1.

INTRODUCTION
1.1 INTRODUCTION TO THE CONCEPT:
The Indian financial system based on the four basic components like Financial
Markets, Financial Institutions, Financial Service, Financial Instruments. All are play
important role for smooth activities for the transfer of the funds and allocation of the funds.
The main aim of the Indian financial system is that providing the efficiently service to the
capital market.
The banking system has been a major factor in promoting financial intermediation
in the economy and in the growth of the financial services with progressive liberalisation of
economic policies, there has been a rapid growth of capital market, money market and
financial services industry including merchant banking, leasing and venture capital, hire
purchasing. Consistent with the growth of financial sector and second generation reforms its
need to fruition of the financial sector. It’s also need to providing the efficient services to the
investor mostly if the investors are supply small amount, in that point of view the mutual fund
plays a vital role for better service to the small investors. The main vision for the analysis for
this study is to scrutinize the performance of five star rated mutual funds, given returns, mean,
standard deviation, asset under management and so on.

MUTUAL FUND
Mutual fund is the pool the money, based on the trust who invest the savings of a
number of investors who shares a common financial goals like capital appreciation and
dividend earnings. The collected money is then invested in capital market instruments such as
shares, debentures, and foreign market. Investors invest money and get the unit value which
we called as NAV (net asset value). The income earned though these investments and the
capital appreciation realized are shared by its unit holders in proportion to the numbers of
units owned by them. Mutual fund is the most suitable investment for the common man as it
offers an opportunity to invest in diversified portfolio management, good research tem,
professionally managed Indian stock as well as foreign market, the main aim of the fund
manager is to taking the scrip that have under value and future will rising, then fund manager
sell out the stock. The most common features of the mutual fund unit are low cost.
DEFINITION
“Mutual Funds are collective savings and investment vehicles where savings of
small (or sometimes big) investors are pooled together to invest for their mutual benefits and
returns distributed proportionally”
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 “A mutual fund is an investment that pools your money with the money of an unlimited
number of other investors. In return, and the other investors each own share of the
fund. The fund’s assets are invested according to an investment objective into the firm’s
portfolio of investments. Aggressive growth funds seek long-term capital growth by investing
primarily in stocks of fast-growing smaller companies or market segments. Aggressive
growth funds are also called appreciation funds”.
BENEFITS OF MUTUAL FUND INVESTMENTS
The following benefits are derived from investment in mutual funds:
 Small investors can get diversification of their investments are funds invests the
money collected from them in various securities.
 They are managed by experts.
 They provide liquidity as their units or shares are traded in the secondary market or
repurchased by the funds themselves.
 All mutual fund schemes get tax relief under the Section 80Lof the Income Tax Act.
 Allotment is assured to the investors expect under tax-exchange schemes for which
there are limits.
 As the establishment and operations of mutual fumds are guided and regulated by
SEBI, the investors get reasonable protection.
ASSET MANAGEMENT COMPANY
Asset Management Company (AMC) is the investment manager of the mutual fund.
The AMC is set up by the sponsor, and registered with SEBI. AMCs can be structured as
public or private limited companies. Most AMCs in India are private limited companies. The
capital of the AMC is contributed by the sponsor and its associates. AMCs specialize in
investment management. They manage money for a fee, usually determined as a percentage of
the assets under management (AUM).
AMCs are appointed by trustees to manage the mutual fund. But AMCs do not have
any access to the investors' money.

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AMCs are the face of mutual funds. They set up offices, employ staff, create and market
products, mobilize funds through distributors, manage the money and report the portfolio
performance to trustees and investors.
AMC is appointed to manage a mutual fund by the trustees of the fund, in consultation
with the sponsor and with the approval of SEBI. The rights and obligations of the AMC are
specified in the Investment Management agreement signed between the trustees and the
AMC.
Association of Mutual Fund s 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 organization. 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 board of directors. AMFI
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 interest of mutual funds as well as their unit holders.
It has been a forum where mutual funds have been able to present their views, debate and
participate in creating their own regulatory framework. The association was created originally
as a body that would lobby with the regulator to ensure that the fund viewpoint was heard.
Today, it is usually the body that is consulted on matters long before regulations are framed,
and it often initiates many regulatorychanges that prevent malpractices that emerge from time
to time.
AMFI works through a number of committees, some of which are standing committees
to address areas where there is a need for constant vigil and improvements and other which
are adhoc committees constituted to address specific issues. These committees consist of
industry professionals from among the member mutual funds. There is now some thought that
AMFI should become a self-regulatory organization since it has worked so effectively as an
industry body.
PROGRESS OF MUTUAL FUND IN INDIA
The mutual fund industry started in India in a small way with the UTI Act creating what
was effectively a small savings division within the RBI. Over a period of 25 years this grew
fairly successfully and gave investors a good return, and therefore in 1989, as the next logical
step, public sector banks and financial institutions were allowed to float mutual funds and
their success emboldened the government to allow the private sector to foray into this area.
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 The initial years of the industry also saw the emerging years of the Indian equity
market, when a number of mistakes were made and hence the mutual fund schemes, which
invested in lesser-known stocks and at very high levels, became loss leaders for retail
investors. From those days to today the retail investor, for whom the mutual fund is actually
intended, has not yet returned to the industry in a big way. But to be fair, the industry too has
focused on brining in the large investor, so that it can create a significant base corpus, which
can make the retail investor feel more secure.
The Indian MF industry has Rs 5.67 lakh crore of assets under management. As per
data released by Association of Mutual Funds in India, the asset base of all mutual fund
combined has risen by 7.32% in April, the first month of the current fiscal. As of now, there
are 33 fund houses in the country including 16 joint ventures and 3 wholly owned foreign
asset managers.
According to a recent McKinsey report, the total AUM of the Indian mutual fund
industry could grow to $350-440 billion by 2012, expanding 33% annually. While the
revenue and profit (PAT) pools of Indian AMCs are pegged at $542 million and $220 million
respectively, it is at par with fund houses in developed economies. Operating profits for
AMCs in India, as a percentage of average assets under management, were at 32 basis points
in 2006-07, while the number was 12 bps in UK, 17 bps in Germany and 18 bps in the US, in
the same time frame.
TYPES OF MUTUAL FUND SCHEMES

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Open-ended Funds

An open-ended fund gets its name from the fact that it does not have a maturity date.
The end date of the fund is open. An open-ended fund offers units to investors for the first
time during the new fund offer (NFO).
Investors can buy (purchase) and sell (redeem) units of an open-ended fund, at the mutual
fund offices or their investor service centers (ISCs) on a continuous basis. The prices at which
purchase and redemption transactions take place in a mutual fund are based on the net asset
value (NAV) of the fund. The unit capital of an open-ended fund is therefore not fixed, but
varies according to the purchase and redemption transactions of investors. An open-ended
fund can restrict the purchase and redemption of units only under special circumstances.

Closed-end Funds

Closed-end funds run for a specific period. On the specified maturity date, all units are
redeemed and the scheme comes to a close. Closed-end funds are offered in an NFO but are
closed for further purchases after the NFO. Sebi has made it mandatory for units of all closed-
end schemes to be listed on stock exchanges. The units are listed on a stock exchange to
provide liquidity. Investors buy and sell the units among themselves, at the price prevailing in
the stock market. Thus the size of a listed closed-end fund is kept constant, as buying and
selling happens in the secondary market, without recourse to the fund itself. The units may
trade on the exchange at a discount or premium to the NAV depending upon investors'
perception. The units of a closed-end fund tend to usually trade at a discount.

Equity Funds

Equity funds invest in equity shares issued by companies. The risk of such funds is
higher than that of debt funds. However, the risk levels can differ depending upon the
investment strategies adopted by the fund manager. Equity funds can be classified by their
investment strategy as diversified, aggressive, growth, value and sector funds.
The equity market is made up of large number of equity stocks. These equity stocks can be
classified according to the industry they belong to, or their size.
There are several types of equity funds. Each one is defined to invest in some segment of the
equity market.

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Diversified Equity Funds

These are funds that can invest in the broad equity markets, without any restrictions.
These funds also feature a lower risk, compared to equity funds that invest in a specific sector
or category of equity markets.
Examples: HDFC Equity Fund, HSBC Equity Fund.

Equity Linked Saving Schemes (ELSS)

Some diversified equity funds that are specially designated as equity linked saving
schemes (ELSS) give tax benefits to the investors on their investment. Investment up to Rs.
100,000 in a year in such funds can be deducted from taxable income of individual investors,
as per Section 80C of the Income Tax Act. ELSS holds at least 80% of their portfolio in
equity securities. Such funds have a lock-in period of 3 years from the date of investment.
Sector Funds
These are funds that focus on companies in a particular sector, appealing to investors
who think that the performance of stocks in this sector would be better than that of the broad
market.
Examples: Reliance Banking Fund, JM Pharma Fund.

Balanced Funds
A mutual fund that buys a combination of common stock, preferred stock, bonds,
and short-term bonds, to provide both income and capital appreciation while
avoiding excessive risk. The purpose of balanced funds (also sometimes called hybrid funds)
is to provide investors with a single mutual fund that combines both growth and
income objectives by investing in both stocks (for growth) and bonds (for income).
Such diversified holdings ensure that these funds will manage downturns in the stock market
without too much of a loss the flip side, of course, is that balanced funds will
usually increase less than an all-stock fund during a bull market
Debt Funds

Debt funds invest predominantly in debt securities. Debt securities have a fixed term
and Pay a specific rate of interest. There are several types of debt funds that invest in Various
segments of the debt market. Debt securities are broadly classified as short term securities
(money market securities) and long term securities (bonds, debentures). Very Short term debt

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Securities provide a steady but low level of return. Longer term debt Securities has the
potential to provide a higher level of return, but their price can fluctuate. In debt markets,
there is also categorization based on default risk. This is usually denoted by credit rating. A
debt security with a higher credit rating like AAA, lower risk of default than say, BBB rating.

Gilt funds
These funds invest exclusively in government securities. Government securities have no
default risk. NAVs of these schemes also fluctuate due to change in interest rates and other
economic factors as are the case with income or debt oriented schemes.

Income Funds
The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate debentures,
Government securities and money market instruments. Such funds are less risky compared to
equity schemes. These funds are not affected because of fluctuations in equity markets.
However, opportunities of capital appreciation are also limited in such funds. The NAVs of
such funds are affected because of change in interest rates in the country. If the interest rates
fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long
term investors may not bother about these fluctuations.

Arbitrage Fund
Arbitrage is one of the most effective ways to insulate against market volatility. An
arbitrage fund buys equities in the cash market and simultaneously sells in the futures market,
thus ensuring market neutrality for the investment. In other words, it is a unique asset class
by itself where returns are generated by capturing the pricing differential between the cash
and the futures markets. It is also termed as a market-neutral fund where the returns are not
going to be impacted by volatility in the market.

For any arbitrage fund, the following market conditions are beneficial a bullish market
and a volatile market. While the fund performs very well in bullish markets, a volatile market
gives it opportunities for early exit, thus enhancing the overall yield of the portfolio.
However, a prolonged bear phase is not an ideal situation for this kind of product.

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Liquid Funds

Investments in short-term vehicles that mature in less than one year.

Liquid funds allow investor’s access to their funds should the need or desire arises with
no penalty. The maturity of liquid funds range from three months to one year, offering the
investor an opportunity to see a return on investments without tying their assets up for
long periods of time.

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 NEED FOR THE STUDY:
 Mutual funds are supposed to be the best investment vehicle for small investors, but it
has observed from the market and other reliable sources that mutual funds have not
reached to their expectations.
 As the mutual funds industry is the growing investment sector many number of
investors are trying to shift their investment plan to mutual funds.
 Mutual fund being attractive investment alternative trends many investors to go for it.
 So the present study is about to know up to what extent the people are aware of mutual
funds.
 To know the reason why the customers are interested in investing mutual funds?

SCOPE OF THE STUDY:

 The study is limited to mutual funds with special reference to the growth of AUM’S in
mutual fund in the Indian context.
 The study will help to know the rate of different funds having growing option.
 This report may help the company to make further planning and strategy.

The study helps the company to understand how extend the investors can face risk.

OBJECTIVES OF THE STUDY:

1. To understand about Mutual Fund.
2. To examine the trends in terms of growth, size, volume of mutual funds in India.
3. To study individual AUM’s of mutual fund.
4. To compare the total growth of AUMS.
5. Based on the study to suggest certain measures regarding growth of mutual funds in
India

RESEARCH METHODOLOGY
The methodology adopted for this study deserves a special mention. Firstly, the
research studied various secondary sources of information, and then after discussed with the
company’s managerial personal, the data will be collected.

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DATA COLLECTION:
PRIMARY DATA SOURCE:
The original data collected specifically for a current research to know as primary data.
The primary data of the study is collected directly by personal Interaction with employees of
optimus commodity futures pvt, limited which is a commodities company at Vijayawada
Information given by the company agents.
SECONDARY DATA SOURCE
Secondary data is the data, Which is already present in the form of books, annual
reports, magazines etc., if is nothing but a printed material.
It is collected form the Net Asset Values and Historical NAV’s of the organization-
required data will take from the Various reports and other documents and data will be
analyzed with the help of guide.
The secondary data was collected from the company’s annual financial reports financial
reports. Accounting reports, in-house magazines, departmental manuals, public enterprises,
survey reports and internet.

The Secondary Data of the study are collected from

 NSE Annual Reports
 SEBI Annual Reports
 Moneycontrol.com
 AMFIINdia.com
 Valueresearchonline.com

The data is also collected from the various books, magazines, Newspaper. In this report
the data plays a very crucial role.

LIMITATIONS OF THE STUDY:

 The study is purely based by considering the Indian Mutual fund AUMS only.
 Time period was one of the main factors as only 45 days was allotted and Topic
covered in research has a wide scope.
 There is no demographic factors influence on the investment decisions.
 The study is limited to only five mutual fund company AUM’S.

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 2.0 INDUSTRY PROFILE AND COMPANY PROFILE
BASICS OF THE MUTUAL FUNDS
There are various investments avenues available to an investor such as real estate, bank
deposits, post office deposits, debentures, bonds etc. There are many reasons why investors
prefer mutual funds. Buying shares directly from the market is one way of investing. But this
requires spending time to find out of the performance of the company whose share is
purchased, understanding the future business prospects of the company, finding out the track
record of the promoters and the dividends, bonus issue history of the company etc. An
informed investor needs to do research before investing.

Investors therefore prefer the mutual fund route. They invest in a mutual fund schemes
which in turn takes the responsibility of investing in stocks and shares after due analysis and
research. The investor need not bother with researching hundreds of stocks. It lives it to the
mutual fund and it is professional fund management team. Another reason why investors
prefer mutual funds is because mutual funds offer diversification. An investor’s money is
invested by the mutual fund in a Varity of shares, bonds and other securities thus diversifying
the investor’s portfolio across different companies and sectors.

CHARECTERSTICS OF MUTUAL FUND

The traditional, distinguishing characteristics of the mutual fund may include the
following:

1. Investors purchase mutual fund shares from the fund itself. (or through a broker for the
fund) instead from other investors on a secondary market.
2. The price pays for mutual fund shares is the fund’s per share net asset value (NAV)
plus any shareholders fees that the fund imposes as the time of purchase (such as sales
loads).
3. Mutual funds shares are “redeemable”, meaning investors can sell their shares back to
the fund (or to a broker acting for the fund).

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 4. Mutual funds generally create and sell new shares to accommodated new investors. In
other words, they sell their shares on a continuous basis, although some funds stop
funds stop selling when, for example, they become too large.

MUTUAL FUND OPERATIONAL FLOW CHART

Mutual funds may be structured either as a company in which investors hold shares or
as a trust in which investors are the beneficiaries. In the USA, where mutual funds first began,
they are set up as investment companies. In the UK, open-ended funds are created in the form
of unit trusts while closed-end funds are set up as investment trusts or companies.
A mutual fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such as
shares debentures and other securities. The income earned though these investments and the
capital appreciation realized are shared by its unit holders in proportion to the numbers of
units owned by them. Thus a mutual Fund is the most suitable investment for the common
man as it offers an opportunity to invest in a diversified, professionally managed basket of
securities at a relatively low cost
.

A mutual fund is an investment option, where investors contribute small amounts of

money. These contributions are pooled together to make it a large sum. This sum is then
invested in various securities.
A Mutual Fund is body corporate registered with the Securities and Exchange Board of
India (SEBI) that pools up the Money from individual/corporate investors and invest the same
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on behalf of the investors/unit holders, in equity shares ,Government securities, bonds, call
money markets etc, and distributes the profits. In the other words, a Mutual Fund allows
investors to indirectly take a position in a basket of assets.

Mutual Fund is a mechanism for pooling the resources by Issuing units to the investors
and investing funds in securities in accordance with objectives as disclosed in offer document.
Investments in securities are spread among a wide cross-section of industries and sectors thus
risk is reduced. Diversification reduces the risk because all stocks may not move in the same
direction in the same proportion at same time. Investors of mutual funds are known as unit
holders.
The investors in proportion to their investments share the profits of losses. The
mutual funds normally come out with a number of schemes with different investment
objectives which are launched from time to time. A Mutual Fund is required to be registered
with securities Exchange Board of India (SEBI) which regulates securities markets before it
can collect funds from public.
Structure of Mutual fund

In India, mutual funds are created as trusts. The investors are the beneficial owners of
the investments held by the trust. The structure to be followed by mutual funds in India is laid
down in SEBI (Mutual Fund) Regulations; 1996.Mutual funds in India follow a three-tier
structure of sponsor, trust and asset management company (AMC).

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 The sponsor promotes the fund and sets up the AMC. The mutual fund itself is
structured as a trust. It is managed by trustees in the beneficial interest of the unit holders.
Trustees appoint an asset management company (AMC) to manage the funds.
Sponsor

The sponsor is the promoter of a mutual fund, who sets up the trust and the AMC,
appoints the custodian, board of trustees and the board of directors of the AMC. The sponsor
seeks regulatory approval for the mutual fund.

SEBI has laid down the eligibility criteria for a sponsor. A sponsor should:
- have at least five years experience in the financial services industry.
- have a good financial track record for at least three years prior to registration of the fund.
(Positive net worth is essential).

- contribute at least 40% of the capital of the asset management company (AMC).
Sponsors can be Indian companies, banks or financial institutions, foreign entities or a joint
venture between the two.
Trustees
The mutual fund itself is set up as a trust. Trustees are appointed by the sponsor with
SEBI approval, to act on behalf of the investors. Trustees act as the protectors of the unit
holders’ interests and are the primary guardians of the unit holders’ funds and assets.
The trust deed is executed by the sponsor in favor of the trustees and it deals with the
Establishment of the trust, the authority and responsibility of the trustees towards the unit
holders and the AMC.
Trustees can be appointed as a Board of trustees, or formed as a trustee company by
the sponsor. The board of such trustee company oversees the mutual fund. The trustees have
the fiduciary responsibility of protecting the beneficiaries of the trust, namely the investors in
the mutual fund. At least two-thirds of the members of the board of trustees have to be
independent of the sponsor. The board of trustees has to meet at least six times in a year.
Trustees are paid a fee for their services.
SEBI regulations for trustees govern the appointment and functions of the trustees.
There are aspects of general and specific due diligence to be exercised by trustees, to oversee
the working of the AMC and the management of the mutual fund.
Asset Management Company (AMC)
Asset Management Company (AMC) is the investment manager of the mutual fund.
The AMC is set up by the sponsor, and registered with SEBI. AMCs can be structured as

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public or private limited companies. Most AMCs in India are private limited companies. The
capital of the AMC is contributed by the sponsor and its associates. AMCs specialize in
investment management. They manage money for a fee, usually determined as a percentage of
the assets under management (AUM).
AMCs are appointed by trustees to manage the mutual fund. But AMCs do not have
any access to the investors' money.

AMCs are the face of mutual funds. They set up offices, employ staff, create and
market products, mobilize funds through distributors, manage the money and report the
portfolio performance to trustees and investors.
AMC is appointed to manage a mutual fund by the trustees of the fund, in consultation
with the sponsor and with the approval of SEBI. The rights and obligations of the AMC are
specified in the Investment Management agreement signed between the trustees and the
AMC.
SEBI regulations for AMCs require that:
- AMCs should have a net worth of at least Rs 10 Crores at all times.
- At least 50% of members of the board of an AMC have to be independent.
- The AMC of one mutual fund cannot be an AMC or trustee of another fund.
AMCs cannot engage in any business other than that of financial advisory and investment
Management. Statutory disclosures regarding AMC operations should be periodically
submitted to SEBI.
Custodians
Custodians hold the cash and securities of the mutual fund and are responsible for their
safekeeping. They hold actual custody of the assets of the mutual fund.
Custodians are appointed by the sponsor. They represent the only constituent not directly
appointed by the AMC. Custodians should be independent of the sponsor. That is, a sponsor
cannot be a custodian of the fund as well.
ICICI Bank is a sponsor of ICICI Prudential Mutual Fund. It is also a custodian bank. But it
cannot offer its custody services to ICICI Prudential Mutual fund, because it is also the
Sponsor of the fund.
Registrar and Transfer Agents

Registrar and transfer agents (R&T agents) are primarily responsible for providing
services to the investors. They accept and process investor transactions. R&T agents are paid

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