Final Project

Study On Investment pattern of HNIs Reliance Money

A Study On The Investment Patterns Of High Networth Individuals In

Ahmedabad

(A Focus On Mutual Fund)

For The Organization

Reliance Capital Asset Management Limited

A PROJECT REPORT SUBMITTED

BY

HARSHA HARJANI (08075)

SAVITRI FUFAL (08073)

BATCH - 2

Submitted To: A J BHAMBHANI

in partial fulfillment of the requirements of

Tolani Institute of Management Studies, Adipur

for the award of the degree of

Post Graduate Diploma in Management

TOLANI INSTITUTE OF MANAGEMENT STUDIES

ADIPUR – 370 205

JULY 2009

Tolani Institute Of Management Studies 1


ACKNOWLEDGEMENT

We would like to thank Reliance Money for giving us this opportunity to be associated with an

esteemed organization as theirs.

We would also like to express our sincere thanks to Mr. Abhijeet sangani, Regional Head

Gujarat, Reliance Capital Asset Management Ltd and Mr. Faizal khan, Center Manager, Reliance

Capital Asset Management Ltd . who were our project mentors for providing us with valuable

mentoring and constant feedback on our progress made during the project. They were constant

support and had have helped us in successful completion of our project.

Our sincere appreciation for all the help, advice and warmth we received from all the employees

at Reliance money, Ahmedabad.

We would like to show our gratitude to Prof for allowing us this opportunity to take over this

project. We also thank Prof (Faculty guide and mentor) for being supportive at all the point of

time.

We would like to express our gratitude to all the respondents who took out time from their

schedules and discussed about their investment patterns and their views about Mutual Funds.



EXECUTIVE SUMMARY

Reliance Mutual Fund (RMF) has been established as a trust with Reliance Capital Limited

(RCL), as the Settler / Sponsor and Reliance Capital Trustee Co. Limited (RCTCL), as the

Trustee was established in June 30, 1995.

In an expansion drive to gain a greater share in Ahmedabad market, RMF has tried to explore the

opportunities of selling mutual fund to the High Networth Individuals, further segmented into

Hotel Owners, Doctors and Builders and wanted to know more about their investment patterns.

In our report, we have analyzed the investment patterns of these High Networth Individuals,

which investment tools they invested most in, the attributes they give most importance to while

investing, whether they invest for short or long periods both in corporate as well as individual

perspective. We also found out what proportion of the HNIs interviewed already invested in

mutual funds, which schemes they invested mostly in, whether debt, equity or balanced mutual

funds and their reasons for doing so. We have also incorporated in our report the reasons people

don’t invest in mutual funds.

During the course of our project, we interviewed 150 HNIs and learnt about their investment

patterns using which we have suggested recommendations as to how they can be pitched and

tapped for future investments in Reliance Mutual Fund. Our report also explains why the HNIs

are not regular investors in any investment tools, company wise. Towards the end of the report,

on the basis of the knowledge we gathered from interviewing the HNIs, we have suggested few

recommendations, which would be helpful in expanding the investor base of Reliance Mutual

Fund across these segments.



Table of content

CHAPTER 1: THE MUTUAL FUND INDUSTRY

1.1 Overview of Mutual Fund……………………………………………..08

1.2 Mutual Funds ---Advantages…………………………………………..09

1.3 Mutual Funds----Drawbacks…………………………………………...11

1.4 Structure of Mutual Funds……………………………………………..13

1.5 Types of Schemes………………………………………………………14

1.6 Risk……………………………………………………………………..22

1.7 Setting up of Mutual Fund……………………………………………...25

1.8 Mutual Fund Industry…………………………………………………..25

CHAPTER 2: RELIANCE MUTUAL FUND

2.1 Sponsors: Reliance Capital Limited……………………………………30

2.2 Reliance Capital Asset Management Limited…………………………31

2.3 Reliance Mutual Fund………………………………………………….32

2.4 Management Team…………………………………………………….36

2.5 Different Schemes offered by Reliance Mutual Fund--NFO…………………38

2.6 Reliance Mutual Fund: Overview……………………………………...49

CHAPTER 3: DIFFERENT SEGMENTS OF HIGH NETWORTH INDIVIDUALS:-

3.1 Doctors………………………………………………………………….54

3.2 Builders………………………………………………………………....69

3.3 Hoteliers…………………………………………………………..…….82

CHAPTER 4: TESTS

4.1 Weighted Average Test……………………………………………….97

4.2 Chi-square Test…………………………………………………….…100

CHAPTER 5: CORRELATION……………………………………………………...104

CHAPTER 6: FINDINGS…………………………………………………………….106

CHAPTER 7: RECOMMENDATIONS……………………………………………..108

CHAPTER 8: REFERENCES….……………………………………………….……109



OBJECTIVE OF THE RESEARCH

To gain an insight on the investment patterns of High Networth Individuals in

Ahmedabad.

To study their prefrence towards Mutual Fund.

RESEARCH DESIGN

Cross – Sectional Descriptive Research.

RESEARCH METHODOLOGY

Coverage

o Location: Ahmedabad

o Population: HNIs of Ahmedabad divided into three strata.

Doctors

Builders

Hoteliers

Data Collection

o Sources

Primary data was collected from the HNIs through interview and

questionnaire.

Secondary:

Books, Magazines and Journals and Websites.

Sample Unit: 1 HNI in Ahmedabad.

Sample Size: 150

Sampling Method: Stratified random sampling. 50 from each strata

Tools

Questionnaire administered personally.

Duration of the study

o 6 weeks

Limitations

o As some of the information may not be revealed, whatever analysis and findings

we present may not be accurate.

o Due to time constraints, the sample size of the population is small and hence

cannot be applied to all the HNIs



CHAPTER 1: THE MUTUAL FUND INDUSTRY

1.1 Overview of Mutual Fund

Mutual fund is a mechanism for pooling the resources by issuing units to the investors and

investing funds in securities in accordance with objectives as disclosed in offer document.

Investments in securities are spread across a wide cross-section of industries and sectors and thus

the risk is reduced. Diversification reduces the risk because all stocks may not move in the same

direction in the same proportion at the same time. Mutual Fund issues units to the investors in

accordance with quantum of money invested by them. Investors of mutual funds are known as

unit holders.

The profits or losses 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 Securities and

Exchange Board of India (SEBI), which regulates securities markets before it can collect funds

from the public.

A few frequently used terms are explained here below:

Net Asset Value ("NAV"): Net Asset Value is the market value of the assets of the scheme

minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number

of units outstanding on the Valuation Date.

Sale Price: It is the price you pay when you invest in a scheme. Also called Offer Price, It may

include a sales load.

Repurchase Price: It is the price at which a close-ended scheme repurchases its units and it may

include a back end load. This is also called Bid Price.



Redemption Price: It is the price at which open-ended schemes repurchase their units and close-

ended schemes redeem their units on maturity. Such prices are NAV related.

Sales Load: It is a charge collected by a scheme when it sells the units. Also called, 'Front-end'

load. Schemes that do not charge a load are called 'No Load' schemes.

Repurchase or 'Back-end' Load: It is a charge collected by a scheme when it buys back the

units from the unit holders.

1.2 Mutual Funds - Advantages

There are numerous benefits of investing in mutual funds and one of the key reasons for its

phenomenal success in the developed markets like US and UK is the range of benefits they offer,

which are unmatched by most other investment avenues. We have explained the key benefits in

this section. The benefits have been broadly split into universal benefits, applicable to all

schemes and benefits applicable specifically to open-ended schemes. The advantages of

investing in Mutual Funds are:

Small investments: Mutual funds help you to reap the benefit of returns by a portfolio

spread across a wide spectrum of companies with small investments. Such a spread

would not have been possible without their assistance.



Professional Fund Management: Professionals having considerable expertise,

experience and resources manage the pool of money collected by a mutual fund. They

thoroughly analyze the markets and economy to pick good investment opportunities.

Spreading Risk: An investor with a limited amount of fund might be able to invest in

only one or two stocks / bonds, thus increasing his or her risk. However, a mutual fund

will spread its risk by investing a number of sound stocks or bonds. A fund normally

invests in companies across a wide range of industries, so the risk is diversified at the

same time taking advantage of the position it holds. Also in cases of liquidity crisis where

stocks are sold at a distress, mutual funds have the advantage of the redemption option at

the NAVs.

Transparency and interactivity: Mutual Funds regularly provide investors with

information on the value of their investments. Mutual Funds also provide complete

portfolio disclosure of the investments made by various schemes and also the proportion

invested in each asset type. Mutual Funds clearly layout their investment strategy to the

investor.

Liquidity: Closed ended funds have their units listed at the stock exchange, thus they can

be bought and sold at their market value. Over and above this the units can be directly

redeemed to the Mutual Fund as and when they announce the repurchase.

Low Cost: Mutual Fund expenses are often not more than 1.5% of your investments.

Expenses for Index Funds are less than that, because index funds are not actively

managed. Instead, they automatically buy stock in companies that are listed on a specific

index.

Choice: The large amount of Mutual Funds offer the investor a wide variety to choose

from. An investor can pick up a scheme depending upon his risk / return profile.



Regulations: All the mutual funds are registered with SEBI and they function within the

provisions of strict regulation designed to protect the interests of the investor.

1.3 Mutual Funds – Drawbacks

Mutual Funds have their drawbacks and may not be for everyone

No Guarantees: No investment is risk free. If the entire stock market declines in value,

the value of mutual fund shares will go down as well, no matter how balanced the

portfolio. Investors encounter fewer risks when they invest in mutual funds than when

they buy and sell stocks on their own. However, anyone who invests through mutual

funds runs the risk of losing money.

Fees and commissions: All funds charge administrative fees to cover their day to day

expenses. Some funds also charge sales commissions or “loads” to compensate brokers,

financial consultants or financial planners. Even if you don’t use a broker or other

financial adviser, you will pay a sales commission if you buy shares in load fund.

Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20

to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales,

you will pay taxes on the income you receive, even if you reinvest the money you made.

Management risk: When you invest in a mutual fund, you depend on the fund’s

manager to make the right decisions regarding the fund’s portfolio. If the manager does

not perform as well as you had hoped, you might not make as much money on your

investment as you expected. Of course, if you invest in Index Funds, you forego

management risk, because these funds do not employ managers.

These were the few advantages and drawbacks of investing in Mutual Funds.



1.4 Structure of Mutual Fund

The structure consists of

Sponsor

Sponsor is the person who acting alone or in combination with another body corporate

establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the

Investment Managed and meet the eligibility criteria prescribed under the Securities and

Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or

liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial

contribution made by it towards setting up of the Mutual Fund.



Trust

The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts

Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.

Trustee

Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The

main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia

ensure that the AMC functions in the interest of investors and in accordance with the Securities

and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust

Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee

are independent directors who are not associated with the Sponsor in any manner.

Asset Management Company (AMC)

The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC

is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an

asset management company of the Mutual Fund. At least 50% of the directors of the AMC are

independent directors who are not associated with the Sponsor in any manner. The AMC must

have a net worth of at least 10 crore at all times.

Registrar and Transfer Agent

The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the

Mutual Fund. The Registrar processes the application form, redemption requests and dispatches

account statements to the unit holders. The Registrar and Transfer agent also handles

communications with investors and updates investor records.



1.5 Types of Schemes

Investment Objective

Schemes can be classified by way of their stated investment objective such as Growth Fund,

Balanced Fund and Income Fund etc.

Equity Oriented Schemes

These schemes, also commonly called Growth Schemes, seek to invest a majority of their funds

in equities and a small portion in money market instruments. Such schemes have the potential to

deliver superior returns over the long term. However, because they invest in equities, these

schemes are exposed to fluctuations in value especially in the short term.

Equity schemes are hence not suitable for investors seeking regular income or needing to use

their investments in the short-term. They are ideal for investors who have a long-term investment

horizon. The NAV prices of equity fund fluctuates with market value of the underlying stock



which are influenced by external factors such as social, political as well as economic. HDFC

Growth Fund, HDFC Tax Plan 2000 and HDFC Index Fund are examples of equity schemes.

General Purpose

The investment objectives of general-purpose equity schemes do not restrict them to invest in

specific industries or sectors. They thus have a diversified portfolio of companies across a large

spectrum of industries. While they are exposed to equity price risks, diversified general-purpose

equity funds seek to reduce the sector or stock specific risks through diversification. They mainly

have market risk exposure. HDFC Growth Fund is a general-purpose equity scheme.

Sector Specific

These schemes restrict their investing to one or more pre-defined sectors, e.g. technology sector.

Since they depend upon the performance of select sectors only, these schemes are inherently



more risky than general-purpose schemes. They are suited for informed investors who wish to

take a view and risk on the concerned sector.

Special Schemes

Index schemes

The primary purpose of an Index is to serve as a measure of the performance of the market as a

whole, or a specific sector of the market. An Index also serves as a relevant benchmark to

evaluate the performance of mutual funds. Some investors are interested in investing in the

market in general rather than investing in any specific fund. Such investors are happy to receive

the returns posted by the markets. As it is not practical to invest in each and every stock in the

market in proportion to its size, these investors are comfortable investing in a fund that they

believe is a good representative of the entire market. Index Funds are launched and managed for

such investors. An example to such a fund is the HDFC Index Fund.

Tax Saving schemes

Investors (individuals and Hindu Undivided Families (“HUFs”)) are being encouraged to invest

in equity markets through Equity Linked Savings Scheme (“ELSS”) by offering them a tax

rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched – out

until completion of 3 years from the date of allotment of the respective Units.

The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations,

1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs),

Government of India regarding ELSS.

Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act,

1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from



income tax, of an amount equal to 20% of the amount subscribed. HDFC Tax Plan 2000 is such a

fund.

Real Estate Funds

Specialized real estate funds would invest in real estates directly, or may fund real estate

developers or lend to them directly or buy shares of housing finance companies or may even buy

their securitized assets.

Debt Based Schemes

These schemes, also commonly called Income Schemes, invest in debt securities such as

corporate bonds, debentures and government securities. The prices of these schemes tend to be

more stable compared with equity schemes and most of the returns to the investors are generated

through dividends or steady capital appreciation. These schemes are ideal for conservative

investors or those not in a position to take higher equity risks, such as retired individuals.



However, as compared to the money market schemes they do have a higher price fluctuation risk

and compared to a Gilt fund they have a higher credit risk.

Income Schemes

These schemes invest in money markets, bonds and debentures of corporate with medium and

long-term maturities. These schemes primarily target current income instead of capital

appreciation. They therefore distribute a substantial part of their distributable surplus to the

investor by way of dividend distribution. Such schemes usually declare quarterly dividends and

are suitable for conservative investors who have medium to long term investment horizon and

are looking for regular income through dividend or steady capital appreciation. HDFC Income

Fund, HDFC Short Term Plan and HDFC Fixed Investment Plans are examples of bond

schemes.

Liquid Income Schemes

Similar to the Income scheme but with a shorter maturity than Income schemes. An example of

this scheme is the HDFC Liquid Fund.

Money Market Schemes

These schemes invest in short term instruments such as commercial paper (“CP”), certificates of

deposit (“CD”), treasury bills (“T-Bill”) and overnight money (“Call”). The schemes are the least

volatile of all the types of schemes because of their investments in money market instrument

with short-term maturities. These schemes have become popular with institutional investors and

high net worth individuals having short-term surplus funds.



Gilt Funds

This scheme primarily invests in Government Debt. Hence the investor usually does not have to

worry about credit risk since Government Debt is generally credit risk free. HDFC Gilt Fund is

an example of such a scheme.



Hybrid Schemes

These schemes are commonly known as balanced schemes. These schemes invest in both

equities as well as debt. By investing in a mix of this nature, balanced schemes seek to attain the

objective of income and moderate capital appreciation and are ideal for investors with a

conservative, long-term orientation. HDFC Balanced Fund and HDFC Children’s Gift Fund are

examples of hybrid schemes.

Constitution

Schemes can be classified as Closed-ended or Open-ended depending upon whether they give

the investor the option to redeem at any time (open-ended) or whether the investor has to wait till

maturity of the scheme.

Open ended Schemes

The units offered by these schemes are available for sale and repurchase on any business day at

NAV based prices. Hence, the unit capital of the schemes keeps changing each day. Such

schemes thus offer very high liquidity to investors and are becoming increasingly popular in

India. Please note that an open-ended fund is NOT obliged to keep selling/issuing new units at

all times, and may stop issuing further subscription to new investors. On the other hand, an open-

ended fund rarely denies to its investor the facility to redeem existing units.

Benefits of Open-ended Schemes

Liquidity

In open-ended mutual funds, you can redeem all or part of your units any time you wish. Some

schemes do have a lock-in period where an investor cannot return the units until the completion

of such a lock-in period.



Convenience

An investor can purchase or sell fund units directly from a fund, through a broker or a financial

planner. The investor may opt for a Systematic Investment Plan (“SIP”) or a Systematic

Withdrawal Advantage Plan (“SWAP”). In addition to this an investor receives account

statements and portfolios of the schemes.

Flexibility

Mutual Funds offering multiple schemes allow investors to switch easily between various

schemes. This flexibility gives the investor a convenient way to change the mix of his portfolio

over time.

Transparency

Open-ended mutual funds disclose their Net Asset Value (“NAV”) daily and the entire portfolio

monthly. This level of transparency, where the investor himself sees the underlying assets bought

with his money, is unmatched by any other financial instrument. Thus the investor is in the know

of the quality of the portfolio and can invest further or redeem depending on the kind of the

portfolio that has been constructed by the investment manager.

Closed ended Schemes

The unit capital of a close-ended product is fixed as it makes a one-time sale of fixed number of

units. These schemes are launched with an initial public offer (IPO) with a stated maturity period

after which the units are fully redeemed at NAV linked prices. In the interim, investors can buy

or sell units on the stock exchanges where they are listed. Unlike open-ended schemes, the unit

capital in closed-ended schemes usually remains unchanged. After an initial closed period, the

scheme may offer direct repurchase facility to the investors. Closed-ended schemes are usually

more illiquid as compared to open-ended schemes and hence trade at a discount to the NAV.

This discount tends towards the NAV closer to the maturity date of the scheme.



Interval Schemes

These schemes combine the features of open-ended and closed-ended schemes. They may be

traded on the stock exchange or may be open for sale or redemption during pre-determined

intervals at NAV based prices.

1.6 Risk

The Risk-Return Trade-off

The most important relationship to understand is the risk-return trade-off. Higher the risk greater

the returns/loss and lower the risk lesser the returns/loss.

Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do

this you must first be aware of the different types of risks involved with your investment

decision.



Market Risk

Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the

market in general lead to this. This is true, may it be big corporations or smaller mid-sized

companies. This is known as Market Risk. A Systematic Investment Plan (“SIP”) that works on

the concept of Rupee Cost Averaging (“RCA”) might help mitigate this risk.

Credit Risk

The debt servicing ability (may it be interest payments or repayment of principal) of a company

through its cash flows determines the Credit Risk faced by you. This credit risk is measured by

independent rating agencies like CRISIL who rate companies and their paper. A ‘AAA’ rating is

considered the safest whereas a ‘D’ rating is considered poor credit quality. A well-diversified

portfolio might help mitigate this risk.

Inflation Risk

Things you hear people talk about:

“Rs. 100 today is worth more than Rs. 100 tomorrow.”

“Remember the time when a bus ride costed 50 paise?”

“Mehangai Ka Jamana Hai.”

The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of times

people make conservative investment decisions to protect their capital but end up with a sum of

money that can buy less than what the principal could at the time of the investment. This happens

when inflation grows faster than the return on your investment. A well-diversified portfolio with

some investment in equities might help mitigate this risk.


http://www.hdfcfund.com/fundschool/financial1Show.jsp#rupee


Interest Rate Risk

In a free market economy interest rates are difficult if not impossible to predict. Changes in

interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds

fall and vice versa. Equity might be negatively affected as well in a rising interest rate

environment. A well-diversified portfolio might help mitigate this risk.

Political/Government Policy Risk

Changes in government policy and political decision can change the investment environment.

They can create a favorable environment for investment or vice versa.

Liquidity Risk

Liquidity risk arises when it becomes difficult to sell the securities that one has purchased.

Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as

internal risk controls that lean towards purchase of liquid securities.

You have been reading about diversification above, but what is it?

Diversification

The nuclear weapon in your arsenal for your fight against Risk. It simply means that you must

spread your investment across different securities (stocks, bonds, money market instruments, real

estate, fixed deposits etc.) and different sectors (auto, textile, information technology etc.). This

kind of a diversification may add to the stability of your returns, for example during one period

of time equities might underperforms but bonds and money market instruments might do well

enough to offset the effect of a slump in the equity markets. Similarly the information technology



sector might be faring poorly but the auto and textile sectors might do well and may protect you

principal investment as well as help you meet your return objectives.

1.7 Setting Up of Mutual Fund

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset Management

Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor

who is like promoter of a company. The trustees of the mutual fund hold its property for the

benefit of the unitholders. Asset Management Company (AMC) approved by SEBI manages the

funds by making investments in various types of securities. Custodian, who is registered with

SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested

with the general power of superintendence and direction over AMC. They monitor the

performance and compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of trustee company or board of

trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of

the directors of AMC must be independent. All mutual funds are required to be registered with

SEBI before they launch any scheme.

1.8 Mutual Fund Industry

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the

initiative of the Government of India and Reserve Bank the. The history of mutual funds in India

can be broadly divided into four distinct phases



First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the

Reserve Bank of India and functioned under the Regulatory and administrative control of the

Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development

Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The

first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700

crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and

Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).

SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by

Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank

Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC

established its mutual fund in June 1989 while GIC had set up its mutual fund in December

1990.

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

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund

industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in

which the first Mutual Fund Regulations came into being, under which all mutual funds, except

UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with

Franklin Templeton) was the first private sector mutual fund registered in July 1993.



The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and

revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual

Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds setting

up funds in India and also the industry has witnessed several mergers and acquisitions. As at the

end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The

Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other

mutual funds.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated

into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets

under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the

assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of

Unit Trust of India, functioning under an administrator and under the rules framed by

Government of India and does not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered

with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the

erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management

and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund

Regulations, and with recent mergers taking place among different private sector funds, the

mutual fund industry has entered its current phase of consolidation and growth. As at the end of

September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421



The graph indicates the growth of assets over the years.

GROWTH IN ASSETS UNDER MANAGEMENT



The mutual fund schemes are continuously increasing since 1989. We can see from the diagram

that in the year 1989 it was only 21 schemes available with the Asset Management Companies

(AMC).

From 1989 to 1994, the mutual fund schemes increased to eight times. Then in the next five

years from 1994 to 1999 it is increased by 110 schemes. After that we can see continuous

increase in the number of schemes of AMCs

These schemes are different from each other. The schemes are differing on the basis of risk, time

period, open ended and closed ended schemes. These schemes are also differing on the basis of

sectoral schemes, diversified schemes.



CHAPTER 2: RELIANCE MUTUAL FUND

2.1 The Sponsors: Reliance Capital Limited

Reliance Capital Asset Management Ltd. is a wholly owned subsidiary of Reliance Capital

Limited, the sponsor. The entire paid-up capital (100%) of Reliance Capital Asset

Management Ltd is held by Reliance Capital Ltd.

Reliance Mutual Fund (RMF) has been sponsored by Reliance Capital Ltd (RCL). Reliance

Capital is India’s fastest growing private sector financial services company. Ranking

among the top 3 private sector banking and finance companies in India, with a shareholder

base of over 1.3 million. Reliance Capital has interests in asset management and mutual

funds, life and general insurance, private equity and proprietary investments, stock

broking and other financial services with a net worth in excess of Rs. 5,262 crore (as of

March 31, 2007)

Particulars

(Rs.in crores)crores)

2005-06 2004-05 2003-04 2002-03

Total Income 652.02 295.69 356.79 458.78

Profit Before Tax 550.61 111.21 105.79 102.63

Profit After Tax 537.61 105.81 105.79 102.63

Reserves & Surplus 3849.58 1310.08 1271.84 1208.5

Net Worth 4122.46 1437.92 1399.81 1336.33

Earnings per Share

(Rs.)

29.74

(Basic + Diluted)

8.31

(Basic + Diluted)

8.31

(Basic + Diluted)

8.06

(Basic + Diluted)

Book Value per Share

(Rs.)

112.95 112.95 109.96 104.54

Dividend (%) 30% 30% 29% 29%



Paid up Equity

Capital

223.40 127.84 127.84 127.83

Reliance Capital Ltd. has contributed Rupees One Lac as the initial contribution to the corpus for

the setting up of the Mutual Fund. Reliance Capital Ltd. is responsible for discharging its

functions and responsibilities towards the Fund in accordance with the Securities and Exchange

Board of India (SEBI) Regulations.

The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme

beyond the contribution of an amount of Rupees one Lac made by them towards the initial

corpus for setting up the Fund and such other accretions and additions to the corpus.

2.2 Reliance Capital Asset Management Limited

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 vide their letter no IIMARP/1264/95 dated June 30, 1995.

The Mutual Fund has entered into an Investment Management Agreement (IMA) with RCAM

dated May 12, 1995 and was 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 networth of the Asset Management Company including preference shares as on March 31,

2005 is Rs.30.13 crores.

2.3 Reliance Mutual Fund

Reliance Mutual Fund (RMF) is one of India’s leading Mutual Funds, with Assets Under

Management (AUM) of Rs. 48,828 crore (AUM as on 30th Apr 2007) and an investor base of

over 3.1 million.

Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of the

fastest growing mutual funds in the country. RMF offers investors a well-rounded portfolio of

products to meet varying investor requirements and has presence in 115 cities across the country.

Reliance Mutual Fund constantly endeavors to launch innovative products and customer service

initiatives to increase value to investors.

Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Ltd., a

wholly owned subsidiary of Reliance Capital Ltd.

Reliance Capital Ltd. is one of India’s leading and fastest growing private sector financial

services companies, and ranks among the top 3 private sector financial services and banking

companies, in terms of net worth.

Reliance Capital Ltd. has interests in asset management, life and general insurance, private

equity and proprietary investments, stock broking and other financial services.



Sponsor: Reliance Capital Limited.

Asset Management Company: Reliance Capital Asset Management Ltd.

Trustee: Reliance Capital Trustee Co. Limited.

Transfer Agent/Registrar: Karvy Computer Share Private Limited.

Custodian: Deutsche Bank AG

Auditors: Haribhakti & Co. (statutory auditors),

Price Waterhouse Coopers (internal auditors),

C.C.Chokshi & Co. (auditors to AMC),

M/s. Malpani & Associates (auditors to trustee)

Investment Manager: Reliance Capital Asset Management

Limited. The Sponsor, the Trustee and the

Investment Manager are incorporated under the

Companies Act 1956.

Vision

Reliance Capital Asset Management Ltd. has a vision of being a leading player in the Mutual

Fund business and has achieved significant success and visibility in the market.



However, an imperative part of growth and visibility is adherence to Good Conduct in the

marketplace. At Reliance Capital Asset Management Ltd., the implementation and observance of

ethical processes and policies has helped us in standing up to the scrutiny of our domestic and

international investors.

Management

The management at Reliance Capital Asset Management Ltd. Is committed to good Corporate

Governance, which includes transparency and timely dissemination of information to its

investors and unit holders. The Reliance Capital Asset Management Limited Board is a

professional body, including well-experienced and knowledgeable Independent Directors.

Regular Audit Committee meetings are conducted to review the operations and performance of

the company.

Reliance Capital Ltd. has contributed Rupees One Lac as the initial contribution to the corpus for

the setting up of the Mutual Fund. Reliance Capital Ltd. is responsible for discharging its

functions and responsibilities towards the Fund in accordance with the Securities and Exchange

Board of India (SEBI) Regulations.

The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme

beyond the contribution of an amount of Rupees one Lac made by them towards the initial

corpus for setting up the Fund and such other accretions and additions to the corpus.

2.3(1) Trustees



The trustees of Reliance Mutual Fund are:

Reliance Capital Trustee Co. Limited (RCTCL)

2.3(2) The Custodian

Deutsche Bank, AG .The Trustee has appointed Deutsche Bank, AG located at Kodak House,

Ground Floor, 222 Dr. D.N.Road, Mumbai-400 001, as the Custodian of the securities that are

bought and sold under the Scheme. A Custody Agreement has been entered with Deutsche Bank

in accordance with SEBI Regulations. The Custodian is approved by SEBI under registration no.

IN/CUS/003 to act as Custodian for the Fund.

Deutsche Bank AG, the Custodian shall, inter alia:

Provide post-trading and custodial services to the Mutual Fund.

Keep Securities and other instruments belonging to the Scheme in safe custody.

Ensure smooth inflow/outflow of securities and such other instruments as and when

necessary, in the best interests of the unit holders.

Ensure that the benefits due to the holdings of the Mutual Fund are recovered and

Be responsible for loss of or damage to the securities due to negligence on its part on the

part of its approved agents.

2.3(3) The Registrar

Reliance Capital Asset Management Limited has appointed M/s. Karvy Computershare Pvt.

Limited to act as the Registrar and Transfer Agent to the Schemes of Reliance Mutual Fund. M/s.

Karvy Computershare Pvt. Limited (KCL) having their office at No.21, Avenue 4, Street No.1,

Adjacent to Rainbow Hospital, Banjara Hills, Hyderabad - 500 034, is a Registrar and Transfer

Agent registered with SEBI under registration no. INR000000221.

Reliance Capital Asset Management Ltd. and the Trustee have satisfied themselves, after

undertaking appropriate due diligence measures, that they can provide the services required and



have adequate facilities, including systems facilities and back up, to do so. The Trustee has also

laid down broad parameters for supervision of the Registrar. As Registrar to the Schemes, KCL

will accept and process investor's applications, handle communications with investors, perform

data entry services, dispatch Account Statements and also perform such other functions as

agreed, on an ongoing basis.

The Registrar is responsible for carrying out diligently the functions of a Registrar and Transfer

Agent and will be paid fees as set out in the agreement entered into with it and as per any

modification made thereof from time to time.

2.4 Management Team

Board of Directors

Amitabh Chaturvedi

Kanu Doshi

Manu Chadha

Sushil Tripathi

Management Team

President

Vikrant Gugnani

Chief Investment Officer

K.Rajagopal

Head Equity Investments

Madhusudan Kela

Equity Fund Managers



Equity Fund Manager Sunil B. Singhania

Equity Fund Manager Ashwani Kumar

Equity Fund Manager Shailesh Raj Bhan

Debt Fund Managers

Head Fixed Income Amitabh Mohanty

Debt Fund Manager Amit Tripathi

Debt Fund Manager Prashant Pimple

Head Of Departments

Brand and Communication Abraham Alapatt

Finance and Accounts Amit Bapna

Human Resource Development Rajesh Derhgawen

Information Technology Vinay Nigudkar

Legal & Compliance Balkrishna Kini

Risk Management Lav Chaturvedi

Operations & Settlement Geeta Chandran

Infrastructure & Administration Pradeep Andrade

R&T operations Prashanth D Pereira

Sales and Distribution Sundeep Sikka

Zonal Heads

Northern Zone Head Aashwin Dugal

Western Zone Head Devendra Daga

Southern Zone Head Gurbir Chopra



2.5 Different Schemes Offered By Reliance Mutual Fund

Debt Schemes

Reliance Income Fund

The primary objective of the scheme is to generate optimal returns consistent with

moderate levels of risk. This income may be complemented by capital appreciation of the

portfolio. Accordingly, investments shall predominantly be made in Debt & Money market

instruments. The benchmark for the scheme is Crisil Composite Bond Fund Index.

FUND PERFORMANCE

Period % change in NAV % change in Index

1 Year 5.27 3.68

3 Years 4.36 2.83

5 Years 6.76 5.40

Since Inception 9.48 NA

Reliance Monthly Income Plan

The primary investment objective of the scheme is to generate regular income in order to

make regular dividend payments to unitholders and the secondary objective is growth of capital.

The benchmark for the scheme is Crisil MIP Blended Index.

FUND PERFORMANCE


1 Year 6.46 8.88

3 Years 10.74 8.19

Since Inception 9.51 6.38



Reliance Medium Term Fund

The primary investment objective of the scheme is to generate regular income in

order ro make regular dividend payments to unitholders and the secondary objective is growth of

capital. The benchmark for the scheme is Crisil Short Term Bond Fund Index.

FUND PERFORMANCE


1 Year 6.21 6.10

3 Years 3.73 4.67

5 Years 5.22 5.36


Reliance Liquid Fund (Treasury Plan)

The primary investment objectiveof the scheme is to generate optimal returns consistent

with moderate levels of risk and high liquidity. Accordingly, investments shall predominantly be

made in Debt and Money market instruments. The benchmark for the scheme is Crisil Liquid

Fund Index.

FUND PERFORMANCE


1 Year 7.15 7.18

3 Years 5.66 5.58

5 Years 5.71 5.32


Reliance Liquid Fund (Cash Plan)

The primary investment objectiveof the scheme is to generate optimal returns consistent

with moderate levels of risk and high liquidity. Accordingly, investments shall predominantly be



made in Debt and Money market instruments. The benchmark for the scheme is Crisil Liquid

Fund Index.

FUND PERFORMANCE


1 Year 6.94 7.18

3 Years 5.49 5.58

5 Years 5.19 5.32


Reliance Short Term Fund

The primary objective of the scheme is to generate stable returns for investors with a

short term investment horizon by investing in fixed income securities of a short term maturity.

The benchmark for the scheme is Crisil Liquid Fund Index.

FUND PERFORMANCE


1 Year 8.01 7.18

3 Years 6.41 5.58


Reliance Gilt Securities Fund (Short Term Plan)

The primary objective of the scheme is to generate optimal credit risk-free returns by

investing in a portfolio of securities issued and guaranteed by the Central Government and State

Government. The benchmark for the scheme is I - Sec Si - Bex.



FUND PERFORMANCE


1 Year 4.31 6.84

3 Years 3.19 5.17


Reliance Gilt Securities Fund (Long Term Plan)

The primary objective of the scheme is to generate optimal credit risk-free returns by

investing in a portfolio of securities issued and guaranteed by the Central Government and State

Government. The benchmark for the scheme is I - Sec Li - Bex.

FUND PERFORMANCE


1 Year 6.64 6.64

3 Years 5.54 3.13


Reliance Floating Rate Fund

The primary objective of the scheme is to generate regular income through investments in

a portfolio comprising substantially of Floating Rate Debt Securities ( including floating rate

securitized debt and Money market instruments and Fixed Rate debt instruments swapped for

floating rate returns.) The scheme shall also invest in Fixed rate debt securities (including fixed

rate securitized debt, money market instruments and floating rate debt instruments swapped for

fixed returns). The benchmark for the scheme is Crisil Liquid Fund Index.

FUND PERFORMANCE


1 Year 6.11 5.52




Reliance NRI Income Fund

The primary investment objective of the scheme is to generate optimal returns consistent

with moderate levels of risks. This income may be complimented by capital appreciation of the

portfolio. Accordingly, investments shall predominantly be made in debt instruments. The

benchmark for the scheme is Cirsil Composite Bond Fund Index.

FUND PERFORMANCE


1 Year 7.15 3.68


Reliance Regular Savings Fund (Debt Option)

The primary investment objective of this option is to generate optimal returns consistent

with moderate level of risk. This income may be complemented by the capital appreciation of the

portfolio. Accordingly investments shall predominantly be made in debt and money market

instruments. The benchmark for the scheme is Crisil Composite Bond Fund Index.

FUND PERFORMANCE


1 Year 3.22 3.68


Reliance Regular Savings Fund (Equity Option)

The primary investment objective of this option is to seek capital appreciation and / or to

generate consistent returns by actively investing in equity / equity related instruments. The

benchmark for the scheme is BSE 100 Index.



FUND PERFORMANCE


1 Year 40.90 38.69


Reliance Regular Savings Fund (Hybrid Option)

The primary investment objective of this option is to generate consistent return by

investing a major portion in debt and money market securities and a small portion in equity and

equity related instruments. The benchmark for the scheme is Crisil MIP Blended Index.

FUND PERFORMANCE


1 Year 14.40 9.14


Reliance Liquidity Fund

The primary investment objective of the scheme is to generate optimal returns consistent

with moderate levels of risks. Accordingly, investments shall predominantly be made in debt

instruments.

The benchmark for the scheme is Crisil Liquid Fund Index. The fund has given a

weighted average return of 4.57% since inception date 16/06/2005.

FUND PERFORMANCE


1 Year 7.96 7.18




Reliance Liquid Plus Fund

The investment objective of the scheme is to generate optimal returns consistent with

moderate levels of risk and liquidity by investing in debt securities and money market securities.

The benchmark for the scheme is Crisil Liquid Fund Index.

FUND PERFORMANCE



EQUITY FUNDS

Reliance Growth Fund

The primary investment objective of the scheme is to achieve long term growth of capital

by investing in equity and equity related securities through a research based investment

approach. The benchmark for the scheme is BSE 100 Index.

FUND PERFORMANCE


1 Year 33.48 38.69

3 Years 62.23 43.54

5 Years 61.33 36.12


Reliance Vision Fund

The primary investment objective of the scheme is to achieve long term growth of capital

by investing in equity and equity related securities through a research based investment

approach. The benchmark for the scheme is BSE 100 Index.



FUND PERFORMANCE


1 Year 41.01 38.69

3 Years 54.30 43,54

5 Years 55.49 36.12


Reliance NRI Equity Fund

The primary investment objective of the scheme is to generate optimal returns by

investing in equity or equity related instruments primarily drawn from companies in the BSE 200

Index. The benchmark for the scheme is BSE 200 Index.

FUND PERFORMANCE


1 Year 46.49 36.92


Reliance Equity Opportunities Fund

The primary investment objective of the scheme is to seek to generate capital

appreciation and provide long term growth opportunities by investing in a portfolio constituted

of equity and equity related securities and the secondary objective is to generate consistent

returns by investing in debt and money market securities. The benchmark for the scheme is BSE

100 Index.

FUND PERFORMANCE


1 Year 33.81 38.69




Reliance Index Fund (Nifty Plan)

The objective of this plan is to replicate the composition of the Nifty with a view to

endeavor to generate returns which could approximately be the same as that of the Nifty. The

benchmark of the scheme is S & P CNX Nifty Index.

FUND PERFORMANCE


1 Year 26.00 39.88


Reliance Index Fund (Sensex Plan)

The objective of this plan is to replicate the composition of the Sensex with a view to

endeavor to generate returns which could approximately be the same as that of the Sensex. The

benchmark of the scheme is BSE Sensex.

FUND PERFORMANCE


1 Year 34.84 39.87


Reliance Tax Saver Fund (ELSS)

The primary objective of the scheme is to generate long term capital appreciation from a

portfolio that is invested predominantly in equity and equity related instruments. The benchmark

for the scheme is BSE 100 Index.

FUND PERFORMANCE


1 Year 23.37 38.69




Reliance Equity Fund

The primary objective of the scheme is to generate capital appreciation and provide long

term growth opportunities by investing in a portfolio constituted of equity and equity related

securities of top 100 companies by market capitalization and of companies which are available in

the derivatives segment from time to time and the secondary objective is to generate consistent

returns by investing in debt and money market securities. The benchmark for the scheme is S &

P CNX Nifty.

FUND PERFORMANCE


1 Year 30.21 39.88


Reliance Long Term Equity Fund

The primary investment objective of the scheme is to seek to generate long term capital

appreciation and provide long term growth opportunities by investing in a portfolio constituted

of equity and equity related securities and derivatives and the secondary objective is to generate

consistent returns by investing in debt and money market securities. The benchmark for the

scheme is BSE 200 Index.

SECTORAL FUNDS

Reliance Banking Fund

The primary investment objective of the scheme is to seek to generate continuous returns

by actively investing in equity and equity related instruments or fixed income securities of banks.

The benchmark for the scheme is S & P CNX Banks Index.



FUND PERFORMANCE


1 Year 47.05 55.27

3 Years 35.95 40.94


Reliance Diversified Power Sector Funds


by actively investing in equity and equity related instruments or fixed income securities of power

and other associated companies. The benchmark for the scheme is India Power Index.

FUND PERFORMANCE


1 Year 56.42 43.43

3 Years 63.28 49.43


Reliance Pharma Fund


by actively investing in equity and equity related instruments or fixed income securities of

pharma and associated companies. The benchmark for the scheme is BSE Health Care Index.

FUND PERFORMANCE


1 Year 35.20 13.40




RELIANCE INFRASTRUCTURE FUND:-.The new fund offers two plans — Retail and Institutional. The minimum investment in the fund would be Rs. 5,000 and in multiples of Re. 1 thereafter for the Retail Plan and Rs. 5 crore and in multiples of Re 1 thereafter for the Institutional Plan.

Reliance Infrastructure Fund will invest at least 65 per cent of its assets in engineering, cement and power stocks as well as banks, whereas the balance will be invested in debt and money markets.

Here is a list of sectors that the fund may invest in (from their prospectus): At first glance it may occur to you that the Reliance mutual fund will invest most of its assets in Airport, then Banks, then Cement and so on (which is what I felt), but this is not true. This is just a list of indicative sectors and is not in any particular order.

AirportsBanks, Financial Institutions and Term Lending institutions.CementCoalConstructionElectrical and Electric ComponentEngineeringEnergyIndustry Capital GoodsMetals and MineralsPortsPower and Power equipmentRoad and RailwaysTelecomTransportationUrban InfrastructureMiningAluminumReliance Infrastructure Fund Manager

Why to Consider Infrastructure Mutual Fund Now?• Stable and stronger government - easy policy makingo The earlier coalition government had limited scope to thrust infrastructure related reforms given its constitution. However stability of the new government should ease policy making.

• Sharp government focus on infrastructure - better implementationo The government has indicated that infrastructure is a crucial growth area and hence one can expect better project implementation than what was witnessed in the past. The UPA in its manifesto seeks to increase public investment into infrastructure and plans to increase



power capacity by 12,000 - 15,000 MW per year.

• Key to reviving domestic growtho The government has recognized that infrastructure spend might aid the economy to ride overthe ongoing slowdown while even insulating the economy from the adverse impact of the financial meltdown.

Entry Load of Reliance Infrastructure Mutual FundSubscription below Rs. 2 Crores: 2.25%Between Rs. 2 and 5 Crores: 1.25%Above Rs. 5 Crores: NilExit Load of Reliance Infrastructure Mutual Fund

1% if redeemed within a year of allotmentNil if redeemed after a year of allotmentNil if subscription is more than Rs. 5 croresMinimum Application Amount for Retail Investors

The minimum investment needed is Rs.5000 and if you want to invest additional money then you must invest a minimum of Rs.1000.Plans offered by Reliance Infrastructure Mutual Fund

There are two types of plans in this fund:Growth Plan and Dividend PlanThe growth plan is meant for people who are not looking for regular dividend payouts from the mutual fund and the income from their funds will be reinvested in the fund. The Dividend plan on the other hand will give you dividend income (when the fund declares dividends). There is a dividend reinvestment plan also where the fund will reinvest your dividends to buy more units of the mutual fund.

Tax RatesThe dividends are tax free in the hands of resident Indian investors. Similarly, there is no tax on long term capital gains. There is a 15% tax on short term capital gains of the scheme

Following the result of the 2009 general elections the stock market has gone up

substantially in India. Over the last three months the Sensex has jumped by 80%. Despite

this rally there are many opportunities that remain in the stock market. Billions of dollars

have been poured into the Indian markets by foreign institutional investors over the last few

weeks. Not surprisingly the dollar has dipped to around 47 rupees after hitting a high of 52+

earlier this year. Indications are that there is a lot of money waiting to be invested in Indian

stocks. The recent run-up is very difficult for many hedge funds, foreign investors and

mutual funds to buy stocks at reasonable price. Many mutual funds like Morgan Stanley

and investment stalwarts like Mark Mobius have talked of very high targets for the Sensex

over the next year or two. The targets spoken about by significantly from 19,500 to as high



as 25,000. In this scenario mutual fund houses like reliance mutual fund are better

equipped as compared to the retail investor to make money from investing in stocks.

Until March this year most mutual funds had reported a poor performance. Since then

there have been increasing gains in the NAVs of most major mutual funds. From the signs

of it, then next year to two years will continue to see a lot of money flowing in the Indian

stock markets. So far only between 5 to 10% of the investment in the dust. Infrastructure

remains a key sector for investment.

Reliance infrastructure fund comes at an opportune time as the NFO will close barely a

week before the Indian budget is announced. Indications are that reliance will mop up

anywhere between 4000 and 6000 crores with this NFO. Most of the earliest mutual fund

schemes of reliance have outperformed many other mutual fund schemes. Reliance mutual

fund manages a corpus of 100,000 crores across all its mutual fund schemes. While many

investors invest in new fund offers because they are priced at 10 rupees instead of a higher

NAV, there are several other more rational reasons reliance infrastructure fund may be a

good pick. For one the infrastructure boom story is far from over. A lot of new money is

expected to come in over the next one year from FIIs, mutual funds, financial institutions

and even local HNIs who haven't been able to push in all their money yet. Given their track

record, financial clout and management, reliance mutual fund is well-equipped to manage

your money.

While the last month has seen the stock market go up substantially, it cannot go up all the

time and occasionally hiccups can be expected. If you would like to ride the infrastructure

boom and are willing to be patient with your investments, the reliance infrastructure fund

may be a good option to consider.

»



Reliance Media and Entertainment Fund


by actively investing in equity and equity related instruments or fixed income securities of media

and entertainment and other associated companies. The benchmark for the scheme is S & P CNX

Media and Entertainment Index.

FUND PERFORMANCE


1 Year 57.95 83.65


2.6 Reliance Mutual Fund: An Overview

Reliance Mutual Fund has been awarded as India’s Most Trusted Mutual Fund Brand by

Economic Times Brand Equity survey by AC Nielsen ORG-MARG – 2005

Reliance Mutual Fund is the of the Largest Private Sector AMC in the country

First Mutual Fund in the World to launch Online Redemption through ATMs/ PoS

o Investors can redeem their Mutual Fund Units using any VISA ATM/ PoS across

the Globe on 24 X 7 bases.

Healthy Debt Equity mix of 50:50 with largest Equity Fund corpus in the Industry as on

September ’06

Reliance Equity Fund NFO had created history for having the highest collection ever

among domestic mutual funds, by raising a record Rs 5723.26 crores & 9.24 lakh

applications- Surpassed UTI’s 14-year-old record

Some of our Funds have been awarded both by International as well as Domestic Rating

Agencies in terms of their Performance and Consistency



Current Competitive Analysis

Amt. in Rs. Crs

Industry Players AUM as

on Mar

‘05

AUM as on

Mar’06

AUM as

on Jan’07

Growth

(Mar ‘05-

Mar ‘06)

YTD

Annualised

Growth

Reliance 9,543 24,669 39,020 159% 70%

UTI 20,740 29,519 37,535 55% 33%

Pru ICICI 15,201 23,502 34,746 42% 57%

HDFC 15,010 21,550 31,425 44% 55%

Franklin Templeton 15,354 17,827 23,907 16% 41%

Birla 10,373 15,018 21,190 45% 49%

Industry 1,49,600 2,31,715 3,39,663 55% 56%

0

5000

10000

15000

20000

25000

30000

35000

40000

Mar-06 Jun-06 Sep-06 Dec-06

0

50000

100000

150000

200000

250000

300000

350000

400000

Reliance Mutual Fund Industry



Current Competitive Analysis…

RMF Vs Industry – QOQ Growth

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Q1 Q2 Q3Industry RMF

Asset Class Wise - QOQ Growth

0

5000

10000

15000

20000

25000

Mar 06 Jun-06 Sep-06 Dec-06Equity Debt



Current Investor Base

0

100

200

300

400

500

600

700

Debt Liquid** Equity

* The base period is Mar 05 which is taken as 100

Asset

Class

# of Folios as

on Mar ‘05

# of Folios as

on Mar ’06

%

Growth

# of Folios as

on Jan ’07

YTD %

Growth

Debt 30,205 34,138 13% 54,519 59.7%

Liquid** 5,616 12,547 123% 12,841 2.3%

Equity 4,40,768 20,50,369 365% 30,08,254 46.7%

Total 4,76,840 20,96,952 340% 30,75,614 46.6%

**Liquid category Includes Reliance Floating Rate Fund


Mar ‘05*

Mar ‘06

Jan ‘07


Footprint

Mar - 06 Jan - 07 FY 06-07

Branches 30 46 50

FPC 20 22 25

Sub Total (A) 49 67 75

RRs 08 14 20

BFs 24 29 30

Sub Total (B) 32 43 50

Total 82 110 125

Expansion plan into Tier-III & Tier IV cities

Expansion route

o Aggressively ramp up Resident Representatives (RR’s) platforms for

market expansion

o Convert RRs into Branches on achieving Rs. 20 crs of Equity AUMs per

location

o Branch breakeven target at 12 months & payback in 24 months.



CHAPTER 3: ANALYSIS

ANALYSIS OF RESPONSES FROM DIFFERENT SEGMENTS OF HIGH NETWORTH

INDIVDUALS:

3.1 Doctors:

Do you invest in different instruments?

Objective:

The main objective for asking this question is to know whether Doctors have knowledge

about and invest in different financial instruments

Response In Figures In Percentages

Yes 47 (94)

No 3 (6)

Total 50 (100)

Analysis:

We can infer from the responses that most of them do invest in different instruments for

different purposes.



Which are the investment tools you invest in?

Objective:

The reason for asking this question is to understand which type of investment tools are

more preferred by Doctors.

Instrument In figures In percentages

F.D. 30 (60)

RBI Bond 15 (30)

Mutual Fund 43 (86)

Equity 28 (56)

Others 24 (48)

CHART SHOWING PREFERENCE FOR DIFFERENT INSTRUMENTS

[Figures in Percentages]

Analysis:

From the feedback obtained, it is easy to identify that Mutual Funds are most preferred

by Doctors.

From the graph above we can infer that 86% Doctors invest in mutual fund.

Moreover there is an equal weightage between F.D and Equity.



The least preferred by them is RBI Bonds. Our interaction revealed that the reason for

low preference in RBI bonds was the lock in period for investment in these bonds as well

as the fact that in a booming stock market, they could earn higher returns from

investment in equities and mutual funds.



You primarily invest for:

Objective:

The reason for asking this question is to know the main purpose why these Doctors

invest.

Ranks 1 2 3 4

Tax Benefits 8(16.67) 12(25) 16(33.33) 12(25)

Returns 6(12.5) 22(45.83) 13(27.08) 7(14.58)

Liquidity 0 7(14.58) 17(35.42) 27(56.25)

Savings 34(70.83) 10(20.83) 2(4.17) 2(4.17)

CHART SHOWING PERCENTAGE OF DOCTORS WHO HAVE GIVEN 1st RANK TO

VARIOUS ATTRIBUTES



CHART SHOWING PERCENTAGE OF DOCTORS WHO HAVE GIVEN 2ND RANK TO

VARIOUS ATTRIBUTES

Analysis

We can infer that the main purpose of investment for Doctors is Savings.

70.83% people gave Savings as their main purpose for investment whereas 12.5% and

16.67% gave returns and tax benefit as their main purpose.

The second most preferred reason for investing by Doctors is Returns. Moreover this

segment people don’t invest for tax benefit because all of them fall in high tax slab. They

take the full benefit of exemption.



Rank the investment options:

Objective:

The purpose for this question is to know the preference of Doctors for investing in

different instrument

Ranks 1 2 3 4 5

FD 18 (37.5) 11(22.92) 5(10.42) 6(12.5) 8(16.67)

RBI Bond 0 8(16.67) 12(25) 23(47.92) 8(16.67)

Mutual Fund 14(29.17) 26(54.17) 8(16.67) 0 0

Equity 10(20.83) 5(10.42) 17(35.42) 14(29.17) 2(4.17)

Others 6(12.5) 1(2.07) 6(12.5) 5(10.42) 30(62.49)

Total 48 48 48 48 48

CHART SHOWING PERCENTAGE OF DOCTORS WHO HAVE GIVEN 1st RANK TO

VARIOUS INVESTMENT TOOLS

Rank 1



CHART SHOWING PERCENTAGE OF DOCTORS WHO HAVE GIVEN 2nd RANK TO

VARIOUS INVESTMENT TOOLS

Analysis:

It can be inferred that most of the Doctors prefer Fixed Deposit. The main reason why

they prefer F.D is because it’s less risky as compared to other instruments.

37.5% Doctors preferred F.D and 29.17% preferred Mutual Fund as compared to other

instruments.

54.17% Doctors gave rank 2 to Mutual Fund. Thus we can see from the graph that

mutual fund is the most preferred instrument after F.D.



What is the frequency with you invest?

Objective:

The main reason for asking this question is to know the frequency with which Doctors

invest.

Frequency In figures In

percentages

Once in 15 days 2 (4.17)

Once in a month 14 (29.17)

Once in 3 months 10 (20.83)

Once in 6 months 16 (33.33)

Once in a year 5 (10.42)

Weekend Parking 1 (2.08)

Total 48 100

Analysis:

We can infer that most of the Doctors invest once in 6 months. Moreover they don’t go in

for more frequency. Also as these people are too busy they don’t spend much time going for

frequent investment. Also most of the doctors visit different hospitals as visiting doctors,

thus they receive their fees at a fixed duration i.e.15 days or 1 month. Thus they don’t invest

at a great frequency.



Do you go for Short or Long term investment?

Objective:

The main objective for asking this question is to track the investment objective about the

Doctors and to find out whether they mostly invest for short term or for long term.

Response In figures In percentages

Short term investment 7 (14.58)

Long term investment 41 (85.42)

Total 48 100

Analysis:

We can easily infer from the responses that Doctors mostly invest for long term. A

whopping 85.42% respondent invests for long term. As the main reason for investment by

Doctors is savings, they prefer long term investment.



On whose external advice do you invest?

Objective:

The reason for this question is to know on whose advice Doctors invest. Also to know

who has more influence on the investment patterns of Doctors.

Advisors In figures In percentages

Banks 4 (8)

Distributors 0 (0)

Agents 4 (8)

Direct Investment 19 (38)

C.A. 23 (46)

Total 50 100

Analysis:

From the responses obtained we can infer that mostly Doctors invest on advice of C.A. Also

they mostly are busy with their profession, so are not able to devote enough time for such

investment. Today although most of them are taking active participation by going for direct

investment, they still consult C.A for final decision.



Which type of Mutual Fund do you invest in?

Objective:

The purpose of this question is to know the type of mutual fund Doctors invest in and to

find out whether they are risk taker or not. Moreover Balanced funds are those that invest in

equity as well as debt.

Type of MF In figures In percentages

Equity 0 _

Debt 17 (35.42)

Balanced 31 (64.58)

Total 48 100

Analysis:

From the responses we can infer that mostly Doctors invest in Balanced Funds. Also none of

the respondent invests in only Equity.64.58% respondents invest in Balanced Funds, which

have a balanced composure of equity and debt funds, whereas 35.42% respondents invest

only in debt fund. Thus none of them are risk takers who invest only in equity funds..



You invest in Debt Mutual Fund because

Objective:

The reason for asking this question is know why do Doctors invest in Debt Fund so that

we can know what do they typically look for by investing in debt fund.

Reasons In figures In percentages

Steady Returns 28 (43.75)

Less Risk 14 (21.88)

Liquidity 4 (6.25)

Tax Benefit 18 (28.12)

Total 64 100

Analysis:

We can infer from the responses that mostly Doctors invest in Debt Fund because it

offers Steady returns. 58.33% of respondents invest in Debt fund as it offers Steady returns. Also

one of the reasons for investing in it is for tax benefit. Also it is preferred as it is less risky.



You invest in Equity Mutual Fund because

Objective:

Here the objective is to know why doctors invest in equity fund. It deals with the

balanced funds i.e why in balanced funds. Balanced funds have composure of debt and

equity so why they invest in equity indirectly through balanced funds.


Higher Returns 43 (44.79)

Long Term Capital Gains 11 (11.46)

Tax Advantage 0 _

Wealth Creation 27 (28.12)

Returns > Inflation 15 (15.63)

Total 96 100

Analysis:

We can infer that mostly Doctors invest in Equity Fund as it offers Higher Returns.

A whopping 89.58% respondents invest in Equity Fund as it offers Higher Returns.

Moreover 56.25% respondents invest as it offers Wealth Creation. As Equity Fund is more

risky compared to Debt Fund, respondents wish for more returns compared to Debt Fund.



Would you invest in Mutual Fund if it offered:

Objective:

The main reason for this question is to know the readiness of Doctors to invest in Mutual

Fund, if Mutual Fund offered the above parameters.

Analysis:

We can infer that Doctors would invest more in Mutual Fund if it offers Higher Returns

because 70% of respondents would invest if given Higher Return. Moreover they would

invest more if given more tax benefit, liquidity and less risk. Moreover they are least

concerned for short term duration fund and diversified portfolio.

Tolani Institute Of Management Studies


Greater Tax Benefit 23 (23)

Greater Liquidity 18 (18)

Short Duration Investment 0 --

Steady Returns 35 (35)

Returns > F.D. & Liquidity 6 (6)

Diversification of Portfolio 0 -

Minimization of Risks 18 (18)

Total 100 100

68


Are you aware about FMP and Indexation Benefit?

Objective:

The reason for asking this question is to find out the level of knowledge these Doctors

have about the Fixed Maturity Plan schemes and the indexation benefit they offer

Responses In figures In percentages

Yes 20 (40)

No 30 (60)

Total 50 100

Analysis:

We could infer that more than half of the respondents were aware about Fixed Maturity

Plan schemes and their indexation benefit. Although they know about the benefit of FMP and tax

benefit they offer, they still opt for F.D. as it is less risky compared to Mutual Fund. As these

segment respondents are well educated they are aware about Mutual Fund benefit but are not risk

takers so don’t opt for Mutual Fund. Also they ask for a guarantee of returns as F.D give them

which is not possible in Mutual Fund as per guidelines of SEBI.



3.2 BUILDERS:



Yes 42 84

No 8 16

Total 50 100

Chart showing respondents who invest in different instruments

Analysis:

From the above responses, we conclude that 84% of builders do invest in different

instrument, while 16% of them does not prefer to invest in varied portfolio. They would rather

prefer to invest in real estate i.e. their business.





F.D. 25 50

RBI Bond 2 4

Mutual Fund 26 52

Equity 35 70

Others 50 100

Chart showing the preference for different investment tools

Analysis:

As concluded earlier,100% of builders prefer to invest in real estate as investing in their

own business would give higher returns as well as it would be stock-in-trade for them. Equity

market is the 2nd most preferred at 70%. Bank FDs and Mutual Fund have the same preference of

nearly 50%.



You primarily invest for:

Ranks 1 2 3 4

Tax Benefits 8 (16) 7 (14) 8 (16) 27 (54)

Returns 28 (56) 12 (24) 10(20) 0 (0)

Liquidity 7(14) 21(42) 8(16) 14 (28)

Savings 7(14) 10 (20) 24(48) 9 (18)

Chart showing % respondents preferring different motives as Rank 1


Analysis:

Liquidity is the crucial for the builders along with the returns, as their income inflow and

outflow isn’t certain. 56% preferred returns as the most important while 42% voted

liquidity as 2nd most preferred. Thus this explains their favouring equities for investment.



Rank the investment options:

Ranks 1 2 3 4 5

FD 12 (24) 7 (15.90) 9 (23.07) 3 (6.25) 0 (0.00)

RBI Bond 3 (6) 8 (18.18) 0 (0.00) 8 (16.67) 31 (62.00)

Mutual Fund 2 (4) 2 (4.54) 17 (43.58) 18 (37.50) 11 (22.00)

Equity 2 (4) 23 (52.27) 10 (25.64) 15 (31.25) 0 (0.00)

Others 31 (62) 4 (9.11) 3 (7.71) 4 (8.33) 8 (16.00)

Total 50 (100) 44 (100) 39 (100) 48 (100) 50 (100)

Chart showing % respondents preferring different instruments as Rank 1




Analysis:

Real estate being the primary focus of the builders, they prefer to invest in it more than

any other instrument. Besides, higher returns it gives them a room to evade tax. Most

builders confessed that they set off gains from sale of one property by registering a loss or

lower profit on sale of another property, thereby, evading taxes. Equity is the 2 nd most

preferred instrument as they get sizeable returns.



What is the frequency with which you invest ?

Frequency In figures In percentages

Once in 15 days 0 0

Once in a month 3 6

Once in 3 months 7 14

Once in 6 months 15 30

Once in a year 25 50

Weekend Parking 0 0

Total 50 100

Chart showing frequency of investment

Analysis:

As the income inflow for builders is only when a particular scheme is sold off, they find

it possible to invest only once in a year. 50% builders preferred to invest once in a year.



Do you go for Short or Long term investment ?


Short term investment 19 38

Long term investment 31 62

Total 50 100

Analysis:

While 62% of builders opt for long-term investments, they prefer instruments without

any lock-in period, so that they can obtain liquidity whenever needed.



On whose external advice do you invest ?


Banks 0 0.00

Distributors 0 0.00

Agents 17 40.47

Direct Investment 17 40.47

C.A. 8 19.06

Total 42 100

Chart showing % respondents investing on the advice of various agencies

Analysis:

Builders rely on their own intellect for investments. Also, the agents have the same

influence on them. They do not entertain the disturbutors as well as the banks. Only 16%

invest on the advice of the CAs




Chart showing the types of mutual funds preferred

Analysis:

Equity mutual funds find most favour amongst the builders followed by balanced mutual

fund as equity funds give more returns as compared to debt funds.



Equity 25 50

Debt 8 16

Balanced 17 34

Total 50 100

78




Steady Returns 13 50.00

Less Risk 2 7.69

Liquidity 2 7.69

Tax Benefit 9 34.62

Total 26 100

Chart showing as to why respondents prefer debt mutual funds

Analysis:

Debt fund provides secured returns which is a good enough reason for builders to invest

in it. Moreover, debt funds enable them to obtain finance from the banks to the extent of

85% of the holding in debt funds. This is a good incentive for builders to invest in debt

funds..





Higher Returns 34 36.95

Long Term Capital Gains 9 9.78

Tax Advantage 9 9.78

Wealth Creation 40 43.49

Returns > Inflation 0 0.00

Total 92 100

Chart showing reasons as to why respondents prefer equity mutual fund

Analysis:

Wealth creation and higher returns are the most attractive reasons for builders to invest in

equity mutual fund because 80% of them invest in equity fund due to wealth creation and

68% because of higher returns.



Would you invest in Mutual Fund if it offered :

Chart showing % respondents who would prefer to invest in Mutual Fund

Analysis:

As returns are the primary investment objective for the builders, increased and steady

returns by mutual funds would attract them to invest more in mutual fund.



Greater Tax Benefit 11 15.71

Greater Liquidity 0 0.00

Short Duration Investment 2 2.85


Returns > F.D. & Liquidity 10 14.28

Diversification of Portfolio 0 0.00

Minimization of Risks 12 17.16

Total 70 100

81


Are you aware about FMP and Indexation Benefit?


Yes 27 54

No 23 46

Total 50 100

Analysis:

Although the builders had a fair idea about mutual funds, still more than 50% did not

have a complete idea about the different schemes and their benefits



3.3 HOTELIERS


Response In Figures In Percentages

Yes 44 88

No 6 12

Total 50 100

Chart showing respondents who invest in different instruments

Analysis:

From the above responses, we conclude that a major portion of hoteliers do invest in

different instrumets. Whereas a minor portion of it does not prefer to invest in varied portfolio.

They have the old mentality of investing in bank FD’s only or in their business only. The main

reason for investing in bank FDs is to gain favour from the bank by way of granting Cash Credit

or Overdraft facilities.





F.D. 29 58

RBI Bond 4 8

Mutual Fund 21 42

Equity 23 46

Others 18 36

Chart showing the preference for different investment tools

Analysis:

As concluded earlier, here we can see that a major 58% of the hoteliers are investing in

bank FDs. Also, a major portion hoteliers(36%) does invest in other areas like their own

business, realty for expanding their facilities and also in renovating their interiors. According to

one hotelier, renovation work goes on round the year in his hotel to meet expectations of regular

customers who demand newer interiors every time they stay.



You primarily invest for :

Ranks 1 2 3 4

Tax Benefits 9 (18) 18 (36) 12 (24) 5 (10)

Returns 26 (52) 7 (14) 5 (10) 6 (12)

Liquidity 4 (8) 13 (26) 19 (38) 8 (16)

Savings 5 (10) 8 (16) 6 (12) 25 (50)

Figures in bracket show percentages





Analysis:

Here, as we can see that hoteliers, being HNIs, they mainly invest for returns. 52% of the

respondents ranked “Returns” as the most important for them. Also, as we can see that on the 2nd

place is “Tax Benefits”. This is quite natural because as HNIs fall into the highest tax bracket,

they prefer these instruments based on the tax benefits associated with it.



Different instruments preferred


Bank F.D. 29 58

RBI Bonds 4 8

Mutual Funds 21 42

Equities 23 46

Others 18 36

Chart showing the preference for different instruements

Analysis:

A whopping 58% hoteliers prefer to invest in bank FDs over direct equities and

mutual fund which give comparatively better return on investment as compared to the bank

FD. This finding may also seem contradicting to the earlier one, which reflected that

hoteliers prefer to invest for the returns associated with the instruments. But as we concluded

earlier, banks support their business by way of CC and overdraft facilities, they invest in FD

for the same. The 2nd most preferred instrument is direct equity as it gives them better returns

as compared to Mutual Fund. Also, they being HNIs, get tips from the stock brokers and

their friends which helps them speculate and earn higher returns as compared to Mutual

Funds.



Rank the investment options

Ranks 1 2 3 4 5

FD 18 (40.00) 17 (37.77) 8 (17.77) 2 (4.46) 0 (0.00)

RBI Bond 3 (6.67) 0 (0.00) 7 (15.55) 22 (48.89) 13 (28.90)

Mutual Fund 3 (6.67) 12 (26.67) 18 (40.00) 7 (15.55) 0 (0.00)

Equity 8 (17.77) 0 (0.00) 5 (11.11) 14 (31.10) 7 (15.55)

Others 13 (28.89) 16 (35.56) 7 (15.57) 0 (0.00) 25 (55.55)

Total 45 (100) 45 (100) 45 (100) 45 (100) 45 (100)

Figures in bracket show percentages





Analysis

Hoteliers prefer FD most in the 1st place followed by equity and mutual funds. They have

a working capital requirement, which is financed by these banks by way of Cash Credit or

overdraft against the FDs.



What is the frequency with you invest ?

Frequency In figures In percentages

Once in 15 days 6 13.33

Once in a month 8 17.77

Once in 3 months 10 22.22

Once in 6 months 12 26.67

Once in a year 9 20.01

Weekend Parking 0 0.00

Total 45 100

Chart showing frequency of investment

Analysis:

Here as we can see that most hoteliers go in for investment once in every six months. The

responses are quite close to each other. Hence, it is difficult to conclude anything from this

question.



Do you go for Short or Long term investment ?


Short term investment 12 26

Long term investment 34 34

Total 46 100

Analysis:

Most of the hoteliers prefer to invest for long term i.e. duration exceeding one year. As

they have more or less regular inflow, they can plan their long term finance needs.



On whose external advice do you invest ?


Banks 0 0.00

Distributors 11 23.40

Agents 0 0.00

Direct Investment 16 34.04

C.A. 20 42.56

Total 47 100

Chart showing % respondents investing on the advice of various agencies

Analysis:

CAs have direct influence on the investment decisions of the hoteliers. Also, distributors

do influence the investment decisions considerably.





Equity 26 57.77

Debt 2 4.44

Balanced 17 37.79

Total 45 100

Chart showing the types of mutual funds preferred

Analysis:

Hoteliers prefer equity mutual funds as it gives them better returns. Also balanced

funds are the hedge funds that generally contain an option of investing debt instruments

upto the extent of 30% or even more in some cases. So, they prefer these instruments as

well.






Less Risk 8 11.76

Liquidity 12 17.65

Tax Benefit 29 42.65

Total 68 100

Chart showing reasons as to why respondents prefer debt mutual fund

Analysis:

As, debt funds come with the option of Indexation, they are usually preferred by the

hoteliers as a part of their tax planning measures which is directly reflected in the above

graph. Also, steady returns being one of the characteristics of debt funds, helps them plan

their future income that ultimately helps their expansion plans.





Higher Returns 36 46.75

Long Term Capital Gains 2 2.60

Tax Advantage 6 7.79

Wealth Creation 27 35.06

Returns > Inflation 6 7.80

Total 77 100

Chart showing reasons as to why respondents prefer equity mutual fund

Analysis:

We can infer that mostly hoteliers invest in Equity Fund as it offers Higher Returns. A

whopping 47% respondents invest in Equity Fund as it offers Higher Returns. Moreover

35% respondents invest as it offers Wealth Creation. As Equity Fund is more risky

compared to Debt Fund, respondents wish for more returns compared to Debt Fund.



Would you invest in Mutual Fund if it offered :


Greater Tax Benefit 20 25.00

Greater Liquidity 19 23.75

Short Duration Investment 0 0.00


Returns > F.D. & Liquidity 3 3.75

Diversification of Portfolio 0 0.00

Minimization of Risks 13 16.25

Total 80 100

Chart showing % respondents who would prefer to invest in Mutual Fund

Analysis:

50% of the hoteliers would start investing or would invest more as the case may be, if

they offered steady returns, greater tax benefits and higher liquidity as compared to other

instruments. Only 26% respondents said, they would invest more in mutual fund if there is

minimization of risks. Hence, we can infer that hoteliers are risk takers. But they are don’t

play blind games. Instead, they are more cautious and take calculated risks.



Are you aware about FMP and Indexation Benefit ?


Yes 31 62

No 19 38

Total 50 100

Analysis:

63% of the hoteliers were aware about the FMP and their benefits while 38% had no or

little idea about them.



CHAPTER 4 TEST FOR ANALYSIS

In order to test the data for the consistency, we had performed various tests combining

the responses of all the segments that we had questioned.

4.1 Weighted Average Test

Rank the different investment instruments:

Combined ranks of all segments

Rank FD RBI BOND MF EQUITY OTHERS

1 48 6 19 20 50

2 35 13 40 44 5

3 22 19 43 32 16

4 11 53 25 43 9

5 8 52 11 9 63

Weight 5 4 3 2 1

Rank 1 2 3 4 5 Total WS

FD 48 35 22 11 8 124 476 3.84

RBI 6 13 19 53 52 143 297 2.08

Mutual

Fund 19 40 43 25 11 138 445 3.22

Equity 20 44 32 43 9 148 467 3.16

others 50 5 16 9 63 143 399 2.79



Analysis:

So can say that HNI’s prefer more Fixed Deposit and Equity and less RBI bond.

Thus AMC should make people aware about the benefits of mutual fund in respect to Fixed

Deposit. The company should pitch to the customers that they can avail an overdraft upto 85%

against the fund invested by them.



You primarily invest for

Rank Tax Benefit Returns Liquidity Savings

1 25 60 11 46

2 37 41 38 28

3 36 28 44 32

4 44 13 49 36

Rank 1 2 3 4

Weight 4 3 2 1 Weighted score Total Score

Tax

benefit 25 37 36 44 327 142 2.30

Return 60 41 28 13 432 142 3.04

Liquidity 11 38 44 49 295 142 2.08

Saving 46 28 32 36 368 142 2.59



Analysis:

We can conclude from the test that HNIs invest mainly because of Return on their

investment. They show least interest in Liquidity. They have lot of surplus funds with them. As

they fall into highest tax bracket they are less concerned with anything else except the returns.

4.2 Chi square test

Frequency of investment

P1= 15 days

P2= 1 month

P3= 3 months

P4= 6 months

P5= 1 year

P6= weekend parking

H0: P1=P2=P3=P4=P5=P6

H1: P1#P2#P3#P4#P5#P6



fo fe fo-fe (fo-fe)^2

(fo-

fe)^2/fe

15 days 8 23.83 -15.83 250.5889 10.52

1 month 25 23.83 1.17 1.3689 0.06

3 months 27 23.83 3.17 10.0489 0.42

6 months 43 23.83 19.17 367.4889 15.42

1 year 39 23.83 15.17 230.1289 9.66

Weekend

Parking 1 23.83 -22.83 521.2089 21.87

57.95

At 5% significance level and 5 degree of freedom, in the chi square table the value is

11.07. And the calculated value is 57.95

Thus our value does not fall in acceptance region. Thus H0 is rejected.

Thus we can conclude that there is no equal proportion between investors in different

periods. As the segments that we had chosen has different frequency of cash inflows and

outflows their investment frequency is also not decided. Besides, their business are also of

different nature ranging from self employed to business requiring high capital expenditure.



On whose advice do you invest

P1= Banks

P2= Distributors

P3= Agents

P4= Direct Investment

P5= Others

Ho: P1=P2=P3=P4=P5

H1: P1#P2#P3#P4#P5

fo fe fo-fe (fo-fe)^2 (fo-fe)^2/fe

Banks 4 27.8 -23.8 566.44 20.38

Distributors 11 27.8 -16.8 282.24 10.15

Agents 21 27.8 -6.8 46.24 1.66

Direct

Investmet 52 27.8 24.2 585.64 21.07

Others 51 27.8 23.2 538.24 19.36

Total 72.62

At 5% significance level and 4 degree of freedom, in the chi square table the value is

9.488. And the calculated value is 72.62.

Thus our value does not fall in acceptance region. Thus H0 is rejected.



Analysis

Thus there is no proportion on whose advice HNIs invest. HNIs claim that they are

intelligent enough and have enough experience to guide them. Hence they rely on their own

intellect for managing their funds.



CHAPTER 5 CORRELATION

Q.1 Correlation between Rank 1 given to “Returns” and preference given to equity and mf

Total no.of Rank 1 received by Returns: 60

Investment in equity preferred: 86

Investment in MF preferred: 90

Investment in equity 86

Investment in MF 90

Correlation Quotient MF 0.698

Correlation Quotient Equity 0.667

We can conclude that investment in equity and investment in mutual funds go hand in

hand. There is not much difference in their likings for both the instruments. The reason is that the

HNIs invest in varied portfolio. So, there is not much difference.



Q.2 Direct Investment and preference for MF

Investment in MF preferred: 90

Direct Investment Preferred: 52

Consulting a CA: 39

Invest in MF 90

Direct Investment 52

Consult CA 39

Correlation co-efficient (DI) 0.577

Correlation co-efficient (CA) 0.433

It can be seen that most HNIs prefer to rely on their own intellect for the investment

decisions rather than on the CAs.



CHAPTER 6 FINDINGS OF THE PROJECT

During the course of our study, we had met 150 HNIs. Based on the responses given by

them and after analyzing them, we have discovered the following things. The findings are

listed as under:

1. HNIs prefer to invest in bank FDs more than they do in direct equities or mutual

funds. The reason for the same is that the banks support the working capital

requirements of these people by way of Cash Credit and / or overdraft facilities.

2. The 2nd most preferred destination for investing the funds by these HNIs is direct

equities and at the 3rd place is the mutual funds. The reason for the same is that they

get tips regarding the ups and downs of the market regularly which helps them to

speculate and thereby earn better returns as compared to direct equities.

3. When asked why not mutual funds in place of direct equities, the response given by

them was that they have direct access to the stock market information which helps

them earn better returns. Also, they argued that investing in their own businesses

gives them a better return as compared to mutual funds. Further more, they even

argue that when they are capable of earning greater returns on their own, why should

they rely on the asset management companies to manage their funds which charges

an administration fees for the same.

4. Returns matter the most to these HNIs as compared to any other thing. Tax benefits

come at the second spot. Being in the highest tax bracket, they are continuously in

search of certain tax planning measures that helps them to pay lower taxes against

their incomes and gains. This is the reason they prefer to invest in mutual funds.

They have a unique modus operandi for the same. HNIs claim to have access to

information regarding the dividends to be declared by the different asset management

companies well in advance. On getting this information, they invest in a particular

fund before the dividend is declared. Later on, on declaring the dividends the NAV



of the fund falls. When it so happens, they sell off their units. While filing for IT

returns, they show these fall in the NAV as their short term capital loss which is set

off against their short term capital gains earned by speculating in stock market. Thus,

the net income for paying the tax under the head “Capital gains and losses”

decreases, which ultimately results in lower taxation. Also, the dividend that they

received from the asset management company goes as their tax free income because

since December, 2004 onwards, the central government has declared the dividends to

be treated as tax free under the hands of the receiver. This is how they make dual

gains from investing in mutual funds.

5. The reason the HNIs prefer to invest in debt mutual funds is that they offer steady

returns and higher tax benefits. This is possible because the asset management

companies pay the investor in form of dividends which are tax free. If they had

invested in bank FD instead of the debt funds, they would be liable to pay a tax of

33.99% on their interest income.

6. The other reason for investing in debt mutual funds is that, these HNIs use them as a

source of financing their future expansion and development plans because these

mutual funds offer them a steady income.

7. The indexation benefits associated with the fixed maturity plans is also one of the

reason for investment in this instrument.

8. The doctors specifically invest in mutual fund as 86% of them invest in it. Also they

invest mainly on advice of C.A. Also they go mainly for long term investment as

compared to small term investment.



CHAPTER 7 RECOMMENDATIONS

Based on our analysis and findings and the interpretations done then onwards, we suggest

the following recommendations:

Offer PMS Products

During our research, we found that most HNIs avoided investing in mutual funds, as they

feel that they have a very little or infact no role in managing the funds. What we found was that

they were interested in actively managing their funds. So, we recommend to the company that it

should offer PMS products to this segment as it is the product which allows them a say in

managing their funds.

Create awareness

During our study, we found that mutual fund is used by these HNIs as a means of tax

evasion rather than as an investment tool. The company should make them aware that it offers a

overdraft to the extent of 85% against the funds invested by them. It should pitch them that it is

the only company offering such a facility.

QUESTIONANARIE REGARDING INVESTMENT PREFERENCE OF THE HNI

NAME:-

AGE:-

CONTACT NO:-

PROFESSION AND DESIGNATION:-

FAMILY MEMBER:-

1. Do you invest in different instruments?

( )YES ( )NO

2. Which are the investment tools you invest in?

( )F.D.



( )RBI BOND

( )MUTUAL FUND

( )EQUTIY

( )OTHERS

3. You primarily invest for:

Ranks

Tax Benefits

Returns

Liquidity

Savings

4. Rank the investment options:

Ranks

FD

RBI Bond

Mutual Fund

Equity

Others

Total

5. What is the frequency with you invest?

Frequency In figures

Once in 15 days

Once in a month

Once in 3 months

Once in 6 months

Once in a year

Weekend Parking



Total

6. Do you go for Short or Long term investment?

( )YES ( )NO

7. On whose external advice do you invest?

Advisors In figures

Banks

Distributors

Agents

Direct Investment

C.A.

Total

8. Which type of Mutual Fund do you invest in?

Type of MF In figures

Equity

Debt

Balanced

Total

9. You invest in Debt Mutual Fund because

Reasons In figures

Steady Returns

Less Risk

Liquidity

Tax Benefit

Total



10. You invest in Equity Mutual Fund because

Reasons In figures

Higher Returns

Long Term Capital Gains

Tax Advantage

Wealth Creation

Returns > Inflation

Total

11. Would you invest in Mutual Fund if it offered:

12. Are you aware about FMP and Indexation Benefit?

Responses In figures

Yes

No

Total


Reasons In figures

Greater Tax Benefit

Greater Liquidity

Short Duration Investment

Steady Returns

Returns > F.D. & Liquidity

Diversification of Portfolio

Minimization of Risks

Total

112




CHAPTER 8: REFERENCES

Books:

Goetz man W N, “Cognitive Dissonance and Mutual Fund Investors”, Working Paper,

Columbia Business School, 1993.

Gupta L C, Mutual Funds and Asset Preference, Society for Capital Market Research and

Development, Delhi, 1994.

Madhusudan V Jambodekar, Marketing Strategies of Mutual Funds- Current Practices

and Future Directions, Working Paper UTI- IIMB Center for Capital Markets Education

and Research, Bangalore, 1996.

SEBI- NCAER, Survey of Indian Investors, SEBI ,Mumbai 2000.

Journals and Periodicals

Shankar V, “Retailing Mutual Funds: A consumer product model”, The Hindu, July

24,1996,26.

Websites:

www.reliancemutual.com

www.capitalmarket.com

www.valueresearchonline.com

www.mutualfundsindia.com

www.amfiindia.com

www.moneycontrol.com


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