MUTUAL FUNDS vs IT’S VARIOUS INVESTMENT AVENUES

8/2/2019 MUTUAL FUNDS vs ITS VARIOUS INVESTMENT AVENUES

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AADISSERTATION REPORTDISSERTATION REPORT

ON

MUTUAL FUNDS v\s ITS VARIOUSMUTUAL FUNDS v\s ITS VARIOUS

INVESTMENT AVENUESINVESTMENT AVENUES


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CONTENTS CERTIFIATE FROM HOD

DECLARATIONPREFACE

ACKNOWLEDGEMENT

PART-1

Introduction Of organization 1Scheme of Reliance money 3

Top performing fund 4Product of Reliance money 5Introduction 9History of mutual funds 10Regulatory structure of mutual fund 11Regulatory Framework 13Legal structure 14Objectives of study 16Asset Management Company 18Frequently Used Terms 21

Classification Of Mutual Funds 22Types Of Mutual Funds 26Investment Plans 33Different investment plans 35Distribution Channels 48

Net Asset Value(NAV) 53Fees and expenses 55Taxation 59Mutual Fund Performance 63

Different performance measures 64Evaluating fund performance 70Asset allocation 75


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PART-2 78

Research methodology 79Objectives 79MethodologySecondary dataPrimary dataTarget population 81Sampling procedure 81Limitations 81Analysis of the questionnaire 82Graphical presentation of findings 83Marketing Of Mutual Funds 94

Suggestions 97Limitations 99Questionnaire 100Bibliography 102


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Introduction of Reliance money

Scheme of Reliance money

Top performing fund

Products of Reliance money

History of mutual funds

Regulatory structure of mutual fund

Regulatory Framework

Legal structure

Objectives of study

Asset Management Company

Frequently Used Terms

Classification Of Mutual Funds


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Types Of Mutual Funds

Investment Plans

Different investment plans

Distribution Channels

Net Asset Value(NAV)

Fees and expenses

Taxation

Mutual Fund Performance

Different performance measures

Evaluating fund performance

Asset allocation


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Introductionof Reliance money

Reliance Money, the financial products retail arm of Reliance Capital, a company

owned by the Anil Dhirubhai Ambani Group (ADAG), has decided to expand

distribution network in rural areas. Reliance Money is involved in selling financialproducts like life insurance, general insurance and mutual funds.

In a massive inclusive growth initiative, first of its kind in Indian corporate history,

which would provide employment to 50,000 rural youth, the company has decided to

extend its rural reach this fiscal by setting up 10,000 franchisee outlets in 5,165 of

the 5,645 tehsils (talukas) of the country, according to a Hindu Business Line report.

Reliance Money has already idenfied and appointed franchisee partners in 1,001tehsils with the help of Rural Relations, a rural consumer-focused organisation.

Reliance ADAG expects to garner 10 to 20% of its total business through this rural

thrust.

We will not adopt a plain vanilla financial services approach, but prepare an area-

specific basket of products, said Sudip Bandopadhyay, Director and CEO, Reliance

Money. This basket of products, among others, could include insurance plans for

cattle, crop, bullock cart and tractor, term insurances (Rs 25 to Rs 50 pay out for a

years coverage), and Systematic Investment Plans (monthly installment of Rs 50

to100).

While the company has already established its presence in Maharashtra, Andhra

Pradesh, Karnataka, Madhya Pradesh, Gujarat and West Bengal, it is now

expanding into Uttarachal, Chhattisgarh, Rajasthan, Tamil Nadu and Orissa.

Reliance money is member of these groups and organizations.

Equities: Trading through Reliance Securities Limited

NSE SEBI Registration Number Capital Market :- INB 231234833 BSE SEBI

Registration Number Capital Market :- INB 011234839 NSE SEBI Registration

Number Derivatives :- INF 231234833


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Commodities : Trading through Reliance Commodities Limited MCX member code:

29030

NCDEX member code: NCDEX-CO-05-00647

NMCE member code: CL0120

Mutual Funds : Reliance Securities Limited

AMFI ARN No.29889

Reliance Capital Limited (RCL) is a Non-Banking Financial Company (NBFC)

registered with the Reserve Bank of India under section 45-IA of the Reserve

Bank of India Act, 1934. RCL was incorporated as a public limited company in

1986 and is now listed on the Bombay Stock Exchange and the National Stock

Exchange (India).

With a net worth of over Rs 3,300 crore and over 165,000 shareholders,

Reliance Capital has established its presence as a leading player in the financial

services sector in the country. On conversion of outstanding equity instruments,

the net worth of the company will increase to about Rs 4,100 crore.

Reliance Capital sees immense potential in the rapidly growing financial

services sector in India and aims to become a dominant player in this industry

and offer fully integrated financial services. It is headed by Anil Ambani.

Reliance Capital is one of Indias leading and fastest growing private sector

financial services companies, and ranks among the top 3 private sector financialservices and banking companies, in terms of net worth.

Reliance Capital has interests in asset management and mutual funds, life and


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general insurance, private equity and proprietary investments, stock broking and

other activities in financial services.

Our Schemes

Equity/Growth Schemes

The aim of growth funds is to provide capital appreciation over the mediumto long- term. Such schemes normally invest a major part of their corpus inequities. Such funds have comparatively high risks. These schemes providedifferent options to the investors like dividend option, capital appreciation,etc. and the investors may choose an option depending on their preferences.The investors must indicate the option in the application form. The mutualfunds also allow the investors to change the options at a later date. Growthschemes are good for investors having a long-term outlook seekingappreciation over a period of time.

Debt/Income Schemes

The aim of income funds is to provide regular and steady income toinvestors. Such schemes generally invest in fixed income securities such as

bonds, corporate debentures, Government securities and money market

instruments. Such funds are less risky compared to equity schemes. Thesefunds are not affected because of fluctuations in equity markets. However,opportunities of capital appreciation are also limited in such funds. The

NAVs of such funds are affected because of change in interest rates in thecountry. If the interest rates fall, NAVs of such funds are likely to increasein the short run and vice versa. However, long term investors may not

bother about these fluctuations.

Sector Specific Schemes

These are the funds/schemes which invest in the securities of only thosesectors or industries as specified in the offer documents. e.g.Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG),Petroleum stocks, etc. The returns in these funds are dependent on the

performance of the respective sectors/industries. While these funds may


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give higher returns, they are more risky compared to diversified funds.Investors need to keep a watch on the performance of thosesectors/industries and must exit at an appropriate time. They may also seekadvice of an expert.

Top performing Funds/Schemes

Scheme Name 1YearReturn TONAV

UTI-Gold Exchange Traded Fund (G) 29.73 1153.6191

DBS Chola Monthly Income Plan (G) 24.52 16.7699

Taurus Libra Taxshield (G) 22.85 39.5940

Reliance Diversified Power Sector (G) 21.58 58.5232

ABN AMRO FTP - Series 8 - Yrly B (G) 16.03 11.6034

Reliance Regular Savings Fund - Equity (G) 15.51 20.3933

ICICI Pru Infrastructure Fund - Inst

Option -1 (G)

14.27 13.3700

JM Healthcare Sector fund - (G) 14.09 19.3481

ICICI Pru Infrastructure Fund - (G) 13.29 25.1500ING OptiMix Asset Allocator Multi FoF (G) 12.47 13.8526

IDFC Premier Equity Fund (G) 11.76 19.2743

Templeton India G-Sec Fund - LTP (G) 11.51 18.6877

Principal Monthly Income Plus - (G) 11.49 15.0872

ING Income Fund - Inst (G) 11.09 21.8923

Birla Sun Life Dynamic Bond Fund - Retail

(G)

10.94 13.1371

Escorts Gilt Fund (G) 10.90 16.6792

LICMF FMP: Series 22 - 16Mth (G) 10.64 11.3789

ING Income Fund - (G) 10.35 20.7839

Templeton India G-Sec Fund - PF Plan (G) 10.30 11.8979
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Templeton India G-Sec Fund - Composite

(G)

10.30 27.0883

Sundaram BNP Paribas Select Focus - (G) 10.24 72.6016

LICMF FMP: Series 31 - 13Mth (G) 9.99 11.0228

Canara Robeco Gilt (PGS)-(G) 9.89 21.0320UTI-Fixed Income Interval - Qrtly-Sr.I -

Inst(G)

9.87 11.1172

UTI-Fixed Income Interval - Qrtly-Sr.I (G) 9.83 11.1114

Products of Reliance money :

Reliance Mutual Fund

Reliance Growth Fund

Reliance Diversified Power Sector Fund

Reliance Vision Fund

Reliance Regular Saving Fund

Reliance Index Fund

SBI MUTUAL FUND :

SBI Contra fundSBI Comma fund

SBI Index fund

BIRLA SUNLIFE :

Birla equity fund

Birla century SIP

Birla infrastructure fund

Birla tax relief 96

Reliance Systematic Investment PlanInvest as little as Rs. 100 per month.
http://navpage%28%22300.00%22%2C%2217955.00%22%29/http://navpage%28%22300.00%22%2C%2217955.00%22%29/http://navpage%28%221063.00%22%2C%2218076.00%22%29/http://navpage%28%225460.00%22%2C%2217424.00%22%29/http://navpage%28%22571.00%22%2C%226946.00%22%29/http://navpage%28%225247.00%22%2C%2223411.00%22%29/http://navpage%28%225247.00%22%2C%2223411.00%22%29/http://navpage%28%225245.00%22%2C%2223411.00%22%29/http://navpage%28%22300.00%22%2C%2217955.00%22%29/http://navpage%28%22300.00%22%2C%2217955.00%22%29/http://navpage%28%221063.00%22%2C%2218076.00%22%29/http://navpage%28%225460.00%22%2C%2217424.00%22%29/http://navpage%28%22571.00%22%2C%226946.00%22%29/http://navpage%28%225247.00%22%2C%2223411.00%22%29/http://navpage%28%225247.00%22%2C%2223411.00%22%29/http://navpage%28%225245.00%22%2C%2223411.00%22%29/


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Welcome to Reliance Mutual Fund

Just as drops of water make an ocean, small but regular investments cango a long way in building wealth over time.This way you grow step by step. Its always prudent to invest with a long

term horizon in mind. Small but regular investments go a long way increating wealth over time.Reliance Systematic Investment Plan helps you achieve just that. It is aninvestment technique where you deposit as little as Rs. 100 regularlyevery month into the mutual fund scheme at the then prevailing NAV(Net Asset Value), subject to applicable load.

No need to time the markets

Imagine, if you could always pick the right time to buy and sell.However, timing the market is a time-consuming and risky task.

Through disciplined, regular investments you can stop worrying aboutwhen and how much to invest.In short, it eliminates the need to actively track the markets.

Lower cost per unit

Since your investments are spread regularly over a period of time, buyingfewer units during rising markets and buying more units during fallingmarkets reduces the average cost per unit of your investments- this concept is known as Rupee Cost Averaging.

Illustration - Rupee Cost Averaging

Say you have opted for Reliance Systematic Investment Plan, investingRs. 100 every month from April 2004 to September 2004 in a diversifiedequity fund. Now check the average purchase cost per unit of yourinvestments. It would be lower than the average NAV of your investmentover 6 months. To see how your average purchase cost per unit is lowerthan the average NAV see the table along side.

Date NAV (Rs.) Units Amount (Rs.)

12/4/04 80.52 1.24 100.0010/5/04 81.49 1.23 100.00

10/6/04 71.87 1.39 100.00

12/7/04 72.64 1.38 100.00

10/8/04 81.74 1.22 100.00

10/9/04 87.49 1.14 100.00


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Total 475.75 7.60 600.00

Average Cost 78.91

Average Price 79.29

Average Cost = Total Cash Outflow / Total Number of units = Rs. 600 /7.60 = Rs. 78.91 Average Price = Sum of all NAVs at which you have

invested / Number of months of investment = Rs. 475.75 / 6 = Rs. 79.29Average Cost < Average Price Note: Above table uses historical NAVsfor illustration purpose. Past NAVs of a scheme are no indicator of future

NAVs.

Start early - The power of compounding

Suppose A & B invest Rs. 100 every month earning interest @ 8% p.a.on a monthly compounding basis. A starts at the age of 25 years & Bstarts at the age of 35 years. Both of them invest for 5 years (Rs. 6000) &

hold their investments till 60 years of age. As investment would haveappreciated to approx. Rs. 74,430 whereas Bs investment would havegrown to approx.Rs. 34,475 only. Thus, As investment would have almost doubled by

just starting earlier than B.

Achieve your financial goals

Reliance Systematic Investment Plan is an effective tool for financialplanning. Be it your childs education, marriage or buying a home. With

Reliance SIP, you can choose a pertinent regime and achieve your goals,systematically. To see how you can achieve your goals see the RelianceVision Fund and Reliance Growth Fund table along side.

Reliance Vision Fund

SIP Return as on June 30, 2007


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Period 1 Year 3 Year 5 Year Since

inception

SIP Start Date 01/07/06 01/07/04 01/07/02 10/08/1995

Current NAV (As on30/03/2007)

207.32 207.32 207.32 207.32

Total No. of unitsaccumulated

70.17 320.24 985.81 6940.15

Total AmountInvested

12000.00 36000.00 60000.00 141000.00

Present Value 14548.29 66391.35 204315.59 1438832.21

Yield 44.25% 44.98% 51.89% 36.28%

Present Value ininvested in Index

14134.31 61243.34 154930.70 518565.80

Yield From Index 36.73% 38.51% 39.50% 20.68%

Past performance may or may not be sustained in future.

Reliance Growth Fund

SIP Return as on March 30, 2007

Period 1 Year 3 Year 5 Year Since

inception

SIP Start Date 01/07/06 01/07/04 01/07/02 08/10/95

Current NAV (As on

30/03/2007)

307.46 307.46 307.46 307.46

Total No. of unitsaccumulated

47.70 226.89 813.34 5971.72

Total AmountInvested

12000.00 36000.00 60000.00 141000.00

Present Value 14667.34 69758.92 250068.42 1836064.59

Yield 46.44% 49.03% 61.26% 40.05%

Present Value ininvested in Index

14134.31 61243.34 154930.70 518565.80

Yield From Index 36.73% 38.51% 39.50% 20.68%

Past performance may or may not be sustained in future.

Assumptions :

Every SIP has an entry Load : till October 2004 - 2% and from


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November 2004 - 2.25% has been considered. SIP of Rs. 100/- each has been taken into consideration including

the first installement. SIP happens on tenth of every month. Alsonote that we have assumed a/c opening and first SIP happens in thesame month.

Compounded annualised growth returns. Computations are doneon the assumption that all payouts have been reinvested in theunits of the scheme at the then prevailing NAV.

How to invest?

Select Reliance Mutual Fund schemes of your choice.Under the Reliance Systematic Investment Plan, you can choose

from a range of equity and debt schemes which offer SIP. Investment periodicity - You can choose to make your investment

on a monthly or quarterly basis. Minimum investment amount - Monthly SIP Option - 60

instalments of Rs. 100/- each or 12 instalments of Rs. 500/- eachor 6 instalments of Rs. 1,000/- each and in multiples of Re. 1/-thereafter. Quarterly SIP Option - 12 instalments of Rs. 500/- eachor 4 instalments of Rs.1,500/- each and in multiples of Re. 1/-thereafter. The first SIP instalment could be submitted on any

working day.However, the subsequent instalments can be dated 2nd, 10th, 18thor 28th of every month/quarter.You can choose a day convenient for you. However, only one SIPtransaction per month/quarter per folio is permitted.

Investment method - The SIP facility can be availed by :a) Electronic Clearing Service (ECS) or Direct Debit mandate,wherein the investor will have to give a debit mandate along withone signed cheque from his Savings Bank account.

b) Issuing Post-Dated Cheques (PDCs). (Rs.100 SIP can be

processed only through Electronic Clearing Service (ECS) orDirect Debit).

Investment Objective : Reliance Vision Fund and Reliance GrowthFund aims to achieve long-term growth of capital by investment in


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equity and equity-related securities through a research-based investmentapproach.Sponsor: Reliance Capital Limited. Trustee: Reliance Capital TrusteeCo. Limited.Investment Manager : Reliance Capital Asset Management LimitedStatutory Details : The Sponsor, the Trustee and the Investment

Manager are incorporated under the Companies Act 1956.

General Risk Factors :

Mutual Funds and Securities Investments are subject to market risks andthere is no assurance or guarantee that the objectives of the Scheme will

be achieved. As with any investment in securities, the NAV of the Unitsissued under the Scheme can go up or down depending on the factors andforces affecting the capital markets. Past performance of theSponsor/AMC/Mutual Fund is not indicative of the future performanceof the Scheme. Reliance Vision Fund and Reliance Growth Fund areonly the names of the Schemes and do not in any manner indicate eitherthe quality of the Schemes; their future prospects or returns. The Sponsoris not responsible or liable for any loss resulting from the operation of theScheme beyond their initial contribution of Rs. 1 lakh towards the settingup of the Mutual Fund and such other accretions and additions to thecorpus. The Mutual Fund is not guaranteeing or assuring anydividend/bonus. The Mutual Fund is also not assuring that it will make

periodical dividend/bonus distributions, though it has every intention ofdoing so. All dividend/bonus distributions are subject to availability of

distributable surplus. For details of Scheme features apart from thosementioned above and scheme-specific risk factors, please refer to the

provisions of the Offer Document. Offer Document and Key InformationMemorandum cum Application Forms are available at AMCoffice/Investor Service centres/AMC website/Distributors.

RELIANCE SIP INSURE PLAN

Reliance SIP Insure facility is an add on feature of life insurance cover underGroup Term Insurance to individual investors opting for SIP in the designatedschemes.

It helps to encourage individual investors to save & invest regularly throughSystematic Investment Plan (SIP) and help achieve their financial objective
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without any hindrance

What is the Facility?

Reliance SIP Insure provides free life insurance cover to investors at noextra cost. In the unfortunate event of the demise of an investor during

the tenure of the SIP, the insurance company will pay for the sum assuredas per the terms and conditions of the facility. Thus, the nominee* would be able to continue in the scheme without

having to make any further contribution. Investors long term financialplanning and objective of investing through SIP could still be fulfilled asper the targeted time horizon, even if he/she dies prematurely.

Reliance SIP Insure- Benefits to the investor

**The benefit of Long Term Equity Investment

Equities provide relatively better returns among all asset classes over alonger period of time

**The benefit of Systematic Investment Plan:

Inculcates Savings Habit Rupee Cost Averaging & Eliminates the need to time the market

**Free Life Insurance Cover

Helps to complete the planned investments Maturity Proceeds at NAV based prices

**Flexibility

Wide choice of eligible schemes

**Convenience


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Auto Debit from 4 banks namely ICICI bank, HDFC bank, AXIS bank &HSBC

ECS facility across 65 locations

*Nominee account would mean nominee in case of single holding & second or

joint holder in case of Joint Holding

Designated Schemes in which Reliance SIP Insure will be offered

Reliance Growth Fund - Retail Plan Reliance Vision Fund - Retail Plan Reliance Equity Opportunities Fund - Retail Plan Reliance Equity Fund - Retail Plan Reliance Equity Advantage Fund- Retail Plan Reliance Regular Savings Fund Equity option Reliance Regular Savings Fund Balanced option Reliance Banking Fund Reliance Pharma Fund Reliance Media & Entertainment Fund Reliance Diversified Power Sector Fund Retail Plan Reliance Natural Resources Fund Reliance Quant Plus Fund Retail Plan Reliance Tax Saver (ELSS) Fund

Amount of Life Insurance Cover Available:

Under Reliance SIP Insure, the investors are provided life insurance coverwithout any extra cost under a Group Term Insurance scheme.

The Life Insurance Cover under SIP Insure facility will be enhanced as per thefollowing clauses;

In the event of death of unit holder within the 1st two years of the

commencement of the insurance cover: An amount equivalent to the

aggregate balance of unpaid SIP instalments, subject to a maximum ofRs.10 lakhs per investor across all schemes / plans and folios.

In the event of death of the unit holder after completion of 2 years

(i.e. w.e.f. commencement of 3rd year onwards): An amountequivalent to two times the targeted SIP contribution (committed at thetime of registration) i.e. Number of SIP Instalments enrolled for X


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Amount of Instalment X 2, subject to a maximum of Rs.10 lakhs perinvestor across all schemes / plans and folios.

The amount of life insurance cover shall be invested in the Nominees accountin the same scheme* under which the deceased investor has enrolled for SIP

Insure at the applicable price based on the closing NAV on the date on whichthe cheque for insurance claim settlement is received by the AMC from theinsurance company, subject to completion of requisite procedure fortransmission of units in favour of the nominee.

* Not applicable for Reliance Tax Saver (ELSS) Fund. Investors are requestedto note that there will be a lock - in period of 3 years for each SIP Insureinstallment under Reliance Tax Saver (ELSS) Fund as per the Government

Notification of 2005 and in the event of demise of the unitholder, the nomineewould be able to withdraw the investment amount only after the completion of

one year from the date of allotment of the units or anytime thereafter withoutany exit load. The insurance amount as per the above clauses a) and b) subjectto a maximum of Rs. 10 lakhs in a lumpsum in cash will be paid to the nomineein case of death of the unitholder (unlike other schemes, wherein the insuranceamount will be compulsorily invested in the respective scheme and the nomineeis allotted the units.)

Thus, the amount of free life insurance cover could go upto 360 times of the

monthly SIP installment depending upon the enrolled SIP tenure.

Eligibility

All individual investors enrolling for investments via SIP & opting forReliance SIP Insure

Only individual investors whose completed age is greater than 20 yearsand less than 46 years at the time of investment.

In case of multiple holders in the any scheme, only the first unit holder

will be eligible for the insurance cover.

Investment Details

Minimum Investment per installment: Rs.1000 per month & in multiplesof Re 1 thereafter. (Except for Reliance Tax Saver (ELSS) Fund where it


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is Rs 1000 p.m and in multiples of Rs 500 thereafter). There is no upperlimit.

Minimum Period of Contribution: 3 years and in multiples of 1 yearthereafter.

Maximum Period of Contribution: 15 years OR till attaining 55 years ofage, whichever is earlier (e.g., a person can register an SIP of maximum

10 yrs at the age of 45 yrs.) The insurance cover ceases when the investorattains 55 years of age.

Mode of payment of SIP installments is only through Direct Debit &ECS ( Post Dated Cheques shall not be accepted )

Reliance SIP Insure How does this work?

An investor does a monthly SIP of Rs.5,000 for 5 years in RelianceGrowth Fund

If he dies after a period of 3 yrs, then his Sum Assured= Number of SIPInstalments enrolled for X Amount of Instalment X 2 = 60 X 5,000 X 2 =Rs 3 lacs X 2 = Rs 6,00,000

This amount will be paid by life insurance company to SIP investors nomineeaccount* with Reliance Mutual Fund and will be invested in Reliance GrowthFund (in the same scheme in which the deceased has earlier invested)

Commencement of Insurance Cover: The Insurance cover shall commenceafter waiting period of 90 days from the commencement of SIP installments.However, the waiting period will not be applicable in respect of accidentaldeaths.

*Nominee account would mean nominee in case of single holding & second or

joint holder in case of Joint Holding

Cessation of Insurance Cover:

The insurance cover shall cease upon occurrence of any of the following:

At the end of mandated Reliance SIP Insure tenure. i.e., upon completionof payment of all the monthly installments as registered.

Discontinuation SIP installments midway by the investor i.e., beforecompleting the opted SIP tenure /installments.


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Redemption / switch-out of units purchased under Reliance SIP Insurebefore completion the mandated SIP tenure / installments

In case of default in payment of two consecutive monthly SIPinstallments or four separate occasions of such defaults during the tenureof the SIP duration chosen.

Note -There is no provision for revival of insurance cover, once the insurancecover ceases as stated above

Exclusions for Insurance cover

No insurance cover shall be admissible in respect of death of the SIP-Insureunitholder (the insured person) on account of -

Death due to suicide Death within 90 days from the commencement of SIP installments except

for death due to accident Death due to pre-existing illness, disease(s) or accident which has

occurred prior to the start of cover.

Load Structure

The Entry Load under Reliance SIP Insure shall be same as applicable tonormal purchase /additional purchase transactions in the respectivedesignated schemes

However, there will an Exit Load of 2%, if the accumulated unitsacquired or allotted under Reliance SIP Insure are redeemed or switchedout to another scheme before the maturity of SIP tenure as opted in therespective scheme either by the SIP-Insure unitholder or by thenominee*, as the case may be.

Note:

In the event of the death of the investor before completion of SIP InsureTenure, in case of any contingency there is an option with the nominee*to redeem the amount by paying an exit load of 2% on the repurchaseunits.

However, if the units are redeemed on completing the opted SIP tenure,there will not be any exit load in the respective scheme.


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INTRODUCTION

A mutual fund is a pool of money, collected from investors, and is invested according to

certain investment options. A mutual fund is a trust that pools the savings of a number of

investors who share a common financial goal. A mutual fund is created when investors put

their money together. It is therefore a pool of the investors funds. The money thus collected is

then invested in capital market instruments such as shares ,debentures and other securities.

The income earned through these investments and the capital appreciation realized is shared by

its unit holders in proportion to the number of units owned by them.

The most important characteristics of a fund are that the contributors and the beneficiaries of

the fund are the same class of people, namely the investors. The term mutual fund means the

investors contribute to the pool , and also benefit from the pool . There are no other claimants

to the funds. The pool of funds held mutually by investors is the mutual fund .

A mutual funds business is to invest the funds thus collected according to the wishes of the

investors who created the pool. Usually , the investors appoint professional investment

managers, to manage their funds. The same objective is achieved when professional investment

managers create a product and offer it for investment to the investor. This product represents a

share in the pool ,and pre states investment objectives. Thus a mutual fund is the most suitable

investment for the common man as it offers an opportunity to invest in a diversified ,

professionally managed basket of securities at a relatively low cost.

Investors in the mutual fund industry today have a choice of 39 mutual funds, offering nearly

500 products. Though the categories of product offered can be classified under about a dozen

generic heads, competition in the industry has led to innovative alterations to standard

products. The most important benefit of product choice is that it enables investors to choose

options that suit their return requirements and risk appetite. Investors can combine the options

to arrive at their own mutual fund portfolios that fit with their financial planning objectives.

.


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INTERNATIONAL HISTORY OF MUTUAL

FUNDS

When three Boston securities executives pooled their money together in 1924 to create the first

mutual fund , they had no idea how popular mutual funds would become. The idea of pooling

money together for investing purposes started in Europe in the mid 188s. The first pooled fund

in the U.S. was created in 1893 for the faculty and staff of Harvard University. On March 21st ,

1924 the first official mutual fund was born. It was called Massachusett Investors Trust.

After one year, the Massachusetts Investors Trust grew $50000 in assets in 1924 to $392,000 in

assets (with around 200 shareholders ). In contrast, there are over 10,000 mutual funds in the

U.S. today totaling around $7 trillion (with approximately 83 million individual investors )

according to the Investment Company Institute.

With renewed confidence in the stock market, mutual funds began to blossom. By the end of

the 1960s there were around 270 funds with $48 billion in assets.

In 1976, John C. Bogle opened the first the first retail index fund called the First Index

Investment Trust . It is now called the Vanguard 500 Index Fund and in November 2000 itbecame the largest mutual fund growth was Individual Retirement Account (IRA) provisions

made in 1981, allowing individuals (including those already in corporate pension plans ) to

contribute $2,000 a year. Mutual funds are now popular known for ease of use , liquidity and

unique diversification capabilities.


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History of the Indian Mutual Fund Industry

The mutual fund industry in India started in1963 with the formation of Unit Trust Of India, at

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

India can be broadly divided into four distinct phases :

First Phase :- 1964 - 1987

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.6700 crores of assets under management.

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

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

life Insurance corporation of India ( LIC ) and General Insurance Corporation of India ( GIC ) .

SBI Mutual funds was the first non-UTI Mutual fund established in June 1987 followed by Can

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

Mutual Fund ( Nov 89 , Bank Of India ( Jun90),Bank Of Baroda

Mutual Fund ( Oct92), 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. 47,004crores.


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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 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 ) Regulation 1996.

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

funds setting up funds in India and also the industry have 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

were 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 o f 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

administrators and under the rules framed by Government of India and does not come under

the purview of the Mutual Fund Regulations.

REGULATORY STRUCTURE OF MUTUAL FUNDS


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IN INDIA

The structure of mutual fund in India is governed by the SEBI Regulations , 1996. These

regulations make it mandatory for mutual funds to have a three-tier structure SPONSER

-TRUSTEE-ASSET MANAGEMENT COMPANY ( AMC ). The sponsor is the promoters of

the mutual fund and appoints the AMC for managing the investment portfolio. The AMC isthe business face of the mutual fund . as its manages all the affairs of the mutual fund . The

mutual fund and the AMC have to be registered with SEBI.

Mutual Funds can be structured in the following ways :

Company form . in which investors hold shares of the mutual fund . In this structure

management of the fund in the hands of an elected board , which in turn appoints investment

managers to manage the fund ? Trust from , in which the investors are held by the trust, onbehalf of the investors . The appoints investment managers and monitors their functioning in

the interest of the investors.

The company form of organization is very popular in the United States . In India mutual funds

are organized as trusts . The trust is created by the sponsors who is actually the entity

interested in creating the mutual fund business. The trust is either managed by a Board of

trustees or by a trustee company, formed for this purpose. The investors funds are held by the

trust.

Though the trust is the mutual fund, the AMC is its operational face. The AMC is the first

functionary to be appointed ,and is involved in the appointment of all the other functionaries.

The AMC structures the mutual fund products, markets them and mobilizes the funds and

services the investors. It seeks the services of the functionaries in carrying

out these functions. All the functionaries are required to the trustees, who lay down the ground

rules and monitor them working.

REGULATORY FRAMEWORK


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Regulatory jurisdiction of SEBI :

SEBI is the apex regulatory of capital markets. SEBI has enacted the SEBI (mutual fund)

Regulations,1996,which provides the scope of the regulation of the mutual fund in India. All

Mutual funds are required to be mandatorily registered with SEBI. The structure and formation

of mutual funds, appointment of key functionaries, operation of the mutual funds, accounting

and disclosure norms, rights and obligations of functionaries and investors, investment

restrictions ,compliance and penalties are all defined under the SEBI regulations. Mutual funds

have to send half yearly compliance reports to SEBI, and provide all information about their

operations.

Regulatory jurisdiction of RBI :

RBI is the monetary authority of the country and is also the regulatory of the banking system.

Earlier bank sponsored mutual funds were under the dual regulatory control of RBI and SEBI.

These provisions are no longer in vogue. SEBI is the regulator of all mutual funds. The present

position is that the RBI is involved with the mutual fund industry, only to the limited extent of

being the regulator of the sponsors of bank sponsored mutual funds.

Role of Ministry of Finance in Mutual Fund :

The Finance Ministry is the supervisor of both the RBI and SEBI. The Ministry Of Finance is

also the appellate authority under SEBI Regulations. Aggrieved parties can make appeals to the

Ministry of Finance on the SEBI rulings relating to the mutual fund.

Role of Stock Exchanges:

If a mutual fund is listed its schemes on stock exchanges, such listings are subject to the listing

regulation of stock exchanges. Mutual funds have to sign the listing agreement and abide by its

provisions, which primarily deal with periodic notifications and disclosure of information that

may impact the trading of listed units.

LEGAL STRUCTURE


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Mutual funds have a unique structure not shared with other entities such as companies or the

firms. It is important for employees and agents to be aware of the special nature of this

structure ,because it determines the rights and the responsibilities of the funds constitutes viz.

sponsor, trustees, custodian, transfer agents and of course the fund and the AMC.The legal

structure also drives the inter relationship between these constituents.

Like other countries, India has a legal framework within which mutual funds must be

constituted along one unique structure as unit trust. A mutual fund in India is allowed to issue

open ended and a close ended under a common legal structure. Therefore, a mutual fund may

have a several different scheme under it at any point of time.

The Fund Sponsor

Sponsor is defined by the SEBI regulations as any person who acting alone or in

combination with another body corporate establishes a mutual fund. The sponsor of a fund is

akin to the promoter of the company as he gets the fund registered with the SEBI.

The sponsor will form a trust and appoint the Board of Trustees. The sponsor will also

generally appoint the AMC as the fund managers. The sponsor, either directly or acting

through the trustees will also appoint a Custodian to hold the fund assets. All these

appointments are made in accordance with the guidelines of the SEBI.

As per the existing SEBI regulations, for a person to qualify as the sponsor, he must contribute

at least 40% of the net worth of the AMC and posses a sound financial track record over a

period of five years prior to the registration.


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OBJECTIVES OF STUDY

1. To know the objective behind investment.

2. To know the factor which is taking into consideration, while

investing in mutual fund?

3. To know the source of awareness.

4. To know about time period for investment.

5. How people are giving priority to invest in mutual fund.

6. Participation on the basis of occupation in mutual funds.

7. How much people are aware about tax benefit plan of

mutual funds.

8. To know about the performance of marketing in mutual

funds.

9. To know how individual choose investment option.

10. To know about the investment option is being preferred.

11. How much people aware about mutual fund.

12. To know about the performance of mutual funds.

13. How much people are interested to invest in mutual funds.

14. Why people not investing in mutual funds.

15. How an individual or company makes their portfolio in

terms of mutual funds


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ASSET MANAGEMENT COMPANY

Its Appointment and Functions:

The role of the AMC is to act as the Investment Manager of the Trust. The sponsors, or thetrustees, if so authorized by the trust deed appoint the AMC. The AMC so appointed is

required to be approved by the SEBI. Once approved, the AMC functions under the

supervision of its own directors and also under the direction of the trustees and the SEBI. The

trustees are empowered to terminate the appointment of the AMC by majority and appoint a

new one with the prior approval of the SEBI and the unit holders.

The AMC would, in the name of the trust, float and then manage the different investment

schemes as per the regulations of the SEBI and as per Investment Management Agreement it

signs with the trustees. Chapter IV of SEBI (MF) Regulations, 1996 describes the issues

relevant to appointment, eligibility criteria and the restrictions on the business activities and

obligations of the AMC.

The AMC of a mutual fund must have a net worth of at least Rs.10 crores at all the time.

Directors of the AMC, both independent and non independent should have adequate

professional experience in the financial services and should be individuals of high moral

standing, a condition also applicable to other key personnel of the AMC. The AMC cannot act

as a trustee of any other mutual fund. Besides its role as advisory services and consulting,

provided these activities are run independently of one another rand the AMCs resources (such

as personnel, system, etc) are properly segregated by activity. The

AMC must always act in the interest of the unit holders and report to the trustees with respect

to its activities.


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Features that investors like in mutual fund

If mutual funds are emerging as the favorite investment vehicle, it is because

of the many advantages they have over other forms and avenues of investing,

particularly for the investor wh o has limited resources available in terms of

capital and ability to carry out detailed research and market monitoring. The

following are the major advantages offered by mutual funds to all investors.

Portfolio diversification: Mutual Funds normally invest in a wel l -

divers i fied port fol io or securi ties. Each investor in a fund is a part

owner of all of the funds assets. This enables him to hold a diversified

investment portfolio even with a small amount of investment that would

otherwise require big capital.

Profes sional ma nagement; Even i f an inves tor has a b ig amount of

capi tal avai lable to him, he lacks the profess ional att i tude that i s

generally present in the experienced fund manager who, ensures a much

better return than what an investor can manage on his own. Few

inves tors have the ski ll s and resources of the ir own to succeed in

todays fast moving, global and sophisticated markets.

Re duction/ diversification of risk: An i nves to r i n a mut ua l f und

acquires a diversif ied portfolio, no matter how small his investment.

Divers i ficat ion reduces the r i sk of loss , as compared to inves ting

directly in one or two shares or debentures or other

instruments. When an investor invests directly, all the risk of

potential loss is his own. A fund investor also reduces his risk in

another way. While investing in the pool of funds with other investors

any loss on one or two securi t ies is also shared with other investors.

This risk reduction is one of the most important benefits of a collective

investment vehicle like the mutual fund.

Re duction of trans action cos ts: What is true of r isk is also true of the

transaction costs. A direct investor bears all the costs of investing such


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as brokerage or custody of securi t ies . When 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.

Liquidity: Often, investors hold shares or bonds they cannot directly,

easily and quickly sell. Investment in a mutual fund, on the other hand,

is more l iquid. An investor can l iquidate the investment by selling the

units to the fund if open-end, or selling them in the market if the fund is

closed-end, and collect funds at the end of a period specif ied by the

mutual fund or the stock market.

Impact of Global Developments: Though the economic reforms have

brought India on the global investment map, this also exposes th e Indian

f inancial market , including the Indian mutual fund indust ry, to the

volatility in the international market. Fluctuations in the global markets

and the financial systems will now be evident as the Indian markets get

l inked to the other foreign markets . Managing r isk in such a scenario

will be a key challenge for the Indian mutual fund industry.


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FREQUENTLY USED TERMS

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per

unit NAV is the net asset value of the scheme divided by the number of units outstanding on

the Valuation Date.

Sale Price

It is the price you pay when you invest in a scheme. It is 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 known as 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. Their prices are NAV related.

Sales Load

It is a charge collected by a scheme when it sells the units. It is also known as 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.


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CLASSIFICATION OF MUTUAL FUND SCHEMES

Any mutual fund has an objective of earning objective income for the investors and / or getting

increased value of their investments. To achieve these objectives mutual funds adopt different

strategies and accordingly offer different schemes of investments. On these bases the simplest

way to categorize schemes would be to group these into two broad classifications:

Operational Classification

Portfolio Classification.

Operational Classification highlights the two main types of schemes, i.e. open ended and close

ended which are offered by the mutual funds.

Portfolio classification projects the combination of investment instruments and investment

avenues available to mutual funds to manage their funds. Any portfolio scheme can be either

open ended or close ended.

Operational Classification

a) Open ended schemes: As the name implies the size of the scheme (fund) is open i.e.

not specified or pre determined. Entry to the fund is always open to the investor who

can subscribe at any time. Such fund stands ready to buy or sell its securities at any

time. It implies that the capitalization of the fund is constantly changing as investors

sell or buy their shares. Further the shares or units are normally not traded on the stock

exchange but are repurchased by the fund at announced rates. Open ended schemes

have comparatively better liquidity despite the fact that these are not listed. The reason

is that investor can at any time approach mutual funds for sale of such units. No

intermediaries are required.Morever; the realizable amount is certain since repurchase

is at a price based on declared net asset value (NAV). No minute to minute fluctuations

in rate haunts the investors. The portfolio mix of such schemes has to be investments,

which are actively traded in the market. Otherwise, it will not be possible to calculate

NAV.This is the reason that generally open - ended schemes are equity based.

Moreover , desiring frequently traded securities, open -ended schemes are hardly have

in their portfolio shares of comparatively new and smaller companies since these are


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not generally not traded. In such funds, option to reinvest its dividend is also available.

Since there is always a possibility of withdrawals, the management of such funds

becomes more tedious as managers have to work from crisis to crisis. Crisis may be on

two fronts; one is that unexpected withdrawals require funds to maintain a high level of

cash available every time implying thereby idle cash. Fund managers have to face

question like what to sell. He could very well have to sell his most liquid assets.

Second, by virtue of this situation such funds may fail to grab favorable opportunities.

Further to match quick cash payments, funds cannot have matching realization from

their portfolio due to intricacies of the stock market. Thus, success of the open ended

schemes to a great extent depends on the efficiency of the capital market.

b) Close ended schemes: Such schemes have a definite period after which their shares/

units are redeemed. Unlike open ended, these funds have fixed capitalization, i.e.corpus normally does not change throughout its life period. Close ended funds units

trade among the investors in the secondary market since these are to be quoted on the

stock exchanges. Their price is determined on the basis of demand and supply in the

market. Their liquidity depends on the efficiency and understanding of the

engaged brokers. Their price is free to deviate NAV, i.e., there is very possibility that

the market price may be above or below its NAV. If one takes into account the issue

expenses, conceptually close ended funds units cannot be trade at a premium or over

NAV because of a package of investments, i.e., cannot exceed the sum of the prices of

the investments constituting the package. Whatever premium exists that may exist only

on account of speculative activities. In India as per SEBI (MF) Regulations every

mutual fund is free to launch any or both types of schemes.

Portfolio Classification of Funds:

Following are the portfolio classification of funds, which may be offered. This


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classification may be on the basis of (a) Return (b) Investment Pattern (c) Specialized

sector of investment (d) Leverage (e) Others

a) Return Based Classification

To meet the diversified needs of the investors, the mutual fund schemes are made

to enjoy a good return. Returns expected are in form of regular dividends or

capital appreciation or a combination of these two.

i. Income Funds: For investors who are more curious for returns, income

funds are floated. Their objective is to maximize current income. Such

funds distribute periodically the income earned by them. These funds can

further be spitted up into categories: those that stress constant income at

relatively low risk and those that attempt to achieve maximum income

possible, even with the use of leverage. Obviously, the higher the expected

returns, the higher the potential risk of the investment.

ii. Growth Funds: Such funds aim to achieve increase in the value of the

underlying investments through capital appreciation. Such funds invest in

growth oriented securities which can appreciate through the expansion

production facilities in long run. An investor who selects such funds

should be able to assume a higher than normal degree of risk.

iii. Conservative Funds: The fund with a philosophy of all things to all

issue offer document announcing objectives as (i) To provide a reasonablerate of return, (ii) To protect the value of investment (iii) To achieve

capital appreciation consistent with the fulfillment of the first two

objectives. Such funds which offer a blend of immediate average return

and reasonable capital appreciation are known as middle of the road

funds. Such funds divide their portfolio in common stocks and bonds in a

way to achieve the desired objectives. Such funds have been most popular

and appeal to the investors who want both growth and income.

b) Investment Based Classification:

Mutual funds may also be classified on the basis of securities in which they

invest. Basically, it is renaming the subcategories of return based classification.


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i. Equity Fund: Such funds, as the name implies, invest most of their

ingestible shares in equity shares of companies and undertake the risk

associated with the investment in equity shares. Such funds are clearly

expected to outdo other funds in rising market, because these have almost

all their capital in equity. Equity funds again can be of different categories

varying from those that invest exclusively in high quality blue chip

companies to those that invest solely in the new, unestablished companies.

The strength of these funds is the expected capital appreciation. Naturally

they have a higher degree of risk.

ii. Bond Funds: Such funds have their portfolio consisted of bonds,

debentures, etc. this type of fund is expected to be very secure with a

steady income and little or no chance of capital appreciation. Obviously

risk is low in such funds. In this category we may come across the fundscalled Liquid Funds which specialize in investing short term money

market instruments. The emphasis is on liquidity and is associated with

lower risks and low returns.

iii. Balanced Fund: The funds which have in their portfolio a reasonable mix

of equity and bonds are known as balanced funds. Such funds will put

more emphasis on equity share investments when the outlook is bright and

will tend to switch to debentures when the future is expected to be poor for

shares.

c) Specialized Sector Based Funds:

There are number of funds that invest in a specified sector of economy. While

such funds do have the disadvantage of low diversification by putting all their all

eggs in one basket, the policy of specializing has the advantage of developing in

the fund managers an intensive knowledge of the specific sector in which they are

investing.

TYPES OF MUTUAL FUNDS


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All mutual fund would be either close ended or open ended or either load or no load. These

classifications are general. For example all open - end funds operate the same way; or in case

of a load a deduction is made from investors subscription or redemption and only the net

amount used to determine his number of shares purchased or sold.

Funds are generally distinguished from each other by their investment objectives and types of

securities they invest in. The major types of funds available:-

Money Market Funds

Often considered to be at the lowest ring in the order of risk level. Money Market

Funds invest insecurities of short term nature which generally means

securities of less than one year maturity. The typical short term interest bearing

instruments these funds invest in Treasury Bills issued by governments, Certificate of

Deposits issued by banks and Commercial Paper issued by companies. The major

strengths of money market funds are the liquidity and safety of principal that the

investors can normally expect from short term investments.

Gilt Funds

Gilts are the governments securities with medium to long term maturities typically of

over one year (under one year instruments being money market securities). In India, we

have now seen the emergence of government securities or gilt funds that invest in

government paper called dated securities. Since the issuer is the government, these

funds have little risk of default and hence offer better protection of principal. However,

investors have to recognize the potential changes in values of debt securities held by

the funds that are caused by changes

Debt Funds (Income Funds)

These funds invest in debt instruments issued not only by the governments, but also by


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private companies, banks and financial institutions and other entities such as

infrastructure companies. By investing in debt these funds target low risk and stable

income for the investor as their key objectives.

Debt funds are largely considered as income funds as they do not target capital

appreciation, look for high current income and therefore distribute a substantial part of

their surplus to investors. The income funds fall largely in the category of debt funds as

they invest primarily in fixed income generating debt instruments

Diversified Debt Fund

A debt fund that invests in all available types of debt securities, issued by entities

Across all industries and sectors is properly diversified debt fund. While debt fund

Offer high income and less risk as compared to equity funds, investors need to

Recognize that debt securities are subject to risk of default by the issuer on

Payment of interest or principal. A diversified debt fund has the benefit of risk

Reduction through diversification and sharing of any default related losses by a

Large number of investors. Hence the diversified debt fund is less risky than the

Sect oral funds.

Focused Debt Fund

Some debt funds have a narrower focus, with less diversification in its investment

.Examples include sector, specialized and off shore debt funds. These are much

Similar to the equity funds that these are less income oriented and less

Riskier

High Yield Debt Funds


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Usually debt funds control the borrower default risk by investing in securities

Issued by the borrowers who are rated by the credit rating agencies and are

Considered to be of investment grade. There is however, high yield debt

Funds that seek to obtain higher interest returns by investing in the debt

Instruments that are considered below investment grade. These funds are

Exposed to greater risks.

Assured Return Funds - An Indian Variant

Fundamentally, mutual funds hold assets in trust for investors. All returns and

Risks are for account of the investors. The role of the fund manager is to provide

The professional management service and to ensure the highest possible return

Consistent with the investment objective of the fund. The fund manager or the

Trustees do not give any guarantee of any minimum return to the investor.

However in India, historically the UTI offered assured return to the investor. If

There is any shortfall it will be borne by the sponsor.

While Assured Return funds may certainly be considered to be the lowest risk

Type within the debt fund category, they are not entirely risk free, as the investors

Normally lock in their funds for the term of scheme or at least a specific period of

Time. During this period, changes in the financial market may result in theInvestor loosing their money.

Fixed Term Plan Series

A mutual fund would normally be either open ended or close ended. However

In India, mutual funds have evolved an innovative middle option between the two,

In response to the investor needs.

Fixed Term Plan Series are essentially close ended in nature. In that the mutual

Fund AMC issues a fixed number of units for each series only for once and closes

The issue after an initial offering period like a close end scheme offering.

However a close ended scheme would normally make a one time initial offering

Of units, for a fixed duration generally exceeding a year. Investors have to hold


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The units until the end of the stated duration or sell them on a stock exchange if

Listed. Fixed Term Plans are close end but usually for shorter term less than a

Year. Of course like any close end fund each plan series can be wounded earlier

Under certain regulatory conditions.

Equity Funds

As investors move from debt funds category to equity funds, they face increased risk

level. However there are a large variety of equity funds and all of them is not equally

risk prone. Investor and their advisors need to sort out and select the right equity fund

that risk appetite.

Equity funds invest a major portion of their corpus in equity shares issued by the

companies, acquired directly in initial public offerings or through the secondary

Market. Equity funds would be exposed to the equity price fluctuations risk at the

market level, at the industry or the sector level and the company specific level .Equity

Funds NAV fluctuates with all these price movement. These price movements are

caused by all kinds of external factors, political and social as well economic. The

issuers of equity shares offer no guaranteed repayments in case of debt instruments.

Hence, equity funds are generally considered at the higher end of the risk spectrumamong all funds available in the market. On the other hand, unlike debt instruments that

offer fixed amounts of repayments, equities can appreciate in value in line with the

issuers earning potential and so offer the greatest potential for growth in capital.

Equity funds adopt different investment strategies resulting in different levels of risk.

Hence they are generally separated into different types in terms of their investment

styles. Some of these equity funds are as under:

Growth Funds


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Growth funds invest in companies whose earnings are expected to rise at an average.

These companies may be operating in sectors like technology considered having a

growth potential, but not entirely unproven and speculative. The primary objective of

growth fund is capital appreciation over a span of 3 to 5 years. Growth funds are

therefore les volatile than funds that target aggressive growth.

Specialty Funds

These funds have a narrower portfolio orientation and invest only in companies that

meet pre determined criteria. Some funds may build portfolio that will exclude Tobacco

companies. Within the specialty funds category some funds may be broad based in

terms of investments in the portfolio. However most specialty

Funds tend to be concentrated funds, since diversification is limited to one type of

investment. Clearly concentrated specialty fund tend to be more volatile than the

diversified funds.

Diversified Equity Funds

A fund that seeks to invest only in equities for a very small portion in liquid money

market securities but is not focused on any one or few sectors or shares may be termed

as diversified equity funds. While exposed to all equity risks, diversified equity funds

seek to reduce the sector or stock specific risks through diversifications. They have

mainly market risk exposure. Such general purpose but diversified funds are clearly at

the lower risk level than growth funds.

Equity Linked Savings Scheme

In India the investors have been given tax concessions to encourage them to invest in

equity markets through these special schemes. Investments in these schemes entitles the

investors to claim an income tax rebate, but usually has a lock in period before the end

of which funds cannot be withdrawn. These funds are subject to the general SEBI

investment guidelines for all equity funds and would be in the Diversified Equity

Index Funds


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An index fund tracks the performance of a specific stock market index. The objective is

to match the performance of the stock market by tracking an index that represents the

overall market. The fund invests in shares that constitutes the

Index in the same proportion as the index. Since they generally invests in a diversified

market index portfolio these funds take only the overall market risks while reducing the

sector and the stock specific risks through diversifications.

Value Funds

The growth funds that we reviewed above holds shares of the companies with good or

improving profit prospects and aim primarily at capital appreciation. These concentrate

on future growth prospects may be willing to pay high price/ earnings multiples for

companies considered to have good potential. In contrast to the growth investing other

funds follow Value Investing Approach. Value funds try to seek out fundamentally

sound companies whose shares are currently under priced in the market. Value funds

will add only those shares to their portfolios that are selling at low price earning ratios,

low market to book value ratios and are undervalued by other yardsticks.

Value funds have the equity market price fluctuation risks, but stand often at a lower

end of the risk spectrum in comparison with the growth funds. Value stocks may befrom a large number of sectors and therefore diversified.

Equity Income Funds

Usually income funds are in the debt funds category, as they target fixed income

investments. However there are equity funds that can be designed to give the investors

a high level of current income along with some steady capital appreciation, investing

mainly in shares of companies with high dividend yields.

Hybrid Funds


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We have seen that in terms of the nature of financial securities held, there are three

major mutual fund types: money market, debt and equity. Many mutual fund mix these

different types of securities in their portfolios. Thus, most funds equity or debt always

have some money market securities in their portfolios as these securities offer the much

needed liquidity. However money market holdings will constitute a lower proportion in

the overall portfolios. These are the funds that seek to hold a relatively balanced

holdings of debt or equity in their portfolios. Such funds are termed as hybrid funds

as they have a dual equity/ bond focus.

Balanced Funds

A balanced fund is the one that has a portfolio comprising debt instruments, convertible

securities, and preference and equity shares. Their assets are generally held in more or

less equal proportion between debt / money market securities and equities. By investing

in a mix of this nature, balanced funds seek to attain the objectives of the income,

moderate capital appreciation and preservation of capital and are ideal for investors

with a conservative and long term orientation.

Growth and Income Funds

Unlike income or growth focused funds, these funds seek to strike a balance between

capital appreciation and income for the investor. Their portfolios are a mix between

companies with good dividends paying records and those with

INVESTMENT PLANS


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The term investment plans generally refers to the services that the funds provide to investors

offering different ways to invest or invest. The different investment plans are an important

considerations in the investment decisions because they determine the level of flexibility

available to the investors. Alternate investment plans offered by the fund allow the investor

freedom with respect to investing at one time or at regular intervals, making transfers to

different schemes within the same fund family or receiving income at specified intervals or

accumulating distributions. Some of the investment plans offered are as follows:-

Automatic Reinvestment Plans (ARP)

In India, many funds offer two options under the same scheme the dividend option and the

growth option. The dividend option or the Automatic Reinvestment Plans (ARP) allows the

investor to reinvest in additional units the amount of dividends or other distribution made by

the fund, instead of receiving them in cash. Reinvestment takes place at the ex-dividend NAV.

The ARP ensures that the investors reap the benefit of compounding in his investments. Some

funds allow reinvestments into other schemes in the fund family.

Automatic Investment Plans (AIP)

These require the investor to invest a fixed sum periodically, there by letting the investor save

in a disciplined and phased manner. The mode of investment could be through debit to the

investors salary or bank account. Such plans are also known as the Systematic Investment

Plans. But mutual funds do not offer this facility on all the schemes. Typically they restrict it to

their plain vanilla schemes like diversified equity funds,

Income funds and balanced funds. SIP works best in equity funds. It enforces saving discipline

and helps you profit from market volatility- you buy more units when the market is down and

fewer when the market is up.

Systematic Withdrawal Plan (SWP)

Such plan allow the investor to make systematic withdrawal from his fund investment account


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on a periodic basis, thereby providing the same benefit as regular income. The investor must

withdraw a specific minimum amount with the facility to have withdrawal amounts sent to his

residence by cheque or credited directly into his bank account. The amount withdrawn is

treated as redemption of units at the applicable NAV as specified in the offer document. For

example, the withdrawal could be at NAV on the first day of the month of payment. The

investor is usually required to maintain a minimum balance in his bank account under this plan.

Agents and the investors should understand that the SWPs are different from the Monthly

Income Plans, as the former allow investors to get back the principal amount invested while the

latter only pay the income part on a regular basis.

Systematic Transfer Plans (STP)

These plans allows the customer tom transfer on a periodic basis a specified amount from one

scheme to the another within the same fund family- meaning two schemes by the same AMC

and belonging to the same fund. A transfer will be treated as the redemption of the units from

the scheme from which the transfer is made, and as investments in units of the scheme into

which the transfer is made. Such redemption or investment will be at the applicable NAV for

the respective schemes as specified in the offer document. It is necessary for the investor to

maintain a minimum balance in the scheme from which the transfer is made .Both UTI and

other private funds now generally offer these services to the investor in India. The service

allows the investor to maintain his investment actively

To achieve his objectives. Many funds do not even change any transaction fees for this service.


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Different investment plans

RELIANCE GROWTH FUND

An open - ended Equity Growth Scheme

Fund features

Who should invest? The scheme is suitable for investors willing to accept

the risks that come with investing in equities.

Investment Objective The objective is to provide investors long term

capital appreciation.

Investment option a) Growth b) Dividend

Liquidity Sale and repurchase on all business days.

NAV calculation All business days.

Asset allocation Pattern Of

Scheme Types of Instruments Allocation(% of net Asset)

Equity & Equity related

Instrument 65 100 %

Debt & Money Market

Instruments Upto 35%

Redemption proceeds Will be dispatched within 3 business days.

Indexation benefits, no Gift Tax, no Wealth tax.

NAV Growth Plan : Rs. 20.63

Dividend Plan : Rs. 13.95

Minimum application amount New investor: Resident Indians Rs. 5000

Non- Resident Indian: Rs. 5000

Load Structure Entry load :

For subscription below rRs.2 crores : 2.25 %

For subscription of Rs crores & above but below

Rs 5 crores : 1.25 %

For subscription of Rs 5 crores & above : NIL

Exit load : NIL


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Estimated expenses of the scheme :

AMC Fees 1.25%.....Operational Expenses 0.25%...Marketing Expenses 1.00% ..

Total 2.50%..

Performance of the scheme: Data as on 30 march, 2007

COMPOUNDED ANNUALISED RETURN

Period Scheme Return % Benchmark Return %Last 1 Year 14.11 11.70

Last 3 Years 51.81 30.81

Last 5 Years 32.79 12.88


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RELIANCE DIVERSIFIED POWER SECTOR FUNDAn open ended power sector scheme

Fund features

Investment Objective TO seek to generate continuous return by actively investing inEquity / equity related or fixed income securities of power andOther associated companies




Asset allocation Pattern Of Scheme

Types of Instruments Allocation (% of net Asset)

Minimum Most Likely Maxim

Equity & equity related

Securities 0% 80% 100 %Debt & Money Market

Instruments with average 0% 20% 100%

Maturity of 5 to 10 years

NAV : Growth Plan: Rs53.63

Dividend Plan: Rs.55.76

Minimum application amount New investor: Resident Indians Rs. 5000

Non- Resident Indian: Rs. 5000

Load Structure Entry load:


For subscription of Rs2 crores & above but below



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Exit load: NIL

Estimated expenses of the scheme:

AMC Fees 1.25%Operational Expenses 0.25%Marketing Expenses 0.75%

Total 2.25%

Performance of the scheme: Data as on 30 march , 2007


Period Scheme Return % Benchmark Return %

Last 1 Year 16.06 1.36

Returns since Inception 53.16 28.71


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RELIANCE INDEX FUND

An open - ended Index Linked Scheme

Fund features

Who should invest ? The scheme is suitable for investors seeking capital

Appreciation commensurate with that of the market.

Investment Objective : NIFTY- The objective of Nifty 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 Nifty .

SENSEX:- The objective of Sensex Plan is replicate the

composition of the Sensex , with a view to endeavor to

generate return ,which could approximately be the same

as that of Sensex




Asset allocation Pattern Of Scheme: NIFTY

Types of Instruments Allocation(% of net Asset)

Equity Securities coverd by Nifty 95 100%

Cash & money market instruments including 0 5%

Money at call but excluding subscription &

Redemption cash flow


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Asset allocation Pattern Of Scheme: SENSEX


Equity Securities covered by Nifty 95 100%

Cash & money market instruments including

Money at call but excluding subscription & 0 5%

Redemption cash flow

NAV Growth Plan: Rs. 13.6199

Dividend Plan: Rs. 10.3476

Minimum application amount New investor: Rs. 5000

Existing investor: Rs. 500

Load Structure Entry load: 1% for subscription of Rs. 10 lakes or

Less

Nil for subscription of above Rs.10 lakes.Exit load: NIL


Investment Management Fees 1.25%Operational Expenses 0.75%Marketing Expenses 0.50%

Total 2.50%

Performance of the scheme: Data as on 30 march, 2007

COMPOUNDED ANNUALISED RETURN: Nifty


Last 1 year 6.85 11.78

Return since Inception 22.51 33.68

COMPOUNDED ANNUALISED RETURN: Sensex


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Last 1 year 12.47 15.61Return since Inception 36.13 38.23

RELIANCE EQUITY FUND


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(An open- ended diversified equity scheme)

Fund features

Investment Objective : The primary investment objective of the scheme is toseek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolioConstituted of equity & equity related securities of top100 companies by market capitalization & ofCompanies which are available in the derivativesSegment from time to time and secondary objectiveIs to generate consistent returns by investing in debtAnd money market securities.


NAV calculation All business days

Asset allocation Pattern Of Scheme:


Equity and equity related instruments 75 100 %

Debt and money market securities ( includingInvestment in securities debt) instrument. Upto 20%

Minimum application amount / Number of units:5000 /- and in multiples of Re.1,thereafter

Load Structure Entry load:


For subscription of Rs2 crores & above but below



Exit load: NIL



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AMC Fees 1.25%Operational Expenses 0.25%Marketing Expenses 1.00%

Total 2.50%

Performance of the scheme: Data as on 30 march , 2007



Last 1 Year 8.66 12.31

Returns since Inception 8.74 11.78


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Role of Distribution Channels

Mutual funds devise investment plans for the institutional and the individual investors . Some

funds target and contact the institutional investors directly, without using any external

distribution channels . For example UTI and some private funds have some schemes targeted at

provident funds, which are contacted directly by their own sales officers . Other funds work

through distribution for institutional clients as well as the individual clients . But, it is

important to note that mutual funds are primarily vehicles for the larger collective investments,

working on the principle of pooling the funds of a large number of the investors .

That is why a majority of schemes are targeted at the individual investors . A substantial

portion of the investments in the mutual funds take place at the retail level . Retail distribution

channels are therefore a critical element in the distribution of the mutual funds,

Types of Distribution Channels

Individual Agents

Use of agents has been the most widely prevalent practice for distribution of funds over the

years . By definition, an agent acts on the behalf of a principal - in this case , the mutual fund .

An agent is essentially a broker between the fund and the investor . In India, we also have

unique system whereby a broker has a number of sub - brokers working under him . The vast

sub broker network ensures a larger geographic coverage than otherwise .

In India, any person who signs an agreement with a fund on non - judicial stamp paper can act

as its agent . From Nov . 1, 2001 SEBI has made it mandatory for newly recruited distributors

to pass Association Of Mutual Funds (AMFI ) certification test and has recommended the test

for existing distributors. As financial markets, investment options and the variety of mutual

funds get more sophisticated, distributors need more and more information , knowledge and


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skills. That is why the distributors in India will find that many mutual funds now prescribe

minimum qualifications that a person must possess to be its agent. These qualifications may be

in terms of education, experience or even registration on an exchange.

For example , UTI requires its agent to pass at least the matriculation exams and also to

provide two references.

Distribution Companies

Availing of the services of established distribution companies is a practice accepted by mutu

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MUTUAL FUNDS vs IT’S VARIOUS INVESTMENT AVENUES

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