mohammed ismail. h no- 216311672026

7/28/2019 Mohammed Ismail. h No- 216311672026

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ABSTRACT:

As in the past couple of years, equity markets showing range-bound movement, gilt funds

that invest in government bonds (G-secs) could be a good investment. The credit risk is next tonil as the government has zero risk of defaulting, but the interest rate risk rises as the market

price of debt security varies with fluctuating interest rates. Gilt funds are a very important part of

asset allocation with their inverse correlation to stocks and they could contribute significantly to

the yield enhancement of a portfolio. In this study, I have analyzed top 10 performing gilt funds

selected (on the basis of their three years return) out of the 63 gilt funds available in the Indian

mutual fund industry at present. My analysis is concentrated on six months to three years return

of the funds and risk, risk- return, market sensitivity of this funds to find out that which gilt fund

will offer best return to the investor considering the risk factor of investment

DEPARTMENT OF MBA Page

1

ST. XAVIERS PG COLLEGE


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INTRODUCTION

Many times the investors go on acquiring assets in an ad hoc & unplanned manner & the

result is high risk, low return profile that they may face. All such assets of financial nature such

as gold, silver, real-estate, building, insurance policies, post office certificate. NSC or NSS would

constitute his portfolio & the wise investor not only plans his portfolio as per risk return profile

or preferences but manages his portfolio efficiently so as to secure the highest return for the

lowest risk possible at that level of investment. This is in short the portfolio management. The

basic principle is that the higher the risk, the higher is the return &investor should have clear

perception of elements of risk & return when he makes investments. Risk return analysis is

essential for the investment & portfolio management. An investor considering investment is

securities is faced with the problem of choosing from among a large no. of securities. His choice

depends upon the risk return characteristics of individual securities.

There was a time when portfolio management was an exotic term. The scenario has changed

drastically. It is now a familiar term and is widely practiced in India. The theories and concepts

relating to portfolio management now find their way to the front pages of financial newspapers

and the cover pages of investment journals in India. Indian capital markets have become active.

The Indian stock markets are steadily moving towards higher efficiency, with rapid

computerization, increasing market transparency, better infrastructure, better customer service

etc. The markets are dominated by large institutional investors with their diversified portfolios. A

large no of mutual funds has been set up the county since 1987. With this development

investment in securities has gained considerable momentum. Professional portfolio management


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backed by competent research begun to be practiced by mutual funds, investment consultants and

big brokers. The Securities Exchange Board of India (SEBI). The Stock Market Regulatory body

in India is supervising the whole process. With the advent of computers the whole process of

portfolio management has become quite easy. The computer can absorb large volumes of data

perform computations accurately and quickly give out results in desired form. The trend towards

liberalization and globalization of the economy has promoted free flow of capital across

international border. Portfolio now includes not only domestic securities but also foreign

securities such as Options and Futures in the field of investment management and trading in

derivative securities. Their valuation etc.., has broadened its scope.


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Need of the study

The main purpose of doing this project was to know about mutual fund and its

functioning.

This helps to know in details about mutual fund industry right from its inception stage,

growth and future prospects.

It also helps in understanding different schemes of mutual funds.

My study depends upon prominent funds in India and their schemes like equity, income,

balance as well as the returns associated with those schemes.

The project study was done to ascertain the asset allocation, entry load, exit load,

associated with the mutual funds.

Ultimately this would help in understanding the benefits of mutual funds to investors.


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OBJECTIVES

To evaluate investment performance of selected mutual funds in terms of risk and

return.

To evaluate and create an ideal portfolio consisting the best mutual fund schemes

which will earn highest possible returns and will minimize the risk.

Basically to understand the concept of portfolio management and its relation tomutual funds.

Also to analyze the performance of mutual fund schemes on the basis of various

parameters.


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SCOPE OF THE PROJECT

The funds are selected to which ICICI Prudential is advisor. The Schemes were

categorized and selected on evaluating their performance and relative risk.

The scope of the project is mainly concentrated on the different categories of the

mutual funds such as equity schemes, debt funds, balanced funds and equity

linked savings schemes etc.

The ideal portfolio is created by analyzing the risk pattern of the schemes and

distributing the overall risk to earn maximum returns.


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METHODOLOGY

Research Methodology is a term made up of two words, research & methodology.

Research means search for knowledge. It is a scientific and systematic search for potential

information on a specific topic. It is an art of scientific investigation. It is careful investigation or

inquiry especially for search of new fact in any branch of knowledge.

Research is a systematic method of finding solutions to problems. According to Clifford

woody, research comprises of defining and redefining problem, formulating hypothesis or

suggested solutions, collecting, organizing and evaluating data, reaching conclusions, testing

conclusions to determine whether they fit the formulated hypothesis

For the purpose of study, both primary and secondary data has been collected. Theobservational method and survey research method is used to collect the primary data.

The necessary data has also been collected from official records and other published

sources. The collected data is classified, tabulated, analyzed and interpreted later.


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Data can be of two types primary and secondary data. Primary data are those which are

collected afresh and for the first time, and it is in original form. Primary data can be collected

either through experiment or through survey. The researcher has chosen the survey method for

data collection.

The two types of data collection:

Primary data

Secondary data

Primary data;

Primary data is personally developed data and it gives latest information and offers much greater

accuracy and reliability.

There are various sources for obtaining primary data i.e., Mail survey, personal interview,

Field survey, panel research and observation approach etc.

The study to maximum extent dependent on primary data, which is collected by way of

structures personal interview with customers.

Methods that can be used for collection of primary data are as follows:

Direct personal observation: Under this method, the investigator presents himself personally

before the informant and obtains first hand information. This method provides greater degree ofaccuracy.

Telephone survey: Under this method the investigator, instead of presenting himself before the

informants, contacts them on telephone and collects information from them.

Indirect personal interview: Under this method, instead of directly approaching the informants,

the investigator interviews several third persons who are directly or indirectly concerned with the

subject matter of the enquiry and who are in possession of the requisite information. This

method is highly suitable where the direct personal investigation is not practicable either because

the informants are unwilling or reluctant to supply the information or where the informationdesired is complex or the study in hand is extensive.

Questionnaire method: Under this method, the investigator prepares a questionnaire containing a

number of questions pertaining to the field of enquiry. Under this method, the investigator

directly contact the person and collect the information through questionnaire related to the data.

The aims and objectives of collecting the information, and requesting the respondents to


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cooperate by furnishing the correct replies and fill the questionnaire with correct information.

The success of this method depends upon the proper drafting of the questionnaire and the

cooperation of the respondents.

Secondary data;

Secondary data is the published data. It is already available for using and its saves time. The mail

source of secondary data are published market surveys, government publications advertising

research report and internal source such as sales, sales records orders, customers complaints and

other business record etc. the study has also depended on secondary data to little extent, which is

collected through internal source.

Methods that can be used for collection of secondary data are as follows:

Published sources: There are a number of national organisations and international agencies,

which collect and publish statistical data relating to business, trade, labour, price, consumption,production, etc. These publications of the various organisations are useful sources of secondary

data.

Unpublished sources: The records maintained by private firms or business houses who may not

like to release their data to any outside agency are known as unpublished sources of collection of

secondary data.

Limitations

This report gives an insight about mutual funds and mutual fund schemes but with few

limitations as follows:

The big question is how to judge a mutual fund before investing? It is important for an

investor to consider a fund s performance over several years.

The report only analyses equity mutual fund schemes of only some funds and there are

around 34 AMCs offering wide range of scheme but to analyze them is a tedious task.

This information is mainly regarding of those mutual funds were collected to which Icici

prudential funds is an advisor.


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Different fund managers adopt different strategies to improve performance. While one

fund manager may have invested in speculative stocks may over a period, another one

who have invested in speculative stocks may have struck gold in that year to outperform

the former by a long way.

Lack of proper knowledge and awareness about advantages and disadvantages associated

with various schemes among the investor.

Usually there is a tendency among investors to ignore the consistency of returns over a

period of time rather they focus on absolute returns generated in the short term.

Mutual Funds Overview:

There are a lot of investment avenues available today in the financial market for an

investor with an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and

Bonds where there is low risk but low return. He may invest in Stock of companies where the

risk is high and the returns are also proportionately high. The recent trends in the Stock Market

have shown that an average retail investor always lost with periodic bearish tends. People began

opting for portfolio managers with expertise in stock markets who would invest on their behalf.

Thus we had wealth management services provided by many institutions. However they proved

too costly for a small investor. These investors have found a good shelter with the mutual funds.

A mutual fund, also referred to as an open-end fund, is an investment company that

spreads its money across a diversified portfolio of securities -- including stocks, bonds, or money

market instruments. Shareholders who invest in a fund each own a representative portion of

those investments, less any expenses charged by the fund.


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Mutual funds have been around for a long time, dating back to the early 19th century. The

first modern American mutual fund opened in 1924, yet it was only in the 1990s that mutual

funds became mainstream investments, as the number of households owning them nearly tripled

during that decade. With recent surveys showing that over 88% of all investors participate in

mutual funds, you're probably already familiar with these investments, or perhaps even own

some. In any case, it's important that you know exactly how these investments work and howyou can use them to your advantage.

A mutual fund is a special type of company that pools together money from many

investors and invests it on behalf of the group, in accordance with a stated set of objectives.

Mutual funds raise the money by selling shares of the fund to the public, much like any other

company can sell stock in itself to the public. Funds then take the money they receive from the

sale of their shares (along with any money made from previous investments) and use it to

purchase various investment vehicles, such as stocks, bonds and money market instruments. In

return for the money they give to the fund when purchasing shares, shareholders receive an

equity position in the fund and, in effect, in each of its underlying securities. For most mutualfunds, shareholders are free to sell their shares at any time, although the price of a share in a

mutual fund will fluctuate daily, depending upon the performance of the securities held by the

fund.

Mutual fund investors make money either by receiving dividends and interest from their

investments, or by the rise in value of the securities. Dividends, interest and profits from the sale

of any securities (capital gains) are passed on to the shareholders in the form of distributions.

And shareholders generally are allowed to sell (redeem) their shares at any time for the closing

market price of the fund on that day.

Concept Of Mutual Funds:

A mutual fund is a common pool of money into which investors place their contributions

that are to be invested in accordance with a stated objective. The ownership of the fund is thus

joint or mutual; the fund belongs to all investors. A single investors ownership of the fund is

in the same proportion as the amount of the contribution made by him or her bears to the total

amount of the fund.

Mutual Funds are trusts, which accept savings from investors and invest the same in

diversified financial instruments in terms of objectives set out in the trusts deed with the view to

reduce the risk and maximize the income and capital appreciation for distribution for the

members. A Mutual Fund is a corporation and the fund managers interest is to professionally


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manage the funds provided by the investors and provide a return on them after deducting

reasonable management fees.

The objective sought to be achieved by Mutual Fund is to provide an opportunity for lower

income groups to acquire without much difficulty financial assets. They cater mainly to the

needs of the individual investor whose means are small and to manage investors portfolio in amanner that provides a regular income, growth, safety, liquidity and diversification

opportunities.

Definitions:

Mutual funds are collective savings and investment vehicles where savings of small (or

sometimes big) investors are pooled together to invest for their mutual benefit and returns

distributed proportionately.

A mutual fund is an investment that pools your money with the money of an unlimitednumber of other investors. In return, you and the other investors each own shares of the fund.

The fund's assets are invested according to an investment objective into the fund's portfolio of

investments. Aggressive growth funds seek long-term capital growth by investing primarily in

stocks of fast-growing smaller companies or market segments. Aggressive growth funds are also

called capital appreciation funds.

Why Select Mutual Funds?

The risk return trade-off indicates that if investor is willing to take higher risk then

correspondingly he can expect higher returns and vise versa if he pertains to lower risk

instruments, which would be satisfied by lower returns. For example, if an investor opt for bank

FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital

protected funds and the profit-bonds that give out more return which is slightly higher as

compared to the bank deposits but the risk involved also increases in the same proportion.

Thus investors choose mutual funds as their primary means of investing, as Mutual funds

provide professional management, diversification, convenience and liquidity. That doesnt mean

mutual fund investments risk free.


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This is because the money that is pooled in are not invested only in debts funds which are

less riskier but are also invested in the stock markets which involves a higher risk but can expect

higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives

market which is considered very volatile.

History Of Mutual Funds In India:

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 history of mutual funds in India can

be broadly divided into four distinct phases

First Phase 1964-87 (UTI Monopoly):

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 DevelopmentBank 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 families. 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 withFranklin 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.


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The number of mutual fund houses went on increasing, with many foreign mutual funds setting

up funds in India and also the industry has witnessed several mergers and acquisitions. As at the

end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The

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

mutual funds.

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 registeredwith SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the

erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management

and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund

Regulations, and with recent mergers taking place among different private sector funds, the

mutual fund industry has entered its current phase of consolidation and growth. As at the end of

September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421

schemes.

Recent Trends in Mutual Funds Industry

The Indian Mutual fund industry, despite all that has been said about it is still in a nascent stage

and has extremely bright future ahead. The industry is still one-tenth size of the banking deposits

in the country.

The private sector mutual fund industry in its resent avatar is barely 7 years old. The total asset

under management over the past 4 to 5 tears has almost remain stagnant around the Rs 100, 000

crore mark.

This has put a question mark in front of the claims that mutual funds are growing part of the

financial savings and planning industry in India. It holds scope for growth. In India this industry

began with the setting up of the Unit Trust Of India (UTI) in 1964 by the government of India inorder to mobiles small saving. During the past 37 years, UTI has grown to be a dominant player

in the industry with assets with over Rs 76,547 crore as of March2000. However, trouble hit UTI

has lost its dominant position in the industry and the asset under management has slipped

drastically to Rs 46,396 crore.


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Private sector mutual funds, which were permitted along with foreign partners in 1993, now

enjoy a dominant position in the country. Kothari Pioneer Mutual fund was the first fund to be

established in the private sector with foreign fund. The private sector now controls around RS

45,818 crore assets under management, almost half the size of the industry.

The mutual fund industry has become a fastest growing sector in the countrys capital andfinancial market with an average compounded growth rate of 20 percent over the past five years.

This is despite increasing competition with more than 30 asset management companies for

investors money. As on June 2002, the industry has Rs 100,703 crore asset under management

spread across 36 funds with more than 390 schemes.

Substantial development have made; spurred on by changes and amendments in regulation as the

mutual fund regulation that established a comprehensive legal framework for the mutual fund

industry to develop coherently. The securities and Exchange Board Of India (SEBI) came out

with comprehensive regulation in 1993 which defined the structure of the mutual fund and asset

management Companies for the first time.

The industry is in the process of evolving into a bigger and better investment medium for all

market segment, Say Kavita Hurry, CEO ING Investment Management, further, currently, ING

Investments manages around Rs.364 crore as on June 2002.

Structure Of Mutual Funds


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Sponsor

Company

Establishes MF as a

Trust

Registers MF with

SEBIManaged by a

Board of TrusteesMutual Fund

Hold Unitholders

Fund in MF

Ensure Compliance toSEBI Enter intoAgreement with MC

Asset Management

Company

Registrars and

Transfer Agents

Custodian

Bankers

Float, MF Funds

Managers Fund as

Per SEBI guidelines& AMC Agreement

Provides Necessary

Custodian Services

Provide Banking

Services

Provide Registrars

Services and act astransfers Agents

Appointed by

Board of

Trustees

Appointed by

Trustees

Appointed by

AMC

Appointed by

AMC


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The formation and operations of mutual funds in India is solely guided by SEBI (Mutual

Fund) Regulations, 1993, which came into force on 20 January 1993. The regulations have since

been replaced by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996,

through a notification on 9 December 1996.

The above figure gives an idea of the structure of Indian mutual funds. A mutual fund

comprises four separate entities, namely sponsor, mutual fund trust, AMC and custodian. They

are of course assisted by other independent administrative entities like banks, registrars and

transfer agents. We may discuss in brief the formation of different entities, their functions and

obligations.

The sponsor for a mutual fund can by any person who, acting alone or in combination with

another body corporate establishes the mutual fund and gets it registered with SEBI. The sponsor

is required to contribute at least 40 per cent of the minimum net worth (Rs 10 crore) of the asset


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management company. The sponsor must have a sound track record and general reputation of

fairness and integrity in all his business transactions.

As per SEBI Regulation, 1996, a mutual fund is to be formed by the sponsor and registered

with SEBI. A mutual fund shall be constituted in the form of a trust and the instrument of trust

shall be in the form of a deed, duly registered under the provisions of the Indian RegistrationAct, 1908, executed by the sponsor in favour of trustees named in such an instrument.

The board of trustees manages the mutual fund and the sponsor executes the trust deeds in

favor of the trustees. The mutual fund raises money through sale of units under one or more

schemes for investing in securities in accordance with SEBI guidelines. It is the job of the mutual

fund trustees to see that the schemes floated and managed by the AMC appointed by the trustees,

are in accordance with the trust deeds and SEBI guidelines. It is also the responsibilities of the

trustees to control the capital property of mutual funds schemes.

The trustees have the right to obtain relevant information from the AMC, as well as aquarterly report on its activities. They can also dismiss the AMC under specific condition as per

SEBI regulations.

At least half the trustees should be independent persons. The AMC or its employees

cannot act as a trustee. No person who is appointed as a trustee of a mutual fund can be

appointed as a trustee of any other mutual fund unless he is an independent trustee and prior

permission is obtained from the mutual fund in which he is a trustee. The trustees are required to

submit half-yearly reports to SEBI on the activities of the mutual fund. The trustees appoint a

custodian and supervise their activities. The trustees can be removed only with prior approval of

SEBI.

Benefits Of Mutual Fund Investments

1. 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.

2. Diversification:

Mutual Funds invest in a number of companies across a broad cross-section of industries and

sectors. This diversification reduces the risk because seldom do all stocks decline 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.


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3. Convenient 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.

4. 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.

5. 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 investors.

6. Liquidity:

In open-end schemes, the investor gets the money back promptly at net asset value related prices

from the Mutual Fund. In closed-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.

7. Transparency:

You get regular information on the value of your investment in addition to disclosure on thespecific investments made by your scheme, the proportion invested in each class of assets and

the fund manager's investment strategy and outlook.

8. 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.

9. Affordability:

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.

Structure And Constituents Of Fund


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Figure 1: Types Of Mutual Funds Schemes

Source: Secondary Data

Mutual fund schemes may be classified on the basis of its structure and its investment objective.

1. By Structure:

A. Openended funds:

An open end fund is one that is available for subscription all through the year. These do not

have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value (NAV)

related prices. The key feature of open-end schemes is liquidity.


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B. Closed-ended funds:

A closed end funds has a stipulated maturity period which generally raging from 3 to 15 years.

The funds are open for subscription only during a specified period. Investors can invest in the

scheme at the time of the initial public issue and thereafter they can buy or sell the units of the

scheme on the stock exchanges where they are listed. In order to provide an exist route to theinvestors, some close ended funds give an option of selling back the units to the Mutual fund

through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one

of the two exit routes is provided to the investor.

C. Interval Funds:

Interval funds combine the features of open-ended schemes. They are open for sale or

redemption during pre-determined intervals at NAV related prices.

2. By Nature:

A. Equity Funds:

These funds invest a maximum part of their corpus into equities holdings. The structure of the

fund may vary different for different schemes and the fund managers outlook on different

stocks. The Equity Funds are sub-classified depending upon their investment objective, as

follows:

Diversified Equity Funds

Mid-Cap Funds

Sector Specific Funds

Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-

return matrix.

B. Debt Funds:

The objective of these Funds is to invest in debt papers. Government authorities, private

companies, banks and financial institutions are some of the major issuers of debt papers. By

investing in debt instruments, these funds ensure low risk and provide stable income to the

investors. Debt funds are further classified as:


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Gilt Funds: Invest their corpus in securities issued by Government, popularly known as

Government of India debt papers. These Funds carry zero Default risk but are associated with

Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

Income Funds: Invest a major portion into various debt instruments such as bonds,

corporate debentures and Government securities.

MIPs: Invests maximum of their total corpus in debt instruments while they take minimum

exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly

high on the risk-return matrix when compared with other debt schemes.

Short Term Plans (STPs): Meant for investment horizon for three to six months. These

funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial

Papers (CPs). Some portion of the corpus is also invested in corporate debentures.

Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidityand preservation of capital. These schemes invest in short-term instruments like Treasury Bills,

inter-bank call money market, CPs and CDs. These funds are meant for short-term cash

management of corporate houses and are meant for an investment horizon of 1day to 3 months.

These schemes rank low on risk-return matrix and are considered to be the safest amongst all

categories of mutual funds.

C. Balanced Funds:

As the name suggest they, are a mix of both equity and debt funds. They invest in both equities

and fixed income securities, which are in line with pre-defined investment objective of the

scheme. These schemes aim to provide investors with the best of both the worlds. Equity part

provides growth and the debt part provides stability in returns.

The aim of balanced funds is to provide both growth and regular income. Such schemes

periodically distribute a part of their earning and invest both in equities and fixed income

securities in the proportion indicated in their offer documents. In a rising stock market, the NAV

of these schemes may not normally keep pace, or fall equally when the market falls. These are

ideal for investors looking for a combination of income and moderate growth.

D. Money Market Funds:

The aim of money funds is to provide easy liquidity, preservation of capital and moderate

income. These schemes generally invest in safer short-term instruments such as treasury bills,

certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes

may fluctuate depending upon the interest rate prevailing in the market. These are ideal for

Corporate and individual investors as a means to park their surplus funds for short periods.


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E. Load Funds:

A Load Funds is one that charges a commission for entry of exit. That is, each time you buy or

sell units in the fund, a commission will be payable. Typically entry exit loads range from 1% to

2%. It could be corpus is put to work.

F. No-Load Funds:

A No-Load Fund is one that does not charge a commission for entry or exit. That is, no

commission is payable on purchase or sale of units in the fund. The advantage of a no load is

that the entire corpus is put to work.

3. Schemes in Mutual Funds:

I. Tax Saving Schemes

These schemes offer tax rebates to the investor under specific provisions of the Indian Income

Tax laws as the Government offers tax incentives for investment in specified avenues.

Investments in Equity Linked Saving Schemes (ELSS) and Pension Schemes are allowed as

deduction u/s 88 of the Income Tax Act. The Act also provide opportunities to investors to save

capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the capital asset has

been sold to April 1, 2000 and the amount is invested before September 30, 2000.

II. Industry Specific Schemes:

Industry Specific Schemes invest in the industries specified in the offer document. The

investment or these funds is limited to specific like InfoTech, FMCG and Pharmaceuticals etc.

III. Index Schemes:

Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or

the NSE


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IV. Sectoral Schemes:

Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries

or various segments such as A Group shares or initial public offerings.

These are the funds/schemes which invest in the securities of only those sectors or industries asspecified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods

(FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of

the respective sectors/industries. While these funds may give higher returns, they are more risky

compared to diversified funds. Investors need to keep a watch on the performance of those

sectors/industries and must exit at an appropriate time.

Advantages Of Mutual Funds:

If mutual funds are emerging as the favorite investment vehicle, it is because of the many

advantages they have over other forms and the avenues of investing, particularly for the investorwho has limited resources available in terms of capital and the ability to carry out detailed

research and market monitoring. The following are the major advantages offered by mutual

funds to all investors:

1. Portfolio Diversification:

Each investor in the fund is a part owner of all the funds assets, thus enabling him to hold a

diversified investment portfolio even with a small amount of investment that would otherwise

require big capital.

2. Professional Management:

Even if an investor has a big amount of capital available to him, he benefits from the professional

management skills brought in by the fund in the management of the investors portfolio. The

investment management skills, along with the needed research into available investment options,ensure a much better return than what an investor can manage on his own. Few investors have

the skill and resources of their own to succeed in todays fast moving, global and sophisticated

markets.

3. Reduction/Diversification Of Risk:


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When an investor invests directly, all the risk of potential loss is his own, whether he places a

deposit with a company or a bank, or he buys a share or debenture on his own or in any other

from. While investing in the pool of funds with investors, the potential losses are also shared

with other investors. The risk reduction is one of the most important benefits of a collective

investment vehicle like the mutual fund.

4. Reduction Of Transaction Costs:

What is true of risk as also true of the transaction costs. The investor bears all the costs of

investing such as brokerage or custody of securities. When going through a fund, he has the

benefit of economies of scale; the funds pay lesser costs because of larger volumes, a benefit

passed on to its investors.

5. Liquidity:

Often, investors hold shares or bonds they cannot directly, easily and quickly sell. When theyinvest in the units of a fund, they can generally cash their investments any time, by selling their

units to the fund if open-ended, or selling them in the market if the fund is close-end. Liquidity

of investment is clearly a big benefit.

6. Convenience And Flexibility:

Mutual fund management companies offer many investor services that a direct market investor

cannot get. Investors can easily transfer their holding from one scheme to the other; get updated

market information and so on.

7. Tax Benefits:

Any income distributed after March 31, 2002 will be subject to tax in the assessment of all Unit

holders. However, as a measure of concession to Unit holders of open-ended equity-oriented

funds, income distributions for the year ending March 31, 2003, will be taxed at a concessional

rate of 10.5%.

In case of Individuals and Hindu Undivided Families a deduction upto Rs. 9,000 from the Total

Income will be admissible in respect of income from investments specified in Section 80L,

including income from Units of the Mutual Fund. Units of the schemes are not subject to

Wealth-Tax and Gift-Tax.

Disadvantages Of Mutual Funds:

1. No Control Over Costs:

An investor in a mutual fund has no control of the overall costs of investing. The investor pays

investment management fees as long as he remains with the fund, albeit in return for the


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professional management and research. Fees are payable even if the value of his investments is

declining. A mutual fund investor also pays fund distribution costs, which he would not incur in

direct investing. However, this shortcoming only means that there is a cost to obtain the mutual

fund services.

2. No Tailor-Made Portfolio:

Investors who invest on their own can build their own portfolios of shares and bonds and other

securities. Investing through fund means he delegates this decision to the fund managers. The

very-high-net-worth individuals or large corporate investors may find this to be a constraint in

achieving their objectives. However, most mutual fund managers help investors overcome this

constraint by offering families of funds- a large number of different schemes- within their own

management company. An investor can choose from different investment plans and constructs a

portfolio to his choice.

4. Managing A Portfolio Of Funds:

Availability of a large number of funds can actually mean too much choice for the investor. He

may again need advice on how to select a fund to achieve his objectives, quite similar to the

situation when he has individual shares or bonds to select.

5. The Wisdom Of Professional Management:

That's right, this is not an advantage. The average mutual fund manager is no better at picking

stocks than the average nonprofessional, but charges fees.

6. No Control:

Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of

somebody else's car

7. Dilution:

Mutual funds generally have such small holdings of so many different stocks that insanely great

performance by a fund's top holdings still doesn't make much of a difference in a mutual fund'stotal performance.

8. Buried Costs:

Many mutual funds specialize in burying their costs and in hiring salesmen who do not make

those costs clear to their clients.


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Types of Returns on Mutual Fund:

There are three ways, where the total returns provided by mutual funds can be enjoyed by

investors:

Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly allincome it receives over the year to fund owners in the form of a distribution.

If the fund sells securities that have increased in price, the fund has a capital gain. Most funds

also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase

in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you

a choice either to receive a check for distributions or to reinvest the earnings and get more

shares.

Return Risk Matrix:

Risk Factors Of Mutual Funds:

The Risk-Return Trade-Off:

The most important relationship to understand is the risk-return trade-off. Higher the risk greater

the returns / loss and lower the risk lesser the returns/loss.


26


Mutua

l

Funds

Equit

y

Bank FD

Postal

Savings

Ventur

e

Capital

HIGHER RISK

HIGHIER RETURNS

LOWER RISK

HIGIER RETURNS

LOWER RISK

LOWER RETURNS

HIGHIER RISK

MODERATE RETURNS


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Changes in government policy and political decision can change the investment environment.

They can create a favorable environment for investment or vice versa.

Liquidity Risk:

Liquidity risk arises when it becomes difficult to sell the securities that one has purchased.Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as

internal risk controls that lean towards purchase of liquid securities.

Profile of MIDEAST INVESTMENTS PVT LTD.

Mideast investments Private Limited, a member of National Stock Exchange of

India, stands to ensemble the province of trading in shares through its vibrant

environment created among various professionals working to strive the need of its clients.

Incepted in the year 1996, since inception the company has been at the foray of creating


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high end values, and enumerated its services for each and every category of client it

handles.

Promoted basically by business conglomerates from different facets of business families,

and promoters having a clear vision of the corporate culture have been a czar, to the

financial industry. With every promoter being professionally qualified and well

experienced in the field of finance, the company is at a store of making high regards in

the field of finance and stock broking services.

Ensembles the direct approach to its clients in any kind of query, service and operational

activity, the staff working around to provide such services are highly qualified

professionals with dignity towards end clients for the sake of providing services and

enlisted by the management of the organization. The company has well qualified staff to

cater all kinds of different needs of its clients.

Having various categories of clients viz., Individuals, High Networth Individuals,

Corporate Entities, Domestic Financial Institution and etc., the company grosses up to

make a unique blend of services to offer to each and every category of client it serves.

Apart from broking services, advisory services relating to trading in shares are

exclusively being managed by industry experts working as full timers to proved enriched

services.

With its huge database of more than 2000 individual clients, 50 plus corporate entities

and around 120 High Networth Individuals, the company is making efficient efforts to

add more client base to its present operations. With a broad view, the company is making

exponential efforts to provide vast amount of services across the nation through PAN

india presence, an initiative for the current fiscal,


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Since inception turnovers ranging from 650 crores have sky marked to 900 crores till the

financial year 2011-2012, during the year the company has started operations relating to

Training, Research and Development keeping emphasis exclusively in development of

financial sector, as the need of present hour is to generate human skill in the arena of

finance.

With vibrant services, the company has been on a verge of taking a pride in introducing

SHARIAH Based Trading through its terminals being connected to NSE of India

Limited., with latest technology in use, Mideast stands to its spa of services presently

being offered. On introduction of these specialized services, the company has added

extensive amount of MUSLIM client base appropriating nearly 80% out of the total 2000

individual client data base.

On sprawling view, with use-age of latest technology for various purposes viz., Trading,

Charting and etc., the company is always ahead of the competitive edge and promises to

deliver the catastrophic mode of investment and returns to be generated for all categories

of clients.

It has been an enduring experience working with MIDEAST INVESTMENTS PVT LTD,

during the course of internship and the amount of knowledge being shared together is

enormous in the field of finance.

OVERVIEW

MIDEAST INVESTMENTS has significant volumes in the segment of Equity at

National Stock exchanges aggregating Rs. 750 Cr per annum. The advantages of the

company having more than 200 ready customers base that will help us in reach out to the


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people with trust they have in us over a decade. The company understands customer need

very well as already enjoying highest customer satisfaction in services which is the key

area.

STOCK BROKERAGE

The companys managers have over 10000 man-hours of ringside broking experience,

which is being utilized to hilt by fully computerized VAST access at its Hyderabad

Office. MIDEAST INVESTMENTS Pvt. Ltd. is a corporate member of the National

Stock Exchange of India Limited, which is Indias largest exchange transacting over US

$68 billion (Rs 2,38,000 Cr) annually.

EQUITY RESEARCH:

Based on fundamental and technical strengths of Indian Corporations and the market

environment MIDEAST provides consultancy for investments. MIDEAST assists

individuals to maximize their earnings through stock market investment and Mutual

Fund as other financial instruments. Scientifically through their portfolio management

services.

NRI PLACEMENT AND RELATED SERVICES:

The analysis of opportunities for NRIs the primary and secondary market is a focus area

of MIDEAST Investments with the boom in the stock market, evaluation of companies to

invest becomes critical particular for NRIs for trading in these markets. Hence

MIDEAST provides the services.

Our Vision


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"To become a globally renowned organization that provides state of the art trading

solutions and infrastructure and to grow with latest technology and services, by

delivering the best solutions by best-in-class people."

Our Mission

"To achieve our objectives in an environment of fairness, honesty, and courtesy

towards our clients, employees, vendors and society at large."

ACCEPTANCE OF TERMS AND CONDITIONS / BROKER NORMS

The following should be read carefully and accepted prior to becoming a

Constituent for online trading i.e. for trading availing the facilities and/or any

information, or any part thereof, as the case may be, as may be made available from time

to time on the Web-Site and/or entering into any securities dealings through the Contact

India whether by use of any of the facilities available on the Web-Site, or by any other

means whatsoever. Please read the following, which contains important information


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concerning use of the Web Site. The use of the Web Site is conditional upon and subject

to, acceptance of and compliance with, the Terms. And whereas for offline the

Constituent can avail the facilities subject to acceptance of and compliance with the terms

contained herein.

End User shall be responsible for obtaining and maintaining all telephone, computer

hardware and other equipment needed for access to and use of this Site and all charges

related thereto. MIDEAST INVESTMENTS PVT LTD shall not be liable for any

damages to the End User's equipment resulting from the use of this Site.

Mutual Funds

Mutual fund is a trust that pools money from a group of investors (sharing common

financial goals) and invest the money thus collected into asset classes that match the stated

investment objectives of the scheme. Since the stated investment objectives of a mutual fund

scheme generally forms the basis for an investor's decision to contribute money to the pool, a

mutual fund can not deviate from its stated objectives at any point of time.

Every Mutual Fund is managed by a fund manager, who using his investment management skills

and necessary research works ensures much better return than what an investor can manage on


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his own. The capital appreciation and other incomes earned from these investments are passed on

to the investors (also known as unit holders) in proportion of the number of units they own.

History of mutual funds

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 of India. 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

Canbank 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


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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 families. 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 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.


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Organization of a Mutual Fund


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Sponsor :

Sponsor is the person who acting alone or in combination with another body corporate

establishes a mutual fund. The sponsor of a fund is akin to promoter of a company as he gets the

fund registered with SEBI. The sponsor will form a Trust and appoint a Board of Trustees. The

sponsor will also generally appoint as Asset Management Company as fund managers. The

sponsor, either directly or acting through the Trustees, will also appoint a Custodian to hold the

fund asset. All these appointments are made in accordance with SEBI Regulations.

Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the

eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds)

Regulations, 1996.The Sponsor is not responsible or liable for any loss or shortfall resulting from

the operation of the Schemes beyond the initial contribution made by it towards setting up of the

Mutual Fund.


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Trust :

The Mutual Fund in India is constituted in the form of a public Trust created under the Indian

Trustees Act, 1882. The fund sponsor acts as the settler of the trust, contributing to its initial

capital, and appoints Trustees to hold the asset of the Trust for the benefit of the unit holders,

who are the beneficiaries of the Trust. The fund then invites investors to contribute their money

in the common pool, by subscribing to Units issued by various schemes established by the

trust, units being the evidence of their beneficial interest in the fund.

It should be understood that a mutual fund is just a pass-through vehicle. Under the Indian

trusts Act, or the fund has no independent legal capacity itself, rather it is the Trustee or Trustees

who have the legal capacity and therefore all acts in relation to the trust are taken on its behalf by

the Trustees. The Trustees hold the unit holders money in a fiduciary capacity, i.e the money

belongs to the unit holders and is entrusted to the fund for the purpose of investment. In legal

parlance, the investor or the unit-holders are the beneficial owners of the investment held by

the Trust, even as these investments are held in the name of the trustees on a day to - day

basis.

Being public Trusts, mutual fund can invite any number of investors as beneficial owners in their

investment schemes.


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Trustee:

The trust the mutual fund may be a Board of Trustees a body of individuals, or a Trust

company a corporate body. Most of the funds in India are managed by Board of Trustees.

While the board of Trustees is governed by the provisions of the Indian Trusts Act, where the

Trustee is a corporate body, it would also be required to comply with the provisions of the

companies Act, 1956. The Board or the Trustee Company, as an independent body, act as

protector of the unit holders interests. The Trustee doesnt directly manage the portfolio of

securities. For this specialist function, they appoint an Asset Management Company. They

ensure that the fund is managed by the AMC as per the defined objectives and in accordance

with the Trust Deed and SEBI regulations.

The trust is created through a document called the Trust Deed that is executed by the fund

sponsor in favour of the Trustees. Trust Deed is required to be stamped as registered under the

provisions of the Indian Registration Act and registered with SEBI. Clauses in the Trust Deed,

inter alia, deal with the establishment of the Trust, the appointment of Trustees, their powers and

duties, and the obligations of the Trustees towards the unit-holders and AMC. These clauses also

specify activities that the fund/ AMC cannot undertake. The third schedule of the SEBI (MF)

Regulations, 1996 specifies the contents of the Trust Deed.

The Trustees being the primary guardians of the unit-holders funds and assets, a Trustee has to

be a person of high repute and integrity. SEBI has laid down a set of conditions to be fulfilled by

the individuals being proposed as trustees of mutual funds independent and non - independent.

Besides specifying the disqualifications, SEBI has also set down the Right and obligations of

the Trustees. Broadly, the Trustees must ensure that the investors interests are safeguarded and


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that the AMCs operations are along professional lines. They must also ensure that the

management of the fund is in accordance with SEBI Regulations. To ensure the independence of

the trustee company, SEBI mandates a minimum of two-third independent directors on the board

of the trustee company.

Asset Management Company (AMC) :

The role of an AMC is to act the investment manager of the Trust. The sponsors or the trustees,

if so authorized by the Trust Deed, appoint the AMC. The AMC so appointed is required to be

approved by SEBI. Once approved, the AMC functions under the supervision of its own Board

of Directors, and also under the directions of the Trustees and SEBI. The Trustees are

empowered to terminate the appointment of the AMC and appoint a new AMC with the prior

approval of SEBI and unit-holders

The AMC would, in the name of the Trust, float and then manage the different investment

schemes as per SEBI Regulations and as per the Investment Management Agreement it signs

with the Trustees. Mutual fund Regulations,1996 describes the issues relevant to appointment,

eligibility criteria, and restrictions on business activities and obligations of the AMC.

The AMC of a mutual fund must have a net worth of at least Rs. 10 crores at all times. Directors

of the AMC, both independent and non independent, should have adequate professional

experience in financial services and should be individuals of high moral standing, a condition

also applicable to other key personnel of the AMC. The AMC cannot act as a trustee of any other

mutual fund. Besides its role as the fund manager, it may undertake specified activities such as

advisory services and financial consulting, provided these activities are run independently of one

another and the AMCs resources are properly segregated by activity. The AMC must always act


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in the interest of the unit-holders and report to the trustees with respect to its activities. To ensure

the independence of the asset management company, SEBI mandates that a minimum of 50% of

the directors of the board of the asset management company should be independent directors.

Registrar and Transfer Agent :

The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the

Mutual Fund. The Registrar processes the application form; redemption requests and dispatches

account statements to the unit holders. The Registrar and Transfer agent also handles

communications with investors and updates investor records.

Custodian :

Mutual funds are in the business of buying and selling of securities in large volumes. Handling

these securities in terms of physical delivery and eventual safekeeping is therefore a specialized

activity. The custodian is appointed by the Board of Trustees for safe keeping of physical

securities or participating in any clearing systemthrough approved depository companies on

behalf of mutual fund in case of dematerialized securities. A custodian must fulfill its

responsibilities in accordance with its agreement with the mutual fund. The custodian should be

an entity independent of the sponsers and is required to be registered with SEBI.


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Concept of mutual fund

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets

of the fund in the same proportion as his contribution amount put up with the corpus (the total

amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit

holder.

Any change in the value of the investments made into capital market instruments (such as shares,

debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the

market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is

calculated by dividing the market value of scheme's assets by the total number of units issued to

the investors.


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For example:

If the market value of the assets of a fund is Rs. 100,000

A. The total number of units issued to the investors is equal to 10,000.

B. Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00

C. Now if an investor 'X' owns 5 units of this scheme

D. Then his total contribution to the fund is Rs. 50 (i.e. Number of units held multiplied bythe NAV of the scheme)

Association of Mutual Funds in India (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in India

was generated to function as a non-profit organisation. Association of Mutual Funds in India

(AMFI) was incorporated on 22nd August, 1995. AMFI is an apex body of all Asset Management

Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have

launched mutual fund schemes are its members. It functions under the supervision and guidelines

of its Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a

professional and healthy market with ethical lines enhancing and maintaining standards. It

follows the principle of both protecting and promoting the interests of mutual funds as well as

their unit holders.


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The objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has

certain defined objectives which supports the guidelines of its Board of Directors. The objectives

are as follows:

This mutual fund association of India maintains high professional and ethical standards in

all areas of operation of the industry.

It also recommends and promotes the top class business practices and code of conduct

which is followed by members and related people engaged in the activities of mutual

fund and asset management. The agencies who are by any means connected or involved

in the field of capital markets and financial services also involved in this code of conduct

of the association.

AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund

industry.

Association of Mutual Fund of India does represent the Government of India, the Reserve

Bank of India and other related bodies on matters relating to the Mutual Fund Industry.

It develops a team of well qualified and trained Agent distributors. It implements a

programme of training and certification for all intermediaries and other engaged in the

mutual fund industry.

AMFI undertakes all India awareness programme for investors in order to promote

proper understanding of the concept and working of mutual funds.

At last but not the least association of mutual fund of India also disseminate

informations on Mutual Fund Industry and undertakes studies and research either

directly or in association with other bodies.


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STUCTURE OF THE INDIAN MUTUAL FUNDS INDUSTRY:

Structure wise mutual fund industry can be classified into three categories;

Unit trust of India

The Indian mutual fund industry is dominated by the unit trust of India, which has a total corpus of 51000 crore

collected from over 20 million investors. The UTI has many fund/ schemes in all categories in equity, balanced,

debt, money market etc. With some being open ended and some being closed ended. The unit scheme 1964

commonly referred to as US64,which is a balanced fund, is the biggest scheme with a corpus of about 10000

crore.

Public sector mutual fund

The second largest categories of mutual funds are the ones floated by nationalized banks .can bank asset

management floated by canara bank and sbi funds management floatedby state bank of india are the largest of

these. Gicamc floated by general insurance corporation.

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 asset. 72% of the crore-customer base of mutual fund in the top 50-broking firms in theus is expected to

trade on line by 2003

Private Sector Mutual fund

The third largest categories of mutual funds are the ones floated by the private sector domestic mutual funds and

the private sector foreign mutual funds. The largest of these in private sector domestic mutual funds are Reliance

mutual fund, JM capital management company ltd. Tata mutual, Axis mutual fund, Birla sun life asset

management pvt. Ltd. and in private foreign mutual funds these are alliance capital asset management private ltd,


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Franklin Templeton Investments, Sun F&C asset management private ltd, Lurich asset management company

pvt ltd. The aggregate corpus of the assets managed by this category of amcs is about 42000 cr.

Future of Mutual Funds in India

Financial experts believe that the future of Mutual Funds in India will be very bright. AUM of 41

mutual fund houses in India rose to Rs681,708crore at the end of March, 2011 and Rs.664,824

crore in 2012, according to AMFI data. In the coming 10 years the annual composite growth rate

is expected to go up by 13.4%. Since the last 5 years, the growth rate was recorded as 9%

annually. Based on the current rate of growth, it can be forecasted that the mutual fund assets

will be double by 2015.

GLOBAL SCENARIO OF MUTUAL FUND:

The money market mutual fund segment has a total corpus of 1.48 trillion in theU.S.

Out of the top 10 mutual fund worldwide, eight are worldwide sponsored. Only fidelity

and capital are non-bank mutual funds in this group.

In the U.S. the total numbers of schemes is higher than that of the listed companies

Internationally, mutual funds are allowed to go short. In India fund managers do not

have such leeway.

In the U.S. about 9.7 million households will manage their assets online by the year

2003, such a facility is not yet of avail in India andjeevan bima sahayoga MC floated

by the LIC are some of the other prominent ones. The aggregate corpus of the funds managed by thiscategory of AMCc is around 8300 cr.


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Some of the major benefits of investingin them are:

Theseessentially investment vehicles where people with similar investment objective come

together to pool their money and then invest accordingly. Each unit of any scheme represents the

proportion of pool owned by the unit holder (investor). Appreciation or reduction in value of

investments is reflected in net asset value (NAV) of the concerned scheme, which is declared by

the fund from time to time. Mutual fund schemes are managed by respective Asset Management

Companies (AMC). Different business groups/ financial institutions/ banks have sponsored these

AMCs, either alone or in collaboration with reputed international firms. Several international

funds like Alliance and Templeton are also operating independently in India. Many more

international Mutual Fund giants are expected to come into Indian markets in the near future.

The benefits on offer are many with good post-tax returns and reasonable safety being the

hallmark that we normally associate with them.

Number of available options

Mutual funds invest according to the underlying investment objective as specified at the timeof

launching a scheme. So, we have equity funds, debt funds, gilt funds and many others thatcater

to the different needs of the investor. The availability of these options makes them a good option.

While equity funds can be as risky as the stock markets themselves, debt funds offer the kind of

security that is aimed for at the time of making investments. Money market funds offer the

liquidity that is desired by big investors who wish to park surplus funds for very short-term

periods. Balance Funds cater to the investors having an appetite for risk greater than the debt

funds but less than the equity funds.


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The only pertinent factor here is that the fund has to be selected keeping the risk profile of the

investor in mind because the products listed above have different risks associated with them. So,

while equity funds are a good bet for a long term, they may not find favor with corporate or High

Networth Individuals (HNIs) who have short-term needs.

Diversification

Investments are spread across a wide cross-section of industries and sectors and so the risk is

reduced. Diversification reduces the risk because all stocks don t move in the same direction at

the same time. One can achieve this diversification through a Mutual Fund with far less money

than one can on his own.

Professional Management

Mutual Funds employ the services of skilled professionals who have years of experience to back

them up. They use intensive research techniques to analyze each investment option for the

potential of returns along with their risk levels to come up with the figures for performance that

determine the suitability of any potential investment.

Potential of Returns

Returns in the mutual funds are generally better than any other option in any other avenue over a

reasonable period of time. People can pick their investment horizon and stay put in the chosen

fund for the duration. Equity funds can outperform most other investments over long periods by

placing long-term calls on fundamentally good stocks. The debt funds too will outperform other

options such as banks. Though they are affected by the interest rate risk in general, the returns

generated are more as they pick securities with different duration that have different yields and

so are able to increase the overall returns from the portfolio.


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Liquidity

Fixed deposits with companies or in banks are usually not withdrawn premature because there is

a penal clause attached to it. The investors can withdraw or redeem money at the Net Asset

Value related prices in the open-end schemes. In closed-end schemes, the units can be transactedat the prevailing market price on a stock exchange. Mutual funds also provide the facility of

direct repurchase at NAV related prices. The market prices of these schemes are dependent on

the NAVs of funds and may trade at more than NAV (known as Premium) or less than NAV

(known as Discount) depending on the expected future trend of NAV which in turn is linked to

general market conditions. Bullish market may result in schemes trading at Premium while in

bearish markets the funds usually trade at Discount. This means that the money can be

withdrawn anytime, without much reduction in yield. Some mutual funds however, charge exit

loads for withdrawal within a period. Besides these important features, mutual funds also offer

several other key traits. Important among them are:

Well Regulated

Unlike the company fixed deposits, where there is little control with the investment being

considered as unsecured debt from the legal point of view, the Mutual Fund industry is very well

regulated. All investments have to be accounted for, decisions judiciously taken. SEBI acts as a

true watchdog in this case and can impose penalties on the AMCs at fault. The regulations,

designed to protect the investors interests are also implemented effectively.

Transparency

Being under a regulatory framework, mutual funds have to disclose their holdings, Investment

pattern and all the information that can be considered as material, before all investors. This

means that the investment strategy, outlooks of the market and scheme related details are

disclosed with reasonable frequency to ensure that transparency exists in the system. This is

unlike any other investment option in India where the investor knows nothing as nothing is

disclosed.


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Flexible, Affordable and a Low Cost affair

Mutual Funds offer a relatively less expensive way to invest when compared to other avenues

such as capital market operations. The fee in terms of brokerages, custodial fees and other

management fees are substantially lower than other options and are directly linked to the

performance of the scheme. Investment in mutual funds also offers a lot of flexibility with

features such as regular investment plans, regular withdrawal plans and dividend reinvestment

plans enabling systematic investment or withdrawal of funds. Even the investors, who could

otherwise not enter stock markets with low investible funds, can benefit from a portfolio

comprising of high-priced stocks because they are purchased from pooled funds.

As has been discussed, mutual funds offer several benefits that are unmatched by other

investment options. Post liberalization, the industry has been growing at a rapid pace and has

crossed Rs. 1,00,000.00 Crore size in terms of its assets under management. However, due to the

low key investor awareness, the inflow under the industry is yet to overtake the inflows in banks.

Rising inflation, falling interest rates and a volatile equity market make a deadly cocktail for the

investor for whom mutual funds offer a route out of the impasse. The investments in mutual

funds are not without risks because the same forces such as regulatory frameworks, government

policies, interest rate structures, performance of companies etc. that

Rattles the equity and debt markets, act on mutual funds too. But it is the skill of the managing

risks that investment managers seek to implement in order to strive and generate superior returns

than otherwise possible that makes them a better option than many others.


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Dis - Advantages of mutual funds

1. High Expense Ratios and Sales Charges

If you're not paying attention to mutual fund expense ratios and sales charges, they can

get out of hand. Be very cautious when investing in funds with expense ratios higher than

1.20%, as they will be considered on the higher cost end. Be weary of 12b-1 advertising

fees and sales charges in general. There are several good fund companies out there that

have no sales charges. Fees reduce overall investment returns.

2. Management Abuses

Churning, turnover and window dressing may happen if your manager is abusing his or

her authority. This includes unnecessary trading, excessive replacement and selling the

losers prior to quarter-end to fix the books.

3. Tax Inefficiency

Like it or not, investors do not have a choice when it comes to capital gain payouts in

mutual funds. Due to the turnover, redemptions, gains and losses in security holdings

throughout the year, investors typically receive distributions from the fund that are an

uncontrollable tax event.

4. Poor Trade Execution

If you place your mutual fund trade anytime before the cut-off time for same-day NAV,

you'll receive the same closing price NAV for your buy or sell on the mutual fund. For

investors looking for faster execution times, maybe because of short investment horizons,

day trading, or timing the market, mutual funds provide a weak execution strategy.


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Types of mutual funds:

Risk Hierarchy of Different Mutual Funds

Thus, different mutual fund schemes are exposed to different levels of risk and

investors should know the level of risks associated with these schemes before

investing. The graphical representation hereunder provides a clearer picture of the

relationship between mutual funds and levels of risk associated with these funds:


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