MUTUAL FUND

Worldwide, Mutual Funds or the Unit Trust as it is called in some parts of the world has a long and successful history. The popularity of the Mutual Fund has increased manifold. In developed Financial Markets, like the United States, Mutual Funds have almost overtaken bank deposits and total assets of insurance funds. As on date, in the US alone there are over 5,000 Mutual Funds with total assets of over Rs.100 lakhs crores. In India Mutual Fund Industry started with the setting up of UTI in 1964. Public Sector Banks and Financial Institutions began to establish Mutual Funds in 1987. The Private Sector and Foreign Institutions were allowed to set up Mutual Funds in 1993. Today, there are over 45 Mutual Funds and over 994 Schemes with total assets of approximately Rs.5,00,973 Crores. This fast growing industry is regulated by the SEBI. There are a lot of investment avenues available today in the financial market for an investor with an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds where there is low risk but low return. He may invest in Stock of companies where the risk is high and the returns are also proportionately high. The recent trends in the Stock Market have shown that an average retail investor always lost with periodic bearish tends. People began opting for portfolio managers with expertise in stock markets who would invest on their behalf. Thus we had wealth management services provided by many institutions. However they proved too costly for a small investor. These investors have found a good shelter with the mutual funds. Mutual fund industry has seen a lot of changes in past few years with multinational companies coming into the country, bringing in their professional expertise in managing funds worldwide. In the past few months there has been a consolidation phase going on in the mutual fund industry in India. Now investors have a wide range of Schemes to choose from depending on their individual profiles.

My study gives an overview of mutual funds definition, types, benefits, risks, limitations, history of mutual funds in India, latest trends, global scenarios. I have analyzed a few prominent mutual funds schemes and have given my findings.

NEED OF THE STUDY

It also helps in understanding different schemes of mutual funds. Because my study depends upon prominent funds in India and their schemes like equity, income, balance as well as the returns associated with those schemes. The project study was done to ascertain the asset allocation, entry load, exit load, associated with the mutual funds. Ultimately this would help in understanding the benefits of mutual funds to investors.

OBJECTIVE OF THE STUDY

To study about Mutual Fund Industry in India. To understand the various types of Mutual Fund available to the investor. To understand the performance and benefits of Mutual Funds. To conduct a Market study & find the fund preference and awareness of full schemes of Asset Management Company (AMC) & dividend option. To find out risk & return of mutual fund

SCOPE OF THE STUDY

The scope of the project is limited to some prominent mutual funds in the mutual fund industry. I analyzed the funds depending on their schemes like equity, income, balance. But there is so many other schemes in mutual fund industry like specialized (banking, infrastructure, pharmacy) funds, index funds etc.

METHODOLOGY OF THE STUDY

This study is basically depends on Primary Data Secondary Data

Primary data
The primary data collected from the discussions with mangers, heads, also interacting with other intermediaries.

Secondary data
The secondary data collected from the different sites, broachers, news papers, company offer documents, different books and through suggestions from the project guide and from the faculty members of College.

LIMITATIONS OF THE STUDY

The study is conducted in short period, due to which the study may not be detailed in all aspects. The study is limited only to the analysis of different schemes and its suitability to different investors according to their risk-taking ability. The study is based on secondary data available from monthly fact sheets, web sites; offer documents, magazines and newspapers etc., as primary data was not accessible. The study is limited by the detailed study of various schemes.

RECENT TRENDS IN MUTUAL FUND

The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these.

History of the Indian Mutual Fund Industry

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

First Phase 1964-87(UTI MONOPOLY)

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

Second Phase 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds)

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

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores.

Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of June 30, 2011, there were 38 funds, which manage assets of Rs.592250 crores under 376 schemes. India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change.

STRUCTURE OF MUTUAL FUNDS

Sponsor Company
Establishes MF as a Trust Registers MF with SEBI

Managed by a Board of Trustees

Mutual Fund

Hold Unitholders Fund in MF Ensure Compliance to SEBI Enter into Agreement with AMC

Appointed by Board of Trustees

Asset Management Company

Float, MF Funds Managers Fund as Per SEBI guidelines & AMC Agreement

Appointed by Trustees

Custodian

Provides Necessary Custodian Services

Appointed by AMC

Bankers

Provide Banking Services

Appointed by AMC

Registrars and Transfer Agents

Provide Registrars Services and act as a Transfers Agents

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COMPANY PROFILE

SSKI is a veteran equities solutions company with over 9 decades of experience in the Indian stock markets. The SSKI Group comprises of Institutional Broking and Corporate Finance. The Institutional broking division caters to domestic and foreign institutional investors, while the Corporate Finance Division focuses on niche areas such as infrastructure, telecom and media, SSKI has been voted as the Top Domestic Brokerage House in the research category, by the Euro Money survey and Asia Money survey. Sharekhan is also about focus. Sharekhan does not claim expertise in too many things. Sharekhan's expertise lies in stocks and that's what he talks about with authority. So when he says that investing in stocks should not be confused with trading in stocks or a portfolio-based strategy is better than betting on a single horse, it is something that is spoken with years of focused learning and experience in the stock markets. And these beliefs are reflected in everything Sharekhan does for you! Share khan Indias leading stockbroker is the retail arm of SSKI, An organization with over eighty years of experience in the stock market. With over 1529 outlets across 450 cities, and Indias premier online trading destinationswww.sharekhan.com ours customer enjoy multi-channel access at the stock markets, sharekhan offer you trade execution facilities for cash as well as derivatives on the BSE & NSE and most importantly we bring you investment advice tempered by eighty years of broking experience. Through our portal Sharekhan.com, weve been providing investors a powerful online trading platform, the latest news, research and other knowledgebased tools for over 5years now.

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We have dedicated terms for fundamental and technical research so that you get all the information you need to take the right investment decisions. With branches and outlets across the country, our ground network is one of the biggest in India. We have a talent pool of experienced professionals specially designated to guide you when you need assistance, which is why investing with us is bound to be a hassle-free experience for you!

1. Experience
SSKI has more than eight decades of trust and credibility in the Indian stock market. In the Asia Money Brokers poll held recently, SSKI won the Indias best broking house for 2004 award. Ever since it launched share khan as its retail broking division in February 2000, it has been providing institutional-level research and broking services to individual investors.

2. Technology
With our online trading account you can buy and sell shares in an instant from any PC with an Internet connection. You will get access to our powerful inline trading tools that will help you take complete control over your investment in shares.

3. Accessibility
In addition to our online and phone trading services, we also have a ground network of 1529 outlets across 450 cities in India where you can get personalized services.

4. Knowledge
In a business where the right information at the right time can translate into direct profit, you get access to wide range of information on our content- rich portal, Sharekhan.com. You will also get a useful set of knowledge-based tools that will empower you to take informed decisions.

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5. Convenience
You can all our Dial-n-Trade number to get investment and execute your transaction. We have a dedicated call-centre to provide this service via a toll-free number from anywhere in India.

6. Customer service
Our customer service team will assist you for any help that you need relating to transactions, billing, Demat and other queries, our customer service can be contacted via a toll-free number, email or live chat on sharekhan.com

7. Investment Advice
Sharekhan has dedicated research teams for fundamental and technical research. Our analysts constantly track the pulse of the market and provide timely investment advice to you in the form of daily research emails, online chat, printed reports on SMS on your phone A share khan outlet offers the following services. Free access to investment advice from Share khans research team Share khan Value Line (a fortnightly publication with reviews of

recommendations, stocks to watch out for etc Daily research reports and market review (High Noon, Eagle Eye) Pre-market Report (Morning Cuppa) Daily trading calls based on technical analysis Cool trading products (Daring Derivatives, Trading Ring and Market Strategy) Personalized advice Live market information Depository services: Demat and Remat transactions Derivatives trading (Futures and Options)

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Commodity trading (MCX &NCDEX) IPOS & MUTUAL FUNDS DISTRIBUTION Portfolio and management services Internet-based online trading: FAST Trade, Trade TIGER All you have to do is walk into any of our 1529 outlets across 450 cities in India

to get a host of trading related services - our friendly customer service staff will also help you with any accounts related queries you may have. Online BSE and NSE executions (through BOLT and NEAT terminals)

Brief Introduction about the Services at Share khan

Demat services:
Dematerialization and trading in the demat mode is the safer and faster alternative to the physical existence of securities. Demat as a parallel solution offers freedom from delays, thefts, forgeries, settlement risks and paper work. This system works through depository participants (DPs) who offer demat services and the securities are held in the electronic form for the investor directly by the Depository. Sharekhan Depository Services offers dematerialization services to individual and corporate investors. We have a team of professionals and the latest technological expertise dedicated exclusively to our demat department, apart from a national network of franchisee, making our services quick, convenient and efficient. At Sharekhan, our commitment is to provide a complete demat solution which is simple, safe and secure.

Equity shares
By investing in shares, investors basically buy the ownership right to the company. When the company makes profits, shareholders receive their share of the profits in the form of dividends. In addition, when company performs well and the future expectation from the company is very high, the price of the companys shares goes up in the market. This allows shareholders to sell shares at a profit, leading to capital gains.

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Investors can invest in shares either through primary market offerings or in the secondary market. The primary market has shown abnormal returns to investors who subscribed for the public issue and were allotted shares.

Stock Exchange
In a stock exchange a person who wishes to sell his security is called a seller, and a person who is willing to buy the particular stock is called as the buyer. The rate of stock depends on the simple law of demand and supply. If the demand of shares of company xyz is greater than its supply then price of its security increases. In Online Exchange the trading is done on a computer network. The sellers and buyers log on to the network and propose their bids. The system is designed in such ways that at any given instance, the buyers/sellers are bidding at the best prices. The transaction cycle for purchasing and selling shares online is depicted below:

Client

Member/ Broking firm.

Stock Exchange

Membe r/ Broking firm.

client

Transaction Cycle

Online services to suit your needs

With a Share khan online trading account, you can buy and sell shares in an instant! Anytime you like and from anywhere you like! We were amongst the pioneers of online trading in India and have launched sharekhan.com in February 2000.Since then, we have been at the forefront in understanding customer needs, analyzing trends and bringing innovation in our

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offerings. We have online trading products that are customized to the habits and preferences of investors as well as traders. You can choose the online trading account that suits your trading habits and preferences - the Classic Account for most investors and Trade TIGER for active day traders. Your Classic Account also comes with Dial-n-Trade completely free, which is an exclusive service for trading shares by using your telephone. CLASSIC ACCOUNT This account allows the client to trade through our website and is suitable for the retail investor. Our online trading website also comes. With Dial-n-Trade service that enables you to buy and sell shares by calling our dedicated toll free number 1-600-227050. TRADE TIGER Trade Tiger is a next generation online trading products that brings the power of your brokers terminal to your PC. It is ideal for active traders who transact frequently during movements. TRADE TIGER is an internet-based application available on a CD, which provides everything a trader needs on one screen, thereby, reducing the time required to execute a trade. KEY FEATURES OF TRADE TIGER A single platform for multiple exchange BSE & NSE (Cash & F&O), MCX, NCDEX, Mutual Funds, IPOs Multiple Market Watch available on Single Screen Multiple Charts with Tick by Tick Intraday and End of Day Charting powered with various Studies Graph Studies include Average, Band- Bollinger, Know Sure Thing, MACD, RSI, etc Apply studies such as Vertical, Horizontal, Trend, Retracement & Free lines

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User can save his own defined screen as well as graph template, that is, saving the layout for future use

User-defined alert settings on an input Stock Price trigger Tools available to guage market such as Tick Query, Ticker, Market Summary, Action Watch, Option Premium Calculator, Span Calculator

Shortcut key for FAST access to order placements & reports Online fund transfer activated with 12 Banks

FEATURES Trading a/c with Demat a/c. Online orders on Phone. Timely Advice and Research Reports. Banking gateways with five banks. (ICICI, HDFC, CITIBANK, UTI, IDBI, OBCetc)

Live streaming quotes. First year free demat a/c. Freedom from paper work. Trade from any net enabled PC. After- hour orders Mobile Alerts* Apply IPOS Online*

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RESEARCH- THE SCIENCE OF INVESTING

Research and in-depth knowledge of markets provide better analysis that speculations or reactions to rumors. Our teams of dedicated analysts are therefore, constantly at work to track performance and trends and determine and winners. Thats why all our trading products have extremely high success rates! Our research products are tailor-made to suit all your needs.

Long-term investing Intra-day & short-term trading High-income yields Hedging products and lots more

Investing in Mutual Funds through Share khan

We're glad to announce that you will now be able to invest in Mutual Funds through us! We've started this service for a few mutual funds, and in the near future will be expanding our scope to include a whole lot more. Applying for a mutual fund through us is open to everybody, regardless of whether you are a Share khan customer. To invest in a fund, all you have to do is download the application form, print it out, fill it in and send it over to us. We'll do the rest for you Investing in commodity.

You can place your orders through our dealers across all our branch/franchisee Toll free number 39702090 between 10 - 12 pm till market closes if you require terminal for MCX/NCDEX or both need RS1 lakh as margin money.

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KEY BENEFITS OF COMMODITIES@ SHAREKHAN

Track your Equity Holdings Track your Mutual Fund investments Logically organize your investments into folders Track News of the companies you specify Get financial statistics, charts and alerts on the companies you specify Get detailed reports on your all your investments

Portfolio management services

Can you Analyze the prices of 1,500 shares every morning? Can you Afford to gamble only on the recommendations from your friends and the information overload from magazines and financial dailies? And, of course, more importantly, if you happen to be a High Net worth Individual, do you have the time to judge which advice is reliable, authentic and has the least chance of failure? With the Share khan Team Managing Your Portfolio, you can be assured that your investments are in safe hands! We follow a multi-disciplined approach incorporating quantitative analysis, fundamental analysis and technical analysis. This multi-pronged approach enables us to provide risk-controlled returns for you. Right from choosing the combination of stocks most suitable for you based on your risk appetite to monitoring their movements and discussing them with you at special events. This is how we make investing completely hassle-free for you.

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Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatized entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). In terms of organization structure, the Board formulates larger policy issues and exercises over-all control. The committees constituted by the Board are broadbased. The Managing Director and a management team of professionals manage the day-to-day operations of the Exchange. The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-2005, the trading volumes on the Exchange showed robust growth. The Exchange provides an efficient and transparent market for trading in equity, debt instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified.

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The National Stock Exchange of India was promoted by leading financial institution at the behest of the government of India, and was incorporated in November 1992 as a tax-paying company. In April 1993 it was recognized as a Stock exchange under the Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE commenced operations in November 1994, while operations in the Derivatives segment commenced in June 2000. The National Stock Exchange of India (NSE) is one of the largest and most advanced stock markets in India. The NSE is the world's third largest stock exchange in terms of transactions. It is located in Mumbai, the financial capital of India. The NSE VSAT has 2791 terminals that cover 334 cities across India. NSE has remained in the forefront of modernization of India's capital and financial markets and its pioneering efforts include: Setting up the first clearing corporation "National Securities Clearing Corporation Ltd." in India. NSCCL was a landmark in providing novation on all spot equity market (and later, derivatives market) trades in India. Co-promoting and setting up of National Securities Depository Limited, first depository in India. Setting up of S&P CNX Nifty 50. NSE pioneered commencement of Internet Trading in February 2000, which led to the wide popularization of the NSE in the broker community. Being the first exchange that, in 1996, proposed exchange traded derivatives, particularly on an equity index, in India. After four years of policy and regulatory debate and formulation, the NSE was permitted to start trading equity derivatives three days after the BSE. Being the first exchange to trade ETFs (exchange traded funds) in India.

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In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government Control, statutory and autonomous regulatory boards with defined responsibilities, to cover both development & regulation of the market, and independent powers have been set up. Paradoxically this is a positive outcome of the Securities Scam of 1990-91. The regulatory body for the investment market in India. The purpose of this board is to maintain stable and efficient markets by creating and enforcing regulations in the market place. The Securities and Exchange Board of India is similar to the U.S. SEC. The SEBI is relatively new (1992) but is a vital component in improving the quality of the financial markets in India both to attract foreign investors and to protect Indian investors. Its main functions are providing for Regulating the business in stock exchanges and any other securities markets Registering and Regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner. Registering and Regulating the working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the Board may, by notification, specify in this behalf.

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Registering and Regulating the working of venture capital funds and collective investment schemes including mutual funds;

Promoting and Regulating self-regulatory organizations; Prohibiting fraudulent and unfair trade practices relating to securities markets; Promoting Investors' education and training of intermediaries of securities markets;

Prohibiting insider trading in securities; Regulating substantial acquisition of shares and takeover of companies; Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual funds and other persons associated with the securities market and intermediaries and self- regulatory organizations in the securities market;

Calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which is under investigation or inquiry by the Board.

Performing such functions and exercising such powers under the provisions of Securities Contracts (Regulation) Act, 1956, as may be delegated to it by the Central Government.

levying fees or other charges for carrying out the purpose of this section; Performing such other functions as may be prescribed.

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MUTUAL FUNDS
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial Goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Each Mutual Fund scheme has a defined investment objective and strategy. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, SEBI (Securities Exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of Sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes.

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The flow chart below describes broadly the working of a mutual fund: Fig: 2 Working of Mutual Funds

ORGANISATION OF MUTUAL FUNDS

There are many entities involved and the diagram below illustrates the Organization set up of a mutual fund. Fig: 3 Organization of a Mutual Fund:

Mutual funds have a typical organization in which five key parties or players or special bodies are involved. They are (a) the sponsor(s), (b) the Board of Trustees (BOT) or Trust Company, (c) Asset Management Company (AMC), (d) the custodian, (e) the Unit holders.

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They are usually formed by an investment adviser or manager or sponsor who selects and appoints a Board of Trustees, which, in turn, hires or contracts a separate Asset Management Company which is run by professional managers. The AMC conducts the necessary research, and based on it, manages the fund or portfolio. It is responsible for floating, managing, redeeming the schemes; it also handles the administrative chores. It receives the fees for the services rendered by it. The custodian is responsible for co-ordination with brokers, the actual transfer and storage of stocks, and handling the property of the trust. He is answerable to the AMC. As per the current regulations in force in India, every Mutual Fund proposed by a sponsor has to be set up as a trust under the Indian Trust Act, 1882 (and not as a company under the Companies Act, 1956). The UTI, however, was set up under a special UTI Act, 1963. All MFs have to be registered with the SEBI. It is required that the first four constituents of the MF should maintain an arms length relationship among themselves in order to reduce conflict or interests, and to safeguard the interests of the investors. Mutual funds can sell their units directly to the investors or they may employ the sales force of brokers and agents for that purpose.

IMPORTANT PARTICIPANTS IN MUTUAL FUNDS

The legal structure and organization of Mutual Funds as laid down by SEBI guidelines is as follows:

Sponsor
Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.

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 Trust
The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.

Trustee
Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and inter-alia ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner.

Asset Management Company (AMC)

The Trustee as the Investment Manager of the Mutual Fund appoints the AMC. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crore at all times.

Registrar and Transfer Agent

The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.

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MUTUAL FUND CLASSIFICATIONS

There are many types of Mutual Funds available to the investor. However, these different types can be grouped into certain classifications for better understanding. From the investors perspective there are three basic classifications of mutual funds.

Open- Ended Vs Closed- Ended Funds Open- Ended Funds

An Open- Ended Fund is one that has units available for sale and repurchase at all times. An investor can buy or redeem units from the fund itself at a price based on the Net Assets Value (NAV) per unit. Note that an open- ended fund is not obliged to keep selling/issuing new units at all times, and many successful funds stop issuing further subscriptions from new investors after they reach a certain size and think they cannot change a larger fund without adversely affecting profitability. On the other hand, an open- ended fund rarely denies to its investors the facility to redeem existing units, subject to certain obvious conditions. The units offered by these schemes are available for sale and repurchase on any business day at NAV based prices. Hence, the unit capital of the schemes keeps changing each day. Such schemes thus offer very high liquidity to investors and are becoming increasingly popular in India.

Closed- Ended Funds

Unlike an open- ended fund, the unit capital of a closed- ended fund is fixed, as it makes a one- time sale of a fixed number of units. Later on, unlike open- ended funds, close- ended funds do not allow investors to buy or redeem units directly from the funds. However, to provide the much needed liquidity to investors, many closeended funds get themselves listed on a stock exchange(s). Trading through a stock exchange enables the investors to buy or sell units of a closed- ended Mutual Fund from each other, through a stockbroker, in the same fashion as buying or selling shares of a company. The funds units may be traded at a discount or premium to NAV based on investors perceptions about the funds performance and other market

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factors affecting the demand for or supply of the funds units. Note that the number of outstanding units of a closed- ended fund does not vary on account of trading in the funds units at the stock exchange. On the other hand, funds often do offer buy-back of fund shares/units, thus offering another avenue for liquidity to close- ended fund investors. In this case, the Mutual Fund actually reduces the number of units outstanding with investors.

2. Load and no- load funds

Load Funds A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, If the fund has a good performance history. No-Load Funds A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase of sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work.

3. Tax- exempts Vs non- Tax- Exempt

Generally, when a fund invests in tax- exempt securities, it is called a taxexempt fund. In the U.S.A., for example, municipal bonds pay interest that is taxfree, while interest on corporate and other bonds is taxable. In India, after 1999 union budget, all of the dividend income received from any of the Mutual Fund is Tax- free in the hands of the investors. However, funds other than Equity Funds have to pay a distribution tax, before distributing income to investors. In other words, equity Mutual Fund Schemes are tax- exempt investment avenues, while other funds are taxable for distributable income.

29

MUTUAL FUNDS TYPES

All Mutual Funds would be either Close- ended or Open-ended, or either load or un-load. These Classifications are general. Once we have reviewed the fund classes, we are ready to discuss more specific types of funds. The fund Types are generally distinguished from each other by their investment objectives and types of securities they invest in. TYPES OF MUTUAL FUND SCHEMES

Investment Objective

Types of Schemes

Constitution

Equity Oriented

Debt Based

Hybrid

Open Ended

Closed Ended

Interval

Investment Objective
Schemes can be classified by way of their stated investment objective such as Growth Fund, Balanced Fund, and Income Fund etc.

Equity Oriented Schemes

These schemes, also commonly called Growth Schemes, seek to invest a majority of their funds in equities and a small portion in money market instruments. Such schemes have the potential to deliver superior returns over the long term. However, because they invest in equities, these schemes are exposed to fluctuations in value especially in the short term.

30

Equity schemes are hence not suitable for investors seeking regular income or needing to use their investments in the short-term. They are ideal for investors who have a long-term investment horizon. The NAV prices of equity fund fluctuates with market value of the underlying stock which are influenced by external factors such as social, political as well as economic. HDFC Growth Fund, HDFC Tax Plan 2000 and HDFC Index Fund are examples of equity schemes. Discussed below are the major types of equity funds, arranged in order of higher to lower risk level. a) Aggressive Growth Funds As the name suggests aggressive growth funds target maximum capital appreciation, invest in, less research or speculative shares and may not adopt speculative investment strategies to attain their objective of high returns for the investor. Consequently, they tend to be more volatile and riskier than other funds. b) Growth funds Growth funds invest in companies whose earnings are expected to rise at an above average rate. The primary objective of the growth Funds is capital appreciation over a three to five years span. Growth funds are therefore less volatile than funds that target aggressive growth.

c) Specialty Funds
These funds have a narrow portfolio orientation and invest only in companies that meet pre-defined criteria. However, most specialty funds tend to be concentrated funds, since diversification is limited to one type of investment. Clearly concentrated specialty funds tend to be more volatile than diversified funds.

i) Sector Funds: Sector funds portfolio consist of investments in only one

industry or sector of the market such as Information technology, Pharmaceuticals or FMCGs. Since Sector funds do not diversify into multiple sectors, they carry a higher level of sector and company specific risk than diversified equity funds.

31

ii) Offshore funds: These funds invest in equities in one or more foreign
countries thereby achieving diversification across country borders. These funds may invest in a single country

iii) (Hence riskier) or many countries (hence diversified). iv) Small- Cap Equity Funds: These funds invest in shares of companies with
relatively lower market capitalization than that of big, blue chip companies. They may thus be more volatile than other funds, as smaller companies shares are not very liquid in the market.

v) Option Income Funds: These funds do not exist in India, but Option Income
Funds write options on a significant part of their portfolio. While Options are viewed as risky instruments, they may actually help to control volatility, if properly used.

a) Diversified Equity Funds

A Fund that seeks to invest only in equities, except for a very small portion in liquid money market securities, but is not focused on any one or few sectors or shares, may be termed a diversified equity fund. While exposed to all equity price risks, diversified equity funds seek to reduce the sector or stock specific risk through diversification. They have mainly market risk exposure. Such general purpose but diversified funds are clearly at the lower risk level than growth funds.

b) Equity Index Funds

An index fund tracks the performance of a specific stock market index. The objective is to match the performance of the stock market by tracking an index that represents the overall market.

c) Value Funds
These funds try to seek out fundamentally sound companies whose shares are currently under priced in the market. Value funds have the equity market price

32

fluctuation risk, but stand often at a lower end of the risk spectrum in comparison with the growth funds.

d) Equity Income funds

These are equity funds that can be designed to give the investor a high level of current income along with some steady capital appreciation, investing mainly in shares of companies with high dividend yields. These funds are therefore less volatile and less risky than other equity funds.

Debt Based Schemes

These schemes, also commonly called Income Schemes, invest in debt securities such as corporate bonds, debentures and government securities. The prices of these schemes tend to be more stable compared with equity schemes and most of the returns to the investors are generated through dividends or steady capital appreciation. These schemes are ideal for conservative investors or those not in a position to take higher equity risks, such as retired individuals. However, as compared to the money market schemes they do have a higher price fluctuation risk and compared to a Gilt fund they have a higher credit risk. Debt funds are largely considered as Income funds as they do not target capital appreciation. Let us see Debt funds in this light.

a) Diversified Debt Funds

A debt fund that invests in all available types of debt securities, issued by entities across all industries and sectors is a properly diversified debt fund. They are less risky than a narrow- focus fund that invests in debt securities of a particular sector or industry.

b) Focused Debt Funds

Some debt funds have a narrower focus, with less diversification in its investments. Examples include sector, specialized and offshore funds. These funds are similar to the funds described in equity funds, except that debt funds have a

33

substantial part of their portfolio invested in debt instruments and therefore more income oriented and inherently less risky than equity funds.

c) High Yield Debt Funds

These funds seek to obtain higher interest returns by investing in debt instruments that are considered below investment grade. These funds tend to be more volatile than other debt funds, although they may earn higher returns as a result of the higher risks taken.

d) Assured Return Funds

Assured Return or Guaranteed Monthly Income Plans are essentially Debt/ Income Funds. They certainly reduce the risk level considerably, as compared to all other debt or equity funds.

e) Fixed Term Plan Series

Fixed Term Plans are essentially closed-end in nature, in that the Mutual Fund AMC issues a fixed number of units for each series only once and closes the issue after an initial offering period, like a closed end scheme offering.

f) Money Market Schemes

These schemes invest in short term instruments such as commercial paper (CP), certificates of deposit (CD), treasury bills (T-Bill) and overnight money (Call). The schemes are the least volatile of all the types of schemes because of their investments in money market instrument with short-term maturities and have become popular with institutional investors and high net worth individuals having short-term surplus funds.

g) Gilt Funds
This scheme primarily invests in Government Debt. Hence the investor usually does not have to worry about credit risk since Government Debt is generally credit risk free.

34

HYBRID FUNDS
We have seen that in terms of nature of financial securities held, there are three major mutual fund types: Money Market, Debt and Equity. Many Mutual funds mix these different types of securities in their portfolios. Such funds are termed hybrid funds as they have a dual equity/bond focus. a) Balanced Funds: A balanced fund is one that has a portfolio comprising debt instruments, convertible securities, and preference and equity shares. By investing in a mix of this nature, balanced funds seek to attain objectives of income, moderate capital appreciation and preservation of capital, and are ideal for investors with a conservative and long-term orientation. b) Growth and Income Funds: Unlike Income-focused or growth focused funds, these funds seek to strike a balance between capital appreciation and income for the investor. These funds would be less risky than pure growth funds, though more risky than income finds. c) Asset allocation Funds: Normally, an equity fund would have its primary portfolio in equities most of the time. Similarly, a debt fund would not have major equity holdings. In other words, their asset allocation is predetermined within certain parameters. Asset Allocation Funds that follow more stable allocation policies are more like balanced funds.

Index schemes
The primary purpose of an Index is to serve as a measure of the performance of the market as a whole, or a specific sector of the market. An Index also serves as a relevant benchmark to evaluate the performance of mutual funds.

Real Estate Funds

Specialized real estate funds would invest in real estates directly, or may fund real estate developers or lend to them directly or buy shares of housing finance companies or may even buy their securitized assets.

35

TYPES OF MUTUAL FUNDS OVERVIEW

TYPES OF MUTUAL FUNDS

Operational

Investment Objective

Asset class

Territory

Sector Closed ended

Growth(Capit al Appreciation)

Equity

Domestic Open ended Income (Dividend / Interest) Bond

Balanced Growth + income

Taxable

Tax Exempt

Internatio nal

Money Market (Highly Lquidity:<1yr)

Hybrid (Share + Bonds)

Single Country Fund

Index Tax Free

Regional Fund (eg.S.E. Asia)

Internation al /foreign

Money Market

Internatio nal Fund

Specializ ed

Fund of Funds

Globel Fund

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BENEFITS OF MUTUAL FUNDS

There are numerous benefits of investing in mutual funds and one of the key reasons for its phenomenal success in the developed markets like US and UK is the range of benefits they offer, which are unmatched by most other investment avenues. The benefits have been broadly split into universal benefits, applicable to all schemes and benefits applicable specifically to open-ended schemes.

Universal Benefits a) Affordability

A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. This amount today would get you less than quarter of an Infosys share! Thus it would be affordable for an investor to build a portfolio of investments through a mutual fund rather than investing directly in the stock market.

b) Diversification
The nuclear weapon in your arsenal is for your fight against Risk. It simply means that you must spread your investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.) and different sectors (auto, textile, information technology etc.). This kind of a diversification may add to the stability of your returns, for example during one period of time equities might underperform but bonds and money market instruments might do well enough to offset the effect of a slump in the equity markets. Similarly the information technology sector might be faring poorly but the auto and textile sectors might do well and may protect your principal investment as well as help you meet your return objectives.

37

c) Variety
Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two ways: first, it offers different types of schemes to investors with different needs and risk appetites; secondly, it offers an opportunity to an investor to invest sums across a variety of schemes, both debt and equity. For example, an investor can invest his money in a Growth Fund (equity scheme) and Income Fund (debt scheme) depending on his risk appetite and thus create a balanced portfolio easily or simply just buy a Balanced Scheme.

d) Professional Management
Qualified investment professionals who seek to maximize returns and minimize risk monitor investor's money. When you buy in to a mutual fund, you are handing your money to an investment professional that has experience in making investment decisions. It is the Fund Manager's job to (a) find the best securities for the fund, given the fund's stated investment objectives; and (b) keep track of investments and changes in market conditions and adjust the mix of the portfolio, as and when required.

e) Tax Benefits
Any income distributed after March 31, 2010 will be subject to tax in the assessment of all Unit holders. However, as a measure of concession to Unit holders of open-ended equity-oriented funds, income distributions for the year ending March 31, 2011, will be taxed at a confessional rate of 10.5%. In case of Individuals and Hindu Undivided Families a deduction up to Rs. 9,000 from the Total Income will be admissible in respect of income from investments specified in Section 80L, including income from Units of the Mutual Fund. Units of the schemes are not subject to Wealth-Tax and Gift-Tax.

38

f) Regulations
Securities Exchange Board of India (SEBI), the mutual funds regulator has clearly defined rules, which govern mutual funds. These rules relate to the formation, Administration and management of mutual funds and also prescribe disclosure and accounting requirements. Such a high level of regulation seeks to protect the interest of investors.

Benefits of Open-ended Schemes a) Liquidity

In open-ended mutual funds, you can redeem all or part of your units any time you wish. Some schemes do have a lock-in period where an investor cannot return the units until the completion of such a lock-in period.

b) Convenience
An investor can purchase or sell fund units directly from a fund, through a broker or a financial planner. The investor may opt for a Systematic Investment Plan (SIP) or a Systematic Withdrawal Advantage Plan (SWAP). In addition to this an investor receives account statements and portfolios of the schemes.

c) Flexibility
Mutual Funds offering multiple schemes allow investors to switch easily between various schemes. This flexibility gives the investor a convenient way to change the mix of his portfolio over time.

d) Transparency
Open-ended mutual funds disclose their Net Asset Value (NAV) daily and the entire portfolio monthly. This level of transparency, where the investor himself sees the underlying assets bought with his money, is unmatched by any other financial instrument. Thus the investor is in the know of the quality of the portfolio and can invest further or redeem depending on the kind of the portfolio that has been constructed by the investment manager.

39

RISK HIREARCHY OF MUTUAL FUND

Source: Secondary Data

Equity Funds Gilt Funds Money Market Funds Debt Funds Hybrid Funds

Aggressive Growth Funds

R I S K L E V E L

Flexible Asset Allocation Funds

Growth Funds High Yield Debt Funds

Diversified Equity Funds

Index Funds

Focused Debt Funds Value Funds Growth and Income Funds Equity Income Funds

Balanced Funds Diversified Debt Funds Gilt Funds Money Market Funds

TYPE OF FUND

40

PARAMETERS DESCRIPTION
The following parameters were considered for analysis Beta Alpha Correlation coefficient Treynors Ratio Sharpes Ratio Jensens Ratio

Beta
Beta is a measure of volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole. Beta measures a stock's volatility, the degree to which a stock price fluctuates in relation to the overall market. Investment analysts use the Greek letter beta, . It is calculated using regression analysis. A beta of 1 indicates that the security's price will move with the market. A beta greater than 1 indicates that the security's price will be more volatile than the market, and a beta less than 1 means that it will be less volatile than the market. While standard deviation determines the volatility of a fund according to the disparity of its returns over a period of time, beta, another useful statistical measure, determines the volatility, or risk, of a fund in comparison to that of its index. Investors expecting the market to be bullish may choose funds exhibiting high betas, which increase investors' chances of beating the market. If an investor expects the market to be bearish in the near future, the funds that have betas less than 1 are a good choice because they would be expected to decline less in value than the index. For example, if a fund had a beta of 0.5 and the S&P 500 declined 6%, the fund would be expected to decline only 3%. Be aware of the fact that beta by itself is limited and can be skewed due to factors of other than the market risk affecting the fund's volatility.

41

Here is a basic guide to various betas:

Negative beta - A beta less than 0 is possible but highly unlikely. People used
to think that gold and gold stocks should have negative betas because they tended to do better when the stock market declined, but this hasn't been true overall.

Beta = 0 - Basically this is cash (assuming no inflation). Beta between 0 and 1 - Low-volatility investments, such as utilities, are
usually in this range

Beta = 1 - This is the same as an index, such as the S&P 500 or some other
index fund.

Beta greater than 1 - This denotes anything more volatile than the broadbased index, like a sector fund.

Beta greater than 100 - This is impossible because the stock would be
expected go to zero on any decline in the stock market. The beta never gets higher than two to three. The beta value for an index itself is taken as one. Equity funds can have beta

values, which can be above one, less than one or equal to one. By multiplying the beta value of a fund with the expected percentage movement of an index, the expected movement in the fund can be determined. Thus if a fund has a beta of 1.2 and the market is expected to move up by ten per cent, the fund should move by 12 per cent Similarly if the market loses ten per cent, the fund should lose 12 per cent. This shows that a fund with a beta of more than one will rise more than the market and also fall more than market. Clearly, if you'd like to beat the market on the upside, it is best to invest in a high-beta fund. But you must keep in mind that such a fund will also fall more than the market on the way down. So, over an entire cycle, returns may not be much higher than the market.

42

Similarly, a low-beta fund will rise less than the market on the way up and lose less on the way down. When safety of investment is important, a fund with a beta of less than one is a better option. Such a fund may not gain much more than the market on the upside; it will protect returns better when market falls.

Alpha
A measure of risk is used for mutual funds with regards to their relation and the market. A positive alpha is the extra return awarded to the investor for taking a risk, instead of accepting the market return The formula for alpha is: Alpha = [ (sum of y) - ((b)(sum of x)) ] / n n =number of observations (36 mos.) b = beta of the fund x = rate of return for the market y = rate of return for the fund Alpha measures how much if any of this extra risk helped the fund outperform its corresponding benchmark. Using beta, alpha's computation compares the fund's performance to that of the benchmark's risk-adjusted returns and establishes if the fund's returns outperformed the market's, given the same amount of risk. For example, if a fund has an alpha of 1, it means that the fund outperformed the benchmark by 1%. Negative alphas are bad in that they indicate that the fund under performed for the amount of extra, fund-specific risk that the fund's investors undertook.

Standard Deviation
Standard deviation is probably used more than any other measure to describe the risk of a security (or portfolio of securities). If you read an academic study on investment performance, chances are that standard deviation will be used to gauge risk. It's not just a financial tool, though. Standard deviation is one of the most commonly used statistical tools in the sciences and social sciences. It provides a

43

precise measure of the amount of variation in any group of numbers--the returns of a mutual fund.

A measure of the dispersion of a set of datai from its mean. The more spread apart the data is, the higher the deviation. Standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility (risk). A volatile stock would have a high standard deviation. In mutual funds, the standard deviation tells us how much the return on the fund is deviating from the expected normal returns. Standard deviation is a statistical measure of the range of a fund's performance. When a fund has a high standard deviation, its range of performance has been very wide, indicating that there is a greater potential for volatility. Technically speaking, standard deviation provides a quantification of the variance of the returns of the security, not its risk. After all, a fund with a high standard deviation of returns is not necessarily "riskier" than one with a low-standard deviation of returns.

Correlation
Correlation is a useful tool for determining if relationships exist between securities. A correlation coefficient is the result of a mathematical comparison of how closely related two variables are. The relationship between two variables is said to be highly correlated if a movement in one variable results or takes place at the same time as a similar movement in another variable. A useful feature of correlation analysis is the potential to predict the movement in one security when another security moves. Sometimes, there are securities that lead other securities. In other words a change in price in one results in a later change in price of the other. A high negative correlation means that

44

when a securities price changes, the other security or indicator or otherwise financial vehicle, will often move in the opposite direction. Correlation analysis is a measure of the degree to which a change in the independent variable will result in a change in the dependent variable. A low correlation coefficient (e.g., 0.1) suggests that the relationship between the two variables is weak or non-existent. A high correlation coefficient (e.g., 0.80) indicates that the dependent variable will most likely change when the Independent variable changes. Correlation can also be used for a study between an indicator and a stock or index to help determine the predictive abilities of changes in the indicator. Correlation is not static. In other words, the correlation between two things in the markets does change over time and so a careful understanding that what has happened in the past may not predict what will happen in the future should be part of any basis in trading financial instruments in the market.

PORTFOLIO MEASUREMENT METHODS

We are interested in discovering if the management of a mutual fund is performing well; that is, has management done better through its selective buying and selling of securities than would have been achieved through merely buying the market picking a large number of securities randomly and holding them throughout the period? The most popular ways of measuring managements performance are 1. Sharpes Performance Measure 2. Treynors Performance Measure 3. Jensens Performance Measure

45

SHARPES RATIO
Sharpes is the summary measure of portfolio performance which properly adjusts performance for risk. It measures the risk premiums of the portfolio relative to the total amount of risk in the portfolio. The Sharpes index is given by: Sharpes Index = (Average return on portfolio Risk less rate of interest) (Deviation of returns on portfolio) Graphifically the index measures the slope of the line emanating from the risk less rate outward to the portfolio in question. Thus, the Sharpe Index summarizes the risk and return of a portfolio in a single measure that categorizes the performance of the fund on a risk-adjusted basis. The larger the value of Sharpe Index the better the portfolio has performed.

TREYNORS RATIO
Treynors ratio measures the risk premium of the portfolio, where risk premium equals the difference between the return of the portfolio and the risk less rate. The risk premium is related to the amount of systematic risk assumed in the portfolio. Graphically; the index measures the slope of the line emanating outward from risk less rate to the portfolio under consideration. Treynors ratio is given as (Average return of portfolio Risk less rate of interest) -----------------------------------------------------------------Beta coefficient of portfolio

Treynor

Index

46

Jensens Performance Measure (Michael)

It refers the actual return earned in portfolio and return expected out of portfolio given its level of risk. CAPM is used to calculate the expected return. The difference between the expected return and act retain can be said the return earned out of the mandatory of systematic risk. This excess return refers the managers predictive ability and managerial skills. CAPM rp = rf + (rm rf) Differential return is calculated as follows: p = rp - rp p =positive > Superior returns p = Negative > Unskilled management (worse portfolio) p = 0 > Neutral performance Higher alpha represents superior performance of a fund and vice versa.

47

ANALYSIS FROM QUETIONNAIRE

AGE OF INVESTOR Table 4.1
Age Level Minor Between 18&40 Between 40&60 Above 60 Total Source: Primary Data Chart 4.1 No: of Respondents 0 45 37 18 100

0% 18% 45% 37%

Minor Between 18 & 40 Between 40 & 60 Above 60

Interpretation
From the table no 4.1 analysis, it is clear that, majority of 45 percent of respondents comes under the age limit of between 18&40, whereas 37 percent of respondents are between 40&60, respondents of above 60 are of 18 percent and minors are of Zero percent.

48

GENDER OF INVESTORS
Table 4.2

Gender Male Female Total Source: Primary Data Chart 4.2

No: Of Respondents 66 34 100

34% 66%

Male Female

Interpretation
The above table no. 4.2 shows that Out of the respondents, majority of the respondents are male investors, they are of 66 percent of total respondents, whereas Female respondents are of only 34 percent.

49

OCCUPATION OF INVESTORS
Table 4.3

Occupation Business Employees Student Others Total Source: Primary Data

No: Of Respondents 30 33 12 25 100

Chart 4.3

25%

30% Business Profession Student

12%

Others

33%

Interpretation
The above table 4.3 shows that majority of respondents of 33 percent are employees, 30 percent are Business Persons, 25 percent of respondents are other occupation holders and only 12 percent of respondents are students.

50

STATUS OF INVESTOR
Table 4.4 Type of investor New Investor Existing Investor Total Source: Primary Data Chart 4.4 No: of Respondents 69 31 100

31%

New Investor 69% Existing Investor

Interpretation
The above 4.4 table shows that Out of the 100 respondents answered, majority of respondents are New Investors in the Mutual Fund. Their Percentage is 69. Whereas the no. of Existing Investors in the Mutual Fund is less, which is of 31 per cent, as compared with New Investors.

51

MODE OF KNOWLEDGE ABOUT MUTUAL FUNDS

Table 4.5 Mode Of knowledge News Advertisement Friends Relatives Others Total Source: Primary Data Chart 4.5
News Advertisement Friends Relatives Others

No: of Respondents 23 36 21 11 9 100

9% 11% 23%

21% 36%

Interpretation
The above 4.5 table shows that, most of the respondents come to know about Mutual Funds by the way of Advertisement, 36 percent of Second Majority respondents got knowledge regarding mutual funds from News. Friends have influenced 21 percent of respondents. Relatives and others have only least influence in the respondents knowledge, they are 11 percent and 9 percent respectively.

52

INVESTORS COMPLETE KNOWLEDGE ON AMCs IN INDIA

Table 4.6 Attribute Yes No Total Source: Primary Data Chart 4.6 No: of Respondents 33 67 100

33% 67%

Yes No

Interpretation
From analysis of above 4.6 table it is clear that the no.of respondents having complete knowledge regarding all the Mutual Fund Schemes in India are less. Here the percentage of respondents those who dont have complete knowledge about the Mutual Fund Schemes in India is 67. Those who have a very little knowledge about it are only 33.

53

FUND PREFERENCE FOR INVESTMENT

Table 4.7 Type Of Funds Open-ended Funds Close-ended Funds Total Source: Primary Data Chart 4.7 No: of Respondents 76 24 100

24%

Open-ended funds 76% Close-ended funds

Interpretation:
From the above 4.7 table On the available major division of the Mutual Funds, majority of 76 percent of respondents prefer to invest their money in Open-ended Funds than Close-ended Funds, where only 24 percent of show their investment interest.

54

INVESTORS PREFERENCE OF FUNDS

Table 4.8 Fund Sub-category Income Funds Debt Funds Balanced Funds Liquid Funds Gilt Funds Total No: of Respondents 33 27 13 18 9 100

Source: Primary Data

Chart 4.8

Income fund 9% 18% 13% 27% 33% Debt fund Balanced fund Liquid fund Gilt fund

Interpretation
The above table no. 4.8 shows that, among the various Sub-category Funds, majority of respondents of 33 percent prefer to put their money in the Income Funds. 27 percent of respondents chose Debt Funds for their investment. Respondents of 18 and 13 percent prefer liquid Funds and Balanced Funds respectively. The respondents are less preferring gilt Funds, which is of 9 percent.

55

AWARENESS OF FULL SCHEMES OF THE AMC

Table 4.9

Attributes Yes No Total Source: Primary Data Chart 4.9

No: of Respondents 47 53 100

Yes 47% 53% No

Interpretation
From the above table no.4.9 analysis, only 47 percent of respondents have complete awareness on the full schemes offered by the AMC, which they have opted for investing their money. A majority of 53 percent of respondents have only little knowledge on the Full Schemes offered by their AMC.

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CATEGORY OF AMC CHOSEN BY INVESTOR

Table 4.10

Category of AMC Bank Sponsored Institution Pvt Sector-Indian Pvt Sector-Foreign Joint Venture Total Source: Primary Data Chart 4.10
Bank Sponsored Pvt Sector-Foreign Institution Joint Venture

No: of Respondents 38 11 19 9 23 100

Pvt Sector-Indian

23% 38% 9% 19%

11%

Interpretation
From the analysis of above table no. 4.10 out of the 100 respondents, a majority of 38 percent has selected Bank Sponsored AMC; secondly Joint Venture AMC is selected by 23 percent of respondents. Private Sector- Indian AMC is preferred by 19 percent of respondents. Institutional and Private Sector Foreign are selected as the choice of investment by a less percent of respondents, which is of 11 and 9 percentage respectively.

57

DIVIDEND OPTION OF INVESTOR

Table 4.11

Dividend Option Dividend Payment Dividend Re-investment. Total Source: Primary Data

No: of Respondents 55 45 100

Chart 4.11

45% 55%

Dividend Payout

Dividend Re-invmt.

Interpretation
From the analysis of above table no. 4.11 it is clear that majority of 55 percent of respondents chose for Dividend Payout Option, than Dividend Re-investment, which is being opted by less percent of respondents, of 45 in number.

58

LEVEL OF SATISFACTION ON DIVIDEND RATE

Table 4.12 Level of satisfaction Highly Satisfied Satisfied Unsatisfied Highly Unsatisfied No Comment Total Source: Primary Data Chart 4.12
Highly Satisfied Unsatisfied No Comment Satisfied Highly Unsatisfied

No: of Respondents 5 58 2 0 35 100

5% 35%

58% 0% 2%

Interpretation
From the analysis of above table no.4.12 majority of 58 percent of respondents are satisfied with the Dividend Rate of the AMC, 35 percent of respondents have no comment on it. Only 5 percent of respondents are highly satisfied with the dividend rate of the AMC. A least percentage of 2 percent of, respondents are Unsatisfied with the dividend rate of the AMC. Zero respondents are highly unsatisfied with the dividend rates.

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INVESTOR PREFERANCE FOR SHIFT/SWITCH OF THE FUND HOLDINGS

Table 4.13 Attributes Yes No Total Source: Primary Data No: Of Respondents 9 91 100

Chart 4.13

9% Yes No

91%

Interpretation
From the above table no 4.13 Out of the total respondents, only 9 percent of have the intention of going for shift/switch of their fund holdings. 91 percent of respondents have no intention of going for Shift/ Switch of their Fund Holdings.

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AWARENESS OF BENEFITS PROVIDED BY AMC

Table 4.14 Attributes Yes No Total Source: Primary Data No: of Respondents 26 74 100

Chart 4.14

26% 74%

Yes

No

Interpretation
From the above table no. 4.14 Out of the 100 respondents, 74 percent of says that they are not aware of benefits provided by AMCs. Only 26 percent of them are aware of benefits provided by their AMC.

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FINDINGS
From the Market study it is found that most of the respondents are under the age limit of 18 to 40 years. Most of the respondents are male investors It is found that most of the investors are employees and then business holders. Majority of the investors are new investors. It is clear that now a days lots of new people are showing interest to invest in mutual funds. Most number of new investors gained their knowledge of investing in mutual funds through advertisement. Most of the respondents dont have complete knowledge about Mutual Fund Scheme in India. From the study it is found that investors prefer Open-Ended funds. From the study it is found the majority of the investors prefer income funds. It is found that most of the investors are aware of full schemes of mutual funds. Most of the investors like to choose Bank sponsored AMCs. Most of the investors like to receive the dividend payment rather than reinvestment. Majority of the Investors are satisfied with the dividend rate. Majority of the Investors have no intention of going for Swift/Switch of their fund holding. Majority of investors have awareness of benefits provided by AMCs.

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SUGGESTIONS
1) There is an intense need take up extensive awareness and promotional campaigns to reach out to more and more households and to make the households invest their savings in Mutual Fund Schemes, particularly equity schemes. 2) The record of performance and the standards of service are the twin strengths of Mutual Funds industry and on these strengths; the industry needs to build its household customers. 3) While institutions can continue to be serviced by AMCs and intermediaries, it is proposed that AMCs and the intermediary community focus more on individual investors and take every effort to: a) Provide high quality advice and product information to such customers. b) Explain and position this service in such a way that clients recognize it as a specialized and value added service, a task which may be difficult to accomplish on their own. c) Convince investors that the transaction and intermediation cost they are paying is justified in lieu of the long-term benefits accruing from such counseling and guidance. 4) The Mutual Fund industry has to now take the more difficult but long-term sustainable route of gathering assets from individual investors by providing them value added, financial planning services and ensuring that Mutual Funds are an integral part of their overall portfolio. a) Each investor, institutional or individual, receives the exact level of service they choose and correct advice based on clear and concrete facts and figures. Correspondingly, the intermediation and transaction cost investors incur should reflect the value of the service and advice they receive. b) Mutual Funds are accurately represented and appropriately positioned to investors, whichever channel or mode they choose to invest in. The industry should safeguard the investors right towards correct description of the product, good service, transparency and ability to take informed decisions. c) There is comprehensive knowledge and understanding of Mutual Funds amongst all individuals instrumental in selling the Mutual Fund schemes to investors including employees of intermediaries, individual agents and financial planners.

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CONCLUSIONS
The mutual fund industry in India started in 1963, with the formation of UNIT TRUST OF INDIA at the initiative of government of INDIA & RESERVE BANK. The main objective is to attract the small investors & to introduce them to market investments, the study of mutual fund industry divided in to four distinct phases. There are many types of mutual funds available to the investor, these different types can be grouped in to certain classification for better understanding, from the investor perspective there are three basic classifications of mutual funds, they are, OPEN ENDED FUNDS VS CLOSE ENDED FUNDS, 2) LOAD& NO LOAD FUNDS, 3) TAX EXEMPT & NO TAX EXEMT. And there are so many types of mutually sub classified from the above are available to investors There are numerous benefits of investing in mutual funds &one of the key reason for its phenomenal success in the developed markets like US &UK is the range of benefits they offer, the benefits have been broadly split in to universal benefits applicable to all schemes. The benefits are,

Affordability, diversification, variety of schemes offered, professional mgt, tax

benefit, regulation., liquidity, convenience, flexibility, transparency are the benefits of mutual funds.

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QUESTIONNAIRE
Name of the respondent Address : :

1) What is your Age? a) Minor c) Between 40 & 60 2) What is your Gender? a) Male 3) What is your Occupation? a) Business c) Student b) Employees d) Others b) Female b) Between 18 & 40 c) Above 60

4) Are you a new or existing investor? a) New investor b) Existing investor

5) How do you know about Mutual funds? a) News d) Relatives b) advertisement e) Others c) friends

6) Do you have complete knowledge on AMCs in India? a) Yes b) No

7) Which type fund do you prefer? a) Open - ended fund b) closed - ended fund 8) Which fund do you prefer to invest? a) Income funds d) Liquidity funds b) Debt funds c) Balanced Funds e) Gilt funds

9) Do you have full awareness on all types of schemes of AMCs? a) Yes b) No

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10) What are the categories of AMCs chosen by you? a) Bank sponsored c) Private sector Indian 11) What is your Dividend option? a) Dividend payment b) Dividend re investment/growth b) Institutions d) Private sector foreign d) joint venture

12) What is your level of satisfaction on Dividend rate? a) Highly satisfied c) Unsatisfied b) satisfied d) highly unsatisfied e) No comment

13) Is there any preference for Swift / switch of fund building? a) Yes b) No

14) Are you aware of benefits provided by AMCs? a) Yes b) No

Signature

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BIBLIOGRAPHY
Security Analysis and Portfolio Management Fischer & Jordan Investment, Analysis and Management Francis Financial Markets and Institutions L.M. Bhole Investment Management (SAPM) Preeti Singh http://www.amfiindia.com (Association of Mutual Funds in India) http://www.moneycontrol.com http://www.valueline.com http://www.sebi.gov.in

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