8ect$ Fi"'tl ) it ,"o7ided me t%e muc% &eeded co",o"ate e;,o'u"e (bu'i&e'' commu&icatio&) a&d bei&. a&'/e"able to t%e 'e&io"'*$ Seco&dl ) t%e ,"o8ect %el,ed me t%e .ai& i&'i.%t i&to mutual #u&d i&du't" $ P#e'a#ation,Ac%ie"ement,$ecognition: I be.a& u&de"'ta&di&. t%e 7a"iou' /ealt% ma&a.eme&t o,tio& .i7e& b t%e com,a& to it' clie&t'$
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Com'any )#ief
Com'any P#ofile:
Ma%i&d"a < Ma%i&d"a Fi&a&cial Se"7ice' Limited) a &o&-ba&-i&. #i&a&ce com,a& ) e&.a.e' i& lea'e a&d %i"e ,u"c%a'e #i&a&ce bu'i&e'' i& I&dia$ T%e com,a& ,"o7ide' #i&a&ce #o" utilit 7e%icle') t"acto"') a&d ca"' #o" "u"al a&d 'emi-u"ba& ma"-et'$ It al'o o##e"' #i&a&ce #o" t/o /%eele"') #a"m eGui,me&t) -@-
comme"cial 7e%icle') a&d co&'t"uctio& eGui,me&t$ I& additio&) Ma%i&d"a < Ma%i&d"a Fi&a&cial Se"7ice' ,"o7ide' i&7e'tme&t ad7i'o" 'e"7ice'$ A' o# Ma"c% 53) 2112) it %ad >15 b"a&c%e'$ T%e com,a& /a' #ou&ded i& 3??3$ It /a' #o"me"l -&o/& a' Ma;i Moto"' Fi&a&cial Se"7ice' Limited a&d c%a&.ed it' &ame to Ma%i&d"a < Ma%i&d"a Fi&a&cial Se"7ice' Limited i& 3??2$ T%e com,a& i' ba'ed i& Mumbai) I&dia$ Ma%i&d"a < Ma%i&d"a Fi&a&cial Se"7ice' Limited i' a 'ub'idia" o# Ma%i&d"a < Ma%i&d"a Limited$ Rece&tl /e %a7e "ecei7ed t%e &ece''a" ,e"mi''io& #"om Re'e"7e Ba&- o# I&dia (RBI* to 'ta"t t%e di't"ibutio& o# Mutual Fu&d ,"oduct' t%"ou.% ou" &et/o"-$ 6it%e"to /e /e"e o&l ,a"tici,ati&. i& t%e liabilit "eGui"eme&t' o# ou" cu'tome"' but /it% a mutual #u&d di't"ibutio& bu'i&e'') /e ca& al'o ,a"tici,ate i& t%ei" a''et allocatio&$ A%e& it come' to i&7e'ti&.) e7e" o&e %a' u&iGue &eed' ba'ed o& t%ei" o/& ob8ecti7e' a&d "i'- ,"o#ile$ A%ile ma& i&7e'tme&t a7e&ue' 'uc% a' #i;ed de,o'it') bo&d' etc$ e;i't) it i' u'uall 'ee& t%at eGuitie' t ,icall out,e"#o"m t%e'e i&7e'tme&t') o7e" a lo&.e" ,e"iod o# time$ 6e&ce /e a"e o# t%e o,i&io& t%at) ' 'tematic i&7e'tme&t i& eGuit allo/' o&e to c"eate 'ub'ta&tial /ealt%$ 6o/e7e") i&7e'ti&. i& eGuit i' &ot a' 'im,le a' i&7e'ti&. i& bo&d' o" ba&de,o'it') becau'e o&l ,"o,e" allocatio& o# ,o"t#olio .i7e' ma;imum "etu"&' /it% mode"ate "i'-) a&d t%i' "eGui"e' e;,e"ti'e a&d time$ Ou" I&7e'tme&t Ad7i'o" Se"7ice' %el, ou i&7e't ou" mo&e i& eGuit t%"ou.% di##e"e&t Mutual Fu&d Sc%eme'$ Ae e&'u"e t%e be't #o" ou" clie&t' b ide&ti# i&. ,"oduct' be't 'uited to i&di7idual &eed'$
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Abst#act
T%e i&7e'tme&t o,tio& I am deali&. /it% i':Mutual Fund
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P#o/ect:
A&al 'i' O# Mutual Fu&d' I&du't" A&d Data A&al 'i'$
Ob/ecti"e:
T%e ob8ecti7e o# t%i' 'tud /a' to .et t%e a/a"e&e'' o# t%e mutual #u&d it) i&7e'ti&. i& MUTUAL FUND H' i&du't" ) 7a"iou' 'c%eme' o##e"ed b
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P6ASE 3
&nt#oduction
DPut ou" mo&e i& t"u't) &ot t"u't i& mo&e E e&tice' t%e 'mall i&7e'to"') /%o .e&e"all lac- e;,e"ti'e to i&7e't o& t%ei" o/& i& t%ei" 'ecu"itie' ma"-et a&d ,"e#e" 'ome -i&d o# collecti7e i&7e'tme&t 7e%icle') /%ic% ca& ,ool t%e ma".i&al "e'ou"ce'$ A Mutual Fu&d i' a t"u't t%at ,ool' t%e 'a7i&. o# a &umbe" o# i&7e'to" /%o '%a"e' a commo& #i&a&cial .oal$ T%e mo&e t%u' collected i' t%e& i&7e'ted i& ca,ital ma"-et 'uc% a' '%a"e') debe&tu"e' a&d ot%e" 'ecu"itie'$ T%e i&come ea"&ed t%"ou.% t%e'e i&7e'tme&t' a&d t%e ca,ital a,,"eciatio& "eali:ed a"e '%a"e' b it' u&itE' %olde"' i& ,"o,o"tio& to t%e &umbe" o# u&it' o/&ed b t%em$ T%u' a mutual #u&d i' t%e mo't 'uitable i&7e'tme&t #o" t%e commo& ma& a' it o##e"' a& o,,o"tu&it to i&7e't i& a di7e"'i#ied) ,"o#e''io&all ma&a.ed ba'-et o# 'ecu"itie' at a "elati7el lo/ co't$ T%e #lo/c%a"t belo/ de'c"ibe' b"oadl t%e /o"-i&. o# mutual #u&d:-
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0%at is a Mutual Fund* A 7e%icle #o" i&7e'ti&. i& 'toc-' a&d bo&d'$ A Mutual Fu&d i' &ot a& alte"&ati7e i&7e'tme&t o,tio& to 'toc-' a&d bo&d'K "at%e" it ,ool' t%e mo&e o# 'e7e"al i&7e'to"' a&d i&7e't' t%i' i& 'toc-') bo&d') mo&e ma"-et i&'t"ume&t a&d ot%e" t ,e' o# 'ecu"itie'$ Bu i&. a Mutual Fu&d i' li-e bu i&. a 'mall 'lice o# a bi. ,i::a$ T%e o/&e" o# t%e mutual #u&d' u&it' .et' ,"o,o"tio&al '%a"e' o# t%e #u&d' .ai&') lo''e') i&come a&d e;,e&'e'$ ac% Mutual Fund %as a s'ecific stated ob/ecti"e:1 T%e #u&d ob8ecti7e i' laid out i& t%e #u&d' ,"o',ectu') /%ic% i' t%e le.al docume&t t%at co&tai&' i&#o"matio& about t%e #u&d) it' %i'to" ) it' o##ice"' a&d it' ,e"#o"ma&ce$ Some ,o,ula" ob8ecti7e' o# a mutual #u&d a"e:Funds Objective EGuit (!"o/t%* Debt (I&come* Mo&e Ma"-et (i&cl$ !ilt* Bala&ced What the fund will invest in O&l i& 'toc-' O&l i& #i;ed i&come 'ect$ I& '%o"t te"m mo&e i&'t$ Pa"tl i& 'toc-' a&d ,a"tl i&come 'ecu"itie'$
i& Fi;ed
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di'clo'ed b
o" /ee-l -
<9
!'enses:
AM+' c%a".e a& a&&ual #ee') o" e;,e&'e "atio t%at co7e"' admi&i't"ati7e e;,e&'e') 'ala"ie') ad7e"ti'i&. e;,e&'e') etc$ A 3$=Le;,e&'e "atio mea&' t%e AM+ c%a".e' R' 3$=1 #o" e7e" R' 311 i& AUM$ A #u&d e;,e&'e "atio i' t ,icall to t%e 'i:e o# t%e #u&d' u&de" ma&a.eme&t a&d &ot to t%e "etu"& ea"&ed$ No"mall ) t%e co't o# "u&&i&. a #u&d ."o/ 'lo/e" t%a& t%e ."o/t% i& t%e #u&d 'i:e 0'o) t%e mo"e a''et i& t%e #u&d )t%e lo/e" '%ould be it' e;,e&'e "atio$ T%e e;,e&'e' ,"o,o"tio& u&de" 7a"iou' %ead' i' '%o/ belo/:
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nt#y +oad:
T%e co't o# t%e #u&d ma&a.eme&t ,"oce'' t%at i&clude' ma"-eti&. a&d i&itial co't a"e c%a".ed /%e& ou e&te" t%e 'c%eme$ T%e'e c%a".e' a"e te"med t%e e&t" load) t%e additio&al c%a".e /e ,a /%e& /e 8oi& t%e 'c%eme$ A&d i# t%e"e i' &o load) t%e bold #o&t i& t%e &e/ 'c%eme' ad 'a ' M&o e&t" loadN$
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!it +oad:
Iu't li-e e&t" load' im,o'e a #ee /%e& /e lea7e t%e 'c%eme i$e$ /e "edeem ou" u&it') called t%e e;it load$ Load' a"e u'uall &ot #lat amou&t but %a7e a 't"uctu"e$ Needle'' to 'a ) load' i# a& a"e o&l a,,licable to o,e& 'c%eme' a&d &ot clo'e e&ded 'c%eme' becau'e /e ca& o&l bu 'uc% u&it' #"om t%e #u&d' o&l /%e& t%e 'c%eme i' lau&c%ed$
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Note: A' ,e" SEBI "e.ulatio&) t%e ma;imum e;it load a,,licable i' @L$t%e"e i' a #u"t%e" 'ti,ulatio& b SEBI t%at t%e e&t" load a&d e;it load ,ut to.et%e" ca&&ot e;ceed @Lo# t%e 'ale ,"ice$
?9
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<9
Close1ended Funds:
A clo'e e&ded #u&d' o" 'c%eme %a' a 'ti,ulated matu"it ,e"iod o& t%e ba'i' o# t%e -e memo"a&dum o# t%e com,a& $ I&7e'to"' ca& i&7e't i& t%e 'c%eme at t%at time o# t%e i&itial ,ublic i''ue a&d t%e"ea#te" t%e ca& bu o" 'ell t%e u&it' o# t%e 'c%eme o& t%e 'toc- e;c%a&.e /%e"e t%e u&it' a"e li'ted$ Redem,tio& ca& ta-e ,lace o&l a#te" t%e ,e"iod o# t%e 'c%eme i' o7e"$ 6o/e7e") clo'e 0#u&d' a"e li'ted o& t%e 'toce;c%a&.e a&d i&7e'to"' ca& bu C'ell u&it' i& t%e 'eco&da" ma"-et (t%e"e i' &o load* Note: SEBI "e.ulatio& 'ti,ulate' t%at at lea't o&e o# t%e t/o e;it "oute' i' ,"o7ided to t%e i&7e'to"' i$e$ eit%e" "e,u"c%a'e #acilit o" t%"ou.% li'ti&. o& 'toc- e;c%a&.e$ T%e'e mutual #u&d' 'c%eme' di'clo'e NAH .e&e"all o& /ee-l ba'i'$
=9
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c9 Bala&ced #u&d':
T%e aim o# bala&ced #u&d' i' to ,"o7ide bot% ."o/t% a&d "e.ula" i&come a' 'uc% 'c%eme' i&7e't bot% i& eGuitie' a&d #i;ed i&come' 'ecu"itie' i& t%e ,"o,o"tio& i&dicated i& t%ei" o##e" docume&t$ T%e'e a"e a,,"o,"iate #o" i&7e'to"' loo-i&. #o" mode"ate ."o/t%$ T%e .e&e"all i&7e't >1L-@1L i& eGuit a&d debt i&'t"ume&t$ T%e'e #u&d' a"e al'o a##ected becau'e o# #luctuatio& i& '%a"e ,"ice i& t%e 'toc- ma"-et$ 6o/e7e" NAH' o# 'uc% #u&d' a"e li-el to be le'' 7olatile com,a"ed to ,u"e eGuit #u&d'$
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e9 !ilt Fu&d:
T%e'e #u&d' i&7e't e;clu'i7el i& .o7e"&me&t 'ecu"itie'$ !o7e"&me&t 'ecu"itie' %a7e &o de#ault "i'-$ NAH' o# t%e'e 'c%eme' al'o #luctuate due to c%a&.e i& i&te"e't "ate' a&d ot%e" eco&omic #acto"' a' a"e t%e ca'e /it% i&come o" debt o"ie&ted 'c%eme$
f9 I&de; Fu&d':
I&de; #u&d' "e,licate t%e ,o"t#olio o# ,a"ticula" i&de; 'uc% a' t%e BSE 'e&'iti7e i&de; S<P NSE =1 i&de; (Ni#t * etc t%e'e 'c%eme' i&7e't i& t%e 'ecu"itie' i& t%e 'ame /ei.%ta.e com,"i'i&. o# a& i&de;$ NAH' o# 'uc% 'c%eme /ould "i'e o" #all i& acco"da&ce /it% t%e "i'e o" #all i& t%e i&de;$ T%e"e a"e al'o e;c%a&.e t"aded i&de; #u&d' lau&c%ed b t%e mutual #u&d' /%ic% a"e t"aded o& t%e 'toce;c%a&.e$
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T%e table belo/ me&tio& t%e t%e #u&d' acco"di&. to t%ei" &atu"e o# "i'-': Nature of Risks Lo/ "i'-' Mode"ate Ri'-' ate!ories of Funds Mo&e ma"-et #u&d' !-Sec #u&d'$ I&come #u&d' S%o"t te"m ,la&' Bala&ced #u&d' 6i.% Ri'I&de; #u&d' !"o/t% #u&d' Secto"' #u&d' -23-
29
Affo#dability:
T%e mi&imum i&itial i&7e'tme&t #o" a mutual #u&d i' #ai"l lo/ #o" mo't #u&d' (a' lo/ a' "' =11 #o" 'ome 'c%eme'*$ A mutual #u&d i&7e't i& a ,o"t#olio o# a''et i$e$ bo&d') '%a"e' etc$ de,e&di&. u,o& t%e i&7e'tme&t ob8ecti7e o# t%e 'c%eme$ A& i&7e'to"' ca& bu i& to a ,o"t#olio o# eGuitie') /%ic% /ould ot%e"/i'e be e;t"emel e;,e&'i7e$
<9
Di"e#sification:
Di7e"'i#icatio& i' o&e o# t%e be't /a ' to "educe "i'-' (to u&de"'ta&d /% ) "ead t%e &eed to di7e"'i# *$ Mutual #u&d' o##e"' i&7e'to"' a& o,,o"tu&it to di7e"'i# ac"o'' a''et de,e&di&. o& t%ei" i&7e'tme&t &eed'$ Fo" e;: du"i&. o&e ,e"iod o# time eGuitie' mi.%t u&de",e"#o"m' but bo&d' a&d mo&e ma"-et i&'t"ume&t' mi.%t do /ell e&ou.% to o##'et t%e e##ect o# a 'lum, i& t%e eGuit ma"-et'$
=9
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69
?9
$egulation:
SEBI) t%e mutual #u&d "e.ulato" %a' clea"l de#i&ed "ule') /%ic% .o7e"& mutual #u&d'$ T%e'e "ule' "elate to t%e i&#o"matio& ) admi&i't"atio& a&d )ma&a.eme&t o# mutual #u&d' a&d al'o ,"e'c"ibe di'clo'u"e a&d accou&ti&. "eGui"eme&t$ Suc% a %i.% le7el o# "e.ulatio& 'ee-' to ,"otect t%e i&te"e't o# i&7e'to"'$
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Assess you#self:
Sel# 0 a''e''me&t o# o&e' &eed'K e;,ectatio& a&d "i'- ,"o#ile i' o# ,"ime im,o"ta&ce #aili&. /%ic%K o&e /ill ma-e mo"e mi'ta-e i& ,utti&. mo&e i& "i.%t ,lace' t%a& ot%e"/i'e$ O&e '%ould ide&ti# t%e de."ee o# "i'-' bea"i&. ca,acit o&e %a' a&d al'o clea"l 'tate t%e e;,ectatio& #"om t%e i&7e'tme&t$ I""atio&al e;,ectatio& /ill o&l b"i&. ,ai&$
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)e #egula#:
I&7e'ti&. '%ould be a %abit a&d &ot a& e;e"ci'e u&de"ta-e& at o&e /i'%e') i# o&e %a' to "eall be&e#it #"om t%em$ 6e /ould 'ta&d a bette" c%a&ce o# .e&e"ati&. mo"e "etu"&' t%a& t%e ma"-et #o" t%e e&ti"e du"atio&$
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59
29 $esidents including:
a* Re'ide&t I&dia& I&di7idual b* I&dia& +om,a&ie' c* I&dia& t"u'tCc%a"itable t"u't' d* Ba&-' e* No& 0Ba&-i&. Fi&a&ce com,a&ie' #* I&'u"a&ce com,a&ie' .* P"o7ide&t #u&d'
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=9 Fo#eign entities:
a* Fo"ei.& I&'titutio&al I&7e'to"' "e.i'te"ed /it% SEBI$ Fo"ei.& citi:e&'Ce&titie' a"e %o/e7e" &o/ allo/ed to i&7e't i& I&dia$
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i&7e'to"'$ T%e"e#o"e t%e mutual #u&d i' me"el a M,a''-t%"ou.%N e&tit ) /%ic% doe' &ot .e&e"ate a& i&come o& it' o/&$ It i' t%e"e#o"e e;em,t #"om ,a i&. ta;e' o& it' i&come 0 di7ide&d') i&te"e't a&d ca,ital .ai&' bot% lo&. te"m a&d '%o"t te"m$
<9
=9
0%at a#e t%e ta! im'lications of t%e o'tions c%osen by t%e in"esto#*
A& i&7e'to" ca& c%oo'e t%e #o"m i& /%ic% %e li-e' to ea"& %i' i&come #"om t%e mutual #u&d$ I# a& i&7e'to" c%oo'e' t%e ."o/t% o,tio&) %e doe' &ot ea"& a di7ide&d i&come$ To "eali:e %i' "etu"&') %e %a' to "edeem t%e u&it') 'uc% "edem,tio& i' 'ub8ect to t%e a,,licable ca,ital .ai&' ta;$ I# %e c%oo'e' di7ide&d o,tio&) %e ea"&' di7ide&d i&come t%at i' 'ub8ect to ta; a' 'uc%$ I# %e c%oo'e' a di7ide&d "e-i&7e'tme&t o,tio&) %e i' deemed to %a7e "ecei7ed t%e di7ide&d a&d 'ub'eGue&tl t%i' ca'e$ "e-i&7e'ted t%e 'ame) t%e"e#o"e t%e 'ame ta; ,"o7i'io&' t%at a,,l to di7ide&d' /ill a,,l i&
-22-
69
0%at is s%o#t te#m and long1te#m ca'ital gains f#om mutual fund in"estments* (ow a#e t%ey ta!ed*
I# a& i&7e'to" "edeem' %i' i&7e'tme&t' i& a mutual #u&d a#te" a ,e"iod o# 32 mo&t%' #"om t%e date o# bu i&. t%e u&it') %e i' 'aid to %a7e %eld t%e u&it' #o" t%e lo&. te"m$ T%e ca,ital .ai&' a"e ta;ed a' lo&.-te"m ca,ital .ai&' (LT+!*$ A& "edem,tio& o# u&it' be#o"e a ,e"iod o# 32 mo&t%' i' o7e" i' t"eated '%o"t te"m ca,ital .ai&' (ST+!*$ T%e "ate' o# ta;atio& #o" t%e t/o a"e di##e"e&t$ Lo&.-te"m ca,ital .ai&' a"e al'o 'ub8ect to ea") due to i&#latio&) t%e 7alue o# %i' i&de;atio&$ T%i' mea&') a& i&7e'to" ca& claim t%at 'i&ce %e %eld t%e i&7e'tme&t #o" mo"e t%a& a i&7e'tme&t' %a' .o&e u,$ T%e +BDT t%e"e#o"e ,ubli'%e' a +o't o# T%i' ,"oce'' i' called
I&#latio& I&de;) a&d allo/' t%e i&7e'to" to ad8u't %i' co't to t%e i&#latio& i&de;) be#o"e com,uti&. t%e ca,ital .ai&'$ i&de;atio& (I&de;ed co't O +o't o# acGui'itio& ; I&de; i& t%e ea" o# 'aleCI&de; i& t%e ea" o# ,u"c%a'e*$ T%e ta; "ate' a"e di##e"e&t de,e&di&. o& /%et%e" t%e ca,ital .ai&' a"e i&de;ed o" &ot$
Section <: Ta! P#o"isions as amended by Finance Act 3No.<9 <@@6 29 0%at is t%e ta! status of mutual fund di"idends*
Di7ide&d' #"om mutual #u&d' a"e e;em,t #"om ta;$ 6o/e7e") i& t%e ca'e o# all ot%e" #u&d') e;ce,t eGuit a&d eGuit o"ie&ted #u&d') t%e mutual #u&d' /ill %a7e to deduct a di7ide&d di't"ibutio& ta; at 32$=L J a,,licable 'u"c%a".e (2$=L* a&d ce'' (2L*) be#o"e ,a i&. out t%e di7ide&d to t%e i&7e'to"'$ A& eGuit -o"ie&ted #u&d i' o&e t%at i&7e't' at lea't =1L o# it' &et a''et' i& eGuit '%a"e' o# dome'tic com,a&ie'$ T%e mo&t%l o,e&i&. a&d clo'i&. %oldi&.' i& eGuit '%ould be com,uted) a&d t%e a&&ual a7e"a.e o# t%i' &umbe" '%ould be at lea't =1L) #o" t%e #u&d to be cla''i#ied a' a& eGuit -o"ie&ted #u&d) a&d be e;em,t #"om t%e ,"o7i'io&' o# t%e di7ide&d di't"ibutio& ta;$ T%e e;em,tio& #o" eGuit -o"ie&ted -24-
#u&d' %ad e;,i"ed o& Ma"c% 53) 211>$ T%e Fi&a&ce Act (No 2* 211> %a' e;te&ded t%i' be&e#it u&co&ditio&all #o" eGuit o"ie&ted #u&d'$ It %a' al'o made a di'ti&ctio& bet/ee& i&di7idual' a&d 6UF' a&d ot%e"'$ bee& i&c"ea'ed to 21L (,lu' 'u"c%a".e a&d ce''*$ T%e di7ide&d di't"ibutio& ta; a,,licable to all a''e''e') ot%e" t%a& i&di7idual' a&d 6UF') %a'
<9
=9
0%at is t%e secu#ities t#ansaction ta! 3STT9 a''licable to t%e mutual fund in"esto#*
A 1$3=L STT to be ,aid b t%e 'elle") o& all t"a&'actio&' i& eGuit o"ie&ted #u&d') /%e"e t%e u&it' a"e 'old to a mutual #u&d$ T%i' mea&') &o STT a,,lie' o& ,u"c%a'e o# u&it' #"om t%e #u&d$ O&l o& "edem,tio&) i& a& eGuit -o"ie&ted #u&d) t%e i&7e'to" i' "eGui"ed to ,a 1$3=L o# t%e t"a&'actio& 7alue a' STT$ I& t%e ca'e o# all ot%e" #u&d') t%at a"e &ot eGuit -o"ie&ted) t%e"e i' &o STT #o" t%e i&7e'to"E' t"a&'actio&' /it% t%e mutual #u&d$ -2?-
69
?9
Can t%e STT be #educed f#om "alue of units befo#e com'uting ca'ital gains*
Sectio& >4 %a' bee& ame&ded to ,"o7ide t%at &o deductio& '%all be allo/ed i& "e',ect o# STT ,aid) #o" t%e ,u",o'e o# com,uti&. ca,ital .ai&'
-51-
o" lo&. te"m ca,ital lo''e' ca&&ot be 'et-o## a.ai&'t a& ot%e" 'ou"ce o# i&come$ d$ I# t%e"e i' a lo'' u&de" a& ot%e" %ead o# i&come) t%at ca& be 'et o## a.ai&'t '%o"t o" lo&. te"m ca,ital .ai&'$ U&de" t%e cu""e&t ,"o7i'io&' a& i&7e'to" /%o %a' ca""ied #o"/a"d a lo&.te"m ca,ital lo'') ca& 'et it o## o&l a.ai&'t lo&. te"m ca,ital .ai&' #"om debt #u&d' a&d ot%e" #u&d' t%at %a7e le'' t%a& =1L i& eGuit $ T%i' i' becau'e lo&. te"m ca,ital .ai&' #"om ta; #o" eGuit -o"ie&ted #u&d' i' e;em,t #"om ta;$
<9
0%at a#e t%e new '#o"isions fo# set1off of ca'ital loss on e!1 di"idend basis*
Di7ide&d 't"i,,i&. i' t%e ,"actice o# bu i&. i&to a mutual #u&d ,"io" to decla"atio& o# di7ide&d) a&d 'elli&. t%e u&it' a#te" di7ide&d' at t%e e;di7ide&d ,"ice$ T%e i&7e'to" t%e& ea"&' ta;-#"ee di7ide&d' a&d al'o %a' a ca,ital lo'' t%at ca& be u'ed #o" ,u",o'e' o# 'et o##$ Sectio& ?>(2* a' ame&ded b t%e Fi&a&ce Act (No2* 211>) %a' ,lu..ed t%i' loo,%ole$ I# a& i&7e'to" acGui"e' a u&it a& time i& t%e ,e"iod o# 5 mo&t%' be#o"e t%e e;di7ide&d date) a&d 'ell' it /it%i& a ,e"iod o# ? mo&t%' #"om t%e e;di7ide&d date) t%e lo'' i& t%e 7alue o# i&7e'tme&t') to t%e e;te&t o# t%e di7ide&d decla"ed) /ill be i.&o"ed #o" t%e ,u",o'e' o# com,uti&. i&come c%a".eable to ta;$ A%at t%i' mea&' i' t%at 'uc% lo'' i& 7alue /ill &ot be ca,ital lo'') a7ailable #o" 'et o## a.ai&'t ca,ital .ai&'$A &e/ 'ectio& ?>(4* %a' bee& i&t"oduced /%ic% ma-e' t%e ,"o7i'io&' o# ?>(2* a,,l e7e& i# t%e di7ide&d di't"ibutio& i' i& t%e #o"m o# bo&u' u&it'$ T%e 'ame "ule' o# 5 mo&t%' be#o"e a&d ? mo&t%' a#te" e;-di7ide&d date' a,,l ) a&d t%e lo'' i& t%e 7alue o# u&it' /ill be deemed to be t%e ,u"c%a'e ,"ice o# t%e bo&u' u&it'$
-53-
=9
0%y a#e debt funds 3and all funds t%at a#e not eDuity o#iented9 only sub/ect to di"idend dist#ibution ta!*
I& ca'e o# a #u&d t%at i' &ot eGuit -o"ie&ted) t%e i&come o# t%e #u&d i' mo'tl ea"&ed a' i&te"e't i&come) a&d i' &o"mall 'ub8ect to ta;$ But /%e& t%e mutual #u&d di't"ibute' t%e 'ame a' di7ide&d) it i' e;em,t #"om ta;$ T%e"e#o"e all #u&d' ot%e" t%a& eGuit -o"ie&ted #u&d' a"e 'ub8ect to di7ide&d di't"ibutio& ta;$ I& a& eGuit -o"ie&ted #u&d) t%e di7ide&d' t%at a"e ea"&ed a"e e;em,t #"om ta; a& /a ) a&d t%e com,a& t%at ,a ' t%e di7ide&d %a' ,aid t%e di7ide&d di't"ibutio& ta;) be#o"e di't"ibuti&. t%e di7ide&d to t%e mutual #u&d
-52-
Ma;imum a,,licable ta; "ate - 51L A,,licable 'u"c%a".e #o" ca,ital .ai&' -21L (,lu' 'u"c%a".e* A,,licable 'u"c%a".e #o" Di7ide&d Di't"ibutio& Ta; 0 2$=L A,,licable ce'' 0 2L Equity Funds Debt Funds 31L J 31L S+J 51L J 31L S+J 2L +e'' 2L +e'' Te"m Effective - 11.22% +a,ital NIL Effective - 33.66% 31L J 31L S+J2L +e'' (/it%out i&de;atio&* Effective - 11.22% o 21LJ31LS+J2L +e'' (/it% i&de;atio&* Di7ide&d' NIL Effective ! 22.""% Di7ide&d' a"e ta;-#"ee$ Sub8ect to DDT P 32$=L J 2$=LS+ J 2L +e''$ Effective - 13.#$%
Te"m
+a,ital
-55-
<9
Ma;imum a,,licable ta; "ate - 5=L A,,licable 'u"c%a".e #o" ca,ital .ai&' 0 2$=L A,,licable 'u"c%a".e #o" Di7ide&d Di't"ibutio& Ta; 0 2$=L A,,licable +e'' 0 2L Equity Funds Debt Funds +a,ital 31LJ2$=L S+J 5=L J 2$=L S+J 2L +e'' 2L +e'' Te"m Effective - 36.%&2%% Effective ! 1#."6% +a,ital NIL 31L J 2$=L S+J2L +e'' (/it%out i&de;atio&* Effective ! 1#."6% o 21LJ2$=LS+J2L +e'' (/it% i&de;atio&* Di7ide&d' NIL Effective ! 2#.&1% Di7ide&d' a"e ta; 2$=LS+ J 2L +e''$ Effective ! 2#.&1% #"ee$
Te"m
-5>-
=9
Non1$esident &ndians
A,,licable Rate #o" ST+! - 51L (Deducted a' TDS* A,,licable Rate #o" LT+! - 21L (Deducted a' TDS* A,,licable Su"c%a".e #o" +a,ital !ai&' 0 31L A,,licable Su"c%a".e #o" Di7ide&d Di't"ibutio& Ta; 0 2$=L A,,licable +e'' 0 2L NRI' ca& o,t #o" com,utatio& o# LT+! u&de" Sectio& 332) /%ic% e&able' ad8u'ti&. #o" de,"eciatio& i& 7alue o# t%e "u,ee be#o"e com,uti&. LT+!$ Equity Funds S%o"t Debt Funds 'D(
Te"m 31L J 31L S+J 51L J 31L S+J 33$22L - EGuit 2L +e'' Effective 2L +e'' - Effective 33.66% 31L J S+J2L +e'' Effective TDS o" #o" debt 31L EGuit 0 Nil Debt 0 33$22L 55$@@L - Debt
+a,ital !ai&'
Lo&.
+a,ital !ai&'
Di7ide&d'
NIL
11.22% Di7ide&d' a"e ta; No #"ee$ Sub8ect to eGuit DDT P 32$=L J #u&d$ 2$=L S+ J 2L +e''$ Effective 13.#$% -
69
Fo#eign Com'anies
-5=-
Ma;imum A,,licable Ta; Rate - >1L A,,licable Su"c%a".e #o" +a,ital !ai&' 0 2$=L A,,licable Su"c%a".e #o" Di7ide&d Di't"ibutio& Ta; 0 2$=L A,,licable +e'' 0 2L Equity Funds Debt Funds +a,ital 31LJ2$=L S+J >1L J 2$=L S+J 2L +e'' 2L +e'' Te"m Effective ! "1.)2% Effective ! 1#."6% +a,ital NIL 31L J 2$=L S+J2L +e'' (/it%out i&de;atio&* Effective ! 1#."6% o 21LJ2$=LS+J2L +e'' (/it% i&de;atio&* Di7ide&d' NIL Effective ! 2#.&1% Di7ide&d' a"e ta; 2$=LS+ J 2L +e''$ Effective ! 2#.&1% #"ee$
Te"m
-5@-
P%a'e - 2
Mutual Funds %ouses in &ndia
Till 53't Ma"c% 2114 t%e"e a"e 5= mutual #u&d %ou'e' i& I&dia$ T%e &ame' o# t%e'e mutual #u&d %ou'e' /it% t%ei" "e',ecti7e &umbe" o# 'c%eme' i' to be /"itte& u&de" t%i'$ Out o# t%e 5= com,a& mutual #u&d to ,e"#o"m /ell i& t%e ma"-et it &eed' a 'u##icie&t co",u' 'i:e$ So t%at it ca& i&7e't i& 7a"iou' o,tio& a7ailable i& t%e ma"-et$ A&d #o" i&7e'tme&t it &eed' co",u'$ It' &ot t%at a& #u&d %ou'e /it% la".e co",u' 'i:e 0t%e "i'-' "educe' a bit$ T%e'e a"e t%e Mutual Fu&d' +om,a& 53'tma"c%2114$ Se"ial &o$ 3 2 5 > = 5? @ 2 4 ? 31 33 +%ola Ma&dlum Mutual 345 Fu&d F"a&-li& Tem,leto& 23 ==1 =14 2@> =5= Mutual Mutual Fu&d Fu&d 6DF+ Relia&ce Mutual Fu&d SBI Mutual Fu&d UTI Mutual Fu&d Mutual Fu&d Name ABN AMRO Fu&d AI! I&dia Mutual Fu&d Be&c%ma"- Ba&- Fu&d Bi"la Mutual Fu&d BOB Mutual Fu&d No$ o# Sc%eme' =5 3@ >>= Mutual 54= < t%ei" &umbe" o# 'c%eme' a' o&
-52-
$isk Analysis
Mo't ,eo,le /ould a."ee t%at %i.% "etu"&' a"e .ood a&d "i'- i' bad$ T%e ,"oblem i' t%at "i'- < "etu"&' u'uall .o %a&d i& %a&d$ To ea"& abo7e a7e"a.e .ai&' o7e" t%e ea"' /it% ou" 'toc- mutual #u&d ) /e mu't be /illi&. to tole"ate %i.%e" le7el' o# 7olatilit $ Facto"' e##ecti&. 7a"iabilit o# t%e i&7e'tme&t ,e"#o"ma&ce: 3$ T%e -i&d o# 'toc-' i& t%e ,o"t#olio$ 2$ T%e de."ee to /%ic% a #u&d di7e"'i#ie'$ 5$ T%e de."ee to /%ic% a ma&a.e" u'e' le7e"a.e o" bo""o/i&.$ >$ T%e e;te&t) i# a& ) to /%ic% t%e ma&a.e" t"ie' to time t%e ma"-et o" %ed.e$
-54-
<9
-olatility:
A' t%e i&'t"ume&t t%at t%e #u&d' i&7e't i& a"e ma"-et to ma"-et) t%ei" NAH' a"e automaticall 'ub8ect to t%e ,"ice mo7eme&t o# t%e'e 'ecu"itie'$ T%e 7olatilit ) %o/e7e") 7a"ie' #"om 'c%eme to 'c%eme debt #u&d' a"e le'' 7olatile t%e& eGuit #u&d' becaue t%e #o"me" i&7e't mo"e i& #i;ed i&come) &o& .o7e"&me&t 'ecu"itie') /%e"e t%e 7olatilit i' lo/e"$
=9
St#ategy #isks:
T%i' "e#e"' to t%e bala&ced #u&d di7idi&. it' co",u' bet/ee& eGuit < debt'o t%e i&7e't bet/ee& >1 a&d @1 ,e"ce&t i& eGuit i&'t"ume&t a&d t%e bala&ce i& debt$ +o&ti&uou' b"eac%i&. o# 'et limit' i' a /a"&i&.) a' t%e de7iatio& #"om ma&date ca& .i7e "etu"&' i&co&'i'te&t /it% e;,ectatio&$
69
Secto# #isks
Di7e"'i#icatio& doe'&Et de,e&d 8u't o& %oldi&. a la".e &umbe" o# 'toc-'$ I&di7idual /%o i&7e't i& ',eciali:ed eGuit ,o"t#olio mu't "eco.&i:e t%ei" ,ote&tial 7olatilit $ I&du't" "i'- ma al'o be ,"e'e&t) albeit to a le''e" de."ee) i& di7e"'i#ied #u&d' t%at ta-e bi. ,o'itio& i& ce"tai& i&du't"ie'$
-5?-
?9
Ma#ket #isks:
Ma"-et "i'-' i' "eall a double ed.ed '/o"d$ Mo't ,eo,le "e.a"d it a' t%e t%"eat o# #aci&. a bea" ma"-et$ T%atE' t%e mo't ob7iou' da&.e"$ Ma"-et "i'-' i' 'ometime' called M&o& 0 di7e"'i#iableN "i'- becau'e o&e ca&t a7oid it &o matte" %o/ ma& 'toc-' a"e %eld i& a ,o"t#olio$
59
C#edit #isks:
I& '%o"t it mea&' %o/ 'table i' t%e com,a& o" e&tit i') i& /%ic% /e a"e ,ooli&. ou" mo&e $
89
79
&n"estment #isks:
T%e 'ecto" #u&d 'c%eme' )i&7e'tme&t /ill be ,"edomi&atel i& eGuitie' o# 'elect com,a&ie' i& t%e ,a"ticula" 'ecto"'$ I& ot%e" /o"d') it "elate' to t%e i&7e'tme&t ,o"t#olio deci'io&' o# t%e ma&a.e" o# t%e #u&d$
->1-
Calculation of $isks:
Ri'-' ca& be calculated u'i&. 7a"iou' mea'u"e'$ Some o# t%e mea'u"e #o" calculati&. "i'-' a"e di'cu''ed belo/:
29
Standa#d De"iation
It "e#lect' t%e de."ee to /%ic% "etu"&' #luctuate a"ou&d t%ei" a7e"a.e$ T%e %i.%e" t%e 'ta&da"d de7iatio&) t%e ."eate" i' t%e "i'-$ T%e mea'u"e i' t ,icall calculated u'i&. mo&t%l "e'ult' /%ic% a"e .e&e"all di'clo'ed b Fu&d %ou'e' i& t%ei" #u&d u,date'$ A co&'e"7ati7e eGuit #u&d mi.%t %a7e a &umbe" belo/ 5$=L ,e" mo&t%) /%e"ea' a& e;t"emel a.."e''i7e o&e could %a7e a 7alue o# @L o" mo"e$ About t/o t%i"d' o# t%e time a #u&dE' actual mo&t%l "etu"& /ill "a&.e /it%i& ,lu' o" mi&u' Mo&e 'ta&da"d de7iatio&N o# it' mo&t%l a7e"a.e$ It' "etu"& /ill 7a" /it%i& t%e t/o 'ta&da"d de7iatio&' about ?= L o# t%e time$
->3-
Ait% t%e S<P =11 Fu&d B) t%e i&7e'to" /ould be acGui"i&. a la".e" amou&t o# 7olatilit "i'- t%a& &ece''a" to ac%ie7e t%e 'ame "etu"&' a' Fu&d A$ Fu&d A /ould ,"o7ide t%e i&7e'to" /it% t%e o,timal "i'-C"etu"& "elatio&'%i,
<9
=9
->2-
DBiE i' beta o# t%e #u&d$ All "i'--a7e"'e i&7e'to"' /ould li-e to ma;imi:e t%i' 7alue$ A%ile a %i.% a&d ,o'iti7e T"e &o"Q' I&de; '%o/' a 'u,e"io" "i'--ad8u'ted ,e"#o"ma&ce o# a #u&d) a lo/ a&d &e.ati7e T"e &o"Q' I&de; i' a& i&dicatio& o# u&#a7o"able ,e"#o"ma&ce$
69
?9
Ri O R# J Bi (Rm - R#*
A%e"e) Rm i' a7e"a.e ma"-et "etu"& du"i&. t%e .i7e& ,e"iod$ A#te" ->5-
calculati&. it) al,%a ca& be obtai&ed b 'ubt"acti&. "eGui"ed "etu"& #"om t%e actual "etu"& o# t%e #u&d$ It com,a"e' t%e actual "e'ult' o# a ,o"t#olio /it% /%at /ould %a7e bee& e;,ected .i7e& t%e #u&dE' beta < t%e ma"-etE' be%a7io"$ I# t%e #u&d #a"e' bette" t%a& ,"edicted) it %a' a ,o'iti7e al,%a < 7ice-7e"'a$ 6i.%e" al,%a "e,"e'e&t' 'u,e"io" ,e"#o"ma&ce o# t%e #u&d a&d 7ice 7e"'a$ Limitatio& o# t%i' model i' t%at it co&'ide"' o&l ' 'tematic "i'- &ot t%e e&ti"e "i'- a''ociated /it% t%e #u&d a&d a& o"di&a" i&7e'to" ca& &ot miti.ate u&' 'tematic "i'-) a' %i' -&o/led.e o# ma"-et i' ,"imiti7e$
59
O R# J SiCSmR(Rm 0 R#*
A%e"e) Sm i' 'ta&da"d de7iatio& o# ma"-et "etu"&'$ T%e &et 'electi7it i' t%e& calculated b 'ubt"acti&. t%i' "eGui"ed "etu"& #"om t%e actual "etu"& o# t%e #u&d$
->>-
->=-
Tata EGuit O,,o"tu&itie' UTI T%ematic Mid +a,$ 6SB+ I&dia O,,o"tu&itie'$
->@-
29
"educi&. %i' ,ote&tial "i'-$ Di7e"'i#icatio& i' a ba'ic "i'- ma&a.eme&t tool t%at o&e /ould li-e to u'e t%"ou.%out %i' li#etime a' to "ebala&ce %i' ,o"t#olio to meet %i' c%a&.i&. &eed'$ I&7e'to"') /%o a"e /illi&. to mai&tai& a mi; o# eGuit '%a"e') bo&d') < mo&e ma"-et 'ecu"itie') %a7e a ."eate" c%a&ce o# ea"&i&. 'i.&i#ica&tl %i.%e" "etu"&' o7e" time t%a& t%o'e /%o i&7e't i& o&l t%e mo't co&'e"7ati7e i&7e'tme&t'$ Additio&all ) a di7e"'i#ied a,,"oac% to i&7e'ti&.- combi&i&. t%e ."o/t% ,ote&tial o# eGuitie' /it% t%e %i.%e" i&come o# bo&d' < t%e 'tabilit o# mo&e ma"-et'- %el,' mode"ate o&eE' "i'- < e&%a&ce' ,ote&tial "etu"&$
<9
=9
69
?9
->?-
a''et' b"i&.i&. it clo'e to t%e .lobal le7el'$ LiGuidC mo&e ma"-et #u&d' com,"i'e o# a la".e ,a"t o# t%e I&dia& mutual #u&d a''et' a&d 'ta&d' at 52L a' com,a"ed to t%ei" /o"ld/ide '%a"e o# 3?L$ La".e i&'titutio&' a&d co",o"ate %ou'e' ,a"- t%ei" 'u",lu' '%o"t te"m #u&d' i& liGuid 'c%eme' a' it ,"o7ide' /it% ta; e##icie&t "etu"&'$ Ao"ld/ide) t%e"e a"e about ==)?21 'c%eme' a&d >3L a"e eGuit -o"ie&ted 'c%eme') /%e"ea' 2>L a"e Bo&d #u&d') 21L a"e bala&cedCmi;ed #u&d') a&d @L a"e mo&e ma"-et #u&d'$ I& I&dia t%e"e a"e >?= 'c%eme' a' o& 51t% No7 1= a&d >2L a"e eGuit -o"ie&ted 'c%eme') >3L a"e Bo&d Fu&d'$ O# t%e'e 'c%eme') t%e la".e" #u&d' %old t%e ma;imum a''et' a' "e7ealed belo/: I& t%e eGuit cate.o" ) to, 31 'c%eme' i& te"m' o# co",u'K %old 22L o# total a''et'$ To, 3= 'c%eme' %old 5=L a&d to, 21 'c%eme' %old >2L$ To, 24 'c%eme' %old mo"e t%a& =1L o# t%e a''et'$ +o&'ide"i&. t%e"e a"e 232 'c%eme' i& t%e eGuit cate.o" t%e domi&a&ce o# 'ome o# t%e to, 'c%eme' i' Guite clea"$ A %a&d#ul o# ,la e"' i& t%e i&du't" ma&a.e a la".e c%u&- o# mo&e a' o# &o/$ But /it% mo"e .lobal a''et ma&a.eme&t com,a&ie' Gueui&. to e&te" t%e I&dia&$ No/ #o" all it' ."o/t% i& la't ea"') t%e ma"-et i' 'till 7e" 'mall a&d "e't"icted bot% i& te"m' o# ,e&et"atio&$ T%e I&du't" #ace' com,etitio& #"om ot%e" t"aditio&al i&7e'tme&t a7e&ue' a' /ell - i&'u"a&ce) ,e&'io& ,la&' a&d ,"o7ide&t #u&d i&7e'tme&t') com,a& de,o'it' a&d #i;ed de,o'it' etc$ T%e I&dia& eGuit ',ace %a' a lo&. /a to .o be#o"e t%e catc% u, /it% t"aditio&al mode o# i&7e'tme&t$ Fo" t%e i&du't" to eme".e a' a ,"e#e""ed i&7e'tme&t 7e%icle #o" t%e commo& i&7e'to") it %a' to o7e"come ot%e" %u"dle' al'o 'uc% a') ,e&et"atio& a&d e;,a&di&. t%e ma"-et "eac%$ T%e e;i'ti&. &et/o"- o# Di't"ibuto"' t%at t%e i&du't" i' %ea7il "elia&t o& i' co&ce&t"ated i& #e/ ma8o" citie' a&d met"o' o&l a&d it %a' to e;,a&d .eo."a,%icall $
-=3-
-=5-
-=>-
&dle money:
Fo" i&7e'to"' i&7e'ti&. i& t%e debe&tu"e' a&d bo&d' t%e"e i' a la. bet/ee& t%e matu"it o# t%e ea"lie" i&7e'tme&t a&d "ei&7e'tme&t' i& a #"e'% i''ue$ 6e&ce t%e"e i' a& i&te"mitte&t ,e"iod /%e& t%e mo&e doe' &ot ea"& a& i&te"e't o" lie' idle$ -==-
T%at /ould &ot be t%e ca'e /it% i&come #u&d'$ 6e"e a& i&7e'to" ca& ma-e ,u"c%a'e' /%e&e7e" %e /a&t' to$ It e7e& .i7e' i&7e'to"' t%e be&e#it o# ,a"t "edem,tio& i# %e &eed' it #o" a& i&te"mitte&t ,e"iod$
&ncome Fund Offe#ed by Mutual Funds E A%e& o&e i&7e't i& t%e i&come
#u&d' ma&a.ed b mutual #u&d') t%e a"e ,utti&. t%ei" mo&e /it% ,"o#e''io&al mo&e ma&a.e"') /%o do com,lete c"edit a&al 'i' o# t%e 'ecu"itie' a&d com,a&ie' i& /%ic% t%e i&7e't a&d i&te"e't "ate a&al 'i' ba'ed o& t%e I&dia& -=@-
a&d .lobal eco&om $ T%e mo&e ) /%ic% i' i&7e'ted) belo&.' to t%e i&7e'to"' a&d t%e NAH (&et a''et 7alue* decla"ed o& t%e dail ba'i' i' t%e 7aluatio& o# ou" %oldi&.' o& t%at da a&d t%e #u&d i' liable to ,a /%ic% i' ,"o#e''io&all ma&a.ed b ou t%at mo&e i# o&e 8ob i' "edeem' %i' i&7e'tme&t$ T%u' o&e i' com,letel i& co&t"ol o# %i' i&7e'tme&t ) a #u&d ma&a.e" /%o'e o&l ma&a.i&. a''et' da -i& a&d da -out$
)ank Fi!ed De'osits 1 T%e "etu"& o& i&7e'tme&t i& t%e ba&- #i;ed de,o'it i'
#i;ed at t%e "ate at /%ic% /e %a7e ,ut ou" mo&e $ No matte" %o/ t%e i&te"e't "ate mo7e' (eit%e" u, o" do/&* i& t%e eco&om /e a"e a''u"ed o# t%e i&te"e't "ate t%at /e a"e .oi&. to "ecei7e till t%e ,e"iod t%at /e %a7e a."eed u,o& at t%e time o# ou" de,o'it$
&ncome Fund Offe#ed by Mutual Funds 1 T%e "etu"&' o& t%e i&7e'tme&t i&
t%e u&de"l i&. a''et' o# t%e i&come #u&d' (i$e$ 'ecu"itie' bou.%t b t%e #u&d e$.$ .o7e"&me&t 'ecu"itie') t"ea'u" bill' etc* a"e i& t/o /a ' 7i:$ (3*$I&te"e't "ecei7ed o& t%e 'ecu"itie' a.ai&'t /%ic% t%e mo&e /a' le&t (i$e$ t%e "ate at /%ic% t%e #u&d le&d' t%e mo&e to t%e bo""o/e"$ (2*$ +a,ital A,,"eciatio& i& t%e 7alue o# t%e 'ecu"itie' i& t%e /%ole'ale debt ma"-et$ A%e& i&te"e't "ate' "i'e') t%e ma"-et 7alue o# .o7e"&me&t 'ecu"itie'Cbo&d' #all$ A%e& i&te"e't "ate' d"o, t%e ma"-et 7alue' o# .o7e"&me&t 'ecu"itie'Cbo&d' "i'e'$ T%e ma.&itude o# c%a&.e de,e&d' o& #acto"' /%ic% i&clude le&.t% o# matu"it ) "ati&. a&d 7a"iable' "elati&. to a ',eci#ic i''ue") t%e
-=2-
i&du't"
etc$ 6e&ce i& t%e c%a&.i&. i&te"e't "ate 'ce&a"io t%e i&come #u&d
i&7e'to"' "ecei7e t/o #old be&e#it) o&e #"om t%e i&te"e't o& mo&e le&t a&d 'eco&d #"om t%e ca,ital a,,"eciatio& o# t%e 'ecu"itie' (i& t%e /%ole'ale debt ma"-et* a.ai&'t t%e mo&e le&t$
)ank Fi!ed De'osits 1 T%e i&te"e't "ecei7ed o& t%e ba&- #i;ed de,o'it' i'
liable to TDS (ta; deductio& at 'ou"ce* a&d t%e i&te"e't i&come .et' clubbed /it% t%e &o"mal i&come o# t%e i&7e'to"'
&ncome Fund Offe#ed by Mutual Funds 1 T%e "etu"&' t%at t%e i&7e'to"
"ecei7e' #"om %i' i&7e'tme&t (u&it'* i& t%e Mutual Fu&d a"e eit%e" i& t%e #o"m o# di7ide&d a&dCo" i& t%e #o"m o# ca,ital a,,"eciatio&$ I& ca'e t%e i&7e'to" "ecei7e' t%e "etu"&' o& %i' i&7e'tme&t i& t%e #o"m o# di7ide&d ,a out t%a& %e i' &ot liable to ,a a& ta; ('i&ce t%e di7ide&d' a"e ta; #"ee i& t%e %a&d' o# t%e i&7e'to"*$ I& ca'e %e "ecei7e' "etu"&' i& t%e #o"m o# ca,ital a,,"eciatio& t%a& %e ca& ta-e ad7a&ta.e o# t%e be&e#it' o# i&de;atio&$
Mutual #u&d' i&7e't ou" mo&e i& di7e"'i#ied 'ecto"'$ I& ca'e /e a"e di"ectl i&7e'ti&. i& eGuitie') itE' &ot ,o''ible to di7e"'i# ou" ,o"t#olio a' muc% a' a mutual #u&d ca& do$ Mutual #u&d ca& i&7e't t%e mo&e i& 7a"iou' 'ecto"') a&d t%at /ould ma-e t%e i&7e'tme&t o& a b"oade" ba'i'$ Remembe": Di7e"'i#icatio& "educe' Ri'-$ P#o"ides in"esto# t%e access to '#ofessional fund management e!'e#tise: I&7e'tme&t i' 7e" com,licated #ield$ I&7e'tme&t i' 7e" 'imila" to ',eculati&.$ But ea"&i&. t%"ou.% ',eculatio&' a&d ea"&i&. t%"ou.% ,"o,e" i&7e'tme&t a"e t/o di##e"e&t /a '$ A 7e" #amou' Guote 'a ': MA ,e"'o& '%ould &ot ',eculate t/o time' i& %i' li#e$ 3$ A%e& %e ca&Et a##o"d to$ 2$ A%e& %e ca&$ Ait% t%e %el, o# mutual #u&d') a ,e"'o& .et' t%e ',eciali'ed -&o/led.e a&d e;,e"ie&ce o# ,"o#e''io&al' /%ic% i& "etu"& %el,' %im u&de"'ta&d %e ma"-et bette" a&d .e&e"ate .ood "etu"&'$ Ta! efficiency: Ta; - A 7e" im,o"ta&t ,oi&t /%ile ma-i&. i&7e'tme&t$ I&7e'tme&t i' ma& a time made #o" t%e 'a-e #o" .etti&. ta; be&e#it'$ Mutual #u&d' .i7e t%e i&7e'to" "etu"&' a' /ell a' o,timum ta; be&e#it'$ Acti"e management: A' me&tio&ed ea"lie") mutual #u&d' a"e ma&a.ed b t%e 7olatilit %i.%l Guali#ied ,"o#e''io&al) /%o a"e i& t%e #ield 'i&ce a lo&.e" ,e"iod o# time$ T%e u&de"'ta&d o# t%e ma"-et muc% bette" t%e& a &o"mal i&7e'to"$ T%e ma&a.eme&t &eed' to be 'ma"t a' /ell a' acti7e$ Fle!ibility , +ow minimum in"estment: -=?-
T%e mo't im,o"ta&t be&e#it /%ic% /e ca& 'a $ A%ile i&7e'ti&. i& eGuitie' o&e &eed' to %a7e 'ou&d amou&t o# mo&e #o" .ai&i&. 'ome comme&dable ,"o#it$ A 'mall i&7e'to" ca&Et .o #o" a bi. bet$ But i& mutual #u&d') a' t%e mo&e i' ,ooled i& to.et%e") 'o a lo/ i&7e'tme&t al'o ma-e' lot' o# di##e"e&ce$ Be'ide' t%i' t%e i&7e'to" al'o e&8o ' t%e #le;ibilit $ T#ans'a#ency A' mutual #u&d' a"e "e.ulated b SEBI .uideli&e') ,"o,e" deco"um a&d dece&c i& mai&tai&ed$ I&7e'tme&t i' 7e" t"a&',a"e&t a& i&7e'to" %a' #ull i&#o"matio& about %i' i&7e'tme&t made$ P"o,e" docume&tatio&' a"e do&e a&d "e,o"t' a"e 'e&d to t%e i&7e'to" Timel
$
-@1-
New Conce'ts.
De#i"ati"es in Mutual Funds:
T%e I&dia& "e.ulato"' %a7e '%o/& i&te&tio&' o# 'lo/l but 'u"el "ela;i&. t%e #"ame/o"- i& #a7ou" o# Mutual Fu&d'$ P"o,o'al' li-e allo/i&. MF to '%o"t-'ell 'ecu"itie') t"adi&. i& de"i7ati7e') allo/i&. i&7e'tme&t i& !old) a&d mo"e "ece&tl "ela;i&. "ule' "e.a"di&. i&7e'tme&t i& #o"ei.& eGuit a"e all 'te,' i& t%e "i.%t di"ectio&'$ Dome'tic Mutual #u&d i&du't" i& t%e "ece&t time' %a7e eme".ed a' a 't"o&. i&7e'tme&t a7e&ue) i& a la&d domi&ated b t"aditio&al i&7e'tme&t ,"oduct'- a&d #o" t%e mome&tum to co&ti&ue it i' &ece''a" t%at mo"e libe"al outloo- i' ,ut i& ,lace to "eall allo/ t%e i&du't" to ',"ead it' /i&.'$ Mutual #u&d' /e"e allo/ed to t"ade i& de"i7ati7e' b t%e "e.ulato"' to o&l %ed.e a.ai&'t t%e "i'- i& t%e ,o"t#olio) a&d o# all t%e c%a&.e' ,"o,o'ed clea"l allo/i&. u&"e't"icted t"adi&. i& de"i7ati7e' i' t%e mo't e;citi&.) becau'e o# t%e #le;ibilit it o##e"'$ A #u&d i' &ot allo/ed to$ 6ed.e a di7e"'i#ied ,o"t#olio u'i&. a 'ecto"al i&de;) becau'e it i' &ot a& e##ecti7e %ed.e$ Simila"l ) a '%o"t ,o'itio& i& ot%e" 'toc-') /%ic% do &ot #o"m ,a"t o# t%e ,o"t#olio) /ould &ot be allo/ed$
-@3-
t%e ad7a&ta.e' t%at t%i' a7e&ue .i7e' to t%e #u&d ma&a.e" a"e imme&'e a&d 'ome i&du't" ,la e"' %a7e al"ead d"a/& u, ,la&' #o" a 'e,a"ate cla'' o# ,"oduct /%ic% #ocu'e' e&ti"el b"a&c% out i& ot%e" a"ea' a' /ell$ o& i&7e'tme&t i& de"i7ati7e' 'e.me&t) /it% acti7e ,o'itio&' i& t%e ca'% 'e.me&t) /%ic% /ill e7e&tuall %el, t%e i&du't" to
Fund Of Funds3FoF9:
Fu&d o# Fu&d' ,"o7ide a u&iGue a',ect o# i&7e'ti&. a&d o##e"' 7a"iou' be&e#it' li-e ."eate" di7e"'i#icatio&) "educed "i'-') ea'e i& #u&d 'electio& etc$ but it %a' et to ac%ie7e "eGui'ite i&7e'to" ,a"tici,atio& i& I&dia$ A FoF i' a mutual #u&d 'c%eme t%at i&7e't' ,"ima"il i& ot%e" 'c%eme' o# t%e 'ame mutual #u&d %ou'e o" 'c%eme' #loated b ot%e" mutual #u&d' %ou'e' - 8u't a' a mutual #u&d i&7e't' i& a &umbe" o# di##e"e&t 'ecu"itie'- a FoF %old' u&it' o# di##e"e&t mutual #u&d 'c%eme'$ FT I&dia D &amic PE Ratio Fu&d o# Fu&d' /a' t%e #i"'t e7e" Fu&d o# Fu&d' (FoF* lau&c%ed i& I&dia i& 2115 a&d it %a' ."o/& at a +A!R o# a"ou&d 5=L) /%ic% i' dece&t b all 'ta&da"d') but cu""e&tl t%e"e a"e o&l 2 FoF' 'c%eme' i& t%e cou&t" $ T%e i&du't" i& it' bid to mobili:e a' muc% mo&e a' ,o''ible %a' lau&c%ed eGuit 'c%eme' o&e a#te" t%e ot%e") but 'adl t%i' cate.o" o# 'c%eme' i& ',ite o# t%e imme&'e be&e#it' it ,"o7ide' to it' i&7e'to"' i' a &e.lected lot$ !loball ) t%e co&ce,t i' 7e" ,o,ula" o/i&. to t%e be&e#it' it ca""ie' but it %a' et to .ai& due "eco.&itio& i& I&dia$ P"ima"il %a7e bee& lo/e" t%a& t%e "etu"&' deli7e"ed b t%"ee "ea'o&' %a7e bee& eGuit di7e"'i#ied 'c%eme'$ "e',o&'ible #o" FoF' mode't ."o/t%$ Fi"'tl t%e "etu"&' ,o'ted b FoF 'c%eme' Seco&dl ) t%e co't i&clu'i7e o# t%e load' a&d e;,e&'e' a"e o& t%e %i.%e" 'ide /%e& com,a"ed to ot%e" eGuit #u&d') a' i&7e'to"' %a7e to bea" t%e "ecu""i&. e;,e&'e' o# t%e 'c%eme i& additio& to t%e e;,e&'e' o# u&de"l i&. 'c%eme$ T%i"dl ) t%e di##e"e&tial ta; t"eatme&t bet/ee& eGuit #u&d' a&d FoF %a' al'o
-@2-
t"eatme&t i& ca'e o# FoF #o" Guite 'ome time but t%e "ece&t bud.et too %a' o7e"loo-ed t%i' a',ect$ +u""e&tl eGuit -o"ie&ted FoF ,a di7ide&d di't"ibutio& ta; (DDT* o# 3>$15 ,e" ce&t) /%ile eGuit -o"ie&ted #u&d' a"e e;em,ted$ FoF al'o do &ot o##e" lo&.-te"m ca,ital .ai&' ta; e;em,tio&) e7e& i# t%e a"e eGuit o"ie&ted$ A' t%e ,e"#o"ma&ce o# t%e FoF' de,e&d' o& t%e ,e"#o"ma&ce o# t%e u&de"l i&. 'c%eme 'o i& o"de" to e;,loit it' t"ue ,ote&tial t%e #u&d ma&a.e" %a' to be 7e" a'tute /%ile 'electi&. t%e 'c%eme' ac"o'' t%e #u&d %ou'e'$ 6o/e7e") i& I&dia) #u&d %ou'e' %a7e co&ce&t"ated i& i&7e'ti&. i& #u&d' #"om t%ei" o/& 'table) /%ic% %a' "e't"icted t%ei" ,e"#o"ma&ce$ A,a"t #"om 9ota- Mutual Fu&d) Sta&da"d +%a"te"ed a&d Fidelit ) all ot%e" #u&d %ou'e' o##e"i&. FoF 'c%eme' a"e i&7e'ti&. i& t%e 'c%eme' #"om t%ei" o/& AM+$ Rece&tl #u&d-o#-#u&d' co&ce,t$ T%e FoF o##e"ed i& I&dia .e&e"all a"e a''et-allocatio& FoF' a&d t%u' te&d to be % b"id i& &atu"e$ Fidelit "ece&tl lau&c%ed a Multi-Ma&a.e" +a'% FoF i&7e'ti&. o&l i& liGuid 'c%eme' o# 7a"iou' mutual #u&d'$ IN! H ' a %a' lau&c%ed a 'e,a"ate di7i'io& called O,timi; t%at /ill #ollo/ t%e multima&a.e"
,e"#o"ma&ce t"ac- "eco"d o# t%e mutual #u&d) 'e"7ice 'ta&da"d') ,"o#e''io&al ma&a.eme&t) etc$ T%i' i' e;,lai&ed i& a& e;am,le .i7e& belo/$ Su,,o'e 'c%eme A i' a7ailable at a NAH o# R'$3= a&d a&ot%e" 'c%eme B at R'$?1$ Bot% 'c%eme' a"e di7e"'i#ied eGuit o"ie&ted 'c%eme'$ I&7e'to" %a' ,ut R'$ ?)111 i& eac% o# t%e t/o 'c%eme'$ 6e /ould .et @11 u&it' (?111C3=* i& 'c%eme A a&d 311 u&it' (?111C?1* i& 'c%eme B$ A''umi&. t%at t%e ma"-et' .o u, b 31 ,e" ce&t a&d bot% t%e 'c%eme' ,e"#o"m eGuall /ell a&d it i' "e#lected i& t%ei" NAH'$ NAH o# 'c%eme A /ould .o u, to R'$ 3@$=1 a&d t%at o# 'c%eme B to R'$ ??$ T%u') t%e ma"-et 7alue o# i&7e'tme&t' /ould be R'$ ?)?11 (@11R 3@$=1* i& 'c%eme A a&d it /ould be t%e 'ame amou&t o# R'$ ??11 i& 'c%eme B (311R??*$ T%e i&7e'to" /ould .et t%e 'ame "etu"& o# 31L o& %i' i&7e'tme&t i& eac% o# t%e 'c%eme'$ T%u') lo/e" o" %i.%e" NAH o# t%e 'c%eme' a&d allotme&t o# %i.%e" o" lo/e" &umbe" o# u&it' /it%i& t%e amou&t a& i&7e'to" i' /illi&. to i&7e't) '%ould &ot be t%e #acto"' #o" ma-i&. i&7e'tme&t deci'io&$ Li-e/i'e) i# a &e/ eGuit o"ie&ted 'c%eme i' bei&. o##e"ed at R'$31 a&d a& e;i'ti&. 'c%eme i' a7ailable #o" R'$ ?1) '%ould &ot be a #acto" #o" deci'io& ma-i&. b t%e i&7e'to"$
Fund Selection:
Selecting t%e Duity Funds:
Ste' One: +la''i# t%e a7ailable eGuit 'c%eme' i& !"o/t%) Halue) EGuit I&come) B"oad -ba'ed S,ecialt a&d +o&ce&t"ated S,ecialt #u&d'$ T%e ,u",o'e o# cla''i#icatio& i' to decide /%et%e" t%e i&7e'tme&t ob8ecti7e o# t%e #u&d 'uit' t%e i&7e'to"E' &eed' a' t"a&'lated i& t%e model ,o"t#olio$ It i' ea' to ma-e t%e mi'ta-e o# loo-i&. o&l at t%e ,a't ,e"#o"ma&ce o# a #u&d a&d i.&o"i&. it' 'uitabilit #o" t%e i&7e'to"$ Fo" e;am,le) &o matte" %o/ .ood ,e"#o"ma&ce o# a ',ecialt o##'%o"e o" i&du't" #u&d) it /ould &ot be ad7i'able #o" t%e co&'e"7ati7e eGuit ,o"t#olio o# a "eti"ee$
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Ste' Two: +%oo'e o&e o# t/o 't"ate.ie' - eit%e" (3$* Select mai&'t"eam ."o/t% o" 7alue #u&d') ,"o7idi&. b"oad di7e"'i#icatio&$ O" (2* Select eit%e" a di##e"e&tiated ."o/t% o" 7alue #u&d o" a ',ecialt #u&d /%o'e "i'-' a&d "etu"&' /ill 7a" #"om t%e o7e"all ma"-et$ Fo" a ou&. i&7e'to") a ."o/t% #u&d -be ,"e#e"able to a& eGuit i&come #u&d) mo"e 'uited to a& Qolde" i&7e'to"$ Ste' T%#ee: E7aluate ,a't "etu"&' o# a7ailable #u&d' i& eac% cate.o" mai&'t"eam) eGuit i&come o" e7e& i&de; #u&d) o" %i.% "i'-C"e/a"d ',ecialt #u&d$ Ste' Fou#: Re7ie/ t%e 'alie&t #eatu"e' o# a 'c%eme$ SEBI i& I&dia "eGui"e' t%e O##e" Docume&t o# &e/ 'c%eme' to %i.%li.%t t%e "i'- #acto" t%at a #u&dQ' ,a't ,e"#o"ma&ce i' &o .uide to t%e #utu"e i' im,o"ta&t to "emembe"$ +o&'ide" a &e/ 'c%eme o" a &e/ Bala&ced Fu&d #"om a #u&d ma&a.e" /%o %a' o##e"ed 'ucce''#ul eGuit o" debt #u&d' o" e7e& a &e/ i&de; #u&d$ Po"t#olio Ma&a.e"Q' E;,e"ie&ce: It i' .ood to -&o/ /%o ma&a.e' t%e ,o"t#olio) %o/ lo&.$ 6e %a' ma&a.ed it) a&d /%at %i' ,e"#o"ma&ce t"ac- "eco"d i'$ -
Po#tfolio C%a#acte#istics:
I$ Cas% Position: EGuit #u&d' /ould &o"mall %old little ca'%$ Too muc% ca'% mea&' ,a i&. 'ome/%at e;ce''i7e ma&a.eme&t #ee' to t%e #u&d ma&a.e"$ 6o/e7e") loo- at /%et%e" t%e ma&a.e" %a' 'ucce''#ull ,"edicted u,-ma"-et mo7e' b ,%a'e'$ II$ Po#tfolio Statistics: A%ile 'electi&. a #u&d) ou &eed to com,a"e it' ,e"#o"ma&ce /it% ot%e"'$ To e&'u"e a ,"o,e" com,a"i'o&) loo- at t%e'e mea'u"e': t%e "elati7e "etu"&) !"o'' Di7ide&d Yield) t%e "i'- a&d &et "etu"&' to t%e i&7e'to"$ III$ Po#tfolio Concent#ation: +%ec- t%e #u&dQ' la".e't te& %oldi&.' - t%ei" %oldi&. ca'% be#o"e 'uc% bull ma"-et
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,"o,o"tio& i& t%e #u&dQ' &et a''et'$ I' t%e co&ce&t"atio& i& li&e /it% t%e 'tated ob8ecti7e o# t%e #u&dB Te& la".e't %oldi&.' accou&ti&. #o" o7e" =1L o# t%e &et a''et' mea&' t%e #u&d i' co&ce&t"ated) &ot di7e"'i#ied$ IH$ Ma#ket Ca'italiGation of t%e Fund: Iud.e t%e #u&dQ' 't"ate. b t%e 'i:e o# t%e ma"-et ca, o# it' eGuit %oldi&.' - doe' it %a7e la".e-ca,) blue c%i, '%a"e' o" eme".i&. 'mall-ca, '%a"e'B T%e ma"-et ca, al'o i&dicate' t%e le7el o# "i'-' a''umed$ Relate t%i' i&#o"matio& to t%e #u&d ob8ecti7e' a&d co&'i'te&c o# it' ,e"#o"ma&ce$ H$ Po#tfolio Tu#no"e#: A 'tead %oldi&. o# i&7e'tme&t' i&dicate' a lo&.te"m o"ie&tatio&$ La".e" tu"&o7e" - ,u"c%a'e' a&d 'ale' - could .e&e"ate %i.%e" ca,ital .ai&' but al'o %i.%e" t"a&'actio& co't' #o" t%e #u&d$
2*
,la&&i&.) lo&.te"m bo&d #u&d' a"e a,,"o,"iate$ But) #o" "eti"ed ,e"'o&') mo&t%l i&come 'c%eme' a"e mo"e a,,"o,"iate$
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Dete#mine t%e $ig%t Selection C#ite#ia and select: Fu&d A.e a&d Si:e- Due to e;,licit ob8ecti7e' o# a debt #u&d) u&li-e eGuit #u&d') t%e"e i' &o %a"m i& i&7e'ti&. i& &e/ #u&d') t%ou.% t%e #u&d ma&a.e"Q' t"ac- "eco"d i' "ele7a&t to co&'ide"$ Be ca"e#ul o# #u&d' t%at i&7e't i& a' et u&-&o/& o" &e/ i&'t"ume&t'$ Simila"l ) t%e te&u"e o# t%e ,o"t#olio ma&a.e" i' al'o le'' im,o"ta&t #o" -@@-
bo&d #u&d' t%a& #o" eGuit #u&d'$ Relati7e Yield'- I# a& i&7e'to" &eed' i&come 'elect' a #u&d /it% %i.% cu""e&t ield (#u&d di7ide&d' a' ,e"ce&ta.e o# it' ma"-et 7alue*$ But) a debt #u&d al'o %a' a ield to matu"it - #i&d it out$ YTM i' im,o"ta&t) i# t%e ob8ecti7e i' total "etu"&) &ot 8u't cu""e&t i&come$ I& a decli&i&. i&te"e't-"ate e&7i"o&me&t) a #u&d ma %old %i.% cou,o& ,"emium bo&d') /%o'e ,"i&ci,al 7alue /ill decli&e /%e& i&te"e't "ate' "i'e) cau'i&. a ca,ital lo'' a&d a lo/e" total "etu"&$ +o't': Mo"e t%a& a& eGuit #u&d) a bo&d #u&d o,e"ate' i& &a""o/ i&come ma".i&'$ Fo" a bo&d #u&d t%e"e#o"e) e;,e&'e "ate i' muc% mo"e im,o"ta&t t%a& #o" a& eGuit #u&d$ A& #"o&t-e&d) e&t" load #o" a bo&d #u&d al'o "educe' t%e "etu"& to t%e i&7e'to" 'i.&i#ica&tl $ Loo- at bot% t%e'e eleme&t' o# co't'$ +o't' i&7ol7e /%at i' called Q ield 'ac"i#iceV$ Po"t#olio +%a"acte"i'tic': Mu't -&o/ t%e ,o"t#olio Gualit i& te"m' o# t%e +"edit Rati&.' - %o/ muc% ,e"ce&ta.e o# t%e ,o"t#olio i' %eld i& %i.%e't c"edit "ated i&'t"ume&t' a&d %o/ muc% i& lo/e" "ated o" &o&-i&7e'tme&t ."ade i&'t"ume&t'$ T%i' i' a mea'u"e o# ,o"t#olio "i'- - "i'- o# c"edit de#ault b t%e #u&dQ' bo""o/e"'$ A,a"t #"om "e7ie/i&. t%e c"edit "ati&.' o# t%e i&7e'tme&t ,o"t#olio o# a 'c%eme) a&ot%e" /a to "eco.&i'e t%e "i'o# de#ault "elated lo''e' i& a debt 'c%eme i' to loo- at t%e o7e"all +"edit Rati&. o# t%e Fu&d o" Sc%eme a''i.&ed b +"edit Rati&. A.e&cie'K a #e/ #u&d' i& I&dia %a7e bee& "ated a' a /%ole$ A7e"a.e Matu"it o# a debt ,o"t#olio /ill dete"mi&e /%et%e" t%e ,o"t#olio i' 'e&'iti7e to mo7eme&t' i& i&te"e't "ate'$ T%e lo&.e" t%e a7e"a.e du"atio& o# a ,o"t#olio) t%e ."eate" t%e 'e&'iti7it - mea&i&. i&c"ea'e i& i&te"e't "ate' /ill cau'e ,o"t#olio 7alue to decli&e a&d 7ice 7e"'a$ 6i.% cu""e&t ield o# a #u&d ma come at t%e co't o# %i.%e" "i'- o# ,"i&ci,al amou&t lo''$ T%u') lo&.-te"m #u&d' ca"" a %i.%e" "i'- o# ca,ital lo'' (o" .ai&*$ -@2-
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)ibliog#a'%y
Aeb'ite': ///$ma%i&d"a#i&a&ce$com ///$.oo.le$com ///$am#ii&dia$com ///$&'ei&dia$com ///$'ebi$.o7$i& ///$-a"7 $m#'$com ///$cam'o&li&ei&dia$com
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