UNIVERSITY OF MUMBAI

PROJECT ON
COMPARATIVE STUDY OF MUTUAL FUNDS IN INDIA
SUBMITTED In Partial Fulfillment of the requirements For the Award of the Degree
of Bachelor of Management BY ANSARI SHEEMAN AHMED.
PROJECT GUIDE MRS. MINAL GANDHIiiiiiiiiiiii
BACHELOR OF MANAGEMENT STUDIES SEMESTER V (2009-10) V.E.S. COLLEGE OF ARTS, SCIE
NCE & COMMERCE, SINDHI SOCIETY, CHEMBUR, MUMBAI 400071.
11111111111

DECLARATION
I, ____________________________, the student of Bachelor of Management Studies -
Semester V (2009-10) hereby declare that I have completed this project on _____
____________________________
________.
The information submitted is true & original to the best of my knowledge.
Students Signature ( )
2

CERTIFICATE
This is to certify that Mr. _______________________________ of Bachelor of Manag
ement Studies - Semester V (2009-10) has successfully completed the project on _
_______________________
_______________________under the guidance of _____________ ___________.
Course Coordinator Mrs. A. MARTINA
Principal Dr. (Mrs) J. K. PHADNIS
Project Guide/ Internal Examiner Mrs. MINAL GANDHI
External Examiner
3

ACKNOWLEDGEMENT
Before we get into thick of things, I would like to add a few words of appreciat
ion for the people who have been a part of this project right from its inception
. The writing of this project has been one of the significant academic challenge
s I have faced and without the support, patience, and guidance of the people inv
olved, this task would not have been completed. It is to them I owe my deepest g
ratitude. It gives me Immense pleasure in presenting this project report on "COM
PARATIVE STUDY OF MUTUAL FUNDS IN INDIA". It has been my privilege to have a tea
m of project guide who have assisted me from the commencement of this project. T
he success of this project is a result of sheer hard work, and determination put
in by me with the help of my project guide. I hereby take this opportunity to a
dd a special note of thanks for Mrs. MINAL GANDHI, who undertook to act as my me
ntor despite her many other academic and professional commitments. Her wisdom, k
nowledge, and commitment to the highest standards inspired and motivated me. Wit
hout her insight, support, and energy, this project wouldn t have kick-started a
nd neither would have reached fruitfulness. I also feel heartiest sense of oblig
ation to my library staff members & seniors, who helped me in collection of data
& resource material & also in its processing as well as in drafting manuscript.
The project is dedicated to all those people, who helped me while doing this pr
oject.
4

NEED FOR THE STUDY:

The main purpose of doing this project was to know about mutual fund and its fun
ctioning. This helps to know in details about mutual fund industry right from it
s inception stage, growth and future prospects. It also helps in understanding d
ifferent schemes of mutual funds. Because my study depends upon prominent funds
in India and their schemes like equity, income, balance as well as the returns a
ssociated with those schemes. The project study was done to ascertain the asset
allocation, entry load, exit load, associated with the mutual funds. Ultimately
this would help in understanding the benefits of mutual funds to investors.
OBJECTIVE:
To give a brief idea about the benefits available from Mutual Fund investment. T
o give an idea of the types of schemes available. To discuss about the market tr
ends of Mutual Fund investment. To study some of the mutual fund schemes. To stu
dy some mutual fund companies and their funds. Observe the fund management proce
ss of mutual funds. Explore the recent developments in the mutual funds in India
. To give an idea about the regulations of mutual funds.
LIMITATIONS The lack of information sources for the analysis part. Though I trie
d to collect some primary data but they were too inadequate for the purposes of
the study. Time and money are critical factors limiting this study. The data pro
vided by the prospects may not be 100% correct as they too have their limitation
s. The study is limited to selected mutual fund schemes.
5

EXECUTIVE SUMMERY
A mutual fund is a scheme in which several people invest their money for a commo
n financial cause. The collected money invests in the capital market and the mon
ey, which they earned, is divided based on the number of units, which they hold.
The mutual fund industry started in India in a small way with the UTI Act creat
ing what was effectively a small savings division within the RBI. Over a period
of 25 years this grew fairly successfully and gave investors a good return, and
therefore in 1989, as the next logical step, public sector banks and financial i
nstitutions were allowed to float mutual funds and their success emboldened the
government to allow the private sector to foray into this area. The advantages o
f mutual fund are professional management, diversification, economies of scale,
simplicity, and liquidity. The disadvantages of mutual fund are high costs, over
-diversification, possible tax consequences, and the inability of management to
guarantee a superior return. The biggest problems with mutual funds are their co
sts and fees it include Purchase fee, Redemption fee, Exchange fee, Management f
ee, Account fee & Transaction Costs. There are some loads which add to the cost
of mutual fund. Load is a type of commission depending on the type of funds. Mut
ual funds are easy to buy and sell. You can either buy them directly from the fu
nd company or through a third party. Before investing in any funds one should co
nsider some factor like objective, risk, Fund Managers and scheme track record, C
ost factor etc. There are many, many types of mutual funds. You can classify fun
ds based Structure (open-ended & close-ended), Nature (equity, debt, balanced),
Investment objective (growth, income, money market) etc. A code of conduct and r
egistration structure for mutual fund intermediaries, which were subsequently ma
ndated by SEBI. In addition, this year AMFI was involved in a number of developm
ents and enhancements to the regulatory framework.
6

The most important trend in the mutual fund industry is the aggressive expansion
of the foreign owned mutual fund companies and the decline of the companies flo
ated by nationalized banks and smaller private sector players. Reliance Mutual F
und, UTI Mutual Fund, ICICI Prudential Mutual Fund, HDFC Mutual Fund and Birla S
un Life Mutual Fund are the top five mutual fund company in India. Reliance mutu
al funding is considered to be most reliable mutual funds in India. People want
to invest in this institution because they know that this institution will never
dissatisfy them at any cost. You should always keep this into your mind that if
particular mutual funding scheme is on larger scale then next time, you might n
ot get the same results so being a careful investor you should take your major s
tep diligently otherwise you will be unable to obtain the high returns.
7

INDEX
SRNO. 1. 2. 3. 4. 5. 6. TOPICS INTRODUCTION OF MUTUAL FUND WORKING OF MUTUAL FUN
D MUTUAL FUND IN INDIA RELIANCE MUTUAL FUND vs. UTI MUTUAL FUND MUTUAL FUND vs.
OTHER INVESTMENT FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA MF JARGON CONCLUSION B
IBLOGRAPHY PAGE NO 01 25 33 37 60 67 68 69 70
8

Chapter: 1
INTRODUCTION OF MUTUAL FUND
There are a lot of investment avenues available today in the financial market fo
r an investor with an investable surplus. He can invest in Bank Deposits, Corpor
ate Debentures, and Bonds where there is low risk but low return. He may invest
in Stock of companies where the risk is high and the returns are also proportion
ately high. The recent trends in the Stock Market have shown that an average ret
ail investor always lost with periodic bearish tends. People began opting for po
rtfolio managers with expertise in stock markets who would invest on their behal
f. Thus we had wealth management services provided by many institutions. However
they proved too costly for a small investor. These investors have found a good
shelter with the mutual funds.
CONCEPT OF MUTUAL FUND:
A mutual fund is a common pool of money into which investors place their contrib
utions that are to be invested in accordance with a stated objective. The owners
hip of the fund is thus joint or mutual; the fund belongs to all investors. A sing
le investors ownership of the fund is in the same proportion as the amount of the
contribution made by him or her bears to the total amount of the fund.
9

Mutual Funds are trusts, which accept savings from investors and invest the same
in diversified financial instruments in terms of objectives set out in the trus
ts deed with the view to reduce the risk and maximize the income and capital app
reciation for distribution for the members. A Mutual Fund is a corporation and t
he fund managers interest is to professionally manage the funds provided by the i
nvestors and provide a return on them after deducting reasonable management fees
. The objective sought to be achieved by Mutual Fund is to provide an opportunit
y for lower income groups to acquire without much difficulty financial assets. T
hey cater mainly to the needs of the individual investor whose means are small a
nd to manage investors portfolio in a manner that provides a regular income, gro
wth, safety, liquidity and diversification opportunities.
DEFINITION:
Mutual funds are collective savings and investment vehicles where savings of smal
l (or sometimes big) investors are pooled together to invest for their mutual be
nefit and returns distributed proportionately. A mutual fund is an investment that
pools your money with the money of an unlimited number of other investors. In r
eturn, you and the other investors each own shares of the fund. The fund s asset
s are invested according to an investment objective into the fund s portfolio of
investments. Aggressive growth funds seek long-term capital growth by investing
primarily in stocks of fast-growing smaller companies or market segments. Aggre
ssive growth funds are also called capital appreciation funds.
10

Why Select Mutual Fund?

The risk return trade-off indicates that if investor is willing to take higher r
isk then correspondingly he can expect higher returns and vise versa if he perta
ins to lower risk instruments, which would be satisfied by lower returns. For ex
ample, if an investors opt for bank FD, which provide moderate return with minim
al risk. But as he moves ahead to invest in capital protected funds and the prof
it-bonds that give out more return which is slightly higher as compared to the b
ank deposits but the risk involved also increases in the same proportion. Thus i
nvestors choose mutual funds as their primary means of investing, as Mutual fund
s provide professional management, diversification, convenience and liquidity. T
hat doesnt mean mutual fund investments risk free. This is because the money that
is pooled in are not invested only in debts funds which are less riskier but ar
e also invested in the stock markets which involves a higher risk but can expect
higher returns. Hedge fund involves a very high risk since it is mostly traded
in the derivatives market which is considered very volatile. RETURN RISK MATRIX
HIGHIER RISK MODERATE RETURNS HIGHER RISK HIGHIER RETURNS
Ventur e Capita l
Equi ty
Bank FD P o s ta l S a v in g s
LOWER RISK LOWER RETURNS
Mutu al Funds
LOWER RISK HIGIER RETURNS
11

HISTORY OF MUTUAL FUNDS IN INDIA:

The mutual fund industry in India started in 1963 with the formation of Unit Tru
st of India, at the initiative of the Government of India and Reserve Bank. The
history of mutual funds in India can be broadly divided into four distinct phase
s
FIRST PHASE 1964-87:
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It wa
s set up by the Reserve Bank of India and functioned under the Regulatory and ad
ministrative control of the Reserve Bank of India. In 1978 UTI was de-linked fro
m the RBI and the Industrial Development Bank of India (IDBI) took over the regu
latory and administrative control in place of RBI. The first scheme launched by
UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets u
nder management.
SECOND PHASE 1987-1993 (ENTRY OF PUBLIC SECTOR FUNDS):
1987 marked the entry of non- UTI, public sector mutual funds set up by public s
ector banks and Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund e
stablished in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab Nationa
l Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Ju
n 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in J
une 1989 while GIC had set up its mutual fund in December 1990. At the end of 19
93, the mutual fund industry had assets under management of Rs.47,004 crores.
THIRD PHASE 1993-2003 (ENTRY OF PRIVATE SECTOR FUNDS):
With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund familie
s. Also, 1993 was the year in which the first Mutual Fund Regulations came into
being, under which all mutual funds, except UTI were to be registered and govern
ed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the f
irst private sector mutual fund registered in July 1993.
12

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996. The industry now functions under t
he SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on
increasing, with many foreign mutual funds setting up funds in India and also t
he industry has witnessed several mergers and acquisitions. As at the end of Jan
uary 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores.
The Unit Trust of India with Rs.44,541 crores of assets under management was way
ahead of other mutual funds.
FOURTH PHASE SINCE FEBRUARY 2003:
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI w
as bifurcated into two separate entities. One is the Specified Undertaking of th
e Unit Trust of India with assets under management of Rs.29,835 crores as at the
end of January 2003, representing broadly, the assets of US 64 scheme, assured
return and certain other schemes. The Specified Undertaking of Unit Trust of Ind
ia, functioning under an administrator and under the rules framed by Government
of India and does not come under the purview of the Mutual Fund Regulations. The
second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is re
gistered with SEBI and functions under the Mutual Fund Regulations. With the bif
urcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores
of assets under management and with the setting up of a UTI Mutual Fund, confor
ming to the SEBI Mutual Fund Regulations, and with recent mergers taking place a
mong different private sector funds, the mutual fund industry has entered its cu
rrent phase of consolidation and growth. As at the end of September, 2004, there
were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
13

The graph indicates the growth of assets under management over the years. GROWTH
IN ASSETS UNDER MANAGEMENT
(Source: www.amfiindia.com)
14

ADVANTAGES OF MUTUAL FUNDS:

If mutual funds are emerging as the favorite investment vehicle, it is because o
f the many advantages they have over other forms and the avenues of investing, p
articularly for the investor who has limited resources available in terms of cap
ital and the ability to carry out detailed research and market monitoring. The f
ollowing are the major advantages offered by mutual funds to all investors:
1. Portfolio Diversification:
Each investor in the fund is a part owner of all the funds assets, thus enabling
him to hold a diversified investment portfolio even with a small amount of inves
tment that would otherwise require big capital.
2. Professional Management:
Even if an investor has a big amount of capital available to him, he benefits fr
om the professional management skills brought in by the fund in the management o
f the investors portfolio. The investment management skills, along with the neede
d research into available investment options, ensure a much better return than w
hat an investor can manage on his own. Few investors have the skill and resource
s of their own to succeed in todays fast moving, global and sophisticated markets
.
3.
Reduction/Diversification Of Risk:
When an investor invests directly, all the risk of potential loss is his own, wh
ether he
places a deposit with a company or a bank, or he buys a share or debenture on hi
s own or in any other from. While investing in the pool of funds with investors,
the potential losses are also shared with other investors. The risk reduction i
s one of the most important benefits of a collective investment vehicle like the
mutual fund.
15

4.
Reduction Of Transaction Costs:
What is true of risk as also true of the transaction costs. The investor bears a
ll the costs of
investing such as brokerage or custody of securities. When going through a fund,
he has the benefit of economies of scale; the funds pay lesser costs because of
larger volumes, a benefit passed on to its investors.
5.
Liquidity:
Often, investors hold shares or bonds they cannot directly, easily and quickly s
ell. When
they invest in the units of a fund, they can generally cash their investments an
y time, by selling their units to the fund if open-ended, or selling them in the
market if the fund is close-end. Liquidity of investment is clearly a big benef
it.
6.
Convenience And Flexibility:
Mutual fund management companies offer many investor services that a direct mark
et
investor cannot get. Investors can easily transfer their holding from one scheme
to the other; get updated market information and so on.
7.
Tax Benefits:
Any income distributed after March 31, 2002 will be subject to tax in the assess
ment of
all Unit holders. However, as a measure of concession to Unit holders of open-en
ded equityoriented funds, income distributions for the year ending March 31, 200
3, will be taxed at a concessional rate of 10.5%. In case of Individuals and Hin
du Undivided Families a deduction upto Rs. 9,000 from the Total Income will be a
dmissible in respect of income from investments specified in Section 80L, includ
ing income from Units of the Mutual Fund. Units of the schemes are not subject t
o Wealth-Tax and Gift-Tax.
8. Choice of Schemes:
Mutual Funds offer a family of schemes to suit your varying needs over a lifetim
e.
16

9. Well Regulated:
All Mutual Funds are registered with SEBI and they function within the provision
s of strict regulations designed to protect the interests of investors. The oper
ations of Mutual Funds are regularly monitored by SEBI. 10. Transparency: You ge
t regular information on the value of your investment in addition to disclosure
on the specific investments made by your scheme, the proportion invested in each
class of assets and the fund manager s investment strategy and outlook.
DISADVANTAGES OF INVESTING THROUGH MUTUAL FUNDS:
1.
No Control Over Costs:
An investor in a mutual fund has no control of the overall costs of investing. T
he investor
pays investment management fees as long as he remains with the fund, albeit in r
eturn for the professional management and research. Fees are payable even if the
value of his investments is declining. A mutual fund investor also pays fund di
stribution costs, which he would not incur in direct investing. However, this sh
ortcoming only means that there is a cost to obtain the mutual fund services.
2.
No Tailor-Made Portfolio:
Investors who invest on their own can build their own portfolios of shares and b
onds and
other securities. Investing through fund means he delegates this decision to the
fund managers. The very-high-net-worth individuals or large corporate investors
may find this to be a constraint in achieving their objectives. However, most m
utual fund managers help investors overcome this constraint by offering families
 of funds- a large number of different schemes- within their own management comp
any. An investor can choose from different investment plans and constructs a por
tfolio to his choice.
17

3. Managing A Portfolio Of Funds:

Availability of a large number of funds can actually mean too much choice for th
e investor. He may again need advice on how to select a fund to achieve his obje
ctives, quite similar to the situation when he has individual shares or bonds to
select.
4. The Wisdom Of Professional Management:
That s right, this is not an advantage. The average mutual fund manager is no be
tter at picking stocks than the average nonprofessional, but charges fees.
5.
No Control:
Unlike picking your own individual stocks, a mutual fund puts you in the passeng
er seat
of somebody else s car
6. Dilution:
Mutual funds generally have such small holdings of so many different stocks that
insanely great performance by a fund s top holdings still doesn t make much of
a difference in a mutual fund s total performance.
7. Buried Costs:
Many mutual funds specialize in burying their costs and in hiring salesmen who d
o not make those costs clear to their clients.
18

TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financi
al position, risk tolerance and return expectations etc. thus mutual funds has V
ariety of flavors, Being a collection of many stocks, an investors can go for pi
cking a mutual fund might be easy. There are over hundreds of mutual funds schem
e to choose from. It is easier to think of mutual funds in categories, mentioned
below.
19

A).
BY STRUCTURE
1. Open - Ended Schemes:
An open-end fund is one that is available for subscription all through the year.
These do not have a fixed maturity. Investors can conveniently buy and sell uni
ts at Net Asset Value ("NAV") related prices. The key feature of open-end scheme
s is liquidity.
2. Close - Ended Schemes:
A closed-end fund has a stipulated maturity period which generally ranging from
3 to 15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue and
thereafter they can buy or sell the units of the scheme on the stock exchanges w
here they are listed. In order to provide an exit route to the investors, some c
lose-ended funds give an option of selling back the units to the Mutual Fund thr
ough periodic repurchase at NAV related prices. SEBI Regulations stipulate that
at least one of the two exit routes is provided to the investor.
3. Interval Schemes:
Interval Schemes are that scheme, which combines the features of open-ended and
closeended schemes. The units may be traded on the stock exchange or may be open
for sale or redemption during pre-determined intervals at NAV related prices.
20

B).
BY NATURE
These funds invest a maximum part of their corpus into equities holdings. The st
ructure
1. Equity Fund:
of the fund may vary different for different schemes and the fund managers outloo
k on different stocks. The Equity Funds are sub-classified depending upon their
investment objective, as follows:

Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (
ELSS) Equity investments are meant for a longer time horizon, thus Equity funds
rank high on
the risk-return matrix.
2. Debt Funds:
The objective of these Funds is to invest in debt papers. Government authorities
, private companies, banks and financial institutions are some of the major issu
ers of debt papers. By investing in debt instruments, these funds ensure low ris
k and provide stable income to the investors. Debt funds are further classified
as:

Gilt Funds: Invest their corpus in securities issued by Government, popularly kn

own as Government of India debt papers. These Funds carry zero Default risk but
are associated with Interest Rate risk. These schemes are safer as they invest i
n papers backed by Government.

Income Funds: Invest a major portion into various debt instruments such as bonds
, corporate debentures and Government securities.

MIPs: Invests maximum of their total corpus in debt instruments while they take
minimum exposure in equities. It gets benefit of both equity and debt market. Th
ese scheme ranks slightly high on the risk-return matrix when compared with othe
r debt schemes.
21

Short Term Plans (STPs): Meant for investment horizon for three to six months. T
hese funds primarily invest in short term papers like Certificate of Deposits (C
Ds) and Commercial Papers (CPs). Some portion of the corpus is also invested in
corporate debentures.

Liquid Funds: Also known as Money Market Schemes, These funds provides easy liqu
idity and preservation of capital. These schemes invest in short-term instrument
s like Treasury Bills, inter-bank call money market, CPs and CDs. These funds ar
e meant for short-term cash management of corporate houses and are meant for an
investment horizon of 1day to 3 months. These schemes rank low on risk-return ma
trix and are considered to be the safest amongst all categories of mutual funds.
3. Balanced Funds:
As the name suggest they, are a mix of both equity and debt funds. They invest i
n both equities and fixed income securities, which are in line with pre-defined
investment objective of the scheme. These schemes aim to provide investors with
the best of both the worlds. Equity part provides growth and the debt part provi
des stability in returns. Further the mutual funds can be broadly classified on
the basis of investment parameter viz, Each category of funds is backed by an in
vestment philosophy, which is pre-defined in the objectives of the fund. The inv
estor can align his own investment needs with the funds objective and invest acc
ordingly.
22

C).
BY INVESTMENT OBJECTIVE:
Growth Schemes are also known as equity schemes. The aim of these schemes is to
Growth Schemes:
provide capital appreciation over medium to long term. These schemes normally in
vest a major part of their fund in equities and are willing to bear short-term d
ecline in value for possible future appreciation.
Income Schemes:
Income Schemes are also known as debt schemes. The aim of these schemes is to pr
ovide regular and steady income to investors. These schemes generally invest in
fixed income securities such as bonds and corporate debentures. Capital apprecia
tion in such schemes may be limited.
Balanced Schemes:
Balanced Schemes aim to provide both growth and income by periodically distribut
ing a part of the income and capital gains they earn. These schemes invest in bo
th shares and fixed income securities, in the proportion indicated in their offe
r documents (normally 50:50).
Money Market Schemes:
Money Market Schemes aim to provide easy liquidity, preservation of capital and
moderate income. These schemes generally invest in safer, short-term instruments
, such as treasury bills, certificates of deposit, commercial paper and inter-ba
nk call money. Load Funds: A Load Fund is one that charges a commission for entr
y or exit. That is, each time you buy or sell units in the fund, a commission wi
ll be payable. Typically entry and exit loads range from 1% to 2%. It could be w
orth paying the load, if the fund has a good performance history. No-Load Funds:
A No-Load Fund is one that does not charge a commission for entry or exit. That
is, no commission is payable on purchase or sale of units in the fund. The adva
ntage of a no load fund is that the entire corpus is put to work.
23

OTHER SCHEMES Tax Saving Schemes:

Tax-saving schemes offer tax rebates to the investors under tax laws prescribed
from time to time. Under Sec.88 of the Income Tax Act, contributions made to any
Equity Linked Savings Scheme (ELSS) are eligible for rebate.
Index Schemes:
Index schemes attempt to replicate the performance of a particular index such as
the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of on
ly those stocks that constitute the index. The percentage of each stock to the t
otal holding will be identical to the stocks index weightage. And hence, the ret
urns from such schemes would be more or less equivalent to those of the Index.
Sector Specific Schemes:
These are the funds/schemes which invest in the securities of only those sectors
or industries as specified in the offer documents. e.g. Pharmaceuticals, Softwa
re, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in the
se funds are dependent on the performance of the respective sectors/industries.
While these funds may give higher returns, they are more risky compared to diver
sified funds. Investors need to keep a watch on the performance of those sectors
/industries and must exit at an appropriate time.
24

NET ASSET VALUE (NAV):

Since each owner is a part owner of a mutual fund, it is necessary to establish
the value of his part. In other words, each share or unit that an investor holds
needs to be assigned a value. Since the units held by investor evidence the own
ership of the funds assets, the value of the total assets of the fund when divide
d by the total number of units issued by the mutual fund gives us the value of o
ne unit. This is generally called the Net Asset Value (NAV) of one unit or one s
hare. The value of an investors part ownership is thus determined by the NAV of t
he number of units held. Calculation of NAV: Let us see an example. If the value
of a funds assets stands at Rs. 100 and it has 10 investors who have bought 10 u
nits each, the total numbers of units issued are 100, and the value of one unit
is Rs. 10.00 (1000/100). If a single investor in fact owns 3 units, the value of
his ownership of the fund will be Rs. 30.00(1000/100*3). Note that the value of
the funds investments will keep fluctuating with the market-price movements, cau
sing the Net Asset Value also to fluctuate. For example, if the value of our fun
ds asset increased from Rs. 1000 to 1200, the value of our investors holding of 3
units will now be (1200/100*3) Rs. 36. The investment value can go up or down,
depending on the markets value of the funds assets.
25

MUTUAL FUND FEES AND EXPENSES

Mutual fund fees and expenses are charges that may be incurred by investors who
hold mutual funds. Running a mutual fund involves costs, including shareholder t
ransaction costs, investment advisory fees, and marketing and distribution expen
ses. Funds pass along these costs to investors in a number of ways.
1. TRANSACTION FEES
i)
Purchase Fee:
It is a type of fee that some funds charge their shareholders when they buy shar
es. Unlike a front-end sales load, a purchase fee is paid to the fund (not to a
broker) and is typically imposed to defray some of the fund s costs associated w
ith the purchase.
ii)
Redemption Fee:
It is another type of fee that some funds charge their shareholders when they se
ll or redeem shares. Unlike a deferred sales load, a redemption fee is paid to t
he fund (not to a broker) and is typically used to defray fund costs associated
with a shareholder s redemption.
iii)
Exchange Fee:
Exchange fee that some funds impose on shareholders if they exchange (transfer)
to another fund within the same fund group or "family of funds."
2. PERIODIC FEES
i)
Management Fee:
Management fees are fees that are paid out of fund assets to the fund s investme
nt adviser for investment portfolio management, any other management fees payabl
e to the fund s investment adviser or its affiliates, and administrative fees pa
yable to the investment adviser that are not included in the "Other Expenses" ca
tegory. They are also called maintenance fees.
26

ii)
Account Fee:
Account fees are fees that some funds separately impose on investors in connecti
on with the maintenance of their accounts. For example, some funds impose an acc
ount maintenance fee on accounts whose value is less than a certain dollar amoun
t.
3. OTHER OPERATING EXPENSES Transaction Costs:
These costs are incurred in the trading of the fund s assets. Funds with a high
turnover ratio, or investing in illiquid or exotic markets usually face higher t
ransaction costs. Unlike the Total Expense Ratio these costs are usually not rep
orted.
LOADS
Definition of a load Load funds exhibit a "Sales Load" with a percentage charge
levied on purchase or sale of shares. A load is a type of Commission (remunerati
on). Depending on the type of load a mutual fund exhibits, charges may be incurr
ed at time of purchase, time of sale, or a mix of both. The different types of l
oads are outlined below.
Front-end load:
Also known as Sales Charge, this is a fee paid when shares are purchased. Also k
nown as a "front-end load," this fee typically goes to the brokers that sell the
fund s shares. Front-end loads reduce the amount of your investment. For exampl
e, let s say you have Rs.10,000 and want to invest it in a mutual fund with a 5%
front-end load. The Rs.500 sales load you must pay comes off the top, and the r
emaining Rs.9500 will be invested in the fund. According to NASD rules, a front-
end load cannot be higher than 8.5% of your investment.
27

Back-end load:
Also known as Deferred Sales Charge, this is a fee paid when shares are sold. Al
so known as a "back-end load," this fee typically goes to the brokers that sell
the fund s shares. The amount of this type of load will depend on how long the i
nvestor holds his or her shares and typically decreases to zero if the investor
holds his or her shares long enough.
Level load / Low load:
It s similar to a back-end load in that no sales charges are paid when buying th
e fund. Instead a back-end load may be charged if the shares purchased are sold
within a given time frame. The distinction between level loads and low loads as
opposed to back-end loads, is that this time frame where charges are levied is s
horter.
No-load Fund:
As the name implies, this means that the fund does not charge any type of sales
load. But, as outlined above, not every type of shareholder fee is a "sales load
." A no-load fund may charge fees that are not sales loads, such as purchase fee
s, redemption fees, exchange fees, and account fees.
28

SELECTION PARAMETERS FOR MUTUAL FUND

Your objective:
The first point to note before investing in a fund is to find out whether your o
bjective matches with the scheme. It is necessary, as any conflict would directl
y affect your prospective returns. Similarly, you should pick schemes that meet
your specific needs. Examples: pension plans, childrens plans, sector-specific sc
hemes, etc.
Your risk capacity and capability:
This dictates the choice of schemes. Those with no risk tolerance should go for
debt schemes, as they are relatively safer. Aggressive investors can go for equi
ty investments. Investors that are even more aggressive can try schemes that inv
est in specific industry or sectors.
Fund Managers and scheme track record:
Since you are giving your hard earned money to someone to manage it, it is imper
ative that he manages it well. It is also essential that the fund house you choo
se has excellent track record. It also should be professional and maintain high
transparency in operations. Look at the performance of the scheme against releva
nt market benchmarks and its competitors. Look at the performance of a longer pe
riod, as it will give you how the scheme fared in different market conditions.
Cost factor:
Though the AMC fee is regulated, you should look at the expense ratio of the fun
d before investing. This is because the money is deducted from your investments.
A higher entry load or exit load also will eat into your returns. A higher expe
nse ratio can be justified only by superlative returns. It is very crucial in a
debt fund, as it will devour a few percentages from your modest returns.
29

Also, Morningstar rates mutual funds. Each year end, many financial publications
list the year s best performing mutual funds. Naturally, very eager investors w
ill rush out to purchase shares of last year s top performers. That s a big mist
ake. Remember, changing market conditions make it rare that last year s top perf
ormer repeats that ranking for the current year. Mutual fund investors would be
well advised to consider the fund prospectus, the fund manager, and the current
market conditions. Never rely on last year s top performers.
Types of Returns on Mutual Fund:
There are three ways, where the total returns provided by mutual funds can be en
joyed by investors: Income is earned from dividends on stocks and interest on bo
nds. A fund pays out nearly all income it receives over the year to fund owners
in the form of a distribution. If the fund sells securities that have increased
in price, the fund has a capital gain. Most funds also pass on these gains to in
vestors in a distribution. If fund holdings increase in price but are not sold b
y the fund manager, the fund s shares increase in price. You can then sell your
mutual fund shares for a profit. Funds will also usually give you a choice eithe
r to receive a check for distributions or to reinvest the earnings and get more
shares.
30

RISK FACTORS OF MUTUAL FUNDS:

1. The Risk-Return Trade-Off:
The most important relationship to understand is the risk-return trade-off. High
er the risk greater the returns / loss and lower the risk lesser the returns/los
s. Hence it is upto you, the investor to decide how much risk you are willing to
take. In order to do this you must first be aware of the different types of ris
ks involved with your investment decision.
2. Market Risk:
Sometimes prices and yields of all securities rise and fall. Broad outside influ
ences affecting the market in general lead to this. This is true, may it be big
corporations or smaller mid-sized companies. This is known as Market Risk. A Sys
tematic Investment Plan (SIP) that works on the concept of Rupee Cost Averaging (RC
A) might help mitigate this risk.
3. Credit Risk:
The debt servicing ability (may it be interest payments or repayment of principa
l) of a company through its cashflows determines the Credit Risk faced by you. T
his credit risk is measured by independent rating agencies like CRISIL who rate
companies and their paper. A AAA rating is considered the safest whereas a D rating
is considered poor credit quality. A well-diversified portfolio might help mitig
ate this risk.
4. Inflation Risk:
Things you hear people talk about: "Rs. 100 today is worth more than Rs. 100 tom
orrow." "Remember the time when a bus ride costed 50 paise?" "Mehangai Ka Jamana
Hai." The root cause, Inflation. Inflation is the loss of purchasing power over
time. A lot of times people make conservative investment decisions to protect t
heir capital but end up with a sum of money that can buy less than what the prin
cipal could at the time of the investment. This happens
31
when inflation grows faster than the return on your investment. A well-diversifi
ed portfolio with some investment in equities might help mitigate this risk.
5. Interest Rate Risk:
In a free market economy interest rates are difficult if not impossible to predi
ct. Changes in interest rates affect the prices of bonds as well as equities. If
interest rates rise the prices of bonds fall and vice versa. Equity might be ne
gatively affected as well in a rising interest rate environment. A well-diversif
ied portfolio might help mitigate this risk.
6. Political / Government Policy Risk:
Changes in government policy and political decision can change the investment en
vironment. They can create a favorable environment for investment or vice versa.
7. Liquidity Risk:
Liquidity risk arises when it becomes difficult to sell the securities that one
has purchased. Liquidity Risk can be partly mitigated by diversification, stagge
ring of maturities as well as internal risk controls that lean towards purchase
of liquid securities.
32

Chapter: 2
WORKING OF MUTUAL FUNDS
The mutual fund collects money directly or through brokers from investors. The m
oney is invested in various instruments depending on the objective of the scheme
. The income generated by selling securities or capital appreciation of these se
curities is passed on to the investors in proportion to their investment in the
scheme. The investments are divided into units and the value of the units will b
e reflected in Net Asset Value or NAV of the unit. NAV is the market value of th
e assets of the scheme minus its liabilities. The per unit NAV is the net asset
value of the scheme divided by the number of units outstanding on the valuation
date. Mutual fund companies provide daily net asset value of their schemes to th
eir investors. NAV is important, as it will determine the price at which you buy
or redeem the units of a scheme. Depending on the load structure of the scheme,
you have to pay entry or exit load.
33

STRUCTURE OF A MUTUAL FUND:

India has a legal framework within which Mutual Fund have to be constituted. In
India open and close-end funds operate under the same regulatory structure i.e.
as unit Trusts. A Mutual Fund in India is allowed to issue open-end and close-en
d schemes under a common legal structure. The structure that is required to be f
ollowed by any Mutual Fund in India is laid down under SEBI (Mutual Fund) Regula
tions, 1996.
The Fund Sponsor:
Sponsor is defined under SEBI regulations as any person who, acting alone or in
combination of another corporate body establishes a Mutual Fund. The sponsor of
the fund is akin to the promoter of a company as he gets the fund registered wit
h SEBI. The sponsor forms a trust and appoints a Board of Trustees. The sponsor
also appoints the Asset Management Company as fund managers. The sponsor either
directly or acting through the trustees will also appoint a custodian to hold fu
nds assets. All these are made in accordance with the regulation and guidelines
of SEBI.
34

As per the SEBI regulations, for the person to qualify as a sponsor, he must con
tribute at least 40% of the net worth of the Asset Management Company and posses
ses a sound financial track record over 5 years prior to registration.
Mutual Funds as Trusts:
A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The
Fund sponsor acts as a settlor of the Trust, contributing to its initial capita
l and appoints a trustee to hold the assets of the trust for the benefit of the
unit-holders, who are the beneficiaries of the trust. The fund then invites inve
stors to contribute their money in common pool, by scribing to units issued by var
ious schemes established by the Trusts as evidence of their beneficial interest
in the fund. It should be understood that the fund should be just a pass through v
ehicle. Under the Indian Trusts Act, the trust of the fund has no independent le
gal capacity itself, rather it is the Trustee or the Trustees who have the legal
capacity and therefore all acts in relation to the trusts are taken on its beha
lf by the Trustees. In legal parlance the investors or the unit-holders are the
beneficial owners of the investment held by the Trusts, even as these investment
s are held in the name of the Trustees on a day-to-day basis. Being public trust
s, Mutual Fund can invite any number of investors as beneficial owners in their
investment schemes.
Trustees:
A Trust is created through a document called the Trust Deed that is executed by
the fund sponsor in favour of the trustees. The Trust- the Mutual Fund may be ma
naged by a board of trustees- a body of individuals, or a trust company- a corpo
rate body. Most of the funds in India are managed by Boards of Trustees. While t
he boards of trustees are governed by the Indian Trusts Act, where the trusts ar
e a corporate body, it would also require to comply with the Companies Act, 1956
. The Board or the Trust company as an independent body, acts as a protector of
the of the unit-holders interests. The Trustees do not directly manage the portf
olio of securities. For this specialist function, the appoint an Asset Managemen
t Company. They ensure that the Fund is managed by ht AMC as per the defined obj
ectives and in accordance with the trusts deeds and SEBI regulations.
35

The Asset Management Companies:

The role of an Asset Management Company (AMC) is to act as the investment manage
r of the Trust under the board supervision and the guidance of the Trustees. The
AMC is required to be approved and registered with SEBI as an AMC. The AMC of a
Mutual Fund must have a net worth of at least Rs. 10 Crores at all times. Direc
tors of the AMC, both independent and nonindependent, should have adequate profe
ssional expertise in financial services and should be individuals of high morale
standing, a condition also applicable to other key personnel of the AMC. The AM
C cannot act as a Trustee of any other Mutual Fund. Besides its role as a fund m
anager, it may undertake specified activities such as advisory services and fina
ncial consulting, provided these activities are run independent of one another a
nd the AMCs resources (such as personnel, systems etc.) are properly segregated b
y the activity. The AMC must always act in the interest of the unit-holders and
reports to the trustees with respect to its activities.
Custodian and Depositories:
Mutual Fund is in the business of buying and selling of securities in large volu
mes. Handling these securities in terms of physical delivery and eventual safeke
eping is a specialized activity. The custodian is appointed by the Board of Trus
tees for safekeeping of securities or participating in any clearance system thro
ugh approved depository companies on behalf of the Mutual Fund and it must fulfi
ll its responsibilities in accordance with its agreement with the Mutual Fund. T
he custodian should be an entity independent of the sponsors and is required to
be registered with SEBI. With the introduction of the concept of dematerializati
on of shares the dematerialized shares are kept with the Depository participant
while the custodian holds the physical securities. Thus, deliveries of a funds se
curities are given or received by a custodian or a depository participant, at th
e instructions of the AMC, although under the overall direction and responsibili
ties of the Trustees.
Bankers:
A Funds activities involve dealing in money on a continuous basis primarily with
respect to buying and selling units, paying for investment made, receiving the p
roceeds from sale of the investments and discharging its obligations towards ope
rating expenses. Thus the Funds banker
36

plays an important role to determine quality of service that the fund gives in t
imely delivery of remittances etc.
Transfer Agents:
Transfer agents are responsible for issuing and redeeming units of the Mutual Fu
nd and provide other related services such as preparation of transfer documents
and updating investor records. A fund may choose to carry out its activity in-ho
use and charge the scheme for the service at a competitive market rate. Where an
outside Transfer agent is used, the fund investor will find the agent to be an
important interface to deal with, since all of the investor services that a fund
provides are going to be dependent on the transfer agent.
REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA: The structure of mutual funds in
India is guided by the SEBI. Regulations, 1996.These regulations make it mandato
ry for mutual fund to have three structures of sponsor trustee and asset Managem
ent Company. The sponsor of the mutual fund and appoints the trustees. The trust
ees are responsible to the investors in mutual fund and appoint the AMC for mana
ging the investment portfolio. The AMC is the business face of the mutual fund,
as it manages all the affairs of the mutual fund. The AMC and the mutual fund ha
ve to be registered with SEBI.
37

SEBI REGULATIONS:

As far as mutual funds are concerned, SEBI formulates policies and regulates the
mutual funds to protect the interest of the investors.

SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds
sponsored by private sector entities were allowed to enter the capital market.

The regulations were fully revised in 1996 and have been amended thereafter from
time to time.

SEBI has also issued guidelines to the mutual funds from time to time to protect
the interests of investors.

All mutual funds whether promoted by public sector or private sector entities in
cluding those promoted by foreign entities are governed by the same set of Regul
ations. The risks associated with the schemes launched by the mutual funds spons
ored by these entities are of similar type. There is no distinction in regulator
y requirements for these mutual funds and all are subject to monitoring and insp
ections by SEBI.

SEBI Regulations require that at least two thirds of the directors of trustee co
mpany or board of trustees must be independent i.e. they should not be associate
d with the sponsors.

Also, 50% of the directors of AMC must be independent. All mutual funds are requ
ired to be registered with SEBI before they launch any scheme.

Further SEBI Regualtions, inter-alia, stipulate that MFs cannot gurarnatee retur
ns in any scheme and that each scheme is subject to 20 : 25 condition [I.e minim
um 20 investors per scheme and one investor can hold more than 25% stake in the
corpus in that one scheme].

Also SEBI has permitted MFs to launch schemes overseas subject various restricti
ons and also to launch schemes linked to Real Estate, Options and Futures, Commo
dities, etc.
38

ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI):

With the increase in mutual fund players in India, a need for mutual fund associ
ation in India was generated to function as a non-profit organisation. Associati
on of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995. AMFI i
s an apex body of all Asset Management Companies (AMC) which has been registered
with SEBI. Till date all the AMCs are that have launched mutual fund schemes ar
e its members. It functions under the supervision and guidelines of its Board of
Directors. Association of Mutual Funds India has brought down the Indian Mutual
Fund Industry to a professional and healthy market with ethical lines enhancing
and maintaining standards. It follows the principle of both protecting and prom
oting the interests of mutual funds as well as their unit holders.
The Objectives of Association of Mutual Funds in India:
The Association of Mutual Funds of India works with 30 registered AMCs of the co
untry. It has certain defined objectives which juxtaposes the guidelines of its
Board of Directors. The objectives are as follows:

This mutual fund association of India maintains high professional and ethical st
andards in all areas of operation of the industry. It also recommends and promot
es the top class business practices and code of conduct which is followed by mem
bers and related people engaged in the activities of mutual fund and asset manag
ement. The agencies who are by any means connected or involved in the field of c
apital markets and financial services also involved in this code of conduct of t
he association.

AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual f
und industry. Association of Mutual Fund of India do represent the Government of
India, the Reserve Bank of India and other related bodies on matters relating t
o the Mutual Fund Industry. It develops a team of well qualified and trained Age
nt distributors. It implements a programme of training and certification for all
intermediaries and other engaged in the mutual fund industry.

39

AMFI undertakes all India awareness programme for investors in order to promote
proper understanding of the concept and working of mutual funds. At last but not
the least association of mutual fund of India also disseminate informations on
Mutual Fund Industry and undertakes studies and research either directly or in a
ssociation with other bodies.

AMFI Publications:
AMFI publish mainly two types of bulletin. One is on the monthly basis and the o
ther is quarterly. These publications are of great support for the investors to
get intimation of the knowhow of their parked money.
40

Chapter: 3
MUTUAL FUNDS IN INDIA
In 1963, the day the concept of Mutual Fund took birth in India. Unit Trust of I
ndia invited investors or rather to those who believed in savings, to park their
money in UTI Mutual Fund. For 30 years it goaled without a single second player
. Though the 1988 year saw some new mutual fund companies, but UTI remained in a
monopoly position. The performance of mutual funds in India in the initial phas
e was not even closer to satisfactory level. People rarely understood, and of co
urse investing was out of question. But yes, some 24 million shareholders were a
ccustomed with guaranteed high returns by the beginning of liberalization of the
industry in 1992. This good record of UTI became marketing tool for new entrant
s. The expectations of investors touched the sky in profitability factor. Howeve
r, people were miles away from the preparedness of risks factor after the libera
lization. The net asset value (NAV) of mutual funds in India declined when stock
prices started falling in the year 1992. Those days, the market regulations did
 not allow portfolio shifts into alternative investments. There was rather no ch
oice apart from holding the cash or to further continue investing in shares. One
more thing to be noted, since only closed-end funds were floated in the market,
the investors disinvested by selling at a loss in the secondary market. The per
formance of mutual funds in India suffered qualitatively. The 1992 stock market
scandal, the losses by disinvestments and of course the lack of transparent rule
s in the whereabouts rocked confidence among the investors. Partly owing to a re
latively weak stock market performance, mutual funds have not yet recovered, wit
h funds trading at an average discount of 1020 percent of their net asset value.
The securities and Exchange Board of India (SEBI) came out with comprehensive r
egulation in 1993 which defined the structure of Mutual Fund and Asset Managemen
t Companies for the first time. The supervisory authority adopted a set of measu
res to create a transparent and competitive environment in mutual funds. Some of
them were like relaxing investment
41

restrictions into the market, introduction of open-ended funds, and paving the g
ateway for mutual funds to launch pension schemes. The measure was taken to make
mutual funds the key instrument for long-term saving. The more the variety offe
red, the quantitative will be investors. Several private sectors Mutual Funds we
re launched in 1993 and 1994. The share of the private players has risen rapidly
since then. Currently there are 34 Mutual Fund organizations in India managing
1,02,000 crores. At last to mention, as long as mutual fund companies are perfor
ming with lower risks and higher profitability within a short span of time, more
and more people will be inclined to invest until and unless they are fully educ
ated with the dos and donts of mutual funds. Mutual fund industry has seen a lot
of changes in past few years with multinational companies coming into the countr
y, bringing in their professional expertise in managing funds worldwide. In the
past few months there has been a consolidation phase going on in the mutual fund
industry in India. Now investors have a wide range of Schemes to choose from de
pending on their individual profiles.
42

MUTUAL FUND COMPANIES IN INDIA:

The concept of mutual funds in India dates back to the year 1963. The era betwee
n 1963 and 1987 marked the existance of only one mutual fund company in India wi
th Rs. 67bn assets under management (AUM), by the end of its monopoly era, the U
nit Trust of India (UTI). By the end of the 80s decade, few other mutual fund co
mpanies in India took their position in mutual fund market. The new entries of m
utual fund companies in India were SBI Mutual Fund, Canbank Mutual Fund, Punjab
National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund. T
he succeeding decade showed a new horizon in Indian mutual fund industry. By the
end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private secto
r funds started penetrating the fund families. In the same year the first Mutual
Fund Regulations came into existance with re-registering all mutual funds excep
t UTI. The regulations were further given a revised shape in 1996. Kothari Pione
er was the first private sector mutual fund company in India which has now merge
d with Franklin Templeton. Just after ten years with private sector players pene
tration, the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual f
und companies in India. Major Mutual Fund Companies in India

ABN AMRO Mutual Fund Birla Sun Life Mutual Fund Bank of Baroda Mutual Fund HDFC
Mutual Fund HSBC Mutual Fund ING Vysya Mutual Fund Prudential ICICI Mutual Fund
State Bank of India Mutual Fund Tata Mutual Fund Unit Trust of India Mutual Fund
Reliance Mutual Fund

Standard Chartered Mutual Fund Franklin Templeton India Mutual Fund Morgan Stanl
ey Mutual Fund India Escorts Mutual Fund Alliance Capital Mutual Fund Benchmark
Mutual Fund Canbank Mutual Fund Chola Mutual Fund LIC Mutual Fund GIC Mutual Fun
d

43

For the first time in the history of Indian mutual fund industry, Unit Trust of
India Mutual Fund has slipped from the first slot. Earlier, in May 2006, the Pru
dential ICICI Mutual Fund was ranked at the number one slot in terms of total as
sets. In the very next month, the UTIMF had regained its top position as the lar
gest fund house in India. Now, according to the current pegging order and the da
ta released by Association of Mutual Funds in India (AMFI), the Reliance Mutual
Fund, with a January-end AUM of Rs 39,020 crore has become the largest mutual fu
nd in India On the other hand, UTIMF, with an AUM of Rs 37,535 crore, has gone t
o secomd position. The Prudential ICICI MF has slipped to the third position wit
h an AUM of Rs 34,746 crore. It happened for the first time in last one year tha
t a private sector mutual fund house has reached to the top slot in terms of ass
et under management (AUM). In the last one year to January, AUM of the Indian fu
nd industry has risen by 64% to Rs 3.39 lakh crore. According to the data releas
ed by Association of Mutual Funds in India (AMFI), the combined average AUM of t
he 35 fund houses in the country increased to Rs 5,512.99 billion in April compa
red to Rs 4,932.86 billion in March Reliance MF maintained its top position as t
he largest fund house in the country with Rs 74.25 billion jump in AUM to Rs 883
.87 billion at April-end. The second-largest fund house HDFC MF gained Rs 59.24
billion in its AUM at Rs 638.80 billion. ICICI Prudential and state-run UTI MF a
dded Rs 46.16 billion and Rs 57.35 billion re respectively to their assets last
month. ICICI Prudential
s AUM stood at Rs 560.49 billion at the end of April, wh
ile UTI MF had assets worth Rs 544.89 billion. The other fund houses which saw a
n increase in their average AUM in April include -Canara Robeco MF, IDFC MF, DSP
BlackRock, Deutsche MF, Kotak Mahindra MF and LIC MF.
44

Chapter: 4
RELIANCE MUTUAL FUND Vs UTI MUTUAL FUND
RELIANCE MUTUAL FUND
Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 188
2. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee C
o. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capita
l Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was form
ed for launching of various schemes under which units are issued to the Public w
ith a view to contribute to the capital market and to provide investors the oppo
rtunities to make investments in diversified securities. RMF is one of Indias lea
ding Mutual Funds, with Average Assets Under Management (AAUM) of Rs. 88,388 crs
(AAUM for 30th Apr 09) and an investor base of over 71.53 Lacs. Reliance Mutual
Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of the faste
st growing mutual funds in the country. RMF offers investors a well-rounded port
folio of products to meet varying investor requirements and has presence in 118
cities across the country. Reliance Mutual Fund constantly endeavors to launch i
nnovative products and customer service initiatives to increase value to investo
rs. "Reliance Mutual Fund schemes are managed by Reliance Capital Asset Manageme
nt Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the
paid-up capital of RCAM, the balance paid up capital being held by minority sha
reholders." Sponsor : Reliance Capital Limited. Trustee : Reliance Capital Trust
ee Co. Limited.
45

Investment Manager : Reliance Capital Asset Management Limited. The Sponsor, the
Trustee and the Investment Manager are incorporated under the Companies Act 195
6. Vision Statement To be a globally respected wealth creator with an emphasis on
customer care and a culture of good corporate governance. Mission Statement To c
reate and nurture a world-class, high performance environment aimed at delightin
g our customers. The Main Objectives Of The Trust: To carry on the activity of a
Mutual Fund as may be permitted at law and formulate and devise various collect
ive Schemes of savings and investments for people in India and abroad and also e
nsure liquidity of investments for the Unit holders; To deploy Funds thus raised
so as to help the Unit holders earn reasonable returns on their savings and To
take such steps as may be necessary from time to time to realise the effects wit
hout any limitation.
46

SCHEMES
A). EQUITY/GROWTH SCHEMES:
The aim of growth funds is to provide capital appreciation over the medium to lo
ngterm. Such schemes normally invest a major part of their corpus in equities. S
uch funds have comparatively high risks. Growth schemes are good for investors h
aving a long-term outlook seeking appreciation over a period of time.
1. Reliance Infrastructure Fund(Open-Ended Equity):
The primary investment objective of the scheme is to generate long term capital
appreciation by investing predominantly in equity and equity related instruments
of companies engaged in infrastructure (Airports, Construction, Telecommunicati
on, Transportation) and infrastructure related sectors and which are incorporate
d or have their area of primary activity, in India and the secondary objective i
s to generate consistent returns by investing in debt and money market securitie
s. Investment Strategy: The investment focus would be guided by the growth poten
tial and other economic factors of the country. The Fund aims to maximize long-t
erm total return by investing in equity and equity-related securities which have
their area of primary activity in India.
2. Reliance Quant Plus Fund/Reliance Index Fund (Open-Ended Equity):
The investment objective of the Scheme is to generate capital appreciation throu
gh investment in equity and equity related instruments. The Scheme will seek to
generate capital appreciation by investing in an active portfolio of stocks sele
cted from S & P CNX Nifty on the basis of a mathematical model. An investment fu
nd that approach stock selection process based on quantitative analysis.
3. Reliance Natural Resources Fund (Open-Ended Equity):
The primary investment objective of the scheme is to seek to generate capital ap
preciation & provide long-term growth opportunities by investing in companies pr
incipally engaged in the discovery, development, production, or distribution of
natural resources and
47

the secondary objective is to generate consistent returns by investing in debt a

nd money market securities. Natural resources may include, for example, energy s
ources, precious and other metals, forest products, food and agriculture, and ot
her basic commodities.
4.
Reliance Equity Linked Saving Fund (A 10 Year Close-Ended Equity ):
The primary objective of the scheme is to generate long-term capital appreciatio
n from a portfolio that is invested predominantly in equities along with income
tax benefit. The scheme may invest in equity shares in foreign companies and ins
truments convertible into equity shares of domestic or foreign companies and in
derivatives as may be permissible under the guidelines issued by SEBI and RBI.
5.
Reliance Equity Advantage Fund (Open-Ended Diversified Equity):
The primary investment objective of the scheme is to seek to generate capital ap
preciation & provide long-term growth opportunities by investing in a portfolio
predominantly of equity & equity related instruments with investments generally
in S & P CNX Nifty stocks and the secondary objective is to generate consistent
returns by investing in debt and money market securities.
6.
Reliance Equity Fund (Open-Ended Diversified Equity) :
The primary investment objective of the scheme is to seek to generate capital ap
preciation & provide long-term growth opportunities by investing in a portfolio
constituted of equity & equity related securities of top 100 companies by market
capitalization & of companies which are available in the derivatives segment fr
om time to time and the secondary objective is to generate consistent returns by
investing in debt and money market securities.
48

7.
Reliance Tax Saver (ELSS) Fund (Open-Ended Equity):
The primary objective of the scheme is to generate long-term capital appreciatio
n from a portfolio that is invested predominantly in equity and equity related i
nstruments.
Tax Benefits:

Investment upto Rs 1 lakh by the eligible investor in this fund would enable you
to avail the benefits under Section 80C (2) of the Income-tax Act, 1961. Divide
nds received will be absolutely TAX FREE. The dividend distribution tax (payable
by the AMC) for equity schemes is also NIL

8. Reliance Growth Fund (Open-Ended Equity):
The primary investment objective of the Scheme is to achieve long term growth of
capital by investment in equity and equity related securities through a researc
h based investment approach.
9. Reliance Vision Fund (Open-Ended Equity) :
The primary investment objective of the Scheme is to achieve long term growth of
capital by investment in equity and equity related securities through a researc
h based investment approach.
10.
Reliance Equity Opportunities Fund (Open-Ended Diversified Equity):
The primary investment objective of the scheme is to seek to generate capital
appreciation & provide long-term growth opportunities by investing in a portfoli
o constituted of equity securities & equity related securities and the secondary
objective is to generate consistent returns by investing in debt and money mark
et securities.
11.
Reliance NRI Equity Fund (Open-Ended Diversified Equity):
The Primary investment objective of the scheme is to generate optimal returns by
investing in equity or equity related instruments primarily drawn from the Compa
nies in the BSE 200 Index.
49

12.
Reliance Long Term Equity Fund (Open-Ended Diversified Equity):
The primary investment objective of the scheme is to seek to generate long term
capital appreciation & provide long-term growth opportunities by investing in a
portfolio constituted of equity & equity related securities and Derivatives and
the secondary objective is to generate consistent returns by investing in debt a
nd money market securities. It is a 36-month close ended diversified equity fund
with an automatic conversion into an open ended scheme on expiry of 36-months f
rom the date of allotment. It aims to maximize returns by investing 70-100% in E
quities focusing in small and mid cap companies.
13.Reliance Regular Savings Fund (Open-Ended Equity):
Reliance Regular Savings Fund provides you the choice of investing in Debt, Equi
ty or Hybrid options with a pertinent investment objective and pattern for each
option. Invest as little as Rs.100/-every month in the Reliance Regular Savings
Fund. For the first time in India, your mutual fund offers instant cash withdraw
al facility on your investment at any VISA-enabled ATM near you. With a choice o
f three investment options, the fund is truly, the smart new way to invest.
B). DEBT/INCOME SCHEMES:
The aim of income funds is to provide regular and steady income to investors. Su
ch schemes generally invest in fixed income securities such as bonds, corporate
debentures, Government securities and money market instruments. Such funds are l
ess risky compared to equity schemes. These funds are not affected because of fl
uctuations in equity markets. However, opportunities of capital appreciation are
also limited in such funds. The NAVs of such funds are affected because of chan
ge in interest rates in the country. If the interest rates fall, NAVs of such fu
nds are likely to increase in the short run and vice versa. However, long term i
nvestors may not bother about these fluctuations.
50

1. Reliance Monthly Income Plan :

(An Open Ended Fund, Monthly Income is not assured & is subject to the availabil
ity of distributable surplus) The Primary investment objective of the Scheme is
to generate regular income in order to make regular dividend payments to unit ho
lders and the secondary objective is growth of capital.
2. Reliance Gilt Securities Fund - Short Term Gilt Plan & Long Term Gilt Plan :
(Open-ended Government Securities Scheme) The primary objective of the Scheme is
to generate optimal credit risk-free returns by investing in a portfolio of sec
urities issued and guaranteed by the central Government and State Government.
3. Reliance Income Fund :
(An Open-ended Income Scheme) The primary objective of the scheme is to generate
optimal returns consistent with moderate levels of risk. This income may be com
plemented by capital appreciation of the portfolio. Accordingly, investments sha
ll predominantly be made in Debt & Money market Instruments.
4. Reliance Medium Term Fund :
(An Open End Income Scheme with no assured returns) The primary investment objec
tive of the Scheme is to generate regular income in order to make regular divide
nd payments to unit holders and the secondary objective is growth of capital
5. Reliance Short Term Fund :
(An Open End Income Scheme) The primary investment objective of the scheme is to
generate stable returns for investors with a short investment horizon by invest
ing in Fixed Income Securities of short term maturity.
6. Reliance Liquid Fund :
(Open-ended Liquid Scheme) The primary investment objective of the Scheme is to
generate optimal returns consistent with moderate levels of risk and high liquid
ity.
51

Accordingly, investments shall predominantly be made in Debt and Money Market In

struments.
7. Reliance Floating Rate Fund :
(An Open End Liquid Scheme) The primary objective of the scheme is to generate r
egular income through investment in a portfolio comprising substantially of Floa
ting Rate Debt Securities (including floating rate securitised debt and Money Ma
rket Instruments and Fixed Rate Debt Instruments swapped for floating rate retur
ns). The scheme shall also invest in fixed rate debt Securities (including fixed
rate securitised debt, Money Market Instruments and Floating Rate Debt Instrume
nts swapped for fixed returns.
8. Reliance NRI Income Fund :
(An Open-ended Income scheme) The primary investment objective of the Scheme is
to generate optimal returns consistent with moderate levels of risks. This incom
e may be complimented by capital appreciation of the portfolio. Accordingly, inv
estments shall predominantly be made in debt Instruments.
9. Reliance Liquidity Fund :
(An Open - ended Liquid Scheme) The investment objective of the Scheme is to gen
erate optimal returns consistent with moderate levels of risk and high liquidity
. Accordingly, investments shall predominantly be made in Debt and Money Market
Instruments.
10.Reliance Interval Fund :
(A Debt Oriented Interval Scheme) The primary investment objective of the scheme
is to seek to generate regular returns and growth of capital by investing in a
diversified portfolio
11.Reliance Liquid Plus Fund:
(An Open-ended Income Scheme) The investment objective of the Scheme is to gener
ate optimal returns consistent with moderate levels of risk and liquidity by inv
esting in debt securities and money market securities.
52

12.Reliance Fixed Horizon FundI:

(A closed ended Scheme) The primary investment objective of the scheme is to see
k to generate regular returns and growth of capital by investing in a diversifie
d portfolio.
13.
Reliance Fixed Horizon Fund II:
(A closed ended Scheme.) The primary investment objective of the scheme is to se
ek
to generate regular returns and growth of capital by investing in a diversified
portfolio.
14.
Reliance Fixed Horizon Fund III:
(A Close-ended Income Scheme.) The primary investment objective of the scheme is
to seek to generate regular returns and growth of capital by investing in a dive
rsified portfolio.
15.Reliance Fixed Tenor Fund :
(A Close-ended Scheme) The primary investment objective of the Plan is to seek t
o generate regular returns and growth of capital by investing in a diversified p
ortfolio.
16.Reliance Fixed Horizon Fund -Plan C :
(A closed ended Scheme.) The primary investment objective of the scheme is to se
ek to generate regular returns and growth of capital by investing in a diversifi
ed portfolio.
17.
Reliance Fixed Horizon Fund - IV:
(A Close-ended Income Scheme.) The primary investment objective of the scheme is
to seek to generate regular returns and growth of capital by investing in a dive
rsified portfolio.
53

18.Reliance Fixed Horizon Fund - V:

(A Close-ended Income Scheme.) The primary investment objective of the scheme is
to seek to generate regular returns and growth of capital by investing in a div
ersified portfolio of: Central and State Government securities and Other fixed i
ncome/ debt securities normally maturing in line with the time profile of the sc
heme with the objective of limiting interest rate volatility
19.
Reliance Fixed Horizon Fund VI :
(A Close-ended Income Scheme) The primary investment objective of the scheme is
to seek to generate regular returns and growth of capital by investing in a dive
rsified portfolio of: Central and State Government securities and Other fixed in
come/ debt securities normally maturing in line with the time profile of the ser
ies with the objective of limiting interest rate volatility
20.
Reliance Fixed Horizon Fund VII :
(A Close-ended Income Scheme.) The primary investment objective of the scheme is
to seek to generate regular returns and growth of capital by investing in a dive
rsified portfolio of: Central and State Government securities and Other fixed in
come/ debt securities normally maturing in line with the time profile of the ser
ies with the objective of limiting interest rate volatility.
C). SECTOR SPECIFIC SCHEMES:
These are the funds/schemes which invest in the securities of specified sectors
or industries e.g. Pharmaceuticals, Software, FMCG, Petroleum stocks, etc. The r
eturns in these funds are dependent on the performance of the respective sectors
/industries. While these funds may give higher returns, they are more risky comp
ared to diversified funds.
54

1.
Reliance Banking Fund :
Reliance Mutual Fund has an Open-Ended Banking Sector Scheme which has the prima
ry investment objective to generate continuous returns by actively investing in
equity / equity related or fixed income securities of banks.
2.
Reliance Diversified Power Sector Fund :
Reliance Diversified Power Sector Scheme is an Open-ended Power Sector Scheme. T
he primary investment objective of the Scheme is to seek to generate consistent
returns by actively investing in equity / equity related or fixed income securit
ies of Power and other associated companies.
3.
Reliance Pharma Fund :
Reliance Pharma Fund is an Open-ended Pharma Sector Scheme. The primary investme
nt objective of the Scheme is to generate consistent returns by investing in equ
ity / equity related or fixed income securities of Pharma and other associated c
ompanies.
4.
Reliance Media & Entertainment Fund :
Reliance Media & Entertainment Fund is an Open-ended Media & Entertainment secto
r scheme. The the primary investment objective of the Scheme is to generate cons
istent returns by investing in equity / equity related or fixed income securitie
s of media & entertainment and other associated companies.
D). RELIANCE GOLD EXCHANGE TRADED FUND:
(An open-ended Gold Exchange Traded Fund) The investment objective is to seek to
provide returns that closely correspond to returns provided by price of gold th
rough investment in physical Gold (and Gold related securities as permitted by R
egulators from time to time). However, the performance of the scheme may differ
from that of the domestic prices of Gold due to expenses and or other related fa
ctors.
55

UNIT TRUST OF INDIA MUTUAL FUND

Unit Trust of India was created by the UTI Act passed by the Parliament in 1963
. For more than two decades it remained the sole vehicle for investment in the c
apital market by the Indian citizens. In mid- 1980s public sector banks were all
owed to open mutual funds. The real vibrancy and competition in the MF industry
came with the setting up of the Regulator SEBI and its laying down the MF Regula
tions in 1993.UTI maintained its pre-eminent place till 2001, when a massive dec
line in the market indices and negative investor sentiments after Ketan Parekh s
cam created doubts about the capacity of UTI to meet its obligations to the inve
stors. This was further compounded by two factors; namely, its flagship and larg
est scheme US 64 was sold and re-purchased not at intrinsic NAV but at artificia
l price and its Assured Return Schemes had promised returns as high as 18% over
a period going up to two decades. In order to distance Government from running a
mutual fund the ownership was transferred to four institutions; namely SBI, LIC
, BOB and PNB, each owning 25%. UTI lost its market dominance rapidly and by end
of 2005,when the new share-holders actually paid the consideration money to Gov
ernment its market share had come down to close to 10%. A new board was constitu
ted and a new management inducted. Systematic study of its problems role and fun
ctions was carried out with the help of a reputed international consultant. Once
again UTI has emerged as a serious player in the industry. Some of the funds ha
ve won famous awards, including the Best Infra Fund globally from Lipper. UTI ha
s been able to benchmark its employee compensation to the best in the market. Be
sides running domestic MF Schemes UTI AMC is also a registered portfolio manager
under the SEBI (Portfolio Managers) Regulations.
56

This company runs two successful funds with large international investors being
active participants. UTI has also launched a Private Equity Infrastructure Fund
along with HSH Nord Bank of Germany and Shinsei Bank of Japan Vision: To be the
most Preferred Mutual Fund. Mission: The most trusted brand, admired by all stak
eholders. The largest and most efficient money manager with global presence The
best in class customer service provider The most preferred employer The most inn
ovative and best wealth creator A socially responsible organisation known for be
st corporate governance Assets Under Management: UTI Asset Management Co. Ltd Sp
onsor:

State Bank of India Bank of Baroda Punjab National Bank Life Insurance Corporati
on of India
Trustee: UTI Trustee Co. Limited.
Reliability
UTIMF has consistently reset and upgraded transparency standards. All the branch
es, UFCs and registrar offices are connected on a robust IT network to ensure co
st-effective quick and efficient service. All these have evolved UTIMF to positi
on as a dynamic, responsive, restructured, efficient and transparent entity, ful
ly compliant with SEBI regulations.
57
SCHEMES
A). EQUITY FUND 1. UTI Energy Fund (Open Ended Fund):
Investment will be made in stocks of those companies engaged in the following ar
e:
a) Petro sector - oil and gas products & processing b) All types of Power genera
tion companies. c) Companies related to storage of energy. d) Companies manufact
uring energy development equipment related ( like petro and
power ) e) Consultancy & Finance Companies
2.
UTI Transportation And Logistics Fund (Auto Sector Fund) (Open Ended Fund):
Investment Objective is capital appreciation through investments in stocks of the
companies engaged in the transportation and logistics sector. At least 90% of th
e funds will be invested in equity and equity related instruments. Atleast 80% o
f the funds will be invested in equity and equity related instruments of the com
panies principally engaged in providing transportation services, companies princ
ipally engaged in the design, manufacture, distribution, or sale of transportati
on equipment and companies in the logistics sector. Upto 10% of the funds will b
e invested in cash/money market instruments.
3. UTI Banking Sector Fund (Open Ended Fund):
An open-ended equity fund with the objective to provide capital appreciation thr
ough investments in the stocks of the companies/institutions engaged in the bank
ing and financial services activities.
4. UTI Infrastructure Fund (Open Ended Fund):
An open-ended equity fund with the objective to provide Capital appreciation thr
ough investing in the stocks of the companies engaged in the sectors like Metals
, Building
58

materials, oil and gas, power, chemicals, engineering etc. The fund will invest
in the stocks of the companies which form part of Infrastructure Industries
5. UTI Equity Tax Savings Plan (Open Ended Fund):
An open-ended equity fund investing a minimum of 80% in equity and equity relate
d instruments. It aims at enabling members to avail tax rebate under Section 80C
of the IT Act and provide them with the benefits of growth.
6. UTI Growth Sector Fund Pharma (Open Ended Fund):
An open-ended fund which exclusively invests in the equities of the Pharma & Hea
lthcare sector companies. This fund is one of the growth sector funds aiming to
invest in companies engaged in business of manufacturing and marketing of bulk d
rug, formulations and healthcare products and services.
7. UTI Growth Sector Fund Services (Open Ended Fund):
An open-ended fund which invests in the equities of the Services Sector companie
s of the country. One of the growth sector funds aiming to provide growth of cap
ital over a period of time as well as to make income distribution by investing t
he funds in stocks of companies engaged in service sector such as banking, finan
ce, insurance, education, training, telecom, travel, entertainment, hotels, etc.
8. UTI Growth Sector Fund Software (Open Ended Fund):
An open-ended fund which invests exclusively in the equities of the Software Sec
tor companies. One of the growth sectors funds aiming to invest in equity shares
of companies belonging to information technology sector to provide returns to i
nvestors through capital growth as well as through regular income distribution
9. UTI Master Equity Plan Unit Scheme (Close Ended Fund):
The scheme primarily aims at securing for the investors capital appreciation by
investing the funds of the scheme in equity shares of companies with good growth
prospects.
59

10.
UTI Master Plus Unit Scheme (Open Ended Fund):
An open-ended equity fund with an objective of long-term capital appreciation th
rough investments in equities and equity related instruments, convertible debent
ures, derivatives in India and also in overseas markets.
11. UTI Master Value Fund (Open Ended Fund):
An open-ended equity fund investing in stocks which are currently undervalued to
their future earning potential and carry medium risk profile to provide Capita
l Appreciation .
12. UTI Equity Fund (Open Ended Fund):
UTI Equity Fund is open-ended equity scheme with an objective of investing at le
ast 80% of its funds in equity and equity related instrument with medium to high
risk profile and upto 20% in debt and money market instruments with low to medi
um risk profile.
13. UTI Top 100 Fund (Open Ended Fund):
An open-ended equity fund for investment in equity shares, convertible & nonconv
ertible debentures and other capital and money market instruments with a provisi
on to invest upto 50% of its corpus in PSU s equities and equity related product
s. The fund aims to provide unit holders capital appreciation & income distribut
ion.
14. UTI Mastershare Unit Scheme (Open Ended Fund):
An Open-end equity fund aiming to provide benefit of capital appreciation and in
come distribution through investment in equity.
15. UTI Mid Cap Fund (Open Ended Fund):
An open-ended equity fund with the objective to provide Capital appreciation b
y investing primarily in mid cap stocks.
60

16. UTI MNC Fund (Open Ended Fund):

An open-ended equity fund with the objective to invest predominantly in the equi
ty shares of multinational companies in diverse sectors such as FMCG, Pharmaceut
ical, Engineering etc.
17.
UTI Dividend Yield Fund (Open Ended Fund):
It aims to provide medium to long term capital gains and/or dividend distributio
n by investing predominantly in equity and equity related instruments which offe
r high dividend yield.
18. UTI Opportunities Fund (Open Ended Fund):
This scheme seeks to generate capital appreciation and/or income distribution by
 investing the funds of the scheme in equity shares and equity-related instrumen
ts. The focus of the scheme is to capitalise on opportunities arising in the mar
ket by responding to the dynamically changing Indian economy by moving its inves
tments amongst different sectors as prevailing trends change.
19. UTI Leadership Equity Fund (Open Ended Fund):
This scheme seeks to generate capital appreciation and / or income distribution
by investing the funds in stocks that are "Leaders" in their respective industri
es / sectors / subsector.
20. UTI Contra Fund (Open Ended Fund):
An open ended equity scheme with the objective to provide long term capital appr
eciation/dividend distribution through investments in listed equities & equity r
elated instruments. The fund offers an opportunity to benefit from the impact of
non- rational investors behaviour by focussing on stocks that are currently un
dervalued because of emotional & behavioural patterns present in the stock marke
t.
61

21. UTI SPREAD Fund (Open Ended Fund):

The investment objective of the scheme is to provide capital appreciation and di
vidend distribution through arbitrage opportunities arising out of price differe
nces between the cash and derivative market by investing predominantly in equity
& equity related securities, derivatives and the balance portion in debt securi
ties. However, there can be no assurance that the investment objective of the sc
heme will be realised.
22. UTI Wealth Builder Fund (Close Ended Fund):
The objective of the scheme is to achieve long term capital appreciation by inve
sting predominantly in a diversified portfolio of equity and equity related inst
ruments.
23. UTI Long Term Advantage Fund - Series I (Close Ended Fund):
The investment objective of the scheme is to provide medium to long term capital
appreciation along with income tax benefit.
24. UTI India Lifestyle Fund (Close Ended Fund):
The investment objective of the scheme is to provide long term Capital appreciat
ion and / or income distribution from a diversified portfolio of equity and equi
ty related instruments of companies that are expected to benefit from changing I
ndian demographics, Indian Lifestyle and rising consumption pattern. However, th
ere can be no assurance that the investment objective of the scheme will be achi
eved.
A).
INDEX FUND:
UTI MIF is an open-ended passive fund with the primary investment objective to i
nvest
1. UTI Master Index Fund (Open Ended Fund):
in securities of companies comprising the BSE sensex in the same weightage as th
ese companies have in BSE sensex. The fund strives to minimise performance diffe
rence with the sensex by keeping the tracking error to the minimum.
62
2. UTI Gold Exchange Traded Fund (Open Ended Fund):
To endeavour to provide returns that, before expenses, closely track the perform
ance and yield of Gold. However the performance of the scheme may differ from th
at of the underlying asset due to racking error. There can be no assurance or gu
arantee that the investment objective of UTI-Gold ETF will be achieved.
3. UTI Sunder (Open Ended Fund):
To provide investment returns that, before expenses, closely correspond to the p
erformance and yield of the basket of securities underlying the S & P CNX Nifty
Index.
C).
ASSETS FUND
UTI VIS-ILP is an open ended scheme with the objective of providing the investor
s with
UTI Variable Investment Scheme:
a product that would enable them to diversify their risks through a suitable all
ocation between debt and equity asset classes and thereby generate superior risk
-adjusted returns through a dynamic asset allocation process.
D).
BALANCED FUND:
To invest in a portfolio of equity/equity related securities and debt and money
market
1. UTI Mahila Unit Scheme (Open Ended Fund):
instruments with a view to generate reasonable income with moderate capital appr
eciation. The asset allocation will be Debt : Minimum 70%, Maximum 100% Equity :
Minimum 0%, Maximum 30%.
2. UTI Balanced Fund (Open Ended Fund):
An open-ended balanced fund investing between 40% to 75% in equity /equity relat
ed securities and the balance in debt (fixed income securities) with a view to g
enerate regular income together with capital appreciation.
63

3. UTI Retirement Benefit Pension Fund (Open Ended Fund):

The objective of the scheme is to provide pension to investors particularly self
employed persons after they attain the age of 58 years, in the form of periodica
l cash flow upto the extent of repurchase value of their holding through a syste
matic withdrawal plan.
4. UTI Unit Link Insurance Plan (Open Ended Fund):
To provide return through growth in the NAV or through dividend distribution and
reinvestment thereof
5. UTI CCP (Children Career Plan) Advantage Fund (Open Ended Fund):
An open ended balanced fund with 70-100% investment in Equity. Investment can be
made in the name of the children upto the age of 15 years so as to provide them
, after they attain the age of 18 years, a means to receive scholarship to meet
the cost of higher education / or help them in setting up a profession, practice
or business or enabling them to set up a home or finance, the cost of other soc
ial obligations.
6.
UTI Charitable, Religious Trust And Registered Society (Open Ended Fund):
Open-ended debt oriented Income scheme with an objective of investing not more t
han 30% of the funds in equity related instruments and the balance in debt and m
oney market instruments with low to medium risk profile. The scheme is catering
to the Investment needs of Charitable, Religious and Educational Trusts as well
as Registered societies with the goal of providing regular income.
E).
INCOME FUND (DEBT FUND)
Open-end 100% pure debt fund, which invests in rated corporate debt papers and g
overnment securities with relatively low risk and easy liquidity.
1. UTI Bond Fund (Open Ended Fund):
64

2. UTI Floating Rate Fund STP (Open Ended Fund):

To generate regular income through investment in a portfolio comprising substant
ially of floating rate debt / money market instruments and fixed rate debt / mon
ey market instruments.
3. UTI Gilt Advantage Fund LTP(Open Ended Fund):
To generate credit risk-free return through investments in sovereign securities
issued the Central and / or a State Government.
4. UTI Gilt Advantage Fund STP (Open Ended Fund):
To generate credit risk-free return through investment in sovereign securities i
ssued the Central and / or a State Government.
5. UTI G-SEC STP (Open Ended Fund):
An open-end Gilt-Fund with the objective to invest only in Central Government se
curities including call money, treasury bills and repos of varying maturities wi
th a view to generate credit risk free return with a stated objective of maintai
ning the average maturity of the portfolio at less than 3 years.
6. UTI G-Sec-Investment Plan (Open Ended Fund):
An open-end Gilt-Fund with the objective to Invests only in Central government s
ecurities including call money, treasury bills and repos of varying maturities w
ith a view to generatie credit risk free return. While selecting the maturity pr
ofile of the investment in government securities the need for maximisation of th
e returns and meeting of the liquidity requirements of the scheme is kept in vie
w.
7. UTI Treasury Advantage Fund (Open Ended Fund):
It aims to generate attractive returns consistent with capital preservation and
liquidity
65

8. UTI Monthly Income Scheme (Open Ended Fund):

This is an open-end debt oriented scheme with no assured returns. The scheme aim
s at distributing income, if any, periodically.
9. UTI Mis Advantage Plan (Open Ended Fund):
Endeavours to make periodic income distribution to unitholders through investmen
ts in fixed income securities and equity & equity related instruments.
10.UTI Short Term Income Fund (Open Ended Fund):
The Scheme seeks to generate steady & reasonable income with low risk & high lev
el of liquidity from a portfolio of money market securities & high quality debt.
11.UTI Capital Protection Oriented Scheme (Open Ended Fund):
The investment objective of the scheme is to endeavour to protect the capital by
investing in high quality fixed income securities as the primary objective and
generate capital appreciation by investing in equity and equity related instrume
nts as secondary objective.
F).
LIQUID FUND (DEBT FUND):
The scheme seeks to generate steady & reasonable income with low risk & high lev
el of liquidity from a portfolio of money market securities & high quality debt.
1. UTI Liquid Cash Plan (Open Ended Fund):
2. UTI Money Market Fund (Open Ended Fund):
An open-ended pure debt liquid plan seeking to provide highest possible current
income by investing in a diversified portfolio of short-term money market securi
ties.
66

RELIANCE MUTUAL FUND

When Started? Established in 1995, Currently, number one company in India. Regis
tered with SEBI as trust under Indian Trusts Act, 1882 Rs. 500 Equity Bank: 8-15
% Software: 8-19% Petroleum Products: 4-8% Pharmaceuticals: 6-10% invest in 12-2
0 sectors which include: Auto , Auto Ancillaries, Finance, Industrial Capital Go
ods, TelecomServices, Power, Construction Project, Hotels, Retailing, Media & En
tertainment, Transportation etc UTI Dividend yield Fund, UTI Opportunity Fund, E
quity Fund, Debt Fund, Sector Specific Fund and Gold Exchange Traded Fund. 106 s
chemes Is any other venture? Online and internet based distribution. Reliance
tlets and branches. Life Insurance General Insurance Broking & Distribution Cons
umer Finance Private Equity Assets Reconstruction.
UTI MUTUAL FUND
Established in 1964. First mutual fund company in India By the UTI Act passed by
the Parliament in 1963. Rs.1000 Equity Financial Service: 16-22% Energy: 12-18%
Consumer goods: 08-14% invest in 7-15 sectors which include: IT, Telecom, Autom
obile, Cement Products, Derivatives, Textile, Metals etc
How they came into business Minimum investment. Investment.
Main Funds.
Type of fund offered
Numbers of schemes offered Distribution
Reliance Diversified Fund, Reliance Equity Opportunity Fund, Reliance Regular Sa
ving Funds Equity Fund, Index Fund, Asset Fund, Balanced Fund, Debt Fund (Income
, Liquid) 107 schemes.

Tie-up with Post offices branches. UTI outlets and branches. UTI Bank Pan card B
ank Recruitment ULIP

67

Chapter: 5
MUTUAL FUNDS VS. OTHER INVESTMENTS
From investors viewpoint mutual funds have several advantages such as: Profession
al management and research to select quality securities. Spreading risk over a l
arger quantity of stock whereas the investor has limited to buy only a hand full
of stocks. The investor is not putting all his eggs in one basket. Ability to a
dd funds at set amounts and smaller quantities such as $100 per month Ability to
take advantage of the stock market which has generally outperformed other inves
tment in the long run. Fund manager are able to buy securities in large quantiti
es thus reducing brokerage fees.
However there are some disadvantages with mutual funds such as: The investor mu
t rely on the integrity of the professional fund manager. Fund management fees m
ay be unreasonable for the services rendered. The fund manager may not pass tran
saction savings to the investor. The fund manager is not liable for poor judgmen
t when the investor s fund loses value. There may be too many transactions in th
e fund resulting in higher fee/cost to the investor - This is sometimes call "Ch
urn and Earn". Prospectus and Annual report are hard to understand. Investor may
feel a lost of control of his investment dollars.
There may be restrictions on when and how an investor sells/redeems his mutual f
und shares.
68

Company Fixed Deposits versus Mutual Funds

Fixed deposits are unsecured borrowings by the company accepting the deposit. Cr
edit rating of the fixed deposit program is an indication of the inherent defaul
t risk in the investment. The moneys of investors in a mutual fund scheme are in
vested by the AMC in specific investments under that scheme. These investments a
re held and managed in-trust for the benefit of schemes investors. On the other h
and, there is no such direct correlation between a companys fixed deposit mobilis
ation, and the avenues where these resources are deployed. A corollary of such l
inkage between mobilisation and investment is that the gains and losses from the
mutual fund scheme entirely flow through to the investors. Therefore, there can
be no certainty of yield, unless a named guarantor assures a return or, to a le
sser extent, if the investment is in a serial gilt scheme. On the other hand, th
e return under a fixed deposit is certain, subject only to the default risk of t
he borrower. Both fixed deposits and mutual funds offer liquidity, but subject t
o some differences: The provider of liquidity in the case of fixed deposits is t
he borrowing company. In mutual funds, the liquidity provider is the scheme itse
lf (for open-end schemes) or the market (in the case of closed-end schemes). The
basic value at which fixed deposits are encashed is not subject to a market ris
k. However, the value at which units of a scheme are redeemed depends on the mar
ket. higher than what he anticipated when he invested. But he could also end up
with a loss. Early encashment of fixed deposits is always subject to a penalty c
harged by the company that accepted the fixed deposit. Mutual fund schemes also
have the option of charging a penalty on early redemption of units (through by way
of an exit load,) If the NAV has appreciated adequately, then even after the exit
load, the investor could earn a capital gain on his investment. If securities h
ave gained in value during the period, then the investor can even earn a return
that is
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Bank Fixed Deposits verses Mutual Fund:

Bank fixed deposits are similar to company fixed deposits. The major difference
is that banks are generally more stringently regulated than companies. They even
operate under stricter requirements regarding Statutory Liquidity Ratio (SLR) a
nd Cash Reserve Ratio (CRR). While the above are causes for comfort, bank deposi
ts too are subject to default risk. However, given the political and economic im
pact of bank defaults, the government as well as Reserve Bank of India (RBI) try
to ensure that banks do not fail. Further, bank deposits upto Rs 100,000 are pr
otected by the Deposit Insurance and Credit Guarantee Corporation (DICGC), so lo
ng as the bank has paid the required insurance premium of 5 paise per annum for
every Rs 100 of deposits. The monetary ceiling of Rs 100,000 is for all the depo
sits in all the branches of a bank, held by the depositor in the same capacity a
nd right.
BANKS Returns Administrative exp. Risk Investment options Network Liquidity Qual
ity of assets Interest calculation Guarantor Account Low High Low Less High pene
tration At a cost Not transparent Quarterly i.e. 3rd, 6th, 9th & 12th. Guarantor
is needed. Needed.
MUTUAL FUNDS Better Low Moderate More Low but improving Better Transparent Every
Month Guarantor is not needed. Not Needed.
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Bonds and Debentures versus Mutual Funds

As in the case of fixed deposits, credit rating of the bond / debenture is an in
dication of the inherent default risk in the investment. However, unlike FD, bon
ds and debentures are transferable securities. While an investor may have an ear
ly encashment option from the issuer (for instance through a put option), generall
y liquidity is through a listing in the market. Implications of this are:
If the security does not get traded in the market, then the liquidity remains on
paper. In
this respect, an open-end scheme offering continuous sale / re-purchase option i
s superior.
The value that the investor would realise in an early exit is subject to market
risk. The
investor could have a capital gain or a capital loss. This aspect is similar to
a MF scheme. It is possible for a professional investor to earn attractive retur
ns by directly investing in the debt market, and actively managing the positions
. Given the market realities in India, it is difficult for most investors to act
ively manage their debt portfolio. Further, at times, it is difficult to execute
trades in the debt market even when the transaction size is as high as Rs 1 cro
re. In this respect, investment in a debt scheme would be beneficial. Debt secur
ities could be backed by a hypothecation or mortgage of identified fixed and / o
r current assets (secured bonds / debentures). In such a case, if there is a def
ault, the identified assets become available for meeting redemption requirements
. An unsecured bond / debenture is for all practical purposes like a fixed depos
it, as far as access to assets is concerned. The investments of a mutual fund sc
heme are held by a custodian for the benefit of investors in the scheme. Thus, t
he securities that relate to a scheme are ring-fenced for the benefit of its inv
estors.
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Equity versus Mutual Funds
Investment in both equity and mutual funds are subject to market risk. An invest
or holding an equity security that is not traded in the market place has a probl
em in realising value from it. But investment in an open-end mutual fund elimina
tes this direct risk of not being able to sell the investment in the market. An
indirect risk remains, because the scheme has to realise its investments to pay
investors. The AMC is however in a better position to handle the situation Anoth
er benefit of equity mutual fund schemes is that they give investors the benefit
of portfolio diversification through a small investment. For instance, an inves
tor can take an exposure to the index by investing a mere Rs 5,000 in an index f
und. Advantages Of Mutual Funds Over Stocks? A mutual fund offers a great deal o
f diversification starting with the very first dollar invested, because a mutual
fund may own tens or hundreds of different securities. This diversification hel
ps reduce the risk of loss because even if any one holding tanks, the overall va
lue doesn t drop by much. If you re buying individual stocks, you can t get much
diversity unless you have $10K or so. Small sums of money get you much further
in mutual funds than in stocks. First, you can set up an automatic investment pl
an with many fund companies that lets you put in as little as $50 per month. Sec
ond, the commissions for stock purchases will be higher than the cost of buying
no-load fund (Of course, the fund s various expenses like commissions are alread
y taken out of the NAV). Smaller sized purchases of stocks will have relatively
high commissions on a percentage basis, although with the $10 trade becoming com
mon, this is a bit less of a concern than it once was. You can exit a fund witho
ut getting caught on the bid/ask spread. Funds provide a cheap and easy method f
or reinvesting dividends. Last but most certainly not least, when you buy a fund
you re in essence hiring a professional to manage your money for you. That prof
essional is (presumably) monitoring the economy and the markets to adjust the fu
nd s holdings appropriately.
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Advantages Of Stock Over Mutual Funds? The opposite of the diversification issue
: If you own just one stock and it doubles, you are up 100%. If a mutual fund ow
ns 50 stocks and one doubles, it is up 2%. On the other hand, if you own just on
e stock and it drops in half, you are down 50% but the mutual fund is down 1%. C
uts both ways. If you hold your stocks several years, you aren t nicked a 1% or
so management fee every year (although some brokerage firms charge if there aren
t enough trades). You can take your profits when you want to and won t inadvert
ently buy a tax liability. (This refers to the common practice among funds of di
stributing capital gains around November or December of each year. See the artic
le elsewhere in this FAQ for more details.) You can do a covered write option st
rategy. (See the article on options on stocks for more details.) You can structu
re your portfolio differently from any existing mutual fund portfolio. (Although
with the current universe of funds I m not certain what could possibly be missi
ng out there!) You can buy smaller cap stocks which aren t suitable for mutual f
unds to invest in. You have a potential profit opportunity by shorting stocks. (
You cannot, in general, short mutual funds.) The argument is offered that the fu
nds have a "herd" mentality and they all end up owning the same stocks. You may
be able to pick stocks better.
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Life Insurance versus Mutual Fund

Life insurance is a hedge against risk and not really an investment option. So,
it would be wrong to compare life insurance against any other financial product.
Occasionally on account of market inefficiencies or mis-pricing of products in
India, life insurance products have offered a return that is higher than a compa
rable safe fixed return security thus, you are effectively paid for getting insure
d! sustainable in the long run. Such opportunities are not
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FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA

Financial experts believe that the future of Mutual Funds in India will be very
bright. It has been estimated that by March-end of 2010, the mutual fund industr
y of India will reach Rs 40,90,000 crore, taking into account the total assets o
f the Indian commercial banks. In the coming 10 years the annual composite growt
h rate is expected to go up by 13.4%.

100% growth in the last 6 years. Number of foreign AMC s are in the queue to ent
er the Indian markets like Fidelity Investments, US based, with over US$1trillio
n assets under management worldwide. Our saving rate is over 23%, highest in the
world. Only channelizing these savings in mutual funds sector is required. We h
ave approximately 29 mutual funds which is much less than US having more than 80
0. There is a big scope for expansion. B and C class cities are growing rapi
dly. Today most of the mutual funds are concentrating on the A class cities. S
oon they will find scope in the growing cities. Mutual fund can penetrate rurals
like the Indian insurance industry with simple and limited products. SEBI allow
ing the MF s to launch commodity mutual funds. Emphasis on better corporate gove
rnance. Trying to curb the late trading practices. Introduction of Financial Pla
nners who can provide need based advice. Looking at the past developments and co
mbining it with the current trends it can be

concluded that the future of Mutual Funds in India has lot of positive things to
offer to its investors.
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MF JARGON
Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabil
ities. The per unit NAV is the net asset value of the scheme divided by the numb
er of units outstanding on the Valuation Date.
Sale Price
Sale price is the price you pay when you invest in a scheme. Also called Offer P
rice. It may include a sales load.
Repurchase Price
Is the price at which a close-ended scheme repurchases its units and it may incl
ude a back-end load. This is also called Bid Price.
Redemption Price
It is the price at which open-ended schemes repurchase their units and close-end
ed schemes redeem their units on maturity. Such prices are NAV related.
Sales Load
It is a charge collected by a scheme when it sells the units. Also called as Fron
t-end load. Schemes that do not charge a load are called No Load schemes.
Repurchase or Back-end Load
It is a charge collected by a scheme when it buys back the units from the unit h
olders.
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CONCLUSION
Mutual Funds now represent perhaps most appropriate investment opportunity for m
ost investors. As financial markets become more sophisticated and complex, inves
tors need a financial intermediary who provides the required knowledge and profe
ssional expertise on successful investing. As the investor always try to maximiz
e the returns and minimize the risk. Mutual fund satisfies these requirements by
providing attractive returns with affordable risks. The fund industry has alrea
dy overtaken the banking industry, more funds being under mutual fund management
than deposited with banks. With the emergence of tough competition in this sect
or mutual funds are launching a variety of schemes which caters to the requireme
nt of the particular class of investors. Risk takers for getting capital appreci
ation should invest in growth, equity schemes. Investors who are in need of regu
lar income should invest in income plans. The stock market has been rising for o
ver three years now. This in turn has not only protected the money invested in f
unds but has also to helped grow these investments. This has also instilled grea
ter confidence among fund investors who are investing more into the market throu
gh the MF route than ever before. Reliance India mutual funds provide major bene
fits to a common man who wants to make his life better than previous. India s la
rgest mutual fund, UTI, still controls nearly 80 per cent of the market. Also, t
he mutual fund industry as a whole gets less than 2 per cent of household saving
s against the 46 per cent that go into bank deposits. Some fund managers say thi
s only indicates the sector s potential. "If mutual funds succeed in chipping aw
ay at bank deposits, even a triple digit growth is possible over the next few ye
ars.
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BIBLIOGRAPHY
REFERENCE BOOK: FINANCIAL MARKET AND SERVICES -Gordon and Natarajan WEBSITE: www
.utimf.com www.reliancemutual.com www.amfiindia.com SEARCH ENGINE: www.google.co
m www.altavista.com www.yahoo.com
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