INTRODUCTION The term mutual funds marketing refer to the marketing of mutual funds services with motto of customer

orientation and profit generation. The mutual funds marketing focuses on the formulation of an ideal mix for the mutual fund business so that the mutual funds organizations survive and thrive in a right perspective. The premium and bonus decisions can be made motivational, the gap between the services promised and the services offered can be bridged over, the quality and value based personnel can make the mutual fund organizations stronger enough to face the challenges and treats in the markets. The Mutual Fund industry in India has evolved little over three decades but the real impetus has come after the changes in the mutual fund regulations in early eighties. Private and foreign mutual funds are operating in the Indian market and constitute a substantial portion of the mutual fund industry. Today the industry consists of UNIT TRUST OF INDIA, mutual funds sponsored by Public sector banks and Insurance Corporation, private and foreign mutual funds. For all investors, mutual funds have provided a better alternative to obtain benefits of expertise based equity investments to all types of investors. In the Indian perspective where both and urban needs a prime attention, the mutual funds may prove to be a device for combating regional imbalance by maintaining the sectorial balance. The marketing concept in the mutual fund

business in concerned with expansion of debt market business in the best interest of society vis--vis the mutual fund organization. NEED FOR THE STUDY One reason being India to be a very common concept of mutual fund is being treated as monopolistic, because of the public sector Mutual Fund in Indian Mutual fund sector. Since 1999, it has become an open market and hence different private companies have come forward to make mutual fund a marketable commodity, therefore, Visakhapatnam having a number of organizations both in public and private sectors is chosen as the place for study. The investors do not evaluate all possible product attributes while making a choice, but the marketer's search is for identification of "The key buying criteria" or "The key choice criteria" or "determinant attributes" which are defined as certain features of a product offering that are closely associated with preferences. This study aims at tracking investors' preferences and priorities towards different types of mutual fund products and for identifying key features of a mutual fund for deciphering sustainable marketing variables in the design of new mutual funds products promotions. Taking a lead from this, an attempt is also made to find out the important fund product attributes that are essential in influencing the purchase decision of the investors.

OBJECTIVES OF THE STUDY

1.

Introduction and evolution of mutual fund.

2.

To understand the general concepts of mutual fund frame work.

3.To study the performance of IL & FS Investsmart Securities Ltd in the

general public.
4.To identify the percentage of saving and IL & FS Investsmart Securities

Ltd patterns of the general public.

5.To describe the organizational profile of IL & FS Investsmart Securities

Ltd.
6.To compare and analyses the performance of the selected schemes of

selected AMC's.

7.

To summarize and to suggest where ever necessary.

METHODOLOGY OF STUDY

Collection of Data:

A Research is a master plan for the conduct of formal investigation. A Research design is the specification of methods and procedures to be adopted for acquiring the information required for solving the problem. The data for study has been collected by me by well structured yet easy to understand questionnaire forms specially designed to cover aspects regarding the background of the reader, his / her opinion on IL & FS Investsmart Securities Ltd Company I myself visited wide section of people for the survey and interviewed them to collect all the necessary information which was filed and analyzed at a later time of the study.

In my study I considered both the primary data and the secondary data.

Primary Data: This is the first hand information that researchers gets become various source like respondents. It could be considered as the data that is being collected by the researcher himself by directly approaching the sources of information.

The primary data of my study is obtained by administrating a questionnaire and personal interview. The data collected has been tabulated and analyzed with the help of percentages and conclusions have been drawn. Sufficient explanations were given wherever necessary for easy understanding.

Secondary Data: Secondary data is readily published data collected for some purpose other than the one confronting the researcher at a given point of time. In my study I considered the following things as the secondary data for my study:

Periodicals Brouchers Annual Reports Internet The company old records The company's customer database Monthly review of IL & FS Investment & fact sheets

Research Methodology: The data has been collected from 75 people picked based on convenience sampling Direct method of research is followed for the purposes of the study; all the respondents are approached personally and individually with a structured questionnaire. Each unit member of the sample responded to the questionnaire. They have been individually approached and are requested to gave the information and other suggestions by filling up the questionnaire personally.

Formulation of questionnaire:

The questionnaire prepared for the survey is a structured questionnaire

consisting of 15 questions. The questions cover in detail, wide variety of aspects relating to the study.

Demography, occupation and saving pattern of the information

Their opinion and awareness about the products provided by IL & FS

Investsmart Securities Ltd.

Their opinion about services available from other channels in

comparison with, IL & FS Investsmart Securities Ltd.

Their opinion on the different types of investments

Their feedback and suggestions if they want to give any.

LIMITATIONS OF THE STUDY

1. The survey was confined only to the city of Visakhapatnam. 2. The information supplied by the various segments of customers may be

biased consciously or unconsciously.

3. The project may not be comprehensive since the project is only for 45

days.

4. The project is restricted to IL & FS Investsmart Securities Ltd only. 5. Sample size restricted to 150 does not represent the view of the entire population.

REGULATORY FRAME WORK

SEBI amends Mutual Fund Regulations:

Tuesday, 08 August, 2006

SEBI has amended the Mutual Funds Regulations by providing for Launching
of Capital Protection Investment Scheme. The Text of the Notification No: S.O. 1254 (E) dated 3-8-2006 is given below: In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following Regulations to further amend the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, namely: -

1.

These Regulations may be called the Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2006.

2. 3.

They shall come into force on the date of their publication in the Official Gazette. In the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996: (i) In regulation 2, after clause (e), the following clause shall be inserted, namely :"(ea) 'capital protection oriented scheme'

means a mutual fund scheme which is designated as such and

which endeavors to protect the capital invested therein through suitable orientation of its portfolio structure;" (ii) In regulation 12, including the marginal note thereof, for the words "service fee" wherever they occur, the words "annual fee" shall be substituted; (iii) In regulation 13, including the marginal note thereof, for the

words "service fee" wherever they occur, the words "annual fee" shall be substituted; (iv) In regulation 28, sub-regulation (2) shall be substituted with the following sub-regulations, namely:-

4. The mutual fund shall pay the minimum filing fee specified in the Second Schedule
to the Board while filing the offer document under sub-regulation (1).

5. The mutual fund shall pay the balance filing fee calculated in accordance with the
Second Schedule to the Board within such time as may be specified by the Board."

(v) In regulation 32, in the proviso

a) In clause (d), the full stop shall be omitted and the figure and Word

"; or" shall be inserted at the end;

b) After clause (d), the following clause shall be inserted, namely.

c) If the said scheme is a capital protection oriented scheme."

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(vi) In regulation 33, after sub-regulation (2), the following subregulation shall be inserted, namely. 2A) the asset management company shall not repurchase units of a capital protection oriented scheme before end of the maturity period." (vii) After regulation 38, the following regulation shall be inserted, namely "Capital protection oriented schemes 3 8A. A capital protection oriented scheme may be launched, subject to the Following:
a) The units of the scheme are rated by a registered credit rating agency

From the viewpoint of the ability of its portfolio structure to attain protection of the Capital invested therein;

b) The scheme is close ended; and c) There is compliance with such other requirements as may be specified by

the Board in this behalf." (viii)In regulation 52, in sub-regulation (4), in clause (b) - in subclause (xii-a), the word "and," appearing at the end shall be omitted; after sub-clause (xiia), the following sub-clause shall be inserted, namely (Xii-b) In case of a capital protection oriented scheme, rating fees; and,"

11

(ix) In Second Schedule, in paragraph I

In item A, for the words "Rupees Twenty-five thousand", the words "rupees one lakh" shall be substituted; In item B, for the words "Rupees Twenty-five lacs", the words "rupees fifty lakhs" shall be substituted; In item C, in the opening part, for the words "Service fees", the words "Annual fees" shall be substituted; In item D, for the words "Rupees Twenty-five thousand", the words and figures "0.03 percent, of the amount raised in the new fund offer, subject to a minimum of rupees one lakh" shall be substituted.

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SEBTS CODE OF CONDUCT FOR INTERMEDIARIES OF MUTUAL FUNDS

1. Take necessary steps to ensure that the client's interest is protected. 2. Adhere to SEBI Mutual Fund Regulations and guidelines related to selling,

distribution and advertising practices. Be fully conversant with the key provisions of the offer document as well as the operational requirements of various schemes.
3. Provide full and latest information of schemes to investors in the form of

offer documents, performance reports, fact sheets, portfolio disclosures and brochures, and recommend schemes appropriate for the client's situation and needs.
4. Highlight risk factors of each scheme, avoid misrepresentation land

exaggeration, land urge investors to go through offer documents/key information memorandum before deciding to make investments.
5. Disclose all material information related to the schemes/ plans while

canvassing for business.

6. Abstains from indicating or assuring returns in any type of scheme, unless

the offer document is explicit in this regard.

7. Maintain necessary infrastructure to support the AMC s in maintaining high

service standards to investors, and ensure that critical operations such as

13

forwarding forms and cheques to AMC s registrars and dispatch of statement of account and redemption cheques to investors are done within the time frame prescribed in the offer document and SEBI Mutual Fund Regulations.
8. Avoid colluding with clients in faulty business practices such as bouncing

cheques, wrong claiming of dividend/ redemption cheques, etc. 9. Avoid commission driven malpractices such as: % a. Recommending inappropriate products solely because the

intermediary is getting higher commissions there from.

b. Encouraging over transacting and churning of mutual fund investments to earn higher commissions even if they mean higher transaction costs and tax for investors.
10. Avoid making negative statements about any AMC or scheme and ensure

that comparison if any, are made with similar and comparable products.
11. Ensure that all investor related statutory communications (such as changes

in fundamental attributes, exit/entry load, exit options, and other material aspects) are sent to investors reliably and on time.

12. Maintain confidentiality of all investor deals and transactions.

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13. When marketing various schemes, remember that a client's interest and

suitability to their financial needs is paramount, and that extra commission or incentive earned should never form the basis for recommending a scheme to the client.
14. Intermediaries will not rebate commission back to investors and avoid

attracting clients through temptation of rebate/gifts etc.

15. A focus on financial planning and advisory services ensures correct selling,

and also reduces the trend towards investors asking for pass back of commission.
16. All employees engaged in sales and marketing should obtain AMFI

certification. Employees in other functional areas should also be encouraged to obtain the same certification. INDUSTRY PROFILE

In 1774, a Dutch merchant invited subscription from investors to set up an investment trust by the name of Eendragt Maakt Magt (translated into English, it means unity creates strength), with the objective of providing diversifications at
low cost to small investors. Its success caught on, more investment trusts were launched, with verbose and quickly names that when translated, read, profitable land prudent or small matters grow by consent. The foreign and colonial government trust

15

formed in London in 1868, promised the investor of modest means the same advantages as the large capitalist by spreading the investment over a number of stocks. The birth of the Massachusetts investor's trusts in the VS, in 1924 started a chain of events that would bring mutual funds to American homes. There was an initial euphoria among American investors over a new investment vehicles but* much of this died with the onset of the Great Depression 1929. It took a series of confidence building measures- the birth of a powerful market regulator, lying down of rules for all industry regulators, laying down of rules for all industry participants, enactment of legislationfor the mutual fund juggernaut to start selling again. More and more financial entities got into the act. The 80 schemes and 500 million in assets in US mutual fund industry had in 1940 Multiplied to 160 schemes and $17 billion in assets by1960. New types of schemes were launches, new services introduced. The industry got another visible push in the 1970s, on all fronts and really captured the fancy of the small investor. By the end of the 1970s, 524 schemes were managing $ 95 billion in the VS.

Growth & Origin of the Mutual Fund in India:

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initial of the Government OF India and Reserve

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Bank the. The history of mutual funds in India can be broadly divided in to four distinct phases.

First Phase -1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under 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 sector banks and Life Insurance Corporation of India (LIC) AND General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), India Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC

17

established its Mutual Fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores.

Third Phase - 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funs in 1993, a new era started n the India mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came in to being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs. 44,541 crores of assets under management was way ahead of other mutual funds.

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Fourth phase - Since February 2003.

In February 2003, following in the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs. 29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under and administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. 76,000 Crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the
end of September, 2005, there were 29 funds, which manage assets of Rs.210669 crores under 421 schemes.

The graph indicates the growth of assets over the yhears

19

Note : Erstwhile UTI was bifurcated into UTI Mutual Fund and the specified Undertaking of the Unit Trust of India effective form February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore Been excluded from the total assets of the industry as a whole from February 2003 onwards. RECENT PHASE IN MUTUAL FUND INDUSTRY

Indian Mutual fund industry managed assets worth Rs.967.95 billion There are currently 36 asset management companies operating In India.

Nine AMCs are majority owned by state run banks or institutions. That nine
includes the unit trust of India, which is the single largest investor in the Indian markets with assets of Rs.576.84 billion under management.

There are 13 AMCs Majority owned by foreign or global investment houses, 10 privately run domestic asset management companies and four
domestic/foreign joint ventures.

Future Scenario:
There asset base will continue to grow at a annual rate of about 30 to 35% over the next few years as investors shift their assets from banks and other traditional

20

avenues. Some of the older public and private sector players will either close shop or be taken over.

Out of ten public sector players five will sell out, close down or merge with
stronger players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come.

But this doesnt mean there is no room for other players. The Market will witness a flurry few new player entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big name like fidelity, principal, Old Mutual etc., is looking at Indian market seriously. The mutual fund industry is awaiting the introduction of derivatives in India as
this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV).

SEBI is working out the norms for enabling the existing Mutual Fund schemes to trade in derivatives.

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COMPANY PROFILE IL & FS Investsmart Ltd.

IL & FS Investment Securities Ltd (IIL) is an initiative in the field of financial services started by infrastructure Leasing & Financial Services (IL & FS), an institution known for its innovative and pioneering initiatives in the areas of Infrastructure, Corporate Finance and Investment Banking. IIL was set up in October 1997 and it began its retail operations in September 1998. IIL reflects the commitment of IL & FS to bring its financial expertise within the reach of the discerning investor.

Incorporation
IIL was incorporated as Investsmart India Limited, a wholly owned subsidiary of infrastructure leasing & Financial Service Limited (IL & FS( for carrying on share and stock broking activities. The Company was incorporated on September 01,1997 and received Certificate commencement of Business on October 07, 1997, IIL was wet up with the objective of becoming one of the leading full service brokerage houses in the country with a strong expertise in web based technology as strengths in physical distribution.

Growth and Corporate Events:

IIL started broking activity on NSE in February 1998 and on BSE in August 1999, Orix Corporation, Japan became shareholder of IIL in January 2002, IL & FS

22

Merchant Banking Service Limited (IMBSL) and Debt-on-net India Limited (DIL) merged with IIL. Syndication.

Team of IL & FS was domiciled in IIL as part of this merger, Name for the
Company was changed from Invest smart India limited to IL & FS Investmart Securities Ltd in March 2003. Soft bank Asia Infrastructure Fund.

Hong Kong and E* TRADE Financial Corporation, U.S.A. were inducted as Strategic Partners in November, 2004 with 20% and 13.94% stake, respectively. Promoters and Current Shareholder of IL&FS Investmentsmart Limited The Stockholding pattern as to today involves IL&FS which holds 46.81% equity stake, Softbank Asia Infrastructure fund L>P (SAIF) holds 15.98% stake, E*TRADE Mauritius Limited holds 11.14% stake, FEE/ MFs/Banks/ Trusts have 11.66% stake and public holds 14.41% of the equity shares in IIL. OUR PROMOTERS
1. Infrastructure Leasing & Financial Service (IL&FS)

IL&FS was promoted as a joint venture between Central Bank of India, (CBI), Unit Trust of India, (UTI) and Houwing and Development Finance Corporation (HDFC) with the objective of extending its reach & resources & the broad base its shareholding, IL&FS inducted reputed domestic & foreign investors such as International Finance Corporation, Washington, ORIX Corporation Japan, Credit Commercials de France (CCF), State Bank of India and the Government of Singapore as its shareholders. Within a short span, IL&FS has grown into a multifaceted company with a networth of over Rs 6,700 million and an asset base of over Rs 39,000 million.Broadly the activities IL&FS include: Financial Service Including Investment Banking, Asset Financing, Commercialisation for Infrastructure Projects, Asset Management Services to wide range of funds, Capital Markets &

23

Merchant Banking Services, Securities brokerage including distribution of financial Securities & Investment and Management Planning Services. 2. Softbank Asia Infrastructure Fund (SAIF) SAIF is a leading Asian private equity firm headquartered in Hong Kong. It is a Strategic joint venture between Softbank Corporation and Cisco System that was formed in early 2001 to make investments in information technology, media, and telecom related companies base (or with significant operations) in the Asia Pacific region. SAID focuses its efforts primarily on China, India and Korea. Cisco System, Inc. is the sole limited partner of the Fund and has committed $404 million in the first of a series of funds. Over the years, Softbank has made investments in E*TRADE FINANCIAL. Yahoo!, UTStarcom, Shanda, Sify Limited, & Intelligroup. 3. E*TRADE Financial Corporation The E*TRADE Financial family of companies provide financial services including brokerage, banking and lending for retail, corporate and institutional customers. With 2.7 million households and 3.5 million customer accounts worldwide, U.S.-based E*TRADE FINANCIAL Corporation operates branded web sites in 12 counties. E*TRADE Mauritius Limited, an indirectly wholly owned subsidiary of E*TRADE FINANCIAL Corporation, identifies strategic investment opportunities throughout the Indian Ocean Rim. PRODUCT OFFERINGS AND SPREAD To IIL employees over 750- employees, with a presence in more than 77 cities across India thorough 45 branches and 117 alternate channel outlets. It has become one of the most prominent layers in the Financial Service Industry with service offerings across the following categories.
1. Retail Business

24

The Retail Business Division at IIL is involved in dealing with a range of products, which include Equity Investments, Commodity Trading, Fixed Incoem products Mutual Funds, as well as Insurance & Home Loans Advisory Services. In addition it also offers allied services to facilitate the investment process. Custodial and depository services are offered through the IL&FS Depository Services. IIL's expertise across all these categories enable it to respond to varying needs of a demanding clientele ensuring that their investment plans are executed as per their individual requirements. 2. Institutional Equity Business Institutional Equity Business(I.E.B) thrives on strong relationships it has built among domestic mutual funds, banks, financial institutions, insurance companies and private sector funds over the past fwd I.E.B also has well-developed relationships among corporates, leveraged from its institutional pedigree. Efficient execution, quality research and high degree of compliance with stock exchange regulations and ethical business standards back I.E.B's services to institutional investor throughIPO"s, Equity, Derivatives and Mutual Funds I.E.B is well positioned to offer support to the complete range of investment banking service to corporates. 3. Project Syndication The Project Syndication division has-been inherited from IL&FS. The syndication desk has so fa worked on Debt of various large infrastructure projects in the country. The mandate includes Debt structuring of highly complex and difficult Project Syndication focuses on the role of an Arranger of Project and Structured loans. While fund mobilization service are provided across various areas, infrastructure sectors remain key focus area for syndication activity. The services under Project Syndication include project loan syndication, structured debt syndication and debt restructuring. The syndication business thrives on its extensive contact base and strong relationships developed over the years with Bank and Financial Institutions.

25

Advisory Services. In addition it also offers allied services to facilitate the investment process. Custodial and depository services are offered through the IL&FS Depository Services. IIL's expertise across all these categories enable it to respond to varying needs of a demanding clientele ensuring that their investment plans are executed as per their individual requirements. 2. Institutional Equity Business Institutional Equity Business(I.E.B) thrives on strong relationships it has built among domestic mutual funds, banks, financial institutions, insurance companies and private sector funds over the past fwd I.E.B also has well-developed relationships among corporates, leveraged from its institutional pedigree. Efficient execution, quality research and high degree of compliance with stock exchange regulations and ethical business standards back I.E.B's services to institutional investor throughIPO"s, Equity, Derivatives and Mutual Funds I.E.B is well positioned to offer support to the complete range of investment banking service to corporates. 3. Project Syndication The Project Syndication division has been inherited from IL&FS. The syndication desk has so fa worked on Debt of various large infrastructure projects in the country. The mandate includes Debt structuring of highly complex and difficult Project Syndication focuses on the role of an Arranger of Project and Structured loans. While fund mobilization service are provided across various areas, infrastructure sectors remain key focus area for syndication activity. The services under Project Syndication include project loan syndication, structured debt syndication and debt restructuring. The syndication business thrives on its extensive contact base and strong relationships developed over the years with Bank and Financial Institutions. 4. Merchant Banking The Merchant Banking division offers a complete range of services which includes management of IPO's, right issues buy back offers, open offers, and private

26

placements of equity. Its extensive contact base and strong developed with Venture Capital Funds and Private Equity Fund for equity placements, contributes to an effective delivery platform for its clients. 5. Debt Broking The Debt division has an active presence in the secondary and primary Debt placement markets. It deals in various products including Govt. Securities, Treasury Bills, Bonds and Debentures, State guaranteed papers and Commercial papers. It has strong relationship with Institutional clients like Banks, Primary Dealers, Mutual Funds, Provident Funds and Corporates. Debt -on-Net address all fixed Income participants with attendant advantages of speed, Transparency, and lower costs in the primary Market. It also offers one of its kinds, complex and robust investment valuation tools, in addition to value research and information on the debt and money markets in India. SUBSIDIARY COMPANIES
1. IL&FS Investsmart Commodity Brokers Ltd.(IICBL)

IL&FS Investsmart Commodity Brokers Limited (IICBL) is the wholly owned subsidiary of the Company engaged in commodity derivatives market through its membership on National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX). IICBL will cater to the commodity related needs of clientele that will include Individuals, HNIs, firms (corporation) that play a key role across the value chain from production, transfonnation and commercialization of various commodities. Currently IICBL is offering commodity broking services to Individuals and Corporates through its network of branches and business associates. Soon IICBL will be offering commodity financing, commodity risk management services and commodity trading advisory services to its clientele. IICBL has a team of commodity researchers that advise the clients across various commodity segments including bullion (gold and silver) and Agricultural (Edible Oils, Grains, Pulses, etc) commodities. IICBL is in preliminary stages of discussions with overseas commodity brokerages to offer execution and hedging facility across commodity segments including bullion, base metals, energy and agricultural commodities on the global commodity exchanges to its prestigious corporate and trading clients.

27

2. IL&FS (IIIRMSL)

Investsmart

Insurance

&

Risk

Management

Services

Ltd.

The Company was offering insurance distribution services through its wholly owned subsidiaries IL&FS Investsmart Insurance and Risk Management Service Ltd. And Investsmart Insurance Agency Private Ltd, in the life and non-life segments. These companies were corporate gents for Life Insurance Corporation of India (LIC) and HDFC Standard Life Insurance Company for the life segment and IFFCO Tokyo and Prudential ICICI Insurance for the non-life segment respectively these companies have surrendered the corporate agencies for the life and non-life segments. IL&FS Investsmart Insurance and Risk Management Service Ltd. (formerly Investsmart Insurance iDistribution Private Ltd) has applied for a license to operate as an insurance broker. The application is currently pending with IRDA. 3. IL& FS Academy for Insurance & Finance Ltd. (IAIFL) IAIFL is one of the first and the largest training institution licensed by the IRDA and has established a first mover advantage in this business. It is the largest training institution in the prelicensing segment having a national footprint in 30 cities. IAIFL has till date trained about 400,000 advisors across all the private insurance companies at various parts of the company. It has implemented a structured framework for deliver of the 100 hours Agents Training programs, which includes faculty resources, institutionalized mechanisms for program evaluation. Feedback reports to the clients and ongoing program up-gradation to ensure quality and uniformity of approach across multiple locations in the county. IRDA has also licensed IAIFL to provide training for insurance brokers and for conduction of online examinations in collaboration with the Insurance Institutes of India. Equipped with a core team that has vast experience to training Professionals in the insurance sector, company is looking at extending its Domain into the forays of corporate behavioral training and learning solutions

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~ PRODUCTS & SERVICES Transaction related business Distribution related Business IPO Equity Broking Mutual Fund F.D's Debt Debt Broking product Futures & Options Commodity broking

Relationship Business Portfolio Management Investment Advisory Merchant Banking Project Syndication

Transaction related business Retail Mass affluent High Net worth Individuals Institutional investors Corporates

CUSOMERS/CLIENTS Distribution related Business Retail Mass affluent High net worth Individuals Institutional investor Corporates

Relationship Business Mass affluent High Net worth Individuals Institutional Investors Corporate

29

Post creating the necessary back bone of retail distribution infrastructure and buildings a critical mass of customers . the company decided to leverage its deep understanding of financial products and reach to Borden its relation ship with high net worth investors [HNls]] through more value and services leading to long-term relation ships The company has developed a business model on the lines of a universal broker, which utilizes its knowledge of financial domains lability to offer wide range of products across asset classes & customer segments through segments multiple channels of delivery backed by its net work ;net worth and teclmology to service the clients Retail business is at the core of the business strategy and as strong linkages it with all the other business ,the company believed in leveraging its retail presence to move up the value chain and grow in to a full services one stop financial solutions provider . the business model developed by I 1 L address the focus areas identified by the company. Multi product offering across asset class driven by research Three tier services approach planning & advisory ,execution and

monitoring chain De risking the business model having annuity income products and Customer centric approach and have customers to move up the value

debt Business Reach out to diverse investor segments through a combination of own

branches and franchise partners Effectively use techonology to segments customers Extend presence in international markets Leverage relation ships ; and products of strategic partner

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rTTSTOMER SEGMENTATION
1. Retail customers

The company believes in servicing customers through a comprehensive product range & superior service quality. As illustrated in the model below, typically a new customer acquisition could happen through a client using any of the transaction or distribution products of service. The customer is serviced by Relationship Managers either at branch or business associate outlet. Transaction and distribution businesses are highly competitive in nature with relatively low margins. Further such businesses also to some extent are dependent on the performance of capital markets. The company therefore believes that encouraging these customers to use advisory oriented businesses would improve margins, build sustainable revenue and ensure strong customer loyalty

31

Servicing of clients and value add is key for progression of transaction & transaction & distribution customers higher ledders, which typically generate more margins and are more stable. Given the widespread distribution of branches for servicing, effective control and risk management systems are important while adding new customers and executing business, IIL Uses its business associates to effectively service the retail customer and is progressively using the branch network to acquire and service the mass affluent/HNI investors. 2. Institutional Customers: Institutional customer include banks, financial institutions, mutual funds, mutual funds, provident funds are FIIs etc., product knowledge and ability to service are key. Brokerage business from institutions is driven by established broking relationships and value of brokerage business derived from them. Institutional customers carefully evaluate brokerage houses on number of parameters such as research capability, service quality, proactiveness, quality client calls, institutional back up, network etc before choosing to establish relationships. Such relationships are often called as 'empanelment' within institution. After such relationship is established, the trading desk of the institution and execution office of the company use dedicated lines of communication to execute broking business, adequately supported by back office of the brokerage house for after deal servicing. However, equally important aspect is using these relationships to get larger share of the brokerage house

Other forms of relationships with institutional customers would include acting as distributors for the products of such institutions. For e.g., IIL acts as a distributor for mutual fund schemes for all leading mutual funds in India. IIL is an active player in loan syndication market in which banks and financial institutions are key participants. 3. Corporate Customers:

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IIL Offers merchant banking and loan syndication service to corporates. Merchant banking deals such as managing IPO's and rights offerings also require skills in marketing & distribution of IPO's to institutional investors & HNI's and retail investors. Ill uses its relationships with institutions and HNIs, for marketing IPO's lead managed by III and others where it acts as a broker or syndicate member, and also utilizes its retail distribution network or mobilizing retail subscriptions. The company also effectively utilizes skills and domain knowledge developed by IL&FS in project finance and developing innovative financial solutions. The company has also developed relationships with all the leading participants in the loan syndication market i.e., banks & F.I.'s. NEW INITIATIVE
1. Internet Business:

Internet trading takes place through order routing systems, which route client orders to the exchange trading systems for execution. Using this, clients located in any part of the country are able to trade using Internet as a medium through the brokers trading systems/ software. NSE is the first exchange to grant approval to its members for providing Internet based trading service. Although, it has been more than five years since the advent of Internet Trading in the Indian markets, it has assumed popularity only over the last 12-18 months. As of March 2005, the number of clients registered for online trading (across all brokers registered with NSE for providing Internet Trading Service) are around 8.5 lacs. The key for its growing popularity can be attributed to the following: Increasing PC penetration Improved quality of internet infrastructure and advent of broadband Lowering of access costs by internet service providers Technology readiness of banks to enable payment gateways through internet offerings also require skills in marketing & distribution of IPO's to institutional investors & HNI's and retail investors. Ill uses its relationships with institutions and HNIs, for marketing IPO's lead managed by III and others where it acts as a broker or

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syndicate member, and also utilizes its retail distribution network or mobilizing retail subscriptions. The company also effectively utilizes skills and domain knowledge developed by IL&FS in project finance and developing innovative financial solutions. The company has also developed relationships with all the leading participants in the loan syndication market i.e., banks & F.I.'s. NEW INITIATIVE
1. Internet Business:

Internet trading takes place through order routing systems, which route client orders to the exchange trading systems for execution. Using this, clients located in any part of the country are able to trade using Internet as a medium through the brokers trading systems/ software. NSE is the first exchange to grant approval to its members for providing Internet based trading service. Although, it has been more than five years since the advent of Internet Trading in the Indian markets, it has assumed popularity only over the last 12-18 months. As of March 2005, the number of clients registered for online trading (across all brokers registered with NSE for providing Internet Trading Service) are around 8.5 lacs. The key for its growing popularity can be attributed to the following: Increasing PC penetration Improved quality of internet infrastructure and advent of broadband Lowering of access costs by internet service providers Technology readiness of banks to enable payment gateways through internet Growing acceptance of internet as a safe, secure and reliable channel Option of logging on and trading from anywhere using the internet.

With the buoyancy in the capital markets, increasing number of IPO,s and increased retail participation, lot of investors has now begun to accept internet as an

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alternate channel for their investments. This has resulted in increase in business volumes being done through the internet in the last 5-6 quarters. The Company has now finalized plans to enter the internet business in a big way. With the establishment of a pan-India network, Induction of E* TRADE as its partner and capability to make significant investments, the Company believes it is strongly positioned to be amongst the leading players in the internet business and attain market leadership.

The Company would extend its full service model through the internet channel and would offer a range of investment and broking products to address the diverse needs of customers. Customers will be offered the following service in phased manners: Real-time trading on multiple exchanges (NSE and BSE) in the equities and derivatives segment. Commodities trading on the MCX and NCDEX

Online investment. 2. Bank Alliances: Company has identified banking alliances as a strategic area to pursue. It proposes to tie-up with select banks and establishes product-based alliances so as to enhance its reach and provide investment advisory services to the banking clients. The nonconflicting nature of the businesses between the two alliance partners ensures strong synergies for both, the Company and the bank. The Company sees the alliances as a quick and effective way of reaching out to a larger network of clients in the midmarket space. The banking network along with the company's network also enables it to achieve a faster geographical diversification and spread. 3. Wealth Management: The Company has been focusing on the mass affluent customer base across the country. It has been successfully offering a comprehensive range of products and service across the value chain. As the customer base has reached a critical mass, it now visualizes an opportunity to move up to the next set of customers in the higher networth bracket. A growing economy and urbanization has led to high growth in this 35

segment. The Company believes that it is uniquely positioned to offer quality wealth management solutions to the HNIs as it is equipped to leverage its advisory & research expertise in all asset classes to provide composite solutions to customers. 4. Margin Trade Financing (MTF): SEBI has specified guidelines for margin trade financing. As per these guidelines, interalia, brokers with a mimmunCnetworfh of Rs 3 crores would be permitted to offer margin-trade financing facility to its customers after seeking prior approval from the stock exchanges. IIL with a networth of more than Rs 60 crores as on March 31, 2004 is in position to offer this facility to its customers.

THEORETICAL FRAMEWORK
Fund, in the form of an investment company, in which shareholders combine their money to invest in a variety of stocks, bonds, and money-market investments such as U.S. Treasury bills and bank certificate of deposit. Different investment avenues are available to investors. Mutual funds also offer good investment Opportunities to the investors. Like all investments, they also carry certain risks. The investors should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. The investors may seek advice from exports and consultants including agents and distributors of mutual funds schemes while making investment decisions. With an objective to make the investors aware of functioning of mutual funds, an attempt has been made to provide information in question-answer format which may help the investors in taking investment decisions. What is a Mutual Fund?

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Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investment in Securities is spread across wide cross-section of industries and sectors and thus the risk is reduced. Diversifications reduce the risk because all stock may not move in the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders. The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public, BEHIND THE MUTUAL FUND A Mutual fund is the sum of a total of many parts each of which is designated to perform a specific junction. SEBI the market regulator has outlined clearly the role and responsibilities of each entity. SPONSOR

What a promoter is to a company, LA sponsor is to a mutual fund. The sponsor initiates the idea to set up a mutual fund. It could be a financial services company, a bank or a financial institution It could be Indian or foreign. The sponsor has to obtain a license from SEBI. ASSET MANAGEMENT COMPANY An AMC is the legal entity formed by the sponsor to run a mutual fund. It's the AMC that employs fund manger and analysts and other personnel. It's the AMC that handles all operational matters of a mutual fund-from launching schemes to managing them to interacting with investors. Each scheme pays the AMC an annual' fund management Fee' Which is linked to the scheme size and results in a corresponding drop in your return.

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If an AMC's expenses for the year exceed what it earns as fun management fee from its schemes then balance has to be met by the sponsor. TRUSTEE

Trustees are like enternal regulators in a mutual fund and their job is to protect the interests of unit holders. Trustee's are appointed by sponsors and can be either individuals or corporate bodies. In order to ensure they are impartial and fair, SEBI rules mandate the at least two-thirds of the trustees be independent, that is not have any association with the sponsor. Trustees appoint the AMC, which subsequently seeks their approval of the work it does and reports periodically to them on how the business is being run. 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 mutual fund cannot act as a custodian to the fund.

OF MUTUAL FUND SCHEMES BY STRUCTURE Open-Ended Schemes Close-Ended Schemes Interval Schemes

BY INVESTMENT OBJECTIVE Growth Schemes

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Income Schemes Balanced Schemes Money Market Schemes

OTHER SCHEMES Tax Saving Schemes Special Schemes Index Schemes Sector Specific Schemes Types of Mutual Funds: a. Schemes according to Maturity period: A mutual fund scheme can be classified into open-ended scheme or closeended scheme depending on its maturity period

(i) Open-ended fund/Scheme An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices, which are declared on a daily basis. The key feature of open-end schemes is liquidity. (ii) Close-ended Fund/Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through 39

periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis. b. Schemes according to Investment Objectives: A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be openended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows (i) Growth / Equity Oriented Scheme The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks.These schemes provide different options to theinvestors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long term outlook seeking appreciation over a period of time. (ii) Income/Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long-term investors may not bother about these fluctuations. (iii) Balanced Fund

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The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. (iv) Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest xclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. (v) Gilt Fund These funds invest exclusively in government securities. Government securities have not default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as are the case with income or debt oriented schemes. (vi) Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weight age comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

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There are also exchange traded index funds launched by the mutual funds, which are traded on the stock exchanges. c Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the government offers tax inventives for investment in specified aveneues. E.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money, government securities etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. (v) Gilt Fund These funds invest exclusively in government securities. Government securities have not default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as are the case with income or debt oriented schemes. (vi) Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weight age comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds, which are traded on the stock exchanges. c. Tax Saving Schemes

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These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the government offers tax inventives for investment in specified aveneues. E.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme

d.Equity Linked Savings Schemes (ELSS) schemes Equity linked saving Schemes (ELSS) are open-ended funds investing predominantly in equity-oriented instruments. Under Section 88 of the Income Tax Act, 1961 investments up to Rs. 10000 in equity linked savings schemes (ELSS) qualifies for the tax rebate of 20% or 15% (Investors with gross total income of up to Rs.1.50 Lacs can claim a rebate of 20% while investors with gross total income of Rs. 1.5 Lacks to Rs. 5 Lacs can claim a rebate of 15%). The funds launched under this plan are largely diversified equity funds. The investment strategy for most of the dunds is similar to investment strategy followed by the fund under diversified equity funds. e. Load or no-load Fund A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs. 10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay RS. 10.10 and those who offer their units for repurchase to the mutual fund will get only Rs. 9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund, which are more important. Efficient funds may give higher returns in spite of loads.

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f. What are sector specific funds/schemes? These are funds/ schemes which invest in the securities of only those sectors or industries as specified in the offer documents. E.g. Pharmaceuticals, software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sector/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors industries and must exit at an appropriate time. They may also seek advice of an expert. Snap of Mutual Fund Schemes:
Mutual Fund Type Objective Who should Invest Investment Horizon Investment Portfolio Treasury Bills, Those who park MoneyLiquidity+ 2days-3 weeks funds in Certificate of Their MarketModerate current accounts or Deposits, Income+ Commercial short-term bank Papers, Call deposits Reservation of Capital Short-term Funds Liquidity+ Moderate Little Interest Call Money, Those with surplus 3 weeks-3 Income (Floating Rate Commercial Papers, short-term funds months short-term) Treasury Bills, CDs, Short-term Government securities. Regular Income Credit Risk & Predominantly Salaried & Bond Funds More than 9-12 Interest Rate Risk Debentures, conservative (Floating months Government investors Longsecurities, Corporate Bonds Gilt Funds Security & Income Interest Rate Risk Government Salaried & 12 months & securities more conservative investors High Risk Stocks Aggressive 3 years plus Equity Long-term Investors with long Funds Capital term out look. Appreciation To generate NAV varies with Portfolio indices 3 years plus Index Funds Aggressive Returns that are index like BSE, NIFTY Investors. commensurate with performance returns of respective Growth & Regular Capital Balance ratio of Moderate & 2 years plus Balance Income Market Risk and equity and debt Aggressive Funds funds to ensure Interest Risk higher returns at lower risk Negligible Risk

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How is a mutual funds set up? A mutual fund is set up in the form of a trust, which has sponsor, trustee, and asset management company (AMC) and custodian. The Trust is established by & sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual funds hold its property for the benefit of the unit holder. Asset management company (AMC) and custodian. The Trust is established by & sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual funds hold its property for the benefit of the unit holder. Asset Management Company (AMC) approved by SEBI managers the funds by making investment in various type of securities, Custodian who isregistered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. Theu monitor the performance and compliance of SEBI regulation by the mutual fund. SEBI Regulation require that at least two thirds of the directors of trustee company or board of trustee must be independent i.e. they shouldnot associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. Net Asset Value (NAV) of a scheme? The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV). Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by scheme. Since market value of securities changes every day. NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of scheme divided by Calculation of NAV and RETURN

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(Value of investment+ Receivables + Accrued Income + other Current asset) - (Liabilities+ Accrued expenses) NAV=-------------------------------------------------------------------------------------------------NO. Of units outstanding

Scheme size No. of outstanding units = ----------------------------------Face value of units

(NAVtNavt_i) + It + Gt Rt = --..............-------............................--------

Where 'Rt' is return at the time of t 'It' is the income distribution in time t 'Gt' is the capital gain distribution 'NAVt' is the NAV at the end of the period 'NAVt-1' is the NAV at the start of period 't' is the period end and't-1' is the start of period Ex:- A mutual fund that had a NAV of RS. 10 at the beginning of the month made income and capital distribution of RS. 0.05 and Rs. 0.04 respectively per share during the month and then ended month with NAV of Rs. 10.52 would have a monthly return of (10.52-10.00)+ 0.04+ 0.05 Rt = ------.....................-------------- - 6.10% 10.00

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When we buy shares we look for the book value of the company likewise, we will look for the NAV to assess the performance of Mutual Funds Multiply the number of shares owned by the Net Asset Value (NAV) per share to get the current value of shares. Then subtract the original investment from the result to get the increase in value. Add any capital gains or divided/interest distributions paid. Divide that total (your profit) by the original investment and multiply it by 100 to convert the decimal answer to a percentage. Based on the NAV only the company distributes the money to its units holders. Its better for ;any investor to invest in more than one company, in order to minimize risk. Go for a company that is well named, and where the NAV is more than the market price. And look for the company that is growing day by day and having opportunity to boom in that sector. If the share of the company will fall, then the Net Asset Value (NAV) also falls. DISCLOSURES: a) An investor under a mutual fund scheme is entitled to receive information about the Net Asset Value" at intervals not exceeding one week. This information should be published in at least two newspapers. b) Every Mutual Fund is required to publish the audited annual report and unaudited half-yearly report through prominent newspapers, within six months and two months respectively of the data of closure of accounts How to invest in a scheme of a mutual fund? Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investor can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Now a days, the post offices an banks also distributors the units of mutual funds. However, the

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investors may please note that the mutual funds scheme being marketed by banks and post offices should not be taken as their own schemes and not assurance of returns is given by them. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors. Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should taken objective decisions. A non-resident Indian (NRIs) invest in mutual funds? Yes, non-resident Indian can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes. How much should one invest in debt or equity oriented schemes? An investor should take into account his risk taking capacity, age, factor, financial position, etc. As already. mentioned, the schemes invest in different type of securities as disclosed in the offer documents and offer different returns and risks. Investor may also consult financial expert before taking decisions. Agents and distributors may also help in this regard. How to fill up the application form of a mutual fund scheme? An investor must mention clearly his name, address, number of units applied for and such other information as required in the application form. He must give his bank account number so as to avoid any cheque/draft issued by the mutual fund at a later date for the purpose of dividend or repurchase. Any changes in the address, bank account number, etc at a later date should be informed to the mutual fund immediately. What should an investor look into an offer document? An abridge offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has

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prescribed minimum disclosures in the offer document. An investor, before investor in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to the scheme, entry or exit loads, sponsor's track record, education qualification and work experience of key personnel including fund managers, performance of other scheme launched by mutual find in the past, pending litigations and penalties imposed. When will the investor get certificate or statement of account after investing in a mutual fund? Mutual funds are required to dispatch certificate of statements of accounts within six weeks from the date of closure of the initial subscription of the schemes. In case of close-ended schemes, the investors would get either a demat account statement of unit certificate as these are traded in the stock exchanges. In case of open-ended schemes, a statement of account is issued by the mutual fund within 30days from the date of closure of initial public of the scheme. The procedure of repurchase is mentioned in the offer document. How will an investor come to know about the changes, if any, which may occur in the mutual fund? These may be changes from time to time in a mutual fund. The mutual funds are required to inform any material changes to their unit holders, A part form it, many mutual funds send quarterly newsletters to their investors. At present, offer documents are required to be revised and updated at least once in two years. In the meantime, new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted. How to know the performance of a mutual fund scheme? The performance of a scheme is reflected in its net asset value(NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of

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closed-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available in the web sides of mutual funds. All mutual funds are also required to put their NAVs on the website of Association of Mutual Funds in India (AMFI) www.amfiindia .com and thus the investors can access NAVs of all mutual funds at one place. The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of tine i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investor can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in same half-yearly format. Where can an investor look out for information on mutual funds? Almost all the mutual funds have their own web sites. Investors can also access the NAVs, half-yearly results and portfolio of all mutual funds at the web site of Association of mutual funds in India (A M F) www.amfiindia.com AMFI ha also published useful literature for the investors. Investors can log on to the web site www.sebi.gov.in and go to Mutual Funds" section for information on mutual fund, draft offer documents field by mutual funds, address of mutual funds, etc. Also, in the annual reports of SEBI available on the web site, a lot of information on mutual funds is given. There are a number of other web sites which give a lot of information of various schemes of mutual funds including yields over a period of time. Many newspapers also publish useful information on mutual funds on daily and weekly basis. Investors may approach their agents and distributors to guide them in this regard. If mutual fund scheme in wound up, what happens to money invested?

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In case of winding up to a scheme, the mutual funds pay a sum based in prevailing NAV after adjustment of expenses. Unit holder are entitled to receive a report on winding up form the mutual funds which gives all necessary details. How can the investors redress their complaints? Investors world find the name of contact person in the offer document on the mutual fund scheme whom they may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset Management Company and trustee are also given in the offer documents. Investors can also approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with them till the matter is resolved.

THE BASIC RULES OF MUTUAL FUND INVESTING

The would of investments too has several ground rules meant for investors who are novices in their own right and wish to enter the myriad world of investments. These come in handy for there is every possibility of losing what one has if due care is not taken. 1. Assess yourself: Self-assessment of one's need; expectations and risk profile is of prime importance failing which, one will make more mistakes in putting money in right places than otherwise. One should identify the degree of risk bearing capacity one has and also clearly state the expectations from the investments. Irrational expectations will only bring pain. 2. Try to understand where the money is going: It is important to identify the nature of investment and to know if one is compatible with the investment. One can lose substantially if one picks the wrong kind of mutual fund. In order to avoid any confusion it is better to go through the

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literature such as offer document and fact sheets that mutual fund companies provide on their funds 3. Don't rush in picking funds, think first: One first has to decide what he wants the money for and it is this investment goal that should be the guiding light for all investments done. It is thus important to know the risk one is willing to take. One should take a look at the portfolio of the funds for the purpose. Excessive exposure to any specific sector should be avoided, as it will only add to the risk of the entire portfolio. Mutual funds invest with a certain ideology such as the "Value Principle" or "Growth Philosophy". Both have their share of critics but both philosophies work for investors of different kinds. Identifying the proposed investment philosophy of the fund will give an insight into the kind of risks that it shall be taking in future. 4. Invest. Don't speculate: A common investor is limited in the degree of risk that he is willing to take. It is thus of key importance that there is through given to the process of investment and to the time horizon of the intended investment. One should abstain from speculating which in other words would mean getting out of one fund and investing in another with the intention of marking quick money. One would do well to remember that nobody can perfectly time the market so staying invested is the best option unless there are compelling reasons to exit. 5. Don't put all the eggs in one basket: This old age adage is of utmost importance. No matter what the risk profile if a person is, it is always advisable to diversify the risks associated. So putting one's money in different asset class is generally the best option as it averages the risks in each category. Thus, even investors of equity should be judicious and invest some portion of the investment in debt. Diversification even in any particular asset class (such as equity, debt) is good. Not fund manager have the same acumen of fund management and with identification of the best man being a tough task, it is good to

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place money in the hands of several fund managers. This might reduce the maximum return possible, but will also reduce the risks. 6. Be regular: Investing should be a habit and not an exercise undertaken at one's wishes, if one has to really benefit form them Since it is extremely difficult to know when to enter or exit the market, it is important to beat the market by being systematic. The basic philosophy of Rupee cost averaging would suggest that if one invests regularly through the ups and downs of the market, he would stand a better chance of generating more returns that the market for the entire duration. The SIPs (Systematic Investment Plans) offered by all funds helps in being systematic. All that one needs to do is to give postdated cheques to the fund and thereafter one will not be harried later. The Automatic investment Plans offered by some funds goes a step further, as the amount can be directly/electronically transferred from the account of the investor. 7. Do your homework: It is important for all investors to research the avenues available to them irrespective of the investor category they belong to. This is important because an informed investor is in a better decision to make right decisions. Having identified the risks associated with the investment is important and so one should try to know all aspects associated with it. Asking the intermediaries is one of the ways to take care of the problem. 8. Find the right funds Finding funds that do not charge much fees is of importance, as the fee charged ultimately goes from the pocket of the investor. This is even more important for debt funds as the returns from these funds are not much. Funds that charge more will reduce the yield to the investor. Finding the right funds is important and one would also use these funds for tax efficiency . Investors of equity should keep in mind that all dividends are currently tax-free in India and so their tax liabilities can be reduced if the dividend payout option is used. Investors of debt will be charged a tax on dividend distribution and so can easily avoid the payout options.

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9. Keep track of your investments Findings the eight fund is important but even more important is to keep track of the way they are performing in the market. If the market is beginning to enter a bearish phase then investors of equity too will benefit by switching to debt funds as the losses can be minimized. One can always switch back to equity if the equity market starts to show same buoyancy. i) TAX BENEFITS TO MUTUAL FUND INVESTORS Capital Gains: The tax benefits that Mutual funds investors enjoy at the moment in the treatment of long-term capital gains. Tax @ 10% on capital gains without indexation (plus surcharge)

Tax @ 20% on capital gains after indexation (plus surcharge) Section 2(42A): Under Section 2(42A) of the Act, a unit of a mutual fund is treated as shortterm capital asset if the same is held for less than 12 months. The units held for more than 12 months are treated as long-term capital asset. Section 10(38): Under Section 10(38) of the Act, long-term capital gains arising from transfer of a unit of mutual fund is exempt from tax if the said transaction is undertaken after October 1,2004 and the securities transaction tax is paid to the appropriate authority. Section 111A: Under Section 111A of the Act, short-term capital gains arising from transfer of a unit of mutual fund is chargeable to tax @ 10% (plus applicable surcharge) if the said transaction is undertaken after October 1,2004 and the securities transaction tax is

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paid. However, such securities transaction tax will be allowed as rebate under Section 88E of the Act if the transaction constitutes business income. i) TAX BENEFITS TO MUTUAL FUND INVESTORS Capital Gains: The tax benefits that Mutual funds investors enjoy at the moment in the treatment of long-term capital gains. Tax @ 10% on capital gains without indexation (plus

surcharge) Tax @ 20% on capital gains after indexation (plus

surcharge) Section 2(42A): Under Section 2(42A) of the Act, a unit of a mutual fund is treated as short-term capital asset if the same is held for less than 12 months. The units held for more than 12 months are treated as longterm capital asset. Section 10(38): Under Section 10(38) of the Act, long-term capital gains arising from transfer of a unit of mutual fund is exempt from tax if the said transaction is undertaken after October 1,2004 and the securities transaction tax is paid to the appropriate authority. Section 111 A: Under Section 111A of the Act, short-term capital gains arising from transfer of a unit of mutual fund is chargeable to tax @ 10% (plus applicable surcharge) if the said transaction is undertaken after October 1,2004 and the securities transaction tax is

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paid. However, such securities transaction tax will be allowed as rebate under Section 88E of the Act if the transaction constitutes business income. Section 112: Under Section 112 of the Act, capital gains, not covered by the exemption under Section 10(38), chargeable on transfer of long-term capital assets are subject to following rates of tax: Resident Individual & HUF-20% plus surcharge. Partnership Firms & Indian companies- 20% plus surcharge.

Foreign companies-20% (no surcharge) ii) Tax benefits for foreign investors: Section 115E: Under section 115E of the Act, capital gains chargeable on transfer of longterm capital assets of an Non-Resident Indians (NRIs) are subject to following rates of tax: Long Investment income20% capital gains: 10% Section

term

10(23D): Under provisions of Section 10(23D) of the Act, any income received by the Mutual Fund is exempt from tax. Section 115R: Under Section 115R, the Income distributed to a unit holder of a Mutual Fund shall be charged to following rates of tax to be payable by the Mutual Fund. Amounts distributed to individual or HUF: 12.5% Amounts distributed to other : 20.0%

However, the above distribution tax will be exempted for both open-ended Equity Oriented funds (funds investing more than 50% in equity or equity related instruments). iii) Other benefits related to mutual funds:

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Under Section 88, contributions made from taxable income in the specified investments qualifies for a tax rebate of 20% where gross total income is up to Rs 1,50,000 and 15% of the invested amount where gross total income is between Rs 1,50,000 and Rs 5,00,000, subject to a maximum aggregated ceiling of Rs 70,000. For investment in infrastructure bonds and /or equity-linked saving schemes(ELSS) (not exceeding Rs 10,000/- under clause(23D) of Section 10), or eligible issue of equity shares or debentures the maximum qualifying investment limit for tax rebate is Rs 1,00,000. However, such tax rebate is not available in respect of tax on long term capital gains as per Section 112 and short-term capital gains as per Section 111A of the Act. iv) Wealth tax on mutual fund investments: Units held undsr the Schemes of the Fund are not treated as assets within the meaning of section 2(EA) of the Wealth Tax Act, 1957 and are, therefore, not liable to Wealth Tax. v) Gift tax on mutual funds investments: Units of the mutual fund may be given as a gift and no gift tax will be payable either by the donor or the done; since mutual funds do not fall within the purview of the Gift Tax Act. vi) Tax-exemption on Long-term capital gains on mutual fund investments: The long-term capital gain, which is not exempt from tax as explained above, can be invested in the specified asset mentioned below within 6 months of the sale. Specified asset means any bond redeemable after 3 years: Issued on or after April 1, 2000 by NABARD (National Bank for Agriculture and Rural Development) or NHAI (National Highways Authority of India).

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Issued on or after April 1,2001 by the Rural Electrification Corporation Ltd.

Issued on or after April 1, 2002 by the National Housing Bank or by the Small Industries Development Bank of India.

Such capital gains can also be invested in any residential house property in accordance with Section 54F of the Act and claim exemption from the capital gains. vii) Dividend on Investment in Mutual Funds: Dividend from equity-based mutual funds is exempt in the hands of recipient C

OMP A RISION OF FUNDS

INCOME FUNDS- RETAIL PLANS 1. Birla sun life income fund (open ended income scheme) Investment objective: The investment objective of the scheme is to generate income and capital appreciation by investing 100% of the corpus in a diversified portfolio of debt and money market securities. 2. Reliance Income fund (open-ended income scheme) Investment Objective: The primary objective of the scheme is to generate optional returns consistent with moderate lands of risk. This income may be complemented by capital appreciation of the portfolio. Accordingly, investments shall predominantly be made in debt & money market Instruments. 3. ICICI prudential Income fund(open-ended debt fund) Investment Objective:

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To generate income through investments in a basket of debt & money market instruments of various maturities with a view to maximize income while maintaining the optimum balance of yield, safety and liquidity. 4. SBI magnum income (open ended debt scheme) Investment objective: To provide investors an opportunity to earn, in accordance with their requirements, through capital gains or through regular dividends, returns that would be higher than return offered by comparable investment avenue through investment in debt and money. 1. Birla MIP (openended income scheme) Investment objective The objective of the scheme is to generate regular income to as to make monthly distributions to unit holders with the secondary objective being growth of capital Income may be generated through receipt of coupon payments, the amortization of the discount on debt instruments, receipt of dividends or the purchase & sale of securities in the underlying portfolio. The scheme will under normal market conditions, invests its net assets primarily in fixed income securities, money market instruments, cash and cash equivalents while at the same time maintaining a small exposure to equity markets. 2. Reliance MIP Investment Objective The primary investment objective of the scheme is to generate regulate income in order to make regular dividend payments to unit holders and the secondary objective is growth of capital 3. ICICI prudential MIP (open ended fund) Investment objectives

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To generate regular income through investments in debt and money market instruments and also to generate long term capital appreciation by investing a potion in equity and equity related instruments. 4. SBI magnum MIP (open ended Income scheme) Investment Objective The objective of the scheme will be to provide regular income, liquidity and attractive returns to the investors through an actively managed portfolio of debt, equity & money market instruments Income may be EQUITY FUND: 1. Birla sunlife equity fund (Open ended Growth scheme) Investment objective An open-end growth scheme with the objective of long term growth of capital, through a portfolio with a target allocation of 90% equity and 10% debt and money market securities. 2. Reliance vision (open-ended equity growth scheme) Investment Objective The primary investment objective of the scheme is to achieve long term growth of capital by investment in equity and equity related securities through a research based investment approach. 3. ICICI prudential Growth plan (Open ended equity fund) Investment objective To seen to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related securities. 60

4. SBI magnum equity fund (open ended growth scheme) Investment objective

The actively managed fund offers growth through investment in a portfolio of select blue chip stocks 1. Investment objective: The objective of the scheme is to achieve superior long-term growth of capital by investing in shares of companies that do one or more of the following: a) Leverage India's intellectual capital for providing services, research and creative inputs. b) Seek to use Current and impending changes in patient laws/import tariffs/quotas to supply goods & services. c) Levarage India's lower labour costs for providing services and manufactured goods. d) Leverage India's large population of English speaking people for providing services 2. Reliance equity opportunities fund (open-ended diversified Investment objective: The primary investment objective of the scheme is to seek to generate capital appreciation & provide long term growth opportunities by investing in a portfolio constituted of equity securities & equity related securities and the secondary objective is to generate consistent return by investing in debt and money market securities 3) ICICI prudential discovery fund (open-ended equity fund) Birla India opportunities fund (open ended growth scheme)

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Investment objectives To generate returns through a combination of dividend income and capital appreciation by investing primarily in a well-diversified portfolio of value stocks value stocks are those, which have attractive valuations in relation to earnings or book value or current and/or future dividends. 4. SBI magnum multicap fund (open-ended growth scheme)

Investment objective: To provide investors with opportunities for long term growth in capital along with the liquidity of an open -ended scheme through an active management of investments in a diversified basket of equity spanning the entire market capitization spectrum and in debt and money market instrument 1.Birla sunlife Tax relief 96 (Open ended equity linked savings scheme) Investment objective It has a long term growth of capital through a portfolio with a target allocation of 80% equity, 20% debt and money market securities. 2. Reliance tax saver fund (open ended equity linked savings scheme) Investment objective The primary objective of the scheme is to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments. 3. ICICI Prudential Tax plan (Open ended Equty linked saving scheme) Investment objective:. To seek to generate long term capital oppreciation from a portfolio that is invested prodominetly in equity and equity related securities.

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4. SBI Magnuon Tax gain scheme 93 (open ended equity linked saving scheme). Investment objective: The prime objective of this scheme is to deliver the benefit of investment in a portfolio of equity shares, while offering tax rebate on such investments made in the scheme under section 80c of the income tax Act, 1961. It also seeks to distribute income periodically depending on distributable surplus

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