Date post: | 08-Jul-2018 |
Category: |
Documents |
Upload: | payal-ambhore |
View: | 227 times |
Download: | 0 times |
of 31
8/19/2019 Frauds in Indian Banking Sector
1/73
INDEX
SRNO. TOPICS PAGE
NO
1. INTRODUCTION OF MUTUAL FUND 01
2. WORKING OF MUTUAL FUND 25
3. MUTUAL FUND IN INDIA 33
4. RELIANCE MUTUAL FUND vs. UTI MUTUAL FUND 37
5. MUTUAL FUND vs. OTHER INVESTMENT 0
. FUTURE !ROS!ECT OF MUTUAL FUNDS IN INDIA 7
MF "ARGON #
CONCLUSION $
%I%LOGRA!H& 70
1
8/19/2019 Frauds in Indian Banking Sector
2/73
Chapter: 1
INTRODUCTION OF MUTUAL FUND
There are a lot of investment avenues available today in the financial market for an investor with
an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds where
there is low risk but low return. He may invest in Stock of companies where the risk is high and
the returns are also proportionately high. The recent trends in the Stock arket have shown that
an average retail investor always lost with periodic bearish tends. !eople began opting for
portfolio managers with e"pertise in stock markets who would invest on their behalf. Thus we
had wealth management services provided by many institutions. However they proved too costly
for a small investor. These investors have found a good shelter with the mutual funds.
CONCE!T OF MUTUAL FUND'
# mutual fund is a common pool of money into which investors place their contributions
that are to be invested in accordance with a stated ob$ective. The ownership of the fund is thus
$oint or %mutual&' the fund belongs to all investors. # single investor(s ownership of the fund is
in the same proportion as the amount of the contribution made by him or her bears to the total
amount of the fund.
2
8/19/2019 Frauds in Indian Banking Sector
3/73
utual )unds are trusts, which accept savings from investors and invest the same in
diversified financial instruments in terms of ob$ectives set out in the trusts deed with the view to
reduce the risk and ma"imi*e the income and capital appreciation for distribution for the
members. # utual )und is a corporation and the fund manager(s interest is to professionally
manage the funds provided by the investors and provide a return on them after deducting
reasonable management fees.
The ob$ective sought to be achieved by utual )und is to provide an opportunity for
lower income groups to ac+uire without much difficulty financial assets. They cater mainly to the
needs of the individual investor whose means are small and to manage investors portfolio in a
manner that provides a regular income, growth, safety, li+uidity and diversification opportunities.
DEFINITION'
“Mutual funds are collective savings and investment vehicles where savings of small (or
sometimes big) investors are pooled together to invest for their mutual benefit and returns
distributed proportionately”.
“A mutual fund is an investment that pools your money with the money of an unlimited
number of other investors. In return, you and the other investors each own shares of the fund.
he fund!s assets are invested according to an investment ob"ective into the fund!s portfolio of
investments. Aggressive growth funds see# long$term capital growth by investing primarily in
stoc#s of fast$growing smaller companies or mar#et segments. Aggressive growth funds are also
called capital appreciation !nds".
3
8/19/2019 Frauds in Indian Banking Sector
4/73
M()(*+ F(,-s
E(/)
%*, FD
!s)*+ S*v/,s
V,)( C*6/)*+
HIGHER RISK
HIGHIER RETURNS
LOWER RISK
HIGIER RETURNS
LOWER RISK
LOWER RETURNS
HIGHIER RISK
MODERATE RETURNS
W S+8) M()(*+ F(,-9
The risk return tradeoff indicates that if investor is willing to take higher risk then
correspondingly he can e"pect higher returns and vise versa if he pertains to lower risk
instruments, which would be satisfied by lower returns. )or e"ample, if an investors opt for
bank )D, which provide moderate return with minimal risk. But as he moves ahead to invest in
capital protected funds and the profitbonds that give out more return which is slightly higher as
compared to the bank deposits but the risk involved also increases in the same proportion.
Thus investors choose mutual funds as their primary means of investing, as utual funds
provide professional management, diversification, convenience and li+uidity. That doesn(t mean
mutual fund investments risk free.
This is because the money that is pooled in are not invested only in debts funds which are
less riskier but are also invested in the stock markets which involves a higher risk but can e"pect
higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives
market which is considered very volatile.
RETURN RISK MATRIX
4
8/19/2019 Frauds in Indian Banking Sector
5/73
HISTOR& OF MUTUAL FUNDS IN INDIA'
The mutual fund industry in -ndia started in /01 with the formation of 2nit Trust of
-ndia, at the initiative of the 3overnment of -ndia and 4eserve Bank. The history of mutual funds
in -ndia can be broadly divided into four distinct phases
FIRST !HASE : 1$4;#7'
2nit Trust of -ndia 52T-6 was established on /01 by an #ct of !arliament. -t was set up
by the 4eserve Bank of -ndia and functioned under the 4egulatory and administrative control of
the 4eserve Bank of -ndia. -n /78 2T- was delinked from the 4B- and the -ndustrial
Development Bank of -ndia 5-DB-6 took over the regulatory and administrative control in place
of 4B-. The first scheme launched by 2T- was 2nit Scheme /09. #t the end of /88 2T- had
4s.0,7:: crores of assets under management.
SECOND !HASE : 1$#7;1$$3
8/19/2019 Frauds in Indian Banking Sector
6/73
2T- were to be registered and governed. The erstwhile Aothari !ioneer 5now merged with
)ranklin Templeton6 was the first private sector mutual fund registered in
8/19/2019 Frauds in Indian Banking Sector
7/73
T *6 /,-/8*)s ) >) ? *ss)s (,- @*,*@,) v ) *s.
GROWTH IN ASSETS UNDER MANAGEMENT
(Source: www.amfindia.com )
7
http://www.amfiindia.com/http://www.amfiindia.com/
8/19/2019 Frauds in Indian Banking Sector
8/73
ADVANTAGES OF MUTUAL FUNDS'
-f mutual funds are emerging as the favorite investment vehicle, it is because of the many
advantages they have over other forms and the avenues of investing, particularly for the investor
who has limited resources available in terms of capital and the ability to carry out detailed
research and market monitoring. The following are the ma$or advantages offered by mutual
funds to all investors
1. !)?+/ D/vs/?/8*)/,'
ach investor in the fund is a part owner of all the fund(s assets, thus enabling him to
hold a diversified investment portfolio even with a small amount of investment that would
otherwise re+uire big capital.
2. !?ss/,*+ M*,*@,)'
ven if an investor has a big amount of capital available to him, he benefits from the
professional management skills brought in by the fund in the management of the investor(s
portfolio. The investment management skills, along with the needed research into available
investment options, ensure a much better return than what an investor can manage on his own.
)ew investors have the skill and resources of their own to succeed in today(s fast moving, globaland sophisticated markets.
3. R-(8)/,D/vs/?/8*)/, O? R/s'
@hen an investor invests directly, all the risk of potential loss is his own, whether he
places a deposit with a company or a bank, or he buys a share or debenture on his own or in any
other from. @hile investing in the pool of funds with investors, the potential losses are also
shared with other investors. The risk reduction is one of the most important benefits of a
collective investment vehicle like the mutual fund.
8
8/19/2019 Frauds in Indian Banking Sector
9/73
4. R-(8)/, O? T*,s*8)/, Cs)s'
@hat is true of risk as also true of the transaction costs. The investor bears all the costs of
investing such as brokerage or custody of securities. @hen going through a fund, he has the
benefit of economies of scale' the funds pay lesser costs because of larger volumes, a benefit
passed on to its investors.
5. L/(/-/)'
>ften, investors hold shares or bonds they cannot directly, easily and +uickly sell. @hen
they invest in the units of a fund, they can generally cash their investments any time, by selling
their units to the fund if openended, or selling them in the market if the fund is closeend.
;i+uidity of investment is clearly a big benefit.
. C,v,/,8 A,- F+B//+/)'
utual fund management companies offer many investor services that a direct market
investor cannot get. -nvestors can easily transfer their holding from one scheme to the other' get
updated market information and so on.
7. T*B %,?/)s'
#ny income distributed after arch 1, ?::? will be sub$ect to ta" in the assessment of
all 2nit holders. However, as a measure of concession to 2nit holders of openended e+uity
oriented funds, income distributions for the year ending arch 1, ?::1, will be ta"ed at a
concessional rate of :.E.
-n case of -ndividuals and Hindu 2ndivided )amilies a deduction upto 4s. /,::: from the
Total -ncome will be admissible in respect of income from investments specified in Section 8:;,
including income from 2nits of the utual )und. 2nits of the schemes are not sub$ect to @ealth
Ta" and 3iftTa".
#. C/8 ? S8@s'
utual )unds offer a family of schemes to suit your varying needs over a lifetime.
9
8/19/2019 Frauds in Indian Banking Sector
10/73
$. W++ R(+*)-'
#ll utual )unds are registered with SB- and they function within the provisions of strict
regulations designed to protect the interests of investors. The operations of utual )unds are
regularly monitored by SB-.
10. T*,s6*,8'
Fou get regular information on the value of your investment in addition to disclosure on the
specific investments made by your scheme, the proportion invested in each class of assets
and the fund managerGs investment strategy and outlook.
DISADVANTAGES OF INVESTING THROUGH MUTUAL
FUNDS'
1. N C,)+ Ov Cs)s'
#n investor in a mutual fund has no control of the overall costs of investing. The investor
pays investment management fees as long as he remains with the fund, albeit in return for the
professional management and research. )ees are payable even if the value of his investments is
declining. # mutual fund investor also pays fund distribution costs, which he would not incur in
direct investing. However, this shortcoming only means that there is a cost to obtain the mutual
fund services.
2. N T*/+;M*- !)?+/'
-nvestors who invest on their own can build their own portfolios of shares and bonds and
other securities. -nvesting through fund means he delegates this decision to the fund managers.
The veryhighnetworth individuals or large corporate investors may find this to be a constraint
10
8/19/2019 Frauds in Indian Banking Sector
11/73
in achieving their ob$ectives. However, most mutual fund managers help investors overcome this
constraint by offering families of funds a large number of different schemes within their own
management company. #n investor can choose from different investment plans and constructs a
portfolio to his choice.
3. M*,*/, A !)?+/ O? F(,-s'
#vailability of a large number of funds can actually mean too much choice for the
investor. He may again need advice on how to select a fund to achieve his ob$ectives, +uite
similar to the situation when he has individual shares or bonds to select.
4. T W/s-@ O? !?ss/,*+ M*,*@,)'
ThatGs right, this is not an advantage. The average mutual fund manager is no better at
picking stocks than the average nonprofessional, but charges fees.
5. N C,)+'
2nlike picking your own individual stocks, a mutual fund puts you in the passenger seat
of somebody elseGs car
. D/+()/,'
utual funds generally have such small holdings of so many different stocks that
insanely great performance by a fundGs top holdings still doesnGt make much of a difference in a
mutual fundGs total performance.
7. %(/- Cs)s'
any mutual funds speciali*e in burying their costs and in hiring salesmen who do not
make those costs clear to their clients.
11
8/19/2019 Frauds in Indian Banking Sector
12/73
T
&
!
E
S
O
F
M
U
T
U
A
LF
U
N
D
T
&
!
E
S
O
F
M
U
T
U
A
LF
U
N
D
T&!ES OF MUTUAL FUNDS SCHEMES IN INDIA
@ide variety of utual )und Schemes e"ists to cater to the needs such as financial
position, risk tolerance and return e"pectations etc. thus mutual funds has ariety of flavors,
Being a collection of many stocks, an investors can go for picking a mutual fund might be easy.There are over hundreds of mutual funds scheme to choose from. -t is easier to think of mutual
funds in categories, mentioned below.
12
8/19/2019 Frauds in Indian Banking Sector
13/73
A=. %& STRUCTURE
1. O6, ; E,-- S8@s'
#n openend fund is one that is available for subscription all through the year. These do
not have a fi"ed maturity. -nvestors can conveniently buy and sell units at =et #sset alue
5I=#I6 related prices. The key feature of openend schemes is li+uidity.
2. C+s ; E,-- S8@s'
# closedend fund has a stipulated maturity period which generally ranging from 1 to
years. The fund is open for subscription only during a specified period. -nvestors can invest in
the scheme at the time of the initial public issue and thereafter they can buy or sell the units of
the scheme on the stock e"changes where they are listed. -n order to provide an e"it route to the
investors, some closeended funds give an option of selling back the units to the utual )und
through periodic repurchase at =# related prices. SB- 4egulations stipulate that at least one of
the two e"it routes is provided to the investor.
3. I,)v*+ S8@s'
-nterval Schemes are that scheme, which combines the features of openended and close
ended schemes. The units may be traded on the stock e"change or may be open for sale or
redemption during predetermined intervals at =# related prices.
13
8/19/2019 Frauds in Indian Banking Sector
14/73
%=. %& NATURE
1. E(/) F(,-'
These funds invest a ma"imum part of their corpus into e+uities holdings. The structure
of the fund may vary different for different schemes and the fund manager(s outlook on differentstocks. The +uity )unds are subclassified depending upon their investment ob$ective, as
follows
• Diversified +uity )unds
• idCap )unds
• Sector Specific )unds
• Ta" Savings )unds 5;SS6
+uity investments are meant for a longer time hori*on, thus +uity funds rank high on
the riskreturn matri".
2. D) F(,-s'
The ob$ective of these )unds is to invest in debt papers. 3overnment authorities, private
companies, banks and financial institutions are some of the ma$or issuers of debt papers. By
investing in debt instruments, these funds ensure low risk and provide stable income to theinvestors. Debt funds are further classified as
• G/+) F(,-s -nvest their corpus in securities issued by 3overnment, popularly known as
3overnment of -ndia debt papers. These )unds carry *ero Default risk but are associated
with -nterest 4ate risk. These schemes are safer as they invest in papers backed by
3overnment.
• I,8@ F(,-s -nvest a ma$or portion into various debt instruments such as bonds,
corporate debentures and 3overnment securities.
• MI!s -nvests ma"imum of their total corpus in debt instruments while they take
minimum e"posure in e+uities. -t gets benefit of both e+uity and debt market. These
scheme ranks slightly high on the riskreturn matri" when compared with other debt
schemes.
14
8/19/2019 Frauds in Indian Banking Sector
15/73
• S) T@ !+*,s
8/19/2019 Frauds in Indian Banking Sector
16/73
C=. %& INVESTMENT O%"ECTIVE'
G>) S8@s'
3rowth Schemes are also known as e+uity schemes. The aim of these schemes is to
provide capital appreciation over medium to long term. These schemes normally invest a ma$or part of their fund in e+uities and are willing to bear shortterm decline in value for possible
future appreciation.
I,8@ S8@s
-ncome Schemes are also known as debt schemes. The aim of these schemes is to provide
regular and steady income to investors. These schemes generally invest in fi"ed income
securities such as bonds and corporate debentures. Capital appreciation in such schemes may be
limited.
%*+*,8- S8@s'
Balanced Schemes aim to provide both growth and income by periodically distributing a
part of the income and capital gains they earn. These schemes invest in both shares and fi"ed
income securities, in the proportion indicated in their offer documents 5normally ::6.
M, M*) S8@s
oney arket Schemes aim to provide easy li+uidity, preservation of capital and
moderate income. These schemes generally invest in safer, shortterm instruments, such as
treasury bills, certificates of deposit, commercial paper and interbank call money.
L*- F(,-s'
# ;oad )und is one that charges a commission for entry or e"it. That is, each time you
buy or sell units in the fund, a commission will be payable. Typically entry and e"it loads range
from E to ?E. -t could be worth paying the load, if the fund has a good performance history.
N;L*- F(,-s'
# =o;oad )und is one that does not charge a commission for entry or e"it. That is, no
commission is payable on purchase or sale of units in the fund. The advantage of a no load fund
is that the entire corpus is put to work.
16
8/19/2019 Frauds in Indian Banking Sector
17/73
OTHER SCHEMES
T*B S*v/, S8@s'
Ta"saving schemes offer ta" rebates to the investors under ta" laws prescribed from time
to time. 2nder Sec.88 of the -ncome Ta" #ct, contributions made to any +uity ;inked SavingsScheme 5;SS6 are eligible for rebate.
I,-B S8@s'
-nde" schemes attempt to replicate the performance of a particular inde" such as the BS
Sense" or the =S :. The portfolio of these schemes will consist of only those stocks that
constitute the inde". The percentage of each stock to the total holding will be identical to the
stocks inde" weightage. #nd hence, the returns from such schemes would be more or less
e+uivalent to those of the -nde".
S8) S68/?/8 S8@s'
These are the fundsJschemes which invest in the securities of only those sectors or industries as
specified in the offer documents. e.g. !harmaceuticals, Software, )ast oving Consumer 3oods
5)C36, !etroleum stocks, etc. The returns in these funds are dependent on the performance of
the respective sectorsJindustries. @hile these funds may give higher returns, they are more risky
compared to diversified funds. -nvestors need to keep a watch on the performance of those
sectorsJindustries and must e"it at an appropriate time.
17
8/19/2019 Frauds in Indian Banking Sector
18/73
NET ASSET VALUE
8/19/2019 Frauds in Indian Banking Sector
19/73
MUTUAL FUND FEES AND EX!ENSES
utual fund fees and e"penses are charges that may be incurred by investors who hold
mutual funds. 4unning a mutual fund involves costs, including shareholder transaction costs,
investment advisory fees, and marketing and distribution e"penses. )unds pass along these coststo investors in a number of ways.
1. TRANSACTION FEES
/= !(8*s F'
-t is a type of fee that some funds charge their shareholders when they buy shares.
2nlike a frontend sales load, a purchase fee is paid to the fund 5not to a broker 6 and is
typically imposed to defray some of the fundGs costs associated with the purchase.
//= R-@6)/, F'
-t is another type of fee that some funds charge their shareholders when they sell
or redeem shares. 2nlike a deferred sales load, a redemption fee is paid to the fund 5not
to a broker 6 and is typically used to defray fund costs associated with a shareholderGs
redemption.
///= EB8*, F'
"change fee that some funds impose on shareholders if they e"change 5transfer6
to another fund within the same fund group or Ifamily of funds.I
2. !ERIODIC FEES
/= M*,*@,) F'
anagement fees are fees that are paid out of fund assets to the fundGs investment
adviser for investment portfolio management, any other management fees payable to the
fundGs investment adviser or its affiliates, and administrative fees payable to the
investment adviser that are not included in the I>ther "pensesI category. They are also
called maintenance fees.
19
http://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/w/index.php?title=Fund_group&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Fund_group&action=edit&redlink=1http://en.wikipedia.org/wiki/List_of_mutual-fund_familieshttp://en.wikipedia.org/wiki/List_of_mutual-fund_familieshttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/w/index.php?title=Fund_group&action=edit&redlink=1http://en.wikipedia.org/wiki/List_of_mutual-fund_families
8/19/2019 Frauds in Indian Banking Sector
20/73
//= A88(,) F'
#ccount fees are fees that some funds separately impose on investors in
connection with the maintenance of their accounts. )or e"ample, some funds impose anaccount maintenance fee on accounts whose value is less than a certain dollar amount.
3. OTHER O!ERATING EX!ENSES
T*,s*8)/, Cs)s'
These costs are incurred in the trading of the fundGs assets. )unds with a high
turnover ratio, or investing in illi+uid or e"otic markets usually face higher transaction
costs. 2nlike the Total "pense 4atio these costs are usually not reported.
LOADS
D?/,/)/, ? * +*-
;oad funds e"hibit a ISales ;oadI with a percentage charge levied on purchase or sale of
shares. # load is a type of Commission 5remuneration6. Depending on the type of load a mutual
fund e"hibits, charges may be incurred at time of purchase, time of sale, or a mi" of both. The
different types of loads are outlined below.
F,);,- +*-'
#lso known as %ales &harge, this is a fee paid when shares are purchased. #lso known as
a Ifrontend load,I this fee typically goes to the brokers that sell the fundGs shares. )rontend
loads reduce the amount of your investment. )or e"ample, letGs say you have 4s.:,::: and want
to invest it in a mutual fund with a E frontend load. The 4s.:: sales load you must pay comes
off the top, and the remaining 4s./:: will be invested in the fund. #ccording to =#SD rules, a
frontend load cannot be higher than 8.E of your investment.
20
http://en.wikipedia.org/w/index.php?title=Turn_over_ratio&action=edit&redlink=1http://en.wikipedia.org/wiki/Total_Expense_Ratiohttp://en.wikipedia.org/wiki/Commission_(remuneration)http://en.wikipedia.org/wiki/NASDhttp://en.wikipedia.org/w/index.php?title=Turn_over_ratio&action=edit&redlink=1http://en.wikipedia.org/wiki/Total_Expense_Ratiohttp://en.wikipedia.org/wiki/Commission_(remuneration)http://en.wikipedia.org/wiki/NASD
8/19/2019 Frauds in Indian Banking Sector
21/73
%*8;,- +*-'
#lso known as 'eferred %ales &harge, this is a fee paid when shares are sold. #lso
known as a Ibackend load,I this fee typically goes to the brokers that sell the fundGs shares. The
amount of this type of load will depend on how long the investor holds his or her shares and
typically decreases to *ero if the investor holds his or her shares long enough.
Lv+ +*- L> +*-'
-tGs similar to a backend load in that no sales charges are paid when buying the fund.
-nstead a backend load may be charged if the shares purchased are sold within a given time
frame. The distinction between level loads and low loads as opposed to backend loads, is that
this time frame where charges are levied is shorter.
N;+*- F(,-'
#s the name implies, this means that the fund does not charge any type of sales load. But,
as outlined above, not every type of shareholder fee is a Isales load.I # noload fund may charge
fees that are not sales loads, such as purchase fees, redemption fees, e"change fees, and account
fees.
21
http://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Stock_broker
8/19/2019 Frauds in Indian Banking Sector
22/73
SELECTION !ARAMETERS FOR MUTUAL FUND
&( 8)/v'
The first point to note before investing in a fund is to find out whether your ob$ective
matches with the scheme. -t is necessary, as any conflict would directly affect your prospective
returns. Similarly, you should pick schemes that meet your specific needs. "amples pension
plans, children(s plans, sectorspecific schemes, etc.
&( /s 8*6*8/) *,- 8*6*/+/)'
This dictates the choice of schemes. Those with no risk tolerance should go for debt
schemes, as they are relatively safer. #ggressive investors can go for e+uity investments.
-nvestors that are even more aggressive can try schemes that invest in specific industry or sectors.
F(,- M*,*s *,- s8@ )*8 8-'
Since you are giving your hard earned money to someone to manage it, it is imperative
that he manages it well. -t is also essential that the fund house you choose has e"cellent track
record. -t also should be professional and maintain high transparency in operations. ;ook at the
performance of the scheme against relevant market benchmarks and its competitors. ;ook at the
performance of a longer period, as it will give you how the scheme fared in different market
conditions.
Cs) ?*8)'
Though the #C fee is regulated, you should look at the e"pense ratio of the fund before
investing. This is because the money is deducted from your investments. # higher entry load or
e"it load also will eat into your returns. # higher e"pense ratio can be $ustified only by
superlative returns. -t is very crucial in a debt fund, as it will devour a few percentages from your
modest returns.
22
8/19/2019 Frauds in Indian Banking Sector
23/73
#lso, orningstar rates mutual funds. ach year end, many financial publications list the
yearGs best performing mutual funds. =aturally, very eager investors will rush out to purchase
shares of last yearGs top performers. ThatGs a big mistake. 4emember, changing market conditions
make it rare that last yearGs top performer repeats that ranking for the current year. utual fund
investors would be well advised to consider the fund prospectus, the fund manager, and the
current market conditions. =ever rely on last yearGs top performers.
T6s ? R)(,s , M()(*+ F(,-'
There are three ways, where the total returns provided by mutual funds can be en$oyed by
investors
• -ncome is earned from dividends on stocks and interest on bonds. # fund pays out nearly
all income it receives over the year to fund owners in the form of a distribution.
• -f the fund sells securities that have increased in price, the fund has a capital gain. ost
funds also pass on these gains to investors in a distribution.
-f fund holdings increase in price but are not sold by the fund manager, the fundGs shares increase
in price. Fou can then sell your mutual fund shares for a profit. )unds will also usually give you
a choice either to receive a check for distributions or to reinvest the earnings and get more
shares.
23
8/19/2019 Frauds in Indian Banking Sector
24/73
RISK FACTORS OF MUTUAL FUNDS
1. T R/s;R)(, T*-;O??'
The most important relationship to understand is the riskreturn tradeoff. Higher the risk
greater the returns J loss and lower the risk lesser the returnsJloss.
Hence it is upto you, the investor to decide how much risk you are willing to take. -n
order to do this you must first be aware of the different types of risks involved with your
investment decision.
2. M*) R/s'
Sometimes prices and yields of all securities rise and fall. Broad outside influencesaffecting the market in general lead to this. This is true, may it be big corporations or smaller
midsi*ed companies. This is known as arket 4isk. # Systematic -nvestment !lan 5%S-!&6 that
works on the concept of 4upee Cost #veraging 5%4C#&6 might help mitigate this risk.
3. C-/) R/s'
The debt servicing ability 5may it be interest payments or repayment of principal6 of a
company through its cashflows determines the Credit 4isk faced by you. This credit risk is
measured by independent rating agencies like C4-S-; who rate companies and their paper. #
L###( rating is considered the safest whereas a LD( rating is considered poor credit +uality. #
welldiversified portfolio might help mitigate this risk.
4. I,?+*)/, R/s'
Things you hear people talk about
I4s. :: today is worth more than 4s. :: tomorrow.I
I4emember the time when a bus ride costed : paiseMI
Iehangai Aa
8/19/2019 Frauds in Indian Banking Sector
25/73
when inflation grows faster than the return on your investment. # welldiversified portfolio with
some investment in e+uities might help mitigate this risk.
5. I,)s) R*) R/s'
-n 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 e+uities. -f interest rates rise the prices of
bonds fall and vice versa. +uity might be negatively affected as well in a rising interest rate
environment. # welldiversified portfolio might help mitigate this risk.
. !+/)/8*+ Gv,@,) !+/8 R/s'
Changes in government policy and political decision can change the investment
environment. They can create a favorable environment for investment or vice versa.
7. L/(/-/) R/s'
;i+uidity risk arises when it becomes difficult to sell the securities that one has
purchased. ;i+uidity 4isk can be partly mitigated by diversification, staggering of maturities as
well as internal risk controls that lean towards purchase of li+uid securities.
25
8/19/2019 Frauds in Indian Banking Sector
26/73
Chapter: (
WORKING OF MUTUAL FUNDS
The mutual fund collects money directly or through brokers from investors. The money is
invested in various instruments depending on the ob$ective of the scheme. The income generated
by selling securities or capital appreciation of these securities is passed on to the investors in
proportion to their investment in the scheme. The investments are divided into units and the
value of the units will be reflected in =et #sset alue or =# of the unit. =# is the market
value of the assets of the scheme minus its liabilities. The per unit =# is the net asset value of
the scheme divided by the number of units outstanding on the valuation date. utual fund
companies provide daily net asset value of their schemes to their investors. =# is important, asit will determine the price at which you buy or redeem the units of a scheme. Depending on the
load structure of the scheme, you have to pay entry or e"it load.
26
8/19/2019 Frauds in Indian Banking Sector
27/73
STRUCTURE OF A MUTUAL FUND'
-ndia has a legal framework within which utual )und have to be constituted. -n -ndia
open and closeend funds operate under the same regulatory structure i.e. as unit Trusts. #
utual )und in -ndia is allowed to issue openend and closeend schemes under a common legalstructure. The structure that is re+uired to be followed by any utual )und in -ndia is laid down
under SB- 5utual )und6 4egulations, //0.
T F(,- S6,s'
Sponsor is defined under SB- regulations as any person who, acting alone or in
combination of another corporate body establishes a utual )und. The sponsor of the fund is
akin to the promoter of a company as he gets the fund registered with SB-. The sponsor forms a
trust and appoints a Board of Trustees. The sponsor also appoints the #sset anagementCompany as fund managers. The sponsor either directly or acting through the trustees will also
appoint a custodian to hold funds assets. #ll these are made in accordance with the regulation
and guidelines of SB-.
27
8/19/2019 Frauds in Indian Banking Sector
28/73
#s per the SB- regulations, for the person to +ualify as a sponsor, he must contribute at
least 9:E of the net worth of the #sset anagement Company and possesses a sound financial
track record over years prior to registration.
M()(*+ F(,-s *s T(s)s'
# utual )und in -ndia is constituted in the form of !ublic trust #ct, 88?. The )und
sponsor acts as a settlor of the Trust, contributing to its initial capital and appoints a trustee to
hold the assets of the trust for the benefit of the unitholders, who are the beneficiaries of the
trust. The fund then invites investors to contribute their money in common pool, by scribing to
%units& issued by various schemes established by the Trusts as evidence of their beneficial
interest in the fund.
-t should be understood that the fund should be $ust a %pass through& vehicle. 2nder the
-ndian Trusts #ct, the trust of the fund has no independent legal capacity itself, rather it is the
Trustee or the Trustees who have the legal capacity and therefore all acts in relation to the trusts
are taken on its behalf by the Trustees. -n legal parlance the investors or the unitholders are the
beneficial owners of the investment held by the Trusts, even as these investments are held in the
name of the Trustees on a daytoday basis. Being public trusts, utual )und can invite any
number of investors as beneficial owners in their investment schemes.
T(s)s'
# Trust is created through a document called the Trust Deed that is e"ecuted by the fund
sponsor in favour of the trustees. The Trust the utual )und N may be managed by a board of
trustees a body of individuals, or a trust company a corporate body. ost of the funds in -ndia
are managed by Boards of Trustees. @hile the boards of trustees are governed by the -ndian
Trusts #ct, where the trusts are a corporate body, it would also re+uire to comply with the
Companies #ct, /0. The Board or the Trust company as an independent body, acts as a
protector of the of the unitholders interests. The Trustees do not directly manage the portfolio of
securities. )or this specialist function, the appoint an #sset anagement Company. They ensure
that the )und is managed by ht #C as per the defined ob$ectives and in accordance with the
trusts deeds and SB- regulations.
28
8/19/2019 Frauds in Indian Banking Sector
29/73
T Ass) M*,*@,) C@6*,/s'
The role of an #sset anagement Company 5#C6 is to act as the investment manager
of the Trust under the board supervision and the guidance of the Trustees. The #C is re+uired
to be approved and registered with SB- as an #C. The #C of a utual )und must have a
net worth of at least 4s. : Crores at all times. Directors of the #C, both independent and non
independent, should have ade+uate professional e"pertise in financial services and should be
individuals of high morale standing, a condition also applicable to other key personnel of the
#C. The #C cannot act as a Trustee of any other utual )und. Besides its role as a fund
manager, it may undertake specified activities such as advisory services and financial consulting,
provided these activities are run independent of one another and the #C(s resources 5such as
personnel, systems etc.6 are properly segregated by the activity. The #C must always act in the
interest of the unitholders and reports to the trustees with respect to its activities.
C(s)-/*, *,- D6s/)/s'
utual )und is in the business of buying and selling of securities in large volumes.
Handling these securities in terms of physical delivery and eventual safekeeping is a speciali*ed
activity. The custodian is appointed by the Board of Trustees for safekeeping of securities or
participating in any clearance system through approved depository companies on behalf of the
utual )und and it must fulfill its responsibilities in accordance with its agreement with the
utual )und. The custodian should be an entity independent of the sponsors and is re+uired to be
registered with SB-. @ith the introduction of the concept of demateriali*ation of shares the
demateriali*ed shares are kept with the Depository participant while the custodian holds the
physical securities. Thus, deliveries of a fund(s securities are given or received by a custodian or
a depository participant, at the instructions of the #C, although under the overall direction and
responsibilities of the Trustees.
%*,s'
# )und(s activities involve dealing in money on a continuous basis primarily with respect
to buying and selling units, paying for investment made, receiving the proceeds from sale of the
investments and discharging its obligations towards operating e"penses. Thus the )und(s banker
29
8/19/2019 Frauds in Indian Banking Sector
30/73
plays an important role to determine +uality of service that the fund gives in timely delivery of
remittances etc.
T*,s? A,)s'
Transfer agents are responsible for issuing and redeeming units of the utual )und and
provide other related services such as preparation of transfer documents and updating investor
records. # fund may choose to carry out its activity inhouse and charge the scheme for the
service at a competitive market rate. @here an outside Transfer agent is used, the fund investor
will find the agent to be an important interface to deal with, since all of the investor services that
a fund provides are going to be dependent on the transfer agent.
REGULATOR& STRUCTURE OF MUTUAL FUNDS IN INDIA'
The structure of mutual funds in -ndia is guided by the SB-. 4egulations, //0.These
regulations make it mandatory for mutual fund to have three structures of sponsor trustee and
asset anagement Company. The sponsor of the mutual fund and appoints the trustees. The
trustees are responsible to the investors in mutual fund and appoint the #C for managing the
investment portfolio. The #C is the business face of the mutual fund, as it manages all the
affairs of the mutual fund. The #C and the mutual fund have to be registered with SB-.
30
8/19/2019 Frauds in Indian Banking Sector
31/73
SE%I REGULATIONS
• #s far as mutual funds are concerned, SB- formulates policies and regulates the mutual
funds to protect the interest of the investors.
• SB- notified regulations for the mutual funds in //1. Thereafter, mutual funds sponsored
by private sector entities were allowed to enter the capital market.
• The regulations were fully revised in //0 and have been amended thereafter from time to
time.
• SB- has also issued guidelines to the mutual funds from time to time to protect the interests
of investors.
• #ll mutual funds whether promoted by public sector or private sector entities including those
promoted by foreign entities are governed by the same set of 4egulations. The risks
associated with the schemes launched by the mutual funds sponsored by these entities are of
similar type. There is no distinction in regulatory re+uirements for these mutual funds and all
are sub$ect to monitoring and inspections by SB-.
• SB- 4egulations re+uire that at least two thirds of the directors of trustee company or board
of trustees must be independent i.e. they should not be associated with the sponsors.
• #lso, :E of the directors of #C must be independent. #ll mutual funds are re+uired to be
registered with SB- before they launch any scheme.
• )urther SB- 4egualtions, interalia, stipulate that )s cannot gurarnatee returns in any
scheme and that each scheme is sub$ect to ?: ? condition O-.e minimum ?: investors per
scheme and one investor can hold more than ?E stake in the corpus in that one schemeP.
#lso SB- has permitted )s to launch schemes overseas sub$ect various restrictions and
also to launch schemes linked to 4eal state, >ptions and )utures, Commodities, etc.
31
8/19/2019 Frauds in Indian Banking Sector
32/73
ASSOCIATION OF MUTUAL FUNDS IN INDIA
8/19/2019 Frauds in Indian Banking Sector
33/73
• #)- undertakes all -ndia awareness programme for investors in order to promote proper
understanding of the concept and working of mutual funds.
• #t last but not the least association of mutual fund of -ndia also disseminate informations
on utual )und -ndustry and undertakes studies and research either directly or in
association with other bodies.
AMFI !(+/8*)/,s'
#)- publish mainly two types of bulletin. >ne is on the monthly basis and the other is
+uarterly. These publications are of great support for the investors to get intimation of the
knowhow of their parked money.
33
8/19/2019 Frauds in Indian Banking Sector
34/73
Chapter: )
MUTUAL FUNDS IN INDIA
-n /01, the day the concept of utual )und took birth in -ndia. 2nit Trust of -ndia
invited investors or rather to those who believed in savings, to park their money in 2T- utual
)und.
)or 1: years it goaled without a single second player. Though the /88 year saw some
new mutual fund companies, but 2T- remained in a monopoly position.
The performance of mutual funds in -ndia in the initial phase was not even closer to
satisfactory level. !eople rarely understood, and of course investing was out of +uestion. But yes,
some ?9 million shareholders were accustomed with guaranteed high returns by the beginning of
liberali*ation of the industry in //?. This good record of 2T- became marketing tool for new
entrants. The e"pectations of investors touched the sky in profitability factor. However, people
were miles away from the preparedness of risks factor after the liberali*ation.
The net asset value 5=#6 of mutual funds in -ndia declined when stock prices started
falling in the year //?. Those days, the market regulations did not allow portfolio shifts into
alternative investments. There was rather no choice apart from holding the cash or to further
continue investing in shares. >ne more thing to be noted, since only closedend funds were
floated in the market, the investors disinvested by selling at a loss in the secondary market.
The performance of mutual funds in -ndia suffered +ualitatively. The //? stock market
scandal, the losses by disinvestments and of course the lack of transparent rules in the
whereabouts rocked confidence among the investors. !artly owing to a relatively weak stock
market performance, mutual funds have not yet recovered, with funds trading at an average
discount of :?: percent of their net asset value.
The securities and "change Board of -ndia 5SB-6 came out with comprehensiveregulation in //1 which defined the structure of utual )und and #sset anagement
Companies for the first time.
The supervisory authority adopted a set of measures to create a transparent and
competitive environment in mutual funds. Some of them were like rela"ing investment
34
8/19/2019 Frauds in Indian Banking Sector
35/73
restrictions into the market, introduction of openended funds, and paving the gateway for
mutual funds to launch pension schemes.
The measure was taken to make mutual funds the key instrument for longterm saving.
The more the variety offered, the +uantitative will be investors.
Several private sectors utual )unds were launched in //1 and //9. The share of the
private players has risen rapidly since then. Currently there are 19 utual )und organi*ations in
-ndia managing ,:?,::: crores.
#t last to mention, as long as mutual fund companies are performing with lower risks and
higher profitability within a short span of time, more and more people will be inclined to invest
until and unless they are fully educated with the dos and don(ts of mutual funds.
utual fund industry has seen a lot of changes in past few years with multinational
companies coming into the country, bringing in their professional e"pertise in managing funds
worldwide. -n the past few months there has been a consolidation phase going on in the mutual
fund industry in -ndia. =ow investors have a wide range of Schemes to choose from depending
on their individual profiles.
35
8/19/2019 Frauds in Indian Banking Sector
36/73
MUTUAL FUND COM!ANIES IN INDIA'
The concept of mutual funds in -ndia dates back to the year /01. The era between /01
and /87 marked the e"istance of only one mutual fund company in -ndia with 4s. 07bn assets
under management 5#26, by the end of its monopoly era, the 2nit Trust of -ndia 52T-6. By theend of the 8:s decade, few other mutual fund companies in -ndia took their position in mutual
fund market.
The new entries of mutual fund companies in -ndia were SB- utual )und, Canbank
utual )und, !un$ab =ational Bank utual )und, -ndian Bank utual )und, Bank of -ndia
utual )und.
The succeeding decade showed a new hori*on in -ndian mutual fund industry. By the end
of //1, the total #2 of the industry was 4s. 97:.:9 bn. The private sector funds started
penetrating the fund families. -n the same year the first utual )und 4egulations came into
e"istance with reregistering all mutual funds e"cept 2T-. The regulations were further given a
revised shape in //0.
Aothari !ioneer was the first private sector mutual fund company in -ndia which has now
merged with )ranklin Templeton. utual )und
• Birla Sun ;ife utual )und
• Bank of Baroda utual )und
• HD)C utual )und
• HSBC utual )und
• -=3 ysya utual )und
• !rudential -C-C- utual )und
• State Bank of -ndia utual )und
• Tata utual )und
• 2nit Trust of -ndia utual )und
• 4eliance utual )und
• Standard Chartered utual )und
• )ranklin Templeton -ndia utual )und
• organ Stanley utual )und -ndia
• scorts utual )und
• #lliance Capital utual )und
• Benchmark utual )und
• Canbank utual )und
• Chola utual )und
• ;-C utual )und
36
http://finance.indiamart.com/india_business_information/abn_amro.htmlhttp://finance.indiamart.com/india_business_information/birla_sunlife.htmlhttp://finance.indiamart.com/india_business_information/bank_of_baroda.htmlhttp://finance.indiamart.com/india_business_information/hdfc.htmlhttp://finance.indiamart.com/india_business_information/hsbc.htmlhttp://finance.indiamart.com/india_business_information/ing_vysya.htmlhttp://finance.indiamart.com/india_business_information/prudential_icici.htmlhttp://finance.indiamart.com/india_business_information/sbi.htmlhttp://finance.indiamart.com/india_business_information/tata.htmlhttp://finance.indiamart.com/india_business_information/abn_amro.htmlhttp://finance.indiamart.com/india_business_information/birla_sunlife.htmlhttp://finance.indiamart.com/india_business_information/bank_of_baroda.htmlhttp://finance.indiamart.com/india_business_information/hdfc.htmlhttp://finance.indiamart.com/india_business_information/hsbc.htmlhttp://finance.indiamart.com/india_business_information/ing_vysya.htmlhttp://finance.indiamart.com/india_business_information/prudential_icici.htmlhttp://finance.indiamart.com/india_business_information/sbi.htmlhttp://finance.indiamart.com/india_business_information/tata.html
8/19/2019 Frauds in Indian Banking Sector
37/73
• 3-C utual )und
37
8/19/2019 Frauds in Indian Banking Sector
38/73
)or the first time in the history of -ndian mutual fund industry, 2nit Trust of -ndia utual
)und has slipped from the first slot. arlier, in ay ?::0, the !rudential -C-C- utual )und was
ranked at the number one slot in terms of total assets.
-n the very ne"t month, the 2T-) had regained its top position as the largest fund house
in -ndia.
=ow, according to the current pegging order and the data released by #ssociation of
utual )unds in -ndia 5#)-6, the 4eliance utual )und, with a n the other hand, 2T-), with an #2 of 4s 17,1 crore, has gone to secomd
position. The !rudential -C-C- ) has slipped to the third position with an #2 of 4s 19,790
crore.
-t happened for the first time in last one year that a private sector mutual fund house has reached
to the top slot in terms of asset under management 5#26. -n the last one year to
8/19/2019 Frauds in Indian Banking Sector
39/73
Chapter: *
RELIANCE MUTUAL FUND Vs UTI MUTUAL FUND
RELIANCE MUTUAL FUND
4eliance utual )und 54)6 was established as trust under -ndian Trusts #ct, 88?. The
sponsor of 4) is 4eliance Capital ;imited and 4eliance Capital Trustee Co. ;imited is the
Trustee. -t was registered on
8/19/2019 Frauds in Indian Banking Sector
40/73
The Sponsor, the Trustee and the -nvestment anager are incorporated under the
Companies #ct /0.
V/s/, S)*)@,)
%To be a globally respected wealth creator with an emphasis on customer care and a
culture of good corporate governance.&
M/ss/, S)*)@,)
To create and nurture a worldclass, high performance environment aimed at delighting
our customers.
T M*/, O8)/vs O? T T(s)'
• To carry on the activity of a utual )und as may be permitted at law and formulate and
devise various collective Schemes of savings and investments for people in -ndia and
abroad and also ensure li+uidity of investments for the 2nit holders'
• To deploy )unds thus raised so as to help the 2nit holders earn reasonable returns on
their savings and
• To take such steps as may be necessary from time to time to realise the effects without
any limitation.
8/19/2019 Frauds in Indian Banking Sector
41/73
SCHEMES
A=. EUIT&GROWTH SCHEMES'
The aim of growth funds is to provide capital appreciation over the medium to long
term. Such schemes normally invest a ma$or part of their corpus in e+uities. Such funds have
comparatively high risks. 3rowth schemes are good for investors having a longterm outlook
seeking appreciation over a period of time.
1. R+/*,8 I,?*s)(8)( F(,-
8/19/2019 Frauds in Indian Banking Sector
42/73
the secondary ob$ective is to generate consistent returns by investing in debt and money
market securities.
=atural resources may include, for e"ample, energy sources, precious and other
metals, forest products, food and agriculture, and other basic commodities.
4. R+/*,8 E(/) L/,- S*v/, F(,-
8/19/2019 Frauds in Indian Banking Sector
43/73
7. R+/*,8 T*B S*v ) F(,-
8/19/2019 Frauds in Indian Banking Sector
44/73
12.R+/*,8 L, T@ E(/) F(,-
8/19/2019 Frauds in Indian Banking Sector
45/73
1. R+/*,8 M,)+ I,8@ !+*, '
5#n >pen nded )und, onthly -ncome is not assured R is sub$ect to the availability
of distributable surplus6 The !rimary investment ob$ective of the Scheme is to generate
regular income in order to make regular dividend payments to unit holders and the secondary
ob$ective is growth of capital.
2. R+/*,8 G/+) S8(/)/s F(,- ; S) T@ G/+) !+*, L, T@ G/+)
!+*, '5>penended 3overnment Securities Scheme6 The primary ob$ective of the Scheme is
to generate optimal credit riskfree returns by investing in a portfolio of securities issued and
guaranteed by the central 3overnment and State 3overnment.
3. R+/*,8 I,8@ F(,- '
5#n >penended -ncome Scheme6 The primary ob$ective of the scheme is to generate
optimal returns consistent with moderate levels of risk. This income may be complemented
by capital appreciation of the portfolio. #ccordingly, investments shall predominantly be
made in Debt R oney market -nstruments.
4. R+/*,8 M-/(@ T@ F(,- '
5#n >pen nd -ncome Scheme with no assured returns6 The primary investment
ob$ective of the Scheme is to generate regular income in order to make regular dividend
payments to unit holders and the secondary ob$ective is growth of capital
5. R+/*,8 S) T@ F(,- '
5#n >pen nd -ncome Scheme6 The primary investment ob$ective of the scheme is to
generate stable returns for investors with a short investment hori*on by investing in )i"ed
-ncome Securities of short term maturity.
. R+/*,8 L/(/- F(,- '
5>penended ;i+uid Scheme6 The primary investment ob$ective of the Scheme is to
generate optimal returns consistent with moderate levels of risk and high li+uidity.
8/19/2019 Frauds in Indian Banking Sector
46/73
#ccordingly, investments shall predominantly be made in Debt and oney arket
-nstruments.
7. R+/*,8 F+*)/, R*) F(,- '
5#n >pen nd ;i+uid Scheme6 The primary ob$ective of the scheme is to generate
regular income through investment in a portfolio comprising substantially of )loating 4ate
Debt Securities 5including floating rate securitised debt and oney arket -nstruments and
)i"ed 4ate Debt -nstruments swapped for floating rate returns6. The scheme shall also invest
in fi"ed rate debt Securities 5including fi"ed rate securitised debt, oney arket -nstruments
and )loating 4ate Debt -nstruments swapped for fi"ed returns.
#. R+/*,8 NRI I,8@ F(,- '5#n >penended -ncome scheme6 The primary investment ob$ective 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. #ccordingly, investments shall
predominantly be made in debt -nstruments.
$. R+/*,8 L/(/-/) F(,- '
5#n >pen ended ;i+uid Scheme6 The investment ob$ective of the Scheme is to
generate optimal returns consistent with moderate levels of risk and high li+uidity.
#ccordingly, investments shall predominantly be made in Debt and oney arket
-nstruments.
10.R+/*,8 I,)v*+ F(,- '
5# Debt >riented -nterval Scheme6 The primary investment ob$ective of the scheme
is to seek to generate regular returns and growth of capital by investing in a diversified
portfolio
11.R+/*,8 L/(/- !+(s F(,-'
5#n >penended -ncome Scheme6 The investment ob$ective of the Scheme is to
generate optimal returns consistent with moderate levels of risk and li+uidity by investing in
debt securities and money market securities.
8/19/2019 Frauds in Indian Banking Sector
47/73
12.R+/*,8 F/B- H/, F(,-:I'
5# closed ended Scheme6 The primary investment ob$ective of the scheme is to seek
to generate regular returns and growth of capital by investing in a diversified portfolio.
13.R+/*,8 F/B- H/, F(,- :II'
5# closed ended Scheme.6 The primary investment ob$ective of the scheme is to seek
to generate regular returns and growth of capital by investing in a diversified portfolio.
14.R+/*,8 F/B- H/, F(,- :III'
5# Closeended -ncome Scheme.6 The primary investment ob$ective of the scheme is
to seek to generate regular returns and growth of capital by investing in a diversified
portfolio.
15.R+/*,8 F/B- T, F(,- '
5# Closeended Scheme6 The primary investment ob$ective of the !lan is to seek to
generate regular returns and growth of capital by investing in a diversified portfolio.
1.R+/*,8 F/B- H/, F(,- ;!+*, C '
5# closed ended Scheme.6 The primary investment ob$ective of the scheme is to seek
to generate regular returns and growth of capital by investing in a diversified portfolio.
17.R+/*,8 F/B- H/, F(,- ; IV'
5# Closeended -ncome Scheme.6 The primary investment ob$ective of the scheme is
to seek to generate regular returns and growth of capital by investing in a diversified
portfolio.
8/19/2019 Frauds in Indian Banking Sector
48/73
1#.R+/*,8 F/B- H/, F(,- ; V'
5# Closeended -ncome Scheme.6 The primary investment ob$ective of the scheme is
to seek to generate regular returns and growth of capital by investing in a diversified
portfolio of
Central and State 3overnment securities and
>ther fi"ed incomeJ debt securities normally maturing in line with the time profile of the
scheme with the ob$ective of limiting interest rate volatility
1$.R+/*,8 F/B- H/, F(,- : VI '
5# Closeended -ncome Scheme6 The primary investment ob$ective of the scheme is
to seek to generate regular returns and growth of capital by investing in a diversified
portfolio of
Central and State 3overnment securities and
>ther fi"ed incomeJ debt securities normally maturing in line with the time profile of the
series with the ob$ective of limiting interest rate volatility
20.R+/*,8 F/B- H/, F(,- : VII '
5# Closeended -ncome Scheme.6 The primary investment ob$ective of the scheme is
to seek to generate regular returns and growth of capital by investing in a diversified portfolio of
Central and State 3overnment securities and
>ther fi"ed incomeJ debt securities normally maturing in line with the time profile of the
series with the ob$ective of limiting interest rate volatility.
C=. SECTOR S!ECIFIC SCHEMES'
These are the fundsJschemes which invest in the securities of specified sectors or
industries e.g. !harmaceuticals, Software, )C3, !etroleum stocks, etc. The returns in these
funds are dependent on the performance of the respective sectorsJindustries. @hile these funds
may give higher returns, they are more risky compared to diversified funds.
8/19/2019 Frauds in Indian Banking Sector
49/73
1. R+/*,8 %*,/, F(,-
4eliance utual )und has an >pennded Banking Sector Scheme which has the
primary investment ob$ective to generate continuous returns by actively investing in e+uity J
e+uity related or fi"ed income securities of banks.
2. R+/*,8 D/vs/?/- !> S8) F(,-
4eliance Diversified !ower Sector Scheme is an >penended !ower Sector Scheme.
The primary investment ob$ective of the Scheme is to seek to generate consistent returns by
actively investing in e+uity J e+uity related or fi"ed income securities of !ower and other
associated companies.
3. R+/*,8 !*@* F(,-
4eliance !harma )und is an >penended !harma Sector Scheme. The primary
investment ob$ective of the Scheme is to generate consistent returns by investing in e+uity J
e+uity related or fi"ed income securities of !harma and other associated companies.
4. R+/*,8 M-/* E,))*/,@,) F(,-
4eliance edia R ntertainment )und is an >penended edia R ntertainment
sector scheme.
The the primary investment ob$ective of the Scheme is to generate consistent returns
by investing in e+uity J e+uity related or fi"ed income securities of media R entertainment
and other associated companies.
D=. RELIANCE GOLD EXCHANGE TRADED FUND'
5#n openended 3old "change Traded )und6 The investment ob$ective is to seek to provide
returns that closely correspond to returns provided by price of gold through investment in
physical 3old 5and 3old related securities as permitted by 4egulators from time to time6.
However, the performance of the scheme may differ from that of the domestic prices of 3old due
to e"penses and or other related factors.
8/19/2019 Frauds in Indian Banking Sector
50/73
UNIT TRUST OF INDIA MUTUAL FUND
GU,/) T(s) ? I,-/* was created by the 2T- #ct passed by the !arliament in /01. )or
more than two decades it remained the sole vehicle for investment in the capital market by the
-ndian citi*ens. -n mid /8:s public sector banks were allowed to open mutual funds. The real
vibrancy and competition in the ) industry came with the setting up of the 4egulator SB- and
its laying down the ) 4egulations in //1.2T- maintained its preeminent place till ?::,
when a massive decline in the market indices and negative investor sentiments after Aetan
!arekh scam created doubts about the capacity of 2T- to meet its obligations to the investors.
This was further compounded by two factors' namely, its flagship and largest scheme 2S 09 was
sold and repurchased not at intrinsic =# but at artificial price and its #ssured 4eturn Schemes
had promised returns as high as 8E over a period going up to two decades.
-n order to distance 3overnment from running a mutual fund the ownership was
transferred to four institutions' namely SB-, ;-C, B>B and !=B, each owning ?E. 2T- lost its
market dominance rapidly and by end of ?::,when the new shareholders actually paid the
consideration money to 3overnment its market share had come down to close to :E.
# new board was constituted and a new management inducted. Systematic study of its
problems role and functions was carried out with the help of a reputed international consultant.
>nce again 2T- has emerged as a serious player in the industry. Some of the funds have won
famous awards, including the Best -nfra )und globally from ;ipper. 2T- has been able to
benchmark its employee compensation to the best in the market.
Besides running domestic ) Schemes 2T- #C is also a registered portfolio manager
under the SB- 5!ortfolio anagers6 4egulations.
This company runs two successful funds with large international investors being active
participants. 2T- has also launched a !rivate +uity -nfrastructure )und along with HSH =ord
Bank of 3ermany and Shinsei Bank of
8/19/2019 Frauds in Indian Banking Sector
51/73
V/s/,'
To be the most !referred utual )und.
M/ss/,'
The most trusted brand, admired by all stakeholders.
The largest and most efficient money manager with global presence
The best in class customer service provider
The most preferred employer
The most innovative and best wealth creator
# socially responsible organisation known for best corporate governance
Ass)s U,- M*,*@,)' 2T- #sset anagement Co. ;tdS6,s'
• State Bank of -ndia
• Bank of Baroda
• !un$ab =ational Bank
• ;ife -nsurance Corporation of -ndia
T(s)' 2T- Trustee Co. ;imited.
R+/*/+/)
2T-) has consistently reset and upgraded transparency standards. #ll the branches,
2)Cs and registrar offices are connected on a robust -T network to ensure costeffective +uick
and efficient service. #ll these have evolved 2T-) to position as a dynamic, responsive,
restructured, efficient and transparent entity, fully compliant with SB- regulations.
8/19/2019 Frauds in Indian Banking Sector
52/73
SCHEMES
A=. EUIT& FUND
1. UTI E, F(,- b$ective is %capital appreciation& through investments in stocks of the
companies engaged in the transportation and logistics sector. #t least /:E of the funds will
be invested in e+uity and e+uity related instruments. #tleast 8:E of the funds will be
invested in e+uity and e+uity related instruments of the companies principally engaged in
providing transportation services, companies principally engaged in the design, manufacture,
distribution, or sale of transportation e+uipment and companies in the logistics sector. 2pto
:E of the funds will be invested in cashJmoney market instruments.
3. UTI %*,/, S8) F(,-
8/19/2019 Frauds in Indian Banking Sector
53/73
5. UTI E(/) T*B S*v/,s !+*, ne of the growth sectors funds aiming to invest in e+uity shares of companies
belonging to information technology sector to provide returns to investors through capital
growth as well as through regular income distribution
$. UTI M*s) E(/) !+*, U,/) S8@
8/19/2019 Frauds in Indian Banking Sector
54/73
10. UTI M*s) !+(s U,/) S8@
8/19/2019 Frauds in Indian Banking Sector
55/73
1. UTI MNC F(,-
8/19/2019 Frauds in Indian Banking Sector
56/73
21. UTI S!READ F(,-
8/19/2019 Frauds in Indian Banking Sector
57/73
To endeavour to provide returns that, before e"penses, closely track the performance and
yield of 3old. However the performance of the scheme may differ from that of the
underlying asset due to racking error. There can be no assurance or guarantee that the
investment ob$ective of 2T-3old T) will be achieved.
3. UTI S(,-
8/19/2019 Frauds in Indian Banking Sector
58/73
3. UTI R)/@,) %,?/) !,s/, F(,- penended debt oriented -ncome scheme with an ob$ective of investing not morethan 1:E of the funds in e+uity related instruments and the balance in debt and money
market instruments with low to medium risk profile. The scheme is catering to the
-nvestment needs of Charitable, 4eligious and ducational Trusts as well as 4egistered
societies with the goal of providing regular income.
E=.INCOME FUND
8/19/2019 Frauds in Indian Banking Sector
59/73
2. UTI F+*)/, R*) F(,- ST!
8/19/2019 Frauds in Indian Banking Sector
60/73
#. UTI M,)+ I,8@ S8@
8/19/2019 Frauds in Indian Banking Sector
61/73
RELIANCE MUTUAL
FUND
UTI MUTUAL FUND
@hen StartedM stablished in //,Currently, number one company in-ndia.
stablished in /09.)irst mutual fund company in-ndia
How they came into business
4egistered with SB- as trust under -ndian Trusts #ct, 88?
By the 2T- #ct passed by the!arliament in /01.
inimum investment. 4s. :: 4s.:::
-nvestment. E(/)Bank 8ESoftware 8/E!etroleum !roducts 98E!harmaceuticals 0:E
/,vs) /, 12;20 s8)s >/8
/,8+(-'
#uto , #uto #ncillaries, )inance,-ndustrial Capital 3oods, TelecomServices, !ower, Construction!ro$ect, Hotels, 4etailing, edia Rntertainment, Transportation etc
E(/)
)inancial Service 0??Energy ?8EConsumer goods :89E
/,vs) /, 7;15 s8)s >/8
/,8+(-'
-T, Telecom, #utomobile,Cement !roducts, Derivatives,Te"tile, etals etc
ain )unds. 2T- Dividend yield )und,2T- >pportunity )und,
4eliance Diversified )und,4eliance +uity >pportunity)und,4eliance 4egular Saving )unds
Type of fund offered +uity )und, Debt )und, SectorSpecific )und and 3old "changeTraded )und.
+uity )und, -nde" )und,#sset )und, Balanced )und,Debt )und 5-ncome, ;i+uid6
=umbers of schemesoffered
:0 schemes :7 schemes.
Distribution • >nline and internet based
distribution.
• 4eliance outlets and branches.
• Tieup with !ost offices
branches.
• 2T- outlets and branches.
-s any other ventureM • ;ife -nsurance
• 3eneral -nsurance
• Broking R Distribution• Consumer )inance
• !rivate +uity
• #ssets 4econstruction.
• 2T- Bank
• !an card
• Bank 4ecruitment
• 2;-!
8/19/2019 Frauds in Indian Banking Sector
62/73
Chapter: +MUTUAL FUNDS VS. OTHER INVESTMENTS
F@ /,vs)s v/>6/,) @()(*+ ?(,-s *v sv*+ *-v*,)*s s(8 *s'
!rofessional management and research to select +uality securities.
Spreading risk over a larger +uantity of stock whereas the investor has limited to buy only
a hand full of stocks. The investor is not putting all his eggs in one basket.
#bility to add funds at set amounts and smaller +uantities such as U:: per month
#bility to take advantage of the stock market which has generally outperformed other
investment in the long run.
)und manager are able to buy securities in large +uantities thus reducing brokerage fees.
H>v ) * s@ -/s*-v*,)*s >/) @()(*+ ?(,-s s(8 *s'
The investor must rely on the integrity of the professional fund manager.
)und management fees may be unreasonable for the services rendered.
The fund manager may not pass transaction savings to the investor.
The fund manager is not liable for poor $udgment when the investorGs fund loses value.
There may be too many transactions in the fund resulting in higher feeJcost to the
investor This is sometimes call IChurn and arnI.
!rospectus and #nnual report are hard to understand.
-nvestor may feel a lost of control of his investment dollars.
T @* s)/8)/,s , >, *,- > *, /,vs) s++s-@s /s @()(*+ ?(,-
s*s.
http://www.davidcole.net/mutual_funds/investments.htmlhttp://www.davidcole.net/mutual_funds/investments.html
8/19/2019 Frauds in Indian Banking Sector
63/73
C@6*, F/B- D6s/)s vs(s M()(*+ F(,-s
)i"ed deposits are unsecured borrowings by the company accepting the deposit. Credit
rating of the fi"ed deposit program is an indication of the inherent default risk in the investment.
The moneys of investors in a mutual fund scheme are invested by the #C in specific
investments under that scheme. These investments are held and managed in$trust for the benefit
of scheme(s investors. >n the other hand, there is no such direct correlation between a
company(s fi"ed deposit mobilisation, and the avenues where these resources are deployed.
# corollary of such linkage between mobilisation and investment is that the gains and
losses from the mutual fund scheme entirely flow through to the investors. Therefore, there can
be no certainty of yield, unless a named guarantor assures a return or, to a lesser e"tent, if the
investment is in a serial gilt scheme. >n the other hand, the return under a fi"ed deposit is
certain, sub$ect only to the default risk of the borrower.
%) ?/B- -6s/)s *,- @()(*+ ?(,-s ?? +/(/-/) () s(8) ) s@ -/??,8s'
The provider of li+uidity in the case of fi"ed deposits is the borrowing company. -n
mutual funds, the li+uidity provider is the scheme itself 5for openend schemes6 or the market 5in
the case of closedend schemes6.
The basic value at which fi"ed deposits are encashed is not sub$ect to a market risk.
However, the value at which units of a scheme are redeemed depends on the market. -f securities
have gained in value during the period, then the investor can even earn a return that is higher
than what he anticipated when he invested. But he could also end up with a loss.
arly encashment of fi"ed deposits is always sub$ect to a penalty charged by the
company that accepted the fi"ed deposit. utual fund schemes also have the option of charging
a penalty on %early& redemption of units 5through by way of an Le"it load(,6 -f the =# has
appreciated ade+uately, then even after the e"it load, the investor could earn a capital gain on his
investment.
8/19/2019 Frauds in Indian Banking Sector
64/73
%*, F/B- D6s/)s vss M()(*+ F(,-'
Bank fi"ed deposits are similar to company fi"ed deposits. The ma$or difference is that
banks are generally more stringently regulated than companies. They even operate under stricter
re+uirements regarding Statutory ;i+uidity 4atio 5S;46 and Cash 4eserve 4atio 5C446.
@hile the above are causes for comfort, bank deposits too are sub$ect to default risk.
However, given the political and economic impact of bank defaults, the government as well as
4eserve Bank of -ndia 54B-6 try to ensure that banks do not fail.
)urther, bank deposits upto 4s ::,::: are protected by the Deposit -nsurance and Credit
3uarantee Corporation 5D-C3C6, so long as the bank has paid the re+uired insurance premium
of paise per annum for every 4s :: of deposits. The monetary ceiling of 4s ::,::: is for all
the deposits in all the branches of a ban#, held by the depositor in the same capacity and right.
%ANKS MUTUAL FUNDS
R)(,s ;ow Better
A-@/,/s)*)/v B6. High ;ow
R/s ;ow oderate
I,vs)@,) 6)/,s ;ess ore
N)> High penetration ;ow but improving
L/(/-/) #t a cost Better
(*+/) ? *ss)s =ot transparent Transparent
8/19/2019 Frauds in Indian Banking Sector
65/73
I,)s) 8*+8(+*)/,
Vuarterly
i.e. 1rd, 0th, /th R ?th.
very onth
G(**,) 3uarantor is needed. 3uarantor is not needed.
A88(,) =eeded. =ot =eeded.
8/19/2019 Frauds in Indian Banking Sector
66/73
%,-s *,- D,)(s vs(s M()(*+ F(,-s
#s in the case of fi"ed deposits, credit rating of the bond J debenture is an indication of
the inherent default risk in the investment. However, unlike )D, bonds and debentures are
transferable securities.
@hile an investor may have an early encashment option from the issuer 5for instance
through a %put& option6, generally li+uidity is through a listing in the market.
I@6+/8*)/,s ? )/s *'
• -f the security does not get traded in the market, then the li+uidity remains on paper. -n this
respect, an openend scheme offering continuous sale J repurchase option is superior.
• The value that the investor would realise in an early e"it is sub$ect to market risk. The
investor could have a capital gain or a capital loss. This aspect is similar to a ) scheme.
-t is possible for a professional investor to earn attractive returns by directly investing in
the debt market, and actively managing the positions. 3iven the market realities in -ndia, it is
difficult for most investors to actively manage their debt portfolio. )urther, at times, it is difficult
to e"ecute trades in the debt market even when the transaction si*e is as high as 4s crore. -n
this respect, investment in a debt scheme would be beneficial.
Debt securities could be backed by a hypothecation or mortgage of identified fi"ed and J
or current assets 5secured bonds J debentures6. -n such a case, if there is a default, the identified
assets become available for meeting redemption re+uirements. #n unsecured bond J debenture is
for all practical purposes like a fi"ed deposit, as far as access to assets is concerned.
The investments of a mutual fund scheme are held by a custodian for the benefit of
investors in the scheme. Thus, the securities that relate to a scheme are ringfenced for the
benefit of its investors.
8/19/2019 Frauds in Indian Banking Sector
67/73
E(/) vs(s M()(*+ F(,-s
-nvestment in both e+uity and mutual funds are sub$ect to market risk.
#n investor holding an e+uity security that is not traded in the market place has a
problem in realising value from it. But investment in an openend mutual fund eliminates this
direct risk of not being able to sell the investment in the market. #n indirect risk remains,
because the scheme has to realise its investments to pay investors. The #C is however in a
better position to handle the situation
#nother benefit of e+uity mutual fund schemes is that they give investors the benefit of
portfolio diversification through a small investment. )or instance, an investor can take an
e"posure to the inde" by investing a mere 4s ,::: in an inde" fund.
A-v*,)*s O? M()(*+ F(,-s Ov S)8s9
• # mutual fund offers a great deal of diversification starting with the very first dollar
invested, because a mutual fund may own tens or hundreds of different securities. This
diversification helps reduce the risk of loss because even if any one holding tanks, the
overall value doesnGt drop by much. -f youGre buying individual stocks, you canGt get much
diversity unless you have U:A or so.
• Small sums of money get you much further in mutual funds than in stocks. )irst, you can
set up an automatic investment plan with many fund companies that lets you put in as little
as U: per month. Second, the commissions for stock purchases will be higher than the cost
of buying noload fund 5>f course, the fundGs various e"penses like commissions are
already taken out of the =#6. Smaller si*ed purchases of stocks will have relatively high
commissions on a percentage basis, although with the U: trade becoming common, this is
a bit less of a concern than it once was.
• Fou can e"it a fund without getting caught on the bidJask spread.
• )unds provide a cheap and easy method for reinvesting dividends.
• ;ast but most certainly not least, when you buy a fund youGre in essence hiring a
professional to manage your money for you. That professional is 5presumably6 monitoring
the economy and the markets to ad$ust the fundGs holdings appropriately.
8/19/2019 Frauds in Indian Banking Sector
68/73
A-v*,)*s O? S)8 Ov M()(*+ F(,-s9
• The opposite of the diversification issue -f you own $ust one stock and it doubles, you
are up ::E. -f a mutual fund owns : stocks and one doubles, it is up ?E. >n the other
hand, if you own $ust one stock and it drops in half, you are down :E but the mutual fund
is down E. Cuts both ways.
• -f you hold your stocks several years, you arenGt nicked a E or so management fee every
year 5although some brokerage firms charge if there arenGt enough trades6.
• Fou can take your profits when you want to and wonGt inadvertently buy a ta" liability.
5This refers to the common practice among funds of distributing capital gains around
=ovember or December of each year. See the article elsewhere in this )#V for more
details.6
• Fou can do a covered write option strategy. 5See the article on options on stocks for more
details.6
• Fou can structure your portfolio differently from any e"isting mutual fund portfolio.
5#lthough with the current universe of funds -Gm not certain what could possibly be missing
out thereW6
• Fou can buy smaller cap stocks which arenGt suitable for mutual funds to invest in.
• Fou have a potential profit opportunity by shorting stocks. 5Fou cannot, in general, short
mutual funds.6
• The argument is offered that the funds have a IherdI mentality and they all end up
owning the same stocks. Fou may be able to pick stocks better.
8/19/2019 Frauds in Indian Banking Sector
69/73
L/? I,s(*,8 vs(s M()(*+ F(,-
;ife insurance is a hedge against risk N and not really an investment option. So, it would
be wrong to compare life insurance against any other financial product.
>ccasionally on account of market inefficiencies or mispricing of products in -ndia, life
insurance products have offered a return that is higher than a comparable %safe& fi"ed return
security N thus, you are effectively paid for getting insuredW Such opportunities are not
sustainable in the long run.
8/19/2019 Frauds in Indian Banking Sector
70/73
FUTURE !ROS!ECT OF MUTUAL FUNDS IN INDIA
)inancial e"perts believe that the future of utual )unds in -ndia will be very bright. -t
has been estimated that by archend of ?::, the mutual fund industry of -ndia will reach 4s
9:,/:,::: crore, taking into account the total assets of the -ndian commercial banks. -n thecoming : years the annual composite growth rate is e"pected to go up by 1.9E.
• ::E growth in the last 0 years.
• =umber of foreign #CGs are in the +ueue to enter the -ndian markets like )idelity
-nvestments, 2S based, with over 2SUtrillion assets under management worldwide.
• >ur saving rate is over ?1E, highest in the world. >nly channeli*ing these savings in
mutual funds sector is re+uired.• @e have appro"imately ?/ mutual funds which is much less than 2S having more than
8::. There is a big scope for e"pansion.
• GBG and GCG class cities are growing rapidly. Today most of the mutual funds are
concentrating on the G#G class cities. Soon they will find scope in the growing cities.
• utual fund can penetrate rurals like the -ndian insurance industry with simple and
limited products.
• SB- allowing the )Gs to launch commodity mutual funds.
• mphasis on better corporate governance.
• Trying to curb the late trading practices.
• -ntroduction of )inancial !lanners who can provide need based advice.
;ooking at the past developments and combining it with the current trends it can be
concluded that the future of utual )unds in -ndia has lot of positive things to offer to its
investors.
8/19/2019 Frauds in Indian Banking Sector
71/73
MF "ARGON
N) Ass) V*+( ffer !rice. -t
may include a sales load.
R6(8*s !/8
-s the price at which a closeended scheme repurchases its units and it may include a
backend load. This is also called Bid !rice.
R-@6)/, !/8
-t is the price at which openended schemes repurchase their units and closeended
schemes redeem their units on maturity. Such prices are =# related.
S*+s L*-
-t is a charge collected by a scheme when it sells the units. #lso called as L)rontend(
load. Schemes that do not charge a load are called L=o ;oad( schemes.
R6(8*s J%*8;,- L*-
-t is a charge collected by a scheme when it buys back the units from the unit holders.
http://finance.indiamart.com/markets/mutual_funds/latest_mf_navs.htmlhttp://finance.indiamart.com/india_business_information/mutual_funds_terms.htmlhttp://finance.indiamart.com/india_business_information/mutual_funds_terms.htmlhttp://finance.indiamart.com/markets/mutual_funds/latest_mf_navs.htmlhttp://finance.indiamart.com/india_business_information/mutual_funds_terms.htmlhttp://finance.indiamart.com/india_business_information/mutual_funds_terms.html
8/19/2019 Frauds in Indian Banking Sector
72/73
CONCLUSION
utual )unds now represent perhaps most appropriate investment opportunity for most
investors. #s financial markets become more sophisticated and comple", investors need a
financial intermediary who provides the re+uired knowledge and professional e"pertise on
successful investing. #s the investor always try to ma"imi*e the returns and minimi*e the risk.
utual fund satisfies these re+uirements by providing attractive returns with affordable risks.
The fund industry has already overtaken the banking industry, more funds being under mutual
fund management than deposited with banks. @ith the emergence of tough competition in this
sector mutual funds are launching a variety of schemes which caters to the re+uirement of the
particular class of investors. 4isk takers for getting capital appreciation should invest in growth,
e+uity schemes. -nvestors who are in need of regular income should invest in income plans.
The stock market has been rising for over three years now. This in turn has not only
protected the money invested in funds but has also to helped grow these investments.
This has also instilled greater confidence among fund investors who are investing more
into the market through the ) route than ever before.
4eliance -ndia mutual funds provide ma$or benefits to a common man who wants to
make his life better than previous.
-ndiaGs largest mutual fund, 2T-, still controls nearly 8: per cent of the market. #lso, the
mutual fund industry as a whole gets less than ? per cent of household savings against the 90 per
cent that go into bank deposits. Some fund managers say this only indicates the sectorGs potential.
I-f mutual funds succeed in chipping away at bank deposits, even a triple digit growth is possible
over the ne"t few years.
8/19/2019 Frauds in Indian Banking Sector
73/73
%I%LIOGRA!H&
REFERENCE %OOK'
)-=#=C-#; #4AT #=D S4-CS3ordon and =atara$an
WE%SITE'
www.utimf.com
www.reliancemutual.com
www.amfiindia.com
SEARCH ENGINE'
www.google.com
www.altavista.com
www.yahoo.com