PROJECT REPORT ON STUDY

OF GROWTH PROSPECTS & INDUSTRY

FOR

OPTIONS AVAILABLE IN MUTUAL FUND

FRANKLIN TEMPLETON MUTUAL FUND

Made BY

NAME KAPIL DEV REGISTRATION NO. 200618916

SUBMITTED TO

PGDBA (FINANCE) 2006

ENCLOSURES 1. No Objection Certificate 2. Declaration By The Learner 3. Certificate By The Supervisor Chapters Page No.

Acknowledgment.4 1. Introduction.....5 1.1 Purpose of the study..6 1.2 Limitations of the study6 2. Company profile 2.1 About Franklin Templeton Group..7 2.2 Investment Pyramid.8 2.3 Investment Options..9 3. Mutual Funds Industry 3.1Inception & Definition ....12 3.2 Short History...12 3.3 Working Of Mutual Funds13 3.4 Various Mutual Fund schemes and their implications...14 3.5 Selecting a Mutual Fund17 3.6 Purchasing Mutual Funds..18 3.7 Selling Mutual Funds..19 3.8 Tracking Performance...20 4. Mutual funds 4.1 What is a Mutual Fund...23 4.2 Characteristics of Mutual Fund.23 4.3 Where do Mutual Funds Invest.24 4.4 Types of Mutual Funds...25 4.5 Advantages of Mutual Funds....27 4.6 Disadvantages of Mutual Funds29 5. Mutual funds in India

5.1 Structure .31 5.2 Milestones ...31 5.3 Phases of Industry...32 5.4 Growth in AUM.33 5.5 Recent trends ..34 5.6 Performance in India..35 5.7 Future ..36 5.8 Parties Involved...37 Association of Mutual Funds in India (AMFI) 6.1 Need...39 6.2 Objectives.39 6.3 Insstruments 40 6.4 Frequently used terms.45 6. Basis of Comparison of Various Mutual Fund Schemes...48 Marketing strategies adopted by the Mutual Fund Companies 8.1 Strategies..52 8.2 Challenges and Opportunities54 9. Hybrid and Tax saving schemes 9.1 Overview..55 9.2 Analysis56 10 Asset Management companies 10.1 About..59 10.2 Working of AMCs..59 10.3 Expenses........61 10.4 Analysis of return.66 10.5 AMCs operating currently..67 11 Conclusion....77

Acknowledgment

This project is the result of the contribution made by many people. I deeply acknowledge the role played by all those who provided me their valuable support in the development of this project. I am deeply indebted to Mr. Hemant Kumar (Company Guide) for giving me this opportunity to work in the Franklin Templeton Investments. It has been a great experience to work in such an esteemed organization. I am grateful to him for his continuance guidance and advice and to all my co workers for their support in preparing this project.

CHAPTER 1. Introduction

The Indian mutual fund industry is one of the fastest growing sectors in the Indian capital and financial markets. The mutual fund industry in India has seen dramatic improvements in quantity as well as quality of product and service offerings in recent years. Mutual funds assets under management grew by 96% between the end of 1997 and June 2003 and as a result it rose from 8% of GDP to 15%. The industry has grown in size and manages total assets of more than $30351 million. Of the various sectors, the private sector accounts for nearly 91% of the resources mobilized showing their overwhelming dominance in the market. Individuals constitute 98.04% of the total number of investors and contribute US $12062 million, which is 55.16% of the net assets under management The present project revolves around the Hybrid and Tax Savings Schemes of Franklin Templeton a well know AMC. The information about the various Hybrid and Tax Savings Schemes was collected through sources like website of Franklin Templeton i.e. www.franklintempletonindia.com, material provided by the company and IIEF mutual fund advisors handbook. The mutual fund of the Franklin Templeton which was primarily studied is FT India Balanced Fund, Templeton India Childrens Asset Plan, Franklin India Taxshield and Templeton India Pension Plan.

1.1 Purpose of the study

To study the Organization as a whole. To do a comparative study of different mutual funds schemes. To study investment and tax benefit of mutual funds of Franklin Templeton. To provide guidelines for investors in order to time knowledge, experience and resources for assessing in the capital market. To find out the promotional strategies used by company to introduce new funds in the market. Purpose is to find how to match the requirements of the investor with the existing funds to study the marketing strategies used by the company.

1.2

Limitations of the study

Improper access to companys data as it is confidential, so this limits the area of study The report emphasis only on the hybrid and tax saving schemes (funds) of Franklin Templeton, keeping aside the other funds. Lack of interest and time of investor would also act as an obstacle in the completion of the project

CHAPTER 2. Company profile

2.1 About Franklin Templeton Group
Franklin Templeton is one of the worlds largest investment management companies. Based in San Mateo, California, USA, the group currently manages assets of US $643.7 billion as on December 31, 2007. It offers 240 products world wide and has over 50 years of experience in international investment management. With offices in 29 countries, it services over 15 million unit holder accounts. In India, Franklin Templeton started its operations in 1996 with the constitution of Franklin Templeton Mutual Fund as a Trust and Franklin Templeton Asset Management (India) Pvt. Ltd. as an AMC (Asset Management Company). In 2002, it acquired Pioneer ITI Mutual Fund Pvt. Ltd. and Pioneer ITI AMC Ltd., to emerge as one of the largest private sector mutual funds in terms of assets and investor base, and also the range of mutual fund schemes that it had to offer to investors. The company offers investment products under the Franklin, Templeton, Mutual Series and Fiduciary brand names. There common stock is listed on the New York Stock Exchange under the ticker symbol BEN. They are also on the London Stock Exchange under the symbol FRK. Franklin Templeton vision is to be the premier global investment management organization by offering high quality investment solutions, providing outstanding service and attracting, motivating and retaining talented individuals. The investment philosophy that follows a disciplined approach to investing with a strong focus towards process orientation is the common thread running through all our schemes. The key guiding principle to the company investment philosophy is maximize the risk- adjusted returns for their investors in the respective asset classes, and create wealth for them over the long-term. They have successfully demonstrated the ability to achieve this in the past, and are confident that their process-oriented investment approach will help them to sustain the same in the years to come.

The Franklin Templeton group comprises four brands, each focusing on a distinct investment style. The Franklin brand is associated with investing in fixed income instruments, particularly in the U.S. On the equity side, Franklin funds follow the Growth style. The Templeton brand, on the other hand, has been associated with global equity investing and emerging markets in particular, following the Value style. Mutual Advisers also specialize in equity investing, particularly in the U.S. and the European markets, following special situations. Fiduciary, the most recent addition to the group, has given us an institutional presence in global equity.

2.2 Investment pyramid

An investor typically seeks to fulfill one of three investment objectives, namely, to preserve capital, generate periodic income, or growth of capital over time. For capital preservation, the most common options are short-term deposits in banks, and in shorter-term issuances by the Government. To generate income, one could look at fixed deposits of companies, bonds, debentures, and so on. When it comes to growth of capital, one really looks at the equity markets, i.e. stocks Franklin Templeton in India offers products to suit all these objectives. Our short-term and money market range of products include the Templeton India Liquid Fund, Templeton India Government Securities Fund - Treasury Plan, which invests in short-term papers or bonds issued by the Government of India, and, the Templeton Floating Rate Income Fund - Short-Term Plan, which invests primarily in short-term maturity fixed income instruments.

In the income category, we offer the Templeton India Income Fund, the Templeton India Government Securities Fund, and the Templeton Floating Rate Income Fund Long-Term Plan. The difference really is in terms of maturity profile of these funds. They range from medium to long-term; anywhere between 18 months to 10 and even 15 years for the Government securities fund. Then there are a couple of products where debt and equity are mixed in varying proportions. They are called the hybrid funds. You have the Templeton Monthly Income Plan where, in the half yearly and the growth option, you have equity which can go up to 15% of the portfolio. Franklin India Balanced Fund, of course, is more equity oriented, but the idea is to keep a balance between equity and debt, and try to maintain it in such a way that neither asset class goes beyond 60%. So the maximum you can have on equity is 60 and the minimum you can have on debt is 40. The pure equity funds of Franklin Templeton include the Franklin Templeton India Growth Fund, which follows the well-known Value investment philosophy. Franklin India Growth Fund invests on the growth style. We also offer passive Index funds in the form of Franklin India Index Fund and Franklin India Index Tax Fund, which has the additional benefit of tax rebates under Section 80C up to investments of Rs 10,000 in a year.

2.3 Investment Options

Savings form an important part of the economy of any nation. With the savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents a plethora of avenues to the investors. Though certainly not the best or deepest of markets in the world, it has reasonable options for an ordinary man to invest his savings. Let us examine several of them: Banks

Considered as the safest of all options, banks have been the roots of the financial systems in India. Promoted as the means to social development, banks in India have indeed played an important role in the rural upliftment. For an ordinary person though, they have acted as the safest investment avenue wherein a person deposits money and earns interest on it. The two main modes of investment in banks, savings accounts and Fixed deposits have been effectively used by one and all. However, today the interest rate structure in the country is headed southwards, keeping in line with global trends. With the banks offering little above 9 percent in their fixed deposits for one year, the yields have come down substantially in recent times. Add to this, the inflationary pressures in economy and you have a position where the savings are not earning. The inflation is creeping up, to almost 8 percent at times, and this means that the value of money saved goes down instead of going up. This effectively mars any chance of gaining from the investments in banks. Post office Just like banks, post offices in India have a wide network. Spread across the nation, they offer financial assistance as well as serving the basic requirements of communication. Among all saving options, Post office schemes have been offering the highest rates. Added to it is the fact that the investments are safe with the department being a Government of India entity. So the two basic and most sought for features, those of return safety and quantum of returns were being handsomely taken care of. Though certainly not the most efficient systems in terms of service standards and liquidity, these have still managed to attract the attention of small, retail investors. However, with the government announcing its intention of reducing the interest rates in small savings options, this avenue is expected to lose some of the investors. Public Provident Funds act as options to save for the post retirement period for most people and have been considered good option largely due to the fact that returns were higher than most other options and also helped people gain from tax benefits under various sections. This option too is likely to lose some of its sheen on account of reduction in the rates offered. Company Fixed Deposits

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Another oft-used route to invest has been the fixed deposit schemes floated by companies. Companies have used fixed deposit schemes as a means of mobilizing funds for their operations and have paid interest on them. The safer a company is rated, the lesser the return offered has been the thumb rule. However, there are several potential roadblocks in these. First of all, the danger of financial position of the company not being understood by the investor lurks. The investors rely on intermediaries who more often than not, dont reveal the entire truth. Secondly, liquidity is a major problem with the amount being received months after the due dates. Premature redemption is generally not entertained without cuts in the returns offered and though they present a reasonable option to counter interest rate risk (especially when the economy is headed for a low interest regime), the safety of principal amount has been found lacking. Many cases like the Kuber Group and DCM Group fiascoes have resulted in low confidence in this option. Mutual funds Different investment avenues are available to investors. Mutual funds also offer good investment opportunities to investors. Like all investments, they also carry certain risks. Should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. Investors may seek advice from experts and consultants including agents and distribution in a question-answer format which may help investors in taking investment decision. Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing the funds in securities in accordance with the schemes objectives as disclosed in offer document. The profits or loses are shared by the investors in proportion to their investments. 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 the Securities and Exchange Board of India (SEBI) which regulates securities markets , before it can collect funds from the public.

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CHAPTER 3.

MUTUAL FUNDS INDUSTRY

Mutual funds are for everyone. Around the world, millions of investors invest in mutual funds because of their safety, ease of investing and the many advantages they offer 3.1 Inception The concept of mutual funds was introduced in India with the formation of Unit Trust of India in 1963. The first scheme launched by UTI was the now infamous Unit Scheme 64 in 1964. UTI continued to be the sole mutual fund until 1987, when some public sector banks and Life Insurance Corporation of India and General Insurance Corporation of India set up mutual funds. It was only in 1993 that private players were allowed to open shops in the country. Today, 32 mutual funds collectively manage Rs 6713575.19 cr under hundreds of schemes. Definition A mutual fund is a trust that pools the savings of a number of investors with common financial goals. The collected money is invested in various instruments like debentures, shares, etc. The income generated from these instruments and the capital appreciation is shared by the investors in proportion to the number of units owned by them. 3.2 Short history The government of India set up Unit Trust of India in 1963 by an act on parliament. UTI functioned under the regulatory and administrative control of the Reserve Bank

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of India till 1978. The Industrial Development Bank of India took over the regulatory and administrative control that year. The first scheme launched by UTI was Unit Scheme 1964 or the infamous Unit 64. The second phase of the mutual fund industry began with the public sector banks and Life Insurance Corporation of India and General Insurance Corporation of India setting up their own mutual funds in 1987. Finally, in 1993 Kothari Pioneer (now merged with Franklin Templeton) became the first private sector mutual fund to start operations in the country. A host of private sector as well as foreign funds set up shop after that. In 1996, a comprehensive and revised Mutual Fund regulation was put in place. The industry now functions under Sebi (Mutual Fund) regulations, 1996.

The industry faced its toughest challenge when the US 64 fiasco shattered the confidence of investors. However, in 2003, the government bifurcated the erstwhile UTI. One entity manages the assets of US 64 and some assured return schemes. The other is a regular mutual fund working under the Sebi regulations. Thanks to the boom in the stock market, UTI managed to clean up its act and continue to enjoy the confidence of several investors. The whole industry also came out of the controversy without any major setbacks.

Conception and performance in India The industry has steadily grown over the decade. For example, before the public sector mutual funds entry, UTI was managing around Rs 6,700 crore on its own. Public sector mutual funds also helped accelerate the growth of assets under management. UTI and its public sector counterparts were managing around Rs 47,000 crore when Kothari Pioneer, the first private sector mutual fund, set up shop in 1993. Before the US 64 fiasco, there were 33 mutual funds with total assets of Rs 1,21,805 crore as on January 2003. The UTI was way ahead of other mutual funds with Rs 44,541 crore assets under management. The industry overall has performed well over the years. Of course, there were a few funds houses, which disappointed investors. However, overall performance has been good. However, lack of awareness still

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impedes the growth of the mutual fund industry. Unlike developed countries, most of the household savings still go to bank deposits in India. 3.3 Working of mutual funds A mutual fund is set up by a sponsor. However, the sponsor cannot run the fund directly. He has to set up two arms: a trust and Asset Management Company. The trust is expected to assure fair business practice, while the AMC manages the money. All mutual funds except UTI functions under Sebi (Mutual Fund) regulations 1996.

The mutual fund collects money directly or through brokers from investors. The money is invested in various instruments depending on the objective of the scheme. The income generated by selling securities or capital appreciation of these securities is passed on to the investors in proportion to their investment in the scheme. The investments are divided into units and the value of the units will be reflected in Net Asset Value or NAV of the unit. NAV 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. Mutual fund companies provide daily net asset value of their schemes to their investors. NAV is important, as it will determine the price at which you buy or redeem the units of a scheme. Depending on the load structure of the scheme, you have to pay entry or exit load. 3.4 Various Mutual Fund schemes and their implications Mutual fund schemes are classified on the basis of its structure and investment objective. By Structure Openended funds: Investors can buy and sell units of open-ended funds at NAVrelated price every day. Open-end funds do not have a fixed maturity and it is available for subscription every day of the year. Open-end funds also offer liquidity to investments, as one can sell units whenever there is a need for money.

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Close-ended funds: These funds have a stipulated maturity period, which may vary from three to 15 years. They are open for subscription only during a specified period. Investors have the option of investing in the scheme during initial public offer period or buy or sell units of the scheme on the stock exchanges. Some close-ended funds repurchase the units at NAV-related prices periodically to provide an exit route to the investors. Interval Funds: These funds combine the features of both open and close-ended funds. They are open for sale and repurchase at a predetermined period. By Investment objective Growth funds: They normally invest most of their corpus in equities, as their objective is to provide capital appreciation over the medium-to-long term. Growth schemes are ideal for investors with risk appetite. Income funds: As the name suggests, the aim of these funds is to provide regular and steady income to investors. They generally invest their corpus in fixed income securities like bonds, corporate debentures, and government securities. Income funds are ideal for those looking for capital stability and regular income. Balanced funds: The objective of balanced funds is to provide growth along with regular income. They invest their corpus in both equities and fixed income securities as indicated in the offer documents. Balanced funds are ideal for those looking for income and moderate growth. Money market funds: These funds strive to provide easy liquidity, preservation of capital and modest income. MMFs generally invest the corpus in safer short-term instruments like treasury bills, certificates of deposit, commercial paper and interbank call money. Returns on these schemes hinges on the interest rates prevailing in the market. MMFs are ideal for corporate and individual investors looking to park funds for short periods. Other schemes

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Tax saving schemes: Tax saving schemes or equity-linked savings schemes offer tax rebates to investors under section 88 of the Income Tax Act. They generally have a lock-in period of three years. They are ideal for investors looking to exploit tax rebates as well as growth in investments. Special schemes: These schemes invest only in the industries specified in the offer document. Examples are InfoTech funds, FMCG funds, pharma funds, etc. These schemes are meant for aggressive and well-informed investors. Index funds: Index Funds invest their corpus on the specified index such as BSE Sensex, NSE index, etc. as mentioned in the offer document. They try to mimic the composition of the index in their portfolio. Not only is the share, even their weightage replicated. Index funds are a passive investment strategy and the fund manager has a limited role to play here. The NAVs of these funds move along with the index they are trying to mimic save for a few points here and there. This difference is called tracking error. Sector specific schemes: These funds invest only specified sectors like an industry or a group of industries or various segments like A Group shares or initial public offerings. Why invest through a Mutual Fund Affordability: Mutual funds allow you to start with small investments. For example, if you want to buy a portfolio of blue chips of modest size, you should at least have a few lakhs of rupees. A mutual fund gives you the same portfolio for meager investment of Rs 1,000-5,000. A mutual fund can do that because it collects money from many people and it has a large corpus. Professional management: The major advantage of investing in a mutual fund is that you get a professional money manager for a small fee. You can leave the investment decisions to him and only have to monitor the performance of the fund at regular intervals. Diversification: Considered the essential tool in risk management, mutual funds make it possible for even small investors to diversify their portfolio. A mutual fund 16

can effectively diversify its portfolio because of the large corpus. However, a small investor cannot have a well-diversified portfolio because it calls for large investment. For example, a modest portfolio of 10 blue-chip stocks calls for a few a few thousands. Convenience: Mutual funds offer tailor-made solutions like systematic investment plans and systematic withdrawal plans to investors, which is very convenient to investors. Investors also do not have to worry about the investment decisions or they do not have to deal with their brokerage or depository, etc. for buying or selling of securities. Mutual funds also offer specialized schemes like retirement plan, childrens plan, industry specific schemes, etc. to suit personal preference of investors. These schemes also help small investors with asset allocation of their corpus. It also saves a lot of paper work. Cost effectiveness: A small investor will find that a mutual fund route is a cost effective method. AMC fee is normally 2.5% and they also save a lot of transaction costs as they get concession from brokerages. Also, they get the service of a financial professional for a very small fee. If they were to seek a financial advisor's help directly, they may end up pay more. Also, the size of the corpus should be large to get the service of investment experts, who offer portfolio management. Liquidity: You can liquidate your investments anytime you want. Most mutual funds dispatch checks for redemption proceeds within two or three working days. You also do not have to pay any penal interest in most cases. However, some schemes charge an exit load. Tax breaks: You do not have to pay any taxes on dividends issued by mutual funds. You also have the advantage of capital gains taxation. Tax-saving schemes and pension schemes give you the added advantage of benefits under Section 88. Investments up to Rs 10,000 in them qualify for tax rebate. Transparency: Mutual funds offer daily NAVs of schemes, which help you to monitor your investments on a regular basis. They also send quarterly newsletters, which give details of the portfolio, performance of schemes against various benchmarks, etc. They are also well regulated and Sebi monitors their actions closely.

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3.5 Selecting a Mutual Fund Selection parameters Your objective: The first point to note before investing in a fund is to find out whether your objective matches with the scheme. It is necessary, as any conflict would directly affect your prospective returns. For example, a scheme that invests heavily in mid-cap stocks is not suited for a conservative equity investor. He should be better off in a scheme, which invests mainly in blue chips. Similarly, you should pick schemes that meet your specific needs. Examples: pension plans, childrens plans, sector-specific schemes, etc. Your risk capacity and capability: this dictates the choice of schemes. Those with no risk tolerance should go for debt schemes, as they are relatively safer. Aggressive investors can go for equity investments. Investors that are even more aggressive can try schemes that invest in specific industry or sectors. Fund Managers and scheme track record: Since you are giving your hard earned money to someone to manage it, it is imperative that he manages it well. It is also essential that the fund house you choose has excellent track record. It also should be professional and maintain high transparency in operations. Look at the performance of the scheme against relevant market benchmarks and its competitors. Look at the performance of a longer period, as it will give you how the scheme fared in different market conditions. Cost factor: Though the AMC fee is regulated, you should look at the expense ratio of the fund before investing. This is because the money is deducted from your investments. A higher entry load or exit load also will eat into your returns. A higher expense ratio can be justified only by superlative returns. It is very crucial in a debt fund, as it will devour a few percentages from your modest returns. 3.6. Purchasing mutual funds Purchasing during IPO: Like companies, even mutual funds offer initial public offering. It is when they launch the scheme for the first time. You can buy units at par

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on this occasion. However, it is not always advantageous to buy a mutual fund during IPO. You can always wait and see the performance before investing in it. Purchasing existing mutual fund units: You can buy units of an open-end scheme anytime at NAV-related price. Most mutual funds charge an entry load of up to 2%. That means you have to pay an additional 2% of the NAV to get into the scheme. You can buy the plan directly from the mutual fund or brokerage. You can even buy them via the Internet. 3.7 Selling mutual funds You can sell or redeem units very easily. As per Sebi guidelines, a mutual fund unit holder has the right to receive redemption or repurchase proceeds within 10 days of the redemption or repurchase. Most funds do not charge an exit load these days. When should you sell a mutual fund unit is a crucial question. Ideally, you should sell it when you have met your target profit. The other reason is that you need the money or your profile has changed due to some changes in your life. Other than this, you should sell the units if you find that the fund has been taken over by another fund, which you do not approve of. Any major changes in the objective of the fund or a sharp rise in expenses could also be valid reasons to redeem units. Following a favorite fund manager is also a usual practice. However, it need not be always rewarding. Income from mutual funds: the options Mutual funds distribute their income as dividend. An investor has the option of receiving the dividend or opting for the dividend reinvestment. If an investor needs the income, he can opt for dividend payout option. However, if you do not need the money, he can opt for dividend reinvestment. Another choice before him is the growth or cumulative option. Here the income generated from sale of securities or capital appreciation is automatically reinvested. Speedy investment, redemption and income receipts

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Thanks to the Electronic Clearing Services (ECS), mutual fund investor now has the option of automatic credit of dividends and redemptions into bank account. This will save a lot of paperwork, for both you and the fund. You can also instruct your bank to automatically withdraw a certain sum towards systematic investment plan. Alternatively, you can also directly receive systematic withdrawal proceeds in your bank account.

3.8 Tracking mutual funds performance Objective parameters The NAV of the scheme will reflect the performance of the scheme. The fund will also give you returns for various periods such as one month, three months, six months, one year, three years, since inception, etc. This will give you an idea about the performance of the fund. Funds also provide comparison with relevant benchmarks. This should tell you whether the fund manager has performed better than the benchmark. However, financial experts believe that these returns do not give the complete picture. They believe that the return should be risk-adjusted. Various publications and Internet sites provide such returns. The computation is complicated and they use various formulas for this purpose. Subjective parameters The performance alone does not make a fund house a winner. Equally important is the service standards and transparency in actions. It is also essential that the fund offer speedy solutions to grievances of investors. The reputation of the fund house among its investors and public at large indicates how well the fund scores on this front. Information sources

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Every financial daily offers daily NAV of all mutual fund schemes. Magazines also come out with annual survey of mutual funds. There are even magazines dedicated entirely towards mutual fund industry. Internet is also a great place for information. There are dedicated sites as well as financial sites, which offer information on mutual funds. Association of Mutual Funds of India (AMFI) home page is also a great place for information. Resolving grievances Mutual funds are regulated by SEBI (mutual fund) regulation 1996. Therefore, an investor always has the recourse to approach the watchdog. Various investor forums also take up the case of individual investors. You can also turn to judiciary as a last resort. Glossary NAV: NAV 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. Sale price: The price you pay when you invest in a scheme. It is also called offer price. Repurchase price: The price at which a close-ended scheme repurchases its units. It is also called bid price. Redemption price: The price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. This price is NAV related. Entry load: The extra amount you pay when you invest in a scheme. It is also called front-end load or sales load. Exit load: Amount collected when you are selling or redeeming units

Investment and you 1. Identify your financial needs and goals 21

The first step to get a clear understanding of your own financial needs and goals. Ask yourself the question when do I need money and for what purpose? List down your financial goals and when they will materialize (daughters higher education after 6 years, purchase of a house after 10 years), and how much money you will need for the same. The answer will help you arrive at the time frame for your investment short term, medium term or long term. Financial Goals Retirement Daughters Amount required Rs.25 lakhs higher Rs. 2 lakhs Rs. 4 lakhs Rs. 0.50 lakhs Years to achieve your Investment goals 20 years 6 Years 2 years 6 months Table : 1 horizon Long Term Long Term Medium Term Short Term

education Buying a car Sons computer course

2. Understand your tolerance to risk Before making an investment decision, it is important to ascertain your feelings about risks. Will you be comfortable with fluctuations in the value of your investment? Or would you prefer to settle for lower returns, without ups and downs. 3. Estimate your required rate of return Your required rate of return depends on your financial goals and the time you have to achieve them, as can be seen from the illustration below: If your retirement goal at 58 years is Rs. 20 lakhs and your monthly saving is Rs. 5000, your required rate of return depending on your current age would be: Present age 43 years 48 years TABLE : 2 As you can see, later you start, the higher will be your required rate of return in other words, as your investment horizon reduces, for the same level of savings, you may need to take a higher risk. Alternatively, if you were not willing to take a higher Returns 9.5% 21.2%

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risk, you would have to save a higher amount every month Rs. 9800, almost twice the original savings required to achieve your target accumulation

CHAPTER 4.
4.1 What is a mutual fund?

Mutual Funds

A mutual fund is a pool of money, collected from investors, and is invested according to certain investment objectives. A mutual fund is created when investors put their money together. It is therefore s pool of the investors funds. The most important characteristics of a mutual fund are that the contributors and the beneficiaries of the fund are the same class of people, namely the investors. The term mutual means that investors contribute to the pool, and also benefit from the pool. There are no other claimants to the funds. The pool of funds held mutually by investors is the mutual fund. A mutual funds business is to invest the funds thus collected, according to the wishes of the investors who created the pool. In many markets these wishes are articulated as investment mandates. Usually, the investors appoint professional investment managers, to manage their funds. The same objective is achieved when professional investment managers create a product, and offer it for investment to the investor. This product represents a share in the pool, and pre-states investment objectives. For example, a mutual fund, which sells a money market mutual fund, is actually seeking investors willing to invest in a pool that would invest predominantly in money market instruments.

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4.2 Characteristics of a mutual fund 1. A mutual fund belongs to the investors who have pooled their funds. The ownership of the mutual fund is in the hands of the investors. 2. Investment professionals and other service providers, who earn a fee for their services, from the fund, manage the mutual fund. 3. The pool of funds is invested in a portfolio of marketable investments. The value of the portfolio is updated every day. 4. The investors share in the fund is denominated by units. The value of the units changes with change in the portfolios value, every day. The value of one unit investment is called as the Net Asset Value or NAV. 5. The investment portfolio of the mutual fund is created according to the stated investment objectives of the fund. 4.3 Where do mutual funds invest? Mutual Funds are basically invested in three types of assets classes: 1. Stocks 2. Bonds 3. Money Market Instruments Stocks: Stocks represent ownership or equity in a company, popularly known as stocks. Bonds: These represent debt from companies, financial institutions or government agencies. Money Market Instruments: These include short-term debt instruments such as treasury bills, certificate of deposits and inter-bank call money.

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Diagram : 1

25. What are the types of mutual funds? Mutual Funds can be classified based on their objectives as: Diversified Equity Schemes: These schemes invest in shares of companies across different sector in the economy. Sector Equity Schemes: These schemes invest in shares of companies in a specific sector. Hybrid Schemes: These schemes invest in a mix of shares and fixed income instruments. Income Schemes: These schemes invest in fixed income instruments such as bonds issued by corporates and financial institutions, and government securities. Money Market Schemes: These schemes invest in short term instruments such as certificate of deposits, treasury bills and short term bonds.

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Growth schemes: Capital growth Risk: medium to high Recommended Investment Horizon: 5 years and above Hybrid schemes: Growth & Income Risk: medium to high Recommended Investment Horizon: 3 years to 5 years Income schemes: Income Risk: low to medium Recommended Investment Horizon: 1 year to 5 years Money market schemes: Capital Preservation Risk: low Recommended Investment Horizon: CHART : 1 Upto 1 year Advantages of mutual funds 1. Diversification A proven principle of sound investment is that of diversification which is the idea of not putting all your eggs in one basket. By investing in many companies the mutual funds can protect themselves from unexpected drop in values of some shares. The small investors can achieve wide diversification on his own because of many reasons, mainly funds at his disposal. Mutual funds on the other hand, pool funds of lakhs of investors and thus can participate in a large basket of shares of many different companies. Majority of people consider diversification as the major strength of mutual funds. 2. Expertise Supervision Making investment is not a full time assignment of investors. So they hardly have a professional attitude towards their investment. When investors buy mutual fund scheme, an essential benefit one acquires is expert management of the money he puts in the fund. The professional fund manager who supervise funds portfolio take desirable decisions viz., what scrips are to be bought, what investments are to be sold and more appropriate decision as to timings of such buy and sell. They have extensive research facilities at their

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disposal, can spend full time to investigate and can give the fund a constant supervision. The performance of mutual fund schemes, of course, depends on the quality of fund managers employed. 3. Liquidity of Investment A distinct advantage of a mutual fund over other investments is that there is always a market for its units/ shares. Moreover, SEBI requires the mutual funds in India have to ensure liquidity. Mutual funds units can either be sold in the share market as SEBI has made it obligatory for closed-ended schemes to list themselves on stock exchanges. For open-ended schemes investors can always approach the fund for repurchase at NAV of the scheme. Such repurchase price and NAV is advertised in newspaper for the convenience of investors. 4. Reduced Risks Risk in investment is as to recovery of the principal amount and as to return on it. Mutual fund investments on both fronts provide a comfortable situation for investors. The expert supervision, diversification and liquidity of units ensured in mutual funds minimize the risks. Investors are no longer expected to come to grief by falling prey to misleading and motivating headline leads and tips, if they invest in mutual funds. 5. Safety of Investment Besides depending on the expert supervision of fund managers, the legislation in a country (like SEBI in India) also providers for the safety of the investments. Mutual funds have to broadly follow the laid down provisions for their regulations, SEBI acts as a watchdog and attempts whole heartedly t safeguard investors interests. 6. Tax Shelter Depending on the scheme of mutual funds, tax shelter is also available. 7. Minimize Operating Costs

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Mutual funds having large investible funds at their disposal avail economies of scale. The brokerage fee or trading commission may be reduced substantially. They reduced operating costs obviously increases the income available for investors. 4.5 Advantages of Mutual Funds Diversification Using mutual funds can help an investor diversify their portfolio with a minimum investment. When investing in a single fund, an investor is actually investing in numerous securities. Spreading your investment across a range of securities can help to reduce risk. A stock mutual fund, for example, invests in many stocks - hundreds or even thousands. This minimizes the risk attributed to a concentrated position. If a few securities in the mutual fund lose value or become worthless, the loss maybe offset by other securities that appreciate in value. Further diversification can be achieved by investing in multiple funds which invest in different sectors or categories. This helps to reduce the risk associated with a specific industry or category. Diversification may help to reduce risk but will never completely eliminate it. It is possible to lose all or part of your investment Professional Management: Mutual funds are managed and supervised by investment professionals. As per the stated objectives set forth in the prospectus, along with prevailing market conditions and other factors, the mutual fund manager will decide when to buy or sell securities. This eliminates the investor of the difficult task of trying to time the market. Furthermore, mutual funds can eliminate the cost an investor would incur when proper due diligence is given to researching securities. This cost of managing numerous securities is dispersed among all the investors according to the amount of shares they own with a fraction of each dollar invested used to cover the expenses of the fund. What does this mean? Fund managers have more money to research more securities more in depth than the average investor. Convenience:

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With most mutual funds, buying and selling shares, changing distribution options, and obtaining information can be accomplished conveniently by telephone, by mail, or online. Although a fund's shareholder is relieved of the day-to-day tasks involved in researching, buying, and selling securities, an investor will still need to evaluate a mutual fund based on investment goals and risk tolerance before making a purchase decision. Investors should always read the prospectus carefully before investing in any mutual fund. Liquidity: Mutual fund shares are liquid and orders to buy or sell are placed during market hours. However, orders are not executed until the close of business when the NAV (Net Average Value) of the fund can be determined. Fees or commissions may or may not be applicable. Fees and commissions are determined by the specific fund and the institution that executes the order.

Minimum Initial Investment: Most funds have a minimum initial purchase of $2,500 but some are as low as $1,000. If you purchase a mutual fund in an IRA, the minimum initial purchase requirement tends to be lower. You can buy some funds for as little as $50 per month if you agree to dollar-cost average, or invest a certain dollar amount each month or quarter. 4.6 Disadvantages of Mutual Funds Risks and Costs: Changing market conditions can create fluctuations in the value of a mutual fund investment.

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There are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly. As with any type of investment, there are drawbacks associated with mutual funds.

No Guarantees. The value of your mutual fund investment, unlike a bank deposit, could fall and be worth less than the principle initially invested. And, while a money market fund seeks a stable share price, its yield fluctuates, unlike a certificate of deposit. In addition, mutual funds are not insured or guaranteed by an agency of the U.S. government. Bond funds, unlike purchasing a bond directly, will not re-pay the principle at a set point in time.

The Diversification "Penalty." Diversification can help to reduce your risk of loss from holding a single security, but it limits your potential for a "home run" if a single security increases dramatically in value. Remember, too, that diversification does not protect you from an overall decline in the market.

Costs. In some cases, the efficiencies of fund ownership are offset by a combination of sales commissions, 12b-1 fees, redemption fees, and operating expenses. If the fund is purchased in a taxable account, taxes may have to be paid on capital gains. Keep track of the cost basis of your initial purchase and new shares that are acquired by reinvesting distributions. It's important to compare the costs of funds you are considering. Always look at "net" returns when comparing fund performances. Net return is the bottom line; an investment's true return after all costs are deducted.

Prospectuses will not contain all the costs that affect the net return on your investment. This is why it is important to compare net returns whether or not the fund in a no-load or load fund.

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CHAPTER 5.
5.1 Structure

Mutual funds in India

The structure of the mutual funds in India is governed by the SEBI (mutual funds) Regulations, 1996. These regulations make it mandatory for mutual funds to a have three tier structure of Sponsors Trustee Asset Management Company. The sponsor is the promoter of the mutual fund, and appoints the Trustees. The trustees are responsible to the investor in the mutual fund, and appoint the AMC for managing the portfolio. The AMC is the business face of the mutual fund, as it manages all the affairs of the mutual fund. The mutual fund and the AMC have to be registered with SEBI.

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5.2 Milestones of the Indian mutual fund industry The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets under Management (AUM) were Rs. 67bn. The private sector entry to the fund family raised the AUM to Rs. 470 billion in March 1993 and till April 2004; it reached the height of 1,540 billion. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling. 5.3 Phases The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under. 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.

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Second Phase - 1987-1993 (Entry of Public Sector Funds): Entry of non-UTI mutual funds. SBI Mutual Fund was the first 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 in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management. 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: This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29, 835 crores (as on January 2003). 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.

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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 AUM 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. 5.4 GROWTH IN ASSETS UNDER MANAGEMENT

CHART : 2 5.5 Recent trends in mutual fund industry The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind

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of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these. 5.6 Performance of mutual funds in India For 30 years it goaled without a single second player. Though the 1988 year saw some new mutual fund companies, but UTI remained in a monopoly position. The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yes, some 24 million shareholders was accustomed with guaranteed

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high returns by the beginning of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations of investors touched the sky in profitability factor. However, people were miles away from the preparedness of risks factor after the liberalization. The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets Under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance by April 2004. It rose as high as Rs. 1,540bn. The net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative investments. There were rather no choice apart from holding the cash or to further continue investing in shares. One more thing to be noted, since only closed-end funds were floated in the market, the investors disinvested by selling at a loss in the secondary market. The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal, the losses by disinvestments and of course the lack of transparent rules in the whereabouts rocked confidence among the investors. Partly owing to a relatively weak stock market performance, mutual funds have not yet recovered, with funds trading at an average discount of 1020 percent of their net asset value. The supervisory authority adopted a set of measures to create a transparent and competitive environment in mutual funds. Some of them were like relaxing investment restrictions into the market, introduction of open-ended funds, and paving the gateway for mutual funds to launch pension schemes. The measure was taken to make mutual funds the key instrument for long-term saving. The more the variety offered, the quantitative will be investors. At last to mention, as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time, more and more people will be

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inclined to invest until and unless they are fully educated with the dos and donts of mutual funds. 5.7 Future of mutual fund industry The mutual fund is having a good respect. It is likely to show a good progress in the coming years due to a variety of factors: 1. The securities and exchanges board is lending its full support for the promotion of the mutual fund industry directly as well as indirectly. For instance, it has allowed the promoters of a company to retain 75 per cent holding. It has also introduced the proportionate allotment scheme. All these factors stand in the way of small investors from entering into the capital market directly and they favor only big investors. So a small investor has to necessarily seek the services of a mutual fund industry with his meager savings. 2. In recent times, the interest rates on bank deposits have been declining. The household savers are looking for alternative avenues which could bring higher returns. The returns on the mutual fund schemes compare favorably with the returns on bank deposits. 3. Trends in rising PE ratio the entry of large domestic institutional investors, the opening of the market to the foreign investors would make stock market inaccessible to the small investors. Hence, they have to necessarily go to the mutual fund industry. 4. Mutual funds provide a wider range of products so as to meet the diverse needs of the investing public. The investors have a good choice to meet their different expectations like security, growth and liquidity. 5. The Government has also given the necessary impetus by providing tax concessions and tax exemptions. When the mutual fund industry is receiving a preferential treatment at the hands of the Government, it is bound to grow in future. 6. The department of company affairs has agreed to amend the companies act to grant voting rights in companies for mutual funds. 7. Again mutual funds have been permitted to underwrite shares also.

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All these factors would go a long way in making mutual funds an increasingly popular, lucrative and cost efficient vehicle for investment 5.8 PARTIES INVOLVED IN MUTUAL FUND DEALINGS

Investors Investors are the people who actually invest their money into the market. Every investor, given his financial position and personal disposition, has a certain inclination to take risk. The hypothesis is that by taking an incremental risk, it would be possible for the investor to earn an incremental return. Mutual Fund is a kind of solution for investors who lack the time, the inclination or the skills to actively manage their investment risk in individual securities. Investing through a mutual fund would make economic sense for an investor, if he fetches a return that is higher than what he would otherwise have earned by investing directly Trustee Trustees are the people within a mutual fund organization who are responsible for ensuring that investors interests in a scheme are properly taken care of. In return for their services, they are paid trustee fees, which are normally charged to the scheme.

Asset Management Company AMCs manage the investment portfolios of schemes. An AMCs income comes from the management fees it charges the schemes it manages. The management fee is calculated as a percentage of net assets managed. An AMC has naturally to employ people and bear all the establishment costs that are related to its activity out of its management fee earned. Distributors

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Distributors earn a commission for bringing investors into the schemes of a mutual fund. This commission is an expense for the scheme, although there are occasions when an AMC may choose to bear the cost, wholly or partly. Depending on the financial and physical resources at their disposal, the distributor could be; who have their own or franchised network reaching out to investors all across the country; distributors who are generally regional players with some reach within their region; distributors who are small and marginal players with limited reach.

CHAPTER 6. Association of Mutual Funds in India (AMFI)

6.1 Need 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 its Board of Directors. 39

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. 6.2 THE OBJECTIVES OF ASSOCIATION OF MUTUAL FUNDS IN INDIA The AMFI 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 a high professional and ethical standard 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. AMFI does 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 program of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awareness program for investors in order to promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate informations on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.

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6.3 Instruments of mutual funds Mutual fund schemes may be classified on the basis of its structure and its investment objective. BY STRUCTURE Open-ended schemes As the name implies the size of the scheme is open i.e., pre-determined. Entry to the fund is always open to the investor who can subscribe any time. Such fund stands ready to buy or sell its securities at any time. It implies that the capitalization of the fund is constantly changing as investors sell or buy their shares. Further, the shares or units are normally traded on the stock exchange but are repurchased by the fund at announced rates. Open-ended schemes have comparatively better liquidity despite the fact that these are not listed. The reason is that investor can any time approach mutual fund for sale of such units. No intermediaries are required. Moreover, the reasonable amount is certain since repurchase is at a price based on declared NAV. No minute to minute fluctuations in rates haunt the investors. The portfolio mix of such schemes has to be invested, which are actively traded in the market. Otherwise, it will not be possible to calculate NAV. This is the reason that generally open-ended schemes are equity based. Moreover, desiring frequently traded securities, open-ended schemes hardly have in their portfolio shares of comparatively new and smaller companies since these are not generally traded. In such funds, option to reinvest its dividend is also available. Since there is always a possibility of withdrawals, the management of such funds becomes more tedious as managers have to work from crisis to crisis. Crisis may be on two fronts, one is, that unexpected withdrawals require funds to maintain a high level of cash available every time implying thereby idle cash. Fund managers have to face questions like what to sell. He could very well have to sell his most liquid assets. Second, by virtue of this situation such funds may fail to grab favorable opportunities. Further, to match quick cash payments, funds cannot have matching realization from their portfolio due to intricacies of the stock market. Thus, success of the open-ended schemes to a great extent depends on the efficiency of the capital market. Close-ended scheme

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Such schemes have a definite period after which their shares/ units are redeemed. Unlike open-ended funds, these funds have fixed capitalization, i.e., their corpus normally does not change throughout its life period. Close ended fund units trade among the investors in the secondary market since these are to be quoted on the stock exchanges. Their price is determined on the basis of demand and supply in the market. Their liquidity depends on the efficiency and understanding of the engaged broker. Their price is free to deviate from NAV, i.e., there is every possibility that the market price may be above or below its NAV. If one takes into account the issue expenses, conceptually close ended fund units cannot be traded at a premium or over NAV because the price of a package of investments, i.e., cannot exceed the sum of the prices of the investments constituting the package. Whatever premium exists that may exist only on account of speculative activities. In India as per SEBI Regulations every mutual fund is free to lunch any or both types of schemes. Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices. By investment Growth Funds Such funds aim to achieve increase in the value of the underlying investments through capital appreciation. Such funds invest in growth oriented securities which can appreciate through the expansion production facilities in long run. An investor who selects such funds should be able to assume a higher than normal degree of risk Income Funds For investors who are more curious for returns, income funds are floated. Their objective is to maximize current income. Such funds distribute periodically the income earned by them. These funds can further be split up into categories: those that stress constant income at relatively low risk and those that attempt to achieve maximum income possible, even with the use of leverage. Obviously, the higher the expected returns, the higher potential risk of the investment.

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Balanced Fund The funds, which have in their portfolio a reasonable mix of equity and bonds, are known as balanced funds. Such funds will put more emphasis on equity share investments when the outlook is bright and will tend to switch to debentures when the future is expected to be poor for shares. Money Market Funds The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. Load Funds A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history.

No-Load Funds A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work. OTHER SCHEMES Tax Saving Schemes These schemes offer tax rebates to the investors under specific provision of the Income Tax Act, 1961 as the government offers tax incentives for investment in specific avenues. Example: equity linked Saving Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth 43

oriented and invest pre dominantly in equities. Their growth opportunities and risks are associated are like any equity oriented scheme. Special Schemes Industry Specific Schemes Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc. Index Schemes Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. Sectoral Schemes Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings. Various Sectoral schemes are: 1. Pharma sector schemes 2. FMCG sector schemes 3. Service sector schemes 4. Infrastructural sector schemes Bank sector schemes Auto sector schemes, etc,

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PLANS OF MUTUAL FUNDS

There are two types of plans. Those are: 1) Growth Plan 2) Dividend plan

Growth plan A mutual fund whose aim is to achieve capital appreciation by investing in growth stocks. They focus on companies that are experiencing significant earnings or revenue growth, rather than companies that pay out dividends. The hope is that these rapidly growing companies will continue to increase in value, thereby allowing the fund to reap the benefits of large capital gains. In general, growth funds are more volatile than other types of funds, rising more than other funds in bull markets and falling more in bear markets.

Dividend Plan Again dividend plan is sub divided into two parts: Dividend reinvestment plan (DRIP) An investment plan offered by some corporations enabling shareholders to automatically reinvest cash dividends and capital gains distributions, thereby accumulating more stock without paying brokerage commissions. Many DRIPs also allow the investment of additional cash from the shareholder, known as an optional cash purchase. Unlike with a Direct Stock Purchase Plan, with a DRIP the investor must purchase the first share in the company through a brokerage. After that, the company will take whatever dividends it would normally send as a check and instead it will reinvest them to purchase more shares in the company for you, all without charging a commission. The only drawback is that the investor has no control over when his/her money from the dividends is used to purchase new stock in the

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company, which means he/she might be buying new shares at sub-optimal times. Also called Dividend Reinvestment Programs. Dividend payout plan The ex-dividend date was created to allow all pending transactions to be completed before the record date. If an investor does not own the stock before the ex-dividend date, he or she will be ineligible for the dividend payout. Further, for all pending transactions that have not been completed by the ex-dividend date, the exchanges automatically reduce the price of the stock by the amount of the dividend. This is done because a dividend payout automatically reduces the value of the company (it comes from the company's cash reserves), and the investor would have to absorb that reduction in value (because neither the buyer nor the seller are eligible for the dividend). 6.4 Frequently used terms NET ASSET VALUE (NAV) The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the "per unit". We also abide by the same convention. SALE PRICE The price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. REPURCHASE / REDEMPTION PRICE The price at which a open ended and close-ended scheme repurchases its units and it may include a back-end load

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SALES LOAD An AMC may decide that investors should pay more than NAV for their investment in each unit of the scheme. This incremental amount is also called, Front-end load or Entry load. Schemes that do not charge a load are called No Load schemes. Therefore, the amount that needs to be paid is, Sale Price = NAV + Entry Load REPURCHASE OR BACK-END LOAD An AMC may decide that sellers would recover less than NAV for the units they sell in a scheme. This shortfall, borne by existing investors, is called the Exit load or Back-end load. Thus the amount will be, Sale Price = NAV Exit Load SYSTEMATIC INVESTMENT PLAN (SIP) SIP refers to the practice of investing a constant amount regularly, generally every month. When the market goes up, then the money invested in that period gets translated into a fewer number of units for the investor. If the market goes down, then the same money invested gets translated into more units. This investment style is also called rupee cost averaging. SYSTEMATIC WITHDRAWAL PLAN (SWP) Under SWP, the investor would withdraw constant amount periodically. The investor can temper gains and losses, though it does not prevent losses. SYSTEMATIC TRANSFER PLAN (STP) Investors exposure to different types of securities, whether debt or equity, should flow from their risk profile or risk appetite which is a function of their financial position and personal disposition. Through STP between plans, it is possible to maintain a target mix of debt and equity in ones portfolio.

EQUITY LINKED SAVING SCHEMES (ELSS) Equity-Linked Savings Schemes are by far the most exciting of all the tax-saving schemes. Nomination facility is available with ELSS. The units can be easily transferred by filling out a transfer form.

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ELSS offer under section 80C tax rebate on investments up to Rs 1, 00,000 in a financial year. The difference between the selling price and the cost price is taxable as capital gains in the year of sale, at 10 per cent or 20 per cent, depending on whether or not one can claim indexation benefits. ELSS is the mirror image of diversified equity funds. That means the fund manager will invest in shares of various companies across various industries. Hence, it is a normal equity diversified fund.

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CHAPTER.7 BASIS OF COMPARISON OF VARIOUS SCHEMES OF MUTUAL FUNDS

1. BETA A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Also known as "beta coefficient". Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta less than 1 means that the security will be less volatile than the market. A beta greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market. Many utilities stocks have a beta of less than 1. Conversely, most hi-tech NASDAQ-based stocks have a beta greater than 1, offering the possibility of a higher rate of return but also posing more risk. 2. ALPHA A measure of a mutual fund's risk relative to the market. The formula for alpha is the following: [ (sum of y) - ((b)(sum of x)) ] / n Where: n b x y = = = = number of observations (36 mos.) beta of the fund rate of return for the market rate of return for the fund

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An alpha of 1.0 means the fund outperformed the market 1.0%. A positive alpha is the extra return awarded to the investor for taking additional risk rather than accepting the market return. If a CAPM analysis estimates that a portfolio should earn 10% based on the risk of the portfolio but the portfolio actually earns 12%, then the alpha of the portfolio would be 2%. This 2% is the excess return over what was predicted in the CAPM model. 3. R-SQUARED A statistical measure that represents the percentage of a fund's or security's movements that are explained by movements in a benchmark index. For fixedincome securities the benchmark is the T-bill, and for equities the benchmark is the S&P 500. R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A higher R-squared value will indicate a more useful beta figure. For example, if a fund has an R-squared value of close to 100, yet has a beta below 1, it is most likely offering higher risk-adjusted returns. A low Rsquared means you should ignore the beta. 4. SHARPE RATIO A ratio developed by Nobel Laureate Bill Sharpe to measure risk-adjusted performance. It is calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns.

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The Sharpe ratio tells us whether the returns of a portfolio are because of smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. 5. STANDARD DEVIATION A measure of the dispersion of a set of data from its mean. The more spread apart the data is, the higher the deviation. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility (risk). A volatile stock would have a high standard deviation. In mutual funds, the standard deviation tells us how much the return on the fund is deviating from the expected normal returns. Standard deviation can also be calculated as the square root of the variance. 6. NAV In the context of mutual funds, the total values of the fund's portfolio less liability. The NAV is usually calculated on a daily basis. In terms of corporate valuations, the book values of assets less liability. The NAV is usually below the market price because the current value of the funds assets is higher than the historical financial statements used in the NAV calculation. Market Value of the Assets in the Scheme + Receivables + Accrued Income Liabilities - Accrued Expenses

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NAV = --------------------------------------------------------------------------------No. of units outstanding Where, Receivables: Whatever the Profit is earned out of sold stocks by the Mutual fund is called Receivables. Accrued Income: Income received from the investment made by the Mutual Fund. Liabilities: Whatever they have to pay to other companies are called liabilities. Accrued Expenses: Day to day expenses such as postal expenses, Printing, Advertisement Expenses etc., Calculation of NAV Scheme ABN Scheme Size Rs. 5, 00, 00,000 (Five Crores) Face Value of Units Rs.10/Scheme Size --------------------------Face value of units = 5, 00, 00,000 ------------------10 = 50, 00,000

The fund will offer 50,00,000 units to Public. Investments : Equity shares of Various Companies. Market Value of Shares is Rs.10,00,00,000 (Ten Crores)

Rs. 10,00,00,000 NAV = -------------------------50,00,000 units Thus each unit of Rs. 10/- is Worth Rs.20/= Rs.20/-

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It states that the value of the money has appreciated since it is more than the face value.

CHAPTER 8 Marketing strategies adopted by the Mutual Fund Companies

8.1 Strategies The present marketing strategies of mutual funds can be divided into two main headings: Direct Marketing Selling through intermediaries Joint Calls

Direct Marketing: This constitutes 20% of the total sales of mutual funds. Some of the important tools used in this type of selling are: Personal Selling: In this case the customer support officer of the fund at a particular branch takes appointment from the potential prospect. Once the appointment is fixed, the branch officer also called Business Development Associate (BDA) in some funds then meets the prospect and gives him all details about the various schemes being offered by his fund. The conversion rate in this mode of selling is in between 30% - 40%. Telemarketing In this case the emphasis is to inform the people about the fund. The names and phone numbers of the people are picked at random from telephone directory. Sometimes people belonging to a particular profession are also contacted through phone and are then informed about the fund. Generally the conversion rate in this form of marketing is 15% - 20%.

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Direct Mail This one of the most common method followed by all mutual funds. Addresses of people are picked at random from telephone directory. The customer support officer (CSO) then mails the literature of the schemes offered by the fund. The follow up starts after 3 4 days of mailing the literature. The CSO calls on the people to whom the literature was mailed. Answer their queries and is generally successful in taking appointments with those people. It is then the job of BDA to try his best to convert that prospect into a customer. Advertisements in newspapers and magazines The funds regularly advertise in business newspapers and magazines besides in leading national dailies. The purpose to keep investors aware about the schemes offered by the fund and their performance in recent past. Hoardings and Banners In this case the hoardings and banners of the fund are put at locations of the city where the movement of the people is very high. Generally such hoardings are put near UTI offices in order to tap people who are at present investing in UTI schemes. The hoarding and banner generally contains information either about one particular scheme or brief information about all schemes of fund. Selling through intermediaries: Intermediaries contribute towards 80% of the total sales of mutual funds. these are the people/ distributors who are in the direct touch with the investors. They perform an important role in attracting new customers. Most of these intermediaries are also involved in selling shares and other investment instruments. They do a commendable job in convincing investors to invest in mutual funds. A lot depends on the after sales services offered by the intermediary to the customer. Customers prefer to work with those intermediaries who give them right information about the fund and keep them abreast with the latest changes taking place in the market especially if they have any bearing on the fund in which they have invested. Regular meeting with distributors: Most of the funds conduct monthly or bi-monthly meetings with their distributors. The objective is to hear their complaints regarding service aspects from funds side

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and other queries related to the market situation. Sometimes, special training programmes are also conducted for the new agents or distributors. Training involves giving details about the products of the fund, their present performance in the market, what the competitors are doing and what they can do to increase the sales of the fund. Joint calls: This is generally done when the prospect seems to be a high net worth investor. The BDA (business development associate) and agent together visit the prospect and brief him about the fund. The conversion rate is very high in this situation, generally, around 60%. Both the fund and agent provide even after sale services in this particular case. Marketing of funds: challenges AND OPPORTUNITIES Assessing of investors needs and market research Responding to investors needs Product designing Studying the macro environment Timing of the launch of the product Choosing the distribution network Finalizing strategies for publicity and advertising Preparing offer documents and other literature Getting feedback about sales Studying performance indicators about fund performance like NAV Sending certificates in time and other sales activities Honoring the commitments made for redemption and repurchase Paying dividends and entitlements Creating positive image about the funds and changing the nature of the market itself

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CHAPTER 9 HYBRID AND TAX SAVING SCHEMES

9.1 OVERVIEW HYBRID SCHEMES: 1. Franklin Templeton India Balanced Fund 2. Templeton India Childrens Asset Plan TAX SAVING SCHEMES : 1. Franklin India Tax shield 2. Templeton India Pension Plan

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HYBRID AND TAX SAVING SCHEMES HYBRID SCHEMES TAX SAVING SCHEMES FT INDIA TEMPLETON FRANKLIN INDIA TEMPLETON BALANCED INDIA FUND OBJECTIVE To provide long term capital and current income CHILDRENS ASSET PLAN To provide To provide medium to regular income under the education plan and long term capital appreciation long term growth of capital along with income tax rebate TAXSHIELD INDIA PENSION PLAN To provide investors regular income under dividend plan and capital appreciation under growth plan TYPE OF INTRUMENTS EQUITY 51% - 70% Education plan 0% 20% Gift plan 40% DEBT SECURITIES 30% - 50% - 60% Education plan 80% 100% Gift plan 40% MONEY MARKET 30% - 50% - 60% Education plan 80% 100% Gift plan 40% - 60% PLANS AND OPTIONS 1. Growth plan 2. Dividend plan(with DP and DR options) Upto 20% Upto 60% Upto 20% (PSU Bonds/debentures) Upto 60% Upto 100% Upto 40%

NAME OF FUN FUND

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9.2 Analysis of hybrid and tax savig funds TABLE : 3 COMPARISON OF FRANKLIN MUTUAL FUNDS WITH OTHER FUNDS

BALANCED FUND FRANKLIN TEMPLETON PRUDENTIAL INDIA OBJECTIVE FUND To provide BALANCED BALANCED FUND long term To generate along capital with ICICI

capital and current income TYPE OF SCHEME AMC Open ended

appreciation

current income balanced Open ended ICICI

balanced Asset

scheme scheme Franklin Templeton Asset Prudential Management (India)

Pvt. Management Company ltd.

Ltd. TYPE OF INSTRUMENTS Equity 51% - 70% Debt 30% - 50% Money market 30% - 50% MINIMUM Rs. 5000 INVESTMENT NAV PERFORMANCE 17.40% (since inception) INCEPTION DATE STANDARD DEVIATION SHARPE RATIO BETA ALPHA R-SQUARED December1999 4.57 0.35 1.09 0.53 0.85 TABLE : 4

65% - 80% 20% - 35% 20% - 35% Rs. 5000 17.86% October1999 4.76 0.38 1.11 0.72 0.81

TAXSHIELD FUND

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FRANKLIN OBJECTIVE

INDIA RELIANCE

TAX

TAXSHIELD SAVER FUND To provide medium to long term To generate long term growth of capital along with capital appreciation income tax rebate Open end equity linked saving Open scheme Franklin Templeton

TYPE OF SCHEME AMC

end

equity

linked saving scheme Asset Reliance Capital Asset Ltd. Management

Management (India) Pvt. Ltd. TYPE OF INSTRUMENTS Equity Up to 100% Debt & money market Upto 20% MINIMUM Rs. 500 INVESTMENT NAV PERFORMANCE 36.59% (since inception) INCEPTION DATE STANDARD DEVIATION SHARPE RATIO BETA ALPHA R-SQUARED April1999 6.35 0.36 0.88 0.37 0.85 TABLE : 5

80% - 100% Upto 20% Rs. 500 34.07% August2005 -

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CHAPTER 10. ASSET MANAGEMENT COMPANIES (AMCs)

10.1 About A company formed primarily to act as a manager of another entity, distance control of the other entity from the owners, and absorb liabilities arising from the management function. Company that invests the pooled funds of retail investors for a fee. By aggregating the funds of a large number of small investors into a specific investments (in line with the objectives of the investors), an investment company gives individual investors access to a wider range of securities than the investors themselves would have been able to access. Also, individual investors should be able to save on trading costs since the investment company is able to gain economies of scale in operations. 10.2 How Do Mutual Funds Companies work? A mutual fund is a company that pools investors' money to make multiple types of investments, known as the portfolio. Stocks, bonds, and money market funds are all examples of the types of investments that may make up a mutual fund.

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The mutual fund is managed by a professional investment manager who buys and sells securities for the most effective growth of the fund. As a mutual fund investor, you become a "shareholder" of the mutual fund company. When there are profits you will earn dividends. When there are losses, your shares will decrease in value. Mutual funds are, by definition, diversified, meaning they are made up a lot of different investments. That tends to lower your risk (avoiding the old "all of your eggs in one basket" problem). Because someone else manages them, you don't have to worry about diversifying individual investments yourself or doing your own record keeping. That makes it easier to just buy them and forget about them. That's not always the best strategy, however -- your money is in someone else's hands, after all. Since the fund manager's compensation is based on how well the fund performs, you can be assured they will work diligently to make sure the fund performs well. Managing their fund is their full-time job! Mutual funds can be open-ended or closed-ended. But many people consider all mutual funds to be open-ended, while putting closed-ended funds in another category. "Open-ended" means that shares are issued in the fund (or sold back to the fund) whenever anyone wants them. With closed-ended funds, only a certain number of shares can be issued for a particular fund, and they can only be sold back to the fund when the fund itself terminates. (You can sell closed-ended funds to other investors on the secondary market, though.) Load refers to the sales charges added to a mutual fund when you purchase it. The load charge goes to the fund salesperson as a commission and payment for their research services. Load charges can be up to 8.5 percent of the selling price and can be figured in as a front-end load (meaning you pay it when you buy the mutual fund) or a back-end load (meaning you pay when you sell the mutual fund). Many mutual funds are no-load funds. Yes, that means there is no sales fee charged and the fund is direct-marketed so you can buy it without the help of a salesperson. With the wealth of information on the Internet today, it is certainly easier to make smart choices yourself to save money.

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In addition to no-load funds, there are also funds that charge up to 3.5 percent as a sales fee. These are called low-load funds and can still be a good deal. Mutual funds fall into three categories:

Equity funds are made up of investments of only common stock. Fixed-income funds are made up of government and corporate Balanced funds combine both stocks and bonds in the investment

These can be riskier (and earn more money) than other types.

securities that provide a fixed return and are usually low risk.

pool and offer a moderate to low risk. While low risk may sound good, it is also accompanied by lower rates of return-meaning you risk less, but your investment won't earn as much. You have to decide how much risk you're willing to take on before you invest your money. If you have invested in a college savings fund or a 401k account, chances are good that already own a few mutual funds. Mutual funds are great for long-term investments like these. You can also buy mutual funds directly from a mutual fund company. Most of these offer no-load funds (or sometimes low-load funds). You can find lists of mutual fund companies on the Internet and purchase shares by simply filling out an application and mailing a check. Once you are a shareholder, you will receive statements telling you how the fund is doing as well as how much your own investment is growing. You can also set up monthly bank transfers to automatically buy more shares every month. Remember to do your research and select a mutual fund that fits the level of risk you are willing to take with your hard-earned cash. Then just sit back and hope for the best! For more information on investing and financial planning, check out the links on the next page. 10.3 Expenses on Mutual Funds Investment Because mutual funds are professionally managed investments, there are management fees and operating expenses associated with investing in a fund. These fees and

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expenses charged by the fund are passed onto shareholders and deducted from the fund's return. These expenses are typically expressed as the expense ratio - the percent of fund assets spent (annually) on day-to-day operations. Expense ratios can vary widely among funds. Expense ratios for mutual funds commonly range from 0.2% to 2.0%, depending on the fund. Consult the fund's prospectus to determine the expense ratio for a specific fund. Make yourself aware of all fees and expenses that impact the fund's return by reducing gains and increasing losses.

Defining Mutual Fund costs All mutual funds have costs, but some funds are more expensive to own than others. Be conscious of the effect of seemingly minor cost differences which can significantly affect the growth of your investment assets, especially over longer periods of time.

Mutual fund costs fall into two main categories: One-time fees and ongoing annual expenses. Not all funds charge one-time fees, but all funds charge ongoing annual fees of some sort. One-Time Fees Loads Loads come in three forms:

Front-End Load
o

Charged when you purchase fund shares-usually class A shares, effectively reducing your purchase amount. May be charged on reinvested distributions. Can be as high as 8.5%. 63

o o

Back-End Load
o o

Charged when you sell fund shares. Usually assessed based on the length of time you have held your shares, and declines over time. Maximum allowed is 8.5%, but this is rarely seen. According to Lipper Inc., back-end loads can be as high as 6% if you sell shares within one year.

Level Load
o

Deducted annually from fund assets as marketing and distribution costs. Used to pay commissions to brokers and the fund's financial adviser, and is generally reported as part of a fund's operating expenses. Can be as high as 0.75% per year, according to Lipper Inc.

How to reduce a front-end load on class A shares 1. Rights of Accumulation (ROI): Your current aggregate investment

determines the initial sales load you pay. You may qualify for reduced sales charges when the current market value of holdings (shares at current offering price), plus new purchases, reaches a specific break point determined by the individual fund. 2. Statement or Letter of Intention (SOI or LOI): You may obtain a reduced sales charge by means of a written SOI/LOI which expresses your nonbinding commitment to invest an amount in the aggregate over a break point within a given period of time specified by the fund. 3. Break Points: Sales charges are reduced when the amount of purchase exceeds a specified dollar figure. The more money that is invested, the lower the sales charge will be. Consult the individual fund's prospectus to determine a fund's break points. Funds that have no sales charges are known as "no-load," while funds that charge loads of 1% to 3% are called "low-load." Keep in mind; funds that have lower loads

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or no-loads tend to have higher operating expenses. Again, read each fund's prospectus and compare "net" returns. Ongoing Annual Expenses

Management Fees Distribution and Service Fees Other Expenses Underlying Fund Expenses

Other fees In addition to sales loads, fund companies and brokerages may charge other fees when you buy or sell fund shares. A transaction fee is charged by some brokerage firms for purchasing or selling shares. Transaction fees are sometimes referred to as commissions but are extra costs not normally paid if you were to purchase your fund directly with the fund family. Some fund companies and brokerages may charge a redemption fee if the fund is held for less than a certain period of time, generally between 90 and 180 days. These charges are intended to discourage short-term trading that can raise a fund's administrative costs. To find out more about fees read the fund's prospectus and consult your broker. Not all funds assess these "extra" fees. In fact, funds and brokerages may not charge a sales load, transaction fees or redemption fees. When buying mutual funds, find out about all of the fees that might be involved and when they are charged. Things to keep in mind while picking up a Mutual Fund You can buy some mutual funds (no-load) by contacting the fund companies directly. Other funds are sold through brokers, banks, financial planners, or insurance agents. If you buy through a third party there is a good chance they'll hit you with a sales charge (load).

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That being said, more and more funds can be purchased through no-transaction fee programs that offer funds of many companies. Sometimes referred to as a "fund supermarket," this service lets you consolidate your holdings and record keeping, and it still allows you to buy funds without sales charges from many different companies. Popular examples are Schwab's OneSource, Vanguard's FundAccess, and Fidelity's FundsNetwork. Many large brokerages have similar offerings. Selling a fund is as easy as purchasing one. All mutual funds will redeem (buy back) your shares on any business day. In the United States, companies must send you the payment within seven days. Net asset value (NAV), which is a fund's assets minus liabilities, is the value of a mutual fund. NAV per share is the value of one share in the mutual fund, and it is the number that is quoted in newspapers. You can basically just think of NAV per share as the price of a mutual fund. It fluctuates everyday as fund holdings and shares outstanding change. When you buy shares, you pay the current NAV per share plus any sales front-end load. When you sell your shares, the fund will pay you NAV less any back-end load.

How to Read a Mutual Fund Table

TABLE : 6

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Columns 1 & 2: 52-Week High and Low - These show the highest and lowest prices the mutual fund has experienced over the previous 52 weeks (one year). This typically does not include the previous day's price.

Column 3: Fund Name - This column lists the name of the mutual fund. The company that manages the fund is written above in bold type. Column 4: Fund Specifics - Different letters and symbols have various meanings. For example, "N" means no load, "F" is front end load, and "B" means the fund has both front and back-end fees. For other symbols see the legend in the newspaper in which you found the table. Column 5: Dollar Change -This states the dollar change in the price of the mutual fund from the previous day's trading. Column 6: % Change - This states the percentage change in the price of the mutual fund from the previous day's trading. Column 7: Week High - This is the highest price the fund traded at during the past week. Column 8: Week Low - This is the lowest price the fund traded at during the past week. Column 9: Close - The last price at which the fund was traded is shown in this column. Column 10: Week's Dollar Change - This represents the dollar change in the price of the mutual fund from the previous week. Column 11: Week's % Change - This shows the percentage change in the price of the mutual fund from the previous week.

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10.4 How to analysis Mutual Funds Return Perhaps you've noticed all those mutual fund ads that quote their amazingly high oneyear rates of return. Your first thought is "wow, that mutual fund did great!" Well, yes it did great last year, but then you look at the three-year performance, which is lower, and the five year, which is yet even lower. What's the underlying story here? Let's look at a real example. These figures came from a local paper: 1 year 53% 3 year 20% 5 year 11% TABLE:7 Last year, the fund had excellent performance at 53%. But in the past three years the average annual return was 20%. What did it do in years 1 and 2 to bring the average return down to 20%? Some simple math shows us that the fund made an average return of 3.5% over those first two years: 20% = (53% + 3.5% + 3.5%)/3. Because that is only an average, it is very possible that the fund lost money in one of those years. It gets worse when we look at the five-year performance. We know that in the last year the fund returned 53% and in years 2 and 3 we are guessing it returned around 3.5%. So what happened in years 4 and 5 to bring the average return down to 11%? Again, by doing some simple calculations we find that the fund must have lost money, an average of -2.5% each year of those two years: 11% = (53% + 3.5% + 3.5% - 2.5% - 2.5%)/5. Now the fund's performance doesn't look so good! It should be mentioned that, for the sake of simplicity, this example, besides making some big assumptions, doesn't include calculating compound interest. Still, the point wasn't to be technically accurate but to demonstrate how misleading mutual fund ads can be. A fund that loses money for a few years can bump the average up significantly with one or two strong years. 10.5 AMCs operating currently are: Name of the AMC Nature of ownership

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Alliance Capital Asset Management Pvt. Ltd. Birla Sun Life Asset Management Co. Ltd. Bank of Baroda Asset Management Co. Ltd Bank of India Asset Management Co. Ltd Canbank Investment Management Services Ltd. Escorts Asset Management Ltd. First India Asset Management Ltd. GIC Asset Management Company Ltd. IDBI Investment Management Co. Ltd. Indfund Management Limited ING Investment Asset Management Co. Pvt. Ltd. J M Capital Management Limited Kotak Mahindra Asset Management Co. Ltd. Kothari Pioneer Asset Management Co. Ltd Jeevan Bima Sahayog Asset Management Co. Ltd Morgan Stanley Asset Management Co. Pvt. Ltd. Punjab National Bank Asset Management Co. Ltd

Private foreign Private Indian Banks Banks Banks Private Indian Private Indian Institutions Institutions Banks Private foreign Private Indian Private Indian Private Indian Institutions Private foreign Banks

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Reliance Capital Asset Management Co. Ltd State Bank of India Funds Management Ltd. Shriram Asset Management Co. Ltd Sun F and C Asset Management (I) Pvt. Ltd. Sundaram Newton Asset Management Co. Ltd Tata Asset Management Co. Ltd Credit Capital Asset Management Co. Ltd Templeton Asset Management (India) Pvt. Ltd. Unit Trust of India

Private Indian Banks Private Indian Private foreign Private foreign Private Indian Private Indian Private foreign Institutions

BRIEF DESCRIPTION ABOUT SOME OF THE AMCS IS: 1) Reliance Capital Asset Management Company Limited (RCAM) Reliance Capital Asset Management Limited (RCAM), a company registered under the Companies Act, 1956 was appointed to act as the Investment Manager of Reliance Mutual Fund. Reliance Capital Asset Management Limited is a wholly owned subsidiary of Reliance Capital Limited, the sponsor. The entire paid-up capital (100%) of Reliance Capital Asset Management Limited is held by Reliance Capital Limited. Reliance Capital Asset Management Limited was approved as the Asset Management Company for the Mutual Fund by SEBI. The Mutual Fund has entered into an Investment Management Agreement (IMA) with RCAM dated May 12, 1995 and was

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amended on August 12, 1997 in line with SEBI (Mutual Funds) Regulations, 1996. Pursuant to this IMA, RCAM is authorized to act as Investment Manager of Reliance Mutual Fund. The net worth of the Asset Management Company including preference shares as on March 31, 2005 is Rs.30.13 crores. Reliance Mutual Fund has launched twenty five Schemes till date, namely: Reliance Vision Fund (September 1995), Reliance Growth Fund (September 1995) Reliance Income Fund (December 1997), Reliance Liquid Fund (March 1998), Reliance Medium Term Fund (August 2000), Reliance Short Term Fund (December 2002), Reliance Fixed Term Scheme (March 2003), Reliance Banking Fund (May 2003), Reliance Gilt Securities Fund (July 2003), Reliance Monthly Income Plan (December 2003), Reliance Diversified Power Sector Fund (March 2004) Reliance Pharma Fund ( May 2004), Reliance Floating Rate Fund (August 2004), Reliance Media & Entertainment Fund (September 2004), Reliance NRI Equity Fund (October 2004), Reliance NRI Income Fund (October 2004), Reliance Index Fund (January 2005), Reliance Equity Opportunities Fund (February 2005), Reliance Fixed Maturity Fund - Series I (March 2005), Reliance Fixed Maturity Fund - Series II (April 2005), Reliance Regular Saving Fund (May 2005), Reliance Liquidity Fund (June 2005), Reliance Tax Saver (ELSS) Fund (July 2005), Reliance Fixed Tenor Fund (November 2005) and Reliance Equity Fund (Feb 2006). RCAM has been registered as portfolio managers vide SEBI Registration and renewed effective 1st August, 2003. RCAM has commenced these activities. It has been ensured that key personnel of the AMC, the systems, back office, bank and securities accounts are segregated activity wise and there exists systems to prohibit access to inside information of various activities. As per SEBI Regulations, it will further ensure that AMC meets the capital adequacy requirements, if any, separately for each such activity.

2) Birla Sun Life Asset Management Company Limited (BSLAMC) Birla Sun Life Asset Management Company Ltd. (BSLAMC), the investment managers of Birla Mutual Fund, is a joint venture between the Aditya Birla Group and the Sun Life Financial Services Inc. of Canada. The joint venture brings together

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the Aditya Birla Groups' experience in the Indian market and Sun Life's global experience. Since its inception in 1994, Birla Mutual Fund has emerged as one of India's leading Mutual Funds with over Rs. 16,500 crores * of assets under management and an investor base in excess of 8 lakhs. The fund offers a range of investment options, which include diversified and sector specific equity schemes, fund of fund schemes, hybrid and monthly income funds, a wide range of debt and treasury products and offshore funds. BSLAMC is the first asset management company in India to be awarded the coveted ISO 9001:2000 certification by DNV, Netherlands. BSLAMC also provides private Wealth Management services. BSLAMC follows a long-term, fundamental research based approach to investment. The approach is to identify companies, which have excellent growth prospects and strong fundamentals. The fundamentals include the quality of the companys management, sustainability of its business model and its competitive position, amongst other factors. Birla Sun Life Asset Management Company has one of the largest team of research analysts in the industry, dedicated to tracking down the best companies to invest in. Birla Sun Life AMC strives to provide transparent, ethical and research-based investments and wealth management services. Vision To be the most trusted name in investment and wealth management, to be the preferred employer in the industry and to be a catalyst for growth and excellence of the asset management business in India. Mission To consistently pursue investor's wealth optimization by: Achieving superior and consistent investment results. Creating a conducive environment to hone and retain talent.

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 Values

Providing customer delight. Institutionalizing system-approach in all aspects of functioning. Upholding highest standards of ethical values at all times.

Integrity Commitment Passion Seamlessness Speed

3) Sundaram Newton Asset Management Company Sundaram BNP Paribas Mutual has assets under management to the tune of more than USD 1 billion helps investors to reach their financial goals by delivering consistent performance Vision To be a significant player in the Indian asset management space and be one of the top ten Mission To provide people the best experience in accessing financial markets. 4) Kotak Mahindra Asset Management Company Limited (KMAMC) Kotak Mahindra Mutual Fund (KMMF) is managed by Kotak Mahindra Asset Management Company Ltd., a wholly owned subsidiary of Kotak Mahindra Bank Ltd. Kotak Mahindra Mutual Fund launched its Schemes in December 1998 and today manages over Rs.13,635.83 crores of assets from close to 4,34,622 investors in various schemes. Kotak Mahindra is one of India's leading financial institutions, offering complete financial solutions that encompass every sphere of life. From commercial banking, to 73 asset managers. through judicious investment practices.

stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the financial needs of individuals and corporates.

The group has a net worth of over Rs. 2,500 crore, employs around 6,700 people in its various businesses and has a distribution network of branches, franchisees, representative offices and satellite offices across 250 cities and towns in India and offices in New York, London, Dubai and Mauritius. The Group services over 1.6 million customer accounts.

Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned subsidiary of KMBL, is the asset manager for Kotak Mahindra Mutual Fund (KMMF). KMAMC started operations in December 1998 and has close to 4, 27,450 investors in various schemes. KMMF offers schemes catering to investors with varying risk - return profiles and was the first fund house in the country to launch a dedicated gilt scheme investing only in government securities. 5) ING Investment Asset Management Company Private Limited (INGIM) ING Group is a global financial services company of Dutch origin with 150 years of experience, providing a wide array of banking, insurance and asset management services in over 50 countries. Our 114,000 employees work daily to satisfy a broad customer base: individuals, families, small businesses, large corporations, institutions and governments. Based on market capitalization, ING is one of the 20 largest financial institutions worldwide and in the top-10 in Europe. Mission We strive to deliver our financial products and services in the way our customers expect with exemplary service, maximum convenience and at competitive rates. This is reflected in our mission statement: To set the standard in helping our customers manage their financial future. Stakeholders

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ING conducts its business on the basis of clearly defined business principles. In all our activities we carefully weigh the interests of our stakeholders: customers, employees, shareholders, business partners and society at large. ING strives to be a good corporate citizen. ING Investment Management Limited (INGIM) is part of the specialist investment network of ING Group. INGIM employs around 2,300 staff in 29 countries across three broad geographic regions: Europe, the Americas and Asia Pacific. Its global assets under management total more than a$563 billion as at 30 September 2005. INGIMs investment approach INGIMs investment philosophy maintains that markets have inefficiencies and active portfolio management should generate superior long-term investment returns. INGIM aims to deliver consistently attractive returns for investors over the long term at acceptable levels of risk. INGIM believes that investment markets are ultimately driven by trends in the economic cycle, and a particular asset class tends to perform differently to other asset classes at any given point in the cycle. INGIMs active portfolio management aims to take advantage of asset class trends, adding value and managing risk.

6) TATA Asset Management Company Tata Asset Management is one of India's fastest-growing fund management companies, with over Rs 6,200 crore of assets under management from over 350,000 investors. Established in 1995, it is also one of the oldest fund management companies in the Indian private sector. Tata Asset Management is focused on identifying investment avenues to generate medium term returns for corporate investors. The company uses the latest and the best fund management processes and techniques to service its organizational clients

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through 16 branches across the country, associates in seven other cities in India and 57 investor servicing centers. The company offers a wide range of investment products for institutional investors, with schemes which include equity / debt and balanced options across the risk-return spectrum. Among these are: 7) State Bank of India Funds Management Limited Banks The greater sophistication and diversity of investors' asset management needs requires investment management firms to offer, in a timely manner, products that meet the needs of a wide range of investors. SBI Asset Management leverages its position as an independent management company, and utilizes domestic and overseas resources, to offer investors not just conventional financial products, such as domestic and overseas stocks and bonds, but alternative investment products as well, including unlisted stocks and hedge funds. Investing in Promising Unlisted Stocks. Very few asset management companies offer investors a chance to invest in unlisted stocks through public subscription investment trust, because this requires sophisticated know-how that differs from conventional listed stock investing. SBI Asset Management leverages the know-how it has accumulated through years of experience in the SBI Group discovering promising new companies, carrying out due diligence, following up on business trends to offer investors an opportunity to invest in unlisted stocks through mutual funds.

8) Unit Trust of India

Genesis Jan 14, 2003 is when UTI Mutual Fund started to pave its path following the vision of UTI Asset Management Company Limited, who has been appointed by the UTI Trustee Pvt. Limited Co. for managing the schemes of UTI Mutual Fund and the schemes transferred/migrated from the erstwhile Unit Trust of India.

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The UTI Asset Management Company provides professionally managed back office support for all business services of UTI Mutual Fund (excluding fund management) in accordance with the provisions of the Investment Management Agreement, the Trust Deed, the SEBI (Mutual Funds) Regulations and the objectives of the schemes. State-of-the-art systems and communications are in place to ensure a seamless flow across the various activities undertaken by UTIMF. UTI AMC is a registered portfolio manager under the SEBI (Portfolio Managers) Regulations, 1993 on 3rd February 2004, for undertaking portfolio management services and also acts as the manager and marketer to offshore funds through its 100 % subsidiary, UTI International Limited, registered in Guernsey, Channel Islands. Assets Under Management UTI Asset Management Company presently manages a corpus of over Rs. 38,358 Crores* as on 31st October 2008 (source: www.amfiindia.com). UTI Mutual Fund has a track record of managing a variety of schemes catering to the needs of every class of citizenry. It has a nationwide network consisting 103 UTI Financial Centres (UFCs) and UTI International offices in London, Dubai and Bahrain. With a view to reach to common investors at district level, 1 satellite offices have also been opened in select towns and districts. We have a well-qualified, professional fund management team, who have been highly empowered to manage funds with greater efficiency and accountability in the sole interest of unit holders. The fund managers are also ably supported with a strong inhouse securities research department. To ensure better management of funds, a risk management department is also in operation. Reliability UTIMF has consistently reset and upgraded transparency standards. All the branches, UFCs and registrar offices are connected on a robust IT network to ensure costeffective quick and efficient service. All these have evolved UTI Mutual Fund to position as a dynamic, responsive, restructured, efficient and transparent SEBI compliant entity. Vision To be the most Preferred Mutual Fund. Our mission is to make UTI Mutual Fund: The most trusted brand, admired by all stakeholders The largest and most efficient money manager with global presence The best in class customer service provider The most preferred employer The most innovative and best wealth creator A socially responsible organization known for best corporate governance

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9) Morgan Stanley Starting as a small firm of 20 in 1935 in New York, and growing to an international workforce of over 54,000 people around the world, Morgan Stanley is a leader in providing the finest in financial thinking, products and execution for companies, governments and institutional investors from around the globe. Our people, thought leadership and product offerings across Investment Management, Investment Banking, Sales and Trading, Prime Brokerage and Research serve the diverse needs of our clients and are consistently ranked best in class across the industry. With more than 600 offices in 32 countries, Morgan Stanley connects people, ideas, and capital to help clients achieve their financial aspirations.

For further details, please visit www.morganstanley.com Morgan Stanley Investment Management For over 35 years, Morgan Stanley Investment Management (MSIM) has committed to delivering exceptional service and superior investment results for our clients. MSIM synthesizes the benefits of size, scale and global scope with the focus and dedication of a boutique firm. Our commitment to innovative research, customized solutions, world-class investment expertise and intelligent risk management is driven by a thorough understanding of our clients needs and objectives. The India Magnum Fund, an offshore fund set up in 1989, marked the entry of Morgan Stanley in the Indian market. Morgan Stanley Growth Fund (MSGF) was the first scheme launched in India in 1994. Morgan Stanley Mutual Fund currently has assets under management Rs.1983.83 (Oct. 31, 2008) in MSGF. Why Morgan Stanley Investment Management

One of the largest global asset management organizations with US $ 570 billion under management (August 31, 2008)

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Long history in Indian markets Global investment perspective Focus and dedication of a boutique firm Strong ethical framework Strong risk management and operational capabilities Depth of firm-wide resources

CHAPTER 11. Conclusion

Financial experts believe that the future of Mutual Funds in India will be very bright. It has been estimated that by March-end of 2010, the mutual fund industry of India will reach Rs 40, 90,000 crores, taking into account the total assets of the Indian commercial banks. The estimation was based on the December 2004 asset value of Rs 1, 50,537 crores. In the coming 10 years the annual composite growth rate is expected to go up by 13.4%. Since the last 5 years, the growth rate was recorded as 9% annually. Based on the current rate of growth, it can be forecasted that the mutual fund assets will be double by 2010. 79

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.

ANNEXURE 1
PROJECT PROPOSAL
NAME OF THE LEARNER: KAPIL DEV REGISTRATION NO: PROGRAM NAME: 200618916 PGDBA

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SPECIALIZATION: ADDRESS:

FINANCE HOUSE NO. 3041-A SECTOR-52 CHANDIGARH

TITLE OF THE PROJECT

STUDY OF GROWTH PROSPECTS & OPTIONS AVAILABLE IN MUTUAL FUND INDUSTRY IN INDIA Objectives: To make investor aware about the mutual fund industry. To analyze the various mutual fund schemes and recommending the scheme which better suits to the investor of its own type. Need for the topic: The need of topic Study of Mutual Fund Industry & various mutual funds schemes in India is to find what are the advantage & disadvantage of Investment in mutual fund schemes.

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Methodology and Procedure of Work: 1. PRIMARY DATA Questionnaires Interview (direct method)

2. SECONDARY DATA Broachers Magazines Web site CNBC channel

After collecting the data, through above method, empirical study is perform, which rely on experience or observation. It is data base study coming up with conclusions though observation or experience.

DETAIL INFORMATION OF THE GUIDE

Name of Company Guide: Address:

Mr. Hemant Kumar Franklin Templeton Mutual Fund S.C.O. 373-374, Ist Floor, (Next to HDFC Bank), Sector 35-B Chandigarh 160022

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Ph: 0172-4664291 http://www.franklintempletonindia.com/ Qualification: MBA in Finance from University Business School, Punjab University, Chandigarh Designation: Experience: various Industries Territory Manager Five year experience in Financial

ANNEXURE 2
References
FACTSHEETS OF FRANKLIN TEMPLETON

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WEBSITES

www.franklintempletonindia.com www.valueresearchonline.com www.amfiindia.com www.moneycontrol.com www.equitymaster.com www.morningstar.com www.mutualfundsindia.com www.google.com

MATERIAL PROVIDED BY FRANKLIN TEMPLETON

ANNEXURE 3
List Of Charts & Diagrams 84

DIAGRAMS: DIAGRAM 1 CHARTS : CHART 1 CHART 2 : : :

DESCRIPTION Where do Mutual Funds Invest DESCRIPTION Types Of Mutual Funds Different Phases Of Assets Under Management

TABLES: TABLE 1 TABLE 2 TABLE 3 TABLE 4 TABLE 5 TABLE 6 TABLE 7 : : : : : : :

DESCRIPTION Identifying Ones Financial Needs and Goals Estimate your required rate of return Overview Of Hybrid And Tax Saving Schemes Comparison Of Franklin Mutual Funds With Other Funds Taxshield Fund How to Read a Mutual Fund Table How to analysis Mutual Funds Return

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