SUMMER TRAINING PROJECT REPORT

ON
ANALYSIS OF DISTRIBUTION CHANNEL OF PARAG DAIRY ACROSS
ALLAHABAD DISTRICT
A report submitted to IIMT, Greater Noida in the partial fulfillment of full time Post
Graduate Diploma in Business Management.
Under the guidances of
Mr. MRITYN!AYA "ING#
"ubmitted To$ "ubmitted B%
Dr. D.&. Garg D''PA& "ING#
(#AIRMAN 'NR N).*+,*-
IIMT, GR'AT'R N)IDA PGDBM "'(.A
ISHAN INSTITUTE OF MANAGEMENT & TECHNOLOGY
-, &N)/0'DG' PAR&, GR'AT'R N)IDA
Website- 111.ishanfamil%.2om
E-!i". Ishan32oporate4%ahoo.2om
-
1
PREFACE
There are number of forces that make marketing an endlessly changing
activity. The constantly changing activity sociological, psychological and
political environment may represent the uncontrollable marketing factors. To
understanding these factors in a better way marketing research is of utmost
importance.
This Project Report has been completed in Partial fulfillment of my
management Program, Post raduate in !usiness "anagement #P$!"% in
the company &!' "(T()* +(,$ -o. The objective of my project was .T/
*0)R, T10 2/R3 ', &!' "(T()* +(,$ -o. ),$ T/ &T($4 )!/(T
T)5)', ),$ -/,TR) +(,$ &-10"0&.
.
ACKNOWLEDGMENT
This project has been prepared as a part of an internship required
during the completion of PGDBM programme at IIMT, Gr.Noida
!.P".
I #as in$ol$ed #ith SBI MUTUAL FUND Co., for a period of %&
da's, and I came across a lot of people #ho put in their time and
effort to#ards acclimati(ing me to the #or)ings of their
organi(ation.
I e*press m' than)s to m' compan' guide Mr. D+,-M.ND-,, #ho
#as there to introduce me to the idea of M!T!,/ 0!ND and #hat
goes behind it. ,lso under him guidance and leadership I #as able to
enhance m' mar)eting as #ell as inter1personal s)ills.
I #ould also li)e to than) him for him immense support and
guidance in the selection of the project, its stud' and preparation of
the report.
I #ould also li)e to #ish a special than)s to m' facult' guide Mr.
T.2. G!+, #ithout #hose guidance this project #ould ha$e been a
distant dream.
/ast, but definitel' not the least, I e*press m' gratitude to the entire
staff of 3BI M!T!,/ 0!ND 4o.
These past %& da's #ere of utmost importance as the' added $alue
to#ards m' path of )no#ledge.
I #ould li)e to end this ac)no#ledgement b' than)ing the
customers, at large #ith #hom I ha$e interacted during the course
of m' training.
DECLAAT!ON
The summer project on 5M,-2.TING 60 3BI M!T!,/ 0!ND .7!IT8
P-6D!4T3 ,ND 3T!D8 60 T,9G,IN ,ND 46NT-, 0!ND 34+.M.3:
in 3BI M!T!,/ 0!ND 4o. is the original #or) done b' me.
This is the propert' of the Institute and use of this report #ithout
prior permission of the Institute #ill be considered illegal and
actionable.
DAT'$
*,5,65,7 NAM' )8 "TD'NT
P0A(' AN&R "RI9A"TA9A
&ANPR 'NR*:,-6,
*:
th
BAT(#

TABLE OF CONTENTS
';'(TI9' "MMARY.
()MPANY PR)8I0'
#I"T)RI(A0 BA(&GR)ND
()MP'TIT)R"
PR)M)T'R" AND BA(&GR)ND.
D'MAND."PP0Y ANA0Y"I"
G)9T P)0I(Y
!)B PR)8I0'
"TATI"TI("
T#' 80)/ )8 ()MPANY IN8)RMATI)N
0IMITATI)N"
")M' 8A(T"
()MP'TITI)N IN MTA0 8ND P)RT8)0I) MANAG'M'NT
'()N)MI(" )8 MTA0 8ND IND"TRY
8II
#R P)0I(I'"
MAR&'TING "TRAT'GI'"
"A0'" MANAG'M'NT
MY 0'ARNING" 8R)M T#' PR)!'(T
"YN)P"I"
BIB0I)GRAP#Y.
/)RD )8 T#AN&".
.
E#ECUTI$E SUMMARY
"BI 8ND" MANAG'M'NT P9T 0TD. is a <oint =enture bet1een "TAT'
BAN& )8 INDIA, the 2ountr%>s largest ban? and ")(I'T' G'N'RA0' A""'T
MANAG'M'NT @8RAN('A, one of the 1orld>s leading fund management
2ompanies. /ith o=er -, %ears of ri2h eBperien2e in fund management. "BI 8unds
Management P=t 0td is one of the largest in=estment management firms in INDIA
managing in=estment mandates of o=er +C la?h in=estors./ith a net1or? of o=er *:,
points of a22eptan2e spread a2ross INDIA their =ast famil% of in=estors is eBpanding
faster and further.
"BI MTA0 8ND has 1on the prestigious (NB( T9 *7 (risil Mutual
8und of the %ear A1ard -,,6, apart from 1inning fi=e a1ards for s2heme
performan2e. "BI MTA0 8ND has also 1on the Most Preferred Brand of Mutual
8und at the (NB( A/AAD ()N"M'R A/ARD" in -,,C and -,,6. But abo=e
all, it is the trust of o=er +C la?hs in=estors that eggs on to deli=er inno=ati=e and
stable management ser=i2es, da% after da%. It is the dri=ing for2e for team of
in=estment eBperts to de=elop and deli=er produ2ts that help in=estors li?e 1e a2hie=e
finan2ial ob<e2ti=es
COMPANY PROFILE
"BI 8unds Management P=t. 0td. is one of the leading fund houses in the 2ountr% 1ith an
in=estor base of o=er +.C million and o=er -, %ears of ri2h eBperien2e in fund management
2onsistentl% deli=ering =alue to its in=estors.
"BI 8unds Management P=t. 0td. is a <oint =enture bet1een EThe "tate Ban? of IndiaE one of
IndiaEs largest ban?ing enterprises, and "o2iFtF GFnFrale Asset Management @8ran2eA, one
of the 1orldEs leading fund management 2ompanies that manages o=er "G H,, Billion
1orld1ide.
Toda% the fund house manages o=er Rs -7H,, 2rores of assets and has a di=erse profile of
in=estors a2ti=el% par?ing their in=estments a2ross :C a2ti=e s2hemes. In -, %ears of
operation, the fund has laun2hed :7 s2hemes and su22essfull% redeemed *H of them, and in
the pro2ess, has re1arded our in=estors 1ith 2onsistent returns. "2hemes of the Mutual
8und ha=e time after time outperformed ben2hmar? indi2es, honoured us 1ith *H a1ards of
performan2e and ha=e emerged as the preferred in=estment for millions of in=estors and
#NIEs. The trust reposed on us b% o=er +.C million in=estors is a genuine tribute to our
eBpertise in fund management.
"BI 8unds Management P=t. 0td. ser=es its =ast famil% of in=estors through a net1or? of
o=er *:, points of a22eptan2e, -7 In=estor "er=i2e (entres, +C In=estor "er=i2e Des?s and
HC Distri2t )rganisers.

"BI Mutual 8und is India>s largest ban? sponsored mutual fund and has an
en=iable tra2? re2ord in <udi2ious in=estments and 2onsistent 1ealth 2reation.
The fund tra2es its lineage to "BI I India>s largest ban?ing enterprise. The
institution has gro1n immensel% sin2e its in2eption and toda% it is IndiaEs largest
ban?, patronised b% o=er 7,J of the top 2orporate houses of the 2ountr%.
"#! Mutua$ %und is a &oint 'enture (et)een the "tate #an* of !ndia and "ociete Genera$e Asset
Manage+ent, one of the )or$ds $eading fund +anage+ent co+-anies that +anages o'er U".
/00 #i$$ion )or$d)ide.
In t1ent% %ears of operation, the fund has laun2hed :7 s2hemes and su22essfull%
redeemed fifteen of them. In the pro2ess it has re1arded it>s in=estors
handsomel% 1ith 2onsistentl% high returns.
A total of o=er H.+ million in=estors ha=e reposed their faith in the 1ealth
generation eBpertise of the Mutual 8und.
"2hemes of the Mutual fund ha=e 2onsistentl% outperformed ben2hmar? indi2es
and ha=e emerged as the preferred in=estment for millions of in=estors and
#NI>s.
Toda%, the fund manages o=er Rs. :*,6K+ 2rores of assets and has a di=erse
profile of in=estors a2ti=el% par?ing their in=estments a2ross :C a2ti=e s2hemes.
The fund ser=es this =ast famil% of in=estors b% rea2hing out to them through
net1or? of o=er *:, points of a22eptan2e, -7 in=estor ser=i2e 2enters, +C
in=estor ser=i2e des?s and HC distri2t organisers.
"BI Mutual is the first ban?.sponsored fund to laun2h an offshore fund
The 2ontinued un2ertain e2onomi2 s2enario in the global sphere has had its impa2t on
the Indian sto2? mar?ets. #a=ing started the finan2ial %ear on a positi=e note, the
mar?ets turned negati=e for the month and B"' "enseB sa1 loss of around H.,J,
1hile the (N; Nift% fell b% H.6J.
After ma?ing positi=e returns for April, the month of Ma% failed to ?eep up the
momentum. Mutual 8und in=estors also sa1 de2line in their NA9s for the month. The
mutual fund industr% has 2rossed the Rs C,,,,,,,.2rore milestone in terms of Assets
under Management @AMA, adding Rs :,,,,, 2rores to its assets in Ma% against the
total AM of nearl% Rs H,6,,,,, 2rores in April -,,7.
"BI Mutual 8und, the siBth largest Mutual 8und house in India, 1ith an a=erage
monthl% AM of Rs :*6K+.K6 2rores sa1 an in2rease of +.CJ in its a=erage AM
o=er April. In the ne1 fund offers, "BI Debt 8und "eries @*7, da%s and K, da%sA "BI
Mutual 8und garnered 2lose to Rs -6,, 2rores.
&eeping 1ith our past poli2% of regularl% re1arding our in=estors 1ith di=idends, IEm
pleased to inform %ou that that 1e ha=e de2lared a di=idend of +,J in Magnum "e2tor
8unds mbrella @M"8A (ontra @re2ord date *Cth Ma% -,,7A. M"8 (ontra fund an
open ended eLuit% fund and the flagship fund of "BI Mutual 8und, thin?s differentl%,
goes against the grain of mar?et thought and ta?es the road less tra=eled. It endea=ors
to proa2ti=el% identif% ne1 in=estment themes thereb% 2apitaliMing its 2ontrarian
approa2h. This s2heme offers a good in=estment option to the in=estors 1ho 1ould
li?e to in=est in gro1th s2rips of the future.
In these times of =olatilit% and un2ertaint%, the basi2 prin2iple of a sound in=estment
<ust doesn>t lie in pi2?ing up the best produ2t. It also lies in ma?ing regular
in=estments. "%stemati2 In=estment Plan @"IPA is one su2h route 1hi2h helps not onl%
in de=eloping a finan2ial dis2ipline but also minimiMes %our losses 1hen the mar?ets
turn 2hopp%. In=esting in an "IP does a1a% 1ith the need to time the mar?et. It
redu2es the ris? asso2iated 1ith mar?et flu2tuations. "BI Mutual 8und, 1ith its
eBpertise and eBperien2e of o=er -, %ears not onl% helps %ou rea2h out to %our dreams
through "%stemati2 In=estment Plan @"IPA I be it edu2ation, marriage, =a2ation, but it
also ta?es a1a% the anBiet% of being 2aught unprepared

STATE BAN% OF INDIA
HISTORICAL BAC%GROUND
The origin of the St!te B!&' () I&*i! goes ba2? to the first de2ade of the nineteenth
2entur% 1ith the establishment of the Ban? of (al2utta in (al2utta on - !une *7,C.
Three %ears later the ban? re2ei=ed its 2harter and 1as re.designed as the Ban? of
Bengal @- !anuar% *7,KA. A uniLue institution, it 1as the first <oint.sto2? ban? of
British India sponsored b% the Go=ernment of Bengal. The Ban? of Bomba% @*H April
*7+,A and the Ban? of Madras @* !ul% *7+:A follo1ed the Ban? of Bengal. These
three ban?s remained at the apeB of modern ban?ing in India till their amalgamation
as the Imperial Ban? of India on -6 !anuar% *K-*.
Primaril% Anglo.Indian 2reations, the three presiden2% ban?s 2ame into eBisten2e
either as a result of the 2ompulsions of imperial finan2e or b% the felt needs of lo2al
'uropean 2ommer2e and 1ere not imposed from outside in an arbitrar% manner to
modernise IndiaEs e2onom%. Their e=olution 1as, ho1e=er, shaped b% ideas 2ulled
from similar de=elopments in 'urope and 'ngland, and 1as influen2ed b% 2hanges
o22urring in the stru2ture of both the lo2al trading en=ironment and those in the
relations of the Indian e2onom% to the e2onom% of 'urope and the global e2onomi2
frame1or?.

Est!b"is+e&t
The establishment of the Ban? of Bengal mar?ed the ad=ent of limited liabilit%, <oint.
sto2? ban?ing in India. "o 1as the asso2iated inno=ation in ban?ing, =iM. the de2ision
to allo1 the Ban? of Bengal to issue notes, 1hi2h 1ould be a22epted for pa%ment of
publi2 re=enues 1ithin a restri2ted geographi2al area. This right of note issue 1as
=er% =aluable not onl% for the Ban? of Bengal but also its t1o siblings, the Ban?s of
Bomba% and Madras. It meant an a22retion to the 2apital of the ban?s, a 2apital on
1hi2h the proprietors did not ha=e to pa% an% interest. The 2on2ept of deposit ban?ing
1as also an inno=ation be2ause the pra2ti2e of a22epting mone% for safe?eeping @and
in some 2ases, e=en in=estment on behalf of the 2lientsA b% the indigenous ban?ers
had not spread as a general habit in most parts of India. But, for a long time, and
espe2iall% upto the time that the three presiden2% ban?s had a right of note issue, ban?
notes and go=ernment balan2es made up the bul? of the in=estible resour2es of the
ban?s.
The three ban?s 1ere go=erned b% ro%al 2harters, 1hi2h 1ere re=ised from time to
time. 'a2h 2harter pro=ided for a share 2apital, four.fifth of 1hi2h 1ere pri=atel%
subs2ribed and the rest o1ned b% the pro=in2ial go=ernment. The members of the
board of dire2tors, 1hi2h managed the affairs of ea2h ban?, 1ere mostl% proprietar%
dire2tors representing the large 'uropean managing agen2% houses in India. The rest
1ere go=ernment nominees, in=ariabl% 2i=il ser=ants, one of 1hom 1as ele2ted as the
president of the board.
B ,si&ess
The business of the ban?s 1as initiall% 2onfined to dis2ounting of bills of eB2hange or
other negotiable pri=ate se2urities, ?eeping 2ash a22ounts and re2ei=ing deposits and
issuing and 2ir2ulating 2ash notes. 0oans 1ere restri2ted to Rs.one la?h and the period
of a22ommodation 2onfined to three months onl%. The se2urit% for su2h loans 1as
publi2 se2urities, 2ommonl% 2alled (ompan%Es Paper, bullion, treasure, plate, <e1els,
or goods Enot of a perishable natureE and no interest 2ould be 2harged be%ond a rate of
t1el=e per 2ent. 0oans against goods li?e opium, indigo, salt 1oollens, 2otton, 2otton
pie2e goods, mule t1ist and sil? goods 1ere also granted but su2h finan2e b% 1a% of
2ash 2redits gained momentum onl% from the third de2ade of the nineteenth 2entur%.
All 2ommodities, in2luding tea, sugar and <ute, 1hi2h began to be finan2ed later, 1ere
either pledged or h%pothe2ated to the ban?. Demand promissor% notes 1ere signed b%
the borro1er in fa=our of the guarantor, 1hi2h 1as in turn endorsed to the ban?.
0ending against shares of the ban?s or on the mortgage of houses, land or other real
propert% 1as, ho1e=er, forbidden.
Indians 1ere the prin2ipal borro1ers against deposit of (ompan%Es paper, 1hile the
business of dis2ounts on pri=ate as 1ell as salar% bills 1as almost the eB2lusi=e
monopol% of indi=iduals 'uropeans and their partnership firms. But the main fun2tion
of the three ban?s, as far as the go=ernment 1as 2on2erned, 1as to help the latter raise
loans from time to time and also pro=ide a degree of stabilit% to the pri2es of
go=ernment se2urities.

M!-(. /+!&0e i& t+e /(&*iti(&s
A ma<or 2hange in the 2onditions of operation of the Ban?s of Bengal, Bomba% and
Madras o22urred after *7C,. /ith the passing of the Paper (urren2% A2t of *7C*, the
right of note issue of the presiden2% ban?s 1as abolished and the Go=ernment of India
assumed from * Mar2h *7C- the sole po1er of issuing paper 2urren2% 1ithin British
India. The tas? of management and 2ir2ulation of the ne1 2urren2% notes 1as
2onferred on the presiden2% ban?s and the Go=ernment undertoo? to transfer the
Treasur% balan2es to the ban?s at pla2es 1here the ban?s 1ould open bran2hes. None
of the three ban?s had till then an% bran2hes @eB2ept the sole attempt and that too a
short.li=ed one b% the Ban? of Bengal at MirMapore in *7:KA although the 2harters had
gi=en them su2h authorit%. But as soon as the three presiden2% bands 1ere assured of
the free use of go=ernment Treasur% balan2es at pla2es 1here the% 1ould open
bran2hes, the% embar?ed on bran2h eBpansion at a rapid pa2e. B% *76C, the bran2hes,
agen2ies and sub agen2ies of the three presiden2% ban?s 2o=ered most of the ma<or
parts and man% of the inland trade 2entres in India. /hile the Ban? of Bengal had
eighteen bran2hes in2luding its head offi2e, seasonal bran2hes and sub agen2ies, the
Ban?s of Bomba% and Madras had fifteen ea2h.

P.esi*e&/1 B!&'s A/t
The presiden2% Ban?s A2t, 1hi2h 2ame into operation on * Ma% *76C, brought the
three presiden2% ban?s under a 2ommon statute 1ith similar restri2tions on business.
The proprietar% 2onne2tion of the Go=ernment 1as, ho1e=er, terminated, though the
ban?s 2ontinued to hold 2harge of the publi2 debt offi2es in the three presiden2%
to1ns, and the 2ustod% of a part of the go=ernment balan2es. The A2t also stipulated
the 2reation of Reser=e Treasuries at (al2utta, Bomba% and Madras into 1hi2h sums
abo=e the spe2ified minimum balan2es promised to the presiden2% ban?s at onl% their
head offi2es 1ere to be lodged. The Go=ernment 2ould lend to the presiden2% ban?s
from su2h Reser=e Treasuries but the latter 2ould loo? upon them more as a fa=our
than as a right.

The de2ision of the Go=ernment to ?eep the surplus balan2es in Reser=e Treasuries
outside the normal 2ontrol of the presiden2% ban?s and the 2onne2ted de2ision not to
guarantee minimum go=ernment balan2es at ne1 pla2es 1here bran2hes 1ere to be
opened effe2ti=el% 2he2?ed the gro1th of ne1 bran2hes after *76C. The pa2e of
eBpansion 1itnessed in the pre=ious de2ade fell sharpl% although, in the 2ase of the
Ban? of Madras, it 2ontinued on a modest s2ale as the profits of that ban? 1ere
mainl% deri=ed from trade dispersed among a number of port to1ns and inland 2entres
of the presiden2%.
India 1itnessed rapid 2ommer2ialisation in the last Luarter of the nineteenth 2entur%
as its rail1a% net1or? eBpanded to 2o=er all the ma<or regions of the 2ountr%. Ne1
irrigation net1or?s in Madras, Pun<ab and "ind a22elerated the pro2ess of 2on=ersion
of subsisten2e 2rops into 2ash 2rops, a portion of 1hi2h found its 1a% into the foreign
mar?ets. Tea and 2offee plantations transformed large areas of the eastern Terais, the
hills of Assam and the Nilgiris into regions of estate agri2ulture par eB2ellen2e. All
these resulted in the eBpansion of IndiaEs international trade more than siB.fold. The
three presiden2% ban?s 1ere both benefi2iaries and promoters of this
2ommer2ialisation pro2ess as the% be2ame in=ol=ed in the finan2ing of pra2ti2all%
e=er% trading, manufa2turing and mining a2ti=it% in the sub.2ontinent. /hile the
Ban?s of Bengal and Bomba% 1ere engaged in the finan2ing of large modern
manufa2turing industries, the Ban? of Madras 1ent into the finan2ing of large modern
manufa2turing industries, the Ban? of Madras 1ent into the finan2ing of small.s2ale
industries in a 1a% 1hi2h had no parallel else1here. But the three ban?s 1ere
rigorousl% eB2luded from an% business in=ol=ing foreign eB2hange. Not onl% 1as
su2h business 2onsidered ris?% for these ban?s, 1hi2h held go=ernment deposits, it
1as also feared that these ban?s en<o%ing go=ernment patronage 1ould offer unfair
2ompetition to the eB2hange ban?s 1hi2h had b% then arri=ed in India. This eB2lusion
2ontinued till the 2reation of the Reser=e Ban? of India in *K:H.

P.esi*e&/1 B!&'s () Be&0!"
The presiden2% Ban?s of Bengal, Bomba% and Madras 1ith their 6, bran2hes 1ere
merged in *K-* to form the Imperial Ban? of India. The triad had been transformed
into a monolith and a giant among Indian 2ommer2ial ban?s had emerged. The ne1
ban? too? on the triple role of a 2ommer2ial ban?, a ban?erEs ban? and a ban?er to the
go=ernment.
But this 2reation 1as pre2eded b% %ears of deliberations on the need for a E"tate Ban?
of IndiaE. /hat e=entuall% emerged 1as a Ehalf.1a% houseE 2ombining the fun2tions of
a 2ommer2ial ban? and a Luasi.2entral ban?.
The establishment of the Reser=e Ban? of India as the 2entral ban? of the 2ountr% in
*K:H ended the Luasi.2entral ban?ing role of the Imperial Ban?. The latter 2eased to
be ban?ers to the Go=ernment of India and instead be2ame agent of the Reser=e Ban?
for the transa2tion of go=ernment business at 2entres at 1hi2h the 2entral ban? 1as
not established. But it 2ontinued to maintain 2urren2% 2hests and small 2oin depots
and operate the remittan2e fa2ilities s2heme for other ban?s and the publi2 on terms
stipulated b% the Reser=e Ban?. It also a2ted as a ban?ersE ban? b% holding their
surplus 2ash and granting them ad=an2es against authorised se2urities. The
management of the ban? 2learing houses also 2ontinued 1ith it at man% pla2es 1here
the Reser=e Ban? did not ha=e offi2es. The ban? 1as also the biggest tenderer at the
Treasur% bill au2tions 2ondu2ted b% the Reser=e Ban? on behalf of the Go=ernment.
The establishment of the Reser=e Ban? simultaneousl% sa1 important amendments
being made to the 2onstitution of the Imperial Ban? 2on=erting it into a purel%
2ommer2ial ban?. The earlier restri2tions on its business 1ere remo=ed and the ban?
1as permitted to underta?e foreign eB2hange business and eBe2utor and trustee
business for the first time.
I2e.i!" B!&'
The Imperial Ban? during the three and a half de2ades of its eBisten2e re2orded an
impressi=e gro1th in terms of offi2es, reser=es, deposits, in=estments and ad=an2es,
the in2reases in some 2ases amounting to more than siB.fold. The finan2ial status and
se2urit% inherited from its forerunners no doubt pro=ided a firm and durable platform.
But the loft% traditions of ban?ing 1hi2h the Imperial Ban? 2onsistentl% maintained
and the high standard of integrit% it obser=ed in its operations inspired 2onfiden2e in
its depositors that no other ban? in India 2ould perhaps then eLual. All these enabled
the Imperial Ban? to a2Luire a pre.eminent position in the Indian ban?ing industr%
and also se2ure a =ital pla2e in the 2ountr%Es e2onomi2 life. /hen India attained
freedom, the Imperial Ban? had a 2apital base @in2luding reser=esA of Rs.**.7H 2rores,
deposits and ad=an2es of Rs.-6H.*+ 2rores and Rs.6-.K+ 2rores respe2ti=el% and a
net1or? of *6- bran2hes and more than -,, sub offi2es eBtending all o=er the
2ountr%.
The "tate Ban? of India, the 2ountr%>s oldest Ban? and a premier in terms of balan2e
sheet siMe, number of bran2hes, mar?et 2apitaliMation and profits is toda% going
through a momentous phase of (hange and Transformation I the t1o hundred %ear
old Publi2 se2tor behemoth is toda% stirring out of its Publi2 "e2tor lega2% and
mo=ing 1ith an agilit% to gi=e the Pri=ate and 8oreign Ban?s a run for their mone%.
The ban? is entering into man% ne1 businesses 1ith strategi2 tie ups I Pension 8unds,
General Insuran2e, (ustodial "er=i2es, Pri=ate 'Luit%, Mobile Ban?ing, Point of "ale
Mer2hant A2Luisition, Ad=isor% "er=i2es, stru2tured produ2ts et2 I ea2h one of these
initiati=es ha=ing a huge potential for gro1th.
The Ban? is forging ahead 1ith 2utting edge te2hnolog% and inno=ati=e ne1 ban?ing
models, to eBpand its Rural Ban?ing base, loo?ing at the =ast untapped potential in
the hinterland and proposes to 2o=er *,,,,,, =illages in the neBt t1o %ears.

It is also fo2using at the top end of the mar?et, on 1hole sale ban?ing 2apabilities to
pro=ide India>s gro1ing mid 5 large (orporate 1ith a 2omplete arra% of produ2ts and
ser=i2es. It is 2onsolidating its global treasur% operations and entering into stru2tured
produ2ts and deri=ati=e instruments. Toda%, the Ban? is the largest pro=ider of
infrastru2ture debt and the largest arranger of eBternal 2ommer2ial borro1ings in the
2ountr%. It is the onl% Indian ban? to feature in the 8ortune H,, list.
The Ban? is 2hanging outdated front and ba2? end pro2esses to modern 2ustomer
friendl% pro2esses to help impro=e the total 2ustomer eBperien2e. /ith about 7H,, of
its o1n *,,,, bran2hes and another H*,, bran2hes of its Asso2iate Ban?s alread%
net1or?ed, toda% it offers the largest ban?ing net1or? to the Indian 2ustomer. The
Ban? is also in the pro2ess of pro=iding 2omplete pa%ment solution to its 2lientele
1ith its o=er 7H,, ATMs, and other ele2troni2 2hannels su2h as Internet ban?ing,
debit 2ards, mobile ban?ing, et2.
/ith four national le=el ApeB Training (olleges and H+ learning (entres spread all
o=er the 2ountr% the Ban? is 2ontinuousl% engaged in s?ill enhan2ement of its
emplo%ees. "ome of the training programes are attended b% ban?ers from ban?s in
other 2ountries.
The ban? is also loo?ing at opportunities to gro1 in siMe in India as 1ell as
Internationall%. It presentl% has 7- foreign offi2es in :- 2ountries a2ross the globe. It
has also 6 "ubsidiaries in India I "BI (apital Mar?ets, "BI(AP "e2urities, "BI
D8#I, "BI 8a2tors, "BI 0ife and "BI (ards . forming a formidable group in the
Indian Ban?ing s2enario. It is in the pro2ess of raising 2apital for its gro1th and also
2onsolidating its =arious holdings.
Throughout all this 2hange, the Ban? is also attempting to 2hange old mindsets,
attitudes and ta?e all emplo%ees together on this eB2iting road to Transformation. In a
re2entl% 2on2luded mass internal 2ommuni2ation programme termed NPari=artan> the
Ban? rolled out o=er ::,, t1o da% 1or?shops a2ross the 2ountr% and 2o=ered o=er
*:,,,,, emplo%ees in a period of *,, da%s using about +,, Trainers, to dri=e home
the message of (hange and in2lusi=eness. The 1or?shops fired the imagination of the
emplo%ees 1ith some other ban?s in India as 1ell as other Publi2 "e2tor
)rganiMations see?ing to emulate the programme.
The (NN IBN, Net1or? *7 re2ogniMed this momentous transformation <ourne%, the
"tate Ban? of India is underta?ing, and has a1arded the prestigious Indian of the Year
I Business, to its (hairman, Mr. ). P. Bhatt in !anuar% -,,7.
Fi.st Fi3e Ye!. P"!&
In *KH*, 1hen the 8irst 8i=e Year Plan 1as laun2hed, the de=elopment of rural India
1as gi=en the highest priorit%. The 2ommer2ial ban?s of the 2ountr% in2luding the
Imperial Ban? of India had till then 2onfined their operations to the urban se2tor and
1ere not eLuipped to respond to the emergent needs of e2onomi2 regeneration of the
rural areas. In order, therefore, to ser=e the e2onom% in general and the rural se2tor in
parti2ular, the All India Rural (redit "ur=e% (ommittee re2ommended the 2reation of
a state.partnered and state.sponsored ban? b% ta?ing o=er the Imperial Ban? of India,
and integrating 1ith it, the former state.o1ned or state.asso2iate ban?s. An a2t 1as
a22ordingl% passed in Parliament in Ma% *KHH and the "tate Ban? of India 1as
2onstituted on * !ul% *KHH. More than a Luarter of the resour2es of the Indian ban?ing
s%stem thus passed under the dire2t 2ontrol of the "tate. 0ater, the "tate Ban? of India
@"ubsidiar% Ban?sA A2t 1as passed in *KHK, enabling the "tate Ban? of India to ta?e
o=er eight former "tate.asso2iated ban?s as its subsidiaries @later named Asso2iatesA.
The "tate Ban? of India 1as thus born 1ith a ne1 sense of so2ial purpose aided b%
the +7, offi2es 2omprising bran2hes, sub offi2es and three 0o2al #ead )ffi2es
inherited from the Imperial Ban?. The 2on2ept of ban?ing as mere repositories of the
2ommunit%Es sa=ings and lenders to 2redit1orth% parties 1as soon to gi=e 1a% to the
2on2ept of purposeful ban?ing subser=ing the gro1ing and di=ersified finan2ial needs
of planned e2onomi2 de=elopment. The "tate Ban? of India 1as destined to a2t as the
pa2esetter in this respe2t and lead the Indian ban?ing s%stem into the eB2iting field of
national de=elopment.
SOCIETE GENERALE ASSET MANAGEMENT
"o2iete Generale Asset Management is one of the 1orldEs leading asset managers 1ith
O:*K billion of assets under management.
"GAM is one of the =er% fe1 global pla%ers 1hi2h presen2e is lo2ated in the heart of
the ma<or finan2ial Mones. It offers a business that 2o=ers all asset 2lasses and a22ess to
all t%pe of in=estors. This .(b,st b,si&ess (*e" offers in=estors a22ess to the full
range of our high added.=alue produ2ts and su22essful lo2al spe2ialities . more than
-H, in=estment strategies. 8urthermore, "GAM benefits from the solid foundations of
a multinational group 1hose s?ills offer a 2ombination of Lualit% management and ris?
2ontrol.
(0)"' T) T#' MAR&'T"
"GAM is based in all ma<or in=estment mar?ets 1here it benefits premium lo2al
eBpertise in2luding more than 6H, anal%sts, managers and resear2hers lo2ated neBt to
the issuers.
In 'urope, "GAM has mainl% de=eloped its a2ti=ities in histori2 Paris and 0ondon, %et
broadening re2entl% its a2ti=ities in 2ertain mar?ets of the ne1 'urope. "GAM is a
reno1ned pla%er in the "A than?s to its subsidiar% T(/ 1hi2h manages a third of
the groupEs assets and has a staff of nearl% C,,.
In Asia, "GAM has de=eloped one of the largest net1or?s in2luding C,, 2ollaborators
bet1een its t1o histori2al 2enters, To?%o and "ingapore, and its three 2enters in the
high potential 2ountries that are (hina, India and "outh &orea. "GAM is a trail.blaMer
1hen it 2omes to profiles funds, multi.strategies, global produ2ts or 2ross.selling.
"GAM "ingapore has o=er "G-.K billion assets under management @as at end.
De2ember -,,6A.
"GAM is a spe2ialist for =alue.added management solutions as 1ell as one of the first
asset management 2ompanies and 1orld leader in alternati=e in=estments $ one of the
rare pla%ers present on all 2lasses $ hedge funds, stru2tured produ2ts, pri=ate eLuit%,
real estate, meMManine. "GAM 2ombines 2onstant inno=ation 1ith the management
se2urit% and ris? 2ontrol of a ma<or asset management 2ompan%.
CLOSE TO THE CLIENTS
)ur 2ustomers are important to us, should the% be institutional in=estors, 2orporations,
distributors or indi=iduals. To help them see? out the in=estment solutions sorted
perfe2tl% to their needs, "GAM has established a 2ommer2ial and proBimit% 2lients>
ser=i2e suited to ea2h 2lientele in ea2h region.
These ser=i2es are full% 2ompliant 1ith the gro1ing legal and te2hni2al problems ea2h
spe2ifi2 2lientele might en2ounter. The% propose the best ad=i2e to a22ess "GAM>s
1orld 2ompeten2es and to ans1er their needs for performan2e, ris? toleran2e and
in=estment horiMon.
Than?s to a 1orld1ide multi.2enter stru2ture, a business that 2o=ers all asset 2lasses
and all st%les, "GAM has de=eloped =alue.added management solutions tailored to
2lients> spe2ifi2 needs.
9er% earl% on, "GAM emphasiMed the importan2e of Lualit% ser=i2e b% produ2ing a
broad and 2omprehensi=e produ2t information, b% de=eloping a transparent and
inno=ati=e 2lient reporting and b% offering a Lualit% of management full% 2ompliant
1ith the 1orld>s best standards.
"o2iete Generale Asset Management is one of the 1orld>s leading asset managers 1ith
O:*Kbn of assets under management as of Mar2h :*, -,,7.
A subsidiar% of the "o2iete generale Group, "GAM is a global pla%er 1ith a balan2ed
and robust business model based on$
its ,"ti-/e&te. st.,/t,.e4 more than :.,,, emplo%ees, in2luding 6H, managers and
anal%sts, are lo2ated at the heart of the mar?ets in 'urope, in nited "tates and in AsiaP
! b,si&ess t+!t /(3e.s !"" !sset /"!sses4 eLuities, fiBed in2ome, balan2ed, and
alternati=e in=estment 1here "GAM is among the leaders 1ith OCCbn in assets under
managementP
!//ess t( !"" t12es () i&3est(.4 institutions, distributors, 2orporates and indi=iduals,
all of 1hom benefit from "GAM>s leading edge eBpertise and a lo2al ser=i2e.
Than?s to 2ross.selling and a fo2us on Lualit% and 2onstant inno=ation, "GAM has
de=eloped =alue.added management solutions tailored to 2lients> spe2ifi2 needs and
1hi2h optimiMe performan2e and 2ontrol ris?.
"GAM is rated b1 Fit/+ R!ti&0s, thus retaining sin2e -,,, the top rating a1arded to
an asset management 2ompan% for the 1hole of its international stru2ture. 8or
in=estors, this rating is a guarantee of the professionalism of "GAM>s teams and the
Lualit% of its international organiMation.
"BI MTA0 8ND PR)D(T"
IN8)RMATI)N AB)T A00 'QITY "(#'M'"
NAM' )8 TR"T'' ()MPANY. SBI MUTUAL FUND TRUSTEE COMPANY
PRIVATE LIMITED
DI9ID'ND P)0I(Y. Di=idend is distributed from the a=ailable distributable surplus
after dedu2tion of the in2ome distribution taB and the appli2able sur2harge and less.
The Mutual 8und is not guaranteeing or assuring an% di=idend
APP0I(AB0' NA9s $ 8)R "A0' )8 MAGNM" $ In respe2t of =alid appli2ations
re2ei=ed upto : pm b% the
COMPETITORS
UTI MUTUAL FUND C(5
TI Mutual 8und 2ame into eBisten2e on *st 8ebruar% -,,:. Ban? of Baroda @B)BA,
Pun<ab National Ban? @PNBA and "tate Ban? of India @"BIA and 0ife Insuran2e
(orporation of India @0I(A are the sponsors of the TI Mutual 8und. TI Mutual
8und is managed b% TI Asset Management (ompan% Pri=ate 0imited @AM(A. TI
AM( is a registered portfolio manager under the "'BI @Portfolio ManagersA
Regulations, *KK: for underta?ing portfolio management ser=i2es and also a2ts as the
manager and mar?eter to offshore funds.
TI Mutual 8und has a nation1ide net1or? 2onsisting 6, TI 8inan2ial (enters
@8(sA and TI International offi2es in 0ondon, Dubai and Bahrain. The fund has a
tra2? re2ord of managing a =ariet% of s2hemes 2atering to the needs of e=er% 2lass of
2itiMenr%.
ICICI PRUDENTIAL
#eadLuartered in 0ondon, Prudential plc and its affiliated 2ompanies together
2onstitute one of the 1orldEs leading finan2ial ser=i2es groups. Prudential pro=ides
insuran2e and finan2ial ser=i2es in a number of mar?ets around the 1orld,
in2luding in Asia, the ", the &, 'urope and the Middle 'ast. 8ounded in *7+7,
the 2ompan% has R-C6 billion in funds under management @as of :* De2ember
-,,6A and more than -* million 2ustomers 1orld1ide.
Prudential has been 1riting life insuran2e in the nited &ingdom for *C, %ears and
has had the largest long.term fund in the nited &ingdom, for o=er a 2entur%. In
the nited &ingdom, Prudential is a leading retirement sa=ings and in2ome
solutions and life assuran2e pro=ider. MSG is PrudentialEs fund management
business in the nited &ingdom and 'urope, 1ith almost R*C, billion in funds
under management @as of :* Mar2h -,,7A. In the nited "tates, !a2?son National
0ife, 1hi2h 1e a2Luired in *K7C, is one of the largest life insuran2e 2ompanies
pro=iding retirement sa=ings and in2ome solutions.
In Asia, Prudential is the leading 'urope.based life insurer in terms of mar?et
2o=erage and number of top three ran?ing positions. It is also one of the largest and
most su22essful fund managers in Asia 1ith more top fi=e mar?et ran?ings than
an% other regional pla%er. Toda%, Prudential has life insuran2e and fund
management operations spanning *: di=erse mar?ets in Asia.
Prudential pl2 is in2orporated and 1ith its prin2ipal pla2e of business in the nited
&ingdom. It is not affiliated in an% manner 1ith Prudential 8inan2ial, In2., a
2ompan% 1hose prin2ipal pla2e of business is in the nited "tates.
"e2urities and 'B2hange Board of India, =ide its letter no. M8D5PM5HC65,- dated
!une +, -,,-, has a22orded its appro=al in re2ogniMing I(I(I Ban? 0td. as a 2o.
sponsor 2onseLuent to the merger of I(I(I 0td. 1ith I(I(I Ban? 0td.
I(I(I Ban? is IndiaEs se2ond.largest ban? 1ith total assets of Rs. :,KK6.KH billion
@"G *,, billionA at Mar2h :*, -,,7 and profit after taB of Rs. +*.H7 billion for the
%ear ended Mar2h :*, -,,7. I(I(I Ban? is se2ond amongst all the 2ompanies listed
on the Indian sto2? eB2hanges in terms of free float mar?et 2apitaliMation 8ree float
holding eB2ludes all promoter holdings, strategi2 in=estments and 2ross holdings
among publi2 se2tor entities. The Ban? has a net1or? of about *,:,7 bran2hes and
:,KH, ATMs in India and presen2e in *7 2ountries. I(I(I Ban? offers a 1ide range
of ban?ing produ2ts and finan2ial ser=i2es to 2orporate and retail 2ustomers through
a =ariet% of deli=er% 2hannels and through its spe2ialised subsidiaries and affiliates
in the areas of in=estment ban?ing, life and non.life insuran2e, =enture 2apital and
asset management. The Ban? 2urrentl% has subsidiaries in the nited &ingdom,
Russia and (anada, bran2hes in nites "tates, "ingapore, Bahrain, #ong &ong, "ri
0an?a, Qatar and Dubai International 8inan2e (entre and representati=e offi2es in
nited Arab 'mirates, (hina, "outh Afri2a, Bangladesh, Thailand, Mala%sia and
Indonesia. )ur & subsidiar% has established bran2hes in Belgium and German%.
I(I(I Ban?Es eLuit% shares are listed in India on Bomba% "to2? 'B2hange and the
National "to2? 'B2hange of India 0imited and its Ameri2an Depositar% Re2eipts
@ADRsA are listed on the Ne1 Yor? "to2? 'B2hange @NY"'A.

Asset Management (ompan% en<o%s the strong parentage of
Prudential pl2, one of &Es largest pla%ers in the insurance !und
management se2tors and I(I(I Ban?, a 1ell.?no1n and trusted
name in finan2ial ser=i2es in India. ICICI Prudential Asset
Mana"e#ent C$#pan%& in a span of <ust o=er eight %ears, has forged
a position of pre.eminen2e in the I&*i!& M,t,!" F,&* industr% as
one of the largest asset management 2ompanies in the 2ountr% 1ith
assets under management of Rs. HK,H6:.,7 @as of Ma% :*, -,,7A.
The (ompan% manages a 2omprehensi=e range of s2hemes to meet
the =ar%ing i&3este&t needs of its in=estors spread a2ross C7 2ities
in the 2ountr%.
%OTA% MAHINDRA
&ota? Mahindra is one of IndiaEs leading finan2ial institutions, offering 2omplete
finan2ial solutions that en2ompass e=er% sphere of life. 8rom 2ommer2ial ban?ing, to
sto2? bro?ing, to mutual funds, to life insuran2e, to in=estment ban?ing, the group
2aters to the finan2ial needs of indi=iduals and 2orporates.
The group has a net 1orth of around Rs.:,-,, 2rore and emplo%s around *,,7,,
emplo%ees a2ross its =arious businesses ser=i2ing around -.C million 2ustomer
a22ounts through a distribution net1or? of bran2hes, fran2hisees, representati=e
offi2es and satellite offi2es a2ross :,, 2ities and to1ns in India and offi2es in Ne1
Yor?, 0ondon, Dubai, Mauritius and "ingapore.
&ota? Mahindra Asset Management (ompan% 0imited @&MAM(A, a 1holl% o1ned
subsidiar% of &MB0, is the Asset Manager for &ota? Mahindra Mutual 8und
@&MM8A. &MAM( started operations in De2ember *KK7 and has o=er + 0a2 in=estors
in =arious s2hemes. &MM8 offers s2hemes 2atering to in=estors 1ith =ar%ing ris? .
return profiles and 1as the first fund house in the 2ountr% to laun2h a dedi2ated gilt
s2heme in=esting onl% in go=ernment se2urities.

RELIANCE MUTUAL FUND
Relian2e Mutual 8und @RM8A is one of India>s leading Mutual 8unds, 1ith A=erage
Assets nder Management @AAMA of Rs. K7,+:* (rores @AAM for :*st Ma% ,7 A
and an in=estor base of o=er CH.C7 0a?hs.
Relian2e Mutual 8und, a part of the Relian2e . Anil Dhirubhai Ambani Group, is one
of the fastest gro1ing mutual funds in the 2ountr%.
RM8 offers in=estors a 1ell.rounded portfolio of produ2ts to meet =ar%ing in=estor
reLuirements and has presen2e in **7 2ities a2ross the 2ountr%.
Relian2e Mutual 8und 2onstantl% endea=ors to laun2h inno=ati=e produ2ts and
2ustomer ser=i2e initiati=es to in2rease =alue to in=estors.
TRelian2e Mutual 8und s2hemes are managed b% Relian2e (apital Asset Management
0imited., a subsidiar% of Relian2e (apital 0imited, 1hi2h holds K:.:6J of the paid.up
2apital of R(AM, the balan2e paid up 2apital being held b% minorit% shareholders.T
Relian2e (apital 0td. is one of India>s leading and fastest gro1ing pri=ate se2tor
finan2ial ser=i2es 2ompanies, and ran?s among the top : pri=ate se2tor finan2ial
ser=i2es and ban?ing 2ompanies, in terms of net 1orth.
Relian2e (apital 0td. has interests in asset management, life and general insuran2e,
pri=ate eLuit% and proprietar% in=estments, sto2? bro?ing and other finan2ial ser=i2es
Relian2e Mutual 8und @RM8A has been established as a trust under the Indian Trusts
A2t, *77- 1ith Relian2e (apital 0imited @R(0A, as the "ettlor5"ponsor and Relian2e
(apital Trustee (o. 0imited @R(T(0A, as the Trustee.
RM8 has been registered 1ith the "e2urities S 'B2hange Board of India @"'BIA =ide
registration number M85,--5KH5* dated !une :,, *KKH. The name of Relian2e (apital
Mutual 8und has been 2hanged to Relian2e Mutual 8und effe2ti=e **th. Mar2h -,,+
=ide "'BIEs letter no. IMD5P"P5+KH75-,,+ date **th. Mar2h -,,+. Relian2e Mutual
8und 1as formed to laun2h =arious s2hemes under 1hi2h units are issued to the Publi2
1ith a =ie1 to 2ontribute to the 2apital mar?et and to pro=ide in=estors the
opportunities to ma?e in=estments in di=ersified se2urities.
T+e !i& (b-e/ti3es () t+e T.,st !.e 4
To 2arr% on the a2ti=it% of a Mutual 8und as ma% be permitted at la1 and
formulate and de=ise =arious 2olle2ti=e "2hemes of sa=ings and in=estments
for people in India and abroad and also ensure liLuidit% of in=estments for the
nit holdersP
To deplo% 8unds thus raised so as to help the nit holders earn reasonable
returns on their sa=ings and
To ta?e su2h steps as ma% be ne2essar% from time to time to realise the effe2ts
1ithout an% limitation.
Relian2e "IP Insure fa2ilit% is an add on feature of life insuran2e 2o=er under
Group Term Insuran2e to indi=idual in=estors opting for "IP in the designated
s2hemes.
It helps to en2ourage indi=idual in=estors to sa=e S in=est regularl% through
"%stemati2 In=estment Plan @"IPA and help a2hie=e their finan2ial ob<e2ti=e 1ithout
an% hindran2e

/hat is the 8a2ilit%U

Relian2e "IP Insure. Benefits to the in=estor
VVThe benefit of 0ong Term 'Luit% In=estment
VVThe benefit of "%stemati2 In=estment Plan$
VV8ree 0ife Insuran2e (o=er
VV8leBibilit%
VV(on=enien2e
VNominee a22ount 1ould mean nominee in 2ase of single holding S se2ond or
<oint holder in 2ase of !oint #olding

Designated "2hemes in 1hi2h Relian2e "IP Insure 1ill be offered
Relian2e "IP Insure pro=ides free life insuran2e 2o=er to in=estors at no eBtra
2ost. In the unfortunate e=ent of the demise of an in=estor during

the tenure of the "IP, the insuran2e 2ompan% 1ill pa% for the balan2e amount
to1ards the remaining unpaid "IP installments
Thus, the nomineeV 1ould be able to 2ontinue in the s2heme 1ithout ha=ing to
ma?e an% further 2ontribution.. In=estor>s long term finan2ial planning

and ob<e2ti=e of in=esting through "IP 2ould still be fulfilled as per the targeted
time horiMon, e=en if he5she dies prematurel%.
'Luities pro=ide relati=el% better returns among all asset 2lasses o=er a longer
period of time
In2ul2ates "a=ings #abit
Rupee (ost A=eraging S 'liminates the need to time the mar?et
#elps to 2omplete the planned in=estments
Maturit% Pro2eeds at NA9 based pri2es
/ide 2hoi2e of eligible s2hemes
Auto Debit from + ban?s namel% I(I(I ban?, #D8( ban?, A;I" ban? S #"B(
'(" fa2ilit% a2ross I CH lo2ations
Relian2e Gro1th 8und . Retail Plan
Relian2e 9ision 8und . Retail Plan
Relian2e 'Luit% )pportunities 8und . Retail Plan
Relian2e 'Luit% 8und . Retail Plan
Relian2e 'Luit% Ad=antage 8und. Retail Plan
Relian2e Regular "a=ings 8und I 'Luit% option
Relian2e Regular "a=ings 8und I Balan2ed option
Relian2e Ban?ing 8und
Relian2e Pharma 8und
Relian2e Media S 'ntertainment 8und
Relian2e Di=ersified Po1er "e2tor 8und I Retail Plan
HDFCMF
I&3este&t Ob-e/ti3e
The primar% in=estment ob<e2ti=e of the "2heme is to generate long term 2apital
appre2iation from a portfolio that is in=ested predominantl% in eLuit% and eLuit%
related instruments.
The ob<e2ti=e of this Plan is to in=est 7, to K,J of the net assets of the Plan in
2ompanies 1hose se2urities are in2luded in "'N"'; and bet1een *,J S -,J of the
net assets in 2ompanies 1hose se2urities are not in2luded in the "'N"';.
I&3este&t P!tte.&
The 2orpus of the "2heme 1ill be in=ested primaril% in eLuit% and eLuit% related
instruments. The "2heme ma% in=est a part of its 2orpus in debt and mone% mar?et
instruments, in order to manage its liLuidit% reLuirements from time to time, and under
2ertain 2ir2umstan2es, to prote2t the interests of the nit The net assets of the Plan
1ould be in=ested in su2h a manner that 7,J to K,J of the net assets are in=ested in
almost all sto2?s 2onstituting the "'N"'; in approBimatel% the same 1eightage that
the% represent in the "'N"';. The balan2e *,J to -,J of the net assets of the Plan
1ould be in=ested in sto2?s that do not form part of the "'N"'; in a manner that
indi=idual sto2? eBposures do not eB2eed the "'BI stipulated limits. A small portion of
the net assets 1ill be in=ested in mone% mar?et instruments permitted b% "'BI5RBI
in2luding 2all mone% mar?et or in alternati=e in=estment for the 2all mone% mar?et as
ma% be pro=ided b% the RBI, to meet the liLuidit% reLuirements of the Plan.
holders.
I&3este&t St.!te01
The in=estment approa2h 1ill be based on a set of 1ell established but fleBible
prin2iples that emphasise the 2on2ept of sustainable e2onomi2 earnings and 2ash return
on in=estment as the means of =aluation of 2ompanies. The "'N"'; Plan and the
Nift% Plan 1ill be managed passi=el% 1ith in=estments in sto2?s in a proportion that is
as 2lose as possible to the 1eightages of these sto2?s in the respe2ti=e indi2es. The
in=estment strateg% 1ould re=ol=e around redu2ing the tra2?ing error to the least
possible through regular rebalan2ing of the portfolio, ta?ing into a22ount the 2hange in
1eights of sto2?s in the indi2es as 1ell as the in2remental 2olle2tions 5 redemptions
from these Plans.
The "'N"'; Plus Plan 1ill be passi=el% managed to the eBtent of 7,.K,J of the net
assets of the Plan and 1ould follo1 similar in=estment strateg% as for the "'N"';
and the Nift% Plan, for this 2omponent. The a2ti=el% managed portion of *,.-,J of net
assets of the Plan 1ould be in=ested in sto2?s that ha=e been identified as ha=ing high
probabilit% to outperform the "'N"';. The In=estment Manager 1ould follo1 the
pro2ess of in.depth resear2h to identif% su2h 2andidates from sto2?s other than those
2omprising the "'N"';, for potential in=estment.
Pursuant to the "'BI Regulations, the respe2ti=e Plans shall not ma?e an% in=estment
in$
an% unlisted se2urit% of an asso2iate or group 2ompan% of the "ponsorP or
an% se2urit% issued b% 1a% of pri=ate pla2ement b% an asso2iate or group 2ompan% of
the "ponsorP or
Relian2e Gro1th 8und . Retail Plan
Relian2e 9ision 8und . Retail Plan
Relian2e 'Luit% )pportunities 8und . Retail Plan
Relian2e 'Luit% 8und . Retail Plan
Relian2e 'Luit% Ad=antage 8und. Retail Plan
Relian2e Regular "a=ings 8und I 'Luit% option
Relian2e Regular "a=ings 8und I Balan2ed option
Relian2e Ban?ing 8und
Relian2e Pharma 8und
Relian2e Media S 'ntertainment 8und
Relian2e Di=ersified Po1er "e2tor 8und I Retail Plan
the listed se2urities of group 2ompanies of the "ponsor 1hi2h is in eB2ess of -HJ of
the net assets.
8i=e basi2 prin2iples ser=e as the foundation for this in=estment approa2h. The% are as
follo1s $
F(/,s (& t+e "(&0 te.
There is substanti=e empiri2al e=iden2e to suggest that eLuities pro=ide the maBimum
ris? ad<usted returns o=er the long term. In an attempt to ta?e full ad=antage of this
phenomenon, in=estments 1ould be made 1ith a long term perspe2ti=e.
I&3este&ts /(&)e. 2.(2(.ti(&!te (6&e.s+i2
The approa2h to =aluing a 2ompan% is similar to ma?ing an in=estment in a business.
Therefore, there is a need to ha=e a 2omprehensi=e understanding of ho1 the business
operates. The ?e% issues to fo2us on are gro1th opportunities, sustainable 2ompetiti=e
ad=antage, industr% stru2ture and margins and Lualit% of the management.
M!i&t!i& ! !.0i& () s!)et1
The ben2hmar? for determining relati=e attra2ti=eness of sto2?s 1ould be the intrinsi2
=alue of the business. The In=estment Manager 1ould endea=or to pur2hase sto2?s
that represent a dis2ount to this =alue, in an effort to preser=e 2apital and generate
superior gro1th.
M!i&t!i& ! b!"!&/e* (,t"((' (& t+e !.'et
The in=estment portfolio 1ould be regularl% monitored to understand the impa2t of
2hanges in business and e2onomi2 trend as 1ell as in=estor sentiment. /hile short.
term mar?et =olatilit% 1ould affe2t =aluations of the portfolio, this is not eBpe2ted to
influen2e the de2ision to o1n fundamentall% strong 2ompanies.
Dis/i2"i&e* !22.(!/+ t( se""i&0
The de2ision to sell a holding 1ould be based on either the anti2ipated pri2e
appre2iation being a2hie=ed or being no longer possible due to a 2hange in
fundamental fa2tors affe2ting the 2ompan% or the mar?et in 1hi2h it 2ompetes, or due
to the a=ailabilit% of an alternati=e that, in the =ie1 of the In=estment Manager, offers
superior returns.
In order to implement the in=estment approa2h effe2ti=el%, it 1ould be important to
periodi2all% meet the management fa2e to fa2e. This 1ould pro=ide an understanding
of their broad =ision and 2ommitment to the long.term business ob<e2ti=es. These
meetings 1ould also be useful in assessing ?e% determinants of management Lualit%
su2h as orientation to minorit% shareholders, abilit% to 2ope 1ith ad=ersit% and
approa2h to allo2ating surplus 2ash flo1s. Dis2ussion 1ith management 1ould also
enable ben2hmar?ing a2tual performan2e against stated 2ommitments.
In summar%, the In=estment "trateg% is eBpe2ted to be a fun2tion of eBtensi=e resear2h
and based on data and reasoning, rather than 2urrent fashion and emotion. The
ob<e2ti=e 1ill be to identif% Tbusinesses 1ith superior gro1th prospe2ts and good
management, at a reasonable pri2eT.
The "2heme ma% in=est in listed 5 unlisted and5or rated 5 unrated debt or mone% mar?et
se2urities sub<e2t to limits indi2ated in the in=estment pattern. In=estment in unrated
debt se2urities 1ill be made after obtaining the prior appro=al of the Board of the
AM( and Trustees as per the "'BI Regulations.
The "2heme ma% in=est in listed 5 unlisted and 5 or rated 5 unrated debt or mone%
mar?et se2urities sub<e2t to limits indi2ated in the in=estment pattern. Pursuant to
"'BI (ir2ular No. M8D5 (IR5K5*-,5-,,, dated No=ember -+, -,,,, the AM( ma%
2onstitute 2ommittee@sA to appro=e proposals for in=estments in unrated debt
instruments. The AM( Board and the Trustee shall appro=e the detailed parameters
for su2h in=estments. The details of su2h in=estments 1ould be 2ommuni2ated b% the
AM( to the Trustee in their periodi2al reports. It 1ould also be 2learl% mentioned in
the reports, ho1 the parameters ha=e been 2omplied 1ith. #o1e=er, in 2ase an%
unrated debt se2urit% does not fall under the parameters, the prior appro=al of Board of
AM( and Trustee shall be sought.
Ris' C(&t.("
8or the "'N"'; Plan, the Nift% Plan and the proportion of the "'N"'; Plus Plan
that 1ould be managed similar to the "'N"'; Plan, ris?s 1ould be the impa2t 2ost on
se2urities, the dela%ed 2ommuni2ation of 1eightage 2hanges b% the indeB ser=i2e
pro=iders and the dela%ed 2al2ulation of net 2hange in assets of ea2h of the Plans,
amongst others.
It is proposed to manage the ris?s b% pla2ing limit orders for bas?et trades and other
trades, proa2ti=e follo1.up 1ith the ser=i2e pro=iders for dail% 2hange in 1eights in
the respe2ti=e indi2es as 1ell as monitor dail% inflo1s and outflo1s to and from the
8und 2losel%.
/hile these measures are eBpe2ted to mitigate the abo=e ris?s to a large eBtent, there
2an be no assuran2e that these ris?s 1ould be 2ompletel% eliminated.
Ris? 2ontrol for the a2ti=el% managed portion of the "'N"'; Plus Plan 1ould entail
setting limits for single sto2? and single industr% eBposures b% the In=estment
2ommittee for this portion, sub<e2t to "'BI Regulations.
HDFC LONG TERM E7UITY FUND
I&3este&t St.!te01
The in=estment strateg% of the "2heme is to build and maintain a di=ersified portfolio
of eLuit% sto2?s that ha=e the potential to appre2iate in the long run. (ompanies
identified for sele2tion in the portfolio 1ill ha=e demonstrated a potential abilit% to
gro1 at a reasonable rate for the long term.
The aim 1ill be to build a portfolio that adeLuatel% refle2ts a 2ross.se2tion of the
gro1th areas of the e2onom% from time to time. /hile the portfolio fo2uses primaril%
on a bu% and hold strateg% at most times, it 1ill balan2e the same 1ith a rational
approa2h to selling 1hen the =aluations be2ome too demanding e=en in the fa2e of
reasonable gro1th prospe2ts in the long run.
PROMOTERS AND BAC%GROUND
4hief In$estment 6fficer :
3anja' 3inha
"r. &anjay &inha has taken over as -hief 'nvestment /fficer with effect from 6une 1, 7889. "r. &inha joined
&!' "utual +und as the 1ead of 0:uities in ,ovember 788; and has managed the largest number of funds in
&!' "+ covering the entire spectrum of e:uity funds ; from inde* funds, diversified e:uity funds to sector
funds.
1e has over 1< years of e=perience in the "utual +und 'ndustry. Prior to joining &!' "+, "r. &inha worked as
&enior +und "anager with (T' "utual +und and was managing a corpus of over Rs 7< billion #over (&>?88
million%. ) Post raduate from ''" 3olkatta, "r. &anjay &inha has a rich e=perience in managing funds.
0und Manager :
Nipa /adi#ala
)fter obtaining a post graduate degree in !usiness "anagement and *aw, ,ipa worked as an e:uity analyst,
and dealer for the offshore +unds of (T'. &ubse:uently she was appointed as +und "anager for 'ndia rowth
+und, which was listed on ,4&0. &he was head of Research at (T' &ecurities before joining &!'"+ as 1ead
of P"&. ,ipa has ? years e=perience as +und "anager. &he has a total of 1; years e=perience and has been
with &!' +unds "anagement Pvt *td since /ctober 788;.
De(t 1 %i2ed !nco+e 3
Parijat ,gra#al +ead Fixed Income)
Parijat has done his !.0 #0-0% and P$" #''" !angalore%. 1e has got 17 years e=perience in capital markets
in areas like research, dealing and fund management. Parijat is associated with &!' +unds "anagement Pvt.
*td. since 6uly 788?.
Prior to joining 3BI 0unds Management P$t. /td., he #as #ith 3tate Ban) of Mauritius
/imited, Mumbai as +ead ; Treasur'.
Ganti N Murth' ,sst. <ice President = 0und Manager"
"r. "urthy did his !.&c #1ons% from /smania (niversity and his "asters in +inancial "anagement from
6amnalal !ajaj 'nstitute of "anagement &tudies, "umbai. 1e has over 17 years e=perience in the "utual +und
'ndustry, @ years in (nit Trust of 'ndia and A years in -holamandalam )"- *td. Prior to joining &!' +unds
"anagement Pvt. *td., he was with -holamandalam "utual +und as +und "anager ; $ebt.
6ffshore 0unds 1 0und Manager :
,nand Gupta
,nand holds charter from 40, Institute, !3, and Institute of 4hartered ,ccountants of
India. Before joining 3BI 0unds Management in 6ctober >&&?, ,nand has #or)ed #ith
+3B4 securities and domestic bro)erage house as equit' research anal'st for @ 'ears.
,nand has ? 'ears of e*perience in capital mar)ets and @ 'ears of e*perience in ,udit =
Business consulting.
Investment Team !"#it$) :
,ashish Aa)an)ar <ice President = 0und Manager )
)ashish 2akankar is a !achelor of &cience from (niversity of "umbai and holds Post raduate $iploma in
"anagement &tudies from 6amnalal !ajaj 'nstitute of "anagement &tudies, (niversity of "umbai. 1e has
more than 17 years of e=perience in capital markets ranging from institutional e:uities, e:uity research and
fund management. 1e is associated with &!' +unds "anagement from $ecember 788;.
Prior to joining 3BI 0unds Management, he has #or)ed #ith 2ota) Mahindra ,sset
Management, Deutsche ,sset Management 1 part of Deutsche Ban) Group, and T,T, TD
Aaterhouse 3ecurities 1 a joint $enture bet#een the T,T, Group, India and TD Ban)
0inancial Group, 4anada. ,t Deutsche ,sset Management, he #as responsible for ad$ising
the offshore fund Deutsche India .quit' 0und, Bapan and Met/ife Insurance.
Pan)aj Gupta F#nd Mana%e&
Pankaj has done his !.-om #1ons%, P$!", -.& and P$!" ''" ; /uc)no#. +e has e=perience of over B
years in "utual +und, 0:uity Research and -orporate !anking. 1is last assignment was '-'-' !ank *td. and
has been with &!' +unds "anagement Pvt. *td. since $ecember 788;.
Ba'esh 3hroff F#nd Mana%e&
6ayesh has done his !.-om and P$ #"!+&% ; I40,I. +e has e=perience of over ; years as +und "anager.
1e also has wide e=perience in investment banking activities including "C) activities, venture capital funding,
preparation of business plans, project reports etc. 1is last assignment was with !/! "utual +und and has
been with &!' +unds "anagement Pvt. *td. since "arch 788?.
<i$e) Pande' F#nd Mana%e&
Divek is a &cience graduate and has done his -+) from '-+)'. 1e has about 9 years of e=perience in the
industry. 1e is currently placed in 'nvestment $epartment as a 6unior +und "anager since 6une 7889.
DEMAND8SUPPLY ANALYSIS
MTA0 8ND "/IT(#ING 0)/'R" IN9'"T)R"E R'TRN"
It is a 2ommon pra2ti2e for indi=idual in=estors to shift mone% from one mutual fund
to another in pursuit of better returns. In regard to future sto2? pri2es, sa%s the
National Bureau of '2onomi2 Resear2h @NB'RA, su2h pra2ti2e is nothing short of
foolish.
The NB'R demonstrates that Tindi=idual in=estors ha=e a stri?ing abilit% to do the
1rong thing.T The% assert that indi=idual in=estors in fa2t perform so poorl% that one
2ould use their mutual fund reallo2ations to predi2t future sto2? returns.
To dis2ern the patterns, NB'R 2al2ulated the mutual fund o1nership of a sto2? that
2an be attributed to reallo2ation de2isions as refle2ted in mutual fund in=estment flo1s
@that is, pur2hases or sales of sto2?A. A22ording to resear2hers$
At the end of *KKK, *7 per2ent of the outstanding (is2o shares .. te2h sto2?s .. 1ere
o1ned b% mutual fundsP ho1e=er, if flo1s had o22urred proportionatel% to asset =alue,
the le=el of mutual fund o1nership 1ould ha=e been onl% *H per2ent.
)n a=erage from *K7, to -,,:, retail in=estors put their mone% into funds that
in=ested in sto2?s 1ith lo1 future returnsP ho1e=er, mutual fund in=estors eBperien2e
total returns that are signifi2antl% lo1er be2ause of their reallo2ations.
Therefore, mutual fund in=estors are TdumbT in that their reallo2ations lose them
mone%.
This dumb mone% effe2t is related to the =alue effe2t$ mone% flo1s into mutual funds
that o1n gro1th sto2?s and flo1s out of mutual funds that o1n =alue sto2?s.
There is a 2orrelation bet1een demand b% indi=iduals and suppl% from firms. /hen
indi=iduals bu% more sto2? of a spe2ifi2 2ompan% =ia mutual fund inflo1s, the
2ompan% in2reases the number of shares outstanding, supporting the =ie1 indi=idual
in=estors are dumb 1hile smart firms eBploit their demand for shares, sa%s NB'R.
"our2e$ Matt Nes=is?%, TMutual 8und "1it2hing 0o1ers In=estorsE Returns,T NB'R
Digest, 8ebruar% -,,CP based upon$ Andrea 8raMMini and )1en 0amont, TDumb
Mone%$ Mutual 8und 8lo1s and the (ross."e2tion of "to2? Returns,T NB'R /or?ing
Paper, no. **H-C, August -,,H.
GO$T POLICY
The go=ernment>s housing program 1as aimed at eBpanding shelter se2urit% to e=er%
8ilipino famil% through the grant of se2urit% of land tenure and pro=ision of so2ialiMed
housing to landless and homeless urban poor families and lo1.2ost5e2onomi2 housing
units for lo1.salaried emplo%ees.
In line 1ith this ob<e2ti=e, the go=ernment adopted fi=e essential strategies in sol=ing
the problem. These 2onsist of ma?ing the housing mar?et more effi2ient, 2reating a
sustainable housing finan2e s%stem, a22elerating assistan2e and pro=ision of se2urit%
of tenure for informal se2tor, ma?ing housing loans a=ailable and affordable to lo1
salaried members of the formal se2tor and strengthening the shelter deli=er% s%stem,
and a22elerating the lo2aliMation of housing and de=elopment efforts.
8or (Ys -,,* to -,,+, the go=ernment estimated that the total housing needs 1ould
be :.C-+ million units 2omposed of total ba2?log of -.,6: million and ne1 household
reLuirements of *.HH* million. The great need for housing is most felt in the 2ountr%>s
thi2?l% populated regions of the National (apital Region @*.,C million unitsA, "outhern
Tagalog @,.C million unitsA and (entral 0uMon @,.: million unitsA.
Against a total housing need of :.C-+ million units for the four %ear period, the
housing se2tor is targeting to a22omplish *.- million units. This translates to an annual
target of :,,,,,, shelter se2urit% units in the form of a lot, a house or a house and lot
pa2?age bro?en do1n as follo1s$
*H,,,,, units for se2urit% of land tenure to urban poor familiesP
6,,,,, units of so2ialiMed housingP and
7,,,,, housing units for poor and lo1.salaried 1or?ers.
/hile the implementation of the go=ernment>s housing program is 2ontinuous, it
seems that su2h efforts 1ere not suffi2ient to ensure a22essibilit% of the so2ialiMed
housing programs to the poor and lo1.in2ome families, espe2iall% those lo2ated in the
urban areas. This 2ondition 1as a2?no1ledged b% our planners as manifested in the
Medium .Term De=elopment Plan for (Y -,,*.-,,+. It 1as dis2losed therein that the
bottom +, per 2ent of both urban and rural households 1ere for2ed to resort to
informal housing or settlements in 2ongested areas under poor li=ing 2onditions due to
po=ert%.
ADIT )B!'(TI9'
The audit 1as 2ondu2ted to assess the effe2ti=e implementation of the housing
program in addressing the needs of the homeless ta?ing into 2onsideration the
follo1ing$
Planning and (oordination
(olle2tion of 0oan AmortiMationP
Disposition of #ousing nitsP and
'nfor2ement of "an2tions.
ADIT "()P' AND M'T#)D)0)GY
The audit 2o=ered the re=ie1 of the implementation of the housing program b% the
follo1ing agen2ies using (Ys -,,: to -,,+ data$
National #ousing Authorit% @N#AA
#ome De=elopment Mutual 8und @#DM8A
National #ome Mortgage 8inan2e (orporation @N#M8(A
#ousing and rban De=elopment (oordinating (oun2il @#D((A
The performan2e of sele2ted ?e% shelter agen2ies 1ere assessed using the follo1ing
audit 2riteria$
"ound "helter Planning and (oordinationP
Reasonable 0and A2Luisition and Ban?ingP
Affordable #ousing nitsP
'ffi2ient (olle2tion of 0oan AmortiMationsP and
/ell.defined Disposition5Distribution Poli2ies.
To meet the audit ob<e2ti=e, the team performed the follo1ing pro2edures, among
others$
Re=ie1ed eBisting poli2ies and guidelines on the determination of the total housing
needs, land a2Luisition and ban?ing, designing of loan pa2?ages, and 2olle2tion of
dataP
Re=ie1ed eBisting reporting s%stem to determine 2ompleteness, a22ura2% and =alidit%
of reported dataP
Inter=ie1ed personnel in=ol=ed in the implementation of the program and sele2ted
housing benefi2iariesP
Re=ie1ed a22omplishment reports and other rele=ant reports pertaining to the
implementation of the programP and
Inspe2ted sele2ted housing pro<e2ts.
The audit 1as 2ondu2ted from !ul% 6, -,,+ to 8ebruar% 7, -,,H in 2omplian2e 1ith
()A M"5T" )ffi2e )rder No. -,,+.,-: dated !une *,, -,,+.
ADIT ()N(0"I)N
The go=ernment>s housing program 2ould not be 2onsidered effe2ti=el% implemented
due to its inabilit% to meet the targeted *.- housing needs, 1ea? 2oordination among
housing agen2ies and inadeLuate poli2ies for land ban?ing and for
disposition5distribution of a=ailable units.
)f the total estimated housing needs of :.C million units, *.- million 1ere targeted to
be a22omplished during (Ys -,,*.-,,+. )ut of the total target, onl% 7K-,-*C units
1ere reportedl% a22omplished as of "eptember -,,+ due to 1ea? 2oordination among
the housing agen2ies. This reported a22omplishment ma% e=en be 2onsidered bloated
as #D(( failed to establish performan2e indi2ators to a22uratel% measure o=erall
performan2e as e=iden2ed b% double or triple reporting of a single a22omplishment.
)n the other hand, #DM8>s indi2ators =ar% from %ear to %ear and report to report
resulting in ina22urate data and hindering 2omparati=e anal%sis of performan2e.
Not all 2ompleted units 1ere distributed5a1arded or disposed of. An a22umulated total
of CC,CK+ units remained undisposed or undistributed b% the implementing agen2ies as
of "eptember -,,+ due to inadeLuate poli2ies for disposition of a=ailable units.
In the 2ase of #DM8, out of the total a2Luired assets of -C,7*7 units, *K,*6K remained
on hand. These 1ere part of the reported a22omplishment of --C,C,H units for (Ys
-,,*.-,,+ representing -H.+,J of the o=erall se2tor>s a22omplishment. )f the *K,*6K
undisposed units, do2umentar% reLuirements of 7,H6* units are still being 2ompleted
1hile disposition papers of 7HH units are alread% in pro2ess. The disposition of
a2Luired assets 1ere ad=ersel% affe2ted b% #DM8>s stri2t poli2ies on disposition of
a2Luired properties.
The 2olle2tion performan2e of #DM8 2ould not also be 2onsidered satisfa2tor%. )nl%
about C*J of the outstanding a22ounts are updated 1ith the rest on arrears from siB
months to o=er : %ears ad=ersel% affe2ting its in=estment portfolio and abilit% to
pro=ide housing assistan2e to other Lualified members.
As the housing program is one of the priorit% 2on2ern of the go=ernment, the team
re2ommended measures under Part 9 of the report to impro=e the performan2e of the
housing se2tor.
MANAG'M'NT>" R'A(TI)N T) ADIT )B"'R9ATI)N"
The results of the audit 1ere for1arded to the President and (') of #DM8 on Ma%
-C, -,,H for 2omments. In general, #DM8 supports some findings and
re2ommendations of the team and submitted <ustifi2ations on some other issues raised
in the report. Their 2omments 1ere in2orporated in the report together 1ith the team>s
re<oinder.
The Se/,.ities E9/+!&0e A/t () :;<= is a la1 go=erning 1hat is and is not legal in
the se2ondar% trading of se2urities.The A2t, +7 "tat. 77* @!une C, *K:+A, 1as a
s1eeping pie2e of legislation. The A2t and related statutes form the basis of regulation
of the finan2ial mar?ets and their parti2ipants in the nited "tates. It is 2ommonl%
referred to as the T'B2hange A2tT, the TE:+ A2tT, and the TA2t of E:+T.
(ompanies raise billions of dollars b% issuing se2urities in 1hat is ?no1n as
theprimar% r% trading mar?et. (ontrasted 1ith the "e2urities A2t *KK: 1hi2h regulates
these original issues, the "e2urities 'B2hange A2t of *K:+ regulates the se2ond of
those se2urities bet1een persons often unrelated to the issuer. Trillions of dollars are
made and lost ea2h %ear through trading in the se2ondar% mar?et.
Se/,.ities e9/+!&0es
)ne area sub<e2t to :+ A2t regulation is the a2tual se2urities eB2hange .. the ph%si2al
pla2e 1here people pur2hase and sell se2urities @sto2?s, bonds, notes of debentureA.
"ome of the more 1ell ?no1n eB2hanges in2lude the Ne1 Yor? "to2? 'B2hange, the
Ameri2an "to2? 'B2hange, and regional eB2hanges li?e the ("', P"' and PA(I8I(
"T)(& ';(#ANG' At those pla2es, agents of the eB2hange, or a2t as middlemen
for the 2ompeting interests to bu% and sell se2urities. An important fun2tion of the
spe2ialist is to in<e2t liLuidit% and pri2e 2ontinuit% into the mar?et. Gi=en that people
2ome to the eB2hange to easil% a2Luire se2urities or to easil% dispose of a portfolio of
se2urities, the spe2ialistEs role is important to the eB2hange.
Se/,.ities !ss(/i!ti(&s
The E:+ A2t also regulates bro?er.dealers 1ithout a status for trading se2urities. A
tele2ommuni2ations infrastru2ture has de=eloped to pro=ide for trading 1ithout a
ph%si2al lo2ation. Pre=iousl% these bro?ers 1ould find sto2? pri2es through ne1spaper
printings and 2ondu2t trades =erball% b% telephone. Toda%, a digital information
net1or? 2onne2ts these bro?ers. This s%stem is 2alled NA"DAQ, standing for the
National Asso2iation of "e2urities Dealers Automated Quotation "%stem.
SECURITIES AND E#CHANGE COMMISSION
) government commission created by -ongress to regulate the
securities "arkets and protect investors. 'n addition to regulation and
protection, it also monitors the corporate takeovers in the (.&. The
&0- is composed of five commissioners appointed by the (.&.
President and approved by the &enate. The statutes administered by
the &0- are designed to promote full public disclosure and to protect
the investing public against fraudulent and manipulative practices in
the securities markets. enerally, most issues of securities offered in
interstate commerce, through the mail or on the internet must be
registered with the &0-.

Se")-.e0,"!t(.1 (.0!&i>!ti(&s ?SRO@
The E:K A2t regulates NA"DAQ both through regulations that appl% to the asso2iation
and b% reLuiring that it ha=e an independent o=ersight organiMation . a self.regulator%
organiMation @or "R)A. The "R) for NA"DAQ is the NA"D , the National
Asso2iation of "e2urities Dealers. The E:+ A2t reLuires =irtuall% all bro?er.dealers to
be registered 1ith the NA"D, pla2ing bro?ers under the "e2urities and 'B2hange
(ommissionEs dire2t o=ersight and under the NA"DEs o=ersight.
Ot+e. t.!*i&0 2"!t)(.s
In the last :, %ears, bro?ers ha=e 2reated t1o additional s%stems for trading se2urities.
The alternati=e trading s%stem, or AT", is a Luasi eB2hange 1here sto2?s are
2ommonl% pur2hased and sold through a smaller, pri=ate net1or? of bro?ers, dealers,
and other mar?et parti2ipants. The AT" is distinguished from eB2hanges and
asso2iations in that the =olumes for AT" trades are 2omparati=el% lo1, and the trades
tend to be 2ontrolled b% a small number of bro?ers or dealers. AT" a2ts as a ni2he
mar?et, a pri=ate pool of liLuidit%. Reg AT", an "'( regulation issued in the late
*KK,s, reLuires these small mar?ets to *A register as a bro?er 1ith the NA"D, -A
register as an eB2hange, or :A operate as an unregulated AT", sta%ing under lo1
trading 2aps.
A spe2ialiMed form of AT", the 'le2troni2 (ommuni2ations Net1or? @or '(NA, has
been des2ribed as the Tbla2? boBT of se2urities trading. The '(N is a 2ompletel%
automated net1or?, anon%mousl% mat2hing bu% and sell orders. Man% traders use one
or more trading me2hanisms @the eB2hanges, NA"DAQ, and the '(N or AT"A to
effe2t large bu% or sell orders .. 2ons2ious of the fa2t that o=errelian2e on one mar?et
for a large trade is li?el% to unfa=orabl% alter the trading pri2e of the target se2urit%.
B.('e.s
)ne 2entral element of the E:+ A2t is the regulation of bro?er.dealers. The A2t
regulates them prin2ipall% b% ma?ing the definition of bro?er eBtremel% broad to
in2lude Tan% person engaged in the business of effe2ting transa2tions in se2urities for
the a22ount of othersT )ne problemati2 area in the appli2ation of the definition of
bro?er in=ol=es persons 1ho refer bu%ers to a bro?er or issuer @finders or promotersA.
A bod% of 2ase la1, subseLuent "'( regulation, and o=ersight together pla2e tight
restri2tions on *A the 2ommissions that bro?ers 2an re2ei=e for their ser=i2es, -A the
amount of noti2e that bro?ers must gi=e their 2lients 1hen trading in se2urities, :A the
bro?erEs due diligen2e reLuirements in finding se2urities that meet their 2lients needs,
and +A the bro?erEs obligation not to 2ompromise their 2lients b% dis2losing or trading
on material nonpubli2 information.
Iss,e.s
/hile the E:: A2t re2ogniMes that timel% information about the issuer is =ital to
effe2ti=e pri2ing of se2urities, the E:: A2tEs dis2losure reLuirement @the registration
statement and prospe2tusA is a one.time affair. The E:+ A2t eBtends this reLuirement to
se2urities traded in the se2ondar% mar?et. Pro=ided that the 2ompan% has more than a
2ertain number of shareholders and has a 2ertain amount of assets @H,, shareholders,
abo=e G*, million in assets, per A2t se2tions *-, *:, and *HA, the E:+ A2t reLuires that
issuers regularl% file 2ompan% information 1ith the "'( on 2ertain forms @the annual
*,.& filing and the Luarterl% *,.Q filingA. The filed reports are a=ailable to the publi2
=ia 'DGAR If something material happens 1ith the 2ompan% @2hange of ('), 2hange
of auditing firm, destru2tion of a signifi2ant number of 2ompan% assetsA, the "'(
reLuires that the 2ompan% soon issue an 7.& filing that refle2ts these 2hanged
2onditions @see Reg. 8DA. /ith these regularl% reLuired filings, bu%ers are better able
to assess the 1orth of the 2ompan%, and bu% and sell the sto2? a22ording to that
information.
A&ti).!,* 2.(3isi(&s
/hile the E:: A2t 2ontains an antifraud pro=ision,"e2tion.*6 1hen the E:+ A2t 1as
ena2ted, Luestions remained about the rea2h of that antifraud pro=ision and 1hether a
pri=ate right of a2tion eBisted for pur2hasers @meaning that ordinar% people, and not
<ust the go=ernment, 2ould maintain a la1suit against the bad a2torA. As it de=eloped,
se2tion *,@bA of the *K:+ A2t and "e2 Rule *,b.H ha=e s1eeping antifraud language.
"e2tion *,@bA of the A2t @as amendedA pro=ides @in partA$
It shall be unla1ful for an% person, dire2tl% or indire2tl%, b% the use of an%
means or instrumentalit% of interstate 2ommer2e or of the mails, or of an%
fa2ilit% of an% national se2urities eB2hange
@bA To use or emplo%, in 2onne2tion 1ith the pur2hase or sale of an% se2urit%
registered on a national se2urities eB2hange or an% se2urit% not so registered, or
an% se2urities.based s1ap agreement @as defined in se2tion -,CB of G0B
A(TA, an% manipulati=e or de2epti=e de=i2e or 2ontri=an2e in 2ontra=ention of
su2h rules and regulations as the (ommission ma% pres2ribe as ne2essar% or
appropriate in the publi2 interest or for the prote2tion of in=estors.
"e2tion *,@bA is 2odified at *H "B(
ItEs hard to o=erstate the breadth and utilit% of se2tion *,@b,A and Rule *,b.H, in the
pursuit of se2urities litigation. Rule *,b.H has been emplo%ed to 2o=er insider trading
2ases, but has also been used against 2ompanies for pri2e fiBing @artifi2iall% inflating
or depressing sto2? pri2es through sto2? manipulationA, bogus 2ompan% sales to
in2rease sto2? pri2e, and e=en a 2ompan%Es failure to 2ommuni2ate rele=ant
information to in=estors. Man% plaintiffs in the se2urities litigation field plead
=iolations of se2tion *,@bA and Rule *,b.H as a T2at2hallT allegation, in addition to
=iolations of the more spe2ifi2 antifraud pro=isions in the E:+ A2t.
E9e2ti(&s ).( .e2(.ti&0 be/!,se () &!ti(&!"
se/,.it1
"e2tion *:@bA@:A@AA of the "e2urities 'B2hange A2t of *K:+ pro=ides that T1ith respe2t
to matters 2on2erning the national se2urit% of the nited "tates,T the President or the
head of an 'Be2uti=e Bran2h agen2% ma% eBempt 2ompanies from 2ertain 2riti2al legal
obligations. These obligations in2lude ?eeping a22urate Tboo?s, re2ords, and a22ountsT
and maintaining Ta s%stem of internal a22ounting 2ontrols suffi2ientT to ensure the
propriet% of finan2ial transa2tions and the preparation of finan2ial statements in
2omplian2e 1ith Tgenerall% a22epted a22ounting prin2iples.T
)n Ma% H, -,,C, in a noti2e in the 8'D'RA0 R'GI"T'R, President Bush delegated
authorit% under this se2tion to Administration offi2ials told Business 'ee( that the%
belie=e this is the first time a President has e=er delegated the authorit% to someone
outside the )=al )ffi2e
I&3este&t C(2!&1 A/t () :;=A
.B!/'0.(,&* !&* 2,.2(se
8ollo1ing the founding of the ,t,!" ),&* in *K-+, in=estors 1el2omed the
inno=ation 1ith open arms and in=ested in this ne1 in=estment =ehi2le hea=il%. 8i=e
and a half %ears later, on )2t -- *K-K,Bla2? Thursda% too? the thrill out of the sto2?
mar?et and led to the Great Depression. 0earning from the mista?es of the past, the
nited "tates (ongress 1rote into la1 the "e2urities A2t *K:: and the "e2urities
'B2hange A2t *K:+,in order to regulate the se2urities industr% in the interest of the
publi2.
In=estment 2ompanies 1ere still in their infan2% in *K+,. In order to instill in=estorsE
2onfiden2e in these 2ompanies and to prote2t the publi2 interest from this ne1 t%pe
ofse2urit%, (ongress passed the In=estment (ompan% A2t. The ne1 la1 set separate
standards b% 1hi2h in=estment 2ompanies should be regulated. The a2t defined and
regulated in=estment 2ompanies, in2luding mutual funds @1hi2h 1ere =irtuall%
undefined prior to *K+,A.
The a2tEs purpose, as stated in the bill, is Tto mitigate and... eliminate the 2onditions...
1hi2h ad=ersel% affe2t the national publi2 interest and the interest of in=estors.T
"pe2ifi2all%, the a2t regulated 2onfli2ts of interest in in=estment 2ompanies and
se2urities eB2hanges. It prote2ted the publi2 primaril% b% legall% reLuiring dis2losure
of material details about the in=estment 2ompan%. The a2t also pla2ed some
restri2tions on mutual fund a2ti=ities su2h as short selling shares. #o1e=er, the a2t did
not 2reate pro=isions for the "'( to ma?e spe2ifi2 <udgments about or e=en super=ise
an in=estment 2ompan%Es a2tual in=estment de2isions. Rather, the a2t reLuired
in=estment 2ompanies to publi2l% dis2lose information about their o1n finan2ial
health.
J,.is*i/ti(&
The In=estment (ompan% A2t applies to all in=estment 2ompanies, but eBempts
se=eral t%pes of in=estment 2ompanies from the a2tEs 2o=erage. The most 2ommon
eBemptions are found in "e2tions :@2A@*A and :@2A@6A of the a2t and in2lude hedge
funds
S/!"e
/hen the (ongress 1rote the a2t into federal la1, rather than lea=ing the matter up to
the indi=idual states, it <ustified its a2tion b% in2luding in the teBt of the bill its
rationale for ena2ting the la1$
WThe a2ti=ities of su2h 2ompanies, eBtending o=er man% states, their use of the
instrumentalities of interstate 2ommer2e and the 1ide geographi2 distribution
of their se2urit% holders, ma?e diffi2ult, if not impossible, effe2ti=e state
regulation of su2h 2ompanies in the interest of in=estors.X
T12e
The a2t di=ides the t%pes of in=estment 2ompan% to be regulated into three
2lassifi2ations$
F!/e A(,&t Ce.ti)i/!te C(2!&1 4 an in=estment 2ompan% in the business
of issuing fa2e.amount 2ertifi2ates of the installment t%pe.
U&it I&3este&t T.,st4 an in=estment 2ompan% 1hi2h is organiMed under a
trust indenture, 2ontra2t of 2ustodianship or agen2%, or similar instrument, does
not ha=e a Board of dire2tors, and issues onl% reedemable se2urities, ea2h of
1hi2h represents an undi=ided interest in a unit of spe2ified se2uritiesP but does
not in2lude a =oting trust.
M!&!0ee&t C(2!&14 an% in=estment 2ompan% other than a fa2e.amount
2ertifi2ate 2ompan% or a unit in=estment trust. The most 1ell.?no1n t%pe of
management 2ompan% is the mutual fund.
'(B )*(FIL!

WOR% B Study about various schemes of SBIMF along with
senior Marketing personnels
M,t,!" F,&* I&*,st.1 i& I&*i!
T+e E3(",ti(&
The formation of nit Trust of India mar?ed the e=olution of the Indian mutual
fund industr% in the %ear *KC:. The primar% ob<e2ti=e at that time 1as to attra2t
the small in=estors and it 1as made possible through the 2olle2ti=e efforts of the
Go=ernment of India and the Reser=e Ban? of India. The histor% of mutual fund
industr% in India 2an be better understood di=ided into follo1ing phases$
P+!se :5 Est!b"is+e&t !&* G.(6t+ () U&it T.,st () I&*i! - :;C=-DE
nit Trust of India en<o%ed 2omplete monopol% 1hen it 1as established in the %ear
*KC: b% an a2t of Parliament. TI 1as set up b% the Reser=e Ban? of India and it
2ontinued to operate under the regulator% 2ontrol of the RBI until the t1o 1ere de.
lin?ed in *K67 and the entire 2ontrol 1as tranferred in the hands of Industrial
De=elopment Ban? of India @IDBIA. TI laun2hed its first s2heme in *KC+, named as
nit "2heme *KC+ @".C+A, 1hi2h attra2ted the largest number of in=estors in an%
single in=estment s2heme o=er the %ears.
TI laun2hed more inno=ati=e s2hemes in *K6,s and 7,s to suit the needs of different
in=estors. It laun2hed 0IP in *K6*, siB more s2hemes bet1een *K7*.7+, (hildrenEs
Gift Gro1th 8und and India 8und @IndiaEs first offshore fundA in *K7C, Mastershare
@InidaEs first eLuit% di=ersified s2hemeA in *K76 and Monthl% In2ome "2hemes
@offering assured returnsA during *KK,s. B% the end of *K76, TIEs assets under
management gre1 ten times to Rs C6,, 2rores.
P+!se II5 E&t.1 () P,b"i/ Se/t(. F,&*s - :;DE-:;;<
The Indian mutual fund industr% 1itnessed a number of publi2 se2tor pla%ers entering
the mar?et in the %ear *K76. In No=ember *K76, "BI Mutual 8und from the "tate Ban?
of India be2ame the first non.TI mutual fund in India. "BI Mutual 8und 1as later
follo1ed b% (anban? Mutual 8und, 0I( Mutual 8und, Indian Ban? Muatual 8und,
Ban? of India Mutual 8und, GI( Mutual 8und and PNB Mutual 8und. B% *KK:, the
assets under management of the industr% in2reased se=en times to Rs. +6,,,+ 2rores.
#o1e=er, TI remained to be the leader 1ith about 7,J mar?et share.
P+!se III5 Ee.0e&/e () P.i3!te Se/(. F,&*s - :;;<-;C
The permission gi=en to pri=ate se2tor funds in2luding foreign fund management
2ompanies @most of them entering through <oint =entures 1ith Indian promotersA to
enter the mutal fund industr% in *KK:, pro=ided a 1ide range of 2hoi2e to in=estors and
more 2ompetition in the industr%. Pri=ate funds introdu2ed inno=ati=e produ2ts,
in=estment te2hniLues and in=estor.ser=i2ing te2hnolog%. B% *KK+.KH, about **
pri=ate se2tor funds had laun2hed their s2hemes.
P+!se I$5 G.(6t+ !&* SEBI Re0,"!ti(& - :;;C-FAA=
The mutual fund industr% 1itnessed robust gro1th and stri2ter regulation from the
"'BI after the %ear *KKC. The mobilisation of funds and the number of pla%ers
operating in the industr% rea2hed ne1 heights as in=estors started sho1ing more
interest in mutual funds.
The India gro1th stor% has hit the slo1 tra2?. "oaring inflation, tighter monetar%
poli2ies and higher interest rates ha=e all resulted in an e2onomi2 slo1do1n. The
indeB of industrial produ2tion @IIPA re2orded a gro1th of H.6J in the Mar2h >,7
Luarter, the lo1est among the past four Luarters @refer to the 2harts on Page -A.
Another ma2ro.e2onomi2 indi2ator Y the gro1th in ban? 2redit Y also slipped to
-*.CJ, against -7.*J a %ear ago. "o, among all these negati=e fa2tors, ho1 did India
In2 perform in the last Luarter of 8Y,7U
'TIGhas 2arried out a detailed anal%sis of the finan2ial results of o=er -,,,, listed
2ompanies . /e ha=e sub.di=ided the sample into t1o groups. The first group in2ludes
2ompanies 1hi2h ha=e data for the past eight Luarters @Group *A. The se2ond group
in2ludes those 2ompanies 1hose Luarterl% data is a=ailable for at least the past -,
Luarters @hen2e on1ards referred to as Group -A.
Though Group -, 1hi2h 2onsists of around *,6,, 2ompanies, is a relati=el% old league,
it is helpful in anal%sing the long.term trend. Group * has -,**- 2ompanies and is a
miB of Group - 2ompanies and around +,, ne1 2ompanies, 1hi2h 1ere listed bet1een
8Y,+ and 8Y,C.
It represents relati=el% fresh sets of 2ompanies, but has fe1er data points to be
anal%sed. 8urther, 1e ha=e eB2luded the finan2ials of ban?ing and oil se2tors, 1hi2h
due to their siMe, flu2tuations in in2ome and reporting stru2ture, distort the o=erall
pi2ture.
Though the %ear.on.%ear topline gro1th in Q+ >,7 is relati=el% better 2ompared to the
past t1o Luarters of 8Y,7, the gro1th in operating and net profit 2learl% indi2ates a
de2lining trend @refer to the 2harts on Page -A.
The net sales of 2ompanies in Group - ha=e in2reased b% *7.*Jfor Q+ >,7, 2ompared
to *H.CJ, *C.+J and -*.*J during the pre=ious three Luarters, respe2ti=el%.
As ra1 material 2osts rose b% onl% *,J in the Mar2h >,7 Luarter, the gro1th in topline
seems to ha=e been dri=en b% pri2e in2reases b% 2orporates, 1hi2h fleBed their pri2ing
po1er to beat inflation. #o1e=er, the eBpe2ted gains from higher pri2es 1ere undone
b% higher operating eBpenses su2h as staff 2ost, fuel S po1er and other eBpenses.
Rising freight 2osts and higher pri2es of spare parts are mainl% responsible for the
in2rease in other eBpenses.
(ompanies are hiring aggressi=el% for their ne1 plants and pro<e2ts and to retain the
talent, the% are pa%ing higher salaries and 1ages. This has in2reased the staff 2ost
signifi2antl%, thereb% in2reasing the o=erall operating eBpenses . "imilarl%, rising
2rude and 2oal pri2es ha=e in2reased the po1er and fuel 2osts.
The end result 1as a :+,.basis point de2line in operating margins to *K.CJ in the
fourth Luarter, 2ompared to -:.*J in the Mar2h >,6 Luarter. The erosion in operating
margins 2ompletel% 1iped off the gains from topline gro1th and operating profit
remained almost flat during the Luarter.
Though India In2>s net profit 1ent up during the Luarter, gro1th 1as the slo1est in the
past eight Luarters. )ther in2ome, 1hi2h in2ludes items li?e profit from sale of land
and in2ome from in=estments, has been an important dri=er of the gro1th in net profit
in the past fe1 Luarters.
In=etorsE interests 1ere safeguarded b% "'BI and the Go=ernment offered taB benefits
to the in=estors in order to en2ourage them. "'BI @Mutual 8undsA Regulations, *KKC
1as introdu2ed b% "'BI that set uniform standards for all mutual funds in India. The
nion Budget in *KKK eBempted all di=idend in2omes in the hands of in=estors from
in2ome taB. 9arious In=estor A1areness Programmes 1ere laun2hed during this
phase, both b% "'BI and AM8I, 1ith an ob<e2ti=e to edu2ate in=estors and ma?e them
informed about the mutual fund industr%.
In 8ebruar% -,,:, the TI A2t 1as repealed and TI 1as stripped of its "pe2ial legal
status as a trust formed b% an A2t of Parliament. The primar% ob<e2ti=e behind this 1as
to bring all mutal fund pla%ers on the same le=el. TI 1as re.organised into t1o parts$
*. The "pe2ified nderta?ing, -. The TI Mutual 8und
Presentl% nit Trust of India operates under the name of TI Mutual 8und and its past
s2hemes @li?e ".C+, Assured Return "2hemesA are being graduall% 1ound up.
#o1e=er, TI Mutual 8und is still the largest pla%er in the industr%. In *KKK, there
1as a signifi2ant gro1th in mobilisation of funds from in=estors and assets under
management 1hi2h is supported b% the follo1ing data$
P+!se $5 G.(6t+ !&* C(&s("i*!ti(& - FAA= O&6!.*s
The industr% has also 1itnessed se=eral mergers and a2Luisitions re2entl%, eBamples of
1hi2h are a2Luisition of s2hemes of Allian2e Mutual 8und b% Birla "un 0ife, "un
8S( Mutual 8und and PNB Mutual 8und b% Prin2ipal Mutual 8und. "imultaneousl%,
more international mutal fund pla%ers ha=e entered India li?e 8idelit%, 8ran?lin
Templeton Mutual 8und et2. There 1ere -K funds as at the end of Mar2h -,,C. This is
a 2ontinuing phase of gro1th of the industr% through 2onsolidation and entr% of ne1
international and pri=ate se2tor pla%ers.
The Indian mutual fund industr% 1itnessed robust gro1th and stri2ter regulation from
"'BI sin2e *KKC. The mobilisation of funds and the number of pla%ers operating in the
industr% rea2hed ne1 heights as in=estors started sho1ing more interest in mutual
funds. "afeguarding the interests of in=etors is one of the duties of "'BI.
(onseLuantl%, "'BI @Mutual 8undsA Regulations, *KKC and 2ertain other guidelines
ha=e been issued b% "'BI that sets uniform standards for all mutual funds in India.
MUTUAL FUND
Mutual 8und is a trust that pools the sa=ings of a number of in=estors 1ho share a
2ommon finan2ial goal. The mone% thus 2olle2ted is then in=ested in 2apital mar?et
instruments su2h as shares, debentures and other se2urities. The in2ome earned
through these in=estments and the 2apital appre2iation realised are shared b% its unit
holders in proportion to the number of units o1ned b% them. Thus a Mutual 8und is
the most suitable in=estment for the 2ommon man as it offers an opportunit% to in=est
in a di=ersified, professionall% managed bas?et of se2urities at a relati=el% lo1 2ost.
I 1ill admit that in=esting in indi=idual sto2?s 2an be fun be2ause ea2h 2ompan% has a
uniLue stor%. #o1e=er, it is important for people to fo2us on ma?ing mone%. In=esting
isnEt a game. Your finan2ial future depends on 1here %ou put %ou hard earned dollars
and it shouldnEt be ta?en lightl%.
Di=ersifi2ation
There is no greater ad=antage to using mutual funds than di=ersifi2ation. Do %ou
honestl% belie=e 1ealth% in=estors pur2hase <ust a 2ouple of sto2?sU )f 2ourse notZ If
the% are not using mutual funds @man% doA, than the% are pur2hasing a large number of
sto2?s. "mart in=estors di=ersif% be2ause it greatl% redu2es ris? 1ithout sa2rifi2ing
returns.
Professional Management
B% pur2hasing mutual funds, %ou are essentiall% hiring a professional manager at an
espe2iall% ineBpensi=e pri2e. It 1ould be a bit 2o2?% to thin? that %ou ?no1 more than
mutual fund manager. These managers ha=e been around the industr% for a long time
and ha=e the a2ademi2 2redentials to ba2? it up. "a%ing %ou 2ould outperform a mutual
fund manager is similar to a football fan sitting on their 2ou2h sa%ing TI 2ould ha=e
made that 2at2hT .possible, but not li?el%.
'=en if some of us are better at pi2?ing sto2?s than a professional and their support
staff, most of us 1ould not 1ant to spend the amount of time it ta?es to 1at2h,
resear2h and trade the mar?et on a dail% basis.
'ffi2ien2%
B% pooling in=estorsE monies together, mutual fund 2ompanies 2an ta?e ad=antage of
e2onomies of s2ale. /ith large sums of mone% to in=est, the% often trade 2ommission.
free and ha=e personal 2onta2ts at the bro?erage firms.
'ase of se
(an 1e imagine ?eeping tra2? of a portfolio 2onsisting of hundreds of sto2?sU The
boo??eeping duties in=ol=ed 1ith sto2?s are mu2h more 2ompli2ated than o1ning a
mutual fund. If %ou are doing %our o1n taBes, or are short on time, this 2an be a big
deal.
0iLuidit%
If %ou find %ourself in need of mone% in a short amount of time, mutual funds are
highl% liLuid. "impl% put in %our order during the da% and 1hen the mar?et 2loses a
2he2? 1ill be sent to %ou or %ou 2an ha=e it 1ired to a ban? a22ount. "to2?s 2an be
mu2h more diffi2ult depending on 1hat ?inds of sto2?s %ou are in=ested in. (DEs offer
no liLuidit% @not 1ithout a heft% feeA and bonds 2an be diffi2ult, too. "ome mutual
funds also 2arr% 2he2? 1riting pri=ileges, 1hi2h means %ou 2an a2tuall% 1rite 2he2?s
from the a22ount, similar to %our 2he2?ing a22ount at the ban?.
(ost
Mutual funds are eB2ellent for the ne1 in=estors be2ause %ou 2an in=est small amounts
of mone% and %ou 2an in=est at regular inter=als 1ith no trading 2osts. "to2? in=esting,
ho1e=er, 2arries high transa2tion fees ma?ing it diffi2ult for the small in=estor to ma?e
mone%. If an in=estor 1anted to put in G*,, a month into sto2?s and the bro?er
2harged G*H per transa2tion, their in=estment is automati2all% do1n *H per2ent e=er%
time the% in=est. That is not a good 1a% to start offZ
/ealth% sto2? in=estors get spe2ial treatment from bro?ers and 1ealth% ban? a22ount
holders get spe2ial treatment from the ban?s, but mutual funds are non.dis2riminator%.
It doesnEt matter 1hether %ou ha=e GH, or GH,,,,,,, %ou are getting the eBa2t same
manager, the same a22ount a22ess and the same in=estment.
Ris?
In general, mutual funds 2arr% mu2h lo1er ris? than sto2?s. This is primaril% due to
di=ersifi2ation @as mentioned abo=eA. (ertain mutual funds 2an be ris?ier than
indi=idual sto2?s, but %ou ha=e to go out of %our 1a% to find them.
/ith sto2?s, one 1orr% is that the 2ompan% %ou are in=esting in goes ban?rupt. /ith
mutual funds, that 2han2e is neBt to nil. "in2e mutual funds t%pi2all% hold an%1here
from -H.H,,, 2ompanies, all of the 2ompanies that it holds 1ould ha=e to go ban?rupt.
T12es () M,t,!" F,&*s S/+ees i& I&*i!
/ide =ariet% of Mutual 8und "2hemes eBist to 2ater to the needs su2h as finan2ial
position, ris? toleran2e and return eBpe2tations et2. The table belo1 gi=es an
o=er=ie1 into the eBisting t%pes of s2hemes in the Industr%.
TYP'" )8 MTA0 8ND "(#'M'"
B% "tru2ture
)pen . 'nded "2hemes
(lose . 'nded "2hemes
Inter=al "2hemes
B% In=estment )b<e2ti=e
Gro1th "2hemes
In2ome "2hemes
Balan2ed "2hemes
Mone% Mar?et "2hemes
)ther "2hemes
TaB "a=ing "2hemes
"pe2ial "2hemes
IndeB "2hemes
"e2tor "pe2fi2 "2hemes
A ,t,!" ),&* is a professionall% managed firm of 2olle2ti=e in=estments that
2olle2ts mone% from man% in=estors and puts it in sto2?s bonds, short.term mone%
mar?et instruments, and5or other se2urities The fund manager, also ?no1n as portfolio
manager, trades the fundEs underl%ing se2urities, realiMing 2apital gains or losses and
passing an% pro2eeds to the indi=idual in=estors. (urrentl%, the 1orld1ide =alue of all
mutual funds totals more than G)* trilli$n+
"in2e *K+,, there ha=e been three basi2 t%pes of mutual fund in=estment 2ompanies in
the ". "imilar funds also operate in (anada. #o1e=er, in the rest of the 1orld,
#utual !und is used as a generi2 term for =arious t%pes of 2olle2ti=e in=estment
=ehi2les, su2h as NIT TR"T", open.ended in=estment 2ompanies,
Hist(.1
Massa2husetts In=estors Trust 1as founded on Mar2h -*, *K-+, and, after one %ear, it
had -,, shareholders and G:K-,,,, in assets. The entire industr%, 1hi2h in2luded a
fe1 2losed ended funds represented less than G*, million in *K-+.
The "to2? mar?et 2rash of *K-K hindered the gro1th of mutual funds. In response to
the sto2? mar?et 2rash, (ongress passed the "'( K: and the "'A *K:+.These la1s
reLuire that a fund be registered 1ith the @"'(A and pro=ide prospe2ti=e in=estors 1ith
a prospe2tousthat 2ontains reLuired dis2losures about the fund, the se2urities
themsel=es, and fund manager. The "'( helped draft theI(A *K+,, 1hi2h sets forth
the guidelines 1ith 1hi2h all "'(.registered funds toda% must 2ompl%.
/ith rene1ed 2onfiden2e in the sto2? mar?et, mutual funds began to blossom. B% the
end of the *KC,s, there 1ere approBimatel% -6, funds 1ith G+7 billion in assets. The
first retail indeB fund, 8irst IndeB In=estment Trust, 1as formed in *K6C and headed b%
!ohn Bogle 1ho 2on2eptualiMed man% of the ?e% tenets of the industr% in his *KH*
senior thesis at Prin2eton ni=ersit%. It is no1 2alled the 9anguard IndeB 8und and is
one of the 1orldEs largest mutual funds, 1ith more than G*,, billion in assets.
A ?e% fa2tor in mutual.fund gro1th 1as the *K6H 2hange in the IR( allo1ing
indi=iduals to open indi=idual retirement a22ounts @IRAsA. '=en people alread%
enrolled in 2orporate pension plans 2ould 2ontribute a limited amount @at the time, up
to G-,,,, a %earA. Mutual funds are no1 popular in emplo%er.sponsored Tdefined.
2ontributionT retirement plans su2h as @+,* &"A and +,:@bAs as 1ell as IRAs in2luding
Roth IRAs As of )2tober -,,6, there are 7,,*H mutual funds that belong to the
In=estment (ompan% Institute @I(IA, a national trade asso2iation of in=estment
2ompanies in the nited "tates, 1ith 2ombined assets of G*-.:HC trillion
"in2e the I(A, *K+,, a mutual fund is one of three basi2 t%pes of in=estment
2ompanies a=ailable in the nited "tates
Mutual funds 2an in=est in man% ?inds of se2urities The most 2ommon are 2ash
instruments, sto2?s, and bonds, but there are hundreds of sub.2ategories. "to2? funds,
for instan2e, 2an in=est primaril% in the shares of a parti2ular industr%, su2h as
te2hnolog% or utilities. These are ?no1n as se2tor funds. Bond funds 2an =ar%
a22ording to ris? @e.g., high.%ield <un? bonds or in=estment.grade 2orporate bondsA,
t%pe of issuers @e.g., go=ernment agen2ies, 2orporations, or muni2ipalitiesA, or maturit%
of the bonds @short. or long.termA. Both sto2? and bond funds 2an in=est in primaril%
.". se2urities @domesti2 fundsA, both .". and foreign se2urities @global fundsA, or
primaril% foreign se2urities @international fundsA..
Most mutual fundsE in=estment portfolios are 2ontinuall% ad<usted under the
super=ision of a professional manager, 1ho fore2asts 2ash flo1s into and out of the
fund b% in=estors, as 1ell as the future performan2e of in=estments appropriate for the
fund and 2hooses those 1hi2h he or she belie=es 1ill most 2losel% mat2h the fundEs
stated in=estment ob<e2ti=e. A mutual fund is administered under an ad=isor% 2ontra2t
1ith a management 2ompan%, 1hi2h ma% hire or fire fund managers.
Mutual funds are sub<e2t to a spe2ial set of regulator%, a22ounting , and taB rules. In
the ."., unli?e most other t%pes of business entities, the% are not taBed on their
in2ome as long as the% distribute K,J of it to their shareholders. Also, the t%pe of
in2ome the% earn is often un2hanged as it passes through to the shareholders. Mutual
fund distributions of taB.free muni2ipal bond in2ome are taB.free to the shareholder.
TaBable distributions 2an be either ordinar% in2ome or 2apital gains, depending on
ho1 the fund earned those distributions. Net losses are not distributed or passed
through to fund in=estors.
8inan2ial se2urit% is a gro1ing 2on2ern among man% Ameri2an adults. As the 2ost of
li=ing rises and 2ollege tuitions in2rease, it is be2oming more important than e=er to
put a1a% a nest egg for retirement, %our 2hildrenEs 2ollege edu2ation or spe2ial
pur2hases. It is be2oming in2reasingl% imperati=e to prepare for the future finan2iall%.
/ith so2ial se2urit% on dangerous ground and retirement programs that donEt Luite
measure up, 2onsumers are turning to in=esting as a means of preparing for the future.
The Mutual 8und "tore is a testament to the times b% offering mutual fund in=esting in
a fast food format.
The Mutual 8und "tore is an in=estment management firm that is fee based and
spe2ialiMes in the in=esting of mutual funds. The% ha=e more than fift% fran2hises
throughout the nited "tates and offer entrepreneurs a uniLue turn ?e% business. The
2ompan% has an interesting and unusual mar?eting approa2h as the% use a radio sho1
to promote the lo2al fran2hise. TThe Mutual 8und "ho1,T airs e=er% "aturda% morning.
It is a nationall% s%ndi2ated 2all in sho1 that offers information to people 1ho are
interested in in=esting 1hile it gi=es ea2h lo2al fran2hise a boost in free ad=ertising.
(ustomer re=ie1s are miBed. "ome people li?e the eas%, straightfor1ard 2hoi2es @%ou
2an onl% bu% mutual fundsA and the simpli2it% that ma?es the ser=i2e great for
ineBperien2ed in=estors. Mutual funds, b% nature, are generall% less of a ris? that man%
other sto2?s. The TstoreT 2apitaliMes on that and does double dut% in edu2ating their
2ustomers through the Mutual 8und "ho1 as 1ell as through their managers and
ad=isors. The 1eb site @http$55111.mutualfundstore.2omA also offers a great deal of
ad=i2e for in=estors and 2onsumers 1ho are interested in ta?ing that 2ru2ial step in
preparing for their future.
There has been some 2riti2ism of as of late ho1e=er, and the% ha=e 2ome under fire
be2ause of the limitations of funds that 2ustomers are allo1ed to pur2hase. There ha=e
also been some 2omplaints regarding the ad=isorsE and e=en the managersE ?no1ledge
of mutual funds and e=en in=esting in general. "ome 2riti2s feel that the 2ompan%Es
opposition to indeB fund in=esting is in2orre2t and that the logi2 behind that opposition
la2?s substan2e. This la2? of 2hoi2e and sele2tion puts this uniLue business model into
a potentiall% a1?1ard spa2e.
8ans of the sho1 and the 2ompan% 2ounter that =er% solid reasons for opposing indeB
fund in=esting are eBpressed e=er% "aturda% on the sho1. The% also maintain that the
store is good for beginner in=estors be2ause the% are not bombarded 1ith too man%
2hoi2es and are not o=er1helmed b% an eB2ess of information. B% ?eeping it simple,
The "tore 2an offer in=estors a simple 1a% to ma?e finan2ial arrangements for their
future, prepare for their 2hildrenEs 2ollege edu2ation or help them sa=e up for that
dream home or dream =a2ation. The ob=ious benefit of mutual funds is the lo1ering
of ris? that in=estors are eBposed to, 2ompared to o1ning shares of indi=idual
2ompanies.
Bottom line, The Mutual 8und "tore seems to be a good 2hoi2e for 2asual in=estors or
in=estors 1ho are ineBperien2ed. As long as %ou go into it 1ith a full understanding
that %ou 1ill onl% be allo1ed to pur2hase 2ertain, sele2t funds, %ou 1ill li?el% fare
prett% 1ell. If %ou ha=e a different fund that %ou 1ant to bu%, go to a dis2ount bro?er
instead. The best 1a% to ?no1 if this t%pe of in=esting is for %ou is to 2he2? it out
%ourself. It 2ould be the 2ru2ial step in preparing for %our future.
The Truth #ehind Mutua$ %und eturns
You might not ha=e noti2ed it, but %ouE=e probabl% ne=er seen an ad=ertisement for a
mutual funds that reports a failing return. ItEs an impossibilit% that e=er% fund 2ould
perform so 1ell all the time. But 1hat happens to those ine=itable lemons if the mutual
fund industr% denies an% are fallingU This is 1here sur=i=or Bias steps in.

We$co+e to the #iased Wor$d of "ur'i'orshi-
A mutual fund 2ompan% puts sur=i=orship bias into a2tion 1hen distorting the true
performan2e of its mutual funds, ma?ing the funds loo? more attra2ti=e than the%
reall% are. This bias is 2reated 1hen poor performing funds are liLuidated or merged
into better performing funds. As a result, these substandard performers, and their
2orresponding substandard metri2s, simpl% disappear.
/hen these so.2alled TlosersT are purged from their respe2ti=e 2ategories, their
statisti2al re2ords are no longer in2luded in the 2ategor% performan2e data. This ma?es
the 2ategor% a=erages 2reep higher than the% 1ould ha=e if the losers 1ere still in the
miB.
The Mar2h *KK6 !ournal of 8inan2e reported a 2omprehensi=e stud% b% Mar? (arhart
on mutual funds o=er the period from *KC- to *KK:. #e states that Tb% *KK: full% one.
third of all mutual funds had disappeared.T 8urthermore, in *KK6 T,e 'all Street
-$urnal reported that bet1een *K7- and *KK-, mutual funds reported a=erage returns
of *7.*J, but after 2al2ulating in sur=i=orship bias, the report found that this return
1as 1hittled do1n to *C.:J, lo1er than the *6.HJ return on the "SP H,, during the
same period. In other 1ords, 1hen 1e ta?e sur=i=orship bias into a22ount, the a=erage
mutual fund under perform the mar?et..A
#edge 8unds also fall into perils of sur=i=orship bias. Man% resear2h and database
firms, ho1e=er, didnEt start 2olle2ting data on retired hedge funds until *KK+, so
resear2h on this area has %et to 2ome to a definite 2on2lusion. !ust be 2areful 1hen
loo?ing at an% hedge fund returns reported before *KK+ be2ause there is a good 2han2e
sur=i=orship bias s?e1s the numbers signifi2antl%.
A GGet (,t () J!i" F.eeG C!.*
8und 2ompanies argue the% shouldnEt ha=e to in2lude dead funds in return 2al2ulations
be2ause the funds are transferred to different managers. But thin? of it this 1a%$ /hen
a person bu%s a ne1 2ar he or she doesnEt get to erase all a22idents and speeding
ti2?ets, so 1h% is it that mutual fund 2ompanies =irtuall% get to erase their past
mista?esU
The (8A Institute @formerl% the Asso2iation for In=estment Management and
Resear2h @AIMRAA has attempted to pla2e restri2tions on ho1 past performan2e is
reported. #o1e=er, this dis2losure isnEt a reLuirement for mutual fund 2ompanies.
The% follo1 the restri2tions onl% if the% 2hoose.
'=en 2ompanies that do 2ompl% usuall% onl% need to publish their true performan2e in
the fine print on the prospe2tus or other promotional material that most in=estors donEt
read. The @8INRAA and @"'(A ha=e also made de2isions on ho1 funds report their
returns, but there is still a gra% area that 2an be @and often isA eBploited b% man%
2ompanies. @To learn more about snea?% ne1s in the footnotes

(reation bias is a form of sur=i=orship bias. A fund 2ompan% 1ill implement the
2reation bias to laun2h a fund. (reation bias 1or?s b% gi=ing a handful of in=estment
managers a small amount of mone% to in2ubate their o1n funds. After a 2ouple %ears,
the fund 2ompan% 2hooses the manager 1ho has performed the best. The su22essful
funds are then made a=ailable to the publi2 and mar?eted aggressi=el%, 1hile the
losing funds get silentl% dis2ontinued and TdisappearT. Man% in=estment professionals
belie=e that 2reation bias is be2oming a bigger problem than sur=i=orship bias,
parti2ularl% be2ause it is mu2h more diffi2ult to dete2t.
!ohn Bogle, founder and former 2hairman of the 9anguard Group, often 2ited the
sur=i=or bias phenomenon as one of the reasons for fa=oring indeB funds 1hi2h donEt
pla% the sur=i=orship game. Bogle is Luoted as sa%ing that T1hat 1e are reall% loo?ing
at here are T<ui2edT managed fund performan2e numbers, 1hi2h 2reate a misleading
pi2ture that a2ti=el% managed funds are 2ompetiti=e 1ith indeBing.T
"ur=i=orship bias is a ?ind of grade inflation for mutual funds that o22urs 1hen the
funds 1ith the 1orst performan2e are made to disappear from the database 1hile
strong performers sur=i=e another da%. The result of this mutual fund Dar1inism
results in s?e1ed performan2e numbers that ma?e the remaining a2ti=e managers loo?
better as performers =anish before the% 2an drag do1n the o=erall performan2e
numbers of the 2ategor% indeB.
The issues of sur=i=orship and 2reation bias demonstrate the importan2e of being
s?epti2al of mutual fund performan2e 2laims, parti2ularl% 1hen the 2laims are 2oming
from the 2ompan% itself. The ?e%, as in so man% 2ases in in=esting, is to do %our
resear2h.
Net !sset 3!",e
The net asset .alue, or NA9, is the 2urrent mar?et =alue of a fundEs holdings, less the
fundEs liabilities, usuall% eBpressed as a per.share amount. 8or most funds, the NA9 is
determined dail%, after the 2lose of trading on some spe2ified finan2ial eB2hange, but
some funds update their NA9 multiple times during the trading da%. The publi2
offering pri2e, or P)P, is the NA9 plus a sales 2harge. )pen.end funds sell shares at
the P)P and redeem shares at the NA9, and so pro2ess orders onl% after the NA9 is
determined. (losed.end funds @the shares of 1hi2h are traded b% in=estorsA ma% trade
at a higher or lo1er pri2e than their NA9P this is ?no1n as a pre#iu# or disc$unt,
respe2ti=el%. If a fund is di=ided into multiple 2lasses of shares, ea2h 2lass 1ill
t%pi2all% ha=e its o1n NA9, refle2ting differen2es in fees and eBpenses paid b% the
different 2lasses.
"ome mutual funds o1n se2urities 1hi2h are not regularl% traded on an% formal
eB2hange. These ma% be shares in =er% small or ban?rupt 2ompaniesP the% ma% be
deri=ati=es or the% ma% be pri=ate in=estments in unregistered finan2ial instruments
@su2h as sto2? in a non.publi2 2ompan%A. In the absen2e of a publi2 mar?et for these
se2urities, it is the responsibilit% of the fund manager to form an estimate of their =alue
1hen 2omputing the NA9. #o1 mu2h of a fundEs assets ma% be in=ested in su2h
se2urities is stated in the fundEs prospe2tus.
Turno=er
Turn$.er is a measure of the fundEs se2urities transa2tions, usuall% 2al2ulated o=er a
%earEs time, and usuall% eBpressed as a per2entage of net asset =alue.
This =alue is usuall% 2al2ulated as the =alue of all transa2tions @bu%ing, sellingA
di=ided b% - di=ided b% the fundEs total holdingsP i.e., the fund 2ounts one se2urit% sold
and another one bought as one Tturno=erT. Thus turno=er measures the repla2ement of
holdings.
In (anada, under NI 7*.*,C @reLuired dis2losure for in=estment fundsA turno=er ratio
is 2al2ulated based on the lesser of pur2hases or sales di=ided b% the a=erage siMe of
the portfolio @in2luding 2ashA.
'Bpenses and T'REs
Mutual funds bear eBpenses similar to other 2ompanies. The fee stru2ture of a mutual
fund 2an be di=ided into t1o or three main 2omponents$ management fee,
nonmanagement eBpense, and *-b.*5non.*-b.* fees. All eBpenses are eBpressed as a
per2entage of the a=erage dail% net assets of the fund.
The management fee for the fund is usuall% s%non%mous 1ith the 2ontra2tual
in=estment ad=isor% fee 2harged for the management of a fundEs in=estments.
#o1e=er, as man% fund 2ompanies in2lude administrati=e fees in the ad=isor% fee
2omponent, 1hen attempting to 2ompare the total management eBpenses of different
funds, it is helpful to define management fee as eLual to the 2ontra2tual ad=isor% fee [
the 2ontra2tual administrator fee. This Tle=els the pla%ing fieldT 1hen 2omparing
management fee 2omponents a2ross multiple funds.
(ontra2tual ad=isor% fees ma% be stru2tured as Tflat.rateT fees, i.e., a single fee
2harged to the fund, regardless of the asset siMe of the fund. #o1e=er, man% funds
ha=e 2ontra2tual fees 1hi2h in2lude brea?points, so that as the =alue of a fundEs assets
in2reases, the ad=isor% fee paid de2reases. Another 1a% in 1hi2h the ad=isor% fees
remain 2ompetiti=e is b% stru2turing the fee so that it is based on the =alue of all of the
assets of a group or a 2ompleB of funds rather than those of a single fund.
Non.management eBpenses
Apart from the management fee, there are 2ertain non.management eBpenses 1hi2h
most funds must pa%. "ome of the more signifi2ant @in terms of amountA non.
management eBpenses are$ transfer agent eBpenses @this is usuall% the person %ou get
on the other end of the phone line 1hen %ou 1ant to pur2hase5sell shares of a fundA,
2ustodian eBpense @the fundEs assets are ?ept in 2ustod% b% a ban? 1hi2h 2harges a
2ustod% feeA, legal5audit eBpense, fund a22ounting eBpense, registration eBpense @the
"'( 2harges a registration fee 1hen funds file registration statements 1ith itA, board of
dire2tors5trustees eBpense @the disinterested members of the board 1ho o=ersee the
fund are usuall% paid a fee for their time spent at meetingsA, and printing and postage
eBpense @in2urred 1hen printing and deli=ering shareholder reportsA.
ser=i2e fees5shareholder ser=i2ing fees are 2ontra2tual fees 1hi2h a fund ma% 2harge to
2o=er the mar?eting eBpenses of the fund. Non.*-b.* ser=i2e fees are
mar?eting5shareholder ser=i2ing fees 1hi2h do not fall under "'( rule *-b.*. /hile
funds do not ha=e to 2harge the full 2ontra2tual *-b.* fee, the% often do. /hen
in=esting in a front.end load or no.load fund, the *-b.* fees for the fund are usuall% .
-H,J @or -H basis pointsA. The *-b.* fees for ba2?.end and le=el.load share 2lasses
are usuall% bet1een H, and 6H basis points but ma% be as mu2h as *,, basis points.
/hile funds are often mar?eted as Tno.loadT funds, this does not mean the% do not
2harge a distribution eBpense through a different me2hanism. It is eBpe2ted that a fund
listed on an online bro?erage site 1ill be pa%ing for the Tshelf.spa2eT in a different
manner e=en if not dire2tl% through a *-b.* fee.
In=estor fees and eBpenses
8ees and eBpenses borne b% the in=estor =ar% based on the arrangement made 1ith the
in=estorEs bro?er. "ales loads @or 2ontingent deferred sales loads @(D"0A are not
in2luded in the fundEs total eBpense ratio @T'RA be2ause the% do not pass through the
statement of operations for the fund. Additionall%, funds ma% 2harge earl% redemption
fees to dis2ourage in=estors from s1apping mone% into and out of the fund Lui2?l%,
1hi2h ma% for2e the fund to ma?e bad trades to obtain the ne2essar% liLuidit%. 8or
eBample @8DI9;A 2harges a * per2ent fee on mone% remo=ed from the fund in less
than :, da%s.
Bro?erage 2ommissions
An additional eBpense 1hi2h does not pass through the statement of operations and
2annot be 2ontrolled b% the in=estor is bro?erage 2ommissions. Bro?erage
2ommissions are in2orporated into the pri2e of the fund and are reported usuall% :
months after the fundEs annual report in the statement of additional information.
Bro?erage 2ommissions are dire2tl% related to portfolio turno=er @portfolio turno=er
refers to the number of times the fundEs assets are bought and sold o=er the 2ourse of a
%earA. suall% the higher the rate of the portfolio turno=er, the higher the bro?erage
2ommissions. The ad=isors of mutual fund 2ompanies are reLuired to a2hie=e Tbest
eBe2utionT through bro?erage arrangements so that the 2ommissions 2harged to the
fund 1ill not be eB2essi=e.
T%pes of mutual funds
O2e&-e&* ),&*
The term #utual !und is the 2ommon name for an open.end in=estment 2ompan%.
Being open ended means that, at the end of e=er% da%, the fund issues ne1 shares to
in=estors and bu%s ba2? shares from in=estors 1ishing to lea=e the fund.
Mutual funds ma% be legall% stru2tured as 2orporations or business trusts but in either
instan2e are 2lassed as $pen/end in.est#ent c$#panies b% the "'(.
)ther funds ha=e a limited number of sharesP these are either 2losed ended funds
orunit in=estment trusts, neither of 1hi2h is a mutual fund.
E9/+!&0e-t.!*e* ),&*s
A relati=el% re2ent inno=ation, the eB2hange.traded fund or 'T8, is often stru2tured as
an open.end in=estment 2ompan%. 'T8s 2ombine 2hara2teristi2s of both mutual funds
and 2losed.end funds. 'T8s are traded throughout the da% on a sto2? eB2hange <ust
li?e 2losed.end funds, but at pri2es generall% approBimating the 'T8Es net asset =alue.
Most 'T8s are indeB funds and tra2? "to2? Mar?et IndeB. "hares are issued or
redeemed b% institutional in=estors in large blo2?s @t%pi2all% of H,,,,,A. Most
in=estors pur2hase and sell shares through bro?ers in mar?et transa2tions. Be2ause the
institutional in=estors normall% pur2hase and redeem in in ?ind transa2tions, 'T8s are
more effi2ient than traditional mutual funds @1hi2h are 2ontinuousl% issuing and
redeeming se2urities and, to effe2t su2h transa2tions, 2ontinuall% bu%ing and selling
se2urities and maintaining liLuidit% positionsA and therefore tend to ha=e lo1er
eBpenses.
'B2hange.traded funds are also =aluable for foreign in=estors 1ho are often able to
bu% and sell se2urities traded on a sto2? mar?et, but 1ho, for regulator% reasons, are
limited in their abilit% to parti2ipate in traditional .". mutual funds.
EH,it1 ),&*s
'Luit% funds, 1hi2h 2onsist mainl% of sto2? in=estments, are the most 2ommon t%pe of
mutual fund. 'Luit% funds hold H, per2ent of all amounts in=ested in mutual funds in
the nited "tates. )ften eLuit% funds fo2us in=estments on parti2ular strategies and
2ertain t%pes of issuers.
C!2it!"i>!ti(&
8und Managers and other in=estment professionals ha=e =ar%ing definitions of mid.
2ap, and large 2aps ranges. The follo1ing ranges are used b% Russel indeB
Russel Mi2ro2aps IndeB . mi2ro.2ap @GH+.7 . H:K.H millionA
Russel -,,, IndeB . small.2ap @G*7-.C million . *.7 billionA
Russel Mid2ap IndeB . mid.2ap @G*.7 . *:.6 billionA
Russel *,,, IndeB . large.2ap @G*.7 . :7C.K billionA
Gro1th =s. =alue
Another distin2tion is made bet1een gro1th funds, 1hi2h in=est in sto2?s of
2ompanies that ha=e the potential for large 2apital gains, and =alue funds , 1hi2h
2on2entrate on sto2?s that are under=alued. 9alue sto2?s ha=e histori2all% produ2ed
higher returnsP ho1e=er, finan2ial theor% states this is 2ompensation for their greater
ris?. Gro1th funds tend not to pa% regular di=idends. IndeB funds tend to be more
2onser=ati=e in=estments, 1ith a fo2us on sto2?s that pa% di=idends. A balan2ed 8und
ma% use a 2ombination of strategies, t%pi2all% in2luding some le=el of in=estment in
bonds, to sta% more 2onser=ati=e 1hen it 2omes to ris?, %et aim for some gro1th.
IndeB funds =ersus a2ti=e management
An indeB funds maintains in=estments in 2ompanies that are part of ma<or sto2? @or
bondA indi2es, su2h as the "SP H,,, 1hile an a2ti=el% managed fund ttempts to
outperform a rele=ant indeB through superior sto2?.pi2?ing te2hniLues. The assets of
an indeB fund are managed to 2losel% approBimate the performan2e of a parti2ular
published indeB. "in2e the 2omposition of an indeB 2hanges infreLuentl%, an indeB
fund manager ma?es fe1er trades, on a=erage, than does an a2ti=e fund manager. 8or
this reason, indeB funds generall% ha=e lo1er trading eBpenses than a2ti=el% managed
funds, and t%pi2all% in2ur fe1er short.term 2apital gains 1hi2h must be passed on to
shareholders. Additionall%, indeB funds do not in2ur eBpenses to pa% for sele2tion of
indi=idual sto2?s @proprietar% sele2tion te2hniLues, resear2h, et2.A and de2iding 1hen
to bu%, hold or sell indi=idual holdings. Instead, a fairl% simple 2omputer model 2an
identif% 1hate=er 2hanges are needed to bring the fund ba2? into agreement 1ith its
target indeB.
(ertain empiri2al e=iden2e seems to illustrate that mutual funds do not beat the mar?et
and a2ti=el% managed mutual funds under.perform other broad.based portfolios 1ith
similar 2hara2teristi2s. )ne stud% found that nearl% *,H,, .". mutual funds under.
performed the mar?et in approBimatel% half of the %ears bet1een *KC- and *KK-.
Moreo=er, funds that performed 1ell in the past are not able to beat the mar?et again
in the future @sho1n b% !ensen, *KC7P Grimblatt and "heridan Titman *K7K.
Bond funds a22ount for *7J of mutual fund assets. T%pes of bond funds in2lude term
funds, 1hi2h ha=e a fiBed set of time @short., medium., or long.termA before the%
mature. Muni2ipal Bond funds generall% ha=e lo1er returns, but ha=e taB ad=antages
and lo1er ris?. #igh.%ield bond funds in=est in 2orporate bonds, in2luding high.%ield
or <un? funds. /ith the potential for high %ield, these bonds also 2ome 1ith greater
ris?.
Mone% mar?et funds
Mone% mar?et funds hold -CJ of mutual fund assets in the nited "tates. Mone%
mar?et funds entail the least ris?, as 1ell as lo1er rates of return. nli?e 2ertifi2ate of
deposits@(DsA, mone% mar?et shares are liLuid and redeemable at an% time. The
interest rate Luoted b% mone% mar?et funds is ?no1n as the 6 DAY "'( YI'0D
8unds of funds @8o8A are mutual funds 1hi2h in=est in other underl%ing mutual funds
@i.e., the% are funds 2omprised of other fundsA. The funds at the underl%ing le=el are
t%pi2all% funds 1hi2h an in=estor 2an in=est in indi=iduall%. A fund of funds 1ill
t%pi2all% 2harge a management fee 1hi2h is smaller than that of a normal fund be2ause
it is 2onsidered a fee 2harged for asset allo2ation ser=i2es. The fees 2harged at the
underl%ing fund le=el do not pass through the statement of operations, but are usuall%
dis2losed in the fundEs annual report, prospe2tus, or statement of additional
information. The fund should be e=aluated on the 2ombination of the fund.le=el
eBpenses and underl%ing fund eBpenses, as these both redu2e the return to the in=estor.
Most 8o8s in=est in affiliated funds @i.e., mutual funds managed b% the same ad=isorA,
although some in=est in funds managed b% other @unaffiliatedA ad=isors. The 2ost
asso2iated 1ith in=esting in an unaffiliated underl%ing fund is most often higher than
in=esting in an affiliated underl%ing be2ause of the in=estment management resear2h
in=ol=ed in in=esting in fund ad=ised b% a different ad=isor. Re2entl%, 8o8s ha=e been
2lassified into those that are a2ti=el% managed @in 1hi2h the in=estment ad=isor
reallo2ates freLuentl% among the underl%ing funds in order to ad<ust to 2hanging
mar?et 2onditionsA and those that are passi=el% managed @the in=estment ad=isor
allo2ates assets on the basis of on an allo2ation model 1hi2h is rebalan2ed on a regular
basisA.
The design of 8o8s is stru2tured in su2h a 1a% as to pro=ide a read% miB of mutual
funds for in=estors 1ho are unable to or un1illing to determine their o1n asset
allo2ation model. 8und 2ompanies su2h as TIAA.(R'8, Ameri2an (entur%
In=estments, 9anguard, and 8idelit% ha=e also entered this mar?et to pro=ide in=estors
1ith these options and ta?e the Tguess 1or?T out of sele2ting funds. The allo2ation
miBes usuall% =ar% b% the time the in=estor 1ould li?e to retire$ -,-,, -,:,, -,H,, et2.
The more distant the target retirement date, the more aggressi=e the asset miB.
He*0e ),&*s
#edge funds in the nited "tates are pooled in=estment funds 1ith loose "'(
regulation and should &(t be 2onfused 1ith mutual funds. "ome hedge fund managers
are reLuired to register 1ith "'( as in=estment ad=isers under the In=estment
Ad=isers A2t. The A2t does not reLuire an ad=iser to follo1 or a=oid an% parti2ular
in=estment strategies, nor does it reLuire or prohibit spe2ifi2 in=estments. #edge funds
t%pi2all% 2harge a management fee of *J or more, plus a Tperforman2e feeT of -,J of
the hedge fundEs profits. There ma% be a Tlo2?.upT period, during 1hi2h an in=estor
2annot 2ash in shares. A =ariation of the hedge strateg% is the *:,.*:, fund for
indi=idual in=estors.
Mutual funds =s. other in=estments
Mutual funds offer se=eral ad=antages o=er in=esting in indi=idual sto2?s. 8or
eBample, the transa2tion 2osts are di=ided among all the mutual fund shareholders,
1ho also benefit b% ha=ing a third part% @professional fund managersA appl% eBpertise
and dedi2ate time to manage and resear2h in=estment options. #o1e=er, despite the
professional management, mutual funds are not immune to ris?s. The% share the same
ris?s asso2iated 1ith the in=estments made. If the fund in=ests primaril% in sto2?s, it is
usuall% sub<e2t to the same ups and do1ns and ris?s as the sto2? mar?et
S+!.e /"!sses
Man% mutual funds offer more than one 2lass of shares. 8or eBample, %ou ma% ha=e
seen a fund that offers T(lass AT and T(lass BT shares. 'a2h 2lass 1ill in=est in the
same pool @or in=estment portfolioA of se2urities and 1ill ha=e the same in=estment
ob<e2ti=es and poli2ies. But ea2h 2lass 1ill ha=e different shareholder ser=i2es and5or
distribution arrangements 1ith different fees and eBpenses. These differen2es are
supposed to refle2t different 2osts in=ol=ed in ser=i2ing in=estors in =arious 2lassesP
for eBample, one 2lass ma% be sold through bro?ers 1ith a front.end load, and another
2lass ma% be sold dire2t to the publi2 1ith no load but a T*-b * feeT in2luded in the
2lassEs eBpenses @sometimes referred to as T(lass (T sharesA. "till a third 2lass might
ha=e a minimum in=estment of G*,,,,,,,,, and be a=ailable onl% to finan2ial
institutions @a so.2alled TinstitutionalT share 2lassA. In some 2ases, b% aggregating
regular in=estments made b% man% indi=iduals, a retirement plan @su2h as a @+,* ?
planA ma% Lualif% to pur2hase TinstitutionalT shares @and gain the benefit of their
t%pi2all% lo1er eBpense ratiosA e=en though no members of the plan 1ould Lualif%
indi=iduall%. As a result, ea2h 2lass 1ill li?el% ha=e different performan2e results.
A multi.2lass stru2ture offers in=estors the abilit% to sele2t a fee and eBpense stru2ture
that is most appropriate for their in=estment goals @in2luding the length of time that
the% eBpe2t to remain in=ested in the fundA.

L(!* !&* e92e&ses
A front end load or sales 2harge is a 2ommission paid to a bro?er b% a mutual fund
1hen shares are pur2hased, ta?en as a per2entage of funds in=ested. The =alue of the
in=estment is redu2ed b% the amount of the load. "ome funds ha=e a differed sales
2harge or ba2? end load In this t%pe of fund an in=estor pa%s no sales 2harge 1hen
pur2hasing shares, but 1ill pa% a 2ommission out of the pro2eeds 1hen shares are
redeemed depending on ho1 long the% are held. Another deri=ati=e stru2ture is a le=el
load fund, in 1hi2h no sales 2harge is paid 1hen bu%ing the fund, but a ba2?.end load
ma% be 2harged if the shares pur2hased are sold 1ithin a %ear.
0oad funds are sold through finan2ial intermediaries su2h as bro?ers,finan2ial planners
, and other t%pes of registered representati=es 1ho 2harge a 2ommission for their
ser=i2es. "hares of front.end load funds are freLuentl% eligible forbrea? points @i.e., a
redu2tion in the 2ommission paidA based on a number of =ariables. These in2lude other
a22ounts in the same fund famil% held b% the in=estor or =arious famil% members, or
2ommitting to bu% more of the fund 1ithin a set period of time in return for a lo1er
2ommission Ttoda%T.
It is possible to bu% man% mutual funds 1ithout pa%ing a sales 2harge .These are 2alled
no load funds. In addition to being a=ailable from the fund 2ompan% itself, no.load
funds ma% be sold b% some dis2ount bro?ers for a flat transa2tion fee or e=en no fee at
all. @This does not ne2essaril% mean that the bro?er is not 2ompensated for the
transa2tionP in su2h 2ases, the fund ma% pa% bro?ersE 2ommissions out of Tdistribution
and mar?etingT eBpenses rather than a spe2ifi2 sales 2harge. The pur2haser is therefore
pa%ing the fee indire2tl% through the fundEs eBpenses dedu2ted from profits.A
No.load funds in2lude both indeB funds and a2ti=el% managed funds. The largest
mutual fund families selling no.load indeB funds are 9anguard and 8idelit%, though
there are a number of smaller mutual fund families 1ith no.load funds as 1ell.
'Bpense ratios in some no.load indeB funds are less than ,.-J per %ear =ersus the
t%pi2al a2ti=el% managed fundEs eBpense ratio of about *.HJ per %ear. 0oad funds
usuall% ha=e e=en higher eBpense ratios 1hen the load is 2onsidered. The eBpense ratio
is the anti2ipated annual 2ost to the in=estor of holding shares of the fund. 8or
eBample, on a G*,,,,,, in=estment, an eBpense ratio of ,.-J means G-,, of annual
eBpense, 1hile a *.HJ eBpense ratio 1ould result in G*,H,, of annual eBpense. These
eBpenses are before an% sales 2ommissions paid to pur2hase the mutual fund.
Man% fee onl% finan2ial ad=isors strongl% suggest no.load funds su2h as indeB funds.
If the ad=isor is not of the fee.onl% t%pe but is instead 2ompensated b% 2ommissions,
the ad=isor ma% ha=e a 2onfli2t of interests in selling high.2ommission load funds.
Pe.)(.!&/e () M,t,!" F,&*s i& I&*i!
0et us start the dis2ussion of the performan2e of mutual funds in India from the da% the 2on2ept
of mutual fund too? birth in India. The %ear 1as *KC:. nit Trust of India in=ited in=estors or
rather to those 1ho belie=ed in sa=ings, to par? their mone% in TI Mutual 8und.
8or :, %ears it goaled 1ithout a single se2ond pla%er. Though the *K77 %ear sa1 some ne1
mutual fund 2ompanies, but TI remained in a monopol% position.
The performan2e of mutual funds in India in the initial phase 1as not e=en 2loser to
satisfa2tor% le=el. People rarel% understood, and of 2ourse in=esting 1as out of Luestion. But
%es, some -+ million shareholders 1as a22ustomed 1ith guaranteed high returns b% the
beginning of liberaliMation of the industr% in *KK-. This good re2ord of TI be2ame mar?eting
tool for ne1 entrants. The eBpe2tations of in=estors tou2hed the s?% in profitabilit% fa2tor.
#o1e=er, people 1ere miles a1a% from the preparedness of ris?s fa2tor after the liberaliMation.
has 1itnessed strong gro1th in pre=ious Luarters, but has also 2ooled do1n this Luarter, and a
li?el% reason for this ma% be the falling eLuit% and 2redit mar?ets.
In fa2t, if one remo=es the effe2t of other in2ome on net profit, the pi2ture loo?s more
1orrisome. This ad<usted net profit for the Mar2h >,7 Luarter has de2lined b% around *,J,
2ompared to the same period last %ear. As %ou ma% ha=e gauged b% this time, the operating
margins @*K.CJA and net profit margins @**.-JA are the lo1est among the past eight Luarters.
In addition to the poor sho1 in operating profits, interest 2osts ha=e further fuelled the fall in
net profit margins. The interest 2ost, as a per2entage of net sales, is 2lose to :, slightl% abo=e the
a=erage of -.H during the pre=ious *,.*- Luarters. India In2 seems to be on a borro1ing binge
as 2ompanies a2ross se2tors are implementing aggressi=e 2apeB plans. /ith the interest rate on
an up1ard 2ur=e, interest pa%ments are li?el% to be a drag on bottom lines in the foreseeable
future.
#o1e=er, India In2>s interest burden is still 1ithin manageable limits, as 2ompanies reported
interest 2o=erage ratios of around C during the Mar2h >,7 Luarter. Though the ratio is do1n
from around 7 at the pea? of the bull run in 8Y,C, it is mu2h better than -.H reported at the
beginning of last do1nturn in *KK7.KK . The ratio is deri=ed b% di=iding operating profit b%
interest eBpenses and indi2ates a 2ompan%>s abilit% to ser=i2e the debt from its earning from
operations. The higher the ratio, the better it is.
A further top.do1n anal%sis of the Luarterl% numbers re=eals that the manufa2turing se2tor has
done better than the ser=i2es se2tor in terms of net sales. #o1e=er, the ser=i2es se2tor
outperformed the manufa2turing se2tor 1hen it 2omes to operating profits. This is mainl%
be2ause staff 2ost, a ma<or 2onstituent of the eBpenses in2urred b% the ser=i2es se2tor, has
gro1n slo1l%. The probable reason for this is the slo1do1n in hiring b% IT 2ompanies, a
signifi2ant part of the ser=i2es se2tor, 1hi2h are badl% affe2ted b% the slo1do1n in the ".
The gro1th in net profit is almost flat for the ser=i2es se2tor, 1hereas it is 2lose to *6J for the
manufa2turing se2tor. The poor sho1 b% the ser=i2es se2tor is mainl% be2ause of higher interest
2osts, 1hi2h ha=e 1iped out most of the gro1th in operating profits.
'=en 1ithin the manufa2turing and ser=i2es se2tors, there>s a lot of =arian2e in performan2e
a2ross se2tors. /hile 2onstru2tion and tele2om ser=i2es ha=e outperformed India In2 as a
1hole, auto and 2ement se2tors ha=e been laggards. The auto se2tor is fa2ing se=eral 2hallenges
li?e higher interest rates, lo1er a=ailabilit% of 2redits and higher input 2osts.
The net sales of 2ompanies in auto se2tor gre1 b% around 7J, 1hereas their operating profit
hal=ed from the le=els a %ear ago. )n the other hand, 2ement ma?ers ha=e been sLueeMed
bet1een stagnant pri2es of their produ2ts and rising input and operating eBpenses. #o1e=er,
se2tors li?e tele2om are doing prett% 1ell be2ause of a higher subs2riber base and better
operational effi2ien2ies. The topline and bottomline of the tele2om se2tor ha=e in2reased b%
more than -,J ea2h.
The Assets nder Management of TI 1as Rs. C6bn. b% the end of *K76. 0et me 2on2entrate
about the performan2e of mutual funds in India through figures. 8rom Rs. C6bn. the Assets
nder Management rose to Rs. +6, bn. in Mar2h *KK: and the figure had a three times higher
performan2e b% April -,,+. It rose as high as Rs. *,H+,bn.
The net asset =alue @NA9A of mutual funds in India de2lined 1hen sto2? pri2es started falling in
the %ear *KK-. Those da%s, the mar?et regulations did not allo1 portfolio shifts into alternati=e
in=estments. There 1ere rather no 2hoi2e apart from holding the 2ash or to further 2ontinue
in=esting in shares. )ne more thing to be noted, sin2e onl% 2losed.end funds 1ere floated in the
mar?et, the in=estors disin=ested b% selling at a loss in the se2ondar% mar?et.
The performan2e of mutual funds in India suffered Lualitati=el%. The *KK- sto2? mar?et
s2andal, the losses b% disin=estments and of 2ourse the la2? of transparent rules in the
1hereabout ro2?ed 2onfiden2e among the in=estors. Partl% o1ing to a relati=el% 1ea? sto2?
mar?et performan2e, mutual funds ha=e not %et re2o=ered, 1ith funds trading at an a=erage
dis2ount of *,-, per2ent of their net asset =alue.
The super=isor% authorit% adopted a set of measures to 2reate a transparent and 2ompetit=e
en=ironment in mutual funds. "ome of them 1ere li?e relaBing in=estment restri2tions into the
mar?et, introdu2tion of open.ended funds, and pa=ing the gate1a% for mutual funds to laun2h
pension s2hemes.
The measure 1as ta?en to ma?e mutual funds the ?e% instrument for long.term sa=ing. The
more the =ariet% offered, the Luantitati=e 1ill be in=estors.
At last to mention, as long as mutual fund 2ompanies are performing 1ith lo1er ris?s and
higher profitabilit% 1ithin a short span of time, more and more people 1ill be in2lined to in=est
until and unless the% are full% edu2ated 1ith the dos and donts of mutual funds.
M,t,!" F,&* Gi!&t C+!""e&0e*
B% Martin Ba?er
Published$ T#R"DAY, N)9'MB'R +, *KK:
PARI"4 It has risen from obs2urit% to No. - on the 1orld stage, <ust behind the nited
"tates. It d1arfs e=er% other mar?et in 'urope. It has a ne1 and =ital role to pla% in its
go=ernmentEs e2onomi2 poli2%. /hate=er 1a% %ou loo? at it, the 8ren2h mutual fund
industr% has a higher profile than e=er before.
The sheer siMe of the industr% often surprises international obser=ers, man% of 1hom
tend to asso2iate mutual funds 1ith ris? in=estment and Anglo."aBon 2ountries.
A22ording to statisti2s from the senior 8ren2h finan2ial 1at2hdog, the (ommission des
)pFrations de Bourse @()BA, *.K*H trillion 8ren2h fran2s @about G:-H billionA 1ere
held in the most popular mutual fund =ehi2le, the "o2iFtF dEIn=estissement \ (apital
9ariable @"I(A9A, at the end of the first Luarter of *KK:. The neBt most popular
2olle2ti=e =ehi2le, the 8onds (ommuns de Pla2ement, had CK6.C billion fran2s under
management at the end of *KK-.
The 8ren2h industr% is more than t1i2e as big as 'uropeEs neBt biggest mar?et, the
nited &ingdom. The British industr% is 2elebrating 1hat is alread% a re2ord %ear for
asset gro1th, %et the total under management in unit trusts @unLuoted =ehi2les al1a%s
open to ne1 in=estorsA is a relati=el% paltr% R7+.* billion @G*-C billionA, a22ording to
figures from Autif, the .&. fund industr% trade asso2iation.
The siMe and su22ess of the 8ren2h fund industr% is in part attributable to the 8ren2h
ban?s, 1ho ha=e traditionall% been some1hat miserl% 1ith the %ield offered on their
deposit a22ounts. The result has been, after a little ad<ustment in the taB la1s late in the
*K7,s, a flight into mutual funds. The great ma<orit% @around 6, per2entA of mone% in
"I(A9s is in=ested in funds that bu% 2ash instruments on the international mone%
mar?ets. Bonds a22ount for around *K per2ent of the "I(A9 mar?et, and funds that
in=est in shares ma?e up the rest, of around ** per2ent.
The pronoun2ed preferen2e for mone% mar?et funds and bond funds, 1hi2h are onl%
slightl% more ris?%, gi=es a good pi2ture of the ps%2he of the 8ren2h mutual fund
in=estor.
Toda% on I#T.2om
Mugabe arri=es at "ummit
TRis?.a=ersion has histori2all% al1a%s been the 8ren2h in=estorEs mentalit%,T sa%s
Robert Mar<olin, managing dire2tor of Mi2ropal @8ran2eA, the international fund
monitoring group. TThe 8ren2h ha=e al1a%s preferred bonds for histori2al reasons. ItEs
not al1a%s eas% to understand 1h% 1hen %ou loo? at some of the s2ams there ha=e
been.T
Those 2onser=ati=e in=esting preferen2es are being 2hallenged b% the 8ren2h
go=ernment. )ne of the first things that the Balladur administration did after its
ele2tion in Mar2h 1as to announ2e a taB in2enti=e designed to persuade in=estors to
sell some of their mone% mar?et fund holdings and bu% shares in its huge, +, billion
fran2 pri=atiMation program. It has be2ome a plan? of the ne1 go=ernmentEs poli2% to
unlo2? some of the 2apital held in these funds and en2ourage eLuit% in=estment.
The taB in2enti=e is pro=ing popular, and 2apital is flo1ing into the TBalladur bondsT
designed to be a half1a% house on the road to pur2hasing pri=atiMation issues. A taB
in2enti=e is one thing, but opinion is di=ided as to 1hether 8ren2h in=estors are reall%
2hanging their attitude to ris? in=estment.
TI thin? people are beginning to appre2iate the ris?.to.re1ard fa2tor, parti2ularl% at the
top end of the mar?et,T said Mar2 0andeau, managing dire2tor of )l%mpia (apital
Management, a Paris.based in=estment house spe2ialiMing in managed ris? in=estment.
)thers argue that the 2on2ept of a22epting ris? to a2hie=e re1ard is still little
understood b% the a=erage in=estor. TPeople ha=e a some1hat 2ontradi2tor% attitude to
ris?,T said !ean "aint.Geours, 2hairman of the ()B. TThe% are prepared to a22ept it, so
long as the% 1in.T #e pointed to the first round of pri=atiMations in *K7C, 1hi2h turned
out to be a bonanMa for subs2ribers. Then 2ame the 2rash of *K76.
TIt 1as a 2old sho1er after the great enthusiasms sho1n for the first pri=atiMation,T
said Pierre de 0eusse, =i2e president of Paribas Asset Management. TThe result is that
there are still fe1er 8ren2h eLuit% in=estors than there are in other de=eloped
2ountries.T
Alain #indiF, head of the asset management di=ision of (rFdit 0%onnais in Paris,
2on2urred$ T)=erall, I donEt thin? attitudes are 2hanging. The Balladur in2enti=es are
attra2ti=e, but the bul? of mone% is remaining in mone% mar?et funds.T
Institutional in=estors, ho1e=er, are slightl% more interested in ris?.oriented
MTA0 8ND A(T -,,+
Introdu2tion
This poli2% guidan2e sets out a strateg% for addressing the fast tra2?ing of pri=ate and
professional funds, 1hi2h are reLuired to be re2ogniMed under the Mutual 8unds A2t
-,,+ @Tthe A2tTA 1ith the =ie1 to1ards establishing Anguilla as a <urisdi2tion of
2hoi2e in the offshore mutual funds industr%.
Poli2%
The 8inan2ial "er=i2es (ommission @Tthe (ommissionTA has de2ided to 2reate a status
?no1n as a Lualified fund administrator5intermediar% to ma?e more effi2ient the
re2ognition regime under the A2t.
/hat is a Lualified fund administrator5intermediar%U
A Lualified fund administrator5intermediar% is a fund administrator or an intermediar%
1ho has been granted this status b% the (ommission or 1ho 1ould Lualif% for su2h
status if the% applied for it. #o1e=er, onl% appli2ants 1ho ha=e applied 1ill be
formall% granted this status. The status 1ill allo1 the administrator5intermediar% to
form pri=ate and professional mutual funds under the A2t, but 1ithout the need to
obtain appro=al of the spe2ifi2 funds in Luestion b% the (ommission prior to the
2ommen2ement of operations of these funds.
#o1 1ill this 1or? in pra2ti2eU
In effe2t, the Lualified fund administrator5intermediar% 1ill ha=e the right to
in2orporate funds 1ith the (ompanies Registr%, through the (ommission, and 1ill be
allo1ed to 2ommen2e operation of them prior to the (ommission re=ie1ing their
appli2ations. The Lualified fund administrator5intermediar% 1ill pa% the reLuisite fund
re2ognition fee, as detailed in the Mutual 8und Regulations -,,+ @Tthe RegulationsTA
and submit the information stated belo1 in paragraphs @iA through to @=A in the form of
a letter to the (ommission at the same time that it reLuests the formation of the fund to
the (ompanies Registries.
The name and t%pe of the fund i.e. 1hether it is a pri=ate, professional or publi2 fund.
The t%pe of entit% used to 2onstitute the fund i.e. 1hether a 2ompan%, partnership, unit
trust or 2ell a22ount.
Details of the dire2tors, general partners, trustee of the fund as appli2able.
Details of the 2ustodian and in=estment manager of the fund, 1ho should be lo2ated in
a re2ogniMed <urisdi2tion.
(onfirmation that the reLuisite due diligen2e on the parties in=ol=ed in the fund has
been done in line 1ith the due diligen2e pro2edures established under the AM0
Regulations and Guidan2e Notes and other reLuirements detailed under the A2t.
The Lualified fund administrator5intermediar% must send to the (ommission 1ithin :,
da%s of the formation of the fund the a2tual appli2ation forms for ea2h fund formed for
re=ie1 and appro=al b% the (ommission and for its filing purposes. "u2h appli2ation
forms are to be found in the Regulations.
/ho 2an be2ome a Lualified fund administrator5intermediar%U
To be granted this status the appli2ant must meet the follo1ing 2riteria.
The appli2ant must hold a fund administrator li2en2e under the A2t eB2ept as dis2ussed
in paragraph @dA belo1. In addition, the fund administrator must be li2ensed in a
re2ogniMed <urisdi2tion as defined b% the (ommission under se2tion *@:A of the A2t.
Re2ogniMed <urisdi2tions are detailed in Poli2% Guidan2e No. - of -,,H
The appli2ant must ha=e Lualified, eBperien2ed and adeLuate staff resour2es to in2lude
eBperien2ed a22ountan2% ?no1ledge as defined under the A2t in referen2e to the term
Tauditor.T The appli2ant must ha=e a minimum of - (hartered A22ountants @or their
eLui=alentA on staff. The Lualifi2ations and eBperien2e of the appli2ant 1ill be
assessed b% the (ommission and supporting information must be pro=ided b% the
appli2ant to support these 2laims.
The appli2ant must ha=e under its administration a signifi2ant number of funds and
fund assets. This must be e=iden2ed in 1riting b% the li2ensing bod% in the re2ogniMed
<urisdi2tion dis2ussed in @aA abo=e.
/here the appli2ant is a la1%er or a la1 firm, as e=iden2ed b% membership in an
appropriate legal bod% su2h as a Bar Asso2iation or 0a1 "o2iet%, or a finan2ial
institution5ser=i2e pro=ider and has a pro=en tra2? re2ord and eBperien2e in the area of
forming mutual funds, then said la1%er, la1 firm or finan2ial institution5ser=i2e
pro=ider ma% Lualif% irrespe2ti=e of the 2riteria set out in paragraphs @bA through to
@2A. #o1e=er, for ea2h fund formed, the la1%er, la1 firm or finan2ial
institution5ser=i2e pro=ider must appoint a fund administrator in a re2ogniMed
<urisdi2tion 1ho has been granted this status or 1ho 1ould Lualif% for su2h status if an
appli2ation 1ere made.
Re=ie1 of Lualified fund administrator5intermediar% status
Appli2ants granted this status must be 2ogniMant of the fa2t that the status 1ill be
under 2onstant re=ie1. This 1ill be done through periodi2 re=ie1 of the performan2e
of the Lualified fund administrator5intermediar%.
The (ommission reser=es the right to 1ithdra1 this Lualified fund
administrator5intermediar% status at an%time if the Lualified fund
administrator5intermediar% fails to appl% the reLuisite standards of due diligen2e and
professionalism in assessing appli2ations 1hen forming funds. )n 1ithdra1al of the
status, the fund administrator5intermediar% 1ill be reLuired to submit ea2h appli2ation
indi=iduall% for prior appro=al b% the (ommission.
8ees
The fee appli2able to the granting of the status of Lualified fund
administrator5intermediar% 1ill be "G-,,,,. 8or ea2h %ear that the status is in effe2t
the annual fee 1ill be "G-,,,, pa%able b% the :*
st
!anuar% in a22ordan2e 1ith
"e2tion -H of the A2t. The penalt% regime for late pa%ment of fees set out in the
Regulations -,,+ 1ill appl% 1here late pa%ment is made.
#o1 do 1e des2ribe a t%pi2al Indian mutual fund in=estorU A Luestion probabl%
man% ad=ertisers 1ould as? mar?eting head hon2hos of mutual funds. A sur=e%
sho1ed that he @and not sheA is a2tuall% a +H.%ear.old married man 1ho is fi2?le
minded about his in=esting. /hile there ha=e been no gender related studies done in
the past, this sur=e% indi2ated that K-J of mutual fund in=estors 1ere a2tuall% men.
8or starters, the age fa2tor for Indian mutual fund in=estors almost resembled that of a
de=eloped 2ountr% li?e the ". NIs there a problem>, one ma% as?. There is, sin2e the
demographi2 brea? up of India is =er% different from that of the ". India is a %oung
2ountr% 1ith an a=erage age of :, %ears. More than H,J of Indians are belo1 the age
of :H %ears. In 2ontrast, the a=erage age of an Ameri2an is mu2h higher I around +H
%ears.
The statisti2s seem to indi2ate that %outh is splurging a lot more than sa=ing for
posterit%. (ars, snaMM% mobiles and 0oius 9uitton bags are ta?ing pre2eden2e o=er
sa=ings. More of them are also bu%ing houses I lea=ing little to sa=e. The a=erage age
of home bu%ing has been falling. It is do1n to :- %ears. "o 'MI pa%ments . and their
mo=ement abo=e I seem to be ?eeping them o22upied. /ith little to sa=e, the% aren>t
probabl% in=esting mu2h in mutual funds.
Does marital status affe2t the 1a% %ou in=estU Yes, if %ou are an Indian. "ome
insurers mention that the insuran2e poli2ies are usuall% bought after marriage. This is
be2ause the 2on2ept of ris? seeps into the mind of an a=erage Indian male onl% after
he ties the ?not.
/hat about the responsibilit% to1ards %ou parents during the ba2helor da%sU one ma%
as?. This is best left unans1ered.
Also 1ith in=estment @mutual fundA needs usuall% follo1ing that of ris? prote2tion,
the propensit% to in=est is lesser among the %outh. The a=erage mutual fund in=estor
is +H %ears old. Probabl% at this age he is freed from home loan debt to a2tual start
2on2entrating on in=esting needs.
A22ording to the sur=e%, Indian M8 in=estors 1ere found to be fi2?le minded unli?e
the " in=estors. In ", a22ording to I(I sur=e% -,,6, a=erage tenure of mutual fund
in=estment 1as fi=e %ears. *:J of its in=estors had an a=erage in=estment horiMon of
*, or more %ears, -6J 1ith an in=estment horiMon of H to K %ears, *HJ for : to +
%ears and -CJ for * to - %ears. In India, o=er the %ears the a=erage in=estment tenure
has, in fa2t, fallen from *7 months to less than a %ear.
#ea=% 2hurning of M8 portfolio Y than?s to uns2rupulous distributors, is bringing
do1n the a=erage holding period.
/hat>s the a=erage number of mutual fund s2hemes that an in=estor holdsU In the ",
it is + mutual funds and the statisti2 in India is not =er% different @fourA. /ith its
uniLue indi=idual 2hara2teris2ti2s, the Indian in=estor is trul% turning out to be an
enigma for M8 mar?eters.
The 2on2ept of mutual funds in India dates ba2? to the %ear *KC:. The era bet1een
*KC: and *K76 mar?ed the eBistan2e of onl% one mutual fund 2ompan% in India 1ith
Rs. C6bn assets under management @AMA, b% the end of its monopol% era, the nit
Trust of India @TIA. B% the end of the 7,s de2ade, fe1 other mutual fund 2ompanies
in India too? their position in mutual fund mar?et.
The ne1 entries of mutual fund 2ompanies in India 1ere "BI Mutual 8und, (anban?
Mutual 8und, Pun<ab National Ban? Mutual 8und, Indian Ban? Mutual 8und, Ban? of
India Mutual 8und.
The su22eeding de2ade sho1ed a ne1 horiMon in indian mutual fund industr%. B% the
end of *KK:, the total AM of the industr% 1as Rs. +6,.,+ bn. The pri=ate se2tor
funds started penetrating the fund families. In the same %ear the first Mutual 8und
Regulations 2ame into eBistan2e 1ith re.registering all mutual funds eB2ept TI. The
regulations 1ere further gi=en a re=ised shape in *KKC.
&othari Pioneer 1as the first pri=ate se2tor mutual fund 2ompan% in India 1hi2h has
no1 merged 1ith 8ran?lin Templeton. !ust after ten %ears 1ith pri=ate se2tor pla%ers
penetration, the total assets rose up to Rs. *-*7.,H bn. Toda% there are :: mutual fund
2ompanies in India.
M!-(. M,t,!" F,&* C(2!&ies i& I&*i!
)!, )"R/ "utual +und
ABN AMR) Mutual 8und 1as setup on April *H, -,,+ 1ith ABN AMR) Trustee
@IndiaA P=t. 0td. as the Trustee (ompan%. The AM(, ABN AMR) Asset Management
@IndiaA 0td. 1as in2orporated on No=ember +, -,,:. Deuts2he Ban? A G is the
2ustodian of ABN AMR) Mutual 8und.
!irla &un *ife "utual +und
Birla "un 0ife Mutual 8und is the <oint =enture of Adit%a Birla Group and "un 0ife
8inan2ial. "un 0ife 8inan2ial is a golbal organisation e=ol=ed in *76* and is being
represented in (anada, the ", the Philippines, !apan, Indonesia and Bermuda apart
from India. Birla "un 0ife Mutual 8und follo1s a 2onser=ati=e long.term approa2h to
in=estment. Re2entl% it 2rossed AM of Rs. *,,,,, 2rores.
!ank of !aroda "utual +und #!/! "utual +und%
Ban? of Baroda Mutual 8und or B)B Mutual 8und 1as setup on )2tober :,, *KK-
under the sponsorship of Ban? of Baroda. B)B Asset Management (ompan% 0imited
is the AM( of B)B Mutual 8und and 1as in2orporated on No=ember H, *KK-.
Deuts2he Ban? AG is the 2ustodian.
1$+- "utual +und
#D8( Mutual 8und 1as setup on !une :,, -,,, 1ith t1o sponsorers nemel% #ousing
De=elopment 8inan2e (orporation 0imited and "tandard 0ife In=estments 0imited.
1&!- "utual +und
#"B( Mutual 8und 1as setup on Ma% -6, -,,- 1ith #"B( "e2urities and (apital
Mar?ets @IndiaA Pri=ate 0imited as the sponsor. Board of Trustees, #"B( Mutual 8und
a2ts as the Trustee (ompan% of #"B( Mutual 8und.
', Dysya "utual +und
ING 9%s%a Mutual 8und 1as setup on 8ebruar% **, *KKK 1ith the same named
Trustee (ompan%. It is a <oint =enture of 9%s%a and ING. The AM(, ING In=estment
Management @IndiaA P=t. 0td. 1as in2orporated on April C, *KK7.
Prudential '-'-' "utual +und
The mutual fund of I(I(I is a <oint =enture 1ith Prudential Pl2. of Ameri2a, one of the
largest life insuran2e 2ompanies in the " of A. Prudential I(I(I Mutual 8und 1as
setup on *:th of )2tober, *KK: 1ith t1o sponsorers, Prudential Pl2. and I(I(I 0td.
The Trustee (ompan% formed is Prudential I(I(I Trust 0td. and the AM( is
Prudential I(I(I Asset Management (ompan% 0imited in2orporated on --nd of !une,
*KK:.
&ahara "utual +und
"ahara Mutual 8und 1as set up on !ul% *7, *KKC 1ith "ahara India 8inan2ial
(orporation 0td. as the sponsor. "ahara Asset Management (ompan% Pri=ate 0imited
in2orporated on August :*, *KKH 1or?s as the AM( of "ahara Mutual 8und. The paid.
up 2apital of the AM( stands at Rs -H.7 2rore.
&tate !ank of 'ndia "utual +und
"tate Ban? of India Mutual 8und is the first Ban? sponsored Mutual 8und to laun2h
offshor fund, the India Magnum 8und 1ith a 2orpus of Rs. --H 2r. approBimatel%.
Toda% it is the largest Ban? sponsored Mutual 8und in India. The% ha=e alread%
laun2hed :H "2hemes out of 1hi2h *H ha=e alread% %ielded handsome returns to
in=estors. "tate Ban? of India Mutual 8und has more than Rs. H,H,, (rores as AM.
No1 it has an in=estor base of o=er 7 0a?hs spread o=er *7 s2hemes.
Tata "utual +und
Tata Mutual 8und @TM8A is a Trust under the Indian Trust A2t, *77-. The sponsorers
for Tata Mutual 8und are Tata "ons 0td., and Tata In=estment (orporation 0td. The
in=estment manager is Tata Asset Management 0imited and its Tata Trustee (ompan%
P=t. 0imited. Tata Asset Management 0imitedEs is one of the fastest in the 2ountr%
1ith more than Rs. 6,6,: 2rores @as on April :,, -,,HA of AM.
&ota? Mahindra Mutual 8und
&ota? Mahindra Asset Management (ompan% @&MAM(A is a subsidiar% of &MB0. It
is presentl% ha=ing more than *,KK,7*7 in=estors in its =arious s2hemes. &MAM(
started its operations in De2ember *KK7. &ota? Mahindra Mutual 8und offers s2hemes
2atering to in=estors 1ith =ar%ing ris? . return profiles. It 1as the first 2ompan% to
laun2h dedi2ated gilt s2heme in=esting onl% in go=ernment se2urities.
nit Trust of India Mutual 8und
TI Asset Management (ompan% Pri=ate 0imited, established in !an *+, -,,:,
manages the TI Mutual 8und 1ith the support of TI Trustee (ompan% Pri=ete
0imited. TI Asset Management (ompan% presentl% manages a 2orpus of o=er
Rs.-,,,, (rore. The sponsorers of TI Mutual 8und are Ban? of Baroda @B)BA,
Pun<ab National Ban? @PNBA, "tate Ban? of India @"BIA, and 0ife Insuran2e
(orporation of India @0I(A. The s2hemes of TI Mutual 8und are 0iLuid 8unds,
In2ome 8unds, Asset Management 8unds, IndeB 8unds, 'Luit% 8unds and Balan2e
8unds.
Relian2e Mutual 8und
Relian2e Mutual 8und @RM8A 1as established as trust under Indian Trusts A2t, *77-.
The sponsor of RM8 is Relian2e (apital 0imited and Relian2e (apital Trustee (o.
0imited is the Trustee. It 1as registered on !une :,, *KKH as Relian2e (apital Mutual
8und 1hi2h 1as 2hanged on Mar2h **, -,,+. Relian2e Mutual 8und 1as formed for
laun2hing of =arious s2hemes under 1hi2h units are issued to the Publi2 1ith a =ie1 to
2ontribute to the 2apital mar?et and to pro=ide in=estors the opportunities to ma?e
in=estments in di=ersified se2urities.
"tandard (hartered Mutual 8und
"tandard (hartered Mutual 8und 1as set up on Mar2h *:, -,,, sponsored b% "tandard
(hartered Ban?. The Trustee is "tandard (hartered Trustee (ompan% P=t. 0td.
"tandard (hartered Asset Management (ompan% P=t. 0td. is the AM( 1hi2h 1as
in2orporated 1ith "'BI on De2ember -,,*KKK.
8ran?lin Templeton India Mutual 8und
The group, 8rna?lin Templeton In=estments is a (alifornia @"AA based 2ompan%
1ith a global AM of "G +,K.- bn. @as of April :,, -,,HA. It is one of the largest
finan2ial ser=i2es groups in the 1orld. In=estors 2an bu% or sell the Mutual 8und
through their finan2ial ad=isor or through mail or through their 1ebsite. The% ha=e
)pen end Di=ersified 'Luit% s2hemes, )pen end "e2tor 'Luit% s2hemes, )pen end
#%brid s2hemes, )pen end TaB "a=ing s2hemes, )pen end In2ome and 0iLuid
s2hemes, (losed end In2ome s2hemes and )pen end 8und of 8unds s2hemes to offer.
Morgan "tanle% Mutual 8und India
Morgan "tanle% is a 1orld1ide finan2ial ser=i2es 2ompan% and its leading in the
mar?et in se2urities, in=estment% management and 2redit ser=i2es. Morgan "tanle%
In=estment Management @MI"MA 1as established in the %ear *K6H. It pro=ides
2ustomiMed asset management ser=i2es and produ2ts to go=ernments, 2orporations,
pension funds and non.profit organisations. Its ser=i2es are also eBtended to high net
1orth indi=iduals and retail in=estors. In India it is ?no1n as Morgan "tanle%
In=estment Management Pri=ate 0imited @M"IM IndiaA and its AM( is Morgan
"tanle% Mutual 8und @M"M8A. This is the first 2lose end di=ersified eLuit% s2heme
ser=ing the needs of Indian retail in=estors fo2ussing on a long.term 2apital
appre2iation.
's2orts Mutual 8und
's2orts Mutual 8und 1as setup on April *H, *KKC 1ith 'B2orts 8inan2e 0imited as its
sponsor. The Trustee (ompan% is 's2orts In=estment Trust 0imited. Its AM( 1as
in2orporated on De2ember *, *KKH 1ith the name 's2orts Asset Management 0imited.
Allian2e (apital Mutual 8und
Allian2e (apital Mutual 8und 1as setup on De2ember :,, *KK+ 1ith Allian2e (apital
Management (orp. of Dela1are @"AA as sponsorer. The Trustee is A(AM Trust
(ompan% P=t. 0td. and AM(, the Allian2e (apital Asset Management India @P=tA 0td.
1ith the 2orporate offi2e in Mumbai.
Ben2hmar? Mutual 8und
Ben2hmar? Mutual 8und 1as setup on !une *-, -,,* 1ith Ni2he 8inan2ial "er=i2es
P=t. 0td. as the sponsorer and Ben2hmar? Trustee (ompan% P=t. 0td. as the Trustee
(ompan%. In2orporated on )2tober *C, -,,, and headLuartered in Mumbai,
Ben2hmar? Asset Management (ompan% P=t. 0td. is the AM(.
(anban? Mutual 8und
(anban? Mutual 8und 1as setup on De2ember *K, *K76 1ith (anara Ban? a2ting as
the sponsor. (anban? In=estment Management "er=i2es 0td. in2orporated on Mar2h -,
*KK: is the AM(. The (orporate )ffi2e of the AM( is in Mumbai.
(hola Mutual 8und
(hola Mutual 8und under the sponsorship of (holamandalam In=estment S 8inan2e
(ompan% 0td. 1as setup on !anuar% :, *KK6. (holamandalam Trustee (o. 0td. is the
Trustee (ompan% and AM( is (holamandalam AM( 0imited.
0I( Mutual 8und
0ife Insuran2e (orporation of India set up 0I( Mutual 8und on *Kth !une *K7K. It
2ontributed Rs. - (rores to1ards the 2orpus of the 8und. 0I( Mutual 8und 1as
2onstituted as a Trust in a22ordan2e 1ith the pro=isions of the Indian Trust A2t, *77-. .
The (ompan% started its business on -Kth April *KK+. The Trustees of 0I( Mutual
8und ha=e appointed !ee=an Bima "aha%og Asset Management (ompan% 0td as the
In=estment Managers for 0I( Mutual 8und.
GI( Mutual 8und
GI( Mutual 8und, sponsored b% General Insuran2e (orporation of India @GI(A, a
Go=ernment of India underta?ing and the four Publi2 "e2tor General Insuran2e
(ompanies, =iM. National Insuran2e (o. 0td @NI(A, The Ne1 India Assuran2e (o. 0td.
@NIAA, The )riental Insuran2e (o. 0td @)I(A and nited India Insuran2e (o. 0td.
@IIA and is 2onstituted as a Trust in a22ordan2e 1ith the pro=isions of the Indian
Trusts A2t, *77-.
SBI M,t,!" F,&*s India has offered a dire2tion to the in=estment of Indians b%
piloting it <udi2iousl%. "BI Mutual has been instrumental in offering =arious
in=estment s2hemes and options to in=estors in India and thus multipl%ing their
in=estments. Mutual 8unds in India ha=e been responsible to bring forth good
de=elopment indeB in In=estment Ban?ing. The "tate Ban? of India has pioneered
Mutual 8unds In=esting in India b% offering Asset Management 8unds, IP) Mutual
8unds, Prin2ipal Mutual 8unds and other Gro1th 8unds.
/hen an attempt is made to re2ogniMe the top *, Mutual 8unds in India, "BI Mutual
8unds possess a 2ommendable position. 'Bperts 2laim that 1ith the Indian e2onom%
gro1ing at an unpre2edented rate, it is a =er% opportune time to in=est in Mutual 8unds
in India.
"BI Mutual 8und is a 1a% of 2olle2ti=e or Mutual In=estment in b% 2olle2ting mone%
from =arious In=estors to in=est mone% in the se2urities li?e, Bonds, "to2? or other
"e2tor Bonds. The reason 1h% the "BI Mutual 8unds India is 2onsidered the Best
Mutual 8unds in India is its NA9.Net Asset 9alue. "BI Mutual 8und NA9. Net Asset
9alue implies the 2urrent =alue in mar?et terms of the present in=ested 8und, that is
2al2ulates at the end of the transa2ting period. #o1e=er, the 2on2ept of Turno=er
implies the per2entage of net asset =alue of the "BI Mutual 8unds at the end of the
%ear.
8inan2ial anal%sts 2laim that the "BI Mutual 8unds IndeB has been =er% en2ouraging
and in=estors 1ith ambitious Mutual 8unds Portfolio ha=e been highl% benefited in the
end. Indiahousing.2om offers an eBhausti=e database on the "tate Ban? of India
Mutual 8und as it is one of the Best Mutual 8unds (ompanies in India. #o1e=er, it
has to be noted that in Mutual 8unds and Gro1th 8unds, spe2ulation pla%s a =er% =ital
role thus ma?ing it =ulnerable to mar?et ris?s. Moreo=er, it is al1a%s ad=isable to ha=e
a 2lear understanding about the Mutual 8unds Definition, "BI "%stemati2 In=estment
Plan @"IPA and performan2e at a gi=en point of time. Belo1 is the lin? of "BI Mutual
8unds India that 2an be a22essed to gain "BI Mutual 8unds information.
',D0&T"0,T ', "(T()* +(,$
"utual +unds over the years have gained immensely in their popularity.
)part from the many advantages that investing in mutual funds provide like
diversification, professional management, the ease of investment process
has proved to be a major enabling factor. 1owever, with the introduction of
innovative products, the world of mutual funds nowadays has a lot to offer
to its investors. 2ith the introduction of diverse options, investors needs to
choose a mutual fund that meets his risk acceptance and his risk capacity
levels and has similar investment objectives as the investor.
2ith the plethora of schemes available in the 'ndian markets, an investors
needs to evaluate and consider various factors before making an
investment decision. &ince not everyone has the time or inclination to
invest and do the analysis himself, the job is best left to a professional.
&ince 'ndian economy is no more a closed market, and has started
integrating with the world markets, e=ternal factors which are comple= in
nature affect us too. +actors such as an increase in short-term (& interest
rates, the hike in crude prices, or any major happening in )sian market
have a deep impact on the 'ndian stock market. )lthough it is not possible
for an individual investor to understand 'ndian companies and investing in
such an environment, the process can become fairly time consuming.
"utual funds #whose fund managers are paid to understand these issues
and whose )sset "anagement -ompany invests in research% provide an
option of investing without getting lost in the comple=ities.
"ost importantly, mutual funds provide risk diversificationE diversification of
a portfolio is amongst the primary tenets of portfolio structuring, and a
necessary one to reduce the level of risk assumed by the portfolio holder.
"ost of us are not necessarily well :ualified to apply the theories of
portfolio structuring to our holdings and hence would be better off leaving
that to a professional. "utual funds represent one such option.
*astly, 0valuate past performance, look for stability and although past performance is no guarantee
of future performance, it is a useful way to assess how well or badly a fund has performed in
comparison to its stated objectives and peer group. ) good way to do this would be to identify the
five best performing funds #within your selected investment objectives% over various periods, say A
months, ? months, one year, two years and three years. &hortlist funds that appear in the top ; in
each of these time horiFons as they would have thus demonstrated their ability to be not only good
but also, consistent performers.
)n investor can choose the fund on various criteria according to his
investment objective, to name a fewE
Thorough anal%sis of fund performan2e of s2hemes o=er the last fe1 %ears
managed b% the fund house and its 2onsistent return in the =olatile mar?et.
The fund house should be professional, 1ith effi2ient management and
administration.
The 2orpus the fund is holding in its s2heme o=er the period of time.
Proper adeLua2ies of dis2losures ha=e to seen and also ma?e a note of an% hidden
2harges 2arried b% them.
The pri2e at 1hi2h %ou 2an enter5eBit @i.e. entr% load 5 eBit loadA the s2heme and its
impa2t on o=erall return.
GID'0IN'" 8)R IN9'"T)R"
The Methodolog% to Mar?et Mutual 8unds 5 RBI Bonds
/ption '- +or a investor who is forthcoming on his investments and
is knowledgeable
In the 2ourse of 2on=ersation, 1ith the 2lient, as? the 2lient probing Luestions to find
out in=estment appetite of 2lient. These Luestions 1ould t%pi2all% be
D(es t+e /"ie&t +!3e ! i&3este&t 2(.t)("i( and if %es 1hat are the details and
ho1 are the% managed. self or through eBternal ad=ise U
Does the 2lient ha=e in=estments into mutual funds or RBI bonds. If %es, ho1
mu2h and through 1hom has this been in=ested U
I) .e!"is!ti(& is t+!t i&3este&ts !.e &(t t+.(,0+ HDFC B!&' , then introdu2e
ser=i2es offered b% #D8( Ban? a2ross resear2h and in=estment fa2ilities and
reLuest 2ustomer to tr% out our ser=i2es. 8or detailed ad=isor% needs introdu2e
options of finan2ial planning or intera2ti=e ad=isor% ser=i2es as need ma% be
per2ei=ed
If the need is basi2 1ithout intera2ti=e ad=isor% reLuirements then as? 2ustomer for
his needs on mutual funds and RBI bonds and 2on=e% 2urrent idea that 1e are
2urrentl% mar?eting as is a=ailable in the personal finan2e insight5 aag
To 2on=e% eBpertise that 1e ha=e
/ption ''- +or investors who need a build up and need to
convinced
Begin from the basi2s, to eBplain to the 2lient the in=estment options a=ailable to the
2lient , the 2orrelation to ris? and return , identif% a rough profile and then ma?e
suitable suggestion to the 2lient
T+e )i.st ste2 is t( ,&*e.st!&* t+e .is' t+e /"ie&t 6is+es t( .!'e
Thus, lo1 ris? or Mero ris? 1ould in=ol=e no 2apa2it% of the 2lient to ta?e negati=e
mo=ement in terms of returns
Medium ris? 1ould mean some abilit% of the 2lient to ta?e in=estments in
instruments 1here 2lient 2ould loose mone%
Hi0+ .is' 6(,"* e!& +i0+ /!2!/it1 t( t!'e "(sses i&
t+e H,est t( t!'e +i0+e. .et,.&s
#igher ris? in=estments 1ould mean the possibilit% of earning higher returns but also
at the ris? of higher losses.
T+e /"ie&t ,st t+e& be t("* !b(,t 3!.i(,s i&3este&t (2ti(&s t+!t 6(,"* be
!3!i"!b"e )(. *i))e.e&t .is' /!te0(.ies
Thus lo1 ris? 1ould be fiBed deposits, bonds , 2ash funds and short term funds
Medium ris? 1ould be short term funds and debt funds
Medium I high ris? 1ould mean gilt funds, d%nami2 bond funds and balan2ed
funds
#igh ris? 1ould mean di=ersified eLuit% funds, follo1ed b% se2tor funds and dire2t
eLuit%5 deri=ati=es
T+e /"ie&t ,st t+e& be e92"!i&e* t+!t .is' ,st be *i3e.si)ie* !/.(ss
*i))e.e&t !sset /!te0(.ies t+.(,0+ si2"e !sset !""(/!ti(&s !&* i&3esti&0I )(.
t+e "(&0 te.. This is the onl% 1a% for earning higher returns and di=ersif%ing ris?
A ?e% prin2iple here is to ensure that all the 2lients assets are not put in one
bas?et but a2ross instruments
Thus 2onser=ati=e in=estors should ha=e more in=estments in lo1 ris?
instruments @sa% -HJ high ris?5 6HJ lo1 ris?A 1hile aggressi=e in=estors must
ha=e greater in=estments in high ris? in=estment @sa% 6HJ high ris?5 -HJ lo1
ris?A.
(lient return eBpe2tations must also be gauged
0o1 return eBpe2tations should result into lo1 ris? instruments
#igh return eBpe2tations @greater than *-JA should result in a miB targeting
high ris? instruments
An important prin2iple for retail in=estors is also to emphasiMe that in=estments
are made for long term @at least t1o %earsA in line 1ith needs onl% and one
must not be 1orried about short term mo=es but must be fo2used on the need
C"ie&t s+(,"* t+e& be t("* be&e)its () 3!.i(,s i&st.,e&ts 6+e.ei& ! "iH,i*it1
2e.s2e/ti3e ,st be 0i3e& 2(i&ti&0 t( )!/ts "i'e
8iBed deposits 1ould be se2ure in=estments gi=ing fiBed return 1ith relati=el%
high liLuidit%
RBI bonds 1ould be taB free , safe instruments but 1ith lo2? in
Mutual funds 1ould be a ris? 2ategor% of in=estments offering taB free
di=idends and lo1 taBation rates o=er long term
-lients must then be introduced to simple investment
strategies like
Beginning to in=est on a monthl% basis from a %oung age to ta?e ad=antage of
2ompounding in line 1ith asset allo2ation %ou desire
sing s%stemati2 in=estment plans in line 1ith asset allo2ation
In=esting o=er the long term as a general strateg%
In=esting a2ross funds a=ailable for spe2ifi2 needs li?e 2hildren>s plan, pension
plan, monthl% in2ome plan, fund of funds, et2
'nsuring that there is adeLuate di=ersifi2ation amongst all AM(s the% ha=e
in=ested into.
&teps to be taken once a investment strategy is decided
)n2e the sales person arri=es on 1hi2h produ2t to sell appropriate ad=i2e must be
gi=en. RBI bonds should be ad=ised upon in line 1ith details a=ailable on the form.
and in Mutual 8unds the t%pe of mutual fund to sell @eLuit%5debt5short term5 balan2ed5
2ash5 MIP, et2A. The neBt step then is to gi=e re2ommendations on 1hi2h s2heme to
in=est to the 2lient.
The re2ommendations should be made from the s2hemes re2ommended in the A!0 B
T+e (&t+"1 !0!>i&e. T%pi2all% 1hen a re2ommendation is made the sales person
should 2ommuni2ate
t,e returns t,at t,e sc,e#e has gi=en o=er different time frames from t+e
(&t+"1 !0!>i&e
t,e cate"$r% $! t,e !und from t+e (&t+"1 !0!>i&e @aggressi=e 1herein the fund
management st%le is d%nami2 in a bid to a2hie=e higher returns in the 2ategor% at
higher ris? or 2onser=ati=e 1herein the fund management st%le is more long termA
a !e0 lines $n t,e !und as 2ommuni2ated b% resear2h in the S,!.1 M,t,!"
F,&* I&)(.!ti(& *(/,e&t ?ept on the bulletin board b% resear2h
inputs !r$# n$tes 2ir2ulated b% resear2h through 2e.s(&!" )i&!&/e i&si0+t or
s2e/i)i/ /i./,"!ti(&s from resear2h in the form of mar?eting 2ampaigns
recent 0ee(l%1 #$nt,l%1 si2 #$nt,l% per!$r#ance from t+e Wee'"1 2e.)(.!&/e
s+eet 2ir2ulated b% resear2h
NAV from the b,""eti& b(!.* a=ailable dail% a2ross all funds@author. Rupen
Ra<guruA
Mutual !und L$ad s,eet 1hi2h 1ould be a=ailable (& t+e b,""eti& b(!.* 1herein
the load must be added to NA9 for the RM to 2al2ulate the sale pri2e @alternati=el%
the load per2entage must be 2ommuni2ated to the 2lientA
Indepth details on funds for information to the sale person is therefore from
Notes on personal finan2e insight
The resear2h magaMine 1hi2h has 1rite.up on spe2ifi2 funds
"ummarised pointers on funds from resear2h
8und fa2t sheets 1hi2h must be obtained through In=estment (oun2ellors
T+e Pe.s(&!" Fi&!&/e I&si0+t is /.iti/!" to build ?no1ledge and is the tool resear2h
uses to 2ommuni2ate on a 1ee?l% basis in=estment themes and s2heme ideas 1hi2h are
in fa=our in mar?ets at a point of time. Mar?eting 2ampaigns in the form of notes ma%
also be run periodi2all% through =ariants of the personal finan2e insight. It 1ill be
a=ailable on the bulleting board too.
After the re2ommendations are gi=en to the 2lient, the 2lient should be gi=en
appli2ation forms of ne2essar% fund 1hi2h has the Main bro?er 2ode and the sub.
bro?er 2ode stamped on it.
. Important to ensure that the main bro?er 2ode and the subbro?er 2ode are
on the form
The appli2ation form re2ei=ed dul% 2ompleted along 1ith the 2heLue should be
for1arded to the 8und #ouses on the same da% be)(.e t+e /,t-()) tie and if it is
re2ei=ed late in the da% it should be for1arded the =er% neBt da%. In either 2ase the
/"ie&t s+(,"* be i&)(.e* of the ris? 1hen he gi=es the form
Important to 2ommuni2ate that ris? of dela%ed deli=er% not 1ith ban? and is done
on a best effort basis
Please ensure appli2ation form is 2omplete in all respe2ts.
The a2?no1ledgement re2ei=ed from the AM( should be for1arded to the 2lients to
2omplete the transa2tion.
)n2e the appli2ation form is re2ei=ed the sales person should maintain a BeroB 2op%
@Appli2ation form [ (heLueA of the same and after eBe2ution should ensure that the
same is entered in the 0otus Notes appli2ation on the third part% produ2ts page 1ithin
-+ hours.

A mutual fund technical analysis gi=es the shareholder tools that 1ill help him or
her identif% realisti2 bu%ing opportunities that sho1 detailed mo=ement and a=erages.
sing te2hni2al information helps the bu%er to a=oid emotional de2isions and sa=es
time on tr%ing to de2ide 1here to ma?e in=estments. Mutual fund ran?ings in2lude a
2olle2tion of sto2?, bonds, and other se2urities 1hile ran?ing the best 2hoi2es for the
bu%er. "ome of the 2hoi2es usuall% in2lude a =ariet% of mutual fund 2ategories su2h as
global sto2?, eLuit% in2ome, large.2ap, mid.2ap, and small.2ap. Di=ersit% in
in=estments is the 1a% to be smart about in=esting. Not putting e=er%thing into one
t%pe of fund in2reases the shareholders 2han2es for profit. These in2lude large,
medium, and small siMed 2ompanies as 1ell as International in=estments.
)ne of the best 1a%s to ma?e a de2ision on in=estments is to use mutual fund te2hni2al
anal%sis. This t%pe of presentation sho1s the bu%er 1hat is li?el% to happen o=er a
2ertain period of time. Trading ranges sho1 uptrends and do1ntrends of sto2? pri2es.
This helps the in=estor to fore2ast or predi2t 1hat might happen in the future. (harts
are often done anal%Ming both short.term and long.term trends. 0oo?ing at the range of
pri2e o=er an eBtended period of time 1ill help the bu%er to see ho1 the mar?et of
suppl% and demand has affe2ted a parti2ular fund.
/hen sho1ing the position of a 2ompan% man% bu%ers 1ant to see the ran?ings o=er
the last fi=e %ears. "utual fund rankings sho1 ho1 different funds are ran?ed based
upon their return o=er a su22essi=e number of %ears. A one %ear return 2an be
2ompared 1ith the per2entage on a t1o %ear return. The data used to anal%Me ran?ings
does not normall% sho1 an allo1an2e for taBes and fees that ma% appl% to
shareholders. #o1e=er, ran?ings 2an be done b% man% different =ariables depending
upon 1hat a shareholder 2hooses to see or 2onsiders important information needed to
ma?e a 1ise in=estment.
To ma?e smart in=estments a bu%er 1ill 1ant to loo? at 1hat ma?es the most sense to
him or her. The ob<e2ti=e for using a mutual fund te2hni2al anal%sis is to predi2t future
pri2es. A shareholder is usuall% tr%ing to determine if the shares that are bought toda%
1ill bring a profit 1hen traded in the future. "ome of the 2ru2ial steps in an anal%sis
are to find the strength of a 2urrent trend, figuring out the mo=ing a=erage, if the
2urrent pri2e is outperforming the ma<or indeB, and determining the suppl% and
demand. /hen pri2es are mo=ing up then the demand is in2reasing but 1hen pri2es
are dropping then the suppl% is in2reasing. Pur2hasing shares toda% that ha=e the
potential to rise be2ause demand is up 1ould ma?e a good in=estment. Trading at
higher pri2e than the original pur2hase pri2e pro=ides a profit and turns out to be a
1ise in=estment.
"ome sites on the Internet offer the shareholder some =aluable tools that help him or
her ma?e the best de2isions based upon in=estments. "ome of the tools in2lude mutual
fund ran?ings and free annual reports on man% 2ompanies. The% also pro=ide the best
real.time pi2?s for da% traders and in=estors 1ho li?e the ad=antage of ha=ing help to
identif% the most profitable 2hoi2es. 8or in=estors 1ho are loo?ing for more there are
mone% management tools that help a shareholder to 2reate a household budget and tips
of ho1 to be a 1ise in=estor. T/hen 1isdom entereth into thine heart, and ?no1ledge
is pleasant unto th% soulT @Pro=erbs -$*,A. GodEs 1ord 2an pro=ide insight into the
importan2e of using 1isdom 1hen ma?ing an% t%pe of de2ision that 2an affe2t
finan2es.
(harts and anal%ses are often sub<e2t to interpretation 1hi2h largel% depends upon the
?no1ledge of the in=estor and 1hat he or she understands. A 2hart ma% not be useful
to potential bu%ers 1ho ha=e ne=er used one. "tarting out, a person should get some
training or use a bro?er that is trust1orth% 1hen ma?ing in=estment de2isions. The
do1nside of using a mutual fund te2hni2al anal%sis is that it 2an be sub<e2ti=e
depending upon the person 1ho is using it. In other 1ords, it is ho1 an in=estor
interprets 1hat is seen. In addition, if a 2hart is not right on target 1ith timing it 2an
affe2t the out2ome of an in=estment. "uppl% and demand 2an affe2t pri2ing dail% so a
bu%er 1ill 1ant to use the most 2urrent 2hart 1hen tr%ing to ma?e an in=estment on
shares. An in=estor that understands ho1 an anal%sis is put together 2an pur2hase
soft1are and learn ho1 to ma?e his or her o1n 2harts. In addition, there are sites
online that offer information on ho1 to learn about the sto2? mar?et and ho1 to put
together 2harts that are useful 1hen ma?ing in=estments.
Mutual fund ran?ings are often based upon se=eral %ears 2omparing monthl%,
Luarterl%, and %earl% pri2es. The most re2ent %ear should be gi=en thoughtful
2onsideration but the histor% should also be loo?ed at. Identif%ing the top shares might
be easier 1hen seeing the 2omparisons espe2iall% 1ith the ones that ran? at the top.
There are man% different t%pes of shares to in=est in as a person 1ill find out 1hen
loo?ing at ran?ings of man% different ones. "ome in2lude in=estments in spe2ifi2
se2tors, smaller 2ompanies, larger 2ompanies, global and international 2ompanies, and
multi in=estments 1ith man% different siMe 2ompanies. "pe2ifi2 se2tors in2lude
2ompanies that are all in the medi2al field, or in the field of te2hnolog%, or
en=ironmental 2ompanies, and so on. The strong point of in=esting in mutual funds is
the di=ersit% it brings to the o=erall in=estment.
MAGNUM GLOBAL FUND
'nvestment objective of the scheme is to provide the investors ma=imum
growth opportunity through well researched investments in 'ndian e:uities.
P-$s and +-$s from selected industries with high growth potential and
!onds.
B'N'8IT" )8 "Y"T'MATI( IN9'"TM'NT P0AN
"IP IN9'"TM'NT" * Y'AR : Y'AR"
T)TA0 AM)NT IN9'"T'D *-,,, :C,,,
MAR&'T 9A0' *C6+6 C*C**
P'RI)D 8ND R'TRN" B'N(#MAR& B"'.*,,
* Y'AR -6.-:J +:.KHJ
:Y'AR +C.*,J :6.H+J
C Y'AR C:.-6J +*.KHJ
IN('PTI)N DAT' *6.*HJ *-.,CJ
MAGNUM SECTOR FUNDS UMBRELLA CONTRA
FUND
In=estment ob<e2ti=e of the s2heme is to pro=ide the in=estors maBimum gro1th
opportunit% through eLuit% in=estments in sto2?s of gro1th oriented se2tors of the
e2onom%. There are four sub funds dedi2ated to spe2ifi2 in=estment themes =iM.
Information Te2hnolog% .Pharma2euti2als .8M(G and (ontrarian @In=estment in
sto2?s 2urrentl% out of fa=ourA
P'RI)D 8ND R'TRN" B'N(#MAR& B"'
* Y'AR ++.*HJ +:.KHJ
:Y'AR +6.K+J :6.H+J
C Y'AR CH.::J +*.KHJ
IN('PTI)N DAT' ::.*CJ *K.+-J
"IP IN9'"TM'NT" * Y'AR : Y'AR"
T)TA0 AM)NT IN9'"T'D *-,,, :C,,,
MAR&'T 9A0' *C-*6 C+H76
MAGNUM MULTIPLIER PLUS :;;<
"agnum "ultiplier Plus is an open ended diversified e:uity fund and the
investment objective of the scheme is to provide investors long term capital
appreciation along with the li:uidity of an open ended scheme . The scheme
will invest in a diversified portfolio of e:uities of high growth companies
P'RI)D 8ND R'TRN" B'N(#MAR& B"'
* Y'AR +*.6*J +:.KHJ
:Y'AR +7.-KJ :6.H+J
C Y'AR HK.,-J +*.KHJ
IN('PTI)N DAT' *6.*:J .
"IP IN9'"TM'NT" * Y'AR : Y'AR"
T)TA0 AM)NT IN9'"T'D *-,,, :C,,,
MAR&'T 9A0' *6-*C C+7HH
MAGNM BA0AN(' 8ND
In=estment ob<e2ti=e of the s2heme is to pro=ide in=estors long term 2apital
appre2iation along 1ith liLuidit% of an open ended s2heme b% in=esting in a miB of
Debt and 'Luit%. The s2heme 1ill in=est in a di=ersified portfolio of 'Luities of #igh
gro1th 2ompanies and balan2e the ris? through in=esting the rest in a relati=el% safe
portfolio of Debt.
P'RI)D 8ND R'TRN" B"'
* Y'AR ::.-HJ -7.K-J
:Y'AR :+.6,J -:.CHJ
C Y'AR ++.**J -+.6CJ
IN('PTI)N
DAT' -*.,KJ .
"IP IN9'"TM'NT" * Y'AR : Y'AR"
T)TA0 AM)NT IN9'"T'D *-,,, :C,,,
MAR&'T 9A0' *+K+6 HH-+:
MAGNM ()MMA 8ND
In=estment ob<e2ti=e of the s2heme is to generate opportunities for gro1th along 1ith
possibilit% of 2onsistent returns b% in=esting predominantl% in a portfolio of sto2?s and
2ompanies engaged in the 2ommodit% business 1ithin the follo1ing se2tors. )il S
Gas, Metals, Materials S Agri2ulture and in Debt S Mone% Mar?et instruments
P'RI)D
8ND
R'TRN" B'N(#MAR&
* Y'AR CC.6:J +:.:CJ
: Y'AR HK.,,J H,.,,J
C Y'AR H7.,-J HH.,HJ
IN('PTI)N
DAT' +-.-CJ :7.-*J
"IP IN9'"TM'NT" * Y'AR : Y'AR"
T)TA0 AM)NT IN9'"T'D *-,,, :C,,,
MAR&'T 9A0' *H-HC NA
MAGNUM MULTICAP FUND
In=estment ob<e2ti=e of the s2heme is to pro=ide in=estors 1ith opportunities for long
term gro1th in 2apital along 1ith the liLuidit% of an open ended s2heme through an
a2ti=e management of in=estments in a di=ersified mar?et of eLuit% sto2?s spanning
the entire mar?et 2apitaliMation spe2trum and in Debt and Mone% Mar?et instruments
P'RI)D 8ND R'TRN" B'N(#MAR& B"'
* Y'AR ::.H:J +:.KHJ
: Y'AR :K.HHJ H,.,,J
C Y'AR :H.+,J +*.,HJ
IN('PTI)N DAT' :-.::J :7.-7J
"IP IN9'"TM'NT" * Y'AR : Y'AR"
T)TA0 AM)NT IN9'"T'D *-,,, :C,,,
MAR&'T 9A0' *:HCC NA
SOME OTHER STATISTICS
MAGNUM SECTOR FUNDS UMBRELLA CONTRA FUND
8ND DATA
MINIMM IN9'"TM'NT Rs.-,,,
DAT' )8 IN('PTI)N *+5,65KK
';IT 0)AD In=estment Belo1 Rs H 2rores$
*J for eBit 1ithin siB months S
Nil thereafter
In=estment of Rs H 2rore
and abo=e$ Nil
"IP Rs H,,5month.*- months
Rs *,,,5month.C months
Rs *H,,5Luarter.*- months
T)P T'N #)0DING"
*.Relian2e Industries 0td +.7:J
-.!aipra?ash Asso2iates 0td +.:6J
:.Infos%s Te2hnologies 0td :.+CJ
+.Mahindra S Mahindra 0td :.,CJ
H."tate ban? of India :.,*J
C.(rompton S Grea=es 0td -.66J
6./elspun Gu<rat stahl Rohen 0td -.C7J
7.Gail@IndiaA 0td -.CCJ
K."inteB Industries 0td -.C:J
*,.Tata "teel 0td -.C,J
Total :-.,KJ
PERFORMANCE OF THE SCHEME
M"8.IT 8ND

R'TRN" 8)R T#' 0A"T * Y'AR
IT 8ND R'TRN" H*.,7
B"' IT IND'; R'TRN" -:.,6
R'TRN" 8)R T#' 0A"T : Y'AR"
IT 8ND R'TRN".+7.*+
B"' IT IND'; R'TRN".:+.CC
R'TRN" 8)R T#' 0A"T H Y'AR"
IT 8ND R'TRN" .+,.H7
B"' IT IND'; R'TRN" .:*.K-
R'TRN" "IN(' IN('PTI)N
IT 8ND R'TRN" .*K.::
B"' IT IND'; R'TRN" .*6.,+
M"8 P#ARMA 8ND
R'TRN" 8)R 0A"T * Y'AR
P#ARMA 8ND R'TRN".--.H6
B"' #'A0T# (AR' IND'; R'TRN".*H.--
R'TRN" 8)R T#' 0A"T : Y'AR"
P#ARMA 8ND R'TRN".:-.C-
B"' #'A0T# (AR' IND'; R'TRN".*7.H6
R'TRN" 8)R T#' 0A"T H Y'AR"
P#ARMA 8ND R'TRN".:K.C,
B"' #'A0T# (AR' IND';.-+.,C
R'TRN" "IN(' IN('PTI)N
P#ARMA 8ND R'TRN".*K.C6
B"' #'A0T# (AR' IND';.*H.,*
M"8 I 8M(G 8ND
R'TRN" 8)R T#' 0A"T * Y'AR
8M(G 8ND.6.,:
B"' 8M(G IND'; R'TRN".+.K-
R'TRN" 8)R T#' 0A"T : Y'AR"
8M(G 8ND.-+.7
B"' 8M(G IND'; R'TRN".:-.HH
R'TRN" 8)R T#' 0A"T H Y'AR"
8M(G 8ND.-6.*-
B"' 8M(G IND'; R'TRN".-,.,-
R'TRN" "IN(' IN('PTI)N
8M(G 8ND.6.HC
B"' 8M(G IND'; R'TRN".H.,:
M"8 I ()NTRA 8ND
R'TRN" 8)R T#' 0A"T * Y'AR
()NTRA 8ND R'TRN".H+.,,
B"' *,, IND'; R'TRN".+6.C*
R'TRN" 8)R T#' 0A"T : Y'AR"
()NTRA 8ND R'TRN". C+.6:
B"' *,, IND'; R'TRN".+-.C+
R'TRN" 8)R T#' 0A"T H Y'AR"
()NTRA 8ND R'TRN". C*.::
B"' *,, IND'; R'TRN".:K.C+
R'TRN" "IN(' IN('PTI)N
()NTRA 8ND R'TRN". ::.+:
B"' *,, IND'; R'TRN".*7.H6
MAGNUM MULTIPLIER PLUS
FUND DATA
MINIMM IN9'"TM'NT Rs.*,,,
DAT' )8 IN('PTI)N -75,-5K:
';IT 0)AD In=estment Belo1 Rs H 2rores$
*J for eBit 1ithin siB months S
Nil thereafter
In=estment of Rs H 2rore
and abo=e$ Nil
"IP Rs H,,5month.*- months
Rs *,,,5month.C months
Rs *H,,5Luarter.*- months
T)P T'N #)0DING"
*.&ota? Mahindra 8inan2e 0td 7.K:J
-.!aipra?ash Asso2iates 0td 6.+*J
:.Bharat #ea=% 'le2tri2als 0td H.7HJ
+. (rompton S Grea=es 0td H.,-J
H.ThermaB 0td +.H+J
C.Blue Dart 'Bpress 0td :.KKJ
6.Nagar<una (onstru2tion (ompan% 0td :.H6J
7.'le2on 'ngineering (ompan% 0td :.HHJ
K."terlite Industries 0td :.+6J
*,.nited Phosphorus 0td :.-HJ
Total +K.H6J
MAGNUM COMMA FUND
FUND DATA
MINIMM IN9'"TM'NT Rs.H,,,
DAT' )8 IN('PTI)N -+5,75,H
';IT 0)AD In=estment Belo1 Rs H 2rores$
*J for eBit 1ithin siB months S
Nil thereafter
In=estment of Rs H 2rore
and abo=e$ Nil
"IP Rs H,,5month.*- months
Rs *,,,5month.C months
Rs *H,,5Luarter.*- months
T)P T'N #)0DING"
*. Relian2e Industries 0td C.KCJ
-. Tata "teel 0imited C.*,J
:. !ai Pra?ash Asso2iates 0td H.K,J
+. GMD (orporation 0td +.C:J
H.)NG( 0td +.HHJ
C."teel Authorit% of India 0td +.-KJ
6.!indal "a1 0td +.,KJ
7..nited Phosphorus 0td :.K*J
K.GN98 0td :.6,J
*, "terlite Industries 0td :.C6J
Total +6.6KJ
NA9 ()MPARI")N B'T/''N DI88'R'NT 8ND" ]-,,7^
M"8 ()NTRA 8ND
GR)/T#.+K.:7
DI9ID'ND.:-.**
MAGNM M0TIP0I'R P0" *KK:
GR)/T#.CH.67
DI9ID'ND.H:.:+
MAGNM ()MMA 8ND
GR)/T#.--.C7
DI9ID'ND.-,.C,
MAGNM BA0AN(' 8ND
GR)/T#.+-.7+
DI9ID'ND.-6.6*
"BI B0'(#IP 8ND
GR)/T#.*:.*H
DI9ID'ND.**.+C
MAGNM M0TI(AP 8ND
GR)/T#.*6.H*
DI9ID'ND.*:.:,
M"8 'M'RGING B"IN'"">" 8ND
GR)/T#.:H.7H
DI9ID'ND.*K.:6
MAGNM G0)BA0 8ND
GR)/T#.+7.6,
DI9ID'ND.:-.*C
MAGNM IN"TA (A"# 8ND
GR)/T#.*7.-:
DI9ID'ND.*,.6*
MAGNM M)NT#0Y IN()M' P0AN ]80)AT'R^
(A"#.*7.-:
DI9ID'ND.*,.6*
MAGNM M)NT#0Y IN()M' P0AN
GR)/T#.*7.-,H+
DI9ID'ND M)NT#0Y.*,.K:K7
DI9ID'ND QART'R0Y.*,.H7,K
DI9ID'ND ANNA0Y.**.,*-+
MAGNM IN()M' 8ND
NA9 GR)/T#.-,.6-
NA9 DI9ID'ND.*,.*K
NA9 B)N".*-.HH
MI8.80)ATING RAT' "#)RT T'RM P0AN
NA9 GR)/T#.*-.+C
NA9 DI9ID'ND M)NT#0Y.*,.*C
NA9 DI9ID'ND /''&0Y.*,.-:
MAGNM GI0T 8ND. 0)NG T'RM P0AN
NA9 DI9ID'ND.*,.*-
NA9 P8 DI9ID'ND*.*,.,H
NA9 P8 DI9ID'ND-.*,.,*

SHORT TERM 8unds 1ith the best performan2e in all 2ategories for the last :
months
"%mbol (ompan%
:.
month YTD
*.
%ear
:.
%ear
H.
%ear
QRAN; )ppenheimer (ommodit% "trat
Total Ret N
::.,* +H.K, 6C.6+ -,.,- --.H:
QRAA; )ppenheimer (ommodit% "trat
Total Ret A
:-.K: +C.-* 66.:+ -,.++ --.K6
QRAB; )ppenheimer (ommodit% "trat
Total Ret B
:-.7, +H.6+ 6H.KH *K.:K -*.K*
QRA(; )ppenheimer (ommodit% "trat
Total Ret (
:-.7, +H.C+ 6C.,K *K.+C -*.KK
G((T; Goldman "a2hs (ommodit%
"trateg% IR
:*.-- ++.+H NA NA NA
G"(A; Goldman "a2hs (ommodit%
"trateg% A
:*.** ++.-+ 6H.-, NA NA
G((R; Goldman "a2hs (ommodit%
"trateg% R
:*.,H ++.*H NA NA NA
G"((; Goldman "a2hs (ommodit%
"trateg% (
:,.7- +:.HK 6:.7, NA NA
""GR; Bla2?Ro2? Global Resour2es In=
A
:,.C* :H.6: H+.,: :+.6- +*.K6
""GD; Bla2?Ro2? Global Resour2es In=
(
:,.+, :H.-+ H-.7K ::.6+ +,.K6
L(&0 te.4 8unds 1ith the best performan2e in all 2ategories for the last : %ears V
"%mbol (ompan%
:.
month YTD
*.
%ear
:.
%ear H.%ear
0'TR; ING Russia A C.C6 .-.H, *K.H, +C.6: :C.,:
PR0A; T. Ro1e Pri2e 0atin Ameri2a .+.:K .+.*7 *,.6: +:.-K +:.KH
MD0T; Bla2?Ro2? 0atin Ameri2a A .,.7K ,.7C *-.:, +-.7+ +H.:+
80AT; 8idelit% 0atin Ameri2a .,.6H ,.+6 *:.+, +-.,6 +:.6+
"AG; "AA Pre2ious Metals and
Minerals
.,.K6 K.6H :-.KK +*.KC :*.H*
80NI; 8idelit% Ad=isor 0atin
Ameri2a I
.,.HC *.*- *:.-H +*.K+ +:.,6
M(0T; Bla2?Ro2? 0atin Ameri2a ( .*.,7 ,.+C **.+- +*.6C ++.-:
MB0T; Bla2?Ro2? 0atin Ameri2a B .*.,K ,.+H **.+, +*.6: ++.--
80TA; 8idelit% Ad=isor 0atin
Ameri2a A
.,.C+ ,.K6 *-.7C +*.HH +-.CK
80TT; 8idelit% Ad=isor 0atin
Ameri2a T
.,.6, ,.7* *-.H+ +*.*C +-.-K

Belo1 are the top *, mutual funds ran?ed b% returns thus far in -,,7. 'a2h month the
list 1ill be updated to refle2t the best mutual funds based on %ear.to.date return. At
%ear end, 1e 1ill 2ro1n the top mutual fund.
A22ording to Morningstar data, the follo1ing funds had the best performan2e YTD in
-,,7 @through 8ebruar% -KthA$
Best Mutual 8unds of -,,7$
*A DireBion NA"DAQ. *,, Bear -.H; In= p H*.-J
-A R%deB In=erse )T( -B "trateg% # p +,.,J
:A Pro8unds ltra"hort NA"DAQ.*,, In= p :K.KJ
+A Pro8unds ltra"hort !apan In= p -C.HJ
HA DireBion "SP H,, Bear -.H; In= p -+.7J
CA PIM() (ommodit%RealRet "trat Instl p -:.HJ
6A R%deB In=erse Russell -,,, -B "trateg% # p --.*J
7A Pro8unds ltra"hort "mall.(ap In= p -*.:J
KA Pro8unds ltra"hort Intl In= p -,.+J
*,A Pro8unds ltraBear In= p *K.KJ

Belo1 are the top *, mutual funds ran?ed b% returns in -,,6. The follo1ing funds had
the best performan2e during -,,6, a22ording to Morningstar data.
Best Mutual 8unds of -,,6$
*A DireBion (ommodit% Bull -; In= p 76.CJ
-A DireBion 0atin Ameri2a Bull -; In= p 7:.6J
:A (GM 8o2us p 6K.KJ
+A AIM (hina A p 6+.KJ
HA Nation1ide (hina )pportunities A p 6+.,J
CA Matthe1s (hina p 6,.*J
6A Pro8unds ltra 'merging Mar?ets p 6,.*J
7A T. Ro1e Pri2e Ne1 Asia p CC.+J
KA Guinness At?inson (hina S #ong &ong p CH.*J
*,A Matthe1s India p C+.*J
Belo1 are the top *, mutual funds ran?ed b% returns in -,,C. The follo1ing funds had
the best performan2e during -,,C, a22ording to Morningstar.
Best Mutual 8unds of -,,C$
*A DR'Y8" PR'MI'R GR'AT (#INA 7H.H7J
-A )ber1eis (hina )pportunities p 7*.*6J
:A )ld Mutual (la% 8inla% (hina Inst p 6K.H+J
+A !#an2o2? Greater (hina )pp A p 6,.:+J
HA (olumbia Greater (hina A p CK.H,J
CA ING Russia A p C6.H-J
6A Gartmore (hina )pportunities A p C6.-CJ
7A Allian2eBernstein Great (hina EK6 Ad= p CH.KHJ
KA Matthe1s (hina p C+.7,J
*,A '.I.I. International Propert% Instl p C+.7,J
Belo1 are the leading 2andidates for the top *, mutual funds ran?ed b% returns in
-,,H. The follo1ing funds had the best performan2e through De2ember :*st, -,,H
a22ording to Morningstar
Best Mutual 8unds of -,,H$
*A Pro8unds ltra!apan In= p K,.H6J
-A ING Russia A p 6,.K+J
:A 8idelit% Ad=isor &orea A p C7.6KJ
+A Gartmore Global Natural Resour2es A p CH.+7J
HA Guinness At?inson Global 'nerg% p C:.KKJ
CA T. Ro1e Pri2e 0atin Ameri2a p C,.,HJ
6A T. Ro1e Pri2e 'm 'ur S Mediterranean p HK.,,J
7A Matthe1s &orea p H7.6CJ
KA Bla2?Ro2? Global Resour2es In= A p HC.7,J
*,A 8idelit% 0atin Ameri2a p HH.*6J
/ondering 1hat the best performing mutual funds in -,,+ 1ereU 'n=elope please...
The
T)P T'N MTA0 8ND" 1ere$
*A Profunds ltra"e2tor Mobile Tele2omm In= 4 C6.HKJ
-A .". Global In=estors 'astern 'urope 4 H*.+-J
:A 'astern 'uropean 'Luit% 4 +K.H:J
+A Morgan "tanle% Inst 'uro Real 'st A 4 +7.HCJ
HA "tate "treet Resear2h Global Res A 4 +C.C:J
CA 8idelit% "ele2t Medi2al Deli=er% 4 +C.-,J
6A Profunds ltra"e2tor )il S Gas In= 4 +H.::J
7A AIM 'uropean "mall (ompan% A 4 ++.-CJ
KA Merrill 0%n2h 0atin Ameri2a A 4 +-.K*J
*,A 8idelit% "ele2t /ireless 4 +-.6KJ
!4O
&elling &tock
)n initial public offering, or 'P/, is the first sale of stock by a company to the public. ) company can raise
money by issuing either debt or e:uity. 'f the company has never issued e:uity to the public, itGs known
as an 'P/.
-ompanies fall into two broad categoriesE private and public.
) privately held company has fewer shareholders and its owners donGt have to disclose much information
about the company. )nybody can go out and incorporate a companyE just put in some money, file the
right legal documents and follow the reporting rules of your jurisdiction. "ost small businesses are
privately held. !ut large companies can be private too. $id you know that '30), $ominoGs PiFFa and
1allmark -ards are all privately heldH
't usually isnGt possible to buy shares in a private company. 4ou can approach the owners about
investing, but theyGre not obligated to sell you anything. Public companies, on the other hand, have sold
at least a portion of themselves to the public and trade on a stock e=change. This is why doing an 'P/ is
also referred to as Igoing public.I
Public companies have thousands of
shareholders and are subject to strict rules and regulations. They must have a board of directors and
they must report financial information every :uarter. 'n the (nited &tates, public companies report to
the &ecurities and 0=change -ommission #&0-%. 'n other countries, public companies are overseen by
governing bodies similar to the &0-. +rom an investorGs standpoint, the most e=citing thing about a
public company is that the stock is traded in the open market, like any other commodity. 'f you have the
cash, you can invest. The -0/ could hate your guts, but thereGs nothing he or she could do to stop you
from buying stock.
Wh5 Go 4u($ic6
oing public raises cash, and usually a lot of it. !eing publicly traded also opens many financial doorsE
!ecause of the increased scrutiny, public companies can usually get
better rates when they issue debt.
)s long as there is market demand, a public company can always issue
more stock. Thus, mergers and ac:uisitions are easier to do because
stock can be issued as part of the deal.
Trading in the open markets means li:uidity. This makes it possible to
implement things like employee stock ownership plans, which help to
attract top talent.
The %$o) Of Co+-an5 !nfor+ation
) basic principle of solid fundamental analysis is striving to find out everything
one can about the stock issuerGs business. ood analysts and investors
search for all material information about a company before starting to do a
company analysis project. athering information about a company is like
turning over all the pieces of a jigsaw puFFle before starting to search for
matching pieces. 'n this article, weGll show you which pieces to look for and
how to put them together to solve the puFFle to learn the most about a
company. #To find out more, see Introduction To Fundamental Analysis, What
Are Fundamentals? and Advanced Financial Statement Analysis.%
'n the (nited &tates, investors are fortunate to have a relatively standardiFed
flow of information from e:uity issuers. The &ecurities and 0=change
-ommission #&0-% has a comprehensive set of rules covering everything from
financial statement rules to risk
factor disclosure. The &0- also says what companies must present to
investors and when they have to do it. +or the most part, investors know what
to e=pect and when to e=pect it. #To read out more about the &0-,
E!.&i&0s Re"e!ses
'n the e:uity investment business, the world tends to revolve around :uarterly
earnings releases. +our times per year, e:uity investors deal with earnings
season - that few busy weeks every :uarter when companies release their
:uarterly earnings reports. The way companies report earnings varies a lot
from company to company and industry to industry. Juarterly earnings
announcements generally include unaudited financial statements, discussions
about business conditions for the :uarter and some type of future business
outlook. &ome earnings reports are a couple of paragraphs and an income
statement. /thers are full discussions of business conditions and e=pectations
along with a full set of financial statements. #To see more about these reports,
read Understanding The Income Statement and Strategies For Quarterly
Earnings Season.%
0arnings releases are important disclosures of financial information and
business conditions because they are timely, even though they are often
incomplete. 'nvestors usually have enough information in an earnings release
to see how well a company met earnings e=pectations and how close
managementGs financial outlook matches their own. ThatGs key when reviewing
the status of a stock you already own. Reviewing historical earnings
releases is also important in building a thesis on a stock you are considering
for purchase because they help give the investor a sense of the progress of
managementGs business plan as well as managementGs approach to disclosing
financial results. #3eep reading about earnings in Earnings Forecasts: A
Primer and Surprising Earnings esults.%
C(&)e.e&/e C!""s
"ost companies also hold an investor conference call on the day of their
:uarterly earnings releases. -ompanies typically archive recordings of these
on their investor relations websites. -onference calls vary considerably from
company to company in terms of disclosure. The purpose of conference calls
is to add detail to the earnings release and give analysts the opportunity to ask
:uestions of management. -onference calls can be important sources of
information about managementGs outlook for a business. This outlook is
commonly known as guidance.
F(.6!.* G,i*!&/e
uidance is managementGs prediction for the business for the ne=t :uarter,
several :uarters, the fiscal year or several fiscal years. $epending on the
company, forward guidance can vary from a full range of revenue and
earnings growth rates to simple earnings per share predictions. &ome
companies give no guidance at all, while others just say they are comfortable
with 2all &treet predictions.
'nvestors must be aware of managementGs outlook and must also be aware of
how well management has done with its earnings predictions in the past. 2hile
definitely not the only source of information for making predictions, guidance is
important in building a set of financial e=pectations for a company. 0=amining
the trend in historical guidance and how well results matched the
reported forecasts can provide a sense of managementGs understanding of
where the company is headed. /ne can also get a feel for managementGs
conservatism in giving guidance K regardless of whether management tends to
Ilow ballI 2all &treet in order to generate positive earnings surprises.
SEC Fi"i&0s
0very (.&. company must generate four standardiFed financial reports for
public dissemination every yearE three :uarterly 18-J reports and one annual
18-3 filing. +orm 18s elaborate on earnings reports, providing more full
disclosures like managementGs discussion and analysis #"$C)% of financial
results. "$C) is a more complete disclosure of business performance during
the :uarter or year than would commonly be found in an earnings press
release. +orm 18s also always include a full set of financial statements
- unaudited statements for the :uarterlies and audited for the annual filing.
)udited financials are audited for their adherence to generally accepted
accounting principles #))P%. (nlike earnings announcements, +orm 18s are
not timelyL they always come out at least a few days or weeks after an
earnings announcement. 1istorical +orm 18s are the primary source for
financial and business information when building a thesis on a new stock.
#3eep e=ploring this subject in !o" does the #AS$ di%%er %rom the SE&?,
What happens to the %ines collected 'y the Securities and E(change
&ommission? and Where can I %ind a company)s annual report and its SE&
%ilings?%
P.ess Re"e!ses !&* I&3est(. P.ese&t!ti(&s
-ompanies commonly issue non-earnings-related press releases on business
developments throughout the year. These cover anything and everything.
-ompanies must report material business developments to the public as
events arise. &o every new business contract, ac:uisition or divestiture,
change in management or anything else, is disseminated to the public on an
ad hoc basis via press release. #To keep reading on this company actions, see
The *asics +% ,ergers And Ac-uisitions and What Are &orporate Actions?%
Press releases are also the avenue through which companies disseminate
earnings warnings. 2hen management becomes aware that the companyGs
financial performance for a :uarter is not tracking 2all &treetGs e=pectations
or its guidance, they will disseminate a press release stating this. The idea is
to get material information that could affect a stockGs price in the market out to
the public as soon as possible. !ad financial news is often released well
ahead of actual earnings releases.

"any companies include special presentations on the investor relations pages
of their websites. These are usually intended to help investors understand the
business and managementGs approach to running it. They can be an important
place to start looking at the fundamentals of the business as they often e=plain
key business drivers, industry e=posures and non-financial fundamental
business drivers. "anagement often delivers these presentations at
institutional investor conferences put on by sell-side firms. These conferences
are typically held a few times a year in big cities throughout the country.
'nstitutional investors have to be invited to attend these conferences, re:uiring
ample trading business. -onferences are typically not open to the public, even
though investors can usually get a copy of the presentationGs slides from the
investor relations page. #+ind out more about drivers in Forces That ,ove
Stoc. Prices and What Is The Impact +% esearch +n Stoc. Prices?%
T+e B(tt( Li&e
0:uity investors must always remember that the management teams of public
companies are the most biased market participants out there. 'n fact, most
company -0/s think their stock is a great investment opportunity. The &0-Gs
disclosures rules help provide unbiased information. )ny other color provided
by management - like in an investor presentation, face-to-face meeting or
interview on television - is bound to put the company in the most optimistic
light possible.
!efore starting to build an investment thesis on a stock, investors should put
their printer to work. "ost company analysis files will have at least one 18-3
report, several 18-J reports, a big stack of press releases and hard copies of
investor presentations. /nce an analyst or investor gets a good base of
knowledge from doing this reading he or she can then move on to building a
financial model and conducting the financial and business analysis necessary
to develop a good investment thesis on a stock.
M,t,!" F,&*s H!3e Liit!ti(&s
If %ou are turning C, this %ear or approa2hing retirement, %ou are not alone. Almost :
million bab% boomers 1ill turn C, this %ear, and man% of them 1ill find themsel=es
finan2iall% unprepared for retirement. nfortunatel%, most retirees thin? that ha=ing
the magi2 number of dollars in their in=estment portfolio is the onl% Luestion to as?
before retiring. There are man% other important Luestions that retirees need to as? to
finan2iall% optimiMe their retirement.
Most people 2ontemplating retirement arri=e at a magi2 number representing the
amount that the% 1ant their in=estment a22ount to gro1 to before the% retire. Although
it is an important eBer2ise, this magi2 number is onl% one input into a 2ompleB formula
that 1ill help determine a su22essful retirement.
I define a su22essful retirement as TA pla2e in life 1here %ou 1ill not onl% ne=er run
out of mone%, but 1ill also not ha=e to 1orr% about it.T In order to help ensure a
su22essful retirement, %ou 1ill need to ans1er a laundr% list of Luestions.
#o1 mu2h mone% do I ha=e in m% in=estment portfolioU
#o1 mu2h do I plan on spending per %earU
/hat is m% life eBpe2tan2%U
#o1 mu2h do I plan on lea=ing behind to m% benefi2iariesU
As a general guideline, a safe annual 1ithdra1al rate after "o2ial "e2urit% and pension
in2ome is + per2ent of %our portfolio. Although man% retirees thin? that this number is
lo1, the% forget one of their 1orst enemies$ inflation. At : per2ent inflation per %ear,
GH,,,,, toda% is eLui=alent to G*,,,,,, in -H %ears. Those 1ho are 2ounting on a
more sedate lifest%le in their 7,s often negle2t to fa2tor in the odds of in2reased
medi2al 2osts.
As life eBpe2tan2% has gro1n, the number of %ears in retirement has in2reased
dramati2all%. In *K:H, the a=erage person retired at CH and died b% age 66. No1,
people are retiring at C- and li=ing to 7-. If %ou and %our spouse are still ali=e at age
CH, there is a -H per2ent 2han2e that one of %ou 1ill li=e to age KH. A 2onser=ati=e and
thorough retirement plan must ta?e into a22ount both inflation and this in2rease in life
eBpe2tan2%.
"ome more 2ompleB Luestions that retirees donEt spend enough time stud%ing are$
"hould I ta?e "o2ial "e2urit% earl%, on time or lateU
"hould I ta?e m% pension as a lump sumU If not, should I ta?e benefits no1 or laterU
"hould I add the spousal sur=i=or optionU
"hould I rollo=er m% +,*@?A planU
Do I need long.term 2are insuran2eU
At the start of retirement, should I ta?e mone% from m% indi=idual retirement a22ount
@IRAA, Roth IRA or <oint in=estment a22ount firstU
/hat should be m% o=erall asset allo2ationU #o1 should it 2hange throughout m%
retirementU
nfortunatel%, there is not a one.siMe.fits.all ans1er to these Luestions. The biggest
mista?e is not realiMing that these Luestions should be as?ed.
8or most retirees, their largest sour2e of retirement in2ome 1ill 2ome from their
in=estment portfolio of sto2?s and bonds. As 1e sa1 in -,,,.,-, this 2an be 1here do.
it.%ourself in=estors are their o1n 1orst enemies. As people near retirement, the 2ost
of mista?es gets higher and higher, sin2e it is during this period that portfolios are at
their largest. A 2ostl% in=estment mista?e 2an 2ause %ou to dela% retirement and 2urtail
%our spending.
Ma?ing the assumption that in=esting in a =ariet% of mutual funds ensures the best
return 2an also be a mista?e. Most mutual fund managers must sta% in=ested in sto2?s,
regardless of 1hat the mar?et does. In an ideal situation, an in=estor has someone 1ho
trul% a2ts in their best interests and ad=ises them 1hen a di=estment in sto2?s ma?es
the most sense.
Most mutual funds ha=e high fees, poor long.term performan2e and offer no other
ser=i2es. You ma% be rel%ing on the mutual fund manager to sell sto2?s 1hen their
mandate is to al1a%s sta% full% in=ested. Due to the poor dis2losure of mutual fund
holdings, %ou 2an ne=er be sure 1hat in=estments %ou hold until after the end of ea2h
Luarter. You 2ertainl% 2anEt spea? 1ith the mutual fund manager about their opinion on
%our o=erall asset allo2ation or assistan2e in ans1ering the list of Luestions abo=e.
The upside of these Luestions, of 2ourse, is that there is al1a%s an ans1er, and itEs
ne=er too late to ta?e 2ontrol of %our portfolio.
#o1e=er, if bab% boomers donEt 2onsider the ramifi2ations of improperl% managing
their retirement in=estments, the% run the ris? of man% sleepless nights 1orr%ing about
their mone%
SOME FACTS ABOUT MUTUAL FUND
Mutual 8und 8ees and (ompetition in the Mutual 8und Industr%
Testimon% of (harles A. TrM2in?a Before The #ouse (ommittee on 2ommer2e,
"ub2ommittee on finan2e, "eptember -K, *KK7
S,!.1
M% purpose in this testimon% is to summariMe the e=iden2e on 2ompetition in the
mutual fund industr% and to ad=o2ate deregulation of sales fees and standardiMation of
ris? and return measures.
/hen mutual funds are 2ompared a2ross broad 2lasses of in=estments, the mutual
fund industr% is spe2ta2ularl% su22essful. If 2ompetition is defined 1ithin the mutual
fund industr% b% 2omparing funds against ea2h other, the stor% is =er% different. 8rom
the =ie1 of indi=idual in=estors, a mutual fund is a 2onsumer produ2t 1here in=estors
pa% fees and get a return plus ser=i2es. The theme of m% 1or? is simple. In=estors
ha=e a hard time determining ho1 mu2h the% are pa%ing and an e=en more diffi2ult
time determining 1hat the% are getting. "ome fees are hidden and man% fees are
2harged in a 2ompli2ated fashion. At best, the total fee 2an be estimated from the
dis2losure of most funds but if an in=estor de2ides to estimate fees, it is =er% diffi2ult
to 2ompare portfolios of ris?% se2urities. There are limitations in appl%ing all measures
of ris? and there is a la2? of uniformit% in their appli2ation. 8inall%, the la1 interferes
1ith the mar?et for finan2ial 2onsultants.

As a result of these diffi2ulties, there is little pressure from in=estors to minimiMe fees.
Dis2losed fees ha=e not 2hanged mu2h in this de2ade but the tas? of determining ho1
mu2h a mutual fund 2osts has be2ome more 2ompli2ated. #idden fees appear to ha=e
gro1n. It is 2lear from the e=iden2e that the 2urrent miBture of fees ha=e little
relationship 1ith the Lualit% of the fund 1hen TLualit%T is defined as a better return for
the ris? ta?en. /ith this definition of Lualit%, most e2onomists =ie1 the 2ompetition in
this mar?et as imperfe2t and belie=e that the 2ompetition is not impro=ing.
I belie=e the a2ademi2 and non.a2ademi2 e=iden2e supports the follo1ing fa2ts that
are the basis for m% 2on2lusions.

Total eBpenses paid b% in=estors ha=e not fallen o=er the past de2ade and probabl%
ha=e risen.
There is no relationship bet1een le=el of eBpense ratios and ris?.ad<usted performan2e
eB2ept that large eBpense ratios substantiall% redu2e performan2e.
There is no e=iden2e that managed mutual funds ha=e performed better than funds that
simpl% tr% to mat2h an indeB or a 2ombination of indi2es.
There is little e=iden2e of persisten2e of good performan2e, there is stronger e=iden2e
of persisten2e of poor performan2e.
Good performan2e is re1arded b% in=estors, poor performan2e is ignored eB2ept 1hen
the poor performan2e is eBtreme.
Information a=ailable to in=estors on mutual fund portfolio management is poor.

In most su22essful industries, from 2al2ulators to 9(Rs, 2ompetition has dramati2all%
redu2ed the pri2es that 2onsumers pa%. The su22ess of the mutual fund industr% has not
produ2ed the same pri2e 2ompetition.

/hen mutual funds are 2ompared a2ross broad 2lasses of in=estments, the mutual fund
industr% is spe2ta2ularl% su22essful. Measured b% the gro1th in assets, mutual funds
ha=e outperformed ban? and insuran2e produ2ts, and ha=e a2Luired assets faster than
an% 2ompeting finan2ial produ2t in histor%. The e=iden2e is strong that in=estors
2ontinue to pla2e a great deal of 2onfiden2e in the industr%. If 2ompetition is defined
b% 2omparing these broad t%pes of finan2ial institutions, mutual funds 2ould hardl% be
more su22essful.
If 2ompetition is defined 1ithin the mutual fund industr% b% 2omparing funds against
ea2h other, the stor% is =er% different. 8rom the =ie1 of indi=idual in=estors, a mutual
fund is a 2onsumer produ2t 1here in=estors pa% fees and get a return plus some
ser=i2es. The theme of m% 1or? is simple. In=estors ha=e a hard time determining ho1
mu2h the% are pa%ing and an e=en more diffi2ult time determining 1hat the% are
getting. "ome fees are hidden and man% fees are 2harged in a 2ompli2ated fashion. At
best, the total fee 2an be estimated from the dis2losure of most funds but, if an in=estor
de2ides to estimate fees, it is =er% diffi2ult to 2ompare portfolios of ris?% se2urities.
There are limitations in appl%ing all measures of ris? and there is a la2? of uniformit%
in their appli2ation. 8inall%, the la1 interferes 1ith the mar?et for finan2ial
2onsultants.
As a result of these diffi2ulties, there is little pressure from in=estors to minimiMe fees.
Dis2losed fees ha=e not 2hanged mu2h in this de2ade but the tas? of determining ho1
mu2h a mutual fund 2osts has be2ome more 2ompli2ated. #idden fees appear to ha=e
gro1n and it appears that the mutual fund industr% is not 2ompeting =er% hard o=er
fees. The identi2al portfolio offered b% different fund families 2an sell for =er%
different fees. This does not ne2essaril% mean that mutual fund fees are too high sin2e
in=estors ma% =alue the ser=i2es offered b% a high.fee mutual fund. It is 2ertainl%
possible that if it 1ere easier for an in=estor to determine the total pri2e of a mutual
fund, in=estors 1ould demand more ser=i2es and fees 1ould rise. But gi=en the
restri2tions on this mar?et and gi=en industr% pra2ti2es, it is diffi2ult to belie=e that
in=estors 1ould settle for the 2urrent miBture of fees in a more freel% 2ompetiti=e
mar?et that has 2ompetes o=er standardiMed Luantitati=e measures of ris?. It is 2lear
from the e=iden2e that the 2urrent miBture of fees ha=e little relationship 1ith the
Lualit% of the fund 1hen TLualit%T is defined as a better return for the ris? ta?en. /ith
this definition of Lualit%, most e2onomists =ie1 the 2ompetition in this mar?et as
imperfe2t and belie=e that the 2ompetition does not appear to be impro=ing.
I belie=e the a2ademi2 and non.a2ademi2 e=iden2e supports the follo1ing fa2ts 1hi2h
are the basis of m% 2on2lusions on 2ompetition$
Total eBpenses paid b% in=estors ha=e not fallen o=er the past de2ade. 'Bpense ratios
ha=e been stable o=er the past de2ade 1hile other eBpenses @softdollars and
distribution eBpensesA appear to ha=e in2reased.

There is no relationship bet1een the le=el of eBpense ratios and ris?.ad<usted
performan2e net of fees eB2ept that large eBpense ratios substantiall% redu2e
performan2e.

There is no e=iden2e that managed mutual funds ha=e performed better than funds that
simpl% tr% to mat2h an indeB or a 2ombination of indi2es.

There is little e=iden2e of persisten2e of good performan2e, there is stronger e=iden2e
of persisten2e of poor performan2e.

Good performan2e is re1arded b% in=estors, poor performan2e is ignored eB2ept 1hen
the poor performan2e is eBtreme.

The ad=ertised in=estment philosoph% or Tst%leT of a mutual fund is informati=e about
lo1er ris? st%les @Tin2omeT and Tbalan2edA but the ad=ertised st%le is does not des2ribe
the portfolio pra2ti2es of higher ris? st%les @Tgro1thT and Tgro1th and in2omeTA.

Mutual funds tend to bu% and sell the same se2urities at the same time, eBhibiting
TherdingT beha=ior.

There is no litmus test or standard %ardsti2? to measure the le=el of 2ompetition. 8rom
the =ie1 of an e2onomist, all industries are imperfe2tl% 2ompetiti=e. Ta?en as a 1hole,
these fa2ts 2ertainl% suggest that the mutual fund mar?et is imperfe2tl% 2ompetiti=e.
The Lualit% of the produ2t does not seem to be related to the pri2e of the produ2t and
the Lualit%.pri2e relationship does not seem to be impro=ing in spite of the large
number of suppliers in the mar?et. I belie=e there are se=eral reasons 1h% in=estors do
not impro=e the le=el of 2ompetition.
8irst, it is =er% diffi2ult to determine the Lualit% of the Tprodu2tT being sold. "e2urities
are diffi2ult to pri2e be2ause ris? is diffi2ult to <udge. The nature of this produ2t is
similar to health 2are ser=i2es 1here the 2onsumer has a =er% poor idea of the Lualit%
of a do2tor>s ser=i2e. No 2hange in the la1 or in industr% pra2ti2es 1ill alter this fa2t.
There is no measure or group of measures that 1ill ma?e mutual Lualit% eas% to
obser=e. If su2h a measure 1ere a=ailable, an e2onomi2all% rational in=estor 1ould
2are onl% about performan2e and not about fees. But sin2e performan2e is =er%
diffi2ult to predi2t and fees are mu2h easier I or should be mu2h easier. to predi2t, a
rational in=estor 1ill 2are about fees.
"e2ond, the dis2losure reLuired of mutual funds is inadeLuate. "ome eBpenses are
hidden, su2h as TsoftdollarsT. There is little standardiMation in the T2lassesT of funds.
Most importantl% there is little Luantitati=e ris? dis2losure. Quantitati=e measures of
ris? 2an greatl% aid in <udging the Lualit% of a mutual fund but ea2h in=estor must
de=elop his or her o1n standard for e=er% measure.
Third, the la1 interferes 1ith the mar?et for finan2ial 2onsultants b% restri2ting the
mar?et for finan2ial ad=i2e. Mutual fund sales fees ha=e not be deregulated li?e
bro?erage 2ommissions on 2ommon sto2?. A mutual fund in=estor, unli?e an
institutional in=estor, is not free to hire a 2onsultant 1ho has a22ess to e=er% fund and
is responsible onl% to the in=estor. B% la1 the finan2ial 2onsultant 1ho re2ommends
Tload> mutual funds must be paid at least partl% b% the fund. If this 1ere done on the
institutional side of the in=estment business, this pra2ti2e 1ould be 2onsidered
unethi2al b% man% institutional in=estors.
I 2on2lude that from the in=estor>s point of =ie1, mutual fund eBpense ratios are
stable, softdollars are hidden and distribution eBpenses are 2ompli2ated. The in=estor
has little in2enti=e to 2arefull% eBamine the fees and 2ompare funds. 8rom an
e2onomist>s =ie1, fees that are hidden and 2ompli2ated are not li?el% to fall .
espe2iall% 1hen there is a restri2ted mar?et for ad=i2e.
In e=er% su22essful industr%, from 2al2ulators to 9(Rs, 2ompetition has dramati2all%
redu2ed the pri2es that 2onsumers pa%. The su22ess of the mutual fund industr% has not
produ2ed the same benefits. Dis2losed fees paid b% mutual fund in=estors ha=e not
fallen and there are reasons to belie=e that the total fees paid b% mutual fund in=estors
ha=e risen. The fees paid b% in=estors are bro?en into three parts. The first is the
eBpense ratio 1hi2h is full% dis2losed in the prospe2tus of the fund. The se2ond is
softdollars 1hi2h are rebates from bro?ers 1ho 2harge the fund a 2ommission that
2o=ers more than the 2ost of bu%ing and selling se2urities. These fees are not
dis2losed. The third are the eBpenses paid for bu%ing and selling the shares of the fund.
This is the TloadT of the fund and the T*-b.*T eBpense of the fund. These are dis2losed
but T*-b.*T fees reLuire in=estors to estimate the future return of the fund.
The e=iden2e is that dis2losed fees are stable. The table belo1 sho1s the a=erage fee
for eLuit% funds eBisting at three dates$ !une *K76, !une *KK-, and !une *KK7. I did not
reLuire that the fund last the 1hole period, from *K76 to *KK7, nor did I reLuire that
the fund last e=en one month after the ea2h date. I simpl% a=eraged all eBpense ratios
that 1ere reported b% M$rnin"star for ea2h of the dates+ The numbers d$ n$t in2lude
the load but in2lude T*-b.*T fees.
The Tasset.1eightedT a=erage gi=es more 1eight to the eBpense ratio the more assets
that a fund has. It represents the eBpense ratio for the a=erage dollar in the industr%.
The TeLual.1eightedT eBpense ratio simpl% adds all the eBpense ratios together and
di=ides b% the number of funds. It represents the eBpense ratio for the a=erage fund
and does not ad<ust for the fa2t that small funds t%pi2all% 2harge more. This is an
eBample of 1hat man% a2ademi2 resear2hers, and non.a2ademi2 resear2hers, in2luding
M$rnin"star& ha=e found. @8or a re2ent stud% see /. Dell=a and G. )lson TThe
Relationship bet1een Mutual 8und 8ees and 'Bpenses and Their 'ffe2ts on
Performan2eT published in the 8inan2ial Re=ie1 in 8ebruar% *KK7.A The eLual.
1eighted eBpense ratio is rising o=er time and the Tasset.1eightedT a=erage is
2omparati=el% stable, espe2iall% in the past fi=e %ears. The industr% has, on a=erage,
2onsistentl% 2harged mutual fund in=estors *J of assets, that is, one 2ent per dollar
in=ested. The range of eBpenses is large as sho1n b% the eLual.1eighted a=erage
1hi2h has 2onsistentl% risen o=er the past t1el=e %ears.
Assuming that these fees represent the total pa%ments b% in=estors, the stable eBpense
ratios support one of t1o 2on2lusions. 8irst, the eBpense ratio full% refle2ts all 2osts of
doing business and funds are =igilant in 2ontrolling 2osts. The stabilit% refle2ts the
su22ess of the industr% in 2ontrolling 2osts. "e2ond, eBpense ratios do not refle2t the
2osts of doing business and funds are not 2ompeting o=er fees. The stabilit% refle2ts
the la2? of sear2hing b% 2onsumers a2ross the mar?et.
'Bpense ratios do not represent total pa%ments. The% do not in2lude softdollars and
the% onl% partiall% in2lude Tdistribution eBpensesT. I deal 1ith these eBpenses
indi=iduall% belo1.

S()t*(""!.s
The total pa%ments of in=estors to mutual funds are not obser=able sin2e mutual funds
do not dis2lose their TsoftdollarsT. In TThe Inspe2tion Report on the "oft Dollar
Pra2ti2es of Bro?er.Dealers, In=estment Ad=isers and Mutual 8undsT, the "e2urities
and 'B2hange (ommission has defined softdollars as
Tarrangements under 1hi2h produ2ts or ser=i2es other than eBe2ution of se2urities
transa2tions are obtained b% an ad=iser from or through a bro?er.dealer in eB2hange
for the dire2tion b% the ad=iser of 2lient bro?erage transa2tions to the bro?er.dealerT.

The (ommission found that the through its inspe2tion program that -7, in=estment
ad=isers paid G-6+ million in softdollar pa%ments for third.part% resear2h from
!anuar% through )2tober *KKC. The G-6+ million 1as not in2luded in the eBpense
ratios of the mutual funds 1ho 2harged the eBpenses. The in=estors of these mutual
funds ha=e no idea ho1 mu2h their mutual fund spent through this me2hanism.
#o1e=er, the net returns of the mutual funds are lo1er be2ause of this pa%ment sin2e
the pri2e of the se2urities bought 1as in2reased b% this amount.
)ther e=iden2e indi2ates that 2ommissions add about -,J to eBpense ratios. M.
0i=ingston and '. )>Neal @!ournal of 8inan2ial Resear2h, "ummer *KKCA using a large
sample of mutual funds found that median bro?erage 2ommissions are .-*J of net
assets and the 2ommission le=els are smaller for larger funds. The a=erage bro?erage
2ommission measured as a per2entage of net assets eB2eeds the t%pi2al eBe2ution.onl%
2ommission for large institutional traders. The% found that eBpense ratios are
positi=el% 2orrelated 1ith 2ommissions per trade, indi2ating that mutual fund
managers do not redu2e fees 1hen the% use softdollars.
8urther, the amount of softdollar pa%ments appears to ha=e gro1n o=er time. A.
#opfner, Plan Sp$ns$r& *KKH @pages C,.C*A estimates that softdollar pa%ments 1ere
G7,, million in *KK+. The (ommission estimates that softdollars 1ere around G*
billion in *KKC.
It is plausible that softdollars ha=e some benefit. ". #oran and D. Bru2e !ohnsen, in a
paper titled TThe "oft Dollar Debate$ Agen2% Theor% and '=iden2eT, a 1or?ing paper
distributed b% George Mason 0a1 "2hool, argue that softdollar use 2an potentiall%
help a mone% manager obtain eB2lusi=e a22ess to =aluable resear2h. The% pro=ide
indire2t e=iden2e that is 2onsistent 1ith this 2on<e2ture but do not ha=e a2tual
softdollar eBpenditures. Their e=iden2e is from pension fund mone% managers and not
from mutual funds.
"in2e softdollars are not reported there is no 1a% that e2onomists 2an test 1hether the%
are benefi2ial and there is no 1a% that mutual fund in=estors 2an ma?e the
determination for themsel=es. The (ommission did not re2ommend that mutual funds
report their use of softdollars.

Distribution 'Bpenses
An important part of mutual fund fees are the eBpenses used to TdistributeT, that is, sell
the shares of a fund. These in2lude the Tfront.endT load, the Tdeferred loadT @or Tba2?.
endT loadA and the T*-b.* feeT. It is diffi2ult to determine 1hether these fees ha=e
in2reased or de2reased sin2e the T*-b.*T fee is 2harged ea2h %ear, the Tfront.endT load
is 2harged 1hen the shareholder initiall% pur2hases the fund and the Tba2?.endT load is
2harged 1hen the shareholder sells the fund. Table - belo1 sho1s that the a=erages
for these numbers ha=e 2hanged in different dire2tions o=er time.
It is diffi2ult to determine from publi2l%.a=ailable data, su2h as the abo=e data in Table
-, 1hether distribution eBpenses ha=e in2reased or de2reased o=er the past fi=e %ears.
'a2h part of the distribution eBpense depends on the a2tion of in=estors. The Tnumber
of fundsT is reall% a misnomer. A single portfolio 2an ha=e man% 2lasses of shares.
'a2h of these share 2lasses is treated as a different fund. 'a2h 2lass of shares in=ol=es
a different 2ombination of front.end fees, *-b.* fee and deferred load. In=estors 2an
2hoose ho1 to pa% the bro?er that sold the fund b% sele2ting from the menu of 2lasses.
It is diffi2ult to determine 1hi2h menu item is most eBpensi=e sin2e it depends on the
beha=ior of the in=estor. In=estors 2annot determine the eBa2t 2ost of ea2h 2lass of
shares sin2e the *-b.* fee depends on the future performan2e of the fund.
In=estors 2annot negotiate the 2ontra2t indi=iduall% 1ith a bro?er 1ho sells the fund.
The In=estment (ompan% A2t of *K+, @se2tion --dA reLuires a mutual fund to set the
same fee for all bro?ers 1ho sell the fund. 8rom *K+, to *K7* the "'(, empo1ered b%
this a2t to regulate funds, allo1ed onl% one t%pe of bro?er 2ompensation . the Tfront.
end loadT. If an in=estor 1anted the ser=i2es of a bro?er, he paid a per2entage of the
mone% in=ested at the time of the in=estment and nothing more. /hile bro?ers 1ere
for2ed to 2harge uniform fees, it 1as eas% to 2ompare the ser=i2es of bro?ers 1ith their
fees sin2e the fee 1as simple. In *K7* the "'( passed rule T*-b.*T allo1ing funds to
dedu2t a per2entage of the fundEs assets ea2h %ear to pa% the bro?er an annual fee. The
T*-b.*T fee 2ontinues for as long as an in=estor is in the fund. /ith this fee, in=estors
must guess a bro?erEs ultimate 2ompensation sin2e it depends on the future =alue of the
assets and the length of time an in=estor spends in the fund . and the fund ma%
in2rease the fee up to a limit. )=er the past fi=e %ears funds ha=e gi=en in=estors a
menu of 2hoi2es bet1een pa%ing a front.end load, a deferred load or a T*-b.*T fee. If
in=estors 1ant all their mone% in=ested immediatel% and a=oid the front.end fee, the%
must guess at bro?er 2ompensation sin2e it 1ill depend largel% on *-b.* fees 1hi2h
are a per2entage of net assets.
As a result of these regulations, there is a stri?ing . and predi2table . differen2e
bet1een the regulated selling of mutual fund shares and the 2ompetiti=e pri2ing of
bro?er ser=i2es in the retail mar?et for 2ommon sto2?. An in=estor 1ho bu%s 2ommon
sto2? 2an easil% 2ompare the pri2es of bro?er ser=i2es 1hi2h range from the simple
eBe2ution of trades performed b% dis2ount bro?ers to sto2? sele2tion b% a full ser=i2e
bro?er based on spe2ialiMed resear2h. The same in=estor 1ho de2ides to o1n 2ommon
sto2? b% bu%ing shares in a mutual fund is 2onfronted b% identi2al pri2es for bro?er
ser=i2es no matter 1hi2h bro?er is sele2ted or 1hat ser=i2e is pro=ided. If the fund has
a *-b.* fee the in=estor must 2ompare the e2pected 2ompensation. Thus, it is mu2h
less 1orth1hile for the in=estor in a mutual fund to 2ompare ser=i2es offered b%
bro?ers 1ith the fee than it is for the in=estor in 2ommon sto2?. "in2e one moti=e for
bu%ing mutual fund shares is to pa% someone else to in=estigate the ris?s and return of
se2urities, it is not surprising that in=estors 1ho need the ser=i2es of bro?ers often
ignore fees . allo1ing funds to raise their 2harges.
The e2onomi2 e=iden2e on fees supports these 2on2lusions. In *KK, I published @1ith
Robert D1eigA a stud% of mutual fund distribution eBpenses titled, TAn '2onomi2
Anal%sis of The (ost and Benefits of "'( Rule *-b.*T. The stud% 2on2luded
'Bpense ratios are higher for *-b.* funds than non *-b.* funds.
'Bpense ratios for ne1 *-b.* funds 1ere higher than eBpense ratios for older *-b.*
funds
8or ne1 funds there is no e=iden2e of substitution bet1een the front.end load and the
*-b.* fee.
Net returns @returns minus the eBpense ratio and portfolio transa2tions 2ostsA 1ere
lo1er for *-b.* funds than non *-b.* funds.
The adoption of a *-b.* plan has no effe2t on the per2entage 2hange in total assets of
the fund.
"in2e this stud% 1as finished, there ha=e been substantial regulator% 2hanges but
re2ent a2ademi2 studies ha=e 2onfirmed man% of the 2on2lusions. R. M2leod and D.
Malhotra, in TA ReeBamination of Mutual 8und 'Bpense RatiosT published in the
!ournal of 8inan2ial Resear2h, summer *KK+ 2on2lude TThe findings are 2onsistent
1ith pre=ious studies that find 2harges are a dead.1eight 2ost borne b% shareholders.
#o1e=er, 1e sho1 that this 2ost in2reases o=er timeT. In another arti2le, TThe 'ffe2t
of Rule *-b.* on Bond 'Bpense RatiosT published in the !ournal of '2onomi2s and
8inan2e, "pring *KKC, the same authors 2on2lude
sing a model spe2ifi2 to bond funds, as opposed to the generi2 models used in
pre=ious studies on eLuit% funds, the anal%sis 2onfirms that the *-b.* fee is an
additional 2ost borne b% shareholders of the fund 1ithout an% additional benefit.
#o1e=er, this 2ost as a per2ent o the net asset =alue of the fund has de2reased from
*KK* through *KK+.

/. Dell=a and G. )lson in a stud% titled TThe Relationship bet1een Mutual 8und 8ees
and 'Bpenses and Their 'ffe2ts on Performan2eT published in the 8inan2ial Re=ie1 in
8ebruar% *KK7 2on2lude

In this paper 1e find that, on a=erage, *-b.* fees, deferred sales 2harges and
redemption fees in2rease eBpenses 1hereas funds 1ith front.end loads generall% ha=e
lo1er eBpenses.

"ummar%
Gi=en the nature of the industr% regulation and pra2ti2es it is diffi2ult to determine
1hether total fees paid b% in=estors ha=e in2rease or de2reased o=er the past fi=e
%ears. Most studies find that eBpenses ha=e little effe2t on returns. It is 1orth noting
that none of these studies eBamined the ser=i2es of a mutual fund. In=estors ma% be
1illing to pa% higher fees and a22ept a lo1er return if the% =alue the ser=i2es pro=ided
b% a mutual fund. It is diffi2ult to determine this be2ause of the diffi2ult% of
determining the eBa2t fees that in=estors are pa%ing. 8rom the in=estor>s point of =ie1,
mutual fund eBpense ratios are stable, softdollars are hidden and distribution eBpenses
are 2ompli2ated. 8rom an e2onomist>s =ie1, fees that are hidden and 2ompli2ated are
not li?el% to fall.

Mutual 8und Performan2e
Regardless of ho1 fees are 2harged and dis2losed, the% do alter the net return of the
fund. #igher fees 1ill mean lo1er returns if e=er%thing else is eLual. )f 2ourse,
nothing else is eLual and this se2tion briefl% des2ribes the re2ent e=iden2e on mutual
fund performan2e.
The first stud% of mutual fund performan2e 1as in *KCK b% Mi2heal !ensen 1ho
2on2luded that there 1as no e=iden2e that mutual funds earned greater than a ris?
.ad<usted return. "in2e the !ensen stud% there ha=e been o=er :,, performan2e studies,
most of 1hi2h ha=e agreed 1ith the !ensen 2on2lusion. #ere is a list of the re2ent
studies and a brief s%nopsis of their 2on2lusionsP
Re2entl%, #endri2?s, Patel and De2h?hauser, @!ournal of 8inan2e, *KK:A 2on2luded
that short.term mutual fund performan2e persists 1ith the poor funds performing
poorl% in the future and good funds performing 1ell in the future.
B. Mal?iel @!ournal of 8inan2e, *KKHA using all funds that had at least one %ear of
eBisten2e bet1een *K6*.*KK* finds that no strateg%, in2luding bu%ing the F$r3es
re2ommended funds, outperforms a passi=e strateg%.
M. Gruber @!ournal of 8inan2e, *KKC4 finds that bu%ing the top de2ile firms and selling
the lo1 de2ile firms gi=es -7 basis in performan2e per %ear o=er a ris?.ad<usted return
for a group of funds that began in *K7+ @dead funds in2luded in sample and ending in
*KK+.
(arhart@!ournal of 8inan2e,*KK64 eBamines all mutual funds that had at least one
month of eBisten2e bet1een *KC-.*KK: @no sur=i=orship biasA finds that 2ommon
fa2tors eBplains the persisten2e in the performan2e of top mutual funds. #e finds that
eBpense ratios, turno=er and load fees @*-b.* 2hargesA are signifi2antl% and negati=el%
related to performan2e
All these studies find that ris?.ad<ustment and sur=i=orship bias is a 2riti2al issue in
measuring performan2e. Not ad<usting for sur=i=orship bias adds as mu2h as *.+J per
%ear to estimated performan2e o=er a ris?.ad<usted return for funds that sur=i=e ten
%ears. @'stimates for one %ear bias is about -, basis pointsA.
Ta?en as a 1hole, it is reasonable to 2on2lude that
There is no e=iden2e that managed mutual funds ha=e performed better than funds that
simpl% tr% to mat2h an indeB or a 2ombination of indi2es.

There is no relationship bet1een eBpense ratios and performan2e eB2ept that large
eBpense ratios substantiall% redu2e performan2e

There is little e=iden2e of persisten2e of good performan2e, there is stronger e=iden2e
of persisten2e of poor performan2e


COMPETITION IN MUTUAL FUND PORTFOLIO MANAGEMENT
Mutual funds 2ompete b% offering in=estors different in=estment Tst%lesT. Mutual fund
offer in=estors a 1ide =ariet% of different t%pes of portfolios su2h as Tin2omeT,
Tbalan2edT, and Tgro1thT. The terms are used to des2ribe the portfolio management
pro2ess 1hi2h in=ol=es pi2?ing se2urities and monitoring their performan2e. Re2ent
studies ha=e found that this 2ompetition is imperfe2t. "ome st%les are des2ripti=e and
some are not. The range of mutual fund des2riptions mu2h larger than the a2tual
pra2ti2e of mutual funds 1hi2h tend to bu% and sell the same se2urities at the same
time.
". Bro1n and /. GoetMman in TMutual 8und "t%lesT published in the !ournal of
8inan2ial '2onomi2s, @Mar2h *KK6A found e=iden2e that the des2riptions for the
Tst%lesT 1ith lo1er ris?, Tin2omeT funds and Tbalan2edT funds, are a22urate
des2riptions of the a2tual in=estment pra2ti2es of the mutual fund. The portfolio
ad=ertised is 2lose to the portfolio that in=estors get. #o1e=er, the des2riptions of
higher ris? st%les, su2h as Tgro1th and in2omeT, Tgro1thT, and Taggressi=e gro1thT,
do not represent the portfolio pra2ti2es of the mutual fund. 8or eBample, the mutual
fund TMutual 8und "haresT, that is run b% portfolio manager Mi2heal Pri2e, is a
T=alueT fund that follo1s the T=alueT strateg% first ad=o2ated b% Ben<amin Graham.
This fund is 2lassified as a Tgro1th and in2omeT fund in the prospe2tus.
There is e=iden2e that mutual funds tend to bu% and sell the same se2urities at the
same time. This is 2alled TherdingT beha=ior. M. Grinblatt, " Titman and R. /ermers,
in TMomentum In=estment "trategies, Portfolio Performan2e and #erding$ A "tud% of
Mutual fund Beha=iorT published in the Ameri2an '2onomi2 Re=ie1 in De2ember
*KKH, found that 66 per2ent of mutual funds 1ere TmomentumT in=estors, bu%ing
sto2?s that 1ere past 1inners, but most did not sell past losers. )n a=erage funds that
in=ested in momentum realiMed signifi2antl% better performan2e than other funds
@neither group outperformed a ris?.ad<usted returnA. The authors found e=iden2e that
funds tended to bu% and sell the same sto2?s at the same time. '. 8al?enstein in
TPreferen2es for "to2? (hara2teristi2s as Re=ealed b% Mutual 8und Portfolio
#oldingsT published in the !ournal of finan2e Mar2h *KKC, found that mutual funds
ha=e a signifi2ant preferen2e for sto2?s 1ith high =isibilit% and lo1 transa2tions 2osts.
Mutual funds are ad=erse to sto2?s that do not mo=e 1ith the mar?et.
There is e=iden2e that mutual funds alter their portfolios based on the fund>s most
re2ent performan2e. If returns in the first part of the %ear are good, the fund 1ill lo1er
the ris?iness of the portfolio in the se2ond part of the %ear. If the returns of the first
part of the %ear are poor, the fund 1ill in2rease the ris?iness of the fund in the se2ond
part hoping to earn a good return. There are t1o independent studies that sho1 this. !.
(he=alier and G. 'llison in TRis? Ta?ing b% Mutual 8unds as a Response to In=estorsT
published in the !ournal of Politi2al '2onom%, De2ember *K66, and &. Bro1n, (.
#arlo1 and 0. "tar?s, T)f Tournaments and Temptations$ An Anal%sis of Managerial
In2enti=es in the Mutual 8und Industr%T, !ournal of 8inan2e, Mar2h *KKC. The last
stud% sho1s that this effe2t be2ame stronger as industr% gro1th and in=estor
a1areness of fund performan2e in2reased o=er time.
There is some dis2ipline b% in=estors of managers 1ho perform poorl%. A. &horana in
TTop Management Turno=er$ An 'mpiri2al In=estigation of Mutual 8und ManagersT,
@!ournal of 8inan2ial '2onomi2s, Mar2h *KKCA found that manager repla2ement is
positi=el% related to the gro1th rate in the fund>s assets and its portfolio returns.
Managers 1ho lea=e a fund ha=e higher portfolio turno=er and higher eBpenses than
managers 1ho are not repla2ed. #o1e=er, '. "irri and P. Tufano in T(ostl% "ear2h and
Mutual 8und 8lo1sT found that 2onsumer base their fund pur2hase de2isions on prior
performan2e information as%mmetri2all%. The% in=est disproportionatel% more in
funds that performed =er% 1ell than the% pulled mone% out of funds that performed
=er% poorl%. "ear2h 2osts seem to be an important determinant of fund flo1s. 8und
flo1s are dire2tl% related to a fund>s mar?eting effort and media attention.

S,!.1
8rom the =ie1 of indi=idual in=estors, a mutual fund is a 2onsumer produ2t 1here
in=estors pa% fees and get a return plus some ser=i2es. I belie=e the a2ademi2 and non.
a2ademi2 e=iden2e supports the follo1ing fa2ts 1hi2h are the basis of m% 2on2lusions
on 2ompetition$
)n Mutual 8und 8ees
Total eBpenses paid b% in=estors ha=e not fallen o=er the past de2ade. 'Bpense ratios
ha=e been stable o=er the past de2ade 1hile other eBpenses @softdollars and
distribution eBpensesA appear to ha=e in2reased.
There is no relationship bet1een the le=el of eBpense ratios and ris?.ad<usted
performan2e net of fees eB2ept that large eBpense ratios substantiall% redu2e
performan2e.
'Bpense ratios are higher for *-b.* funds than non *-b.* funds.
)n 8und Ris?.Ad<usted Performan2e
There is no e=iden2e that managed mutual funds ha=e performed better than funds that
simpl% tr% to mat2h an indeB or a 2ombination of indi2es.
There is little e=iden2e of persisten2e of good performan2e, there is stronger e=iden2e
of persisten2e of poor performan2e.
)n Portfolio Management
Good performan2e is re1arded b% in=estors, poor performan2e is ignored eB2ept 1hen
the poor performan2e is eBtreme.
The ad=ertised in=estment philosoph% or Tst%leT of a mutual fund is informati=e about
lo1er ris? st%les @Tin2omeT and Tbalan2edA but the ad=ertised st%le is does not des2ribe
the portfolio pra2ti2es of higher ris? st%les @Tgro1thT and Tgro1th and in2omeTA.
Mutual funds tend to bu% and sell the same se2urities at the same time, eBhibiting
TherdingT beha=ior.
Mutual 8unds alter the ris? of their portfolios depending on the return early in the year.
Managers likely to end up as "losers" will increase fund risk and managers likely to be
"winners" will decrease fund risk. This effect has grown stronger as industry growth
and investor awareness has increased over time.
Managers of poor performing funds are more li?el% to be repla2ed than managers of
good performing funds 1here performan2e is measured b% gro1th in assets and
portfolio return. Departing managers ha=e higher eBpense ratios and higher turno=er
than remaining managers.

T+e G(!"s () Ris' Dis/"(s,.e
I belie=e that the primar% goal of ris? dis2losure should be to help in=estors 2hoose a
mutual fund that meets the in=estorsE toleran2e for ris?. (onsistent information should
be a=ailable for ea2h mutual fund so that in=estors 2an mat2h their in=estment
ob<e2ti=es and in=estment horiMon to the ob<e2ti=es and general ris? of the mutual
fund.
In=estors differ 1idel% in their goals, 2ir2umstan2es and abilit% to use in=estment
information. I belie=e it is unli?el% that the "'( 2an design ris? dis2losure, either
narrati=e or non.narrati=e, that dire2tl% meets the needs of most in=estors. A more
realisti2 goal is to reLuire dis2losure that both impro=es the mar?et for information
about ris?s of mutual funds and impro=es in=estorsE a1areness that ris? is an important
2onsideration in 2hoosing a mutual fund.
I full% support the proposals to reLuire mutual funds to pro=ide a supplemental ser=i2e
in the form of a narrati=e bro2hure, or Luestionnaire that 1ould help in=estors in
determining their ris?.toleran2e, in=estment horiMon and in=estment ob<e2ti=es.
#o1e=er, I do not belie=e that a general bro2hure is suffi2ient to address in=estor
2on2erns about ris?. In=estors must ha=e enough information to ma?e 2omparisons
bet1een spe2ifi2 mutual funds on a 2onsistent basis. In=estors are in the same position
as 2onsumers bu%ing produ2ts 1ho need 2onsistent, easil%.understood measures of
produ2tEs Lualit%. The "'( should de=elop ris? dis2losures that allo1s in=estors to
TshopT in the mutual fund mar?et.

7,!&tit!ti3e Me!s,.es () Ris'
Narrati=e ris? dis2losure is not suffi2ient for in=estors to a2hie=e the goals des2ribed
abo=e. This is 1h% Luantitati=e measures 1ere first de=eloped o=er fort% %ears ago. It
is espe2iall% true toda% 1hen man% finan2ial produ2ts are 2ompleB 2ombinations of
more basi2 se2urities. The failure of narrati=e dis2losure for institutional in=estors,
su2h as pension fund sponsors, has lead to the de=elopment of an eBtensi=e 2onsulting
industr% using Luantitati=e methods @e.g. the 8ran? Russell (orporation, "'I
2orporation, Ri2hards and Tierne%A. Narrati=e dis2losure is ne2essar% to understand
man% of the a2ti=ities of mutual funds but it is 2learl% not suffi2ient.
Be&/+!.' P(.t)("i(
I belie=e it is important to pro=ide a basis of 2omparison for an% return and ris?
measure. I 2hose the "PH,, but there are se=eral ben2hmar?s that 1ill be adeLuate.
The "'( should allo1 mutual fund to 2hoose from a list of appro=ed ben2hmar?s but
all ben2hmar?s should represent the mar?et for all se2urities. The ben2hmar?s should
not be spe2ifi2 to an% se2tor or in=estment st%le. Information on ris? is alread%
2ompli2ated for man% in=estors and adding the additional 2ompli2ation of se2tors or
st%les 1ill greatl% redu2e the effe2ti=eness of the table in a2hie=ing the goals outlined
abo=e. Moreo=er, there is no 2onsensus among in=estment professionals, a2ademi2s
and regulators on the definitions of se2tors and st%le. 8inall%, the TbetaT of the
portfolio should be 2omputed relati=e to the ben2hmar? so that the in=estor has a
2onsistent basis to <udge the measures.
$("!ti"it1 ?St!&*!.* De3i!ti(&@
The standard de=iation of monthl% returns represents the dispersion of the returns. It
2aptures all sour2es of ris? that 2ause pri2es to 2hange su2h as mar?et eBpe2tations,
illiLuidit%, interest rate sensiti=it%, inflation, et2. The 1ea?ness is that it is diffi2ult to
interpret and it is affe2ted b% eBtremel% lo1 or high returns.
N,be. () Ne0!ti3e Ret,.&s
"impl% 2ounting the number of returns belo1 Mero gi=es the in=estor a straightfor1ard
measure of ho1 often his portfolio 2an fall in =alue. It in2reases the a1areness of
in=estors that ris? means the% 2an lose mone%. Te2hni2all%, this is a Tnon.parametri2T
measure that does not in=ol=e the assumptions of the standard de=iation. The
1ea?ness of this measure is that it dis2ards information su2h as the magnitude of the
negati=e returns.
Res2(&si3e&ess t( t+e M!.'et ?Bet!@
This measure allo1s the in=estor to <udge ho1 ris?% the portfolio is relati=e to the
o=erall mar?et. The strength is that this measure is stable o=ertime for mutual fund
portfolios and has an simple interpretation @e.g. Ta beta of -., means 1hen the mar?et
rises b% *,J the portfolio 1ill rise b% -,JA. The 1ea?ness of this measure is that
there are other fa2tors su2h as an industr% fa2tor, le=erage, et2. @The BARRA
2orporation sells C7 fa2tors for domesti2 eLuities.A
I&te.est R!te Ris'
The Interest Rate "ensiti=it% 2ategor% is intended to be the same as the TdurationT of a
portfolio @e.g. Ma2aula%Es durationA appropriatel% ad<usted for an% deri=ati=es. All the
in=estor 2ares about is that this portfolio has lo1, medium and high sensiti=it%. I 1ould
define Tlo1T as the sensiti=it% that the =alue of a portfolio of short term bonds 1ith no
deri=ati=es has to interest rate 2hanges. I define TmediumT as the sensiti=it% of a
medium term bond portfolio @1ith no deri=ati=esA to interest rate 2hanges and ThighT
as the sensiti=it% of a long term bond portfolio @1ith no deri=ati=esA. Most eLuit%
portfolios do not 2hange in =alue 1ith interest rates in an% predi2table fashion and the
appropriate response ma% be Tinsensiti=eT rather than Tlo1T.
A=erage Maturit% of bond portfolios is a 2ommon measure of interest rate ris?.
In=estors should see both the a=erage maturit% and interest rate sensiti=it% sin2e the
short term bond portfolios of some fund groups are =er% sensiti=e to interest rates
be2ause of deri=ati=es. "ome short term bond portfolios are a2tuall% more sensiti=e to
interest rates than a portfolio of :, %ear bonds.

Oitte* Ris' Me!s,.es
There are se=eral ris? measures that are deleted from the table that are 2ommonl%
found in the institutional in=estment mar?et. 8irst, I eB2luded Tst%leT 2omparisons for
the reasons 2ited abo=e. "e2ond, there is no measure of liLuidit% ris? @su2h as per2ent
of illiLuid sto2?sA. (learl% this ris? is greater for some portfolios @e. g. high.%ield bond
portfoliosA than others. I did not in2lude these measure be2ause the standard de=iation
1ill 2apture an% illiLuidit% pri2e ris? and it is diffi2ult to define TilliLuidit%T pre2isel%.
Third, I omitted an% measure of ris? 2aused b% ma2roe2onomi2 fa2tors su2h as
inflation and unemplo%ment. Again, the standard de=iation 1ill be larger to the eBtent
that these ris?s are large and resear2h in finan2ial e2onomi2s demonstrates that these
ris?s are small relati=e to the mo=ement of the mar?et.
De2ades after the% began in the nited "tates, mutual funds ha=e arri=ed in India
.la2?ing the =ersatilit%, spe2ialiMation and eBperien2e of the Ameri2an funds but
strongl% ba2?ed b% the national Go=ernment here as a safe in=estment.
De2ades after the% began in the nited "tates, mutual funds ha=e arri=ed in India
.la2?ing the =ersatilit%, spe2ialiMation and eBperien2e of the Ameri2an funds but
strongl% ba2?ed b% the national Go=ernment here as a safe in=estment.
Prime Minister Ra<i= GandhiEs administration is promoting mutual funds as part of its
2ampaign to raise 2onfiden2e among small and medium.siMed in=estors here. The%
ha=e been hurt b% stagnation in the 2ountr%Es sto2? eB2hanges this %ear.
There are onl% t1o mutual funds in India, one of them started earlier this month b% the
"tate Ban? of India, a Go=ernment enterprise that is the 2ountr%Es largest ban?. The
"tate Ban? fund, 1hi2h reLuired a minimum in=estment eLual to about G7,, has
alread% been o=ersubs2ribed .in=estors ha=e deposited *.* billion rupees, or more than
G7, million. It 2loses De2. -K. 8und offi2ials said the% might as? a number of big
depositors to ta?e ba2? their in=estments be2ause the emphasis is on the small and
medium.siMed in=estor. A Guaranteed *-J
In=estors are guaranteed a fiBed annual return of at least *- per2ent on their in=estment
for se=en %ears. The ban? is eBpe2ted to ta?e a fee of about *.H per2ent of the gain.
Indian ban?ers said the% eBpe2ted the mutual fund to spur a2ti=it% on the sto2? mar?et
as 1ell as help big 2ompanies in the long term be2ause of in2reased interest in sto2?s.
Ban?ers and offi2ials said the role of mutual funds here goes be%ond that of sa=ings.
EEThe need to prote2t the small in=estor is the main reason,EE said a senior offi2ial at the
"tate Ban? of India. "tate Ban? opened its fund after 1at2hing the response to the first
mutual fund, run b% nit Trust of India, 1hi2h is also Go=ernment.2ontrolled. The
Go=ernmentEs Goal
The Go=ernment is see?ing to ma?e mutual funds an alternati=e to pla%ing the sto2?
mar?et, espe2iall% no1 that in=estor 2onfiden2e has been damaged b% a 2ra2?do1n on
illegal dealing, politi2al un2ertaint%, a bad drought and the 2ontrol of a group of
po1erful bro?ers.
The "tate Ban? proposes to use its nation1ide net1or? of *,,,,, bran2hes to broaden
the fundEs in=estment base. A senior ban?er said in an inter=ie1 that the aim of the
pro<e2t 1as to rea2h out to small and middle.le=el farmers and rural families that ha=e
ne=er had ban? a22ounts.
ntil no1, most of IndiaEs three million in=estors ha=e been based in 2ities. A
Departure for 8armers
Indian farmers pa% no agri2ultural taB and ha=e traditionall% in=ested in land, gold and
<e1elr%. There ha=e been fe1 plans that sought to di=ert their sa=ings into the national
sto2? eB2hanges.
Ban? offi2ials said the fund 1ould in=est in debentures, sto2?s and bonds. The% said
2ompanies being 2onsidered for in=estment in2lude those 1ith foreign eLuit%, li?e
#industan 0e=er, a subsidiar% of 0e=er Brothers of Britain, and large Indian
businesses li?e the Tata Group of Industries.
IndiaEs fora% into mutual funds began last %ear 1hen the nit Trust floated t1o issues,
one in India and one in Britain. Those 1ere hea=il% o=ersubs2ribed. The India 8und, as
the issue in Britain 1as 2alled, netted about G$C, million, or about G**, million.
Interest in Ameri2a
Buo%ed b% this su22ess, nit Trust negotiated 1ith nited "tates offi2ials this %ear and
sought to be2ome the first Indian listing on the Ne1 Yor? "to2? 'B2hange. #o1e=er,
the 1orried Indians pulled out after the )2tober 2risis on /all "treet.
EE/e ha=e a feel for the mar?et .1e 2ontrol :, per2ent of IndiaEs 2redit, H, per2ent of
its imports and ha=e a role in 6, per2ent of its eBports,EE a top "tate Ban? offi2ial said.
EEThis is a good thing be2ause it eliminates the middleman,EE said Ram Pipari%a, a
finan2ial 2onsultant in Bomba%. Mr. Pipari%a said India la2?ed organiMations that
1ould prote2t the interests of in=estors

THE ECONOMICS OF MUTUAL FUND INDUSTRY
Recentl%& t0$ lar"e pla%ers in t,e #utual !und 3usiness& Citi"r$up and Merrill L%nc,&
s$ld $!! c$ntr$l $! t,eir !und 3usinesses t$ s#aller& #$re speciali5ed $r"ani5ati$ns+ In
additi$n& #an% s#aller in.est#ent ad.is$r% $r"ani5ati$ns ,a.e 3een lea.in" t,e !ield&
alt,$u", t,ere ,as 3een little c,an"e in t,e $.erall c$ncentrati$n $! t,e industr%+
',at ec$n$#ic $r re"ulat$r% !$rces are dri.in" t,e ac6uisiti$ns& disp$siti$ns& entries&
and e2its t,at c,aracteri5e t,e #utual !und industr% t$da%7 At a Marc, 89 AEI
c$n!erence& t,e si2t, e.ent in t,e series& TIs T,ere a Better 'a% t$ Re"ulate Mutual
Funds&T e2perts "at,ered t$ discuss t,is and $t,er 6uesti$ns
The diffi2ult% 1ith Luantitati=e ris? measures is that there are limitations of an% single
measure. If these limitations are not understood b% the user, the ris? measure 2an lead
to poor in=estment de2isions. I belie=e that the "'( should not support the use of an%
single measure but should de=elop a table of measures. This is analogous to the
reLuirement b% the 8ederal Drug Administration that all 2onsumer food produ2ts 2arr%
a nutrition label des2ribing =arious 2hara2teristi2s of the produ2t. No single measure
on a nutrition label is suffi2ient to des2ribe the Lualit% of the produ2t and some argue
that the table itself is inadeLuate. But nutrition labeling has lead to in2reased 2onsumer
a1areness and has established a set of 2ore fa2ts that =endors of information about
food produ2ts emplo%.
Peter !. /allison
A'I
The aim of this 2onferen2e is to eBplore the regulator% and e2onomi2 for2es behind
re2ent de=elopments in the mutual fund industr%. 8or instan2e, in re2ent months, t1o
of the largest finan2ial ser=i2es pro=iders in the 2ountr%..Merrill 0%n2h and
(itigroup..ga=e up 2ontrol of the huge mutual fund families the% had de=eloped o=er
man% %ears. In addition, the 2on2entration in the industr% has 2hanged little, e=en
though the top ten pro=iders ha=e 2hanged.
Among the possible regulator% fa2tors behind these trends, 2omplian2e 2osts are
perhaps the most signifi2ant. These 2osts stem from the appli2ation of "arbanes.)Ble%
to mutual funds, as 1ell as rules reLuiring 2hief 2omplian2e offi2ers, greater
per2entages of independent dire2tors on fund boards, and independent 2hairs. 8urther,
e=iden2e suggests that the "'( has not ta?en seriousl% the mandate in the E+, A2t to
2onsider Teffi2ien2%, 2ompetition, and 2apital formationT 1hen it promulgates ne1
regulation. These regulator% 2osts are felt espe2iall% b% smaller in=estment 2ompanies.
Along 1ith regulator% fa2tors, e2onomi2 for2es, parti2ularl% 2ompetition, 2ould be
dri=ing de=elopments in the industr%. It is possible that 2ompetition from other
2olle2ti=e in=estment =ehi2les su2h as eB2hange traded funds, hedge funds, and
separatel% managed a22ounts are dra1ing a1a% from mutual funds both the high.=alue
2ustomers and the ne2essar% management talent.
Also, distributional arrangements 2ould be responsible for re2ent 2hanges in the
industr%. The parti2ular arrangements that 2ould pre=ent 2ompetition at the sales le=el
in2lude$ se2tion --@dA of the E+, A2t, 1hi2h reLuires the pri2e of a mutual fund share to
be sold onl% at the pri2e stated in the prospe2tusP and the unusual reLuirement that
sales personnel a2tuall% be ob<e2ti=e in re2ommending the mutual fund produ2ts of
their emplo%er.
Robert (. PoMen
Massa2husetts 8inan2ial "er=i2es
Bet1een *KK- and -,,-, the number of fund a2Luisitions in2reased, parti2ularl%
among ban?s, trusts, and insuran2e 2ompanies. The rationale behind these parti2ular
a2Luisitions 1as to ha=e more produ2ts to sell eBisting 2ustomers, add streams of
stable in2ome to offset sales 2%2les, and obtain higher gro1th rates than their 2urrent
operations 1ere %ielding. In addition, but to a lesser degree, domesti2 fund sponsors
1ere a2Luiring other .". fund sponsors, primaril% in an effort to fill out their produ2t
lines, eBpand ser=i2ing of high net 1orth a22ounts, and ha=e a greater aggregation of
asset managers. Along 1ith a2Luiring domesti2 funds, .". fund sponsors and .".
ban?s and insuran2e 2ompanies 1ere also a2Luiring a fe1 foreign asset managers.
(on2omitantl%, man% 'uropean insurers and ban?s 1ere pur2hasing Ameri2an funds.
#o1e=er, there 1ere no Asian a2Luirers due to the 1ea?ness of the !apanese ban?s
and the Asian 8inan2ial (risis of *KK6.K7.
In more re2ent %ears, .". mutual fund sponsors ha=e fa2ed greater pressures, and the
rationale for a2Luisition has 2hanged. Prior to the %ear -,,,, it 1as t%pi2al for
in=estment 2lients..both retail in=estors and sponsors of 2ompan% retirement plans..to
entrust all their monies and in=estment needs to one sponsor. Toda%, ho1e=er, under
the ne1 open ar2hite2ture of the industr%, in=estors prefer to spread their mone%
around different in=estment sponsors in order to a2hie=e the best performan2e. No1,
affiliated salesmen 2an offer the produ2ts of other 2ompanies 1ith ease. In the retail
mar?et, high net 1orth 2ustomers 1ant 2ustomiMed in=estment solutions that in=ol=e
using different firms for different needs, 1hi2h in2lude ban?ing, insuran2e, and
2olle2ti=e in=estments. (on2erning 2ompan% retirement plans, the plan sponsors 1ant
the re2ord ?eeping and operations administered b% a single firm, but the% also 1ant the
best in 2lass funds for ea2h sub2ategor% of assets, 1hi2h translates into moniesE being
di=ided amongst different fund sponsors.
Along 1ith the ne1 open ar2hite2ture, regulator% reforms from the "'( ha=e 2reated
greater pressures for fund sponsors. Toda%, salesmen re2ei=e no spe2ial 2ompensation
for selling proprietar% funds, and bro?erage 2ommissions ma% not be used to re1ard
fund sales. The dis2losure reLuirements ha=e be2ome more onerous and 2onfusing,
and higher 2omplian2e 2osts and pri2e 1ars on indeB funds bet1een large sponsors
li?e 9anguard and 8idelit% ha=e put pressure on management fees. 8urthermore,
mutual funds ha=e had to 2ompete 1ith the rise in other 2olle2ti=e in=estment =ehi2les,
su2h as separatel% managed a22ounts, hedge funds, and eB2hange traded funds, all of
1hi2h ha=e seen substantial gro1th o=er the past fi=e %ears. These fa2tors ha=e made
it harder for the sponsors to sell affiliated funds. Thus, man% large bro?ers ha=e begun
to eBperien2e negati=e asset flo1s in their affiliated funds and ha=e 2onsidered..and in
some 2ases e=en ha=e gone through 1ith..releasing o1nership of their affiliated fund
business.
In this regard, there are t1o opposite trends. Merrill 0%n2h and (itigroup di=ested
their asset management arms to be2ome pure distributors be2ause these bro?ers had
trouble selling their proprietar% funds through third parties )n the other hand, 0ehman
brothers a2Luired Neuberger Berman, 1hi2h ?ept selling its branded funds through
third parties..as did the 9an &ampen funds, though the% 1ere a2Luired b% Morgan
"tanle%.
Moreo=er, in re2ent %ears, the fringe pla%ers in the industr% li?e ban?s and insuran2e
2ompanies 1ho a2Luired funds in the *KK,s ha=e realiMed that the industr% is =er%
2ompetiti=e, and that their in=ol=ement might not be as profitable as the% had first
assumed. "maller 2ompanies, in parti2ular, ha=e eBited the industr% due to 2ompetition
and due to the regulator% 2osts. /hen Mr. /allison as?ed Mr. PoMen to estimate the
effe2t of greater 2omplian2e 2osts, he replied that the 2osts probabl% amount to
an%1here bet1een t1o and fi=e basis points, gi=en that one must ta?e into a22ount
e2onomies of s2ale. Board meetings no1 ta?e t1o to three times longer than before,
funds must emplo% 2hief 2omplian2e offi2ers and more staff, and mutual funds no1
fa2e hea=ier regulator% reLuirements as a result of "arbanes.)Ble%, 1hi2h 1as not
e=en intended for mutual funds.
Paul "te=ens
In=estment (ompan% Institute
Mutual funds throughout their modern histor% ha=e eBhibited the hallmar?s of an
intensel% 2ompetiti=e mar?et..demonstrated in fees, ser=i2es and inno=ation..to the
benefit of 2onsumers.
8irst of all, the mutual fund industr% has a large number of firms, none of 1hi2h
dominate. In=estors 2an sele2t from o=er 7,,,, funds offered b% more than H,,
different firms. A22ording to the #erfindahl.#irs2hman IndeBes that measure industr%
2on2entration, the mutual fund industr% is 2onsidered un2on2entrated, 1ith the top fi=e
firms 2ontrolling less than +, per2ent of assets. Not onl% do mutual funds 2ompete
amongst themsel=es, but the% also fa2e 2ompetition from other in=estment ser=i2es,
su2h as insuran2e produ2ts, separate a22ounts, hedge funds, and ban? trusts.
"e2ond, the mutual fund industr% is 2hara2teriMed b% lo1 barriers to entr% and eBit.
'=er% %ear, hundreds of ne1 funds are 2reated, and hundreds of pre.eBisting funds are
merged or liLuidated. )f the top ten firms from *K7H, onl% fi=e of those remain in the
top ten in -,,H.
Third, the industr% has a =ast number of people..o=er K, million indi=iduals in o=er H,
million households..in=esting in mutual funds and 2hoosing bet1een a 1ide range of
options. The Internet and fund supermar?ets ma?e it easier for in=estors to s1it2h
bet1een 2ompeting fund firms, and data sho1s that in=estors do =ote 1ith their
feet. 'a2h %ear from *KK, and -,,H, bet1een a Luarter and a half of all mutual fund
2ompleBes eBperien2e net 2ash outflo1s.
8ourth, in=estors ha=e a22ess to a =ast amount of information about mutual funds,
espe2iall% than?s to the Internet. In addition, it is e=ident that in=estors and finan2ial
ad=isers in2orporate 1hat the% learn into their de2isions. )=er three.fourths of sto2?
and bond fund assets are held in funds 1ith abo=e.a=erage ten.%ear performan2e. Also,
approBimatel% K, per2ent of the assets of sto2?s and bond funds are in=ested in lo1.
2ost funds. This mar?et pressure has been a dri=ing for2e in the redu2tion of the 2osts
of o1ning mutual funds, 1ith fees ha=ing fallen b% nearl% H, per2ent sin2e *K7,.
More e=iden2e of 2ompetition is the fa2t that funds ha=e underta?en substantial
inno=ations in in=estor ser=i2es.
The su22ess of mutual funds has been in large measure due to the 2ompetiti=eness of
the industr%. #o1e=er, there is the potential that re2ent and proposed regulations 2ould
undermine that 2ompetiti=eness. (omplian2e 2osts, for eBample, 2an be parti2ularl%
onerous for small fund sponsors, 1hi2h do not benefit from e2onomies of s2ale as
mu2h as large fund sponsors do. Re2ent trends indi2ate that smaller firms are
1ithdra1ing from the mutual fund industr%, and it is probable that others 1ill be
deterred from entering. This is parti2ularl% important gi=en that HK per2ent of fund
sponsors manage less than G* billion in assets. Also, in2reased regulation 2ould
en2ourage 1ealthier in=estors to shift their mone% into alternati=e produ2ts, su2h as
2olle2ti=e in=estment trusts, hedge funds, and separate a22ounts.
Also in response to a Luestion from Mr. /allison about the apparent 2ontradi2tion
bet1een in=estorsE use of the Internet to do their o1n resear2h and their use of
ad=isers, Mr. "te=ens noted that the dis2losure regime o=erseen b% the "'( must be
designed to meet the needs of in=estors 1ith Luite different preferen2es, as 1ell as
anal%sts, ad=isers, and the media. #e pointed out that full% 7, per2ent of fund shares
sold in=ol=e some professional finan2ial intermediar% pro=iding help and ad=i2e to the
underl%ing 2ustomer.
Robert G. Dorse%
ltimus 8unds "olutions, 00(
)=er the past three %ears, there has been a net redu2tion in the total number of funds,
but an in2rease in the total number of share 2lasses. "hare 2lasses ha=e in2reased
be2ause fe1er produ2ts are being distributed through multiple 2hannels. The number
of mone% mar?ets funds and bond funds has been le=eling off. Both produ2ts are
similar to 2ommodities, and regarding mone% mar?et funds, it is diffi2ult for small
firms to profit off of them. Also, as ban?s ha=e merged, the% ha=e 2onsolidated
redundant produ2ts. 'Luit% funds, on the other hand, 1ill li?el% see gro1th. 8urther,
this is the area that smaller firms are out to ser=i2e.
'=en though the top t1ent%.fi=e fund 2ompleBes 2ontrol 6* per2ent of the industr%,
this lea=es a siMeable mar?et of G-.H trillion in 1hi2h the smaller firms 2an 2ompete.
Man% of these small firms are pri=ate, entrepreneurial, offer uniLue funds, and are
oriented to1ards gro1th and =alue. In order for man% small firms to be 2ompetiti=e,
the% 2ap their eBpense ratios, and the ad=isers absorb an% additional 2osts. In general,
as total fund assets in2rease abo=e G*,, million, the fund begins to benefit from
e2onomies of s2ale. #o1e=er, 1hile entr% into the industr% is fairl% ineBpensi=e,
su22ess in the industr% has be2ome more 2ostl%. #igher operating 2osts end up
negating the benefits of e2onomies of s2ale, and thus the eBpense ratios see little
de2line.
)ne of the fa2tors behind the 2ost in2reases are the 2omplian2e 2osts. Not onl% do
funds end up pa%ing the salaries of a ne1 2hief 2omplian2e offi2er and staff, the
2ompan% must also pa% to send them to edu2ational seminars, as 1ell as 2o=er tra=el
2osts to in=estigate fund =endors. 8urther, no1 that boards are more engaged, the
boards themsel=es are tra=eling to monitor the offi2es of ser=i2e pro=iders.
0egal fees ha=e also in2reased. Be2ause the board and 2ommittee meetings are more
time 2onsuming and the do2uments li?e the prospe2tus ta?e longer to read, the 2ounsel
bills more hours. Also, due to P(A)B reLuirements and greater s2rupulosit% b% the
board, auditors no1 ha=e more 1or?. 8urther, insuran2e premiums ha=e in2reased.
Mi2hael "harp
(itigroup
(itigroupEs de2ision to sell off 2ontrol of its fund business in -,,H 1as ultimatel% the
result of the open ar2hite2ture that the firm had begun to de=elop in the *KK,s. B%
distributing other 2ompaniesE funds, the per2entage of (itigroup funds distributed b%
(itigroup naturall% began to de2line. As (itigroup 1as 2hanging its ar2hite2ture during
the *KK,s, the firm sought to remo=e 2onfli2t of interest from the point of sale b%
amending the pri2ing stru2ture and 2hanging the 1a% salesmen 1ere paid. This also
had an effe2t in de2reasing the distribution of proprietar% funds. In -,,- and -,,:,
1hen firms fell under e=en stronger regulator% s2rutin%, that trend 1as eBa2erbated as
(itigroup redoubled its efforts to eliminate 2onfli2ts of interest and as bad publi2it%
about 2onfli2t of interest going on in the media had the effe2t of getting our 2lients and
our 8as more interested in nonproprietar% produ2ts. B% -,,H, 77 per2ent of mutual
funds distributed b% (itigroup 1ere non.proprietar% funds.
In the end, (itigroup found that proprietar% sales 1ere not important and instead
1anted to fo2us on distribution, 1hi2h earned higher re=enues. In fa2t, (itigroup had
alread% sold off its insuran2e business in -,,: and its =ariable annuit% business in
-,,H. No1 that (itigroup no longer has 2ontrol o=er its o1n funds, it 2an fo2us on
pro=iding in=estors 1ith eBa2tl% 1hat the% need.

B!..1 B!.b!s+ is a partner at /ill?ie 8arr S Gallagher 00P. #e ser=es as the head of
the firm>s Asset Management Group and is a member of the firm>s 'Be2uti=e
(ommittee. #is pra2ti2e in=ol=es ad=ising finan2ial ser=i2es 2ompan% 2lients on a
1ide range of transa2tions and regulator% matters, in2luding those pertaining to the
"e2urities and 'B2hange (ommission @"'(A. Among his areas of eBpertise are mutual
and 2losed.end "'(.registered fund operations and regulation, hedge fund formation
and regulation, pri=ate eLuit% fund stru2turing and finan2ing, =enture 2apital fund
operations and offerings, fund go=ernan2e, mergers and a2Luisitions in the in=estment
management industr%, and in=estment management distribution and mar?eting matters.
8rom *KK: to *KK7, Barbash ser=ed as the dire2tor of the "'( Di=ision of In=estment
Management, 1here he had prin2ipal o=ersight responsibilit% for the .". mutual fund
industr%, .". and non..". in=estment managers, and ."..based or sponsored pri=ate
funds.
Me./e. B,""!.* is an assistant professor of la1 at the ni=ersit% of Mississippi
"2hool of 0a1, 1here he tea2hes 2ourses on se2urities, ban?ing, 2orporations, and
2orporate finan2e la1. #e is the founder and president of 8und Demo2ra2%, an
ad=o2a2% group for mutual fund shareholders. Bullard has testified before #ouse,
"enate, Department of 0abor, and "tate 2ommittees on a =ariet% of regulator% issues
on topi2s su2h as mutual funds, H-K plans, and +,*@?A plans. #e has appeared on NBC
Ni",tl% Ne0s 0it, T$# Br$(a0, CBS E.enin" Ne0s, CNBC, CNN, 'all Street 'ee(,
and T,e Ne0s:$ur 0it, -i# Le,rer, and has been featured in Business 'ee(, M$ne%
Ma"a5ine, and other publi2ations. #e has also been Luoted in most ma<or ne1spapers
and finan2ial publi2ations on se2urities.related matters. #e 1as named b% In.est#ent
Ne0s as one of the most po1erful =oi2es in the finan2ial ser=i2es industr% in -,,*, b%
a mutual fund trade publi2ation as one of four W8und TitansX for -,,:, and b%
Re"istered Rep. magaMine as one of WTen to /at2hX for -,,+. Bullard 1as formerl% an
assistant 2hief 2ounsel at the "e2urities and 'B2hange (ommission.
M!.1 B,s+ is the founder and president of Bush International, 1hi2h ad=ises
2orporate and go=ernmental 2lients on international finan2ial mar?ets and business
de=elopment strategies. "he is a member of the boards of Dis2o=er 8inan2ial "er=i2es,
A0 (orporation, ManTe2h International, Briggs and "tratton, Brad% (orporation,
and the Pioneer 8amil% of Mutual 8unds. Appointed b% President George /. Bush,
she is 2hairman of the #elping to 'nhan2e the 0i=elihood of People @#'0PA
(ommission, a (ongressionall% 2hartered 2ommission 1hose goal is to impro=e the
effe2ti=eness of .". foreign aid. Pre=iousl%, she ser=ed as the head of the
International 8inan2e Department at 8annie Mae and as a ban?er 1ith Ban?ers Trust
and (itiban?. #er publi2 se2tor eBperien2e in2ludes past positions as the .".
go=ernment>s representati=e on the International Monetar% 8und board, as the head of
the 8ederal #ome 0oan Ban? "%stem, and as a board member of "allie Mae.
P!," Ste3e&s has been president and (') of the In=estment (ompan% Institute @I(IA,
the national asso2iation of .". in=estment 2ompanies, sin2e -,,+. #e is also a
dire2tor of the I(I Mutual Insuran2e (ompan%. 8rom *KK: to *KK6, he 1as general
2ounsel of I(I. )utside I(I, "te=ensEs 2areer has in2luded =aried roles in pri=ate la1
pra2ti2e, 2orporate 2ounsel, and go=ernment ser=i2e. #e has 1or?ed as a partner and
leader of the finan2ial ser=i2es pra2ti2e at De2hert 00P and has been the 2hief 2ounsel
for mutual funds and international enterprise at (harles "2h1ab S (o. Bet1een *K7H
and *K7K, Mr. "te=ens ser=ed as spe2ial assistant for national se2urit% affairs to
President Reagan, as eBe2uti=e se2retar% and legal ad=iser of the National "e2urit%
(oun2il, and in other senior positions at the /hite #ouse and the Pentagon. pon
lea=ing go=ernment ser=i2e, he 1as a1arded the Department of Defense @D)DA Medal
for Distinguished Publi2 "er=i2e, D)D>s highest 2i=ilian de2oration.
Pete. J5 W!""is(& <oined A'I in !anuar% *KKK, is 2urrentl% a senior fello1 and 2o.
dire2tor of A'I>s program on finan2ial mar?et deregulation, and holds the Arthur 8.
Burns (hair in 8inan2ial Mar?et "tudies. #e pre=iousl% pra2ti2ed ban?ing, 2orporate,
and finan2ial la1 at Gibson, Dunn S (rut2her in /ashington, D.(., and Ne1 Yor?.
8rom !une *K7* to !anuar% *K7H, Mr. /allison 1as general 2ounsel of the nited
"tates Treasur% Department, 1here he had a signifi2ant role in the de=elopment of the
Reagan administration>s proposals for deregulation in the finan2ial ser=i2es industr%.
#e also ser=ed as general 2ounsel to the Depositor% Institutions Deregulation
(ommittee and parti2ipated in the Treasur% Department>s efforts to deal 1ith the debt
held b% less.de=eloped 2ountries. During *K7C and *K76, Mr. /allison 1as /hite
#ouse 2ounsel to President Ronald Reagan. Bet1een *K6- and *K6C, Mr. /allison
ser=ed first as spe2ial assistant to Go=ernor Nelson A. Ro2?efeller and, subseLuentl%,
as 2ounsel to Mr. Ro2?efeller 1hen he 1as =i2e president of the nited "tates
M.S.Na&asim+an
The sentiment of the mar?et remained positi=e. The "enseB appears to be mo=ing up
1ith primaril% on eBpe2tation of budget sops.
Despite a fe1 1arnings from the go=ernment that the neBt budget 1ill be harsh, the
old e2onom% sto2?s ha=e attra2ted 2onsiderabl% bu%ing. Another 2riti2al fa2tor that
had 2onsiderable bearing on the 2urrent uptrend 1as the absen2e of support from
institutional in=estors. Both domesti2 institutions and 8IIs turned net sellers during the
1ee?.
It is no1 offi2iall% 2onfirmed that the GDP gro1th 1ill be lo1er than the target and
manufa2turing se2tor has 2ontributed signifi2antl% to the slo1do1n. /hile the mar?et
is eBpe2ting a redu2tion in the interest rates to boost the e2onom%, the go=ernment is
fa2ing the problem of high inflation. This effe2ti=el% restri2ts a 2ut in interest rates.
Gi=en these 2onstraints, the mar?et is unli?el% to get an% ma<or 2on2ession from the
budget. Though the old e2onom% sto2?s 2ontinue to lead the mar?et, it is diffi2ult to
find a natural support for sustaining the present mar?et trend for a long period. The
re2ent uptrend is thus alread% sho1ing signs of 1ea?ness b% mo$ing into a
side#a' pattern.
The mar?et opened 1ith a minor loss on Monda% 1hile the there 1as a sharp
o=ernight de2line at the NA"DAQ mar?et. #o1e=er the "enseB re2o=ered during the
2ourse of the da% e=en as the soft1are sto2?s 1ere pushed to the sidelines. After
2rossing ++,,.mar? during intra.da% session on Tuesda%, the "enseB 2losed 1ith a
marginal gain but belo1 ++,, for Tuesda%.
The de2ision of the go=ernment to impose a ban on smo?ing in publi2 pla2e 2oupled
1ith the restri2tion on the ad=ertisement norms appli2able to toba22o 2ompanies has
triggered selling pressure in IT(. This affe2ted the mar?et sentiment on /ednesda%
but the "enseB found support at the +:,, le=el. The "enseB re2o=ered ground on
Thursda% and 2losed 1ith a marginal gain on 8rida%.
/hile I(I(I topped the gainers list b% posting a gain of --.7J for the 1ee?, Tis2o,
B#'0, 0ST, GlaBo and "BI re2orded a gain of more than *, per 2ent. Despite sharp
gains reported b% se=eral other old e2onom% sto2?s, the "enseB re2orded a marginal
gain of about * per 2ent. The poor performan2e of the soft1are and and tele2om se2tor,
has affe2ted the mar?et sentiment.
The P" sto2?s eB2ept B#'0 ha=e failed to sustain the uptrend and man% of them
1ere ba2? to their pre=ious 1ee?Es le=el. It is 1orth1hile to note that the% 1ere in
limelight t1o 1ee?s ba2? follo1ing the go=ernmentEs de2ision to speed up the
disin=estment pro2ess. As the mone% is mo=ing from one se2tor to the other, the old
e2onom% pre.budget h%pe 1ill find its natural end soon. It is desirable to boo? profit
periodi2all% and shift the positions to other se2tors 1here the mar?et interest is %et to
pi2?.up.
The ma2ro.te2hni2al indi2ators are also not =er% supporti=e of the sustenan2e of the
2urrent uptrend of the mar?et. The ad=an2e.de2line ratio, 1hi2h sho1ed some
di=ergen2e on 8rida% last, 1as set right on Monda%. The A.D ratio 1as mo=ing <ust
abo=e one during the 1ee?.
The trading =olume has de2lined in both B"' and N"' and a2ross all groups. 8IIs,
1ho ha=e been aggressi=e bu%ers sin2e !anuar%, ha=e turned net sellers for the first
time during the 1ee?. The% 1ere net seller for more than Rs. :,, 2rores during the
1ee?. Aggressi=e selling b% the mutual funds 2ontinued for the fifth 1ee? in ro1.
The mo=ing a=erages are still on the uptrend but ha=e lost momentum 2onsiderabl%.
The "enseB has almost tou2hed the -,, D'MA on Thursda% before re2o=ering and
posting a gain. The "enseB has supports at +-K, and +-H, in the short.run. Belo1
these t1o le=els, the "enseB 2ould find support at +*6H and +*C6. The 2on=ergen2e of
H, and *,, D'MA is li?el% to trigger a sharp uptrend in the short.run.
There is no strong resistan2e at higher le=el in the immediate future for the "enseB.
The B"'.*,, on the other hand, struggling to re2o=er its lost ground. Though intra.
da% high of B"'.*,, 1as abo=e this le=el on 8rida%, the indeB 2losed sharpl% lo1er
follo1ing huge selling in the ne1 e2onom% sto2?s.
The intermediate indi2ator, MA(D, is sho1ing sign of 1ea?ness and the distan2e
bet1een the MA(D and its trigger has drasti2all% narro1ed do1n. 8or both indi2es,
the gap is <ust H points. 8urther, the indi2ator rea2ts around 7, points during the
bearish trend. The MA(D has alread% rea2hed 6+.*H on 8rida% and has turned sin2e
turned flat. A marginal de2line on Monda% or a side1a%s mo=ement for neBt three
da%s 1ould 2ompletel% 2hange the intermediate set up of the mar?et. A 2lose 1at2h of
long positions is reLuired at this stage.
The short.term indi2ators are at o=erbought le=el and are pro<e2ting a bearish pi2ture.
The H.da% R)( has marginall% mo=ed up1ard 1ithout 2ompleting the full 2%2le for
the se2ond 1ee? and a do1n1ard pressure ma% set in at an% mo=ement. In fa2t, the
indeB hea=%.1eighted sto2?s ha=e rea2ted negati=el% and lost 2onsiderable =alue
during the 1ee?. The R"I is pla2ed at CH.+H for "enseB and CK.+, for the B"'.*,, as
against the traditional o=erbought le=el of 6, points. The indi2ator again points out
that a short.term 2orre2tion is long o=erdue.
The "to2hasti2 )s2illator has mo=ed 2lose to resistan2e le=el again after seeing a
minor mid.1ee? 2orre2tion. This indi2ator also shares the short term bearish =ie1
portra%ed b% the other t1o short.term indi2ators.
The mar?et has passed one more 1ee? 1ithout an% ma<or 2hange in the te2hni2al
position. Despite a fe1 negati=e ne1s, the budget eBpe2tations are running high 1hi2h
is attra2ting trader interest into se2tors, 1hi2h are li?el% to benefit from the budget.
#o1e=er, the funds are mo=ing from one se2tor to other and profit boo?ing is seen at
e=er% le=el. Though long positions reLuire no re=ision at this stage, liLuidate a part of
the holding if "enseB de2lines belo1 +-K,. 8resh long positions 2an be 2onsidered but
the% need to be se2tor spe2ifi2 and a freLuent re=ision ma% be 1arranted at e=er%
stage. "2ope for short selling is to be a=oided till the "enseB falls belo1 +*6H. "in2e
=olatilit% of mar?et 1ill be high for the neBt fe1 da%s, a 2lose monitoring and stop loss
are reLuired to prote2t the profit earned during the uptrend.
%.is+&!& T+i!0!.!-!&
T#' slo1do1n in IT spending in the " has suddenl% shifted the spotlight to the
business ris?s asso2iated 1ith soft1are 2ompanies in India. As long as the industr%
1as gro1ing at a 2ompounded annual gro1th rate @(ARGA of o=er H, per 2ent in the
last fi=e %ears, in=estors hardl% 2ared about the _high.ris?.high returnE soft1are model
being emplo%ed b% frontline soft1are 2ompanies.
The ris? element in soft1are ser=i2es has been steadil% in2reasing sin2e the mid.
*KK,s, a pro2ess that began 1ith soft1are 2ompanies tr%ing to mo=e up the =alue
2hain. A2tuall%, the mo=ement up the =alue 2hain is a fun2tion5interpla% of t1o ?e%
elements .. _re=enuesE and _marginsE.
/hile in the mid.*KK,s, soft1are 2ompanies 1ere able to build up adeLuate business
=olumes @or re=enuesA from relati=el% lo1.end 1or?, su2h as _portingE @shifting
eBisting appli2ations from one platform to anotherA, migration and maintenan2e,
gro1ing 2ompetition and the lo1 ris? asso2iated 1ith these pro<e2ts led to a pressure
on margins.
"hifting s2ales easil%, but...
To shore up margins e=en as the% tried to build business =olumes, Indian soft1are
2ompanies started to ma?e fora%s into su2h assignments as s%stems integration, 'RP,
and business pro2ess re.engineering, 2oupled 1ith lo1.end 2onsulting ser=i2es.
The 2ompanies also attempted to s1it2h from the stead%.state Y-& pro<e2ts in late
*KKK to e.2ommer2e in earl% -,,,. And the industr% 1as su22essful in both, as the
soft1are ser=i2es se2tor has gro1n from G*.*- billion @Rs +,*K, 2roreA in *KKH.KC to
around GH.H billion @Rs -:,CH, 2roreA in *KKK.-,,, .. a (ARG of HC.: per 2ent.
"oft1are eBports, the ?e% 2ontribution of IndiaEs soft1are ser=i2es industr%, gre1 from
G,.6: billion to G+ billion o=er this period.
8o2us on ris? element
#a=ing rea2hed this _2riti2al massE, ho1e=er, there is no1 s2epti2ism about the se2torEs
future. The te2h slo1do1n in the " has raised doubts about the potential for soft1are
eBports from India. 8or the first time, doubts are being eBpressed about the abilit% of
the Indian soft1are industr% to a2hie=e the staggering gro1th rates of the past de2ade.
As the soft1are ser=i2es industr% bra2es itself for a big test of enduran2e, strength and
s2alabilit%, the fo2us has shifted from _returnsE to the _ris? elementE for soft1are
2ompanies.
As the soft1are segment, 1hi2h no1 a22ounts for less that - per 2ent of the global IT
industr%, gears up for pro<e2ted eBports of GC.-+ billion in -,,,.,* and GK.H billion in
-,,*.,-, the follo1ing obser=ations be2ome rele=ant in the _ris?.returnE 2onteBt$
VIn a d%nami2 industr% su2h as soft1are, tra2?ing ris?s is an integral element of
2orporate go=ernan2e. As the industr% matures, shareholders and in=estors 1ill
in2reasingl% be 2alled upon to e=aluate the Lualit% of management based on the ris?.
mitigation strategies adopted b% different 2ompanies.
VThe listing of more and more 2ompanies on NasdaL or the NY"' has impro=ed the
Lualit% of information a=ailable to shareholders. As 2ompanies @espe2iall% the
medium.siMed onesA start furnishing finan2ial statements in a22ordan2e 1ith the "
Generall% A22epted A22ounting Prin2iples @GAAPA and the Indian GAAP, the Lualit%
of information flo1s 1ill impro=e the o=erall =aluation pro2ess.
V8rontline 2ompanies, su2h as Infos%s Te2hnologies, /ipro, #(0 Te2hnologies,
"at%am (omputer "er=i2es and NIIT, ha=e 2onsistentl% en<o%ed a higher =aluation @or
pri2e earnings multipleA relati=e to their medium.siMed peers. The premium element
embedded in their =aluation is largel% a refle2tion of their superior ris?.mitigation
strategies and ris?.handling 2apabilities =is.a.=is their se2ond. and third.tier peers.
Business 0ine eBamined these ris? fa2tors for fi=e frontline 2ompanies .. Infos%s
Te2hnologies, /ipro, #(0 Te2hnologies, "at%am (omputer "er=i2es and NIIT
@1here rele=antA =is.a.=is medium.siMed 2ompanies su2h as Maste?, Digital
'Luipment, "il=erline Te2hnologies and Polaris "oft1are o=er the first three Luarters
of -,,,.,* and 2ame up 1ith the follo1ing 2on2lusions$
(lient 2on2entration
Among the frontline 2ompanies, Infos%s Te2hnologies has arti2ulated a 2lear.2ut 2lient
2on2entration poli2%, 1hi2h states that it has 2hosen to limit the re=enue from an% one
2lient to *, per 2ent of its re=enues. All the other frontline 2ompanies, too, ha=e su2h
poli2ies, but the% ha=e not been spelt out 2learl%.
"imilarl%, all the frontline 2ompanies ha=e also tried to ?eep the proportion of
re=enues from the top.fi=e and top.ten 2lients 1ithin manageable le=els, to ensure a
1ider 2lient base and lo1er =olatilit% in re=enues @see TableA. Among the four, the
lo1est proportion of the top.fi=e and top.ten is that of #(0 Te2hnologies, and the
highest "at%am (omputer "er=i2es.
The 2lose s2rutin% of 2lient 2on2entration le=els appears to ha=e helped almost all the
?e% 2ompanies to 1eather this ris? effe2ti=el%. 8or instan2e, Infos%s lost a fi=e.%ear
2ontra2t 1orth -7 million pound sterling from !. "ainsbur%, the British department
store, after the latter outsour2ed its IT fun2tions to Andersen (onsulting. As it
a22ounted for less than * per 2ent of its re=enues, Infos%s 1as able to ride out of the
2risis. "imilarl%, #(0 Te2hnologies, 1hi2h 1as doing some outsour2ing 1or? for
Pri2eline.2om, ", 2ut do1n its business eBposure, after Pri2eline started sin?ing in
the " in the third Luarter of -,,,, and did so 1ithout affe2ting its o=erall re=enue
gro1th.
But the biggest 2risis 1as fa2ed b% /ipro, 1hen it de2ided to 2ut do1n its eBposure to
its largest 2lient, General 'le2tri2, ". In the ADR Registration "tatement, filed in
)2tober -,,, 1ith the "e2urities and 'B2hange (ommission, /ipro re=ealed that
General 'le2tri2 1as its biggest 2lient, a22ounting for *H per 2ent and *, per 2ent of its
re=enues as of Mar2h :*, -,,, and !une :,, -,,, respe2ti=el%. It also said it
anti2ipated a signifi2ant redu2tion in the ser=i2es performed for one of the top fi=e
2lients o=er a one.%ear period.
Along 1ith its third.Luarter earnings performan2e, /ipro announ2ed that it has
de2ided to part 1a%s 1ith G', and the 2ontra2t 1ould not be rene1ed 1hen it eBpires
in Ma% -,,*. B% s%stemati2all% redu2ing the eBposure to G' to C per 2ent b% the third
Luarter of -,,,.,*, and 1ith Nortel be2oming its top 2ustomer 2ontributing 7 per 2ent
to re=enues, /ipro has defused a ma<or 2risis.
Although /ipro 1ill 2ontinue to fa2e the 2hallenge of repla2ing G' 1ith other 2lients,
it has ta2?led the issue 1ithout signifi2antl% impa2ting its profitabilit%. (learl%, the
1ider 2lient base has helped frontline 2ompanies handle the issue of 2lient
2on2entration better than medium.siMed 2ompanies.
Geographi2al di=ersit%
As the prospe2t of a " slo1do1n be2ame 2learer, all the top 2ompanies made
2ons2ious attempts to redu2e their dependen2e on the ". But the " 2ontinues to be
the ?e% destination for soft1are eBports from India @see TableA. /hile /ipro, 1ith a
C+ per 2ent 2ontribution, has the lo1est eBposure to the North Ameri2an region, #(0
Te2hnologies has the highest.
Infos%s and "at%am are in.bet1een, 1ith eBposures of around 6+ per 2ent. Almost all
these 2ompanies attempted to broadbase their geographi2al rea2h, but the% 1ere onl%
marginall% su22essful in their effort. /ipro, 1ith a 2ontribution of -7 per 2ent from
'urope and 6 per 2ent from !apan, appears to ha=e the best geographi2al spread among
frontline peers.
Pro<e2t t%pe
8rom the per2entage 2ontribution of fiBed pri2e, it is ob=ious that the frontline
2ompanies ha=e a long 1a% to go in underta?ing full management responsibilit% for
pro<e2ts. Infos%s has been tr%ing to 2onsistentl% impro=e the 2ontribution of fiBed pri2e
2ontra2ts, 1hi2h stood at -K.+ per 2ent of re=enues in the third Luarter ended
De2ember :*, -,,,, up from -6.C per 2ent and -C.C per 2ent in the first t1o Luarters
respe2ti=el%.
"at%amEs 2ontribution from fiBed pri2e 2ontra2ts has de2lined marginall%, from -+.*
per 2ent in the se2ond Luarter to -:.- per 2ent in the third Luarter of -,,,.,*. /ipro,
1ith a fiBed pri2e 2ontra2t 2ontribution of *6 per 2ent, is impro=ing its position but it
is still far behind Infos%s and "at%am
"an<i= "han?aran
Dr Pratap (. Redd%, 'Be2uti=e (hairman, Apollo #ospitals 'nterprise 0td, is perhaps
the best person in India to tal? about the pro=ision of health2are ser=i2es as a business
proposition.
Apollo pioneered the 2on2ept of 2orporate hospitals in India and is regarded as a
referen2e point b% peers.
In an inter=ie1 to Business 0ine, Dr Redd% ga=e a birdEs e%e =ie1 of the de=elopments
in health2are and eBplained 2riti2al parameters of ApolloEs operations.
Te2hnologi2al 2hange and health2are$
In the last fe1 de2ades there has been a te2hnolog% eBplosion in health2are. Diseases
that 2ould not be treated and diagnosis ha=e been brought into the ambit.
)n the treatment side, theatre support plus =arious gadgets ha=e helped the surgeon
approa2h areas and do surgeries 1ith greater safet%. The ultimate is 1hat Apollo is
doing 1ith li=er transplant 1here 1e are doing transplants from a li=e donor. /e ha=e
done *,, bone marro1 transplants. To do so, 1e ha=e to 2reate 2onditions of near.Mero
infe2tion.
'2onomi2s of a hospital$
A se2ondar% 2are hospital, to perform ma<or surgeries, should ha=e a minimum of *,,
beds. The 2ost is Rs *+.*H la?h per bed. About Rs *H 2rore is reLuired for a high
se2ondar% 2are hospital. 8or tertiar% 2are hospital @super spe2ialit%A, the 2ost <umps to
Rs :H.+, la?h per bed.
"ome people thin? that to do a heart surger% 1h% are other things needed. This is a
ma<or mis2on2eption. /ho is a heart patientU Probabl% a diabeti2. This is 1h% Apollo
started as a 2omprehensi=e hospital. A multi.dis2iplinar% approa2h is needed.
Diagnosti2 eLuipment$
/hen Apollo started, (T s2an 1as the best te2hniLue a=ailable. Toda% there are
probabl% -,,, (Ts in the 2ountr%. /hen Magneti2 Resonan2e Imaging @MRIA 2ame,
1e bought one, the first in India. All these spe2ial eLuipment that gi=e more
information to do2tors add to the 2ost. The ne1 de=elopments are eBpensi=e at the
start. But if utilised better, 2osts 2omes do1n.
(ontinuousl%, te2hnolog% is being updated. /e are able to adapt. M% 2on2ern is that it
2annot rea2h all people. This is 1here pri=atisation of health insuran2e should help a
lot people get adeLuate health2are for their needs. This is a gift for all people.
'=er%bod% 2an get the benefits of insuran2e if the appli2ation is 1ider. This is 1hat 1e
must push. If 1e 2an use it in proper manner, its great.
Go=ernment attitude$
I am =er% disappointed that e=er% go=ernment ma?es promises and does nothing. It is
:, %ears sin2e I 2ame ba2? from the " and listened to all Budgets. Budgets <ust sa%
in2rease (ustoms dut% on this or redu2e on that. Is that the health of a nationU In the
/est people en<o% good health, %et the priorit% of the go=ernments is health2are.
Pre=iousl% I used to represent, and reLuest the go=ernment to de2lare health as
infrastru2ture. But I donEt blame the Go=ernment...1hen its offi2ials 1ant, the% 2an get
health2are from an%1here in the 1orld. The se2ond thing is there is no po1erful lobb%
for health.
#ealth is something %ou thin? of 1hen it hits %ou. Ne=er a planned e=ent. That is 1h%
the healthplan is in total disarra%.
$
It has a signifi2ant role. This is 1here 1e thought 1e 2an pla% a bigger role be2ause
1e are net1or?ing the 1hole 2ountr%. "o far 1e ha=e re2ognised K7, 2entres in almost
e=er% distri2t. I 2an ser=e better the people, b% rea2hing out through m% net1or?, 1ith
better health2are s%stem and being an a2ti=ator from both sides.
8rom IT" side, so that the people 1ho are insured rea2h the pro=ider net1or? .. that is,
the do2tors, 2lini2s and hospitals .. plus ta?e 2are of the patients b% monitoring his 2are
path1a%s...and, finall%, the 2ontainment of 2osts. This 1here 1e ha=e de=eloped
=arious s%stems. I 1ould sa% managed 2are in a different language, but I 2annot 2op%
an Ameri2an s%stem and bring it to India.
The last ten %ears 1e ha=e 1or?ed on this angle of Third Part% Administrator @TPAA to
Medi2laim poli2ies so 1e ?no1 the =arious defi2ien2ies. Te2hnolog% has 2ome in
hand% for us to be able to 2onne2t the =arious pla2es. /e 1ill be able to ser=e a larger
se2tion as TPA. /e ha=e applied for a li2en2e to be2ome a TPA.
(lini2al trials in hospitals$
This is a big role that India should pla%. Pre=iousl%, unfortunatel%, the% brushed off
India be2ause 1e 1ere not honestP 1e didnEt ha=e s%stems. At Apollo o=er the last
three %ears, 1e ha=e stabilised medi2al re2ords, data 2apturing and 2oding. Toda%, 1e
are doing approBimatel% -, studies appro=ed b% the "E 8ood and Drug
Administration @8DAA. That means studies going on here in Boston, #ouston or !apan,
1here=er, that standard 1e ha=e a2hie=ed. This is a big role that Apollo 1ill pla% in
2lini2al trials.
Role of information te2hnolog%$
/e are using IT as a po1er to enhan2e @health2areA deli=er%. IT should ma?e it
a=ailable for all people at all times, 1hat 1e 2all tou2hing li=es. "o 1hat 1e ha=e done
through IT is three.phased. 8or the 2ommon man, 1e ha=e gi=en him e=er%thing to
sta% 1ell, from the 1omb to the old age. If he gets a disease, he is told ho1 to manage.
If he needs medi2al help he 2an 2onta2t us.
8or the do2tor 1e ha=e done things in totalit%. )ne, 1e ha=e gi=en soft1are to manage
his patients and do2ument it. "e2ond, 1e ha=e gi=en him this insuran2e gate1a% so
that he gets insured patients and business. Most important, 1e ha=e augmented his
earnings. /e ha=e 2reated a =irtual medi2al uni=ersit%.
Apollo #ospitalsE state$
"?illed do2tors, 2ompetent ba2?.up staff, and eBpensi=e te2hnolog% ha=e made for
su22ess. This is 1here the 2orporate philosoph% has 1or?ed. Toda%, 1e ha=e :,,,,
beds. In e=er%thing, 1e are able to a2hie=e 1orld.2lass results. /e are able to do it at a
fra2tion of the 2ost. A heart surger% abroad 2osts an%1here bet1een G-H,,,, and
G6H,,,,. #ere, it is G-,H,,.:,H,,. A bone marro1 transplant 2osts G+,,,,,, there.
#ere, it is G6,,,,,.
/e ha=e brought tremendous 2ost.2ontainment using safe te2hnolog%. This 1ill be a
plus point. India should leapfrog be2ause of lo1 2ost and s?ill. The third thing 1e ha=e
been able to gi=e is 2are, 2ompassion and lo=e. M% =ision is India 1ill soon be2ome
the ma<or health2are destination in the 1orld.
Toda%, H.:, per 2ent of our spe2ialit% ser=i2es are used b% outsiders and mindset of
people is 2hanging.
MiB of patients$
Normall%, in Apollo 1e ha=e three 2ategories of patients$ General 1ard, 1hi2h
2omprises about H, per 2ent of the patients, is 1here 1e tr% to brea?.e=en on these
patients. This is our ben2hmar?. /e add another -H per 2ent tariff for single rooms.
)=erall, 1e 1ill be able to get about 6 per 2ent of profit on the turno=er of the single
rooms. /e ha=e about -, per 2ent of deluBe and super.deluBe rooms and 1or? on a H,
per 2ent margin. These 2ontribute greatl%.
(ost stru2ture$
In a tertiar% 2are hospital, about +, per 2ent goes to materials, medi2ines. (lose to *H
per 2ent on staff @eB2luding do2torsA. Do2tors are on a fee.for.ser=i2e basis. /e ha=e
standardised their fee, the% 2annot 2harge more. The% 2annot 2harge more than the
range 1e ha=e gi=en them.
'le2tri2it% and fuel are ma<or eBpenses...in double.digit. /e ha=e a full ba2?.up in all
essential areas. Interest on debt is a ma<or 2ost, almost *, per 2ent. Around 6.7 per
2ent is 1hat 1e realise on a net basis. /e a22ount for depre2iation o=er *,.*H %ears.
But in realit% 1e repla2e our eLuipment in +.H %ears, %et a22ounting goes on for *:.*+
%ears.
)n the model for hiring do2tors$
Ninet% per 2ent of m% do2tors are full time. Patients 2ome here and see them. If the%
1ant to ta?e another opinion from other 2onsultants the% 2an do so. It is a 2ombined
s%stem. 8ee.for.ser=i2e is the model. The% are gi=en different 2harges for different
1ards. "taff support is borne b% us. Pharma2% 2hain is part of our groupP K, per 2ent of
pharma2% sales is for our o1n patients.
8oreB re=enue$
The Go=ernment does not gi=e us an% in2enti=e to 2olle2t in foreign eB2hange and
therefore 1e do not insist on patients pa%ing in foreB. If 1e get in2enti=es, as hotels
do, our foreign eB2hange earnings 1ill mu2h more.
)=erseas pro<e2ts$
'=er%thing 2omes under the Apollo umbrella. /here=er the Apollo name is there, onl%
Apollo manages. In India 1e are alread% managing a thousand beds. In the neBt t1o
%ears 1e 1ill manage another -,,, beds, o1ned b% others.
Business potential of management ser=i2es$
In the last *H %ears 1e ha=e de=eloped a programme of training te2hnologists of all
?inds. /e train nurses and, most important, hospital administrators. 9arious pro2esses
are do2umented. /ith IT, 1e are able to monitor and find out the smallest mista?e
done an%1here. /ithout being =ain, I 2an sa% that there is nobod% in the 1orld more
2ompetent in managing hospitals than us be2ause of our 2ost.effe2ti=eness and our
for1ard.thin?ing in establishing =arious institutes of training.
8or eBample, (olombo do2tors are being sele2ted e=en though the hospital 1ill be
read% after *+ months. The do2tors are going to be read% here for training. /e 2an do
this in our present s%stem but not it in the Ameri2an s%stem. I 2an pla2e essential
people in ne1 hospitals till their people get read%. Ameri2ans 2an do it, but it is not
2ost effe2ti=e. /e are, and 1ill 2ontinue to be, No. * in managing hospitals.
This is 1here I see a tremendous potential to manage hospitals a2ross the 1orld and
gi=e not onl% medi2al te2hnolog% but also management te2hnolog%.
In India, 1e are managing ** hospitals from about *,, beds to :,, beds. Toda% 1e are
ma?ing about Rs H 2rore per %ear on management fees. )f that about Rs + 2rore is
added to the bottomline.
#o1 do %ou des2ribe a t%pi2al Indian mutual fund in=estorU A Luestion probabl%
man% ad=ertisers 1ould as? mar?eting head hon2hos of mutual funds. A sur=e%
sho1ed that he @and not sheA is a2tuall% a +H.%ear.old married man 1ho is fi2?le
minded about his in=esting. /hile there ha=e been no gender related studies done in
the past, this sur=e% indi2ated that K-J of mutual fund in=estors 1ere a2tuall% men.
8or starters, the age fa2tor for Indian mutual fund in=estors almost resembled that of a
de=eloped 2ountr% li?e the ". NIs there a problem>, one ma% as?. There is, sin2e the
demographi2 brea? up of India is =er% different from that of the ". India is a %oung
2ountr% 1ith an a=erage age of :, %ears. More than H,J of Indians are belo1 the age
of :H %ears. In 2ontrast, the a=erage age of an Ameri2an is mu2h higher I around +H
%ears.
The statisti2s seem to indi2ate that %outh is splurging a lot more than sa=ing for
posterit%. (ars, snaMM% mobiles and 0oius 9uitton bags are ta?ing pre2eden2e o=er
sa=ings. More of them are also bu%ing houses I lea=ing little to sa=e. The a=erage age
of home bu%ing has been falling. It is do1n to :- %ears. "o 'MI pa%ments . and their
mo=ement abo=e I seem to be ?eeping them o22upied. /ith little to sa=e, the% aren>t
probabl% in=esting mu2h in mutual funds.
Does marital status affe2t the 1a% %ou in=estU Yes, if %ou are an Indian. "ome
insurers mention that the insuran2e poli2ies are usuall% bought after marriage. This is
be2ause the 2on2ept of ris? seeps into the mind of an a=erage Indian male onl% after
he ties the ?not.
/hat about the responsibilit% to1ards %ou parents during the ba2helor da%sU one ma%
as?. This is best left unans1ered.
Also 1ith in=estment @mutual fundA needs usuall% follo1ing that of ris? prote2tion,
the propensit% to in=est is lesser among the %outh. The a=erage mutual fund in=estor
is +H %ears old. Probabl% at this age he is freed from home loan debt to a2tual start
2on2entrating on in=esting needs.
A22ording to the sur=e%, Indian M8 in=estors 1ere found to be fi2?le minded unli?e
the " in=estors. In ", a22ording to I(I sur=e% -,,6, a=erage tenure of mutual fund
in=estment 1as fi=e %ears. *:J of its in=estors had an a=erage in=estment horiMon of
*, or more %ears, -6J 1ith an in=estment horiMon of H to K %ears, *HJ for : to +
%ears and -CJ for * to - %ears. In India, o=er the %ears the a=erage in=estment tenure
has, in fa2t, fallen from *7 months to less than a %ear.
#ea=% 2hurning of M8 portfolio Y than?s to uns2rupulous distributors, is bringing
do1n the a=erage holding period.
/hat>s the a=erage number of mutual fund s2hemes that an in=estor holdsU In the ",
it is + mutual funds and the statisti2 in India is not =er% different @fourA. /ith its
uniLue indi=idual 2hara2teris2ti2s, the Indian in=estor is trul% turning out to be an
enigma for M8 mar?eters.
N'/ Y)R& . Total mone% mar?et mutual fund assets rose b% GH,.7- billion to
G:.H,C trillion for the 1ee?, the In=estment (ompan% Institute said Thursda%.
Assets of the nationEs retail mone% mar?et mutual funds rose b% G7.*K billion in the
latest 1ee? to G*.-*7 trillion.
Assets of taBable mone% mar?et funds in the retail 2ategor% rose b% GH.7K billion to
GK*:.,C billion for the 1ee? ended /ednesda%, the /ashington.based mutual fund
trade group said. TaB.eBempt fund assets rose b% G-.:, billion to G:,H.:H billion.
Assets of institutional mone% mar?et funds rose b% G+-.C+ billion to G-.-76 trillion for
the same period. Among institutional funds, taBable mone% mar?et fund assets rose b%
G+-.:7 billion to G-.,K, trillionP assets of taB.eBempt funds rose b% G-HK million to
G*K6.CK billion.
The se=en.da% a=erage %ield on mone% mar?et mutual funds 1as un2hanged at *.7K
per2ent in the 1ee? ended Tuesda% from the pre=ious 1ee?, said Mone% 8und Report,
a ser=i2e of iMone%Net In2. in /estboro, Mass. The :,.da% a=erage %ield 1as
un2hanged at *.76 per2ent, a22ording to Mone% 8und Report.
The se=en.da% 2ompounded %ield 1as un2hanged at *.K* per2ent, and the :,.da%
2ompounded %ield 1as un2hanged at *.7K per2ent, Mone% 8und Report said.
The a=erage maturit% of the portfolios held b% mone% funds 1as ++ da%s, un2hanged
from the pre=ious 1ee?, said Mone% 8und.
The online ser=i2e Ban?rate.2om said its sur=e% of *,, leading 2ommer2ial ban?s,
sa=ings and loan asso2iations and sa=ings ban?s in the nationEs *, largest mar?ets
sho1ed the annual per2entage %ield a=ailable on mone% mar?et a22ounts rose to ,.6-
per2ent as of /ednesda% from ,.6* per2ent a 1ee? earlier.
The North Palm Bea2h, 8la..based unit of Ban?rate In2. said the annual per2entage
%ield a=ailable on interest.bearing 2he2?ing a22ounts 1as un2hanged at ,.-+ per2ent.
Ban?rate.2om said the annual per2entage %ield 1as *.KH per2ent on siB.month
2ertifi2ates of deposit, up from *.K- per2ent the pre=ious 1ee?. Yields 1ere -.-6
per2ent on *.%ear (Ds, do1n from -.-K per2entP -.H* per2ent on - *5-.%ear (Ds, up
from -.+6 per2entP and :.+: per2ent on H.%ear (Ds, up from :.:K per2ent.
)nline Resour2e Targets &e% Issues and 'Bperts Dri=ing Insuran2e Regulator%
ModerniMation
INDIANAP)0I" and /A"#INGT)N, !ul% *,, -,,7 5PRNe1s1ire."Ne1s1ire =ia
()MT';5 .. "ite features more than 7H abstra2ts, arti2les and resear2h sour2es
rele=ant to insuran2e industr% regulation The start of the -,,7 hurri2ane season, the
role of rising health 2are 2osts in the -,,7 ele2tion and the 2urrent 2risis in the
finan2ial mar?ets are <ust a fe1 of the issues impa2ting the insuran2e regulator%
lands2ape. In Mar2h, the .".
Department of Treasur% brought the issue of insuran2e regulation to the forefront
through its TBlueprintT to moderniMe the .". finan2ial ser=i2es industr%. /hile some
issues, su2h as Treasur%Es embra2e of an )ptional 8ederal (harter @)8(A are relati=el%
ne1, other issues ha=e been smoldering for de2ades.
Net1or?s 8inan2ial Institute at Indiana "tate ni=ersit%, a national leader in
addressing both ongoing and emerging issues impa2ting the insuran2e se2tor,
announ2es the laun2h of an online resour2e that addresses the m%riad issues dri=ing
insuran2e regulation and reform. The site lo2ated at
111.net1or?sfinan2ialinstitute.org pro=ides a 2omprehensi=e 2learinghouse for
resour2es rele=ant to insuran2e regulator% moderniMation, in2luding more than 7H
resour2es published b% industr% thought leaders representing go=ernment, trade
asso2iations, industr% leaders, media and a2ademia. The site offers an online
bibliograph% of s2holarl% abstra2ts, resear2h arti2les, <ournal publi2ations,
2ommentaries and proposals regarding the state of the insuran2e industr%. As su2h, it is
not a stati2 do2ument. Politi2al, industr% and a2ademi2 leaders are in=ited to ma?e
suggestions for ne1 sour2es and 2ontribute thoughts to eBisting 2ontent.
"ome of the topi2s addressed in the online portal in2lude$ .. 9aried perspe2ti=es on the
2ase for interstate insuran2e 2hoi2e .. Dual regulation and its impa2t on mar?et
2ompetition .. The impli2ations of an )ptional 8ederal (harter for 2onsumer
prote2tion =ersus mar?et effi2ien2ies .. Ma?ing state regulation more effi2ient and
effe2ti=e .. Rate regulation and its impa2t on mar?et pri2ing and 2laims .. Regulating
the mar?et for Terrorism Insuran2e .. 8reLuentl%.as?ed.Luestions regarding optional
federal 2harters .. Regulator% impa2t on 2ompetiti=eness in a global mar?et ..
Managing insurer insol=en2ies .. #ealth insuran2e reform ..The .". Department of
the Treasur%Es blueprint for a moderniMed regulator% stru2ture TNet1or?s 8inan2ial
Institute is 2ontinuall% partnering 1ith a net1or? of resear2h fello1s, poli2%ma?ers
and industr% leaders to address and ad=an2e the issues dri=ing regulator%
moderniMation. )ur role as a non.partisan pla%er in the dis2ussion enables N8I to
present 1ith impartialit% the man% perspe2ti=es and proposals of those see?ing 2hange
in the insuran2e regulator% lands2ape,T noted N8IEs Dire2tor of Resear2h !a2? Tatom.
The resour2e also pro=ides perspe2ti=es from re2ogniMed leaders and =oi2es in the
insuran2e se2tor in2luding$ the "earle (enter on 0a1, Regulation and '2onomi2
Gro1th at North1estern ni=ersit%P the Ameri2an (oun2il of 0ife InsurersP the
National Asso2iation of Insuran2e (ommissionersP The !ournal of Insuran2e
RegulationP .". (hamber of (ommer2eP (ompetiti=e 'nterprise InstituteP Ameri2an
'nterprise InstituteP (asualt% A2tuarial "o2iet%P The '2onomistP Go=ernment
A22ountabilit% )ffi2eP "enate (ommittee on Ban?ing, #ousing and rban AffairsP
National Asso2iation of Mutual Insuran2e (ompaniesP ni=ersit% of Missouri.
(olumbia "2hool of 0a1P National (onferen2e of Insuran2e Guarant% 8undsP National
)rganiMation of 0ife and #ealth Insuran2e Guarant% Asso2iationsP National (oun2il
on (ompensation Insuran2eP #eritage 8oundationP Insuran2e 0egislators 8oundationP
Barbon InstituteP .". #ouse of Representati=es, (ommittee on 8inan2ial "er=i2esP
National nder1riter and numerous Net1or?s 8inan2ial Institute studies and
publi2ations.
Net1or?s 8inan2ial Institute at Indiana "tate ni=ersit% 1as founded in -,,: 1ith a
grant from 0ill% 'ndo1ment, In2. The non.profit organiMation stri=es to fa2ilitate a
more effe2ti=e national and international finan2ial ser=i2es mar?etpla2e through
edu2ation, outrea2h and resear2h. Net1or?s 8inan2ial Institute is headLuartered in
Indianapolis 1ith offi2es on the 2ampus of Indiana "tate ni=ersit% in Terre #aute and
outrea2h in /ashington, D.(., and internationall%. 8or more information about
Net1or?s 8inan2ial Institute, =isit 111.net1or?sfinan2ialinstitute.org.
")R(' Net1or?s 8inan2ial Institute at Indiana "tate ni=ersit% R0$
http$55111.net1or?sfinan2ialinstitute.org 111.prne1s1ire.2om
0)" ANG'0'", !ul *,, -,,7 @B"IN'"" /IR'A .. The T(/ Group, In2. is proud
to re2ogniMe a spe2ial a2hie=ement b% the portfolio management team of the T(/
Gro1th 'Luities 8und and the T(/ "mall (ap Gro1th 8und, 1hi2h 1ere both named
T(ategor% &ingsT in The /all "treet !ournal last 1ee?.
In the ne1spaperEs Luarterl% TIn=esting in 8undsT se2tion published !ul% :, the t1o
T(/ funds ran?ed in the top *, among 2ompeting funds in their respe2ti=e asset
2lasses. The top.performing funds in ea2h 2ategor% 1ere ran?ed b% one.%ear total
return as of !une :,, -,,7.
The T(/ Gro1th 'Luities 8und @NasdaL$ TGG';A and the T(/ "mall (ap Gro1th
8und @NasLaL$ TG"(;A are managed b% Brendt "tallings and #usam NaMer. Mr.
"tallings leads T(/ Gro1th 'Luities, a mid.2ap strateg%, and Mr. NaMer leads the
small 2ap fund.
TThese strategies refle2t the eB2ellen2e 1e stri=e to a2hie=e in all of our in=estment
funds,T said T(/ (hief 'Be2uti=e )ffi2er Robert Be%er. T/e 2ongratulate the team
on this 1ell.deser=ed re2ognition, 1hi2h is e=en more signifi2ant gi=en the negati=e
head1inds in the eLuit% mar?ets this %ear.T Mr. "tallings added$ TA good deal of the
2redit goes to our top.not2h eLuit% resear2h anal%sts. The% are 2ru2ial to the su22ess of
these t1o in=estment strategies.T Mr. NaMer ga=e a nod to the names in their portfolios$
TThe bottom line is that the 2ompanies 1e in=ested in deli=ered strong earnings. The%
met and beat eBpe2tations, despite a 1ea? .". e2onom%.T About T(/ 8ounded in
*K6*, The T(/ Group de=elops and manages a broad range of inno=ati=e, =alue.
added in=estment produ2ts that stri=e to enhan2e and prote2t 2lientsE 1ealth. The firm
has approBimatel% G*:, billion in assets under management. T(/ 2lients in2lude
man% of the largest 2orporate and publi2 pension plans, finan2ial institutions,
endo1ments and foundations in the ."., as 1ell as a substantial number of foreign
in=estors and high net 1orth indi=iduals. T(/ is a subsidiar% of "o2iete Generale
Asset Management, 1hi2h has approBimatel% GH,, billion under management.
About Mr. "tallings Mr. "tallings is the "enior Portfolio Manager of the T(/ Gro1th
'Luities strateg%. Mr. "tallings 2o.founded Gro1th 'Luities in *KKK and has been its
lead manager sin2e !anuar% -,,:. Mr. "tallings has been a member of the T(/ "mall
and Mid.(ap Gro1th 'Luities team sin2e *KK7. )n the team, his anal%ti2
responsibilities ha=e in2luded man% of the groupEs in=estments in the business
ser=i2es, retail, finan2ial ser=i2es and te2hnolog% industries. Mr. "tallings 2ame to
T(/ in *KKC, <oining the .". 'Luit% Resear2h Department as an Anal%st.
Prior to T(/, he 1as an 'Luit% Anal%st 1ith (han2ellor 0GT Asset Management and
a Business Anal%st 1ith Andersen (onsulting. Mr. "tallings holds a BA in De2ision
Anal%sis and Politi2al "2ien2e from "tanford ni=ersit% and an MBA from the Amos
Tu2? "2hool at Dartmouth (ollege. #e is a (8A 2harterholder.
About Mr. NaMer Mr. NaMer is the "enior Portfolio Manager of the T(/ "mall (ap
Gro1th and "MID (ap Gro1th strategies. Mr. NaMer founded the "MID (ap Gro1th
strateg% in -,,: and in !anuar% -,,H began leading the "mall (ap Gro1th strateg%.
Mr. NaMer has been a member of the "mall and Mid.(ap Gro1th 'Luities team sin2e
-,,,. #e <oined T(/Es 'Luit% Resear2h Department in *KKH 1here he made
substantial 2ontributions anal%Ming the health 2are, retail and te2hnolog% industries.
Mr.
NaMer graduated 1ith a B" in Biomedi2al 'ngineering from Boston ni=ersit% and
earned an MBA at the ni=ersit% of "outhern (alifornia.
You should 2onsider the in=estment ob<e2ti=es, ris?s, 2harges and eBpenses of the
8unds 2arefull% before in=esting. The 8undsE Prospe2tus 2ontains this and other
information about the 8unds. To re2ei=e a free Prospe2tus, please 2all *.7,,.:7C.:7-K
or %ou ma% do1nload the Prospe2tus from the 8undsE 1ebsite at 111.t21funds.2om.
Read it 2arefull% before %ou in=est or send mone%.
8unds in=esting in mid and small 2ap 2ompanies in=ol=e spe2ial ris?s in2luding higher
=olatilit% and lo1er liLuidit%.
")R('$ The T(/ Group, In2.
()NTA(T$ The T(/ Group, In2.
Mi2hael tle%, 9i2e President, Media Relations -*:.-++.,K6H
mi2hael.utle%4t21.2om (op%right Business /ire -,,7 .,. &'Y/)RD$ nited
"tates
North Ameri2a
(alifornia IND"TRY &'Y/)RD$ Professional "er=i2es
8inan2e "B!'(T ()D'$ A1ard
'2onomi2 Ne1s5Anal%sis
Di=idend De2laration$ Dela1are In=estments Di=idend and In2ome 8und, In2.
Announ2es Di=idends
P#I0AD'0P#IA, !ul% *, -,,7 5PRNe1s1ire.8irst(all =ia ()MT';5 .. Toda%,
Dela1are In=estments Di=idend and In2ome 8und, In2. @the T8undTA, a Ne1 Yor?
"to2? 'B2hange.listed 2losed.end fund trading under the s%mbol TDD8,T de2lares a
monthl% di=idend of eight 2ents per share. This di=idend is pa%able !ul% -H, -,,7, to
shareholders of re2ord at the 2lose of business on !ul% **, -,,7. The eB.di=idend date
1ill be !ul% K, -,,7.
The 8und is a di=ersified 2losed.end fund. The primar% in=estment ob<e2ti=e is to see?
high 2urrent in2omeP 2apital appre2iation is a se2ondar% ob<e2ti=e. The 8und see?s to
a2hie=e its ob<e2ti=es b% in=esting, under normal 2ir2umstan2es, at least CHJ of its
total assets in in2ome.generating eLuit% se2urities, in2luding di=idend.pa%ing 2ommon
sto2?s, 2on=ertible se2urities, preferred sto2?s, and other eLuit%.related se2urities. p
to :HJ of the 8undEs total assets ma% be in=ested in non2on=ertible debt se2urities
2onsisting primaril% of high %ield, high ris? 2orporate bonds. In addition, the 8und
utiliMes le=eraging te2hniLues in an attempt to obtain a higher return for the 8und.
There is no assuran2e that the 8und 1ill a2hie=e its in=estment ob<e2ti=es.
The 8und has implemented a managed distribution poli2%. nder the poli2%, the 8und
is managed 1ith a goal of generating as mu2h of the distribution as possible from net
in=estment in2ome and short.term 2apital gains. The balan2e of the distribution 1ill
then 2ome from long.term 2apital gains to the eBtent permitted and a return of 2apital.
About Dela1are In=estments$ Dela1are In=estments, an affiliate of 0in2oln 8inan2ial
Group, is a Philadelphia.based di=ersified asset management firm 1ith more than G*+,
billion in assets under management as of Mar2h :*, -,,7. Through a broad range of
managed a22ounts and portfolios, mutual funds, retirement a22ounts, sub.ad=ised
funds, and other in=estment produ2ts, Dela1are In=estments pro=ides in=estment
ser=i2es to indi=idual in=estors and to institutional in=estors su2h as pri=ate and publi2
pension funds, foundations, and endo1ment funds. Dela1are In=estments is the
mar?eting name for Dela1are Management #oldings, In2. and its subsidiaries. 8or
more information on Dela1are In=estments, =isit the 2ompan% at
111.dela1arein=estments.2om. 0in2oln 8inan2ial Group is the mar?eting name for
0in2oln National (orporation @NY"'$ 0N(A and its affiliates. 8or more information
on 0in2oln 8inan2ial Group, =isit 111.lin2olnfinan2ial.2om.
SOURCE De"!6!.e I&3este&ts URL4 +tt24886665*e"!6!.ei&3este&ts5/(
http$55111.lin2olnfinan2ial.2om 111.prne1s1ire.2om (op%right @(A -,,7 PR
Ne1s1ire. All rights reser=ed .,. &'Y/)RD$ Penns%l=ania IND"TRY &
M8" Announ2es (losed.'nd 8und Distributions
In=estors 1ho 1ant to ma?e 2hanges to their a22ounts should 2onta2t their finan2ial
ad=isor, bro?erage firm, or other nominee 1ith 1hom the shares are registered. If
shares are registered 1ith the fundsE transfer agent, (omputershare, the transfer agent
ma% be 2onta2ted dire2tl% at 7,,.C:6.-:,+, or 111.2omputershare.2om.
M8" manages G*7+ billion in assets on behalf of more than H million indi=idual and
institutional in=estors 1orld1ide as of Mar2h :*, -,,7. The 2ompan% tra2es its origins
to *K-+ and the 2reation of Ameri2aEs first mutual fund.
The Trusts are 2losed.end in=estment produ2ts. "hares of the Trusts are onl% a=ailable
for pur2hase5sale, at the 2urrent mar?et pri2e, on the NY"', 1ith the eB2eption of the
M8" (alifornia Insured Muni2ipal 8und 1hi2h is a=ailable for pur2hase onl% on the
Ameri2an "to2? 'B2hange. "hares ma% trade at a dis2ount to NA9. M8" 8und
Distributors In2. H,, Bo%lston "t., Boston, MA ,-*,K *+6*H.* ")R('$ M8"
In=estment Management ()NTA(T$ (omputershare "hareholders "er=i2es$
"hareholders @a22ount information, LuotesA$ 7,,.C:6.-:,+ or M8" In=estment
Management$ "hareholders or Ad=isors @in=estment produ2t informationA$ !ed
&oenigsberg, C*6.KH+.HCK6 or Media )nl%$ !ohn Reill%, C*6.KH+.H:,H or Dan
8lahert%, C*6.KH+.+-HC (op%right Business /ire -,,7 .,. &'Y/)RD$ nited "tates
Mil1au?ee.based (apital Mar?et (onsultants @(M(A 00(, is eBpanding its rea2h into
the finan2ial management mar?et 1ith t1o ne1 online produ2ts for members. (M(,
lo2ated at -*6 N. Broad1a%, pro=ides 2ustom open ar2hite2ture in=estment
management platforms, 2onsulting and in=estment ad=isor% ser=i2es to small and mid.
siMed finan2ial organiMations.
(M( laun2hed its fourth and fifth /eb.based in=estment anal%sis appli2ations in
April to add =alue and information to its 2lients, said Barr% Mendelson, managing
partner of (M(.
(M(Es 2lients are mostl% ban?s, la1 firms and registered in=estment ad=isors @RIAsA
in2luding 1ealth management firms, a22ounting firms, independent 2onsultants and
independent bro?ers.
The 2lients rel% on (M( to pro=ide them 1ith finan2ial management ad=i2e, due
diligen2e, information on asset allo2ation and mar?eting produ2ts. The /eb.based
programs allo1 2lients to sift through data libraries and subs2ribe to monthl% reports
that anal%Me spe2ifi2 asset allo2ations pertaining to their business, Mendelson said.
TThere is a dri=e in the finan2ial ser=i2es business to1ard the affluent 2lient, or 1ealth
management, and ha=ing a22ess to information in an eas%.to.use 2hart form helps
@in=estment professionalsA differentiate themsel=es from the 2ompetition,T Mendelson
said. TThe% loo? smart and in 2ontrol.T
The ne1l% laun2hed produ2ts are (M( RB"A @Returns Based "t%le Anal%sisA Reports
and (M( #B"A @#oldings Based "t%le AttributionA Reports. The monthl% reports are
subs2ription.based and a=ailable to (M( 2lients to use for their o1n anal%sis or as
mar?eting pie2es in ne1sletters to their 2lients.
(M( RB"A reports fo2us on the pattern of return on an in=estment and the short,
medium and long.term st%le and 2onsisten2% of a fund. (M( #B"A reports loo? at
portfolio 2omposition to e=aluate and dra1 2on2lusions on its performan2e, in2luding
1hi2h aspe2ts add and detra2t from the o=erall return. 8inan2ial professionals re2ei=e a
detailed anal%sis of the asset allo2ation on2e reLuested.
The #B"A ser=i2e is pro=ided b% "to?trib performan2e attribution soft1are from
"anta (lemente, (alif..based PP(A In2.
TThe online produ2ts represent a small part of our business but gre1 out of a business
need to ser=e 2lients,T Mendelson said. T(lients 1ould as? us for =arious t%pes of
resear2h in2luding graphs and ba2? tests on 2ertain in=estment strategies. /ith the
online produ2ts 1e 2an gi=e far more to our 2lients than the% ma% o22asionall% as? for
and out of the original moti=ation gre1 a number of online produ2ts.T
The other subs2ription.based online tools in2lude (M( 'Resear2h, an online produ2t
2hart and table librar% 1ith more than C,, 2harts updated monthl%P (M( PA""
@Performan2e Assessment S "t%le "2oreA Reports, mutual fund performan2e and st%le
anal%sis reports and Qual"ear2h, a mone% manager database that pro=ides information
on firms in2luding ba2?ground, 1hite papers, staff biographies and go=ernment
filings.
The data and information (M( offers through the online produ2ts ser=e as a referen2e
tool to 2lients. In=estment professionals 2an =ie1 ho1 different in=estment strategies
1or? month b% month and 2an use the information to edu2ate their o1n 2lients on the
in=estment pro2ess and strategies, Mendelson said.
(M( offers similar ser=i2es 1ith its open ar2hite2ture 1here it a2ts as the 2hief
in=estment offi2er for independent finan2ial professionals b% pro=iding resour2es and
assets that 2lients 2an use instead of ha=ing to in=est in emplo%ees, soft1are and
li2ensing, tra=el, resear2h and an allo2ation department, Mendelson said.
T/e 2an pro=ide a set of assets, resour2es, ?no1ledge and eBpertise that the% 2an
harness to build something proprietar% and to themsel=es,T Mendelson said. TThe% 2an
do this themsel=es and spent a lot of mone% for an un2ertain out2ome =ersus outsour2e
to a firm li?e ours 1ho 1ill build it for them to be o1ned b% them, it 1ill be state of
the art and help them 2ompete against the big gu%s.T
N'/ D'0#I$ "BIM8 has emerged as the most popular mutual fund brand, lea=ing
behind I(I(I Prudential M8 and Relian2e Mutual 8und, in a sur=e% 2ondu2ted b%
global resear2h firm The Nielsen (ompan% @TN(.A
Relian2e Mutual 8und emerged as the runner.up, almost doubling its indeB s2ore from
the pre=ious %earEs, and <umping from fifth to the se2ond position in a sur=e% of *,CC-
Indian 2onsumers b% TN(.
In the third issue of NielsenEs Brand 'Luit% IndeB in the -,,6 /inning Brands Mutual
8und, last %earEs runner.up I(I(I Prudential slipped to the No : position.
TN( said some of the other brands su2h I(I(I Prudential M8, TI M8 and #D8( M8
appeared mu2h lo1er than in the pre=ious %earEs.
TThe larger brands ha=e sho1n a dip in their eLuit% strength, 1hile share of mind of
some of the smaller brands ha=e a2tuall% gone up at the eBpense of the bigger brands,
2learl% in=estors are 2ontemplating more brand options than before,T Nipa Pare?h of
TN( India 8inan2ial "er=i2es Resear2h said in a release.
)n an a=erage, 2onsumers a1areness of the in=estment. related brands 1ent up to *7.H
brands from *-.K brands last %ear. #o1e=er, the a=erage number of brands that
2onsumers 2onsidered 1ent up slightl% from -.6C to :.+, 1hi2h implies a strong need
to build brand 2onsideration.
This in2rease has 2ome in the 1a?e of Indian 2onsumers in2reasingl% in=esting their
dis2retionar% mone% into sto2?s and mutual funds.
Domesti2 mutual funds ha=e more than G*,, billion under management and had added
G-, billion in !ul%, dri=en b% fresh 2apital raised through ne1 fund offerings and a
sharp rall% in sto2? mar?ets.
MMBAI$ I(I(I Prudential asset management 2ompan% toda% has laun2hed I(I(I
Prudential Ban?ing and 8inan2ial "er=i2es 8und, 1hi2h see?s to 2apture the best
opportunities presented b% the ban?ing and finan2ial ser=i2es se2tor.
The ne1 fund offering opens for subs2ription on !ul% K and 1ill 2lose on August 6.
The units of the s2heme 2an be subs2ribed during the N8) at Rs.*, per unit plus
appli2able loads.
Both retail and institutional options are a=ailable for in=estments. In retail option, the
s2heme 2arries an entr% load of -.-H per 2ent of the appli2able net asset =alue for
in=estment of less than Rs. H 2rore. 8or in=estment of Rs. H2rore sand abo=e, there is
no entr% load.
Institutional option does not bear an% entr% load.
An eBit load of * per 2ent of the appli2able net asset =alue 1ill be 2harged for retail
in=estment of Rs. H 2rore and abo=e, if redeemed before C months from the date of
allotment. There 1ill be no eBit load on institutional plan.
The open ended eLuit% s2heme aims to maBimiMe long.term 2apital appre2iation b%
in=esting 6, per 2ent to *,, per 2ent in eLuit% and eLuit% related se2urities of
2ompanies engaged in ban?ing and finan2ial ser=i2es and , per 2ent to :, per 2ent in
debt instruments.
TThe fund is introdu2ed to pro=ide in=estors an opportunit% to parti2ipate in a se2tor
that has been in eBisten2e for o=er *,, %ears and pla%s the defining role as the
ba2?bone of the Indian e2onom%,T said Nimesh "hah, managing dire2tor, I(I(I
Prudential AM(.
#e further added, Tas the ban?ing and finan2ial ser=i2es se2tor is 2urrentl% 1itnessing
re.rating in =aluations, it is the most opportune time to parti2ipate in this se2tor. It is
eBpe2ted to do 1ell.X
The in=estment strateg% of the fund is bottom.up sto2? pi2?ing 1hereb% intrinsi2 =alue
of sto2? is deri=ed after internal resear2h, anal%sis of 2ompan%>s strengths, business
model, sustainable 2ompetiti=e ad=antages and abilit% to gro1.
The fund 1ould loo? at sto2?s a2ross the uni=erse of ban?ing and finan2ial ser=i2es
2ompanies 1ithout an% 2apitalisation bias.
W8o2us 1ill be on 2ompanies gaining mar?et share in businesses through eB2ellent
2ustomer ser=i2e, produ2t inno=ation and operating effi2ien2%,X mentioned "hah
F(.ei0& I&stit,ti(&!" I&3est(. ?FII@
8oreign Institutional In=estors @8IIA in2lude the follo1ing foreign based 2ategories$
Pension 8unds
Mutual 8unds
In=estment Trust
Insuran2e or reinsuran2e 2ompanies
In=estment Trusts
Ban?s
'ndo1ments
ni=ersit% 8unds
8oundations
(haritable Trusts or (haritable "o2ieties
8urther, follo1ing entities proposing to in=est on behalf of broad based funds, are also
eligible to be registered as 8IIs$
Asset Management (ompanies
Institutional Portfolio Managers
Trustees
Po1er of Attorne% #olders
7:5 W+( is ! F(.ei0& I&stit,ti(&!" I&3est(. ?FII@J
Ans. 8II means an entit% established or in2orporated outside India 1hi2h proposes to
ma?e in=estment in India.
7F5 W+!t is ! s,b-!//(,&tJ
Ans. "ub.a22ount in2ludes those foreign 2orporations, foreign indi=iduals, and
institutions, funds or portfolios established or in2orporated outside India on 1hose
behalf in=estments are proposed to be made in India b% a 8II.
7<5 W+!t is ! Desi0&!te* B!&'J
Ans. Designated Ban? means an% ban? in India 1hi2h has been authoriMed b% the
Reser=e Ban? of India to a2t as a ban?er to 8II.
7=5 W+( is ! D(esti/ C,st(*i!&J
Ans. Domesti2 (ustodian means an% entit% registered 1ith "'BI to 2arr% on the
a2ti=it% of pro=iding 2ustodial ser=i2es in respe2t of se2urities.
7K5 W+!t is ! B.(!* B!se* F,&*J
Ans. Broad Based 8und means a fund established or in2orporated outside India, 1hi2h
has at least t1ent% in=estors 1ith no single indi=idual in=estor holding more than *,J
shares or units of the fund.
Pro=ided that if the fund has institutional in=estor@sA it shall not be ne2essar% for the
fund to ha=e t1ent% in=estors.
Pro=ided further that if the fund has an institutional in=estor holding more than *,J of
shares or units in the fund, then the institutional in=estor must itself be broad based
fund.
FII REGISTRATION

7C5 W+( /!& 0et .e0iste.e* !s FIIJ
Ans. 8ollo1ing entities 5 funds are eligible to get registered as 8II$
*. Pension 8unds
-. Mutual 8unds
:. Insuran2e (ompanies
+. In=estment Trusts
H. Ban?s
C. ni=ersit% 8unds
6. 'ndo1ments
7. 8oundations
K. (haritable Trusts 5 (haritable "o2ieties
8urther, follo1ing entities proposing to in=est on behalf of broad based funds, are also
eligible to be registered as 8IIs$
*. Asset Management (ompanies
-. Institutional Portfolio Managers
:. Trustees
+. Po1er of Attorne% #olders
7E5 W+!t !.e t+e 2!.!ete.s (& 6+i/+ SEBI *e/i*es FII !22"i/!&tsL e"i0ibi"it1J
Ans.
a. Appli2ant>s tra2? re2ord, professional 2ompeten2e, finan2ial soundness,
eBperien2e, general reputation of fairness and integrit%. @The appli2ant
should ha=e been in eBisten2e for at least one %earA
b. 1hether the appli2ant is registered 1ith and regulated b% an appropriate
8oreign Regulator% Authorit% in the same 2apa2it% in 1hi2h the
appli2ation is filed 1ith "'BI
2. /hether the appli2ant is a fit S proper person.
7D5 W+i/+ )(. &ee*s t( be )i""e* i& 6+e& !22"1i&0 )(. FII .e0ist.!ti(&J
Ans. T8orm AT as pres2ribed in "'BI @8IIA Regulations, *KKH.
7;5 W+i/+ *(/,e&ts &ee* t( be se&t 6it+ GF(. AGJ
Ans.
a. (ertified 2op% of rele=ant 2lauses @2lauses permitting the stated
a2ti=itiesA of Memorandum of Asso2iation, Arti2le of Asso2iation or
Arti2le of In2orporation.
b. Audited finan2ial statement and annual report for the last one %ear
@period 2o=ered should not be less than t1el=e months
7:A5 H(6 ,/+ is t+e )ee )(. .e0ist.!ti(& !s FIIJ
Ans. " G H,,,,.
7::5 W+e& is t+e .e0ist.!ti(& )ee 2!1!b"eJ
Ans. At the time of submitting the appli2ation for registration.
7:F5 W+!t is t+e (*e () 2!1e&tJ
Ans. Demand Draft in fa=our of T"e2urities and 'B2hange Board of IndiaT pa%able at
Ne1 Yor?
7:<5 H(6 !&1 *!1s it t!'es t( 0et .e0iste.e* !s FIIJ
Ans. "'BI generall% ta?es se=en 1or?ing da%s in granting 8II registration. #o1e=er,
in 2ases 1here the information furnished b% the appli2ants is in2omplete, se=en da%s
shall be 2ounted from the da%s 1hen all ne2essar% information sought, rea2hes "'BI.
In cases 0,ere t,e applicant is 3an( and su3sidiar% $! a 3an(& SEBI see(s c$##ents
!r$# t,e Reser.e Ban( $! India ;RBI4+ In suc, cases& < 0$r(in" da%s 0$uld 3e c$unted
!r$# t,e da% n$ $3=ecti$n is recei.ed !r$# RBI+
7:=5 W+!t is t+e .e0ist.!ti(& 2.(/ess )(. FIIJ
Ans. Please 2onta2t us for registration.

7:K5 W+!t is t+e 3!"i*it1 2e.i(* () FII .e0ist.!ti(&J
Ans. The 8II registration is =alid for H %ears. After eBpir% of H %ears, the registration
needs to be rene1ed.
7:C5 W+!t is t+e 2.(/ess () .e&e6!"J
Ans. "ame as initial registration. Along 1ith T8orm AT and all the rele=ant do2uments,
the appli2ants are reLuired to fill in additional form @AnneBure *A 1hile appl%ing for
rene1al.
7:E5 Is t+e.e !&1 .e&e6!" )eeJ
Ans. Yes, " G H,,,, needs to be paid for rene1al of 8II registration.
7:D5 W+e& t+e !22"i/!ti(& )(. .e&e6!" s+(,"* be s,bitte*
Ans. Three months before eBpir% of the 8II registration.
7:;5 W+!t !.e :AA M *ebt FIIs8s,b-!//(,&tsI !&* 6+!t is t+e 2.(/ess )(. t+ei.
.e0ist.!ti(&J
Ans. *,, J debt 8IIs are debt dedi2ated 8IIs 1hi2h in=est in debt se2urities onl%. The
pro2edure for registration of 8II5sub.a22ount, under *,,J debt route is similar to that
of normal funds besides a 2lear statement b% the appli2ant that it 1ishes to be
registered as 8II5sub.a22ount under *,,J debt route.
7FA5 W+e.e t+e !22"i/!ti(& )(. FII .e0ist.!ti(& s+(,"* be se&tJ
Ans. The 8II registration appli2ation should be sent to$
"e2urities and 'B2hange Board of India
Di=ision of 8II S (ustodian
Mittal (ourt TBT /ing, 8irst 8loor
--+, Nariman Point
Mumbai +,, ,-*
India
Note: I& /!se t+e !22"i/!&t is ! NB!&'L (. GS,bsi*i!.1 () ! B!&'G t+e& t+e
!22"i/!ti(& )(. !&* .e"e3!&t *(/,e&ts &ee* t( be s,bitte* i& *,2"i/!tes5
SUB-ACCOUNT REGISTRATION

7F:5 W+( /!& 0et .e0iste.e* !s s,b-!//(,&tJ
Ans.
a. Institution or funds or portfolios established outside India, 1hether
in2orporated or not.
b. Proprietar% fund of 8II.
2. 8oreign (orporates
d. 8oreign Indi=iduals
7FF5 W+( &ee* t( !22"1 )(. s,b-!//(,&t .e0ist.!ti(&J
Ans. The 8II should appl% on the behalf of the "ub.a22ount. Both the 8II and the "ub.
a22ount are reLuired to sign the "ub.a22ount appli2ation form.
7F<5 W+i/+ )(. &ee*s t( be )i""e* 6+e& !22"1i&0 )(. s,b-!//(,&t .e0ist.!ti(&J
Ans. TAnneBure BT to T8orm AT @8II appli2ation formA.
7F=5 W+!t *(/,e&ts &ee* t( be se&t 6it+ A&&e9,.e AJ
Ans. None
7FK5 H(6 ,/+ is t+e )ee )(. s,b-!//(,&t .e0ist.!ti(&J
Ans. " G *,,,,
7FC5 W+e& is t+e .e0ist.!ti(& )ee 2!1!b"eJ
Ans. At the time of submitting the appli2ation.
7FE5 W+!t is t+e (*e () 2!1e&tJ
Ans. Demand Draft in the name of T"e2urities and 'B2hange Board of IndiaT pa%able
at Ne1 Yor?
7FD5 H(6 !&1 *!1s it t!'es t( 0et ! s,b-!//(,&t .e0iste.e*J
Ans. "'BI generall% ta?es three 1or?ing da%s in granting 8II registration. #o1e=er, in
2ases 1here the information furnished b% the appli2ants is in2omplete, three da%s shall
be 2ounted from the da%s 1hen all ne2essar% information sought, rea2hes "'BI.
7F;5 W+!t is t+e 3!"i*it1 2e.i(* () s,b-!//(,&t .e0ist.!ti(&J
Ans. The =alidit% of sub.a22ount registration is 2o.terminus 1ith the 8II registration
under 1hi2h it is registered.
7<A5 W+!t is t+e 2.(/ess () .e&e6!" () s,b-!//(,&tJ
Ans. "ame as initial registration.
7<:5 Is t+e.e .e&e6!" )eeJ
Ans. Yes, " G *,,,,
7<F5 C!& OCBs 8 NRIs 2e.itte* t( 0et .e0iste.e* !s FII8s,b-!//(,&tJ
Ans. No, the% are not permitted.
POST-REGISTRATION PROCESSES
7<<5 W+!t is t+e 2.(/e*,.e i& /!se t+e FII8s,b-!//(,&t /+!&0es its &!eJ
Ans. If a registered 8II5sub.a22ount undergoes name 2hange, then the 8II need to
promptl% inform "'BI about the 2hange. It should also mention the reasons for the
name 2hange and gi=e an underta?ing that there has been no 2hange in benefi2iar%
o1nership.
In 2ase of name 2hange of 8II, the reLuest should be a22ompanied 1ith do2uments
from home regulator and registrar of the 2ompan% e=iden2ing appro=al of name
2hange, and the original 8II registration 2ertifi2ate issued b% "'BI should be sent ba2?
for ne2essar% amendment.
7<=5 W+!t is t+e 2.(/e*,.e )(. t.!&s)e..i&0 ! s,b-!//(,&t ).( (&e FII t(
!&(t+e.J
Ans. The 8II to 1hom the "ub.a22ount is proposed to be transferred has to send a
reLuest along 1ith a de2laration that it is authoriMed to in=est on behalf of the "ub.
a22ount. The transferor 8II should also submit a No.ob<e2tion 2ertifi2ate.
7<K5 W+!t is t+e 2.(/e*,.e )(. /+!&0e () *(esti/ /,st(*i!&J
Ans. The 8II should send a reLuest, along 1ith no.ob<e2tion 2ertifi2ate from eBisting
domesti2 2ustodian, for 2hange in domesti2 2ustodian.
7<C5 C!& FII8s,b-!//(,&t .e0ist.!ti(& be /!&/e""e* (& .eH,estJ
Ans. Yes, the 8II 1ould be reLuired to send a reLuest for 2an2ellation of its
registration or registration of its "ub.a22ount5s 2learl% mentioning the name and
registration number of the entit%. The 8II should ensure that it 5 "ub.a22ount has nil
2ash 5 se2urities holdings.
7<E5 W+!t i) t+e FII *(es &(t .e&e6 its8s,b-!//(,&tLs .e0ist.!ti(&J
Ans. The registration of the 8II 5 "ub.a22ount 1ould get eBpired at due date and it
1ould not be allo1ed to trade in Indian se2urities mar?ets. If it is not interested in
rene1al but has 2ertain residual assets, it 2an appl% for disin=estment in terms of the
guidelines spe2ified in this regard.
IN$ESTMENT OPPORTUNITIES
7<D5 W+i/+ )i&!&/i!" i&st.,e&ts !.e !3!i"!b"e )(. FII i&3este&tsJ
Ans.
a. "e2urities in primar% and se2ondar% mar?ets in2luding shares,
debentures and 1arrants of 2ompanies, unlisted, listed or to be listed on
a re2ogniMed sto2? eB2hange in IndiaP
b. nits of mutual fundsP
2. Dated Go=ernment "e2uritiesP
d. Deri=ati=es traded on a re2ogniMed sto2? eB2hangeP
e. (ommer2ial papers.
7<;5 W+!t !.e t+e i&3este&t "iits (& eH,it1 i&3este&ts b1 FII8s,b-!//(,&tJ
Ans.
a. 8II, on its o1n behalf, shall not in=est in eLuit% more than *,J of total
issued 2apital of an Indian 2ompan%.
b. In=estment on behalf of ea2h sub.a22ount shall not eB2eed *,J of total
issued 2apital of an India 2ompan%.
2. 8or the sub.a22ount registered under 8oreign (ompanies5Indi=idual
2ategor%, the in=estment limit is fiBed at HJ of issued 2apital.
These limits are 1ithin o=erall limit of -+J 5 +K J 5 or the se2toral 2aps a pres2ribed
b% Go=ernment of India 5 Reser=e Ban? of India.
7=A5 W+!t !.e t+e i&3este&t "iits (& *ebt i&3este&ts b1 FII8s,b-!//(,&tJ
Ans. The 8II in=estments in debt se2urities are go=erned b% the poli2% if the
Go=ernment of India. (urrentl% follo1ing limits are in effe2t$
o 8or 8II in=estments in Go=ernment debt, 2urrentl% follo1ing limits are
appli2able$
*,, J Debt Route " G *.HH billion
6, $ :, Route " G -,, million
T(t!" Liit US O :5EK bi""i(&
o 8or 2orporate debt the in=estment limit is fiBed at " G H,, million.
7=:5 W+!t (t+e. i&3este&t "iits !.e t+e.eJ
Ans.
N(.!" FII ?EA4<A R(,te@ :AAM Debt FII
Total in=estment in eLuit% and eLuit%
related instruments shall not be less
than 6,J of aggregate of all
in=estments.
*,,J in=estment shall be made in
debt se2urit% onl%.
7=F5 I& 6+(se &!e s+(,"* t+e se/,.ities be .e0iste.e*J
Ans.
a. In the name of 8II 1hen ma?ing in=estments on its o1n behalf
b. In the name of sub.a22ount 1hen ma?ing in=estments on behalf of "ub.
a22ount
2. In the name of T8II a52 sub.a22ountT 1hen ma?ing in=estments on
behalf of "ub.a22ount.
DERI$ATI$ES POSITION LIMITS
7=<5 W+!t !.e t+e .est.i/ti(&s (& i&3este&t i& *e.i3!ti3esJ
Ans.
b. T+e FII 2(siti(& "iits i& ! *e.i3!ti3e /(&t.!/ts ?I&*i3i*,!" St(/'s@
The 8II position limits in a deri=ati=e 2ontra2t on a parti2ular underl%ing sto2?
i.e. sto2? option 2ontra2ts and single sto2? futures 2ontra2ts are$
o 8or sto2?s in 1hi2h the mar?et 1ide position limit is less
than or eLual to Rs. -H, (r, the 8II position limit in su2h
sto2? shall be -,J of the mar?et 1ide limit.
o 8or sto2?s in 1hi2h the mar?et 1ide position limit is
greater than Rs. -H, (r, the 8II position limit in su2h
sto2? shall be Rs. H, (r.
b5 FII P(siti(& "iits i& I&*e9 (2ti(&s /(&t.!/ts
8II position limit in all indeB options 2ontra2ts on a parti2ular underl%ing indeB
shall be Rs. -H, (rore or *H J of the total open interest of the mar?et in indeB
options, 1hi2he=er is higher, per eB2hange.
This limit 1ould be appli2able on open positions in all option 2ontra2ts on a
parti2ular underl%ing indeB.

2. FII P(siti(& "iits i& I&*e9 ),t,.es /(&t.!/ts4
8II position limit in all indeB futures 2ontra2ts on a parti2ular underl%ing indeB
shall be Rs. -H, (rore or *H J of the total open interest of the mar?et in indeB
futures, 1hi2he=er is higher, per eB2hange.
This limit 1ould be appli2able on open positions in all futures 2ontra2ts on a
parti2ular underl%ing indeB.

In additi$n t$ t,e a3$.e& FIIs s,all ta(e e2p$sure in e6uit% inde2 deri.ati.es
su3=ect t$ t,e !$ll$0in" li#its>

i. S,$rt p$siti$ns in inde2 deri.ati.es ;s,$rt !utures& s,$rt
calls and l$n" puts4 n$t e2ceedin" ;in n$ti$nal .alue4
t,e FII?s ,$ldin" $! st$c(s+
ii. L$n" p$siti$ns in inde2 deri.ati.es ;l$n" !utures& l$n"
calls and s,$rt puts4 n$t e2ceedin" ;in n$ti$nal .alue4
t,e FII?s ,$ldin" $! cas,& "$.ern#ent securities& T/Bills
and si#ilar instru#ents+
b. FII P(siti(& Liits i& I&te.est .!te *e.i3!ti3e /(&t.!/ts
At t+e "e3e" () t+e FII

The notional =alue of gross open position of a 8II in eB2hange traded interest
rate deri=ati=e 2ontra2ts shall be$

i. " G *,, million.
ii. In addition to the abo=e, the 8II ma% ta?e eBposure in eB2hange
traded in interest rate deri=ati=e 2ontra2ts to the eBtent of the
boo? =alue of their 2ash mar?et eBposure in Go=ernment
"e2urities.
At t+e "e3e" () t+e s,b-!//(,&t

The position limits for a "ub.a22ount in near month eB2hange traded interest
rate deri=ati=e 2ontra2ts shall be +i0+e. ()$
Rs. *,, (r
or
*HJ of total open interest in the mar?et in eB2hange traded
interest rate deri=ati=e 2ontra2ts.
OFFSHORE DERI$ATI$ES8PARTICIPATORY NOTES
7==5 C!& FII8s,b-!//(,&t iss,e O))s+(.e De.i3!ti3es 8 P!.ti/i2!t(.1 N(tesJ
Ans. Yes, 8II5sub.a22ount ma% issue, deal in or hold off.shore deri=ati=e instruments
su2h as Parti2ipator% Notes, 'Luit% 0in?ed Notes or an% other similar instruments
against underl%ing se2urities, listed or proposed to be listed on an% sto2? eB2hange in
India.
7=K5 W+( /!& s,bs/.ibe t(8i&3est i& P!.ti/i2!t(.1 N(tesJ
Ans.
a. An% entit% in2orporated in a <urisdi2tion that reLuires filing of
2onstitutional and5or other do2uments 1ith a registrar of 2ompanies or
2omparable regulator% agen2% or bod% under the appli2able 2ompanies
legislation in that <urisdi2tionP
b. An% entit% that is regulated, authorised or super=ised b% a 2entral ban?,
su2h as the Ban? of 'ngland, the 8ederal Reser=e, the #ong &ong
Monetar% Authorit%, the Monetar% Authorit% of "ingapore or an% other
similar bod% pro=ided that the entit% must not onl% be authorised but
also be regulated b% the aforesaid regulator% bodiesP
2. An% entit% that is regulated, authorised or super=ised b% a se2urities or
futures 2ommission, su2h as the 8inan2ial "er=i2es Authorit% @&A, the
"e2urities and 'B2hange (ommission @"ub.a22ountA, the (ommodities
8utures Trading (ommission @"ub.a22ountA, the "e2urities and 8utures
(ommission @#ong &ong or Tai1anA, Australian "e2urities and
In=estments (ommission @AustraliaA or other se2urities or futures
authorit% or 2ommission in an% 2ountr% , state or territor% P
d. An% entit% that is a member of se2urities or futures eB2hanges su2h as
the Ne1 Yor? "to2? 'B2hange @"ub.a22ountA, 0ondon "to2? 'B2hange
@&A, To?%o "to2? 'B2hange @!apanA, NA"D @"ub.a22ountA or other
similar self.regulator% se2urities or futures authorit% or 2ommission
1ithin an% 2ountr%, state or territor% pro=ided that the aforesaid
mentioned organiMations 1hi2h are in the nature of self regulator%
organiMations are ultimatel% a22ountable to the respe2ti=e se2urities 5
finan2ial mar?et regulators.
e. An% indi=idual or entit% @su2h as fund, trust, 2olle2ti=e in=estment
s2heme, In=estment (ompan% or limited partnershipA 1hose in=estment
ad=isor% fun2tion is managed b% an entit% satisf%ing the 2riteria of @aA,
@bA, @2A or @dA abo=e.
7=C5 W+!t !.e t+e .e2(.ti&0 ReH,i.ee&ts )(. t+e FII 8 S,b-!//(,&t iss,i&0
P!.ti/i2!t(.1 N(tesJ
Ans.
a. 8II5sub.a22ount 1ho issue5rene152an2el5redeem PNs, reLuire to report
on Monthl% basis. The report should rea2h "'BI b% the 6th da% of the
follo1ing month.
b. The 8II5sub.a22ount merel% in=esting5subs2ribing in5to the
Parti2ipator% Notes5A22ess Produ2ts5)ffshore Deri=ati=e Instruments
or an% su2h t%pe of instruments5se2urities 1ith underl%ing Indian
mar?et se2urities are reLuired to report on Luarterl% basis @!an.Mar,
Apr.!un, !ul."ep and )2t.De2A.
2. 8IIs5sub.a22ounts 1ho do not issue PNs but ha=e trades5holds Indian
se2urities during the reporting Luarter @!an.Mar, Apr.!un, !ul."ep and
)2t.De2A reLuire to submit ENilE underta?ing on a Luarterl% basis.
d. 8IIs5sub.a22ounts 1ho do not issue PNs and do not ha=e trades5
holdings in Indian se2urities during the reporting Luarter. @!an.Mar,
Apr.!un, !ul."ep and )2t.De2A$ No reports reLuired for that reporting
Luarter.
7=E5 H(6 t( se&* .e2(.t (& P!.ti/i2!t(.1 N(tesJ
Ans.
o The format for reporting on issuan2e5 rene1al 5 redemption of the
Parti2ipator% Notes is pres2ribed as per TAnneBure BT in our (ir2ular
No. IMD5("T5*H5-,,+ dated April ,-, -,,+ ]
o The reports should be e.mailed onl% to "'BI
o In 2ase of Nil.reports, NAnneBure B> is not reLuired. Instead the 8II on
behalf of its "ub.a22ount should submit the underta?ing pres2ribed in
our 2ir2ular No. IMD5("T5K5-,,: dated No=ember -, , -,,:
o The reporting should be done in M" 'B2el format onl%
.
SEBI ANNOUNCES NEW REGULATIONS FOR FIIPS
Mar?et regulator "e2urit% 'B2hange Board of India re2entl% announ2ed ne1 rules for
foreign in=estments through finan2ial instruments su2h as parti2ipator% notes, as?ing
8IIs to 1ind up P.Notes for in=esting in deri=ati=es 1ithin *7 months.
"'BI also imposing 2urbs on P.Notes for in=esting in spot mar?et.
In deri=ati=es, foreign institutional in=estors @8IIsA and their sub.a22ounts 2annot
issue fresh P.Notes and 1ill ha=e to 1ind up their 2urrent position in *7 months.
In spot mar?et, 8IIs 1ill not be allo1ed to issue P.Notes more than +, per 2ent of
their assets under 2ustod%. The referen2e date for 2al2ulating su2h assets 1ill be
"eptember :,.
Those 8IIs 1ho ha=e issued P.Notes of more than +, per 2ent of their assets 2ould
issue su2h instruments onl% if the% 2an2el, redeem, or 2lose their eBisting PNs. Those
8IIs 1ho ha=e issued P.Notes less than +, per 2ent of their assets under 2ustod% 2an
issue additional instruments at the rate of H per 2ent of their assets.

Hi0+"i0+ts () Ne6 R,"es
Ne1 norms to 2ome into effe2t from tomorro1
nregulated pension fund, uni=ersit% fund, 2haritable fund, endo1ments et2 to
be treated as 8IIs
No dilution of ?no1.%our.2ustomers norms for registration of 8IIs to pre=ent
mone% laundering
8IIs to be registered on a permanent basis instead of earlier pra2ti2e of
rene1ing registration e=er% three %ears


W+!t !.e P-&(tesJ
P.Notes are instruments li?e 2ontra2t notes issued b% 8IIs to o=erseas in=estors 1ho
2annot dire2tl% in=est in eLuit% mar?et as the% are not registered. )ut of o=er *,*,,
8IIs registered 1ith "'BI, onl% :+ ha=e been issuing PNs.
HR POLICIES
H,!& .es(,./e 2("i/ies
H,!& .es(,./e 2("i/ies are s%stems of 2odified de2isions, established b% an
organiMation, to support administrati=e personnel fun2tions, performan2e
management, emplo%ee relations and resour2e planning
'a2h 2ompan% has a different set of 2ir2umstan2es, and so de=elops an indi=idual
set of human resour2e poli2ies.
Purposes
#R poli2ies allo1 an organisation to be 2lear 1ith emplo%ees on$
The nature of the organisation
/hat the% should eBpe2t from the 2ompan%
/hat the 2ompan% eBpe2ts of them
#o1 poli2ies and pro2edures 1or? at %our 2ompan%
/hat is a22eptable and una22eptable beha=iour
The 2onseLuen2es of una22eptable beha=iour
The establishment of poli2ies 2an help an organiMation demonstrate that it meets
reLuirements for di=ersit%, ethi2s and training. In order to fire a person it ma% be
ne2essar% to sho1 2ause 2ompliant 1ith emplo%ment 2ontra2ts and 2olle2ti=e
bargaining agreementsP the establishment of #R Poli2ies to do2ument steps in
pro2edures, in2luding displinar% pro2edures, is no1 standard.
H,!& .es(,./e 2("i/ies
H,!& .es(,./e 2("i/ies are s%stems of 2odified de2isions, established b% an
organiMation, to support administrati=e personnel fun2tions, performan2e management,
emplo%ee relations and resour2e planning
'a2h 2ompan% has a different set of 2ir2umstan2es, and so de=elops an indi=idual set
of human resour2e poli2ies.
P,.2(ses
#R poli2ies allo1 an organisation to be 2lear 1ith emplo%ees on$
The nature of the organisation
/hat the% should eBpe2t from the 2ompan%
/hat the 2ompan% eBpe2ts of them
#o1 poli2ies and pro2edures 1or? at %our 2ompan%
/hat is a22eptable and una22eptable beha=iour
The 2onseLuen2es of una22eptable beha=iour
The establishment of poli2ies 2an help an organiMation demonstrate that it meets
reLuirements for di=ersit%, ethi2s and training. In order to fire a person it ma% be
ne2essar% to sho1 2ause 2ompliant 1ith emplo%ment 2ontra2ts and 2olle2ti=e
bargaining agreementsP the establishment of #R Poli2ies to do2ument steps in
pro2edures, in2luding displinar% pro2edures, is no1 standard.
De3e"(2i&0 t+e HR P("i/ies
#R poli2ies pro=ide an organisation 1ith a me2hanism to manage b% sta%ing up to
date 1ith 2urrent trends in emplo%ment standards and legislation
M!.'eti&0 st.!te01
A mar?eting strateg%

is a pro2ess that 2an allo1 an organiMation to 2on2entrate its
limited resour2es on the greatest opportunities to in2rease sales and a2hie=e a
sustainable 2ompetiti=e ad=antage. A mar?eting strateg% should be 2entred around
the ?e% 2on2ept that 2ustomer satisfa2tion is the main goal.
A mar?eting strateg% is most effe2ti=e 1hen it is an integral 2omponent of 2orporate
strateg%, defining ho1 the organiMation 1ill su22essfull% engage 2ustomers,
prospe2ts, and 2ompetitors in the mar?et arena. It is partiall% deri=ed from broader
2orporate strategies, 2orporate missions, and 2orporate goals. As the 2ustomer
2onstitutes the sour2e of a 2ompan%Es re=enue, mar?eting strateg% is 2losel% lin?ed
1ith sales. A ?e% 2omponent of mar?eting strateg% is often to ?eep mar?eting in
line 1ith a 2ompan%Es o=erar2hing mission statement.
A mar?eting strateg% 2an ser=e as the foundation of a mar?eting plan. A mar?eting
plan 2ontains a set of spe2ifi2 a2tions reLuired to su22essfull% implement a
mar?eting strateg%. 8or eBample$ Tse a lo1 2ost produ2t to attra2t 2onsumers.
)n2e our organiMation, =ia our lo1 2ost produ2t, has established a relationship
1ith 2onsumers, our organiMation 1ill sell additional, higher.margin produ2ts and
ser=i2es that enhan2e the 2onsumerEs intera2tion 1ith the lo1.2ost produ2t or
ser=i2e.T
A strateg% 2onsists of a 1ell thought out series of ta2ti2s to ma?e a mar?eting plan
more effe2ti=e. Mar?eting strategies ser=e as the fundamental underpinning of
mar?eting plans designed to fill mar?et needs and rea2h mar?eting ob<e2ti=es.
Plans and ob<e2ti=es are generall% tested for measurable results.
A mar?eting strateg% often integrates an organiMationEs mar?eting goals, poli2ies, and
a2tion seLuen2es @ta2ti2sA into a 2ohesi=e 1hole. "imilarl%, the =arious strands of
the strateg% , 1hi2h might in2lude ad=ertising, 2hannel mar?eting, internet
mar?eting, promotion and publi2 relations 2an be or2hestrated. Man% 2ompanies
2as2ade a strateg% throughout an organiMation, b% 2reating strateg% ta2ti2s that
then be2ome strateg% goals for the neBt le=el or group. 'a2h one group is eBpe2ted
to ta?e that strateg% goal and de=elop a set of ta2ti2s to a2hie=e that goal. This is
1h% it is important to ma?e ea2h strateg% goal measurable.
Mar?eting strategies are d%nami2 and intera2ti=e. The% are partiall% planned and
partiall% unplanned. "ee strateg% d%nami2s5
Mar?eting strategies ma% differ depending on the uniLue situation of the indi=idual
business. #o1e=er there are a number of 1a%s of 2ategoriMing some generi2
strategies. A brief des2ription of the most 2ommon 2ategoriMing s2hemes is
presented belo1$
S!"" B,si&ess M!.'eti&0 St.!te01 Q:4 Gain (ustomer (onfiden2e. (ustomer
inde2isi=eness, s?epti2ism, indifferen2e, or 2onfusion are among the top sales ?illers in
the business 1orld. ItEs up to %ou to pro<e2t an image of eBperien2e, Lualit%,
dependabilit%, eB2ellent 2ustomer ser=i2e, and5or added =alue to %our prospe2ti=e
2ustomers in order to 1in their 2onfiden2e. If %ou ha=enEt 2learl% 2ommuni2ated the
ad=antages and solid reasons for them to do business 1ith %ou, then the%Ell be hesitant
to 2ommit and the sale 1ill go to %our 2ompetitor.
B,si&ess M!.'eti&0 St.!te01 QF4 Penetrate a1areness of %our target audien2e b%
using some form of integrated mar?eting. In other 1ords, the more 1a%s the publi2
hears about %ou, the better %our 2han2es are for a2hie=ing brand re2ognition,
2redibilit%, and greater mar?et share. 'ffe2ti=e mar?eting is partl% the result of
eBposing %our target audien2e to %our name and %our selling points @uniLue selling
propositionA as often as possible@freLuen2%A, in as man% 1a%s as possible, and as 2ost.
effe2ti=el% as possible.
M!.'eti&0 St.!te01 Q<4 "in2ere enthusiasm, in both print and in person, is 2ontagious
@and IEm not tal?ing about using multiple eB2lamation points after senten2esZZZ That
detracts from %our 2redibilit% and per2ei=ed professionalism.A If %ou deepl% belie=e in
%our produ2ts, ser=i2es, %our 2ompan%, and %ourself, then %our prospe2ts 1ill pi2? up
on that passionate attitude and feel 2onfident and optimisti2 about doing business 1ith
%ou.
B,si&ess M!.'eti&0 St.!te01 Q=4 Pur2hasing is an emotional de2ision. Instill in %our
prospe2ts good feelings about %our 2ompan%, %our business relationship 1ith them,
and ho1 %ou 2an impro=e their li=es or sol=e their problem. A22omplishing that is at
least as important in the sales and mar?eting pro2ess as fo2using attention on produ2t
features and benefits.
B,si&ess M!.'eti&0 St.!te01 QK4 Dispel distrust. Gain 2ustomer 2onfiden2e and
o=er2ome potential feelings of distrust b% offering 1ritten guarantees of satisfa2tion
1hene=er possible, 2ustomer testimonials, referen2es, and b% <oining respe2ted and
1ell.?no1n professional organiMations, su2h as the Better Business Bureau, (hambers
of (ommer2e, and industr% asso2iations.
M!.'eti&0 St.!te01 QC4 Impose a deadline.(ountera2t one of the biggest obsta2les to
2losing a sale ?no1n to man?ind$ pro2rastination. To o=er2ome the natural human
tendan2% to deliberate, postpone, and dela%, itEs often ne2essar% to in<e2t a sense of
urgen2% into %our ads, sales presentations, and mar?eting messages. /hether supplies
are limited or pri2es are going up at the end of the month, some prospe2ts need to ha=e
a deadline or an in2enti=e to moti=ate them to ta?e a2tion no1.
B,si&ess M!.'eti&0 St.!te01 QE4 (reate a small business mar?eting plan to identif%
and 2apitaliMe on %our strengths and opportunities. Your mar?eting strategies should
also ta?e into a22ount fa2tors su2h as %our 1ea?nesses @and possible remediesA,
eBternal threats @2ompetition, e2onomi2 fa2tors, et2.A, %our mar?eting miB strateg%
@produ2ts5ser=i2es, promotional goals, pri2ing strateg%, and distribution de2isionsA,
media strateg%, sales and eBpense budgets, target mar?et anal%sis @?no1 %our
2ustomersA, and readil% a=ailable mar?eting tools, as 1ell as mar?eting tools that %ou
need to resear2h or a2Luire.
A publi2 relations @PRA strateg% ma% pla% a ?e% role in an organiMationEs promotional
strateg%. A planned approa2h to le=eraging publi2 relations opportunities 2an be <ust as
important as ad=ertising and sales promotions. Publi2 relations is one of the most
effe2ti=e methods to 2ommuni2ate and relate to the mar?et. It is po1erful and, on2e
things are in motion, it is the most 2ost effe2ti=e of all promotional a2ti=ities. In some
2ases, it is free.
The su22ess of 1ell eBe2uted PR plans 2an be seen through se=eral organiMations that
ha=e made it a 2entral fo2us of their promotional strateg%. Paul Ne1manEs "alad
Dressing, The Bod% "hop, and Ben S !err%Es I2e (ream ha=e positioned their
organiMations through effe2ti=e PR strategies. Intel, "print and Mi2rosoft ha=e
le=eraged publi2 relations to introdu2e and promote ne1 produ2ts and ser=i2es.
"imilar to the foundational goals of mar?eting, effe2ti=e publi2 relations see?s to
2ommuni2ate information to$
0aun2h ne1 produ2ts and ser=i2es.
Reposition a produ2t or ser=i2e.
(reate or in2rease interest in a produ2t, ser=i2e, or brand.
Influen2e spe2ifi2 target groups.
Defend produ2ts or ser=i2es that ha=e suffered from negati=e press or
per2eption.
'nhan2e the firmEs o=erall image.
The result of an effe2ti=e publi2 relations strateg% is to generate additional
re=enue through greater a1areness and information for the produ2ts and
ser=i2es an organiMation offers.
G(!"s !&* Ob-e/ti3es
Good strateg% begins 1ith identif%ing %our goals and stating %our ob<e2ti=es. /hat are
the goals and ob<e2ti=es behind %our publi2 relations strateg% and 2an the% be
measured and LuantifiedU
'a2h of these areas ma% refle2t the goals %our publi2 relations 2ampaign ma% see? to
a22omplish.
P.ess .e"!ti(&s
(ommuni2ating ne1s and information of interest about organiMations in the most
positi=e light.
P.(*,/t !&* se.3i/e 2.((ti(&
"ponsoring =arious efforts to publi2iMe spe2ifi2 produ2ts or ser=i2es.
Fi. /(,&i/!ti(&s
Promoting a better and more attra2ti=e understanding of the organiMation 1ith internal
and eBternal 2ommuni2ations.
L(bb1i&0
(ommuni2ating 1ith ?e% indi=iduals to positi=el% influen2e legislation and regulation.
I&te.&!" )ee*b!/'
Ad=ising de2ision ma?ers 1ithin the organiMation regarding the publi2Es per2eption
and ad=ising a2tions to be ta?en to 2hange negati=e opinions.
St.!te0ies b!se* (& !.'et *(i&!&/e - I& t+is s/+eeI )i.s !.e /"!ssi)ie* b!se*
(& t+ei. !.'et s+!.e (. *(i&!&/e () !& i&*,st.15 T12i/!""1 t+e.e !.e t+.ee
t12es () !.'et *(i&!&/e st.!te0ies4
St.!te0i/ (*e"s
Mar?eting parti2ipants often emplo% strategi2 models and tools to anal%Me mar?eting
de2isions. /hen beginning a strategi2 anal%sis, the :(s 2an be emplo%ed to get a
broad understanding of the strategi2 en=ironment. An Ansoff MatriB is also often
used to 2on=e% an organiMationEs strategi2 positioning of their mar?eting miB. The
+Ps 2an then be utiliMed to form a mar?eting plan to pursue a defined strateg%.
M!.'eti&0 i& P.!/ti/e
The (onsumer.(entri2 Business
There are a man% 2ompanies espe2iall% those in the (onsumer Pa2?age Goods @(PGA
mar?et that adopt the theor% of running their business 2entred around (onsumer,
"hopper S Retailer needs. Their Mar?eting departments spend Lualit% time
loo?ing for TGro1th )pportunitiesT in their 2ategories b% identif%ing rele=ant
insights @both mindsets and beha=ioursA on their target (onsumers, "hoppers and
retail partners. These Gro1th )pportunites emerge from 2hanges in mar?et trends,
segment d%nami2s 2hanging and also internal brand or operational business
2hallenges.The Mar?eting team 2an then prioritise these Gro1th )pportunites and
begin to de=elop strategies to eBploit the opportunities that 2ould in2lude ne1 or
adapted produ2ts, ser=i2es as 1ell as 2hanges to the +Ps.
Real.life mar?eting primaril% re=ol=es around the appli2ation of a great deal of
2ommon.senseP dealing 1ith a limited number of fa2tors, in an en=ironment of
imperfe2t information and limited resour2es 2ompli2ated b% un2ertaint% and tight
times2ales. se of 2lassi2al mar?eting te2hniLues, in these 2ir2umstan2es, is
ine=itabl% partial and une=en.
Thus, for eBample, man% ne1 produ2ts 1ill emerge from irrational pro2esses and the
rational de=elopment pro2ess ma% be used @if at allA to s2reen out the 1orst non.
runners. The design of the ad=ertising, and the pa2?aging, 1ill be the output of the
2reati=e minds emplo%edP 1hi2h management 1ill then s2reen, often b% Egut.
rea2tionE, to ensure that it is reasonable.
8or most of their time, mar?eting managers use intuition and eBperien2e to anal%Me
and handle the 2ompleB, and uniLue, situations being fa2edP 1ithout eas%
referen2e to theor%. This 1ill often be Efl%ing b% the seat of the pantsE, or Egut.
rea2tionEP 1here the o=erall strateg%, 2oupled 1ith the ?no1ledge of the 2ustomer
1hi2h has been absorbed almost b% a pro2ess of osmosis, 1ill determine the
Lualit% of the mar?eting emplo%ed. This, almost instin2ti=e management, is 1hat
is sometimes 2alled E2oarse mar?etingEP to distinguish it from the refined,
aestheti2all% pleasing, form fa=ored b% the theoris
SALE IS A $ERY IMPORTANT PART OF ANY ORGANISATION WITHOUT
IT NO RE$ENUE CAN BE GENERATED
OBJECTI$ES OF SALES MANAGEMENT
8rom the 2ompan% point of =ie1, there are three general and underl%ing ob<e2ti=es of
sales management$
*. A2hie=ing suffi2ient sales =olume.
-. Pro=iding ample 2ontribution to profits.
:. 'Bperien2ing 2ontinuing gro1th.
*. A2hie=ing suffi2ient sales =olume$ In the pro2ess of delegation5 the top management
fiBes the sales =olume more spe2ifi2 on the basis of mar?et, territor%, 2ustomer or an%
other basis 1hi2h it 1ants to a2hie=e in the spe2ifi2 period. To a2hie=e this goal5 sales
eBe2uti=es guide and lead the sales personnel and middlemen to implement the selling
plans.
-. Pro=iding ample 2ontribution to profits$ The se2ond ob<e2ti=e of sales management
is pro=iding ample 2ontribution to profits. Mainl% sales =olume, gross margin and net
profit in units of produ2t and amount 1ith ben2h mar?s of gro1th pro<e2ted for sales
and profits are fiBed on the basis of sales managementEs appraisal of mar?et
opportunities. The top management generall% ?eeps in mind5 in planning and operating
purposes, t1o basi2 a22ounting formulas$
"ale . (ost of "ales ` Gross Margin Gross Margin . sale eBpenses ` Net Profit The top
management also ta?es these formulas into 2onsideration 1hile appraising the
performan2e of sales managemenT
"'00ING PR)('""
The people in the sales field must ?no1 the =arious a2ti=ities inherent in the selling
pro2ess. This is a pre.reLuisite for their su22essful operations. 9arious ingredients of
selling pro2ess are as follo1s$
*. Prospe2ting
-. Preparation
:. Presentation
+. #andling ob<e2tions
H. (losing
C. 8ollo1 up. (areful attention must be paid to ea2h step in the selling pro2ess.
*. Prospe2ting$
Prospe2ting is the first step in the selling pro2ess. Prospe2ting means Lualified
potential bu%ers. 'B2ept in 2ase of retailing 1here 2ustomer 2omes to the salesperson
in all other 2ases, the salesperson has to see? potential bu%ers. T1o ma<or a2ti=ities are
in=ol=ed in prospe2ting i.e., identif%ing potential 2ustomers and Lualif%ing them in
order to determine a =alid prospe2t.
Identif%ing the Prospe2t$
0o2ating the prospe2ti=e bu%ers is not an eas% tas?. It is in most of the 2ases a
frustrating <ob. There are a number of sour2es to find out the prospe2ts, su2h as present
2ustomers,friend and a2Luaintan2es, other salespeople, pre=ious 2ustomers, supplierEs
sales emplo%ees and so2ial and professional 2onta2ts, dire2tories, mailing list,
ad=ertising et2.
Qualif%ing Prospe2ts$
)n2e a sales representati=e has identified the prospe2t, the neBt a2ti=it% in prospe2ting
is to Lualif% a genuine potential bu%er. The sales person 2annot Lualif% e=er% person
1ho 2omes into 2onta2t as a prospe2ti=e bu%er. #e should ignore su2h peopte 1ho
2annot or 1ill not pur2hase the produ2t or ser=i2e. In Lualif%ing a prospe2t @or suspe2t
as is generall% ?no1nA, three main points are to be 2onsidered b% a sales person$ These
are mone%, authorit% and need @?no1n as NAMA.
-. Preparation$
After a prospe2t is identified and Lualified, the neBt step is preparation for sales. The
t1o ma<or a2ti=ities are in=ol=ed pre.approa2h or fa2t finding, and 2alf planning.
@AAPre.approa2h or fa2t rinding
nder this step, the sales per has to gather additional information about the prospe2t
and his need that a suitable strateg% ma% be designed for sales 2alls. The salesperson
must Lualif% the real persons 1ho is de2ision ma?er and also 1ho influen2ers. The
salesperson must also re2ognise the needs of the prospe2t so that he ma% demonstrate
the produ2t and ma% ?no1 1hether produ2t 1ill satisf% those needs.
@bA (all Planning$
After obtaining the preliminar% fa2ts about the prospe2t and his needs, the salesperson
plans his 2all. #e defines the ob<e2ti=es of the 2all, de=elop a strateg% or 2ourse of
a2tion to a2hie=e that ob<e2ti=e and ma?e an appointment 1ith the prospe2t, most often
in ad=an2es to be sure that the prospe2t shall be a=ailable.
:. Presentation
The Presentation 2onsists of se=eral inter.related a2ti=ities. It begins 1ith approa2h
and ends 1ith an order. In presentation, there are three steps
@aA Approa2h$
It is an opening step i.e.5 to ha=e a 2onta2t 1ith the prospe2t. #e introdu2es himself to
the prospe2t and for this purpose, his first impression 2ounts mu2h for the su22ess of
sales 2all. The poor first impression ma% ha=e a 2han2e of losing the sales 2all. To
ma?e a fa=ourable first impression the sales representati=e must loo? and a2t li?e
professional. #e must loo? smart and a2ti=e. These te2hniLues are as?ing Luestion
related to the business, offering a ser=i2e 2omplementing the prospe2t, and gi=ing
something of =alue,
@bA (on=in2ing the Prospe2t$
The neBt 2ruB of the problem is to 2on=in2e the prospe2t about the Lualit% of the
produ2t and the need ser=i2e. #e should, therefore, define the ma<or features,
ad=antages of the produ2t. The salesperson should see? the agreement on some ?e%
points. The prospe2t should be assured that his needs 1ill be satisfied b% the produ2t.
The salesperson should demonstrate, the use of the produ2t if the prospe2t desires or
the te2hni2alities so 1arrant.
@2A Presentation Te2hniLues$
The =arious presentation te2hniLues$
'Bhibits
Testimonials
'Bamples
Guarantees of the benefit
Demonstration of the produ2t
But it should be 1ell planned for #andling )b<e2tions
suall% the prospe2t eBhibits some. resistan2e through some a2ti=ities or statements b%
a prospe2t that postpone hinder or pre=ent the 2ompletion of sale. "u2h resistan2e ma%
be in the form of an obsta2le or ob<e2tion. An )bsta2le ma% be real or unreal. )bsta2le
is not an ob<e2tion. If a prospe2t sa%s that he is short of to ma?e a pur2hase5 it is an
obsta2le and not an ob<e2tion. An ob<e2tion on the other hand, means a grie=an2e to
the prospe2t. It ma% be due to improper presentation. The salesperson should identif%
ob<e2tion and handle them properl%.
T12es () (b-e/ti(&s4
)b<e2tions ma% be of three t%pes$ timing, pri2e, and 2on2entration
I, Timing )b<e2tions$ It means ob<e2tions to gain time and generall% in=ol=e mone%
problems. The salesperson should find out reason of ob<e2tion and 2on=in2e the
prospe2t for ma?ing immediate de2ision.
II, Pri2e )b<e2tions$ It arises 1hen the prospe2t either has topi2al 2onstraint or thin?s
that the pri2es are higher than those 2harged, b% the 2ompetitors. The first ob<e2tion
2an be met b% suggesting the prospe2t finan2ial resour2es. The se2ond t%pe of
ob<e2tion ma% be handled b% painting him out the Lualit% and features the produ2t and
ma?e sure that the higher pri2es are the result of better Lualit% produ2t$
III, (ompetition ob<e2tionsP The% are relating to dealers alread% dealing 1ith the
prospe2t and he is Luite un1illing to snap relations them. The sales person should
2on=in2e the bu%er about superior
Lualit% of the produ2t.
C(&t.(""i&0 t+e (b-e/ti(&s$ There are t1o te2hniLues of handling ob<e2tions$
As?ing Luestions
Responding to the ob<e2tions.
"alesperson must as? Luestion5 to identif% the ob<e2tion and them respond it
immediatel%. The follo1ing te2hniLues of responding ma% be adopted$
@aA The %es . but method.
@bA Boomrang method.
@2A The 2omparison method.
@dA The 2ompensations method.
@eA The 2ase histor% method.
"alesperson ma% 2hoose an% of them a22ording to the situation.
H. (losing
It is the final part of the selling pro2ess. It means reLuest for getting, an order dosing,
should be at proper, time .not too earl% and not too late, In both the 2ases, the seller
ma% lose the prospe2t. Bu%ing signals important 1hi2h ma% be =erbal or non.=erbal.
9erbal signals are 2omments and suggestion, or Luestions. Non.=erbal signals are
fa2ial eBpression and ph%si2al a2tions ?no1n as bod% language. "u2h signals ma%
positi=e or negati=e. An eBperien2ed sales person ma% re2ognise su2h eBpressions
1hether the% are positi=e or negati=e.
Trial dose$
The salesperson must use trial 2lose e=en 1hen he 2on=in2ed that the prospe2t is read%
to bu%. The prospe2ts opinion should be tested.
C"(si&0 Te/+&iH,es$ There are number of te2hniLues generall% used for 2losing.
"u2h are$
@iA Alternate proposal 2lose.
@iiA The assumpti=e 2lose.
@iiiA The gift.
@i=A The a2tion 2lose.
The balan2e sheet 2lose.
Man% other te2hniLues ma% be used b% the salesperson.
C. 8ollo1.up
8ollo1 up or after sale a2ti=ities are not the less important for the seller. 'ffe2ti=e
sales follo1.up redu2es the bu%erEs dissonan2e or doubt and it impro=es the 2han2e
that bu%er 1ill pur2hase again if satisfied 1ith produ2erEs ser=i2e and the produ2t. The
seller should 2he2? 1hether the 2ustomer is satisfied 1ith the pur2hase and should
remo=e an% sour2e of dis2ontent. 8ollo1.up a2tions are also ne2essar% to maintain
good seller.2ustomer relations. "e=eral spe2ifi2 poli2ies should be follo1ed to satisf%
the 2ustomers.
TYP'" )8 "TANDARD"
(ompan% uses =arious standards to e=aluate the performan2e of sales people.
"tandards fa2ilitate the measurement of progress to1ards departmental ob<e2ti=es5
both spe2ifi2 and general, "pe2ifi2 ob<e2ti=es =ar% 1ith the 2hange in the 2ompan%Es
mar?eting situations, profits and gro1th5 but the% should be re2on2ilable 1ith the
general ob<e2ti=es of the department as 1ell asof the 2ompan%. 8irst5 general ob<e2ti=e
is to establish. . Performan2e standards ma% be Luantitati=e or Lualitati=e depending
upon =arious fa2tors.
Quantitative erformance
Most 2ompanies use Luantitati=e standards to measure the performan2e of the
2ompan% and of the sales.for2e. The parti2ular 2ombination of standards 2hosen =aries
1ith the 2ompan% and its mar?eting situation. Quantitati=e standards5 in effe2t define
both the nature and desired le=els of performan2e.
Quantitative Factors
The performan2e 2an be e=aluated on Luantitati=e basis5 both input @efforts made to
se2ure a 2ertain fiBed amount of sales =olumeA, and output @a2tual results a2hie=edA
should be spe2ifi2all% as2ertained and 2orrelated for this purpose. Quantitati=e
performan2e e=aluation 2an therefore, be an effort benefit anal%sis in Luantitati=e
terms. The produ2ti=it% of salespeople should be e=aluated b% 2orrelating the t1o
=ariables, input and output. Input =ariables ma% in2lude 2all rate5 eBpenses in2urred,
non.selling a2ti=ities, total time spent et2. and output =ariables ma% in2lude orders
boo?ed5 total sales =olumes in terms of amount, or Luantit% 5.gross margin net profit
et2.
The follo1ing are 2ertain output fa2tors 1hi2h are =er% often used for performan2e
e=aluation$
*. "ales =olume b% produ2ts either in terms of amount or number of items sold.
- "ales =olume as a per2entage of Luota or territorial potential.
:. Gross margin b% produ2t line, 2ustomer group, and order siMe,
+. )rders
@aA Number of orders.
@bA A=erage siMe of order @in terms of rupee =olumeA.
@2A Batting a=erage @orders di=ided b% 2allsA.
H. A22ounts$
@aA Per2entage of a22ounts sold to 2onta2t.
@bA Number of ne1 a22ounts added during the period
@2A Number of lost a22ounts.
"ome useful input fa2tors are also used for e=aluation purpose are$
*.(all rate @(alls per da%A.
-. Da%s 1or?ed
:. Dire2t selling eBpenses5 in total and as a per2entage of sales =olume or eBpense
Luota.
+. Noising a2ti=ities$
* Ad=ertising displa%s set up.
- Number of ser=i2e 2alls made.
FI!"# S$"!S %!&%'
Perhaps the most 1idel% used sour2e of information for e=aluation purposes is field sales
reports @reports submitted b% the salespeople themsel=es to the management for time to
timeA. "u2h reports pro=ided a good mutual 2ommuni2ation s%stem teen those preparing
reports and those re2ei=ing them. It pro=ides a good intera2tion bet1een salespeople and
field sales management, and field sales management and headLuarters.
"u2h reports indi2ate the matters on 1hi2h salespeople need assistan2e and en2ouragement.
"ales management ma% 2on2lude on the basis of su2h reports 1hether, sales people are
2alling on, and selling to the right people, and 1hether5 the% are ma?ing too fe1 or too man%
2alls. The% also assist sales management in determining, 1hat more 2an be done to se2ure
more and larger orders. 8ield sales reports, thus, pro=ide the ra1 materials that sales
management ma?es use of these reports, for gaining insights, 1hi2h pro=ide ba2?ground
materials for e=aluation purpose,
A good field sales report also assists the salespeople to ma?e their o1n self impro=ement
programmes. The% be2ome their o1n 2riti2s and 2ontrol instruments. "elf 2riti2ism is rather
more =aluable and more effe2ti=e than that, emanating from headLuarters. It pro=ides an
effe2ti=e asso2iation 1ith management.
P,.2(ses () Fie"* S!"es Re2(.ts
The general purpose of all field sales report is to pro=ide information needed for e=aluating
the performan2e of sales personnel, #o1e=er, the% 2ontain 2ertain additional information5
1hi2h are generall% used b% the management for other administrati=e purposes.
A list of purposes, ser=ed b% field sales reports are as follo1s$
To pro=ide data for '=aluating Performan2e$
Information reLuired to e=aluate the performan2e of sales persons are mainl% 2ontinued in
field sales reports su2h as details 2on2erning a22ounts and prospe2ts 2alled upon, number of
2alls made, number of orders obtained, da%s 1or?ed5 ?ilometers tra=eled, selling eBpenses
in2urred, displa%s ere2ted, 2o.operati=e ad=ertisements made, training of distributors
personnel a22omplished, missionar% 1or? performed and 2alls made 1ith distributors sales
personnel et2. The data ma% also be used for setting standards and formulating different sales
poli2ies.
To help "alesperson plan his or her 1or?$
)n the basis of report submitted b% a salesperson, he himself 2an e=aluate his performan2e
on the basis of set standards, and 2an plan his or her 1or? a22ordingl%. #e 2an plan his
itineraries and ma?e sales approa2hes to use 1ith spe2ifi2 a22ounts and prospe2ts.
:. To Re2ord (ustomerEs Rea2tions$
Reports 2ontain 2ustomerEs suggestions, 2omplaints, rea2tions about ne1 produ2ts, ser=i2e
poli2ies, pri2e 2hanges, pri2e poli2ies, ad=ertising 2ampaigns et2. In the light of su2h
suggestions and rea2tions, management ma% ma?e ne2essar% I 2hanges in its poli2ies and
pra2ti2es.
+. Information of (ompetitorEs A2ti=ities$
)ne of the important purposes, the report ser=es, is together information on 2ompetitorEs
a2ti=ities su2h as ne1 produ2ts, mar?et rates, promotion de=i2es and 2hanges in pri2ing and
2redit poli2ies et2, The management ma% ma?e ne2essar% impro=ement or 2hanges in its
poli2ies and produ2ts to meet the 2hallenges of e=e mar?et.
K5 T( .e2(.t /+!&0es in lo2al business and e2onomi2 2onditions, ma% be due to or
2hanges in go=ernment poli2% or due to other so2ial or e2onomi2 fa2tors.
C5 T( "(0 i2(.t!&t ites () te..it(.i!" i&)(.!ti(& )(. possible later use in 2ase
sales personnel lea=e the 2ompan% or are reassigned to other territories.
6. To ?eep the mailing list for promotional and 2atalogue material 2urrent.
7. To pro=ide information reLuested b% resear2h personnel$
8or eBample, data on dealerEs sales and in=entories of 2ompan% and 2ompetiti=e produ2ts.
SALES MEETINGS AND CON$ENTIONS
"ales meetings are important for 2ommuni2ation of ideas and I plans and for moti=ation.
Generall%, sales personnel 1or? a1a% from emplo%erEs premises and therefore, da% to da%
2ommuni2ation and super=ision is not feasible. Group meetings, pro=ides o22asions for
eB2hanging information and ideas. "u2h meetings also pro=ide an o22asion to sales personnel
to eBert pressures on the emplo%er to introdu2e 2ertain in2enti=es, 1hi2h are a22eptable to the
group. In this 1a%, meetings gi=e strength to 2olle2ti=e bargaining and unit%. Meetings also
pro=ide o22asions for management to stimulate the group as 1hole raise its o1n eBpe2tation
as to reasonable and a22eptable le=els of performan2e. Thus, sales meetings and 2on=entions
are important for both emplo%er and salespeople.
T%pes of Meetings
"ales meetings ma% be arranged on national, regional or lo2al.
*. National "ales Meetings$
Meetings of sales people, 1hen arranged on national le=el i.e., 1hen sales personnel
emplo%ed in t+e firm irrespe2ti=e of their pla2e of posting meet at one pla2e, it is ! &!ti(&!"
s!"es meetings. "u2h meetings are held onl% on2e or t1i2e a %ear and also attended b% a large
number of sales eBe2uti=es. "u2h meeting is 2alled a 2on=ention and designed for spe2ifi2
purposes, su2h as eBplaining the firmEs ad=ertising 2ampaign, impro=ement in sales
te2hniLues, pro=iding information regarding ne1 produ2t, 2hanges in 2ompan%Es poli2ies on
mar?et trends et2. The ma<or ad=antages in holding national sales meetings !.e4
@ As, a large number of sales eBe2uti=es attend su2h meetings, it pro=ides a great stimulus to
subordinate sales personnel.
@iiA All sales persons get a 2han2e to meet informall% 1ith other salespersons 1or?ing
else1here in the firm and the% learn from the inter2hange of eBperien2e. The% feel
themsel=es united.
@illA "alespeople 2ome to ?no1, ho1 others sol=e their problems o22asioning during the
2ourse of their operations. The%, thus, en2ourage finding their o1n solutions.
@i=A "alespersons also get an opportunit% for meeting home personnel @Registered or head
offi2e personnelA 1ith 1hom the% 2orrespond for the full %ear. A better 2oordination bet1een
the offi2e and the field results.
@=A If su2h meetings or 2on=entions are held near a fa2tor%, there ma% be an opportunit% to
gi=e sales personnel further produ2t training and to a2Luaint them 1ith te2hni2al
manufa2turing details.
-. Regional "ales Meetings$
National le=el sales meetings are fa=oured be2ause of the 1astage of time and mone%. The
trend is a1a% from national sales meetings and to1ards regional sales meetings. "u2h
meetings are generall%, held at regional headLuarter, mainl% to dis2uss regional problems.
#eadLuarters sales eBe2uti=es and personnel attend su2h asP
The follo1ing are a fe1 ma<or ad=antages of su2h meetings$
@iA "u2h meetings redu2e total tra=el 2osts and loss of produ2ti=e selling time.
@iiA 'a2h regional meeting .ma% ha=e a programme designed to emphasis the uniLue
problems of the region.
@iiiA Be2ause of the smaller number of parti2ipants, parti2ipation time per person is
substantiall% in2reased.
@i=A "ales eBe2uti=es and other personnel from the headLuarter are in=ited and the% learn
mu2h about 2urrent problems at first hand of that region. The% 2an ta?e initiati=e in sol=ing
su2h
problems.
:. 0o2al "ales Meetings$
0o2al sales meetings generall%, are 2ondu2ted at lo2al sales offi2e b% the distri2t sates
managers on2e (. t1i2e a 1ee?. The duration of the meeting depends upon the issues to be
dis2ussed. The main ad=antage of lo2al meeting is its informalit%5 ea2hE salesperson ha=ing
ample opportunit% to pose Luestions and to state personal =ie1s. The other ma<or ad=antage
of su2h meetings is to get freLuent o22asions. 8or personnel to get together, be2ome better
a2Luainted and strengthen feelings of groups identit%.
+. )ther t%pes of "ales Meetings$
@aA (losed (ir2uit Tele=ision$
(losed 2ir2uit tele=ision enables a 2ompan% to hold a number of sales meetings
simultaneousl%. The programme is li=e at onl% one meeting site, but is tele2ast to the others.
Thus, retaining mu2h of Itie inspirational =alue of the li=e sho1 1ithout in2urring 2osts and
loss of produ2ti=e time. The s%stem is appropriate for a 2ompan% teg a large sales for2e
and5or large dealer organiMations. The method is generall% used, 1hen the 2ompan% see?s to
introdu2e ne1 produ2ts or to laun2h sales 2ampaigns nationall%.
@bA Meetings b% Telephone$
Telephone 2onferen2e 2alls are used for small group meetings :nd dis2ussions. The meeting
is 2ondu2ted li?e other small group meetings. The sales manager 1el2omes the group and
opens the dis2ussion, 1hi2h is guided b% t1o rules i.e., onl% one person ma% tal? at a time,
and all spea?ers must identif% themsel=es and their territories. At the end of the 2all, the sales
manager gi=es a brief summar%. "u2h meetings sa=e both time and mone%.
@2A "ales Meetings at #ome$
"ee?ing to redu2e the time and 2osts of sales meetings, some 2ompanies mail re2orded
2assettes or printed materials to sales personnel at their homes. The other format is to re2ord
an eBe2uti=e sales meeting and pro=ide 2assettes to the members of sales staff at their homes.
There are three main ad=antages of su2h meetings$
@iA "ales personnel re2ei=e the information at their residen2e, free of 2ost
@iiA The% 2an re=ie1 the information as man% times as the% please
@iiiA There are substantial sa=ings in time and mone%.
Thus, The sales meetings ma% be held nationall%, regionall% or lo2al a22ording to the needs
of the business and ob<e2ts of the meeting.
SYNOPSIS

PROJECT TITLE $ Mar?eting of "BIM8 'QITY Produ2ts and
stud% of TaBgain and (ontra fund "2hemes
INDUSTRY $ MTA0 8ND
ORGANISATION "BI MTA0 8ND (o.
PROJECT GUIDE $ Mr. Dharmendra
DURATION OF THE PROJECT $ ,Kth Ma% -,,7 I Kth !ul% -,,7
MAIN OBJECTI$E OF THE
PROJECT 4 T( learn about "BIM8 'Luit% produ2ts
MY LEARNINGS FROM THE PROJECT
It 1as great opportunit% for me to do m% internship from "BI MTA0 8ND.
I got a pro<e2t 1hi2h ga=e me the opportunit% to meet the =arious people in the
2orporate 1orld. I 2ould understand the 1or?ing 2ulture of 2orporate as 1ell as
go=ernment offi2es. Before this I ne=er =isited su2h big organiMations.
Ma?ing plan for the neBt da% and finding the 2on2ern department and person allo1ed
me to in2rease m% 2ommuni2ation abilit%, 1ritten as 1ell as =erbal.
M% 2onfiden2e to meet people has tremendousl% gone up. Toda% I ha=e that mu2h
2onfiden2e that I 2an meet to an% big person in an% organiMation.
M% boss also helped me =er% mu2h to learn about 2orporate 1orld. #o1 to prepare the
proposals and ho1 to gi=e the 2ompan% offer all I learnt from m% boss.
I also attended the 2ustomer demonstration 1hi2h ga=e me the ?no1ledge about ho1
the 2ustomer 2an be 2on=in2ed, ho1 there Lueries are handled.
I also learnt =er% small.small things in the organiMation 1hi2h is =er% ne2essar% in an%
flat organiMation li?e photo2op%ingP 8aB the do2ument 1hi2h I ne=er ?no1 before.
BIB0I)GRAP#Y
BOO@S>
AUT:OR> B'RI G.(.
TITLE> MAR&'TING
R'"'AR(#
P0A(' )8 PB0I(ATI)N$ D'0#I.**,,K-
PB0I"#'R$ P'AR")N 'D(ATI)N
B))&"$
AT#)R$ &)T0'R P#I0IP
TIT0'$ MAR&'TING
MANAG'M'NT
P0A(' )8 PB0I(ATI)N$ D'0#I
PB0I"#'R$ TATA M(GRA/#I00
PB0I"#ING (). 0TD
/ebsite$
111.google.2o.in
111.amphiindia.2om
111.e2onomi2times.2om
111.sbimf.2om
WOD O% T7ANK"
I ta)e the opportunit' to pa' heart' regards to Dr. D. 2. G,-G
4hairman", Mr. M. 2. <.-M, Dean" and placement head Mr.
G.2.3IN+, for lending me their )ind support for completion of m'
project.
I than) all those #ho directl' or indirectl' supported me morall',
financiall' and through pro$iding )no#ledge b' #hich I could
complete m' -esearch.
/ast but not the least I am than)ful to the management of 3BI
M!T!,/ 0!ND 4o. = especiall' to m' guide Mr. Dharmendra = M'
4o1Guide Mr. Na$een #hose 4o1operation and guidance #as a
milestone in completion of m' project.