Escolar Documentos
Profissional Documentos
Cultura Documentos
Sector-5, Rohini,
Delhi.
PGDBM(2007-09)
Contents
Acknowledgment 3
Student undertaking 4
Executive summery 5
Introduction 7-38
- What is Mutual Fund; 7
- History of Mutual Fund in India; 9
- Types of mutual funds schemes; 12
- Advantages of Mutual Funds; 17
- Disadvantage of Investing Through Mutual Funds; 18
- Mutual Fund investment strategies; 19
- Performance evaluation; 20
- Risk and Return; 25
- Tax treatment for unit holder; 29
- Mutual fund set up; 33
- AMFI; 33
- Tips on buying mutual funds; 36
- AUM; 37
Acknowledgment
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It took great deal of help, tolerance and understanding on the part of a variety of people and
organizations to prepare this project report. I would particularly thank to Kamolini mam, Shikha
mam, and Punit sir(Standard chartered/ IDFC AMC) as they provided me guide line and support
during my training.
My special thanks go to JIMS College and its placement department for providing me such an
opportunity to work with Standard Chartered (IDFC) AMC.
I would also thank to all staff members of different branches of HDFC Bank Ltd. To all the
above and the many colleagues whose ideas and practice I adopted in the project I wish to
express my warmest appreciation for their help and support along the way.
Shailendar Kaswan
Student undertaking
This is to certify that this project “Mutual Funds : study & survey” is original work
done for the partial fulfillment for the award of post graduate diploma in business
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management from Jagan Institute of Management Studies, Rohini, Delhi. I am grateful
to Dr B S Sharma, faculty of PGDBM, JIMS, Rohini, Delhi.
Executive summary
The Indian mutual fund industry in recent years has exponential growth and yet it is
still at a very nascent stage. We believe that the mutual fund industry has grown in
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terms of size or choices available, but is a long distance from being regarded as a
mature one. To understand this one has to look at the global scenario. If one look at
the global mutual fund industry, one has see that assets have grown by 185%
between 2000 and 2006. In comparison, Indian assets outgrew at a staggering 446%,
where as the US only grew by 158% and Europe by 242%.
India is also one of the fastest growing markets for mutual funds, attracting a host of
global players. Hence, investors will have an even wider range of products to choose
from. The combination of the increase in number of fund houses along with new
schemes and the increase in the number of people parking their saving in mutual
funds has resulted in per cent during April-December 2007. This now stands at Rs
30314 billions as against Rs 13476 billions for the corresponding period last year.
As on January 31,2008, Indian assets stood at $ 137 billions and are growing. We
already have many experts expressing their concentration at the frequency of NFO
launches. Yet we have less than 1000 schemes in India, compared to 15000 in the US
and 36000 in Europe. The gap is significant and has to be filled up with unique and
better priced products.
There has also been a rapid rise in the HNI segment. India stands only second-best to
Korea in the Asia- Pacific region in terms of percentage growth. The total HNWI (High
Net Worth Individual) assets stood at about Rs 12 trillion and their assets are
distributed over various assets classes. To top them MFs will have to come up with
structured products, real estate funds, commodity based funds, art funds and the like.
Indian house holds have also increased their exposure to the capital market. Very
interestingly, the MF proportion in this has increased. In fact, there has been more
than 2000% growth in the assets coming to MFs in the last 3 years. Statistics reveal
that a higher portion of investors’ savings is now invested in market-linked avenues
like mutual funds as compared to earlier times.
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Passing through the growth phase
We have always read that fund industry has seen three phases – the UTI phase, the
public sector phase and the post – UTI phase. But if we study a bit more closely, there
have been four clear stages.
- Public sector phase (1987 – 1993), during which the likes of SBI,BOB and Canara
Bank comes in to existence
- Post UTI phase (2003 – 2007), when domestic players along with some global
players have consolidated the MF industry.
And now we are entering Phase V of the industry, when not only are newer players
readying to enter the market but are also looking at penetration and market
expansion. All in all, this is a win-win situation for Indian investors. We have also come
up a long way from plain vanilla equity funds to hybrid funds, from balanced funds to
arbitrage funds, from sectoral funds to quant strategies.
Today’s investor is quite young and very unlike the older generation. He follows a
contrarian’s approach. Hw buys when the market flips and books profit when it rallies.
While the market corrected by almost 22% during the January mayhem, mutual funds
were net buyers to the tune of Rs 4,200 crores. Much of this support came from
domestic investors. The retail participation in equity schemes has also increased
tremendously. The total AUM of 330 schemes in December last year stood at Rs 2,157
billions as compared to 197 schemes and Rs92 billions In march 2000. Also in the last
three years, mobilizations from NFOs stood at Rs 95,000 crores. Although many
complain that the industry is still brokerage driven, the trends clearly suggest that
investors prefer NFOs to enter equities.
Our economy is booming, we have now a sustained GDP growth of 8%, which is likely
to remain at this level for years to come, our per capita income is about to touch $
1000 by the end of 2008. The number of AMCs is increasing. Their presence across
India is expending. Distributors too are expending their networks. Besides, the
regulator has taken up measures to safeguard investor interests. These are all drivers
for the fund industry. Together, these greet investor warmly. The need of the investor
populace has changed, resulting in a change in asset management styles. In a way,
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this is leading to the design of new and competitively-priced products, implying
greater emphasis on higher quality of intermediation. This in itself is both an
opportunity and a challenge. As our economy continuous to grow at a spectacular rate
there is a huge amount of wealth creating opportunities surfacing everywhere.
Financial Planners have an immensely responsible role to play by identifying these
opportunities and channeling them into wealth creating initiatives that would enable
people to adequately address their financial needs.
Introduction
A mutual fund is a professionally-managed form of collective investments that pools
money from many investors and invests it in stocks, bonds, short-term money market
instruments, and/or other securities.[1In a mutual fund, the fund manager, who is also
known as the portfolio manager, trades the fund's underlying securities, realizing
capital gains or losses, and collects the dividend or interest income. The investment
proceeds are then passed along to the individual investors. The value of a share of the
mutual fund, known as the net asset value per share (NAV) is calculated daily based on
the total value of the fund divided by the number of shares currently issued and
outstanding.
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portion of the fund’s portfolio and income proportional to the number of shares they
purchase. Individual shareholders of the mutual funds have voting rights in the
operation of the fund, just as most holders of common stocks in corporations have the
right to vote on certain issues involving the running of the company. The key attribute
of a mutual fund, regardless of how it is structured, is that the investor is entitled to
receive on demand, or within a specified period after demand, an amount computed
by reference to the value of the investor’s proportionate interest in the net assets of
the mutual fund. This means that the owner of mutual fund shares can "cash in," or
redeem his or her shares at any time.
Mutual funds, therefore, are considered a liquid investment. The investor’s selling
(redemption) price may be higher or lower than the purchase price. It all depends on
the performance of the fund’s portfolio. The fund has an adviser who charges a fee for
managing the portfolio. The adviser decides when and what securities to buy and sell,
and is responsible for providing or causing to be provided all services required by the
mutual fund in carrying on its day-to-day activities. All fund investors get this built-in
portfolio management whether they own 50 shares or 10,000.The adviser generally
purchases many different securities for the portfolio, since investment theory holds
that diversification reduces risk. It is this diminished risk that is one of the attractions
of mutual funds. The fund also has a custodian, usually a financial institution such as a
bank, which holds all cash and securities for the fund.
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History of Mutual Fund in India
The Evolution
The formation of Unit Trust of India marked the evolution of the Indian mutual fund
industry in the year 1963. The primary objective at that time was to attract the small
investors and it was made possible through the collective efforts of the Government of
India and the Reserve Bank of India. The history of mutual fund industry in India can
be better understood divided into following phases:
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Phase 1. Establishment and Growth of Unit Trust of India -
1964-87
Unit Trust of India enjoyed complete monopoly when it was established in the year
1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it
continued to operate under the regulatory control of the RBI until the two were de-
linked in 1978 and the entire control was transferred in the hands of Industrial
Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as
Unit Scheme 1964 (US-64), which attracted the largest number of investors in any
single investment scheme over the years.
UTI launched more innovative schemes in 1970s and 80s to suit the needs of different
investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's
Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Master share
(India’s first equity diversified scheme) in 1987 and Monthly Income Schemes (offering
assured returns) during 1990s. By the end of 1987, UTI's assets under management
grew ten times to Rs 6700 crores.
The Indian mutual fund industry witnessed a number of public sector players entering
the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank
of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later
followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of
India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under
management of the industry increased seven times to Rs. 47,004 crores. However, UTI
remained to be the leader with about 80% market share.
1 A Assets Mobili
992- mou Under sation
93 nt Manag as %
Mob ement of
ilise gross
d Domes
tic
Saving
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s
11,0
UTI 38,247 5.2%
57
Publ
ic 1,96
8,757 0.9%
Sect 4
or
Tota 13,0
47,004 6.1%
l 21
The permission given to private sector funds including foreign fund management
companies (most of them entering through joint ventures with Indian promoters) to
enter the mutal fund industry in 1993, provided a wide range of choice to investors
and more competition in the industry. Private funds introduced innovative products,
investment techniques and investor-servicing technology. By 1994-95, about 11
private sector funds had launched their schemes.
The mutual fund industry witnessed robust growth and stricter regulation from the
SEBI after the year 1996. The mobilization of funds and the number of players
operating in the industry reached new heights as investors started showing more
interest in mutual funds.
Inventors’ interests were safeguarded by SEBI and the Government offered tax
benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations,
1996 was introduced by SEBI that set uniform standards for all mutual funds in India.
The Union Budget in 1999 exempted all dividend incomes in the hands of investors
from income tax. Various Investor Awareness Programmes were launched during this
phase, both by SEBI and AMFI, with an objective to educate investors and make them
informed about the mutual fund industry.
In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal
status as a trust formed by an Act of Parliament. The primary objective behind this was
to bring all mutual fund players on the same level. UTI was re-organized into two parts:
1. The Specified Undertaking, 2. The UTI Mutual Fund
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Phase V. Growth and Consolidation - 2004 Onwards
The industry has also witnessed several mergers and acquisitions recently, examples
of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C
Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more
international mutual fund players have entered India like Fidelity, Franklin Templeton
Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing
phase of growth of the industry through consolidation and entry of new international
and private sector players.
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Types of mutual funds
Balanced Fund:-
These funds are also income funds and their aim is to provide
easy liquidity, preservation of capital and moderate income.
These schemes invest exclusively 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
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corporate and individual investors as a means to park their
surplus funds for short periods.
Gilt Fund:-
Index Funds :-
These are the 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 sectors/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.
These schemes offer tax rebates to the investors under specific provisions
of the Income Tax Act, 1961 as the Government offers tax incentives for
investment in specified avenues. 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.
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A scheme that invests primarily in other schemes of the same mutual fund
or other mutual funds is known as a FoF scheme. An FoF scheme enables
the investors to achieve greater diversification through one scheme. It
spreads risks across a greater universe.
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. A no-load fund is
one that does not charge for entry or exit. It means the investors can enter
the fund/scheme at NAV and no additional charges are payable on
purchase or sale of units.
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ADVANTAGES OF MUTUAL FUND
S.
Advantage Particulars
No.
Profession
Fund manager undergoes through various research works and has better
al
2. investment management skills which ensure higher returns to the investor than
Manageme
what he can manage on his own.
nt
Low
Due to the economies of scale (benefits of larger volumes), mutual funds pay
4. Transactio
lesser transaction costs. These benefits are passed on to the investors.
n Costs
An investor may not be able to sell some of the shares held by him very easily
5. Liquidity
and quickly, whereas units of a mutual fund are far more liquid.
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Mutual funds provide investors with various schemes with different investment
Choice of objectives. Investors have the option of investing in a scheme having a
6.
Schemes correlation between its investment objectives and their own financial goals.
These schemes further have different plans/options
Funds provide investors with updated information pertaining to the markets and
Transpare
7. the schemes. All material facts are disclosed to investors as required by the
ncy
regulator.
Investors also benefit from the convenience and flexibility offered by Mutual
Funds. Investors can switch their holdings from a debt scheme to an equity
8. Flexibility
scheme and vice-versa. Option of systematic (at regular intervals) investment
and withdrawal is also offered to the investors in most open-end schemes.
S. Disadvanta
Particulars
No. ge
Costs
Control Not
Investor has to pay investment management fees and fund distribution costs
in the
1. as a percentage of the value of his investments (as long as he holds the
Hands of
units), irrespective of the performance of the fund.
an
Investor
Difficulty
in Many investors find it difficult to select one option from the plethora of
Selecting a funds/schemes/plans available. For this, they may have to take advice from
3.
Suitable financial planners in order to invest in the right fund to achieve their
Fund objectives.
Scheme
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Mutual Fund Investment Strategies
Systematic Investment Plan (SIPs):
These are best suited for young people who have started their careers and need to build
their wealth. SIPs entail an investor to invest a fixed sum of money at regular intervals in
mutual fund scheme the investor has chosen. For instance an investor opting for SIP in xyz
mutual fund scheme will need to invest a certain sum of money every month / quarter
/half year in the scheme.
These plans are best suited for people nearing retirement. In these plans an investor
invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at
regular intervals to take care of expenses.
They allow the investors to transfer on a periodic basis a specified amount from one
scheme to another within the same fund family meaning two schemes belonging to the
same mutual fund. A transfer will be treated as redemption of units from the scheme from
which the transfer is made .Such redemption or investment will be at the applicable NAV.
This service allows the investor to manage his investment actively to achieve his
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objectives. Many funds do not even charge even any transaction feed for this service an
added advantage for the active investor.
Performance Evaluation
Risk
Returns
Liquidity
Expense Ratio
Composition of Portfolio
Investing in mutual funds as with any security, does not come without risk. One of the
most basic economic principles is that risk and reward are directly correlated. In other
words, the greater the potential risk, the greater the potential return. The types of risk
commonly associated with mutual funds are:
Market Risk:
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Market risk relate to the market value of a security in the future. Market prices fluctuate
and are susceptible to economic and financial trends, supply and demand, and many other
factors that cannot be precisely predicted or controlled.
Political Risk:
Changes in the tax laws, trade regulations, administered prices etc. is some of the many
political factors that create market risk. Although collectively, as citizens, we have indirect
control through the power of our vote, individually as investors, we have virtually no
control.
Inflation Risk:
Inflation or purchasing power risk, relates to the uncertainty of the future purchasing
power of the invested rupees. The risk is the increase in cost of the goods and services, as
measured by the Consumer Price Index.
Interest Rate risk relates to the future changes in interest rates. For instance, if an investor
invests in a long term debt mutual fund scheme and interest rate increase, the NAV of the
scheme will fall because the scheme will be end up holding debt offering lowest interest
rates.
Business Risk:
Business Risk is the uncertainty concerning the future existence, stability and profitability
of the issuer of the security. Business Risk is inherent in all business ventures. The future
financial stability of a company can not be predicted or guaranteed, nor can the price of
its securities. Adverse changes in business circumstances will reduce the market price of
the company’s equity resulting in proportionate fall in the NAV of mutual fund scheme,
which has invested in the equity of such a company.
Economic Risk :
Economic Risk involves uncertainty in the economy, which, in turn can have an
adverse effect on a company’s business. For instance, if monsoons fall in a year, equity
stocks of agriculture bases companies will fall and NAVs of mutual funds, which have
invested in such stocks, will fall proportionately.
There are 3 different methods with the help of which we can measure the risk.
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Measurement of risk
I. Beta Coefficient Measure Of Risk :
Beta relates a fund’s return with a market index. It basically measures the sensitivity of
funds return to changes in market index.
If Beta = 1
Fund moves with the market i.e. Passive fund
If Beta < 1
Fund is less volatile than the market i. e Defensive Fund
If Beta > 1
Funds will give higher returns when market rises & higher losses when market falls i.e.
Aggressive Fund
Ex –Marks represents co relation with markets. Higher the Ex-marks lower the risk of the
fund because a fund with higher Ex-marks is better diversified than a fund with lower Ex-
marks.
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III. Standard Deviation Measure Of Risk :
The investors’ funds are deployed in a portfolio of securities by the fund manager. The
value of these investments keeps changing as the market price of the securities change.
Since investors are free to enter and exit the fund at any time, it is essential that the
market value of their investments is used to determine the price at which such entry and
exit will take place. The net assets represent the market value of assets, which belong to
the investors, on a given date.
Net Asset Value or NAV of a mutual fund is the value of one unit of investment in the fund,
in net asset terms.
(Market value of investments + current assets and other assets + Accrued income –
current liabilities and other liabilities – less accrued expenses) / No. of Units Outstanding
as at the NAV date
NAV of all schemes must be calculated and published at least weekly for closed-end
schemes and daily for open-end schemes.
SEBI requires that the fund must ensure that repurchase price is not lower than 93% of
NAV (95% in the case of a closed-fund). On the other side, a fund may sell new units at a
price that is different from the NAV, but the sale price cannot be higher than 107 % of NAV.
Also the difference between the repurchase price and the sale price of the unit is not
permitted to exceed 7% of the sale price.
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• Absolute Return Method:
Percentage change in NAV is an absolute measure of return, which finds the NAV
appreciation between two points of time, as a percentage.
e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 12 months then
Absolute return = (22 – 20)/20 X 100 =10%
Converting a return value for a period other than one year, into a value for one year, is
called as annualisation. In order to annualize a rate, we find out what the return would be
for a year, if the return behaved for a year, in the same manner it did, for any other
fractional period.
E .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months then
Annual Return = (22 – 20) /20 X 12/6 X 100 = 20%
The total return method takes into account the dividends distributed by the mutual fund,
and adds it to the NAV appreciation, to arrive at returns.
Total Return =
(Dividend distributed + Change in NAV)/ NAV at the start X 100
e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months if in between dividend of
Rs. 4 has been distributed then
Total Return = {4 + (22 – 20)}/20 X 100 = 30%
This method is also called the return on investment (ROI) method. In this method, the
dividends are reinvested into the scheme as soon as they are received at the then
prevailing NAV (ex-dividend NAV).
= ((Value of holdings at the end of the period/ value of the holdings at the beginning) –
1)*100
E.g. An investor buys 100 units of a fund at Rs. 10.5 on January 1, 2007. On June 30, 2007
he receives dividends at the rate of 10%. The ex-dividend NAV was Rs. 10.25. On
December 31, 2007, the fund’s NAV was Rs. 12.25.
Value of holdings at the beginning period= 10.5*100= 1050
Number of units re-invested = 100/10.25 = 9.756
End period value of investment = 109.756*12.25 = 1344.51 Rs.
Return on Investment = ((1344.51/1050)-1)*100
= 28.05%
RETURNS:
Returns have to be studied along with the risk. A fund could have earned higher return
than the benchmark. But such higher return may be accompanied by high risk. Therefore,
we have to compare funds with the benchmarks, on a risk adjusted basis. William Sharpe
created a metric for fund performance, which enables the ranking of funds on a risk
adjusted basis.
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LIQUIDITY:
Most of the funds being sold today are open-ended. That is, investors can sell their
existing units, or buy new units, at any point of time, at prices that are related to the NAV
of the fund on the date of the transaction. Since investors continuously enter and exit
funds, funds are actually able to provide liquidity to investors, even if the underlying
markets, in which the portfolio is invested, may not have the liquidity that the investor
seeks.
EXPENSE RATIO:
Expense ratio is defined as the ratio of total expenses of the fund to the average net
assets of the fund. Expense ratio can actually understate the total expenses, because
brokerage paid on transactions of a fund are not included in the expenses. According to
the current SEBI norms, brokerage commissions are capitalized and included in the cost of
the transactions.
In order to meaningfully compare funds some level of similarity in the following factors has
to be ensured:
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Funds can be evaluated against some performance indicators which are known as
benchmarks.
There are 3 types of benchmarks:
Relative to market as whole
Relative to other comparable financial products
Relative to other mutual funds
There are different ways to measure the performance of fund w.r.t market as
Equity Funds
• Index Fund – An Index fund invests in the stock comprising of the index in the same
ratio. This is a passive management style.
For example,
The difference between the return of this fund and its index benchmark can be explained
by “TRACKING ERROR”.
• Debt Funds:
Debt fund can also be judged against a debt market index e.g. I-BEX
Company Fixed
Moderate Low Low Low
Deposits Moderate
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Company Fixed
Income Moderate Low Medium
Deposits
As per the taxation laws in force as at the date of the Offer Document, some broad
income tax implications of investing in the units of the Scheme are stated below. The
information so stated is based on the Mutual Fund's understanding of the tax laws in
force as of the date of the Offer Document, which have been confirmed by its auditors.
The information stated below is only for the purposes of providing general information
to the investors and is neither designed nor intended tobe a substitute for professional
tax advice. As the tax consequences are specific to each investor and in view of the
changing tax laws, each investor is advised to consult his or her or its own tax
30 | P a g e
consultant with respect to the specific tax implications arising out of his or her or its
participation in the Scheme.
Implications of the Income-tax Act, 1961 as amended by the Finance Act, 2006
In accordance with the provisions of section 10(35)(a) of the Act, income received by
all categories of unit holders in respect of units of the Fund will be exempt from
income-tax in their hands.
Exemption from income tax under section 10(35) of the Act would, however, not apply
to any income arising from the transfer of these units.
As per the provisions of section 2(42A) of the Act, a unit of a Mutual Fund, held by the
investor as a capital asset, is considered to be a short-term capital asset, if it is held
for 12 months or less from the date of its acquisition by the unit holder. Accordingly, if
the unit is held for a period of more than 12 months, it is treated as a long-term capital
asset.
Further, in case of individuals/ HUFs, being residents, where the total income
excluding short-term capital gains is below the maximum amount not chargeable to
tax1, then the difference between the current maximum amount not chargeable to tax
and total income excluding short-term capital gains, shall be adjusted from short-term
capital gains. Therefore only the balance short term capital gains will be liable to
income tax at the rate of 10 percent plus surcharge, if applicable and education cess.
Non-residents
In case of non-resident unit holder who is a
resident of a country with which India has signed a Double Taxation Avoidance
Agreement (which is in force) income tax is payable at the rates provided in the Act, as
discussed above, or the rates provided in the such agreement, if any, whichever is
more beneficial to such non-resident unit holder.
Investment by Minors
Where sale / repurchase is made during the
minority of the child, tax will be levied on either of the parents, whose income is
greater, where the said income is not covered by the exception in the proviso to
section 64(1A) of the Act. When the child attains majority, such tax liability will be on
the child.
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- As per the provisions of section 94(7) of the Act, loss arising on transfer
of units, which are acquired within a period of three months prior to the
record date (date fixed by the Fund for the purposes of entitlement of the
unit holder to receive the income from units) and sold within a period of
nine months after the record date, shall not be allowed to the extent of
income distributed by the Fund in respect of such units.
- As per the provisions of section 94(8) of the Act, where any units
("original units") are acquired within a period of three months prior to the
record date (date fixed by the Fund for the purposes of entitlement of the
unit holder to receive bonus units) and any bonus units are allotted (free of
cost) based on the holding of the original units, the loss, if any, on sale of
the original units within a period of nine months after the record date, shall
be ignored in the computation of the unit holder's taxable income. Such
loss will however, be deemed to be the cost of acquisition of the bonus
units.
--Each Unit holder is advised to consult his / her or its own professional tax
advisor before claiming set off of long-term capital loss arising on sale /
repurchase of units of an equity oriented fund referred to above, against
long-term capital gains arising on sale of other assets.
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- No tax needs to be withheld from capital gains arising to a resident unit
holder on the basis of the Circular no. 715 dated 8 August 1995 issued by
the CBDT.
Subject to the above, the provisions relating to tax withholding in respect of gains
arising from the sale of units of the various schemes of the fund are as under:
Units held under the Schemes of the Fund are not treated as assets
within the meaning of section 2(ea) of the Wealth Tax Act, 1957 and therefore, not
liable to wealth-tax.
Nature of Transaction Current tax rate Tax rate effective (%) 1 June
2006 (%) Delivery based purchase transaction in equity shares or units of equity
oriented fund entered in a recognized stock exchange 0.1 0.125 Delivery based sale
transaction in equity shares or units of equity oriented fund entered in a recognized
stock exchange 0.1 0.125 Non-delivery based sale transaction in equity shares or units
of equity oriented fund entered in a recognized stock exchange. 0.02 0.025 Sale of
units of an equity oriented fund to the mutual fund 0.2 0.25 Value of taxable securities
transaction in case of units shall be the price at which such units are purchased or
sold.
A deduction in respect of securities transaction tax
paid is not permitted for the purpose of computation of business income or capital
gains.
However, if the total income of an assessee
includes any business income arising from taxable securities transactions, he shall be
entitled to a rebate3 from income-tax of an amount equal to the securities transaction
tax paid by him in respect of the taxable securities transactions entered during the
course of his business.
The maximum amounts of total income, not chargeable to tax are as under:
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Type of person Maximum amount of income not chargeable to tax
SEBI Regulations require that at least two thirds of the directors of trustee company or
board of trustees must be independent i.e. they should not be associated with the
sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are
required to be registered with SEBI before they launch any scheme.
Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to
a professional and healthy market with ethical lines enhancing and maintaining
standards. It follows the principle of both protecting and promoting the interests of
mutual funds as well as their unit holders.
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The Association of Mutual Funds of India works with 30 registered AMCs of the country.
It has certain defined objectives which juxtaposes the guidelines of its Board of
Directors. The objectives are as follows:-
It also recommends and promotes the top class business practices and code
of conduct which is followed by members and related people engaged in the
activities of mutual fund and asset management. The agencies who are by
any means connected or involved in the field of capital markets and financial
services also involved in this code of conduct of the association.
AMFI interacts with SEBI and works according to SEBIs guidelines in the
mutual fund industry.
At last but not the least association of mutual fund of India also disseminate
information on Mutual Fund Industry and undertakes studies and research either
directly or in association with other bodies.
Institutions -
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- GIC Asset Management Co. Ltd.
Private Sector: -
Indian -
- BenchMark Asset Management Co. Pvt. Ltd.
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- Deutsche Asset Management (India) Pvt. Ltd.
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2. Always obtain all available information before you invest. Request the prospectus,
the Statement of Additional Information and the latest shareholder report from each
fund you are considering.
3. Never invest in periodic payment plans unless you are virtually certain that you will
not have to redeem early. If you redeem early or do not complete the plan, you may
have to pay sales charges of up to 51% of your investment.
4. Be on the alert for incorporation by reference. You will have "no excuse" for not
knowing this information, if a problem arises. You may be legally presumed to know
materials incorporated by reference in a prospectus or other documents.
5. Always determine all sales charges, fees and expenses before you invest. Fees such
as 12b-1 fees can cost you dearly and charges for reinvestment of dividends and
capital gains distributions can substantially add to your costs. Shop around among the
many funds offered and compare the various fees and costs connected with funds that
appeal to you.
6. Learn the costs of redemption. Sometimes investors are surprised to learn that they
have to pay to get out of funds through back-end loads or redemption fees. Find out
the redemption costs before you invest so you won’t be unpleasantly surprised when
you redeem your shares.
7. Never treat the risks of investment in a fund lightly. Weigh the risks of the funds you
want to buy against your ability to tolerate the ups and downs of the market and your
investment goals. Be extra cautious when considering investing in funds with high
yield/high risk portfolios. Junk bond problems, for example, invariably affect the fund’s
performance.
8. Don’t be misled by the name of a fund. Some funds have been given names
denoting safety, stability and low risk, despite the fact that the underlying investments
in the portfolio are volatile and highly risky.
AUM
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Assets Under Management (AUM) as at the end of May-2008 (Rs in
Lakhs)
Average AUM For The Month
Excluding Fund
of Funds -
Mutual Fund Name Domestic but Fund Of Funds -
including Fund Domestic
of Funds -
Overseas
1. ABN AMRO Mutual Fund 592459.08 20979.02
2. AIG Global Investment Group Mutual
456809.8 0
Fund
3. Benchmark Mutual Fund 280241.84 0
4. Bharti AXA Mutual Fund N/A N/A
5. Birla Sun Life Mutual Fund 4142342.8 1854.08
6. BOB Mutual Fund 6776.69 0
7. Canara Robeco Mutual Fund 420417.41 0
8. DBS Chola Mutual Fund 185289.01 0
9. Deutsche Mutual Fund 1240531.71 0
10. DSP Merrill Lynch Mutual Fund 2155962.79 0
11. Edelweiss Mutual Fund N/A N/A
12. Escorts Mutual Fund 17065.31 0
13. Fidelity Mutual Fund 887973.14 2763.41
14. Franklin Templeton Mutual Fund 2799087.37 23660.71
15. HDFC Mutual Fund 5610729.27 0
16. HSBC Mutual Fund 1847223.18 0
17. ICICI Prudential Mutual Fund 5906002.34 3359.41
18. IDFC Mutual Fund 1427291.26 3776.66
19. ING Mutual Fund 916079.34 47916.62
20. JM Financial Mutual Fund 1296780.93 0
21. JPMorgan Mutual Fund 273018.18 0
22. Kotak Mahindra Mutual Fund 2217001.56 30651.82
23. LIC Mutual Fund 1864914.45 0
24. Lotus India Mutual Fund 788330.4 0
25. Mirae Asset Mutual Fund 216037.01 0
26. Morgan Stanley Mutual Fund 350997.47 0
27. PRINCIPAL Mutual Fund 1670542.76 0
28. Quantum Mutual Fund 6632.78 0
29. Reliance Mutual Fund 9843093.38 0
30. Sahara Mutual Fund 19814.33 0
31. SBI Mutual Fund 3179496.78 0
32. Sundaram BNP Paribas Mutual Fund 1459384.72 0
33. Tata Mutual Fund 2449586.66 0
34. Taurus Mutual Fund 33550.65 0
35. UTI Mutual Fund 5465168.28 0
Grand Total 60026632.68 134961.73
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Company profile:
Lately this innovation was again brought to the fore with the launch of the Standard
Chartered Enterprise Equity Fund , a close-ended fund that sought to invest a portion
in Equity IPOs. The fund also launched the Standard Chartered Premier Equity fund an
equity fund that seeks to generate wealth by investing in relatively smaller companies.
We manage our schemes through well-researched and thoroughly tested processes
like the 3 D Factor (For debt funds and helps us in predicting interest rate movements)
and the Equity Circle process. SCMF also pioneered several service initiatives that
helped increase transactional ease. It was the first mutual fund to initiate
Across the counter redemptions for all classes of investors in liquid funds,
Phone transact service wherein investors can redeem without having any
Personal Identification Number
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Schemes Managed
Scheme Name
Grindlays Cash Fund (G)
Grindlays CF - Inst Plan (G)
Grindlays Dynamic Bond (G)
Grindlays FRF - LTP Inst (G)
Grindlays Floating Rate (G)
Grindlays FRF- Inst Plan (G)
Grindlays FRF - LTP (RP) (G)
Grindlays GSec - Inv Plan (G)
Grindlays GSec Fund - PF (G)
Grindlays GSec - STP (G)
Grindlays SSIF - MTP A (G)
Grindlays SSIF STP - Inst (G)
GSSIF STP - MF Plan C (G)
GSSIF STP - Super Inst C (G)
Grindlays SSIF (G)
Grindlays SSIF - STP (G)
SC All Seasons Bond - RP (G)
StanChart Arbitrage - Inst (G)
StanChart Arbitrage Fund (G)
StanChart Classic Equity (G)
StanChart Enterprise Equity(G)
StanChart Imperial Equity (G)
StanChart Imperial Equity (G)
StanChart Liquidity Manager –G
StanChart Liq. Manager Plus-G
StanChart Premier Equity (G)
StanChart Small&Midcap Eqty –G
StanChart Tax Saver Fund (G)
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IDFC Asset Management Company Private Ltd
The fund was established on March 13, 2000. Now the management of the fund has
been taken over by Standard Chartered Bank, the UK based banking conglomerate.
The name of the AMC too has been changed from ANZ AMC. Previously sponsored by
ANZ Banking Group, Australia, this fund has just set up its operations in the year 2000.
Australia and New Zealand Banking Group Limited, the previous sponsor of the fund, is
a leading international bank and is also one of the "Big Four" Australian commercial
banks providing a full range of banking and financial services with total assets of US $
97.35 billion as on 30th Sept, 1999. ANZ Funds Management is a core business unit of
the group and is one of Australia s large fund managers. It has a full range of
investment products and services managing more than AUD $ 13267.7 million in
customer funds on 30th Sept., 1999. ANZ Banking Group has significant presence in 35
nations from the Middle East tohrough South Asia and East Asia to the Pacific.
No. of schemes 84
No. of schemes including 269
options
Equity Schemes 24
Debt Schemes 209
Short term debt Schemes 19
Equity & Debt 0
Money Market 0
Gilt Fund 13
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Open Ended Schemes
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IDFC acquires StanChart's mutual fund
Standard Chartered MF has around Rs 14,000 crore in assets of which Rs 4,000 crore is
in equity while rest is in debt. With this IDFC acquires Standard Chartered Trustee
Company and Standard Chartered Asset Management Company, both of which
represent Standard Chartered's mutual fund business in India.
IDFC is one of the leading infrastructure finance institutions, and the acquisition would
give it a foothold in the retail sector and improve its high margin fee based income.
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Study and Survey:
Objective
This study is conducted in order to find out:-
RATIONALE OF STUDY
The study of this nature is being conducted on the behalf of IDFC AMC (Standard
charted) for prediction of future of mutual funds in Indian emerging market. A high
level of competition entering the mutual funds sector, companies need to catch up
with the ever changing demands of the industry. The study is being conducted to get
an edge over other MFs houses in the mutual fund industry. It is also done in order to
know as to how much knowledge and money the consumers contribute in the MFs
schemes.
Survey Methodology
Survey comprises collecting, organizing, and evaluating data, reaching at a specific
conclusion and at the same time careful evaluation of the conclusion. Collection of
data has been done by two ways (1) primary data collection; and (2) secondary data
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collection, through questionnaires and websites, magazines, newspapers, documents,
etc. Area of data collection was HDFC Bank branches at Chandnichowk, Ashok vihar
(Delhi). Analysis of data has been done with the help of spss software. Articles are
attached from various magazines. Conclusion is drown from result of different data
processing and articles analyzation.
The survey was conducted in chandnichowk and ashok vihar. The standard of living,
per capita income of people, earning style, etc. of this region is different from other
areas. Therefore, the inferences drawn from the survey can’t be generalized.
Findings
1. This graph clearly shows that young people are more likely to visit bank
branches. Thus more chances of getting long term, more risk taker and
aggressive investors.
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Figure 1
Age group
2. Here data shows that people are willing to earn more return than
that of they earn in traditional ways of investment.
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Expected returns
Figure 2
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% of disposable income
Figure 3
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% of total investment
Figure 4
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No. of persons
Figure 5
6. This chart is showing that Indian investors are willing to stay invested
for a time duration of more than 12 months. They have patience, they
want to earn more money on their investment, and this is a bright sign for
mutual funds industry.
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Figure 6
Key findings:-
# Study found that more young people are likely to involved in financial activities.
They more frequently visit banks and meet financial advisors. This is an opportunity for
mutual funds houses to attract these people.
# More than 50% of surveyed persons willing to take high risk for high rate of return.
This indicates that riskier investment options can also attract big pool of money if
investors are properly convinced.
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# Study shows professional advisors are considered to be more reliable source of
mutual funds information, not because they provide human touch to investor but
others are not aggressively proposed, advertised, availed and used .
# surveyed persons are not having knowledge of more than 10 AMCs name and not
more than 7 schemes of any one of mutual fund houses. This requires an aggressive
marketing of funds. So that awareness level of investor can be improved.
Professional advisors think that investors are not educated properly. They (investor)
rely on what others say or what they (advisors) say. It’s easy to convince them for
investment but not so easy to make them clear about market affecting factors. “Stock
market is going low and I am already losing, you are asking for investment in market,
sorry I am not interested.” An investor grievance.
After going through a two months summer training and survey, I have come to know
about different aspects of mutual funds and mutual funds industry. India is an
emerging market. Consumption level is rising with rising earning level. Economic
indicators micro and macro both show a sky facing arrows. Data shows that there will
be more number of billionaires from India than any of other country.
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We know that Indians are earning more therefore spending more, but how much they
save/invest in order to secure future. There are numbers of traditional ways of saving.
They give guaranteed return with low risk. High risk associated investment options
was not considered a right decision. India is a young country having a considerably big
part of young people. They are more risk taker. They need a right direction for
investment options.
This study and survey on mutual funds is a small eye hole to see the picture of mutual
funds industry in India. This provides almost clear view to the readers.
Mutual funds industry is enlarging its size in India. JVs, foreign JVs and acquisitions are
in trend. AUM has gone to $8 trillion, number of investors is rising, and number of
AMCs is going up. These changes are likely to happen. Indian monetary policy is
supporting new business. Private sector is aggressively participating in mutual funds
business. Numbers of schemes are much more than earlier.
With such shining sides, double digit inflation rate, bearish stock market, RBI’s high
bank rates, squeezing liquidity and other dark sides putting pressure on consumers
saving. This situation pushes investors back from investment. They wait and hold cash
rather than investing. This study found that investors are willing to invest with high
rate of return. They know high return always adhere to high risk but market still is not
in correction mode. It will take time.
Indian market potential is high, investors are willing to pour money in mutual funds,
despite some temporary restraints, other economic factors are in favorable mode.
Thus we need proper management of advisory services, more schemes, financial
advisors and institutions to cater untouched markets.
Industry need to revise its business strategy. Investor’s perception is not prioritized
yet. Instead of completing targets, advisors working under institutions should consider
the requirement of investors. We need to change pattern of selling mutual funds
schemes.
I hope this study will help readers to identify industry’s unidentified areas where they
need to work out.
Questionnaires
6. If I keep all recommendations aside and simply ask you, what factors do you
consider before suggesting any scheme to a prospective client?
8. Data says that in US number of mutual funds schemes are more than that of
number of listed companies at stock exchange whereas in India not more than
1000 schemes. How do you react on this situation?
9. One side double digit inflation rate, RBI’s norms for curbing liquidity from
market, high price of fuel, are putting pressure on consumer’ s savings, on the
other side SEBI and RBI are relaxing norms for AMCs business. How these two
repelling poles can stand simultaneously?
11. Finally, where do you see this industry in coming 10years horizon?
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Less than 21
21 to 25
25 to 35
35 to 60
Above 60
Your pension
Your salary
Up to 8%
Between 8% to 18%
Above 18%
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I am willing to tolerate putting my principal at risk by investing in volatile
investments
6. What percent of your disposable income do you keep aside for different
investment options?
0% to 5%
5% to 10%
10% to 15%
15% to 20%
20% to 30%
Above 30%
0% to 5%
5% to 10%
10% to 20%
20% to 30%
30% to 50%
Above 50%
8. Which of the following source of mutual funds information do you like to opt
for?
Professional advisory
Company advisory
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Mutual fund prospects
10. How likely are you stay invested during volatile times?
Glossary:-
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Contingent Deferred Sales Charges - Back-end load imposed on an investor who
redeems shares. It is usually expressed as a percentage of the original purchase
price or of the value of shares redeemed. In most cases, the longer the investor
holds his shares, the smaller the deferred sales charge.
Dividend Reinvestment Fee - Fee charged when an investor uses dividends paid
by a mutual fund to purchase additional shares of the mutual fund.
Exchange Fee - Fee charged when an investor switches from one mutual fund to
another in the same family of funds.
Front-end Load - Sales charge applied at the time the investor purchases shares.
Management Companies - There are two types: open-end and closed-end. Open-
end funds, which sell and buy shares back on demand, are called mutual funds.
Closed-end funds have a fixed number of shares. After the initial public offering,
shares in closed-end funds trade only on exchanges. The price is determined by
the market and does not necessarily reflect the net asset value of the shares.
Management Fee - A fee paid by the mutual fund to its investment adviser and
charged against fund assets, generally 1% or less per year.
Net Asset Value - In effect, the share price of a fund computed daily by adding
the value of the fund’s securities and other assets, subtracting liabilities, and
dividing by the number of shares outstanding. For a mutual fund with a front-end
load, net asset value is identical to the "asked price" or "offering price."
Prospectus - A disclosure document which should provide the investor with full
and complete disclosure of all material information needed by the investor to
make a decision whether or not to invest. The prospectus generally incorporates
the SAI by "reference." (See SAI definition.)
Rule 12b-1 Fee - An asset-based sales load, permitted by SEC Rule 12b-1,
representing annual charges of up to 1-1/4% for specific sales or promotional
activities of the mutual fund. Over time, the amount paid in Rule 12b-1 fees can
surpass the amount paid in sales fees charged by load funds.
References:-
www.IDFCMF.com
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www.moneycontrolindia.com
http://www.nse-india.com
http://www.amfiindia.com
http://www.mutualfundsindia.com
http://www.sebi.gov.in
www.businessmapsofindia.com
www.ceicdata.com
www.economictimes.com
www.valueresearchonline.com
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