Top Banner

of 112

3S of IDFC Mutual Fund

Apr 10, 2018



Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
  • 8/8/2019 3S of IDFC Mutual Fund




    3s Of Mutual Fund s


    IDFC AMC Ltd

    Submitted By:

    Hitesh .M. Karamchandani

    Ankita .S. Sonawane

    Mihir .S. Mehta

    Kruti .D. Sanghragka

    Nishant .M. Jain

    Sakina .T. Mandsaurwala



    (2010 - 2011)

  • 8/8/2019 3S of IDFC Mutual Fund




    We, the students of K.C. College of Management Studies of PGCHM herebydeclare that we have completed this project on Sales and Distribution of Mutual Fundsfor the academic year 2010 2011. The information revealed in the project submitted istrue and original to the best of our knowledge.

    Date: 8 th July, 2010.


    1. Hitesh .M. Karamchandani ______________

    2. Ankita .S. Sonawane ______________

    3. Mihir .S. Mehta ______________

    4. Kruti .D. Sanghrajka ______________

    5. Nishant .M. Jain _________

    6. Sakina .T. Mandsaurwala ______________

  • 8/8/2019 3S of IDFC Mutual Fund




    We wish to express our sincere gratitude to Prof. Manju Nichani - Director, KC Collegeof Management Studies, Colaba and Prof. Flo ss y Jo s eph Coordinator of KCCMS, andMr. Rajan Gurnani - Placement Coordinator of KCCMS, for providing us an opportunityto do our project work on Sales and Distribution of Mutual Funds in IDFC AMC Ltd.This project bears on imprint of many peoples.

    We sincerely thank to our trainer Mr. Kulbhu s han Singh VP Sales Manager at IDFC,for guidance and encouragement in carrying out this project work. We also wish toexpress our gratitude to the officials and other staff members of IDFC AMC whorendered their help during the period of our project work. My special thanks to therelationship managers of the company for their kind co-operation to the completion of our project work.

    Last but not least we wish to avail ourselves of this opportunity, express a sense of gratitude and love to our friends and our beloved parents for their manual support,strength, and help and for everything

    Place: Mumbai

    Date: 8 th July, 2010.

  • 8/8/2019 3S of IDFC Mutual Fund




    The information for compiling our final project report was collected from both primary aswell as secondary sources. Primary sources include the personal methods of datacollection and whereas secondary sources includes books, internet, company brochure,

    product brochure, company website, competitors website, newspaper articles as well ashandbooks, etc.

  • 8/8/2019 3S of IDFC Mutual Fund




    Infrastructure Development Finance Company Ltd. is India's leading financial institutionfocused on infrastructure. IDFC was incorporated as a public limited company on 30

    January 1997 with its registered office at Chennai. IDFC operates as a professionallymanaged commercial entity with the objective of maximizing shareholder value. Thecompany has been formed by a consortium of public and private investors with the GoIholding 20% share and 45% being held by Foreign Institutional Investors/ Foreign DirectInvestment.

    Mutual fund industry which is growing over a period time has gone sea changes whichhave included four different phases. Indian securities markets have undergone manychanges during the last decade. Exponential growth in trading volumes is pushing

    existing trading systems and processes to capacity and increasing settlement risk. Indeedit has been SEBI that has made the Indian markets, one of the most competitive andefficient markets of the world.

    Competitors analysis of five companies is done which help us to better understand the position of the company. The Competitors research consisted of analyzing the funds of 5different Fund Houses who were in the top 10 list of Indian Mutual fund industry, theAMCs given were Reliance Growth Fund, DSP Blackrock Macro Cap Fund, DSPBlackrock Small and Midcap Fund, Sundaram BNP Paribas and HDFC Mutual Fund.

    Mutual funds tower over other investment choices. If past collection figures are atestimony, investors seem to have realized this. Most public offerings of mutual fundshave collected in excess of Rs 500 crore (Rs 5 billion) from thousands of investors. Inconclusion, it can be said that despite few problems, the recent changes in the mutualfunds industry in India has really favored its amazing growth and in times to comemutual funds will continue to be a significant resource mobilize in the Indian financialmarket.

  • 8/8/2019 3S of IDFC Mutual Fund




    1. Introduction to IDFC AMC.1-11

    1.1 IDFC Ltd...2

    1.2 Standard Chartered Asset Management Company Ltd.9

    1.3 Rise of IDFC AMC..10

    1.3.1 Awards11

    2. Market Re s earch...12- 33

    2.1 Know Your Distributors..14

    2.2 Asset Allocation Fund.16

    2.3 Capital Protection Oriented Fund Series II..22

    2.4 Small and Midcap Equity Fund...29

    2.5 Tips on buying Mutual Funds..32

    3 . Competitor s Analy s is .. 34 -4 0

    3.1 Introduction...35

    3.2 Project 1....36

    3.3 Project 237

    3.4 Project 338

    3.5 Project 439

    3.6 Project 540

  • 8/8/2019 3S of IDFC Mutual Fund



    4 . Training at IDFC AMC. 4 1-89

    4.1 Fund Basics....42

    4.1.1 Introduction...42

    4.1.2 What is Mutual Fund43

    4.1.3 History of Mutual Fund Industry..43

    4.1.4 Why we need Mutual Fund..47

    4.1.5 Fund Pluses..49

    4.1.6 Fund Minuses..50

    4.1.7 Some facts for the growth of Mutual Fund in India...50

    4.2 Kinds of Funds.524.2.1 Introduction.52

    4.3 Types of Funds.59

    4.3.1 Open-Ended and Closed-End..61 Open-Ended...61 Closed-End....61

    4.3.2 Active and Passive...62 Active Fund...63

  • 8/8/2019 3S of IDFC Mutual Fund


    8 Passive Fund..64

    4.3.3 Thematic Fund..65

    4.3.4 Sector Fund..65

    4.3.5 Gilt Fund..65

    4.3.6 Funds of Fund..65

    4.4 How Funds Work..66

    4.5 How to Choose a Fund..72

    4.5.1 Why do we need a Fund..72

    4.5.2 How old are you73

    4.5.3 For how long you want to invest...74

    4.5.4 Are you ok with risk..74


    How to buy a Mutual fund75

    4.6 Mechanism of Mutual Fund...77

    4.7 Investment Strategies..79

    4.8 Organizational Hierarchy....81

    4.8.1 Structure of Mutual fund in India...81

    4.8.2 The Fund Sponsor..82

  • 8/8/2019 3S of IDFC Mutual Fund



    4.8.3 Mutual Fund as Trustee..82

    4.8.4 Trustees...83

    4.8.5 Asset Management Company.83

    4.8.6 Transfer Agents..83

    4.8.7 Distributors.84

    4.9 Merits of Mutual Fund.85

    4.10 Demerits of MutualFund87

    4.11 Basic terms used in MutualFund....87

    5 . Recent Change s ..90-92

    Conclu s ion....9 3 -95

    Webliography and Bibliography96-98

  • 8/8/2019 3S of IDFC Mutual Fund



    Li s t of Figure s

    1.1 Shareholding pattern of IDFC AMC7

    2.1 Relationship process.13

    2.2 Holdings of SME Fund.....30

    2.3 Sectors of SME Fund....31

    4.1 Mutual Fund..42

    4.2 Growth of Assets47

    4.3 Kinds of Funds..52

    4.4 Types of Funds..60

    4.5 Cycle of Mutual Funds..77

    4.6 Chart of Mutual Funds..78

    4.7 Risk V/s Returns.79

    4.8 risk Return Matrix...80

    4.9 Organizational Hierarchy814.10 Flow of Distributors..84

  • 8/8/2019 3S of IDFC Mutual Fund



    Li s t of Table s

    1.1 Total Schemes in IDFC AMC.11

    2.1 Sectors and Stocks of Reliance Mutual Fund......36

    2.2 Sectors and Stocks of Sundaram Mutual Fund....37

    2.3 Sectors and Stocks of DSP Blackrock Microcap Fund...38

    2.4 Sectors and Stocks of HDFC Mutual Fund.39

    2.5 Sectors and Stocks of DSP Blackrock Small and Midcap Fund.40

    4.1 Details of Phase II45

  • 8/8/2019 3S of IDFC Mutual Fund



    Chapter 1


  • 8/8/2019 3S of IDFC Mutual Fund



    1.1 Infra s tructure Development Finance Company Ltd

    IDFC is India's leading financial institution focused on infrastructure.

    In 1994, the Department of Economic Affairs, MoF in recognition of the need todevelop the country's infrastructure, established an Expert Group on

    Commercialization of Infra s tructure Project s under the Chairmanship of Dr.

    Rake s h Mohan . The group recommended the need for a specialized financial

    intermediary for funding infrastructure projects. Thereafter, the announcement for the

    setting up of IDFC was made in the Union Finance Minister's budget speech in July


    IDFC was incorporated as a public limited company on 30 January 1997 with its

    registered office at Chennai.

    Professionally managed entity

    IDFC operates as a professionally managed commercial entity with the objective of

    maximizing shareholder value. The company has been formed by a consortium of

    public and private investors with the GoI holding 22% share and 46.6% being held

    by Foreign Institutional Investors/ Foreign Direct Investment.

    Policy advisory role

    IDFC plays a significant role in shaping the direction of infrastructure policy and

    has worked on various strategic advisory assignments including conducting a

    National Strategy Study for evolving a clean development mechanism in India. The

    company actively assists Government and Government agencies, at both Central and

    State levels, in developing contractual framework/structure for Public-Private

    Partnership (PPP) projects.

  • 8/8/2019 3S of IDFC Mutual Fund




    To build a diversified portfolio of viable infrastructure projects of national

    importance and to imbue the projects with best practices in development,

    management, design, construction and operation while maintaining the highest

    regard for service, safety and environment.


    y Investment: Develop projects with an aggregate investment potential of

    USD 1 bn in 5 years.

    y Building Capacities: Create high order capacities and credentials for

    implementation of infrastructure assets.

    y Forging Partnerships: Build successful partnerships with national and

    international developers, contractors and operators.


    y Fairness

    Fairness lies at the heart of good corporate governance. Our dealings with

    governments, partners, suppliers, customers and investors are fair and

    recognize the legitimate interests of stakeholders.

    y Integrity

    We have inherited a strong legacy of operating at the highest level of

    integrity from our parent. We are committed to pursing the path of honesty,

    truthfulness and uprightness, even if it means sacrificing potential

    economic gains.

  • 8/8/2019 3S of IDFC Mutual Fund



    y Trust

    Our stakeholders can depend on us to achieve a common purpose. We

    believe in making promises we can keep. We will always act in a manner that justifies the trust put in by our stakeholders regardless of their ability

    to monitor or control our actions.

    y Professionalism

    We strive to be professional in our dealings. To us, this means being

    responsive, enthusiastic and committed to the needs of our stakeholders

    through application of knowledge to practical situations, constant

    innovation, and an ethical and transparent approach to business.


    y Power

    Over the last decade IDFC has financed power projects aggregating to

    about 10000 MW. IDFC has also financed transmission projects like the

    Tala project of Powerlinks.

    y Transport

    IDFC has successfully financed several pioneering

    road projects such as the Jaipur - Kishangarh

    Expressway and has a total exposure of Rs. 7,922

    crore in the sector.

    IDFC has been actively involved as a financier for almost all the ports on

    the west coast and for Container Forwarding Stations (CFS) in India.

  • 8/8/2019 3S of IDFC Mutual Fund



    y Urban

    IDFC has a rich financing experience in commercial and industrial

    infrastructure, primarily in IT parks, SEZs,commercial property and hotels, which now account

    for over 9.8% of IDFC's exposure.

    IDFC has been actively involved in several roles in the water sector. The

    roles range from being a co-developer to providing long term project


    Mutual Fund IDFC Mutual Fund

    Setup Date Mar-13-2000

    Incorporation Date Dec-20-1999

    Sponsor Infrastructure Development Finance Company

    Limited (IDFC)

    Tru s tee IDFC AMC Trustee Company Private Limited

    Chairman Dr. Rajiv Lall

    CEO / MD Mr. Naval Bir Kumar President

    CIO Mr. Kenneth Andrade

    Compliance Officer Ms. Jyothi Krishnan

    Inve s tor Service Mr. Praveen Bhatt

  • 8/8/2019 3S of IDFC Mutual Fund




    Ass et s Managed Rs. 21482.75 crore (June-30-2010)

    Auditor s B. S. R. & Co. Chartered Accountants

    Cu s todian s Deutsche Bank Limited AG.

    Regi s trar s Computer Age Management Services Pvt. Ltd.

    Addre ss One India Bulls Centre, 841, Jupiter Mills

    Compound, S. B. Marg, Elphinstone Road (W),

    Mum. 400013

    Telephone No s . 022-2266289999

    Fax No s . 022-24215052


    Shareholding Pattern of IDFC

    The Government of India, international foreign institutions and private retail and

    corporate entities comprise our shareholders. This exceptional shareholding pattern,

    with the GOI holding over 20%, demonstrates our unique location on the firmamentof financial institutions in the country. The large FDI/ FII shareholding is further

    proof of our strict adherence to best practices of corporate governance and financial


  • 8/8/2019 3S of IDFC Mutual Fund



    Shareholding Pattern

    Fig.1.1 Shareholding pattern of IDFC AMC

    Unique Positioning

    The company's expertise in the infrastructure sector and strong relationships

    with government and infrastructure sponsors provide it with a platform for

    facilitating private investment and public-private partnership in sectors where

    market structures, government policy and regulation are evolving.

    y One of a kind platform combining benefits of Government sponsorship,

    internationally diversified shareholder base and professional management to

    pursue business opportunities in the infrastructure space

    Mutual Funds/UTI6%

    Institutions/Banks5% Central

    Gove rnm e nt/Stat eGove rnm e nt


    Insuranc eCompani e s




    Corporat e3%


    Oth e rs0%

    Shareholding As On 31st March 2010

  • 8/8/2019 3S of IDFC Mutual Fund



    y Well poised to capitalize on the strong momentum in infrastructure


    y High profile Board and experienced management team with over 550

    professionals dedicated to infrastructure financing and advisory

    y Largest and the most comprehensive multi-faceted infrastructure financier with

    wide repertoire of products and services

    y Deep domain knowledge in the core sectors of energy, transportation, telecom,

    & industrial and commercial infrastructure

    y Focus on high ROE businesses including Asset Management, Investment

    Banking and Principal Investments.

  • 8/8/2019 3S of IDFC Mutual Fund



    1.2 Standard Chartered A ss et Management Company Ltd

    Standard Chartered Asset Management Company Ltd primarily focused on debt

    schemes and mutual funds. The instigation of the company was found in ANZ

    Grindlays that was later renamed Standard Chartered Mutual Fund following the

    take over Grindlays Bank by Standard Chartered Bank. The mutual funds offered

    include equity and debt funds like Grind lays cash funds, dynamic bond funds,

    government securities fund, super saver income funds, short term institutional

    plans, standard chartered arbitrage funds, classical equity funds, imperial equity

    funds, premier equity funds, enterprise equity funds, tax saver ELSS funds andmany more. The sponsor of standard chartered mutual fund was the bank and its

    AMC is SCB Asset Management or Standard Chartered Asset Management

    Company Ltd.

    The SCB Asset Management Company made two-thirds of its profits from Asia.

    The India branch was third to Hong Kong and South Korea and was a part of the $

    3 billion Standard Chartered Asset Management Company Ltd. There were plans

    on either a sellout of Standard Chartered Asset Management Company Ltd India or

    as much as 90 % divesting of the unit and retaining a strategic stake.

  • 8/8/2019 3S of IDFC Mutual Fund



    1.3 Ri s e of IDFC AMC

    Infrastructure Development Finance Company (IDFC) bagged Standard

    Chartereds asset management business (AMC) in India for a total consideration

    of $205 million (around Rs 820 crore) in an all-cash deal. This amounts to 5.67

    per cent of the total assets under management of Rs 14,141 crore of StanCharts

    AMC. The deal comes after the Reserve Bank of India, in December, rejected

    Swiss major UBS AGs last years bid to buy StanCharts MF business for Rs

    516 crore, which was 4 per cent of the total AUM of Rs 12,628 crore.

    JASPAL BINDRA, Chief Executive Officer, A s ia, Standard Chartered:

    IDFC is a well respected financial services company and we are delighted to

    have reached an agreement with them for the sale of this business. Standard

    Chartered will remain a distributor of asset management products in India. India

    is a key market and delivered record results in 2007.

    RAJIV LALL, Managing Director and Chief Executive Officer Of IDFC:

    This is in line with our wider strategy of broadening our footprint in the asset

    management business and diversifying our fee-based revenue streams. We have

    also bought out Atul Chokseys stake in Standard Chartered mutual fund.

    Valuations arent cheap. Nevertheless we went ahead with the deal as we want to

    create an impact in the asset management business in the next 3-4 years. Naval

    Bir Kumar will continue to head the mutual fund business.

  • 8/8/2019 3S of IDFC Mutual Fund



    N o. of schemes 84N o. of schemes including options 269Equity Schemes 24Debt Schemes 209Short term debt Schemes 19Equity & Debt 0Money Market 0Gilt Fund 13

    Tab. 1.1 Total schemes in IDFC AMC

    1.3 .1 Award s





  • 8/8/2019 3S of IDFC Mutual Fund



    Chapter 2


  • 8/8/2019 3S of IDFC Mutual Fund


  • 8/8/2019 3S of IDFC Mutual Fund


  • 8/8/2019 3S of IDFC Mutual Fund


  • 8/8/2019 3S of IDFC Mutual Fund



    2.2 A ss et Allocation Fund


    To promote Asset Allocation Fund.



    An Open Ended Fund of Funds Scheme


    The primary objective of Scheme is to generate capital appreciation

    through investment in different mutual fund schemes primarily local funds

    based on a defined asset allocation model.

    However, there can be no assurance that the investment objective of

    the scheme will be realized.


    The asset allocation under the scheme will be as follows:

    Con s ervative AA Plan:

    % to net a ss et s Ri s k profile

    Equity Funds 10 15 Low to Medium

    Debt Funds 45 50 Low to Medium

    Liquid Fund 45 50 Low to Medium

    Alternate 0 -

    Money market securities 0 15 Low

  • 8/8/2019 3S of IDFC Mutual Fund



    Moderate AA Plan:

    % to net a ss et s Ri s k profile

    Equity Funds 25 30 Medium

    Debt Funds 60 70 Medium to High

    Liquid Fund 5 - 10 Low to Medium

    Alternate 5 10 Low to Medium

    Money market securities 0 15 Low

    Aggre ss ive AA Plan:

    % to net a ss et s Ri s k profile

    Equity Funds 45 50 High

    Debt Funds 35 45 Medium

    Liquid Fund 0 - 5 Low to Medium

    Alternate 10 15 Low to Medium

    Money market securities 0 15 Low


    Depending on the market conditions the assets of the Scheme will be

    allocated in a diverse capitalization range of equity funds, debt funds, liquidfunds, money market funds and money market securities.

  • 8/8/2019 3S of IDFC Mutual Fund


  • 8/8/2019 3S of IDFC Mutual Fund




    Under the scheme, investors may choose either the Growth Option or

    the Dividend Option (Dividend payout & Dividend re-investment). In case

    of valid applications received, without indicating any choice of Option, it

    will be Option and processed accordingly.

    o Growth Option

    The scheme will generally not declare any dividend under this option.

    The income attributable to units under this option will continue to remain

    invested in the scheme and will reflected in the Net Asset Value of unitsunder this option. This option is suitable for investors who are not

    looking for current income, but who have invested only with the intention

    of capital appreciation. If the units under this option are held as capital

    asset for a period of at least one year, from the date of acquisition,

    Unitholders should get the benefit of long term capital gain tax.

    o Dividend Option

    Under this option, the Fund will endeavour to declare dividends at

    such other frequency as deem fit.

    The distribution of dividend will be made out of the net surplus under

    this Option subject to availability of distributable profits, as computed in

    accordance with SEBI Regulations. The remaining net surplus after

    considering the dividend and tax, if any, payable thereon will remain

    invested in the Scheme and be reflected in the NAV. Dividends, if

    declared, will be paid out of the net surplus of the Scheme to those unit

    holders whose name appear in the Register of Unit holders on the record

  • 8/8/2019 3S of IDFC Mutual Fund


  • 8/8/2019 3S of IDFC Mutual Fund



    o Trustee(s) of Religious and Charitable and Private Trusts under the

    provision of Section 11(5) (xii) of the Income Tax Act, 1961 read with

    Rule 17C of Income Tax Rules, 1962 (subject to receipt of necessary

    approvals as Public Securities where required)o The Trustee of Private Trusts authorised to invest in mutual fund

    Schemes under their trust deed.

    o Partner(s) of Partnership Firms.o Karta of Hindu Undivided Family (HUF).

    o Banks (including Co-operative Banks and Regional Rural Banks),

    Financial Institutions and Investment Institutions.o Non-resident Indians/Persons of Indian origin residing abroad (NRIs)

    on full repatriation basis or on non-repatriation basis.

    o Foreign Institutional Investors (FIIs) registered with SEBI on full

    repatriation basis.

    o Army, Air Force, Navy and other para-military funds.o Scientific and Industrial Research Organizations.

    o Others who are permitted to invest in the Scheme as per their

    respective constitutions Subscriptions from residents in the United

    States of America and Canada shall not be accepted by the Scheme.

    The Fund reserves the right to include / exclude new / existing

    categories of investors to invest in this Scheme from time to time,

    subject to regulatory requirements, if any. This is an indicative list and

    investors are requested to consult their financial advisor to ascertainwhether the scheme is suitable to their risk profile.

  • 8/8/2019 3S of IDFC Mutual Fund



    2.3 Capital Protection Oriented Fund Serie s II


    To promote Capital Protection Oriented Fund Series II.



    A 3 year close ended scheme


    The scheme endeavors to protect the capital by investing in high

    quality fixed income securities as the primary objective and generate capital

    appreciation by investing in equity and equity related instruments as a

    secondary objective. However, there can be no assurance that the

    investment objective of the scheme will be realized.

    New Fund offers (NFO) of this Scheme Information Document willcommence at any time within months from the date SEBI gives a clearance

    to the Scheme Information Document.


    The asset allocation under the scheme will be as follows:

  • 8/8/2019 3S of IDFC Mutual Fund



    Ass et Cla ss Range of allocation (% of Net A ss et s ) Ri s k Profile

    Equities & Equity 0 16 HighRelated securities

    Debt securities & Money 84 100 Low to Medium

    Market instruments (0 30 % in securitized instruments)


    The corpus of the plans(s) under the scheme will be invested in debt

    and money market instruments and in equity and equity related products.Subject to the Regulations, the corpus of the Scheme can be invested in

    any (but not exclusively) of the following securities / instruments:

    o Equity and Equity related instruments include equity warrants and

    convertible instruments.

    o Stock futures / index futures and such other permitted derivative

    instrumentso Securities created and issued by the Central and State Governments

    and/or repos/reverse repos in such Government Securities as may be

    permitted by RBI (including but not limited to coupon bearing

    bonds, zero coupon bonds and treasury bills).

    o Securities guaranteed by the Central and State Governments

    (including but not limited to coupon bearing bonds, zero coupon

    bonds and treasury bills).

    o Debt instruments issued by domestic Government agencies and

    statutory bodies, which may or may not carry a Central/State

    Government guarantee.

  • 8/8/2019 3S of IDFC Mutual Fund



    o Corporate debt and securities (of both public and private sector

    undertakings) including Bonds, Debentures, Notes, Strips, etc.

    o Debt instruments (both public and private sector) issued by banks /

    development financial institutions.o Money market instruments permitted by SEBI including call money

    market or in alternative investments for the call money market as

    may be provided by RBI to meet the liquidity requirements.

    o Certificate of Deposits (CDs).

    o Commercial Paper (CPs).

    o Securitised Debt instruments.

    o The non-convertible part of convertible securities.

    o Any other domestic fixed income securities including Structured

    Debt Instruments

    o Pass through, Pay through or other Participation Certificates

    representing interest in a pool of assets including receivables.

    o Any other securities / instruments as may be permitted by SEBI

    from time to time

    o The scheme will invest in a portfolio predominantly of fixed income

    securities that are generally maturing in line with the duration of the

    scheme (3 years).


    The initial investment mix between the debt and equity shall be such

    that the maturity value of the debt portfolio, at the time of schemes

    redemption, net of all expenses is more than or equal to the face value of

    the units issued. The debt portfolio will be allocated to high quality papers

  • 8/8/2019 3S of IDFC Mutual Fund



    in line with the AMCs policy of maintaining high credit quality across its

    debt schemes.

    The scheme will invest in well-managed growth companies that are

    available at reasonable value. Companies would be identified through a

    systematic process of reviewing the companys financial performance and



    Currently no AMFI - recognized benchmark is available for strict

    comparison for the Scheme. However, CRISIL MIP Blended Index being awidely used benchmark (for products with similar tenor / average maturity

    etc.) in the market, the same has been selected as a standard benchmark for

    the purpose of this Scheme.


    The Fund Manager of the Scheme is Mr. Ashwin Patni. His

    particulars are given below:

    Mr. Ashwin






    Over six years of

    experience in Wealth


    Structured Finance,

    Credits and Market

    Groups and Business


  • 8/8/2019 3S of IDFC Mutual Fund




    New Fund Offer Period (This is the period during which a new

    scheme sells its units to the investors)

    NFO opens on: June 01, 2010

    NFO closes on: June 30, 2010


    Under the Scheme investors may choose either the Growth Option or

    the Dividend Option.

    o Growth Option

    The Scheme will generally not declare any dividend under this

    option. The income attributable to Units under this Option will

    continue to remain invested in the Scheme and will be reflected in the

    Net Asset Value of Units under this option.

    o Dividend Option

    Under this option, the Fund will endeavor to declare dividends

    as and when deemed fit by the Fund and/or on &/or before the

    closure of the scheme. In case no dividend is declared during the

    tenure of the scheme or at closure, the net surplus, if any, will remain

    invested and be reflected in the NAV. Dividends, if declared, will be paid out of the net surplus of the Scheme to those Unitholders whose

    names appear in the Register of Unitholders on the record date. The

    actual date for declaration of dividend will be notified suitably to the

    Registrar. Unitholders are entitled to receive dividend within 30 days

  • 8/8/2019 3S of IDFC Mutual Fund



    of the date of declaration of the dividend. However, the Mutual Fund

    will endeavor to make dividend payments sooner to Unitholders.

    There is no assurance or guarantee to Unitholders as to the rate of

    neither dividend distribution nor will that dividends are paid, thoughit is the intention of the Mutual Fund to make dividend distributions.


    The following persons may apply for subscription to the Units of the

    Scheme (subject, wherever relevant, to purchase of units of Mutual Funds

    being permitted under respective constitutions, relevant statutory

    regulations and with all applicable approvals):

    o Resident adult individuals either singly or jointly

    o Minor through parent/lawful guardian

    o Companies, Bodies Corporate, Public Sector Undertakings,

    association of persons or bodies of individuals whether

    incorporated or not and societies registered under the SocietiesRegistration Act, 1860 (so long as the purchase of units is permitted

    under the respective constitutions).

    o Trustee(s) of Religious and Charitable and Private Trusts under the

    provision of Section 11(5) (xii) of the Income Tax Act, 1961 read

    with Rule 17C of Income Tax Rules, 1962 (subject to receipt of

    necessary approvals as Public Securities where required)

    o The Trustee of Private Trusts authorised to invest in mutual fund

    Schemes under their trust deed.

    o Partner(s) of Partnership Firms.

    o Karta of Hindu Undivided Family (HUF).

  • 8/8/2019 3S of IDFC Mutual Fund



    o Banks (including Co-operative Banks and Regional Rural Banks),

    Financial Institutions and Investment Institution.

    o Non-resident Indians/Persons of Indian origin residing abroad

    (NRIs) on full repatriation basis or on non-repatriation basis.o Foreign Institutional Investors (FIIs) registered with SEBI on full

    repatriation basis.

    o Army, Air Force, Navy and other para-military funds.o Scientific and Industrial Research Organizations.

    o Mutual fund Schemes.

    o Provident/Pension/Gratuity and such other Funds as and when

    permitted to invest.

    o International Multilateral Agencies approved by the Government of


    o Others who are permitted to invest in the Scheme as per their

    respective constitutions

    o Other Schemes of IDFC Mutual Fund subject to the conditions and

    limits prescribed in SEBI Regulations and/or by the Trustee, AMC

    or sponsor may subscribe to the units under this Scheme.

    Subscriptions from residents in the United States of America and

    Canada shall not be accepted by the Scheme.

  • 8/8/2019 3S of IDFC Mutual Fund



    2.4 Small and Midcap Equity Fund


    To promote SME Fund and its comparison with CNX Nifty in the market.



    The IDFC Small and Midcap Fund is a fund that invests in

    companies that are in a high growth phase and have proven themselves intheir markets. The fund therefore provides the investor with the portfolio

    of companies that show high growth rates but have low business risk.


    The fund identifies small and mid cap companies that have proven

    themselves over the years and looks to buy them at cheap valuations.

    This helps investors grow their wealth when the market values these

    companies for their worth.

    y FUND PERFORMANCE under the IDFC SMEF- Growth a s on 3 1May 2010

  • 8/8/2019 3S of IDFC Mutual Fund



    Fig. 2.2 Holdings of SME Fund

    Ne stle India24%

    De wan Housing Fin. Co.

    21%Strid e s Arcolab21%

    Spiceje t


    Mundra Port & SEZ17%

    Top 5 Holdings as on 31st May 2010

  • 8/8/2019 3S of IDFC Mutual Fund



    Fig. 2.3 Sectors of SME Fund

    Se rvice s29%



    Automobil e12%

    He alth Car e12%

    Top 5 Sectors as on 31st May 2010

  • 8/8/2019 3S of IDFC Mutual Fund



    2.5 Tip s on buying mutual fund s :-

    1. Determine your financial objectives and how much money you have to invest.

    Make sure the funds objectives coincide with your own. Dont change your

    objectives or exceed the amount set aside for investment unless you have good


    2. Always obtain all available information before you invest. Request the

    prospectus, the Statement of Additional Information and the latest shareholder

    report from each fund you are considering.

    3. Never invest in periodic payment plans unless you are virtually certain that you

    will not have to redeem early. If you redeem early or do not complete the plan, you

    may have to pay sales charges of up to 51% of your investment.

    4. Be on the alert for incorporation by reference. You will have "no excuse" for not

    knowing this information, if a problem arises. You may be legally presumed to

    know materials incorporated by reference in a prospectus or other documents.

    5. Always determine all sales charges, fees and expenses before you invest. Fees

    such as 12b-1 fees can cost you dearly and charges for reinvestment of dividends

    and capital gains distributions can substantially add to your costs. Shop around

    among the many funds offered and compare the various fees and costs connected

    with funds that appeal to you.

    6. Learn the costs of redemption. Sometimes investors are surprised to learn that

    they have to pay to get out of funds through back-end loads or redemption fees.

    Find out the redemption costs before you invest so you wont be unpleasantly

    surprised when you redeem your shares.

  • 8/8/2019 3S of IDFC Mutual Fund



    7. Never treat the risks of investment in a fund lightly. Weigh the risks of the funds

    you want to buy against your ability to tolerate the ups and downs of the market

    and your investment goals. Be extra cautious when considering investing in fundswith high yield/high risk portfolios. Junk bond problems, for example, invariably

    affect the funds performance.

    8. Dont be misled by the name of a fund. Some funds have been given names

    denoting safety, stability and low risk, despite the fact that the underlying

    investments in the portfolio are volatile and highly risky.

  • 8/8/2019 3S of IDFC Mutual Fund



    Chapter 3


  • 8/8/2019 3S of IDFC Mutual Fund



    3 .1 Introduction The Competitors research report on different AMC was a part of 2 months

    summer training project where the trainees were given the task of analyzing the

    funds of 5 different Fund Houses who were in the top 10 list of Indian Mutual

    fund industry, the AMCs given were Reliance Growth Fund, DSP Blackrock

    Macro Cap Fund, DSP Blackrock Small and Midcap Fund, Sundaram BNP

    Paribas and HDFC Mutual Fund.

    The basic reason for this study was to find out that much Fund houses are

    bullish on various sectors and on which companies are they more bullish.

  • 8/8/2019 3S of IDFC Mutual Fund



    3 .1.1 PROJECT 1

    Aimy The primary investment objective of the scheme is to achieve long-

    term growth of capital by investing in equity and equity related

    securities through a research based investment approach.


    y CEO: Mr. Sundeep Sikka

    y FUNDS: Reliance Growth Fund

    y EQUITY FUND MANAGERS: Mr. Sunil B. Singhania

    y Website:


    As on May 2010


    As on May 2010

    Banks Lupin Ltd.

    Pharmaceuticals State Bank Of India

    Software Bank Of Baroda

    Ferrous Metals Jindal Saw Ltd.Consumer Non Durables Jindal Steel & Power Ltd.

    Tab.2.1 Sectors and Stocks of Reliance Mutual fund

  • 8/8/2019 3S of IDFC Mutual Fund


  • 8/8/2019 3S of IDFC Mutual Fund



    3 .1.3 PROJECT 3

    Aimy To Study The Factsheet Of DSP Blackrock


    y CEO: Mr.Lawerance.D.Fink

    y FUNDS: Equity Fund DSP Blackrock Micro Cap Fund

    y EQUITY FUND MANAGERS: Apoorva Shah and Aniruddha

    Naha since March 2008

    y Website:


    As on May 2010


    As on May 2010

    Industrial capital goods Whirlpool of India

    Pharmaceuticals Jubilant Organosys

    Construction Hindustan Dorr-Oliver

    Consumer non durables The Federal Bank

    Software Zuari Industries

    Tab. 2.3 Sectors and SStocks of DSP Blackrock Microcap Fund

  • 8/8/2019 3S of IDFC Mutual Fund



    3 .1.4 PROJECT 4

    Aimy To generate long-term capital appreciation from a portfolio that is

    substantially constituted of equity and equity related securities of

    Small and Mid-Cap companies. Analysis:

    y CEO: Mr. Milind Barve

    y FUND: HDFC Mid-cap Opportunities Fund


    Mr. Chirag Setalvad (since Apr 2, 07)

    Mr. Anand Laddha - Dedicated Fund Manager - Foreign Securities

    y Website:


    As on May 2010


    As on May 2010

    Banking/Finance Ipca Labs

    Pharmaceuticals Patni Computer

    Engineering Crompton Greave

    Automotive VIP Industries

    Manufacturing Exide Industrie

    Tab. 2.4 Sectors and Stocks of HDFC Mutual Fund

  • 8/8/2019 3S of IDFC Mutual Fund



    3 .1.5 PROJECT 5


    y It is an open Ended equity growth scheme, primarily seeking to

    generate long term capital appreciation from a portfolio substantially

    constituted of equity and equity related securities, which are not part of

    top 100 stocks by market capitalization.


    y CEO: Laurence D Fink

    y FUND: DSP BlackRock Small and Midcap Fund

    y EQUITY FUND MANAGERS: : Apoorva Shah, Anup Maheshwari

    y Website: For service related requests :

    For general queries :


    As on May 2010


    As on May 2010

    Consumer non durables Cadila Healthcare

    Pharmaceuticals EID Party India

    Power Gujarat State Petronet

    Software Trent

    Industrial Capital Goods Bayer Cropscience

    Tab. 2.5 Sectors and Stocks of DSP Blackrock Small and Midcap Fund

  • 8/8/2019 3S of IDFC Mutual Fund



    Chapter 4


  • 8/8/2019 3S of IDFC Mutual Fund


  • 8/8/2019 3S of IDFC Mutual Fund



    maintaining a routine and correct postures, but also in having an expert

    monitor your progress- a mutual fund is a vehicle that allows you to hand over

    the specialized work of managing your money to an expert.

    4 .1.2 What i s Mutual Fund?

    It is a pool of money collected from a large number of investors by a

    professional entity with an aim to invest in different avenues for a variety of

    purposes. These avenues could be equity, debt gold, commodities, real estate

    and so on. At present, in India, mutual funds are not allowed to invest in real

    estate directly, though they can invest in equity shares or bonds of real estatecompanies. Equity, debt and gold are the most popular asset classes that

    Indian mutual funds invest in. the purpose of investment varies according to

    the asset class chosen. Equity is usually a vehicle for long-term wealth

    creation. Debt is used for capital protection. Gold is used as hedge against

    inflation and for liquidity. Investors can look at where the fund manager aims

    to invest and then match personal financial needs to choose a fund.

    4 .1.3 Hi s tory of Mutual Fund Indu s try

    The Evolution

    The formation of Unit Trust of India marked the evolution of the Indian

    mutual fund industry in the year 1963. The primary objective at that time was

    to attract the small investors and it was made possible through the collective

    efforts of the Government of India and the Reserve Bank of India. The history

    of mutual fund industry in India can be better understood divided into

    following phases:

  • 8/8/2019 3S of IDFC Mutual Fund



    Pha s e 1. E s tabli s hment and Growth of Unit Tru s t of India - 196 4 -87

    Unit Trust of India enjoyed complete monopoly when it was established in the

    year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of

    India and it continued to operate under the regulatory control of the RBI untilthe two were de-linked in 1978 and the entire control was transferred in the

    hands of Industrial Development Bank of India (IDBI). UTI launched its first

    scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the

    largest number of investors in any single investment scheme over the years.

    UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between

    1981-84, Children's Gift Growth Fund and India Fund (India's first offshore

    fund) in 1986, Master share (Indias first equity diversified scheme) in 1987

    and Monthly Income Schemes (offering assured returns) during 1990s. By the

    end of 1987, UTI's assets under management grew ten times to Rs 6700


    Pha s e II. Entry of Public Sector Fund s - 1987-199 3

    The Indian mutual fund industry witnessed a number of public sector players

    entering the market in the year 1987. In November 1987, SBI Mutual Fund

    from the State Bank of India became the first non-UTI mutual fund in India.

    SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual

    Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual

    Fund and PNB Mutual Fund. By 1993, the assets under management of the

    industry increased seven times to Rs. 47,004 crores. However, UTI remained

    to be the leader with about 80% market share.

  • 8/8/2019 3S of IDFC Mutual Fund



    1992-9 3 Amount


    Ass et s Under


    Mobili s ation a s

    % of gro ss

    Dome s tic Saving s

    UTI 11,057 38,247 5.2%


    Sector 1,964 8,757 0.9%

    Total 13,021 47,004 6.1%

    Tab. 4.1 Details of Phase II

    Pha s e III. Emergence of Private Sector Fund s - 199 3 -96

    The permission given to private sector funds including foreign fund

    management companies (most of them entering through joint ventures withIndian promoters) to enter the mutal fund industry in 1993, provided a wide

    range of choice to investors and more competition in the industry. Private

    funds introduced innovative products, investment techniques and investor-

    servicing technology. By 1994-95, about 11 private sector funds had launched

    their schemes.

    Pha s e IV. Growth and SEBI Regulation - 1996-200 4

    The mutual fund industry witnessed robust growth and stricter regulation from

    the SEBI after the year 1996. The mobilization of funds and the number of

    players operating in the industry reached new heights as investors started

  • 8/8/2019 3S of IDFC Mutual Fund



    showing more interest in mutual funds.

    Inventors interests were safeguarded by SEBI and the Government offered

    tax benefits to the investors in order to encourage them. SEBI (Mutual Funds)Regulations, 1996 was introduced by SEBI that set uniform standards for all

    mutual funds in India. The Union Budget in 1999 exempted all dividend

    incomes in the hands of investors from income tax. Various Investor

    Awareness Programmes were launched during this phase, both by SEBI and

    AMFI, with an objective to educate investors and make them informed about

    the mutual fund industry.

    In February 2003, the UTI Act was repealed and UTI was stripped of its

    Special legal status as a trust formed by an Act of Parliament. The primary

    objective behind this was to bring all mutual fund players on the same level.

    UTI was re-organized into two parts: 1. The Specified Undertaking, 2. The

    UTI Mutual Fund

    Pha s e V. Growth and Con s olidation - 200 4 Onward s

    The industry has also witnessed several mergers and acquisitions recently,

    examples of which are acquisition of schemes of Alliance Mutual Fund by

    Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal

    Mutual Fund. Simultaneously, more international mutual fund players have

    entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were

    29 funds as at the end of March 2006. This is a continuing phase of growth of

    the industry through consolidation and entry of new international and private

    sector players.

  • 8/8/2019 3S of IDFC Mutual Fund



    The graph indicates the growth of assets over the years.

    Fig. 4.2 Growth of assets

    4 .1.4 Why we need Mutual Fund s ?

    Managing money is a specialized task and a mutual fund can be

    viewed as public transport to take people, who do not want to drive their own

    cars (that is, take their own investment calls), to their investment destinations.

    People who drive their own cars ( invest on their own) can end up going faster

  • 8/8/2019 3S of IDFC Mutual Fund



    if they are good at choosing their investments, or can end up badly hurt with a

    crashed car, losing money, due to poor investment choices. While mutual

    funds give an option to invest in several asset classes such as equity, debt and

    gold, retail investors find equity investing one of its biggest attractions asdiversification makes it safer. Of course, investors can diversify using stocks,

    but will have to actively manage their stock portfolio and that requires

    knowledge and time. Mutual funds are for those who dont have the time to

    make money decisions everyday but will do so, say, twice a year to examine

    their mutual fund choices and changed personal financial needs.

    Equity mutual funds are useful for lay investors since stock selection is not

    easy for an average investor and can be fairly risky. Reading balance sheet is a

    specialized task and knowing when to buy and sell needs active monitoring of

    markets and events.

    Most people are busy with their jobs and families and have no time to spend

    on managing an active portfolio. Additionally, small investors run the risk of

    over concentrating their portfolios in a few stock and seeing their money

    erode due to the risk of a tight portfolio. Funds hire professional money

    managers to make investment calls and monitor the portfolio on a daily basis.

    The mutual funds route reduces volatility by diversifying the portfolio. The

    risk of having all your money in just one or two stocks is much higher than

    buying a basket of stocks that is diversified across the markets and sectors.

  • 8/8/2019 3S of IDFC Mutual Fund



    4 .1.5 Fund Plu s es

    y Small amounts can be invested. You can begin with Rs 5000 to buy a

    mutual fund scheme that invests across 50 companies. Investing in just onecompany can be very costly. For instance, armed with Rs 5,000, you could buy

    just about, say, two equity shares of State Bank of India, Indias largest public

    sector bank, but with a mutual fund, you can own tiny bits of many large


    y All, or some, money can be taken back quickly. Mutual funds are easy

    to redeem. Funds will buyback any quantity of units at the given price as

    denoted in the net asset value (NAV), or the price of each unit of a mutual fund.

    You can redeem your liquid fund within 24 hours and equity and debt funds in

    less than three days. There are some mutual funds that come with a lock-in,

    such as equity linked savings schemes, but they impose a lock-in for a

    purposethey give tax deduction benefits at the time of investing. Few others

    come with a lock-in, but they give redemption windows at regular intervals.

  • 8/8/2019 3S of IDFC Mutual Fund


  • 8/8/2019 3S of IDFC Mutual Fund



    6. Mutual fund can penetrate rural like the Indian insurance industry with

    simple and limited products.

    7. SEBI allowing the MF's to launch commodity mutual funds.

    8. Emphasis on better corporate governance.9. Trying to curb the late trading practices.

    10. Introduction of Financial Planners who can provide need based advice.

  • 8/8/2019 3S of IDFC Mutual Fund



    4 .2 Kind s of Fund s

    Fig. 4.3 Kinds of Funds

    4 .2.1 Introduction

    Before we buy anything, usually a market survey is done and seen what is

    available and then product is matched with need. It is a good idea to do the

    same while investing in a mutual fund. There are several ways in which mutual

    fund can be viewed. The most important distinction one must make is to choose

    what final product you are comfortable with. Mutual funds invest in differentasset classes including equity, debt and gold. Real estate is also an asset class

    that is available overseas as an investment choice, but these are yet to come to

    India though the process is on. High return-seeking investors, who do not mind

    taking risk, look at equity as an investment vehicle. Short-term investors, who

    may want to keep money liquid, need some sort of regular income or keep their

    capital protected and look at mutual funds that invest in debt products. Investorsseeking to diversify their portfolios and guard against inflation buy some gold

    through a fund. And then, there are those who want to take care of multiple

    needs and look at hybrid products. These combine assets in various proportions

    to give an investor a ready-to-use-asset-allocated fund. There are further sub-



  • 8/8/2019 3S of IDFC Mutual Fund



    divisions within each asset class. Within equity, for example, there are clumps

    of stocks that carry lower risk than others large cap companies carry lower

    risk and return profile than mid-cap companies or those belonging to certain

    sectors. Mid-cap companies carry high risk but can also give a huge returnkicker to the portfolio. Then there are other classifications that are important.

    The distinction between open-ended and closed-ended funds is important, as is

    between active and passive funds.

    The three broad categories or distinctions as follow:


    Equity funds are those that invest in shares of companies that are listed on

    the stock exchanges. The bonus and dividends paid out by the companies also

    get added to the total return of an investor. Within equity, there are various

    categories of products that come with their own risk and return attributes.

    y Large cap

    These funds invest in large and well-established companies in the

    market such as State Bank of India, Infosys Technologies Ltd., Reliance

    Industries Ltd. and Hindustan Unilever Ltd. These companies are heavy

    weights in the stock markets and are well researched by many experts,

    fund managers and analysts. Large-cap funds are, typically, the leastrisky funds. These companies are among the least volatile companies as

    they are mostly in mature businesses and have left the volatile growth

    period behind. They are also widely held companies with shareholders

    running in millions in certain cases. Most diversified funds prefer to be

  • 8/8/2019 3S of IDFC Mutual Fund



    investigated significantly in large-cap scrips to limit their volatility, but

    that is not always a certainty.

    y Small and Mid cap

    These funds are riskier than large-cap funds. They invest in smaller

    companies that are in their growing stages. The large companies of

    today were once upon a time small and mid-sized companies. Since mid

    and small sized companies are in their growing stages, they can get

    volatile in choppy and uncertain markets. These are high-risk companies they typically rise more than large-cap funds in rising

    markets, but fall more than large-cap companies in falling markets.

    When these companies graduate to being large-cap companies, their

    share prices show a sharp increase over a period of time. If fund

    managers correctly spot these companies high returns are made. Wrong

    calls can also prove to be very costly and are punished by a severe fall

    in value.

    y Sector / Thematic

    These invest in select sectors and companies. While sector funds

    invest in one or two sectors, thematic funds invest in a bunch of sectors

    that are woven by a common theme, such as infrastructure, consumer

    spending and fast-moving consumer goods. These are the most risky of

    all types of funds as their portfolios are, typically, very concentrated.

    For instance, in May, the portfolio of one of the services sector fund

  • 8/8/2019 3S of IDFC Mutual Fund



    had just 13 stocks as it invests in just banking and financial sector

    stocks, limiting the universe of stocks it can pick. On the contrary, a

    diversified fund has 30-100 stocks. On account of their lack of

    diversification, fortunes of sector and thematic funds depend on ahandful of sectors and stocks. Hence, it is generally advisable for

    investors to have a proper understanding of the theme or sector they

    wish to invest through a sectoral or thematic fund. Debt

    These are funds that invest in fixed-income yielding instrument. Debt fundsare used for some kind of regular return or protection. There are many types

    of debt funds, but broadly they fall into three types:

    y Bond

    Bond funds invest in corporate bonds and partly in government

    securities. These funds are long-term and short term in nature. Long-

    term funds carry an average maturity of two or more years to about five

    or even up to 10 years. This means that they invest in scrip that mature

    around that period on an average. The longer a debt funds average

    maturity, the riskier it gets because scrip with long maturities take a

    long time to wound up and therefore get exposed to market vagaries

    and volatilities for a long time. Short-term bond funds carry a maturity

    of one or two years.

  • 8/8/2019 3S of IDFC Mutual Fund



    y Government Securities

    The second type of debt fund is government securities fund. Like

    bond funds, these too come in long-term and short-term variety. These

    are mostly seasonal funds as they invest only in government securities-

    scrips issued by the Reserve Bank of India. Though government

    securities are the safest debt instruments because they are issued by the

    government of India and, hence, come guaranteed, they are also the

    most volatile because they are the most liquid instruments in the debt

    market. Other instruments such as corporate bonds can get very illiquidand, hence, dont see much price volatility comparatively. Like bond

    funds, government securities fund come with an average maturity of

    two or more years to five or maybe even 10 years. Short-term

    government securities funds, come with a maturity of one or two years.

    y Liquid

    The third type of debt fund is a liquid fund. These are funds meant to

    park surplus cash from a time period of overnight to about three

    months. In the mutual fund space, these are considered to be the safest

    because they invest in scrips that mature in a very short time. Hence

    they arent as volatile, though there are no guarantees. The 2008 market

    crash brought about a lot of pain to liquid funds. Subsequently, the

    capital market regulator, Sebi, introduced a lot of changes in liquid

    funds and made them much safer.

  • 8/8/2019 3S of IDFC Mutual Fund



    A variation of liquid funds is called ultra short-term (ST) funds. They

    were earlier called liquid-plus funds. Ultra ST Funds work just like

    liquid funds, but can invest in scrips that mature in up to 90 days. As

    they have a higher leeway, they have the potential to earn a bit morethan what liquid funds can earn. In steady markets if liquid funds fetch

    around 3.75%returns per annum, ultra ST can return about 4.5%

    returns. Compared with them, savings bank accounts earn only 3.5%.


    These are mutual funds that invest in gold bars or gold backed securities.

    Gold funds are of two types- those that mimic gold prices in the form of an

    index fund and those that buy shares of gold mining companies. Gold

    exchange-traded funds (ETFs, an index fund that is listed on stock exchange)

    have become very popular during the run up in gold prices over the last few

    years. Some funds also actively invest in gold mining. These are MF schemes

    that solicit money and then invest entire corpuses in international funds of

    their own parentage. The international fund will then invest in equity shares of

    gold mining companies in India, the money in these funds are sent abroad and

    invested there. For instance, DSP BlackRock World Gold Fund is an Indian

    fund and is available to Indian investors in India. This fund invests its entire

    corpus in BlackRock Global Funds-World Gold Fund, which is listed abroad.

  • 8/8/2019 3S of IDFC Mutual Fund




    Hybrid funds invest across equity, debt and gold. They are either balanced

    funds (invest 65% in equities and rest in debt) or monthly income plans/

    regular income plans (invest upto 25% in equities and the rest in debt). They

    are less risky than equity funds, but carry more risk than debt funds.

  • 8/8/2019 3S of IDFC Mutual Fund



    4 .3 Type s of Fund s

    The distinctions in funds are useful to know to get the best out of your

    investment. There are different fund types for different needs of a person, so

    choosing among the available options become as crucial as choosing a fund.





  • 8/8/2019 3S of IDFC Mutual Fund



    Fig. 4.4 Types of Funds

  • 8/8/2019 3S of IDFC Mutual Fund



    4 .3 .1 Open-Ended and Clo s ed-End

    Another distinction in funds is based on the length of time for which

    the fun is collecting money.

    There are two kinds of funds under this classification: Open- ended and

    close ended funds.

    4 .3 .1.1 Open-Ended

    These are funds where you can get in and out anytime you want as

    they have perpetual life. As inflows are unlimited and, typically,

    unrestricted, there is no limit to which the corpus can grow to. According

    to mutual fund tracker Morningstar India, the largest equity scheme in

    India as of may-end had a corpus of Rs 7490 crore. And the oldest

    scheme has been at work for the last 38 years. At present, most fund

    houses prefer to launch open-ended funds as it helps the fund house

    garner money consistently and manage it on a continuous basis.

    4 .3 .1.2 Clo s ed-End

    These are funds that restrict their inflows. Once they are launched,

    they are open for subscription for a few days. Once the subscription

    period ends, they stop accepting money from the public.

    Close-end funds, therefore, also come with a fixed tenor such as 3, 5

    or typically 10 years. Once the period gets over, close-end finds either

    redeem their money to their investors or convert them to open-ended


  • 8/8/2019 3S of IDFC Mutual Fund


  • 8/8/2019 3S of IDFC Mutual Fund



    choose once and then just use over their investment lifetimes, without

    worrying about whether their fund manager is going to stay with the fund

    or whether he will sustain the performance, choose passive funds.

    Investors who want returns that are ahead of the market, and do not mindtaking the higher risk that comes due to the fund managers risk, choose

    active funds.

    4 .3 .2.1 Active Fund

    The reason for the existence of an active fund is to beat the

    benchmark it has chosen to measure its performance against. The fundmanagers of active funds believe they have the ability to select stocks and

    time the market in a manner that makes the returns on their portfolio

    higher than what the market (in the form of the benchmark) gives over a

    specific period of time. Active funds have fund managers who have the

    freedom to pick and choose stocks they want to buy or sell. Of course,

    the freedom comes in an institutional structure with internal rules. Since

    fund managers are actively involved, there are costs on research &


    4 .3 .2.2 Pa ss ive Fund

    Also called index funds since their only aim is to mimic an index, they

    dont have fund managers. In fact they dont need fund managers. They

    simply mimic their benchmark indices. They invest in scripsand inexactly the same proportionas lie in their benchmark indices. They

    move up & down as much as their benchmarks move. For example, a

    passive fund on the Nifty index will buy all 50 stocks on the Nifty in the

  • 8/8/2019 3S of IDFC Mutual Fund



    same proportion as held by the Nifty. Each time a stock is taken out or

    added to the Nifty index, the fund will do the same. On a day to day

    basis, this makes lesser work than what managing active funds would

    entail. Changes in the composition of the index are usually not more thanonce a year. However, the individual weights of scrips in an index change

    every day and since index funds are mandated to simultaneously change

    their scrip weights in the last half hour before the equity market closes,

    by rebalancing their existing their existing portfolios, index funds do end

    up incurring some cost. Investors can expect almost the same return as

    the index their fund tracks, though there will be a small difference between an index funds performance and that of its benchmark. Called

    tracking error, this is caused because of the small cash component that

    every index find keeps (to face redemption pressure) and also the various

    costs that it incurs (that eventually reduces your funds NAV) such as

    brokerage, advertising & marketing. Costs are lower in a passive fund as

    compared with an active fund. Passive funds are of two kindsindex

    mutual funds & exchange traded funds (ETFs).

    An ETF is an index fund with just one difference from the investors

    point of view. Investors can buy and sell ETFs on the stock markets as

    they need to be listed on a stock exchange. ETFs come with several

    advantages over an index fund. First, they have lower fee that index

    funds and lower tracking error. They also allow you the facility of real

    time buying & selling, unlike index funds that will give you the price

    once a day on which you will invest.

  • 8/8/2019 3S of IDFC Mutual Fund



    4 .3 .3 Thematic Fund s

    Thematic Funds asset allocation and investment universe are structured

    on a theme. Not as restrictive as sector funds, the theme could run wellacross the sectors. The classic example of a theme fund is the


    4 .3 .4 Sector Fund s

    Sector funds restrict their investments to a particular segment or a sector

    and hence quite restrictive. Concentrations in terms of stocks/sector may be part of this fund.

    4 .3 .5 Gilt fund s

    Gilt Funds invest their corpus in securities issued by Government,

    popularly known as G-Sec (Government Securities). These Funds carry

    zero Default risk but carry Interest Rate risk, which generally determinesthe rate of return on these funds. These funds are safer investment option

    as they invest in securities backed by Government.

    4 .3 .6 Fund of Fund s

    Mutual funds that do not invest in financial or physical assets, but do

    invest in other mutual fund schemes offered by different AMCs, areknown as Fund of Funds. Fund of Funds maintain a portfolio comprising

    of units of other mutual fund schemes, just like conventional mutual funds

    maintain a portfolio comprising of equity/debt/money market instruments

    or non financial assets. Fund of Funds provide investors with an added

  • 8/8/2019 3S of IDFC Mutual Fund



    advantage of diversifying into different mutual fund schemes with even a

    small amount of investment, which further helps in diversification of

    risks. However, if the fund of funds carries an operating expense,

    investors are essentially paying double for an expense that is alreadyincluded in the expense figures of the underlying funds.

    4 .4 How Fund s Work

    A mutual fund in India has a three-part structure a sponsor, trust and asset

    management company (AMC). The sponsor is the promoter with a business view

    who initiates the business to earn a profit. The AMC is the entity that managesthe business of the mutual fund. The trust is the entity that holds the investors

    money so that neither the sponsor nor the AMC can use it for purposes other than

    the investment mandate of the mutual fund. A trust is also the internal

    governance body that ensures protection of investor interest. India has not seen as

    single instance of a mutual fund running away with the investors money, as was

    seen in the case of plantation companies and many other get-rich-quick schemes

    over the years. The market value may have been due to market value may have

    been halved, but that has been due to market valuations and not because the

    sponsor or your AMC has run away with your money. If the sponsor loses

    business interest, he can sell his stake to another sponsor who takes over the fund.

    Investors face market risk, but not the risk of systemic fraud when they invest in

    a mutual fund.

  • 8/8/2019 3S of IDFC Mutual Fund



    There are some basic rules of understanding a mutual fund and evaluating its

    performance. Investors need to study these before they make investment


    There are four things investors need to know before they invest:

    1. What is the investment mandate of the fund they are choosing?

    2. What is the benchmark the fund tracks its performance against?

    3. What is the return history of this fund?

    4. What are the costs that they will face?





  • 8/8/2019 3S of IDFC Mutual Fund



    1. Investment Mandate:

    You need to ask the question- what the fund aims to do with my

    money. As the investment mandate defines what your fund is and where it

    aims to invest your money, it tells you whether or not the fund is suited for you. Every mutual fund scheme is supposed to have an investment mandate.

    This mandate tells you what the fund is about and what it does. It lays down

    the boundary within which the fund is supposed to play. The details of this

    mandate are present in the offer document. An offer document tells you

    everything that you need to know about a particular scheme and also the

    fund house. This is a legal document that says that your fund cannot invest beyond its mandate. If you find that your fund has crossed its investment

    mandate, you have the right to take action.

    2. Benchmark:

    If your fund returns 10% over a year, how do you know whether it is

    good or bad performance? Enter benchmark indices. Every fund is mandated

    to have a benchmark index and is also mandated to compare its own

    performance with that of the benchmark index. This gives you an idea of

    how your fund is performing. If you find that your fund is consistently

    underperforming the benchmark index, its time to exit and switch to a better

    performing fund. For example, your fund may have returned 50% over a

    particular year, but if the index it tracked, say, the Sensex, went up by 70%,

    your fund has lost your money. You would have been better off investing ina passive broad market index fund or a better performing active fund with a

    similar investment mandate.

  • 8/8/2019 3S of IDFC Mutual Fund



    3. Return History:

    Although past performances dont guarantee future returns, it gives

    you comfort if your fund has performed well in the past. It gives you an

    indication of how the fund has done. Take a look at past performances of funds in their fact sheets that they disclose once a month or every quarter.

    You can also check out a funds website to know more about their


    4. Costs Of A Fund:

    As managing peoples money incurs costs, mutual funds are allowedto charge these to investors. Your funds NAV comes down to the extent of

    this cost that MFs are allowed to charge you. Over the years, the costs of

    funds have come down due to regulatory action and growth in the fund size.

    Earlier, funds were allowed to charge up to 6% of the assets it collected

    every time it launched a scheme. If the new fund offer (NFO) collected Rs.1,

    000 crore, Rs.60 crore could be taken away from your money towards

    marketing charges and commissions to the agents. Sebi banned open-ended

    funds to charge this cost from April 2006 and closed-end funds from January

    2008. There are four kinds of costs investors need to understand.

    a. Loads:

    These are embedded costs in the price of a mutual fund that are

    collected by the fund house and given to the agent or bank who sellsyou the fund. It is a price you pay for the services received in helping

    you buy the product. Effective 1 August 2009, it has become a lot

    cheaper to invest in mutual funds as Sebi abolished entry loads that

  • 8/8/2019 3S of IDFC Mutual Fund



    were earlier at 2.25% of your investment. You need to pay fees

    directly to your agent, commensurate to his services, though entities

    such as banks do deduct a sales charge from your investment money.

    You can also invest in MFs through online portals that are free of costat present. They offer the convenience of investing in funds through

    an online platform as well as other tools to track your portfolio. Most

    brokerages and banks also offer facilities to buy funds through them.

    They press nominal charges though. For instance, some large

    brokerages charge Rs.100 for all lump sum investments, irrespective

    of the amount (for portfolio values of less than Rs.8 lakh). Few otherscharge Rs.100 every quarter.

    b. Fund Management Charge:

    Equity funds can charge a maximum of 2.5% of the net assets.

    Debt funds can charge a maximum of 2.25% of the net assets. Usually

    as the size of the mutual fund grows, economies of scale kick in and

    costs per head tend to go down. Large equity funds with assets under

    management (AUM) of over Rs.500 crore now charge a little under

    2% as their annual costs, while the smaller ones cost the full 2.5%.

    The total cost also includes fund management charges of a maximum

    of 1.25%. This is the income of your AMC that pays salaries to your

    fund managers. Any costs incurred over and above the limit are

    absorbed by the fund house.

  • 8/8/2019 3S of IDFC Mutual Fund



    c. Exit Cost:

    Many funds charge exit loads or a charge on your money when

    you want to sell your investment. This is mostly up to 1% of your

    investment amount. However, exit loads are charged usually for earlywithdrawals such as six months to a year for equity funds. They act as

    a deterrent to quick withdrawals that could put pressure on fund

    managers to generate cash to meet redemption. After a year, most

    equity funds become zero exit load.


    Tax:Tax is imposed when you withdraw your money from MFs. If

    you withdraw from an equity fund before one year, you pay 15% tax

    on your capital gains (selling price less cost price). Capital gains are

    exempt from tax if you withdraw from an equity fund after one year

    of investing. Withdrawals from debt funds are taxed at income-tax

    rates if you withdraw your debt funds before one year. If you

    withdraw from debt funds after a year, you pay 10% tax without

    indexation or 20% with indexation. Dividends are tax free in your

    hands. However, debt funds pay a dividend distribution tax (DDT) of

    13.840% of the dividend amount that they distribute. Though

    dividends are tax-free in your hands, DDT comes out of the dividend

    to be distributed. So, in effect, its you who end up paying the tax.

    Dividends from equity-oriented funds are completely tax-free. Theseare going to change if the revised Direct Taxes Code, tabled in mid-

    June, comes into force. Most of the tax shelters for funds will go


  • 8/8/2019 3S of IDFC Mutual Fund



    4 .5 How to Choo s e a Fund

    Knowing about the fund is only one part of the journey. You need to match your

    investment needs-stage in life and your own appetite for risk to match your profile

    with that of mutual fund you buy. Investor tend to get swayed either by recent top

    performance of a fund or by a sharp sales practices. Mature investing would mean

    matching own needs to product in the market and if you cannot do this by yourself,

    paying an advisor or financial planner to do this for you.

    4 .5 .1 Why do you need a fund?

    Ask yourself why you need a mutual fund. Since there are over

    thousand schemes in the market today, you need to match what you need

    with what you buy. Here are some reasons why you need a mutual fund and

    some fund type that go with it.

  • 8/8/2019 3S of IDFC Mutual Fund



    1. If you just want to park your cash, you need a liquid fund, preferably an

    ultra short term fund.

    2. It you want to invest about 2 years, but you may just need the money any

    time after, say six months; you need to buy a short term bond fund.

    3. If you dont need the money immediately and can take some risk, you can

    invest in low-risk equity-diversified fund, such as a passive fund like an

    index or an exchange rated fund.

    4. If you dont need the money immediately but are comfortable with

    taking high risk, you can invest in actively managed equity fund.

    5. If you are retired with a good pension and have a surplus that you need to

    invest you need a equity fund if you are willing to take risk or a balanced

    fund with an equity exposure to keep your money ahead of inflation.

    4 .5 .2 How old are you?Age is an important factor in understanding what product you should

    buy. Ideally the younger you are the more you should you invest in equity.

    A rough rule of thumb subtracts age from 100 to arrive at how much of

    your portfolio should go into equity product. However, the exceptions to

    this rule are many. There are many senior citizen who earn good pension

    and has surplus cash that they can like to invest in equity even through their

    age may not indicate such a high risk appetite. You need to keep your ownfinances in your mind before you apply this rule.

  • 8/8/2019 3S of IDFC Mutual Fund


  • 8/8/2019 3S of IDFC Mutual Fund



    kicker in returns, you need to take some risk to be able to earn more then

    inflations the letter can easily eat into your return over a period of time.

    4 .5 .5 How to buy a mutual fund?You can buy directly from the mutual fund house or from an agent or

    a distributor. If you wish to go directly, you have 2 choices. Visit the funds

    website and download your chosen schemes invest application forms. You

    can also get the form from its registrar and transfer agent office. Fill the

    form, attach the cheque, and submit it either at your funds office or its

    registrars office. If you have an agent, have him deliver the form to you. Fillthe form, attach the cheque and submit it to your agent. Alternatively, you

    can also ask your bank to help you invest in mutual fund .They will charge

    you though. Now, online brokerages also allow you to buy mutual funds. If

    this online brokerages belongs to banks, they would mandate you to open a

    bank account with them, else, independent online portals that specialize in

    mutual funds invest in typically have tie-ups with several banks.A new trend that became visible in 2009 was the use of online

    comparison, transecting and maintaining portal that do not charge anything

    yet offer a slave of services.

    Transacting funds over the internet is not new and can be done in

    several ways. One, most fund houses have been offering there own schemes

    online. But this is a just half the solution for an investor who has a portfolio

    of several holdings. Getting a consolidated look at his net worth is a

    transaction nightmare along this road. Two, all brokerages, including online,

    also offer MFs in addition to equity shares. There, banks, too, allow

    transaction in mutual funds on their own website.

  • 8/8/2019 3S of IDFC Mutual Fund



    Investors run the risk of getting a filtered choice of schemes of still

    paying transaction cost that may charge as much as 1.75% of their

    investment for just moving money from their saving accounts to the funds.

    The new kids on the blog are independent online MF portals such, and This work like

    online market places for funds .These are do-it-yourself channels meant for

    those who are confident of taking their own decision. Some charges you

    nothing for a choice of most funds and facility to consolidate your MF

    investments at one place.

    Online market such as and arefree and earn trail commissions, but other are not most brokerage and banks

    press nominal charges.

    Next to cost is the choice parameter. Typically, banks offer a white choice,

    though some are choosy. Online broker and market places have most funds.

    But it is best to check. For example, does not have MF

    schemes of some key fund houses.

    The next in line is convenience. While brokerage gives you a consolidated

    holding statement across your equity and MF investment, online market

    place give you a consolidated statement just for funds. What these sides do

    allow, however, is portfolio analysis in many interesting ways. For example,

    it could give your total investment in Infosys technologies limited or, say,

    the pharmaceuticals sector, across all your mutual funds holdings.

  • 8/8/2019 3S of IDFC Mutual Fund


  • 8/8/2019 3S of IDFC Mutual Fund



    Fig. 4.6 Chart of Mutual Fund

    When an investor subscribes for the units of a mutual fund, he becomes part

    owner of the assets of the fund in the same proportion as his contribution amount

    put up with the corpus (the total amount of the fund). Mutual Fund investor is also

    known as a mutual fund shareholder or a unit holder.

    Any change in the value of the investments made into capital market

    instruments (such as shares, debentures etc) is reflected in the Net Asset Value

    (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund

    scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the

    market value of scheme's assets by the total number of units issued to the investors.

  • 8/8/2019 3S of IDFC Mutual Fund



    4 .7 Inve s tment Strategie s

    1. Sy s tematic Inve s tment Plan: Under this a fixed sum is invested each month

    on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and

    more units when the NAV is low. This is called as the benefit of Rupee Cost

    Averaging (RCA)

    2. Sy s tematic Tran s fer Plan : Under this an investor invest in debt oriented fund

    and give instructions to transfer a fixed sum, at a fixed interval, to an equity

    scheme of the same mutual fund.

    3 . Sy s tematic Withdrawal Plan : If someone wishes to withdraw from a mutual

    fund then he can withdraw a fixed amount each month.

    Fig. 4.7 RISK V/S RETURNS

  • 8/8/2019 3S of IDFC Mutual Fund



    Fig. 4.8 Risk Return Matrix

  • 8/8/2019 3S of IDFC Mutual Fund



    4 .8 Organizational Hierarchy

    Fig 4.9 Organizational Hierarchy

    4 .8.1 Structure of Mutual Fund s in India

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

    must be constituted. In India, open and closed-end funds operate under the

    same regulatory structure, i.e. in India; all mutual funds are constituted alongone unique structure-as unit trust. A mutual fund in India is allowed to issue

    open-end and close end schemes under a common legal structure. Therefore, a

    mutual fund may have different schemes (open and closed-end) under it i.e.

    under one unit trust, at any point of time. The structure, which is required to be

  • 8/8/2019 3S of IDFC Mutual Fund



    followed by mutual funds in India, laid down under SEBI (Mutual Fund)

    Regulations, 1996.

    4 .8.2 The Fund Spon s or

    'Sponsor" is defined under 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 companies he gets the fund registered

    with SEBI. The sponsor will form a Trust and appoint a board of Trustees. The

    sponsor will also generally appoint an Asset management Company (AMC) as

    fund managers. The sponsor ill also appoint a Custodian to hold the fund assets.

    All these appointment are made in accordance with the SEBI regulations. Per the

    existing SEBI regulations, for a person to qualify as a sponsor, must contribute at

    least 40% of the net worth of the AMC and issues a sound financial track over

    five years prior to registration.

    4 .8.3 Mutual Fund s a s Tru s ts

    Mutual fund in India is constituted in the form of a Public Trust under the Indian

    Trusts Act 1882.The fund invites investors. Contribute their money in the

    common pool by subscribing to units Issued by various schemes established by

    the trust as evidence of their beneficial interest in the fund.

    The trust or fund has no legal capacity itself rather it is the Trustee(s) who havelegal capacity and therefore the trustees take all acts in relation to the trust on its


  • 8/8/2019 3S of IDFC Mutual Fund


  • 8/8/2019 3S of IDFC Mutual Fund



    4 .8.7 Di s tributor s

    AMCs usually appoint Distributors or Brokers, who sell units on behalf bf the

    fund. Some funds require that all transactions to be routed through such brokers.

    In India, besides brokers, independent individuals are appointed as agents for the

    purpose of selling the fund scheme to the invest