2

A Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciation realized by the scheme is shared by its units holders in proportion to the number of units owned by them. Thus a mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. The small savings of all the investor are put together to increase the buying power and hire a professional manager to invest and monitor the money. Anybody with an ingestible surplus of as a few thousand rupees can invest in mutual funds. Each mutual fund scheme has a defined investment objective and strategy. In the preset time stock market is more volatile at that time small investor invest its money via mutual fund it gives safety and secure return. For the small investor mutual fund is the best investment option.

Mutual fund is a one of the investment instrument in the global market special in USA, more than 30% saving invested in mutual fund but in India only 1-2% saving mutual fund investment. Size of the mutual fund industries % of GDP in USA 67% where in India only 6% so its reflect mutual fund industries is good potential

3

A SHORT HISTORY OF MUTUAL FUNDS

WHERE DID THEY COME FROM?

Mutual funds are not an American invention. The first was started in the Netherlands in 1822, and the second in Scotland in the 1880's.

Originally called investment trusts, the first American one was the New York Stock Trust, established in 1889. Most that followed were begun in Boston in the early 1920's, including the State Street Fund, Massachusetts Investor's Trust (now called MFS), Fidelity, Scudder, Pioneer, and the Putnum Fund. The Wellington Fund, the first balanced fund that included both stocks and bonds, was founded in 1928, and today is part of the giant Vanguard Funds Group.

In the 1960's there was a phenomenal rise in aggressive growth funds (with very high risk). Sometimes called "go-go" or "hot-shot" funds, they received the majority of the billions of dollars flowing into mutual funds at that time. In 1968 and 1969, over 100 of these new aggressive growth funds were established.

A severe bear market began in the autumn of 1969. People became disillusioned with stocks and mutual funds. "The market's toast. Itll never get back to where it was!" was echoed by panicked investors.

Unemployment grew; inflation went crazy, and investors pulled billions back out of the funds. They should have hung in there! Many funds have risen 9,000% since then.

The 1970's saw a new kind of fund innovation: funds with no sales commission called "no load" funds. The largest and most successful no load family of funds is the Vanguard Funds, created by John Bogle in 1977.

At the end of the 1920's there were only 10 mutual funds. At the end of the 1960's there were 244. Today there are more than 6,500 unique funds and even thousands more that differ only by their share class (how they are sold, and how their expenses are charged).

Before we continue with all you need to know about mutual funds, here is something that merits your attention. Since 1940, no mutual fund has gone bankrupt. You sure can't say that about banks and savings and loans!

4

HISTORY OF MUTUAL FUND SHOWN IN PHASES

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases.

First Phase 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund milies. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996

The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805

5

crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds.

Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of March 2006, there were 30 funds, which manage assets of Rs.231862 crores under 421 schemes.

6

GROWTH OF MUTUAL FUNDS IN INDIA

The Indian Mutual Fund has passed through three phases. The first was between 1964 and 1987 and the only player was the Unit Trust of India, which had a total asset of Rs. 6700/- crores at the end of 1988. The second phase is between 1987 and 1993 during which period 8 funds were established (6 by banks and one each by LIC and GIC). The total AUM had grown to Rs. 61028/- crores at the end of 1994 and the number of schemes were 167.

The third phase began with the entry of private and foreign sectors in the Mutual Fund industry in 1993. Kothari Pioneer Mutual fund was the first fund to be established by the private sector in association with a foreign fund.

As at end of financial year 2000 (31st March) 32 funds were functioning with Rs. 1, 13,005 crores as total Asset under Management. As on August end 2000, there were 33 funds with 391 schemes and asset under management with Rs. 1, 02,849 crores.

The SEBI came out with comprehensive regulation in 1993 which defined the structure of Mutual Fund and AMC for the first time.

Several private sectors Mutual Funds were launched in 1993 and 1994. The share of the private players has risen rapidly since then.

Currently 30 Mutual Fund organizations in India are managing 265000 crores

7

ABOUT MUTUAL FUNDS

A MUTUAL FUND IS A POOL OF MONEY THAT IS

INVESTED IN VARIOUS SECURITIES AND PROFESSIONALLY

MANAGED BY AN INVESTMENT MANAGER

What is a Mutual Fund?

Like most developed and developing countries the mutual fund cult has been catching on in India. There are various reasons for this. Mutual funds make it easy and less costly for investors to satisfy their need for capital growth, income and/or income preservation.

And in addition to this a mutual fund brings the benefits of diversification and money management to the individual investor, providing an opportunity for financial success that was once available only to a select few.

Understanding Mutual funds is easy as it's such a simple concept: a mutual fund is a company that pools the money of many investors -- its shareholders -- to invest in a variety of different securities. Investments may be in stocks, bonds, money market securities or some combination of these. Those securities are professionally managed on behalf of the shareholders, and each investor holds a pro rata share of the portfolio -- entitled to any profits when the securities are sold, but subject to any losses in value as well. A mutual fund, by its very nature, is diversified -- its assets are invested in many different securities. Beyond that, there are many different types of mutual funds with different objectives and levels of growth potential, furthering your chances to diversify

>> Definition of Mutual Fund A mutual fund is a pool of assets invested on behalf of investors. Mutual funds invest in a diversified portfolio of securities, which can include equity securities (such as common and preferred shares), debt securities (such as bonds and debentures) and other financial instruments issued by corporations and governments, according to the stated investment objectives of the funds. Individual investors own a percentage of the value of the fund as represented by the number of units they purchase. A collection of money invested in a group of assets and managed by an investment company (a mutual fund company or other). The money comes from investors who want to buy shares in the fund. The benefits to investors in buying shares of mutual funds come primarily from diversification, professional money management, and capital gains and dividend reinvestment at relatively low cost. The flow chart below describes broadly the working of a mutual fund.

Working of a Mutual fund:

The entire mutual fund industry operates in a very organized way. The investors, known as unit holders, handover their savings to the AMCs under various schemes. The objective of the investment should match with the objective of the fund to best suit the investors needs. The AMCs further invest the funds into various securities according to the investment objective. The return generated from the investments is passed on to the investors or reinvested as mentioned in the offer document.

9

ORGANISATION STRUCTURE OF A MUTUAL FUND

In case of developed countries, Mutual Fund industry is highly regulated keeping in view the protection of investors interest as well as to maintain operational transparency. There is a clear demarcation between open-ended schemes and close-ended schemes for which usually two different types of structural and management approaches are followed. Open-ended funds (unit trusts) follow the trust approach while close-ended schemes (investment trust) follow corporate approach. The management and operations are guided by separate regulatory mechanisms, separate controlling authorities as well. With regards to India, there are no distinctions to the followed and are integrated by Indian Regulatory Authority, SEBI.

SEBI Regulations Act, 1996, guides the formations and operations of Mutual Funds. A Mutual Fund comprises of four separate entities, (a) Sponsor (b) Mutual Fund Trust (c) AMC and (d) Custodian. They are assisted by independent administrative entities like banks, registrars and transfer agents.

SPONSOR TRUSTEE

OPERATIONS AMC

MKT. / SALES DISTRIBUTER

MKT. / SALES

FUND MANAGER

MUTUAL FUND

SCHEMES

INVESTORS

SEBI

10

Sponsor

Sponsor can be any person; acting alone or in a combination with another body corporate, establishes the Mutual Funds and gets it registered with SEBI. As per SEBI regulations, 1996:

Required to contribute 40% of minimum net worth (Rs. 10 crores) of the AMC. Must have sound track record and general reputation of fairness and integrity in all

his/her transactions. Mutual Fund shall be constituted in form of a trust and the instrument of trust shall be

in form of a deed, duly registered under the provisions of Indian Registration Act, 1908, executed by sponsor in favor of trustees.

Board of Trustees

Board of trustees manages a Mutual Fund and the sponsor executes the trust deeds. Mutual Funds raise money through sale of units under one or more schemes, for investing in securities. BoT sees to it that the schemes floated and managed by AMC appointed by trustees are in accordance with trust deeds and SEBI guidelines. As per SEBI Regulations, 1996:

The BoT has the right to obtain relevant information from the AMC and dismiss the AMC under specific conditions also.

Half the trustees should be independent persons. Neither the AMC, not its employees can act as a trustee.

As a trustee of Mutual Fund, he cannot be appointed as a trustee of another Mutual Fund, until and unless he is an independent person or has permission from the Mutual Fund where he is a trustee.

Trustees have the right to appoint custodian and supervise their activities. Trustees can be removed only by prior approval of SEBI.

Asset Management Company

AMC is appointed by the trustees to float the schemes and manage the funds raised by selling units under the scheme. They are to act as per SEBI guidelines, trust deeds and management agreement between the trustees and AMC.

They should be registered under the SEBI. Net worth of the AMC should be in cash and all assets should be in the name of

AMC. AMC cannot give or guarantee loans and is restricted from acquiring assets, which

involve the assumption of unlimited liability. AMC are required to disclose scheme particulars and base of calculation of NAV. The director of AMC should be a person of reputed of high standing and at least have

five years experience in relevant field.

11

AMC can be terminated with 75% unit holders or majority of trustees.

Custodian

As per SEBI Regulations Mutual Funds shall have a custodian who is not any way associated with the AMC. It carry outs the activity of safekeeping the securities or participating, in any clearing system.

Custodian should have a sound track record and adequate relevant experience. Should not be associated with AMC or act as a sponsor or trustee to any Mutual Fund.

WHERE DO MUTUAL FUNDS INVEST?

Broadly mutual funds invest basically in 3 types of asset classes:

Stocks: A stock represents ownership or equity in a company, popularly known as shares.

Bonds: These represent debt from companies, financial institutions or government agencies.

Money market instruments: These include short term debt instrument such as treasury bills, certificate of deposits and inter-bank call money.

GLOBAL SCENARIO

Some basic facts:

In US, every third household is a mutual fund investor. In US, the MF Industry size is about 67% of the US GDP whereas the Indian MF

Industry is just 6% of our GDP. In US,MF assets are 1.5 times the bank deposit. In India the bank deposits are about 10.50 times the MF assets. In India for the past 3 years its has been seen that nearly 2,500 crore is being transferd

from bank deposits to Mutual funds on a yearly basis . 75% of the core customer bases of mutual funds in the top 50-broking firms in the

U.S. are expected to trade on-line by 2004. On- line trading is a great idea to reduce management expenses from the current 2 %

of total assets to about 0.75 % of the total assets and as we start using advanced technology in this industry this cost will further cut down the administration cost.

12

Internationally, on-line investing continues its meteoric rise. Many have debated about the success of e- commerce and its breakthroughs, but it is true that this aspect of technology could and will change the way financial sectors function. However, mutual funds cannot be left far behind. They have realized the potential of the Internet and are equipping themselves to perform better.In fact in advanced countries like the U.S.A, mutual funds buy- sell transactions have already begun on the net, while in India the Net is used as a source of Information and also net is used for transaction purpose is on the initial stage but is catching up quickly with all dealing in this industry as it helps in reducing administrative cost.

Such changes could facilitate easy access, lower intermediation costs and better services for all. A research agency that specializes in internet technology estimates that over the next four years Mutual Fund Assets traded on- line will grow ten folds from $ 128 billion to $ 1,227 billion; whereas equity assets traded on-line will increase during the period from $ 246 billion to $ 1,561 billion. This will increase the share of mutual funds from 34% to 40% during the period.

Such increases in volumes are expected to bring about large changes in the way Mutual Funds conduct their business.Here are some of the basic changes that have taken place since the advent of the Net.

Lower Costs: Distribution of funds will fall in the online trading regime by 2003. Mutual funds could bring down their administrative costs to 0.75% if trading is done on- line. As per SEBI regulations, bond funds can charge a maximum of 2.25% and equity funds can charge 2.5% as administrative fees. Therefore if the administrative costs are low, the benefits are passed down and hence Mutual Funds are able to attract more investors and increase their asset base.

Better advice: Mutual funds could provide better advice to their investors through the Net rather than through the traditional investment routes where there is an additional channel to deal with the Brokers. Direct dealing with the fund could help the investor with their financial planning.

In India, brokers could get more Net savvy than investors and could help the investors with the knowledge through get from the Net.

New investors would prefer online: Mutual funds can target investors who are young individuals and who are Net savvy, since servicing them would be easier on the Net.

India has around 1.6 million net users who are prime target for these funds and this could just be the beginning. The Internet users are going to increase dramatically and mutual funds are going to be the best beneficiary. With smaller administrative costs more funds would be mobilized .A fund manager must be ready to tackle the volatility and will have to maintain sufficient amount of investments which are high liquidity and low yielding investments to honour redemption.

Net based advertisements: There will be more sites involved in ads and promotion of mutual funds. In the U.S. sites like AOL offer detailed research and financial details about the functioning of different funds and their performance statistics. a is witnessing a genesis in this area.

13

FUTURE SCENARIO:

The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investors shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over.

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

But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind.

In the U.S. most mutual funds concentrate only on financial funds like equity and debt. Some like real estate funds and commodity funds also take an exposure to physical assets. The latter type of funds are preferred by Corporates who want to hedge their exposure to the commodities they deal with.

For instance, a cable manufacturer who needs 100 tons of Copper in the month of January could buy an equivalent amount of copper by investing in a copper fund. For Example, Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed percentage of its corpus in Gold, Silver, Swiss francs, specific stocks on various bourses around the world, short term and long-term U.S. treasuries etc.

In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real estate funds (investing in real estate and other related assets as well.).In India, the Canada based Dundee mutual fund is planning to launch a gold and a real estate fund before the year-end.

In developed countries like the U.S.A there are funds to satisfy everybodys requirement, but in India only the tip of the iceberg has been explored. In the near future India too will concentrate on financial as well as physical funds.

The mutual fund industry is awaiting the introduction of DERIVATIVES in the country as this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in Derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.

14

CATEGORIES OF MUTUAL FUND:

15

TYPES OF MUTUAL FUND SCHEMES

The various types of Mutual Funds can be classified according to various investors objectives and their expectations. They can be segregated as under into the following criteria.

By Investment Objectives. By Duration/Constitution. Load and No-Load Funds. Other types of schemes.

Hereby, let us discuss the various types of Mutual Funds in detail.

By Investment Objectives

Growth/Equity Funds These funds re high risk-high return funds, wherein major chunk of investment goes in equity shares of companies. The NAV of such funds keep fluctuating, but the potential to earn in such funds is higher provided they are invested with long-term (more than 5 years) financial goals. The leading examples of such funds are, Kothari Pioneer Prima Fund, Prudential ICICI Equity Fund, Birla Sun Life Fund, etc.

Income/ Debt Funds These funds are low risk-low return funds, where in the investments are made in income bearing instruments such as bonds, debentures, government securities, commercial papers etc. The share prices of these funds tend to be more stable in value and are best suitable for regular income investment goals, provided minimum investment period is more than one year. The leading examples are monthly income funds of UTI, Prudential ICICI Income Plan, JM Income, Alliance Liquid Fund etc.

Balanced Funds These funds invest in both, equity shares and income bearing instruments. The idea is to reduce volatility of fund, while providing some upside for capital appreciation. In all, it is a combination of income and growth funds more return more risk than income funds and less return less risk than growth funds. They are best suited for people looking for a combination for capital appreciation and regular income and best time span for such investments is more than 3 years. The examples are PRUICICI Balanced Fund, IDBI-PRINCIPAL Balanced Fund, and IDBI-PRINCIPAL Child Benefit Fund etc.

Money Market Funds These funds invest in highly liquid instruments such as certificate of deposits and short-term bonds. They have emerged as an alternative for savings and short-term fixed deposit accounts. They are best suited for capital preservation investment objectives, where time-span is least.

16

Gilt Funds These funds are sort of government funds wherein the investments are made in debt instruments of the government, which carry no risk of non-payment of interest as the RBI manages the payment of interest and principal on the instruments. These funds are best suited to the regular income and long-term investment objectives. The time-span matters a lot as there are chances of price volatility, which may lead to possibility of loss of principal invested, if invested for short-term. Examples are PRUICICI Gilt Fund, IDBI-PRINCIPAL Government Securities Fund etc.

International Funds These are funds investing in international assets or shares of emerging market origin. These are not possible in India due to regulation against investing overseas. Most of the foreign institutional investors (FIIs) investing in India are actually funds of this type.

By Duration/By Constitution

Open ended Funds These funds are open for subscription and redemption every day at prices linked to the daily net asset value per share. That means buying and selling is done directly with the fund. From the investors perspective, these funds are more liquid compared to the close-ended funds. The key features of such funds are there in fixed maturity, the corpus keeps on fluctuating and they are typically not listed in any stock exchange.

Close ended Funds The investment in such funds is made during the initial issue period and the money gets lock-in for a stipulated period (ranging from 2 to 15 years). After the initial issue, these funds can be bought or sold on the stock exchange where the fund is listed. Generally, the close-ended funds are traded at a discount to their NAV. Its key features are the maturity is fixed, the corpus is also fixed and they are listed in stock exchange.

Interval Funds Interval funds combine the features of open ended and close ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.

17

By Entry/Exit Charges

Load Funds Load funds are those funds wherein the investor has to incur a one-time charge at the time of either entry or exit into the fund. The entry charge is called front end load, whereas the exit charge is called back end load. This load is limited to a maximum of 6% of the investment value.

No load Funds No load funds are those wherein the investor has to incur charges on every transaction made by him, but then the investor is free from entry or exit fee as in the case of load funds. Here the AMC is entitled to collect 1% additional management fees (this fee is less than load funds but then the transaction made will be higher, so the actual amount incurred will be nearly similar). Thus, while the investor saves some upfront cost, he incurs high ongoing cost.

Assured return scheme

Assured return schemes are those schemes that assure a specific return to the unit holders irrespective of performance of the scheme. A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document. Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.

Other Types of Schemes

Tax Saving Funds These funds offer tax rebate to the investor along wit capital growth and steady returns. An Equity United Savings Scheme is available wherein investments are made primarily in stocks. The investment can be made any time, but it gets lock-in for a period of 3 years and in return tax rebate @ 20% is obtained if investments exceed Rs.1, 00,000. Another such scheme is pension scheme, wherein tax rebate @ 20% can be obtained for investment up to Rs.60, 000.

Index Funds Index funds invest only in stocks of a particular index such as BSE, S&P CNX 500 etc. The principle is to duplicate performance of these widely followed indexes while keeping trading and other costs to a minimum. The returns in case of such funds depend on the indexs performance. It is best suited to the investors who are satisfied with the returns of an index.

18

Sector Funds Sector funds primarily invest in companies of a particular sector/ industry such as information technology, pharmaceuticals, FMCGs etc. These types of funds are subject to more risk as the performance of funds depends on the performance of the industry as a whole and also because the diversification of risk is reduced. Also with the new rule of government not allowing investing more than 10% in a particular company, is a big problem as the number of companies is not very large and at the same time all of them are not very successful. It is best suited to people willing to take high risk.

Special Purpose Funds Special purpose funds are those funds that target a specific customer segments, such as children, women, retired people etc. Making their fund oriented towards the need of the group they are targeting.

Off Shore Funds These funds will have non-residential investors and are regulated by the provision of the foreign countries where they are registered. Further these funds are governed by the rules and procedures laid down for the purpose of approving and monitoring their performance by the department of economic affairs, Ministry of Finance and the directions of RBI.

Investment strategies:

1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)

2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund.

3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.

19

R is kL i qu i d Fu n ds

T h e R is k R e t u r n T r a d e - o ff

G r o w th Fu n dsA ggre ssiv e , V a lu e ,

G ro w th

B al an c e d F u n ds

S e c tor a l Fu n ds

R at io o f D eb t : E qu i t y

Po te n ti a l f o r re tu rn

Risk v/s. return:

20

HOW TO INVEST IN MUTUAL FUND

Step One - Identify your Investment needs

Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, and level of income and expenses among many other factors. Therefore, the first step is to assess your needs. You can begin by defining your investment objectives and needs which could be regular income, buying a home or finance a wedding or educate your children or a combination of all these needs, the quantum of risk you are willing to take and your cash flow requirements.

Step Two - Choose the right Mutual Fund

The important thing is to choose the right mutual fund scheme which suits your requirements. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are the track record of the performance of the fund over the last few years in relation to the appropriate yardstick and similar funds in the same category. Other factors could be the portfolio allocation, the dividend yield and the degree of transparency as reflected in the frequency and quality of their communications. For selecting the right scheme as per your specific requirements, click here.

Step Three - Select the ideal mix of Schemes

Investing in just one Mutual Fund scheme may not meet all your investment needs. You may consider investing in a combination of schemes to achieve your specific goals.

Step Four - Invest regularly

The best approach is to invest a fixed amount at specific intervals, say every month. By investing a fixed sum each month, you buy fewer units when the price is higher and more units when the price is low, thus bringing down your average cost per unit. This is called rupee cost averaging and is a disciplined investment strategy followed by investors all over the world. You can also avail the systematic investment plan facility offered by many open end funds.

Step Five- Start early

It is desirable to start investing early and stick to a regular investment plan. If you start now, you will make more than if you wait and invest later. The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return.

21

Step Six - The final step

All you need to do now is to Click here for online application forms of various mutual fund schemes and start investing. You may reap the rewards in the years to come. Mutual Funds are suitable for every kind of investor - whether starting a career or retiring, conservative or risk taking, growth oriented or income seeking

22

BENEFITS OF MUTUAL FUNDS

Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because all stock cannot go through a downtrend at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

Conventional Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Return Potential Over a medium to long-term; Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investor.

Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. They are also prompt in meeting redemption demands. In close-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Thus, Mutual Funds can be easily converted

23

into cash whenever required, highlighting its function of high liquidity, whether open-ended or close-ended.

Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund managers investment strategy and outlook.

Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

Affordability An added advantage of investing in Mutual Funds is an investor can invest money whenever he has a surplus even when the amount is very small.

Investors individually may lack sufficient funds to invest in high-grade stocks. A Mutual Fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.

Variety Mutual Funds offer schemes to suit specific investment needs. For instance, there are growth schemes for investors who are willing to bear a greater risk, gilt schemes for investors who are risk-averse and retirement plans for those with an eye on the future.

Highly Regulated All Mutual Funds in India have to be regulated with the SEBI, and comply with its regulations, which means strict safeguard of investors funds implying appropriate protection of funds against fraud and misuse.

LIMITATIONS OF MUTUAL FUND

Mutual Funds are a victim of their own success. When a large body like a fund invests in shares, the concentrated buying or selling often results in adverse price movements i.e. at the time of buying, the fund ends up paying a higher price and while selling it realizes a lower price. For obvious reasons, this problem is even more severe for funds investing in small capitalization stocks. However, given the large size of the debt market, excluding UTI, most debt funds do not face this problem.

24

Waiting time before investment It takes time for a Mutual Fund to invest money. Since it is difficult to invest all funds in one day, there is dome money waiting to be invested. Further, there may be a time lag before investment opportunities are identified. This ensures that the fund under performs the index. For open-ended funds, there is the added problem of perpetually keeping some money in liquid assets to meet redemption. The problem of impracticability of quick investments is likely to be reduced to some extent with the introduction of index futures.

Fund management costs The costs of the fund management process are deducted from the fund. This includes marketing and initial costs deducted at the time of entry itself, called load. Then there is the annual asset management fee and expenses, together called the expense ratio. Usually, the former is not counted while measuring performance, while the later is. A standard 2% expense ratio means that, everything else being equal, the Fund manager under performs the benchmark index by an equal amount.

Cost of churning The portfolio of a fund does not remain constant. The extent to which the portfolio changes is a function of the style of the individual fund manager. It is also dependent on the volatility of the fund size i.e. whether the fund constantly receives fresh subscriptions and redemption. Such portfolio changes have associated costs of brokerage, custody fees, and registration fees etc. that lowers the portfolio return commensurately.

Change of index composition The indices keep changing over the world to reflect changing market conditions. There is an inherent survivorship bias in this process, with the bad stocks weeded out and replaced by emerging blue chips. This is a severe problem in India with the Sensex having been changes twice in the last five years, with each change being quite substantial. Another reasons for change index composition is Mergers & Acquisitions. The weight age of the shares of a particular company in the index changes if it acquires a large company not a part of the index.

Tendency to take conformist decisions From the above points, it is quite clear that the only way a fund can beat the index is through investment of some part of its portfolio in some shares where it gets excellent returns, much more than the index. This will pull up the overall average return. In order to obtain such exceptional returns, the fund manager has to take a strong view and invest in some uncommon or unfenced investment options. Most people are unwilling to do that. They follow the principle No fund manager ever got fired for investing in Hindustan Lever i.e. if something goes wrong with an unusual investment, the fund manager will be questioned but if anything goes wrong with the

25

blue chip, then you can always blame it on the environment or uncontrollable Factors knowing fully well that there are many other fund managers who have made the same decision.

Unfortunately if the fund manager does the same thing as several other of his class, chances are that he will produce average results. This does not mean that if a fund manager takes active views and invests in heavily researched uncommon ideas, the fund will necessarily out perform the index.

Challenges in Mutual Fund Industry Today, the Mutual Funds have become the most favoured investment vehicle across the world. As in the history of the Indian financial system, the stock markets had not performed well and the interest rates also stayed depressed, due to which even the Mutual Funds could not do well. So earlier was the scenario where people did not preferred Mutual Funds and the only industry that came to their minds while investing was the banking sector. But now the trends are changing and the investors are making their investments the most in the Mutual Funds industry.

Today, the Mutual Funds industry is of about $18 19 billion. Right now it is very small with barely 11% of the net demand. But the scope of its development is very high, with the changing trends of more popularity of the Mutual Funds. There are certain challenges relating to the Mutual Funds industry which are discussed as follows:

Customer Perspective Today the customer profile is changing as they are more educated and are aware of whats happening in the markets. They want to invest only in those schemes where they know where the money is going. Apart from this they want fair amount of returns with moderate risk or rather low risk. And considering to these needs, it can be easily noted that Mutual Fund fulfils these expectations of the customers, where their operations are pretty transparent and also wide range of schemes are available for different investment objectives (right from high risk takers to no risk takers). Earlier Mutual Fund meant high risk because of improper knowledge of Mutual Funds, but today even this issue is taken care of and customers are satisfied with the performance of Mutual Funds which has made this instrument a hot spot.

Increasing Number Of Players Earlier was the scenario where only one player, UTI was operating the Mutual Funds. Later the market got monopolistic, where only few giants operated in the market. This scenario continued for nearly 35 years. But now, large number of players has entered into this market, coming up with better schemes, better services and superior performance. Today services like redemption of units within 48 hours, toll-free telephone nos., cheque writing facility against Mutual Fund account, ATM cards and

26

switching between two accounts have been reduced for high customer satisfaction. (And continuation to this scenario it wont take long when the transactions will take place on the Internet, with more customized services.)

Growing Market The Mutual Funds market is growing at a very quick span, taking away major chunk of financial savings from other instruments in the market. Currently, Mutual Funds are giving a big threat to the banks by taking away share of savings from their fixed deposits, savings deposits and other cash management products. This has led to banks, also entering into the Mutual Funds markets.

Preference To Equity And Mixed Funds The investors are finding deals in the equity funds pretty profitable with good range of returns. Though the risks are high in such investments the investors have started confiding in the AMC which prefer equity funds (as against what happened earlier when people used to prefer debt funds against equity fund due to low risk). Also moderate investors are going for mixed or balanced funds so as to obtain high gains of the equity stocks.

RISKS ASSOCIATED WITH MUTUAL FUNDS

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: Market risk relates 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 are 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 Interest rate risk relates to future changes in interest rates. For instance, if an investor invests in a long-term debt Mutual Fund scheme and interest rates increase,

27

the NAV of the scheme will fall because the scheme will be end up holding debt offering lower 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 cannot be predicted or guaranteed, nor can the price of its securities. Adverse changes in business circumstances will reduce the market price of the companys equity resulting in proportionate fall in the NAV of the 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 companys business. For instance, if monsoons fail in a year, equity stocks of agriculture-based companies will fall and NAVs of Mutual Funds, which have invested in such stocks, will fall proportionately.

MARKETING OF THE FUNDS

This is a critical issue that is getting due importance these days. As such, there is no much product differentiation and almost all the funds are offering similar services to the investors. So the funds are now a days focusing on their core competence of managing money and marketing their funds. Also the funds are changing their focus from scheme oriented to customer oriented to tap the unexplored market for investments. They are trying to tap the rural and semi urban markets where people are not much educated about the funds and their savings are going to the banks, by spreading awareness of the added benefits of the Mutual Fund schemes as well as the customer incentives that are offered these days.

Clear Investment Policies This is the new approach adopted by the funds to attract more investments. Here the objectives are clear and are properly communicated so that the fund is more transparent and it is already noted that the more transparent the fund the better satisfied the customer.

Lower Cost Distribution of funds will fall in the online trading regime by 2003. Mutual Funds could bring down their administrative costs to 0.75% if trading is done on-line.

28

Therefore if the administrative costs are low, the benefits are passed down and hence Mutual Funds are able to attract minor investors and increase their asset base.

Better Advice Mutual Funds could provide better advice to their investors through the Net rather than through the traditional investment routes where there is an additional channel to deal with the Brokers. Direct dealing with the fund could help the investor with their financial planning.

Net Based Advertisement Mutual Funds can target investors who are young individuals and who are Net savvy, since servicing them would easier on the Net. India has around 1.6 million net users who are prime target for these funds and this could just be the beginning. The Internet users are going to increase dramatically and Mutual Funds are going to be the best beneficiary.

Safety Perspectives

Any Mutual Fund is as safe or unsafe as the assets that it invests in. There are two categories of Mutual Funds with others being variations or mixtures of these. Firstly, there are those that invest purely in equity shares (called equity funds or growth funds) and secondly, there are those that invest purely in bonds, debentures and other interest bearing instruments called Income or Debt funds. The NAV of growth funds fluctuates in line with the fluctuation of the shares held by them. They can also witness face substantial erosion in value, which a much lesser degree and an income fund is extremely unlikely to face erosion in value especially of the permanent kind. Most Mutual Funds have qualified and experienced personnel, who understand the risks of investing. But, nobody is immune from making mistakes. However, funds diversify the investment portfolio substantially so that default in any single investment (in the case of an income fund) will not affect the overall performance of a fund in a significant manner. In the event of default of a participant of the portfolio, an income fund is extremely unlikely to face erosion in the face value. Generally, Mutual Funds are not guaranteed by anybody. However, in the Indian context, some of the Mutual Funds have floated guaranteed or assured return schemes, which guarantee certain annual return or guarantee a buyback at a specified price after some time. Examples of these include funds floated by the UTI, Can bank Mutual Fund, SBI Mutual Fund, LIC Mutual Fund etc. Many of these funds have not earned returns that they promised and the AMCs of the respective Mutual Funds or their sponsors have made good their promises. The biggest case pertains to the US 64, which never guaranteed any returns but is being bailed out by the Government due to the millions of individuals who have invested in it.

29

REGULATORY ASPECTS OF MUTUAL FUNDS

Schemes of a Mutual Fund

The asset management company shall launch no scheme unless the trustees approve such scheme and a copy of the offer document has been filed with the Board.

Every mutual fund shall along with the offer document of each scheme pay filing fees.

The offer document shall contain disclosures which are adequate in order to enable the investors to make informed investment decision including the disclosure on maximum investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor

The mutual fund and asset management company shall be liable to refund the application money to the applicants,- (i) If the mutual fund fails to receive the minimum subscription amount referred to in clause (a) of sub-regulation (1);

(ii) If the moneys received from the applicants for units are in excess of subscription as referred to in clause (b) of sub-regulation (1).

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 six weeks from the date of closure of the initial subscription list and or from the date of receipt of the request from the unit holders in any open ended scheme.

Rules Regarding Advertisement:

The offer document and advertisement materials shall not be misleading or contain any statement or opinion, which are incorrect or false.

Investment Objectives and Valuation Policies:

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 available to the investors.

General Obligations:

Every asset management company for each scheme shall keep and maintain proper books of accounts, records and documents, for each scheme so as to explain its transactions and to disclose at any point of time the financial position of each scheme and in particular give a true and fair view of the state of affairs of the fund and intimate to the Board the place where such books of accounts, records and documents are maintained.

30

The financial year for all the schemes shall end as of March 31 of each year. Every mutual fund shall have the annual statement of accounts audited by an auditor

who is not in any way associated with the auditor of the asset management company.

Procedure For Action In Case Of Default:

On and from the date of the suspension of the certificate or the approval, as the case may be, the mutual fund, trustees or asset management company, shall cease to carry on any activity as a mutual fund, trustee or asset management company, during the period of suspension, and shall be subject to the directions of the Board with regard to any records, documents, or securities that may be in its custody or control, relating to its activities as mutual fund, trustees or asset management company.

Restrictions On Investments:

A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer, which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of asset Management Company.

A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt instruments issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the Board of Trustees and the Board of asset Management Company.

No mutual fund under all its schemes should own more than ten per cent of any company's paid up capital carrying voting rights.

Such transfers are done at the prevailing market price for quoted instruments on spot basis. The securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made.

A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees, provided that aggregate inter-scheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund.

The initial issue expenses in respect of any scheme may not exceed six per cent of the funds raised under that scheme.

Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver 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.

31

Every mutual fund shall, get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of long-term nature.

Pending deployment of funds of a scheme in securities in terms of investment objectives of the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial banks.

No mutual fund scheme shall make any investment in;

i. Any unlisted security of an associate or group company of the sponsor; or ii. Any security issued by way of private placement by an associate or group

company of the sponsor; or iii. The listed securities of group companies of the sponsor which is in excess of

30% of the net assets [of all the schemes of a mutual fund

No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares or equity related instruments of any company. Provided that, the limit of 10 per cent shall not be applicable for investments in index fund or sector or industry specific scheme.

A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or equity related investments in case of open-ended scheme and 10% of its NAV in

case of close-ended scheme.

33

NJ IndiaInvest Pvt. Ltd.

Two dynamic young men after completing their education were about to start their career when they sow the growing scope of the financial service sector. Both of them decided to jump into the same field and came out with the dynamic concept of NJ Capital stock now, which is known as NJ IndiaInvest. The word NJ stands for the first letter of Neeraj Choksi and Jignesh Desai the founder directors of NJ IndiaInvest.

This business was started in the year 1994; it was the period when private company was entering the field of financial services. This is the time when NJ IndiaInvest evolved out as a client focused need based investment advisory firm. NJ has achieved expertise in need base investment of clients.

NJ has a very well trained men power to meet the need of the clients and market. With the help of which the organization has achieved growth in past, is growing and will be growing in future. At NJ we regard mutual fund as one of the best investment avenue available to satisfy any kind of investment need. With a very well qualified work force we have gained expertise in analyzing mutual fund schemes, and in-depth study on various parameters is carried out on a regular basis.

NJ IndiaInvest is a company, which is involved in this business from past 11 years as a client focused need based investment advisory firm. It has developed its own IT Industry known as Finlogic India Pvt. Ltd. i.e. technology to support for client as well as its employees in their daily routine work. There is a very qualified staff for IT who has prepared a website for the organization known as www.njindiainvest.com which provides a valuable support to clients as well as to the employees in trading. All the valuable information, are available on our above mentioned web site.

NJ IndiaInvest is a modern concept organization that was growing in past, growing in present and will be growing in future.

NJ IndiaInvest Process : The sole business of the organization is to manage clients investments and to fulfill their need from cap-a-pie. At NJ the people are education centric, the relationship managers will help you in identifying and understanding your need and help you develop a portfolio across different asset classes commensurate to your needs. This practice is only performed at NJ and this is what makes it superior to other competition in this same field.

34

There are well-trained experts who will give a feel on the various asset classes and explain you the risk associated with each in a simple and lucid manner to put you at calm. Once the investment is planned and done we dont leave our client in between, but we back them by periodic valuation reports and regular relevant information through newsletters, mailers, e-mail, road shows etc.

The prime concern of the people at NJ will be to help you attain peace of mind on the investment front

Services provided to valuable Clients & Agents:

Dedicated portfolio planning & restructuring on demand The Weekly Performance Sheet (it covers performance of leading mutual fund

schemes) The Monthly Fund Fact Sheet (it covers comprehensive analysis of various mutual

fund) Various Subscription services via e-mail Sharing relevant information related to the Indian Investment world.

Over and all we also provide net-based services to our clients and agents. Our e-services are powered by a comprehensive website http:/www.njindiainvest.com. It covers detailed information about the Mutual industry, it passes various financial planners to satisfy investment goals like retirement planning, childs marriage planning etc, it also posses various analytical tools to measure the performance of Mutual Fund schemes viz. Returns Calculators, SIP Returns Calculator, and many others. There is a separate desk for the clients to get their portfolio information on fingertips.

THE CLIENT DESK @ NJINDIAINVEST.COM

Transaction Summary Report (Mutual Funds, fixed Deposits, RBI Bonds & others) Portfolio Valuation Report Portfolio performance Report Profit & Loss Account (FY wise) Consolidated sector & stock profile for equity investments through mutual funds Consolidated rating & script profile across debt funds through mutual funds. Consolidate Asset Allocation Report Across various Assets Alert processing facility across different parameters

35

Philosophy at NJ IndiaInvest:

To provide reliable information

To honor our service commitments

To maintain all records in privacy

To preserve client capital

To provide appropriate feedback

To guide their future investment

To restructure investment plan on demand

Finally to provide complete solution & peace of mind on the investment front.

36

AMCs with NJ IndiaInvest:

Alliance Capital Mutual Fund

Birla Mutual Fund

Cholamandalam Cazenove Mutual Fund

DSP Merrill Lynch Mutual Fund

Dundee Mutual Fund

Escorts Mutual Fund

First India Mutual Fund

Franklin Templeton Mutual Fund

Pioneer ITI

HDFC Mutual Fund

HSBC Mutual Fund

IDBI Principal

IL & FS Mutual Fund

ING Savings Trust

JM Mutual Fund

LIC Mutual Fund

Prudential ICICI Mutual Fund

Reliance Capital

SBI Mutual

Standard Chartered Mutual Fund

Sun F&C Mutual Fund

Sundaram Mutual Fund

Tata Mutual

Unit Trust Of India

Zurich India Mutual Fund

38

Vision and Mission Statement of N J IndiaInvest Pvt. Ltd.

VISION STATEMENT

To be the leader in our sector of business through: Total Customer Satisfaction, Commitment to Excellence,

Determination to Succeed & Finally to provide peace of mind on investment front to society.

MISSION STATEMENT:

ENSURE CREATION OF VALUE BY PROVIDING A

DIFFERENTIATING EDGE TO THE ACTIVITIES OF

OUR CUSTOMERS, INVESTORS AND DISTRIBUTORS

THROUGH TECHNNOVATIVE SOLUTIONS WHILE

FULFILLING OUR SOCIAL OBLIGATIONS AND MAINTAINING

HIGH PROFESSIONAL AND ETHICAL STANDARDS ALONG WITH THE SERVICE STANDARDS.

QUALITY POLICY OF NJ INDIAINVEST

NJ AIMS AT PROVIDING HIGH QUALITY SERVICE ONINVESTMENT FRONT THROUGH SYSTEMATIC &PROFESSIONAL APPROACH BACKED BY TOTAL

MANAGEMENTCOMMITMENT & TEAM WORK. TO ACHIEVE CUSTOMER SATISFACTIONAT A COST THAT REPRESENTS VALUE. WE AS A WHOLE ARE

COMMITTED TO PRACTICE A POLICY

RIGHT AT THE FIRST TIME

& THEN CONTINEOUS IMPROVEMENT IN OUR

ACTION & DEALING

39

Organization Structure

Sales Dept.

Operations

Dept.

Accounts Dept.

Research Depart.

Legal Compliances

HR Dept.

41

Research methodology give students the necessary training in gathering materials and arranging them, participation in the field work when required and techniques for the collection of data appropriate to a particular problem in the use of statistics questionnaire and controlled experimentation and in recording evidence, sorting it out and interpreting it thereafter.

ASSUMPTIONS:

It has been assumed that sample of hundred represents whole centre area of Baroda. The information given by the customer may be unbiased

Methodology of Study:

Research can be defined as a systemized effort to gain new knowledge. A research is carried out by different methodologies which have their own pros and cons. Research methodology is a way to solve research in study and solving research problems along with logic behind them are defined through research methodology. Thus while talking about research methodologies we are not only talking of research methods but also consider the logic behind the methods. We are in context of our research studies and explain why it is being used a particular method or technique and why the others are not used. So that research result is capable of being evaluated either by researcher himself or by others.

LITERATURE SURVEY:

The project is based on pure findings of facts Development of Working Hypothesis: The hypothesis could be developed by discussing with the consulting department heads and guides about this exploratory research and reach to the conclusion that the data is to be collected by personal interaction with the clients, asking them about their investment planning and their need for financial advisory service from NJ indiainvest.

[1] Problem Statement:- It is obvious that Investment in Mutual Fund will grow in year to come. However lack of Awareness of Mutual Fund is a hindering factor in expected growth of Mutual Fund Business. Under noted problems are envisaged in this area:

Difficult in convincing people for investment. Difficult to change mind of the investor according to age and Profession. Difficult to make an approach to investors. Difficult to take an appointment with professional people. Difficult to overcome an impassionate person who wants return in less time. Difficult to follow up the people whose names are being stored in a data.

42

Difficult to remove the fear of risk from the minds of investors.

[2] Research Objectives:-

Primary Objective: The study of Mutual Fund Market in Baroda was conducted with the primary objective

to know Potential of mutual fund as investment option.

Secondary Objective: To study the perception of independent financial advisors about different investment

options available in the market. To know priority level between different criteria of investment like safety level,

retunes, liquidity, tax benefit, maturity of investment. To study about how satisfied the client is from his investment as well as services

provided. To know the awareness of Mutual Funds in the market of Baroda. To see the interest of people in investing in MUTUAL FUNDS. To know the future of MUTUAL FUNDS in India. To know the different attitudes of people regarding risk, rate of return, period of

investment etc. To know about how they invest in Mutual Fund, that is trough lump sum or SIP. To know about the primary objective of their investment. To know about that which is the most important source of information that investor

use mainly.

[3] Methods of Data Collection

Research Design:

A research design is simply the framework or plan for a study, used as a guide in collecting and analyzing data. It is the blue print that is followed in completing the study. Research design is the conceptual structure within which the research would be conducted. In the context of this project report I have utilize descriptive research design This cover research design that is intended to produce accurate description of variable relevant to the decision face without demonstrating relationship exists between variables.

43

Sampling Design:

Sampling Method In the context of this project the survey done by convenient sampling method.

Sample size Our total sample size is 100

Sample Area The survey is done in the centre city of Baroda.

Scope of the study: The research was carried on in the centre city of Baroda. I have visited people randomly nearby my locality, different shopping malls, small retailers, some through phone call etc.

Sources of data

Primary Data In the context of this project report the resource of data used by researcher is primary data. Researcher has collected the data by contacting personally the respondent and by interviewing them.

Secondary Data To know the information about current market scenario making use of internet, magazines, newspaper, periodicals and fact sheets of different AMCs and NJ IndiaInvest.

Limitations of Study:

Every work has its own limitations. Limitations are extent to which the process should not exceed. The following limitations for the project are: Duration of project was not enough to make our conclusion on such a vast subject.

Time constraints has also become a major limitation The sample size taken for drawing the conclusion was not sizeable Investor ignorance was faced during discussions with respondents As sampling technique is convenient sampling so it may result in personal bias. Even respondents may give bias answer. This research is only for Baroda city. It cannot be generalized for other cities.

44

Execution of Project It is very essential in the research process to know the accuracy of the findings which depends on how systematically the study has been carried out so that it can make sense.

We have executed the project after prior discussion with our guide and structured in the following steps:

a. Preparation of a questionnaire b. The focal point of the designing the questionnaire was to comprehend the current

investment scenario. c. This questionnaire was primarily aimed to respondents in general. d. The questionnaires were discussed through personal interface or on phone with the

respondents.

46

1. Age distribution of the Investors of Baroda

Age Group 25 26-30 31-35 36-40 41-45 46 No. of

Investors 25 27 21 15 3 9

Interpretation:

According to this chart, out of 100 investors in Baroda. The most are in the age group of 26-30 yrs. i.e. 27%, the second most investors are in the age group of 25 yrs i.e. 25% and the least investors are in the age group of 41-45.

2. Occupation of the investors of Baroda

Occupation No. of Investors Pvt. Service 48

Govt. Service 15

Business 17

Others 20

TOTAL 100

47

Interpretation:

In Occupation group out of 100 people, 50% are Pvt. Employees, 17% are Businessman, 15% are Govt. Employees and 20% are in others. Other include agriculture, shop man etc.

3. Annual Family Income of the Investors (Approximately)

Income Group No. of Investors 1,00,000 16

1,00,000-2,00,000 29 2,00,000-3,00,000 18 3,00,000-4,00,000 13

4,00,000 24 TOTAL 100

48

Interpretation:

In the Income Group of the investors of Baroda, out of 100 investors, 29% investors that is the maximum investors are in the Annual income group of Rs1, 00,000-2, 00,000., Second one i.e. 24% investors are in the Annual income group of more than Rs. 4, 00,000 and the minimum investors i.e. 13% are in the monthly income group of 3, 00,000-4, 00,000. In the lowest income group that is less than 1, 00,000, there are 16% of investors.

4. Investment Budget of the Investors (Annual)

Income Group No. of Investors 20,000 28

20,000-50,000 21 50,000-1,00,000 26

1,00,000 18 NA 7

TOTAL 100

49

Interpretation:

From the above chart it is clear that 28% of the investor invest less then 20,000 annually. Second highest number of investor are in the 50,000-1, 00,000 range. I also find investor who does not respond to question. There are 18% of the investor who invested more than 1, 00,000 annually from their budget.

5. Over what periods of time will investor want to withdraw it

Time to withdraws (In Year) No. of Investors 2 11 2-5 29 6-9 37

10-15 23 TOTAL 100

50

Interpretation:

At what time investors want to withdraw his money. It is found that 37% of investor wants their money bank in 6-9 year. Second highest number is 29% who want to withdraw in 2-5 years. There are some government employees who has secured job like to withdraw in 10-15 years. Some business man and private employee want their money back in less than 2 years.

6. Preference of factors while investing

Factors No. of Investors Risk Averse 42 Moderate Risk for high return 35 Risk taker 23 TOTAL 100

Interpretation:

Out of 100 People, 42% People prefer to invest where there is lower risk, 35% prefer to invest where there is some amount of Risk and high return, 23% are risk taker, and they like to take risk in order to get high return.

51

7. Investors invested in different kind of investments

Kind of Investments No. of Respondents Saving A/C 94 Fixed deposits 24 Insurance 40 Mutual Fund 72 Post office (NSC) 15 Shares/Debentures 26 Gold/Silver 24

Interpretation:

From the above graph it can be inferred that out of 100 people, 94% people have invested in Saving A/c, 40% in Insurance, 24% in Fixed Deposits, 72% in Mutual Fund, 15 % in Post Office, 26% in Shares or Debentures, 24% in Gold/Silver and 18% in Real Estate. There are many investors who have invested in MF for more profit with less risk still today there are people who invest in saving account and fixed deposit. Today everybody like to have their bank account for general transaction, like purchasing, ATM withdrawal etc. so saving account is attracted by 94% of investors.

52

8. Main Objective of investment for which investor invest.

Preservation of Principal 1 Current Income 6 Growth and Income 43 Conservative Growth 26 Aggressive Growth 24 TOTAL 100

Interpretation:

Above graph show the investor for investment. 43% of investor invests their money for growth and income. Second highest lot invests money for conservative growth. 24% of the investor invests for aggressive growth in their investment. You can also see that there 6% of investor who invest for current income and only 1% invest for preservation of principal.

53

9. Ever invested in Mutual Funds

Response Yes No No. of Respondents 72 28

Interpretation:

Out of 100 People, 72% have invested in Mutual Fund and 28% do not have invested in Mutual Fund.

10. How did you know about Mutual Fund?

Source of information No. of Respondents Advertisement 20 Peer Group 14 Bank 8 Financial Advisors 30

54

Interpretation:

From the above chart it can be inferred that the Financial Advisor is the most important source of information about Mutual Fund. Out of 72 Respondents, 42% know about Mutual fund Through Financial Advisor, 27% through Advertisement, 19% through Peer Group and 11% through bank. During survey there are some respondent who has get information from more then one source.

11. How much you invested in Mutual fund

Amount Invested No. of Investors 30,000 32

30,000-60,000 21 60,000-1,00,000 9

1,00,000-1,50,000 4 1,50,000 6

Interpretation:

From the above chart it can be inferred that 45% of investor have invested less than 30,000 in MF. 29% of the investor has invested 30,000-60,000.and there are 8% investor who had invested more then 1, 50,000.

55

11. Investment Route

Agent 54 Direct 18 Bank 12

Interpretation:

From the above graph it is clear that 64% MF investment is through agent. Direct investment is 22% and remaining is investment through bank i.e. 14%. Here total of three is 84 respondents because there are some respondent who has chosen different route for more than one scheme.

12. Reason for choosing AMC

Good Market 12 Growth 7

Return Given 16 Other 14 NR 23

56

Interpretation:

You can see in the above chart that 22% investor has chosen AMC on the basis of return given by it. There are 16% of investor who chosen AMC because of good market. There 32% investor who does not have reason.

13. Reason for choosing scheme

Past history 9 Growth and return 31

other 16 NR 16

57

Interpretation:

You can see in the above chart that 43% investor has chosen scheme for growth and return. There are 22% of investor who have chosen scheme because many other reason. There 13% investor who see past history of the scheme while investing. Remaining 22% investor does not give any reason for their investing scheme.

14. Mode of Investment Preferred by the Investors

In percentage Lump Sum 42%

SIP 58%

Interpretation:

From the above chart it is clear that 42% investment in Mutual fund is through Lump sum and remaining 58% is through SIP (Systematic Investment Plan). There are many investors who have invested in both of the above option. There 12 such investor out of 100 who prefer both the option.

58

15. Satisfaction with investment

Response Yes No No. of Respondents 46 26

Interpretation:

When asked about how much they satisfied with their investment in Mutual fund, then almost 64% are very much satisfied with their investment and 36% are not. This 36% are not satisfied because they have invested for sorter period.

16. You like to continue investing in MF

Response Yes No No. of Respondents 54 18

59

Interpretation:

Above chart show that 25% of investor of MF are not like to invest again in MF, but 75% of investor are like to continue investing in MF. There 18 investors, who not like to continue investing in MF and main reasons are low return, higher Market risk and long term investment.

17. Why not invested in Mutual Fund

Not aware 5 High risk 5 No reason 18

Interpretation:

Out of 28 people, who have not invested in Mutual Fund, 18% are not aware of Mutual Fund, 18% said there is likely to be higher risk and 64% do not have any specific reason.

18. Have you ever consider MF as your investment option

Response Yes No No. of Respondents 60 40

60

Interpretation:

Above chart show the potential mutual fund has in future. 60% of respondent like to invest in MF. Remaining 40% do not like to investor in MF. People who do not like to invest also include investors who are not satisfied by investing in MF.

19. You like to know more about MF

Response Yes No No. of Respondents 41 59

Interpretation:

When asked that they like to know more about Mutual fund, then 59% respondent say No and 41% respondent say yes.

62

FINDINGS

In Baroda in the Age Group of 26-30 years were more in numbers. The second most Investors were in the age group of below 25 years and the least were in the age group of 41-45 years.

In Occupation group most of the Investors were private employees, the second most Investors were business men and the least were government employees.

In family Income group, between Rs. 1,00,000-2,00,00 were more in numbers, the second most were in the Income group of more than Rs.4,00,000 and the least were in the group of 3,00,000-4,00,000. There are 16% of investor below 1, 00,000 income.

There 28% of investor who invested less than 20,000 and second highest lot (i.e. 26) have invested between 50,000-1, 00,000.there are also some investor who had invested above 1,00,000.

It is found that 37% of investor wants their money bank in 6-9 year. Second highest number is 29% who want to withdraw in 2-5 years. There are some government employees who has secured job like to withdraw in 10-15 years. Some business man and private employee want their money back in less than 2 years.

About all the Respondents had a Saving A/c in Bank, 72% Respondents invested in Mutual fund. 40% Invested in Insurance.

Mostly Respondents preferred High Averse while investment, the second most preferred to take some Risk to get high return and the least preferred high risk for good return.

43% of the investor invests their money for growth and income. Second highest lot is 26% who invest for conservative growth. There is only 1% of investor who only invests for preservation of principal. There are also good lots of investor who want aggressive growth.

Among 100 Respondents only 72% had invested in Mutual Fund and 28% did not have invested in Mutual fund.

Financial Advisor is the most important source of information about Mutual Fund. Out of 72 Respondents, 42% know about Mutual fund Through Financial Advisor, 27% through Advertisement, 19% through Peer Group and 11% through bank. During survey there are also some respondent who has get information from more then one source.

45% of investor has invested less than 30,000 in MF. 29% of the investor has invested 30,000-60,000.and there are 8% investor who had invested more then 1, 50,000.

Most of the Investors had invested in Reliance or SBI Mutual Fund, HDFC has also good Brand Position among investors, Birla and Tata places after HDFC according to the Respondents.

54% Investors preferred to Invest through Financial Advisors, 18% through AMC (means Direct Investment) and 12% through Bank.

63

There are 22% investor has chosen AMC on the basis of return given by it. There are 16% of investor who chosen AMC because of good market. There 32% investor who does not have reason.

43% investor has chosen scheme for growth and return. There 13% investor who see past history of the scheme while investing. Remaining 22% investor does not give any reason for their investing scheme.

42% preferred Lump sum (One Time Investment) and 58% preferred SIP out of both type of Mode of Investment.

Maximum Number of Investors Preferred Growth Option for returns, the second most has invested in tax saver and then Dividend payout.

There 64% of the investor are satisfied with their investment in MF. Out of 28 Respondents 18% were not aware of Mutual Fund, 64% told there is

not any specific reason for not invested in Mutual Fund and 18% told there is likely to be higher risk in Mutual Fund.

Out of total respondent 60% of respondent like to invest in MF. Remaining 40% do not like to investor in MF. People who do not like to invest also include investors who are not satisfied by investing in MF. So ultimately 6% of respondent who not invested in MF are like to invest.

59% respondent does not like to know more about MF and 41% respondent like to.

64

CONCLUSION

Running a successful Mutual Fund requires complete understanding of the peculiarities of the Indian Stock Market and also the psyche of the small investors. This study has made an attempt to understand the Potential Mutual Fund has in investors budget. I observed that many of people have fear of Mutual Fund. They think their money will not be secure in Mutual Fund. They need the knowledge of Mutual Fund and its related terms. Many of people do not have invested in mutual fund due to lack of awareness although they have money to invest. As the awareness and income is growing the number of mutual fund investors are also growing.

Brand plays important role for the investment. People invest in those Companies where they have faith or they are well known with them. There are many AMCs in Baroda but only some are performing well due to Brand awareness. Some AMCs are not performing well although some of the schemes of them are giving good return because of not awareness about Brand. Reliance, UTI, SBIMF, ICICI Prudential etc. they are well known Brand, they are performing well and their Assets Under Management is larger than others whose Brand name are not well known like Sunderam, etc.

Distribution channels are also important for the investment in mutual fund. Financial Advisors are the most preferred channel for the investment in mutual fund. They can change investors mind from one investment option to others. Many of investors directly invest their money through AMC because they do not have to pay entry load. Only those people invest directly who know well about mutual fund and its operations and those have time.

Slow down in the world economy has affected India also. So people are highly concerned about their investment. They mainly invest for income and growth purpose. There are almost 42% of investor prefer to invest where his saving do not go down significantly.

There are many investors who are not satisfied with investment in MF. Mutual Fund always has good return in ling run. Investor who satisfied with MF is because of their long term investment and good AMC selection. There is also low return because of this slow down but it is not mean that it always give low return.

65

SUGGESTIONS AND RECOMMENDATIONS

The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convinced. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing.

Mutual funds offer a lot of benefit which no other single option could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time.

Mutual Fund Company needs to give the training of the Individual Financial Advisors about the Fund/Scheme and its objective, because they are the main source to influence the investors.

Before making any investment Financial Advisors should first enquire about the risk tolerance of the investors/customers, their need and time (how long they want to invest). By considering these three things they can take the customers into consideration.

Younger people aged less than 35 year will be a key new customer group into the future, so making greater efforts with younger customers who show some interest in investing should pay off.

Systematic Investment Plan (SIP) is one the innovative products launched by Assets Management companies very recently in the industry. SIP is easy for monthly salaried person as it provides the facility of do the investment in EMI. Though most of the prospects and potential investors are not aware about the SIP. There is a large scope for the companies to tap the salaried persons.

There are many investors who are in no need of money for longer period of time and also they invest in FD and saving Account. Conveying such type of investor for MF help those to get more return in future.

Agent must provide timely information to inve