PROJECT REPORT

ON INDIAN MUTUAL FUND MARKET

SUBMITTED BY: ENROLLMENT NO:

SWATI SINGH

1169 SUBMITTED TO:

Mr SANJAY SHUKLA (Faculty)

INTERNATIONAL INSTITUTE FOR SPECIAL EDUCATION

KANCHANA BIHARI MARG, KALYANPUR, LUCKNOW, PIN-226022

DECLARATION

I hereby declare that this project work entitled is PROJECT ON INDIAN MUTUAL FUND MARKET is my work, this report neither full nor in part has ever been submitted for award of any other degree of either this university or any other university.

SWATI SINGH 1169

CONTENTS
S.NO PARTICULARS PAGE NO.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 17

Acknowledgement Need of the study Objective Indian Mutual Fund Introduction Working of Mutual Fund Mutual fund structure in India Investors rights and obligations Types of mutual funds Mutual fund schemes AMFI Codes and guidelines Mutual fund companies in India SEBI regulations Recent changes in SEBI regulations Suggestions Conclusion and Analysis Bibliography

4 5 6 Industry: 7 13 17 23 24 32 36 41 46 47 50 51 54

ACKNOWLEDGEMENT

I am extremely grateful to all those who have shared their views, opinions, ideas and experiences which have significantly improved this Project Report. I would like to express my sincere thanks to, Mr. Y.P. SINGH International Institute for
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Special Education, Lucknow for his guidance and sincere efforts towards bringing in years of his vast industrial experience into this project. I am very thankful to all the respondents and the employees for their cooperation in the course of my study. A special thanks to my friends and family for their encouragement and help in the successful completion of the study.

RAMANDEEP SINGH ANAND

NEED OF THE PROJECT

Mutual Fund market provides vast investment avenues for the prospective investors ranging from bonds to bank deposits and corporate debentures, which are low on risk and high on returns. The latest mutual fund market has indicated bearish trend which means that investors who are seeking for profitable investments should opt for highly skilled fund managers who invests on their behalf. Indian Mutual fund industry has undergone a massive change in the last few years with the launch of many conglomerates in India. They have introduced professional dexterity and technology in handling capitals both nationally and internationally. Owing to this investors have spoilt choice for a diverse range of policies depending on their portfolios. Project Report on Mutual Funds provides a summary on mutual fund market in India, the performance of listed funds, various types of funds, challenges, drawbacks and international scenarios. The reports help in understanding the operations of the industry right from its initiation stage to expansion and future initiatives. It helps in comprehending various launched schemes and the returns associated with them. Besides this, the project report also helps in determining the asset allotment, entry and exit load of the MFs and benefits enjoyed by the investors.

OBJECTIVES
There are various objectives for preparing a detailed project report on mutual fund. Some of them are listed as below:

To provide a brief concept about the advantages accessible for investing in mutual funds To provide a brief concept on the varieties of policies available in the industry To deal with the various market trends influencing endowments in mutual funds To investigate some of the listed mutual fund proposals and valuate their pros and cons To carry out a detailed survey on the current advancements in the Indian mutual funds sector To provide a brief idea about the pre-set guidelines formulated by the mutual funds market controllers.

INDIAN MUTUAL FUND INDUSTRY

AN INTRODUCTION :
OVERVIEW
In the United States, a mutual fund is registered with the Securities and Exchange Commission (SEC) and is overseen by a board of directors (if organized as a corporation) or board of trustees (if organized as a trust). The board is charged with ensuring that the fund is managed in the best interests of the fund's investors and with hiring the fund manager and other service providers to the fund. The fund manager, also known as the fund sponsor or fund management company, trades (buys and sells) the fund's investments in accordance with the fund's investment objective. A fund manager must be a registered investment advisor. Funds that are managed by the same fund manager and that have the same brand name are known as a "fund family" or "fund complex". The Investment Company Act of 1940 (the 1940 Act) established three types of registered investment companies or RICs in the United States: open-end funds, unit investment trusts (UITs); and closed-end funds. Recently, exchange-traded funds (ETFs), which are open-end funds or unit investment trusts that trade on an exchange, have gained in popularity. While the term "mutual fund" may refer to all three types of registered investment companies, it is more commonly used to refer exclusively to the open-end type. Hedge funds are not considered a type of mutual fund. While they are another type of commingled investment scheme, they are not governed by the Investment Company Act of 1940 and are not required to register with the Securities and Exchange Commission (though many hedge fund managers are now must register as investment advisors. Mutual funds are not taxed on their income as long as they comply with certain requirements established in the Internal Revenue Code. Specifically, they must diversify their investments, limit ownership of voting securities, distribute most of their income to their investors annually, and earn most of the income by investing in securities and currencies. Mutual funds pass taxable income on to their investors. The type of income they earn is unchanged as it passes through to the shareholders. For example, mutual fund distributions of dividend income are reported as dividend income by the investor. There is an exception: net losses incurred by a mutual fund are not distributed or passed through to fund investors.

A mutual fund is a professionally-managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.

A mutual fund is made up of money that is pooled together by a large number of investors who give their money to a fund manager to invest in a large portfolio of stocks and / or bonds Mutual fund is a kind of trust that manages the pool of money collected from various investors and it is managed by a team of professional fund managers (usually called an Asset Management Company) for a small fee. Theinvestments by the Mutual Funds are made in equities, bonds, debentures, call money etc., depending on the terms of each scheme floated by the Fund. The current value of such investments is now a days is calculated almost on daily basis and the same is reflected in the Net Asset Value (NAV) declared by the funds from time to time. This NAV keeps on changing with the changes in the equity and bond market. Therefore, the investments in Mutual Funds is not risk free, but a good managed Fund can give you regular and higher returns than when you can get from fixed deposits of a bank etc. However, an investment through Mutual Funds is considered better due to the following reasons:-

Your investments will be managed by professional finance managers who are in a better position to assess the risk profile of the investments;
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Your small investment cannot be spread into equity shares of various good companies due to high price of such shares. Mutual Funds are in a much better position to effectively spread your investments across various sectors and among several products available in the market. This is called risk diversification and can effectively shield the steep slide in the value of your investments.

Thus, we can say that Mutual funds are better options for investments as they offer regular investors a chance to diversify their portfolios, which is something they may not be able to do if they decide to make direct investments in stock market or bond market. For example, if you want to build a diversified portfolio of 20 scrips, you would probably need Rs 2, 00,000 to get started (assuming that you make minimum investment of Rs 10000 per scrip). However, you can invest in some of the diversified Mutual Fund schemes for a low as Rs.10, 000/-.

HISTORY
Mutual funds first became popular in the United States in the 1920s. The first funds were of the closed-end type with shares that trade on an exchange. The first open-end mutual fund, the Massachusetts Investors Trust was established on March 21, 1924. It is now part of the MFS family of funds. This was the first fund with redeemable shares. However, closed-end funds remained more popular than open-end funds throughout the 1920s. By 1929, open-end funds accounted for only 5% of the industry's $27 billion in total assets. After the stock market crash of 1929, Congress passed a series of acts regulating the securities markets in general and mutual funds in particular. The Securities Act of 1933 requires that all investments sold to the public, including mutual funds, be registered with the Securities and Exchange Commission (SEC) and that they provide prospective investors with a prospectus that discloses essential facts about the investment. The Securities and Exchange Act of 1934 requires that issuers of securities, including mutual funds, report regularly to their investors; this act also created the Securities and Exchange Commission, which is the principal regulator of mutual funds. The Revenue Act of 1936 established guidelines for the taxation of mutual funds, while the Investment Company Act of 1940 governs their structure. When confidence in the stock market returned in the 1950s, the mutual fund industry began to grow again. By 1970, there were approximately 360 funds with $48 billion in assets.The introduction of money market funds in the high interest rate environment of the late 1970s boosted industry growth dramatically. The first retail index fund, First Index Investment Trust, was formed in 1976 by The Vanguard Group, headed by John Bogle; it is now called the Vanguard 500 Index Fund and is one of the world's largest mutual funds, with more than $100 billion in assets as of January 31, 2011 Fund industry growth continued into the 1980s and 1990s, as a result of three factors: a bull market for both stocks and bonds, new product introductions (including taxexempt bond, sector, international and target date funds) and wider distribution of fund shares. Among the new distribution channels were retirement plans. Mutual funds are now the preferred investment option in certain types of fast-growing retirement plans, specifically in 401(k) and other defined contribution plans and in individual retirement accounts (IRAs), all of which surged in popularity in the 1980s. Total mutual fund assets fell in 2008 as a result of the credit crisis of 2008. At the end of December 2009, there were 7,691 mutual funds in the United States with combined assets of $11.121 trillion, according to the Investment Company Institute (ICI), a national trade association of investment companies in the United States. The ICI reports that worldwide mutual fund assets were $22.964 trillion on the same date.

PHASE OF MUTUAL FUND IN INDIA10

MUTUAL FUNDS

A Mutual Fund is trust that pools the savings of a number of investors who share a common financial goal . The money thus collected is then invested in capital market instrument such as shares , debentures and other securities . The income earned through these investments and the capital appreciation realized are shared buy its unit holders in proportion to the number of unit owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified , professionally managed basket of securities at a relatively low cost.

THE HISTORY OF MUTUAL FUNDS IN INDIA CAN BE BROADLY DIVIDED INTO FOUR DISTINCT PHASES :FIRST PHASE-1964-87

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

SECOND PHASE19871993(ENTRY OF PUBLIC SECTOR FUNDS )

The year 1987 marked the entry of non UTI , public sector mutual funds set up by public sector banks a Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) . SBI Mutual Fund was the first non-UTI Mutual Fund established in June 1987 followed by Cenrabank 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).
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LIC established its fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs. 47,004 crores and then the mutual funds industry flourished further.

THIRD PHASE 1993-2003 ( ENTRY OF PRIVATE SECTOR FUNDS )

With the entry of private sector funds in 1993, a new era started in Indian mutual fund industry, giving he 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 his 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 foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs. 44,541, crores of assets of assets under management was way ahead of other mutual funds

Fourth Phase since February 2003

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

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC; it is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. 76,000 crores of assets under management and with the setting up of a UTI Mutual fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds

WORKING OF MUTUAL FUNDS AND THEIR PERFORMANCE

It needs to be clarified that mutual funds invest their funds in capital market instruments such as shares, debentures, bonds and money market instruments and therefore the net asset value of such investments will reflect the market values of underlying assets. These market values fluctuate and therefore the net asset values of the mutual fund schemes also fluctuate. All the capital market instruments have varying degrees of risk, the degree of risk being the highest in equities and the risk factor is highlighted in the respective offer documents as well as in the abridged offer documents. The investor therefore is in the full knowledge and understanding of the risks involved in various schemes. As per SEBI regulation all mutual funds disclose their portfolio periodically and all open-ended funds offer exit option to investors at NAV based price. In the current year, the share market is passing through a bear phase with prices falling across the board and steeply in the technology scrips. Reflecting this fall in share prices, the NAVs of most of the equity schemes in general and of the technology funds in particular have also fallen. This fall in the NAVs should therefore be viewed in the context of the fall in the share prices, a phenomena which is world wide today. The fall in NAVs not only affects the investors but it has an impact on the fees and earnings of the investment managers also. It may be recalled that the mutual funds have given good returns while the market was in the upswing and even today, the non-equity schemes which account for about 60 percent of total assets under management provide competitive rates of returns.
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ADVANTAGES AND DISADVANTAGES OF MUTUAL FUNDS

ADVANTAGES Mutual funds have advantages compared to direct investing in individual securities. These include:

Diversification Ability to redeem daily at net asset value (the value of a proportional share of the fund's assets) Professional investment management Ability to participate in investments that may be available only to larger investors Government regulation

1. Diversification Using mutual funds can help an investor diversify their portfolio with a minimum investment. When investing in a single fund, an investor is actually investing in numerous securities. Spreading your investment across a range of securities can help to reduce risk. A stock mutual fund, for example, invests in many stocks - hundreds or even thousands. This minimizes the risk attributed to a concentrated position. If a few securities in the mutual fund lose value or become worthless, the loss maybe offset by
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other securities that appreciate in value. Further diversification can be achieved by investing in multiple funds which invest in different sectors or categories. This helps to reduce the risk associated with a specific industry or category. Diversification may help to reduce risk but will never completely eliminate it. It is possible to lose all or part of your investment. 2. Professional Management: Mutual funds are managed and supervised by investment professionals. As per the stated objectives set forth in the prospectus, along with prevailing market conditions and other factors, the mutual fund manager will decide when to buy or sell securities. This eliminates the investor of the difficult task of trying to time the market. Furthermore, mutual funds can eliminate the cost an investor would incur when proper due diligence is given to researching securities. This cost of managing numerous securities is dispersed among all the investors according to the amount of shares they own with a fraction of each dollar invested used to cover the expenses of the fund. What does this mean? Fund managers have more money to research more securities more in depth than the average investor.

3. Convenience: With most mutual funds, buying and selling shares, changing distribution options, and obtaining information can be accomplished conveniently by telephone, by mail, or online. Although a fund's shareholder is relieved of the day-to-day tasks involved in researching, buying, and selling securities, an investor will still need to evaluate a mutual fund based on investment goals and risk tolerance before making a purchase decision. Investors should always read the prospectus carefully before investing in any mutual fund. 4. Liquidity: Mutual fund shares are liquid and orders to buy or sell are placed during market hours. However, orders are not executed until the close of business when theNAV (Net Average Value) of the fund can be determined. Fees or commissions may or may not be applicable. Fees and commissions are determined by the specific fund and the institution that executes the order.

5. Minimum Initial Investment:

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Most funds have a minimum initial purchase of $2,500 but some are as low as $1,000. If you purchase a mutual fund in an IRA, the minimum initial purchase requirement tends to be lower. You can buy some funds for as little as $50 per month if you agree to dollar-cost average, or invest a certain dollar amount each month or quarter.

DISADVANTAGES Mutual funds have disadvantages as well, which include:

Fees Less control over timing of recognition of gains and losses Less predictable income No opportunity to customize

1. Risks and Costs:

Changing market conditions can create fluctuations in the value of a mutual fund investment. There are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly. As with any type of investment, there are drawbacks associated with mutual funds.

No Guarantees. The value of your mutual fund investment, unlike a bank deposit, could fall and be worth less than the principle initially invested. And, while a money market fund seeks a stable share price, its yield fluctuates, unlike a certificate of deposit. In addition, mutual funds are not insured or guaranteed by an agency of the U.S. government. Bond funds, unlike purchasing a bond directly, will not re-pay the principle at a set point in time. The Diversification "Penalty." Diversification can help to reduce your risk of loss from holding a single security, but it limits your potential for a "home run" if a single security increases dramatically in value. Remember, too, that diversification does not protect you from an overall decline in the market. Costs. In some cases, the efficiencies of fund ownership are offset by a combination of sales commissions, 12b-1 fees, redemption fees, and operating expenses. If the fund is purchased in a taxable account, taxes may have to be paid on capital gains. Keep track of the cost basis of your initial purchase and new shares that are acquired by reinvesting distributions. It's important to compare the costs of funds you are considering. Always look at "net" returns
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when comparing fund performances. Net return is the bottom line; an investment's true return after all costs is deducted. Prospectuses will not contain all the costs that affect the net return on your investment. This is why it is important to compare net returns whether or not the fund in a no-load or load fund.

MUTUAL FUND STRUCTURE IN INDIA

Sponsor: Sponsor is basically a promoter of the fund. For example Bank of Baroda, Punjab National Bank, State Bank of India and Life Insurance Corporation of India (LIC) are the sponsors of UTI Mutual Funds. Housing Development Finance Corporation Limited (HDFC) and Standard Life Investments Limited are the sponsors of HDFC mutual funds. The fund sponsor raises money from public, who become fund shareholders. The pooled money is invested in the securities. Sponsor appoints trustees. Trustees: Two third of the trustees are independent professionals who own the fund and supervises the activities of the AMC. It has the au17

thority to sack AMC employees for non-adherence to the rules of the regulator. It safeguards the interests of the investors. They are legally appointed i.e. approved by SEBI. AMC: Asset Management Company (AMC) is a set of financial professionals who manage the fund. It takes decisions on when and where to invest the money. It doesnt own the money. AMC is only a fee-forservice provider. The above 3 tier structure of Indian mutual funds is very strong and virtually no chance for fraud. Custodian: A Custodian keeps safe custody of the investments (related documents of securities invested). A custodian should be a registered entity with SEBI. If the promoter holds 50% voting rights in the custodian company it cant be appointed as custodian for the fund. This is to avoid influence of the promoter on the custodian. It may also provide fund accounting services and transfer agent services. JP Morgan Chase is one of the leading custodians. Transfer Agents: Transfer Agent Company interfaces with the customers, issue a funds units, help investors while redeeming units. Provides balance statements and fund performance fact sheets to the investors. CAMS are a leading Transfer Agent in India.

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The Securities and Investment Business Act, 2010 defines a mutual fund as a legal vehicle that collects and pools investor funds for the purpose of collective investment and whose funds interests are redeemable on demand atan amount computed by reference to the net assets of the fund. All mutual funds doing business in or from within the BVI are required to be registered as a public fund or recognised as a private or professional fund. Important matters to consider in the structure of the mutual fund are considered below. THE UNDERLYING INVESTMENTS Although most funds permit themselves a range of investments, they generally specialize in a particular area, such as equities, bonds, currencies, particular geographical areas or market sectors. Hedge funds rely to an extent upon the use of derivative instruments. In addition, some funds may rely heavily on the use of leverage or trade upon margin in order to boost returns and are higher risk, in particular where these are also based upon derivatives. Where the intended investments are relatively liquid investors can subscribe and redeem their shares for cash on a regular basis. If the intended asset classes are illiquid investments, such as real estate developments or film finance, then valuations and redemption opportunities may be less frequent, or a "closed-ended" (non licenced) fund may be appropriate. A fund may intend to invest in a variety of asset classes and to offer investors a choice of portfolio mix, with the option to switch between asset classes at minimal cost. A common structure is the "Fund of Funds", "Umbrella Fund" or Segregated Portfolio Company. Subfunds offer a menu from which investors can access on a pooled basis when they may have no access individually. A Segregated Portfolio Company ensures that the risks of one class of investment does not affect investors in another class and if a fast growing choice of structure. THE LEGAL EXISTENCE OF THE FUND
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The BVI Business Companies Acts provides extraordinary flexibility that allows the company to be modelled to the exact requirements of the offering. The BVI is the world leader for company formations and BVIs are used by investment managers worldwide. The limited liability aspect of a company affords the directors and stakeholders protection from personal claims in the absence of fraud. The BVI Business Companies Act also provides for the formation of multi class and segregated portfolio companies. The Limited Partnership Act allows for Limited Partners who are not liable for losses beyond their initial partnership contribution (investors) and a General Partner, as such as partnership is not ideal for speculative funds but may be of consideration in tax planning. The Unit Trust is not typically used for private/professional funds due to the liability of the Trustee for the administration of the funds and the additional corporate secretarial in maintaining and administering unit holders in accordance with the trust deed. SIBA together with Regulations and a Code of Conduct govern the establishment and management of public, private and professional funds. Public funds are required to be registered; a simpler recognition procedure is in place for funds qualifying as private or professional.

METHOD OF MARKETING SHARES The fund structure is also affected by where and to whom the funds are offered. The law defines the fund as either: Public fund offered to the general public. Professional fund offered to professional investors" (individuals subscribe at least $100,000 and have a net worth at least one million
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dollars or are institutional investors). Private funds have less than 50 persons or offered on a restricted basis. The nature of offering will determine the category of fund and the regulatory requirements to be considered. Whilst BVI law is important, domestic legislation in the jurisdictions of offering are important to consider. INVESTOR RETURNS The typical fund issues redeemable shares and has the objective of capital growth. Subject to any limitations in the constitutional documents of offering document there is no restriction on the number of shares that the fund can issue. After the initial offering period subscriptions and redemptions are traded at the Net Asset Value and typically bingeing growth fund dividends are not declared. The frequency of redemptions is governed by the liquidity of the underlying investment and by the frequency of valuations. Normally valuation takes place on the last business day of each month. If the fund is highly liquid and prepared to bear the administrative costs valuations can daily. A closed-end fund will usually return capital on an irregular basis after the underlying asset is sold and is a suitable vehicle for property funds. KEY FUNCTIONARIES, FEES AND EXPENSES The Sponsor is the creator of the fund and will typically hold voting shares in the fund that are not entitled to distributions. Investor shares are typically non-voting preferred redeemable shares. Subscribers and redemptions may be subject to a load which may be at different rates depending on investment amount or length of investment. Commissions may also be payable. The Investment Manager is responsible for investment of the funds asset. The manager earns fees in the range of 1 to 3% of the NAV per annum. In addition managers normally take an incentive fee based upon
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increases in the NAV which range from 5% to 50% of the gain, usually with a high watermark. The fund may also appoint an Investment Advisor. The Administrator keeps the books and records of the fund, calculates the NAV. Administration fees depend upon the activity and complexity of the fund generally in the region of 10-30 basis points. The Administrator often acts as Registrar and Transfer Agent maintaining the share registers of the fund. The Custodian holds the fund's cash and investment assets. Commonly fund assets are held by one or more brokers who execute trades on behalf of the fund. Custodial Fees can also be a fixed fee or a percentage of NAV. Where a broker acts as de facto custodian, it usually charges on a transactional basis. In addition, the fund will also be responsible for all of its own legal, accounting, corporate, regulatory and other administrative expenses. Mutual Funds Function within Strict Regulatory Framework The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. The different entities such as the Mutual Fund, the Asset Management Company and the Custodian operate as per the provisions of the SEBI Mutual Fund Regulation 1996 and the rules and guidelines issued by SEBI. Each of these entities has independent Boards of Directors and separate auditors. SEBI keeps a close watch on the mutual funds through periodical reports and every three months, each mutual fund submits to SEBI a report conforming compliance with regulatory provisions and mutual funds are required to record their investment decisions. Any deficiency or non-compliance is dealt with suitably by SEBI. Every year, each mutual fund is inspected by SEBI and such inspection is both a detailed scrutiny of operations and a rectification exercise. Thus, the mutual funds are strictly supervised and regulated entities and the regulatory provisions match with international standards. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.
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Viewing The Mutual Fund Industry In The Right Perspective The mutual fund industry is a fast growing segment of the Indian Financial Market and it provides a variety of schemes to suit the needs and risk return profile of different categories of investors who are kept completely informed regularly through periodical reports and statutory disclosures. AMFI as the umbrella body of the mutual fund industry which has Unit Trust of India and all mutual funds as its members would like to reiterate that investors in mutual fund schemes should not be influenced much less guided by any misplaced and patently wrong propaganda being carried out in some quarters.

INVESTORS MONEY MANAGEMENT

This is the role of the Asset Management Company (the Third tier). Trustees appoint the Asset Management Company (AMC), to manage investors money. The AMC in return charges a fee for the services provided and this fee is borne by the investors as it is deducted from the money collected from them. The AMCs Board of Directors must have at least 50% of Directors who are independent directors. The AMC has to be approved by SEBI. The AMC functions under the supervision of its Board of Directors, and also under the direction of the Trustees and SEBI. It is the AMC, which in the name of the Trust, floats new schemes and manages these schemes by buying and selling securities. In order to do this the AMC needs to follow all rules and regulations prescribed by SEBI and as per the Investment Management Agreement it signs with the Trustees. If any fund manager, analyst intends to buy/ sell some securities, the permission of the Compliance Officer is a must. A compliance Officer is one of 8the most important persons in the AMC. Whenever the fund intends to launch a new scheme, the AMC has to submit a Draft Offer Document to SEBI. This draft offer document, after getting SEBI approval becomes the offer document of the scheme. The Offer Document (OD) is a legal document and investors rely upon the information provided in the OD for investing in the mutual fund scheme. The Compliance Officer has to sign the Due Diligence Certificate in the OD. This certificate says that all the information provided inside the OD is true and correct. This ensures that there is accountability and somebody is responsible for the OD. In case there is
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no compliance officer, then senior executives like CEO, Chairman of the AMC has to sign the due diligence certificate. The certificate ensures that the AMC takes responsibility of the OD and its contents.

CUSTODIAN
A custodians role is safe keeping of physical securities and also keeping a tab on the corporate actions like rights, bonus and dividends declared by the companies in which the fund has invested. The Custodian is appointed by the Board of Trustees. The custodian also participates in a clearing and settlement system through approved depository companies on behalf of mutual funds, in case of dematerialized securities. In India today, securities (and units of mutual funds) are no longer held in physical form but mostly in dematerialized form with the Depositories. The holdings are held in the Depository through Depository Participants (DPs). Only the physical securities are held by the Custodian. The deliveries and receipt of units of a mutual fund are done by the custodian or a depository participant at the instruction of the AMC and under the overall direction and responsibility of the Trustees. Regulations provide that the Sponsor and the Custodian must be separate Entities.

INVESTORS RIGHTS AND OBLIGATIONS

Some of the Rights and Obligations of investors are:1. Investors are mutual, beneficial and proportional owners of the schemes assets. The investments are held by the trust in fiduciary capacity (The fiduciary duty is a legal relationship of confidence or trust between two or more parties). 2. In case of dividend declaration, investors have a right to receive the dividend within 30 days of declaration. 3. On redemption request by investors, the AMC must dispatch the redemption proceeds within 10 working days of the request. In case the AMC fails to do so, it has to pay an interest @ 15%. This rate may change from time to time subject to regulations. 4. In case the investor fails to claim the redemption proceeds immediately, then the applicable NAV depends upon when the investor claims the redemption proceeds. 5. Investors can obtain relevant information from the trustees and inspect documents like trust deed, investment management agreement,
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annual reports, offer documents, etc. They must receive audited annual reports within 6 months from the financial year end. 6. Investors can wind up a scheme or even terminate the AMC if unit holders representing 75% of schemes assets pass a resolution to that respect. 7. Investors have a right to be informed about changes in the fundamental attributes of a scheme. Fundamental attributes include type of scheme, investment objectives and policies and terms of issue. 8. Lastly, investors can approach the investor relations officer for grievance redressal. In case the investor does not get appropriate solution, he can approach the investor grievance cell of SEBI. The investor can also sue the trustees. The offer document is a legal document and it is the investors obligation to read the OD carefully before investing. The OD contains all the material information that the investor would require to make an informed decision. It contains the risk factors, dividend policy, investment objective, expenses expected to be incurred by the proposed scheme, fund managers experience, historical performance of other schemes of the fund and a lot of other vital It is not mandatory for the fund house to distribute the OD with each application form but if the investor asks for it, the fund house has to give it to the investor. However, an abridged version of the OD, known as the Key Information Memorandum (KIM) has to be provided with the application form.

TYPES OF MUTUAL FUNDS:There are three basic types of registered investment companies defined in the Investment Company Act of 1940: open-end funds, unit investment trusts (UITs); and closed-end funds. exchange-traded funds (ETFs)are open-end funds or unit investment trusts that trade on an exchange.

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OPEN-END FUNDS Open-end mutual funds must be willing to buy back their shares from their investors at the end of every business day at the net asset value computed that day. Most open-end funds also sell shares to the public every business day; these shares are also priced at net asset value. A professional investment manager oversees the portfolio, buying and selling securities as appropriate. You can think of a mutual fund as having an open-end structure because the cash flow door -- both into and out of the fund -- is always open. In other words, the portfolio manager continues to invest new cash from investors, and the fund company continues to offer new shares of the fund to new investors.
So, when you invest in a mutual fund, money is directed to the mutual fund, shares are created and issued to you (to be held in an account at a brokerage firm, bank or at the fund company). This process is different from investing in a stock. When you invest in a stock, you are buying or selling shares on an exchange or over-the-counter (unless it is an initial public offering or a secondary offering) new shares are not be created. 26

CLOSED-END FUNDS Closed-end funds generally issue shares to the public only once, when they are created through an initial public offering. Their shares are then listed for trading on an exchange. Investors who no longer wish to invest in the fund cannot sell their shares back to the fund (as they can with an open-end fund). Instead, they must sell their shares to another investor in the market; the price they receive may be significantly different from net asset value. It may be at a "premium" to net asset value (meaning that it is higher than net asset value) or, more commonly, at a "discount" to net asset value (meaning that it is lower than net asset value). A professional investment manager oversees the portfolio, buying and selling securities as appropriate. Closed-end funds are often confused with, and mistakenly called, mutual funds. They are similar to open-end funds in that their assets are invested in a wide range of securities. A major difference is that closedend funds behave more like a stock; the market value is driven by supply and demand for the shares. On the other hand, an open-end mutual fund continually issues new shares to investors and does not trade on an exchange. UNIT INVESTMENT TRUSTS Unit investment trusts or UITs issue shares to the public only once, when they are created. Investors can redeem shares directly with the fund (as with an open-end fund; they may also be able to sell their shares in the market. Unit investment trusts do not have a professional investment manager. Their portfolio of securities is established at the creation of the UIT and does not change. UITs generally have a limited life span, established at creation.

EXCHANGE-TRADED FUNDS
A relatively recent innovation, the exchange-traded fund or ETF is often structured as an open-end investment company, though ETFs may also be structured as unit investment trusts, partnerships, investments trust, grantor trusts or bonds (as an exchange-traded note). ETFs combine characteristics of both closed-end funds and open-end funds. Like closed-end funds, ETFs are traded throughout the day on a stock exchange at a price determined by the market. However, as with openend funds, investors normally receive a price that is close to net asset value. To keep the market price close to net asset value, ETFs issue and redeem large blocks of their shares with institutional investors. Most ETFs are index funds.
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INVESTMENTS AND CLASSIFICATION

Mutual funds may invest in many kinds of securities. The types of securities that a particular fund may invest in are set forth in the fund's prospectus, which describes the fund's investment objective, investment approach and permitted investments. The investment objective describes the type of income that the fund seeks. For example, a "capital appreciation" fund generally looks to earn most of its returns from increases in the prices of the securities it holds, rather than from dividend or interest income. The investment approach describes the criteria that the fund manager uses to select investments for the fund. A mutual fund's investment portfolio is continually monitored by the fund's portfolio manager or managers, who are employed by the fund's manager or sponsor. Mutual funds are classified by their principal investments. The four largest categories of funds are money market funds, bond or fixed income funds, stock or equity funds and hybrid funds. Within these categories, funds may be subclassified by investment objective, investment approach or specific focus. The SEC requires that mutual fund names not be inconsistent with a fund's investments. For example, the "ABC New Jersey Tax-Exempt Bond Fund" would generally have to invest, under normal circumstances, at least 80% of its assets in bonds that are exempt from federal income tax, from the alternative minimum tax and from taxes in the state of New Jersey. Bond, stock and hybrid funds may be classified as either index (passively-managed) funds or actively-managed funds. MONEY MARKET FUNDS Money market funds invest in money market instruments, which are fixed income securities with a very short time to maturity and high credit quality. Investors often use money market funds as a substitute for bank savings accounts, though money market funds are not government insured, unlike bank savings accounts. Money market funds strive to maintain a $1.00 per share net asset value, meaning that investors earn interest income from the fund but do not experience capital gains or losses. If a fund fails to maintain that $1.00 per share because its securities have declined in value, it is said to "break the buck". Only two money market funds have ever broken the buck: Community Banker's U.S. Government Money Market Fund in 1994 and the Reserve Primary Fund in 2008. At the end of 2009, money market funds accounted for 30% of the assets in all U.S. mutual funds.
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BOND FUNDS Bond funds invest in fixed income securities. Bond funds can be subclassified according to the specific types of bonds owned (such as high-yield or junk bonds, investment-grade corporate bonds, government bonds or municipal bonds) or by the maturity of the bonds held (short-, intermediate- or long-term). Bond funds may invest in primarily U.S. securities (domestic or U.S. funds), in both U.S. and foreign securities (global or world funds), or primarily foreign securities (international funds). At the end of 2009, bond funds accounted for 20% of the assets in all U.S. mutual funds.

STOCK OR EQUITY FUNDS

Stock or equity funds invest in common stocks. Stock funds may invest in primarily U.S. securities (domestic or U.S. funds), in both U.S. and foreign securities (global or world funds), or primarily foreign securities (international funds). They may focus on a specific industry or sector. A stock fund may be subclassified along two dimensions: (1) market capitalization and (2) investment style (i.e., growth vs. blend/core vs. value). Market capitalization or market cap is the value of a company's stock and equals the number of shares outstanding times the market price of the stock. Market capitalizations are divided into the following categories:

Micro cap Small cap Mid cap Large cap

While the specific definitions of each category vary with market conditions, large cap stocks generally have market capitalizations of at least $10 billion, small cap stocks have market capitalizations below $2 billion, and micro cap stocks have market capitalizations below $300 billion. Funds are also classified in these categories based on the market caps of the stocks that it holds. Stock funds are also subclassified according to their investment style: growth, value or blend (or core). Growth funds seek to invest in stocks of fast-growing companies. Value funds seek to invest in stocks that appear cheaply priced. Blend funds are not biased toward either growth or value.
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At the end of 2009, stock funds accounted for 45% of the assets in all U.S. mutual funds.

HYBRID FUNDS
Hybrid funds invest in both bonds and stocks or in convertible securities. Balanced funds, asset allocation funds, target date or target risk funds and lifecycle or lifestyle funds are all types of hybrid funds. Hybrid funds may be structured as funds of funds, meaning that they invest by buying shares in other mutual funds that invest in securities. Most fund of funds invest in affiliated funds (menaing mutual funds managed by the same fund sponsor), although some invest in unaffiliated funds (meaning those managed by other fund sponsors) or in a combination of the two. At the end of 2009, hybrid funds accounted for 6% of the assets in all U.S. mutual funds. Index (passively-managed) versus actively-managed Main articles: Index fund and active management An index fund or passively-managed seeks to match the performance of a market index, such as the S&P 500 index, while an actively managed fund seeks to outperform a relevant index through superior security selection. Mutual fund expenses Investors in mutual funds pay fees. These fall into four categories: distribution charges (sales loads and 12b-1 fees), the management fee, other fund expenses, shareholder transaction fees and securities transaction fees. Some of these expenses reduce the value of an investor's account; others are paid by the fund and reduce net asset value. Recurring expenses are included in a fund's expense ratio. Distribution charges Distribution charges pay for marketing and distribution of the fund's shares to investors. Front-end load or sales charge A front-end load or sales charge is a commission paid to a broker by a mutual fund when shares are purchased. It is expressed as a percentage of the total amount invested (including the front-end load), known as the "public offering price." The front-end load often declines as the amount invested increases, through breakpoints. Front-end loads are deducted from an investor's account and reduce the amount invested.
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Back-end load Some funds have a back-end load, which is paid by the investor when shares are redeemed depending on how long they are held. The backend loads may decline the longer the investor holds shares. Back-end loads with this structure are called contingent deferred sales charges (or CDSCs). Like front-end loads, back-end loads are deducted from an investor's account. 12b-1 fees A mutual fund may pay an annual fee, known as a 12b-1 fee, for marketing and distribution services. This fee is computed as a percentage of a fund's assets, subject to a maximum of 1% of assets. The 12b-1 fee is included in the expense ratio. No-load funds A no-load fund does not charge a front-end load under any circumstances, does not charge a back-end load under any circumstances and does not charge a 12b-1 fee greater than 0.25% of fund assets. Share classes A single mutual funds may give investors a choice of different combinations of front-end loads, back-end loads and 12b-1 fees, by offering several different types of shares, known as share classes. All of the shares classes invest in the same portfolio of securities, but each has different expenses and, therefore, a different net asset value and different performance results. Some of these share classes may be available only to certain types of investors. Typical share classes for funds sold through brokers or other intermediaries include:

Class A shares usually charge a front-end sales load together with a small 12b-1 fee. Class B shares don't have a front-end sales load. Instead they, instead having a high contingent deferred sales charge, or CDSC that declines gradually over several years, combined with a high 12b-1 fee. Class B shares usually convert automatically to Class A shares after they have been held for a certain period. Class C shares have a high 12b-1 fee and a modest contingent deferred sales charge that is discontinued after one or two years. Class C shares usually do not convert to another class. They are often called "level load" shares.
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Class I are subject to very high minimum investment requirements and are, therefore, known as "institutional" shares. They are no-load shares. Class R are for use in retirement plans such as 401(k) plans. They do not charge loads, but do charge a small 12b-1 fee. Class I shares do not charge a 12b-1 fee. Class N shares charge a 12b-1 fee of no more than 0.25% of fund assets.

No-load funds often have two classes of shares:

Neither class of shares charges a front-end or back-end load. Management fees The management fee is paid to the fund manager or sponsor who organizes the fund, normally lends its brand name to the fund and provides the portfolio management or investment advisory services. The fund manager may also provide other administrative services as part of the services that they provide for the management fee. The management fee often has breakpoints, which means that it declines as assets (in either the specific fund or in the fund family as a whole) increase. The management fee is paid by the fund and is included in the expense ratio. Other fund expenses A mutual fund pays for other services including:

Board of directors' (or board of trustees') fees and expenses Custody fee: paid to a bank for holding the fund's portfolio in safekeeping Fund accounting fee: for computing the net asset value daily Professional services: legal and accounting fees Registration fees: when making filings with regulatory agencies Shareholder communications: printing and mailing required documents to shareholders Transfer agent services: keeping shareholder records and responding to customer inquiries

These expenses are included in the expense ratio. Shareholder transaction fees Shareholders may be required to pay fees for certain transactions. For example, a fund may charge a flat fee for maintaining an individual retirement account for an investor. Some funds charge redemption fees when an investor sells fund shares shortly after buying them (usually defined as within 30, 60 or 90 days of purchase); redemption fees are
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computed as a percentage of the sale amount. Shareholder transaction fees are not part of the expense ratio. Securities transaction fees A mutual fund pays any expenses related to buying or selling the securities in its portfolio. These expenses may include brokerage commissions. Securities transaction fees increase the cost basis of the investments. They do not flow through the income statement and are not included in the expense ratio. The amount of securities transaction fees paid by a fund is normally positively correlated with its trading volume or "turnover". Expense ratio The expense ratio allows investors to compare expenses across funds. The expense ratio equals the 12b-1 fee plus the management fee plus the other fund expenses divided by average net assets. The expense ratio is sometimes referred to as the "total expense ratio" or TER. Controversy Critics of the fund industry argue that fund expenses are too high. They believe that the market for mutual funds is not competitive and that there are many hidden fees, so that it is difficult for investors to reduce the fees that they pay. Many researchers have suggested that the most effective way for investors to raise the returns they earn from mutual funds is to reduce the fees that they pay. They suggest that investors look for no-load funds with low expense ratios. A mutual fund pools the money of people with similar investment goals. The money in turn is invested in various securities depending on the objectives of the mutual fund schemes, the profits (or loss) are shared among investors in proportion to their investments. These pooled funds provide thousands of investors with proportional ownership of diversified portfolio managed by professional investment managers. The term mutual is used in sense that all its returns, minus its expenses, are shared by the funds unit holders. Indian mutual funds industry is as old as four decades but its growth and awareness has reached the present level only since last five years. It is most suitable investment for the common man who invests his savings at regular intervals. It is an investment tool where the return on investment is high compared with some other investments available in the market. It is a mature, well developed & regulated investment vehicle. However, like any other investment, this, too, caries a certain degree of risk. An investor therefore has to take care of his\her risk taking ability, tax
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issues, investment period etc. They are the mobilizers of savings particularly from small & house hold sector for investment in stock & money market. Broadly mutual funds are basically in 3 types of asset classes such as stocks, bonds & money market instruments. They are non-depositary or non banking financial intermediary. They are an important segment of the financial system. Mutual funds are not for: Getting rich quick investments. Risk free investments. Assured return investments. A universal solution to all investment needs.

MUTUAL FUND SCHEMES

OPERATIONAL CLASSIFICATION:
1. OPEN-ENDED SCHEME: When a fund is accepted and liquidated on a continuous basis by a mutual fund manager, it is called openended scheme. The fund manager buys & sells units constantly on demand by the investors. Under this scheme, the capitalization of the fund will constantly change, since it is always open for the investors to sell or buy their share units. The scheme provides an excellent liquidity facility to investors. No intermediaries are required in this scheme. MERITS: It provides liquidity facility. No intermediaries required. Provide long term capital appreciation No maturity period. DEMERITS: Not traded in stock exchange.
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 Capitalization of fund is constantly changing. 2. CLOSE-ENDED SCHEME: When units of a scheme are liquidated (repurchase) only after the expiry of a specified period, it is known as a close-ended scheme. Accordingly such funds have fixed capitalization & remain as a corpus with the mutual fund manager. Units of closeended are to be traded on the floors of stock exchange in the secondary market. The price is determined on the basis of demand & supply. Therefore there will be, two prices, one that is market determined & the other which is Net Asset Value based. The market price may be either above or below NAV. Managing a close-ended scheme is comparatively easy as it gives fund managers ample opportunity to evolve & adopt long term investment strategies depending on the life of the scheme. Need for liquidity arises after a comparatively longer period i.e. normally at the time of redemption. MERITS: The prices are determined on the basis of market price & NAV. Gives fund manager ample opportunity to evolve & adopt long term investment strategies depending on the life of the scheme. Invests in listed stock exchange & traded securities.

DEMERITS: Open for subscription only for a limited period. Exit is possible only at the end of specified period. Fixed capitalization.

RETURN BASED CLASSIFICATION:

1. INCOME FUND SCHEME: The scheme that is tailored to suit

the needs of investors who are particular about regular returns is known as income fund scheme. The scheme offers the maximum current income, whereby the income earned by units is distributed periodically. Such funds are offered in two forms, the first scheme earns a target constant income at relatively low risk, while the second scheme offers the maximum possible income. This obviously implies that the higher expected return comes with a higher potential risk of the investment. 2. GROWTH FUND SCHEME: it is a mutual fund scheme that offers the advantage of capital appreciation of the underlying investment. For such funds, investment is made in growth
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oriented securities that are capable of appreciating in the long run. Growth funds are also known as nest eggs or long haul investment. In proportion to such capital appreciation, the amount of risk to be assumed would be far greater.

INVESTMENT BASED CLASSIFICATION:

1. EQUITY FUND SCHEME: A kind of mutual fund whose strength is derived from equity based investments is called equity fund scheme. They carry a high degree of risk. Such funds do well in periods of favorable capital market trends. A variation of the equity fund schemes is the index fund or never beat market fund which are involved in transacting only those scripts which are included in any specific index e.g. the scripts which constituted the BSE-30 Sensex or 100 shares National index. These funds involve low transaction cost. 2. BOND FUND SCHEME: it is a type of mutual fund whose strength is derived from bond based investments. The portfolio of such funds comprises bonds, debenture etc. this type of fund carries the advantage of secured & steady income. However, such funds have little or no chance of capital appreciation, & carry low risk. A variant of this type of fund is called Liquid Funds. This specializes in investing in short term money market instruments. This focus on liquidity delivers the twin features of lower risks & low returns. 3. BALANCED FUND SCHEME: a scheme of mutual fund that has a mix of debt & equity in the portfolio of investment may be referred to as a Balanced Fund Scheme. The portfolio of such funds will be often shifted between debt & equity, depending upon the prevailing market trends. 4. SECTORAL FUND SCHEMES: when the managers of mutual fund invest the collected from a wide variety of small investors directly in various specific sectors may include gold & silver, real estate, specific industry such as oil & gas companies, offshore investments, etc. 5. FUND-OF-FUND SCHEME: There can also be funds of funds, where funds of one mutual
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funds are invested in the units of other mutual funds. There are a number of funds that direct investment into a specified sector of the economy. This makes diversified & yet intensive investment of funds possible.

GROWTH TREND OF MUTUAL FUND

The mutual fund industry in India has grown fast in the recent period. The performance is encouraging especially because the emphasis in India has been on individual investors rather in contrast to advanced countries where mutual funds depend largely on institutional investors. In general, it appears that the mutual funds in India have given a good account of themselves so far. Numbers of foreign AMCs are in the queue to enter the Indian markets like Fidelity Investments, US based assets under management worldwide. Opening of the mutual fund industry to the public sector banks and insurance companies, led to the launching of more and more of new schemes. For example, LICMF has concentrated on funds which includes life and accident cover. GICMF provide home insurance policy. The bank sponsored mutual fund floated regular income, growth and tax incentives schemes. Especially since early 1991 there has been a steady increase in the number of equity oriented growth funds. With the boom of June 1990 and then again 1991 due to the implementation of new economic policies to-wards structure of change the price of securities in stock market appreciated considerably. The finance ministry notified that ELSS is eligible for tax exemption up to Rs. 10,000. This exemption was increased to Rs. 1, 00,000 after introduction of section 80 C in the year 2006. This was done to encourage new as well as existing small investors to invest their hard earned money in stock market through mutual funds. All this shows that there is growth in Mutual Fund Industry. But there are some short comings in its growth like the most important & noticeable shortcoming is there are approximately 29 mutual funds which are much less than US having more than 800. At present, the investors in India prefer to invest in mutual fund as a substitute of fixed deposits in Banks, About 75 percent of the investors are not willing to invest in mutual funds unless there was a promise of minimum return. Unlimited fund raised by schemes can create severe imbalance in the market. Hence there is a huge scope for expansion.
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Mutual Fund Regulations The Indian mutual fund industry witnessed robust growth and stricter regulation from SEBI since 1996. The mobilisation of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Safeguarding the interests of invetors is one of the duties of SEBI. Consequantly, SEBI (Mutual Funds) Regulations, 1996 and certain other guidelines have been issued by SEBI that sets uniform standards for all mutual funds in India. SEBI (Mutual Funds) Regulations
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03-DecSecurities and Exchange Board of India (Mutual Funds) Regulations, 1996 1996 12-JanSEBI (Mutual Funds) (Amendment) Regulations, 2006 2006

AMFI CODES AND GUIDELINES

The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Muatual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share.

Codes Guidelines

Codes of ethics to be followed by the members/mutual fund companies Regulatory framework along with a code of conduct for intermediaries like individual agents, brokers, distribution houses and banks engaged in selling of mutual fund products

"Mutual Funds 2000" During 1995-96, SEBI had prepared and widely circulated a paper titled "Mutual Funds 2000" which identified ways to improve the working and regulation of the mutual fund industry, so that mutual funds could provide a better performance and service to all categories of investors and offer a range of innovative products in a competitive manner to match investor needs and preferences across various investor segments. Based on the comments received on the recommendations made in the paper by market participants and investors and on discussions held with the Association of Mutual Funds of India (AMFI), the SEBI (Mutual Funds) Regulations, 1993 were revised and the new regulations notified in December 1996. The SEBI (Mutual Funds) Regulations, 1996 The revised regulations embodied far reaching changes in the
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regulation and functioning of mutual funds. The revised regulations provide for

enhanced level of investor protection empowerment of investors stringent disclosure norms in the offer documents, so that investors are better informed, better advised, better aware of risks and rewards standardisation of norms for valuation of assets, computation of Net Asset Values (NAVs) of schemes of mutual funds and accounting standards and policies complete freedom to asset management companies to structure schemes in accordance with investor preferences removal of quantitative restrictions on investment by mutual funds and replacement by prudential supervision replacement of vetting of offer documents by filing guaranteed return schemes by mutual funds permitted provided returns including capital were guaranteed indication of expected returns based on hypothetical portfolio permitted better governance of mutual funds through higher responsibilities and empowerment of trustees as front-line regulators of mutual funds closer scrutiny through off site and on site inspections code of ethics for asset management companies

The impact of the new regulations was immediately felt. Asset management companies framed several schemes which made use of the freedom provided to them by the new regulations. Not only did the number of schemes filed with SEBI increase significantly in a short period of time, but also there was greater variety in the investment products offered. There was also a significant improvement in disclosures in the offer documents. The new regulations have brought into greater focus the responsibilities of trustees of mutual funds who are uniquely positioned to promote the interests of the unitholders and to ensure that mutual funds are managed responsibly and ethically. The trustees act independently to uphold the public trust. In this process, trustees act as the first level regulators and are critical in helping to ensure the profitability and progress of the mutual funds. To assist trustees in their new role, and to set out the manner in which they could best perform this role, SEBI appointed a committee under the chairmanship of Shri P K Kaul, former Cabinet Secretary and Ambassador to the United States. SEBI is using its interface with AMFI to assess the impact of the new regulations on the working of mutual funds and to examine further
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ways of improving the performance of mutual funds so as to restore investor confidence in them. SEBI also continued working with AMFI so that it becomes a more effective body representing the mutual fund industry and embarks on a campaign to sharpen the industry's focus on the consumer. Pension schemes and money market mutual funds Another important development in the mutual fund industry during the year was the issuance of Guidelines for Money Market Mutual Funds by RBI. These guidelines were subsequently incorporated into the revised SEBI regulations and paved the way for the introduction of money market schemes by mutual funds for the first time. Similarly, pension schemes were also launched by mutual funds for the first time under section 88 (xiii-c) of the Income Tax Act, 1961 Difficulties faced by assured return schemes Some of the mutual funds who had launched schemes with assured return features prior to the notification of the SEBI (Mutual Fund) Regulations, 1993 found it difficult to fulfil the assurances. These schemes are the `Canstar' scheme of the Canbank Mutual Fund (CBMF) and the `GIC Big Value' scheme of the GIC Mutual Fund (GICMF). In the case of Canstar scheme of CBMF which assured return by way of repurchase price of Rs 23/- commencing from September 1996, the trustees of the Fund had sought the approval of unitholders for alteration of the terms of the scheme by calling a unitholders' meeting. As the scheme had over 2 lakh investors SEBI felt that it will not be proper to allow the fund to alter the terms of the scheme on the basis of a unitholders' meeting that few unitholders would be able to attend. It had therefore directed CBMF to conduct a postal ballot to seek the opinion of all the unitholders. This was the first time that the procedure of postal ballot to obtain the consent of the unitholders was used in the country. The 216 unitholders who attended the meeting and over 33,000 unitholders who participated in the postal ballot overwhelmingly rejected the proposal of the trustees of modifying the terms of the scheme or winding up the scheme. It has been SEBI's consistent view in keeping with its mandate to protect the interest of the investors that wherever any commitment has been made by any mutual fund to its investors, the mutual fund must honour that commitment. SEBI would consider appropriate action
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under its regulatory framework in case the mutual fund does not honour its commitment. In the case of GIC Big Value scheme which also could not meet the commitment by way of assured repurchase price, SEBI had directed the GIC Asset Management Company to discuss with the Board of GIC, the sponsor of the mutual fund and with other shareholders of the asset management company on the manner in which the shortfall would be met and till such time the mutual fund will not be allowed to launch any further schemes till the commitment was met by the fund in respect of the GIC Big Value scheme. The shortfall was also noticed in the assured return schemes of two other mutual funds viz. LIC Mutual Fund and SBI Mutual Fund. The sponsors of these funds voluntarily agreed to meet the shortfall in the resources by funding the respective asset management companies. With the present requirement that the assured return schemes can now be launched provided the returns are guaranteed by the sponsor or asset management company and sufficient funds are available with them to meet the guarantee, it is expected that investors will be protected from similar difficulties in the future.

Tax Laws governing investments in mutual funds Under Income Tax Act, 1961

I) To Unit-holders(Resident) Section 94(6) of the Income Tax Act, 1961 Section 94(6) of the Income Tax Act 1961 now provides that any person who buys or acquires any securities or unit within a period of three months prior to the record date and such person sells or transfers such securities or unit within a period of three months after such date and the dividend or income on such securities or unit received or receivable by such person is exempt, then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the
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purposes of computing his income chargeable to tax. Section 10(33) of the Income Tax Act, 1961 The dividend received by the investors from the scheme will be exempt from income tax for all categories of investors under Section 10(33) of the Income Tax Act, 1961. The scheme will pay a distribution tax currently @10% plus surcharge if the portfolio holds less than 50 percent debt securities on an average during the last one year period. Section 88 of the Income Tax Act, 1961 Specified units of mutual fund schemes qualify for rebate under Section 88 of the Income Tax Act, 1961, subscription to the Units of the Scheme by Individuals and Hindu Undivided Families, not exceeding Rupees ten thousand would be eligible to a deduction, from income-tax, of an amount equal to 20% of the amount so subscribed. In the case of subscription by an individual, whose income is derived from the exercise of his profession as an author, playwright, artist, musician, actor or sportsman (including an athlete), the deduction admissible would be at the rate of 25%. Tax Deducted at Source (TDS) There will not be any Tax Deduction at Source on payment to resident unitholders towards redemption or dividends. Capital Gains benefit under Section 112 of the Income Tax Act, 1961 Long-term capital gains in respect of Units held for a period of more than 12 months will be chargeable under Section 112 of the Income Tax Act, 1961, at a concessional rate of tax @ 20% (excluding surcharge) From the full value of consideration, the following amounts would be deductible to arrive at the amount of capital gains: Cost of acquisition as adjusted by Cost Inflation Index notified by the Central Government and Expenditure incurred wholly and exclusively in connection with such transfer Investors can also opt to pay tax @10% (excluding surcharge) on such Long Term Capital Gains, but without the cost inflation indexation benefit.

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Wealth Tax Benefits Mutual Fund units are exempt from Wealth Tax. To Non-Residents/OCBs a) Capital Gains under Section 112 of the Income Tax Act, 1961 Long-term capital gains in respect of Units held for a period of more than 12 months will be chargeable under Sec 112 of the Income Tax Act, 1961 at a concessional rate of tax of 20%. The capital gains would be calculated after indexation of the cost of acquisition. Investors can also opt to pay tax @10% (excluding surcharge) on Long Term Capital Gains, but without the cost inflation indexation benefit. b) Tax Deduction at Source (TDS) Redemptions/Exchanges/Switches by non-residents/OCBs/FIIs will be subjected to tax deduction at source at the rates in force and certificates for tax deducted will be issued. To Charitable Trusts Investment in the units of the scheme is an eligible mode of investment under Section 11(5) of the Income Tax Act read with Income Tax Rule 17 C. II. To the Fund Open Ended Mutual Funds are exempt from income tax under Section 10 [23D] of the Act.

MUTUAL FUND COMPANIES IN INDIA

The concept of mutual funds in India dates back to the year 1963. The era between 1963 and 1987 marked the existance of only one mutual fund company in India with Rs. 67bn assets under management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end of the 80s decade, few other mutual fund companies in India took their position in mutual fund market. The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank Mutual Fund, Punjab National Bank Mutual Fund,
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Indian Bank Mutual Fund, Bank of India Mutual Fund. The succeeding decade showed a new horizon in indian mutual fund industry. By the end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started penetrating the fund families. In the same year the first Mutual Fund Regulations came into existance with re-registering all mutual funds except UTI. The regulations were further given a revised shape in 1996. Kothari Pioneer was the first private sector mutual fund company in India which has now merged with Franklin Templeton. Just after ten years with private sector players penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.

MAJOR MUTUAL FUND COMPANIES IN INDIA

ABN AMRO Mutual Fund ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund. Birla Sun Life Mutual Fund Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a golbal organisation evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 crores.

Bank of Baroda Mutual Fund (BOB Mutual Fund) Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian. HDFC Mutual Fund
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HDFC Mutual Fund was setup on June 30, 2000 with two sponsorers nemely Housing Development Finance Corporation Limited and Standard Life Investments Limited. HSBC Mutual Fund HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund. ING Vysya Mutual Fund ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. Ltd. was incorporated on April 6, 1998. Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsorers, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June, 1993. Sahara Mutual Fund Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 crore. State Bank of India Mutual Fund State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshor fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes.
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Tata Mutual Fund Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703 crores (as on April 30, 2005) of AUM. Kotak Mahindra Mutual Fund Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently having more than 1,99,818 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities. Unit Trust of India Mutual Fund UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI Mutual Fund with the support of UTI Trustee Company Privete Limited. UTI Asset Management Company presently manages a corpus of over Rs.20000 Crore. The sponsorers of UTI Mutual Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds. Reliance Mutual Fund Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. Standard Chartered Mutual Fund
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Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20,1999. Franklin Templeton India Mutual Fund The group, Frnaklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer. Morgan Stanley Mutual Fund India Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investmenty management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and non-profit organisations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified equity scheme serving the needs of Indian retail investors focussing on a long-term capital appreciation. Escorts Mutual Fund Escorts Mutual Fund was setup on April 15, 1996 with Excorts Finance Limited as its sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC was incorporated on December 1, 1995 with the name Escorts Asset Management Limited. Alliance Capital Mutual Fund Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital Management Corp. of Delaware (USA) as sponsorer. The Trustee is ACAM Trust Company Pvt. Ltd. and AMC, the Alliance
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Capital Asset Management India (Pvt) Ltd. with the corporate office in Mumbai. Benchmark Mutual Fund Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt. Ltd. as the sponsorer and Benchmark Trustee Company Pvt. Ltd. as the Trustee Company. Incorporated on October 16, 2000 and headquartered in Mumbai, Benchmark Asset Management Company Pvt. Ltd. is the AMC. Canbank Mutual Fund Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the sponsor. Canbank Investment Management Services Ltd. incorporated on March 2, 1993 is the AMC. The Corporate Office of the AMC is in Mumbai. Chola Mutual Fund Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company and AMC is Cholamandalam AMC Limited. LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund. GIC Mutual Fund GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of India undertaking and the four Public Sector General Insurance Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882.
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SEBI REGULATIONS GOVERNING MUTUAL FUNDS

Regulations ensure that schemes do not invest beyond a certain percent of their NAVs in a single security. Some of the guidelines regarding these are given below: 1. No scheme can invest more than 15% of its NAV in rated debt instruments of a single issuer. This limit may be increased to 20% with prior approval of Trustees. This restriction is not applicable to Government securities. 2. No scheme can invest more than 10% of its NAV in unrated paper of a single issuer and total investment by any scheme in unrated papers cannot exceed 25% of NAV 3. No fund, under all its schemes can hold more than 10% of companys paid up capital. 4. No scheme can invest more than 10% of its NAV in a single company. 5. If a scheme invests in another scheme of the same or different AMC, no fees will be charged. Aggregate inter scheme investment cannot exceed 5% of net asset value of the mutual fund. 6. No scheme can invest in unlisted securities of its sponsor or its group entities. 7. Schemes can invest in unlisted securities issued by entities o t h e r than the sponsor or sponsors group. Open ended schemes can invest maximum of 5% of net assets in such securities whereas close ended schemes can invest upto 10% of net assets in such securities. 8. Schemes cannot invest in listed entities belonging to the sponsor group beyond 25% of its net assets. AMFI (Association of Mutual Funds in India) is the industry association for the mutual fund industry in India which was incorporated in the year 1995.

OBJECTIVES OF AMFI
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The Principal objective of AMFI is to: 1) Promote the interests of the mutual funds and unit holders and interact with regulators- SEBI/RBI/Govt./Regulators. 2) To set and maintain ethical, commercial and professional standards in the industry and to recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and asset management. 3) To increase public awareness and understanding of the concept and working of mutual funds in the country, to undertake investor awareness programmes and to disseminate information on the mutual fund industry. 4) To develop a cadre of well trained distributors and to implement a programme of training and certification for all intermediaries and others engaged in the industry.

RECENT CHANGES IN THE SEBI MUTUAL FUNDS REGULATIONS

Existing SEBI Regulation 25(8) already requires that any payment of brokerage or commission to the sponsor, any of its associates, employees or their relatives be disclosed in the half-yearly accounts of the relevant mutual fund. This SEBI circular merely seeks to standardise the manner in which this disclosure is to be made and compliance should give no cause for concern. From an investors point of view, the transparency can only be beneficial and to SEBI it will be simpler to identify malpractices. The only new move in this circular was in SEBI extending the ASBA facility (available to direct equity investors from Jan 2010) to investors applying for New Mutual Fund Offers. This is optional for investors because it is in addition to the normal facility of paying by cheques submitted along with the application. The few investors from outlying areas will hopefully not be at a disadvantage. Anyway 15 days is enough time for cheque clearances even from most remote bank branch locations. ASBA is the acronym for "Application Supported by Blocked Amount" and allows the applicant to block money in a bank account, to be paid to the mutual fund only after the units are allotted and available.
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The investor has to provide an authorisation for enabling the specified bank to extend the ASBA facility. There is an ASBA authorisation form which has to be enclosed with the application (instead of a cheque). SEBI has mandated mutual funds to provide necessary guidance in the various investor documentation associated with funds and their NFOs. Of course the websites will also provide all relevant details. ASBA offers investors the advantage of not paying money with applications and therefore they do not have to bother about refunds because bank accounts are debited only after the units are made available. Most importantly, the investors do not lose interest on their money (now 15 days) and can deal with their own banker who is expected to be more helpful than the mutual funds banker. I would believe this facility will soon gain popularity at least amongst HNIs to begin with. Applications which are not supported by KYC requirements or which do not contain complete information could end up being held in abeyance. In such cases investors stand to lose interest when they take the cheque route. On the other hand, it will save the mutual funds from the operational hassles of cheque clearing, allotting units in anticipation of funds and the subsequent housekeeping. By reducing the period of allotment to 15 days, I believe the regulator has not only raised the bar on operational efficiency but also pushed for adoption of the ASBA facility by mutual funds. Recognising that this change will require substantial changes to the registrars processes and systems; SEBI has given all stakeholders time till the beginning of July 2010 to get over infrastructure issues. Retail investors should also use this time to approach their bankers and ensure all formalities are completed so that they can avail of this facility. They will almost certainly find it to be beneficial. The mention on "Non availability of Unit Premium Reserve" is merely a reiteration or even a clarification of what has already existed in the accounting policies articulated in the Ninth and Eleventh Schedules of SEBI (mutual funds) Regulations. Reputed mutual fund houses have always, I would believe, restricted dividends to "realised earnings". Still, SEBIs warning must serve as a warning for those who indulge in sharp practices and regulatory arbitrage.
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It may also be worthwhile for SEBI to clarify on the treatment of the "Dividend Equalisation Reserve" when making dividend payments because although accounted for separately its inherent nature is really not too different from the Unit Premium Reserve. All said and done, there is no way we can look away from the fact that payment of dividends by mutual funds has in itself been a much questioned practice. Unfortunately even the most educated of investors have not seen through this witchcraft and continue to look for the "dividend track record" of mutual funds before selecting one to invest in. It's time we recognised that, unlike with equity, mutual fund dividends bring no benefit to investors because it's their own money which gets paid back to them. Of course, it does work to the benefit of those select few who can effectively plan their capital gains and get away with tax free dividends. The proposed Direct Taxes Code may after all set this anomaly right. The extent to which dividend declarations come down from now on will possibly indicate the impact this clarification has had. However, the ordinary investor I would believe remains entirely untouched. Similarly, the mention on additional management fees and revenue sharing in FoF (Fund of Funds) are also meant as clarifications of existing regulations and I do not believe will materially impact the investor or mutual funds. Finally the role of Mutual Funds in the "Corporate Governance" of listed companies in whose shares they have invested in has been discussed extensively over the past couple of months. AMFI had already activated an electronic platform for its members to share their corporate actions and SEBI's new requirements though provide a framework to the issue, are an extension of the same. It is now required that AMCs disclose on their websites and half- yearly accounts, their general policies and procedures to determine the manner in which voting rights can be exercised on the shares held by them (in mutual funds). SEBI has provided a disclosure format which calls for showing if the vote was for/against; to ensure an element of standardisation in disclosures. AMCs are also required to disclose on their website the manner in which they exercised their votes on specific topics listed by SEBI in this circular e.g. changes in the state of incorporation, mergers and
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other corporate restructuring, management remuneration, appointment and removal of directors and most importantly on those issues which impact shareholders in general and unit holders in particular. The increasing dominance of institutional investors in stock markets has made it imperative for both regulators and investors to understand the motives and actions of these influential market players. Institutional players can threaten managements by selling their holdings because it will depress the stock and also influence them by voting against them. The manner in which voting rights are exercised will also indicate the level of corporate governance in the mutual funds. It could also bring to fore instances of collusion with the managements in order to manipulate minority shareholder interests and even stock prices. Also with increasing participation by foreign institutions it is important for all concerned to know their voting patterns, the issues they support or oppose and their corporate governance standards in general. Most developed markets especially in democratic countries require public disclosure of voting patterns. In the United States, where about 25 percent of the stock is held by mutual funds, the Institutional Shareholder Services (ISS) Voting Analytics Database is an independent service which provides the voting recommendations for every proposal in the Russell 3000 Index Companies. Considering Indian markets have just about commenced their journey to establishing a global presence its about time we too adopt such best practices in corporate action disclosure and governance.

SUGGESTIONS
The followings are some of the suggestions which the Mutual Fund Industry should follow in order to project its image successfully: The investors are not willing to invest in mutual fund unless a minimum return is assured, it is very essential to create in the mind of the investors that mutual funds are market instruments which are associated with market risk & hence mutual fund could not offer guaranteed income. All the mutual funds are operated only in the public sector, hence private sector must be allowed to float mutual funds, intensifying competition in this industry. Steps should be taken for funds to make fair and truthful disclosures of information to the investors, so that subscribers know what risk they are taking by investing in fund.
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Uniform coordinated regulations by a single agency would be formed to provide the shelter to the investors. Mutual fund can penetrate rural areas like the Indian insurance industry with simple and limited products. Mutual funds need to take advantage of modern technology like computer and tele-communications to provide service to the investors.

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ANALYSIS AND CONCLUSION

The Indian mutual fund industry is witnessing a rapid growth as a result of infrastructural development, increase in personal financial assets, and rise in foreign participation. There are many of factors contributing to this phenomenon. The present research is an attempt to analyse the influence of fundamental factors such as economy, industry and company on the performance of mutual funds. Effort has been made to carry out an in-depth analysis of the economy through collection of monthly data pertaining to the key macro economic variables covering a period of 228 months spread over 19 years. The causal relationship between real economic variables and their impact on the performance of mutual funds has been studied with the help of descriptive statistics consisting of suitable test statistics, correlation matrix, Augmented Dickey-Fuller (ADF) test, and Granger causality test. To appraise the mutual fund industry in a lucid style, various aspects such as Assets Under Management (AUM), investor type and product classification have been studied with the help of percentage analysis. Finally, the fundamental soundness of the company has been gauged against the chosen parameters with the support of descriptive statistics, correlation matrix, simple regression and multiple regressions. With the growing risk appetite, rising income, and increasing awareness, mutual funds in India are becoming a preferred investment option compared to other investment avenues like Fixed Deposits (FDs) and postal savings that are considered safe but give comparatively low returns. But before investing in mutual funds, investors have to analyse the factors of the economy, industry and company within the investment environment in which they operate. There are several macro economic factors having influence on the investment choices. The investigator intends to study more particularly, the impact of quantitative economic variables on the investment of mutual funds. The trends of the industry also have to be examined from time to time. In response to the changing circumstances, the fund houses have introduced a host of interesting technological innovations to grab the attention of the investors. Investors need to correctly appraise the risks and rewards of investing in schemes which seek to offer attractive returns. Against this backdrop, the current research has been undertaken following the Economy, Industry and Company (EIC) Approach of mutual funds. The Mutual Fund under consideration is the Reliance Capital Asset Management Limited (RCAML) the market leader, as a case study.
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Some of the traditional, distinguishing characteristics of mutual funds include the following: Investors purchase mutual fund shares from the fund itself (or through a broker for the fund) instead of from other investors on a secondary market, such as the New York Stock Exchange or Nasdaq Stock Market. The price that investors pay for mutual fund shares is the fund's per share net asset value (NAV) plus any shareholder fees that the fund imposes at the time of purchase (such as sales loads). Mutual fund shares are "redeemable," meaning investors can sell their shares back to the fund (or to a broker acting for the fund). Mutual funds generally create and sell new shares to accommodate new investors. In other words, they sell their shares on a continuous basis, although some funds stop selling when, for example, they become too large. The investment portfolios of mutual funds typically are managed by separate entities known as "investment advisers" that are registered with the SEC. The Indian mutual fund industry is operating by different fund houses and categorised into three major groups such as Bank Sponsored, Institutions and Private Sector. Further based on the nationalities of sponsoring / controlling entities, these groups can be classified into Indian, Foreign and Joint Ventures, the last category can be divided into - Predominantly Indian and - Predominantly Foreign (see Table 5). Currently (as on 31st March 2010), 38 mutual fund players were operating in India. Among all the players Reliance, HDFC, ICICI Prudential, UTI and Birla Sun Life stood in the top five positions with 14.54%, 12.31%, 10.80%, 10.33% and 9.04% respectively contributing 57.02% of total assets under management of the industry; while the remaining 33 players shared the rest of the 42.98% of the industry (see Table 5). Out of the top five players, Reliance is purely Indian player. HDFC, ICICI Prudential and Birla Sun Life are all predominantly Indian cross-border joint ventures, while UTI, the former monopolist is an Indian financial institution. The industry is dominated by private sector funds with about 75% of AUM followed by bank sponsored (19 per cent) and institutions (6%) (see table 5). The Industry is now offering all most all broad types of schemes that are offered around the world. The industry is offering 92.96% of
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open ended schemes and 7.04% of closed ended schemes. In the open ended category of funds, 60.99% are income schemes, 21.38% are growth schemes, 11.33% are liquid/money market funds, 2.88% are ELSS, 2.18% are balanced funds,0.46% are Gilt funds, 0.39% FOF investing overseas, 0.23% are Gold ETF, and the remaining 0.17% are other EFT schemes (see Table 6). In the closed ended category of funds the industry is offering only few varieties of schemes - 58.09% are income schemes, 33.37% are Growth funds, 5.63% are ELSS and 2.91% are balanced funds (see Table 6). The investment contribution of different investors paved a way for a massive growth of mutual fund industry in the recent years. The break up of the aggregate mutual fund market by investor type for different product categories can be seen in the Table 7. Corporate assets account for over half of the total assets under management (50.99%), while the Retail investors account for 26.60%, High Networth Individuals (investing five lakhs and above) make up about 18.63%, Banks / Financial Institutions contribute 2.95% and the remaining share of 0.83% by FIIs (see Table 7). When analysed on the basis of schemes, it is clear that Debt oriented schemes dominated by 51.57% followed by equity schemes, liquid/money market schemes, balanced schemes. It is evident from the study that the real economic variables considered during the period of study are not significantly influencing the investment in mutual funds and even to predict the market movements. The study has shown that, the state of the economy neither significant bearing on the mutual fund market nor on the health of mutual funds. The study thus highlights the fact that there are certain other macro economic factors that might be exerting influence on the investment of mutual funds. Future research could be carried out in that direction. The industry analysis has revealed the fact that the entire mutual fund industry is dominated by a few players with big chunk of their Assets under Management (57 percent). Further, the study revealed the fact closed-ended funds have lost their utility with the investing public. Company analysis has shown that P/B Ratio and P/E ratio have great impact on the returns produced by a fund followed by fund size and market capitalisation.

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BIBLIOGRAPHY

WEBSITES: www.hseindia.com www.nseindia.com www.amfiindia.com www.hdfc.com www.icicidirect.com REFERENCE BOOKS: FINANCIAL INSTITUTIONS AND MARKETS - L.M.BHOLE INVESTMENT MANAGEMENT - V.K.BHALLA

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