“AN ANALYSIS & PERFORMANCE OF

EQUITY MUTUAL FUNDS”

SUBMITTED IN FULFILLMENT OF DEGREE OF UG
UNDER GUIDANCE OF

Ms. PRIYANKA SRIVASTAVA

CAPITAL MARKET SERVICES DIVISION (CMSD)

SAHARA INDIA PARIWAR

SUBMITTED BY: -
PRITI SINGH
07621033

SHERWOOD COLLEGE OF PROFESSIONAL

MANAGEMENT

LUCKNOW

[1]
 Acknowledgement to the company

The opportunity to get practical training in a reputed organization

fulfills the felt gap between the theory and practical. In the case of a
student of FINANCE this aspect assumes an additional dimension
I hereby acknowledge SAHARA INDIA for providing the
constant guidance for encouragement which helped me a lot to be
successful in my efforts. This formal acknowledgement will hardly be
sufficient to express my deep sense of gratitude to all of them. It was a
memorable experience while doing my project at SAHARA
ORGANISATION, Lucknow.
I am highly indebted and thankful to Ms.Priyanka
Srivastava for her guidance and encouragement, without which
the satisfactory completion of this project would not had been
possible. She is a constant source of inspiration to me, showing all the
patience and abundant encouragement throughout the project
duration.
Acknowledgement couldn’t end without expressing my gratitude

towards Mr. PANKAJ VARSHNEYA who was instrumental in

timely completion of the project.
Words fall short in expressing my sincere regards towards the
members of CMSD Mr. Devendra Singh and Mr. Santosh
kumar for their expert advice and invaluable suggestions.
Lastly thanks to teacher and colleagues who directly or
indirectly helped me in procurement of my goal.
In all SAHARA INDIA provided a wonderful simulating
environment for this very educative and instructive training.

[2]
 (PRITI
SINGH)

Acknowledgement to the Faculty

Of UG , Sherwood College Of
Professional Management

It is high privilege for me to express my deep sense of gratitude

to all those faculty members who helped me in the completion of the

project, especially my UG Director Mr. S P Singh who was always

there at hour of need.

My special thanks to Prof. Gyan (FACULTY OF FINANCE) for

helping me in the completion of project work and its report
submission.

Last but not the least my special thanks to the faculty of

Sherwood college of professional management for their kind co–
operation and providing me with all the necessary documents needed
and guidance during the time period of project completion.

(PRITI
SINGH)

[3]
 DECLARATION

This is the report of the project work entitled “AN

ANALYSIS OF PERFORMANCE OF EQUITY MUTUAL
FUNDS” undertaken by me during the two month training
at SAHARA INDIA, Lucknow.
I hereby declare that project report is being submitted by
me to the Department of Commerce for the partial
fulfillment of the degree of Master of Finance & Control. A
copy of this project has been submitted to the organization
where the project was developed. This project is not
submitted to any other organization or university or college
and is the outcome of my work.

(PRITI
SINGH)

[4]
 INDEX
Sr. No. Contents Pg. No.
1 Introduction 6
2 Company Profile 11
3 Capital Market Services Division 16
4 Initial Methods Of Investment 19
5 History Of Mutual Funds 23
6 Mutual Funds & its classifications 31
7 Advantages of Mutual Funds 38
8 Disadvantages Of Mutual Funds 40
9 Tax Aspect of Mutual Funds 42
10 Terms Related To Mutual Funds 43
11 Steps Involved In Investments Of Mutual Funds 50

12 Growth in Mutual Fund Industry 50

13 Comparison Of Mutual Fund With Other Deposits 55

14 Market Trends Mutual Funds 63

15 Research Objective & Research Design 64
16 Data Analysis 65
17 Recommendations & Conclusion 82
18 Questionnaire 85
19 FAQ’s 87

[5]
20 Glossary 89
21 Bibliography 93

Introduction

A Mutual Fund is an ideal investment vehicle where a number of

investors come together to pool their money with common investment
goal. Respective Asset Management Company (AMC) manages each
Mutual Fund with different type of schemes. An investor can invest his
money in one or more schemes of Mutual Fund according to his
choice and becomes the unit holder of the scheme. Fund manager in
different types of suitable stock and securities, bonds and money
market instruments then invests the invested money in a particular
scheme of a Mutual Fund. Each Mutual Fund is managed by qualified
professional men, who use this money to create a portfolio, which
includes stock and shares, bonds, gilt, money-market instruments or
combination of all. Thus Mutual Fund will diversify your portfolio
over a variety of investment vehicles. Mutual Fund offers an investor
to invest even a small amount of money. A security that gives small
investors access to a well-diversified portfolio of equities, bonds, and

[6]
other securities. Each shareholder participates in the gain or loss of
the fund. Shares are issued and can be redeemed as needed. The
fund's net asset value (NAV) is determined each day. Each mutual
fund portfolio is invested to match the objective stated in the
prospectus.

Respective Asset Management Companies sponsored by

financial institutions, banks, private companies or international firms
manages Mutual Funds schemes. The biggest Indian AMC is UTI while
Alliance, Franklin Templeton etc are international AMC's .

Mutual Fund offers several benefits to an investor such as

potential return, liquidity, transparency, income growth, good post
tax return and reasonable safety. There are number of options
available for an investor offered by a mutual fund.

A draft offer document is to be prepared at the time of

launching the fund. Typically, it pre specifies the investment
objectives of the fund, the risk associated, the costs involved in the
process and the board rules for entry into and exit from the fund and
other areas of operation. In India, as in most countries, these
sponsors need approvals from a regulator, SEBI (securities Exchange
Board of India) in our case. SEBI looks at track records of the sponsor
and its financial strength in granting approval to the fund for
commencing operations.

A sponsor then hires an Asset Management Company to invest

the funds according to the investment objectives. It also hires another
entity to be the custodian of the asset of the fund and perhaps a third
one to handle registry work for the unit holder (subscriber) of the

[7]
fund, in the Indian context, the sponsor promote the Asset
Management Company also, in which it holds a majority stake. In
many cases a sponsor can hold a 100% stake in the Asset Management
Company (AMC).

A mutual fund is like a big pizza cut into slices. Each slice is
called a share. The share price is called the Net Asset Value (NAV).
Unlike a stock price that will fluctuate all day long, the mutual fund
price changes only once a day, at the close of the stock market

Each Mutual Fund has a specific stated objective

The fund’s objective is laid out in the fund’s prospectus, which is
the legal document that contains information about the fund, its
history, its officers and its performance.

Some popular objectives of a

mutual fund are
FUND OBJECTIVE WHAT THE FUND WILL INVEST IN

Equity (growth) Only in stocks

Debt (income) Only in fixed-income securities
Money Market (including Gilt) In short-term money market
instrument (including government
securities)
Balanced Partly in stocks and partly in fixed-
income securities, in order to
maintain a 'balance' in return and
risk

FLOW CHART OF HOW MUTUAL FUND WORKS

[8]
The company that puts together a mutual fund is called an AMC. An
AMC may have several mutual fund schemes with similar or varied
investment objectives.

The AMC hires a professional money manager, who buys and sells
securities in line with the fund’s stated objective.

All AMCs regulated by SEBI, funds governed by board of directors.

[9]
 ORGANISATION OF MUTUAL WORK

The securities and exchange Board of India (SEBI) mutual fund

regulations require that the fund’s objectives are clearly spelt out in
the prospectus.

In addition, every mutual fund has a board of directors that is

supposed to represent the shareholder’s interest, rather than the
AMC’s

A mutual fund is a company that combines, or pools, investors' money

and, generally, purchases stocks or bonds. Ideally, a fund's size and
resultant efficiency, combined with experienced management,
provide advantages for investors that include diversification, expert
stock and bond selection, low cost, and convenience.

In terms of legal structure, a mutual fund is a corporation that

receives preferential tax treatment under the U.S. Internal Revenue
Code. The assets of a mutual fund consist almost entirely of the
securities it holds in its portfolio. The most common type of mutual
fund, called an open-end fund, allows investors to buy and sell stock
in it on an ongoing basis.

[10]
 COMPANY PROFILE

The Mutual Fund Industry is one of the fastest growing sectors in

India with an average CAGR of 20% over the past five years. In this
scenario, Sahara Mutual Funds is all set to revolutionize the India
AMC industry, with a mission to give every class of investors a
profitable and prudent investment option with a perfect balance of
returns, safety and liquidity.

Investment options are:

Debt: Sahara Income Fund, Sahara Gilt Fund, Sahara Liquid Fund,
And Sahara Short Term Plan.
Equity: Sahara Growth Fund, Sahara Tax Gain Fund.

Sahara India Pariwar’s success story began in 1978. Starting on a

modest scale with a capital of only Rs. 2000 (USD 43), the company
has traversed a long way to become a frontrunner in Indian
entrepreneurship.
Today, Sahara India Pariwar is a major entity on the corporate scene
having an asset base of over Rs. 50,000 crores (USD 10.87 billion) and
diversified business interests that include: Public Deposit
Mobilization, Infrastructure & Housing, Media & Entertainment,
Aviation, Consumer Products, Information Technology, Sundarbans
Project, Sahara Hospital, Araria Jute Project, Life Insurance, Mutual
Funds, Housing Finance, Power Project, Computer Manufacturing,
Hotel and Caring Scheme.

[11]
 SAHARA’S CORE COMMITMENTS - OUR
STRENGTH
Emotion
Emotion is in Performance of genuine duties towards the loved ones
primarily in their benefit, from their point of view. EMOTION is THE
KEY that generates the required energy and enthusiasm for desired
quality performance.

Discipline
The enthusiastic obedience of laws and orders, which are given by the
rightful authority.

Duty
The enthusiastic obedience of laws and orders, which are given by our
CONSCIENCE.

No Discrimination
Never should we discriminate in any of our actions, reactions,
attitudes, decisions, conclusions, in any of our expressions while
caring for the six health’s of other human beings, namely physical,
material, mental, emotional, social and professional health.

Quality
Results from honoring Rules, Regulations, Commitments, Values,
Fairness, Performance of Duties by honestly balancing one's own and
others' reasonable point of view in the matters of Material &
Emotional aspects.
Quality is our essence and we, at Sahara India Pariwar, have always
stressed on the Qualitative aspect. Consequently in this run for
quality, quantity has always pursued us. We look forward to reaching
the zenith and reaffirm our commitment to the process of sound
nation-building.

[12]
 “We chase Quality,
Quantity chases us”
Give Respect
To definitely make others feel important and respected by giving
sincere regard to others' feelings, reasonable wishes & thoughts with
an open and receptive mind and warmth.

Self-respect
To develop a sense of respect for oneself in others' mind, i.e. to
generate genuine & warm feelings for oneself among others on a
continuous basis.

Truth
Means total transparency in action, reaction, attitude and all other
expressions and the conviction to follow the right course.

Collective Materialism
Means to progress and prosper together for collective sharing and
caring and not individually or for a select group.

Religion

There is a religion higher than religion itself - it is NATIONALITY. We

may practice our religions in the confines of our homes, but outside,
we should be Indians and only Indians. 'Bharatiyata' or Nationalism
thus becomes our supreme religion.

Absolute Honesty
We firmly believe that our mind inside knows the truth and we should
be absolutely honest to our mind inside and accordingly our actions,
reactions, directions, decisions and all our expressions should be
present in all human dealings.

[13]
 PHILOSOPHY
SAHARA INDIA PARIWAR'S PHILOSOPHY - "Collective
Materialism"
In any human relationship, it becomes imperative to take into
consideration the materialistic aspect of life - we do so but by giving it
second priority.
The first priority is given to emotional aspect and with perfect
blending of materialism with emotionalism, results in continuous
collective growth for collective sharing and caring, that gives an
impetus to our philosophy - "COLLECTIVE MATERIALISM".

FEELINGS THAT DWELS IN AN ORGANISATION

Maan-Samman,Atmasamman
Emotions are of two kinds - love and respect. Love is an inferior
emotion which has been given by God to fulfill your reasonable,
unreasonable needs. But in human society since we have the thinking
power, respect for others and sense of self-respect are the most
superior emotions.

"Saharasri"SubrataRoySahara

[14]
 The Man and His Vision
He has talked about problems and proposed the solutions on 5 social
issues namely Population, Education, Political (Election) system,
Media & Religion, besides interacting on various aspects of life and
professional life. According to him if these five issues are taken care of
properly, our beloved country shall be the best in the world
SAHARA INDIA FINANCIAL CORPORATION LIMITED

Sahara India Financial Corporation Limited, (SIFCL) is the flagship

company of Sahara India Group. Incorporated in 1987, SIFCL is the
First Residuary Non-Banking Company (RNBC) in India that has been
granted certificate of registration by RBI and is considered to be a
leading public deposit mobilization company in the Private sector. The
Sahara India Group, has over the years emerged as a multi-service
and multi-product business conglomerate with diverse interests in
fields such as Aviation, Life Insurance, Para banking, Housing,
Infrastructure & Tourism, Consumer Products, Media &
Entertainment

Sahara India Financial Corporation Limited is the largest deposit

mobilization company in the private sector with the highest yearly
deposit level in India. It is the first Residuary Non-Banking Company
(RNBC) to be granted a certification of registration by the Reserve
Bank of India. It has over 61 million esteemed depositors (1 out of
every 17 Indians) served by 9.1 lakh staff through over 1500 branches

[15]
 “Capital Market Services Division”

Capital Market Services Division (CMSD) is a Division of Sahara India

Financial Corporation Ltd. (SIFCL) with an objective to provide
various fee based services to the Investors in the Capital Market.

This Division operates through a cluster of Service Centers &

collection centres. It deals in Depository Services with National
Securities Depository Ltd (NSDL) & Central Depository Services (I)
Ltd as a Depository Participant (DP) and has also ventured into other
related activities like Mutual Fund distribution, Financing against
Initial Public Offerings, Distribution of other Financial Products etc.
Our Strong And Strict Fundamentals

• Stringent expense control.

Cost of fund (including interest cost) within 8% p.a.

• No speculative investment.
Total investment in listed equity shares (less than 1% of the total
assets.)

• High class quality investment.

Restricting the non-performing assets ratio within 0.75% only.

• No unsecured loans.
Hence no bad debts at all.

• Capital adequacy ratio.

24.64% as on 30.09.2004(statutory requirement 12%)

Present Activities of CMSD

Depository Services.
• Mutual Fund Distribution.

[16]
 • Distribution of RBI Bonds, Infrastructure Bonds, Capital Gain
Tax Bonds.

• IPO Financing (Financing for Subscribing New Initial Public

Offerings) etc.

Our Services
• Extended Business Hours.
• Highly Competitive Rates.
• Proposed Activities:
• Round the Clock Helpdesk service through IVRS facility and
availability on 24/7/365 basis.
• Convenience of anywhere accounts management through
SPEED-e (NSDL) / easiest (CDSL).
• Personalized and Efficient Service by NCFM qualified staff

Our Offering
• Multiple financial products in a very convenient manner.
• Depository services
• Internet Trading of securities
• Distribution of Mutual Fund Units

Distribution of Other Products

• CMSD is also a Distributor for other financial products like
• RBI Relief Bonds (Tax Free)
• Infrastructure Bonds
• Capital Gain Tax Bonds
• Initial Public Offerings etc.

Future Plans:
• Loan against Shares and Mutual Fund Units.
• Funding for Margin Trading
• Distribution of Insurance Products.
• Facilitating Internet Trading of Securities
• Retailing of Debt Instruments.

[17]
 • Geographical Expansion based on potentials of respective
markets.

Initial Product Offering by Capital Market Service

Division

SAHARA INCOME FUND

Depositing your money in a savings account bank or fixed deposit will
only provide you safety, but the opportunity for your money to
appreciate is limited. Sahara Income Fund provides safety, highest
credit quality, plus an opportunity to earn steady and regular income.

SAHARA LIQUID FUND

Sahara Liquid Fund is a good parking place for your idle funds. It
provides an opportunity to generate returns on your idle funds with
minimal risk and high liquidity.

SAHARA GILT FUND

When you invest in Gilt Fund, your investment carries no Credit risk.
You can enjoy steady returns at a relatively low risk over a medium to
long-term horizon.

SAHARA SHORT TERM FUND

Every Corporate and High Net worth investors who have treasury
surpluses for a few days can benefit from Sahara Short Term Plans.

SAHARA GROWTH FUND

Make your Investments grow with the benefit of Equities.

[18]
SAHARA TAX GAIN FUND
Sahara Tax Gain Fund is an Equity Linked Saving Scheme (ELSS) that
not only helps you save tax under section 88 of the Income Tax Act,
1961 but also has the potential of long-term growth through
investments in equities.

INITIAL METHODS OF INVESTMENT

What is `deposit?’
The term `deposit’ has been defined as receipt of any money borrowed
by the company but not including any of the following :-

• Government Borrowings
• Borrowings from any financial institutions;
• Borrowings from any Banks;
• Borrowings from any company
• Security deposit;
• Advance from purchasing/selling agent
• money received in Trust ;
• Subscription against application for shares;

• Subscription against bonds, debentures, etc. secured by a

mortgage with or without option to convert into shares;
• Money brought in by issue of any secured bonds/debenture
• Money brought in by promoters;
• Money received from the shareholders of a private limited
company or a deemed public company.

What are the limits for accepting deposits?

A company can borrow deposits up to the extent given below:-

• up to 25% of the paid-up capital and free reserves of the

company from the public and

• up to 10% of its paid-up capital and free reserves from its

shareholders.

[19]
 • Therefore, maximum deposit a company can accept from
public/shareholders is 35% of its paid up capital and free
reserves as mentioned above.

• If the company is a `Government Company’, then it can accept

or renew deposits from public up to 35% of its paid up capital
and free reserves.

• "Free Reserves" mean the balance in the share premium

account, capital and debenture redemption reserves and any
other reserves shown in the balance-sheet of the company and
created by appropriation out of the profits of the company, but
does not include the balance in any reserve created for
repayment of any future liability or for depreciation in assets or
for bad debts;

• revaluation of any assets of the company

Period of accepting deposits:-

A company can invite/accept deposits for a period not less than 6
months and not more than 36 months from the date of acceptance of
such deposits or from the date of its renewal. Therefore, a company
can accept/invite deposits for a period between 6-36 months.

However, a company may accept deposits up to 10% of its paid up

capital and free reserves which are repayable after three months,
from the date of such deposits or renewal thereof to meet any of its
short term requirements.

Rate of interest
Maximum rate of interest that a company can offer on fixed deposits
is 15%.

FIXED DEPOSITS
Fixed deposits remain the most popular instrument for financial
savings in India. They are the middle path investments with adequate
returns and sufficient liquidity. There are basically three avenues for
parking savings in the form of fixed deposits. The most common are
bank deposits. For nationalized banks, the yield is generally low with a
maximum interest of 10 to 10.5% per annum for a period of three
years or more. As opposed to that, NBFCs and company deposits are
more attractive.

[20]
The idea is to select the right company to minimize the risk. Company
deposits as a saving instrument have declined in popularity over the
last three years. The major reasons being the slowdown in economy
resulting in default by some companies. Also, some NBFCs simply
vanished with the depositors' money. All that is likely to change for
the better. Corporate performance is likely to improve and stricter
control by RBI should improve NBFCs record. But one still needs to be
selective. Let us help you in making the right decision.

Post office is a very safe and secure investment avenue. The money is
used in the development of the society as a whole, while it provides
steady returns. The biggest advantage of investing in post office
schemes is the tax benefit that they provide. Thus a lot of savings go
through this channel to dual advantage - tax benefits and steady
returns

Deposit account
A deposit account is an account at a banking institution that allows
money to be held on behalf of the account holder. Some banks charge
a fee for this service, while others may pay the client interest on the
funds deposited.

The account holder retains rights to their deposit, although

restrictions placed on access depend upon the terms and conditions of
the account and the provider.
A deposit is a type of asset.

Saving deposit
Savings deposits are accounts maintained by commercial banks,
savings and loan associations, credit unions, and mutual savings
banks that pay interest but can not be used directly as money (by, for
example, writing a check). These accounts let customers set aside a
portion of their liquid assets that could be used to make purchases.
But to make those purchases, savings account balances must be
transferred to "transaction deposits" (or "checkable deposits") or
currency. However, this transference is easy enough that savings
accounts are often termed near money. Savings accounts, as such
constitute a sizeable portion of the M2 monetary aggregate.

With savings accounts you can make withdrawals, but you do not have
the flexibility of using checks to do so. As with an MMDAs (money
market deposit account), the number of withdrawals or transfers you
can make on the account each month is limited

[21]
Time deposit
A time deposit (also known as a term deposit, particularly in Australia
and New Zealand) is a money deposit at a bank that cannot be
withdrawn for a certain "term" or period of time. When the term is
over it can be withdrawn or it can be held for another term. Generally
speaking, the longer the term the better the yield on the money. A
certificate of deposit is a time-deposit product.
Note that the M2 money supply includes funds that can be used
directly in payment, such as money market mutual funds and money
market deposit accounts (MMDAs). MMDAs are considered by the
United States Federal Reserve (the Fed) to be savings accounts and
are thus exempt from reserve requirements. These large transaction
accounts not being included in the M1 money supply suggests that the
Fed does not pay much attention to ordinary transaction deposits, and
in July 2000, it announced that it was no longer setting target ranges
for growth rates of the monetary aggregates

Transaction deposit
Transaction accounts include all deposits against which the account
holder is permitted make withdrawals by negotiable or transferable
instruments, payment orders of withdrawal, or telephone or
preauthorized transfers for the purpose of making payments to third
persons or others. However, accounts subject to the rules that permit
no more than six preauthorized, automatic, or other transfers per
month (of which no more than three may be by check, draft, debit
card, or similar order payable directly to third parties) are savings
deposits, not transaction accounts

Current account
A current account is a deposit account in the UK and countries with a
UK banking heritage offering various flexible payment methods to
allow customers to distribute money directly to others. Most current
accounts have a cheque book, offer the facility to arrange standing
orders, direct debits and payment via a debit card. Current accounts
may also allow borrowing via an overdraft facility.
Current accounts providers include banks, building societies and
credit unions.
Since the internet revolution most retail banking institutions offer
access to current accounts via online banking.

Demand deposit

[22]
A demand account (or demand deposit, demand deposit account) is a
deposit account held at a bank or other financial institution, the funds
deposited in which are payable on demand. The primary purpose of
demand accounts is to facilitate cashless payments by means of check,
bank draft, direct debit, electronic funds transfer, etc.
A demand account is commonly known as:
• a share draft account
• a a checking account
• current account
• a current account
• a cheque account

Mutual Funds: A Safe Road to Capital Market

Investment (History)
Terms such as personal finance and financial planning are now
more prevalent in the vocabulary of the common man, than they were
a few years ago. The Indian growth story along with that of the young
population with high income are some of the key reasons of this
growing trend. The market has also reacted by providing a range of
financial planning tools and the retail investor is being communicated
the same.
As the country is progressing and per capita income is increasing
people have started giving more attention towards investment. Now
every educated and aware Indian wants to grow his wealth and to
make his future safe. Capital markets have always attracted the
investors because of their higher returns but the risk side is so
dominant and uncertain that a common man hesitates in investing in
capital markets. Mutual funds have emerged as a new tool in the hands
of the investors, which reduces the risk side of the investment. Though
mutual funds can not truncate the risk part completely but definitely
they have an edge over the direct trading.

[23]
 A Mutual Fund is a pool of investments used to buy a large
portfolio of securities that will be managed by a professional advisor.
When one buys a share in the mutual fund then effectively he buys a
bit of each security held in the mutual fund portfolio. Mutual funds are
not risk free investments. Even investing in mutual funds whose
portfolio consists only of guaranteed government bonds contains an
element of risk. But, when someone invests in Mutual funds then total
risk is minimized due to the diversity of the portfolio.

Past couple of years has seen a surge in mutual funds

investment. In fact mutual funds are fast emerging as the preferred
vehicle for the capital market investments. The origin of mutual fund
industry in India is with the introduction of the concept of mutual fund
by UTI in the year 1963. Though the growth was slow, but it
accelerated from the year 1987 when non-UTI players entered the
industry. In 1995, the RBI permitted private sector institutions to set
up Money Market Mutual Funds (MMMFs). They can invest in treasury
bills, call and notice money, commercial paper, commercial bills
accepted/co-accepted by banks, certificates of deposit and dated
government securities having unexpired maturity up to one year. The
mutual fund industry can be broadly put into four phases according to
the development of the sector. Each phase is briefly described as
under.

• 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

[24]
launched by UTI was Unit Scheme 1964 (popularly US-64). At the end
of 1988 UTI had Rs.6700 crores of assets under management.
• Second Phase - 1987-1993 (Entry of Public Sector Funds):
Entry of non-UTI mutual funds. SBI Mutual Fund was the first 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 in 1989 and GIC in 1990.
The end of 1993 marked Rs.47004 as assets under management.
• 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. 121805 crores. The Unit Trust of India
with Rs.44541 crores of assets under management was way ahead of
other mutual funds.
• Fourth Phase - since February 2003: This phase had bitter
experience for UTI. It was bifurcated into two separate entities. One is
the Specified Undertaking of the Unit Trust of India with AUM of
Rs.29835 crores (as on January 2003). The Specified Undertaking of

[25]
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
YEARS Rs. In Crores
Mar-65 25
Mar-87 4564
Mar-93 47000
Mar-03 79464
Mar-04 139616
Mar-05 149554
Mar-06 231862
Mar-07 326388
Mar-08 505152
Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with
SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile UTI which had in March 2000 more than
Rs.76000 crores of AUM 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.

Growth in Asset under Management (AUM)

[26]
It is clear from the above table that past 10 to 15 years have seen a
dramatic shift in the mutual fund growth. The following graph also
represents that how mutual funds have performed during different
phases and after 4th phase the rapid boom has been recorded due to
the entry of the many new entrants. But graph also shows the impact
of market on the performance of the mutual fund as the AUM from
2003 to 2008 is very fluctuating.

[27]
 Year on Year Growth of the Mutual Funds In
Terms Of Asset under Management

It is clear from the above table and graphical representation that

Change in %
Change over the over the last
Year AUM last year year
March-00 93717
March-01 83131 -10586 -11.30
March-02 94017 10886 13.09
March-03 75306 -18711 -19.90
March-04 137226 61920 82.22
March-05 145807 8581 6.25
March-06 225290 79483 54.51
March-07 325157 99867 44.33
March-08 527171 202014 62.13
Mutual funds have seen an upward trend from the year 2004-05 and

their asset value is continuously increasing. Change in AUM over the

last year has been represented by the following graph:

[28]
 If
we

see the last year performance on monthly basis then it will become
clear that how mutual funds get affected by the market.

Monthly change during Last Financial- Year 2007-08

(*Source: moneycontrol.com, here AUM in Rs. Crores )

Rate of
Assets under Change in change
Month management(AUM) AUM In Percent
April-07 351294 26137 8.04
May-07 414990 63696 18.13
June-07 401612 -13378 -3.22
July-07 487398 85786 21.36
August-07 468386 -19012 -3.90
September-07 478474 10088 2.15
October-07 557470 78996 16.51
November-07 538672 -18798 -3.37
December-07 550699 12027 2.23
January-08 549703 -996 -0.18
February-08 566054 16351 2.97
March-08 527171 -38883 -6.87

[29]
 The following graph shows that how mutual funds get affected by
the market and how they see Ups & downs with in a year. It also
represents that how the investors’ decisions of investing or not
investing change during a year.

In the past few years mutual funds have attracted the minds of
many investors. Even they have also snatched the market share of
commercial banks in terms of deposits. From the available data it could
be make out that from 2005 to 2008 AUM of Mutual funds have been
higher than the deposits of the scheduled commercial banks in India.

Year AUM deposits of Banks

2005 145807 137668
2006 225290 141590
2007 325157 175341

[30]
 (Source: moneycontrol.com and RBI annual journal of banking)

Rules and Guidelines:

All MFs are allowed to apply for firm allotment in public issues. SEBI
regulates the functioning of mutual funds, and it requires that all MFs
should be established as trusts under the Indian Trusts Act. The actual
fund management activity shall be conducted from a separate asset
management company (AMC). The minimum net worth of an AMC or
its affiliate must be Rs. 50 million to act as a manager in any other
fund. MFs can be penalized for defaults including non-registration and
failure to observe rules set by their AMCs. MFs dealing exclusively with
money market instruments have to be registered with RBI. All other
schemes floated by MFs are required to be registered with SEBI.

[31]
Mutual Funds & its classifications

Mutual funds basically are of two types:

(1) Closed end: a closed end mutual fund issues only a certain
number of units. After the units are sold and the money is
invested in its portfolio of securities, trading of the fund’s
units can take place on stock exchange.
(2) Open end: an open end mutual fund is constantly offering
new units to the public and redeeming its outstanding units.
There is no limit to the no. of units to be issued.

No Control: Unlike picking your own individual stocks, a mutual fund

puts you in the passenger seat of somebody else's car.
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's total
performance.

Buried Costs: Many mutual funds specialize in burying their costs

and in hiring salesmen who do not make those costs clear to their
clients

Some Facts for the Growth of Mutual Funds in India

• Numbers of foreign AMCs are in the queue to enter the Indian
markets like Fidelity Investments, US based, with over
US$1trillion assets under management worldwide.
• Our saving rate is over 23%, highest in the world. Only
channelizing these savings in mutual funds sector is required.

[32]
• Number of mutual funds in India is much less than US having
more than 800. There is a big scope for expansion.
• Tier-II and Tier-III class cities are growing rapidly. Today most of
the mutual funds are concentrating on the Metro and Tier-I class
cities. Soon they will find scope in the growing cities.
• Mutual fund can penetrate rural like the Indian insurance
industry with simple and limited products.
• SEBI allowing the MFs to launch commodity mutual funds.
• Emphasis on better corporate governance.
• Trying to curb the late trading practices.
• Introduction of Financial Planners who can provide need based
advice.

[33]
REASON WHY PEOPLE INVEST IN
DEPOSITS
There has been an age old concept of people investing in fixed deposits
and other methods of deposits .They follow this concept because again
and again investing in different fields might fetch them loss at
different stages of life and in order to have a secure future people
prefer to invest in one deposit for a particular period of time and
withdraw them whenever they need.
In today’s era where people are more concerned about their secure
future and due to their busy life they lack knowledge about other
methods if investment.

REASONS OF INVESTMENTS

[34]
 BASIC INVESTMENT OBJECTIVE

The investment approach will be based on a set of well established but

flexible principles that emphasize the concept of sustainable economic
earnings and cash return on investment as the means of valuation of
companies.

Five basic principles serve as the foundation for this investment

approach. They are as follows:

Focus on the long term

There is substantive empirical evidence to suggest that equities
provide the maximum risk adjusted returns over the long term. In an
attempt to take full advantage of this phenomenon, investments would
be made with a long term perspective.

Investments confer proportionate ownership

The approach to valuing a company is similar to making an
investment in a business. Therefore, there is a need to have a
comprehensive understanding of how the business operates. The key
issues to focus on are growth opportunities, sustainable competitive
advantage, industry structure and margins and quality of the
management.

Maintain a margin of safety

The benchmark for determining relative attractiveness

of stocks would be the intrinsic value of the business. The
Investment Manager would endeavor to purchase stocks that
represent a discount to this value, in an effort to preserve capital and
generate superior growth.
Maintain a balanced outlook on the market

The investment portfolio would be regularly monitored to

understand the impact of changes in business and economic trend as
well as investor sentiment. While short-term market volatility would
affect valuations of the portfolio, this is not expected to influence the
decision to own fundamentally strong companies.

[35]
Example:
You invest $1,000 in a mutual fund with an NAV of $10.00. You will
therefore own 100 shares of the fund. If the NAV drops to $9.00
(because the value of the fund's portfolio has dropped), you will still
own 100 shares, but your investment is now worth $900. If the NAV
goes up to $11.00, your investment is worth $1,100. (This example
assumes no sales charge.)

• Sale Price
Is the price you pay when you invest in a scheme? Also called Offer
Price. It may include a sales load.

• Repurchase Price
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 the
unit holders?

[36]
 ASSET MANAGEMENT COMPANY
In an endeavor to enlarge the range of services available to our
customers, PNB has been distributing the products of Principal PNB
Asset Management Company Pvt. Ltd. from its designated branches.
In recent times Mutual funds have gained rapid popularity as a good
investment vehicle. The variety of schemes and income options
offered by Mutual Funds can suit the financial preferences of all
classes of investors, be it Retail, Corporate or Institutional.

The following benefits, intrinsic to investments in Mutual Funds have

inspired greater confidence amongst the investors:

• Transparency
• Efficient Performance
• Liquidity
• Convenience
• Tax benefits

Range of schemes:
Mutual Funds offer schemes keeping in view the risk profile and risk-
return preferences of investors. For an aggressive investor with
appetite for risk, Equity oriented schemes are available which have a
higher potential for capital appreciation. For a conservative investor
with expectations of stable returns and low risk, Income Schemes are
available. To suit various type of requirements of the investors,
following is the range of schemes offered by PRINCIPAL PNB AMC:
Principal Growth Scheme: Open-ended equity fund with an
investment portfolio of stocks diversified across different sectors of
the economy.

• Principal balanced Fund:

Open ended fund with an equity (diversified) component of 51% to
70% and Debt component (including Money Market) 30% to 49%.

[37]
Principal Income Fund: Open-ended fund with up to 100% investment
in Debt instruments (including Money Market instruments and
securitized debt)

• Principal Income Fund –

Short Term Debt: Open-ended short term maturity debt fund aimed at
providing stable returns with lower to negligible risks. Fund invests in
debt securities, predominantly 100% money market instruments and
securitized debt.

• Principal Cash management Fund:

Open-ended fund that invests 100% of its corpus in Money Market

instruments and seeks to provide an excellent avenue to park very
short term cash surpluses and earn returns linked to the call money
market rates.

• Principal Index Fund:

Open-ended fund that tracks S&P CNX Nifty (NSE) closely. The aim of
the fund is to provide its investors returns commensurate with the
Nifty.

• Principal Government Securities Fund:

Open-ended dedicated Gilt scheme investing in Government
Securities.

Innovative options to facilitate greater control over investments:

Mutual Funds have options such as Systematic Investment Plans,
Systematic withdrawal plan, Trigger Option, Automatic Rebalancing,
Dividend Re-investment, etc that enable you to get the most out of
your investment in Mutual Funds.

• Distribution Reach
The distribution services of Mutual Fund products are available at
selected branches of all the zones except Bihar, Chhatisgarh and
Jharkhand.

[38]
 • Risk Profile
Mutual Fund investments are subject to market risks. Please read the
offer document of the scheme carefully for details on risk factors
before investment. Punjab National Bank does not guarantee any
assured returns for your investments through Mutual Fund.

[39]
 Advantages Of Mutual Funds
Since their creation, mutual funds have been a popular investment
vehicle for investors. Their simplicity along with other attributes
provides great benefit to investors with limited knowledge, time or
money. To help you decide whether mutual funds are best for you and
your situation, we are going to look at some reasons why you might
want to consider investing in mutual funds.
Diversification
One rule of investing, for both large and small investors, is
asset diversification. Diversification involves the mixing of
investments within a portfolio and is used to manage risk. For
example, by choosing to buy stocks in the retail sector and offsetting
them with stocks in the industrial sector, you can reduce the impact of
the performance of any one security on your entire portfolio. To
achieve a truly diversified portfolio, you may have to buy stocks with
different capitalizations from different industries and bonds with
varying maturities from different issuers. For the individual investor,
this can be quite costly.

By purchasing mutual funds, you are provided with the immediate

benefit of instant diversification and asset allocation without the large
amounts of cash needed to create individual portfolios. One caveat,
however, is that simply purchasing one mutual fund might not give
you adequate diversification - check to see if the fund
is sector or industry specific. For example, investing in an oil and
energy mutual fund might spread your money over fifty companies,
but if energy prices fall, your portfolio will likely suffer. (Learn how to
protect yourself against loss, read Recession-Proof Mutual Funds.)

Economies of Scale
The easiest way to understand economies of scale is by thinking about
volume discounts; in many stores, the more of one product you buy,
the cheaper that product becomes. For example, when you buy a
dozen donuts, the price per donut is usually cheaper than buying a
single one. This also occurs in the purchase and sale of securities. If
you buy only one security at a time, the transaction fees will be
relatively large.

Mutual funds are able to take advantage of their buying and selling
size and thereby reducetransaction costs for investors. When you buy
a mutual fund, you are able to diversify without the
numerous commission charges. Imagine if you had to buy the 10-20
stocks needed for diversification. The commission charges alone
would eat up a good chunk of your savings. Add to this the fact that
you would have to pay more transaction fees every time you wanted to

[40]
modify your portfolio - as you can see the costs begin to add up. With
mutual funds, you can make transactions on a much larger scale for
less money...)

Divisibility
Many investors don't have the exact sums of money to buy round lots
of securities. One to two hundred dollars is usually not enough to buy
a round lot of a stock, especially after deducting commissions.
Investors can purchase mutual funds in smaller denominations,
ranging from $100 to $1,000 minimums. Smaller denominations of
mutual funds provide mutual fund investors the ability to make
periodic investments through monthly purchase plans while taking
advantage of dollar-cost averaging. So, rather than having to wait
until you have enough money to buy higher-cost investments, you can
get in right away with mutual funds. This provides an additional
advantage - liquidity.

Liquidity
Another advantage of mutual funds is the ability to get in and out with
relative ease. In general, you are able to sell your mutual funds in a
short period of time without there being much difference between the
sale price and the most current market value. However, it is
important to watch out for any fees associated with selling,
including back-end load fees. Also, unlike stocks and exchange-traded
funds (ETFs), which trade any time during market hours, mutual
funds transact only once per day after the fund's net asset value (NAV)
is calculated.

Professional Management
When you buy a mutual fund, you are also choosing a professional
money manager. This manager will use the money that you invest to
buy and sell stocks that he or she has carefully researched. Therefore,
rather than having to thoroughly research every investment before
you decide to buy or sell, you have a mutual fund's money manager to
handle it for you. (For more insight, see Does Your Investment
Manager Measure Up? and Assess Your Investment Manager.)

Conclusion
As with any investment, there are risks involved in buying mutual
funds. These investment vehicles can experience market fluctuations
and sometimes provide returns below the overall market. Also, the
advantages gained from mutual funds are not free: many of them
carryloads, annual expense fees and penalties for early withdrawal.

[41]
 Disadvantages of Mutual Funds
Like many investments, mutual funds offer advantages and
disadvantages, which are important for you to consider and
understand before you decide to buy. Here we explore some of the
drawbacks of mutual funds.
Fluctuating Returns
Mutual funds are like many other investments without a guaranteed
return: there is always the possibility that the value of your mutual
fund will depreciate. Unlike fixed-income products, such
as bonds and Treasury bills, mutual funds experience price
fluctuations along with the stocks that make up the fund. When
deciding on a particular fund to buy, you need to research the risks
involved - just because a professional manager is looking after the
fund, that doesn't mean the performance will be stellar.
Another important thing to know is that mutual funds are not
guaranteed by the U.S. government, so in the case of dissolution, you
won't get anything back. This is especially important for investors in
money market funds. Unlike a bank deposit, a mutual fund will not be
insured by the Federal Deposit Insurance Corporation (FDIC).
Diversification?
Although diversification is one of the keys to successful investing,
many mutual fund investors tend to over diversify. The idea of
diversification is to reduce the risks associated with holding a single
security; over diversification (also known as diworsification) occurs
when investors acquire many funds that are highly related and, as a
result, don't get the risk reducing benefits of diversification.
At the other extreme, just because you own mutual funds doesn't
mean you are automatically diversified. For example, a fund that
invests only in a particular industry or region is still relatively risky.
Cash, Cash and More Cash
As you know already, mutual funds pool money from thousands of
investors, so everyday investors are putting money into the fund as
well as withdrawing investments. To maintain liquidity and the
capacity to accommodate withdrawals, funds typically have to keep a
large portion of their portfolios as cash. Having ample cash is great
for liquidity, but money sitting around as cash is not working for you
and thus is not very advantageous.

[42]
Costs
Mutual funds provide investors with professional management, but it
comes at a cost. Funds will typically have a range of different fees that
reduce the overall payout. In mutual funds, the fees are classified into
two categories: shareholder fees and annual operating fees.
The shareholder fees, in the forms of loads and redemption fees, are
paid directly by shareholders purchasing or selling the funds. The
annual fund operating fees are charged as an annual percentage -
usually ranging from 1-3%. These fees are assessed to mutual fund
investors regardless of the performance of the fund. As you can
imagine, in years when the fund doesn't make money, these fees only
magnify losses.
Misleading Advertisements
The misleading advertisements of different funds can guide investors
down the wrong path. Some funds may be incorrectly labeled as
growth funds, while others are classified as small cap or income
funds. The Securities and Exchange Commission (SEC) requires that
funds have at least 80% of assets in the particular type of investment
implied in their names. How the remaining assets are invested is up to
the fund manager.
However, the different categories that qualify for the required 80% of
the assets may be vague and wide-ranging. A fund can therefore
manipulate prospective investors by using names that are attractive
and misleading. Instead of labeling itself a small cap, a fund may be
sold as a "growth fund". Or, the "Congo High-Tech Fund" could be
sold with the title "International High-Tech Fund".
Evaluating Funds
Another disadvantage of mutual funds is the difficulty they pose for
investors interested in researching and evaluating the different funds.
Unlike stocks, mutual funds do not offer investors the opportunity to
compare the P/E ratio, sales growth, earnings per share, etc. A mutual
fund's net asset value gives investors the total value of the fund's
portfolio less liabilities, but how do you know if one fund is better
than another?

Furthermore, advertisements, rankings and ratings issued by fund

companies only describe past performance. Always note that mutual
fund descriptions/advertisements always include the tagline "past
results are not indicative of future returns". Be sure not to pick funds
only because they have performed well in the past - yesterday's big
winners may be today's big losers.
Conclusion
When you buy any investment, it's important to understand both the

[43]
good and bad points. If the advantages that the investment offers
outweigh its disadvantages, it's quite possible that mutual funds are
something to consider. Whether you decide in favor or against mutual
funds, the probability of a successful portfolio increases dramatically
when you do your homework.

[44]
 TAX ASPECT OF MUTUAL FUND
A mutual fund is a trust that holds the savings of a number of
investors - institutional and individual - who share a common
financial goal. The accumulated money is then invested in capital
market instruments such as shares, debentures, and other securities.
The income earned through these investments and the capital
appreciation realized 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 investors as it offers an
opportunity to invest in a diversified and professionally
managed basket of securities at a relatively low cost. Mutual fund
investments are, however, subject to tax exemptions.

Income Tax exemptions on mutual funds of India:

Chapter III of the Income Tax Act, 1961 provides for exemptions in
income tax. There are few specified incomes on which a person can
get exemptions. It means that at the time of calculating annual
income, this type of income will not be added. For claiming any of
these exemptions, it is necessary to furnish documents which shows
that your income comes under this list.

Income of specified Mutual Funds registered and/or set up

under/by SEBI Act, 1992, public sector bank/financial institution/RBI
fulfilling such conditions as specified. Ref. Income Tax Act 10(23D).

Some Tax Saving Mutual Funds India available, are -

• SBI Mutual Funds

• Prudential ICICI
• Bank Of Baroda
• Bajaj Capital
• DSP Merrill Lynch Mutual Fund India
• Franklin Templeton Mutual Fund India
• Standard Chartered Mutual fund India

Tax Saving Mutual Funds India generally maintains the following

rules of the SEBI while granting tax benefits on their schemes -

• Any special tax benefits for the mutual fund company and
its shareholders (only section numbers of the Income Tax
Act and their substance should be mentioned, without
reproducing the text of the sections).
• Tax benefits are to be declared under the column of "objects
of the offering".

[45]
For further information on Tax Saving Mutual Funds India, visit
www.sebi.gov.in.

TERMS RELATED TO MF
Annual and Semiannual Reports—Summaries that a mutual fund
sends to its shareholders that discuss the fund’s performance over a
certain time period and identify the securities in the fund’s portfolio
on a specific date. Appreciation—An increase in an investment’s
Value.
Asked or Offering Price—(As seen in some mutual fund newspaper
listings, see p. 25.) The price at which a mutual fund’s shares can be
purchased. The asked or offering price includes the current net asset
value per share plus any sales charge.
Average Portfolio Maturity—The average maturity of all the bonds in a
bond fund’s portfolio.
Assets—The current dollar value of the pool of money shareholders
have invested in a fund.
Automatic Reinvestment—A fund service giving shareholders the
option to purchase additional shares using dividends and capital gain
distributions.
Bear Market—A period during which security prices in a particular
market (such as the stock market) are generally falling.
Bid or Sell Price—The price at which a mutual fund’s shares are
redeemed, or bought back, by the fund. The bid or redemption price is
usually the current net asset value per share.
Bond—A debt security, or IOU, issued by a company, municipality or
government agency. A bond investor lends money to the issuer and, in
exchange, the issuer promises to repay the loan amount on a specified
maturity date; the issuer usually pays the bondholder periodic
interest payments over the life of the loan.
Broker/Dealer (or Dealer)—A firm that buys and sells mutual fund
shares and other securities from and to investors.
Bull Market—A period during which security prices in a particular
market (such as the stock market) are generally rising.
Capital Gain Distribution—Profits distributed to shareholders
resulting from the sale of securities held in the fund’s portfolio.
Closed-end Fund—A type of investment company that has a fixed
number of shares which are publicly traded. The price of a closed-end
fund share fluctuates based on investor supply and demand. Closed-
end funds are not required to

[46]
redeem shares and have managed portfolios.
Commission—A fee paid by an investor to a broker or other sales
agent for investment advice and assistance.
Compounding—Earnings on an investment’s earnings. Over time,
compounding can produce significant growth in the value of an
investment.
Contingent Deferred Sales Charge (CDSC)— A fee imposed when
shares are redeemed (sold back to the fund) during the first few years
of ownership.
Credit Risk—The possibility that a bond issuer may not be able to pay
interest and repay its debt.
Custodian—An organization, usually a bank, that holds the securities
and other assets of a mutual fund.
Depreciation—A decline in an investment’s value.
Diversification—The practice of investing broadly across a number of
securities to reduce risk.
Dollar -cost Averaging—The practice of investing a fixed amount of
money at regular intervals, regardless of whether the securities
markets are declining or rising.
Exchange Privilege—A fund option enabling shareholders to transfer
their investments from one fund to another within the same fund
family as their needs or objectives change. Typically, fund companies
allow exchanges several times a year for a low or no fee.
Expense Ratio—A fund’s cost of doing business— disclosed in the
prospectus—expressed as a percent of its assets.
Face Value—The amount that a bond’s issuer must repay at the
maturity date.
Family of Funds—A group of mutual funds, each typically with its own
investment objective, managed and distributed by the same company.
401(k) Plan—An employer-sponsored retirement plan that enables
employees to make tax-deferred contributions from their salaries to
the plan.
403(b) Plan—An employer-sponsored retirement plan that enables
employees of universities, public schools, and non-profit
organizations to make taxdeferred contributions from their salaries
to the plan.
457 Plan—An employer-sponsored retirement plan that enables
employees of state and local governments and other tax-exempt
employers to make tax-deferred contributions from their salaries to
the plan.

[47]
Hedge Fund—A private investment pool for wealthy investors that,
unlike a mutual fund, is exempt from SEC regulation.
Income—Dividends, interest and/or short-term capital gains paid to a
mutual fund’s shareholders. Income is earned on a fund’s investment
portfolio after deducting operating expenses.
Individual Retirement Account (IRA)—An investor-established, tax-
deferred account set up to hold and invest funds until retirement.
Inflation Risk—The risk that a portion of an investment’s return may
be eliminated by inflation.
Interest Rate Risk—The possibility that a bond’s or bond mutual
fund’s value will decrease due to rising interest rates.
Investment Adviser—An organization employed by a mutual fund to
give professional advice on the fund’s investments and asset
management practices.
Investment Company—A corporation, trust or partnership that
invests pooled shareholder dollars in securities appropriate to the
organization’s objective. Mutual funds, closed-end funds and unit
investment trusts are the three types of investment companies.
Investment Objective—The goal that an investor and mutual fund
pursue together, e.g., current income, long-term capital growth, etc.
Issuer—The company, municipality or government agency that issues
a security, such as a stock, bond or money market security.
Large-cap Stocks—Stocks of large-capitalization companies, which are
generally considered to be companies whose total outstanding shares
are valued at $2 billion or more.
Liquidity—The ability to have ready access to invested money. Mutual
funds are liquid because their shares can be redeemed for current
value (which may be more or less than the original cost) on any
business day.
Long-term Funds—A mutual fund industry designation for all funds
other than money market funds. Long-term funds are broadly divided
into equity (stock) and bond and income funds.
Management Fee—The amount paid by a mutual fund to the
investment adviser for its services.
Maturity—The date by which an issuer promises to repay the bond’s
face value.
Mutual Fund—An investment company that stands ready to buy back
its shares at their current net asset value, which is the total market
value of the fund’s investment portfolio divided by the number of
shares outstanding. Most mutual funds
continuously offer new shares to investors.

[48]
National Association of Securities Dealers, Inc. (NASD)—A self-
regulatory organization with authority over firms that distribute
mutual fund shares as well as other securities.
Net Asset Value (NAV)—The per-share value of a mutual fund, found
by subtracting the fund’s liabilities from its assets and dividing by the
number of shares outstanding. Mutual funds calculate their NAVs at
least once daily.
No-load Fund—A mutual fund whose shares are sold without a sales
commission and without a 12b-1 fee of more than .25 percent per year.
Open-end Investment Company—The legal name for a mutual fund,
indicating that it stands ready to redeem (buy back) its shares from
investors.
Operating Expenses—Business costs paid from a fund’s assets before
earnings are distributed to shareholders. These include management
fees and 12b-1 fees and other expenses.
Portfolio—A collection of securities owned by an individual or an
institution (such as a mutual fund) that may include stocks, bonds and
money market securities.
Portfolio Manager—A specialist employed by a mutual fund’s adviser
to invest the fund’s assets in accordance with predetermined
investment objectives.
Portfolio Turnover—A measure of the trading activity in a fund’s
investment portfolio—how often securities are bought and sold by a
fund.
Prepayment Risk—The possibility that a bond owner will receive his
or her principal investment back from the issuer prior to the bond’s
maturity date.
Principal—see Face Value.
Prospectus—The official document that describes a mutual fund to
prospective investors. The prospectus contains information required
by the SEC, such as investment objectives and policies, risks, services
and fees.
Quality—The creditworthiness of a bond issuer, which indicates the
likelihood that it will be able to repay its debt.
Redeem—To cash in mutual fund shares by selling them back to the
fund. Mutual fund shares may be redeemed on any business day. You
will receive the current share price, called net asset value, minus any
deferred sales charge or redemption fee.
Reinvestment Privilege—An option whereby mutual fund dividends
and capital gain distributions automatically buy new fund shares.

[49]
Risk/Reward Tradeoff—The investment principle that an investment
must offer higher potential returns as compensation for the likelihood
of increased volatility.
Rollover—The shifting of an investor’s assets from one qualified
retirement plan to another—due to changing jobs, for instance—
without a tax penalty.
Sales Charge or Load—An amount charged for the sale of some fund
shares, usually those sold by brokers or other sales professionals. By
regulation, a mutual fund sales charge may not exceed 8.5 percent of
an investment purchase. The charge may vary depending on the
amount invested and the fund chosen. A sales charge or load is
reflected in the asked or offering price (see Asked Price).
Securities and Exchange Commission (SEC)— The primary U.S.
government agency responsible for the regulation of the day-to-day
operations and disclosure obligations of mutual funds.
Series Fund—A group of different mutual funds, each with its own
investment objective and policies, that is structured as a single
corporation or business trust.
Share Classes (e.g., Class A , Class B, etc.)—Represent ownership in
the same fund, but charge different fees. This can enable shareholders
to choose the type of fee structure that best suits their particular
needs.
Shareholder—An investor who owns shares of a mutual fund or other
company.
Short-term Funds—Another term for money market funds.
Small-cap Stocks—Stock of small-capitalization companies, which are
generally considered to be companies whose total outstanding shares
are valued at less than $1 billion.
Statement of Additional Information (SAI)— The supplementary
document to a prospectus that contains more detailed information
about a mutual fund; also known as “Part B” of the prospectus.
Stock—A share of ownership or equity in a corporation.
Total Return—A measure of a fund’s performance that encompasses
all elements of return: dividends, capital gain distributions and
changes in net asset value. Total return is the change in value of an
investment over a given period,
assuming reinvestment of any dividends and capital gain
distributions, expressed as a percentage of the initial investment.
Transfer Agent—The organization employed by a mutual fund to
prepare and maintain records relating to shareholder accounts.

[50]
12b-1 Fee—A mutual fund fee, named for the SEC rule that permits it,
used to pay for distribution costs, such as advertising and
commissions paid to dealers. If a fund has a 12b-1 fee, it will be
disclosed in the fee table of a fund’s prospectus.
Underwriter—The organization that sells a mutual fund’s shares to
broker/dealers and investors.
Unit Investment Trust (UIT)—An investment company that buys and
holds a fixed number of shares until the trust’s termination date.
When the trust is dissolved, proceeds are paid to shareholders. A UIT
has an unmanaged portfolio. Like a mutual fund, shares of a UIT can
be redeemed on any business day.
Withdrawal Plan—A fund service allowing shareholders to receive
income or principal payments from their fund account at regular
intervals.

[51]
 How to invest in Mutual Fund
• Step One - Identify your Investment needs

Your financial goals will vary, based on your age, lifestyle,

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

• Step Two - Choose the right Mutual Fund

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

• Step Three - Select the ideal mix of Schemes

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

• Step Four - Invest regularly

The best approach is to invest a fixed amount at specific intervals, say

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

• Step Five- Start early

[52]
It is desirable to start investing early and stick to a regular investment
plan. If you start now, you will make more than if you wait and invest
later. The power of compounding lets you earn income on income and
your money multiplies at a compounded rate of return.

• Step Six - The final step

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

[53]
 THINGS KEPT IN MIND BEFORE
INVESTING
Prospectus
By law, you should receive a prospectus from the fund company
before you invest in it. Many investors ignore the prospectus, but this
is a must read. The mutual fund's objectives are displayed in the
prospectus. It tells you the goals of the fund and how it intends to
achieve them. You will also find information about the fund's past
performance and fees.
Mutual Fund Families
Mutual Fund Glossary
Mutual Fund Fees
The fees are displayed in the prospectus as well as on many mutual
fund research sites. Try to buy funds with low expense ratios and
certainly avoid 12b-fees. I have yet to hear a valid argument on why
you should ever buy a loaded fund. A loaded fund is a fund that carries
front-end loads, back-end loads or deferred loads. These loads are
basically sales charges. There are plenty of no-load funds to meet your
objectives.

GROWTH IN MUTUAL FUNDS SECTOR

“Mutual funds are shuddering at the prospect of an economic
recovery. But they have enough time to consolidate their client base.”

The Smart Investor Team

Normally a recovery means good news for all, consumers,

manufacturers and service providers. But hold on. Mutual funds
aren't very enthusiastic, though. Why? Because, the biggest investors
in the domestic mutual fund industry today are large corporates and
banks. Investors have put in more than 50 per cent of total assets of
the industry. And, a recovery means that corporates may pull out their
money to invest in their core activities. Similarly, a revival in credit
demand on the back of a recovery means that banks may need to pull
out their investments from mutual funds to meet the demand.

[54]
That's perhaps why mutual funds are pulling such long faces at the
prospect of a recovery. What if the economy recovers and corporates
go on a spending spree? Capacity expansions, merger and acquisition
activity and better credit demand would require corporates and banks
to encash their existing investments to plough back in their core
business.
Obviously, there is a strong possibility of large scale redemptions.
While fund companies see this issue as a matter of concern, they are
optimistic about guarding their current assets. Says Ved Prakash
Chaturvedi, chief executive officer, Tata TDW Mutual Fund, "Despite
an economic recovery, the fund industry should be able to retain and
in fact, grow its assets."
Is a economic recovery underway? The outlook on the economy is
pretty much positive and economists are predicting a wide-ranging
recovery led by an increase in domestic consumer demand.
According to the latest data released by the Central Statistical
Organization (CSO), the Indian economy grew 4.3 per cent in 2002-
03. With the manufacturing and services sectors growing at 6.0 per
cent and 7.1 per cent respectively, the poor performance of the
agriculture sector dragged down the overall growth. Growth in the
agricultural sector declined 3.2 per cent last fiscal. The growth in
manufacturing industry was led by buoyant exports and a boost to
construction activity.
This year, again, the manufacturing sector is expected to grow at a
faster clip. The overall manufacturing outsourcing story should mean
more business for Indian manufacturing companies too.
Construction is again going to be a key driver. So sectors like steel and
cement have already seen a quantum jump in demand and many loss-
making companies such as Ispat, Essar, and the Jindal group have
turned profitable. Similarly, many other sectors such as consumer
durables and textiles are seeing demand-led growth. Many of these
corporate houses are thus focusing on the longer-term targets.
Some sectors like steel are already talking of capacity expansion and
green field projects. Others like cement have been seeing
consolidation. However, as Sanjeev Bafna, senior vice-president
Corporate finance, Grasim Industries says "It will take 1-2 years for
the Indian industry to start committing funds into expansions."

[55]
But whenever it happens, will corporates queue up for redemptions?
And secondly, will banks and financial institutions, which have
invested their surplus funds in mutual funds on the back of poor
credit off take in the last couple of years, divert their money into
lending?
The latter, of course, is a definite possibility. Last year, lending
behemoth IDBI was among the biggest investors in mutual funds.
Others such as ICICI bank and HDFC also figured in the list of biggest
investors.
While Reliance Industries was one of the largest investors in mutual
funds, mutual fund sources say that some of the other big investors
are from the banking industry. For instance, both IDBI and SIDBI are
said to have a considerable exposure in rolling over surplus funds in
mutual funds. Other big players in the sector include the Finolex
Group, ICICI Bank, Bank of India, Central bank and LIC Housing
Finance.
Clearly, a lot depends on the outlook for the economy. Any revival will
result in an increase in credit off take and thus, funds will have to be
redirected from the market to industry. But the probability of that
happening in the near-term is bleak: there is a huge amount of
liquidity in the banking sector, and further rate cuts will only add to it.
But corporate money pulling out may not be that big a threat. Here is
Companies typically park their surplus cash in treasury instruments
(liquid fund schemes). And, they deploy money considered surplus in
a slightly longer horizon into medium term funds. Industry experts
feel that the economic recovery will have no impact on the flows into
liquid funds.
As a matter of fact, improved cash flow for corporates will only
increase the popularity of liquid funds. Even more, they say that today
financially healthy corporates will find it less prudent to pull out
money from investments like mutual funds to fund expansions
because borrowed funds are so cheap.
Also, capital expenditure is never lumped together but is spread over
a period of time and prudence requires a judicious mix of debt and
equity depending on the project size, horizon of returns, gestation
period etc. Hence there will not be any sudden withdrawal of funds
from the market. Such expenditure is planned in advance and as
result, a company cannot take the risk of a sudden withdrawal of its
investment.

Opportunity cost of money

[56]
To get a feel of this, look at the opportunity cost of money. Currently,
companies have witnessed around a 500-600 basis points reduction in
interest costs on long-term debt from about 16 per cent-plus in 1998-
99 to about 10 per cent now, and even lesser for top rated corporates,
which can raise money at around 5.5-6.0 per cent per annum. As a
result, it is much more attractive to fund investments by taking on
additional debt while continuing to earning a higher return from
deploying internal cash into market instruments such as mutual
funds.

Arbitrage between debt vs. funds

But the main reason that the companies prefer raising debt is two-
fold. Firstly, debt is available at historically low costs and secondly,
tax considerations favor debt. These include a tax benefit on the
interest costs, a dividend distribution tax on dividend income and
capital gains tax on long-term capital gains. As a result, while effective
cost of debt is less than 4 per cent, the effective tax-adjusted return on
mutual fund investment is around 5-6 per cent.
Grasim's Bafna says "the biggest factor that will determine an outflow
of funds is the any change in the tax status of dividends and capital
gains tax on long-term capital gains". Currently, dividends from
mutual funds are tax-free in the hands of the investors except for a
dividend distribution tax of 12.81 per cent. Long-term capital gains are
taxed at 10.25 per cent with indexation benefits, and at 20.5 per cent
without indexation benefits.
The banking sector, with the considerable amount of liquidity in the
system, has also been a significant investor in mutual funds. For
instance, as on March 31, 2003, HDFC had investments of around Rs
1500 crore in liquid funds. According to MA Ravi Kumar, Regional
Head - Global Markets, Stanchart Grindlays "The corporate sector
accounts for a reasonable chunk of the investments in mutual funds.
While there may be some withdrawal of funds, an increase in
economic activity will also increase the surplus funds. Therefore, over
a period of time, the cash surpluses will find their way back into the
market"

[57]
 Current Scenario of Mutual Fund
India is at the first stage of a revolution that has already peaked in the
U.S. the U.S. boasts if an asset base that are much higher than its
deposits. In India, mutual fund assets are not even 10% of the bank
deposits, but this trend is beginning to change. Recent figures indicate
that in the first quarter of the current fiscal year mutual fund asset
went up by 115% whereas bank deposit rose up only 17%. This is
forcing a large number of banks to adopt the concept of narrow
banking wherein the deposits are kept in Gilts and some other assets.
This improves liquidity and reduces risk. The basic fact lies that banks
cannot be ignored and they will not completely. Their role closes down
as intermediaries cannot be ignored. It is just mutual Funds are going
to change the way banks do business in the future.

[58]
 COMPARISONS OF MUTUAL FUND
WITH OTHER DEPOSITS
SHARES MUTUAL FUNDS
Know-how is needed Superficial know. Is sufficient
High cost involved Low Cost
Time needed one can sleep over
Professional Management.

BANKS V/S MUTUAL FUNDS

Banks v/s Mutual Funds

BANKS MUTUAL FUNDS
Returns Low Better
Administrative High Low
exp.
Risk Low Moderate
Investment Less More
options
Network High Penetration Low put improving
Liquidity At a cost Better
Quality of Not Transparent Transparent
assets
Interest Min. bal. between 10th & 30th Everyday
calculation of every month
Guarantee Max. Rs. 1Lakh on deposit None

[59]
 SHARES V/S MUTUAL FUNDS

Insuance Vs Mutual Funds

Both these instruments are designed to serve different purposes and
are not comparable. A unit-linked plan from an insurance company is
an insurance policy designed to pay a lump sum on maturity or on
death if earlier. Premium paid under these plans is eligible for tax
deduction under Section 88 of the Income Tax Act. On the other hand,
mutual funds are investment avenues to participate in the growth of
financial markets and do not provide any tax deduction (except ELSS
and pension funds).

For a unit-linked insurance plan, providing life cover is the most

important function; returns are just an added benefit, which gets
magnified, given the tax rebates. Though unit-linked plans offer
transparency in returns in terms of net asset value and flexibility in
investment options in debt, equity or mixes of both, these advantages
remain secondary, whereas for a mutual fund, the main objective is to
provide returns.

Moreover, unit-linked plans are not as liquid as mutual funds. There

is a lock-in of three years. Even if one redeems after three years, you
would be at a loss because of higher initial administrative charges. For
example, the upfront charges for the first two premium amounts are
as high as 20-27 per cent. Then there is an annual management fee of
0.8-1.25 per cent and a flat fee of Rs 15-20 per month. Finally, there is
a deduction for risk cover. This goes towards contribution to the sum
assured or the life insurance cover, which is based on mortality rates
as calculated by actuaries. Though mutual funds too have entry and
exit loads (maximum 2 per cent) and expenses (maximum 2.5 per
cent), these costs are lower than unit-linked plans.

[60]
 COMPARISON AMONG DIFFERENT
INVESTMENT AVENUES
INVESTMENT FD Real Busine Asset MF Shares RBI PPF NSC
Post
AVENUES Estate ss Bonds Offic
e
RETURNS * 5.25% V V DEP V V 8% 9.50% 8% 8%
POST TAX 3.63% V V - V V 5.60% 6- 5.60% 5.60
YIELD 6.5% %
INFLATION 6% - - - - - - - - -
RRR -2.50% V V - V V - 0.65% - -
0.40% 0.40% 0.40
%
Pos RRR - Pos Pos - Pos Pos - - - -
LIQUIDITY - LOW LOW - HIG HIGH LOW LOW LOW LO
H W

[61]
 PUBLIC PROVIDENT FUND
Scheme: Public Provident Fund
15 years and then optional extension in
Tenure:
blocks of 5 years
Issue date: Perpetually Open
Closure date: At the end of the 15th year
Interest: 9.5%
Interest Payment: Yearly (Computed on monthly balance)
Effective interest rate: 9.9%
Minimum investment: Rs.100
Maximum Investment: Rs.60000 per financial year
Tax benefits: Sec.88 and Sec.10
Available. Loans can be obtained upto
25% of the balance at the end of the 2nd
preceding financial year in the 3rd year of
opening at an interest rate 1% above the
prevalent PPF rate. Thus the repayment
Loan Facility:
rate is now 12%. After the repayment of
the first loan is affected, a second loan
can be taken. This loan facility ceases
after the end of the 6th financial year as
after that the withdrawal facility starts.
Available.
From the 7th year and every year
thereafter, the account holder is allowed to
Withdrawal: withdraw a maximum of 50% of the
balance that is to his/her credit at the end
of the 4th or the 1st previous financial
year, whichever is lower.
1. Benefits are two fold, 20% of the amount
paid each year in the account is available
as a tax rebate and interest earned is tax
Remarks:
free.
2. The account can be opened even at any
of the select few nationalized banks also.

[62]
 NATIONAL SAVING CERTIFICATE

Scheme: National Savings Certificate

Tenure: 6 years
Issue date: Perpetually Open
Closure date: End of tenure
Interest: 9.5%
Interest Payment: Half-Yearly
Effective interest rate: 9.7%
Minimum investment: Rs.100
Maximum Investment: No Limit
Tax benefits: Sec. 88 and Sec.80L
Not available. However can
Loan Facility:
be pledged in a bank
Withdrawal: Not available
Remarks: None

[63]
 KISAN VIKAS PATRA
Scheme: Kisan Vikas Patra
6.5 years (en cashable after 2.5
Tenure:
years)
Issue date: Perpetually Open
Closure date: End of tenure
Interest: 9.5%
Interest Payment: Cumulative compounding
Effective interest rate: 9.5%
Minimum investment: Rs.100
Maximum Investment: No Limit
Tax benefits: Nil
Not Available. However can be
Loan Facility:
pledged in a bank.
Withdrawal: Not Available

[64]
 POST OFFICE SCHEME

Scheme: Monthly Income Scheme

Tenure: 6 years
Issue date: Perpetually Open
Closure date: Anytime after 3rd year
Interest: 11%
Interest Payment: Monthly
Effective interest rate:
11.57%
Minimum investment: Rs.6000
Rs.300000 - Individual name
Maximum Investment:
Rs.600000 - Joint Name
Tax benefits: Sec.80L
After completion of 1st year, but 5% of
Loan Facility:
the amount deposited is deducted.
After 3rd year full deposit amount can
Withdrawal:
be withdrawn without any penalties.
At the end of the 6th year, the amount
Remarks:
his repaid with 10% bonus.

[65]
 Current Mutual Fund Schemes:
One can select specific Investment Avenue from among the products
offered by the following fund houses:

Alliance Capital Mutual Fund

Benchmark Mutual Fund
Birla Sun Life Mutual Fund
BOB Mutual Fund
Canbank Mutual Fund
Chola Mutual Fund
Deutsche Mutual Fund
DSP Merrill Lynch Mutual Fund
Escorts Mutual Fund
Fidelity Mutual Fund
GIC Mutual Fund
HDFC Mutual Fund
HSBC Mutual Fund
ING Vysya Mutual Fund
J M Mutual Fund
Kotak Mahindra Mutual Fund
LIC Mutual Fund
Morgan Stanley Mutual Fund
PRINCIPAL Mutual Fund
Prudential ICICI Mutual Fund
Reliance Mutual Fund
Sahara Mutual Fund
SBI Mutual Fund
Standard Chartered Mutual Fund
Sundaram Mutual Fund
Tata Mutual Fund
Taurus Mutual Fund
Templeton Mutual Fund UTI Mutual Fund

[66]
 MARKET TRENDS
Alone UTI with just one scheme in 1964 now competes with as many
as 400 odd products and 34 players in the market. Now with
increasing competition and losing market share, UTI no longer
remains a formidable force to reckon with.

Last six years have been the most turbulent as well as exiting ones for
the industry. New players have come in, while others have decided to
close shop by either selling off or merging with others. Product
innovation is now passed with the game shifting to performance
delivery in fund management as well as service. Those directly
associated with the fund management industry like distributors,
registrars and transfer agents, and even the regulator have become
more mature and responsible.

The industry is also having a profound impact on financial market.

UTI has once been a dominant player on the bourses as well as the
debt market, but now, new generations of private funds, has gained
substantial mass, and are flexing their muscles. Fund managers by
their selection criteria for stocks have forced corporate governance on
the industry. By rewarding honest and transparent management with
higher valuations, a system of risk reward has been created where the
corporate sector is more transparent than before.

Funds have shifted their focus to the recession free sector like
pharmaceutical, FMCG and technology sector, funds performances
are improving. Funds collection, which averaged at less than Rs 100
bn per annum over five-year period spanning 1993-1998 doubled to Rs
210 bn in 1998-1999. In the financial year ending march2000 was
mobilization was above Rs 300 bn. Total collections for the financial
year march 2000 was around Rs 450 bn.
What is particularly noteworthy is that bulk of the mobilization has
been by the private sector mutual funds rather than public sector
mutual funds. Indeed private MFs saw a net inflow of Rs 7819.43
crores during the first nine months of the year as against a net inflow
of Rs 604.40 crores in case of public sector funds.
Mutual funds are now also competing with commercial banks in race
for retail investor’s savings and corporate float money. The power
shift towards mutual funds has become obvious. The coming few years
will show that the traditional saving avenues are losing out in the
current scenario. Many investors are realizing that investments in
saving account are good as locking up their deposits in a closet. The
fund mobilization trends by mutual funds in the current year indicate
that money is going to mutual funds in a big way.

[67]
 RESEARCH OBJECTIVE
The present study has been undertaken with the object of examining,
analyzing and inferring the performance of the mutual funds, which
addresses the following issues:

• To understand what type of mutual fund is most preferred by

the existing customer because performance of these funds is the
criteria for customer selection.

• Which mutual fund is the best in its category?

• To understand the best way to attract customer investing in

mutual fund by understanding the factors responsible for
making a mutual fund successful.

• To find out the reasons behind not investing in mutual fund and
to find out the most important attributes so as to keep the
existing customer & to attract new customers.

• To understand which factors govern their choice of investment?

RESEARCH DESIGN
As the focus is on the probable reasons responsible for the low dealer
sales therefore the research design used is Exploratory Research.

METHODOLOGY
The data was collected through both primary & secondary sources.
Primary data was collected from the market by circulating
questionnaires to the respondents.

The secondary data was collected from the Internet site of:

www.amfiindia.com.,www.valueresearch.com,www.cap
italmarket.com, www.bseindia.com.
My sample size is 200 in number and we are dealing with the
Government Offices and recognized private Offices. Important
secondary data were available to us from the office records of the
departments and various magazines and newspaper published by the
concerned authorities.

[68]
 DATA ANALYSIS
INDIVIDUAL PERFORMANCE OF EACH FUND

 Sahara growth fund

 HDFC Top 200
 Reliance Regular Saving
 DSBPR top 100 Equity
 Kotak 30

1. Kotak 30
Current Stats & Profile Trailing Returns
As on 23 Oct 2009 Fund Category
Latest NAV Year to Date 61.97 75.15
1-Month 3.51 3.07
91.552 (23/10/09) 3-Month 14.49 15.37
52-Week High 1-Year 61.89 74.38
3-Year 13.58 10.49
93.824 (16/10/09) 5-Year 28.62 25.30
Return Since Launch 26.13 --
52-Week Low
Returns upto 1 year are absolute and over 1
year are annualised.
49.276 (09/03/09)
Fund Category

Equity: Diversified
Type

Open End
Launch Date

December 1998
Risk Grade

Below Average
Return Grade

Average
Net Assets (Cr)

[69]
 1,026.07
(30/09/09)
Benchmark

S&P CNX Nifty

Relative Performance (Fund Vs Category Average)

[70]
 2. Sahara growth fund
Current Stats & Profile Trailing Returns
As on 23 Oct 2009 Fund Category
Latest NAV Year to Date 68.17 75.15
1-Month 3.51 3.07
77.2604 (23/10/09) 3-Month 15.08 15.37
52-Week High 1-Year 70.32 74.38
3-Year 18.96 10.49
5-Year 29.32 25.30
78.675 (20/10/09)
Return Since Launch 32.83 --
52-Week Low Returns upto 1 year are absolute and over 1
year are annualised.
40.7636 (27/10/08)
Fund Category

Equity: Diversified
Type

Open End
Launch Date

August 2002
Risk Grade

Not Rated
Return Grade

Not Rated
Net Assets (Cr)

5.94 (30/09/09)
Benchmark

S&P CNX Nifty

Relative Performance (Fund Vs Category Average)

[71]
 3. Dspbrtop 100 equity
Current Stats & Profile Trailing Returns
As on 23 Oct 2009 Fund Category
Latest NAV Year to Date 69.55 75.15
1-Month 2.88 3.07
11.843 (23/10/09) 3-Month 14.02 15.37
52-Week High 1-Year 66.36 74.38
3-Year -- 10.49
5-Year -- 25.30
12.069 (16/10/09)
Return Since Launch 6.39 --
52-Week Low Returns upto 1 year are absolute and over 1
year are annualised.
6.31 (27/10/08)
Fund Category

Equity: Diversified
Type

Open End
Launch Date

April 2007
Risk Grade

Not Rated
Return Grade

Not Rated
Net Assets (Cr)

23.70 (30/09/09)
Benchmark

BSE 100

[72]
 4. HDFC Top- 200
Current Stats & Profile Trailing Returns
Latest NAV 173.652 (23/10/09) As on 23 Oct 2009 Fund Category
52-Week High 178.333 (16/10/09) Year to Date 87.13 75.15
52-Week Low 78.474 (09/03/09) 1-Month 3.94 3.07
Fund Category Equity: Diversified 3-Month 13.89 15.37
Type Open End 1-Year 83.90 74.38
Launch Date September 1996 3-Year 19.34 10.49
Risk Grade Below Average 5-Year 32.32 25.30
Return Grade Above Average Return Since Launch 26.23 --
Net Assets (Cr) 4,967.70 (30/09/09) Returns up to 1 year are absolute and
Benchmark BSE 200
Relative Performance (Fund over
Vs Category
1 year is Average)
annualized.

5. 5. Reliance regular saving fund.

Current Stats & Profile Trailing Returns
Latest NAV 26.0601 (23/10/09) As on 23 Oct 2009 Fund Category
52-Week High 26.6832 (16/10/09) Year to Date 90.24 75.15
52-Week Low 11.343 (09/03/09) 1-Month 3.97 3.07
Fund Category Equity: Diversified 3-Month 16.70 15.37
Type Open End 1-Year 91.97 74.38
Launch Date May 2005 3-Year 21.75 10.49
Risk Grade Average 5-Year -- 25.30
Return Grade High Return Since Launch 23.97 --
Net Assets (Cr) 1,606.52 (30/09/09) Returns upto 1 year are absolute and
Benchmark BSE 100 over 1 year are annualised.

Relative Performance (Fund Vs Category Average)

[73]
[74]
 RELATIVE PERFORMANCE
1. Kotak 30
Best and Worst Performance

Best (Period) Worst (Period)

Month 29.54 (03/12/1999 - 04/01/2000) -32.18 (24/09/2008 - 24/10/2008)
Quarter 61.87 (09/03/2009 - 10/06/2009) -41.29 (24/02/2000 - 25/05/2000)
Year 167.69 (24/02/1999 - 24/02/2000) -53.53 (14/01/2008 - 13/01/2009)

Relative Performance (Fund Vs Category Average)

Returns and Risk Aggregates

Rating & Risk Modern Portfolio Stat Volatility Measures

Fund Rating R-Squared 0.97 Mean 18.36
Fund Risk Grade Below Average Alpha 1.78 Standard Deviation 32.31
Fund Return Grade Average Beta 0.90 Sharpe Ratio 0.41

[75]
 Annual Returns
2008 2007 2006 2005 2004
Fund Return -50.35 66.56 43.61 49.37 36.76
Rank In Category 54/193 49/162 40/145 41/100 9/75
Category Average -55.15 59.45 34.73 46.58 26.38
S&P CNX Nifty -51.79 54.77 39.83 36.34 10.68
Sensex -52.45 47.15 46.70 42.33 13.08

Quarterly Returns

Q1 Q2 Q3 Q4
2009 -1.97 37.45 18.99 --
2008 -24.87 -13.26 -2.01 -22.24
2007 -4.90 15.59 16.81 29.72
2006 24.95 -9.65 13.79 11.80
2005 0.82 4.74 31.31 7.72
2004 8.11 -10.95 16.40 22.05
2003 -3.74 22.18 23.60 33.17
2002 12.53 -2.35 -6.93 13.96
2001 -15.16 -5.72 -17.91 15.38
2000 10.14 -19.61 -13.39 -4.35
1999 46.40 -4.44 33.38 34.92
1998 -- -- -- --

[76]
 Trailing Returns

As of
Fund Return Category Return S&P CNX Nifty Sensex
23 Oct 2009

Year-to-
61.97 75.15 68.87 74.25
Date

1-Week -2.42 -1.72 -2.82 -2.24

1-Month 3.51 3.07 0.55 0.55

3-Month 14.49 15.37 10.46 10.37

1-Year 61.89 74.38 69.79 72.04

2-Year -2.27 -3.43 -4.45 -4.66

3-Year 13.58 10.49 10.96 10.02

5-Year 28.62 25.30 22.93 24.41

Return less than 1-year are absolute and over 1 year are annualised

2. Sahara growth fund

[77]
 Returns and Risk Aggregates

Volatility Measures Rating & Risk

N
R
o
-
t
S
R
22.83 Fund Rating Modern q
a 0.97
Portfolio Stat u
t
a
e
r
d
e
d
Fund Risk Grade Mean -- Alpha 6.74 Standard Deviation 30.95
Fund Return Grade -- Beta 0.86 Sharpe Ratio 0.57

Best and Worst Performance

Best (Period) Worst (Period)
Month 29.44 (11/05/2009 - 10/06/2009) -27.16 (24/09/2008 - 24/10/2008)
Quarter 65.43 (09/03/2009 - 10/06/2009) -30.25 (28/07/2008 - 27/10/2008)
Year 125.42 (23/04/2003 - 22/04/2004) -46.35 (14/01/2008 - 13/01/2009)

Relative Performance (Fund Vs Category Average)

Trailing Returns

As of 23 Oct 2009 Fund Return Category Return S&P CNX Nifty Sensex

Year-to-Date 68.17 75.15 68.87 74.25

1-Week -1.50 -1.72 -2.82 -2.24

1-Month 3.51 3.07 0.55 0.55

3-Month 15.08 15.37 10.46 10.37

[78]
 1-Year 70.32 74.38 69.79 72.04

2-Year 6.26 -3.43 -4.45 -4.66

3-Year 18.96 10.49 10.96 10.02

5-Year 29.32 25.30 22.93 24.41

Return less than 1-year are absolute and over 1 year are annualised

Annual Returns
2008 2007 2006 2005 2004
Fund Return -43.15 60.32 42.32 39.06 20.20
Rank In Category 6/193 76/162 49/145 78/100 53/75
Category Average -55.15 59.45 34.73 46.58 26.38
S&P CNX Nifty -51.79 54.77 39.83 36.34 10.68
Sensex -52.45 47.15 46.70 42.33 13.08

Quarterly Returns
Q1 Q2 Q3 Q4
2009 1.38 37.35 19.68 --
2008 -22.47 -14.59 3.30 -16.90
2007 -4.77 14.07 15.53 27.74
2006 21.20 -9.39 14.59 13.10
2005 -3.22 2.80 27.86 9.32
2004 -7.50 -9.08 17.40 21.75
2003 -6.06 16.43 31.95 39.04
2002 -- -- -- 10.69

3. DSPBR Top 100 Equity

Returns and Risk Aggregates

Rating & Risk Modern Portfolio Stat Volatility Measures

Fund Rating Not Rated R-Squared -- Mean --
Fund Risk Grade -- Alpha -- Standard Deviation --
Fund Return Grade -- Beta -- Sharpe Ratio --

[79]
 Best and Worst Performance
Best (Period) Worst (Period)
Month 30.08 (11/05/2009 - 10/06/2009) -27.10 (24/09/2008 - 24/10/2008)
Quarter 62.34 (09/03/2009 - 10/06/2009) -30.84 (02/09/2008 - 03/12/2008)
Year 66.36 (23/10/2008 - 23/10/2009) -55.58 (19/11/2007 - 20/11/2008)

Relative Performance (Fund Vs Category Average)

Trailing Returns
As of 23 Oct 2009 Fund Return Category Return S&P CNX Nifty Sensex

Year-to-Date 69.55 75.15 68.87 74.25

1-Week -1.87 -1.72 -2.82 -2.24

1-Month 2.88 3.07 0.55 0.55

3-Month 14.02 15.37 10.46 10.37

1-Year 66.36 74.38 69.79 72.04

2-Year -- -3.43 -4.45 -4.66

3-Year -- 10.49 10.96 10.02

5-Year -- 25.30 22.93 24.41

Return less than 1-year are absolute and over 1 year are annualised

Annual Returns
2008 2007 2006 2005 2004

Fund Return -51.28 -- -- -- --

Rank In Category 64/193 -- -- -- --
Category Average -55.15 59.45 34.73 46.58 26.38
S&P CNX Nifty -51.79 54.77 39.83 36.34 10.68
Sensex -52.45 47.15 46.70 42.33 13.08

[80]
 Quarterly Returns
Q1 Q2 Q3 Q4
2009 1.45 39.68 19.42 --
2008 -- -9.64 -0.93 -18.38

4. HDFC Top 200

Returns and Risk Aggregates
Rating & Risk Modern Portfolio Stat Volatility Measures
Fund Rating R-Squared 0.97 Mean 23.33
Fund Risk Grade Below Average Alpha 6.33 Standard Deviation 33.53
Fund Return Grade Above Average Beta 0.93 Sharpe Ratio 0.54

Best and Worst Performance

Best (Period) Worst (Period)
Month 33.09 (11/05/2009 - 10/06/2009) -30.45 (26/09/2008 - 27/10/2008)
Quarter 88.14 (09/03/2009 - 10/06/2009) -42.90 (21/02/2000 - 22/05/2000)
Year 154.57 (24/04/2003 - 23/04/2004) -48.09 (14/01/2008 - 13/01/2009)

Relative Performance (Fund Vs Category Average)

Trailing Returns

As of
Fund Return Category Return S&P CNX Nifty Sensex
23 Oct 2009

Year-to-Date 87.13 75.15 68.87 74.25

1-Week -2.62 -1.72 -2.82 -2.24

1-Month 3.94 3.07 0.55 0.55

3-Month 13.89 15.37 10.46 10.37

1-Year 83.90 74.38 69.79 72.04

[81]
 2-Year 8.37 -3.43 -4.45 -4.66

3-Year 19.34 10.49 10.96 10.02

5-Year 32.32 25.30 22.93 24.41

Return less than 1-year are absolute and over 1 year are annualised

Annual Returns
2008 2007 2006 2005 2004
Fund Return -45.35 54.46 37.44 55.25 27.52
Rank In Category 16/193 97/162 65/145 20/100 27/75
Category Average -55.15 59.45 34.73 46.58 26.38
S&P CNX Nifty -51.79 54.77 39.83 36.34 10.68
Sensex -52.45 47.15 46.70 42.33 13.08

Quarterly Returns
Q1 Q2 Q3 Q4
2009 -0.27 55.33 19.48 --
2008 -22.53 -12.25 2.89 -21.86
2007 -4.93 15.15 16.75 20.86
2006 20.35 -10.83 17.50 9.00
2005 1.53 9.63 21.89 14.43
2004 -0.70 -10.23 17.58 21.65
2003 -3.60 34.61 35.01 33.84
2002 19.03 0.06 -8.05 15.17
2001 -9.54 -0.95 -13.58 16.06
2000 5.67 -21.25 -15.56 6.07
1999 32.84 -0.78 31.80 6.58
1998 8.41 -3.04 5.96 0.30
1997 3.31 21.82 2.87 -6.11
1996 -- -- -- 0.20

5. Reliance Regular Saving

Returns and Risk Aggregates

Modern Portfolio
Rating & Risk Volatility Measures
Stat
Fund Rating R-Squared 0.87 Mean 28.02
Fund Risk Grade Average Alpha 8.90 Standard Deviation 41.60
Fund Return Grade High Beta 1.10 Sharpe Ratio 0.55

Best and Worst Performance

[82]
 Best (Period) Worst (Period)
Month 40.05 (11/05/2009 - 10/06/2009) -33.96 (24/09/2008 - 24/10/2008)
Quarter 96.91 (09/03/2009 - 10/06/2009) -42.07 (02/09/2008 - 02/12/2008)
Year 96.74 (04/01/2007 - 04/01/2008) -57.61 (14/01/2008 - 13/01/2009)

Relative Performance (Fund Vs Category Average)

Trailing Returns

As of 23 Oct 2009 Fund Return Category Return S&P CNX Nifty Sensex

Year-to-Date 90.24 75.15 68.87 74.25

1-Week -2.34 -1.72 -2.82 -2.24

1-Month 3.97 3.07 0.55 0.55

3-Month 16.70 15.37 10.46 10.37

1-Year 91.97 74.38 69.79 72.04

2-Year 11.43 -3.43 -4.45 -4.66

3-Year 21.75 10.49 10.96 10.02

5-Year -- 25.30 22.93 24.41

Return less than 1-year are absolute and over 1 year are annualised

Annual Returns

2008 2007 2006 2005 2004

Fund Return -54.61 92.98 55.95 -- --

Rank In Category 94/193 5/162 10/145 -- --

Category Average -55.15 59.45 34.73 46.58 26.38

S&P CNX Nifty -51.79 54.77 39.83 36.34 10.6

[83]
 8

-
Sensex 47.15 46.70 42.33 13.08
52.45

Quarterly Returns
Q1 Q2 Q3 Q4
2009 -1.85 58.95 20.14 --
2008 -27.50 -15.72 -3.06 -23.38
2007 -7.64 19.77 12.80 54.66
2006 18.29 -6.49 28.07 10.09
2005 -- -- 0.16 -0.18

ANALYSIS(QUESTIONNAIRE)

1. Number of male & female.

MALE FEMALE
133 67

No. of male & female

2
34%
1

1 2
66%

2. Age classification

BELOW 30 31-40 YRS. 41-50 YRS. ABOVE 50 YRS.

41 99 36 24

[84]
 age classification

4 1
12% 21% 1
3
18% 2
3
2 4
49%

3. Classification by occupation

Govt. employee Private employee Self employed

101 88 11

occupation

3
6%
1
2 1 2
44% 50% 3

4. Factors affecting decision

Economic scenario company's image fund performance fund manager

(2) (3) (4)

(1)
36 45 30 12

[85]
tax incentive minimum initial investment entry/exit load open/closed ended
(6) (7) (8)

(5)
22 15 8 32
factors affecting decision of investors

50 45

40 36
no. of people

30 32
30
22 Series1
20 15
12
8
10

0
1 2 3 4 5 6 7 8
factors affecting decision

[86]
RECOMMENDATIONS & CONCLUSIONS
Tapping the up coming market - Semi Urban Market as there is a lot of
opportunity. Most of the Mutual Funds are operating in the metros
and big cities as per their present branch office locations. If they have
to increase their market size they have to open more distribution
centers at the various urban and semi-urban markets.
To create the awareness about the different products of Mutual Fund
and not about the generic product. Various respondents were not
aware of the mutual fund products and the type of mutual fund
schemes and the risk associated with mutual fund products.

To provide some kind of curriculum at the school/college level to

create awareness regarding Mutual Fund.

The shift of preference may change the market leadership in terms of

AUM in years to come. Therefore, the change of strategy and tactics is
required to maintain their market position, those who are holding
today and those who want to hold in future.

LACK OF PROPER GUIDANCE MAKE MUTUAL FUND

FALL
From the days of the Unit Trust of India till now when private sector
funds have assumed a dominant position, what do you see as the
industry's greatest achievements? And what are the challenges? The
achievements are manifold. The performance record of both equity
and debt funds have been excellent. Plus, there is a robust risk-
management system in place and the atmosphere is very vibrant. We
have also seen improvements on the service side. The investor now
has the liberty to switch schemes and redemptions are credited to
bank accounts in less than 24 hours. There are many other facilities
available like monthly fact-sheets, quarterly holding-statements,
online trading, etc. We have done many things, but much more needs
to be done.

[87]
  The greatest challenge, of course, is to get more retail
participation in funds. We have made tremendous efforts in
this direction. About 250 mutual fund outlets, including
branches, franchisees and collection centers, were opened
across the country in the last two years. Today, in metros and
non-metros, there are more than 1,000 outlets to provide
services to investors.

 Mutual Funds are still not the most preferred investment

vehicle in the country. How do you think this could change? In
our country, people want to buy only sacred assets. Unless this
mindset changes, it will be difficult to get investors interested
in mutual funds. Government securities and post-office
investments offer 8 per cent assured returns, while banks offer
6 per cent. So, competition is very high. Only sustained efforts
by a trained and qualified distributor class can bring success.

Again this is wrong, when it is done regularly. We are discussing

various ways to tackle the same and will take it up with Sebi. But there
is no clear solution as of now.
Why don't you say there should be no additional incentives for new
funds?
You must understand that this is also a business. So, we cannot micro-
manage everything. There is a cap on expenses that funds can charge.
Within the existing cap, there should be freedom and creativity for the
managers to work.
Despite the plethora of new funds launched in the past year, there has
been hardly any real innovation... There is a drought in the area of
real innovations. Though funds are packaged differently, all of them
invest in the same companies. But it is not a problem as long as the
investor is not misled. As long as fund companies say what they are
going to do and do not camouflage anything, it should be fine. The fact
is that, people have a mindset to buy at Rs 10. The industry has to
cater to that sentiment. Most mutual funds are launching funds
focused on the flavour of the day or season. Don't you think this is
dangerous?
People have a mindset to buy at Rs. 10. The industry has to cater to
that sentiment
There is risk in the market. We can contain it, but can not eliminate it.
Can we have a uniform load structure to attract more retail investors?
There is always a discount for those who buy big. That is one of the
basic laws of business. If you buy one shirt, you pay the full-price. If
you buy two shirts, you get discount. If you buy three, you get one free.

[88]
But I feel that an exit-load helps. It will discourage people from
moving out easily.

Amfi has also been an industry lobby. Do you see it developing as one
that is on the side of investors? Amfi was established for protecting
and promoting the industry and investors. We have never done
anything that damaged the interest of investors. Bearing the sole
interest of customers in mind, we have inscribed certification,
ensured quicker payment facilities and set up a committee for the
simplification of the offer-document. There is a congruity of interest
between the industry and the investor.
Have you invested in mutual funds personally? How has been your
experience?
There have made gains and losses. However, I do not have any
remorse. It is common that the preacher seldom follows what he
teaches. Mutual fund investments are about 25 to 30 per cent of the
total investments. And they are mostly on the equity side. I have
recently shifted my debt-investments to the RBI and post-office
investments.
Who is your favourite fund manager?
It's like asking me who is your favourite grandchild. I like all of them
equally

LIMITATIONS
As every aspect of life has its own limitations the same goes with
researches. The few limitations attached to this research are: -

• As time and tide waits for none so is the case with this research. A
much more detailed analysis could be done had there been more
time spent for data collection. Due to lack of Time data from the all
the places could not be collected.
• Management of all the activities from one place limited the
research with in it self as appropriate data, which was required,
was not available.
• Giving Instruction through telecommunications has caused a
communication gap due to which the cream of data has not been
available.

[89]
[90]
 QUESTIONAIRE TO PRESENT INVESTORS IN MUTUAL FUNDS
Dear Sir/Madam,
I am currently engaged in a study on “analysis and
performance of Equity Mutual Funds”. In this connection I request
you to read the following items carefully & answer them .The answers
you give will be held confidential & used purely for academic
purposes.

Indicate your response by tick marking where applicable.

1.) Name:-

2.) Sex:-  Male  Female

3.) Age:-  Below 30  31 – 40 years

 41 – 50 years  Above 50 years.

Academic Qualification (Last Qualification):-

Which of the following is your source of income?

 Government employee
 Private employee
 Self employed

Annual Income In Rs.

 Below 1 Lakh  1 - 3 Lakhs
 3- 5 Lakhs  Above 5 Lakhs

Have you ever invested in any of the Mutual Funds?

Yes  No

Rank in order of preference of savings avenue (Highest being given 1st

rank & the lowest being given 9th rank)
___ Currency ___ Real Estate

___ Units of UTI ___ Life Insurance

& Mutual Bonds

___ Bank Deposits ___ Shares

___ Postal Savings ___ Pension &

Provident Fund
___ Gold

[91]
As a mutual fund investor what is your experience?
 Highly satisfied  Satisfied
 Somewhat satisfied  Unsatisfied
 Highly unsatisfied

Reasons For Preference Of Mutual Funds(Please Tick mark in the box

provided.)
 Professional Management  Liquidity

 Good Return  Capital

Appreciation

 Tax Benefit  Diversification

 Safety  Flexibility

What Are the Decision Affecting Factors:-

 Economic Scenario  Company's Image

 Fund Performance  Fund Managers

Image

 Tax Incentive  Minimum Initial

Investment

How did you come to know about Mutual Fund investments schemes?
 News Paper  T.V.

 Financial Magazines  Reference Groups

 Brokers/Agents  Mail

What effects your decision regarding of investment in Mutual Funds?

 Economic Scenario  Company’s Image
 entry/exit load  open/closed ended
 Fund Performance  Fund Management Image
 Tax Incentives  Minimum Initial
Investment
Which Equity Fund is the best?
ICICI Pru(growth)  HDFC (growth)
 reliance growth (growth)
escorts growth  DBS chola growth
 TATA growth Sahara growth
LICMF growth  Principal growth
 TEMPLETION India growth  OTHERS

[92]
Thanks you very much for your kind co-operation & for taking time to
complete this questionnaire.

ANNEXURE: 2

FAQs ON MUTUAL FUNDS

[93]
 ?
Some banks and savings institutions are now offering uninsured
products such as mutual funds and annuities. These products may
provide you with higher returns, but these investments involve risk.
America's Community Bankers, a national trade association
representing nearly 2,000 savings institutions across the country, has
provided the answers to some commonly asked questions:

Q. Are the mutual fund or annuity investments I buy from a bank or

savings institution insured?

A. No. These investments are not like insured deposits. They are not
guaranteed by the FDIC, they are not guaranteed by the bank or
savings institution, and they are not guaranteed by the U.S.
government. You are not protected against losses on the amount you
invest.

Q. Are there risks in investing in mutual funds or annuities?

A. Yes. You may get more or less back than the original amount you
invested. There may also be sales charges for these investments. The
sales representative should thoroughly brief you to make sure you
understand these risks and charges, and you should be asked to sign
an acknowledgement form verifying that you have received the
information and understand it.

Q. Who can sell me these products?

[94]
A. Only properly trained sales personnel can sell these products.
Tellers may not sell or provide advice to you on these products. They
can refer you to the sales desk for these services.

Q. How can I be sure I am investing in the right mutual fund or

annuity?

A. A sales representative should ask you questions about how much

risk you are willing to accept, your investment objectives and your
financial resources and background. You have no obligation to
provide this information, but it would be helpful to the sales
representative in suggesting the most appropriate investment for you.

GLOSSARY

• Advisor
The organization employed by a mutual fund to give professional
advice on the fund’s investment and to supervise the management of
its assets.

• Asset Allocation Fund

A fund that spreads its portfolio among a wide variety of investment,
including domestic and foreign stocks and bonds, government
securities, gold bullion and real estate stocks. This gives small
investors far more diversification than they could get allocating
money on their own. Some of these funds keep the proportions
allocated between different sectors relatively constant, while others
alter the mix as market conditions change.

• Alpha
A percentage that is a measure of the returns of a fund with its risk
adjusted for. Alpha is calculated from the difference between a fund's
actual returns and its expected returns given its market risk level as
measured by its beta. It is also a measure of the value added or
deducted by the fund's manager. An alpha of 1 means the fund
produced a return 1% higher than what its beta would predict. An

[95]
alpha of –1 means the fund produced a return 1% lower. Naturally,
higher the alpha the better it is for the investor. No, not always. For a
high alpha to be better, simultaneously, another number called the R-
squared should be high enough too. Normally, with R-squared
anywhere below 50, never trust the alpha however high. Alpha
depends entirely on the accuracy of beta. And beta again, is calculated
by the R-squared. So if you believe that beta is the definite value for
risk then any positive alpha would be a sufficient condition for a
fund's good performance.

• Balanced fund
A mutual fund scheme that invest half in corpus in equity and the
other half in debt instruments. A balanced fund is less risky than an
equity fund but at the same time gives better returns than an debt
fund.

• Beta
It is a measure of a securities risk. Each security has a certain amount
of risk attached to it. Beta tries to measure the risk involved with each
security. Thus an investor should choose a security which gives the
highest return for a given risk level.

• Bonds
A debt instrument issued for a period of more than one year with the
purpose of raising capital by borrowing Bond is a promise to pay the
principal along with the interest after a specified period of time.

• Capital Gains
It is the profit earned on selling capital assets. Capital gains are
calculated by subtracting from the selling price the following
1. Indexed cost of Acquisition
2. Indexed cost of Improvement
3. And any other holding cost.

• Custodian
The bank or trust company that maintains a mutual fund’s assets,
including its portfolio of securities or some records of them. Provides
safekeeping of securities but has no role in portfolio management.

• Corpus
The amount of money available with a scheme for investment.

[96]
 • Debenture
They are bonds issued by a company to raise capital There are
various kinds of debentures. They could be secured or
unsecured, convertible or non-convertible.

• Debt/Equity
Determined by dividing long-term debt by common
stockholder’s equity. It is one of the most useful financial ratios.
Creditors use it to see whether it is safe to lend money to the
particular company. The ratio should ideally be around 2.

• Distributor
The individual or a corporation serving as principal underwriter of a
mutual fund’s shares, buying shares directly from the fund, and
reselling them to other investor.

• Dividends
Income distributed to share holders. Dividends can be received from
the ownership of stock or from mutual funds. Mutual fund
shareholders have the option to reinvest dividends automatically in
order to purchase more shares.

• Gilts
Gilts are government-based securities. The name signifies that the
security is very safe and is as sound as gold itself.

• Growth and income funds

Growth funds are mutual fund schemes,
which invest in the equity market while income funds invest in fixed
income securities.

• Growth fund
Growth funds are Mutual funds that invest in equities market.

• Hedging
A strategy designed to reduce investment risk hedging techniques uses
call options, put options, short selling, or futures contracts. A hedge
can help lock in existing profits. Its purpose is to reduce the volatility
of a portfolio, by reducing the risk of loss.

• Instrument

[97]
Any tradable commodity whose price can be obtained from a
Financial Market is called as an instrument.

• Net assets
Net assets are the total amount of money that comprises the mutual
fund's holdings. Small funds have millions of dollars while large funds
may have over 50 billion dollars. Sometimes a manager may close a
fund to new investors if its size is large

• P/E ratio
Ratio of the price of a stock to the total earnings of the company is
called as P/E ratio. Companies with very high ratios of greater than 30
are considered to be overpriced. Company stock with a low ratio is
considered to be undervalued and potentially good investments.
Mutual funds with a value type of investment strategy seek a portfolio
consisting of stocks with low ratios with the expectation that they will
increase in price.

• Portfolio
The collection of all the holdings of a mutual fund, such as bonds, and
stocks is called as portfolio. In a mutual fund's annual report, a list of
the fund's current portfolio will usually be contained.

• Preferred stock
Preferred stock is a type of shares offered by a company, which pay a
pre-stated dividend, before common stock dividends are issued. The
benefits of owning preferred stock are realized if the company ever
goes bankrupt. If this occurs, preferred stock share holders receive
their money first. Common stock holders may not receive any money,
if none is remaining after paying preferred stock holders.

• Prospectus
A document, usually in the form of a booklet, that provides
information about a specific mutual fund; such as the funds
investment and redemption policies. The prospectus, according to
law, must always be accompanied with the application. Prospective
investors should always read the mutual fund's prospectus before
sending money.

• Volatility
The degree to which a mutual fund's share price will change in value

• Withdrawal
To redeem shares of a mutual fund or stock is called as withdrawal. In
a mutual fund, partial or full redemptions may be made over the

[98]
phone. Some funds may impose an extra redemption fee to discourage
market timers from pulling their money immediately after investing.
If this is a fund's policy, it will be stated in the prospectus.

• Yield
Income or dividends received from a security or mutual fund.

BIBLIOGRAPHY

AMFI –Mutual Fund Testing Programme for Distributors &

Employees of Mutual Funds in India.

Fact Sheets of various Mutual Funds

Economic Times

Web sites:-
www.mutualfundsindia.com

www.mutualfund.com

www.moneycontrol.com

[99]
www.saharaindiapariwar.net

www.bseindia.com

www.valueresearchonline.com

NNNNNNNNNNNNNNN

[100]