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A STUDY ON
PERFORMANCE OF MUTUAL FUNDSIN
ASSET MANAGEMENT COMPANY
LIMITED.
PROJECT REPORT
This project is submitted in the partial fulfillment of requirement
For the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
Project submitted by:-Project submitted by:-
G.S GANI RAJU
ROLL.NO. 078-06-0102
(2006-2008)
SRI INDU INSTITUTE OF MANAGEMENT(AFFILIATED TO OSMANIA UNIVERSITY)Hyderabad.
2006-2008
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CONTENTS
I.INTRODUCTION PAGENUMBERS
a. Introduction to mutual funds 1
b. Scope of the study 24
c. Objectives of the study 24
e. Methodology 25
II.PROFILE OF INDUSTRY AND COMPANY
a.. Industry 26
b. Company 34
III. PERFORMANCE OF MUTUAL FUNDS 41
(TOOLS AND ANALYSIS)
IV. CONCLUSION AND SUGESSTIONS 71
V. BIBLIOGRAPHY 73
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DECLARATION
I Here by Declare that the Project report titled Performance of
MUTUAL FUNDS Prepared under the Guidance G.S GANI RAJU
Faculty of SRI INDU INSTITUTE OF MANAGEMENT towards partial
fulfillment of
Requirement for the Award of the degree ofM.B.A.
The Project report has not been submitted to any other
University for the Award of any Degree or Diploma.
G.GANI RAJU
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ACKNOWLEDGEMENT
The presentation of this project has given me an opportunity to express my
Profound gratitude to all concern in guiding me. Foremost I would like to thank
Mr. Gopal (Manager of Inida Infoline Company Chaitanyapuri Branch) forgiving me
an opportunity to undertake this project work.
I would like to gratitude Mr.S .SURESH for assisting and guiding me to
Complete the project Work. For providing an Opportunity to undergo a projectstudy
program.
G.S.GANI RAJU
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Introduction to Mutual Funds:
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through
these investments and the capital appreciations realized are shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual Fund is the most
suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost.
The flow chart below describes broadly the working of a Mutual Fund.
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A Mutual Fund is a body corporate registered with the Securities and Exchange Board
of India (SEBI) that pools up the money from individual/corporate investors and invests
the same on behalf of the investors/unit holders, in Equity shares, Governmentsecurities, Bonds, Call Money Markets etc, and distributes the profits. In the other
words, a Mutual Fund allows investors to indirectly take a position in a basket of assets.
Mutual Fund is a mechanism for pooling the resources by issuing units to the investors
and investing funds in securities in accordance with objectives as disclosed in offer
document. Investments in securities are spread among a wide cross-section of industries
and sectors thus the risk is reduced. Diversification reduces the risk because all stocks
may not move in the same direction in the same proportion at same time. Investors of
mutual funds are known as unit holders.
The investors in proportion to their investments share the profits or losses.
The mutual funds normally come out with a number of schemes with different
investment objectives which are launched from time to time. A Mutual Fund is required
to be registered with Securities Exchange Board of India (SEBI) which regulates
securities markets before it can collect funds from the public.
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ORGANISATION OF A MUTUAL FUND:
There are many entities involved and the diagram below illustrates the organizational
set up of a Mutual Fund:
Mutual Funds diversify their risk by holding a portfolio of instead of only one asset.
This is because by holding all your money in just one asset, the entire fortunes of your
portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk
is substantially reduced.
Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds
contains the same risk as investing in the markets, the only difference being that due to
professional management of funds the controllable risks are substantially reduced. A
very important risk involved in Mutual Fund investments is the market risk. However,
the company specific risks are largely eliminated due to professional fund management.
IMPORTANT CHARACTERISTICS OF A MUTUAL FUND
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A Mutual Fund actually belongs to the investors who have pooled their
Funds. The ownership of the mutual fund is in the hands of the Investors.
A Mutual Fund is managed by investment professional and other
Service providers, who earns a fee for their services, from the funds.
The pool of Funds is invested in a portfolio of marketable investments.
The value of the portfolio is updated every day.
The investors share in the fund is denominated by units. The value
of the units changes with change in the portfolio value, every day. The
value of one unit of investment is called net asset value (NAV).
The investment portfolio of the mutual fund is created according to The stated
Investment objectives of the Fund.
OBJECTIVES OF A MUTUAL FUND
To Provide an opportunity for lower income groups to acquire without
Much difficulty, property in the form of shares.
To Cater mainly of the need of individual investors, whose means are small?
To Manage investors portfolio that provides regular income, growth,
Safety, liquidity, tax advantage, professional management and diversification.
ADVANTAGES OF MUTUAL FUNDS
Reduced Risk.
Diversified investment.
Botheration free investment.
Revolving type of investment (Reinvestment).
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Selection and timings of investment.
Wide investment opportunities.
Investments care.
Tax benefits.
STRUCTURE OF A MUTUAL FUND
0100090000037800000002001c00000000000400000003010800050000000b02000000
00050000000c02510ac90d040000002e0118001c000000fb021000070000000000bc020
00000000102022253797374656d000ac90d000058bd110072edc63020781c000c02000
0c90d0000040000002d01000004000000020101001c000000fb029cff00000000000090
01000000000440001254696d6573204e657720526f6d616e00000000000000000000000
00000000000040000002d010100050000000902000000020d000000320a5a00ffff0100
040000000000c50d470a20002d00040000002d010000030000000000
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INVESTORS PROFILE
An investor normally prioritizes his investment needs before undertaking an
investment. So different goals will be allocated to different proportions of the total
disposable amount. Investments for specific goals normally find their way into the debt
market as risk reduction is of prime importance, this is the area for the risk-averse
investors and here, Mutual Funds are generally the best option. One can avail of the
benefits of better returns with added benefits of anytime liquidity by investing in open-
ended debt funds at lower risk, this risk of default by any company that one has chosen
to invest in, can be minimized by investing in Mutual Funds as the fund managers
analyze the companies financials more minutely than an individual can do as they have
the expertise to do so.
Moving up the risk spectrum, there are people who would like to take some risk and
invest in equity funds/capital market. However, since their appetite for risk is also
limited, they would rather have some exposure to debt as well. For these investors,
balanced funds provide an easy route of investment, armed with expertise of investment
techniques, they can invest in equity as well as good quality debt thereby reducing risksand providing the investor with better returns than he could otherwise manage. Since they
can reshuffle their portfolio as per market conditions, they are likely to generate moderate
returns even in pessimistic market conditions.
Next comes the risk takers, risk takers by their nature, would not be averse to
investing in high-risk avenues. Capital markets find their fancy more often than not,
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because they have historically generated better returns than any other avenue, provided,
the money was judiciously invested. Though the risk associated is generally on the higher
side of the spectrum, the return-potential compensates for the risk attached.
NEED OF THE STUDY
The projects idea is to project Mutual Fund as a better avenue for investment on a
long-term or short-term basis. Mutual Fund is a productive package for a lay-investor
with limited finances, this project creates an awareness that the Mutual Fund is a
worthy investment practice. Mutual Fund is a globally proven instrument. Mutual
Funds are Unit Trust as it is called in some parts of the world has a long and
successful history, of late Mutual Funds have become a hot favorite of millions of
people all over the world.
The driving force of Mutual Funds is the safety of the principal guaranteed,
plus the added advantage of capital appreciation together with the income earned in the
form of interest or dividend. The various schemes of Mutual Funds provide the investor
with a wide range of investment options according to his risk bearing capacities and
interest besides; they also give handy return to the investor. Mutual Funds offers an
investor to invest even a small amount of money, each Mutual Fund has a defined
investment objective and strategy. Mutual Funds schemes are managed by respective
asset managed companies sponsored by financial institutions, banks, private companies
or international firms. A Mutual Fund is the ideal investment vehicle for todays
complex and modern financial scenario.
The study is basically made to analyze the various open-ended equity
schemes of different Asset Management Companies to highlight the diversity of
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investment that Mutual Fund offer. Thus, through the study one would understand how
a common man could fruitfully convert a pittance into great penny by wisely investing
into the right scheme according to his risk taking abilities.
TYPES OF MUTUAL FUNDS
1. OPEN-ENDED MUTUAL FUNDS:-
The holders of the shares in the Fund can resell them to the issuing Mutual Fund
Company at the time. They receive in turn the net assets value (NAV) of the shares at
the time of re-sale. Such Mutual Fund Companies place their funds in the secondary
securities market. They do not participate in new issue market as do pension funds or
life insurance companies. Thus they influence market price of corporate securities.
Open-end investment companies can sell an unlimited number of Shares and thus keep
going larger. The open-end Mutual Fund Company Buys or sells their shares. These
Companies sell new shares NAV plus a Loading or management fees and redeem
shares at NAV.In other words, the target amount and the period both are indefinite in
such funds
2. CLOSED-ENDED MUTUAL FUNDS:-
A closedend Fund is open for sale to investors for a specific period, after
which further sales are closed. Any further transaction for buying the units or
repurchasing them, Happen in the secondary markets, where closed end Funds are
listed. Therefore new investors buy from the existing investors, and existing investors
can liquidate their units by selling them to other willing buyers. In a closed end Funds,
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thus the pool of Funds can technically be kept constant. The asset management
company (AMC) however, can buy out the units from the investors, in the secondary
markets, thus reducing the amount of funds held by outside investors. The price at
which units can be sold or redeemed Depends on the market prices, which are
fundamentally linked to the NAV. Investors in closed end Funds receive either
certificates or Depository receipts, for their holdings in a closed end mutual Fund.
ORGANISATION AND MANAGEMENT OF MUTUAL FUNDS:-
In India Mutual Fund usually formed as trusts, three parties are generally involved viz.
Settler of the trust or the sponsoring organization.
The trust formed under the Indian trust act, 1982 or the trust company
registered under the Indian companies act, 1956
Fund managers or The merchant-banking unit
Custodians.
MUTUAL FUNDS TRUST:-
Mutual fund trust is created by the sponsors under the Indian trust act, 1982
Which is the main body in the creation of Mutual Fund trust
The main functions of Mutual Fund trust are as follows:
Planning and formulating Mutual Funds schemes.
Seeking SEBIs approval and authorization to these schemes.
Marketing the schemes for public subscription. Seeking RBI approval in case NRIs subscription to Mutual Fund is Invited
Attending to trusteeship function. This function as per guidelines can be
assigned to separately established trust companies too. Trustees are required to
submit a consolidated report six monthly to SEBI to ensure that the guidelines
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are fully being complied with trusted are also required to submit an annual
report to the investors in the fund.
FUND MANAGERS (OR) THE ASSETS MANAGEMENT COMPANY (AMC)
AMC has to discharge mainly three functions as under:
I.Taking investment decisions and making investments of the funds through
market dealer/brokers in the secondary market securities or directly in the
primary capital market or money market instruments
II. Realize fund position by taking account of all receivables and realizations,
moving corporate actions involving declaration of dividends,etc to compensate
investors for their investments in units; and
III.Maintaining proper accounting and information for pricing the units and
arriving at net asset value (NAV), the information about the listed schemes and
the transactions of units in the secondary market. AMC has to feed back the
trustees about its fund management operations and has to maintain a perfect
information system.
CUSTODIANS OF MUTUAL FUNDS:-
Mutual funds run by the subsidiaries of the nationalized banks had
their respective sponsor banks as custodians like canara bank, SBI, PNB, etc.
Foreign banks with higher degree of automation in handling the securities have
assumed the role of custodians for mutual funds. With the establishment of stock
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Holding Corporation of India the work of custodian for mutual funds is now being
handled by it for various mutual funds. Besides, industrial investment trust
company acts as sub-custodian for stock Holding Corporation of India for
domestic schemes of UTI, BOI MF, LIC MF, etc
Fee structure:-
Custodian charges range between 0.15% to 0.20% on the net value of
the customers holding for custodian services space is one important factor which
has fixed cost element.
RESPONSIBILITY OF CUSTODIANS:-
Receipt and delivery of securities
Holding of securities.
Collecting income
Holding and processing cost
Corporate actions etc
FUNCTIONS OF CUSTOMERS
Safe custody
Trade settlement
Corporate action
Transfer agents
RATE OF RETURN ON MUTUAL FUNDS:-
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An investor in mutual fund earns return from two sources:
Income from dividend paid by the mutual fund.
Capital gains arising out of selling the units at a price higher than the
acquisition price
Formation and regulations:
1. Mutual funds are to be established in the form of trusts under the Indian trusts
act and are to be operated by separate asset management companies (AMC s)
2. AMCs shall have a minimum Net worth of Rs. 5 crores;
3. AMCs and Trustees of Mutual Funds are to be two separate legal entities and
that an AMC or its affiliate cannot act as a manager in any other fund;
4. Mutual funds dealing exclusively with money market instruments are to be
regulated by the Reserve Bank Of India
5. Mutual fund dealing primarily in the capital market and also partly moneymarket instruments are to be regulated by the Securities Exchange Board Of
India (SEBI)
6. All schemes floated by Mutual funds are to be registered with SEBI
Schemes:-
1. Mutual funds are allowed to start and operate both closed-end and open-end
schemes;
2. Each closed-end schemes must have a Minimum corpus (pooling up) of Rs 20
crore;
3. Each open-end scheme must have a Minimum corpus of Rs 50 crore
4. In the case of a Closed End scheme if the Minimum amount of Rs 20 crore
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or 60% of the target amount, which ever is higher is not raised then the entire
subscription has to be refunded to the investors;
5. In the case of an Open-Ended schemes, if the Minimum amount ofRs 50 crore
or 60 percent of the targeted amount, which ever is higher, is no raised then
the entire subscription has to be refunded to the investors.
Investment norms:-
1. No mutual fund, under all its schemes can own more than five percent of any
companys paid up capital carrying voting rights;
2. No mutual fund, under all its schemes taken together can invest more than 10
percent of its funds in shares or debentures or other instruments of any single
company;
3. No mutual fund, under all its schemes taken together can invest more than 15
percent of its fund in the shares and debentures of any specific industry, except
those schemes which are specifically floated for investment in one or more
specified industries in respect to which a declaration has been made in the offer
letter.
4. No individual scheme of mutual funds can invest more than five percent of its
corpus in any one companys share;
5. Mutual funds can invest only in transferable securities either in the money or in
the capital market. Privately placed debentures, securitized debt, and other
unquoted debt, and other unquoted debt instruments holding cannot exceed 10
percent in the case of growth funds and 40 percent in the case of income funds.
Distribution:
Mutual funds are required to distribute at least 90 percent of their profits annually in
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any given year. Besides these, there are guidelines governing the operations of mutual
funds in dealing with shares and also seeking to ensure greater investor protection
through detailed disclosure and reporting by the mutual funds. SEBI has also been
granted with powers to over see the constitution as well as the operations of mutual
funds, including a common advertising code. Besides, SEBI can impose penalties on
Mutual funds after due investigation for their failure to comply with the guidelines.
MUTUAL FUND SCHEME TYPES:
Equity Diversified Schemes
These schemes mainly invest in equity. They seek to achieve long-term capital
appreciation by responding to the dynamically changing Indian economy by moving
across sectors such as Lifestyle, Pharma, Cyclical, Technology, etc.
Sector Schemes
These schemes focus on particular sector as IT, Banking, etc. They seek to generate
long-term capital appreciation by investing in equity and related securities of
companies in that particular sector.
Index Schemes
These schemes aim to provide returns that closely correspond to the return of a
particular stock market index such as BSE Sensex, NSE Nifty, etc. Such schemes invest
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in all the stocks comprising the index in approximately the same weightage as they are
given in that index.
Exchange Traded Funds (ETFs)
ETFs invest in stocks underlying a particular stock index like NSE Nifty or BSE
Sensex. They are similar to an index fund with one crucial difference. ETFs are listed
and traded on a stock exchange. In contrast, an index fund is bought and sold by the
fund and its distributors.
Equity Tax Saving Schemes
These work on similar lines as diversified equity funds and seek to achieve long-term
capital appreciation by investing in the entire universe of stocks. The only difference
between these funds and equity-diversified funds is that they demand a lock-in of 3
years to gain tax benefits.
Dynamic Funds
These schemes alter their exposure to different asset classes based on the market
scenario. Such funds typically try to book profits when the markets are overvalued and
remain fully invested in equities when the markets are undervalued. This is suitable for
investors who find it difficult to decide when to quit from equity.
Balanced Schemes
These schemes seek to achieve long-term capital appreciation with stability of
investment and current income from a balanced portfolio of high quality equity and
fixed-income securities.
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Medium-Term Debt Schemes
These schemes have a portfolio of debt and money market instruments where the
average maturity of the underlying portfolio is in the range of five to seven years.
Short-Term Debt Schemes
These schemes have a portfolio of debt and money market instruments where the
average maturity of the underlying portfolio is in the range of one to two years.
Money Market Debt Schemes
These schemes invest in debt securities of a 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, Certificates of Deposit, Commercial
Paper and Inter-Bank Call Money Market.
Medium-Term Gilt Schemes
These schemes invest in government securities. The average maturity of the securities
in the scheme is over three years.
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Short-Term Gilt Schemes
These schemes invest in government securities. The securities invested in are of short to
medium term maturities.
Floating Rate Funds
They invest in debt securities with floating interest rates, which are generally linked to
some benchmark rate like MIBOR. Floating rate funds have a high relevance when
interest rates are on the rise helping investors to ride the interest rate rise.
Monthly Income Plans (MIPS)
These are basically debt schemes, which make marginal investments in the range of 10-
25% in equity to boost the schemes returns. MIP schemes are ideal for investors who
seek slightly higher return that pure long-term debt schemes at marginally higher risk.
DIFFERENT MODES OF RECEIVING THE INCOME EARNED FROM
MUTUAL FUND INVESTMENTS
Mutual Funds offer three methods of receiving income:
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Growth Plan
In this plan, dividend is neither declared nor paid out to the investor but is built into the
value of the NAV. In other words, the NAV increases over time due to such incomes
and the investor realizes only the capital appreciation on redemption of his investment.
Income Plan
In this plan, dividends are paid-out to the investor. In other words, the NAV
only reflects the capital appreciation or depreciation in market price of the underlying
portfolio.
Dividend Re-investment Plan
In this case, dividend is declared but not paid out to the investor, instead, it is
reinvested back into the scheme at the then prevailing NAV. In other words, the
investor is given additional units and not cash as dividend.
MUTUAL FUND INVESTING STRATEGIES:
1. Systematic Investment Plans (SIPs)
These are best suited for young people who have started their careers and need to build
their wealth. SIPs entail an investor to invest a fixed sum of money at regular intervals
in the Mutual fund scheme the investor has chosen, an investor opting for SIP in xyz
Mutual Fund scheme will need to invest a certain sum on money everymonth/quarter/half-year in the scheme.
2. Systematic Withdrawal Plans (SWPs)
These plans are best suited for people nearing retirement. In these plans, an
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investor invests in a mutual fund scheme and is allowed to withdraw a fixed sum of
money at regular intervals to take care of his expenses
3. Systematic Transfer Plans (STPs)
They allow the investor to transfer on a periodic basis a specified amount from
one scheme to another within the same fund family meaning two schemes belonging
to the same mutual fund. A transfer will be treated as redemption of units from the
scheme from which the transfer is made. Such redemption or investment will be at the
applicable NAV. This service allows the investor to manage his investments actively to
achieve his objectives. Many funds do not even charge any transaction fees for his
service an added advantage for the active investor.
ADVANTAGES OF INVESTING TRHOURGH MUTUAL FUNDS:
There are several reasons that can be attributed to the growing
popularity and suitability of Mutual Funds as an investment vehicle especially for retail
investors:
ASSET ALLOCATION
Mutual Funds offer the investors a valuable tool Asset Allocation. This is
explained by an example.
An investor investing Rs.1 lakh in a mutual fund scheme, which has collected Rs.100
corers and invested the money in various investment options, will have Rs.1 lakh
spread over a number of investment options as demonstrated below:
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Investment TypeInvestment Type Percentage of
Allocation (% of
total portfolio)
Total portfolio of
the Mutual Fund
scheme (Rs. In
crores)
Investors portfolio
allocation (Rs.)
EQUITY: 57% 57 57,000
State Bank of India 15% 15 15,000
Infosys Technologies 12% 12 12,000
ABB 10% 10 10,000
Reliance Industries 9% 9 9,000
MICO 7% 7 7,000
Tata Power 4% 4 4,000
DEBT: 43% 43 43,000
Govt. Securities 20% 20 20,000Company Debentures 10% 10 10,000
Institution Bonds 9% 9 9,000
Money Market 4% 4 4,000
Total 100% 100 1,00,000
Thus Asset Allocation is allocating your investments in to different investment
options depending on your risk profile and return expectations.
DIVERSIFICATION
Diversification is spreading your investment amount over a larger number of investments in order to reduce risk. For
instance, if you have Rs.10,000 to invest in Information Technology (IT) stocks, this amount will only buy you a handful of
stocks of perhaps one or two companies. A fall in the market price of any of these
company stocks will significantly erode your investment amount instead it makes sense to invest in an IT sector mutual fund
scheme so that your Rs.10,000 is spread across a larger number of stocks thereby reducing your risk.
PROFESSIONALS AT WORK
Few investors have the time or expertise to manage their personal investments every
day, to efficiently reinvest interest or dividend income, or to investigate the
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thousands of securities available in the financial markets. Fund managers are
professionals and experienced in tracking the finance markets, having access to
extensive research and market information, which enables them to decide which
securities to buy and sell for the fund. For an individual investor like you, this
professionalism is built in when you invest in the Mutual Fund.
REDUCTION OF TRANSACTION COSTS
While investing directly in securities, all the costs of investing such as brokerage, custodial services etc. Borne by you are at
the highest rates due to small transaction sizes. However, when going through a fund, you have the benefit of economies of
scale; the fund pays lesser costs because of larger volumes, a benefit passed on to its investors like you.
EASY ACCESS TO YOUR MONEY
This is one of the most important benefits of a Mutual Fund. Often you hold shares or bonds that you cannot directly, easily
and quickly sell. In such situations, it could take several days or even longer before you are able to liquidate his Mutual Fund
investment by selling the units to the fund itself and receive his money within 3 working days.
TRANSPARENCY
The investor gets regular information on the value of his investment in addition to disclosure on the specific investments
made by the fund, the proportion invested in each class of assets and the fund managers investment strategy and outlook.
SAVING TAXES
Tax saving schemes of Mutual Funds offer investor a tax rebate under section 88 ofthe Income Tax Act. Under this section, an investor can invest up to Rs.10,000 per
Financial year in a tax saving scheme. The rate of rebate under this section depends
on the investors total income.
INVESTING IN STOCK MARKET INDEX
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Index schemes of mutual funds give you the opportunity of investing in scrips that
make up a particular index in the same proportion of weightage that these scrips
have in the index. Thus, the return on your investment mirrors the movement of the
index.
INVESTING IN GOVERNMENT SECURITIES
Gilt and Money Market Schemes of Mutual Funds also give you the opportunity to
invest in Government Securities and Money Markets (including the inter banking
call money market)
WELL-REGULATED INDUSTRY
All Mutual Funds are registered with SEBI and they function within the provisionsof strict regulations designed to protect the interests of investors. The operations of
Mutual Funds are regularly monitored by SEBI.
CONVENIENCE AND FLEXIBILITY
Mutual Funds offer their investors a number of facilities such as inter-fund transfers,
online checking of holding status etc, which direct investments dont offer.
RISKS ASSOCIATED WITH MUTUAL FUNDS:-
Investing in Mutual Funds, as with any security, does not come without risk. One of the
most basic economic principles is that risk and reward are directly correlated. In other
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words, the greater the potential risk the greater the potential return. The types of risk
commonly associated with Mutual Funds are:
1) MARKET RISK
Market risk relates to the market value of a security in the future. Market prices
fluctuate and are susceptible to economic and financial trends, supply and demand, and
many other factors that cannot be precisely predicted or controlled.
2) POLITICAL RISK
Changes in the tax laws, trade regulations, administered prices, etc are some of the
many political factors that create market risk. Although collectively, as citizens, we
have indirect control through the power of our vote individually, as investors, we have
virtually no control.
3) INFLATION RISK
Interest rate risk relates to future changes in interest rates. For instance, if an investor
invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV of
the scheme will fall because the scheme will be end up holding debt offering lower
interest rates.
4) BUSINESS RISK
Business risk is the uncertainty concerning the future existence, stability, and
profitability of the issuer of the security. Business risk is inherent in all business
ventures. The future financial stability of a company cannot be predicted or guaranteed,
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nor can the price of its securities. Adverse changes in business circumstances will
reduce the market price of the companys equity resulting in proportionate fall in the
NAV of the Mutual Fund scheme, which has invested in the equity of such a company.
5) ECONOMIC RISK
Economic risk involves uncertainty in the economy, which, in turn, can have an adverse
effect on a companys business. For instance, if monsoons fail in a year, equity stocks
of agriculture-based companies will fall and NAVs of Mutual Funds, which have
invested in such stocks, will fall proportionately.
SCOPE
The study here has been focused to analyse an open ended equity fund of Asset
Management Company namely India Infoline. The fund performance is analyzed
based on the tools Sharpes Ratio, Treynors Ratio, (Beta) Co-efficient, AlphaReturns.
OBJECTIVES
1. To help an investor make a right choice of investment, while considering the
inherent risk factors.
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2. To understand the recent trends in Mutual Funds world
3. To show the wide range of investment options available in Mutual Funds by
Explaining its various schemes
4. The scheme is suitable for investors with a time horizon of 2 to 3 years
METHODOLOGY
The Methodology involves randomly selecting Open-Ended equity fund of one fund
house name is . The data collected for this project is basically from two
sources, they are:-
1. Primary sources: The monthly fact sheets of different fund houses and research
reports from banks.
2. Secondary sources: Collection of data from Internet and Books.
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INDUSTRY PROFILE
The Mutual Fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank of India. The
History of Mutual Funds in India can be broadly divided into four distinct phases.
First Phase(1964-87)
Unit Trust of India (UTI) was established on 1963 by an act of parliament. It was set up
by Reserve Bank of India and functioned under the regulatory and administrative
control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took over the regulatory and
administrative control in place of RBI. The first scheme launched by UTI was Unit
Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under
management.
Second Phase- 1987-1993(Entry of Public Sector Funds)
1987 marked the entry of non-UTI, Public Sector Mutual Funds set up by Public Sector
Banks and Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non -UTI Mutual Fund
established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National
Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun
90), Bank of Baroda Mutual Fund (Oct 92). LIC established its Mutual Fund in June
1989 while GIC had set up its Mutual Fund in June 1989 while GIC had set up its
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Mutual Fund in December 1990.At the end of 1993, the Mutual Fund industry had
assets under management of Rs.47,004 crores.
Third Phase-1993-2003 (Entry of Private Sector funds)
With the entry of private sector funds in 1993, a new era started in the Indian Mutual
Fund industry, giving the Indian investors a wider choice of fund families. Also, 1993
was the year in which the first Mutual Fund Regulations came into being, under which
all Mutual Funds, except UTI were to be registered and governed. The erstwhile
Kothari pioneer (now merged with UTI were to be registered and governed. The
erstwhile Kothari pioneer (now merged with Franklin Templeton) was the first Private
Sector Mutual Fund registered in July 1993.
The 1993 SEBI (Mutual Fund) regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The industry now
functions under the SEBI (Mutual Fund) regulations 1996.
The number of Mutual Fund houses went on increasing, with many foreignMutual Funds setting up funds in India and also the industry has witnessed several
mergers and acquisitions. As at the end of January 2003, there were 33 Mutual Funds
with total assets of Rs.1,21,805 Crores. The Unit Trust of India with Rs.44,541 crores
of assets under management was way ahead of other Mutual Funds.
Fourth Phase (since February 2003)
In February 2003, following the repeal of the Unit Trust of India Act 1963. UTI was
bifurcated into two separate entities. One is the specified Undertaking of the Unit Trust
of India with assets under management of Rs.29,835 crores As at the end of January
2003, representing broadly, the assets of US 64 scheme, assured return and certain other
schemes. The specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does not come
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under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund
Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions
under the Mutual Fund Regulations. With the bifurcation of the erstwhile.
UTI which had in March 2000 more than Rs. 76,000crores of assets under management
and with the setting up of a UTI Mutual Fund, confirming to the SEBI Mutual Fund
Regulations, and with recent mergers taking place among different private sector funds,
the Mutual Fund industry has entered its current phase of consolidation and growth. As
at the end of October 31, 2003, there were 31 funds, which manage assets of Rs.1,
26,726crores under 386 schemes.
PERFORMANCE MEASURES OF MUTUAL FUNDS:
Mutual Fund industry today, with about 30 players and more than six hundred schemes,
is one of the most preferred investment avenues in India. However, with a plethora of
schemes to choose from, the retail investor faces problems in selecting funds. Factors
such as investment strategy and management style are qualitative, but the funds record
is an important indicator too.
Though past performance alone cannot be indicative of future performance, it
is, frankly, the only quantitative way to judge how good a fund is at present. Therefore,
there is a need to correctly assess the past performance of different Mutual Funds.
Worldwide, good Mutual Fund companies over are known by their AMCs and this
fame is directly linked to their superior stock selection skills.
For Mutual Funds to grow, AMCs must be held accountable for their
selection of stocks. In other words, there must be some performance indicator that willreveal the quality of stock selection of various AMCs.
Return alone should not be considered as the basis of measurement of the
performance of a Mutual Fund scheme, it should also include the risk taken by the fund
manager because different funds will have different levels of risk attached to them. Risk
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associated with a fund, in a general, can be defined as Variability or fluctuations in the
returns generated by it. The higher the fluctuations in the returns of a fund during a
given period, higher will be the risk associated with it. These fluctuations in the returns
generated by a fund are resultant of two guiding forces. First, general market
fluctuations, which affect all the securities, present in the market, called Market risk or
Systematic risk and second, fluctuations due to specific securities present in the
portfolio of the fund, called Unsystematic risk. The Total Risk of a given fund is sum of
these two and is measured in terms of standard deviation of returns of the fund.
Systematic risk, on the other hand, is measured in terms of Beta, which
represents fluctuations in the NAV of the fund vis--vis market. The more responsive
the NAV of a Mutual Fund is to the changes in the market; higher will be its beta. Beta
is calculated by relating the returns on a Mutual Fund with the returns in the market.
While Unsystematic risk can be diversified through investments in a number of
instruments, systematic risk cannot. By using the risk return relationship, we try to
assess the competitive strength of the Mutual Funds one another in a better way. In
order to determine the risk-adjusted returns of investment portfolios, several eminent
authors have worked since 1960s to develop composite performance indices to evaluate
a portfolio by comparing alternative portfolios within a particular risk class.
The most important and widely used measures of performance are:
The TreynorMeasure
The Sharpe Measure
Jenson Model
Fama Model
1) The Treynor Measure:-
Developed by Jack Treynor, this performance measure evaluates funds on the basis of
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Treynor's Index.
This Index is a ratio of return generated by the fund over and above risk free rate of
return (generally taken to be the return on securities backed by the government, as there
is no credit risk associated), during a given period and systematic risk associated with it
(beta). Symbolically, it can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.
Where,
Ri represents return on fund,
Rf is risk free rate of return, and
Bi is beta of the fund.
All risk-averse investors would like to maximize this value. While a high and positive
Treynor's Index shows a superior risk-adjusted performance of a fund, a low and
negative Treynor's Index is an indication of unfavorable performance.
2) The Sharpe Measure :-
In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is
a ratio of returns generated by the fund over and above risk free rate of return and the
total risk associated with it.
According to Sharpe, it is the total risk of the fund that the investors are concerned
about. So, the model evaluates funds on the basis of reward per unit of total risk.
Symbolically, it can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si
Where,
Si is standard deviation of the fund,
Ri represents return on fund, and
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Rf is risk free rate of return.
While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a
fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.
Comparison of Sharpe and Treynor
Sharpe and Treynor measures are similar in a way, since they both divide the risk
premium by a numerical risk measure. The total risk is appropriate when we are
evaluating the risk return relationship for well-diversified portfolios. On the other hand,
the systematic risk is the relevant measure of risk when we are evaluating less than
fully diversified portfolios or individual stocks. For a well-diversified portfolio the total
risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and
systematic risk (Treynor measure) should be identical for a well-diversified portfolio,
as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that
ranks higher on Treynor measure, compared with another fund that is highly
diversified, will rank lower on Sharpe Measure.
3) Jenson Model:-
Jenson's model proposes another risk adjusted performance measure. This measure was
developed by Michael Jenson and is sometimes referred to as the differential Return
Method. This measure involves evaluation of the returns that the fund has generated vs.
the returns actually expected out of the fund1 given the level of its systematic risk. The
surplus between the two returns is called Alpha, which measures the performance of a
fund compared with the actual returns over the period. Required return of a fund at a
given level of risk (Bi) can be calculated as:
Ri = Rf + Bi (Rm - Rf)
Where,
Ri represents return on fund, and
Rm is average market return during the given period,
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Rf is risk free rate of return, and
Bi is Beta deviation of the fund.
After calculating it, Alpha can be obtained by subtracting required return from
the actual return of the fund.
Higher alpha represents superior performance of the fund and vice versa.
Limitation of this model is that it considers only systematic risk not the entire risk
associated with the fund and an ordinary investor cannot mitigate unsystematic risk, as
his knowledge of market is primitive.
4) Fama Model:-
The Eugene Fama model is an extension of Jenson model. This model compares the
performance, measured in terms of returns, of a fund with the required return
commensurate with the total risk associated with it. The difference between these two is
taken as a measure of the performance of the fund and is called Net Selectivity. The Net
Selectivity represents the stock selection skill of the fund manager, as it is the excess
returns over and above the return required to compensate for the total risk taken by the
fund manager. Higher value of which indicates that fund manager has earned returns
well above the return commensurate with the level of risk taken by him.
Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)
Where,
Ri represents return on fund,
Sm is standard deviation of market returns,
Rm is average market return during the given period, and
Rf is risk free rate of return.
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The Net Selectivity is then calculated by subtracting this required return from
the actual return of the fund.
Among the above performance measures, two models namely, Treynor measure and
Jenson model use Systematic risk is based on the premise that the Unsystematic risk is
diversifiable. These models are suitable for large investors like institutional investors
with high risk taking capacities as they do not face paucity of funds and can invest in a
number of options to dilute some risks. For them, a portfolio can be spread across a
number of stocks and sectors. However, Sharpe measure and Fama model that consider
the entire risk associated with fund are suitable for small investors, as the ordinary
investor lacks the necessary skill and resources to diversify. Moreover, the selection of
the fund on the basis of superior stock selection ability of the fund manager will also
help in safeguarding the money invested to a great extent. The investment in funds that
have generated big returns at higher levels of risks leaves the money all the more prone
to risks of all kinds that may exceed the individual investors' risk appetite.
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COMPANY PROFILE (INDIA INFOLINE)
India Infoline Group
The India Infoline group, comprising the holding company, India Infoline Limited
and its wholly-owned subsidiaries, straddle the entire financial services space with
offerings ranging from Equity research, Equities and derivatives trading,
Commodities trading, Portfolio Management Services, Mutual Funds, Life
Insurance, Fixed deposits, GoI bonds and other small savings instruments to loan
products and Investment banking. India Infoline also owns and manages the
The company has a network of 596 branches spread across 345 cities and towns. It
has more than 500,000 customers.
India Infoline Ltd
India Infoline Limited is listed on both the leading stock exchanges in India, viz.
the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and
is also a member of both the exchanges. It is engaged in the businesses of Equities
broking, Wealth Advisory Services and Portfolio Management Services. It offers
broking services in the Cash and Derivatives segments of the NSE as well as the
Cash segment of the BSE. It is registered with NSDL as well as CDSL as a
depository participant, providing a one-stop solution for clients trading in theequities market. It has recently launched its Investment banking and Institutional
Broking business.
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A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to
clients. These services are offered to clients as different schemes, which are basedon differing investment strategies made to reflect the varied risk-return preferences
of clients.
India Infoline Media and Research Services Limited.
The content services represent a strong support that drives the broking,commodities, mutual fund and portfolio management services businesses.
Revenue generation is through the sale of content to financial and media houses,
Indian as well as global.
It undertakes equities research which is acknowledged by none other than Forbes
as 'Best of the Web' and 'a must read for investors in Asia'. India Infoline'sresearch is available not just over the internet but also on international wire
services like Bloomberg (Code: IILL), Thomson First Call and Internet Securities
where India Infoline is amongst the most read Indian brokers.
India Infoline Commodities Limited.
India Infoline Commodities Pvt Limited is engaged in the business of
commodities broking. Our experience in securities broking empowered us with the
requisite skills and technologies to allow us offer commodities broking as acontra-cyclical alternative to equities broking. We enjoy memberships with the
MCX and NCDEX, two leading Indian commodities exchanges, and recently
acquired membership of DGCX. We have a multi-channel delivery model, making
it among the select few to offer online as well as offline trading facilities.
India Infoline Marketing & Services
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India Infoline Marketing and Services Limited is the holding company of India
Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited.
(a) India Infoline Insurance Services Limited is a registered Corporate Agent with
the Insurance Regulatory and Development Authority (IRDA). It is the largestCorporate Agent for ICICI Prudential Life Insurance Co Limited, which is India'slargest private Life Insurance Company. India Infoline was the first corporate
agent to get licensed by IRDA in early 2001.
(b) India Infoline Insurance Brokers Limited India Infoline Insurance Brokers
Limited is a newly formed subsidiary which will carry out the business of
Insurance broking. We have applied to IRDA for the insurance broking licenceand the clearance for the same is awaited. Post the grant of license, we propose to
also commence the general insurance distribution business.
India Infoline Investment Services Limited
Consolidated shareholdings of all the subsidiary companies engaged in loans andfinancing activities under one subsidiary. Recently, Orient Global, a Singapore-
based investment institution invested USD 76.7 million for a 22.5% stake in India
Infoline Investment Services. This will help focused expansion and capital raising
in the said subsidiaries for various lending businesses like loans against securities,
SME financing, distribution of retail loan products, consumer finance business and
housing finance business. India Infoline Investment Services Private Limited
consists of the following step-down subsidiaries.
(a) India Infoline Distribution Company Limited (distribution of retail loan
products)
(b) Moneyline Credit Limited (consumer finance)
(c) India Infoline Housing Finance Limited (housing finance)
IIFL (Asia) Private Limited
IIFL (Asia) Private Limited is wholly owned subsidiary which has been
incorporated in Singapore to pursue financial sector activities in other Asian
markets. Further to obtaining the necessary regulatory approvals, the company hasbeen initially capitalized at 1 million Singapore dollars.
Products and Services
We are a one-stop financial services shop, most respected for quality of its advice,
personalized service and cutting-edge technology.
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Equities
Indiainfoline provided the prospect of researched investing to its clients, which
was hitherto restricted only to the institutions. Research for the retail investor did
not exist prior to Indiainfoline. Indiainfoline leveraged technology to bring theconvenience of trading to the investors location of preference (residence or office)through computerized access. Indiainfoline made it possible for clients to view
transaction costs and ledger updates in real time.
PMS
Our Portfolio Management Service is a product wherein an equity investmentportfolio is created to suit the investment objectives of a client. We at Indiainfoline
invest your resources into stocks from different sectors, depending on your risk-
return profile. This service is particularly advisable for investors who cannotafford to give time or don't have that expertise for day-to-day management of their
equity portfolio.
Research
Sound investment decisions depend upon reliable fundamental data and stock
selection techniques. Indiainfoline Equity Research is proud of its reputation for,
and we want you to find the facts that you need. Equity investment professionals
routinely use our research and models as integral tools in their work.
They choose Ford Equity Research when they can clear your doubts.Commodities
Indiainfolines extension into commodities trading reconciles its strategic intent to
emerge as a one-stop solutions financial intermediary. Its experience in securities
broking has empowered it with requisite skills and technologies. The Companys
commodities business provides a contra-cyclical alternative to equities broking.The Company was among the first to offer the facility of commodities trading in
Indias young commodities market (the MCX commenced operations only in
2003). Average monthly turnover on the commodity exchanges increased from Rs
0.34 bn to Rs 20.02 bn. The commodities market has several products with
different and non-correlated cycles. On the whole, the business is fairly insulated
against cyclical gyrations in the business.Mortgage
During the year under review, Indiainfoline acquired a 75% stake in Money tree
Consultancy Services to mark its foray into the business of mortgages and other
loan products distribution. The business is still in the investing phase and at the
time of the acquisition was present only in the cities of Mumbai and Pune. The
Company brings on board expertise in the loans business coupled with existing
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relationships across a number of principals in the mortgage and personal loans
businesses. Indiainfoline now has plans to roll the business out across its pan-
Indian network to provide it with a truly national scale in operations.
HOME LOANS PERSONAL LOANS
Get expert advice that suits yourneeds
Loan against residential andcommercialproperty
Expert recommendations
Easy documentation
Quick processing and disbursal
No guarantor requirement
Freedom to choose from 4 flexibleoptions to repayExpert recommendations
Easy documentation
Quick processing and disbursal
No guarantor requirement
Invest Online
Indiainfoline has made investing in Mutual funds and primary market so effortless.All you have to do is register with us and thats all. No paperwork no queues and
No registration charges.
INVEST IN MUTUAL FUNDS (MF)
Indiainfoline offers you a host of mutual fund choices under one roof, backed byin-depth research and advice from research house and tools configured as investor
friendly.APPLY IN INVEST IN PUBLIC OFFERS (IPOs)
You could also invest in Initial Public Offers (IPOs) online without going through
the hassles of filling ANY application form/ paperwork.SMS
Stay connected to the market
The trader of today, you are constantly on the move. But how do you stay
connected to the market while on the move? Simple, subscribe to India Infoline's
Stock Messaging Service and get Market on your Mobile!
There are three products under SMS Service:
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Market on the move.
Best of the lot.
VAS (Value Added Service )Insurance
An entry into this segment helped complete the clients product basket;
concurrently, it graduated the Company into a one-stop retail financial solutionsprovider. To ensure maximum reach to customers across India, we have employeda multi pronged approach and reach out to customers via our Network, Direct and
Affiliate channels. Following the opening of the sector in 1999-2000, a number of
private sector insurance service providers commenced operations aggressively and
helped grow the market.
The Companys entry into the insurance sector derisked the Company from a predominant dependence on broking and equity-linked revenues. The annuity
based income generated from insurance intermediation result in solid core
revenues across the tenure of the policy.Wealth Management Services
Imagine a financial firm with the heart and soul of a two-person organization. A
world-leading wealth management company that sits down with you to understandyour needs and goals. We offer you a dedicated group for giving you the most
personal attention at every level.Newsletters
The Daily Market Strategy is your morning dose on the health of the markets. Five
intra-day ideas, unless the markets are really choppy coupled with a brief on the
global markets and any other cues, which could impact the market. Occasionally
an investment idea from the research team and a crisp round up of the previousday's top stories. That's not all. As a subscriber to the Daily Market Strategy, you
even get research reports of India Info line research team on a priority basis.
The Indiainfoline Weekly Newsletter is your flashback for the week gone by. A
weekly outlook coupled with the best of the web stories from Indiainfoline andlinks to important investment ideas, Leader Speak and features is delivered in your
inbox every Friday evening.
. The Management
Mr. Nirmal Jain
Nirmal Jain, MBA (IIM, Ahmedabad) and a Chartered and Cost Accountant, founded
Indias leading financial services company India Infoline Ltd. in 1995, providing globally
acclaimed financial services in equities and commodities broking, life insurance and
mutual funds distribution, among others. Mr. Jain began his career in 1989 with
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Hindustan Levers commodity export business, contributing tremendously to its growth.
He was also associated with Inquire-Indian Equity Research, which he co-founded in
1994 to set new standards in equity research in India.
Mr. R Venkataraman
R Venkataraman, co-promoter and Executive Director of India Infoline Ltd., is a B. Tech
(Electronics and Electrical Communications Engineering, IIT Kharagpur) and an MBA
(IIM Bangalore). He joined the India Infoline board in July 1999. He previously held
senior managerial positions in ICICI Limited, including ICICI Securities Limited, their
investment banking joint venture with J P Morgan of USA and with BZW and Taib
Capital Corporation Limited. He was also Assistant Vice President with G E Capital
Services India Limited in their private equity division, possessing a varied experience of
more than 16 years in the financial services sector.
The Board of Directors
Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline
comprises
Mr. Sat Pal Khattar (Non Executive Director)
Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of Minority
Rights member, Chairman of the Board of Trustee of Singapore Business Federation, is
also a life trustee of SINDA, a non profit body, helping the under-privileged Indians in
Singapore. He joined the India Infoline board in April 2001. Mr. Khattar is a Director of
public and private companies in Singapore, India and Hong Kong; Chairman of
Guocoland Limited listed in Singapore and its parent Guoco Group Ltd listed in Hong
Kong, a leading property company of Singapore, China and Malaysia. A Board member
of India Infoline Ltd, Gateway Distriparks Ltd both listed and a number of other
companies he is also the Chairman of the Khattar Holding Group of Companies with
investments in Singapore, India, UK and across the world.
Mr. Nilesh Vikamsey (Independent Director)
Mr. Vikamsey, Board member since February 2005 - a practising Chartered Accountant
and partner (Khimji Kunverji & Co., Chartered Accountants), a member firm of HLB
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International, headed the audit department till 1990 and thereafter also handles financial
services, consultancy, investigations, mergers and acquisitions, valuations etc; an ICAI
study group member for Proposed Accounting Standard 30 on Financial Instruments
Recognition and Management, Finance Committee of The Chamber of Tax
Consultants (CTC), Law Review, Reforms and Rationalization Committee and
Infotainment and Media Committee of Indian Merchants Chamber (IMC) and Insurance
Committee and Legal Affairs Committee of Bombay Chamber of Commerce and
Industry (BCCI).
Mr. Vikamsey is a director of Miloni Consultants Private Limited, HLB Technologies
(Mumbai) Private Limited and Chairman of HLB India.
Mr. Kranti Sinha (Independent Director)
Mr. Kranti Sinha Board member since January 2005 completed his masters from
the Agra University and started his career as a Class I officer with Life Insurance
Corporation of India. He served as the Director and Chief Executive of LIC Housing
Finance Limited from August 1998 to December 2002 and concurrently as the Managing
Director of LICHFL Care Homes (a wholly owned subsidiary of LIC Housing Finance
Limited). He retired from the permanent cadre of the Executive Director of LIC; served
as the Deputy President of the Governing Council of Insurance Institute of India and as a
member of the Governing Council of National Insurance Academy, Pune apart from
various other such bodies. Mr. Sinha is also on the Board of Directors of Hindustan
Motors Limited, Larsen & Toubro Limited, LICHFL Care Homes Limited, Gremach
Infrastructure Equipments and Projects Limited and Cinemax (India) Limited.
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Compliance status on revised Clause 49 of the Listing Agreement - Corporate
Provisions
Periodicity
Compliance Status
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I. Board of Directors
A) Composition of Board
i.
The Board of directors of the company shall have an optimum combination of executive and non-
executive directors with not less than fifty percent of the board of directors comprising of non-executive directors
Continuous
IIL Board comprises of six Directors, out of whom, four are non-executive.
ii.
Where the Chairman of the Board is a non-executive director, at least one-third of the Boardshould comprise of independent directors and in case he is an executive director, at least half of
the Board should comprise of independent directors.
Continuous
Chairman Mr. Nirmal Jain is an Executive Director. The Board has three independent directors:Mr. Nilesh Vikamsey, Mr. Sanjiv Ahuja and Mr. Kranti Sinha.
B) Non executive directors compensation and disclosures
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All fees/compensation, if any paid to non-executive directors, including independent directors,
shall be fixed by the Board of Directors and shall require previous approval of shareholders ingeneral meeting.
Continuous
The Non executive Directors are paid sitting fees of Rs.20,000/- for each meeting of the Board andAudit Committee to be attended by them and Rs.10,000/- for any other committee meeting.
The sitting fees for the Board Meeting are approved in the Board Meeting of the Company held on
February 11, 2005, while the fees for committee fees are approved in the Board Meeting held onFebruary 11, 2005. Approval for commission to non-executive directors is sought in the ensuing
EGM to be held on January 25,2006.
The shareholders resolution shall specify the limits for the maximum number of stock options thatcan be granted to non-executive directors, including independent directors, in any financial year
and in aggregate.
As and when arises
We have already mentioned in the prospectus that there will not be any fresh grant of stock
options under the same scheme.
The company is proposing a new ESOP scheme, which also provides limits for maximum number
of stock options to non-executive directors. The same is placed before the shareholders in the
ensuing EGM to be held on January 25, 06.
(C) Other provisions as to Board and Committees
i.
The board shall meet at least four times a year, with a maximum time gap of three months between
any two meetings. The prescribed minimum information to be made available to the board.
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Continuous
Board Meeting dates since listing:
May 19, 2005
July 21, 2005
September 15, 2005
October 22, 2005
December 29,2005
ii.
A director shall not be a member in more than 10 committees or act as Chairman of more than five
committees across all companies in which he is a director. Furthermore it should be a mandatory
annual requirement for every director to inform the company about the committee positions heoccupies in other companies and notify changes as and when they take place.
Continuous & Annual
Mr. Nirmal Jain, Mr. R. Venkataraman, Mr. Nilesh Vikamsey, Mr. Sat Pal Khattar and Mr. Sanjiv
Ahuja are not committee members in any listed company other than India Infoline Limited.
Mr. Kranti Sinha is a member of 2 committees other than IIL and is a Chairman in only onecommittee at IIL.
iii.
The Board shall periodically review compliance reports of all laws applicable to the company,prepared by the company as well as steps taken by the company to rectify instances of non-
compliances.
Continuous
Board reviews the compliance reports as placed before it.
(D) Code of Conduct
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i.
The Board shall lay down a code of conduct for all Board members and senior management of thecompany. The code of conduct shall be posted on the website of the company.
Continuous
Code of conduct is specified and put on the website of the company
ii.
All Board members and senior management personnel shall affirm compliance with the code on an
annual basis. The Annual Report of the company shall contain a declaration to this effect signed
by the CEO.
Annual
Will be obtained at the end of the financial year.
II Audit Committee
(A) Qualified and Independent Audit Committee
A qualified and independent audit committee shall be set up, giving the terms of reference subjectto the following:
Continuous
Complied
i.
The audit committee shall have minimum three directors as members. Two-thirds of the membersof audit committee shall be independent directors.
Continuous
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Audit committee of IIL Comprises of four directors Mr. Nilesh Vikamsey, Mr. Kranti Sinha, Mr.
Sanjiv Ahuja and Mr. Sat Pal Khattar.
ii.
All members of audit committee shall be financially literate and at least one member shall have
accounting or related financial management expertise.
Continuous
Complied with. Mr. Nilesh Vikamsey and Mr. Sanjiv Ahuja are both experienced CharteredAccountants. Mr. Nilesh Vikamsey also holds a Diploma in Information System Audit (DISA)
from the ICAI and is a partner in M/s. Khimji Kunverji and Company, Chartered Accountants,
Mumbai from 1985. Mr. Ahuja is a Certified Public Accountant who started his career withAccenture Consulting (Formerly Andersen Consulting) in 1988 and presently an Executive
Director with Corporate Brokers Intl Pvt Ltd, a reputed Singapore based M & A firm and a
member of Singapore Indian Chamber of Commerce and Industry.
iii.
The Chairman of the Audit Committee shall be an independent director;
Continuous
Complied with. Chairman of the Audit Committee is Mr. Nilesh Vikamsey who is an Independent
Director.
iv.
The Chairman of the Audit Committee shall be present at Annual General Meeting to answer
shareholder queries;
Annual
Mr. Vikamsey, Chairman of the Audit Committee was present at the 10 th Annual General Meetingof the Company.
v.
The audit committee may invite such of the executives, as it considers appropriate. The finance
director, head of internal audit and a representative of the statutory auditor may be present asinvitees for the meetings of the audit committee;
Quarterly
Complied
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vi
The Company Secretary shall act as the secretary to the committee.
Continuous
Complied with. (New company secretary is being appointed)
B) Meeting of Audit Committee
The audit committee should meet at least four times in a year and not more than four months shallelapse between two meetings.
Continuous
Audit Committee meetings since listing:
May 19, 2005,
July 21, 2005,
October 22,2005
The quorum shall be either two members or one third of the members of the audit committee
whichever is greater, but there should be a minimum of two independent members present.
Continuous
All the three the meetings have recorded full presence of members.
(C) Powers of Audit Committee
The audit committee shall have the prescribed powers.
Continuous
Audit Committee has all powers as prescribed in Clause 49 of the Listing agreement.
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D) Role of Audit Committee
The role of the audit committee shall include the following:
1.
Oversight of the companys financial reporting process and the disclosure of its financial
information to ensure that the financial statement is correct, sufficient and credible.
Quarterly
Complied with.
2.
Recommending to the Board, the appointment, re-appointment and, if required, the replacement or
removal of the statutory auditor and the fixation of audit fees.
Annual
Complied with. Remuneration decided in the audit committee meeting.
3.
Approval of payment to statutory auditors for any other services rendered by the statutory
auditors.
Continuous
Taken up as and when arises.
4.
Reviewing, with the management, the annual financial statements before submission to the boardfor approval.
Annual
Complied with.
5.
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Reviewing, with the management, the quarterly financial statements before submission to the
board for approval
Quarterly
Complied with
6.
Reviewing, with the management, performance of statutory and internal auditors, adequacy of the
internal control systems.
Quarterly
Complied with
7.
Reviewing the adequacy of internal audit function, if any, including the structure of the internal
audit department, staffing and seniority of the official heading the department, reporting structurecoverage and frequency of internal audit.
Quarterly
Complied with
8.
Discussion with internal auditors any significant findings and follow up there on.
Quarterly
Complied with
9.
Reviewing the findings of any internal investigations by the internal auditors into matters where
there is suspected fraud or irregularity or a failure of internal control systems of a material natureand reporting the matter to the board.
Quarterly
Complied with
10.
Discussion with statutory auditors before the audit commences, about the nature and scope of
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audit as well as post-audit discussion to ascertain any area of concern.
Annual
Complied with
11.
To look into the reasons for substantial defaults in the payment to the depositors, debenture
holders, shareholders (in case of non payment of declared dividends) and creditors
Quarterly
Not applicable
(E) Review of information by Audit Committee
The Audit Committee shall mandatorily review the following information:
1.
Management discussion and analysis of financial condition and results of operations;
Quarterly / Annual
Done in the Meeting held on 19 th May, 2005 for consideration Annual Report for the Year ended
March 31, 2005. Subsequently in the meetings for consideration of Quality results.
2.
Statement of significant related party transactions (as defined by the audit committee), submitted
by management;
Quarterly
Discussed in Audit committee meetings while considering Annual / Quarterly financial Results.
3.
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Management letters / letters of internal control weaknesses issued by the statutory
auditors;
Annual
Was reviewed in the Meeting held on 19th May 2005 while considering Annual Accounts.
4.
Internal audit reports relating to internal control weaknesses; and
Quarterly
Internal Audit Report of IIL and IISPL discussed in meetings held on 19 th May, July 21. 2005 and
October 22, 2005
5.
The appointment, removal and terms of remuneration of the Chief internal auditor shall be subjectto review by the Audit Committee
Annual / As and when required
Appointment of Internal Auditor discussed in meeting held on 19th May 2005.
III. Subsidiary Companies
i.
At least one independent director on the Board of Directors of the holding company shall be a
director on the Board of Directors of a material non-listed Indian subsidiary company.
Continuous
Mr. Sanjiv Ahuja, Independent Director on the Board of the Holding Company is also a Director
on the Board of India Infoline Securities Pvt. Ltd., India Infoline.com Distribution Company
Limited and India Infoline Insurance Services Limited.
ii.
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The Audit Committee of the listed holding company shall also review the financial statements.
uarterly
Complied
iii.
The minutes of the Board meetings of the unlisted subsidiary company shall be placed at the
Board meeting of the listed holding company. The management should periodically bring to the
attention of the Board of Directors of the listed holding company, a statement of all significanttransactions and arrangements entered into by the unlisted subsidiary company.
Quarterly / Annual
Complied.
IV. Disclosures
(A) Basis of related party transactions
i.
A statement in summary form of transactions with related parties in the ordinary course ofbusiness shall be placed periodically before the audit committee.
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Quarterly
Complied
ii.
Details of material individual transactions with related parties, which are not in the normal course
of business, shall be placed before the audit committee.
Quarterly
Complied.
iii.
Details of material individual transactions with related parties or others, which are not on an arms
length basis should be placed before the audit committee, together with Managementsjustification for the same.
Quarterly
Complied.
(B) Disclosure of Accounting Treatment
Where in the preparation of financial statements, a treatment different from that prescribed in anAccounting Standard has been followed, the fact shall be disclosed in the financial statements,together with the managements explanation as to why it believes such alternative treatment is
more representative of the true and fair view of the underlying business transaction in the
Corporate Governance Report.
Quarterly / Annual
Complied
(C) Board Disclosures Risk management
The company shall lay down procedures to inform Board members about the risk assessment and
minimization procedures. These procedures shall be periodically reviewed to ensure that executive
management controls risk through means of properly defined framework
Annual
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Will be made along with the next annual report.
(D) Proceeds from public issues, rights issues, preferential issues etc
When money is raised through an issue (public issues, rights issues, preferential issues etc.), it
shall disclose to the Audit Committee, the uses / applications of funds by major category (capitalexpenditure, sales and marketing, working capital, etc), on a quarterly basis as a part of their
quarterly declaration of financial results. Further, on an annual basis, the company shall prepare a
statement of funds utilized for purposes other than those stated in the offer document /prospectus /notice and place it before the audit committee. Such disclosure shall be made only till
such time that the full money raised through the issue has been fully spent. This statement shall be
certified by the statutory auditors of the company. The audit committee shall make appropriate
recommendations to the Board to take up steps in this matter.
Quarterly
Disclosure being made to Audit committee as well as Board while considering quarterly financial
results
(E) Remuneration of Directors