Birla Sun Life Distribution Company Limited

8/3/2019 Birla Sun Life Distribution Company Limited

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BIRLA SUN LIFE DISTRIBUTION COMPANY LIMITED

Executive Summary

Birla Sun Life Distribution Company is one of the biggest distribution companies

in India. It is having only 6 years of history. Birla Sun Life Distribution Company is a

part of joint venture between The Aditya Birla Group and the Sun Life Financial Services

Limited Canada. The synergy of these two accomplished conglomerates bring the global

financial know- how and local market insight. The head office of BSDL is at MUMBAI

and is having 16 branches in 13 different cities of the country.

BSDL provides a wide spectrum of financial services which include Research

based advice, Fund Updates on weekly and monthly basis, Literature to update

knowledge, handling various types of queries and providing web based services. BSDL

also deals in Birla Sun Life Insurance, IPOs and Bonds.

The objective of the study is to know satisfaction level of channel partners of

Pune and rest of the Maharashtra other than Mumbai and what their service expectations

from BSDL are.

For the research I have collected both Primary data and Secondary data. The

primary data by questionnaire through survey and telephonic interview of the 100

channel partners of Birla Sun Life Distribution Company, and Secondary Data through

various magazines, websites, companys internal data and Books.

The following report gives the detail study of Mutual Fund Industry, history of

mutual fund and also Mutual Fund history in India, its growth in India, different

terminologies used in MF. It gives the idea about the different types of Mutual Funds anddifferent types of options.

The later part of the report covers the detail study of channel partners about their

satisfaction level and their expectations from BSDL. It envelops the suggestion for co.

for improving their services.

Kousali Institute Of Management Studies, Dharwad


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LEGENDS

SEBI: Security Exchange Board Of India

NSE: National Stock Exchange

MCX: Multi Commodity Exchange

RBI: Reserve Bank Of India

HDFC: Housing Development Finance Corporation India

ICICI: Industrial Credit Investment Corporation Of India

AMFI: Association Of Mutual Fund in India

AUM: Asset Under Management

UTI: Unit Trust Of IndiaUS-64: UNIT SCHEME OF 1964

ULIP: Unit Linked Insurance Plan

NAV: Net Asset Value

AMC: Asset Management Company

CAMS: Computer Age Management Service

ELSS: Equity Linked Saving Schemes

T-BILL: Treasury Bill

G-SEC: Government Securities

MMMFs: Money Market Mutual Funds

MIPs: Monthly Investment Plans

OTCEI: Over The Trade Exchange Of India

CRIL: Credit Resources International Limited

BSDL: Birla Sun Life Distribution Company Limited

MFs: Mutual Funds



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Introduction to Mutual Fund

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 invested by the fund

manager in different types of securities depending upon the objective of the scheme.

These could range from shares to debentures to money market instruments. The income

earned through these investments and the capital appreciations realized by the scheme are

shared by its unit holders in proportion to the number of units owned by them (pro rata).

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 portfolio at a relatively low

cost. Anybody with an investible surplus of as little as a few thousand rupees can invest

in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and

strategy.

A mutual fund is the ideal investment vehicle for todays complex and modern

financial scenario. Markets for equity shares, bonds and other fixed income instruments,

real estate, derivatives and other assets have become mature and information driven.

Price changes in these assets are driven by global events occurring in far away places. A

typical individual is unlikely to have the knowledge, skills, inclination and time to keep

track of events, understand their implications and act speedily. An individual also finds it

difficult to keep track of ownership of his assets, investments, brokerage dues and bank

transactions etc.



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STUDY TOPIC

The topic selected for the research is study on

SATISFACTION OF CHANNEL PARTNERS TOWARDS THE

SERVICES PROVIDED BY BIRLA SUN LIFE DISTRIBUTION COMPANY

LIMITED.

This project is an attempt to know about a real picture that what are the services

channel partners want from Birla Sun Life Distribution Co. Ltd. and what is the

satisfaction level of channel partners towards the service provided by BSDL. No doubt

that channel partners have tremendous amount of choices, as there are many Mutual Fund

distribution companies in the market, which provide financial services.

The satisfaction level and expectations of the channel partners may be regarded as

what additional things or factors they want. This also helps the company to know what all

additions they can make in their services.

OBJECTIVES OF THE STUDY

To know the satisfaction level of the channel partners towards theservices provided by Birla Sun Life Distribution Co. Ltd.

To know expectations of channel partners from Birla Sun LifeDistribution Co. Ltd.

To know how much Birla Brand Name helps channel partners in theirbusiness.

To suggest the measures for improvement of business.



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Research Methodology:

Conclusive Research:

For the study on Satisfaction of Channel Partners towards the servicesprovided by Birla Sun Life Distribution Co. Ltd. the CONCLUSIVE RESEARCH is

applicable. Here the aim of the research is to verify insights and to aid decision makers in

selecting a specific course of action

The conclusive research has the following features:

Components Feature Research on channel

partners of BSDL

Data needs Clear Satisfaction level of channel

partner of BSDL

Data source Well defined Channel partner of BSDL

Sample Relatively large Sample size selected is 100

out of total 180 channel

partner

Data collection from Structured Structured questionnaires is

used for survey

In conclusive research the applicable research is descriptive research:

Descriptive research:

The aim of the research is to describe something specifically it is intended

to generate data describing the composition and characteristics of relevant groups of units

such as customer salespeople organization and market areas. In my research the data is

collected from the channel partners i.e. from sub brokers of BSDL.

Measurement Technique



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In this project report questionnaire is used as a measurement technique to collect

data.

Sampling Process:

Population:

Element : All Channel Partners of BSDL

Extent : All over Maharashtra except Mumbai

Time : June 15 to July5, 2006

Sampling Frame:

All BSDL channel Partners who are doing their job full time as well as

part time.

Sampling method:

Non- probability method, the investors were selected on the basis of

convenience.

Sample size:

The total sample size 100 Channel Partners of Birla Sun Life Distribution

Co. Ltd.

DATA COLLECTION METHOD



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Primary Data:

Initially I took the permission from the branch manager and also from channel

partner executive for the study. Then I got the data about the channel partners of

Maharashtra state other than Mumbai. Totally there are 180 channel partners in the whole

Maharashtra state other than Mumbai. Out of 180 channel partners 60 resides in Pune.

The sample size was 100 out of which 60 are Pune channel partners. The data is

collected through structured questionnaire by doing survey and telephonic interview.

Survey: The survey is conducted for 60 Pune channel partners.

Telephonic interview: The telephonic interview is conducted for 40 channel

partners who are in other cities.

Secondary Data:

I collected secondary data through

Internet:

o www.amfi.com

o www.mutualfundsindia.com

o www.valueresearchonline.com

o www.indiainfoline.com

o www.birlasunlife.com

Magazines:

o INVESTIME: Published by Birla Sun Life Distribution Co. Ltd.

o AMFI Work book

News Paper:

o The Economic times

o The Business Line

Internal Source of the Company

http://www.amfi.com/http://www.mutualfundsindia.com/http://www.valueresearchonline.com/http://www.indiainfoline.com/http://www.birlasunlife.com/http://www.amfi.com/http://www.mutualfundsindia.com/http://www.valueresearchonline.com/http://www.indiainfoline.com/http://www.birlasunlife.com/


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LIMITATIONS OF THE STUDY

Sample selected was restricted to Birla Sun Life Distribution Company Limited

Channel Partners only.

The samples satisfaction does not constitute the satisfaction of whole population.

Answers given by respondents are qualitative in nature and conclusions have been

drawn based on that.

The responses are collected through the questionnaire by survey and by

telephonic interview, so the response given by the respondents may differ and it may

be biased.



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Mutual Fund Industry-A Profile

Origin of Mutual Funds

The Mutual Fund industry traces its roots to England in the mid 1800s. The

enactment of two British laws, the joint stock companies Acts of 1862 and 1867,

permitted investors, for the first time to share in the profits of an investments enterprise,

and limited investor liability to the amount of investment capital devoted to the

enterprise. Shortly thereafter, in 1868, the Foreign and Colonial Government Trust

formed in London. This trust resembled a mutual fund in basic structure, providing the

investor of moderate means the same advantage as the large capitalists by spreadingthe investment over a number of different stocks.

This concept of offering the investment potential of financial markets to all individuals

spawned additional investment companies in Britain and Scotland and among other

things helped finance the development of the post-civil was US economy. Most of the

early British investment companies or trusts resembled todays closed-end funds by

issuing a fixed number of shares to groups of investors whose pooled assets wereinvested in various companies. The Scottish American Investment Trust, formed on

February 1, 1873 by fund pioneer Robert Fleming, was significant because it invested in

the economic potential of the United States Chiefly through American railroad bonds.

Many other trusts followed that not only target investment in America, but more

importantly led to the introduction of investment fund concept on U. S shares in the late

1800s and early 1900s.



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The First Mutual Fund:

The first Mutual Fund or Open-ended Fund in which new shares are issued as

new money is invested would not emerge until 1924 in Boston. The Massachusetts

Investors Trust, considered by most accounts to be the first mutual fund, was introduced

in March of that year. Formed as a common law trust, this fund introduced important

innovations to the investment company concept by establishing a simplified capital

structure, continuous offering of shares, the ability to redeem shares rather than hold

them until dissolution of the fund and a set of clear investment restrictions and policies.

While a handful of mutual funds were formed during the 1920s, funds managed only

$140 million by year-end 1929. The stock market crash of 1929 and the Great Depression that

followed greatly hampered industry growth until a succession of landmark securities laws,

beginning with the securities act of 1933 and concluding with the investment company. Act of

1940, re-invigorated investor confidence in funds. Renewed investor confidence led to relatively

steady growth in industry assets for the remainder of the century, and saw fund assets and

shareholder accounts grow, respectively, from $ 448 million and 296 thousand in 1940 to $7.4

billion and 261 million by year-end 2003.



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Concept of a mutual fund

A mutual fund is a common pool of money into which investors place their

contributions that are to be invested with a stated objective. The ownership of the fund is

thus joint or mutual and the fund belongs to all investors. A single investors ownership of

the fund is in the same ratio as the amount of contribution made by him or bears to the

total amount of the fund.

Meaning of Mutual Funds

Mutual Funds are investment products that operate on the principles of Strength

in Numbers. They collect money from a large group of investors, pool it together, and

invest it in various securities in line with their objective. They are an alternative to

investing directly. A more convenient alternative yet no less rewarding. Take stocks,

trading into the market by yourself would mean knowing at the very least, how to analyze

and track companies, the way of the market and the intermediaries who will help you buy

and sell shares. A mutual fund that invests in stocks relieves you of all such hassles,

while giving you the same investment option for individuals handicapped by a lack of

investing acumen or time, or generally disciplined to take charge of their personal

finances.

Mutual funds are not magic investment vehicles that do it all youll have to come

to terms with the fact that they assure neither returns nor the value of yours original

investment. Youll have to accept the reality that even they, who are supposedly experts

in investments matter, can go wrong. These are inherent risks, but these can be managed.

Mutual funds offer several advantages that make them a powerful and convenient wealth

creation vehicle worthy of yours consideration.



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Types of Mutual Funds

Open-End Funds:

An open-ended fund is one that has units available foe sale and repurchase at all

times. An investor can buy or redeem units from the fund itself at a price based on the

Net Asset Value (NAV) per unit. NAV per unit is obtained by dividing the amount of the

market value of the funds assets by the number of units outstanding. The number of

outstanding goes up or down every time the fund issues new units or repurchase existing

units.

Closed-End Funds:

Unlike an open-end fund, the unit capital of a closed-ended fund is fixed, as it

makes a one-time sale of a fixed number of units. Closed-ended funds do not allow

investors but or redeem units directly from the funds. However, to provide the much-

needed liquidity to investors, any closed-end funds get themselves listed on stock

exchanges. Trading through a stock exchange enables investors to buy or sell units of a

closed-end mutual fund from each other.

Load and No-Load Funds:

A Load Fund is one that charges a commission for entry or exit. That is, each time

investor buy or sell units in the fund, a commission will be payable. Typically entry and

exit loads range from 1% to 2.5%. It could be worth paying the load, if the fund has a

good performance history.

A No-Load Fund is one that does not charge a commission for entry or exit. That



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is, no commission is payable on purchase or sale of units in the fund. The advantage of a

no load fund is that the entire corpus is put to work.

Marketing of a new mutual fund scheme involves initial expenses. These expenses may

be recovered from the investors in different ways at different times. Three usual ways in

which a fund's sales expenses may recovered from the investors are:

1. At the time of investor's entry into the fund/scheme, by deducting a specific

amount from his Initial contribution, or

2. By charging the fund/scheme with a fixed amount each year, during the stated

number of years, or

3. At the time of the investor's exit from the fund/scheme, by deducting a specified

amount from the redemption proceeds payable to the investor.

These charges made by the fund managers to the investors to cover

distribution/sales/marketing expenses often called "loads". The load charged to the

investor at the time of his entry into a scheme is called front-end or entry load". The

load amount charged to the scheme over period of time is called a deferred load. The load

that the investor pays at the time his exit is called a "back-end or exit load".

Some funds may also charge different amounts of loads to the investors,

depending upon how many years the investor is stayed with the fund; the longer the

investor stays with the fund, less the amount of exit load" he charged. This is called

contingent deferred sales charge".

Funds that charge front-end, back-end or deferred loads are called load funds. Funds that

make no such charges or loads for sales expenses are called no-load funds.

A load fund's declared NAV does not include the loads. Hence, a new investor must add

any front-end load amount per unit the NAV per unit to calculate his purchase price. An

outgoing investor needs to deduct the amount of any back-end load per unit from his sale

price per unit to get to know the net sale proceeds he would receive.



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Tax Exempt and Non-Tax Exempt Funds:

Generally, when a fund invests in tax-exempt securities, it is called a tax-exempt

fund. In the U.S.A, For example, municipal bonds pay interest that is tax-free, while

interest on corporate and other bonds is taxable. In India, after the 1999 Union

Government Budget, all of the dividend income received from many of the Mutual funds

is tax-free in the hands of the investor.

However, funds other than Equity Funds have to pay a distribution tax, before

distributing income to investors. In other words, equity mutual fund schemes are tax-

exempt investment avenues, while other funds are taxable for distributable income.

While Indian Mutual funds currently offer tax-free income, any capital gains

arising out of sale of fund units are taxable. All these tax considerations are important in

the decision on where to invest as the tax exemptions or concessions alter returns

obtained from these investments. Hence, classification Of Mutual funds from the

taxability perspective has great significance for investors.

Broad Fund types by Nature of Investments:

Mutual funds may invest in equities, bonds or other fixed income securities, or

short-term money market securities. So we have Equity, Bond and Money Market Funds.

All of them invest in financial assets. But there are funds that invest in physical assets.

For example, we may have Gold or other Precious Metals Funds, or Real Estate Funds.

Broad Fund Types by Investment Objective:

Investors and hence the mutual funds pursue different objectives while investing.

Thus, Growth Funds invest for medium to long-term capital appreciation. Income Funds

invest to generate regular income, and less for capital appreciation. Value Funds invest

in equities that are considered under-valued today, whose value will be unlocked in the

future.



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Broad Fund Types by Risk Profile:

The nature of a fund's portfolio and its investment objective imply different levels

of risk undertaken. Funds are therefore often grouped in order of risk. Thus, Equity funds

have a greater risk of capital loss than a Debt Fund that seeks to protect the capital while

looking for income. Money Market Funds are exposed to less risk than even the Bond

Funds,' since they invest in short-term fixed income securities, as compared to longer-

term portfolios of Bond Funds.

Money Market Funds:

Often considered the lowest rung order of risk level, Money Market Funds

invest in 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 include Treasury Bills issued by governments. Certificates of Deposit issued

by banks and Commercial Paper issued by companies. In India Money market Mutual

funds also invest in the inter-bank call money market. The major strengths of money

market funds are the liquidity and safety or principal that investors can normally expect

from short-term investments.

Gilt Funds:

Gilts are government securities with medium to long-term maturities, typically of

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

have now seen the emergence of Government Securities or Gilt Funds that invest in

government paper called dated securities (unlike Treasury Bills that mature less These

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

However, investors have to recognize the potential changes in values of debt

securities held by the funds that are caused 'by changes in the market price of debt

securities quoted on the stock exchanges (Just like the equities).Debt securities' prices



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fall when interest rate levels increase (and vice versa).

Debt Funds (or Income Funds):

Next in the order of risk level, we have the general category Debt Funds. Debt

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

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

companies/utilities.

By investing in debt, these funds target low risk and stable income for the investor as

their key objectives. However, as compared to the money market funds, they do have a

higher price fluctuation risk, since they invest longer-term securities. Similarlycompared to Gilt Funds, general debt funds do have a higher risk of default by their

borrowers.

Debt Funds are largely considered as Income Funds as they do not target capital

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

their surplus to investors. Income funds that target returns substantially above market

levels can face more risks. The Income Funds fall largely in the category of Debt Funds

as they invest primarily in fixed income generating debt instruments. Again, different

investment objectives set by the fund managers would result in different risk profiles.

Diversified Debt Funds:

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

across all industries and sectors is a properly diversified debt fund.

While debt funds offer high income and less risk than equity funds, investors need to

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

interest or principal.

A diversified debt fund has the benefit of risk reduction through diversification and

sharing of any default-related losses by a large number of investors. Hence a diversified



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debt fund is less risky than a narrow-focus fund that invests in debt securities of a

particular sector or industry.

Focused Debt Funds:

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

investments. Examples include sector, specialized and offshore debt funds.

These funds are similar to the funds described later in the equity category

except that debt funds have a substantial part of their portfolio invested in debt

instruments and are therefore more income oriented and inherently less risky than

equity funds. However 'the Indian financial markets have demonstrated that debt funds

should not be automatically considered to be less risky than equity funds, as there have

been relatively large default by issuers of debt and many funds have non-performing

assets in their debt portfolios. It should also be recognized that market values of debt

securities will also fluctuate more as Indian debt markets witness more trading and

interest rate volatility in the future.

High Yield Debt Funds:

Usually, Debt Funds control the borrower default risk by investing in securities

issued by borrowers who are rated by credit rating agencies and are considered to be of

"investment grade". There are High Yield Debt Fund that seek to obtain higher returns by

investing in debt instruments that are considered "below investment grade. Clearly,

these funds are exposed to higher risk.

In U.S.A., funds that invest in debt instruments that are not backed by tangible

assets and rated below investment grade (popularly known as junk bonds) are called Junk

Bond Funds. These funds tend to be more volatile than other debt funds, although they

may earn higher returns as a result of the higher risks taken.



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Assured Return Funds:

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

risks are for account of the investor. The role of the fund Manager is to provide the

professional management service and to ensure the highest possible return consistent with

the investment objective of the fund. Assured return debt fund certainly reduce the risk

level.

Fixed Term Plans:

Fixed Term Plans are closed-end, but usually for shorter term-less than a year.

Being of short duration, they are not listed on a stock exchange.

As investors move from Debt Fund category to Equity Funds they face increased risk

level.

However, there is a large variety of Equity Funds and all of them are not equally

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

that suits their risk appetite

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

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

Equity funds would be exposed to the equity price fluctuation risk at the market level at

the industry or sector level and at the company-specific level. Equity Funds Net Asset

Values fluctuate with all these price movements. These prices are caused by all kinds of

external factors, political and social as well as economic. Hence, Equity Funds are

generally considered at the higher end of the risk spectrum among all funds available in

the market. Equity funds adopt different investment strategic resulting in different levels

of risk. Hence, they are generally separated into different types in terms of theirinvestment styles. Some of the major types of equity funds, arranged in order of higher to

lower risk level.



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Aggressive Growth Funds:

There are many types of stocks/shares available in the market; Blue Chips that are

recognized market leaders, less researched stocks that are considered to have future

growth potential, and even some speculative stocks of somewhat unknown or unprovenissuers. Fund managers seek out and invest in different types of stocks in line with their

own perception of potential returns and appetite for risk.

Aggressive growth funds target maximum capital appreciation, invest in less

researched or speculative shares and may adopt speculative investment strategies to attain

their objective of high returns for the investor. Consequently, they tend to be more

volatile and riskier than other funds.

Growth Funds:

These funds invest in companies whose earnings are expected to rise at an above

average rate. These companies may be operating in sectors like technology considered

having a growth potential, but not entirely unproven and speculative. The primary

objective of Growth Funds is capital appreciation over a three to five year span. Growth

funds are therefore less volatile than funds that target aggressive growth.

Specialty Funds:

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

meet pre-defined criteria. For example, at the height of the South African apartheid

regime, many funds in the U.S. offered plans that promised not to invest in South African

companies. Some funds may build portfolios that will exclude Tobacco companies.

Funds that invest in particular regions such as the Middle East or the ASEAN countries

are also an example of specialty funds. Within the Specialty Funds category, some funds

may be broad-based in terms of the types of investments in the portfolio. However, most

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

of investment. Clearly, concentrated specialty funds tend to be more volatile than

diversified funds.



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Sector Funds:

Sector funds' portfolios consist of investments in only one industry or sector of the

market such as Information on Technology, Pharmaceuticals or Fast Moving Consumer Goods

that have recently been launched in India. Since sector funds do not diversify into multiple se

Offshore Funds.

Offshore Funds:

These funds invest in equities in one or more foreign countries thereby achieving

diversification across the country's borders. However they also have additional risks -

such as the foreign exchange rate risk - and their performance depends on the economic

conditions of the countries they invest in. Offshore Equity Funds may invest in a single

country (hence riskier) or many countries (hence more diversified).

Small Cap Equity Funds:

These funds invest in shares of companies with relatively lower market

capitalization than that of big, blue chip companies. They may thus be more volatile than

other funds, as smaller companies' shares are not very liquid in the markets. In terms of

risk characteristics, small company funds may be aggressive-growth or just growth type.

Option Income Funds:

Option Income Funds write options on a significant part of their portfolio. While

options are viewed as risky instruments, they may actually help to control volatility, if

properly used. Conservative option funds invest in large, dividend paying companies, and

then sell options against their stock positions. This ensures a stable Income stream in the

form of premium income through selling options and dividends.



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Diversified Equity Funds:

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

liquid money market securities, but is not focused on any one or few sectors or shares,

may be termed a diversified equity funds seek to reduce the sector or stock specific risks

through diversification. They have mainly market risk exposure. Diversified funds arc

clearly at the lower risk level than growth funds

Equity Linked Saving Schemes: An Indian Variant:

In India, the investors have been given tax concessions to encourage them toinvest in equity markets through these special schemes. Investment in these schemes

entitles the investor to claim an income tax rebate, but usually has a lock-in period before

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

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

category. However, as there are no specific restrictions on which sectors these funds

ought to invest in, investors should clearly look for where the Fund Management

Company proposes to invest and accordingly judge the level of risk involved.

Equity Index Funds:

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

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

represents the overall market. The fund invests in shares that constitute the index and in

the same proportion as the index. Since they generally invest in a diversified market

index portfolio, these funds take only the overall market risk, while reducing the sector

and stock specific risks through diversification.



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Value Funds:

Value Funds try to seek out fundamentally sound companies whose shares arc

currently under-priced in the market. Value Funds will add only those shares to their

portfolios that are selling at low price-earnings ratios, low market to book value ratios

and are undervalued by other yardsticks.

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

lower end of the risk spectrum in comparison with the Growth Funds. Value Stocks may

be from a large number of sectors and therefore diversified.

Equity Income funds:

Usually income funds are in the Debt Funds category, asthey target fixed income

investments. However, there are equity funds that can be designed to give the investor a

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

mainly in shares of companies' with high dividend yields.

Hybrid Funds Quasi Equity/Quasi Debt:Money market holdings will constitute a lower proportion in the overall portfolios

of debt or equity funds. There are funds that, however, seek to hold a relatively balanced

holding of debt and equity securities in their portfolio. Such funds are termed "hybrid

funds" as they have a dual equity/bond focus.

Balanced Fund:

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

convertible securities, and Preference equity shares. Their assets are generally held in

more or less equal proportions between debt/money market securities and equities. By

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

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

a conservative and long-term orientation.



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Growth-and-Income Funds:

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

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

mix between companies with good dividend paying records and those with potential for

capital appreciation. These funds would be less risky than pure growth funds, though

more risky than income fund.

Commodity Funds:

Commodity funds specialize in investing in different commodities directly or

through shares of commodity companies or through commodity future contracts.

Specialized funds may invest in a single commodity or a commodity group such as edible

oils or grains, while diversified commodity funds will spread their assets over many

commodities.

Real Estate Funds:

Specialized Real Estate Funds would invest in Real Estate directly, or may fund

real estate developers, or lend to them, or buy shares of housing finance companies or

may even buy their securities assets.

The funds may have a growth orientation or seek to give investors regular income.

There has recently been an initiative to offer such an income fund by the HDFC.



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Types Of Mutual Fund:

MUTUALFUND

TYPE

WHO

SHOULD

INVEST

Objective Investment

portfolio

Risk Ideal

investment

Diversifiedequity funds Moderateandaggressiveinvestors

Highgrowth Equity shares High 1-3years

Sector fund Aggressiveinvestors

Highgrowth

Equity shares Very high 1-3years

Index fund Moderateinvestors

To generatereturnswhich aresimilar tothe returns

of therespectiveindex

Portfolio likeBSE. Sensex,Nifty, etc

Returns ofNAV, verywith indexperformance

1-3years

Equity linkedsavingscheme(ELSS)

Moderateandaggressiveinvestors

Long-termgrowth withtax saving

Equity shares High 1-3years

Balance fund Moderateandaggressiveinvestors

Growth andregularincome

Balance ratioof equity anddebt fund toensure higher

returns atlower risk

Capitalmarket riskand interestrate risk

Over 2years

Bond funds Salaried andconservativeinvestors

Regularincome

Predominantlydebenturegovernmentsecurities,corporatebonds

Credit riskand interestrate risk

Over9-12months

Gilt fund Salaried andconservativeinvestors

Securityand income

Governmentsecurities

Interest raterisk

Over 12months

Short-term funds Investorswith surplusshort-termfund

Liquidityandmoderateincome

Call moneycommercialpapers,treasury billshort-termG-secs

Linkedinterest raterisk

3weeks3months



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Liquidity funds Investorswho parktheir fund incurrentaccount or

short termbank fixeddeposits

Liquidity+moderateincomepreservationof capital

Treasury bills,certificate ofdeposits ,commercialpapers,

securities callmoney

NegligibleRisk

2days3weeks

Characteristics of a Mutual Fund

A Mutual fund actually belongs to the investors who have pooled their funds.

The ownership of the mutual funds is in the hands of the investors.

In case of mutual fund the contributors and the beneficiaries of the funds are the

same class of people namely the investors.

Investment professionals manage a mutual fund and other service providers,

who earn a fee for their services provided, from the fund.

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 the change in the portfolios value, everyday. The value of one unit of

investment is called as the net asset value or NAV.



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Benefits of Mutual Fund investment

Professional Management:

Mutual Funds provide the services of experienced and skilled professionals,backed by a dedicated investment research team that analyses the performance and

prospects of companies and selects suitable investments to achieve the objectives of the

scheme.

Diversification:

Mutual Funds invest in a number of companies across a broad cross-section of

industries and sectors. This diversification reduces the risk because seldom do all stocks

decline at the same time and in the same proportion. Investor achieves this diversification

through a Mutual Fund with far less money than investor can do on his own.

Convenient Administration:

Investing in a Mutual Fund reduces paperwork and helps investor avoid many

problems such as bad deliveries, delayed payments and follow up with brokers and

companies. Mutual Funds save investors time and make investing easy and convenient.

Return Potential:

Over a medium to long-term, Mutual Funds have the potential to provide a higher

return as they invest in a diversified basket of selected securities.

Low Costs:

Mutual Funds are a relatively less expensive way to invest compared to directlyinvesting in the capital markets because the benefits of scale in brokerage, custodial and

other fees translate into lower costs for investors.



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Liquidity:

In open-end schemes, the investor gets the money back promptly at net asset

value related prices from the Mutual Fund. In closed-end schemes, the units can be sold

on a stock exchange at the prevailing market price or the investor can avail of the facility

of direct repurchase at NAV related prices by the Mutual Fund.

Transparency:

Investor get regular information on the value of their investment in addition to

disclosure on the specific investments made by the scheme, the proportion invested in

each class of assets and the fund manager's investment strategy and outlook.

Flexibility:

Through features such as regular investment plans, regular withdrawal plans and

dividend reinvestment plans, one can systematically invest or withdraw funds according

to their needs and convenience.

Affordability:

Investors individually may lack sufficient funds to invest in high-grade stocks. A

mutual fund because of its large corpus allows even a small investor to take the benefit of

its investment strategy.

Choice of Schemes:

Mutual Funds offer a family of schemes to suit investors varying needs over a

lifetime.

Well Regulated:

All Mutual Funds are registered with SEBI and they function within the

provisions of strict regulations designed to protect the interests of investors. The

operations of Mutual Funds are regularly monitored by SEBI.



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HISTORY OF MUTUAL FUNDS IN INDIA

The Mutual Fund Industry in India started in 1963 with the formation of Unit

Trust of India, at the initiative of Reserve Bank of India and the Government of India.

The ride through these 43 years is not been smooth. UTI commenced its operations from

July 1964. the impetus for establishing a formal institution came from the desire to

increase the propensity of the middle and lower groups to save and to invest. UTI came

into existence during a period marked by great political and economic uncertainty in

India. With a war on the borders and economic turmoil that depressed the financial

market, entrepreneurs were hesitant to enter the capital market.

The already existing companies found it difficult to raise fresh capital, as

investors did not respond adequately to new issues. Earnest efforts were required to

canalize savings of the community into productive uses in order to speed up the process

of industrial growth. The then Finance Minister, T.T. Krishnamachari set up the idea of a

unit trust that would be "open to any person or institution to purchase the units offered by

the trust. However, this institution as we see it, is intended to cater to the needs of

individual investors, and even among them as far as possible, to those whose means are

small." Since then the history of Mutual fund in India can broadly classified into three

phases.

First Phase 1964-87 ( UNIT TRUST OF INDIA):

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

set up by the Reserve Bank of India and functioned under the Regulatory and

administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the

RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and

administrative control in place of RBI. The first scheme launched by UTI was Unit

Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.



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

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

sector banks and Life Insurance Corporation of India (LIC) and General Insurance

Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund

established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National

Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90),

Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989

while GIC had set up its mutual fund in December 1990.

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

crores.

(Sources: AMFI workbook)

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


1992-93

Amount mobilized

(Rs crores)

Asset Under Management

(Rs Crores)

UTI 11057 38247

Public Sector 1964 8575

Total 13021 47004


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Kothari Pioneer (now merged with Franklin Templeton) was the first private sector

mutual fund registered in July 1993.

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

comprehensive and revised Mutual Fund Regulations in 1996. The industry now

functions under the SEBI (Mutual Fund) Regulations 1996.

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

funds setting up funds in India and also the industry has witnessed several mergers and

acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets

of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under

management was way ahead of other mutual funds.

Fourth Phase since February 2003:

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

was bifurcated into two separate entities. One is the Specified Undertaking of the Unit

Trust of India with assets under management of Rs.29,835 crores as at the end of January

2003, representing broadly, the assets of US 64 scheme, assured return and certain other

schemes. The Specified Undertaking of Unit Trust of India, functioning under anadministrator and under the rules framed by Government of India and does not come

under the purview of the Mutual Fund Regulations.

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

It is registered with SEBI and functions under the Mutual Fund Regulations. With the

bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of

assets under management and with the setting up of a UTI Mutual Fund, conforming to

the SEBI Mutual Fund Regulations, and with recent mergers taking place among

different private sector funds, the mutual fund industry has entered its current phase of

consolidation and growth. As at the end of September, 2004, there were 29 funds, which

manage assets of Rs.153108 crores under 421 schemes.



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GROWTH IN ASSETS UNDER MANAGEMENT:

25 4564

47000

79464

139616149554

231862

0

50000

100000

150000

200000

250000

M ar-65 M ar-87 M ar-93 M ar-03 M ar-04 M ar-05 M ar-06Years

Rsin

crores

Series1



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LIST OF MUTUAL FUNDS IN INDIA

Mutual Fund Sponsors Year of

Entry

Bank sponsored

BOB Asset Management Co. Ltd Bank of Baroda 1992

Can Bank Investment Management

Services Ltd.,

Canara Bank 1987

S.B.I. Funds Management Ltd., State Bank of India 1987UTI Asset Management Co., Pvt.

Ltd.,

SBI, PNB, BOB, LIC 1963

InstitutionsG.I.C. Asset Management Co. Ltd., General Insurance

Corporation & other 4

PSU GIC

1990

Jeevan Bhima Sahyoga Asset

Management Co. Ltd.,

LIC 1989

Private SectorsBenchmark Asset Management Co.

Pvt. Ltd.,

NICHE Financial

Services

2001

Chola Mandalam Asset


Chola Mandalam

Investments

1997

Escorts Asset Management Ltd., Escorts Finance 1996

J. M. Capital Management Pvt.

Ltd.,

J.M. Shares and Stock

Brokers

1994

Kotak Mahindra Asset Management

Co. Ltd.,

Kotak Mahindra Bank 1998

Reliance Capital Asset


Reliance Capital 1995

Sahara Asset Management Co. Pvt.

Ltd.,

Sahara India Finance 1996

Sundaram Asset Management Co. Sunadaram Finance 1996



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Ltd.,

Tata Asset Management Pvt. Ltd., Tata Sons 1995

Joint Ventures Predominantly Indian

Birla Sun Life Asset Management

Pvt. Ltd.,

Birla Global Finance 1994

D.S.P. Merrill Lynch Fund

Manager Ltd.,

D.S.P. Merrill Lynch 1996

HDFC Asset Management Co. Ltd., HDFC & Std Life

Investment

2000

Joint Ventures Predominantly ForeignAlliance Capital Asset Management

Pvt. Ltd.,

Alliance Capital

Management

1994

Deutsche Asset Management Pvt.

Ltd.,

Deutsche Asset

Management

2002

Franklin Templeton Asset

Management Pvt. Ltd.,

Franklin Templeton

Investments

1996

HSBC Asset Manageent Pvt. Ltd., HSBC Security 2002

ING Inveatment Management Pvt.

Ltd.,

ING Group 1999

Morgan Stanley Investment


Morgan Stanley 1993

Prudential ICICI Asset


Prudential ICICI 1993

Principal Asset Management Co.

Pvt. Ltd.,

Principal Financial

Service

1994

Standard Charted Asset

Management Ltd.,

Standard Charted Bank 2000

( Source: Outlook Money : Laymens guide to MUTUAL FUND )

Procedure for registering a mutual fund with SEBI

An applicant proposing to sponsor a mutual fund in India must submit anapplication in Form A along with a fee of Rs.25,000. The application is examined and

once the sponsor satisfies certain conditions such as being in the financial services

business and possessing positive net worth for the last five years, having net profit in

three out of the last five years and possessing the general reputation of fairness and

integrity in all business transactions, it is required to complete the remaining formalities



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for setting up a mutual fund. These include inter alia, executing the trust deed and

investment management agreement, setting up a trustee company/board of trustees

comprising two- thirds independent trustees, incorporating the asset management

company (AMC), contributing to at least 40% of the net worth of the AMC and

appointing a custodian. Upon satisfying these conditions, the registration certificate is

issued subject to the payment of registration fees of Rs.25.00 lakhs.

Growth of Mutual Fund Industry in India

The mutual fund industry has seen various phases in India and has evolved over

the last 10 years in a big way. It started in India in 1963 with the setting up of Unit Trust

of India. Its total Assets under Management (AUM) reached a level of Rs 67 billion by

the end of 1988. In 1987 some Public Sector Banks and Insurance Companies started

their own mutual funds and kicked off the second phase in the mutual fund industry. SBI

Mutual Fund, LIC Mutual Fund etc. were few among them.

The mutual fund industry registered a major milestone in 1993 with the beginning

of first private sector mutual fund. The erstwhile Kothari Pioneer Mutual Fund (now

merged with Franklin Templeton Mutual Fund) was the first private sector mutual fund



35/92


registered in July 1993. After that several mutual funds have started in India, including

many international players. The industry has also seen a spate of mergers and

acquisitions, most recently being the acquisition of the schemes of Alliance Mutual by

Birla Sun Life and Sun F&C by Principal Mutual.

The latest phase in the evolution of the industry started when Unit Trust of India

(UTI) was bifurcated into two separate entities. The first one is the specified undertaking

of UTI and covers mainly the AUM of US-64 (the first mutual fund scheme in India) and

other assured return schemes. The second is the UTI Mutual Fund, which manages about

40 schemes and AUM worth Rs 209.76 billion as of December 2004.



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SECURITIES AND EXCHANGE BOARD OF INDIA INVESTMENT MANAGEMENT DEPARTME

Trends in Transactions on Stock Exchanges by Mutual Funds (since January 2000)

Equity (Rs in Crores) Debt (Rs in Crores)

GrossPurchase

GrossSales

NetPurchase/

SalesGross

PurchaseGrossSales

NePurch

Sale

Jan 2000-March 2000. 11070.54 11492.19 -421.65 2764.72 1864.29 90April 2000 -March 2001. 17375.78 20142.76 -2766.98 13512.17 8488.68 502

April 2001-March 2002. 12098.11 15893.99 -3795.88 33583.64 22624.42 1095April 2002-March 2003 14520.89 16587.59 -2066.70 46663.83 34059.41 1260

April 2003-March 2004 36663.58 35355.67 1307.91 63169.93 40469.18 2270

April 2004-March 2005 45045.25 44597.23 448.02 62186.46 45199.17 1698

April 2005-March 2006 100389.30 86083.64 14305.66 109622.51 73003.67 3661

April 2006. 12752.47 9631.91 3120.56 11227.96 6800.08 442

May 2006 (upto 19th) 11837.29 7406.65 4430.64 9746.45 4110.53 563Total (April - May '06) 24589.76 17038.56 7551.20 20974.41 10910.61 1006

Trends in Transactions on Stock Exchanges by Mutual Funds (Provisional and subject torevision) May 2006

Equity (Rs in crores) Debt (Rs in crores)

TransactionDate

GrossPurchases

GrossSales

NetPurchases

/ SalesGross

PurchasesGrossSales

NetPurchase

Sales

02.05.06 543.63 494.80 48.83 389.58 324.42 65.03.05.06 722.59 580.21 142.38 555.27 229.88 325.

04.05.06 855.53 580.62 274.91 285.41 119.01 166.05.05.06 761.83 527.42 234.41 409.98 152.30 257.

08.05.06 401.00 571.78 -170.78 537.41 204.32 333.

09.05.06 726.92 575.41 151.51 564.28 234.27 330.

10.05.06 981.53 453.30 528.23 813.02 397.06 415.11.05.06 456.65 524.58 -67.93 1475.45 246.91 1228.

12.05.06 778.21 422.04 356.17 619.55 365.87 253.15.05.06 1274.82 489.46 785.36 748.34 344.06 404.

16.05.06 1103.60 760.39 343.21 925.49 271.92 653.17.05.06 707.24 513.94 193.30 1325.27 636.61 688.

18.05.06 1244.54 481.85 762.69 738.64 360.11 378.

19.05.06 1279.20 430.85 848.35 358.76 223.79 134.Total 11837.29 7406.65 4430.64 9746.45 4110.53 5635.

Structure of Mutual Funds in India



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

constituted. Unlike in the UK, where two distinct trust and corporate structures are

followed with separate regulations, in India open-end and closed end funds operate under

the same regulatory structure and are constituted along one unique structure as unit

trusts. A mutual fund in India is allowed to issue open-end and closed-end schemes under

a common legal structure. Therefore, a mutual fund may have several different schemes

(open-end and closed-end) under it. That is under one unit trust, at any point of time.

The structure is required to be followed by mutual funds in India is laid down under SEBI

(mutual fund) regulations, 1996. In the following paragraphs, we look at the structure of

each of the fund constituents.

SEBI

TRUSTEE SPONSOR

OPERATIONS AMC

FUND MANAGER MARKET / SALES

MUTUAL FUND

SCHEMES

INVESTOR



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Sponsor:

What a promoter is to a company, a sponsor is to a mutual fund. The sponsor

initiates the idea to set up a mutual fund. It could be a financial services company, a bank

or a financial institution. It could be Indian of foreign. It could do it alone or through a

joint venture. In order to run a mutual fund in India, the sponsor has to obtain a license

from SEBI. For this, it has to satisfy certain conditions, such as a capital and profits, back

records (at least five years in financial services), default free dealings and a general

reputation for fairness.

Asset Management Company (AMC):

An AMC is the legal entity formed by the sponsor to run a mutual fund. Its the

AMC that employs fund managers and analyst, and other personnel. Its the AMC that

handles all operational matters of a mutual fund from launching schemes to managing

them to interacting with investors.

The people in the AMC who should matter the most to you are those who take

investment decisions. There is the head of the fund house, generally referred to as the

chief executive officer (CEO). Under him comes the chief investment officer (CIO), who

shapes the funds investment philosophy and fund managers who manage its schemes. A

team of analysts, who track markets, sectors and companies, assists them.

Trustees:

Trustees are like internal regulations in a mutual fund, and their job is to protect

the interests of unit holders. Trustees are appointed or corporate bodies. In order to ensure

they are impartial and fair, SEBI rules mandate that at least two thirds of the trustees be

independent that is, not have any association with the sponsor.



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Trustees appoint the AMC, subsequently seeks their approval for the work it does

and reports periodically to them on how the business is being run. Trustees float and

market schemes and secure necessary approvals. They check if the AMC investments are

within defined limits and whether the funds accountable for financial irregularities in the

mutual fund.

Custodian:

A custodian handles the investment back office of a mutual fund. Its

responsibilities include receipt and delivery of securities, collection of income, and

distribution of dividends and segregation of assets between schemes. The sponsor of a

mutual fund cannot act as a custodian to the fund. This condition, formulated in the

interest of investors, ensures that the assets of a mutual fund are not in the hands of its

sponsor. For example Deutsche Bank is a custodian but it cannot service Deutsche

Mutual Fund, its mutual fund arm.

Registrar:

Registrars also known as transfer agents, handles all investor related services.

This includes issuing and red reaming units. Sending fact sheet and annual reports. Some

fund houses handle such functions in house. Others outsource it to registrars; Karvy and

CAMS are the more popular ones. It doesnt really matter which model your mutual fund

opts for, as long as it is prompt and efficient in servicing you. Most mutual funds in

addition to registrars also have investor service centers of their own in some cities.

Frequently Used Terminologies



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Corpus:

Investing in a scheme is a simple process. Juts walk into any office of the mutual

fund or that of its representatives. Fill up a short and simple form, and hand over a

cheque. Yours money gets added to the pool already with the scheme, given to it by

numerous other investors like you. The total money available with a scheme at any point

in time is referred to as the Corpus or Asset under management the mutual fund, on

your and other investors behalf invests this corpus in various securities in line with its

sated objectives

Units:

Mutual fund issues you units against your investment. A unit is the currency of a

fund. What a share is to company, a unit is to a fund.

Net asset value (NAV):

NAV: (Net asset of the scheme /number of units o/s)

(Number of units outstanding as at the NAV)

You are allotted units on the basis of a scientific mechanism. This price, measured

per unit, is called the Net Asset Value (NAN) of the unit. Just as share or land is bought

and sold at its NAV. if for example, you were to invest Rs 10000 in scheme when its

NAV

Is Rs 10. You will be allotted 1000 units (10000/10) roughly the fund charges a

nominal processing fee.

The NAV of any scheme tells how much each units of its is worth at any point intime, and is therefore the simplest measure of how it is performing. Schemes NAV is its

net assets (Market value of the securities its own minus it owes) divided by the number of

units it has issued.



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A scheme NAV is dynamic figure. The market value of a schemes portfolio,

changes from day to day, as prices of shares and bonds move up or down. The number of

units outstanding also changes as new investors come into the scheme and told ones

leave. If the NAV of your scheme rises from Rs 10 to Rs, 11 over a period of time, your

scheme is said to have generated a return of 10%. Similarly, if its NAV falls from Rs 10

to Rs 9, it is said to have lost 10%

Fund house have to calculate and disclose the NAVs of their schemes daily fund

NAVs can be easily looked up. While dailies give a random listing of schemes the

financial papers are more exhaustive in their coverage. NAV information is also available

on website, of the mutual fund concerned and of independent data providers. When

invested in a scheme, its NAV is the figure to track as it qualifies your returns and your

purchase price and sale price will be based on it.

Load:

Although the NAV represents scheme current market value it is not the exact

price at which an investor enters or exits the scheme. Fund houses levy a nominal charge,

on most of their schemes, to meet their processing costs and to discourage investors from

lacking. This charge is referred to as load and it is price you pay over and above thefund NAV when you buy or cell units.

You pay an entry load at the time buying units and an exit load while selling.

Loads are always expressed as percentage of the NAV, and have the effect of reducing

your returns. An entry load increases your NAV, which places fewer units in your hands.

An exit load decrease youre NAV of Rs 10 and it levies an entry and exit load of 1%

(10 paisa) each. So when you buy units youll pay Rs 10.1 (10+0.10)per unit, not Rs 10.

Similarly if you sell youll get Rs 9.90(10-0.10) per unit, not Rs 10. Under SEBI rules,

the sum of entry and exit loads charged by a scheme cannot exceed 7%



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Cost of investment in mutual fund:

Another entry that eats into your return is expenses this is what your fund

charges you for managing your only. Fund managers have to be paid a fee, as do the

other constraints involved in managing your money. All this entails costs, which your

scheme recovers from you, within limits. Every year, a fund charges same amount to

your schemes NAV reducing your returns by that amount. SEBI rules allow equity

schemes to charge a maximum of 2.5%of corpus as expenses every year, the

corresponding figure for debt schemes is 2.25%

SEBI also decides what kind of expenses a fund can charge its unit holders and

what it cannot. For e.g.: the cost of running a campaign about a fund having won an

award cannot be charged to investors.

Disclosures:

From time to time, your fund house will share with you information relating to

your scheme. It does this in various ways, in various degrees. Under SEBI rules, fund

houses have to send to all unit holders annual reports disclosing the complete portfolio

of all units holders annul reports disclosing the complete portfolio of all units holders

annul reports disclosing the compete portfolio of all their schemes and publish half-yearlyresults in newspapers. These document shade light on your schemes performing over

various time periods, and how it stands up, given market conditions.

Some fund house goes beyond such mandatory information sharing. Whatever

information is relevant to your investment they send it to you on a quarterly basis,

through fax and newsletters. Most fund houses update their scheme portfolio on their

website even quicker, the norm being on a monthly basis. This information you can use

to make an investment in the schemes

Redemption:



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Whenever you want, you can sell your units, partly or fully back to your fund.

Although its sale from your point of view in mutual fund parlance it is called

repurchase or redemption youll have to fill up another short and simple from your

Mutual fund will pay you the schemes NAV prevailing on that date minus the exit load,

Mail you a cheque within three to five days.

Portfolio:

Combined holdings of many kinds of financial securities like shares, debentures

and bonds. The objective is risk diversification and maximization of gain of group of

assets.

Expense Ratio:

Expanse ratio is defined as the ratio of total expenses to the net assets of the fund.

It is the annual percentage of the funds assets that is paid out in expenses. An expense

includes management fees and all the fees associated with the funds daily operations.

The ratio is listed in a funds Offer Document. The expenses allowed for a fund is a

percentage of the weekly average net assets outstanding:

Equity Scheme Up to 2.5%

Debt Fund Up to 2.25%

Options in the schemes

Dividend Option

Growth Option

Re investment Option



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Dividend Option:

Investors who chose a dividend option on their investments will receive dividends

from the mutual fund, as and when such dividends are declared. Dividends are paid in the

form of warrants, or are directly credited to the investors bank accounts.

There are further choices in the distribution of dividends. In a normal dividend

plan, periodicity of dividends is left to the fund managers, who may pay annual and / or

an interim dividend. Though investors know that they would earn a dividend income

from their investment, the timing of the pay out is decided by fund managers. The

variances to the normal dividend plan are pre-specified distribution schedule. Mutual

funds provide investors the option of the receiving dividends at predetermined

frequencies, which can very from daily, weekly, monthly, quarterly, half yearly and

annually. Investors can choose the frequency of dividend distribution that suits their

requirements. Not all mutual funds provide all of these frequencies as choices, though.

As per the Regulations, the fund shall dispatch to the unit holders, the dividend

warrants within 30 days of declaration of dividend. Dividend will be payable to those

unit holders whose name appear in the Register of unit holders on the Record Date.

The cheque / warrants will be drawn in the name of the sole/first holder and will

posted/mailed to the address as indicated in the application form. As per SEBI guidelines

and in the interest of the investors to safeguard from loss or theft of dividend

cheques/warrants, investors are requested provide the name of the bank, branch and

account number in the application form. Such information would be incorporated in the

cheques/warrants.

Effect of Dividend:

When dividends are paid, the NAV will stand reduced by the amount of Dividend

and distribution tax, if any applicable. To the extent net income and realized gains are

not distributed, the same will remain invested in the schemes and be reflected in the

NAV. Since dividends are declared under dividend option only, the NAV of growth

option will not be affected by the payment of such dividend.



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Growth option:

Investors who dont require periodic income distribution can choose the growth

option, where the income earned are retained in the investment profile, and allowed to

grow, rather than being distributed to the investors. Investors with long term investment

horizons, and limited requirements for income, choose this option. The return to the

investor who chooses a growth option is the rate at which his initial investment has

grown over the period for which he was invested in the fund. The NAV of the investor

choosing this option will very with the value of the investment portfolio, while the

number of units held will remains constant.

Reinvestment option:

Investors re-invest the dividends that are declared by the mutual fund, back into

itself, at NAV that is prevalent at the time of reinvestment. In this option, the number of

units held by the investor will change with every reinvestment. The value of the units

will be similar to that under the dividend option.

The choice of income options depends not only on the investors requirements for

income and growth, but also on his tax status. The deferential tax treatment of dividends

and capital gains will also impact the choice made by the investor.



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Recent Trends in Mutual Fund Industry

The most important trend in the mutual fund industry is the aggressive expansion

of the Foreign owned mutual fund companies and the decline of the companies floated by

Nationalized Banks and smaller Private Sector players.

Many Nationalized banks got into the mutual fund business in the early nineties

and got off to a good start due to the stock market boom prevailing then. These banks did

not really understand the mutual fund business and they just viewed it as another kind of

banking activity. Few hired specialized staff and generally chose to transfer staff from the

parent organization. The performance of the schemes floated by these funds was not

good.

Some schemes offered guaranteed returns and their parent organization had to bail

out these AMCs by paying large amounts of money as the difference between the

guaranteed and actual returns. The service levels were also very bad. Most of these

AMCs have not been able to retain staff, float new schemes etc. and it is doubtful

whether, barring a few exceptions they have serious plans of continuing the activity in a

major way.

The experience of some of the AMCs floated by private sector Indian companieswas also very similar. They quickly realized that the AMC business, which makes money

in the long term and requires deep-pocketed support in the intermediate years. Some have

sold out to Foreign owned companies, some have merged with others and there is general

restructuring going on.

The Foreign owned companies have deep pockets and come in here with the

expectation of a long haul. They can be credited with introducing many new practices

such as new product innovation, sharp improvement in service standards and disclosure,

usage of technology, broker education and support etc. In fact they have forced the

industry to upgrade itself and service levels of organizations like UTI have improved

dramatically in the last few years in response to the competition provided by these

companies.



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Future Scenario:

The asset base will continue to grow at an annual rate of about 30 to 35% over the

next few years as investors shift their assets from banks and other traditional avenues.

Some of the older and private sector players will either close shop or be taken over.

In the coming years the market will witness a flurry of new players entering the

arena. There will be a large number of offers from various AMCs in the time to come

most major players already have presence here and hence these big names would hardly

like to get left behind. The mutual fund industry is awaiting the introduction of

derivatives in India as this would enable it to hedge its risk and this in turn would be

reflected in its NAV.

SEBI is working out the norms for enabling the existing mutual fund schemes to

trade in derivatives. Importantly, many market players have called on the regulator to

initiate the process immediately, so that the mutual funds can implement the changes that

are required to trade derivatives.

Global Scenario

Some basic facts

The money market mutual fund segment has a total corpus of $ 1.48 trillion in the

U.S. against a corpus of $ 100 million in India.

Out of the top 10 mutual funds worldwide, eight are bank- sponsored. Only

Fidelity and Capital are non-bank mutual funds in this group.

In the U.S. the total number of schemes is higher than that of the listed companies

while in India we have just 277 schemes

Internationally, mutual funds are allowed to go short. In India fund managers do

not have such leeway.



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In the U.S. about 9.7 million households will manage their assets on-line by the

year 2003, such a facility is not yet of avail in India.

On- line trading is a great idea to reduce management expenses from the current 2

% of total assets to about 0.75 % of the total assets.

85% of the core customer bases of mutual funds in the top 50-broking firms in the

U.S. are expected to trade on-line by 2003.

Internationally, on- line investing continues its meteoric rise. Many have debated

about the success of e- commerce and its breakthroughs, but it is true that this aspect of

technology could and will change the way financial sectors function. However, mutual

funds cannot be left far behind. They have realized the potential of the Internet and are

equipping themselves to perform better.

In fact in advanced countries like the U.S.A, mutual funds buy- sell transactions

have already begun on the Net, while in India the Net is used as a source of Information .

Such changes could facilitate easy access, lower intermediation costs and better

services for all. A research agency that specializes in Internet technology estimates that

over the next four years Mutual Fund Assets traded on- line will grow ten folds from $

128 billion to $ 1,227 billion; whereas equity assets traded on-line will increase during

the period from $ 246 billion to $ 1,561 billion. This will increase the share of mutual

funds from 34% to 40% during the period. Such increases in volumes are expected to

bring about large changes in the way Mutual Funds conduct their business.

Here are some of the basic changes that have taken place since the advent of the

Net.



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Lower Costs:

Distribution of funds will fall in the online trading regime by 2003. Mutual funds

could bring down their administrative costs to 0.75% if trading is done on- line. As per

SEBI regulations, bond funds can charge a maximum of 2.25% and equity funds can

charge 2.5% as administrative fees. Therefore if the administrative costs are low, the

benefits are passed down and hence Mutual Funds are able to attract mire investors and

increase their asset base.

Better advice

Mutual funds could provide better advice to their investors through the Net rather

than through the traditional investment routes where there is an additional channel to deal

with the Brokers. Direct dealing with the fund could help the investor with their financial

planning. In India, brokers could get more Net savvy than investors and could help

the investors with the knowledge through get from the Net

New investors would prefer online

Mutual funds can target investors who are young individuals and who are Net

savvy, since servicing them would be easier on the Net.

India has around 1.6 million net users who are prime target for these funds and this couldjust be the beginning. The Internet users are going to increase dramatically and mutual

funds are going to be the best beneficiary. With smaller administrative costs more funds

would be mobilized .A fund manager must be ready to tackle the volatility and will have

to maintain sufficient amount of investments which are high liquidity and low yielding

investments to honor redemption.

Net-based advertisements

There will be more sites involved in ads and promotion of mutual funds. In the

U.S. sites like AOL offer detailed research and financial details about the functioning of

different funds and their performance statistics. a is witnessing a genesis in this area .

There are many sites such as indiainfoline.com and indiafn.com that are doing something

similar and providing advice to investors regarding their investments.



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In the U.S. most mutual funds concentrate only on financial funds like equity and

debt. Some like real estate funds and commodity funds also take an exposure to physical

assets. The latter type of funds are preferred by corporate who want to hedge their

exposure to the commodities they deal with.

For instance, a cable manufacturer who needs 100 tons of Copper in the month of

January could buy an equivalent amount of copper by investing in a copper fund. For

Example, Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed

percentage of its corpus in Gold, Silver, Swiss francs, specific stocks on various bourses

around the world, short term and long-term U.S. treasuries etc.

In U.S.A. apart from bullion funds there are copper funds, precious metal funds

and real estate funds (investing in real estate and other related assets as well.). In India,

the Canada based Dundee mutual fund is planning to launch a gold and a real estate fund

before the year-end.

In developed countries like the U.S.A there are funds to satisfy everybodys

requirement, but in India only the tip of the iceberg has been explored. In the near future

India too will concentrate on financial as well as physical funds.

DISTRIBUTION COMPANIES:

A distribution company has several agents and distributors working for it, and is

the organisational interface with the mutual fund. It is an institutional agent for a mutual

fund, and earns commissions on funds mobilized. Distribution companies are very

popular channel with mutual funds today.



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Role of Distribution Channels

Mutual funds have been only recently emerging as a big financial intermediary in

India. In a vast country like India, taking the message of investing through mutual funds

is a big marketing challenge. Investors need to be educated into the benefits and

intricacies of mutual fund investing.

This challenge can only be taken up by a large number of intermediaries or agents

working throughout the country. These fund distributors are clearly the most

important link between the fund management industry and investors.

Types of Distribution Channels

Individual Agents:

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

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

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

system where by a broker has a number of sub brokers workin

Birla Sun Life Distribution Company Limited

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