A PROJECT REPORT ON MUTUTAL FUNDS WITH REFERENCE TO ICICI BANK LIMITED

A project report Submitted to the JNTUH University In partial fulfillment of the requirement for the award of MASTER OF BUSINESS ADMINISTRATION Submitted By XXXXXXXX Hall Ticket no.XXXXXXXX (KOMMURI PRATAP REDDY INSTITUTE OF TECHNOLOGY) AFFILIATED TO JNTUH UNIVERSITY HYDERABAD. 2011-13
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DECLARATION I, the undersigned, hereby declare that the project report entitled (MUTUAL FUNDS) carried out at (ICICI BANK LIMITED). Is my original work written and submitted by me in partial fulfillment of Master`s Degree in Business Administration of (JNTUH UNIVERSITY). I also declare that this project has not been submitted earlier in any other university or institution.

Date:

(XXXXXXXX)

ABSTRACT
Investments goals vary from person to person. While somebody wants security, others might give more weight age to returns alone. Somebody else might want to plan for his child's education while somebody might be saving for the proverbial rainy day or even life after retirement. With objectives defying any range, it is obvious that the products required will vary as well. Indian Mutual Funds industry offers a plethora of schemes and serves broadly all tope of investors. The range of products includes equity funds, debt, liquid, gilt and balanced funds. There are also funds meant exclusively for young and old, small and large investors. Moreover, the setup of a legal structure, which has enough teeth to safeguard investors interests, ensures that the investors are not cheated out of their hard earned money. All in all, benefits provided by them cut across the boundaries of investor category and thus create for them, a universal appeal. Investors of all categories could choose to invest on their own in multiple options but opt for Mutual Funds for the sole reason that all benefits come in a package. The Mutual Fund industry is having its hands full to cater to various needs of the investors by coming up with new plans, schemes and options with respect to rate of returns, dividend frequency and liquidity. In view of the growing competition in the Mutual Funds industry, it was felt necessary to study the investors orientation towards Mutual Funds i.e. their pattern of risk apatite and preferences in various schemes, plans and options in order to provide a better service,

ACKNOWLEDGEMENT

I take this opportunity to extend my profound thanks and deep sense of gratitude to the authorities of (ICICI BANK LIMITED). For giving me the opportunity to under take this project work in their esteemed organization. I profusely thank Mr. MANOJ (ASST. MANAGER) My sincere thanks to Honorable Vice chairman Sri K.Prashanth Reddy, principal Mr. M.Anand Rao . HOD and my project guide Mr. T.Ravi Kumar. For the kind encouragement and constant support extended in completion of this project work. From the bottom of my heart I am also thankful to all those who have incidentally helped me, through their valued guidance, co-operation and unstinted support during the course of my project.

XXXXXXXXX

INDEX
S.No:
1. CHAPTER-1
INTRODUCTION Scope of the Study Objectives of the Study Methodology of the Study Limitations of the Study
2.

CHAPTER

PAGE NO.
01-05

CHAPTER-1I
INDUSTRY PROFILE & COMPANY PROFILE

06-32

3.

CHAPTER-1II
REVIEW OF LITERATURE

33-63

4.

CHAPTER-1V
DATA ANALYSIS AND INTERPRETATION

64-80

5.

CHAPTER-V
FINDINGS SUGGESTIONS CONCLUSION
5

81-89

 BIBLIOGRAPHY

CHAPTER-I INTRODUCTION

INTRODUCTION

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns

NEED OF THE STUDY

1. Mutual funds are dynamic financial intuitions which play crucial role in an economy by mobilizing savings and investing them in the capital market. 2. The activities of mutual funds have both short and long term impact on the savings in the capital market and the national economy. 3. Mutual funds, trust, assist the process of financial deepening & intermediation. 4. To banking at the same time they also compete with banks and other financial intuitions. 5. India is one of the few countries to day maintain a study growth rate is domestic savings.

OBJECTIVES
1. To show the wide range of investment options available in MFs by explaining various schemes offered by different AMCs. 2. To help an investor to make a right choice of investment, while considering the inherent risk factors. 3. To understand the recent trends in the MF world. 4. To understand the risk and return of the various schemes. 5. To find out the various problems faced by Indian mutual funds and possible solutions.

SCOPE THE STUDY

1. 2. The study is limited to the analysis made for a Growth scheme offered by four AMCs. Each scheme is calculated their risk and return using different performance measurement

theories. 3. 4. Because of the reason for such performance is immediately analyzed in the issue. Graphs are used to reflect the portfolio risk and return.

RESEARCH METHODOLOGY & TOOLS

This study is basically depends on

1. Primary Data 2. Secondary Data

Primary data: The primary data collected from the different companies through enquiry.

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 our college. 9

TOOLS USED IN THIS PROJECT

The following parameters were considered for analysis: Beta Alpha Correlation coefficient Treynors Ratio Sharpes Ratio

ADVANTAGES OF THE MUTUAL FUNDS

1. 2. 3.

The investors risk is reduced to the minimum. The funds managers maximize the income of the funds. To achieve a similar degree of diversification, an individual investor as to spend

considerable and money. 4. 5. In a mutual fund, it is possible to reinvest the dividend and capital gains. Selection of shares debentures etc and timing is made available to investors. .

LIMITATIONS OF THE STUDY:

1. The study is conducted in short period, due to which the study may aspects. 10

not be detailed in all

2. The study is limited only to the analysis of different schemes and its suitability to different investors according to their risk-taking ability. 3. 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. 4. The study is limited by the detailed study of various schemes. 5. The NAVS are not uniform. 6. The data collected for this study is not proper because some mutual funds are not disclosing the correct information. 7. The study is not exempt from limitations of Sharpe Treynor and Jenson measure. 8. Unique risk is completely ignored in all the measure.

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CHAPTER-II LITERATURE REVIEW

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CONCEPT OF MUTUAL FUNDS

Like most developed and developing countries the mutual fund culture has been catching on in India. There are various reasons for this. Mutual funds make it easy and less costly for investors to satisfy their need for capital growth, income and/or income preservation. And in addition to this a mutual fund brings the benefits of diversification and money management to the individual investor, providing an opportunity for financial success that was once available only to a select few. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, -professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:

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Mutual Fund Operation Flow Chart

Organization of a Mutual

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BENEFITS OF MUTUAL FUNDS

Investing in mutual has various benefits which makes it an ideal investment avenue. Following are some of the primary benefits.

Professional investment management

One of the primary benefits of mutual funds is that an investor has access to professional management. A good investment manager is certainly worth the fees you will pay. Good mutual fund managers with an excellent research team can do a better job of monitoring the companies they have chosen to invest in than you can, unless you have time to spend on researching the companies you select for your portfolio. That is because Mutual funds hire full-time, high-level investment professionals. Funds can afford to do so as they manage large pools of money. The managers have real-time access to crucial market information and are able to execute trades on the largest and most cost-effective scale. When you buy a mutual fund, the primary asset you are buying is the manager, who will be controlling which assets are chosen to meet the funds' stated investment objectives.

Diversification
A crucial element in investing is asset allocation. It plays a very big part in the success of any portfolio. However, small investors do not have enough money to properly allocate their assets. By pooling your funds with others, you can quickly benefit from greater diversification. Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund unit-holders can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities.

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Low Cost
A mutual fund let's you participate in a diversified portfolio for as little as Rs.5,000, and sometimes less. And with a no-load fund, you pay little or no sales charges to own them.

Convenience and Flexibility

Investing in mutual funds has its own convenience. While you own just one security rather than many, you still enjoy the benefits of a diversified portfolio and a wide range of services. Fund managers decide what securities to trade, collect the interest payments and see that your dividends on portfolio securities are received and your rights exercised. It also uses the services of a high quality custodian and registrar. Another big advantage is that you can move your funds easily from one fund to another within a mutual fund family. This allows you to easily rebalance your portfolio to respond to significant fund management or economic changes.

Liquidity
In open-ended schemes, you can get your money back promptly at net asset value related prices from the mutual fund itself.

Transparency
Regulations for mutual funds have made the industry very transparent. You can track the investments that have been made on you behalf and the specific investments made by the mutual fund scheme to see where your money is going. In addition to this, you get regular information on the value of your investment.

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Variety
There is no shortage of variety when investing in mutual funds. You can find a mutual fund that matches just about any investing strategy you select. There are funds that focus on blue-chip stocks, technology stocks, bonds or a mix of stocks and bonds. The greatest challenge can be sorting through the variety and picking the best for you.

TYPES OF MUTUAL FUNDS

Getting a handle on what's under the hood helps you become a better investor and put together a more successful portfolio. To do this one must know the different types of funds that cater to investor needs, whatever the age, financial position, risk tolerance and return expectations. The mutual fund schemes can be classified according to both their investment objective (like income, growth, tax saving) as well as the number of units (if these are unlimited then the fund is an open-ended one while if there are limited units then the fund is close-ended). This section provides descriptions of the characteristics -- such as investment objective and potential for volatility of your investment -- of various categories of funds. The type of securities purchased by each fund organizes these descriptions: equities, fixed-income, money market instruments, or some combination of these.

Open-Ended Schemes
Open-ended schemes do not have a fixed maturity period. Investors can buy or sell units at NAV-related prices from and to the mutual fund on any business day. These schemes have unlimited capitalization, open-ended schemes do not have a fixed maturity, there is no cap on the amount you can buy from the fund and the unit capital can keep growing. These funds are not generally listed on any exchange.

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Open-ended schemes are preferred for their liquidity. Such funds can issue and redeem units any time during the life of a scheme. Hence, unit capital of open-ended funds can fluctuate on a daily basis. The advantages of open-ended funds over close-ended are as follows: Any time exit option. The issuing company directly takes the responsibility of providing an entry and an exit. This provides ready liquidity to the investors and avoids reliance on transfer deeds, signature verifications and bad deliveries. Any time entry option, an open-ended fund allows one to enter the fund at any time and even to invest at regular intervals.

Close-Ended Schemes
Close-ended schemes have fixed maturity periods. Investors can buy into these funds during the period when these funds are open in the initial issue. After that such schemes can not issue new units except in case of bonus or rights issue. However, after the initial issue, you can buy or sell units of the scheme on the stock exchanges where they are listed. The market price of the units could vary from the NAV of the scheme due to demand and supply factors, investors expectations and other market factors

Classification According To Investment Objectives

Mutual funds can be further classified based on their specific investment objective such as growth of capital, safety of principal, current income or tax-exempt income. In general mutual funds fall into three general categories: 1] Equity Funds are those that invest in shares or equity of companies. 2] Fixed-Income Funds invest in government or corporate securities that offer fixed rates of return are 3] While funds that invest in a combination of both stocks and bonds are called Balanced Funds. 19

Growth Funds
Growth funds primarily look for growth of capital with secondary emphasis on dividend. Such funds invest in shares with a potential for growth and capital appreciation. They invest in wellestablished companies where the company itself and the industry in which it operates are thought to have good long-term growth potential, and hence growth funds provide low current income. Growth funds generally incur higher risks than income funds in an effort to secure more pronounced growth. Some growth funds concentrate on one or more industry sectors and also invest in a broad range of industries. Growth funds are suitable for investors who can afford to assume the risk of potential loss in value of their investment in the hope of achieving substantial and rapid gains. They are not suitable for investors who must conserve their principal or who must maximize current income.

Growth and Income Funds

Growth and income funds seek long-term growth of capital as well as current income. The investment strategies used to reach these goals vary among funds. Some invest in a dual portfolio consisting of growth stocks and income stocks, or a combination of growth stocks, stocks paying high dividends, preferred stocks, convertible securities or fixed-income securities such as corporate bonds and money market instruments. Others may invest in growth stocks and earn current income by selling covered call options on their portfolio stocks. Growth and income funds have low to moderate stability of principal and moderate potential for current income and growth. They are suitable for investors who can assume some risk to achieve growth of capital but who also want to maintain a moderate level of current income.

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Fixed-Income Funds
Fixed income funds primarily look to provide current income consistent with the preservation of capital. These funds invest in corporate bonds or government-backed mortgage securities that have a fixed rate of return. Within the fixed-income category, funds vary greatly in their stability of principal and in their dividend yields. High-yield funds, which seek to maximize yield by investing in lower-rated bonds of longer maturities, entail less stability of principal than fixedincome funds that invest in higher-rated but lower-yielding securities. Some fixed-income funds seek to minimize risk by investing exclusively in securities whose timely payment of interest and principal is backed by the full faith and credit of the Indian Government. Fixed-income funds are suitable for investors who want to maximize current income and who can assume a degree of capital risk in order to do so.

Balanced
The Balanced fund aims to provide both growth and income. These funds invest in both shares and fixed income securities in the proportion indicated in their offer documents. Ideal for investors who are looking for a combination of income and moderate growth.

Money Market Funds/Liquid Funds

For the cautious investor, these funds provide a very high stability of principal while seeking a moderate to high current income. They invest in highly liquid, virtually risk-free, short-term debt securities of agencies of the Indian Government, banks and corporations and Treasury Bills. Because of their short-term investments, money market mutual funds are able to keep a virtually constant unit price; only the yield fluctuates. Therefore, they are an attractive alternative to bank accounts. With yields that are generally competitive with - and usually higher than -- yields on bank savings account, they offer several advantages. Money can be withdrawn any time without penalty. Although not insured, money market funds invest only in highly liquid, short-term, top-rated money market instruments.

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Money market funds are suitable for investors who want high stability of principal and current income with immediate liquidity.

Specialty/Sector Funds
These funds invest in securities of a specific industry or sector of the economy such as health care, technology, leisure, utilities or precious metals. The funds enable investors to diversify holdings among many companies within an industry, a more conservative approach than investing directly in one particular company. Sector funds offer the opportunity for sharp capital gains in cases where the fund's industry is "in favor" but also entail the risk of capital losses when the industry is out of favor. While sector funds restrict holdings to a particular industry, other specialty funds such as index funds give investors a broadly diversified portfolio and attempt to mirror the performance of various market averages. Index funds generally buy shares in all the companies composing the BSE Sensex or NSE Nifty or other broad stock market indices. They are not suitable for investors who must conserve their principal or maximize current income.

RISK Vs. REWARD

Having understood the basics of mutual funds the next step is to build a successful

investment portfolio. Before you can begin to build a portfolio, one should understand some other elements of mutual fund investing and how they can affect the potential value of your investments over the years. The first thing that has to be kept in mind is that when you invest in mutual funds, there is no guarantee that you will end up with more money when you withdraw your investment than what you started out with. That is the potential of loss is always there. The loss of value in your investment is what is considered risk in investing. Even so, the opportunity for investment growth that is possible through investments in mutual funds far exceeds that concern for most investors. Heres why At the cornerstone of investing is the basic principal that 22

the greater the risk you take, the greater the potential reward. Or stated in another way, you get what you pay for and you get paid a higher return only when you're willing to accept more volatility. Risk then, refers to the volatility -- the up and down activity in the markets and individual issues that occurs constantly over time. This volatility can be caused by a number of factors -- interest rate changes, inflation or general economic conditions. It is this variability, uncertainty and potential for loss, that causes investors to worry. We all fear the possibility that a stock we invest in will fall substantially. But it is this very volatility that is the exact reason that you can expect to earn a higher long-term return from these investments than from a savings account. Different types of mutual funds have different levels of volatility or potential price change, and those with the greater chance of losing value are also the funds that can produce the greater returns for you over time. So risk has two sides: it causes the value of your investments to fluctuate, but it is precisely the reason you can expect to earn higher returns. You might find it helpful to remember that all financial investments will fluctuate. There are very few perfectly safe havens and those simply don't pay enough to beat inflation over the long run.

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TYPES OF RISKS
All investments involve some form of risk. Consider these common types of risk and evaluate them against potential rewards when you select an investment.

Market Risk
At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to "market risk". Also known as systematic risk.

Inflation Risk
Sometimes referred to as "loss of purchasing power." Whenever inflation rises forward faster than the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns.

Credit Risk
In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?

Interest Rate Risk

Changing interest rates affect both equities and bonds in many ways. Investors are reminded that "predicting" which way rates will go is rarely successful. A diversified portfolio can help in offsetting these changes.

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Exchange risk
A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive or negative impact on companies which in turn would have an effect on the investment of the fund.

Investment Risks
The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities.

Call Risks
Call risk is associated with bonds have and embedded call option in them. This option gives the issuer the right to call back the bonds prior to maturity. Then investor how ever is exposed to some risks here. The price of the callable bond many not rise much above the price at which the issuer may call the bond.

Changes in the Government Policy

Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund. Effect of loss of key professionals and inability to adapt business to the rapid technological change. An industries' key asset is often the personnel who run the business i.e. intellectual properties of the key employees of the respective companies. Given the ever-changing 25

complexion of few industries and the high obsolescence levels, availability of qualified, trained and motivated personnel is very critical for the success of industries in few sectors. It is, therefore, necessary to attract key personnel and also to retain them to meet the changing environment and challenges the sector offers. Failure or inability to attract/retain such qualified key personnel may impact the prospects of the companies in the particular sec

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Investment cycle in Mutual Funds

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Types of mutual funds

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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. 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 cores.

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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 I am dearmutual 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 30

mutual fund industry has entered its current phase of consolidation and growth. As at the end of June 30, 2003, there were 31 funds, which manage assets of Rs.104762 crores under 376 schemes. The graph indicates the growth of assets over the years.

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GROWTH IN ASSETS UNDER MANAGEMENT

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. Recent figures indicate that in the first quarter of the current fiscal year. The formation and operations of mutual funds in India is solely guided by SEBI (Mutual Fund) Regulations, 1993, which came into force on 20 January 1993. The regulations have since been replaced by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, through a notification on 9 December 1996. A mutual fund comprises four separate entities, namely sponsor, mutual fund trust, AMC and custodian. They are of course assisted by other independent administrative entities like banks, registrars and transfer agents. We may discuss in brief the formation of different entities, their functions and obligations.

The sponsor for a mutual fund can by any person who, acting alone or in combination with another body corporate establishes the mutual fund and gets it registered with SEBI. The sponsor is required to contribute at least 40 per cent of the minimum net worth (Rs 10 crore) of the asset management company. The sponsor must have a sound track record and general reputation of fairness and integrity in all his business transactions.

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As per SEBI Regulation, 1996, a mutual fund is to be formed by the sponsor and registered with SEBI. A mutual fund shall be constituted in the form of a trust and the instrument of trust shall be in the form of a deed, duly registered under the provisions of the Indian Registration Act, 1908, executed by the sponsor in favor of trustees named in such an instrument.

The board of trustees manages the mutual fund and the sponsor executes the trust deeds in favor of the trustees. The mutual fund raises money through sale of units under one or more schemes for investing in securities in accordance with SEBI guidelines. It is the job of the mutual fund trustees to see that the schemes floated and managed by the AMC appointed by the trustees, are in accordance with the trust deeds and SEBI guidelines. It is also the responsibilities of the trustees to control the capital property of mutual funds schemes. The trustees have the right to obtain relevant information from the AMC, as well as a quarterly report on its activities. They can also dismiss the AMC under specific condition as per SEBI regulations.

At least half the trustees should be independent persons. The AMC or its employees cannot act as a trustee. No person who is appointed as a trustee of a mutual fund can be appointed as a trustee of any other mutual fund unless he is an independent trustee and prior permission is obtained from the mutual fund in which he is a trustee. The trustees are required to submit half-yearly reports to SEBI on the activities of the mutual fund. The trustees appoint a custodian and supervise their activities. The trustees can be removed only with prior approval of SEBI.

As per SEBI guidelines, an asset management company is appointed by the trustees to float the schemes for the mutual fund and manage the funds raised by selling units under a scheme. The AMC must act as per SEBI guidelines, trust deeds and management agreement between trustee & the AMC. 33

The Importance of Accounting Knowledge

Mutual funds in India are required to follow the accounting policies laid down in SEBI (Mutual Fund) Regulations, 1996 and the amendments in 1998. This section of the workbook summarizes the important Regulations, and periodical budgets.

Net Asset Value (NAV)

A mutual fund is a common investment vehicle where the assets of the fund belong directly to the investors. The fund does not account for investors' subscriptions as liabilities or deposits but as Unit Capital. On the other hand, the investments made on behalf of the investors are reflected on the assets side and are the main constituents of the balance sheet. There are, however, liabilities of a strictly short-term nature that may be part of the balance sheet. The fund's Net Assets are therefore defined as the assets minus the liabilities. As there are many investors in a fund, it is common practice for mutual funds to compute the share of each investor on the basis of the value of Net Assets Per Share/Unit, commonly known as the Net Asset Value (NAV). The following are the regulatory requirements and accounting definitions lay down by SEBI. NAV = Net Assets of the scheme / Number of Units Outstanding, i.e. investments + Receivables + Other Accrued Income + Other Assets Accrued Expenses-Other Payables-Other Liabilities = No. Of Units Outstanding as at the NAV date Market value of

A fund's NAV is affected by four sets of factors: -- Purchase and sale of investment securities -- Valuation of all investment securities held -- Other assets and liabilities, and 34

-- Units sold or redeemed

Pricing of Units:

Although NAV per share defines the value of the investor's holding in the fund, the fund may not repurchase the investor's units at the same price as NAV. However, SEBI requires that the fund must ensure that repurchase price is not lower than 93% of NAV (95% in the case of a closed end fund). On the other side, a fund may sell new units at a price that is different from the NAV, but the sale price cannot be higher than 107% of NAV. Also, the difference the repurchase price and the sale price of the unit is not permitted to exceed 7% of the sale price.

Fees and Expenses:

An AMC may incur many expenses specifically for given schemes, and other common expenses. In any case, all expenses should be clearly Unidentified and allocated to the individual schemes. The AMC may charge the scheme with investment management and advisory fees that are fully disclosed in the offer document subject to the following limits:

@ 1.25% of the first Rs. 100 crore of weekly average net assets outstanding in the accounting year, and @ 1% of weekly average net assets in excess of Rs. 100 crore.

For no load schemes, the AMC may charge an additional management fee up to 1% of weekly average net assets outstanding in the accounting year.

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Investment management and advisory fees are subject to the overall ceiling for expenses. A. Initial expenses of launching schemes (not to exceed 6% of initial resources raised under the scheme); and

B. Recurring expenses including: i. Marketing and selling expenses including agents' commission ii. Brokerage and transaction costs iii. Registrar services for transfer of units sold or redeemed v. Fees and expenses of trustees v. Audit fees vi. Custodian fees vii. Costs related to investor communication viii. Costs of fund transfers from location to location ix. Costs of providing account statements and dividend / redemption cheques and warrants x. Insurance premium paid by the fund xi. Winding up costs for terminating a fund or a scheme xii. Other costs as approved by SEBI

The total expenses charged by the AMC to a scheme, excluding issue or redemption expenses but including investment management and advisory fees are subject to the following limits:

On the first Rs. 100 Crores of average weekly net assets-2.5% 36

On the next Rs. 300 Crores of average weekly net assets -2.0% On the balance of average weekly net assets-1.75% For bond funds, the above percentages are required to be lower by 0.25%

Initial Issue Expenses:

When a scheme is first launched, the AMC will incur significant expenses, whose benefit will accrue over many years. All expenses cannot, therefore, be charged to a scheme in the first year itself. SEBI permits "amortization" of initial expenses as follows:

For a closed-end scheme floated on a 'load' basis, the initial issue expenses shall be amortized on a weekly basis over the period of scheme. For example, a 5-year (i.e. 260 week) closed-end scheme with initial issue expenses of Rs. 5 lakhs must charge Rs.1923 (5 lakhs / 260 weeks) every week to the fund. It cannot charge the entire amount of Rs. 5 lakhs at the time of issue.

For an open-end scheme floated on a 'load' basis, initial issue expenses may be amortized over a period not exceeding five years. For example, if an open-end scheme has initial issue expenses of Rs. 10 lakhs, it need not charge this entire amount to the fund in the year of issue. Instead, it may charge Rs. 2 lakhs (10 lakhs / 5 years) per year to the fund, thereby spreading the charge of initial issue expenses over a maximum of 5 years. Issue expenses incurred during the life of an open-end scheme cannot be amortized.

Un amortized portion of initial issue expenses shall be included for NAV calculation, considered as "other asset". The investment advisory fee cannot be claimed on this asset. Hence, they have to be excluded while determining the chargeable investment management / advisory 37

fees. While calculating the maximum amount of chargeable expenses, the un amortized portion of the initial issue expenses will not be included as part of the average weekly net assets figure.

Accounting Policies:
Investments are required to be marked to market using market prices. Any unrealized appreciation cannot be distributed, and provision must be made for the same. Dividend received by the fund on a share should be recognized, not on the date of declaration, but on the date the share is quoted on ex-dividend basis. For example, if a fund owns shares on which dividend is declared on April 5, and the shares are quoted on ex-dividend basis on April 20, the dividend income will be included by the fund for distribution/NAV computation only April 20.

In determining gain or loss on sale of investments, the average cost method must be followed to determine the cost of purchase. This will be applied by security. Purchase / sale of investments should be recognized on the trade date and not settlement date Bonus / rights shares should be recognized only when the original shares are traded on the stock exchange on an ex-bonus /ex-rights basis Income receivable on investments, which is accrued, but not received for 12 months beyond due date, should be provided for, and no further accrual should be made for such investment An investment shall be regarded as non-performing if it has provided no returns through dividend/interest for more than 2years at the end of the accounting year Investments owned by mutual funds are marked to market. Therefore, the value of investments appreciates or depreciates based on market fluctuations, which is reflected in the balance sheet. 38

However, this change in value constitutes unrealized gain/loss. When any investments are actually sold, the proportion of the unrealized gain / loss that pertains to such investments becomes realized gain/loss. Therefore, at any given time, the NAV includes realized and unrealized gain/loss on investments. While SEBI prohibits the distribution of unrealized appreciation on investments, realized gain in available for distribution.

An open-end scheme sells and repurchases units on the basis of NAV. SEBI therefore prescribes the use of an equalization account, to ensure that creation / redemption of units does not change the percentage of income distributed. This involves the following steps: Computation of distributable reserves: Income + Realized Gain on Investments- Expenses-Unrealized Losses (unrealized gains are

excluded)

- If distributable reserves are positive, the following percentage is computed: Distributable Reserve / Units Outstanding The above percentage is multiplied with the number of new units sold, and the equalization

account is credited by this amount, if units are sold above par; if the units are sold below par, the equalization account is debited by this amount. The same percentage is multiplies with the number of units repurchased, and the equalization account is debited by this amount if the units are repurchased above par; if the units are repurchased below par, the equalization account is credited. The net balance in the equalization account is transferred to the profit and loss account. It is

only an adjustment to the distributable surplus and does not affect the net income for the period.

VALUATION
Mutual funds value their investments on a 'mark-to-market' basis with reference to the date on which they are valued i.e., the valuation date. 39

Valuation of Traded Securities:

Where a security is traded on a stock exchange, it is valued at the last quoted closing price on the stock exchange where it is "principally traded". If a security is not traded on any stock exchange on a particular valuation day, the value at which it was traded on the selected/other stock exchange on the Earliest previous day may be used, provided such date is not more than 60 days prior to the valuation date. Valuation of traded securities, once the market price is obtained as above, is quite simple. The fund will multiply its current holding in number of shares or bonds by the applicable market price to get the "mark to market" value.

valuation of Non-traded Securities:

When a security is not traded on any stock exchange for 60 days prior to the valuation date, it must be treated as non-traded' scrip. Non-traded securities shall be valued 'in good faith' by the AMC on the basis of appropriate valuation methods, which shall be periodically reviewed by the trustees and reported by the auditors as fair and reasonable. The following principles are to be applied for the valuation of non-traded securities: Equity instruments: are to be valued on the basis of capitalization of earnings solely or in combination with its balance sheet Net Asset Value. For this purpose, capitalization rate will be determined by reference to the price or earning rations of comparable traded securities with an appropriate discount for lower liquidity to be used.

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Debit instruments: are to be valued on a yield to maturity basis, the capitalization factor
being determined for comparable traded securities with an appropriate discount for lower liquidity.

Call money, bills purchased: under rediscounting and short term deposits with banks are to be valued at cost + accrual: other money market instruments at yield at which they are currently traded; non-traded instruments (not traded for 7 days) will be valued at cost plus interest accrued till the beginning of the valuation day plus the difference between redemption value and cost, spread uniformly over the remaining maturity of the instruments

Government Securities: are to be valued at yield to maturity based on prevailing market rate

Convertible debentures and bonds: non-convertible component is to be valued as a debt instrument, and convertible as any equity instrument. If after Conversion, the resultant equity instrument would be traded pari passu with an existing instrument, which is traded, the value of the latter instrument can be adopted after an appropriate discount for the non-tradability of the instrument.

RISK INVOLVED IN MUTUAL FUNDS INDUSTRY:

Mutual funds are not free from risk. It is so because basically the mutual funds also invest their funds in stock markets on shares, which are volatile in nature and are not risk free, the following risk are inherent in their dealing.

INHERENT RISK FACTORS: 1) Market Risks:

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In general there are certain risks associated with the every kind of investment on shares. They are called market risks. These market risks can be reduced, but cannot be completely eliminated even by a good investment.

2) Scheme Risks
There are certain risks inherent in the scheme itself. It all depends upon the nature of the scheme. For instance, in a pure growth scheme, risks are greater.

3) Investment Risks
Whether the mutual fund makes money in shares or loses depends upon the investment expertise of the Asset Management Company. If the investment advice goes wrong, the fund has to suffer a lot.

4) Business Risks
The corpus of a mutual fund might have been invested in a companys shares. If the business of that company suffers any set back, it cannot declare any dividend. It may even go to the extent of winding up its business.

5) Political Risks
Successive Governments bring with them fancy new economic ideologies and policies. It is often said that many economic decisions are politically motivated.

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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 43

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. 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).

range

Beta between 0 and 1 - Low-volatility investments, such as utilities, are usually in this

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 broad-based 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.

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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. 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, 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

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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.

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

Measure of the dispersion of a set of data 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.

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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 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 48

3. Jensens Performance Measure

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)

Treynor Index = ------------------------------------------------------Beta coefficient of portfolio

Jensens Performance Measure (Michael)

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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.

CHAPTER-II
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INDUSTRY PROFILE & COMPANY PROFILE

Evolution Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago. The earliest records of security dealings in India are meager and obscure. The East India Company was the dominant institution in those days and business in its loan securities used to be transacted towards the close of the eighteenth century.

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By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers recognized by banks and merchants during 1840 and 1850. The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by 1860 the number of brokers increased into 60. In 1860-61 the American Civil War broke out and cotton supply from United States of Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87). At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business. In 1887, they formally established in Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively known as " The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated. Other leading cities in stock market operations Ahmadabad gained importance next to Bombay with respect to cotton textile industry. After 1880, many mills originated from Ahmadabad and rapidly forged ahead. As new mills were floated, the need for a Stock Exchange at Ahmadabad was realized and in 1894 the brokers formed "The Ahmadabad Share and Stock Brokers' Association". What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was to Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta. After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares, which was followed by a boom in tea shares in the 1880's and 1890's; and a coal boom between 1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange Association".

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In the beginning of the twentieth century, the industrial revolution was on the way in India with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel Company Limited in 1907, an important stage in industrial advancement under Indian enterprise was reached. Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally enjoyed phenomenal prosperity, due to the First World War. In 1920, the then demure city of Madras had the maiden thrill of a stock exchange functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100 members. However, when boom faded, the number of members stood reduced from 100 to 3, by 1923, and so it went out of existence. In 1935, the stock market activity improved, especially in South India where there was a rapid increase in the number of textile mills and many plantation companies were floated. In 1937, a stock exchange was once again organized in Madras - Madras Stock Exchange Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange Limited). Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the Punjab Stock Exchange Limited, which was incorporated in 1936. Indian Stock Exchanges - An Umbrella Growth The Second World War broke out in 1939. It gave a sharp boom which was followed by a slump. But, in 1943, the situation changed radically, when India was fully mobilized as a supply base. On account of the restrictive controls on cotton, bullion, seeds and other commodities, those dealing in them found in the stock market as the only outlet for their activities. They were anxious to join the trade and their number was swelled by numerous others. Many new associations were constituted for the purpose and Stock Exchanges in all parts of the country were floated. The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940) and Hyderabad Stock Exchange Limited (1944) were incorporated.

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In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947, amalgamated into the Delhi Stock Exchnage Association Limited. Post-independence Scenario Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchange was closed during partition of the country and later migrated to Delhi and merged with Delhi Stock Exchange. Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963. Most of the other exchanges languished till 1957 when they applied to the Central Government for recognition under the Securities Contracts (Regulation) Act, 1956. Only Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well established exchanges, were recognized under the Act. Some of the members of the other Associations were required to be admitted by the recognized stock exchanges on a concessional basis, but acting on the principle of unitary control, all these pseudo stock exchanges were refused recognition by the Government of India and they thereupon ceased to function. Thus, during early sixties there were eight recognized stock exchanges in India (mentioned above). The number virtually remained unchanged, for nearly two decades. During eighties, however, many stock exchanges were established: Cochin Stock Exchange (1980), Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982), and Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock Exchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh Stock Exchange Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at Baroda, 1990) and recently established exchanges Coimbatore and Meerut. Thus, at present, there are totally twenty one recognized stock exchanges in India excluding the Over The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL).

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The Table given below portrays the overall growth pattern of Indian stock markets since independence. It is quite evident from the Table that Indian stock markets have not only grown just in number of exchanges, but also in number of listed companies and in capital of listed companies. The remarkable growth after 1985 can be clearly seen from the Table, and this was due to the favouring government policies towards security market industry. Trading Pattern of the Indian Stock Market Trading in Indian stock exchanges are limited to listed securities of public limited companies. They are broadly divided into two categories, namely, specified securities (forward list) and nonspecified securities (cash list). Equity shares of dividend paying, growth-oriented companies with a paid-up capital of atleast Rs.50 million and a market capitalization of atleast Rs.100 million and having more than 20,000 shareholders are, normally, put in the specified group and the balance in non-specified group. Two types of transactions can be carried out on the Indian stock exchanges: (a) spot delivery transactions "for delivery and payment within the time or on the date stipulated when entering into the contract which shall not be more than 14 days following the date of the contract" : and (b) forward transactions "delivery and payment can be extended by further period of 14 days each so that the overall period does not exceed 90 days from the date of the contract". The latter is permitted only in the case of specified shares. The brokers who carry over the outstandings pay carry over charges (cantango or backwardation) which are usually determined by the rates of interest prevailing. A member broker in an Indian stock exchange can act as an agent, buy and sell securities for his clients on a commission basis and also can act as a trader or dealer as a principal, buy and sell securities on his own account and risk, in contrast with the practice prevailing on New York and London Stock Exchanges, where a member can act as a jobber or a broker only. The nature of trading on Indian Stock Exchanges are that of age old conventional style of faceto-face trading with bids and offers being made by open outcry. However, there is a great amount of effort to modernize the Indian stock exchanges in the very recent times.

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Over The Counter Exchange of India (OTCEI) The traditional trading mechanism prevailed in the Indian stock markets gave way to many functional inefficiencies, such as, absence of liquidity, lack of transparency, unduly long settlement periods and benami transactions, which affected the small investors to a great extent. To provide improved services to investors, the country's first ringless, scripless, electronic stock exchange - OTCEI - was created in 1992 by country's premier financial institutions - Unit Trust of India, Industrial Credit and Investment Corporation of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance Corporation of India, General Insurance Corporation and its subsidiaries and CanBank Financial Services. Trading at OTCEI is done over the centres spread across the country. Securities traded on the OTCEI are classified into:

Listed Securities - The shares and debentures of the companies listed on the OTC can be bought or sold at any OTC counter all over the country and they should not be listed anywhere else

Permitted Securities - Certain shares and debentures listed on other exchanges and units of mutual funds are allowed to be traded

Initiated debentures - Any equity holding atleast one lakh debentures of a particular scrip can offer them for trading on the OTC.

OTC has a unique feature of trading compared to other traditional exchanges. That is, certificates of listed securities and initiated debentures are not traded at OTC. The original certificate will be safely with the custodian. But, a counter receipt is generated out at the counter which substitutes the share certificate and is used for all transactions. In the case of permitted securities, the system is similar to a traditional stock exchange. The difference is that the delivery and payment procedure will be completed within 14 days. Compared to the traditional Exchanges, OTC Exchange network has the following advantages:

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OTCEI has widely dispersed trading mechanism across the country which provides greater liquidity and lesser risk of intermediary charges.

Greater transparency and accuracy of prices is obtained due to the screen-based scripless trading.

Since the exact price of the transaction is shown on the computer screen, the investor gets to know the exact price at which s/he is trading.

Faster settlement and transfer process compared to other exchanges. In the case of an OTC issue (new issue), the allotment procedure is completed in a month and trading commences after a month of the issue closure, whereas it takes a longer period for the same with respect to other exchanges.

Thus, with the superior trading mechanism coupled with information transparency investors are gradually becoming aware of the manifold advantages of the OTCEI. National Stock Exchange (NSE) With the liberalization of the Indian economy, it was found inevitable to lift the Indian stock market trading system on par with the international standards. On the basis of the recommendations of high powered Pherwani Committee, the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banks and others. Trading at NSE can be classified under two broad categories: (a) Wholesale debt market and (b) Capital market.

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Wholesale debt market operations are similar to money market operations - institutions and corporate bodies enter into high value transactions in financial instruments such as government securities, treasury bills, public sector unit bonds, commercial paper, certificate of deposit, etc. There are two kinds of players in NSE: (a) trading members and (b) participants. Recognized members of NSE are called trading members who trade on behalf of themselves and their clients. Participants include trading members and large players like banks who take direct settlement responsibility. Trading at NSE takes place through a fully automated screen-based trading mechanism which adopts the principle of an order-driven market. Trading members can stay at their offices and execute the trading, since they are linked through a communication network. The prices at which the buyer and seller are willing to transact will appear on the screen. When the prices match the transaction will be completed and a confirmation slip will be printed at the office of the trading member. NSE has several advantages over the traditional trading exchanges. They are as follows:

NSE brings an integrated stock market trading network across the nation. Investors can trade at the same price from anywhere in the country since inter-market operations are streamlined coupled with the countrywide access to the securities.

Delays in communication, late payments and the malpractices prevailing in the traditional trading mechanism can be done away with greater operational efficiency and informational transparency in the stock market operations, with the support of total computerized network.

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Unless stock markets provide professionalized service, small investors and foreign investors will not be interested in capital market operations. And capital market being one of the major source of long-term finance for industrial projects, India cannot afford to damage the capital market path. In this regard NSE gains vital importance in the Indian capital market system. Preamble Often, in the economic literature we find the terms development and growth are used interchangeably. However, there is a difference. Economic growth refers to the sustained increase in per capita or total income, while the term economic development implies sustained structural change, including all the complex effects of economic growth. In other words, growth is associated with free enterprise, where as development requires some sort of control and regulation of the forces affecting development. Thus, economic development is a process and growth is a phenomenon. Economic planning is very critical for a nation, especially a developing country like India to take the country in the path of economic development to attain economic growth. Why Economic Planning for India? One of the major objective of planning in India is to increase the rate of economic development, implying that increasing the rate of capital formation by raising the levels of income, saving and investment. However, increasing the rate of capital formation in India is beset with a number of difficulties. People are poverty ridden. Their capacity to save is extremely low due to low levels of income and high propensity to consume. Therefor, the rate of investment is low which leads to capital deficiency and low productivity. Low productivity means low income and the vicious circle continues. Thus, to break this vicious economic circle, planning is inevitable for India. The market mechanism works imperfectly in developing nations due to the ignorance and unfamiliarity with it. Therefore, to improve and strengthen market mechanism planning is very vital. In India, a large portion of the economy is non-monitised; the product, factors of production, money and capital markets is not organized properly. Thus the prevailing price mechanism fails to bring about adjustments between aggregate demand and supply of goods and 59

services. Thus, to improve the economy, market imperfections has to be removed; available resources has to be mobilized and utilized efficiently; and structural rigidities has to be overcome. These can be attained only through planning. In India, capital is scarce; and unemployment and disguised unemployment is prevalent. Thus, where capital was being scarce and labour being abundant, providing useful employment opportunities to an increasing labour force is a difficult exercise. Only a centralized planning model can solve this macro problem of India. Further, in a country like India where agricultural dependence is very high, one cannot ignore this segment in the process of economic development. Therefore, an economic development model has to consider a balanced approach to link both agriculture and industry and lead for a paralleled growth. Not to mention, both agriculture and industry cannot develop without adequate infrastructural facilities which only the state can provide and this is possible only through a well carved out planning strategy. The governments role in providing infrastructure is unavoidable due to the fact that the role of private sector in infrastructural development of India is very minimal since these infrastructure projects are considered as unprofitable by the private sector. Further, India is a clear case of income disparity. Thus, it is the duty of the state to reduce the prevailing income inequalities. This is possible only through planning.

Planning History of India The development of planning in India began prior to the first Five Year Plan of independent India, long before independence even. The idea of central directions of resources to overcome persistent poverty gradually, because one of the main policies advocated by nationalists early in the century. The Congress Party worked out a program for economic advancement during the 1920s, and 1930s and by the 1938 they formed a National Planning Committee under the 60

chairmanship of future Prime Minister Nehru. The Committee had little time to do anything but prepare programs and reports before the Second World War which put an end to it. But it was already more than an academic exercise remote from administration. Provisional government had been elected in 1938, and the Congress Party leaders held positions of responsibility. After the war, the Interim government of the pre-independence years appointed an Advisory Planning Board. The Board produced a number of somewhat disconnected Plans itself. But, more important in the long run, it recommended the appointment of a Planning Commission. The Planning Commission did not start work properly until 1950. During the first three years of independent India, the state and economy scarcely had a stable structure at all, while millions of refugees crossed the newly established borders of India and Pakistan, and while ex-princely states (over 500 of them) were being merged into India or Pakistan. The Planning Commission as it now exists, was not set up until the new India had adopted its Constitution in January 1950. Objectives of Indian Planning The Planning Commission was set up the following Directive principles :

To make an assessment of the material, capital and human resources of the country, including technical personnel, and investigate the possibilities of augmenting such of these resources as are found to be deficient in relation to the nations requirement.

To formulate a plan for the most effective and balanced use of the countrys resources. Having determined the priorities, to define the stages in which the plan should be carried out, and propose the allocation of resources for the completion of each stage.

To indicate the factors which are tending to retard economic development, and determine the conditions which, in view of the current social and political situation, should be established for the successful execution of the Plan.

To determine the nature of the machinery this will be necessary for securing the successful implementation of each stage of Plan in all its aspects.

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To appraise from time to time the progress achieved in the execution of each stage of the Plan and recommend the adjustments of policy and measures that such appraisals may show to be necessary.

To make such interim or auxiliary recommendations as appear to it to be appropriate either for facilitating the discharge of the duties assigned to it or on a consideration of the prevailing economic conditions, current policies, measures and development programs; or on an examination of such specific problems as may be referred to it for advice by Central or State Governments.

The long-term general objectives of Indian Planning are as follows:

Increasing National Income Reducing inequalities in the distribution of income and wealth Elimination of poverty Providing additional employment; and Alleviating bottlenecks in the areas of : agricultural production, manufacturing capacity for producers goods and balance of payments.

Economic growth, as the primary objective has remained in focus in all Five Year Plans. Approximately, economic growth has been targeted at a rate of five per cent per annum. High priority to economic growth in Indian Plans looks very much justified in view of long period of stagnation during the British rule

62

COMPANY PROFILE
ICICI Prudential Asset Management Company Ltd. is a joint venture between ICICI Bank, Indias second largest commercial bank & a well-known and trusted name in the financial services in India, & Prudential Plc, one of the United Kingdoms largest players in the financial services sectors. In a span of over 18 years since inception and just over 13 years of the Joint Venture, the company has forged a position of preeminence as one of the largest Asset Management Companys in the country, contributing significantly towards the growth of the Indian mutual fund industry. The company manages significant Mutual Fund Assets under Management (AUM), in addition to our Portfolio Management Services (PMS) and International Advisory Mandates for clients across international markets in asset classes like Debt, Equity and Real Estate with primary focus on risk adjusted returns. As an Asset Management Company, we have over 18 years of experience and are currently managing a comprehensive range of schemes of more than 46 Mutual fund schemes and a wide range of PMS Products for our investors spread across the country. We service this investor base with our own branch network of around 168 branches and a distribution reach of over 42,000 channel partners. ICICI Bank is India's second-largest bank with total assets of Rs. 4,062.34 billion (US$ 91 billion) at March 31, 2011 and profit after tax Rs. 51.51 billion (US$ 1,155 million) for the year ended March 31, 2011. The Bank has a network of 2,556 branches and 7,440 ATMs in India, and has a presence in 19 countries, including India. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. 63

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). Corporate Profile ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion (US$ 77 billion) as on December 31, 2009. Board Members Mr. K. V. Kamath, Chairman Mr. Sridar Iyengar Mr. Homi R. Khusrokhan Mr. Lakshmi N. Mittal Mr. Narendra Murkumbi Dr. Anup K. Pujari Mr. Anupam Puri Mr. M.S. Ramachandran Mr. M.K. Sharma Mr. V. Sridar Prof. Marti G. Subrahmanyam Mr. V. Prem Watsa Ms. Chanda D. Kochhar, Managing Director & CEO Mr. Sandeep Bakhshi, Deputy Managing Director 64

Mr. N. S. Kannan, Executive Director & CFO Mr. K. Ramkumar, Executive Director Mr. Sonjoy Chatterjee, Executive Director

Mr. K. V. Kamath is a mechanical engineer and did his management studies from the Indian Institute of Management, Ahmedabad. He joined ICICI in 1971 and worked in the areas of project finance, leasing, resources and corporate planning. In 1988, he joined the Asian Development Bank and spent several years in south-east Asia before returning to ICICI as its Managing Director & CEO in 1996. He became Managing Director & CEO of ICICI Bank in 2002 following the merger of ICICI with ICICI Bank. Under his leadership, the ICICI Group transformed itself into a diversified, technology-driven financial services group, that has leadership positions across banking, insurance and asset management in India, and an international presence. He retired as Managing Director & CEO in April 2009, and took up the position of non-executive Chairman of ICICI Bank effective May 1, 2009. He was the President of the Confederation of Indian Industry (CII) for 2008-09. He was awarded the Padma Bhushan by the President of India in May 2008. He was conferred the Lifetime Achievement Awards at the Financial Express Best Bank Awards 2008 and the NDTV Profit Business Leadership Awards 2008; was named 'Businessman of the Year' by Forbes Asia and The Economic Times' 'Business Leader of the Year' in 2007; Business Standard's "Banker of the Year" and CNBCTV18's "Outstanding Business Leader of the Year" in 2006; Business India's "Businessman of the Year" in 2005; and CNBC's "Asian Business Leader of the Year" in 2001. He has been conferred with an honorary PhD by the Banaras Hindu University. He is a member of the Board of the Institute of International Finance, a Director on the Board of Infosys Technologies and a member of the Board of Governors of the Indian Institute of Management, Ahmedabad.

65

Products Insurance Solutions for Individuals ICICI Prudential Life Insurance offers a range of innovative, customer-centric products that meet the needs of customers at every life stage. Its products can be enhanced with up to 4 riders, to create a customized solution for each policyholder. Savings & Wealth Creation Solutions ICICI Pru LifeStage Wealth II is a unit linked insurance plan that offers multiple choices to decide how your savings would be invested based on your risk appetite. UIN - 105L118V02 ICICI Pru LifeTime Premier is a comprehensive savings plan that offers you a choice of portfolio strategies for your savings and at the same time secures you against uncertainties of life. UIN - 105L112V02 ICICI Pru Pinnacle Super is a unit linked insurance plan that gives you the advantage of varying exposure to equities with downside protection, so that your investments are protected in financially volatile times. UIN - 105L121V03 ICICI Pru Elite Life is a unit linked insurance plan that offers you multiple choices on how to invest your savings along with an insurance cover.UIN - 105L125V02 ICICI Pru Elite Wealth is a unit linked insurance plan that offers you the greatest value for your hard earned savings. Also, you get rewarded with Loyalty Additions from the sixth year onwards to maximize the return on your investments. UIN - 105L126V02 ICICI Pru iAssure Single Premium a conventional non-participating single premium product that provides you Guaranteed Maturity Benefit and also offers a life cover to take care of your loved ones in your absence.UIN - 105N123V01

66

ICICI Pru Guaranteed Savings Insurance Plan is a limited pay endowment product that allows you to enjoy the benefits of a long term savings plan ensuring that you and your family are free of any financial worries. UIN - 105N114V02 ICICI Pru Future Secure is a participating endowment life insurance plan that helps you save for specific goals in the future, while providing protection for your family from financial distress in case of your untimely demise. Thus the dual benefit of savings and protection it helps you ensure a secure future for your loved ones. UIN - 105N117V01 ICICI Pru Whole Life provides you with a unique double advantage of savings and protection that not only allows you to meet your goals but also seeks to ensure that your dear ones will continue to live their lives in comfort without financial worries in case of unforeseen eventuality. UIN - 105N116V01 ICICI Pru Save 'n' Protect is plan for those who want to accumulate funds on a regular basis while enjoying insurance protection. UIN - 105N004V02 ICICI Pru CashBak is a single policy that combines the triple benefit of protection, savings & periodic liquidity. UIN - 105N005V02 Protection Solutions ICICI Pru iCare is a term insurance plan that you can buy online at your convenience at their home in a simple manner. UIN - 105N122V01 ICICI Pru Pure Protect is a flexible and affordable term product, with which you can ensure your life and provide total security for your family in case of an unfortunate event. UIN 105N084V01 ICICI Pru LifeGuard is a protection plan, which offers life cover at low cost. It is available in 2 options level term assurance with return of premium & single premium. UIN - 105N006V02

67

Child Plans ICICI Pru SmartKid Regular Premium is an endowment regular premium life insurance plan which comes with a unique Payer Waiver Benefit (PWB). This benefit ensures that in case of death of the parent, the company pays all future premiums on behalf of the parent. This means that the child gets money at important stages of his/her student life and education never suffers due to lack of funds.UIN No - 105N014V02 ICICI Pru SmartKid Premier is a ULIP plan which ensures your childs education continues even if you are not around. In this Plan you need to invest premiums regularly over a period of time and the returns that you get will depend on the performance of the underlying fund performance. UIN - 105L120V01 Retirement Solutions ICICI Pru Immediate Annuity is a single premium annuity product that guarantees income for life at the time of retirement. It offers the benefit of 5 payout options. UIN - 105N009V06 Health Solutions ICICI Pru Hospital Care II is a family floater plan covering your spouse and children. This fixed benefit hospitalisation and surgical plan complements your existing coverage by offering payouts over and above any health plan you have, thus availing best possible medical treatment, without having to bother about the cost of the treatment or quality of care. UIN - 105N108V01 ICICI Pru Crisis Cover is a product that will provide long-term coverage against 35 critical illnesses, total and permanent disability, and death. UIN - 105N072V01 ICICI Pru Health Saver is a whole of life comprehensive health insurance policy which provides a hospitalisation cover for you and your family and reimburses all other medical expenses not covered in the hospitalisation benefit by building a health fund for you and your family. UIN - 105L087V01

68

Group Insurance Solutions ICICI Prudential also offers Group Insurance Solutions for companies seeking to enhance benefits to their employees. Group Gratuity Plan: ICICI Prudential Life's group gratuity plan helps employers fund their statutory gratuity obligation in a scientific manner and also avail of tax benefits as applicable to approved gratuity funds. Group Leave encashment Plan: ICICI Prudential Lifes Group offers a market linked and traditional leave encashment plan designed to aid the employer to build a fund to meet their future leave encashment liability. The contributions made will be invested as per the chosen investment plans and will be available for payment of the benefit when it falls due. Additionally, the product also provides for term cover for all the employees covered under the policy. UIN 105L079V01 Group Term Insurance Plan: ICICI Prudential Life's flexible group term is a one-year renewable life insurance policy that enables you to provide every member of your team with an affordable life cover. Group Term in lieu of EDLI Scheme: ICICI Prudential's Group Insurance Scheme in lieu of EDLI has been certified by the Employee Provident Fund Organization (EPFO) as a superior product that provides greater insurance benefits than the cover offered by EPFO. Credit Assure With Credit Assure, we offer an innovative and affordable term life insurance plan that covers loans against the unfortunate event of death, with complete convenience in application. The scheme is simple and hassle-free. In other words, peace of mind guaranteed. Flexible Rider Options ICICI Prudential Life offers flexible riders, which can be added to the basic policy at a marginal cost, depending on the specific needs of the customer.

69

Accident & disability benefit: If death occurs as the result of an accident during the term of the policy, the beneficiary receives an additional amount equal to the rider sum assured under the policy. If an accident results in total and permanent disability, 10% of rider sum assured will be paid each year, from the end of the 1st year after the disability date for the remainder of the base policy term or 10 years, whichever is lesser. Critical illness benefit: Critical Illness Benefit Rider provides protection against 9 critical illnesses to the policyholder when attached to the basic plan. Income Benefit Rider: In case of death of the life assured during the term of the policy, 10% of the rider sum assured is paid annually to the beneficiary, on each policy anniversary till maturity of the rider. Income Benefit rider is available with SmartKid Child Plans. Premiums paid under this rider are eligible for tax benefits under Section 80C. Waiver of Premium Rider (WOP): On total and permanent disability due to an accident, all future premiums for both the base policy and rider(s) will be waived till the end of the term of the rider or death of the life assured, if earlier. Waiver of Premium Rider on Critical Illness Rider: This rider waives all your future premiums of your base policy on occurrence of specified 20 Critical Illnesses. This ensures that your policy benefits continue as planned.

Awards:

ICICI Prudential Life Insurance has been pronounced winner in the 2nd Excellence Awards and Recongnition for Shared Services, 2012. We won the award in the category Shared Services in India - Insurance Domain.

These awards have been instituted by All India Management Association (AIMA) & Delhi Management Association (DMA), in collaboration with Rvalue Consulting as knowledge partners, to honour,recognize & promote trasformative strategies for shared services.

Ms. Chanda Kochhar, Managing Director & CEO was awarded the "CNBC Asia India Business Leader Of The Year Award". She also received the "CNBC Asia's CSR Award 70

2011"

For the third year in a row ICICI Bank has won The Asset Triple A Country Awards for Best Domestic Bank in India ICICI Bank won the Most Admired Knowledge Enterprises (MAKE) India 2009 Award. ICICI Bank won the first place in "Maximizing Enterprise Intellectual Capital" category, October 28, 2009

Ms Chanda Kochhar, MD and CEO was awarded with the Indian Business Women Leadership Award at NDTV Profit Business Leadership Awards , October 26, 2009. ICICI Bank received two awards in CNBC Awaaz Consumer Awards; one for the most preferred auto loan and the other for most preferred credit Card, on September 30, 2009 Ms. Chanda Kochhar, Managing Director & CEO ranked in the top 20 of the World's 100 Most Powerful Women list compiled by Forbes, August 2009 Financial Express at its FE India's Best Banks Awards, honoured Mr. K.V. Kamath, Chairman with the Lifetime Achievement Award , July 25, 2009 ICICI Bank won Asset Triple A Investment Awards for the Best Derivative House, India. In addition ICICI Bank were Highly commended , Local Currency Structured product, India for 1.5 year ADR GDR linked Range Accrual Note., July 2009

ICICI bank won in three categories at World finance Banking awards on June 16, 2009
o o o

Best NRI Services bank Excellence in Private Banking, APAC Region Excellence in Remittance Business, APAC Region

ICICI Bank Mobile Banking was adjudged "Best Bank Award for Initiatives in Mobile Payments and Banking" by IDRBT, on May 18, 2009 in Hyderabad. ICICI Bank's b2 branchfree banking was adjudged "Best E-Banking Project Implementation Award 2008" by The Asian Banker, on May 11, 2009 at the China World Hotel in Beijing.

ICICI Bank bags the "Best bank in SME financing (Private Sector)" at the Dun & Bradstreet Banking awards 2009. ICICI Bank NRI services wins the "Excellence in Business Model Innovation Award" in the eighth Asian Banker Excellence in Retail Financial Services Awards Programme. ICICI Bank's Rural Micro Banking and Agri-Business Group wins WOW Event & 71

Experiential Marketing Award in two categories - "Rural Marketing programme of the year" and "Small Budget On Ground Promotion of the Year". These awards were given for Cattle Loan 'Kamdhenu Campaign' and "Talkies on the move campaign' respectively.

ICICI Bank's Germany Branch has been certified by "Stiftung Warrentest". ICICI Bank is ranked 2nd amongst 57 savings products across 19 banks ICICI Bank Germany won the yearly banking test of the investor magazine uro in the "call money"category. The ICICI Bank was awarded the runner's up position in Gartner Business Intelligence and Excellence Award for Asia Pacific for its Business Intelligence functions. ICICI Bank's Organisational Excellence Group was recently awarded ISO 9001:2008 certification by TUV Nord. The scope of certification comprised processes around consulting and capability building on methods of quality & improvements.

ICICI Bank has been awarded the following titles under The Asset Triple A Country Awards for 2009:
o o o o

Best Transaction Bank in India Best Trade Finance Bank in India Best Cash Management Bank in India Best Domestic Custodian in India

ICICI Bank has bagged the Best Cash Management Bank in India award for the second year in a row. The other awards have been bagged for the third year in a row.

ICICI Bank Canada received the prestigious Canadian Helen Keller Award at the Canadian Helen Keller Centre's Fifth Annual Luncheon in Toronto. The award was given to ICICI Bank its long-standing support to this unique training centre for people who are deaf-blind.

ICICI Foundation for Inclusive Growth (ICICI Foundation) was founded by the ICICI Group in early 2008 to give focus to its efforts to promote inclusive growth amongst low-income Indian households. We believe our fundamental challenge is to create a just society one where everyone has 72

equal opportunity to develop and grow. Towards this end, ICICI Foundation is committed to making Indias economic growth more inclusive, allowing every individual to participate in and benefit from the growth process. We hold a set of core beliefs and values that defines our pathway towards inclusive growth and guides our five strategic partnerships. Vision Our vision is a world free of poverty in which every individual has the freedom and power to create and sustain a just society in which to live. Mission Our mission is to create and support strong independent organisations which work towards empowering the poor to participate in and benefit from the Indian growth process. As a key partner in India's economic growth for more than five decades, the ICICI Group endeavours to promote growth in all sectors of the nation s economy. To give focus to its efforts to promote inclusive growth amongst low-income Indian households, the ICICI Group founded ICICI Foundation for Inclusive Growth in January 2010. The foundations of ICICI Groups approach towards human and social development were established with the Social Initiatives Group (SIG), a non-profit resource group within ICICI Bank, in 2000. ICICI Foundation for Inclusive Growth (ICICI Foundation) has been set up as a public charitable trust registered at Chennai vide registration of the Trust Deed with the Sub-Registrars Office at Chennai on January 04, 2010. The application for registration of the Foundation under section 12AA of the Income tax Act, 1961 (the Act) was filed on February 7, 2008 and the application under section 80G of the Act was filed on February 14, 2008. Subsequently, ICICI Foundation was registered as a PUBLIC 73

CHARITABLE TRUST under Section 12AA of the Act with effect from February 7, 2008. Further, ICICI Foundation received approval under Section 80G(5)(vi) of the Act on March 19, 2008. This approval is valid in respect of donation received by ICICI Foundation from February 14, 2008 to March 31, 2009. Accordingly, ICICI Bank and Group Companies will be eligible to get a deduction under section 80G on donations made during this period. ICICI Foundation has also obtained its Permanent Account Number (PAN) and Tax deduction Account Number (TAN). Funds Flow 2010-2011 ICICI Foundation received Rs.617.80 million from the following sources as grants: (January 4, 2008 to March 31, 2011) (spanning two financial years) Source (January 4, 2008 March 31, 2011) ICICI Bank ICICI Prudential Life Insurance ICICI Lombard General Insurance ICICI Securities ICICI Securities PD ICICI Home Finance ICICI Venture Total Amount (Rs. million) 500.00 67.72 17.12 14.98 6.99 1.99 9.00 617.80

ICICI Foundation also incurred total expenses of Rs.1.25 million during this period and had a fund balance of Rs.61.55 million as on March 31, 2011. Disbursements (January 4, 2008 to March 31, 2011) Grant Beneficiaries (January 4, 2010 March 31, 2011) ICICI Foundation Programmes ICICI Centre for Child Health and Nutrition 74 150.00 Amount (Rs. million)

IFMR Finance Foundation Environmentally Sustainable Finance CSO Partners CARE (Policy Unit) Strategy and Advisory Group ICICI Group Corporate Social Responsibility Programmes Read to Lead MITRA (ICICI Fellows Programme) CARE (Disaster Management Unit) Rang De Total

200.00 20.00 50.00 5.00 20.00 25.00 55.00 5.00 25.00 555.00

Grant Beneficiaries for 2010-2011 ICICI Foundation Programmers ICICI Centre for Child Health and Nutrition (ICCHN) The grant of Rs.150.00 million was provided to ICCHN by way of corpus support and for pursuing various projects consistent with its mission. IFMR Finance Foundation (IFF) The grant of Rs.200.00 million was provided to IFMR Finance Foundation by way of corpus support and for pursuing various projects consistent with its mission. Environmentally Sustainable Finance (ESF) The grant of Rs.20.00 million was provided to ESF for their collaboration work with Rural Energy Network Enterprise (RENE) on sustainable energy and environment projects benefiting remote rural end users. The proposed projects will promote developing tools and driving innovation to scale rural energy access for remote rural users. CSO Partners The grant of Rs.50.00 million was provided to CSO Partners by way of corpus support and for pursuing various projects consistent with its mission. 75

CARE (Policy Unit) A grant of Rs.5.00 million was provided to CARE, an Indian NGO that is closely affiliated with CARE (USA), to create a policy unit in Delhi. Learning from CAREs work in India and worldwide as well as from the work of ICICI Foundation and its partners, the unit will serve as a platform to engage the government and policymakers in an effort to bring about required policy changes in areas such as maternal and child health. Strategy and Advisory Group (SAG) Charitable foundations in India and world-wide struggle to fully develop the strategy formulation, knowledge management and impact assessment dimensions of their work. A grant of Rs.20.00 million was provided to Strategy and Advisory Group (SAG), a team at Centre for Development Finance that provides strategic advisory services to clients in the development sector, to develop these functions and to offer their expertise to foundations in general, including ICICI Foundation. ICICI Group Corporate Social Responsibility Programmers Read to Lead Read to Lead is an initiative of ICICI Bank to facilitate elementary education for disadvantaged children in the age group of 6-13 years. An amount of Rs.25.00 million has thus far been disbursed to 100,000 children through 30 NGOs. The balance amount of Rs.75.00 million is planned to be disbursed during the period 2009-2010. MITRA (ICICI Fellows Programme) MITRA is an affiliate of CSO Partners that is focused on addressing the challenge of human resources for civil society organisations (CSOs). In partnership with CSO Partners and MITRA, ICICI Foundation proposes to launch an ICICI Fellows Programme. An amount of Rs.55.00 million has been disbursed to MITRA for developing and launching the programme over the period 2009-2010. CARE (Disaster Management Unit) A grant of Rs.5.00 million has been given to CARE in India to enable it to prepare for any future disasters that may strike and respond immediately with the required relief efforts. Rang De (Micro Enterprise Development) Rang De, an affiliate of CSO Partners, has partnered with ICICI Venture to roll out funds for 76

micro enterprise development in rural and semi-urban locations. The amount of Rs.25.00 million that has been disbursed to them will support micro enterprises to the extent of Rs.15.00 million and the balance amount of Rs.10.00 million will go towards meeting their expenses to build the platform.

77

CHAPTER-IV DATA ANALYSES AND INTERPRETATION

Data Analysis & Interpretation

For the purpose of data analysis and interpretation the following mutual funds have been chosen;

a) b)

SBI Magnum Equity Fund Growth Birla Sun life 95 Growth

78

c) ICICI Prudential Aggressive Plan - Dir - Growth d) LIC Nomura Childrens Fund

Each product has been analyzed using the following tools and the results tabulated, presented graphically and the evaluation of the same has been given under the caption 'Interpretation' below the graph.

The fund NAVs are compared with the bench mark of nifty for the analysis.

For analysis Net Asset Value ( NAV) of the Four AMCS have been taken for the month of January 2012

SBI Market Date Level ( NIFTY) Magnum Equity fund Growth 1/1/12 3033.45
21.08

Birla Sun life 95 Growth

ICICI Prudential Aggressive Plan Dir - Growth

LIC Nomura Childrens Fund

159.95

35.76 79

10.36

1/2/12 1/5/12 1/6/12 1/7/12 1/9/12 1/12/12 1/13/12 1/14/12 1/15/12 1/16/12 1/19/12 1/20/12 1/21/12 1/22/12 1/23/12 1/27/12 1/28/12 1/29/12 1/30/12

3046.75 3121.45 3112.8 2920.4 2873 2773.1 2744.95 2835.3 2736.7 2828.45 2846.2 2796.6 2706.15 2713.8 2678.55 2771.35 2849.5 2823.95 2874.8

21.22 21.69 21.86 20.7 20.18 19.75 19.64 20 19.56 19.87 19.98 19.63 19.18 19.11 18.71 19.24 19.62 19.47 19.71

162.21 163.7 163.84 154.38 154.48 152.69 152.59 155.28 152.9 154.27 156.12 155.72 153.08 151.88 150.67 151.51 152.33 151.76 152.91

35.85 36.05 36.01 36.02 36.01 35.96 36.01 36.07 36.12 35.92 36.02 36.01 36.07 36.04 35.96 35.64 35.86 35.64 35.64

10.38 10.40 10.39 10.38 10.39 10.36 10.39 10.42 10.45 10.37 10.39 10.37 10.36 10.33 10.33 10.30 10.37 10.38 10.47

Average

2854.36

20.01

155.11

35.93

10.37

Calculations of Risk of SBI Magnum Equity fund Growth for the period of 1st January to 31st January 2012 Market Level ( NIFTY) 3033.45 Market Return

Date

SBI Magnum Equity fund Growth

Return

1/1/12

21.08

80

1/2/12 1/5/12 1/6/12 1/7/12 1/9/12 1/12/12 1/13/12 1/14/12 1/15/12 1/16/12 1/19/12 1/20/12 1/21/12 1/22/12 1/23/12 1/27/12 1/28/12 1/29/12 1/30/12

3046.75 3121.45 3112.8 2920.4 2873 2773.1 2744.95 2835.3 2736.7 2828.45 2846.2 2796.6 2706.15 2713.8 2678.55 2771.35 2849.5 2823.95 2874.8

0.44 2.45 -0.28 -6.18 -1.62 -3.48 -1.02 3.29 -3.48 3.35 0.63 -1.74 -3.23 0.28 -1.30 3.46 2.82 -0.90 1.80 -0.36 2.75

21.22 21.69 21.86 20.7 20.18 19.75 19.64 20 19.56 19.87 19.98 19.63 19.18 19.11 18.71 19.24 19.62 19.47 19.71

0.66 2.21 0.78 -5.31 -2.51 -2.13 -0.56 1.83 -2.20 1.58 0.55 -1.75 -2.29 -0.36 -2.09 2.83 1.98 -0.76 1.23 -0.42 2.15

Average Return Standard deviation (Risk) Beta

0.75

81

Graphical Presentation of SBI Magnum Equity Fund-Growth For the month of January 12

Interpretation:
SBI Magnum Equity Fund-Growth has been analyzed and it is found that there is a negative growth. How ever on the basis of the avg returns of SBI there is a negative growth 0.42 as against the index avg of negative 0.36 the beta being less than 1 the stock is not highly volatile.

82

83

Calculations of Risk of Birla Sun life 95 Growth for the period of 1st January to 31st January 2012

Date

Market Level ( NIFTY) 3033.45 3046.75 3121.45 3112.8 2920.4 2873 2773.1 2744.95 2835.3 2736.7 2828.45 2846.2 2796.6 2706.15 2713.8 2678.55 2771.35 2849.5 2823.95 2874.8

Market Return

Birla Sun life 95 Growth 159.95

Return

1/1/12 1/2/12 1/5/12 1/6/12 1/7/12 1/9/12 1/12/12 1/13/12 1/14/12 1/15/12 1/16/12 1/19/12 1/20/12 1/21/12 1/22/12 1/23/12 1/27/12 1/28/12 1/29/12 1/30/12 Average Return

0.44 2.45 -0.28 -6.18 -1.62 -3.48 -1.02 3.29 -3.48 3.35 0.63 -1.74 -3.23 0.28 -1.30 3.46 2.82 -0.90 1.80 -0.36 2.75

162.21 163.7 163.84 154.38 154.48 152.69 152.59 155.28 152.9 154.27 156.12 155.72 153.08 151.88 150.67 151.51 152.33 151.76 152.91

1.41 0.92 0.09 -5.77 0.06 -1.16 -0.07 1.76 -1.53 0.90 1.20 -0.26 -1.70 -0.78 -0.80 0.56 0.54 -0.37 0.76 -0.28 1.69

Standard deviation Beta

0.51

84

Graphical Presentation of Birla Sun life 95 Growth For the month of January 12

Interpretation:
Birla Sun life 95 Growth have been analysed and it is found that there is a negative growth. How ever on the basis of the avg returns of Birla Sun life there is a negative growth 0.28as against the index avg of negative 0.36 the beta being less than 1 the stock is not highly volatile.

Calculations of Risk of ICICI Prudential Aggressive Plan - Dir - Growth for the period of 1st January to 31st January 2012
Market Level ( NIFTY) 3033.45 3046.75 3121.45 3112.8 0.44 2.45 -0.28 Market Return (x) ICICI Prudential Aggressive Plan Dir - Growth Return(y)

Date

1/1/12 1/2/12 1/5/12 1/6/12

35.76 35.85 36.05 36.01 85 0.09 0.2 -0.04

1/7/12 1/9/12 1/12/12 1/13/12 1/14/12 1/15/12 1/16/12 1/19/12 1/20/12 1/21/12 1/22/12 1/23/12 1/27/12 1/28/12 1/29/12 1/30/12

2920.4 2873 2773.1 2744.95 2835.3 2736.7 2828.45 2846.2 2796.6 2706.15 2713.8 2678.55 2771.35 2849.5 2823.95 2874.8

-6.18 -1.62 -3.48 -1.02 3.29 -3.48 3.35 0.63 -1.74 -3.23 0.28 -1.30 3.46 2.82 -0.90 1.80

36.02 36.01 35.96 36.01 36.07 36.12 35.92 36.02 36.01 36.07 36.04 35.96 35.64 35.86 35.64 35.64
y -0.006

0.01 -0.01 -0.05 0.05 0.06 0.05 -0.2 0.1 -0.01 0.06 -0.03 -0.08 -0.32 0.22 -0.22 0

x Average Return -0.36

Standard deviation

2.75

0.24

Beta

0.41

86

Graphical Presentation of ICICI Prudential Aggressive Plan - Dir - Growth For the month of January 12

Interpretation:

87

ICICI Prudential Aggressive Plan - Dir - Growth have been analyzed and it is found that there is a positive growth. However on the basis of the avg returns of ICICI Prudential Aggressive Plan Dir - Growth there is a negative growth 0.006 as against the index avg of negative 0.24 the beta being less than 1 the stock is not highly volatile.

Calculations of Risk of LIC Nomura Childrens Fund

for the period of 1st January to 31st January 2012

Date

Market Level ( NIFTY) 3033.45 3046.75 3121.45 3112.8 2920.4 2873 2773.1 2744.95 2835.3 2736.7

Market Return (x)

LIC Nomura Childrens Fund

Return(y)

1/1/12 1/2/12 1/5/12 1/6/12 1/7/12 1/9/12 1/12/12 1/13/12 1/14/12 1/15/12

10.36
0.44 2.45 -0.28 -6.18 -1.62 -3.48 -1.02 3.29 -3.48

10.38 10.40 10.39 10.38 10.39 10.36 10.39 10.42 10.45 88

0.02 0.02 -0.01 -0.01 0.01 -0.03 0.03 0.03 0.03

1/16/12 1/19/12 1/20/12 1/21/12 1/22/12 1/23/12 1/27/12 1/28/12 1/29/12 1/30/12

2828.45 2846.2 2796.6 2706.15 2713.8 2678.55 2771.35 2849.5 2823.95 2874.8

3.35 0.63 -1.74 -3.23 0.28 -1.30 3.46 2.82 -0.90 1.80

10.37 10.39 10.37 10.36 10.33 10.33 10.30 10.37 10.38 10.47

-0.08 0.02 -0.02 -0.01 -0.03 0 -0.03 0.07 0.01 0.09

y 0.005

x Average Return -0.36

Standard deviation

2.75

0.27

Beta

0.55

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Graphical presentation of LIC Nomura Childrens FundFor the month of January 12

Interpretation:
LIC Nomura Childrens Fund has been analyzed and it is found that there is a negative growth. How ever on the basis of the avg returns of LIC Nomura Childrens Fund there is a negative growth 0.005 as against the index avg of negative 0.55 the beta being less than 1 the stock is not highly volatile.

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Comparative Study of the performance of the Selected AMCs Sharp index and Treynor index are calculated For the month of
Name of the Fund

January 12
Return (Rm) Risk(std dev) Beta () Sharp's Rf (RmRf)/
0.06

Treynor (RmRf)/ -0.64 -0.67

SBI Magnum Equity Fund Growth

-0.42

2.15

0.75

-0.22 -0.20

Birla Sun life 95 Growth ICICI Prudential Aggressive Plan - Dir Growth LIC Nomura Childrens Fund

-0.28

1.69

0.51

0.06

0.006

0.24

0.41

0.0 6 0.0 6

-0.22

-0.13

0.005

0.27

0.55

-0.03

-0.10

The graphical representation of Sharp Index:

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Interpretation:

From the above table and graph we can know that Birla sunlife and ICICI are giving good returns and they are in first position,

And the second position is SBI

The graphical representation of TREYNER Index:

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Interpretation:

From the above table and graph we can know icici is performing well and it is in first position And the second position is SBI The general trend in the reduction of the market price for various mutual funds studied is not encouraging the stock market index has also been falling continuously because of general economic slow down how ever the funds are ranked considering sharp and trenyors in the order of performances

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CHAPTER-V
FINDINGS SUGGESSIONS CONCLUSIONS BIBLIOGRAPHY

FINDINGS
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SHARPES: As per Sharpe performance measure, a high Sharpe ratio is preferable as it

indicates a superior risk adjusted performance of a fund. From the above table Birla sunlife and icici show a better risk-adjusted performance out of top4 AMCS.

TREYNORs: As per TREYNORS ratio the Treynors reward to volatility - having high positive index is favorable. Therefore, as per this ratio also icici MUTUAL FUND is preferable.

CONCLUSIONS

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From the study analysis conducted it is clear that in EQUITY FUNDS-BIRLA SUNLIFE MUTUAL FUND is performing very well.

Investing in the ICICI MUTUAL FUND (GROWTH) will leads to profits. By seeing the overall performance ICICI MUTUAL FUND is performing very well.

The prospective investors are needed to be made aware of the investment in mutual funds. The Industry should keep consistency and transparency in its management and investors objectives.

There is 100% growth of mutual fund as foreign AMCS are in queue to enter the Indian markets. Mutual funds can also perctrate in to rural areas.

SUGGESTIONS TO INVESTORS:
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Investing Checklist Financial goals & Time frame (Are you investing for retirement? A childs education? Or for current income? ) Risk Taking Capacity Identify funds that fall into your Buy List Obtain and read the offer Documents match your objectives In terms of equity share and bond weightings, downside risk protection, tax benefits offered, dividend payout policy, sector focus Performance of various funds with similar objectives for at least 3-5 years Think hard about investing in sector funds For relatively aggressive investors Close touch with developments in sector, review portfolio regularly Look for `load' costs Management fees, annual expenses of the fund and sales loads Look for size and credentials Asset size less than Rs. 25 Crores Diversify, but not too much Invest regularly, choose the S-I-P MF- an integral part of your savings and wealth building plans.

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Portfolio Decision
The right asset allocation i. Age = % in debt instruments ii. Reality= different financial position, different allocation iii. Younger= Riskier 2. Selecting the right fund/s i. Based on schemes investment philosophy ii. Long-term, appetite for risk, beat inflation equity funds best 3. TRAPS TO AVOID 4. IPO Blur 5. Begin with existing schemes (proven track record) and then new 6. schemes i. Avoid Market Timing 7. MF Comparison 8. Absolute returns 9. % Difference of NAV i. Diversified Equity with Sector Funds NO 10. Benchmark returns i. SEBI directs ii. Fund's returns compared to its benchmark

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11. Time period Equal to time for which you plan to invest i. Equity- compare for 5 years, Debt- for 6 months 12. Market conditions i. Proved its mettle in bear market

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Recommendations and Suggestions to AMCS:

1) Brand building: Brand building is an exercise, which every business enterprise will have. Brand is the soul of an institution; it survives on it, lives with it and cherishes it. Example: BIRLA SUNLIFE MUTUAL FUND has a brand, every bank, insurance companies; mutual fund companies have got their own brands.

2) Strength full Strategies: Every AMC should try to turn into a more modern, a more vibrant, a more transparent and regulatory compliance institution. It is with this in mind, every institution should try to come up with verity of different type of products to fill different investment objectives

3) Marketing tools for total quality achievement:

a) b) c) d) e) f) g)

Large Network. Effective Man power Distribution across the Market Customer relations(Building better relationships) Value added service Better transparency level Building brand name as a disciplined player.

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4) Innovation:

MF industry can be classified morely into three categories like equity, debt and balanced. And there is also complexive in nature. Fund managers are not able to reach niche market. The products are should be innovative that can meet niche market. Here MF should follow the FMCG industry innovative strategy.

The Ground rules of Mutual Fund Investing

Assess yourself

1) 2) 3) 4) 5) 6) 7) 8) 9)

Try to understand where the money is going Don't rush in picking funds, think first Invest. Dont speculate Dont put all the eggs in one basket Be regular Do your homework Find the right funds Keep track of your investments Know when to sell your mutual funds

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BIBILIOGRAPHY
I. TEXT BOOKS Donald E Fischer Ronald J Jordan H.Sadhak II. WEB SITES www.amfiindia.com www.icicipro.com www.bseindia.com www.nseinda.com www.bluechipinda.co.in III. MAGAZINES Business India Business World IV. NEWS PAPERS Economic Times Business Standard. Mutual Fund in India Security Analysis Portfolio Management

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