Project report on

MUTUAL FUNDS & ITS IMPACT ON INVESTORS

At

HYDERABAD SECURITIES & ENTERPRISES LIMITED

Submitted in partial fulfillment of the requirement for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

By

Dr.K.Ramgoal

(year)

Under the guidance of

(.)

Department Of Master Of Business Administration

 CHAPTER-1

INTRODUCTION

UNDERSTANDING MUTUAL FUND

Introduction:
Mutual fund is a trust that pools money from a group of investors (sharing
common financial goals) and invest the money thus collected into asset classes that match
the stated investment objectives of the scheme. Since the stated investment objectives of
a mutual fund scheme generally form the basis for an investor's decision to contribute
money to the pool, a mutual fund can not deviate from its stated objectives at any point of
time.
Every Mutual Fund is managed by a fund manager, who using his investment
management skills and necessary research works ensures much better return than what an
investor can manage on his own. The capital appreciation and other incomes earned from
these investments are passed on to the investors (also known as unit holders) in
proportion of the number of units they own.
 When an investor subscribes for the units of a mutual fund, he becomes
part owner of the assets of the fund in the same proportion as his contribution amount put
up with the corpus (the total amount of the fund). Mutual Fund investor is also known as
a mutual fund shareholder or a unit holder. Any change in the value of the investments
made into capital market instruments (such as shares, debentures etc) is reflected in the
Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual
Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the
market value of scheme's assets by the total number of units issued to the investors.

For example:
A. If the market value of the assets of a fund is Rs. 100,000
B. The total number of units issued to the investors is equal to 10,000.
C. Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00
D. Now if an investor 'X' owns 5 units of this scheme
E. Then his total contribution to the fund is Rs. 50 (i.e. Number of units held
multiplied by the NAV of the scheme)

Definition:

An open-ended fund operated by an investment company which raises money

from shareholders and invests in a group of assets, in accordance with a stated set of
objectives. mutual funds raise money by selling shares of the fund to the public, much
like any other type of company can sell stock in itself to the public.

Mutual funds then take the money they receive from the sale of their shares
(along with any money made from previous investments) and use it to purchase various
investment vehicles, such as stocks, bonds and money market instruments. In return for
the money they give to the fund when purchasing shares, shareholders receive an equity
position in the fund and, in effect, in each of its underlying securities.
 For most mutual funds, shareholders are free to sell their shares at any time,
although the price of a share in a mutual fund will fluctuate daily, depending upon the
performance of the securities held by the fund. Benefits of mutual funds include
diversification and professional money management. Mutual funds offer choice,
liquidity, and convenience, but charge fees and often require a minimum investment. A
closed-end fund is often incorrectly referred to as a mutual fund, but is actually an
investment trust.

There are many types of mutual funds, including aggressive growth fund, asset
allocation fund, balanced fund, blend fund, bond fund, capital appreciation fund, clone
fund, closed fund, crossover fund, equity fund, fund of funds, global fund, growth fund,
growth and income fund, hedge fund, income fund, index fund, international fund,
money market fund, municipal bond fund, prime rate fund, regional fund, sector fund,
specialty fund, stock fund, and tax-free bond fund.

Mutual Fund Industry in India

The Evolution

The formation of Unit Trust of India marked the evolution of the Indian mutual
fund industry in the year 1963. The primary objective at that time was to attract the small
investors and it was made possible through the collective efforts of the Government of
India and the Reserve Bank of India. The history of mutual fund industry in India can be
better understood divided into following phases:

Phase 1. Establishment and Growth of Unit Trust of India - 1964-87

Unit Trust of India enjoyed complete monopoly when it was established in the
year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it
continued to operate under the regulatory control of the RBI until the two were de-linked
in 1978 and the entire control was transferred in the hands of Industrial Development
Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme
1964 (US-64), which attracted the largest number of investors in any single investment
scheme over the years.

UTI launched more innovative schemes in 1970s and 80s to suit the needs of
different investors. It launched ULIP in 1971, six more schemes between 1981-84,
Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986,
Mastershare (Inida's first equity diversified scheme) in 1987 and Monthly Income
Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under
management grew ten times to Rs 6700 crores.

Phase II. Entry of Public Sector Funds - 1987-1993

The Indian mutual fund industry witnessed a number of public sector players
entering the market in the year 1987. In November 1987, SBI Mutual Fund from the
State Bank of India became the first non-UTI mutual fund in India.

SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual
Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and
PNB Mutual Fund. By 1993, the assets under management of the industry increased
seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about
80% market share.

Amount Assets Under Mobilisation as % of

1992-93
Mobilised Management gross Domestic Savings
UTI 11,057 38,247 5.2%
Public Sector 1,964 8,757 0.9%
Total 13,021 47,004 6.1%

Phase III. Emergence of Private Sector Funds - 1993-96

 The permission given to private sector funds including foreign fund management
companies (most of them entering through joint ventures with Indian promoters) to
enter the mutual fund industry in 1993, provided a wide range of choice to investors
and more competition in the industry. Private funds introduced innovative products,
investment techniques and investor-servicing technology. By 1994-95, about 11
private sector funds had launched their schemes.

Phase IV. Growth and SEBI Regulation - 1996-2004

The mutual fund industry witnessed robust growth and stricter regulation from the
SEBI after the year 1996. The mobilization of funds and the number of players operating
in the industry reached new heights as investors started showing more interest in mutual
funds.

Investors' interests were safeguarded by SEBI and the Government offered tax
benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations,
1996 was introduced by SEBI that set uniform standards for all mutual funds in India.
The Union Budget in 1999 exempted all dividend incomes in the hands of investors from
income tax. Various Investor Awareness Programmes were launched during this phase,
both by SEBI and AMFI, with an objective to educate investors and make them informed
about the mutual fund industry.

In February 2003, the UTI Act was repealed and UTI was stripped of its Special
legal status as a trust formed by an Act of Parliament. The primary objective behind this
was to bring all mutual fund players on the same level. UTI was re-organised into two
parts:

1. The Specified Undertaking,

2. The UTI Mutual Fund

 Table 1.3: Gross resources mobilized by mutual fund ( In Rs. Crore)

Year
Public Private UTI Total
sector Sector

2002-03 284,096 23,515 7,096 314,706

2003-04 534,649 31,548 23,992 590,190
2004-05 736,463 56,589 46,656 839,708
2005-06 914,703 110,319 73,127 1,098,149
2006-07 1,599,873 196,340 142,280 1,938,493
2007-08 3,780,753 346,126 337,498 4,464,377
2008-09 4,292,751 710,472 423,131 5,426,353
2009-10 7,698,483 881,851 1,438,688 10,019,023
2010-11 6,922,924 783,858 1,152,733 8,859,515
2011-12 5,683,744 522,453 613,482 6,819,679
2012-13 5,987,889 633,350 646,646 7,267,885

Presently Unit Trust of India operates under the name of UTI Mutual Fund and its
past schemes are being gradually wound up. However, UTI Mutual Fund is still the
largest player in the industry. In 2002-13, there was a significant growth in mobilization
of funds from public sector, Private Sector and UTI

The main objective of mutual fund is to pool the small domestic savings and collectively
generate large corpus to invest in capital market. The growth in capital market is
attributed to resources mobilized by mutual fund is invested in capital market. The
resource mobilized by mutual fund is shown in the above table 1.2. In 2002-03, Rs.284,
096 crore was mobilized by public sector funds and Rs.23515 crore was mobilized by
private sector mutual funds. The resource mobilized by UTI was Rs. 7,096 crores and
overall Rs. 314706 crore were mobilized by the various funds. The fund mobilization is
reached to a high of Rs.10, 019,023 crore in 2009-10 of which private sector has
mobilized Rs. 881,851 crore and public sector has mobilized Rs. 7,698,483 crore. The
share of UIT is Rs. 1,438,688 which is around 14 percent of total fund mobilized. The
table 1.3 shows that the share of public sector mutual fund is around 80 percent of the
total fund mobilized. The growth in fund mobilized is dropped from high of 2009-10 to
settle at Rs. 6,819,679 crore in 2011-12.
The asset under management (AUM) is another parameter used to assess the performance
of mutual fund industry. In the following below chart the AUM has shown a tremendous
growth since inception of mutual fund industry in India. The assets under mutual fund
management were Rs.25 crore in 1965, which were increased to Rs.4564 crore in March
1987. These assets were increased to Rs.47000 crore in March 1993. In March 2003, the
assets under management were Rs.109299 crore. Thereafter the asset under management
has grown to Rs. 505132 crore in 2007-08 and the asset under management is reached
Rs.701443 crore in March 2013. We can observe that there is a significant increase in
Mutual FundsAUM in the last 4 to 5 years.

The Mutual funds and phenomenal involvement of Investors projected information as per
the below table shows that the interest of investors in different segments of capital
markets be it equity market, debt market, money market, gilts or hybrid. With declining
yields in the debt market and increase in retail participation, there has been a constant
increase in the equity investments by mutual funds in 2005.
The Retail investors in mutual funds in last 10 years from 2003-12. The increase in equity
investments can also be highly attributed to the introduction of Systematic Investment
Plans (SIPs) by AMCs. These SIPs offer the investors with low risk avenues for investing
in equity schemes and the returns offered through them are far higher than that of any
bank deposits.

Source: SEBI

Investment in Mutual funds and Benefits & risk:

Mutual funds have traditionally been the go-to investment choice for people who
would like a better and relatively safer return on their money. For one, mutual funds can
offer diversification, something that cannot be expected in some types of investments.
 However, they do carry some amount of risk. If people wish to invest in the
mutual fund they have to observe and note down some of the risk factors and benefits out
of investment, to consider:

When considering investment opportunities, the first challenge that almost every investor
faces is a confusion to select the investment field and further selecting the mutual fund
company for safe and intelligent way to get best return on his investment. Further other
areas of investment like stocks, bonds, shares, money market securities, to the right
combination of two or more of these; however, every option presents its own risk for
investments So why should investors consider mutual funds over others to achieve their
investment.

Mutual funds allow investors to pool in their money for a diversified selection of
securities, managed by a professional fund manager. It offers an array of innovative
products like fund of funds, exchange-traded funds, Fixed Maturity Plans, Sectoral Funds
and many more. Whether the objective is financial gains or convenience, mutual funds
offer many benefits to its investors.

Mutual Funds help investors generate better inflation-adjusted returns, without spending
a lot of time and energy on it. While most people consider letting their savings 'grow' in a
bank, they don't consider that inflation may be nibbling away its value.
Suppose you have Rs. 100 as savings in your bank today. These can buy about 10 bottles
of water. Your bank offers 5% interest per annum, so by next year you will have Rs. 105
in your bank. However, inflation that year rose by 10%. Therefore, one bottle of water
costs Rs. 11. By the end of the year, with Rs. 105, you will not be able to afford 10 bottles
of water anymore. Mutual Funds provide an ideal investment option to place your savings
for a long-term inflation adjusted growth, so that the purchasing power of your hard
earned money does not plummet over the years.

Benefits of investing in mutual funds

Mutual fund investments are diversified, meaning, the holdings are spread out
across multiple types of businesses and industries. This helps minimize losses should one
or two business or industry sectors fail.

Mutual funds are also relatively affordable, allowing small amounts of

investments to be pooled. In case of an emergency, its easy for investors to cash in their
shares inclusive of charges and fees, of course.

Mutual funds are also managed by professionals (often referred to as money

managers) who are experienced at researching and selecting the best investments to make
the fund grow.

Some risks:

When investing in mutual funds, know that all control is relinquished to the fund
managers. That means only the fund managers will decide on the type of investments that
are included in a portfolio.
 There are also costs associated with these funds, such as annual fees and sales
charges. These costs will be charged even if the fund performs badly. Interest payment or
dividends can also rise and fall, depending on how the market behaves.

ADVANTAGES OF MUTUAL FUND

S.
Advantage Particulars
No.
Mutual Funds invest in a well-diversified portfolio of securities
Portfolio
1. which enables investor to hold a diversified investment portfolio
Diversification
(whether the amount of investment is big or small).
Fund manager undergoes through various research works and has
Professional
2. better investment management skills which ensure higher returns
Management
to the investor than what he can manage on his own.
Investors acquire a diversified portfolio of securities even with a
3. Less Risk small investment in a Mutual Fund. The risk in a diversified
portfolio is lesser than investing in merely 2 or 3 securities.
Low Due to the economies of scale (benefits of larger volumes),
4. Transaction mutual funds pay lesser transaction costs. These benefits are
Costs passed on to the investors.
An investor may not be able to sell some of the shares held by
5. Liquidity him very easily and quickly, whereas units of a mutual fund are
far more liquid.
>Mutual funds provide investors with various schemes with
different investment objectives. Investors have the option of
Choice of
6. investing in a scheme having a correlation between its investment
Schemes
objectives and their own financial goals. These schemes further
have different plans/options
Funds provide investors with updated information pertaining to
7. Transparency the markets and the schemes. All material facts are disclosed to
investors as required by the regulator.
8. Flexibility Investors also benefit from the convenience and flexibility offered
 by Mutual Funds. Investors can switch their holdings from a debt
scheme to an equity scheme and vice-versa. Option of systematic
(at regular intervals) investment and withdrawal is also offered to
the investors in most open-end schemes.
Mutual Fund industry is part of a well-regulated investment
environment where the interests of the investors are protected by
9. Safety
the regulator. All funds are registered with SEBI and complete
transparency is forced.
DISADVANTAGES OF MUTUAL FUND

S.
Disadvantage Particulars
No.

Costs Control Investor has to pay investment management fees and fund
Not in the distribution costs as a percentage of the value of his investments (as
1.
Hands of an long as he holds the units), irrespective of the performance of the
Investor fund.

The portfolio of securities in which a fund invests is a decision

No Customized taken by the fund manager. Investors have no right to interfere in
2.
Portfolios the decision making process of a fund manager, which some
investors find as a constraint in achieving their financial objectives.

Difficulty in Many investors find it difficult to select one option from the
Selecting a plethora of funds/schemes/plans available. For this, they may have
3.
Suitable Fund to take advice from financial planners in order to invest in the right
Scheme fund to achieve their objectives.

Development of mutual funds in India:

Potential of Indian Mutual Funds Industry
The Indian mutual funds industry has been experiencing a rapid growth due to
infrastructural development, personal financial assets getting augmented and increased
foreign participation. The risk appetite of the middle class investors has been increasing,
income has been going up, investors being made aware of the potential of the mutual
fund industry all these have been making India a preferred Mutual Fund investment
destination when compared to other investment vehicles like Fixed Deposits (FDs) and
postal savings. The diversified portfolio is another reason for the investors to get allured
by the Mutual Fund Investment India.

Growth of Indian MF Industry:

1. The Indian mutual funds retail market, which at present is growing at a CAGR of
around 30%, is estimated to reach US$ 300 Billion by 2015

2. Income and growth MF schemes made up for the bulk Assets under Management
(AUM) in India..

3. Private sector Asset Management Companies (AMCs) account for majority of mutual
fund sales in India (around 84% on March 31, 2008).

The growth path of Mutual Fund Investment India is attributed to the high saving pattern
in India. This is a healthy status of the MF industry in India when compared to Japan,
France and China. The Mutual fund sector in India though has huge potential, yet the
limited participation of the rural sector will always act as a deterrent factor.

The other hurdles in this regard are lack of awareness, inferior distribution channel and
limited banking services in the rural regions. The best instrument of investing money
nowadays is the mutual fund. Investing in a stock market has become risky these days
due to the high volatility in the market.

Regulatory framework:
 SEBI, the regulatory authority for the Indian Mutual fund industry has
consistently introduced several regulatory measures and amendments in order to protect
the interests of small investors. The Securities Exchange Board of India (Mutual Funds)
Regulations, 1996, is the principal regulation for the Mutual fund industry in India. This
was amended several times with the latest amendment being issued in 2006.

The key provisions of the SEBI Regulations, 1996 include:

All the schemes to be launched by the AMC needs to be approved by the Board of
Trustees and copies of offer documents of such schemes are to be filed with SEBI.
The offer documents shall contain adequate disclosures to enable the investors to
make informed decisions.
The listing of close-ended schemes is mandatory and they should be listed on a
recognized stock exchange within six months from the closure of subscription.
However, the listing is not mandatory in case (i) the scheme provides for monthly
income or caters to senior citizens, women, and children and physically
handicapped; (ii) if the scheme discloses details of repurchase in the offer
document; or (iii) if the scheme opens for repurchase within six months of closure
of subscription.
Units of a close-ended scheme can be opened for sale or redemption at a
predetermined fixed interval if the minimum and maximum amount of sale,
redemption and periodicity is disclosed in the offer document.
Units of a close-ended scheme can be converted into an open-ended scheme with
the consent of a majority of the unit-holders and disclosure is made in the offer
document about the option and period of conversion.
Units of close-ended scheme may be rolled over by passing a resolution by a
majority of the shareholders.
No scheme other than unit-linked scheme can be opened for subscription for more
than 45 days. Further, the minimum subscription and the extent of over-
subscription that is intended to be retained should be specified in the offer
document. In the case of over-subscription, all applicants applying up to 5,000
units must be given full allotment subject to over subscription.
 The AMC is required to refund the application money if minimum subscription is
not received, and also the excess over subscription within six weeks of closure of
subscription.
A close-ended scheme shall be wound up on redemption date, unless it is rolled
over, or if 75% of the unit-holders of a scheme pass a resolution for winding up of
the scheme; if the trustees on the happening of any event require the scheme to be
wound up; or if SEBI, so directs in the interest of investors.

Some of the provisions in the SEBI Regulations, 1996 were amended in the
guidelines issued in 2001-02. Highlights of SEBI Guidelines (2001-02) relating to
mutual funds are as follows:

Initial offer period to be reduced to a maximum of 30 days from 45 days.

To invest in mortgage backed securities of investment grade given by credit rating
agency.
To identify and make provision for the non-performing assets (NPAs) according
to criteria for classification of NPAs and treatment of income accrued on NPAs.
All the schemes shall be launched within six months from the date of letter
containing observations from SEBI on the scheme offer document.
To disclose large unit-holdings in the scheme, which are over 25% of the NAV.

In addition, the SEBI took various measures and issued guidelines to facilitate
operations of mutual funds. As part of these measures, mutual funds were allowed to
invest in foreign debt securities in the countries with full convertible currencies and with
highest foreign currency credit rating by accredited credit rating agencies. They were also
allowed to invest in government securities where the countries are AAA rated.

Moreover, guidelines were issued for valuation of unlisted equity shares in order to
bring about uniformity in the calculation of NAVs of mutual fund schemes. In order to
allow mutual funds to invest in both gold and gold related instruments, the SEBI
amended its regulation in 2006.
 The amended regulation, Securities and Exchange Board of India (Mutual Funds)
(Amendment) Regulation, 2006 permits introduction of Gold Exchange Traded Fund
(GETF) Schemes by mutual fund. The new mutual fund scheme can invest primarily in
gold and gold related instruments, subject to certain investment restrictions.

Current scenario of mutual fund industry in India:

The Indian Mutual fund industry has witnessed considerable growth since its
inception in 1963. The assets under management (AUM) have surged to Rs 4,173 billian
in Mar-09 from just Rs 250 milion in Mar-65. In a span of 10 years (from 2002 to 2013),
the industry has registered a CAGR of 22.3%, albeit encompassing some shortfalls in
AUM due to business cycles.

The impressive growth in the Indian Mutual fund industry in recent years can
largely be attributed to various factors such as rising household savings, comprehensive
regulatory framework, favorable tax policies, and introduction of several new products,
investor education campaign and role of distributors.

In the last few years, households income levels have grown significantly, leading
to commensurate increase in households savings. Household financial savings (at current
prices) registered growth rate of around 17.4% on an average during the period FY04-
FY08 as against 11.8% on an average during the period FY99-FY03. The considerable
rise in households financial savings, point towards the huge market potential of the
Mutual fund industry in India.

Besides, SEBI has introduced various regulatory measures in order to protect the
interest of small investors that augurs well for the long term growth of the industry. The
tax benefits allowed on mutual fund schemes (for example investment made in Equity
Linked Saving Scheme (ELSS) is qualified for tax deductions under section 80C of the
Income Tax Act) also have helped mutual funds to evolve as the preferred form of
investment among the salaried income earners.
 Besides, the Indian Mutual fund industry that started with traditional products like
equity fund, debt fund and balanced fund has significantly expanded its product portfolio.
Today, the industry has introduced an array of products such as liquid/money market
funds, sector-specific funds, index funds, gilt funds, capital protection oriented schemes,
special category funds, insurance linked funds, exchange traded funds, etc.

It also has introduced Gold ETF fund, with an aim to allow mutual funds to
invest in gold or gold related instruments. Further, the industry has launched special
schemes to invest in foreign securities. The wide variety of schemes offered by the Indian
Mutual fund industry provides multiple options of investment to common man.

The asset under management (AUM) is another parameter used to assess the performance
of mutual fund industry. The AUM has shown a tremendous growth since inception of
mutual fund industry in India. The assets under mutual fund management were Rs.25
crore in 1965, which were increased to Rs.4564 crore in March 1987. These assets were
increased to Rs.47000 crore in March 1993. In March 2003, the assets under management
were Rs.109299 crore. Thereafter the asset under management has grown to Rs. 505132
crore in 2007-08 and the asset under management is reached Rs.701443 crore in March
2013.

Registration of mutual funds:

Application for registration

 1. An application for registration of a mutual fund shall be made to the Board in
Form A by the sponsor.

Application fee to accompany the application

2. Every application for registration under regulation 1 shall be accompanied by

non-refundable application fee as specified in the Second Schedule.

Application to conform to the requirements

3. An application, which is not complete in all respects shall be liable to be

rejected. Provided that, before rejecting any such application, the applicant shall be given
an opportunity to complete the Board may specify such formalities within such time as.

Furnishing information

4. The Board may require the sponsor to furnish such further information or
clarification as may be required by it.

Eligibility criteria

5. For the purpose of grant of a certificate of registration, the applicant has to

fulfill the following, namely: -

(a) The sponsor should have a sound track record and general reputation of
fairness and integrity in all his business transactions;

Explanation: For the purposes of this clause "sound track record" shall mean the
sponsor should, -

i. Be carrying on business in financial services for a period of not

less than five years; and

ii. The net worth is positive in all the immediately preceding five
years; and
 iii. The net worth in the immediately preceding year is more than the
capital contribution of the sponsor in the asset management company; and
iv. The sponsor has profits after providing for depreciation, interest
and tax in three out of the immediately preceding five years, including the fifth
year.

(a) The applicant is a fit and proper person

(b) In the case of an existing mutual fund, such fund is in the form of a trust and
the Board has approved the trust deed;

(c) The sponsor has contributed or contributes at least 40% to the net worth of the
asset management company; Provided that any person who holds 40% or more of the net
worth of an asset management company shall be deemed to be a sponsor and will be
required to fulfill the eligibility criteria specified in these regulations;

(d) The sponsor or any of its directors or the principal officer to be employed by
the mutual fund should not have been guilty of fraud or has not been convicted of an
offense involving moral turpitude or has not been found guilty of any economic offence.

(e) Appointment of trustees to act as trustees for the mutual fund in accordance
with the provisions of the regulations;

(f) Appointment of asset Management Company to manage the mutual fund and
operate the scheme of such funds in accordance with the provisions of these regulations;

(g) Appointment of a custodian in order to keep custody of the securities and carry
out the custodian activities as may be authorized by the trustees.

Consideration of application

6. The Board may on receipt of all information decide the application.

Grant of Certificate of Registration

 7. The Board may register the mutual fund and grant a certificate in Form B on
the applicant paying the registration fee as specified in Second Schedule.

Terms and conditions of registration

8. The registration granted to a mutual fund under regulation 7, shall be subject to

the following terms and conditions: -

(a) The trustees, the sponsor, the asset management company and the custodian
shall comply with the provisions of these regulations;

(b) The mutual fund shall forthwith inform the Board, if any information or
particulars previously submitted to the Board was misleading or false in any material
respect

(c) The mutual fund shall forthwith inform the Board, of any material change in
the information or particulars previously furnished, which have a bearing on the
registration granted by it;

(d) Payment of fees as specified in the regulations and the Second Schedule.

Rejection of application

9. Where the sponsor does not satisfy the eligibility criteria mentioned in
regulation 5, the Board may reject the application and inform the applicant of the same.

Payment of service fee

10. A mutual fund shall pay before the 15th April each year a service fee as
specified in the Second Schedule for every financial year from the year following the
year of registration.

Provided that the Board may, on being satisfied with the reasons for the delay
permit the mutual fund to pay the service fee at any time before the expiry of two months
from the commencement of the financial year to which such fee relates.
Failure to pay service fee

11. The Board may not permit a mutual fund that has not paid service fee to
launch any scheme.

Investments in mutual funds:

Mutual Funds over the years have gained immensely in their popularity. Apart
from the many advantages that investing in mutual funds provide like diversification,
professional management, the ease of investment process has proved to be a major
enabling factor. However, with the introduction of innovative products, the world of
mutual funds nowadays has a lot to offer to its investors. With the introduction of diverse
options, investors needs to choose a mutual fund that meets his risk acceptance and his
risk capacity levels and has similar investment objectives as the investor.

With the plethora of schemes available in the Indian markets, an investors needs to
evaluate and consider various factors before making an investment decision. Since not
everyone has the time or inclination to invest and do the analysis himself, the job is
best left to a professional. Since Indian economy is no more a closed market, and has
started integrating with the world markets, external factors which are complex in
nature affect us too. Factors such as an increase in short-term US interest rates, the
hike in crude prices, or any major happening in.

Asian market have a deep impact on the Indian stock market. Although it is not
possible for an individual investor to understand Indian companies and investing in such
an environment, the process can become fairly time consuming. Mutual funds (whose
fund managers are paid to understand these issues and whose Asset Management
Company invests in research) provide an option of investing without getting lost in the
complexities.

Most importantly, mutual funds provide risk diversification: diversification of a

portfolio is amongst the primary tenets of portfolio structuring, and a necessary one to
reduce the level of risk assumed by the portfolio holder. Most of us are not necessarily
well qualified to apply the theories of portfolio structuring to our holdings and hence
would be better off leaving that to a professional. Mutual funds represent one such
option.

Lastly, Evaluate past performance, look for stability and although past performance is
no guarantee of future performance, it is a useful way to assess how well or badly a
fund has performed in comparison to its stated objectives and peer group. A good way
to do this would be to identify the five best performing funds (within your selected
investment objectives) over various periods, say 3 months, 6 months, one year, two
years and three years. Shortlist funds that appear in the top 5 in each of these time
horizons as they would have thus demonstrated their ability to be not only good but
also, consistent performers.

An investor can choose the fund on various criteria according to his investment
objective, to name a few:
Thorough analysis of fund performance of schemes over the last few years
managed by the fund house and its consistent return in the volatile market.
The fund house should be professional, with efficient management and
administration.
The corpus the fund is holding in its scheme over the period of time.
Proper adequacies of disclosures have to seen and also make a note of any hidden
charges carried by them.
The price at which you can enter/exit (i.e. entry load / exit load) the scheme and
its impact on overall return.

HOW TO INVEST INMUTUALFUNDS:

Step One: Identify your investment needs.

Your financial goals will vary, based on your age, lifestyle, financial independence,
family commitments, level of income and expenses among many other factors.
 Therefore, the first step is to assess your needs. Begin by asking yourself these
questions:

1. What are my investment objectives and needs?

Probable Answers: I need regular income or need to buy a home or finance a
wedding or educate my children or a combination of all these needs.

2. How much risk am I willing to take?

Probable Answers: I can only take a minimum amount of risk or I am willing to

accept the fact that my investment value may fluctuate or that there may be a short-term
loss in order to achieve a long term potential gain.

3. What are my cash flow requirements?

Probable Answers: I need a regular cash flow or I need a lump sum amount to meet a
specific need after a certain period or I dont require a current cash flow but I want to
build my assets for the future.

By going through such an exercise, you will know what you want out of your
investment and can set the foundation for a sound Mutual Fund Investment strategy.

Step Two - Choose the right Mutual Fund.

Once you have a clear strategy in mind, you now have to choose which Mutual
Fund and scheme you want to invest in. The offer document of the scheme tells you its
objectives and provides supplementary details like the track record of other schemes
managed by the same Fund
Manager. Some factors to evaluate before choosing a particular Mutual Fund are:
 The track record of performance over the last few years in relation to the
appropriate yardstick and similar funds in the same.
How well the Mutual Fund is organized to provide efficient, prompt and
personalized service.
Degree of transparency as reflected in frequency and quality of their
communications.

Step three: - Select the ideal mix of Schemes.

Investing in just one Mutual Fund scheme may not meet all your investment needs.
You may consider investing in a combination of schemes to achieve your specific
goals.

Step Four:-Invest regularly

For most of us, the approach that works best is to invest a fixed amount at specific
intervals, say every month. By investing a fixed sum each month, you get fewer units
when the price is high and more units when the price is low, thus bringing down your
average cost per unit. This is called rupee cost averaging and do investors all over the
world follow a disciplined investment strategy. With many open-ended schemes
offering systematic investment plans, this regular investing habit is made easy for you.

Step five: - Keep your taxes in mind

As per the current tax laws, Dividend/Income Distribution made by mutual funds is
exempt from Income Tax in the hands of investor. However, in case of debt schemes
Dividend/ Income Distribution is subject to Dividend Distribution Tax. Further, there
are other benefits available for investment in Mutual Funds under the provisions of the
prevailing tax laws. You may therefore consult your tax advisor or Chartered
 Accountant for specific advice to achieve maximum tax efficiency by investing in
mutual funds.

Step Six: - Start early

It is desirable to start investing early and stick to a regular investment plan. If you start
now, you will make more than if you wait and invest later. The power of compounding
lets you earn income on income and your money multiplies at a compounded rate of
return.

Step Seven: - The final step

All you need to do now is to get in touch with a Mutual Fund or your advisor and start
investing. Reap the rewards in the years to come. Mutual Funds are suitable for every
kind of investor whether starting a career or retiring, conservative or risk taking,
growth oriented or income seeking.

YOUR RIGHTS AS A MUTUAL FUND UNITHOLDER:

As a unit holder in a Mutual Fund scheme coming under the SEBI (Mutual Funds)
Regulations, you are entitled to:

1. Receive unit certificates or statements of accounts confirming your title within 30

days from the date of closure of the subscription under open-ended schemes or within
6 weeks from the date your request for a unit certificate is received by the Mutual Fund.
2. Receive information about the investment policies, investment objectives, financial
position and general affairs of the scheme.

3. Receive dividend within 30 days of their declaration and receive the redemption or
repurchase proceeds within 10 working days from the date of redemption or repurchase.

4. Vote in accordance with the Regulations to:

a. changes the Asset Management Company; b. wind up the schemes.

5. Receive communication from the Trustees about change in the fundamental attributes
of any scheme or any other changes, which would modify the scheme and affect the
interest of the unit holders and to have option to exit at prevailing Net Asset Value
without any exit load in such cases.

6. Inspect the documents of the Mutual Funds specified in the schemes offer document.

In addition to your rights, you can expect the following from Mutual Funds:

To publish their NAV, in accordance with the regulations: daily, in case of open-
ended schemes and once a week, in case of close ended schemes.

To disclose your schemes entire portfolio twice a year, unaudited financial results
half yearly and audited annual accounts once a year.

In addition many mutual funds send out newsletters periodically. To adhere to a

Code of Ethics, which requires that investment, decisions are taken in the best interest of
the unit holders.

Frequently Used Terms

Net Asset Value (NAV)

Net Asset Value is the market value of the 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.

Sale Price

Is the price you pay when you invest in a scheme? Also called Offer Price. It may
include a sales load.

Repurchase Price

Is the price at which a close-ended scheme repurchases its units and it may
include a back-end load. This is also called Bid Price.

Redemption Price

Is the price at which open-ended schemes repurchase their units and close-ended
schemes redeem their units on maturity. Such prices are NAV related.

Sales Load

Is a charge collected by a scheme when it sells the units. Also called, Front-end
load. Schemes that do not charge a load are called No Load schemes.

Repurchase or Back-end Load

Is a charge collected by a scheme when it buys back the units from the unit
holders?
 CHAPETR-2

COMPANY PROFILE
&
 INDUSTRY PROFILE

HYDERABAD SECURITIES & ENTERPRISES LIMITED

(and formerly Hyderabad Stock Exchange Limited)

PROFILE
THE former HYDERABAD STOCK EXCHANGE LIMITED
Its ORIGIN:
Rapid growth in industries in the erstwhile Hyderabad State saw efforts at starting
the Stock Exchange. In November, 1941 some leading bankers and brokers formed the
share and stock Brokers Association. In 1942, Mr. Gulab Mohammed, the Finance
Minister formed a Committee for the purpose of constituting Rules and Regulations of
the Stock Exchange. Sri Purushothamdas Thakurdas, President and Founder Member of
the Hyderabad Stock Exchange performed the opening ceremony of the Exchange on
14.11.1943 under Hyderabad Companies Act; Mr. Kamal Yar Jung Bahadur was the first
President of the Exchange. The HSE started functioning under Hyderabad Securities
Contract Act of No. 21 of 1352 under H.E.H. Nizams Government as a Company
Limited by guarantee. It was the 6th Stock Exchange recognized under Securities
Contract Act, after the Premier Stock Exchanges, Ahmedabad, Bombay, Calcutta,
Madras. and Bangalore stock Exchange. All deliveries were completed every Monday or
the next working day.

The Securities Contracts (Regulation) Act 1956 was enacted by the Parliament,
passed into Law and the rules were also framed in 1957. The Government of India
brought the Act and the Rules into force from 20th February 1957.

The HSE was first recognized by the Government of India on 29th September
1958, as Securities Regulation Act was made applicable to twin cities of Hyderabad and
Secunderabad from that date.
OBJECTIVES:

The Exchange was established on 18th October 1943 with the main objective to
create, protect and develop a healthy Capital Market in the State of Andhra Pradesh to
effectively serve the Public and Investors interests.
The property, capital and income of the Exchange, as per the Memorandum and
Articles of Association of the Exchange, shall have to be applied solely towards the
promotion of the objects of the Exchange. Even in case of dissolution, the surplus funds
shall have to be devoted to any activity having the same objects, as Exchange or be
distributed in Charity, as may be determined by the Exchange or the High Court of
judicature. Thus, in short, it is a Charitable Institution.
The Hyderabad Stock Exchange Limited is now on its stride of completing its 65th year
in the history of Capital Markets serving the cause of saving and investments. The
Exchange has made its beginning in 1943 and today occupies a prominent place among
the Regional Stock Exchanges in India. The Hyderabad Stock Exchange has been
promoting the mobilization of funds into the Industrial sector for development of
industrialization in the State of Andhra Pradesh.
GROWTH:

The Hyderabad Stock Exchange Ltd., established in 1943 as a Non-profit making

organization, catering to the needs of investing population started its operations in a small
way in a rented building in Koti area. It had shifted into Aiyangar Plaza, Bank Street in
1987. In September 1989, the then Vice-President of India, Honble Dr. Shankar Dayal
Sharma had inaugurated the own building of the Stock exchange at Himayathnagar,
Hyderabad. Later in order to bring all the trading members under one roof, the exchange
acquired still a larger premises situated 6-3-654/A; Somajiguda, Hyderabad - 82, with a
six storied building and a constructed area of about 4,86,842 sft (including cellar of
70,857 sft). Considerably, there has been a tremendous perceptible growth which could
be observed from the statistics.
The number of members of the Exchange was 55 in 1943, 117 in 1993 and increased to
300 with 869 listed companies having paid up capital of Rs.19128.95 crores as on
31/03/2000. The business turnover has also substantially increased to Rs. 1236.51 crores
in 1999-2000. The Exchange has got a very smooth settlement system. The HSE Ltd by
virtue of Central Government policy closed and was change into HYDERABAD
SECURITIES & ENTERPRISES LIMITED and carrying the business of Capital Markets
with the help of Mumbai Stock Exchange and National Stock Exchange membership
which in turn helps the HSE Ltd members as Sub-Brokers to the BSE and NSE and can
do the stock market business and are doing the capital market functioning as facilitated
by Securities Exchange Board of India (SEBI).

HYDERABAD SECURITIES & ENTERPRISES LIMITED:

Securities and Exchange Board of India (SEBI) had notified The Hyderabad Stock
Exchange Ltd. (Corporatisation and Demutualisation) Scheme, 2005 on August 29, 2005.
The Hyderabad Stock Exchange Ltd. has failed to dilute 51% of its equity share capital to
the public other than shareholders having trading rights on or before August 28, 2007.
Consequently, in terms of section 5(2) of the Securities Contracts Regulation Act, 1956
(SCRA), the recognition granted to HSE was withdrawn with effect from August 29,
2007. After de_recognization by SEBI, the company name has been changed to
"Hyderabad Securities and Enterprises Ltd"

The number of members of the Exchange was 55 in 1943, 117 in 1993 and increased to
300 with 869 listed companies having paid up capital of Rs.19128.85s of March 31,
2000. The business turnover also substantially increased to Rs. 1236.51 crores in 1999-
2000. The Exchange had a very smooth settlement system.

Now the Hyderabad Securities and Enterprises are doing the functions like as Member of
BSE and NSE functionalities and further providing sub-broker to all of its HSE Ltd
Members as a trading plot form to their Member Brokers in HSE Ltd.

Since because of the dual role played as Hyderabad Stock Exchange and as Hyderabad
Securities as a Member Broker to BSE and NSE bourses, its is very immense value to
carry my study under the organization to gain good and different knowledges of plot
forms as both surveillance of share markets and as a member broker.
 MUTUAL FUNDS INDUSTRY PROFILE

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

First Phase 1964-87: Unit Trust of India (UTI) was established on 1963 by an
Act of Parliament. It was set up by the Reserve Bank of India and functioned under the
Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-
linked from the RBI and the Industrial Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI. The first scheme launched by UTI
was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under
management.

Second Phase 1987-1993 (Entry of Public Sector Funds): 1987 marked the
entry of non- UTI, public sector mutual funds set up by public sector banks and Life
Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed
by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian
Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct
92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in
December 1990.

At the end of 1993, the mutual fund industry had assets under management of
Rs.47,004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds): With the entry of
private sector funds in 1993, a new era started in the Indian mutual fund industry, giving
the Indian investors a wider choice of fund families. Also, 1993 was the year in which the
first Mutual Fund Regulations came into being, under which all mutual funds, except UTI
were to be registered and governed. The erstwhile Kothari Pioneer (now merged with
Franklin Templeton) was the first private sector mutual fund registered in July 1993. The
1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI
(Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets
of Rs. 1,21,805 crores. 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 was bifurcated into two separate entities. One is the
Specified Undertaking of the Unit Trust of India with assets under management of
Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64
scheme, assured return and certain other schemes. The Specified Undertaking of Unit
Trust of India, functioning under an administrator and under the rules framed by
Government of India and does not come under the purview of the Mutual Fund
Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It
is registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of
assets under management and with the setting up of a UTI Mutual Fund, conforming to
the SEBI Mutual Fund Regulations, and with recent mergers taking place among different
private sector funds, the mutual fund industry has entered its current phase of
consolidation and growth. As at the end of September, 2004, there were 29 funds, which
manage assets of Rs.153108 crores under 421 Schemes.
ADVANTAGES OF MUTUAL FUNDS:
There are numerous benefits of investing in mutual funds and one of the key reasons
for its phenomenal success in the developed markets like US and UK is the range of
benefits they offer, which are unmatched by most other investment avenues. We have
explained the key benefits in this section. The benefits have been broadly split into
universal benefits, applicable to all schemes, and benefits applicable specifically to open-
ended schemes. Universal Benefits
GROWTH OF MUTUAL FUNDS IN INDIA:
The Indian Mutual Fund has passed through three phases. The first phase was
between 1964 and 1987 and the only player was the Unit Trust of India, which had a total
asset of Rs. 6,700 crores at the end of 1988. The second phase is between 1987 and 1993
during which period 8 Funds were established (6 by banks and one each by LIC and
GIC). The total assets under management had grown to 61,028 crores at the end of 1994
and the number of schemes was 167.
The third phase began with the entry of private and foreign sectors in the Mutual Fund
industry in 1993. Kothari Pioneer Mutual Fund was the first Fund to be established by the
private sector in association with a foreign Fund.
As at the end of financial year 2000(31st march) 32 Funds were functioning with
Rs. 1, 13,005 crores as total assets under management. As on august end 2000, there were
33 Funds with 391 schemes and assets under management with Rs 1, 02,849 crores.
The securities and Exchange Board of India (SEBI) came out with comprehensive
regulation in 1993 which defined the structure of Mutual Fund and Asset Management
Companies for the first time.
Several private sectors Mutual Funds were 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.
OBJECTIVE OF STUDY

To give a brief idea about the benefits available from Mutual Fund investment.
To give an idea of the types of schemes available.
The study of Association of Mutual Funds in India and its services rendered to
investment people and imparting the education and support to the Indian mutual
fund investors.
To discuss about the market trends of Mutual Fund investment.
To explore the recent developments in the mutual funds of India
To give an idea about the regulations of mutual funds to investors.
To offer suggestions for improving the performance of mutual funds

METHODOLOGY
To achieve the objective of study data relating to the investors investment on mutual
funds will be collected.
Research methodology carried for this study can be two types

DATA SOURCES
1. Primary
2. Secondary
PRIMARY:

The data, which has being collected for the first time and it is the original data.
In this project the primary data has been taken from HSE staff and guide of the project.

SECONDARY:

The secondary information is mostly taken from websites, books, journals, etc.
LIMITATIONS:
The time constraint was one of the major problems.

The findings on the basis of available information and selected sample.

The study is limited to the different schemes available under the mutual funds
selected.

The lack of information sources for the analysis part.

 CHAPTER-3

LITERATURE OVERVIEW

MUTUAL FUNDS

Introduction:

A mutual fund is a professionally managed type of collective investment scheme

that pools money from many investors and invests typically in investment securities
(stocks, bonds, short-term money market instruments, other mutual funds, other
securities, and/or commodities such as precious metals).

The mutual fund will have a fund manager that trades (buys and sells) the fund's
investments in accordance with the fund's investment objective. In the U.S., a fund
registered with the Securities and Exchange Commission (SEC) under both SEC and
Internal Revenue Service (IRS) rules must distribute nearly all of its net income and
net realized gains from the sale of securities (if any) to its investors at least annually.

Most funds are overseen by a board of directors or trustees (if the U.S. fund is
organized as a trust as they commonly are) which is charged with ensuring the fund is
managed appropriately by its investment adviser and other service organizations and
vendors, all in the best interests of the fund's investors.

Since 1940 in the U.S., with the passage of the Investment Company Act of 1940
(the '40 Act) and the Investment Advisers Act of 1940, there have been three basic
types of registered investment companies: open-end funds (or mutual funds), unit
investment trusts (UITs); and closed-end funds. Other types of funds that have gained
in popularity are exchange traded funds (ETFs) and hedge funds, discussed below.

Similar types of funds also operate in Canada, however, in the rest of the world,
mutual fund is used as a generic term for various types of collective investment
vehicles, such as unit trusts, open-ended investment companies (OEICs), unitized
insurance funds, undertakings for collective investments in transferable securities
(UCITS, pronounced "YOU-sits") and SICAVs (pronounced "SEE-cavs").

History

Massachusetts Investors Trust (now MFS Investment Management) was founded

on March 21, 1924, and, after one year, it had 200 shareholders and $392,000 in assets.
The entire industry, which included a few closed-end funds, represented less than $10
million in 1924.

The stock market crash of 1929 hindered the growth of mutual funds. In response
to the stock market crash, Congress passed the Securities Act of 1933 and the
Securities Exchange Act of 1934. These laws require that a fund be registered with the
U.S. Securities and Exchange Commission (SEC) and provide prospective investors
with a prospectus that contains required disclosures about the fund, the securities
themselves, and fund manager.

The Investment Company Act of 1940 sets forth the guidelines with which all
SEC-registered funds must comply.

With renewed confidence in the stock market, mutual funds began to blossom. By
the end of the 1960s, there were approximately 270 funds with $48 billion in assets.
The first retail index fund, First Index Investment Trust, was formed in 1976 and
headed by John Bogle, who conceptualized many of the key tenets of the industry in
his 1951 senior thesis at Princeton University. It is now called the Vanguard 500 Index
Fund and is one of the world's largest mutual funds, with more than $100 billion in
assets.

A key factor in mutual-fund growth was the 1975 change in the Internal Revenue
Code allowing individuals to open individual retirement accounts (IRAs). Even people
already enrolled in corporate pension plans could contribute a limited amount (at the
time, up to $2,000 a year). Mutual funds are now popular in employer-sponsored
"defined-contribution" retirement plans such as (401(k)s) and 403(b)s as well as IRAs
including Roth IRAs.

As of October 2007, there are 8,015 mutual funds that belong to the Investment
Company Institute (ICI), a national trade association of investment companies in the
United States, with combined assets of $12.356 trillion. In early 2008, the worldwide
value of all mutual funds totaled more than $26 trillion.

Usage, investment objectives

Since the Investment Company Act of 1940, a mutual fund is one of three basic
types of investment companies available in the United States.

Mutual funds may invest in many kinds of securities (subject to its investment
objective as set forth in the fund's prospectus, which is the legal document under SEC
laws which offers the funds for sale and contains a wealth of information about the
fund). The most common securities purchased are "cash" or money market
instruments, stocks, bonds, other mutual fund shares and more exotic instruments such
as derivatives like forwards, futures, options and swaps.

Some funds' investment objectives (and or its name) define the type of investments
in which the fund invests. For example, the fund's objective might state "...the fund
will seek capital appreciation by investing primarily in listed equity securities (stocks)
of U.S. companies with any market capitalization range." This would be "stock" fund
or a "domestic/US stock" fund since it stated U.S. companies.

A fund may invest primarily in the shares of a particular industry or market sector,
such as technology, utilities or financial services. These are known as specialty or
sector funds. Bond funds can vary according to risk (e.g., high-yield junk bonds or
investment-grade corporate bonds), type of issuers (e.g., government agencies,
corporations, or municipalities), or maturity of the bonds (short- or long-term).
 Both stock and bond funds can invest in primarily U.S. securities (domestic funds),
both U.S. and foreign securities (global funds), or primarily foreign securities
(international funds). Since fund names in the past may not have provided a
prospective investor a good indication of the type of fund it was, the SEC issued a rule
under the '40 Act which aims to better align fund names with the primary types of
investments in which the fund invests, commonly called the "name rule".

Thus, under this rule, a fund must invest under normal circumstances in at least
80% of the securities referenced in its name. For example, the "ABC New Jersey Tax
Free Bond Fund" would generally have to invest, under normal circumstances, at least
80% of its assets in tax-exempt bonds issued by the state of New Jersey and its
political subdivisions. Some fund names are not associated with specific securities so
the name rule has less relevance in those situations.

For example, the "ABC Freedom Fund" is such that its name does not imply a
specific investment style or objective. Lastly, an index fund strives to match the
performance of a particular market index, such as the S&P 500 Index. In such a fund,
the fund would invest in securities and likely specific derivates such as S&P 500 stock
index futures in order to most closely match the performance of that index.

Most mutual funds' investment portfolios are continually monitored by one or more
employees within the sponsoring investment adviser or management company,
typically called a portfolio manager and their assistants, who invest the funds assets in
accordance with its investment objective and trade securities in relation to any net
inflows or outflows of investor capital (if applicable), as well as the ongoing
performance of investments appropriate for the fund. A mutual fund is advised by the
investment adviser under an advisory contract which generally is subject to renewal
annually.

Mutual funds are subject to a special set of regulatory, accounting, and tax rules. In
the U.S., unlike most other types of business entities, they are not taxed on their
income as long as they distribute 90% of it to their shareholders and the funds meet
certain diversification requirements in the Internal Revenue Code.

Also, the type of income they earn is often unchanged as it passes through to the
shareholders. Mutual fund distributions of tax-free municipal bond income are tax-free
to the shareholder. Taxable distributions can be either ordinary income or capital gains,
depending on how the fund earned those distributions. Net losses are not distributed or
passed through to fund investors

Net asset value

The net asset value, or NAV, is the current market value of a fund's holdings, minus
the fund's liabilities, that is usually expressed as a per-share amount. For most funds,
the NAV is determined daily, after the close of trading on some specified financial
exchange, but some funds update their NAV multiple times during the trading day. The
public offering price, or POP, is the NAV plus a sales charge.

Open-end funds sell shares at the POP and redeem shares at the NAV, and so
process orders only after the NAV is determined. Closed-end funds (the shares of
which are traded by investors) may trade at a higher or lower price than their NAV; this
is known as a premium or discount, respectively. If a fund is divided into multiple
classes of shares, each class will typically have its own NAV, reflecting differences in
fees and expenses paid by the different classes.

Some mutual funds own securities, which are not regularly traded on any formal
exchange. These may be shares in very small or bankrupt companies; they may be
derivatives; or they may be private investments in unregistered financial instruments
(such as stock in a non-public company). In the absence of a public market for these
securities, it is the responsibility of the fund manager to form an estimate of their value
when computing the NAV. How much of a fund's assets may be invested in such
securities is stated in the fund's prospectus.
 The price per share, or NAV (net asset value), is calculated by dividing the fund's
assets minus liabilities by the number of shares outstanding. This is usually calculated
at the end of every trading day.

Average annual return

US mutual funds use SEC form N-1A to report the average annual compounded
rates of return for 1-year, 5-year and 10-year periods as the "average annual total
return" for each fund. The following formula is used:

P(1+T)n = ERV

Where:

P = a hypothetical initial payment of $1,000.

T = average annual total return.

n = number of years.

ERV = ending redeemable value of a hypothetical $1,000 payment made at the

beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods
(or fractional portion).

Turnover

Turnover is a measure of the fund's securities transactions, usually calculated over

a year's time, and usually expressed as a percentage of net asset value.

This value is usually calculated as the value of all transactions (buying, selling)
divided by 2 divided by the fund's total holdings; i.e., the fund counts one security sold
and another one bought as one "turnover". Thus turnover measures the replacement of
holdings.
 In Canada, under NI 81-106 (required disclosure for investment funds) turnover
ratio is calculated based on the lesser of purchases or sales divided by the average size
of the portfolio (including cash).

Expenses and expense ratios

Mutual funds bear expenses similar to other companies. The fee structure of a
mutual fund can be divided into two or three main components: management fee, non-
management expense, and 12b-1/non-12b-1 fees. All expenses are expressed as a
percentage of the average daily net assets of the fund.

Management fees

The management fee for the fund is usually synonymous with the contractual
investment advisory fee charged for the management of a fund's investments.
However, as many fund companies include administrative fees in the advisory fee
component, when attempting to compare the total management expenses of different
funds, it is helpful to define management fee as equal to the contractual advisory fee
plus the contractual administrator fee. This "levels the playing field" when comparing
management fee components across multiple funds.

Contractual advisory fees may be structured as "flat-rate" fees, i.e., a single fee
charged to the fund, regardless of the asset size of the fund. However, many funds have
contractual fees, which include breakpoints so that as the value of a fund's assets
increases, the advisory fee paid decreases. Another way in which the advisory fees
remain competitive is by structuring the fee so that it is based on the value of all of the
assets of a group or a complex of funds rather than those of a single fund.

Non-management expenses

Apart from the management fee, there are certain non-management expenses which
most funds must pay. Some of the more significant (in terms of amount) non-
management expenses are: transfer agent expenses (this is usually the person you get
on the other end of the phone line when you want to buy/sell shares of a fund),
custodian expense (the fund's assets are kept in custody by a bank which charges a
custody fee), legal/audit expense, fund accounting expense, registration expense (the
SEC charges a registration fee when funds file registration statements with it), board of
directors/trustees expense (the members of the board who oversee the fund are usually
paid a fee for their time spent at meetings), and printing and postage expense (incurred
when printing and delivering shareholder reports).

12b-1/Non-12b-1 service fees

In the United States, 12b-1 service fees/shareholder servicing fees are contractual
fees which a fund may charge to cover the marketing expenses of the fund. Non-12b-1
service fees are marketing/shareholder-servicing fees which do not fall under SEC rule
12b-1. While funds do not have to charge the full contractual 12b-1 fee, they often do.
When investing in a front-end load or no-load fund, the 12b-1 fees for the fund are
usually .250% (or 25 basis points).

The 12b-1 fees for back-end and level-load share classes are usually between 50
and 75 basis points but may be as much as 100 basis points. While funds are often
marketed as "no-load" funds, this does not mean they do not charge a distribution
expense through a different mechanism. It is expected that a fund listed on an online
brokerage site will be paying for the "shelf-space" in a different manner even if not
directly through a 12b-1 fee.

Investor fees and expenses

Fees and expenses borne by the investor vary based on the arrangement made with
the investor's broker. Sales loads (or contingent deferred sales loads (CDSL)) are
included in the fund's total expense ratio (TER) because they pass through the
statement of operations for the fund.

Additionally, funds may charge early redemption fees to discourage investors from
swapping money into and out of the fund quickly, which may force the fund to make
bad trades to obtain the necessary liquidity. For example, Fidelity Diversified
International Fund (FDIVX) charges a 10 percent fee on money removed from the
fund in less than 30 days.

Brokerage commissions

An additional expense, which does not pass through the fund's income statement
(statement of operations) and cannot be controlled by the investor is brokerage
commissions. Brokerages commissions are incorporated into the price of securities
bought and sold and, thus, are a component of the gain or loss on investments. They
are a true, real cost of investing though.

The amount of commissions incurred by the fund and are reported usually 4
months after the fund's fiscal year end in the "statement of additional information"
which is legally part of the prospectus, but is usually available only upon request or by
going to the SEC's or fund's website. Brokerage commissions, usually charged when
securities are bought and again when sold, are directly related to portfolio turnover
which is a measure of trading volume/velocity (portfolio turnover refers to the number
of times the fund's assets are bought and sold over the course of a year).

Usually, higher rate of portfolio turnover (trading) generates higher brokerage

commissions. The advisors of mutual fund companies are required to achieve "best
execution" through brokerage arrangements so that the commissions charged to the
fund will not be excessive as well as also attaining the best possible price upon buying
or selling.

Types of mutual funds

Open-end fund, forms of organization, other funds

The term mutual fund is the common name for what is classified as an open-end
investment company by the SEC. Being open-ended means that, at the end of every
day, the fund continually issues new shares to investors buying into the fund and must
stand ready to buy back shares from investors redeeming their shares at the then
current net asset value per share.

Mutual funds must be structured as corporations or trusts, such as business trusts,

and the SEC as an investment company will classify any corporation or trust if it issues
securities and primarily invests in non-government securities. The SEC as an open-end
investment company will classify an investment company if they do not issue
undivided interests in specified securities (the defining characteristic of unit investment
trusts or UITs) and if they issue redeemable securities.

Registered investment companies that are not UITs or open-end investment

companies are closed-end funds. Closed-end funds are like open end except they are
more like a company, which sells its shares a single time to the public under an initial
public offering or "IPO".

Subsequently, the fund's shares trade with buyers and sellers of shares in the
secondary market at a market-determined price (which is likely not equal to net asset
value) such as on the New York or American Stock Exchange. Except for some special
transactions, the fund cannot continue to grow in size by attracting more investor
capital like an open-end fund may.

Exchange-traded funds

A relatively recent innovation, the exchange-traded fund or ETF, is often structured

as an open-end investment company. ETFs combine characteristics of both mutual
funds and closed-end funds. ETFs are traded throughout the day on a stock exchange,
just like closed-end funds, but at prices generally approximating the ETF's net asset
value. Most ETFs are index funds and track stock market indexes.

Shares are issued or redeemed by institutional investors in large blocks (typically

of 50,000). Most investors buy and sell shares through brokers in market transactions.
Because the institutional investors normally purchase and redeem in in kind
transactions, ETFs are more efficient than traditional mutual funds (which are
continuously issuing and redeeming securities and, to effect such transactions,
continually buying and selling securities and maintaining liquidity positions) and
therefore tend to have lower expenses.

Exchange-traded funds are also valuable for foreign investors who are often able to
buy and sell securities traded on a stock market, but who, for regulatory reasons, are
limited in their ability to participate in traditional U.S. mutual funds.

Equity funds

Equity funds, which consist mainly of stock investments, are the most common
type of mutual fund. Equity funds hold 50 percent of all amounts invested in mutual
funds in the United States. Often equity funds focus investments on particular
strategies and certain types of issuers.

Market Capitalization

Fund managers and other investment professionals have varying definitions of mid-
cap, and large-cap ranges. The following ranges are used by Russell Indexes:

Russell Microcap Index micro-cap ($54.8 539.5 million)

Russell 2000 Index small-cap ($182.6 million 1.8 billion)
Russell Midcap Index mid-cap ($1.8 13.7 billion)
Russell 1000 Index large-cap ($1.8 386.9 billion)

Growth vs. value

Another distinction is made between growth funds, which invest in stocks of

companies that have the potential for large capital gains, and value funds, which
concentrate on stocks that are undervalued. Value stocks have historically produced
higher returns; however, financial theory states this is compensation for their greater
risk.
 Growth funds tend not to pay regular dividends. Income funds tend to be more
conservative investments, with a focus on stocks that pay dividends. A balanced fund
may use a combination of strategies, typically including some level of investment in
bonds, to stay more conservative when it comes to risk, yet aim for some growth.

Index funds versus active management

An index fund maintains investments in companies that are part of major stock (or
bond) indexes, such as the S&P 500, while an actively managed fund attempts to
outperform a relevant index through superior stock-picking techniques. The assets of
an index fund are managed to closely approximate the performance of a particular
published index.

Since the composition of an index changes infrequently, an index fund manager

makes fewer trades, on average, than does an active fund manager. For this reason,
index funds generally have lower trading expenses than actively managed funds, and
typically incur fewer short-term capital gains, which must be passed on to
shareholders.

Additionally, index funds do not incur expenses to pay for selection of individual
stocks (proprietary selection techniques, research, etc.) and deciding when to buy, hold
or sell individual holdings. Instead, a fairly simple computer model can identify
whatever changes are needed to bring the fund back into agreement with its target
index.

Certain empirical evidence seems to illustrate that mutual funds do not beat the
market and actively managed mutual funds under-perform other broad-based portfolios
with similar characteristics. One study found that nearly 1,500 U.S. mutual funds
under-performed the market in approximately half of the years between 1962 and
1992.

An analysis of the equity funds returns of the 15 biggest asset management

companies worldwide from 2004 to 2009 showed that about 80% of the funds have
returned below their respective benchmarks. Moreover, funds that performed well in
the past are not able to beat the market again in the future (shown by Jensen, 1968;
Grinblatt and Sheridan Titman, 1989)..

Bond funds

Bond funds account for 18% of mutual fund assets. Types of bond funds include
term funds, which have a fixed set of time (short-, medium-, or long-term) before they
mature. Municipal bond funds generally have lower returns, but have tax advantages
and lower risk. High-yield bond funds invest in corporate bonds, including high-yield
or junk bonds. With the potential for high yield, these bonds also come with greater
risk.

Money market funds

Money market funds hold 26% of mutual fund assets in the United States. Money
market funds generally entail the least risk, as well as lower rates of return. Unlike
certificates of deposit (CDs), open-end money fund shares are generally liquid and
redeemable at "any time" (that is, normal business hours during which redemption
requests are taken - generally not after 4 PM ET).

Money funds in the US are required to advise investors that a money fund is not a
bank deposit, not insured and may lose value. Most money fund strive to maintain an
NAV of $1.00 per share though that is not guaranteed; if a fund "breaks the buck", its
shares could be redeemed for less than $1.00 per share. While this is rare, it has
happened in the U.S., due in part to the mortgage crisis affecting related securities.
 Funds of funds

Funds of funds (FOF) are mutual funds, which invest in other mutual funds (i.e.,
they are funds composed of other funds). The funds at the underlying level are often
funds which an investor can invest in individually, though they may be 'institutional'
class shares that may not be within reach of an individual shareholder).

A fund of funds will typically charge a much lower management fee than that of a
fund investing in direct securities because it is considered a fee charged for asset
allocation services which is presumably less demanding than active direct securities
research and management.

The fees charged at the underlying fund level are a real cost or drag on
performance but do not pass through the FOF's income statement (statement of
operations), but are usually disclosed in the fund's annual report, prospectus, or
statement of additional information. FOF's will often have a higher overall/combined
expense ratio than that of a regular fund. The FOF should be evaluated on the
combination of the fund-level expenses and underlying fund expenses, as these both
reduce the return to the investor.

Most FOFs invest in affiliated funds (i.e., mutual funds managed by the same
advisor), although some invest in unaffiliated funds (those managed by other advisors)
or both. The cost associated with investing in an unaffiliated underlying fund may be
higher than investing in an affiliated underlying because of the investment
management research involved in investing in fund advised by a different advisor.

Recently, FOFs have been classified into those that are actively managed (in
which the investment advisor reallocates frequently among the underlying funds in
order to adjust to changing market conditions) and those that are passively managed
(the investment advisor allocates assets on the basis of on an allocation model which is
rebalanced on a regular basis).
 The design of FOFs is structured in such a way as to provide a ready mix of
mutual funds for investors who are unable to or unwilling to determine their own asset
allocation model. Fund companies such as TIAA-CREF, American Century
Investments, Vanguard, and Fidelity have also entered this market to provide investors
with these options and take the "guess work" out of selecting funds. The allocation
mixes usually vary by the time the investor would like to retire: 2020, 2030, 2050, etc.
The more distant the target retirement date, the more aggressive the asset mix.

Hedge funds

Hedge funds in the United States are pooled investment funds with loose, if any,
SEC regulation, unlike mutual funds. Some hedge fund managers are required to
register with SEC as investment advisers under the Investment Advisers Act of 1940.
The Act does not require an adviser to follow or avoid any particular investment
strategies, nor does it require or prohibit specific investments.

Hedge funds typically charge a management fee of 1% or more, plus a

performance fee of 20% of the hedge fund's profit. There may be a "lock-up" period,
during which an investor cannot cash in shares. A variation of the hedge strategy is the
130-30 fund for individual investors.

Mutual funds vs. other investments

Mutual funds offer several advantages over investing in individual stocks. For
example, the transaction costs are divided among all the mutual fund shareholders,
which allows for cost-effective diversification.

Investors may also benefit by having a third party (professional fund managers)
apply expertise and dedicate time to manage and research investment options, although
there is dispute over whether professional fund managers can, on average, outperform
simple index funds that mimic public indexes.
 Yet, the Wall Street Journal reported that separately managed accounts (SMA or
SMAs) performed better than mutual funds in 22 of 25 categories from 2006 to 2008.
This included beating mutual funds performance in 2008, a tough year in which the
global stock market lost US$21 trillion in value. In the story, Morning star, Inc said
SMAs outperformed mutual funds in 25 of 36 stock and bond market categories.

Whether actively managed or passively indexed, mutual funds are not immune to
risks. They share the same risks associated with the investments made. If the fund
invests primarily in stocks, it is usually subject to the same ups and downs and risks as
the stock market.

Share classes

Mutual funds may offer different types of shares, known as classes. For a given
fund, each class will invest in the same portfolio of securities and will have the same
investment objectives and policies. But each class will have different shareholder
services and/or distribution arrangements with different fees and expenses. As a result,
each class will likely have different performance results.

As an example, a fund may have three classes of shares that are sold to the general
public Class A, Class B, and Class C and a class that is sold only to institutional
investors Class I.

Class A shares often have a front-end sales load (a type of fee that investors pay
when they purchase fund shares).
Class B shares often have no front-end sales load, instead having a contingent
deferred sales load, or CDSL (a type of fee paid when fund shares are sold, and
that typically decreases to zero over time) and a 12b-1 fee. Class B shares also
may convert automatically to a class of shares with a lower 12b-1 fee (usually
Class A) if held long enough.
Class C shares might have a 12b-1 fee and a front-end sales load or CDSL, but
these would be lower than a Class As front-end sales load or a Class Bs
CDSL. Class C shares usually do not convert to another class.
 Class I would be sold only to institutional investors and might have different
fees and expenses. These generally have very high minimum investment
requirements. In some cases, by aggregating regular investments made by many
individuals, a retirement plan (such as a 401(k) plan) may qualify to purchase
"institutional" shares (and gain the benefit of their typically lower expense
ratios) even though no members of the plan would qualify individually.

Load and expenses

A front-end load or sales charge is a commission paid to a broker by a mutual fund

when shares are purchased, taken as a percentage of funds invested. The value of the
investment is reduced by the amount of the load. Some funds have a deferred sales
charge or back-end load.

In this type of fund an investor pays no sales charge when purchasing shares, but
will pay a commission out of the proceeds when shares are redeemed depending on
how long they are held. Another derivative structure is a level-load fund, in which no
sales charge is paid when buying the fund, but a back-end load may be charged if the
shares purchased are sold within a year.

Load funds are sold through financial intermediaries such as brokers, financial
planners, and other types of registered representatives who charge a commission for
their services. Shares of front-end load funds are frequently eligible for breakpoints
(i.e., a reduction in the commission paid) based on a number of variables.

These include other accounts in the same fund family held by the investor or
various family members, or committing to buy more of the fund within a set period of
time in return for a lower commission "today".

It is possible to buy many mutual funds without paying a sales charge. These are
called no-load funds. In addition to being available from the fund company itself, no-
load funds may be sold by some discount brokers for a flat transaction fee or even no
fee at all.
 (This does not necessarily mean that the broker is not compensated for the
transaction; in such cases, the fund may pay brokers' commissions out of "distribution
and marketing" expenses rather than a specific sales charge. The buyer is therefore
paying the fee indirectly through the fund's expenses deducted from profits.)

No-load funds include both index funds and actively managed funds. The largest
mutual fund families selling no-load index funds are Vanguard and Fidelity, though
there are a number of smaller mutual fund families with no-load funds as well.
Expense ratios in some no-load index funds are less than 0.2% per year versus the
typical actively managed fund's expense ratio of about 1.5% per year.

Load funds usually have even higher expense ratios when the load is considered.
The expense ratio is the anticipated annual cost to the investor of holding shares of the
fund. For example, on a $100,000 investment, an expense ratio of 0.2% means $200 of
annual expense, while a 1.5% expense ratio would result in $1,500 of annual expense.
These expenses are before any sales commissions paid to purchase the mutual fund.

Many fee-only financial advisors strongly suggest no-load funds such as index
funds. If the advisor is not of the fee-only type but is instead compensated by
commissions, the advisor may have a conflict of interest in selling high-commission
load funds.
 CHAPTER-4

ANALYSIS OF MUTUAL FUNDS

Association of Mutual Funds in India (AMFI) is the umbrella body of all the Mutual
Funds registered with SEBI. It is a non-profit organization committed to develop the
Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance
and maintain standards in all areas with a view to protecting and promoting the
interests of Mutual Funds and their unit holders. Mutual Fund both conceptually and
operationally is different from other savings instruments. Mutual Funds invest in
instruments of capital markets, which have different risk-return profile. It is very
necessary that the investors understand properly the conceptual framework of Mutual
Fund and its operational features.

Association of Mutual Funds in India (AMFI):

With the increase in mutual fund players in India, a need for mutual fund
association in India was generated to function as a non-profit organisation. Association of
Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995.

AMFI is 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 are 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 promoting 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
country. 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
standards in all areas of operation of the industry.
It also recommends and promotes the top class business practices and code of
conduct which is followed by members and related people engaged in the
activities of mutual fund and asset management. The agencies who are by any
means connected or involved in the field of capital markets and financial services
also involved in this code of conduct of the association.
AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual
fund 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 to the Mutual
Fund Industry.
It develops a team of well qualified and trained Agent distributors. It implements
a programme of training and certification for all intermediaries and other engaged
in the mutual fund industry.
AMFI undertakes all India awarness programme for investors inorder 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 association with other bodies.

The sponsorers of Association of Mutual Funds in India

Bank Sponsored
 SBI Fund Management Ltd.
BOB Asset Management Co. Ltd.
Canbank Investment Management Services Ltd.
UTI Asset Management Company Pvt. Ltd.

Institutions
GIC Asset Management Co. Ltd.
Jeevan Bima Sahayog Asset Management Co. Ltd.

Private Sector
Indian: -
Benchmark Asset Management Co. Pvt. Ltd.
Cholamandalam Asset Management Co. Ltd.
Credit Capital Asset Management Co. Ltd.
Escorts Asset Management Ltd.
JM Financial Mutual Fund
Kotak Mahindra Asset Management Co. Ltd.
Reliance Capital Asset Management Ltd.
Sahara Asset Management Co. Pvt. Ltd
Sundaram Asset Management Company Ltd.
Tata Asset Management Private Ltd.

Predominantly India Joint Ventures:-

Birla Sun Life Asset Management Co. Ltd.
DSP Merrill Lynch Fund Managers Limited
HDFC Asset Management Company Ltd.

Predominantly Foreign Joint Ventures:-

ABN AMRO Asset Management (I) Ltd.
Alliance Capital Asset Management (India) Pvt. Ltd.
Deutsche Asset Management (India) Pvt. Ltd.
Fidelity Fund Management Private Limited
 Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.
HSBC Asset Management (India) Private Ltd.
ING Investment Management (India) Pvt. Ltd.
Morgan Stanley Investment Management Pvt. Ltd.
Principal Asset Management Co. Pvt. Ltd.
Prudential ICICI Asset Management Co. Ltd.
Standard Chartered Asset Mgmt Co. Pvt. Ltd.

Association of Mutual Funds in India Publications

AMFI publices mainly two types of bulletin. One is on the monthly basis and the other is
quarterly. These publications are of great support for the investors to get intimation of the
know-how of their parked money.

Mission:

The Association of Mutual Funds in India:

(AMFI) is dedicated to developing the Indian Mutual Fund Industry on professional,

healthy and ethical lines and to enhance and maintain standards in all areas with a
view to protecting and promoting the interests of mutual funds and their unit holders.

Chapter 4

Conclusion:

Mutual funds are funds that pool the money of several investors to invest in equity
or debt markets. Mutual Funds could be Equity funds, Debt funds or balanced funds.
 Fund are selected on quantitative parameters like volatility, FAMA Model, risk
adjusted returns, and rolling return coupled with a qualitative analysis of fund
performance and investment styles through regular interactions / due diligence processes
with fund managers.

Mutual funds are a method for investors to diversify risk and to benefit from
professional money management. The prospectus identifies key information about the
fund including its operating boundaries and its costs. The fund manager operates within
those boundaries and is a critical to achieving strong results within those boundaries.

The mutual fund industry in India has prospered due to transparency and
disclosures. Most fund houses come out with a fund fact sheet for each scheme every
month. They provide information about the investment particulars of the corpus
(company and sector-wise), credit ratings, market value of investments, NAVs, returns,
repurchase and sale price of the schemes.

A fund house normally comes out with various publications, which contain the
schemes objectives, fund managers commentary on the portfolio, market outlook, etc.
The aim is to help an investor take an informed decision to invest, stay invested or
redeem out of the fund. It is upto the investor i.e. you, to make the best use of it.

Findings:

62 percent of respondents invest in mutual funds

Of those who do not invest in mutual funds, 12 percent are interested in doing so
Of those who do invest in mutual funds, nearly half (48 percent) feel there are too
many to choose from
When asked their primary method of learning about mutual funds
1. 67 percent use online research
2. 13 percent follow analyst ratings and reports
3. 10 percent consult a financial advisor
When asked what criteria they use to select mutual funds
 1. 74 percent of respondents said they choose funds that meet their
investment objectives
2. 37 percent said they choose funds based on past performance
3. 19 percent said they choose funds that provide the most income
4. 10 percent said they choose funds that support their interests, such as
global awareness
17 percent of respondents indicated they are very disciplined when it comes to
portfolio rebalancing and asset allocation
28 percent of respondents wish they knew more about mutual funds so they could
make more educated choices
12 percent of respondents prefer a professional chooses mutual funds for them
50 percent of respondents value the stability of fund management
64 percent appreciate it when the style of a fund remains consistent with the
primary objective of the fund
64 percent have mutual funds in accounts at other firms
Of those who have mutual funds in accounts at other firms, 75 percent are not
interested in consolidating them
1. When asked why, 59 percent said they are comfortable with where
they are and 30 percent said they dont like to have all their eggs in
one basket
2. When asked the biggest disadvantage if mutual funds
3. 29 percent said complex fee structure
4. 20 percent said the cost to buy and sell them
5. 51 percent said they currently invest to generate income
6. Of those who invest for income
45 percent use the income to supplement retirement income
44 percent use it to allow for a more comfortable lifestyle
20 percent use the income to cover monthly bills
13 percent use the income to pay down debt
Suggestions:

Suggestions for selecting best mutual funds;

1. Draw down your investment objective. There are various schemes suitable for
different needs. For example retirement plan, capital growth etc. Also get clear
about your time frame for investment and returns. Equity funds are not advisable
for short term because of their long-term nature. You can consider money market
 and floating rate funds for short-term gains. This equals asking - What kind of
mutual fund is right for me?

2. Once you have decided on a plan or a couple of them, collect as much information
as possible on them from different sources offering them. Funds' prospectus and
advisors may help you in this.

3. Pick out companies consistently performing above average. Mutual funds industry
indices are helpful in comparing different funds as well as different plans offered
by them. Some of the industry standard fund indices are Nasdaq 100, Russel
2000, S&P fund index and DSI index with the latter rating the Socially
Responsible Funds only. Also best mutual funds draw good results despite market
volatility.

4. Get a clear picture of fees & associated cost, taxes (for non-tax free funds) for all
your short listed funds and how they affect your returns. Best mutual funds have
lower cost out go.

5. Best mutual funds maximize returns and minimize risks. A number called as
Sharpe Ratio explains whether a fund is risk free based on its expected returns
compared against a risk free money market fund.

6. Some funds have the advantage of low minimum initial investments. You can start
investing even with $250 a month. This is advisable for building asset bases over
a long period with small regular investments.
Tips for investing in mutual funds:

1. NEVER invest in a mutual fund that charges a load:

These funds are for suckers. Whoever is trying to convince you to buy them
likely gets a kickback from the fund, which is why they are trying to pressure you
into investing in the fund.

2. NEVER take stock advice from someone trying to convince you buy a mutual
fund with a load:
 This person clearly does not have your interests in mind. He is most likely
just trying to line his pockets with kickbacks.

3. Understand the fund's asset allocation:

Don't invest in a "mixed" fund (one that invests in both stocks and bonds) if
you only want to invest in stocks. If you want international exposure, allocate some
money towards international mutual funds.

4. Keep fees to a minimum:

Obviously, you should avoid a load and 12 b-1 fees, but you also don't want
to be paying management fees either. A fund with an expense ratio under 1% is
particularly lovely in today's environment.

5. Don't invest in too many mutual funds:

A mutual fund gives you instant diversification. Most funds invest in
hundreds of stocks. The only reason to invest in multiple mutual funds is if you want
to target various types of stocks (such as domestic and international).

6. Consider an index fund:

Most mutual funds underperform the market. You can essentially buy the
market with an index fund, which generally has maintenance fees of .25% or less.

7. Keep track of the mutual fund's benchmark:

Most compare mutual funds to the performance of the S&P 500, but the S&P
tracks the 500 largest US stocks. If, for example, you choose to invest in foreign
small caps, then you will need to use a totally different benchmark.

8. Do not chase funds that have just had good performance:

The fund itself may have just gotten lucky or may just be targeted to an asset
group that did well in the past year (for example, a health care fund when health care
companies had a record year).
 Also, funds that have had good performance might sometimes get a huge
influx of funds and not know how to invest all of these extra funds effectively,
thereby detracting from future performance.

9. If possible, invest in a smaller mutual fund:

Large, ten billion dollar funds have a difficult time investing in stocks. Just
5% of a ten billion dollar fund can buy many US small cap stocks.

If this fund found a $500 million company it thought was great, it could only
invest a small amount of its total assets in the company without greatly affecting the
price. I prefer to invest in mutual funds that have $2 billion in assets or less,
especially if the fund is focused on small caps.

10. Never pay a load:

Consider an index fund.

Bibliography:

Websites:

www.indiainfoline.com
www.nseindia.com
www.bseindia.com
www.hseindia.org
 www.sebiindia.gov.in
www.amfiindia.com

Books:

Guide to Indian capital market - Sanjiv Agarwal

Compendium on SEBI Capital Issues & Listings Bharat
Financial Management Prasanna Chandra

13. CONCLUSION
In the dynamic environment a lot of investment opportunities are available to the investors in the financial
markets. Investors can invest in shares, bonds, debentures, gold, bank deposits, b post office savings
schemes, chit funds etc. But nowadays investors prefer to diversify their risks and the returns should be
high, tax exemptions etc. Today many institutions are busy in providing wealth management services to its
investors. But these services are very costly. Due to this reasons the mutual fund industries gaining
importance and attracts more investors. The present study analyses the mutual fund investments in relation
to investors awareness. In this study above the awareness about the schemes, the study is trying to find out
the various investments other than mutual funds. Nearly 75% of the investors are having investment s other
than mutual funds. The study also find out the opinion of the Investors and perception has been studied
relating to various issues like type of mutual fund scheme, main objective behind investing in mutual fund
scheme, level of satisfaction, role of financial advisors and brokers, investors opinion relating to factors
that attract them to invest in mutual funds, sources of information, deficiencies in the services provided by
the mutual fund managers, challenges before the Indian mutual fund industry etc. The study reveals that
there is a positive growth in their investments and majority of them expects safety, diversification of their
risks, high returns etc. Majority of them expects better advice from the agents. Instated of the agents regular
awareness campaign should be conducted by the companies. It will win the confidence of the investors. In
order to maintain their confidence in mutual funds they should be provided with timely information relating
to different trends in the mutual fund industry. Today the main risk before mutual fund industry is to
convert the potential investors into the reality investors. In order to win the confidence of the investors
more innovative schemes should be launched from time to time by the corporate. This only help the
company to win confidence of the investors.. All this will lead to the overall growth and development of the
mutual fund industry.

VII. RECOMMENDATION BY MARKET EXPERTS

1. Increase the distribution strength

Compared to the insurance sales force, the strength of the mutual fund network appears to be dismal.
Quoting an industry CEO, there are over 0.3 million insurance agents in India, while only 16,000
distributors for mutual funds. This data implies that investors are likely to meet insurance agents much
more frequently than mutual fund distributors and hence likely to park their surplus funds in insurance
policies rather than mutual fund products.
2. Alternative distribution model

The mutual fund industry needs to explore an alternative mode of distribution, for expansion and growth.
The option of a tied distribution model could be explored, where the agent is tied to a particular institution.
Although this model has worked in some countries it leans towards a closed architecture model, restricting
the choice of the investor. The viability of its success in India needs to be measured. Fund houses can also
look at the possibility of investing in an active sales force. The online channel of distribution also exists,
although its full potential has not been exploited as yet.
3. Need to upgrade distribution networks

In the current scenario, the industry needs willingness from asset management companies to invest more in
the distributor community. The smaller asset management companies due to lack of funds, find it more
challenging to invest in the distribution channel. Training and educating the distributors are integral to
increasing penetration of mutual fund products.
4. New cadre of distributors to take the industry forward

The new cadre of distributors such as postal agents, retired officials and school teachers, etc will likely rake
in inflows from smaller towns and cities. This cadre of distributors will be crucial in mobilising the savings
of the smaller towns and directing these savings towards mutual fund investments.
5. Product design
Mutual fund products need to be simplified if they have be sold to the masses through a public sector bank
channel. The product needs to mimic a fixed deposit, and provide a predictable income. Also, these
products need to be solution oriented. In the past, some fund houses launched similar schemes with minor
differences. The SEBI has directed a move towards a consolidation of schemes to make the process simpler
for investors. If the right product or solution is not available to be sold to customers, it will be difficult to
create a pull factor.
6. Technology mix

To overcome operational challenges, measures need to be taken to improve the existing infrastructure and
to bring in more efficiency while increasing the scale of operations. This is not possible without the back-
up of a good technology mix. It is also a key facilitator to break down underpenetrated markets