mutual icici new

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CHAPTER I

INTRODUCTION TO MUTUAL FUND

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Introduction to Mutual Funds

Mutual fund is a mechanism for pooling the resources by issuing units to

the investors and investing funds in securities in accordance with

objectives as disclosed in offer document.

Investments in securities are spread across a wide cross-section of

industries and sectors and thus the risk is reduced. Diversification

reduces the risk because all stocks may not move in the same direction

in the same proportion at the same time. Mutual fund issues units to the

investors in accordance with quantum of money invested by them.

Investors of mutual funds are known as unit holders.

The profits or losses are shared by the investors in proportion to their

investments. The mutual funds normally come out with a number of

schemes with different investment objectives which are launched from

time to time. A mutual fund is required to be registered with Securities

and Exchange Board of India (SEBI) which regulates securities markets

before it can collect funds from the public.

A mutual fund is set up in the form of a trust, which has sponsor,

trustees, asset Management Company (AMC) and custodian. The trust is

established by a sponsor or more than one sponsor who is like promoter

of a company. The trustees of the mutual fund hold its property for the

benefit of the unit holders. Asset Management Company (AMC) approved

by SEBI manages the funds by making investments in various types of

securities. Custodian, who is registered with SEBI, holds the securities of

various schemes of the fund in its custody. The trustees are vested with

the general power of superintendence and direction over AMC. They

monitor the performance and compliance of SEBI Regulations by the

mutual fund.

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Mutual fund in India

Unit Trust of India was the first mutual fund set up in India in the year

1963. In early 1990s, Government allowed public sector banks and

institutions to set up mutual funds.

In the year 1992, Securities and exchange Board of India (SEBI) Act was

passed. The objectives of SEBI are to protect the interest of investors in

securities and to promote the development of and to regulate the

securities market.

As far as mutual funds are concerned, SEBI formulates policies and

regulates the mutual funds to protect the interest of the investors. SEBI

notified regulations for the mutual funds in 1993. Thereafter, mutual

funds sponsored by private sector entities were allowed to enter the

capital market. The regulations were fully revised in 1996 and have been

amended thereafter from time to time. SEBI has also issued guidelines to

the mutual funds from time to time to protect the interests of investors.

All mutual funds whether promoted by public sector or private sectorentities including those promoted by foreign entities are governed by the

same set of Regulations. There is no distinction in regulatory

requirements for these mutual funds and all are subject to monitoring

and inspections by SEBI. The risks associated with the schemes launched

by the mutual funds sponsored by these entities are of similar type

You can make money from a mutual fund in three ways:

1) Income is earned from dividends on stocks and interest on

bonds.

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2) If the fund sells securities that have increased in price, the fund has

a capital gain.

3) 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.

Advantages of Mutual Funds:

Professional Management - The primary advantage of funds is

the professional management of your money. Investors purchase

funds because they do not have the time or the expertise to

manage their own portfolios. A mutual fund is a relatively

inexpensive way for a small investor to get a full-time manager to

make and monitor investments.

Diversification - By owning shares in a mutual fund instead of

owning individual stocks or bonds, your risk is spread out. The idea

behind diversification is to invest in a large number of assets so

that a loss in any particular investment is minimized by gains inothers.

Economies of Scale - Because a mutual fund buys and sells large

amounts of securities at a time, its transaction costs are lower than

what an individual would pay for securities transactions.

Liquidity - Just like an individual stock, a mutual fund allows you to

request that your shares be converted into cash at any time.

Simplicity Minimum investment is small.

Disadvantages:

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Dilution - It's possible to have too much diversification. Because funds

have small holdings in so many different companies, high returns from a

few investments often don't make much difference on the overall return.

Taxes - When making decisions about your money, fund managers

don't consider your personal tax situation.

Different Types of Funds

It's important to understand that each mutual fund has different risks and

rewards. In general, the higher the potential return, the higher the risk of

loss. Although some funds are less risky than others, all funds have some

level of risk - it's never possible to diversify away all risk.

Each fund has a predetermined investment objective that tailors the

fund's assets, regions of investments and investment strategies. At the

fundamental level, there are three varieties of mutual funds:

1) Equity funds (stocks)

2) Fixed-income funds (bonds)

3) Money market funds

4)

Money Market Funds The money market consists of short-term debt instruments, mostly

Treasury bills.

Bond/Income Funds

Income funds are named appropriately: their purpose is to provide

current income on a steady basis. When referring to mutual funds, the

terms "fixed-income," "bond," and "income" are synonymous.

Bond funds are likely to pay higher returns than certificates of deposit

and money market investments, but bond funds aren't without risk.

Balanced Funds

The objective of these funds is to provide a balanced mixture of safety,

income and capital appreciation. The strategy of balanced funds is to

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invest in a combination of fixed income and equities. A typical balanced

fund might have a weighting of 60% equity and 40% fixed income. The

weighting might also be restricted to a specified maximum or minimum

for each asset class.

A similar type of fund is known as an asset allocation fund. Objectives are

similar to those of a balanced fund, but these kinds of funds typically do

not have to hold a specified percentage of any asset class.

Equity Funds

Funds that invest in stocks represent the largest category of mutual

funds. Generally, the investment objective of this class of funds is long-

term capital growth with some income. There are, however, many

different types of equity funds because there are many different types of

equities. A way to understand the universe of equity funds is to use a

style box, an example of which is below.

The idea is to classify funds based on both the size of the companies

invested in and the Investment style of the manager

Global/International Funds

An international fund (or foreign fund) invests only outside your home

country. Global funds invest anywhere around the world, including your

home country.

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Index Funds

The last but certainly not the least important are index funds. An investor

in an index fund figures that most managers can't beat the market. An

index fund merely replicates the market return and benefits investors in

the form of low fees.

The Value of Your Fund

Net asset value (NAV), which is a fund's assets minus liabilities, is the

value of a mutual fund. NAV per share is the value of one share in the

mutual fund, and it is the number that is quoted in newspapers.

When you buy shares, you pay the current NAV per share plus any sales

front-end load. When you sell your shares, the fund will pay you NAV less

any back-end load.

There are many entities involved and the diagram below illustrates the

organizational set up of a mutual fund:

Organization of a Mutual Fund

CONCEPT

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 then

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invested in capital market instruments such as shares, debentures and

other securities. The income earned through these investments and the

capital appreciation realised are shared by its unit 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 basket of securities at a

relatively low cost. The flow chart below describes broadly the working of

a mutual fund:

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SCOPE OF THE STUDY:

The study is limited to the analysis made on two major types of schemes

offered by six banks. Each scheme is calculated in term of their risk and

return using different performance measurement theories. The reasons

for such performance in immediately analyzed in the commentary.

Column charts are used to reflect the portfolio risk and return.

OBJECTIVES OF THE STUDY:

To understand what Mutual fund companies are.

To understand Mutual fund companies viz. UTI, SBI, ABN AMRO, ICICI,

HSBC & ING VYSYA BANK.

To understand each company performance basing on weekly wise

data starting from Monday.

To understand the investment strategies followed by each company.

HYPOTHESIS

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The Market data that has been used to see whether the risk and return

calculated can be used has an indicator to the investor to minimize the

risk and maximize the returns on its investment.

RESEARCH METHODOLOGY:

For, the purpose of the study, the data collected from primary and

Secondary has sanitized edited and presented in the from of tables and

statements. The analysis of the data has been made with the help of

certain mathematical techniques lie percentages etc. Where ever feasible

and opportiate graphs and diagrams are used.

The collection of data is done through two principles sources viz

1. Primary Data

2. Secondary Data

PRIMARY DATA

It is the information collected directly without any reference. In the study,

it mainly interviews with concerned officers and staff either individually

or collectively. Some of the information had been verified or

supplemented with personal observation, the data collected through

conducting personal interview with the officer of the India bulls.

SECONDARY DATA:

The data that is used in this project is of secondary nature. The data has

been collected from secondary sources such has various websites,

journals, newspapers, books, etc.

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METHOD OF STUDY:

The data collected for the two sectors are of three months data i.e., Nov

2008 Jan 2009.The data for study purpose is taken on weekly basis .The

data taken into consideration is every Monday.

NATIONALISED BANKS: SBI, UTI, ING VYSYA

CORPORATE BANKS: ABN AMRO, HSBC, ICICI

TIME PERIOD

The time duration of the study for analyzing the data is from Dec 2008

to Jan 2009.. Data is collected from websites and ECONOMIC TIMES

LIMITATIONS OF THE STUDY:

The study is conducted in short period, due to which the study may

not be detailed in all aspects.

The study is limited only to the analysis of different schemes and

its suitability to different investors according to their risk-taking

ability.

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The study is based on secondary data available from monthly fact

sheets, web sites, offer documents, magazines and newspapers

etc. as primary data was not accessible.

The study is limited by the detailed study of various schemes.

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CHAPTER-II

COMPANY PROFILEMUTUAL FUND THEORY

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CORPORATE PROFILE

ICICI Prudential Asset Management Company enjoys the strong

parentage of Prudential plc, one of UK's largest players in the

insurance& fund management sectors and ICICI Bank, a well-known

and trusted name in financial services in India. ICICI PrudentialAsset

Management Company, in a span of just over eight years, has forged a

position of pre-eminence in the Indian Mutual Fund industry as one

of the largest asset management companies in the country with assetsunder management of Rs. 37,906.24 crores (as of March 31, 2007).

The Company manages a comprehensive range of schemes to meet

the varying investment needs of its investors spread across 68 cities

in the country.

As on May 1998 As on March 31, 2007

Assets UnderManagement

Rs. 160 crores Rs. 37,906.24 crores

Number of FundsManaged

2 30

Our Guiding Principles

PruICICI will conduct its business with

Honesty and trust worthiness in all interactions.

A pioneering spirit and excellence in action.

Collaboration and teamwork.

An understanding of customer needs and the desire to satisfy them.

The highest service standards.

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A consistently above average performance.

Board of Directors of the AMC

The Prudential ICICI AMC Board comprises reputed people form thefinance industry both from India and abroad.

* Mr. K. V. Kamath -Chairman* Mr. Barry Stowe* Mr. Ajay Srinivasan

* Ms. Kalpana Morporia* Mr. K. S. Mehta* Mr. Dadi Engineer* Mr. B. R. Gupta* Dr. (Mrs.) Swati A. Piramal* Ms. Shikha Sharma* Mr. Vikram B. Trivedi* Mr. Vijay Thacker* Mr. Pankaj Razdan

Directors of the Trustee Company

* Mr. Eruch B. Desai -Chairman* Mr. Keki Bomi Dadiseth* Mr. D. J. Balaji Rao* Mr. M. S. Parthasarathy*Ms. Vishakha Mulye

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Established in London in 1848, Prudential plc, through its businesses in

the UK, US and Asia, provides retail financial services products and

services to more than 21 million customers, policyholders and unit

holders worldwide with over US$400 (as of 31st December, 2005)

billion in funds under management. Prudential employs some 23,000

staff worldwide.

In Asia, Prudential has life insurance and funds management

operations across twelve countries - China, Hong Kong, India,

Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan,

Thailand and Vietnam. Prudential has championed customer-centric

products and services for over 80 years, supported by an extensive

network of over 145,000 staff and agents across the region.

ICICI Bank is India's second-largest bank with total assets of about Rs.

2,513.89 bn (US$ 56.3 bn) at March 31, 2006 and profit after tax of Rs.

25.40 bn (US$ 569 mn) for the year ended March 31, 2006 (Rs. 20.05

bn (US$ 449 mn) for the year ended March 31, 2005). ICICI Bank has a

network of about 614 branches and extension counters and over 2,200

ATMs. ICICI Bank offers a wide range of banking products and financial

services to corporate and retail customers through a variety of delivery

channels and through its specialised subsidiaries and affiliates in the

areas of investment banking, life and non-life insurance, venture

capital and asset management. ICICI Bank set up its international

banking group in fiscal 2002 to cater to the cross border needs of

clients and leverage on its domestic banking strengths to offer

products internationally. ICICI Bank currently has subsidiaries in the

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United Kingdom, Russia and Canada, branches in Singapore, Bahrain,

Hong Kong, Sri Lanka and Dubai International Finance Centre and

representative offices in the United States, United Arab Emirates,

China, South Africa and Bangladesh. Our UK subsidiary has established

a branch in Belgium.

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MUTUAL FUND

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 objective 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 his own. Thecapital 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.

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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 NetAsset 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.

For example:

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

B. The total number of units issued to the investors is equal to

10,000.

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

10.00

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

E. Then his total contribution to the fund is Rs. 50 (i.e. Number of

units held multiplied by the NAV of the scheme)

ADVANTAGES OF MUTUAL FUND

1. Portfolio Diversification Mutual Funds invest in a well-diversified

portfolio of securities which enables investor to hold a diversified

investment portfolio (whether the amount of investment is big or

small).

2. Professional Management Fund manager undergoes through

various research works and has better investment management skills

which ensure higher returns to the investor than what he can manage

on his own.

3. Less Risk Investors acquire a diversified portfolio of securities even

with a small investment in a Mutual Fund. The risk in a diversified

portfolio is lesser than investing in merely 2 or 3 securities.

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4. Low Transaction Costs Due to the economies of scale (benefits of

larger volumes), mutual funds pay lesser transaction costs. These

benefits are passed on to the investors.

5. Liquidity An investor may not be able to sell some of the shares

held by him very easily and quickly, whereas units of a mutual fund are

far more liquid.

6. Choice of Schemes Mutual funds provide investors with various

schemes with different investment objectives. Investors have the

option of investing in a scheme having a correlation between its

investment objectives and their own financial goals. These schemes

further have different plans/options

7. Transparency Funds provide investors with updated information

pertaining to the markets and the schemes. All material facts are

disclosed to investors as required by the regulator.

8. Flexibility Investors also benefit from the convenience and

flexibility offered by Mutual Funds. Investors can switch their holdings

from a debt scheme to an equity scheme and vice-versa. Option of

systematic (at regular intervals) investment and withdrawal is also

offered to the investors in most open-end schemes.9. Safety Mutual Fund industry is part of a well-regulated investment

environment where the interests of the investors are protected by the

regulator. All funds are registered with SEBI and complete

transparency is forced.

DISADVANTAGES OF MUTUAL FUND

1.Costs Control Not in the Hands of an Investor Investor has to

pay investment management fees and fund distribution costs as a

percentage of the value of his investments (as long as he holds the

units), irrespective of the performance of the fund.

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2. No Customized Portfolios The portfolio of securities in which a

fund invests is a decision taken by the fund manager. Investors have

no right to interfere in the decision making process of a fund manager,

which some investors find as a constraint in achieving their financial

objectives.

3. Difficulty in Selecting a Suitable Fund Scheme Many investors

find it difficult to select one option from the plethora of

funds/schemes/plans available. For this, they may have to take advice

from financial planners in order to invest in the right fund to achieve

their objectives.

TYPES OF MUTUAL FUNDS

General Classification of Mutual Funds

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Open-end Funds / Closed-end Funds

Open-end Funds

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

classified as Open-end Funds. The fund size (corpus) of an open-end

fund is variable (keeps changing) because of continuous selling (to

investors) and repurchases (from the investors) by the fund. An open-

end fund is not required to keep selling new units to the investors at all

times but is required to always repurchase, when an investor wants to

sell his units. The NAV of an open-end fund is calculated every day.

Closed-end Funds

Funds that can sell a fixed number of units only during the New Fund

Offer (NFO) period are known as Closed-end Funds. The corpus of a

Closed-end Fund remains unchanged at all times. After the closure of

the offer, buying and redemption of units by the investors directly from

the Funds is not allowed. However, to protect the interests of the

investors, SEBI provides investors with two avenues to liquidate their

positions:

1. Closed-end Funds are listed on the stock exchanges where

investors can buy/sell units from/to each other. The trading is generally

done at a discount to the NAV of the scheme. The NAV of a closed-end

fund is computed on a weekly basis (updated every Thursday).

2. Closed-end Funds may also offer "buy-back of units" to the unit

holders. In this case, the corpus of the Fund and its outstanding units

do get changed.

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Load Funds/no-load funds

Load Funds

Mutual Funds incur various expenses on marketing, distribution,

advertising, portfolio churning, fund managers salary etc. Many funds

recover these expenses from the investors in the form of load. These

funds are known as Load Funds. A load fund may impose following

types of loads on the investors:

Entry Load Also known as Front-end load, it refers to the load

charged to an investor at the time of his entry into a scheme. Entry

load is deducted from the investors contribution amount to the fund.

Exit Load Also known as Back-end load, these charges are

imposed on an investor when he redeems his units (exits from the

scheme). Exit load is deducted from the redemption proceeds to an

outgoing investor.

Deferred Load Deferred load is charged to the scheme over a

period of time.

Contingent Deferred Sales Charge (CDSS) In some

schemes, the percentage of exit load reduces as the investor stays

longer with the fund. This type of load is known as Contingent Deferred

Sales Charge.

No-load Funds

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All those funds that do not charge any of the above mentioned loads

are known as No-load Funds.

Tax-exempt Funds/ Non-Tax-exempt Funds

Tax-exempt Funds

Funds that invest in securities free from tax are known as Tax-exempt

Funds. All open-end equity oriented funds are exempt from distribution

tax (tax for distributing income to investors). Long term capital gains

and dividend income in the hands of investors are tax-free.

Non-Tax-exempt Funds

Funds that invest in taxable securities are known as Non-Tax-exemptFunds. In India, all funds, except open-end equity oriented funds are

liable to pay tax on distribution income. Profits arising out of sale of

units by an investor within 12 months of purchase are categorized as

short-term capital gains, which are taxable. Sale of units of an equity

oriented fund is subject to Securities Transaction Tax (STT). STT is

deducted from the redemption proceeds to an investor

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BROAD MUTUAL FUND TYPES

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1. Equity Funds

Equity funds are considered to be the more risky funds as compared to

other fund types, but they also provide higher returns than other

funds. It is advisable that an investor looking to invest in an equity

fund should invest for long term i.e. for 3 years or more. There are

different types of equity funds each falling into different risk bracket. In

the order of decreasing risk level, there are following types of equity

funds:

a. Aggressive Growth Funds - In Aggressive Growth Funds, fund

managers aspire for maximum capital appreciation and invest in less

researched shares of speculative nature. Because of these speculative

investments Aggressive Growth Funds become more volatile and thus,

are prone to higher risk than other equity funds.

b. Growth Funds - Growth Funds also invest for capital

appreciation (with time horizon of 3 to 5 years) but they are different

from Aggressive Growth Funds in the sense that they invest in

companies that are expected to outperform the market in the future.

Without entirely adopting speculative strategies, Growth Funds invest

in those companies that are expected to post above average earnings

in the future.

c. Speciality Funds - Speciality Funds have stated criteria for

investments and their portfolio comprises of only those companies that

meet their criteria. Criteria for some speciality funds could be to

invest/not to invest in particular regions/companies. Speciality funds

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are concentrated and thus, are comparatively riskier than diversified

funds. There are following types of speciality funds:

1. Sector Funds: Equity funds that invest in a particular

sector/industry of the market are known as Sector Funds. The exposureof these funds is limited to a particular sector (say Information

Technology, Auto, Banking, Pharmaceuticals or Fast Moving Consumer

Goods) which is why they are more risky than equity funds that invest

in multiple sectors.

2. Foreign Securities Funds: Foreign Securities Equity Funds have

the option to invest in one or more foreign companies. Foreign

securities funds achieve international diversification and hence theyare less risky than sector funds. However, foreign securities funds are

exposed to foreign exchange rate risk and country risk.

3. Mid-Cap or Small-Cap Funds: Funds that invest in companies

having lower market capitalization than large capitalization companies

are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-

Cap companies is less than that of big, blue chip companies (less than

Rs. 2500 crores but more than Rs. 500 crores) and Small-Cap

companies have market capitalization of less than Rs. 500 crores.

Market Capitalization of a company can be calculated by multiplying

the market price of the company's share by the total number of its

outstanding shares in the market. The shares of Mid-Cap or Small-Cap

Companies are not as liquid as of Large-Cap Companies which gives

rise to volatility in share prices of these companies and consequently,

investment gets risky.

4. Diversified Equity Funds - Except for a small portion of

investment in liquid money market, diversified equity funds invest

mainly in equities without any concentration on a particular sector(s).

These funds are well diversified and reduce sector-specific or

company-specific risk. However, like all other funds diversified equity

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funds too are exposed to equity market risk. One prominent type of

diversified equity fund in India is Equity Linked Savings Schemes

(ELSS). As per the mandate, a minimum of 90% of investments by

ELSS should be in equities at all times. ELSS investors are eligible to

claim deduction from taxable income (up to Rs 1 lakh) at the time of

filing the income tax return. ELSS usually has a lock-in period and in

case of any redemption by the investor before the expiry of the lock-in

period makes him liable to pay income tax on such income(s) for which

he may have received any tax exemption(s) in the past.

d. Equity Index Funds - Equity Index Funds have the objective to

match the performance of a specific stock market index. The portfolio

of these funds comprises of the same companies that form the index

and is constituted in the same proportion as the index. Equity index

funds that follow broad indices (like S&P CNX Nifty, Sensex) are less

risky than equity index funds that follow narrow sectoral indices (like

BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified

and therefore, are more risky.

2.Debt/IncomeFunds

Funds that invest in medium to long-term debt instruments issued by

private companies, banks, financial institutions, governments and

other entities belonging to various sectors (like infrastructure

companies etc.) are known as Debt / Income Funds. Debt funds are low

risk profile funds that seek to generate fixed current income (and not

capital appreciation) to investors. In order to ensure regular income to

investors, debt (or income) funds distribute large fraction of their

surplus to investors. Although debt securities are generally less risky

than equities, they are subject to credit risk (risk of default) by the

issuer at the time of interest or principal payment. To minimize the risk

of default, debt funds usually invest in securities from issuers who are

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rated by credit rating agencies and are considered to be of

"Investment Grade". Debt funds that target high returns are more

risky. Based on different investment objectives, there can be following

types of debt funds:

a. Diversified Debt Funds - Debt funds that invest in all securities

issued by entities belonging to all sectors of the market are known as

diversified debt funds. The best feature of diversified debtfunds is that

investments are properly diversified into all sectors which results in

risk reduction. Any loss incurred, on account of default by a debt

issuer, is shared by all investors which further reduces risk for an

individual investor.

b. Focused Debt Funds* - Unlike diversified debt funds, focused

debt funds are narrow focus funds that are confined to investments in

selective debt securities, issued by companies of a specific sector or

industry or origin. Some examples of focused debt funds are sector,

specialized and offshore debt funds, funds that invest only in Tax Free

Infrastructure or Municipal Bonds. Because of their narrow orientation,

focused debt funds are more risky as compared to diversified debt

funds. Although not yet available in India, these funds are conceivable

and may be offered to investors very soon.

c. Assured Return Funds - Although it is not necessary that a fund

will meet its objectives or provide assured returns to investors, but

there can be funds that come with a lock-in period and offer assurance

of annual returns to investors during the lock-in period. Any shortfall in

returns is suffered by the sponsors or the Asset Management

Companies (AMCs). These funds are generally debt funds and provide

investors with a low-risk investment opportunity. However, the security

of investments depends upon the net worth of the guarantor (whose

name is specified in advance on the offer document). To safeguard the

interests of investors, SEBI permits only those funds to offer assured

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return schemes whose sponsors have adequate net-worth to guarantee

returns in the future. In the past, UTI had offered assured return

schemes (i.e. Monthly Income Plans of UTI) that assured specified

returns to investors in the future. UTI was not able to fulfill its promises

and faced large shortfalls in returns. Eventually, government had to

intervene and took over UTI's payment obligations on itself. Currently,

no AMC in India offers assured return schemes to investors, though

possible.

d. Fixed Term Plan Series - Fixed Term Plan Series usually are

closed-end schemes having short term maturity period (of less than

one year) that offer a series of plans and issue units to investors at

regular intervals. Unlike closed-end funds, fixed term plans are not

listed on the exchanges. Fixed term plan series usually invest in debt /

income schemes and target short-term investors. The objective of fixed

term plan schemes is to gratify investors by generating some expected

returns in a short period. nds | Closed-end 3.GiltFunds

Also known as Government Securities in India, Gilt Funds invest in

government papers (named dated securities) having medium to long

term maturity period. Issued by the Government of India, these

investments have little credit risk (risk of default) and provide safety of

principal to the investors. However, like all debt funds, gilt funds too

are exposed to interest rate risk. Interest rates and prices of debt

securities are inversely related and any change in the interest rates

results in a change in the NAV of debt/gilt funds in an opposite

direction.

4. Money Market/Liquid Funds

Money market / liquid funds invest in short-term (maturing within one

year) interest bearing debt instruments. These securities are highly

liquid and provide safety of investment, thus making money market /

liquid funds the safest investment option when compared with other

mutual fund types. However, even money market / liquid funds are

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exposed to the interest rate risk. The typical investment options for

liquid funds include Treasury Bills (issued by governments),

Commercial papers (issued by companies) and Certificates of Deposit

(issued by banks).

5. HybridFunds

As the name suggests, hybrid funds are those funds whose portfolio

includes a blend of equities, debts and money market securities.

Hybrid funds have an equal proportion of debt and equity in their

portfolio. There are following types of hybrid funds in India:

a. Balanced Funds The portfolio of balanced funds include

assets like debt securities, convertible securities, and equity and

preference shares held in a relatively equal proportion. The objectives

of balanced funds are to reward investors with a regular income,

moderate capital appreciation and at the same time minimizing the

risk of capital erosion. Balanced funds are appropriate for conservative

investors having a long term investment horizon.

b. Growth-and-Income Funds Funds that combine features of

growth funds and income funds are known as Growth-and-Income

Funds. These funds invest in companies having potential for capital

appreciation and those known for issuing high dividends. The level of

risks involved in these funds is lower than growth funds and higher

than income funds.

6. Commodity Funds

Those funds that focus on investing in different commodities (like

metals, food grains, crude oil etc.) or commodity companies or

commodity futures contracts are termed as Commodity Funds. A

commodity fund that invests in a single commodity or a group of

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commodities is a specialized commodity fund and a commodity fund

that invests in all available commodities is a diversified commodity

fund and bears less risk than a specialized commodity fund. Precious

Metals Fund and Gold Funds (that invest in gold, gold futures or

shares of gold mines) are common examples of commodity funds.

7. Real Estate Funds

Funds that invest directly in real estate or lend to real estate

developers or invest in shares/securitized assets of housing finance

companies, are known as Specialized Real Estate Funds. The objective

of these funds may be to generate regular income for investors or

capital appreciation.

8. ExchangeTradedFunds (ETF)

Exchange Traded Funds provide investors with combined benefits of aclosed-end and an open-end mutual fund. Exchange Traded Funds

follow stock market indices and are traded on stock exchanges like a

single stock at index linked prices. The biggest advantage offered by

these funds is that they offer diversification, flexibility of holding a

single share (tradable at index linked prices) at the same time.

Recently introduced in India, these funds are quite popular abroad.

9. Fund of FundsMutual funds that do not invest in financial or

physical assets, but do invest in other mutual fund schemes offered by

different AMCs, are known as Fund of Funds. Fund of Funds maintain a

portfolio comprising of units of other mutual fund schemes, just like

conventional mutual funds maintain a portfolio comprising of

equity/debt/money market instruments or non financial assets. Fund of

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Funds provide investors with an added advantage of diversifying into

different mutual fund schemes with even a small amount of

investment, which further helps in diversification of risks. However, the

expenses of Fund of Funds are quite high on account of compounding

expenses of investments into different mutual fund schemes.

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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MUTUAL FUND STRUCTURE

The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF)

as a fund established in the form of a trust by a sponsor to raise

monies by the Trustees through the sale of units to the public under

one or more schemes for in vesting in securities in accordance with

these regulations.

These regulations have since been replaced by the SEBI (Mutual

Funds) Regulations, 1996. The structure indicated by the new

regulations is indicated as under.

A mutual fund comprises four separate entitles, namely sponsor,

mutual fund trust, AMC and custodian. The sponsor establishes the

mutual fund and gets its registered with SEBI.

The mutual fund needs to be constituted in the form of a trust and the

instrument of the trust should be in the form of a deed registered

under the provisions of the Indian Registration Act, 1908.

The sponsor is required to contribute at lease 40% of the minimum net

worth (Rs.10 crore) of the asset management company. The board of

trustees manages the MF and the sponsor executes the trust deeds in

favour of the trustees. It is the job of the MF trustees to see that

schemes floated and managed by the AMC appointed by the trustees

are in accordance with the trust deed and SEBI guidelines.

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37

Sponsor Company

(E.g. Prudential, ICICI)

Establishes the MF as a trust

Registers the MF with SEBI

Managed by a Board of

Trustees

Mutual Fund

(E.g. Prudential, ICICI, Mutual

Fund)

Hold unit-holders funds in MF

enter into an agreement with

SEBI and ensure compliance

AMC

(e.g. prudential ICICI Asset

Management Company)

Float MF funds

Manages the fund as per SEBI

guidelines and AMC

agreement

CustodianProvide custodial servicesRegistrarProvides registrar and transfer

services

DistributorsProvides the network for

distribution of the scheme to

the investors


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Choosing a fund

The first step to investing in Mutual Fund is to define the objective of

investing. You should clearly lay down the purpose for which you desire

to invest. There are several schemes tailor made to meet certain

personal financial goals (children's education, marriage, retirement

etc.) which can be availed of. You should define the tenure of

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investment and the risk appetite you have. Thereafter, you can select

a fund type that best meets your need i.e. income schemes, liquid

schemes, tax saving schemes, equity schemes etc. Given the plethora

of fund options available to you, you can then choose the particular

fund that you are comfortable with.

You can choose the fund on various criteria but primarily these can be

the following:

The track record of performance of schemes over the last few

years managed by the fund

Quality of management and administration

Parentage of the Mutual Fund

Quality and adequacy of disclosures

Service levels

The price at which you can enter/exit (i.e. entry load / exit load)

the scheme and its impact on overall return

The market price of the units of the scheme (where available) to

see the discount/premium that the market .assigns to the stated NA V

of the scheme

Independent rating of the schemes, if availableYou could be investing in a mutual fund either at the initial stage when

the mutual fund approaches the market through an offer document

route or at a subsequent stage.

If you choose to invest at the initial stage, the offer document would

detail the schemes being offered and the manner of investing. The

manner is usually similar to that of investing any public issue of any

security (equity/debt).

If you are planning to purchase the units subsequently. Then the

following choices exist:

1. A close ended scheme. If the desired, units are of a close-ended

scheme, then the investor would be able to purchase them at the stock

exchange where the MF has listed them. This purchase would resemble

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the purchase of an equity share wherein the investor would pay the

quoted price of the unit as well as a brokerage for the purchase

transaction. In the case of a close ended scheme, the sale also is

affected through the stock exchange mechanism and resembles the

sale of equity share. The pricing for the transaction, as was mentioned

earlier, is driven by the price the units quote. This is driven by the NA V

(Net Asset Value) of the scheme. The price, however, may be either at

a discount or premium to the NA V.

2. Purchasing a unit in a open-ended scheme is different as there is

no exchange where these units are traded. Their price ret1ects the NA

V of the scheme. The mutual fund in an open-ended scheme sellsthese units to the investor at the NA V (plus a sale / entry load).

Selling units in an open-ended scheme is similar to the way they are

purchased. It is the mutual fund that buys back the units and at a price

based on the NA V. The actual price is the NA V less the exit load. The

exit load is similar in concept to the entry load.

The Ground rules of Mutual Fund Investing

Moses gave to his followers 10 commandments that were to be

followed till eternity. The world of investments too has several ground

rules meant for investors who are novices in their own right and wish

to enter the myriad world of investments. These come in handy for

there is every possibility of losing what one has if due care is not

taken.

1. Assess yourself: Self-assessment of one's needs; expectations

and risk profile is of prime importance failing which; one will make

more mistakes in putting money in right places than otherwise. One

should identify the degree of risk bearing capacity one has and also

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clearly state the expectations from the investments. Irrational

expectations will only bring pain.

2. Try to understand where the money is going: It is important

to identify the nature of investment and to know if one is compatible

with the investment. One can lose substantially if one picks the wrong

kind of mutual fund. In order to avoid any confusion it is better to go

through the literature such as offer document and fact sheets that

mutual fund companies provide on their funds.

3. Don't rush in picking funds, think first: one first has to

decide what he wants the money for and it is this investment goal that

should be the guiding light for all investments done. It is thus

important to know the risks associated with the fund and align it with

the quantum of risk one is willing to take. One should take a look at the

portfolio of the funds for the purpose. Excessive exposure to any

specific sector should be avoided, as it will only add to the risk of the

entire portfolio. Mutual funds invest with a certain ideology such as the"Value Principle" or "Growth Philosophy". Both have their share of

critics but both philosophies work for investors of different kinds.

Identifying the proposed investment philosophy of the fund will give an

insight into the kind of risks that it shall be taking in future.

4. Invest. Don't speculate: A common investor is limited in the

degree of risk that he is willing to take. It is thus of key importance

that there is thought given to the process of investment and to the

time horizon of the intended investment. One should abstain from

speculating which in' other words would mean getting out of one fund

and investing in another with the intention of making quick money.

One would do well to remember that nobody can perfectly time the

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market so staying invested is the best option unless there are

compelling reasons to exit.

5. Don't put all the eggs in one basket: This old age adage is of

utmost importance. No matter what the risk profile of a person is, it is

always advisable to diversify the risks associated. So putting one's

money in different asset classes is generally the best option as it

averages the risks in each category. Thus, even investors of equity

should be judicious and invest some portion of the investment in debt.

Diversification even in money in the hands of several fund managers.

This might reduce the maximum return possible, but will also reduce

the risks.

6. Be regular: Investing should be a habit and not an exercise

undertaken at one's wishes, if one has to really benefit from them. As

we said earlier, since it is extremely difficult to know when to enter or

exit the market. It is important to beat the market by being systematic.

The basic philosophy of Rupee cost averaging would suggest that if

one invests regularly through the ups and downs of the market, he

would stand a better chance of generating more returns than the

market for the entire duration. The SIPs (Systematic Investment Plans)offered by all funds helps in being systematic.

Performance Measures of Mutual Funds

Mutual Fund industry today, with about 34 players and more than five

hundred schemes, is one of the most preferred investment avenues in

India. However with a plethora of schemes to choose from the retail

investor faces problems in selecting funds. Factors such as investment

strategy and management style are qualitative, but the funds record is

an important indicator too. Though past performance alone cannot be

indicative of future performance, it is, frankly, the only quantitative

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way to judge how good a fund is at present. Therefore, there is a need

to correctly assess the past performance of different mutual funds.

Worldwide, good Mutual fund companies over are known by their AMCs

and this fame is directly linked to their superior stock selection skills.

For mutual funds to grow, AMCs must be held accountable for their

selection of stocks. In other words, there must be some performance

indicator that will reveal the quality of stock selection of various AMCs.

Return alone should not be considered as the basis of measurement of

the performance of a mutual fund scheme. It should also include the

risk taken by the fund manager because different funds will have

different levels of risk attached to them. Risk associated with a fund, in

a general, can be defined as variability or fluctuations in the returns

generated by it. The higher the t1uctuations in the returns of a fund

during a given period, higher will be the risk associated with it. These

fluctuations in the returns generated by a fund are resultant of two

guiding forces. First, general market fluctuations, which affect all the

securities present in the market, called market risk or systematic risk

and second, t1uctuations due to specific securities present in the

portfolio of the fund, called unsystematic risk. The Total Risk of agiven fund is sum of these t\VO and is measured in terms ofstandard

deviation of returns of the fund. Systematic risk. On the other hand is

measured in terms ofBeta, which represents t1uctuations in the NA V

of the fund vis--vis market. The more responsive the NA V of a mutual

fund is to the changes in the market; higher will be its beta. Beta is

calculated by relating the returns on a mutual fund with the returns in

the market. While unsystematic risk can be diversified through

investments in a number of instruments, systematic risk can not.

By using the risk return relationship, we try to assess the competitive

strength of the mutual funds vis--vis one another in a better way:

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In order to determine the risk-adjusted returns of investment

portfolios, several eminent authors have worked since 1960s to

develop composite performance indices to evaluate a portfolio by

comparing alternative portfolios within a particular risk class.

The most important and widely used measures of performance are:

The Treynor Measure The Sharpe Measure Jenson Model Fama Model

The Trevnor Measure

Developed by Jack Treynor, this performance measure evaluates funds

on the basis of Treynor's Index. This Index is a ratio of return

generated by the fund over and above risk free rate of return

(generally taken to be the return on securities backed by the

government, as there is no credit risk associated), during a given

period and systematic risk associated with it (beta). Symbolically, it

can be represented as:

Treynor's index (Ti) = (Ri - Rf)/Bi

Where, Ri represents return on fund, Rfis risk free rate of return and

Hi is beta of the fund.

All risk-averse investors would like to maximize this value. While a high

and positive Treynor's Index shows a superior risk-adjusted

performance of a fund, a low and negative Treynor's Index is an

indication of unfavorable performance.

The Sharpe Measure

In this model, performance of a fund is evaluated on the basis of

Sharpe Ratio, which is a ratio of returns generated by the fund over

and above risk free rate of return and the total risk associated with it.

According to Sharpe, it is the total risk of the fund that the investors

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are concerned about. So, the model evaluates funds on the basis of

reward per unit of total risk. Symbolically, it can be written as:

Sharpe Index (Si)= (Ri Rf)/Si

Where, Si is standard deviation of the fund.

While a high and positive Sharpe Ratio shows a superior risk-adjusted

performance of a fund, a low and negative Sharpe Ratio is an

indication of unfavorable performance.

Comparison of Sharpe and Treynor

Sharpe and Treynor measures are similar in a way, since they both

divide the risk premium by a numerical risk measure. The total risk is

appropriate when we are evaluating the risk return relationship for well

diversified portfolios. On the other hand, the systematic risk is the

relevant measure of risk when we are evaluating less than fully

diversified portfolios or individual stocks. For a well-diversified portfolio

the total risk is equal to systematic risk. Rankings based on total risk

(Sharpe measure) and systematic risk (Treynor measure) should beidentical for a well-diversified portfolio,a s t h etotal risk is reduced to

systematic risk. Therefore, a poorly diversified fund that ranks higher

on Treynor measure, compared with another fund that is highly

diversified, will rank lower on Sharpe Measure.

Jenson Model

Jensons model proposes another risk adjusted performance measure.

This measure was developed by Michael Jenson and is sometimes

referred to as the Differential Return Method. This measure involves

evaluation of the returns that the fund has generated vs. the returns

actually expected out of the fund given the level of its systematic risk.

The surplus between the two returns is called Alpha, which measures

the performance of a fund compared with the actual returns over the

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period. Required return of a fund at a given level of risk (Bi) can be

calculated as:

Ri= Rf+ Bi (Rm Rf)

Where, Rm is average market return during the given period. After

calculating it alpha can be obtained by subtracting required return

from the actual return of the fund.

Higher alpha represents superior performance of the fund and vice

versa. Limitation of this model is that it considers only systematic risk

not the entire risk associated with the fund and an ordinary investor

can not mitigate unsystematic risk, as his knowledge of market is

primitive.

Fama Model

The Eugene Fama model is an extension of Jenson model. This model

compares the performance, measured in terms of returns, of a fund

with the required return commensurate with the total risk associated

with it. The difference between these two is taken as a measure of the

performance of the fund and is called net selectivity.

The net selectivity represents the stock selection skill of the fundmanager, as it is the excess return over and above the return required

to compensate for the total risk taken by the fund manager. Higher

value of which indicates that fund manager has earned returns well

above the return commensurate with the level of risk taken by him.

Required return can be calculated as: Ri= Rf+ Si/Sm*(Rm Rf)

Where, Sm is standard deviation of market returns. The net selectivity

is then calculated by subtracting this required return from the actual

return of the fund. Among the above performance measures, two

models namely, Treynor measure and Jenson model use systematic

risk based on the premise that the unsystematic risk is diversifiable.

These models are suitable for large investors like institutional investors

with high risk taking capacities as they do not face paucity of funds

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and can invest in a number of options to dilute some risks. For them, a

portfolio can be spread across a number of stocks and sectors.

However, Sharpe measure and Fama model that consider the entire

risk associated with fund are suitable for small investors, as the

ordinary investor lacks the necessary skill and resources to diversified.

Moreover, the selection of the fund on the basis of superior stock

selection ability of the fund manager will also help in safeguarding the

money invested to a great extent. The investment in funds that have

generated big returns at higher levels of risks leaves the money all the

more prone to risks of all kinds that may exceed the individual

investors risk appetite.

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LIST OF AMCS

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ABN AMRO Mutual fund

Birla Mutual fund

Deutsche Mutual fund

DSP Merrill Lynch Mutual fund

Franklin Templeton Mutual fund

HDFC Mutual fund

HSBC Mutual fund

ING Vysya Mutual fund

JM Financial Mutual fund

Kotak Mahindra Mutual fund

LIC Mutual fund

Morgan Stanley Mutual fund

Principal Mutual fund

Prudential ICICI Mutual fund

Reliance Mutual fund

SBI Mutual fund

Sundaram Mutual fund

TATA Mutual fundUnit Trust of India Mutual fund

UTI Mutual fund

LIST OF SCHEMES IN PRUICICI

Open-Ended Schemes

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Prudential ICICI Aggressive Plan - Dividend

Prudential ICICI Aggressive Plan - Growth

Prudential ICICI Balanced Plan -Dividend

Prudential ICICI Balanced Plan -Growth

Prudential ICICI Discovery Fund Institutional option -1

Prudential ICICI Dynamic Plan - Dividend

Prudential ICICI Dynamic Plan - Growth

Prudential ICICI Dynamic Plan Institutional option-1

Prudential ICICI Emerging Star - Dividend

Prudential ICICI Emerging Star - Growth

Prudential ICICI Emerging Star Institutional option-1

Prudential ICICI FMCG Fund - Dividend

Prudential ICICI FMCG Fund -Growth

Prudential ICICI Flexible income plan Daily Dividend

Prudential ICICI Flexible income plan Monthly Dividend

Prudential ICICI Floating rate plan A - Dividend

Prudential ICICI Floating rate plan B - Growth

Prudential ICICI Gilt Fund - Investment plan -Dividend

Prudential ICICIGilt Fund - Investment plan -GrowthPrudential ICICI Growth plan - Dividend

Prudential ICICI Growth plan - Growth

Prudential ICICI Income multiplier fund Dividend

Prudential ICICI Income multiplier fund - Growth

Prudential ICICI Income plan - Dividend

Prudential ICICI Income plan - Growth

Prudential ICICI Index Fund

Prudential ICICI Infrastructure Fund Dividend

Prudential ICICI Infrastructure Fund Growth

Prudential ICICI Liquidity Institutional plan - Growth

Prudential ICICI Liquidity Institutional plus plan Dividend

Prudential ICICI Liquid plan Dividend

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Prudential ICICI Liquid plan Growth

Prudential ICICI Liquid super Institutional plan Growth

Prudential ICICI Long term plan Dividend

Prudential ICICI MIP cumulative

Prudential ICICI Power - Dividend

Prudential ICICI Power - Growth

Prudential ICICI Services industries Fund Dividend

Prudential ICICI Services industries Fund Growth

Prudential ICICI Tax plan Dividend

Prudential ICICI Tax plan-Growth

Prudential ICICI Technology Fund Dividend

Prudential ICICI Technology Fund Growth

Prudential ICICI Very Aggressive plan Growth

Prudential ICICI Very Cautious plan - Dividend

IN PRUICICI MANY SCHEMES ARE AVAILABLE MORE SCHEMES, LIKE

OPEN ENDED, CLOSED-ENDED, REDEEMED SCHEMES.

BUT HERE SELECTED TWO SCHEMES ONLY FROM OPEN-ENDED.

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ABOUT CHOOSED SCHEMES

Prudential ICICI TAX Plan

ICICI Prudential Tax Plan is an open-ended equity linked saving

scheme (ELSS). It has a lock-in period of 3 years, which ensures that

you compulsorily remain invested over this period. This 3 year lock-in

gives the fund manager the flexibility to make strategic long term

investments in a diversified portfolio comprising a mix of large and

medium sized stocks, chosen after careful fundamental research. All

these stocks are growth oriented and have a patient, long term style.

ICICI Prudential Tax Plan is suited for patient investors who have a

long term investing horizon of 3-5 years and at the same time are

looking at tax saving.

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Key Features ICICI Prudential Tax Plan

Type Open-ended Equity Linked Saving Scheme

Investment PatternEquity & Equity related instruments upto90% & Debt, Money Market and Cash upto10%.

Investment Objective

To seek to generate long-term capitalappreciation from a portfolio that is investedpredominantly in equity and equity relatedsecurities

Growth & Dividend

Default Option Dividend Reinvestment

Application Amount Rs.500/- (plus in multiples of Re. 1)

Min. AdditionalInvestment

Rs.500/- and in multiples thereof

Entry Load(i) For investments of less than Rs. 5 Crores :Entry load at 2.25% of applicable NAV.(ii)Forinvestments of Rs. 5 crores and Above : Nil

Exit Load Nil

Redemption ChequesIssued

Generally Within 3 business day for Specified

RBI locations and additional 3 Business Daysfor Non-RBI locations after lock-in period of 3Years.

MinimumRedemption Amt.

Rs. 500/-

SystematicInvestment Plan

Monthly: Minimum Rs. 500 or multiplesthereof & 5 post-dated cheques for aminimum of Rs. 500 for a block of 5 monthsin advance.

Systematic

Withdrawal Plan Not available

RecurringExpenses

Investment Mangmt.Exp.

1.25%

Other RecurringExpenses

1.25%

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Total 2.50%

Prudential ICICI GROWTH Plan

ICICI Prudential Growth Plan seeks to invest in large, profitable and

well known companies, and aims to benefit from the best long term

investments that the market has to offer in the large-cap space. The

investments are spread across sectors to ensure risk diversification,

and stocks are selected through rigorous fundamental bottom up

analysis.

key Features ICICI Prudential Growth Plan

Type Open-ended Equity Fund

Investment PatternEquity & Equity related 95% & Debt, MoneyMarket and Cash 5%.

Investment Objective

To seek to generate long-term capitalappreciation from a portfolio that is investedpredominantly in equity and equity relatedsecurities

Options Growth & Dividend

Default Option Dividend Reinvestment

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Application Amount Rs.5,000/- (plus in multiples of Re. 1)

Min. AdditionalInvestment

Rs.500/- and in multiples thereof

Entry Load(i) For investments of less than Rs. 5 Crores :

Entry load at 2.25% of applicable NAV.(ii)Forinvestments of Rs. 5 crores and Above : Nil

Exit Load Nil

Redemption ChequesIssued

Generally Within 3 business day for SpecifiedRBI locations and additional 3 Business Daysfor Non-RBI locations

MinimumRedemption Amt.

Rs. 500/-

SystematicInvestment Plan

Monthly: Minimum Rs. 1000 + 5 post-dated

cheques for a minimum of Rs. 1000 each.Quarterly: NA

SystematicWithdrawal Plan

Minimum of Rs.500/- and Multiples thereof

RecurringExpenses

Investment Mangmt.Exp.

1.25%

Other Recurring

Expenses

1.25%

Total 2.50%

.

MUTUAL FUND:

Phases of mutual funds in IndiaIn India, the Mutual fund Industry has been monopolized by the Unit

Trust of India ever since 1963. Now, the commercial banks like the

state bank of India, Canara Bank, Indian Bank, Bank of India and

Punjab National bank have entered into the field. To add to list are the

LIC of India and the private sector banks and other financial

institutions. These institutions have successfully launched a variety of

schemes to meet the diverse needs of millions of small investors. The

Unit Trust of India has introduced huge portfolio of schemes like

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unit64, Master gain, Master share etc. It is the country s largest

mutual fund company with over 25 millions investors and a corpus

exceeding Rs.55,000 crores ,accounting for nearly 10% of the

countrys stock market capitalization. The total corpus of the 13

other mutual funds in the country is less than Rs. 15,000crores. The

SBI fund has a corpus of Rs. 2925 crores deployed in its 16 schemes

servicing over

2.5 million Shareholders.

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 distinctPhases.

First phase-1964-87

Unit trust of India (UTI) was established on 1963 by an act of

parliament. It was up the Reserve Bank of India and functioned under

the Regulatory and administrative control of The Reserve Bank of

India. In 1987 UTI was de- linked from the RBI and the Industrial

Development of India (IDBI).Took over the regulatory and

administrative control in place Of RBI. The first scheme Launched by

UTI 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 funds was the first non-UTI Mutual fund established in June

1987 followed By Can Bank Mutual Fund (Des87), Punjab National Bank

Mutual Fund (Aug 89), Indian Bank Fund (Nov89), Bank of India (Jun

90), Bank of Baroda Mutual Fund (oct92).LIC Established its mutual

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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-1992-2003(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 investor a wide choice of

fund families. Also, 1993 was the Year in which the first Mutual fund

Regulation came into being, under which all mutual funds, expect UTI

were to be Registered and governed. The erstwhile kothari pioneer

(Now merged with Franklin temple ton) was the First private sectormutual fund registered In July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulation in 1996. The

industry now functions under the SEBI (Mutual Funds) Regulation 1996

Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act

1963 was bif-acurated into separate Entities. One is the specific under

taking 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 schemes, Assured return and certain other schemes.

The specified under taking of Unit Trust India, functioning under an

administrator and the rules framed by government of India and does

not come under the purview of the mutual fund regulations. The

second is UTI mutual fund Ltd. sponsored by SBI, PNB, BOB and LIC.

It is registered with SEBI and functions under the mutual funds

Regulations. With the bif-acuration of the Rest while UTI Mutual Fund,

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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 the end of October 31, 2003, there were 31 funds which

manage assets Of Rs 126726 crores under 386 schemes.

TYPES OF MUTUAL FUND SEHEMES

BY STRUCTURE

Open-Ended Schemes

Close-Ended Schemes Interval Schemes

BY INVESTMENT OBJECTIVE

Growth Schemes

Income Schemes

Balanced Schemes

Money Market Schemes

OTHER SCHEMES

Tax saving Schemes

Special Schemes

Index Schemes

Sector Specific Schemes

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

its investment objective.

By Structure:

Open-ended funds

An open ended 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.

Closed-ended funds

A closed end fund has a stipulated maturity period which generallyranging from 3 to 15 years. The fund is open for subscription only during

a specific 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.

Interval funds

These combine the features of open-ended and closed-ended schemes.They are open for sale or redemption during pre-determined intervals at

NAV related prices.By Investment Objective:

Growth funds

The aim of growth funds is to provide capital appreciation over the

medium to long-term. Such schemes normally invest the majority of their

corpus in equities. It has been proven that returns from stocks, have

outperformed most other kind of investments held over the long term.

Growth schemes are ideal for investors having a long-term outlook

seeking growth over a period of time.

Income funds

The aim of income funds is to provide regular and steady income to

investors. Such schemes generally invest in fixed income securities such

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as bonds, corporate debentures and government securities. Income funds

are ideal for capital stability and regular income.

Balanced funds

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

Such schemes periodically distribute a part of their earning and

investment 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.

Money market funds

For over 30 years, money market funds have treated investors well.

Money market funds have been around for 30 years and are a very

popular place for investors to park their money.

Money market funds are a type of mutual fund that invests in short-term

(less than a year) debt securities of agencies of the U.S. Government,

banks and corporations and U.S. Treasury Bills. They are fixed at $1 per

share and only the yield fluctuates.

Load Funds

A load fund 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.

No-Load Funds

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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 fund is that the entire corpus is put to

work.

Other Schemes:

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 Equity Linked Saving Scheme (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 and54EB 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.

Special Schemes:

Industry Specific Schemes

Industry Specific Schemes invest in the industries specified in the offer

document. The investment of these funds is limited to specific like Info

Tech, FMCG, and Pharmaceuticals etc.

Index Schemes:

Index Funds attempt to replicate the performance of a particular index

such as the BSE sensex or the NSE.

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.

FREQUENTLY USED TERMS

Net Asset Value (NAV)

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Net Asset Value is the market value of the assets of the scheme minus its

liabilities. The per unit NAV is the net asset value of the scheme divided

by the number of units outstanding on the Valuation Date.

Is the price at which a close-ended scheme repurchases its units and it

may include a back-end load. This is also called Bid Price.

Redemption Price

Is the price at which open-ended schemes repurchase their units and

close-ended schemes redeem their units on maturity. Such prices are

NAV related.

Sales Load

Is a charge collected by a scheme when it sells the units. Also called,

Front-end load. Schemes that do not charge a load are called No Load

schemes.

Repurchase or Back-end Load

Is a charge collected by a scheme when it buys back the units from theunit holders.

]

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CHAPTER III

DATA ANALYSIS AND INTERPRETATION

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SBI

ING VYSYA

UTI HSBC

ICICI

ABN AMRO

STATE BANK OF INDIA

State Bank of India is the first Bank sponsored Mutual Fund to launch

offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr.

approximately. Today it is the largest Bank sponsored Mutual Fund in

India. They have already launched 35 Schemes out of which 15 have

already yielded handsome returns to investors. State Bank of India

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Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an

investor base of over 8 lakhs. Spread over 18schemes

NAV History Historical value for a period of

5-Nov-2009 to 28-Jan-2010

SBI MUTUAL FUND

Magnum Equity Fund Growth & Dividend

DATE DIVIDEN

D

GROWTH

05-Nov-

2009

42.14 42.17

12-Nov-

2009

35.57 40.47

19-Nov-

2009

37.84 43.06

26-Nov-

2009

38.33 43.61

03-Dec-

2009

39.31 44.73

10-Dec-

2009

40.06 45.58

17-Dec-

2009

38.80 44.15

24-Dec-

2009

39.68 45.15

31-Dec-

2009

41.52 47.24

07-Jan-

2010

42.51 48.36

14-Jan-

2010

41.46 47.17

21-Jan-

2010

33.74 43.24

28-Jan- 34.89 39.70

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2010

SBI MAGNUM EQUITY FUND Dividend & Growth

The above graph indicates that the Equity Fund - Growth and Dividend

from the 1st week of Dec is almost performing same but in 2nd week of

Jan the performance of Growth has drastically changed when compared

to Dividends, and again the performance showed is similar in rest of the

weeks. Because of declaring Dividends frequently, the performance of

Dividend always shows less when compared with others.

ING VYSYA BANK

ING Vysya Bank Ltd., is an entity formed with the Vysya Bank Ltd, a

premier bank in the Indian Private Sector and a global financial

powerhouse, ING (International Nederlanden Group) of Dutch origin, in

the year 2002.

The origin of the Vysya Bank dates back to 1930. Since then the Bankhas grown in size and stature and has reached the coveted position of

number one private sector bank in India.

In 1948, the Bank acquired the status of Scheduled Bank. In 1992, its

deposits crossed Rs. 1000 crores. The very next year, ING Vysya crossed

300 branches.

ING Vysya Bank's Deposit Scheme

The following two types of deposits are offered by ING Vysya Bank:

Access Plus

Features:

A single Current Account, with access from 8 cities in India

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Separate cheque books for each centre for easy reconciliation

Pooling of funds in the city of residence

A cost effective product

A perfect product for the trading community

Current Account

Eligibility:

Individuals for single account

More than one individual for joint account

Sole proprietary concerns

Partnership concerns

Private and Public Limited companies

Clubs, associations, benevolent and friendly societies

Co-operative organizations

Statutory bodies, municipalities and such other Quasi-Government

Institutions

NAV History Historical value for a period of

5-Nov-2009 to 28-Jan-2010

ING VYSAING Balanced Fund Growth & Dividend

DATE DIVIDEND GROWTH

05-Nov-2009 17.17 24.54

12-Nov-2009 16.78 23.99

19-Nov-2009 17.77 25.40

26-Nov-2009 17.60 25.15

03-Dec-2009 17.91 25.60

10-Dec-2009 18.14 25.93

17-Dec-2009 17.89 25.56

24-Dec-2009 18.14 25.93

31-Dec-2009 18.67 26.69

07-Jan-2010 18.88 26.98

14-Jan-2010 18.74 26.78

21-Jan-2010 16.51 23.59

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28-Jan-2010 16.80 24.02

ING VYSA EQUITY FUND Dividend & Growth

The above graph indicates that Growth is performing well when

compared to Dividends. From the starting month Growth is high. There

are slight fluctuations in both Growth and Dividend. Because of declaring

Dividends frequently, the performance of Dividend always shows less

when compared with others. As compared to SBI the performance

showed is better.

UNIT TRUST OF INDIA (UTI)

UTI, the first bank to begin operations as new private banks in 1994 after

the Government of India allowed new private banks to be established. UTI

Bank was jointly promoted by the Administrator of the specified

undertaking of the Unit Trust of India (UTI-I), Life Insurance Corporation of

India (LIC) and General Insurance Corporation Ltd. Also with associates

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viz. National Insurance Company Ltd., the New India Assurance Company,

The Oriental Insurance Corporation and United Insurance Company Ltd.

UTI Bank in India today is capitalized with Rs. 232.86 Crores with 47.50%

public holding other than promoters. It has more than 200 branch offices

and Extension Counters in the country with over 1250 UTI Bank ATM

proving to be one of the largest ATM networks in the country. UTI Bank

India commits to adopt the best industry practices internationally to

achieve excellence. UTI Bank has strengths

mutual icici new

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