EXECUTIVE SUMMARY

A Study On Mutual Funds Industary in India; Threats and Opportunities ..The Research programmed is an integral constant of the cause curriculum of programmed in Management It has been said that Finance is the life blood of business; without finance the heart and brain of business cannot function implying there by its natural death. In present scenario financial market in!estment has became complicated and is both art and a science. "ne make in!estments for a return higher than what he can get by keeping the money in commercial or cooperati!e #ank or e!en in an In!estment #ank. In Finance field it is common knowledge that money is scarce and in!estor try to ma$imi%e their return #ut the return is higher if the risk is also higher Return and risk go together and they ha!e a trade off. The art of in!estment is to see that return is ma$imi%ed with the minimum of risk if the in!estor keep his money in a #ank in sa!ing account he takes the least risk as the money is safe and he will get back when he want it but he runs the risk that the return in real terms ad&usted for inflation negati!e or small and e!en if positi!e it may net come up to his e$pectations or needs. To utili%e the theoretical knowledge I decided to choose my topic which may co!er all and as result I selected 'rowth of Mutual Fund and also the Threats ( "pportunities in!ol!ed in it. The mutual fund industry is a lot like the film star of the finance business. Though it is perhaps the smallest segment of the industry it is also the most glamorous ) in that it is a young industry where there are changes in the rules of the game e!eryday and there are constant shifts and up hea!als. The mutual fund is structured around a fairly simple concept the mitigation of risk through the spreading of in!estments across multiple entities which is achie!ed by the pooling

of a number of small in!estments into a large bucket. +et it has been the sub&ect of perhaps the most elaborate and prolonged regulatory effort in the history of the country. The mutual fund industry started in India in a small way with the ,TI -ct creating what was effecti!ely a small sa!ings di!ision within the R#I. "!er a period of ./ years this grew fairly successfully and ga!e in!estors a good return and therefore in *010 as the ne$t logical step public sector banks and financial institutions were allowed to float mutual funds and their success emboldened the go!ernment to allow the pri!ate sector to foray into this area. The initial years of the industry also saw the emerging years of the Indian e2uity market when a number of mistakes were made and hence the mutual fund schemes which in!ested in lesser3known stocks and at !ery high le!els became loss leaders for retail in!estors. From those days to today the retail in!estor for whom the mutual fund is actually intended has not yet returned to the industry in a big way. #ut to be fair the industry too has focused on brining in the large in!estor so that it can create a significant base corpus which can make the retail in!estor feel more secure. The Indian MF industry has Rs /.45 lakhs crore of assets under management. -s per data released by -ssociation of Mutual Funds in India the asset base of all mutual fund combined has risen by 5.6.7 in -pril the first month of the current fiscal. -s of now there are 66 fund houses in the country including *4 &oint !entures and 6 wholly owned foreign asset managers.

Ob e!ti"es o# the study

.

The $utual #und industry is #ast %ainin% popularity in today&s unpredi!table s!enario' It is e$er%in% as one o# the $ost lo!ati"e in"est$ent option' The ob e!ti"e o# the pro e!t is to %ain detailed insi%ht into this industry' The ob&ecti!e is to analy%e the 8osition of MF in Indian markets ( outline the factors which make MF is the leading player in the mutual funds industry. -lso there has been a focus on the rules regulation and general obligation which are pertaining to the mutual fund scheme offered in the industry. The prime ob&ecti!e of the research was to determine the decision of the Indian In!estor towards MF and this demonstrated in this report. *. To know about growth of mutual fund industry in India. .. To know the ob&ecti!e behind in!estment. 6. To know how mutual funds are managed. 9. :hat is the structure of mutual fund; /. To know the ad!antages as well as disad!antages of mutual fund. 4. To know about the !arious threats and opportunities in!ol!ed in the mutual fund industry.

I$portan!e o# the study

This research help to analy%e the 8osition of MF in Indian markets ( outline the factors which make MF is the leading player in the mutual funds industry. -lso there has been a focus on the rules regulation and general obligation which are pertaining to the mutual fund scheme offered in the industry. *3 This research determines the decision of the 'rowth of MFs and this demonstrated in this report. .3 This research assists to know Threats ( "pportunities in!ol!ed in Mfs. 63 This research help to know the best option for the in!estor among different mutual fund. 93 This research enhance the awareness of the consumer regarding mutual fund. /3 This research help to know the performance of the mutual fund in past years.

S!ope o# the study

The purpose of the study is to obtain information about the mutual fund industry in india. :hich helps us to determine!arious issues challenges in!ol!ed in it. The scope of the study also pro!ide information about the growth of mutual fund industry in india. The research has done to know the !arious disad!antages of mutual fund. The research also shows that how mutual fund can be most suitable in!estment for the common man as it offer an opportunity to in!est in a di!ersified proffesionally managed basket of securities at relati!ely low cost. Mutual fund help to reduce risk through di!ersification of proffesinal management. - big boom has been witnessed in Mutual Fund Industry in resent times. - large number of new players ha!e entered the market and trying to gain market share in this rapidly impro!ing market. The study will help to know the preferences of the customers which company portfolio mode of in!estment option for getting return and so on they prefer. This pro&ect report may help the company to make further planning and strategy

(IMITATIO)S OF T*E STU+Y

The study had the #ollo,in% li$itations- $ainly in the sur"ey ,or. that ,as done' *. The study is based on secondary data. .. The findings of research studies are of little or no <alues ,nless they are translated in to 8ractices. 6. Researcher cannot get wide information during Research 9. Researcher is only on indicator and cannot sol!e the problem. /. The time duration could not pro!ide ample opportunity to study e!ery detail of the insurance industry.

4. =omple$ statistical tools for data analysis ha!e not been employed.

C*A/TER01 I)TRO+UCTIO)
5

I>TR"?,=TI"> T" M,T,-@ F,>?

MEA)I)2 A)+ +EFI)ITIO) OF MUTUA( FU)+
- $utual #und is a pool money collected from in!estors and is in!ested according to certain in!estment options. - mutual fund is a trust that pools the sa!ings of a number of in!estors who share a common financial goal. - mutual fund is created when in!estors put their money together. It is therefore a pool of the in!estorAs founds. The money thus collected is then in!ested in capital market instruments such as shares debentures and other securities. The income earned through these in!estments and the capital appreciation reali%ed is shared by its unit holders in proportion to the number of units owned by them. The most important characteristics of a fund are that the contributors and the beneficiaries of the fund are the same class of people namely the in!estors; the term mutual fund means the in!estors contribute to the pool and also benefit from the pool. There are no other claimants to the funds. The pool of funds held mutually by in!estors in the mutual fund. - mutual funds business is to in!est the funds thus collected according to the wishes of the in!estors who created the pool. ,sually the in!estors appoint professional in!estment managers to manage their funds. The same ob&ecti!e is achie!ed when professional in!estment managers create a product and offer it for in!estment to the in!estor. This product represents a share in the pool and pre states in!estment ob&ecti!es. Thus a mutual fund is the most suitable in!estment for

the common man as it offers an opportunity to in!est in a di!ersified professionally managed basket of securities at a relati!ely low cost. In!estors in the mutual fund industry today ha!e a choice of 60 mutual funds offering nearly /BB products. Though the categories of product offer can be classified under about a do%en generic heads competition in the industry has led to inno!ati!e alterations to standard products. The most important benefit of product choice is that it enables in!estors to choose options that suit their return re2uirements and risk appetite. In!estors can combine the options to arri!e at their own mutual fund portfolios that fit with their financial planning ob&ecti!es.

*ISTORY OF MUTUA( FU)+S I) I)+IA

The mutual fund industry in India started in *046 with the formation of ,nit Trust of India at the initiati!e of the Reser!e #ank and the 'o!ernment of India. The ob&ecti!e then was to attract the small in!estors and introduce them to market in!estments. Cince the the history of mutual funds in India can be broadly di!ided into three distinct phases.

/*ASE 13 1456078 9U)IT TRUST OF I)+IA: In *046 ,TI was established by an -ct of 8arliament and gi!en a monopoly. "perationally ,TI was set up by the Reser!e #ank of India but was later de3linked from the R#I. The first and still one of the largest schemes launched by ,TI was ,nit Ccheme *049. "!er the years ,C349 attracted and probably still has the largest number of in!estors in any single in!estment scheme.

It was also at least partially the first open3end scheme in the country now mo!ing towards becoming fully open3end. @ater in *05Bs and 1Bs ,TI started inno!ating and offering different schemes to suit the needs of different classes of in!estors. ,nit @inked Insurance 8lan D,@I8E was launched in *05*. Ci$ new schemes were introduced between *01* and *019. ?uring *019315 new schemes like =hildrenAs 'ift 'rowth Fund D*014E and Mastershare D*015E were launched. Mastershare could be termed as the first di!ersified e2uity in!estment scheme in India. The first Indian offshore fund India Fund was launched in -ugust *014. ?uring *00Bs ,TI catered to the demand for income3oriented schemes by launching Monthly Income Cchemes a somewhat unusual mutual fund product offering assured returns. The mutual fund industry in India not only started with ,TI but still counts ,TI as its largest player with the largest corpus of in!estible fnds among all mutual funds currently operating in India. ,ntil *01Bs ,TI operations in the stock market often determined the direction of marekt mo!ements. The in!estible funds corpus of e!en ,TI was still relati!ely small at about Rs. 4BB crores in *019. #ut at the end of this 8hase "ne ,TI had grown large as e!idenced by the following statisticsF 1478077 -mount Mobilised DRs. =roresE ,TI Total .*5/ .*5/ -ssets ,nder Management DRs. =roresE 45BB 45BB

*B

/*ASE ;3 14780144< 9E)TRY OF /U=(IC SECTOR FU)+S: *015 marked the entry of non3,TI 8ublic Cector mutual funds bringing in competition. :ith the opening up of economy many public sector banks and financial institutions were allowed to establish mutual funds. The Ctate #ank of India established the first non3,TI mutual fund G C#I Mutual Fund G in >o!ember *015. This was followed by =anbank Mutual Fund Dlaunched in ?ecember *015E @I= Mutual Fund D*010E and Indian #ank Mutual Fund D*00BE followed by #ank of India Mutual Fund 'I= Mutual Fund and 8># Mutual Fund. These mutual funds helped enlarge the in!estor community and the in!estible funds. From *015 to *00.306 the fund industry e$panded nearly seen times in terms of -ssets ,nder Management as seen in the following figuresF 144;04< -mount Mobilised DRs. =roresE ,TI 8ublic sector Total **B/5 *049 *6B.* -ssets ,nder Management DRs. =roresE 61.95 15/5 95BB9

?uring this period in!estors were shifting away from bank deposits to mutual funds as they started allocating larger part of their financial assets and sa!ings D/..7 in *00. 6.*7 in *001E to fund in!estments. ,TI was still the largest segment of the industry although with nearly .B7 market share ceded to the 8ublic Cector Funds.

**

/*ASE <3 144<045 9EMER2E)CE OF /RIVATE FU)+S: - new era in the mutual fund industry began with the permission granted for the entry of pri!ate sector funds in *006 gi!ing the Indian in!estors a broader choice of Hfund familiesA and increasing competition for the e$isting public sector funds. ?uring the year *006309 fi!e pri!ate sector mutual funds launched their schemes followed by si$ others in *00930/. Initially the mobili%ation of funds by the pri!ate mutual funds was slow. #ut this segment of the fund industry now has been witnessing much greater in!estor confidence in them. "ne influencing factor has been the de!elopment of a CI#I dri!en regulatory framework for mutual funds. /*ASE 63 1445 9SE=I RE2U(ATIO) FOR MUTUA( FU)+S: ?eregulation and liberali%ation of the Indian economy has introduced competition and pro!ided impetus to the growth of the industry. Finally most in!estors G small or large G ha!e started shifting towards mutual funds as opposed to banks or direct market in!estments. More in!estor friendly regulatory measures ha!e been taken both by CI#I to protect the in!estor and by the 'o!ernment to enhance in!estorsA return through ta$ benefits. - comprehensi!e set of regulations for all mutual funds operating in India was introduced with CI#I DMutual FundE Regulations *004. These regulations set uniform standards for all funds and will e!entually be applied in full to ,nit Trust of India as well e!en though ,TI is go!erned by its own ,TI -ct. In fact ,TI has been !oluntarily adopting CI#I guidelines for most of its schemes. Cimilarly the *000 ,nion 'o!ernment #udget took a big step in e$empting all mutual fund di!idends from income ta$ in the hands of in!estors. #oth the *004 regulations and the *000 #udget must be

*.

considered of historic importance gi!en their far3reaching impact on the fund industry and in!estors. *000 marks the beginning of a new phase in the history of the mutual fund industry in India a phase of significant growth in terms of both amounts mobili%ed from in!estors and assets under management. =onsider the growth in assets as seen in the figures belowF

'ross amount mobili%ed DRs. =roreE *001300 ,TI **450 *0003BB *6/64

-ssets under management DRs. =roresE *001300 /66.B D55.157E *0003BB 54/95 D45.5/7E **9*. D*B.B07E ./B94 D...*47E **6BB/

8ubic sector

*56.

9B60

1.0. D*..**7E

8ri!ate sector

5044

9.*56

414B D*B.B.7E

Total

.*655

/0591

4195.

The si%e of the industry is growing rapidly as seen the figure of assets under management which ha!e gone from o!er Rs. 41BBB crores to Rs. **6BB/ crores a growth of nearly 4B7 in &ust one year. :ithin the growing industry by March .BBB the relati!e market shares of different players in terms of amount mobili%ed and assets under management ha!e undergone a change. /hase >3 ;??; 9=IFURCATIO) OF UTI:

*6

The year .BB. was a historic year for the mutual fund industry. The go!t. passed legislation scrapping the ,TI -ct in the winter session. ,TI was simmering in deep trouble for se!eral years ( the go!t. had to gi!e bail out packages. but gi!ing the last bailout package of */BBB crs it di!ided the institution into . partsF

,TI GI Dincludes all the assured return schemes ( trouble d flagship of ,C3 49. -n
administrator will monitor these schemes.E

,TI3 II Dall the >-< based CI#I compliance schemes which will function like any other
mutual fund.E
The go!t. will pri!ati%e the scheme in the ne$t 6 G / years separating itself from the fund.

2ross a$ount $obili@ed 9Rs' Crore:

Apr ;???0?1 UTI 5*0B/

O!t ;??10?; 995B6

/ri"ate se!tor

.641.

/1B.6

The year also opened up new a!enues for the mutual fund industry likeF

Intry of Mutual funds in the real estate sector Increasing of e2uity in!estments limitAs in foreign e2uities to J*bn Entry into deri"ati"es $ar.et'
T*E EMER2E)CE OF MUTUA( FU)+ I)+USTRY "!er the past 5/ years there has been no better way to e$perience financial growth than to ha!e been a long3term in!estor in the Indian stock market. I!en though they ha!e e$perienced some

*9

dramatic downturns stocks which are ownership shares in public corporations ha!e outperform all other types of in!estments including bonds =?s and 'o!ernment securities and ha!e stayed ahead of inflation. @ike the stock market successful in!esting is ne!er a sure thing since one canAt predict what the !alue of his in!estment or the rate of return will be at any point in time. +et despite this uncertainty the stock market remains among the best choices for long term in!esting. Mutual funds now represent perhaps for most appropriate in!estment opportunity for most in!estors. Cince financial market has become more sophisticated and comple$ in!estor need a financial intermediary who pro!ides the re2uired knowledge and professional e$pertise on successful in!esting. It is no wonder that in the birth place of mutual funds 3 the ,C- G the fund industry has already o!ertaken the banking industry more funds being order mutual fund management than deposited with banks. The Indian Mutual Fund Industry has already started opening up many of the e$citing in!estment opportunities to Indian In!estors. :e ha!e started witnessing the phenomenon of more sa!ing ( now being entrusted to the mutual funds than to banks. ?espite the e$pected continuing growth in the industry mutual funds are still a new financial intermediary in India. Kence it is important that the in!estor ac2uires better knowledge of what mutual funds are what they can do for in!estors and what they cannot and how they function differently from other intermediaries such as the #anks.

SECURITY- 2ROAT* A)+ /ROFESSIO)A( MA)A2EME)T

Cuppose one has &ust started as an in!estor and ha!e Rs. .BBBB to in!est and ha!e three i$portant %oals you want to achie!e.

*/

 First donAt want to lose the money in a risk !enture so wants security like that found in a
certificate of deposit or other fi$ed income in!estment.

:ant to ma$imi%e the returns so one also wants the prospect for growth potential.
Finally since one doesnAt ha!e the time or knowledge to acti!ely manage his money he wants professional money management G occasionally di!ersifying his in!estment into promising new opportunities. That sounds like a !ery good plan but where can you in!est his money and ha!e a chance to meet all three criteria; =ertificates of deposit and other fi$ed income in!estments offer security but often with low rates of interest and a fi$ed potential for growth. Indi!idual stocks may carry greater potential for growth but Rs. .BBBB isnAt a lot to in!est and if you put it all in one stock one risk e!erything if it perform poorly. -nd brokers and in!estment ad!isors can offer ad!ice and money management but at a price to be paid for their ser!ices which reduces further the amount one has to in!est. Co where can one in!est money; The answer for more and more Indians is to in!est in mutual funds.

MUTUA( FU)+S 0 T*E YEAR A*EA+

- after a difficult year for e2uity markets ( e2uity funds alike all the eyes are now on year .BB5. @ast year saw one of the lowest net flows e!er into e2uity schemes with debt schemes being the ma&or gainers on account of continued decline in the interest rates.

*4

Kopes are high that the performance of e2uity schemes should be better this year as the market history indicates such trends. It is only twice in the last *BB years that markets ha!e remained under that controls of bears for three consecuti!e years. Therefore chances are those both domestic ( international markets will rebound sharply which would result in much better performance by e2uity funds. Thus if one is looking at in!esting in e2uity funds I>?IL F,>? is the best choice. Though some sect oral funds ha!e been able to gi!e decent returns but o!erall they ha!enAt li!ed up to the e$pectation of the market. I!ery year one or the other sectors strongly outperform the market but it would still be a better choice to go in for ?I<IRCIFII? F,>?C that ha!e features of dynamic plan. The MF industry is e$pecting ta$ break which were withdrawn in the last budget to be restored. -nd that is e$pecting to bring a section of in!estorAs back to the markets. Merger <( -c2uisitions de!elopments which started in .BB. are likely to continue. In the few weeks time we will know the winner for -@@I->=I. -nother important de!elopment in the current year is going to be a big3 bang entry of MFs in ?IRI<-TI<IC IC market followed by their in!estments in F"RII'> markets

Mutual Funds !an be stru!tured in the #ollo,in% ,ays3

=ompany in which in!estors hold shares of the mutual fund. In this structure management of the fund in the9 hands of on elected board. :hich in turn appoints in!estment managers to manage

*5

the fund; Trust from in which the in!estors are held by the trust on behalf of the in!estors. They appoint in!estment managers and monitor their functioning in the interest of the in!estors. The company form of organi%ation is !ery popular in the ,nited Ctates. In India mutual funds are organi%ed as trusts. The trust is created by the sponsors who is actually the entity interested in creating the mutual fund business. The trust is either managed by a #oard of trustees or by a trustee company formed for this purpose. The in!estorAs funds arte held by the trust. Though the trust is the mutual fund the -M= is its operational face. The -M= is the first functionary to be appointed and is in!ol!ed in the appointment of all the other functionaries. The -M= structures the mutual fund products markets them and mobili%es the funds and ser!ices the in!estors. It seeks the ser!ices of the functionaries in carrying out these functions. -ll the functionaries are re2uired to the trustees who lay down the ground rules and monitor them working

SE=I RE2U(ATIO)S
SC*EMES OF A MUTUA( FU)+ The asset management company shall launch no scheme unless the trustees appro!e such scheme and a copy of the offer document has been filed with the #oard. I!ery mutual fund shall along with the offer document of each scheme pay filing fees. The offer document shall contain disclosures which are ade2uate in order to enable the in!estors to make informed in!estment decision including the disclosure on ma$imum in!estments proposed to be made by the scheme in the listed securities of the group companies of the

*1

sponsor.The mutual fund and asset management company shall be liable to refund the application money to the applicants 3 9i: If the mutual fund fails to recei!e the minimum subscription amount referred to in clause 9a: of sub3regulation D*E; 9ii: If the moneys recei!ed from the applicants for units are in e$cess of subscription as referred to in clause 9b: of sub3regulation D*E. The asset management company shall issue to the applicant whose application has been accepted unit certificates or a statement of accounts specifying the number of units allotted to the applicant as soon as possible but not later than si$ weeks from the date of closure of the initial subscription list and or from the date of receipt of the re2uest from the unit holders in any open ended scheme.

RU(ES RE2AR+I)2 A+VERTISEME)T3 The offer document and ad!ertisement materials shall not be misleading or contain any statement or opinion which are incorrect or false. I)VESTME)T O=BECTIVES A)+ VA(UATIO) /O(ICIES3 The price at which the units may be subscribed or sold and the price at which such units may at any time be repurchased by the mutual fund shall be made a!ailable to the in!estors. 2E)ERA( O=(I2ATIO)S3

*0

I!ery asset management company for each scheme shall keep and maintain proper books of accounts records and documents for each scheme so as to e$plain its transactions and to disclose at any point of time the financial position of each scheme and in particular gi!e a true and fair !iew of the state of affairs of the fund and intimate to the #oard the place where such books of accounts records and documents are maintained. The financial year for all the schemes shall end as of March 6* of each year. I!ery mutual fund shall ha!e the annual statement of accounts audited by an auditor who is not in any way associated with the auditor of the asset management company. /ROCE+URE FOR ACTIO) I) CASE OF +EFAU(T3 "n and from the date of the suspension of the certificate or the appro!al as the case may be the mutual fund trustees or asset management company shall cease to carry on any acti!ity as a mutual fund trustee or asset management company during the period of suspension and shall be sub&ect to the directions of the #oard with regard to any records documents or securities that may be in its custody or control relating to its acti!ities as mutual fund trustees or asset management company. RESTRICTIO)S O) I)VESTME)TS3 - mutual fund scheme shall not in!est more than */7 of its >-< in debt instruments issued by a single issuer which are rated not below in!estment grade by a credit rating agency authori%ed to carry out such acti!ity under the -ct. Cuch in!estment limit may be e$tended to .B7 of the >-< of the scheme with the prior appro!al of the #oard of Trustees and the #oard of -sset Management =ompany'

.B

- mutual fund scheme shall not in!est more than *B7 of its >-< in unrated debt instruments issued by a single issuer and the total in!estment in such instruments shall not e$ceed ./7 of the >-< of the scheme. -ll such in!estments shall be made with the prior appro!al of the #oard of Trustees and the #oard of -sset Management =ompany. >o mutual fund under all its schemes should own more than ten per cent of any companyMs paid up capital carrying !oting rights. Cuch transfers are done at the pre!ailing market price for 2uoted instruments on spot basis.The securities so transferred shall be in conformity with the in!estment ob&ecti!e of the scheme to which such transfer has been made. - scheme may in!est in another scheme under the same asset management company or any other mutual fund without charging any fees pro!ided that aggregate inter scheme in!estment made by all schemes under the same management or in schemes under the management of any other asset management company shall not e$ceed /7 of the net asset !alue of the mutual fund. The initial issue e$penses in respect of any scheme may not e$ceed si$ per cent of the funds raised under that scheme. I!ery mutual fund shall buy and sell securities on the basis of deli!eries and shall in all cases of purchases take deli!ery of relati!e securities and in all cases of sale deli!er the securities and shall in no case put itself in a position whereby it has to make short sale or carry forward transaction or engage in badla finance.I!ery mutual fund shall get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme where!er in!estments are intended to be of long3term nature.8ending deployment of funds of a scheme in securities in terms of in!estment ob&ecti!es of the scheme a mutual fund can in!est the funds of the scheme in short term deposits of scheduled commercial banks.

.*

>o mutual fund scheme shall make any in!estment in F -ny unlisted security of an associate or group company of the sponsor; or -ny security issued by way of pri!ate placement by an associate or group company of the sponsor; or The listed securities of group companies of the sponsor which is in e$cess of 6B7 of the net assets Nof all the schemes of a mutual fundO >o mutual fund scheme shall in!est more than *B per cent of its >-< in the e2uity shares or e2uity related instruments of any company. 8ro!ided that the limit of *B per cent shall not be applicable for in!estments in inde$ fund or sector or industry specific scheme. - mutual fund scheme shall not in!est more than /7 of its >-< in the e2uity shares or e2uity related in!estments in case of open3ended scheme and *B7 of its >-< in case of close3ended scheme.

TY/ES OF MUTUA( FU)+S

2eneral Classi#i!ation o# Mutual Funds Open Ended C Close Ended Funds

..

Open0end Funds 30

Funds that can sell and purchase units at nay point in time are

classified as "pen3end Funds. The fund si%e DcorpusE of an open3end fund is !ariable Dkeeps changingE because of continuous selling Dto in!estorsE and repurchases Dfrom the in!estorsE by the fund. -n open3end fund is not repurchasing when an in!estor wants to sell his units. The >-< of an open3end fund is calculated e!ery day.

Closed D end Funds 30Funds that can sell a fi$ed number of units only during the >ew
Fund D>F"E period are known as =losed3 end Funds. The corpus of a closed G end Funds. The corpus of end Fund remains unchanged at all times. -fter the closure of the offer buying and redemption of units by the in!estors directly form the Funds is not allowed. Kowe!er to protect the interests of the in!estors CI#@ pro!ides in!estors with two a!enues to li2uidate their positions. *. =losed3 end Funds are listed on the stock e$changes where in!estors can buyPsell units forP to each otherP the trading is generally done at a discount to the >-< of the scheme. The >-< of a closed Gend fund is computed on a weekly basis Dupdated e!ery ThursdayE. .. =losed3end Funds may also offer buy3back of units to the unit holders. In this case the corpus of the Fund and its outstanding units do get changed.

(oad Funds C )o0load Funds (oad Funds

.6

Mutual Funds incur !arious e$penses on marketing distribution ad!ertising portfolio churning fund managerAs salary etc; many funds reco!er these e$penses from the in!estors in the form of load. These funds are known as @oad Funds. - load fund may impose following types of loads on the in!estors. Entry (oad0

-lso known as front3end load it refers to the load charged to an in!estor at the time of his entry into a scheme. Intry load is deducted from the in!estorAs contribution amount to the fund.

EEit (oad0

-lso known as #ack3end load these charges re imposed on an in!estor when he redeems his units De$its from the schemeE. I$it load is deducted from the redemption proceeds to an outgoing in!estor.

+e#erred (oad0 ?eferred load is charged to the scheme o!er a period of time. Contin%ent +e#erred Sales Char%e 9C+SC:0I some schemes the percentage
of e$it load reduces as the in!estor stays longer with the fund. This type of load is known as =ontingent ?eferred Cales =harge.

.9

)o0load Funds
-ll those funds that do not charge any of the abo!e mentioned loads are known as >o3load Funds.

TaE0 eEe$pt Funds C )on0 TaE eEe$pt Funds

TaE0 eEe$pts Funds Funds that in!est in securities free ta$ are known as Ta$3e$empt Funds. -ll open3 end e2uity oriented funds are e$empt from distribution ta$ Dta$ for distributing income to in!estorsE. @ong term capital gains and di!idend income in the hands of in!estors are ta$ free. )on0 TaE0eEe$pt Funds Funds that in!est in ta$able securities are known as >on3Ta$3e$empt Funds. In India all funds e$cept open3end e2uity oriented funds are liable to pay ta$ on distribution income. 8rofits arising out of sale of units by an in!estor within *. months of purchase are6 categori%ed as short3term capital gains which are ta$able. Cale of units of an e2uity oriented fund is sub&ect to Cecurities Transaction Ta$ DCTTE. CTT is deducted from the redemption proceeds to an in!estor.

./

EFUITY FU)+30
a' A%%ressi"e 2ro,th Funds0 In -ggressi!e 'rowth Funds Funds fund managers aspire
for ma$imum capital appreciation and in!est in less researched shares of speculati!e nature. #ecause of these speculati!e in!estments -ggressi!e 'rowth Funds become mo!e !olatile and thus are prone to higher risk than other e2uity funds.

b' 2ro,th Funds0 'rowth Funds also in!est for capital appreciation Dwith time hori%on of 6
to / yearsE but they are different from aggressi!e 'rowth Funds in the sense that they in!est in companies that are e$pected to out perform the market in the future. :ithout entirely adopting speculati!e strategies 'rowth Funds in!est in those companies that ate e$pected to post abo!e a!erage earnings in the future.

!' Spe!ialty Funds0 Cpecialty Funds ha!e stated criteria for in!estments and their portfolio
comprised of only those companies that met their criteria. =riteria for some specialty funds could be to in!estPnot to in!est in particular regionsP companies. Cpecialty funds are concentrated and thus are comparati!ely riskier than di!ersified funds. There are following types of specialty funds.

.4

i.

Se!tor Funds3 I2uity funds that in!est in a particular sectorP industry of the market
are known as Cector Funds. The e$posure of these funds is limited to a particular sector Dsay Information Technology -uto #anking 8harmaceuticals of Fast Mo!ing =onsumer 'oodsE which is why they are more risky than e2uity funds that in!est in multiple sectors.

ii.

Forei%n Se!urities Funds3 Foreign securities funds achie!e international

di!ersification and hence they are less risky than sector funds. Kowe!er foreign securities funds are e$posed to foreign e$change rate risk and country risk.

iii.

Mid0Cap or S$all0Cap Funds3 Funds that in!est in companies ha!ing lower

market capitali%ation than large capitali%ation companies are called Med3=ap or Cmall3 =ap funds. Market capitali%ation of mid3=ap companies is less than that of big blue chip companies Dless than Rs../BB crores but more than Rs./BB crores E and Cmall3=ap companies ha!e market capitali%ation of les than Rs./BB crores Market =apitali%ation of a company can be calculated by multiplying the market price of the companyAs share by the total number of its outstanding shares in the market. The shares of Mid3=ap or Cmall3 =ap =ompanies are not as li2uid ads of @arge3=ap =ompanies which gi!es rise to !olatility in share prices of these companies and conse2uently in!estment gets risky.

i!.

Option In!o$e Funds3 :hile not yet a!ailable in India. "ption Income Funds write
options on large fraction of their portfolio. 8roper use of options can help to reduce !olatility which is otherwise considered as a risky instrument. These funds in!est in big

.5

high di!idend yielding companies and then sell options against their stock positions which generate stable income for in!estors.

d' +i"ersi#ied EGuity Funds0I$cept for a small portion of in!estment in li2uid money
market di!ersified e2uity funds in!est mainly in e2uities without any concentration on a particular sector DsE these funds arte well di!ersified and reduce sector3specific or company3 specific risk. Kowe!er like all other funds di!ersified e2uity funds too are e$posed to e2uity market risk ."ne prominent type of di!ersified e2uity fund in India is I2uity @inked Ca!ing Ccheme DI@CCE. -s per the mandate a minimum of 0B7 of in!estments by I@CC should be in e2uities at all times. I@CC in!estors are eligible to claim deduction from ta$able income Dup to Rs *lakhE at the time of filing the income ta$ return. I@CC usually has a lock3in period and in case of any redemption by the in!estor before the e$piry of the lock3in period makes him liable to pay income ta$ on such incomeDsE for which he may ha!e recei!ed any ta$ e$emptionDsE in the past.

e' EGuity IndeE Funds0 I2uity Inde$ Funds ha!e the ob&ecti!e to match the performance of
a specific stock market inde$. The portfolio of these funds comprises of the same companies that form the inde$ and is substituted in the same proportion as the inde$. I2uity inde$ funds that follow broad indices Dlike C(8 =>L >ifty Cense$E are less risky than e2uity inde$ funds that follow narrow sect oral indices Dlike #CI#->QIL or =>L #ank Inde$ etc.E >arrow indices are less di!ersified and therefore are more risky.

.1

#' Value Funds0 <alue Funds in!est in those companies that ha!e sound fundamentals and whose share prices are currently under3!alued. The portfolio of these funds comprises of shares that are trading at a low 8rice to Iarning Ratio DMarket 8rice per CharePIarning per ChareE and a low Market to #ook <alue DFundamental <alueE Ratio. <alue Funds may select companies from di!ersified sectors and are e$posed to lower risk le!el as compared to growth funds or specialty funds. <alue stocks are generally from cyclical industries Dsuch as cement steel sugar etc.E which make them !olatile in the short3term. Therefore it is ad!isable to in!est in <alue funds with a long3 term time hori%on as risk in the long term to a large e$tent is reduced.

EGuity In!o$e or +i"idend Yield Funds0 The ob&ecti!e of I2uity Income or ?i!idend +ield I2uity Funds is to generate high recurring income and steady capital appreciation for in!estors by in!esting in those companies which issue high di!idends Dsuch as power of ,tility companies whose share price fluctuate comparati!ely lesser than other companiesA share priceE. I2uity Income or ?i!idend +ield I2uity Funds are generally e$posed to the lowest risk le!el as compared to other e2uity funds. +ebtHIn!o$e Funds0 Funds that in!est in medium to long3 term debt instruments issued by pri!ate companies banks financial institutions go!ernments and other entities belonging to !arious sectors Dlike infrastructure companies etc. E are known as ?ebtP Income Funds. ?ebt funds are low risk profile funds that seek to generate fi$ed current income Dand not capital appreciationE to in!estors. In order to ensure regular income to in!estors ?ebt Dor incomeE funds distribute large fraction of their surplus to in!estors. -lthough debt securities are generally less

.0

risky than e2uities they are sub&ect to credit risk DRisk of defaultE by the issuer at the time of interest or principal payment. To minimi%e the risk of default debt funds usually in!est in securities from issuers who are rated by credit rating agencies and are considered to be of In!estment 'rade. ?ebt funds that target high returns are more risky. #ased on different in!estment ob&ecti!es there can be following types of debt fundsF a' +i"ersi#ied +ebt Funds D ?ebt funds that in!est in all securities issued by entities belonging to all sectors of the market are known as di!ersified debt funds. The best feature of di!ersified debt funds is that in!estments arte properly di!ersified into all sectors which result in risk reduction. -ny loss incurred. "n account of default by a debt issuer is shared by all in!estors which further reduces risk for an indi!idual in!estor.

b' Fo!used +ebt Funds0 ,nlike di!ersified debt funds focused debt funds are narrow focus funds that arte confined to in!estment in selecti!e debt securities issued by companies of a specific sector or industry or origin. Come e$amples of focused debt funds are sector speciali%ed and offshore debt funds funds that in!est only in Ta$ free Infrastructure or Municipal #onds. #ecause of their narrow orientation focused debt funds are more risky as compared to di!ersified debt funds although not yet a!ailable in India; these funds are concei!able and may be offered to in!estors !ery soon.

!' *i%h Yield +ebt #unds0 -s we now understand that risk of default is present in all debt funds and therefore debt funds generally try to minimi%e the risk of default by in!esting in securities

6B

issued by only those borrowers who are considered to be of Iin"est$ent %radeJ #ut high +ield ?ebt Funds adopt a different strategy and prefer securities issued by those issuers who are considered to be of Iin"est$ent %rade&. The moti!e behind adopting this sort of risky strategy is to earn higher interest returns form these issuers. These funds are more !olatile and bear higher default risk although they may earn at times higher returns for in!estors.

d' Assured Return Funds0 -lthough it is not necessary that a fund will meet its ob&ecti!es or pro!ide assured returns to in!estors but there can be funds that come with a lock G in period and offer assurance of annual returns to in!estors during the lock3in period. -ny shortfall in returns in suffered by the sponsors or the -sset Management =ompanies D-M=sE. These funds are generally debt funds and pro!ide in!estors with low3risk in!estment opportunity. Kowe!er the security of in!estments depends upon the net worth of the guarantor Dwhose name inn specified in ad!ance on the offer documentE. To safeguard the interests of in!estors CI#I permits only those funds to offer assured return schemes whose sponsors ha!e ade2uate net3worth to guarantee returns in the future. In the past ,TI had offered assured return schemes Di.e. Monthly Income 8lans of ,TIE that assured specified returns to in!estors in the future. ,TI was not able to fulfill its promises and faced large shortfalls in returns. I!entually go!ernment had to inter!ene and took o!er ,TIAs payment obligation on itself. =urrently no -M= in India offers assured return scheme to in!estors though possible. 2ilt Funds

6*

-lso known as 'o!ernment securities in India 'ilt Funds in!est in go!ernment papers Dnamed dated securitiesE ha!ing medium to long term maturity period. Issued by the 'o!ernment of India these in!estments ha!e little credit risk Drisk of defaultE and pro!ide safety of principal to the in!estors. Kowe!er like all debt funds gilt funds too are e$posed to interest risk Interest rates and prices of debt securities are in!ersely related and any change in the interest results in a change in the >-< of debtPgilt funds in an opposite direction.

Money Mar.etH(iGuid Funds Money market P li2uid funds in!est in short3 term 9$aturin% ,ithin one year: interest bearing debt instruments. These securities are highly li2uid and pro!ide safety of in!estment thus making money marketPli2uid funds the safest in!estment option when compared with other mutual fund types. Kowe!er e!en money market P li2uid funds are e$posed to the interest rate risk. The typical in!estment option for li2uid funds includes Treasury #ills 9issued by %o"ern$ents: =ommercial papers 9issued by !o$panies: and =ertificates of ?eposit 9issued by ban.s:'

*ybrid Funds0 -s the name suggests hybrid funds are those funds whose portfolio includes a blend of e2uities debts and money market securities. Kybrid funds ha!e an e2ual proportion debt and e2uity in their portfolio. There are following types of hybrid funds in India.

6.

=alan!ed Funds0 The portfolio of balanced funds include assets like debt securities con!ertible securities and e2uity and preference shares help in a relati!ely e2ual proportion the ob&ecti!es of balanced funds are to reward in!estors with a regular income moderate capital appreciation and at the same time minimi%ing the risk of capital erosion. #alanced funds are appropriate for conser!ati!e in!estors ha!ing a long term in!estment hori%on. a' 2ro,th0 and0 In!o$e Funds that combine features of funds are known as 'rowth3and3 Income Funds. These funds in!est in companies ha!ing potential for capital appreciation and those known for insuring high di!idends. The le!el of risks in!ol!ed in these funds in lower than growth funds and higher than income funds.

Asset Allo!ation Funds0 Mutual may in!est in financial assets like e2uity debt money market or non3financial DphysicalE assets like real estate commodities etc. -sset allocation funds adopt a !ariable asset allocation strategy that allows fund managers to switch o!er from one asset class to another at nay time depending upon their outlook for specific markets in other words fund managers may switch o!er to e2uity if they e$pect e2uity market to pro!ide good returns and switch o!er to debt if they e$pect debt market to pro!ide better returns. It should be noted that switching o!er from one asset class to another is a decision taken by the fund manager on the basis of his own &udgment and understanding of specific markets and therefore the success of these funds depends upon the skill of a fund manager in anticipating market trends. Co$$odity Funds0 Those funds that focus on in!esting in different commodities Dlike metals food grains crude oil etc.B or commodity companies or commodity futures contracts are termed

66

as =ommodity Funds. - commodity fund that in!ests in a single commodity or a group of commodities is a speciali%ed commodity fund and a commodity fund that in!ests in all a!ailable commodities is a di!ersified commodity fund and a bears less risk than a speciali%ed commodity fund. 8recious Metals Fund and 'old Funds Dthat in!est in gold gold futures or shares of gold minesE are common e$amples of commodity funds.

Real Estate Funds0 Funds that in!est directly in real estate or lend to real estate de!elopers or in!est in sharesP securiti%ed assets of housing finance company are known as Cpeciali%ed Real Istate Funds. The ob&ecti!e of the funds may be to generate regular income for in!estors or capital appreciation

EE!han%e Traded Funds 9ETF:3 I$change Traded Funds pro!ide in!estor with combined benefits of a closed3 end and an open3end mutual fund. I$change Traded Funds follow stock market indices and are traded on stock e$changes like a single stock at inde$ linked prices. The biggest ad!antage offered by these funds is that they offer di!ersification fle$ibility of holding a single share Dtradable at inde$ linked pricesE at the same time. Recently introduced in India these funds are 2uite popular abroad

Fund o# Funds

69

Mutual funds that do not in!est in financial or physical assets but do in!est in other mutual fund schemes offered by different -M=s are known as Funds of Funds of Funds maintain a portfolio comprising of units of other mutual fund schemes &ust like con!entional mutual funds maintain a portfolio comprising of e2uityPdebtP money market instrument or non financial assets. Fund of Funds pro!ide in!estors with an added ad!antage of di!ersifying into different mutual fund scheme with e!en a small amount of in!estment which further helps in di!ersification of risks. Kowe!er the e$penses of Fund of Funds are 2uite high on account of compounding e$penses of in!estments into ?ifferent mutual fund schemes.

6/

MUTUA( FU)+3 COST TO I)VESTOR

The utility that mutual fund can offer to in!estors has been discussed and often eulogi%ed in great detail. Kowe!er there is another !ital aspect to mutual funds that is rarely spoken about G the costs. In!esting in mutual funds entails bearing certain cost on the in!estorAs part. These costs in turn ha!e an impact on the returns clocked by the in!estor. In this article we take a closer look at the !arious costs and e$penses borne by in!estors while in!esting in a mutual fund scheme.

One0ti$e !har%es0IntryPe$it loads and initial issue e$penses 2ualify as one3time charges as
opposed to recurring e$penses which ha!e been dealt with later in the article. First letAs consider the case of new fund offers D>F"sE. "!er the last few years in!estors ha!e been faced with a deluge of >F"s. #ut in recent times a perceptible trend in >F"s has been a rise in the number of close3ended funds. This phenomenon can be traced to the rules go!erning initial issue e$penses. =lose3ended funds are not permitted to charge any entry load; instead 47 of the sum mobili%ed during the >F" period can be utili%ed to meet the initial issue e$penses The same can be amorti%ed Dcharged to the fund E o!er the fundAs close3ended tenure. For e$ample if a close3end fund were to mobili%e Rs / billion DRs /BB croresE during the >F" period the asset management company D-M=E can utili%e Rs 6BB million DRs 6BcroresE to meet the sales marketing and

64

distribution e$penses. Furthermore the stated sum will be charged to the fund. This will impact the returns clocked by the fund. -ny amount o!er the stated 47 has to be borne by the -M=. =on!ersely in the case of open3 ended >F"s funds are re2uired to meet all the sales marketing and distribution e$penses from the entry load. They are not permitted to charge any initial issue e$penses. The rules go!erning entryPe$it loads state that taken together the two cannot account for more the 47 of the net asset !alue D>-<E. =harging an entry load for the entire 47 upfront would ad!ersely affect the fundAs performance in the initial period. Kence -M=s choose to ha!e rater rationalA entry loads ion the range of .../73...B7. @ike initial issue e$penses entry loads also eat the in!estorAs returns since the in!estor has that much less money working for him. For e$ample Cay an in!ests Rs / BBB in an open3 ended fund that charge s an entry load of ../B7. Iffecti!ely only Rs 9 15/ is in!ested in the fund. If is not difficult to understand why -M=s ha!e a newfound liking for close3ended funds. :ith the pro!ision for charging 47 of amount mobili%ed towards initial issue e$penses -M=s are better e2uipped to compensate toe distributors and agents who in turn help the fund houses in accumulating more assets. Kigher assets translate into higher re!enues for the -M=s of courses; close3ended funds do offer ad!antages as well. For e$ample the fund manager can make in!estments from a long3term perspecti!e and in!estors are gi!en the opportunity to in!est for a pre3defined in!estment hori%on. Kowe!er in!estors would do well to factor in the costs in!ol!ed.

Re!urrin% eEpenses0In!estors also ha!e to contend with recurring e$penses which are
charged annually to the fund. These e$penses are re!ealed in the form of an e$pense ratio that is declared twice a year. Recurring e$penses Das is the case with amorti%ed issue e$pensesE are

65

silentA in nature since they donAt necessarily attract the in!estorAs attention. The reason being that the fundAs >-< is declared after the recurring e$penses ha!e been accounted for. The Cecurities and I$change #oard of India DCI#IE has laid out guidelines defining the manner in which recurring e$penses can be chargedF the same is a factor of the fundAs a!erage weekly assets Dhowe!er most -M=s choose to compute it as a percentage.

The eEpense ratio

A"era%e daily net assets First Rs * BBBm >e$t Rs 6 BBBm >e$t Rs 6 BBBm "n balance assets

K(i$it ../B7 ../B7 ..BB7 *.5/7

-s can be seen form the table abo!e the grid for recurring e$penses has been structured in a manner to ensure that the e$penses charged to the fund reduce with an increase in the asset si%e. The recurring e$penses include marketing and selling e$penses Dincluding agentsA commissionE brokerage and transaction cost custodian fees and fund management e$penses Dpaid to the -M=E among other e$penses. - typical list of recurring e$penses for an e2uity fund would look like the followingF

Re!urrin% eEpenses #or an eGuity #und0

EEpenses

K O# a"era%e daily net assets

61

Fund Management Marketing ( Celling =ustodian Fees In!estor =ommunication Registrar Fees

*../7 B./B7 B../7 B..B7 B.*/7

A+VA)TA2ES OF MUTUA( FU)+

S')O'
*.

Ad"anta%e
/ro#essional Mana%e$ent

/arti!ulars
Fund manager undergoes through !arious research works and has better in!estment management skills which ensure higher returns to the in!estor than what he can manage on his own.

..

(ess Ris.

In!estors ac2uire a di!ersified portfolio of securities e!en with a small in!estment in a Mutual Fund. The risk in a di!ersified portfolio is lesser than in!esting merely . or 6 securities.

6.

(o, Transa!tion !osts

?ue to the economies of scale Dbenefits of larger !olumesE mutual funds pay lesser transaction costs. These benefits are passed on to the in!estors.

9.

(iGuidity

-n in!estor may not be able to sell some of the shares held by him !ery easily and 2uickly whereas units of a mutual fund are far more li2uid. Mutual funds pro!ide in!estors with !arious schemes with

/.

Choi!e o# S!he$es

60

different in!estment ob&ecti!es. In!estors ha!e the option of in!esting in a scheme ha!ing a correlation between its in!estment ob&ecti!es and their own financial goals. These schemes further ha!e different plansPoptions.

4.

Transparen!y

Funds pro!ide in!estors with updated information pertaining to the markets and the schemes. -ll material facts are disclosed to in!estors as re2uired by the regulator.

5.

FleEibility

In!estors also benefit form the con!enience and fle$ibility offered by Mutual Funds. In!estors can switch their holding from a debt scheme to an e2uity scheme and !ice3!ersa. "ption of systematic Dat regular inter!alsE In!estment and withdrawal is also offered to the in!estors in most open3end schemes.

1.

Sa#ety

Mutual Fund industry is part of a well3 regulated in!estment en!ironment where the interests of the in!estors are protected by the regulator. -ll funds are registered with CI#I and complete transparency is forced.

9B

+ISA+VA)TA2ES OF MUTUA( FU)+

S')O'
*.

+isad"anta%es
Costs Control )ot in the *ands o# an In"estor

/arti!ulars
In!estor has to pay in!estment management fees and fund distribution costs as a percentage of the !alue of his in!estments Das long as he holds the unitsE irrespecti!e of the performance of the fund.

..

)o Custo$i@ed /ort#olios

The portfolio of securities in which a fund in!ests is a decision taken by the funds manager. In!estors ha!e no right to interfere in the decision making process of a fund manager which some in!estors find as a constraint in achie!ing their financial ob&ecti!es.

6.

+i##i!ulty in Sele!tin% a Suitable Fund s!he$e

Many in!estors find it difficult to select one option form the plethora of fundsP schemesP plans a!ailable. For this they may ha!e to take ad!ice from financial planners in order to in!est in the right fund to achie!e their ob&ecti!es.

9*

Mutual Funds in India

Sahara Mutual Fund
Cahara mutual Fund was set up on Ruly *1 *004 with Cahara India Financial =orporation @td. -s the sponsor. Cahara -sset Management =ompany 8ri!ate @imited inculpated on -ugust 6* *00/ :orks as the -M= of Cahara Mutual Fund. The paid3up capital of The -M= stands at Rs../.1 crore.

State =an. o# India Mutual Fund

Ctate #ank of India Mutual Fund is the first #ank sponsored Mutual Fund to launch offshore fund the India Magnum Fund with a corpus of Rs. ../ er. -ppro$imately Today it is the largest #ank sponsored Mutual Fund in India. They ha!e already launched 6/ Cchemes out of which */ ha!e already yielded handsome returns to in!estors. Ctate #ank of India mutual Fund has more than Rs / /BB =rores as -,M. >ow it has an in!estor base of o!er 1 @akhs spread o!er *1 schemes.

9.

Tata Mutual Fund

Tata Mutual Fund DSTMFE is a Trust under the India Trust -ct *11.. The sponsor for Tata Mutual Fund is Tata Cons @td. and Tata In!estment =orporation @td. The in!estment manager is Tata -sset Management @imited is one of the fastest in the country with more than Rs 5 5B6 crores Das on -pril6B .BB/E of -,M.

Lota. Mahindra Mutual Fund

Qorak Mahindra -sset Management =ompany DQM-M=E is a subsidiary of QM#l. It is presently ha!ing more than * 00 1*1 in!estors in it !arious schemes. QM-M= started its operations in ?ecember *001. Qotak Mahindra Mutual Fund offers schemes fcatering to in!estor s with !arying risk3 return profiles. It was the first company to launch dedicated gilt scheme in!esting only in go!ernment securities.

Unit Trust o# India Mutual Fund

,TI -sset Management =ompany pri!ate @imited established in &an *9 .BB6 manages the ,TI Mutual Fund with the support of ,TI Trustee =ompany 8ri!ate @imited. ,TI -sset Management =ompany presently manages a corpus of o!er Rs..BBBB =rore. The sponsors of ,TI Mutual Fund are #ank of #aroda D#"#E. 8un&ab >ational #ank D8>#E Ctate #ank of India DC#IE and @ife Insurance =orporation of India D@I=E. The schemes of ,TI Mutual Fund are @i2uid Funds Income Funds -sset Management Funds Inde$ Funds I2uity Funds and #alance Funds.

Relian!e Mutual Fund

96

Reliance Mutual Fund DRMFE was established as trust under Indian Trusts -ct *11.. The sponsor of RMF is Reliance =apital @imited and Reliance =apital Turstee =o. @imited is the Trustee. It was registered on &une 6B *00/ as Reliance =apital Mutual Fund which was changed on March ** .BB9 Reliance Mutual Fund was formed for launching of !arious schemes under which units are issued to the 8ublic with a !iew to contribute to the capital market and to pro!ide in!estor the opportunities to make in!estments in di!ersified securities.

TO/ > MUTUA( FU)+S COM/A)IES I) I)+IA

Tui% 2uestionF what percentage of household sa!ings is in mutual funds; -nswerF . per cent. ThatHs a pittance. :hich is why mutual fund houses are trying new ways to not only entice in!estor but also entice in!estor but also new way to add !alue and woo you the customer; There are old scheme new schemes old schemes mas2uerading as new ones inno!ati!e schemes and !alue3 added schemesUthereAs no telling when this flood will end. -nd thatAs not a bad thing at all. This is one case where more is definitely merrier because it simply enforces the fact that the customer is king. #ut enough of such clichVs and on to look at those fund houses that lead the rest in sheer inno!ati!e schemes and !alue3added schemesUthereAs no telling when this flood will end. -nd thatAs not a bad thing at all. This is one case where is definitely merrier because it simply enforces the fact that the customer is king.

99

#ut enough of such clichVs and on to look at those fund houses that lead the rest in sheer inno!ati!eness. These MFs ha!e done a lot to add !alue to your in!esting e$perience whether in the form of uni2ue schemes or inno!ati!e management or sheer professionalism. @eading our list of fi!e is a fund that most people thought was a loser. @ooks are not always what they seem. The MF was actually &ust sticking to its high ethical ground. This fund houseAs belief that its way would triumph put it on the top of the heap. >ow on to the list.

1' Fuantu$ Mutual Fund Mutual funds should be bought not sold says ?ayal director Tuantum MF. -nd thatAs the foundation of the allow3new Tuantum. @aunched in February .BB4 the fund house has deliberately chosen to a!oid distributing its schemes through distributors a first in this industry. The only way you can buy Tuantum schemes is to download the forms from the company site or by asking them to courier the forms to you. -!oiding distributors in peak markets could pro!e costly. #ecause they can sell schemes aggressi!ely and help the fund mop up huge collections. :hich is possibly why Tuantum @ong G Term I2uity fund collected &ust; Rs ** crore. >ot that they are complaining :eAll be !ery happy after fi!e years when weAll be able to demonstrate the cost sa!ing mo!e ob!iously says ?ayal. Incidentally the fund is also among the !ery few open3ended e2uity schemes to le!y high e$it loads on early withdrawals yes Tuantum seeks to set an e$ample of how mutual funds should

9/

be approached but this means that it will take it se!eral years before it can accomplish its mission. :eAll keep you posted.

;0 =en!h$ar. Mutual Fund >ot many funds ha!e launched inde$ funds in India and those that did generally made a low3key entrance into that space. -nd then comes benchmark MF inn .BB* which made no bones about the fact that it was going to launch only inde$ funds. To be precise it planned to launch only ITFs De$change3 traded fundsE3 close cousins of inde$ funds. The difference is that ITFs are listyed on the stock e$changes and you can buy and sell units throughout the day and not &ust at the end of the dayAs price like an inde$ fund or any other open3ended mutual fund. Kighlights of #enchmarkAs portfolio include inno!ati!e schemes like its -rbitrage Fund Cplit =apital Fund and @i2uid #eIs. #enchmark is also the countryAs first and only fund with solely passi!ely managed schemes. The MF does not belie!e in acti!e managementF rather it belie!es that inde$ing and 2uantitati!e fund management is the way to go.

94

Cet up by Ra&an Mehta and Can&i! Chah the fundAs philosophy is to remain in!ested in the inde$ and let it do its own thing. Cays MehtaF H"!er the last three years the gap of out3performance by acti!ely managed funds o!er the indices is reducing. It does not mean that fund managers ha!e run out of ideas but there are some structural changes like better corporate disclosures and the increasing number of informed and professional in!estors in the market. ?ue to this the ability to ad !alue becomes less which is why inde$ing is a much more sustainable strategy o!er the longer term. -s weA!e seen elsewhere in the world the more the markets mature and become efficient the more difficult it becomes to outperform the inde$.

<' Fidelity Mutual Fund

ItAs the big daddy of mutual funds and when fidelity entered the Indian market last year in!estors and analysts sat up and took notice. The first launch Fidelity I2uity Fund collected Rs * 94B crore DRs*9.4 billionE among the largest inflows till the. The fund is now one year old and has passed its first test with flying colours with returns of 51.0 percent. Co whatAs the difference between Fidelity and other MFs sa!e si%e; :hat caught our attention one year ago and still does is the fact that Fidelity does not encourage in!estors to wander in and out of its schemes. It claims to monitor all entries and e$its and if it feels that an in!estor is making fre2uent entries and e$its into fund it will disallow those flows. Fre2uent churning has a negati!e impact for e$isting long3term in!estors Cays -shu Cuyash head3 Fidelity M.F. Fidelity claims that inception it hasnAt yet come across any instances of in!estors who churn

95

e$cessi!ely but the policy still stands perhaps as a deterrent. #ut what about in!estors who e$it soon after the fund was listed; "r maybe e!en in the first year itself; Cuyash saysF :e had3 and still ha!e3 an e$it load of * per cent in!estors e$iting within si$ months. That may not be enough. If the market goes up phenomenally in a year and so does the fund eager in!estors might still pay the load and get away. :ith CI#I following a ma$imum of 5 per cent load thereAs room left for Fidelity to enforce its belief a bit more.

6' Fran.lin Te$pleton Mutual Fund'

In the *00Bs most e2uity funds launched were either closed3and or plain !anilla di!ersified e2uity schemes. Inter Franklin Templeton. They launched IndiaAs first e2uity scheme. Templeton India 'rowth Fund based on the concept of H!alue in!esting. IndiaAs liberali%ation process which started in the early *00Bs had picked up momentum towards the middle of that decade and Indian companies that had grown till then in a controlled en!ironment were now waking up to the realities of competition not &ust with in the country but also from abroad. In masse companies began restructuring Cays =hetan Cehgal director3research Franklin TempletonF In that sense a H!alueA fund with a focus on long3term potential was seen as an ideal platform for capturing the ad!antages of this metamorphosis through in!estments in large companies.

91

Kowe!er in its early days TI=F did not do well due to the impact of the Couth -sian crisis on companyAs in*005 and the increased interest in technology stocks. The fund stuck to large3cap stocks and stayed away form mid3 caps. Though it lost out to its more aggressi!e peers during the technology boom of *001300 it came into its own during .BBB3B* when markets crashed. In .BBB when markets lost .B per cent and the di!ersified e2uity funds category lost 6B percent TI'F lost &ust . per cent. In .BB*W the fund was in the top *B; it lost *B percent while Cense$ lost *1 percent.

/. Relian!e Mutual Fund

The now leader Reliance Mutual Fund has come into its own after years of trailing the likes of Franklin Templeton K?F= and 8rudential I=I=I. -ccording to -MFIAs March3end figures Reliance MF is the leading pri!ate MF player in terms of corpus and second only to ,TI MF o!erall. Its latest >F" Reliance I2uity had a lot to do with this as the fund mopped up Rs / 5/B crore DRs /5./ billionE3 the highest inflows e!er in a di!ersified e2uity fund. #ut it would be unfair to attribute all the gains to this one scheme. RelianceAs other funds had a lot to do with this significant growth. @aunched in *00/ Reliance MF had a tough time in the early years. Its two flagship e2uity funds Reliance 'rowth and Reliance <ision showed uninspired performance till .BB*. It was only in .BB. when after a change in fund management the schemes started to turn around. -nd so did the fund houseAs fortunes.

90

In .BB. both 'rowth and <ision topped the charts and still continue with their sterling performances. Reliance MF has de!eloped the art of picking up unheard of companies that turn out to be multi3baggers. In recent years the fund house has launched uncon!entional sector funds and has done well. :hile Reliance ?i!ersified 8ower Fund returned *B4 percent Reliance Media ( Intertainment Fund returned 1* percent in the past one year. Reliance #anking Fund returned 91 percent since inception."!er the year Reliance MF has built up its fi$ed income side as well. Two of its debt fund Reliance Income Fund and Reliance FRF are fi!e3 star rated. From a corpus si%e of Rs /10 crore DRs /.10 billionE at the end of .BBB. The fundAs si%e has grown to Rs .9 45B crore DRs .94.5 billionE ThereAs on looking back now

C*A/TER 0;
RESEARC* MET*O+O(O2Y

/B

RESEARC* MET*O+O(O2Y
Resear!h 30Research is a purposeful in!estigation. It is a scientific ( systematic search for
knowledge ( intimation on a specific topic research is use full ( research ob&ecti!e can be achie!ed if it is done in propose process.

Resear!h Methodolo%y30 Research is a common language refers to a search of knowledge.

Research is scientific ( systematic search for pertinent information on a pacific topic infect research is an art of scientific in!estigation. Research methodology is a scientific way to sol!e research problem. It may be understood as a science of studying how research is doing scientifically. In it we study !arious steps that are generally adopted by research by research in studying their research problem it is necessary for researchers to know not only know research method techni2ues but also technology.

Resear!h desi%n

/*

- research design is defined as the specification of methods and procedures for ac2uiring the information needed. It is a plant or organi%ing framework for doing the study and collecting the data. ?esigning a research plan re2uires decision all the data sources research approaches Research instruments sampling plan and contact methods. Resear!h desi%n is $ainly o# #ollo,in% types30 ?escripti!e studies

+ESCRI/TIVE RESEARC* ?escripti!e research in contrast to e$ploratory research is marked by the prior formulation of specific research Tuestions. The in!estigator already knows a substantial amount about the research problem perhaps as a Result of an e$ploratory study before the pro&ect is initiated; ?escripti!e research is also characteri%ed by a preplanned and structured design.

+ATA CO((ECTIO) MET*O+

/RIMARY ?irect personal Inter!iew Indirect personal Inter!iew 8ublished Cources

SECO)+ARY

,npublished Cources

/.

Information from correspondents Mailed 2uestionnaire Tuestion filled by enumerators.

'o!t. publication Report =ommittees ( =ommissions 8ri!ate 8ublication

SECO)+ARY +ATA Cecondary data on the other hand are those which are collectedby someonewhich ha!e been passed through statistical process. Sources of Secondary Data are :JOURNALS/NEWSPAPER

etc:- Some newspapers /Journals collect their own data.

I.g. Indian Rournals of economics Iconomic Times -d!ertising Today etc. ?ata my be obtained through websites. ?ata may be obtained from @ibraryD#ooks ( -rticlesE

/6

C*A/TER 0< +ATA A)A(YSIS

/9

C I)TER/RETATIO)

The %ro,th o# $utual #und industry in India'

//

Cource of data;3 Ans,ers' Co$' I>TIR8RIT-TI">F3 The graph shows that in phase *st there was the profit made by the MFs companies are !ery low that was only ./cr. -nd in .nd phase the ma$imum income was of 9/49cr. This shows that people were taking keen interest in MFs in!estment. -nd in 6rd phase the after the introduction of pri!ate sector the income generated by MFs company was 4*5060cr. Condition a#ter enterin% o# publi! se!tor C /ri"ate Se!tor $utual #unds in India'

/4

'ross amount mobili%ed DRs. =roreE *001300 ,TI **450 *0003BB *6/64

-ssets under management DRs. =roresE *001300 /66.B D55.157E *0003BB 54/95 D45.5/7E **9*. D*B.B07E ./B94 D...*47E **6BB/

8ubic sector s 8ri!ate sector

*56.

9B60

1.0. D*..**7E

5044

9.*56

414B D*B.B.7E

Total

.*655

/0591

4195.

Cource of data;3 =usiness ti$es I)TER/RETATIO)30 The si%e of the industry is growing rapidly as seen the figure of assets under management which ha!e gone from o!er Rs. 41BBB crores to Rs. **6BB/ crores a growth of nearly 4B7 in &ust one year. :ithin the growing industry by March .BBB the relati!e market shares of different players in terms of amount mobili%ed and assets under management ha!e undergone a change.

/5

Cource of data;3 -khilesh pro&ect on in!estors decision in MFs In!estment. DS!ribd '!o$':

SECTOR-WISE MOBILISATION BY MFs (FY02)

(Rs C%&%'s)

1>???

13049.89

1????

>???
1409.31

?

- !RI"AT #-N !$BLI 1-

0> ? ? ?
-7284

01 ? ? ? ?

I)TER/RETATIO)30 The figure shows that the pri!ate sector Mutual Funds is growing !ery rapidly and earning the profit of Rs.*6B90 crore and whereas the profit of public sector Mutual Funds is only Rs.*9B0 crore. In which the ,TI which is a public sector Mutual Funds organi%ation it is not earning any profit.

/er#or$an!e o# $utual #unds in India

@et us start the discussion of the performance of mutual funds in India from the day the concept of mutual fund took birth in India. The year was *046. ,nit Trust of India in!ited in!estors or rather to those who belie!ed in sa!ing to park their money in ,TI Mutual Fund.

/1

For 6B years it goaled without a single second player. Thought the *001 year saw some new mutual fund companies but ,TI remained in a monopoly position. The performance of mutual funds in India in the initial phase was not e!en closer to satisfactory le!el. 8eople rarely understood and of course in!esting was out of 2uestion. #ut yea some .9 million shareholders was accustomed with guaranteed high returns by the beginning of liberali%ation of the industry in*00.. This good record of ,TI became marketing took for new entrants. The e$pectations of in!estors touched the sky in profitabi0lity factor. Kowe!er people were miles away from the preparedness of risks factor after the liberali%ation. The -ssets under Management of ,TI was Rs. 45bn. by the end of *015. @et me concentrate about the performance of mutual funds in India through figures. From Rs.45bn. The -ssets ,nder Management rose to Rs. 95B bn. In mach *00.6 and the figure had a three times higher performance by -pril .BB9. It rose as high as Rs. * /9 obn. The net asset !alues D>-<E of mutual funds in India declined when stock price started falling in the year *00.. Those days the market regulations did not allow portfolio shifts into alternati!e in!estments. There were rather no choices apart form holding the cash or to further continue in!esting in shares one more thing to be noted since only closed3end funds were floated in the market the in!estors disin!ested by selling at a loss in the secondary market. The performance of mutual funds In India suffered 2ualitati!ely. The *00. stock market scandals the losses by disin!estments and of course the lack of transparent rules in the where about rocked confidence among the in!estors. 8artly owing to a relati!ely weak stock market

/0

performance. Mutual funds ha!e not yet reco!ered with funds trading at an a!erage discount of *B or .B percent of their net asset !alue.

The per#or$an!e o# "arious industry in"ol"ed in $utual #und business'

T&( M)*)+, F)-.s

4B

As on 10-May-2013 Fund (atest )AV < Yr Return 1 Yr Return )et Assets 9Cr:

I=I=I 8rudential ?isco... I=I=I 8rudential ?isco!ery I?F= 8remier I2uity Tata ?i!idend +ield #irla Cun @ife ?i!iden... Tuantum @ong Term I2uity I>' ?i!idend +ield K?F= 8rudence K?F= #alanced K?F= I2uity I=I=I 8rudential Focus...

.*.94DB0PB/P*.E 95./4DB0PB/P*.E 6..*1*9DB0PB/P*.E 6..4690DB0PB/P*.E 1B.5.DB0PB/P*.E .B.06DB0PB/P*.E .*..5DB0PB/P*.E .B4.969DB0PB/P*.E /4./*0DB0PB/P*.E .96.95*DB0PB/P*.E */.1/DB0PB/P*.E

6..5/ 6*.64 .5.65 ./.01 ./..0 .9.05 .9.0* .9.B/ .6..9 ...94 .B.1* .B.4. .B./6 .B.B6 *0.0B *0.5. *0..6 *1./9 *5.59

3*.95 3..9. *./4 36.B5 39.9* 36.00 35.99 3..1* *.*/ 3*../1 39.40 36.44 B.9* 31.** 39.40 35.9. 31.0. 3*B.54 3/./*

* 551.4BD6*PB6P*.E * 551.4BD6*PB6P*.E . /4B./5D6*PB6P*.E .56.B6D6*PB6P*.E * *4..00D6*PB6P*.E *B/.45D6*PB6P*.E 05.*1D6*PB6P*.E 4 .91.4BD6*PB6P*.E //9.06D6*PB6P*.E 0 0*4.65D6*PB6P*.E

=anara Robeco I2uity ?i!ersified /..4DB0PB/P*.E ,TI "pportunities K?F= 'rowth I=I=I 8rudential Focus... ?C8#R I2uity ,TI ?i!idend +ield K?F= Top .BB C#I Magnum I2uity .5.B6DB0PB/P*.E 50.665DB0PB/P*.E */.1/DB0PB/P*.E 96.6/9DB0PB/P*.E .0.6DB0PB/P*.E *14.0/4DB0PB/P*.E 9B.4*DB0PB/P*.E

/9..51D6*PB6P*.E . 4B/./9D6*PB6P*.E * .4*.0/D6*PB6P*.E

. //*.*9D6*PB6P*.E 6 /00.10D6*PB6P*.E ** 61*.B4D6*PB6P*.E 90*.65D6*PB6P*.E

4*

Reliance Regular Ca!ings I2uity Franklin India #luechip I=I=I 8rudential Top *BB Inst I ?C8#R Top *BB I2uity Reg

.4.6900DB0PB/P*.E

*5.4/

3*..B* 34./9 3..*/ 39.01 3*6.1* 3**.51

. 10*.B.D6*PB6P*.E 9 /*4.6/D6*PB6P*.E 6./.B4D6*PB6P*.E 6 .91.9BD6*PB6P*.E 09.4BD6*PB6P*.E **0...D6*PB6P*.E

*00.6B6*DB0PB/P*.E *5./5 *1.45DB0PB/P*.E 09.9*.DB0PB/P*.E *4.0. *4.49 *9.59 *..0.

-I' Infrastructure and Iconomic 5.066DB0PB/P*.E Reform Inst =anara Robeco Infrastr... *0.19DB0PB/P*.E

As on 10-May-2013

Cource of data;3 Money'!o$

I)TER/RETATIO)F3

4.

13

I=I=I 8rudential ?isco... fund is top mutual fund with latest >a! .*.94DB0PB/P*.E . The a!erage

return in last * year and 6 years was 3*.957 and 6..5/7 respecti!ely. Total net assets of I=I=I 8rudential ?isco... mutual fund is Rs. * 551.4BD6*PB6P*.E crores. ;0 I=I=I 8rudential ?isco!ery fund with latest >a! 95./4DB0PB/P*.E ga!e the a!erage return of 3..9.7 in last * year and 6*.647 in last 6 years. Total net assets of I=I=I 8rudential ?isco!ery mutual fund is Rs. * 551.4BD6*PB6P*.E crores. <0 I?F= 8remier I2uity fund with latest >a! 6..*1*9DB0PB/P*.E ga!e the a!erage return of *./47 in last * year and .5.657 in last 6 years. Total net assets of I?F= 8remier I2uity mutual fund is Rs. . /4B./5D6*PB6P*.E crores. 60 Tata ?i!idend +ield fund with latest >a! 6..4690DB0PB/P*.E ga!e the a!erage return of 36.B57 in last * year and ./.017 in last 6 years. Total net assets of Tata ?i!idend +ield mutual fund is Rs. .56.B6D6*PB6P*.E crores.

The !o$panies in ,hi!h the $utual #unds !o$panies pre#ers to in"est the in"estors #und'

46

Se!tor na$e

)o' o# MFs bettin% on it

-utomoti!e banking ser!ices cement ( construction consumer durables =onglomerates =hemicals consumer non durables engineering goods food ( be!erages information technology media ( entertainment Manufacturing metals( mining Miscellaneous oil ( gas 8harmaceuticals Cer!ices Telecom Tobacco ( (

.// financial *04

.65 /* .*1 ./0 *94

capital 6*5

*5/ .19 .*1 ./0 .5/ ./B .0B ./B .BB .49 */B

49

,tility

../

Cource of data;3 -khilesh pro&ect regarding in!estors decesion in MFs In!estment'9s!ribd'!o$: Interpretation;0 It is found that the professionals of mutual funds in!ests the fund money into engineering and capital goods then oil and gas and so on shown in the abo!e fig. More than 6BB MFs are betting in engeenering and capital goods companies. #esides those MFs companies are

4/

also taking keen interest in betting in IT sector and oil ( gas.The companies in which MFs shows their less interest are consumer durables ( non durables Tobacco companies. *o, $utual #unds are $ana%ed or ,or.in% o# $utul #und M

Cource of data;3 =usiness Ti$es Interpretation30 The abo!e diagram shows that how the in!estors fund is utili%ed by the mutual funds professionals. -s shown in the fig that when the the in!estors i!ests their fund in MFs. The fund master used to make a pool of funds and when in the pool a large amount of fund is collected he used to in!est those some of money in share market. -fter some time when fund manager reali%es gain or loss he collects di!idend or interest income. If there is any gain or loss from such in!estments are passed on to the in!estor in proportion to the no. of units held by them.

44

The stru!ture o# $utual #und

I>TIR8RIT-TI">F3 MUTUA( FU)+ =ASE+ O) T*EIR STRUCTURE Open Ended S!he$es30 -n open3end fund is one that is a!ailable for subscription all through the year. These do not ha!e a fi$ed maturity. In!estors can con!eniently buy and sell units at >et -sset <alue DX>-<XE related prices. The key feature of open3end schemes is li2uidity. Close Ended S!he$es30 - closed3end fund has a stipulated maturity period which generally ranging from 6 to */ years. The fund is open for subscription only during a specified period. In!estors can in!est in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock e$changes where they are listed. In order to pro!ide an e$it route to the in!estors some close3ended funds gi!e an option of selling back the

45

units to the Mutual Fund through periodic repurchase at >-< related prices. CI#I Regulations stipulate that at least one of the two e$it routes is pro!ided to the in!estor.

The ob e!ti"e behind in"est$ent in $utual #undM

=Y I)VESTME)T O=BECTIVE

2ro,th S!he$es3. The aim of these schemes is to pro!ide capital appreciation o!er medium to long term. These schemes normally in!est a ma&or part of their fund in e2uities and are willing to bear short3term decline in !alue for possible future appreciation. In!o$e S!he$es3. The aim of these schemes is to pro!ide regular and steady income to in!estors. These schemes generally in!est in fi$ed income securities such as bonds and corporate debentures. =apital appreciation in such schemes may be limited. =alan!ed S!he$es3 #alanced Cchemes aim to pro!ide both growth and income by periodically distributing a part of the income and capital gains they earn. Money Mar.et S!he$esF Money Market Cchemes aim to pro!ide easy li2uidity preser!ation of capital and moderate income. These schemes generally in!est in safer short3term instruments such as treasury bills certificates of deposit commercial paper and inter3bank call money. OT*ER SC*EMES TaE Sa"in% S!he$es3 Ta$3sa!ing schemes offer ta$ rebates to the in!estors under ta$ laws prescribed from time to time. ,nder Cec.11 of the Income Ta$ -ct contributions made to any I2uity @inked Ca!ings Ccheme DI@CCE are eligible for rebate. IndeE S!he$es3 Inde$ schemes attempt to replicate the performance of a particular inde$ such as the #CI Cense$ or the >CI /B. The portfolio of these schemes will consist of only those stocks that constitute the inde$. The percentage of each stock to the total holding will be identical to the stocks inde$ weightage. -nd hence the returns from such schemes would be more or less e2ui!alent to those of the Inde$

41

The threats and opportunities in"ol"ed in $utual #und industry.

OPPORTUNTIES
Opportunities o# Mutual Funds are tremendous specially when in!estment is concerned. For any indi!idual who intends to allocate his assets into proper forms of in!estment and want to di!ersify his In!estment 8ortfolio as well as the risks Mutual Funds can be pro!ed as the biggest opportunity. In!estors gets a lot of ad!antages with the Mutual Fund In!estment. Firstly they are not re2uired to carry on intensi!e research and detailed analysis on Ctock Market and #ond Market. This work is done by the Fund Mangers of the In"est$ent Mana%e$ent Co$pany on behalf of the in!estors. In fact the professional Fund Managers who handle the mutual funds of any particular company are able to speculate the market trend more correctly than any common indi!idual. 'ood Cpeculation about the trends of stock prices and bond prices leads to right allocation of funds in the right stocks and bonds resulting in good Rate o# Returns.

In!estors also get the ad!antage of high (iGuidity of the mutual funds. This means the in!estors can en&oy easy access to the funds in!ested in the mutual funds whene!er they re2uire the money. :hen the in!estors in!est in any mutual fund they are gi!en some e2uity position in that fund. The in!estors can any time sell their mutual fund shares to get back the money in!ested in mutual funds. The only thing is that the Rate of Return that they will get may not be fa!orable as

40

the

return

depends

on

the

present

market

condition.

The greatest opportunity that the mutual funds offer is the opportunity of di!ersifying their in!estments. In"est$ent +i"ersi#i!ation actually di!ersifies the Risk associated with in!estment. This is because if at a time if prices of some stocks are declining deceasing the <alue of In!estment prices of some other stocks and bonds may tend to rise and in this way the loss of the mutual fund is offset by the strength of the stocks whose prices are rising. -s all the mutual funds di!ersify their in!estments in !arious common stocks preferred stocks and different bonds the risk to be borne by the in!estors are well di!ersified and in other terms lowered. T*REATSNC*A((A)2ES There are many =hallenges Facing Mutual Funds which is of prime concern to the people who ha!e an in!estment spree. 8eople find mutual fund in!estment so much interesting because they think they can gain high rate of return by di!ersifying their in!estment and risk. #ut in reality this scope of high rate of returns is &ust one side of the coin. "n the other side there is the harsh reality of highly Fluctuating Rate of Returns. Though there are other disad!antages also this concern of fluctuating returns is most possibly the greatest challenge faced by the mutual fund. The Issue o# Flu!tuatin% Returns

5B

In spite of being a di!ersified in!estment solution mutual funds in!estment in no way guarantees any return. If the market prices of ma&or shares and bonds fall then the !alue of mutual fund shares are sure to go down no matter how di!ersified the mutual fund portfolio be. It can be said that mutual fund in!estment is somewhat lower risky than ?irect In!estment in stocks. #ut e!ery time a person in!ests in mutual fund he una!oidably carries the risk of losing money The Other Challen%es Y?i!ersification or "!er ?i!ersification3 In order to di!ersify the in!estment many times the mutual fund companies get in!ol!ed in "!er ?i!ersification. The risk of holding a single financial security is remo!ed by di!ersification. #ut in case of o!er di!ersification in!estors di!ersify so much that many time they end up with in!esting in funds that are highly related and thus the benefit of risk di!ersification is ruled out. YTa$es3I!ery year most of the mutual funds sell substantial amount of their holdings. If they earn profit by this sell then the in!estors recei!e the 8rofit Income. For most of the mutual funds the in!estors are bound to pay ta$es on these incomes e!en if they rein!est the income. Y=osts3 Most of the mutual funds charge Chareholder Fees and Fund "perating Fees from the in!estors. In the year in which mutual fund fails to make profit and the in!estors get no return these fees only blow up the losses.

5*

C*A/TER06 FI)+I)2S C RECOMME)+ATIO)S

5.

Findin%s
:e find that the mutual fund industry has taken the pace after the year .BB6. -nd the growth of mutual fund industry after .BB6 was anonymously high than any other industry in India. The -ssets under Management of ,TI was Rs. 45bn. by the end of *015. :hen the pri!ate sector eners into the MFs industry it was found that the si%e of the industry is growing rapidly as seen the figure of assets under management which ha!e gone from o!er Rs. 41BBB crores to Rs. **6BB/ crores a growth of nearly 4B7 in &ust one year. I=I=I 8rudential ?isco... fund is top mutual fund with latest >a! .*.94DB0PB/P*.E . The a!erage return in last * year and 6 years was 3*.957 and 6..5/7 respecti!ely. Total net assets of I=I=I 8rudential ?isco... mutual fund is Rs. * 551.4BD6*PB6P*.E crores. I=I=I 8rudential ?isco!ery fund with latest >a! 95./4DB0PB/P*.E ga!e the a!erage return of 3..9.7 in last * year and 6*.647 in last 6 years. Total net assets of I=I=I 8rudential ?isco!ery mutual fund is Rs. * 551.4BD6*PB6P*.E crores. I?F= 8remier I2uity fund with latest >a! 6..*1*9DB0PB/P*.E ga!e the a!erage return of *./47 in last * year and .5.657 in last 6 years. Total net assets of I?F= 8remier I2uity mutual fund is Rs. . /4B./5D6*PB6P*.E crores.

56

Tata ?i!idend +ield fund with latest >a! 6..4690DB0PB/P*.E ga!e the a!erage return of 36.B57 in last * year and ./.017 in last 6 years. Total net assets of Tata ?i!idend +ield mutual fund is Rs. .56.B6D6*PB6P*.E crores.

I ha!e tried to e$plore the general opinion about mutual funds. It also co!ers whyP why not in!estors are a!ailing the ser!ices of financial ad!isors. -long with it a brief introduction to IndiaAs largest financial intermediary

The researcher found that the rate of return pro!ided by mutual fund is best cheaper and profitable as compare to other security market. That is why most of people are in!esting in mutual fund. The in!estors are showing their interest in mutual fund due to its se!eral ad!antages. That areF3 8rofessional management @ess risk @ow transaction cost @i2uidity =hoice of scheme Transparency and the most important one Cafety. In the study we found that the Risk and Returns are parallel to each other.

:hile doing research we found se!eral disad!antages which are in!ol!ed in the inestin in mutual fund. That are;3 =ost control is not in the hands of in!estor >o customi%ed portfolio ?ifficulty in selecting suitable scheme.

59

Re!o$$endations
The study re!eals that competition is !ery stiff in mutual fund segment yet these is need for continuous impro!e met of ser!ice pro!ided by ser!iced pro!ides =onsumers are pretty much satisfied with the ser!ices pro!ided be mutual fundwhich can be shown by rapid growth in mutual fun afer the year .BB6. The mutual fund companies should launch new and attraction plans and scheme to elands it market so as to attract new customer . The companies should concentrate on the customer who had no in!estment also so as to increase the number of customer. -fter the study of whole concept of mutual fund and ha!ing done research work many facts come for the on the bases of obser!ation made from the study following are the suggestion.

5/

 -fter ha!ing selected a scheme ( ha!ing in!ested in it the in!estor must angularly study and follow up his in!estment after ha!ing clearly identified the in!estment ob&ecti!e. There needs to ha!e prudential regulation to protect the interest of in!estors while pro!iding necessary fle$ibility to the fund manager.

C*A/TER0>
54

CO)C(USIO) A)+ (IMITATIO)

CO)C(USIO)
The ob&ecti!e of study was to study the market segment of MFs. e.g. Tata MFs Qotak
MFs Reliance MFs I=I=I MFs. etc and their industry structure. Though there is tremendous scope for mutual funds the lack of proper infrastructure support hinders its growth and de!elopment as the industry grows more ( more the return in mutual funds in!estments is not going to be all that important but the 2uality of ser!ices they offer to in!estors. The in!estorAs awareness is the need of the day and hence e!ery mutual fund has to make concerted effort to enlighten the in!estors.

55

It is a well3recogni%ed fact that the distorted return e$pectations of the in!estors Dthat is the e$pectations of high return with an inhibition to bear the corresponding high riskE only retard the growth of the industry.

-ssociation of mutual funds in India D-MFIE educates the in!estor so as to make them to assess mutual fund in!estments in its right perspecti!e. It is also e2ually important that the mutual funds ensure decent in!estor ser!icing.

=ombined with the changes in risk3return perception of in!estors and the concerted efforts by the CI#I and other agencies the mutual funds acti!ity in India will emerge as the most !ibrant segment of the financial systems.

The study re!eals that competition is !ery much in e$isting mutual fund. +et there is a need of impro!ement.

(IMITATIO)S OF T*E STU+Y

The study had the #ollo,in% li$itations- $ainly in the sur"ey ,or. that ,as done' The study is based on secondary data. The findings of research studies are of little or no <alues unless they are translated in to 8ractices. Researcher cannot get wide information during Research Researcher is only on indicator and cannot sol!e the problem.

51

The time duration could not pro!ide ample opportunity to study e!ery detail of the insurance industry.

=omple$ statistical tools for data analysis ha!e not been employed.

C*A/TER 5

=I=(IO2RA/*Y
50

=I=(IO2RA/*Y
=oo.s30
8andey I.M.F Financial Management <ikas 8ublishing house 8!t. @td. >ew ?elhi 0th Idition. Qhan M.+. ( Rain 8.Q.F #asic Financial Management. The Mac 'raw3Kill =ompanies >ew ?elhi .BB. .nd Idition. Machira&u K.R.; Indian Financial Cystem <ikas 8ub. Kouse 8!t. @td. >ew ?elhi .nd edition.

1B

 =.R. Qothari Research Methodology

Qothari =.R Research Methodology Cecond Idition >ew -ge International .BB9.

Bournals30
-nalyst maga%ine #usiness Ctandard

Cmart in!estors

#usiness world

Iconomics Times

#usiness Today

Aebsites30
www.in!estments.com.ph www.mutualfundsindia.com

www.mutualfund.com

www.google.com

1*

1.

16