HDFC Project 1

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A

PROJECT REPORT

ON

“BENEFITS OF MUTUAL FUND VIZ A VIZ OTHER FINANCIAL

INSTRUMENTS”

AT

HDFC MUTUAL FUND

Submitted To:-

HDFC AMC Ltd. Surat Branch

Gujarat

Submitted By:- Shailesh Dhyani

MBA-2nd Semester SGRRITS DEHRADUN

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CONTENTS

CHAPTER SUB-CHAPTER TOPICS PAGE

NO.

A Preface

B Acknowledgement 3

C Declaration 4

I

Company PROFILE-HDFC

Mutual Fund 5-18

II History Of Mutual Fund 19-22

III Understanding of Mutual Fund 23

1 Concepts 24

2

Advantages & disadvantages of Mutual

Fund 25-26

3 Types 27-36

IV Mutual Fund Risk 37-40

V Organization of Mutual Fund 41-42

VI Different way of Investing in Mutual Fund 43-45

VII Mutual Fund :Pickings a Mutual Fund 46-47

VIII

Lists of AMC’s and its AUM 48-51

IX

SEBI & Its Roles 52-53

VII Basics of Mutual Fund 54-55

IX 1 Basics

2 Bombay Stock Exchange 56-60

3 National Stock Exchange 61

X Investment & Savings & Its Differences 64-68

XI How does Mutual Fund Works 69

XII Investment Options in India 70-75

XIII

Changing Trend of Investment Pattern in

India

76-80

XIV

Factor Affecting While Selecting

Investment Avenue.

81-82

XV

Mutual Fund V/S Other Investment

Avenues 83-84

XVI Conclusion 85

XVII Bibliography 86

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ACKNOWLEDGEMENT I wish to express my sincere gratitude to Mr.Harpreet Graiwal,Principal of Management

Department of SHRI GURU RAM RAI INSTITUTE OF TECHNOLOGY & SCEINCE for providing me an opportunity to do my project work on the topic of “Benefits Of Mutual

Fund Viz-a Viz Other Financial Instruments”.This project bears on imprint of many people. I sincerely thank to Sir, department of management shri guru ram rai institute of technology & science dehradun for guidance to the officials & other staff members of “HDFC Mutual fund’’,who rendered their help during the period of my project work.My special thanks to “Maithilesh Engineer’’ Assistant Manager of the company for their kind co-operation to the completion of my project work.Last but not least I wish to express a sense of gratitude and love to my friends & my beloved parents for their manual support,strength,help &everything. PLACE:-Surat DATE:-

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DECLARATION

I,Shailesh Dhyani,student of MBA-II nd semester , studying at SGRRITS, Dehradun, hereby declare that this summer training report on “ Benefits of mutual funds vis-à-vis other financial instruments submitted to HDFC AMC ltd. , Surat, in partial fulfillment of degree of MBA in the original work conducted by me.

The information and data given in the report is authentic to the best by my knowledge.

This summer training report is not being submitted to any other university for award of any other degree, diploma and fellowship.

Name of the student :

Shailesh Dhyani

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COMPANY PROFILE

HDFC Asset Management Company Limited

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HDFC Mutual Fund

Date of setup of Mutual Fund June 30, 2000

Name(s) of Sponsor Housing Development Finance Corporation Limited; Standard Life Investments Limited

Name of Trustee Company HDFC Trustee Company Limited

Name of Trustees

Mr. Anil Kumar Hirjee - Chairman Mr. Ranjan Sanghi Mr. Shishir Diwanji Mr. V. Srinivasa Rangan - ` Mr. Vincent Joseph O’Brien - `

Name of the Asset Management Co.

HDFC Asset Management Company Limited

Date of Incorporation of AMC December 10, 1999

Name(s) of Director

Mr. Deepak Parekh - Chairman Mr. Deepak Phatak Mr. Hoshang Billimoria Mr. Humayun Dhanrajgir Mr. James Aird Mr. Keki M. Mistry Mr. Milind Barve Mr. N. Keith Skeoch Mr. P. M. Thampi Mr. Rajeshwar R. Bajaaj Mr. Vijay Merchant Ms. Renu S. Karnad

Name of Chief Executive Officer

Mr. Milind Barve - Managing Director

Name of Chief Investment Officer

Mr. Prashant Jain

Name(s) of Fund Manager

Mr. Anil Bamboli - Fixed Income Mr. Bharat Pareek - Fixed Income Mr. Chirag Setalvad - Equities Mr. Miten Lathia -Foreign Securities Mr. Shobhit Mehrotra - Fixed Income Mr. Srinivas Rao Ravuri - Equities Mr. Vinay R. Kulkarni - Equities

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Name of Compliance Officer Mr. Yezdi Khariwala

Name of Investor Service Officer

Mr. John Mathews

Address of AMC Ramon House,3rd Floor, H.T. Parekh Marg, 169 Backbay Reclamation, Churchgate Mumbai 400020

Telephone Number 6631 6333

Fax Number 2282 1144

Website www.hdfcfund.com

Email [email protected]

Name(s) of Auditors M/s. Deloitte Haskins & Sells (HDFC Mutual Fund) M/s. Haribhakti & Co. (HDFC Asset Management Company Ltd)

Name(s) of Custodian HDFC Bank Ltd, Citibank N.A & The Bank of Nova Scotia

Name(s) of Registrar and Transfer Agent

Computer Age Management Services Pvt. Ltd.

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ABOUT HDFC ASSET MANAGEMENT COMPANY LTD

HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000. The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020. In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 25.169 crore. The present equity shareholding pattern of the AMC is as follows :

Particulars % of the paid up equity capital

Housing Development Finance Corporation Limited 59.98 Standard Life Investments Limited 39.99 Other Shareholders (shares issued on exercise of Stock Options)

0.03

Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review of its overall strategy, had decided to divest its Asset Management business in India. The AMC had entered into an agreement with ZIC to acquire the said business, subject to necessary regulatory approvals. On obtaining the regulatory approvals, the following Schemes of Zurich India Mutual Fund have migrated to HDFC Mutual Fund on June 19, 2003. These Schemes have been renamed as follows:

Former Name New Name

Zurich India Equity Fund HDFC Equity Fund Zurich India Prudence Fund HDFC Prudence Fund

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Zurich India Capital Builder Fund HDFC Capital Builder Fund Zurich India TaxSaver Fund HDFC TaxSaver Zurich India Top 200 Fund HDFC Top 200 Fund

Zurich India High Interest Fund HDFC High Interest Fund Zurich India Liquidity Fund HDFC Cash Management Fund Zurich India Sovereign Gilt Fund HDFC Sovereign Gilt Fund*

*HDFC Sovereign Gilt Fund has been wound up in March 2006 The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund. The AMC has renewed its registration from SEBI vide Registration No. - PM / INP000000506 dated December 21, 2009 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration is valid from January 1, 2010 to December 31, 2012.

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Trustees

HDFC Trustee Company Limited, a company incorporated under the Companies Act, 1956 is the Trustee to HDFC Mutual Fund vide the Trust deed dated June 8, 2000, as amended from time to time. HDFC Trustee Company Ltd is wholly owned subsidiary of HDFC

The Board of Directors of HDFC Trustee company Limited consists of the following eminent persons.

Mr. Anil Kumar Hirjee

Mr. Vincent Joseph O’Brien

Mr. Shishir K. Diwanji

Mr. Ranjan Sanghi

Mr. V. Srinivasa Rangan

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Sponsors

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC)

HDFC was incorporated in 1977 as the first specialized Mortgage Company in India. HDFC provides financial assistance to individuals, corporates and developers for the purchase or construction of residential housing. It also provides property related services (e.g. property identification, sales services and valuation), training and consultancy. Of these activities, housing finance remains the dominant activity. HDFC has a client base of around 12 lac borrowers, 9 lac depositors, over 2 lac shareholders and about 25,000 deposit agents, as at March 31, 2011.

HDFC had raised funds from international agencies such as the World Bank, IFC (Washington), USAID, DEG, ADB and KfW, international syndicated loans, domestic term loans from banks and insurance companies, bonds and deposits. HDFC has received the highest rating for its bonds and deposits program for the seventeenth year in succession.

HDFC Standard Life Insurance Company Limited, promoted by HDFC was the first life insurance company in the private sector to be granted a Certificate of Registration (on October 23, 2000) by the Insurance Regulatory and Development Authority to transact life insurance business in India.

Website : www.hdfc.com

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STANDARD LIFE INVESTMENTS LIMITED

Standard Life Investments was launched as an investment management company in 1998. It is the dedicated investment management company of the Standard Life group and is a wholly owned subsidiary of Standard Life Investments (Holdings) Limited, which in turn is a wholly owned subsidiary of Standard Life plc.

With global assets under management of approximately US$251.9 billion as at March 31, 2011 Standard Life Investments Limited is one of the world's major investment companies, operating in the UK, Canada, Hong Kong, China, Korea, Ireland and the USA, and is responsible for investing money on behalf of five million retail and institutional clients worldwide.

The Standard Life Assurance Company was established in 1825 and has considerable experience in global financial markets. The company was present in the Indian life insurance market from 1847 to 1938 when agencies were set up in Kolkata and Mumbai. The company re-entered the Indian market in 1995, when an agreement was signed with HDFC to launch an insurance joint venture.

In April 2006, the Board of The Standard Life Assurance Company recommended that it should demutualise and Standard Life plc float on the London Stock Exchange. At a Special General Meeting held in May voting members overwhelmingly voted in favour of this. The Court of Session in Scotland approved this in June and Standard Life plc floated on the London Stock Exchange on 10th July 2006.

In order to meet the different needs and risk profiles of its clients, Standard Life Investments Limited manages a diverse portfolio covering all of the major markets world-wide, which includes a range of private and public equities, government and company bonds, property investments and various derivative instruments. The company's current holdings in UK equities account for approximately 1.8% of the market capitalisation of the London Stock Exchange.

Website : www.standardlifeinvestments.com

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Registrar & Transfer Agents

Registered Office: Computer Age Management Services Pvt. Limited New No. 10, Old No. 178, M.G.R. Salai, Nungambakkam, Chennai - 600 034.

Computer Age Management Services Pvt. Ltd., Rayala Towers - I, 158 Anna Salai, Chennai 600002. Tel : (+91) 044 2852 0516 Fax : (+91) 044 4203 2952

Website : www.camsonline.com

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Custodian

HDFC Bank Limited

Lodha - I Think Techno Campus Office, Floor 8,

Next to Kanjurmarg Railway Station

Kanjurmarg (East), Mumbai - 400 042.

Website: www.hdfcbank.com

Citibank N.A.

Global Securities & Fund Services (SFS), India,

3rd Floor, Trent House, Plot No. G-60, Bandra Kurla Complex

Bandra East, Mumbai - 400051

Website: www.citibank.com

The Bank of Nova Scotia

91-94, 3rd North Avenue,

Maker Maxity, Bandra-Kurla Complex,

Bandra (E), Mumbai – 400 051

Website: www.scotiabank.com

Currently, The Bank of Nova Scotia has been appointed as the custodian of Portfolio Deposit (i.e. Physical Gold) for HDFC Gold Exchange Traded Fund

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VISION STATEMENT

Some Products of HDFC Mutual Fund:

1. HDFC Prudence Fund

2. HDFC Top 200 Fund

3. HDFC Growth Fund

4. HDFC Equity Fund

5. HDFC Capital Builder Fund

6. HDFC Core and Satellite

7. HDFC Premier Multi-cap Fund

8. HDFC Mid-Cap Opportunity Fund

9. HDFC Long Term Equity Fund

10. HDFC Infrastructure Fund

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SOME GROUP COMPANIESOF HDFC

Housing Development Finance Corporation Limited (HDFC Ltd.) was established in 1977 with the primary objective of meeting a social need of encouraging home ownership by providing long-term finance to households. Over the last three decades, HDFC has turned the concept of housing finance for the growing middle class in India into a world-class enterprise with excellent reputation for professionalism, integrity and impeccable service.

A pioneer and leader in housing finance in India, since inception, HDFC has assisted more than 4.02 million customers to own a home of their own, through cumulative housing loan approvals of over Rs. 4.63 trillion and disbursements of over Rs. 3.74 trillion as at March 31, 2012.

HDFC has a wide network of 318 offices (which includes 77 offices of HDFC's wholly owned distribution company HDFC Sales Private Limited) catering to over 2,400 towns & cities spread across the country. It also has offices in Dubai, London and Singapore and service associates in the Middle East region, to provide housing loans and property advisory services to Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs).

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HDFC ERGO General Insurance Company Limited is a 74:26 joint venture between HDFC Limited, India’s premier Housing Finance Institution & ERGO International AG, the primary insurance entity of Munich Re Group.

HDFC ERGO focuses on providing the “Right Insurance Solution” for all. We offer our customers complete range of general insurance products ranging from Motor, Health, Travel, Home and Personal Accident in the retail space and customized products like Property, Marine and Liability Insurance in the corporate space.

It is our constant endeavor to improvise and cater to every need of the modern day customer with superior customer support service. This helps us give our customers a seamless and hassle-free experience.

HDFC ERGO has been expanding its presence across the country and is today present across 71 cities with 80 branch offices with an employee base of over 1234 professionals. The company has a right balance of distribution channel comprising of Dealerships, Brokers, Retail and Corporate Agents, Bancassurance and Direct Sales Team.

HDFC Bank HDFC BANK LTD is an Indian financial services company that was incorporated in August 1994. HDFC Bank is the fifth or sixth largest bank in India by assets and the second largest bank by market capitalization as of February 24, 2012. The bank was promoted by the Housing Development Finance Corporation, a premier housing finance company (set up in 1977) of India. HDFC Bank has 1,986 branches and over 5,471 ATMs, in 996 cities in India, and all branches of the bank are linked on an online real-time basis. As of 30 September 2008 the bank had total assets of Rs.1006.82 billion.[3] For the fiscal year 2010-11, the bank has reported net profit of 3,926.30 crore (US$710.66 million), up 33.1% from the previous fiscal. Total annual earnings of the bank increased by 20.37% reaching at 24,263.4 crore (US$4.39 billion) in 2010-11.[4] HDFC Bank is one of the Big Four banks of India, along with: State Bank of India, ICICI Bank and Punjab National Bank.

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HDFC Life, one of India's leading private life insurance companies, offers a range of individual and group insurance solutions. It is a joint venture between Housing Development Finance Corporation Limited (HDFC), India's leading housing finance institution and Standard Life plc, the leading provider of financial services in the United Kingdom.

HDFC Ltd. holds 72.37% and Standard Life (Mauritius Holding) Ltd. holds 26.00% of equity in the joint venture, while the rest is held by others.

HDFC Life's product portfolio comprises solutions, which meet various customer needs such as Protection, Pension, Savings, Investment and Health. Customers have the added advantage of customizing the plans, by adding optional benefits called riders, at a nominal price. The company currently has 25 retail and 9 group products in its portfolio, along with 10 optional rider benefits catering to the savings, investment, protection and retirement needs of customers.

HDFC Life continues to have one of the widest reaches among new insurance companies with about 500 branches in India touching customers in over 900 cities and towns.The company has also established a liaison office in Dubai. HDFC Life has a strong presence in its existing markets with a strong base of Financial Consultants.

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History of the Indian Mutual Fund Industry

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by 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. 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. Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

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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 an administrator 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, 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.

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History of Mutual Funds in India

� Mutual fund in India started in 1963 with formation of Unit Trust of India.

� History of mutual fund in India can be broadly divided into these phases

� PHASE I (1964 – 1987 UTI) � PHASE II (1987 – 1993 entry of public sector) � PHASE III (1993 – 1996 emergence of private funds) � PHASE IV (1996 SEBI regulations for mutual funds) � PHASE V(1999- Rapid growth with assets crossing 1,00,000 crs)

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The graph indicates the growth of assets under management over the years.

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UNDERSTANDING MUTUAL FUND

Mutual fund is a trust that pools money from a group of investors (sharing common financial goals) and invest the money thus collected into asset classes that match the stated investment objectives of the scheme. Since the stated investment objectives of a mutual fund scheme generally forms the basis for an investor's decision to contribute money to the pool, a mutual fund can not deviate from its stated objectives at any point of time. Every Mutual Fund is managed by a fund manager, who using his investment management skills and necessary research works ensures much better return than what an investor can manage on his own. The capital appreciation and other incomes earned from these investments are passed on to the investors (also known as unit holders) in proportion of the number of units they own.

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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. For example:

A. If the market value of the assets of a fund is Rs. 100,000 B. The total number of units issued to the investors is equal to 10,000. C. Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00 D. Now if an investor 'X' owns 5 units of this scheme E. Then his total contribution to the fund is Rs. 50 (i.e. Number of units held

multiplied by the NAV of the scheme)

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ADVANTAGES OF MUTUAL FUND

S. No. Advantage Particulars

1. Portfolio Diversification

Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small).

2. Professional Management

Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own.

3. Less Risk

Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities.

4. Low Transaction Costs

Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors.

5. Liquidity

An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are far more liquid.

6. Choice of Schemes

>Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options

7. Transparency

Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator.

8. Flexibility

Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes.

9. Safety

Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.

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DISADVANTAGES OF MUTUAL FUND

S. No. Disadvantage Particulars

1. Costs Control Not in the

Hands of an Investor

Investor has to pay investment management fees and fund distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund.

2. No Customized

Portfolios

The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives.

3. Difficulty in Selecting a

Suitable Fund Scheme

Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives.

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TYPES OF MUTUAL FUNDS

General Classification of Mutual Funds

1. Open-end Funds :

Funds that can sell and purchase units at any point in time are classified as Open-end Funds. The fund size (corpus) of an open-end fund is variable (keeps changing) because of continuous selling (to investors) and repurchases (from the investors) by the fund. An open-end fund is not required to keep selling new units to the investors at all times but is required to always repurchase, when an investor wants to sell his units. The NAV of an open-end fund is calculated every day.

2. Closed-end Funds :

Funds that can sell a fixed number of units only during the New Fund Offer (NFO) period are known as Closed-end Funds. The corpus of a Closed-end Fund remains unchanged at all times. After the closure of the offer, buying and redemption of units by the investors directly from the Funds is not allowed. However, to protect the interests of the investors, SEBI provides investors with two avenues to liquidate their positions:

a) Closed-end Funds are listed on the stock exchanges where investors can buy/sell units from/to each other. The trading is generally done at a discount to the NAV of the scheme. The NAV of a closed-end fund is computed on a weekly basis (updated every Thursday)..

b) Closed-end Funds may also offer "buy-back of units" to the unit holders. In this case, the corpus of the Fund and its outstanding units do get changed.

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3. Load Funds:

Mutual Funds incur various expenses on marketing, distribution, advertising, portfolio churning, fund manager's salary etc. Many funds recover these expenses from the investors in the form of load. These funds are known as Load Funds. A load fund may impose following types of loads on the investors:

a) Entry Load - Also known as Front-end load, it refers to the load charged to an investor at the time of his entry into a scheme. Entry load is deducted from the investor's contribution amount to the fund.

b) Exit Load - Also known as Back-end load, these charges are imposed on an investor when he redeems his units (exits from the scheme). Exit load is deducted from the redemption proceeds to an outgoing investor.

c) Deferred Load - Deferred load is charged to the scheme over a period of time.

d) Contingent Deferred Sales Charge (CDSC) - In some schemes, the percentage of exit load reduces as the investor stays longer with the fund. This type of load is known as Contingent Deferred Sales Charge.

4. No-load Funds All those funds that do not charge any of the above mentioned loads are known as No-load Funds.

5. Tax-exempt Funds Funds that invest in securities free from tax are known as Tax-exempt Funds. All open-end equity oriented funds are exempt from distribution tax (tax for distributing income to investors). Long term capital gains and dividend income in the hands of investors are tax-free.

6. Non-Tax-exempt Funds

Funds that invest in taxable securities are known as Non-Tax-exempt Funds. In India, all funds, except open-end equity oriented funds are liable to pay tax on

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distribution income. Profits arising out of sale of units by an investor within 12 months of purchase are categorized as short-term capital gains, which are taxable. Sale of units of an equity oriented fund is subject to Securities Transaction Tax (STT). STT is deducted from the redemption proceeds to an investor.

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.

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BROAD MUTUAL FUND TYPES

1. Equity Funds : Equity funds are considered to be the more risky funds as compared to other fund types, but they also provide higher returns than other funds. It is advisable that an investor looking to invest in an equity fund should invest for long term i.e. for 3 years or more. There are different types of equity funds each falling into different risk bracket. In the order of decreasing risk level, there are following types of equity funds:

a. Aggressive Growth Funds - In Aggressive Growth Funds, fund managers aspire for maximum capital appreciation and invest in less researched shares of speculative nature. Because of these speculative investments Aggressive Growth Funds become more volatile and thus, are prone to higher risk than other equity funds.

b. Growth Funds - Growth Funds also invest for capital appreciation (with time horizon of 3 to 5 years) but they are different from Aggressive Growth Funds in the sense that they invest in companies that are expected to outperform the market in the future. Without entirely adopting speculative strategies, Growth Funds invest in those companies that are expected to post above average earnings in the future.

c. Speciality Funds - Speciality Funds have stated criteria for investments and their portfolio comprises of only those companies that meet their criteria. Criteria for some speciality funds could be to invest/not to invest in particular regions/companies. Speciality funds are concentrated and thus, are comparatively riskier than diversified funds.. There are following types of speciality funds:

i. Sector Funds: Speciality Funds have stated criteria for investments and their portfolio comprises of only those companies that meet their criteria. Criteria for some speciality funds could be to invest/not to invest in particular regions/companies. Speciality funds are concentrated and thus, are comparatively riskier than diversified funds.. There are following types of speciality funds:

ii. Foreign Securities Funds: Foreign Securities Equity Funds have the option to invest in one or more foreign companies. Foreign securities funds achieve international diversification and hence they are less risky than sector funds. However, foreign securities funds are exposed to foreign exchange rate risk and country risk.

iii. Mid-Cap or Small-Cap Funds: Funds that invest in companies

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having lower market capitalization than large capitalization companies are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-Cap companies is less than that of big, blue chip companies (less than Rs. 2500 crores but more than Rs. 500 crores) and Small-Cap companies have market capitalization of less than Rs. 500 crores. Market Capitalization of a company can be calculated by multiplying the market price of the company's share by the total number of its outstanding shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of Large-Cap Companies which gives rise to volatility in share prices of these companies and consequently, investment gets risky.

iv. Option Income Funds*: While not yet available in India, Option Income Funds write options on a large fraction of their portfolio. Proper use of options can help to reduce volatility, which is otherwise considered as a risky instrument. These funds invest in big, high dividend yielding companies, and then sell options against their stock positions, which generate stable income for investors.

d. Diversified Equity Funds - Except for a small portion of investment in liquid money market, diversified equity funds invest mainly in equities without any concentration on a particular sector(s). These funds are well diversified and reduce sector-specific or company-specific risk. However, like all other funds diversified equity funds too are exposed to equity market risk. One prominent type of diversified equity fund in India is Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of investments by ELSS should be in equities at all times. ELSS investors are eligible to claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income tax return. ELSS usually has a lock-in period and in case of any redemption by the investor before the expiry of the lock-in period makes him liable to pay income tax on such income(s) for which he may have received any tax exemption(s) in the past.

e. Equity Index Funds - Equity Index Funds have the objective to match the performance of a specific stock market index. The portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex) are less risky than equity index funds that follow narrow sectoral indices (like BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified and therefore, are more risky.

f. Value Funds - Value Funds invest in those companies that have sound fundamentals and whose share prices are currently under-valued. The portfolio of these funds comprises of shares that are trading at a low Price to Earning Ratio (Market Price per Share / Earning per Share) and a low Market to Book Value (Fundamental Value) Ratio. Value Funds may select companies from diversified

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sectors and are exposed to lower risk level as compared to growth funds or speciality funds. Value stocks are generally from cyclical industries (such as cement, steel, sugar etc.) which make them volatile in the short-term. Therefore, it is advisable to invest in Value funds with a long-term time horizon as risk in the long term, to a large extent, is reduced.

g. Equity Income or Dividend Yield Funds - The objective of Equity Income or Dividend Yield Equity Funds is to generate high recurring income and steady capital appreciation for investors by investing in those companies which issue high dividends (such as Power or Utility companies whose share prices fluctuate comparatively lesser than other companies' share prices). Equity Income or Dividend Yield Equity Funds are generally exposed to the lowest risk level as compared to other equity funds.

2. Debt / Income Funds -Funds that invest in medium to long-term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors (like infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors. In order to ensure regular income to investors, debt (or income) funds distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equities, they are subject to credit risk (risk of default) by the issuer at the time of interest or principal payment. To minimize the risk of default, debt funds usually invest in securities from issuers who are rated by credit rating agencies and are considered to be of "Investment Grade". Debt funds that target high returns are more risky. Based on different investment objectives, there can be following types of debt funds:

a. Diversified Debt Funds - Debt funds that invest in all securities issued by entities belonging to all sectors of the market are known as diversified debt funds. The best feature of diversified debt funds is that investments are properly diversified into all sectors which results in risk reduction. Any loss incurred, on account of default by a debt issuer, is shared by all investors which further reduces risk for an individual investor.

b. Focused Debt Funds* - Debt funds that invest in all securities issued by entities belonging to all sectors of the market are known as diversified debt funds. The best feature of diversified debt funds is that investments are properly diversified into all sectors which results in risk reduction. Any loss incurred, on account of default by a debt issuer, is shared by all investors which further reduces risk for an individual investor.

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c. High Yield Debt funds - As we now understand that risk of default is present in all debt funds, and therefore, debt funds generally try to minimize the risk of default by investing in securities issued by only those borrowers who are considered to be of "investment grade". But, High Yield Debt Funds adopt a different strategy and prefer securities issued by those issuers who are considered to be of "below investment grade". The motive behind adopting this sort of risky strategy is to earn higher interest returns from these issuers. These funds are more volatile and bear higher default risk, although they may earn at times higher returns for investors.

d. Assured Return Funds - Although it is not necessary that a fund will meet its objectives or provide assured returns to investors, but there can be funds that come with a lock-in period and offer assurance of annual returns to investors during the lock-in period. Any shortfall in returns is suffered by the sponsors or the Asset Management Companies (AMCs). These funds are generally debt funds and provide investors with a low-risk investment opportunity. However, the security of investments depends upon the net worth of the guarantor (whose name is specified in advance on the offer document). To safeguard the interests of investors, SEBI permits only those funds to offer assured return schemes whose sponsors have adequate net-worth to guarantee returns in the future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans of UTI) that assured specified returns to investors in the future. UTI was not able to fulfill its promises and faced large shortfalls in returns. Eventually, government had to intervene and took over UTI's payment obligations on itself. Currently, no AMC in India offers assured return schemes to investors, though possible.

e. Fixed Term Plan Series - Fixed Term Plan Series usually are closed-end schemes having short term maturity period (of less than one year) that offer a series of plans and issue units to investors at regular intervals. Unlike closed-end funds, fixed term plans are not listed on the exchanges. Fixed term plan series usually invest in debt / income schemes and target short-term investors. The objective of fixed term plan schemes is to gratify investors by generating some expected returns in a short period.

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3. Gilt Funds -Also known as Government Securities in India, Gilt Funds invest in government papers (named dated securities) having medium to long term maturity period. Issued by the Government of India, these investments have little credit risk (risk of default) and provide safety of principal to the investors. However, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of debt securities are inversely related and any change in the interest rates results in a change in the NAV of debt/gilt funds in an opposite direction.

4. Money Market / Liquid Funds Money market / liquid funds invest in short-term (maturing within one year) interest bearing debt instruments. These securities are highly liquid and provide safety of investment, thus making money market / liquid funds the safest investment option when compared with other mutual fund types. However, even money market / liquid funds are exposed to the interest rate risk. The typical investment options for liquid funds include Treasury Bills (issued by governments), Commercial papers (issued by companies) and Certificates of Deposit (issued by banks).

5. Hybrid Funds : As the name suggests, hybrid funds are those funds whose portfolio includes a blend of equities, debts and money market securities. Hybrid funds have an equal proportion of debt and equity in their portfolio. There are following types of hybrid funds in India:

a. Balanced Funds - The portfolio of balanced funds include assets like debt securities, convertible securities, and equity and preference shares held in a relatively equal proportion. The objectives of balanced funds are to reward investors with a regular income, moderate capital appreciation and at the same time minimizing the risk of capital erosion. Balanced funds are appropriate for conservative investors having a long term investment horizon.

b. Growth-and-Income Funds - Funds that combine features of growth funds and income funds are known as Growth-and-Income Funds. These funds invest in companies having potential for capital appreciation and those known for issuing high dividends. The level of risks involved in these funds is lower than growth funds and higher than income funds.

c. Asset Allocation Funds - Mutual funds may invest in financial assets like equity, debt, money market or non-financial (physical) assets like real estate, commodities etc.. Asset allocation funds adopt a variable asset allocation strategy that allows fund managers to switch over from one asset class to another at any

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time depending upon their outlook for specific markets. In other words, fund managers may switch over to equity if they expect equity market to provide good returns and switch over to debt if they expect debt market to provide better returns. It should be noted that switching over from one asset class to another is a decision taken by the fund manager on the basis of his own judgment and understanding of specific markets, and therefore, the success of these funds depends upon the skill of a fund manager in anticipating market trends.

6. Commodity Funds : Those funds that focus on investing in different commodities (like metals, food grains, crude oil etc.) or commodity companies or commodity futures contracts are termed as Commodity Funds. A commodity fund that invests in a single commodity or a group of commodities is a specialized commodity fund and a commodity fund that invests in all available commodities is a diversified commodity fund and bears less risk than a specialized commodity fund. "Precious Metals Fund" and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common examples of commodity funds.

7. Real Estate Funds: Funds that invest directly in real estate or lend to real estate developers or invest in shares/securitized assets of housing finance companies, are known as Specialized Real Estate Funds. The objective of these funds may be to generate regular income for investors or capital appreciation.

8. Exchange Traded Funds (ETF) Exchange Traded Funds provide investors with combined benefits of a closed-end and an open-end mutual fund. Exchange Traded Funds follow stock market indices and are traded on stock exchanges like a single stock at index linked prices. The biggest advantage offered by these funds is that they offer diversification, flexibility of holding a single share (tradable at index linked prices) at the same time. Recently introduced in India, these funds are quite popular abroad.

9. Fund of Funds Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds maintain a portfolio comprising of units of other mutual

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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 advantage of diversifying into different mutual fund schemes with even a small amount of investment, which further helps in diversification of risks. However, the expenses of Fund of Funds are quite high on account of compounding expenses of investments into different mutual fund schemes. Risk Heirarchy of Different Mutual Funds:

� Mutual Funds do not provide assured returns. � Their returns are linked to their performance. They invest in shares, debentures

and deposits. All these investments involve an element of risk. � The unit value may vary depending upon the performance of the company and

companies may default in payment of interest/principal on their debentures/bonds/deposits.

� Besides this, the government may come up with new regulations that may affect a particular industry or class of industries. All these factors influence the performance of Mutual Funds. Thus, different mutual fund schemes are exposed to different levels of risk and investors should know the level of risks associated with these schemes before investing. The graphical representation hereunder provides a clearer picture of the relationship between mutual funds and levels of risk associated with these funds

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Mutual Fund Risk

Risk

Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. A fund's investment objective and its holdings are influential factors in determining how risky a fund is. Reading the prospectus will help you to understand the risk associated with that particular fund.

Generally speaking, risk and potential return are related. This is the risk/return trade-off. Higher risks are usually taken with the expectation of higher returns at the cost of increased volatility. While a fund with higher risk has the potential for higher return, it also has the greater potential for losses or negative returns. The school of thought when investing in mutual funds suggests that the longer your investment time horizon is the less affected you should be by short-term volatility. Therefore, the shorter your investment time horizon, the more concerned you should be with short-term volatility and higher risk.

Defining Mutual fund risk

Different mutual fund categories as previously defined have inherently different risk characteristics and should not be compared side by side. A bond fund with below-average risk, for example, should not be compared to a stock fund with below average risk. Even though both funds have low risk for their respective categories, stock funds overall have a higher risk/return potential than bond funds.

Of all the asset classes, cash investments (i.e. money markets) offer the greatest price stability but have yielded the lowest long-term returns. Bonds typically experience more short-term price swings, and in turn have generated higher long-term returns. However, stocks historically have been subject to the greatest short-term price fluctuations—and have provided the highest long-term returns. Investors looking for a fund which incorporates all asset classes may consider a balanced or hybrid mutual fund. These funds can be very conservative or very aggressive. Asset allocation portfolios are mutual funds that invest in other mutual funds with different asset classes. At the

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discretion of the manager(s), securities are bought, sold, and shifted between funds with different asset classes according to market conditions.

Mutual funds face risks based on the investments they hold. For example, a bond fund faces interest rate risk and income risk. Bond values are inversely related to interest rates. If interest rates go up, bond values will go down and vice versa. Bond income is also affected by the change in interest rates. Bond yields are directly related to interest rates falling as interest rates fall and rising as interest rise. Income risk is greater for a short-term bond fund than for a long-term bond fund.

Similarly, a sector stock fund (which invests in a single industry, such as telecommunications) is at risk that its price will decline due to developments in its industry. A stock fund that invests across many industries is more sheltered from this risk defined as industry risk.

Following is a glossary of some risks to consider when investing in mutual funds.

• Call Risk. The possibility that falling interest rates will cause a bond issuer to redeem—or call—its high-yielding bond before the bond's maturity date.

• Country Risk. The possibility that political events (a war, national elections), financial problems (rising inflation, government default), or natural disasters (an earthquake, a poor harvest) will weaken a country's economy and cause investments in that country to decline.

• Credit Risk. The possibility that a bond issuer will fail to repay interest and principal in a timely manner. Also called default risk.

• Currency Risk. The possibility that returns could be reduced for Americans investing in foreign securities because of a rise in the value of the U.S. dollar against foreign currencies. Also called exchange-rate risk.

• Income Risk. The possibility that a fixed-income fund's dividends will decline as a result of falling overall interest rates.

• Industry Risk. The possibility that a group of stocks in a single industry will decline in price due to developments in that industry.

• Inflation Risk. The possibility that increases in the cost of living will reduce or eliminate a fund's real inflation-adjusted returns.

• Interest Rate Risk. The possibility that a bond fund will decline in value because of an increase in interest rates.

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• Manager Risk. The possibility that an actively managed mutual fund's investment adviser will fail to execute the fund's investment strategy effectively resulting in the failure of stated objectives.

• Market Risk. The possibility that stock fund or bond fund prices overall will decline over short sor even extended periods. Stock and bond markets tend to move in cycles, with periods when prices rise and other periods when prices fall.

• Principal Risk. The possibility that an investment will go down in value, or "lose money," from the original or invested amount.

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ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund: Sponsors: The sponsor initiates the idea to set-up a mutual fund. It could be a registered company, scheduled bank or financial institution. The sponsor appoints the trustees, AMC and the custodian. Once the AMC is formed, the sponsor is just a stakeholder. However, sponsors could play a key role in bailing out an AMC during a crisis. Trustees: Trustees protect the interests of unit holders. Sometimes trustees and sponsors are the same. Trustees float and market schemes, and secure necessary approvals. They check if the AMC's investments are within defined limits, whether fund's assets are protected, and also ensure that unit holders get their due returns. For major decisions concerning the fund, they have to take unit holders consent. They submit reports every six months to SEBI (Securities Exchange Board of India). AMC: The AMC manages your money. It takes investment decisions, compensates investors through dividends, maintains proper accounting and information for pricing of units, calculates the NAV, and provides information on listed schemes and secondary market transactions. Transfer Agent: A transfer agent is employed by a mutual fund to conduct recordkeeping and related functions. Transfer agents maintain records of shareholder accounts, calculate and disburse dividends, and prepare and mail shareholder account statements, federal income tax information and other shareholder notices. Some transfer agents prepare and mail statements confirming shareholder transactions and account balances and maintain customer service departments to respond to shareholder inquiries.

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Custodian: Mutual funds are required by law to protect their securities by placing them with a custodian. Nearly all mutual funds use qualified bank custodians. The SEBI requires mutual fund custodians to segregate mutual fund portfolio securities from other bank assets.

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Different ways of Investing in Mutual Funds

Through an Agent

This is the oldest and one of the most convenient ways of investing in mutual funds. You just call an agent and tell him you want to buy mutual funds. He comes right to your door, & fills in the various forms. All you need to do, is sign the forms. Since the abolition of entry loads, you now have to compensate the agent for his services, and pay him commission on the amount invested. Agents can charge anywhere from 1-2% of the amount to be invested. Make sure you don’t pay him more than 1%, which is a good enough amount of brokerage, for expediting the process (filling in forms, carrying them to the Mutual Fund offices, having them processed et al.) If he gives you sound advice on what mutual funds would suit you, and would help you achieve your financial goals, you could then, compensate him more. That makes sense. Be cautious though! Check the details of the form and what is filled. Ideally, you should fill the form.

You should go with this way of investing only if you want convenience and comfort takes more precedence. Click on this AMFI Agent Search Link to search for mutual funds agents in your city. You can submit the search with different parameters and get a list of all the agents with their name, address & phone numbers. There are many agents who are linked with many companies (like NJInvest or Prudent Advisory) who provide login facility, where you can login and see your mutual funds Performance anytime .

Direct Investing through an AMC

You can now invest directly through an AMC (simply put – the Mutual Fund companies themselves.) There are many mutual funds who provide online facilities for investing. To do so though, you need to have a folio number, which you get only after investing in a particular mutual fund, which means that you have to go physically to the AMC office to invest for the first time. Next time onwards, you can invest in that mutual fund, online through their website. Using this method, makes sure that your entire amount, e.g. Rs 100/- gets invested and there are no charges here. The only hiccup, is the manual work involved at the start of the process; you have to take the pain of personally going to the office and then filling in the form. Sometimes, it’s a bit of a headache. If you want to invest in funds from four different AMC’s, then you have to go to all of them.

It would make sense to use this method, if the amount of investment is going to be large-ish and your tenure is long-term. In that case, using this way, will save you lot of money

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in commissions. Just imagine that if you invest 10,000 per month in mutual funds, then with a 1% commission structure, you save Rs 100 per month, which is Rs 3,600 for a 3 yr period. So 3,600 is what you lose when you go with an agent who charges a 1% commission .

Investing through a Demat Account

This is one of the most convenient methods of investing in mutual funds. If you have a demat account, you can browse through all the mutual funds on the site, and just with a few clicks of a mouse, you can invest in a fund of your choice. But then again, you have to pay commission here, since banks are also agents. Some charge a flat fee and some charge on percentage basis. For eg., ICICI Bank charges Rs 30 or 1.5% per SIP, whichever is lower and HDFC charges Rs 100 per quarter irrespective of the amount invested. The biggest advantage of buying and selling through a demat account, is that you control everything from one place. Some of the players in online mutual funds selling are :

• 5 paisa

• Geojit Securities

• HDFC Securities

• ICICI Direct

• India Bulls

• InvestSmart Online

• Investmentz.com

• Kotak Street

• Motilal Oswal

• Sharekhan

Investing Through Web Portals

FundsIndia.com : FundsIndia is an online portal which allows you to comfortably invest in Mutual funds and other kind of financial instruments. You just open an account

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with them, and they will send all the documents to your home. You dont have to pay a single paisa, out of your pocket . They support SIP, STP, NRI customers, & VIP Investing. FundsIndia offers different ways of payment too. Overall they can be very helpful if your requirement is convenience and value added services. FundsIndia makes money from commissions earned through the AMCs’. The AMC pays a small commission to agents (Inputs from Director , FundsIndia)

FundsSuperMart : FundsSupermart are a strong player in other Asian countries like Hong Kong, Singapore etc., but they are new to India. As of now, they do not offer a lot of services & products, like FundsIndia, but you should be able to invest in mutual funds at least, with them too.

Please note that These web-portals are only a way of investing , see take them as advisors . See your financial Planner or Advisor before investing in a mutual funds .

Investing through CAMS or Karvy

CAMS is the transaction processing company which services almost all the mutual funds in India. They process all the buying and sending the report etc to end customer . You can also invest directly through CAMS . All you have to do is Download the mutual fund form from the AMC website. Take a print out and fill the form . Then submit to your nearest CAMS or Karvy Investor centre along with copy of PAN card, SIP form(if needed) and cheque . For now , there is no way of investing online with them .

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Mutual Funds: Picking A Mutual Fund

Buying

You can buy some mutual funds (no-load) by contacting fund companies directly. Other funds are sold through brokers, banks, financial planners, or insurance agents. If you buy through a third party, you may pay a sales charge (load).

That said, funds can be purchased through no-transaction fee programs that offer funds from many companies. Sometimes referred to as "fund supermarkets," these programs let you buy funds from many different companies. They also provide consolidated recording that includes all purchases made through the supermarket, even if they are from different fund families. Popular examples are Schwab's OneSource, Vanguard's FundAccess, and Fidelity's FundsNetwork. Many large brokerages have similar offerings.

What to Know Before You Shop

Net asset value (NAV), which is a fund's assets minus liabilities, is the value of a mutual fund. NAV per share is the value of one share in the mutual fund, and it is the number that is quoted in newspapers. You can basically just think of NAV per share as the price of a mutual fund. It fluctuates everyday as fund holdings and shares outstanding change.

Sponsored - When you buy shares, you pay the current NAV per share plus any sales front-end load. When you sell your shares, the fund will pay you NAV less any back-end load.

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Finding Funds

Nearly every fund company in the country also has its own website. Simply type the name of the fund or fund company that you wish to learn more about into a search engine and hit “search.” If you don’t have a specific fund company already in mind, you can run a search for terms like “no-load small cap fund” or large-cap value fund.”

For a more organized search, there are a variety of other resources available online. Two notable ones include:

The Mutual Fund Education Alliance is the not-for-profit trade association of the no-load mutual fund industry. They have a tool for searching for no-load funds.

Morningstar is an investment research firm that is particularly well known for its fund information.

Identifying Goals and Risk Tolerance

Before acquiring shares in any fund, you need to think about why you are investing. What is your goal? Are long-term capital gains desired, or is a current income preferred? Will the money be used to pay for college expenses, or to supplement a retirement that is decades away? Identifying a goal is important because it will help you hone in on the right fund for the task.

For really short-term goals, money market funds may be the right choice, For goals that are few years in the future, bond funds may be appropriate. For long-term goals, stocks funds may be the way to go.

Of course, you must also consider the issue of risk tolerance. Can you afford and accept dramatic swings in portfolio value? If so, you may prefer stock funds over bond funds. Or is a more conservative investment warranted? In that case, bond funds may be the way to go. (To learn more, read Analyzing Mutual Fund Risk.)

The next question to consider include “are you more concerned about trying to outperform your fund’s benchmark index or are you more concerned about the cost of your investments?” If the answer is “cost,” index funds are likely the right choice for you

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List of AMC’s

• AIG Global Asset Management co. Pvt. Ltd. • AXIS Asset Management Co. Ltd. • Baroda Pioneer Asset Management Company Limited • Bharti AXA Investment Manager Private Ltd. • Birla Sun Life Asset Management Company Limited • Canara Robeco Asset Management Company Ltd. • Deutsche Asset Management (India) Pvt. Ltd. • Daiwa Asset Management (India) Private Limited • DSP BlackRock Investment Managers Private Limited • Edelweiss Asset Management Limited • Escorts Asset Management Limited • Fidelity Fund Management Private Limited • Franklin Templeton Asset Management (India) Private Limited • Fortis Investment Management (India) Pvt. Ltd. • Goldman Sachs • HDFC Asset Management Company Limited • HSBC Asset Management (India) Private Ltd. • ICICI Prudential Asset Management Company Ltd. • IDBI Asset Management Limited. • IDFC Asset Management Company Ltd. • INDBULLS Asset Management Company Limited. • ING Investment Management (India) Pvt. Ltd. • India Infoline Asset Management Company Limited • JM Financial Asset Management Private Limited • J P Morgan Mutual Fund • Kotak Mahindra Asset Management Company Limited • L&T Investment Management Limited • LIC Nomura Mutual Fund Asset Management Company Limited • Mirae Asset Global Investment Management (India) Pvt.Ltd. • Morgan Stanley Investment Management Pvt Ltd • Motilal Oswal Asset Management Company Limited • Peerless Funds Management Co.Ltd. • Pramerica Asset Managers Private Limited • Principal Pnb Asset Management Co. Pvt. Ltd. • Quantum Asset Management Co. Private Ltd. • Reliance Capital Asset Management Ltd. • Religare Asset Management Co. Private Ltd. • Sahara Asset Management Company Private Limited

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• SBI Funds Management Private Limited • Sundaram BNP Paribas Asset Management Company Limited • Tata Asset Management Limited • Taurus Asset Management Company Limited • Union KBC Asset Management Co Pvt Limited • UTI Asset Management Company Limited

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ASSETS UNDER MANAGEMENT – JUNE 2012

March 2012 June 2012 Change

%

Change

HDFC Mutual Fund 89,879 92,625 2,746 3.05

Reliance Mutual Fund 78,112 80,694 2,583 3.31

ICICI Prudential Mutual Fund 68,719 73,050 4,331 6.30

Birla Sun Life Mutual Fund 61,143 67,206 6,063 9.92

UTI Mutual Fund 58,922 60,923 2,000 3.40

SBI Mutual Fund 42,042 47,184 5,143 12.23

Franklin Templeton Mutual Fund 34,493 35,533 1,040 3.02

DSP BlackRock Mutual Fund 29,298 30,002 703 2.40

IDFC Mutual Fund 25,450 27,147 1,696 6.67

Kotak Mahindra Mutual Fund 25,738 25,324 -415 -1.61

Tata Mutual Fund 19,818 20,754 936 4.72

Deutsche Mutual Fund 12,145 13,852 1,708 14.06

Sundaram Mutual Fund 14,099 13,228 -870 -6.17

Religare Mutual Fund 10,465 10,958 493 4.71

Axis Mutual Fund 8,815 8,759 -56 -0.64

Canara Robeco Mutual Fund 7,663 7,580 -83 -1.09

Fidelity Mutual Fund 8,688 7,378 -1,310 -15.07

LIC NOMURA Mutual Fund 5,799 5,919 120 2.07

JM Financial Mutual Fund 5,885 5,812 -73 -1.24

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JPMorgan Mutual Fund 6,369 5,281 -1,088 -17.08

IDBI Mutual Fund 5,482 5,198 -284 -5.17

PRINCIPAL Mutual Fund 4,126 4,660 534 12.94

BNP Paribas Mutual Fund 4,421 4,562 141 3.19

HSBC Mutual Fund 4,859 4,554 -305 -6.28

Goldman Sachs Mutual Fund 4,296 4,313 16 0.38

Peerless Mutual Fund 3,801 4,009 208 5.47

Taurus Mutual Fund 3,744 3,745 1 0.04

L&T Mutual Fund 3,898 3,046 -851 -21.85

Pramerica Mutual Fund 1,854 2,387 532 28.71

Morgan Stanley Mutual Fund 2,053 2,250 198 9.63

Indiabulls Mutual Fund 1,938 2,165 227 11.72

Union KBC Mutual Fund 1,377 2,034 657 47.74

ING Mutual Fund 1,046 923 -123 -11.75

Sahara Mutual Fund 910 787 -123 -13.49

AIG Global Investment Group MF 679 739 60 8.79

Daiwa Mutual Fund 797 710 -88 -11.03

Mirae Asset Mutual Fund 444 464 20 4.52

Motilal Oswal Mutual Fund 367 453 86 23.42

Edelweiss Mutual Fund 373 380 8 2.07

Quantum Mutual Fund 191 193 2 1.07

IIFL Mutual Fund 72 167 95 130.94

BOI AXA Mutual Fund 153 135 -18 -11.70

Escorts Mutual Fund 213 112 -101 -47.28

Total 664,824 692,705 27,881 4.02

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SEBI and its ROLES

SEBI - Introduction

In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover both development & regulation of the market, and independent powers have been set up. Paradoxically this is a positive outcome of the Securities Scam of 1990-91. The basic objectives of the Board were identified as:

• to protect the interests of investors in securities;

• to promote the development of Securities Market;

• to regulate the securities market and

• for matters connected therewith or incidental thereto.

Since its inception SEBI has been working targetting the securities and is attending to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market. SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor. Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons:

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• It acts as a barometer for market behavior;

• It is used to benchmark portfolio performance;

• It is used in derivative instruments like index futures and index options;

• It can be used for passive fund management as in case of Index Funds.

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BASICS OF MUTUAL FUND

What is equity ?

In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists. In an accounting context, Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock. At the start of a business, owners put some funding into the business to finance operations. This creates a liability on the business in the shape of capital as the business is a separate entity from its owners. Businesses can be considered, for accounting purposes, sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for the positive remainder is deemed the owner's interest in the business. This definition is helpful in understanding the liquidation process in case of bankruptcy. At first, all the secured creditors are paid against proceeds from assets. Afterward, a series of creditors, ranked in priority sequence, have the next claim/right on the residual proceeds. Ownership equity is the last or residual claim against assets, paid only after all other creditors are paid. In such cases where even creditors could not get enough money to pay their bills, nothing is left over to reimburse owners' equity. Thus owners' equity is reduced to zero. Ownership equity is also known as risk capital or liable capital. Equity investments

An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises. Typically equity holders receive voting rights, meaning that they can vote on candidates for the board of directors (shown on a proxy statement received by the investor) as well as certain major transactions, and residual rights, meaning that they share the company's profits, as well as recover some of the company's assets in the event that it folds, although they generally have the lowest priority in recovering their investment. It may also refer to the acquisition of equity

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(ownership) participation in a private (unlisted) company or a startup company. When the investment is in infant companies, it is referred to as venture capital investing and is generally regarded as a higher risk than investment in listed going-concern situations. The equities held by private individuals are often held as mutual funds or as other forms of collective investment scheme, many of which have quoted prices that are listed in financial newspapers or magazines; the mutual funds are typically managed by prominent fund management firms, such as Schroders, Fidelity Investments or The Vanguard Group. Such holdings allow individual investors to obtain the diversification of the fund(s) and to obtain the skill of the professional fund managers in charge of the fund(s). An alternative, which is usually employed by large private investors and pension funds, is to hold shares directly; in the institutional environment many clients who own portfolios have what are called segregated funds, as opposed to or in addition to the pooled mutual fund alternatives. A calculation can be made to assess whether an equity is over or underpriced, compared with a long-term government bond. This is called the Yield Gap or Yield Ratio. It is the ratio of the dividend yield of an equity and that of the long-term bond.

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BOMBAY STOCK EXCHANGE

Vision

"Emerge as the premier Indian stock exchange by establishing global benchmarks" BSE Limited is the oldest stock exchange in Asia What is now popularly known as the BSE was established as "The Native Share & Stock Brokers' Association" in 1875. Over the past 135 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient capital raising platform. Today, BSE is the world's number 1 exchange in the world in terms of the number of listed companies (over 4900). It is the world's 5th most active in terms of number of transactions handled through its electronic trading system. And it is in the top ten of global exchanges in terms of the market capitalization of its listed companies (as of December 31, 2009). The companies listed on BSE command a total market capitalization of USD Trillion 1.28 as of Feb, 2010. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first Exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-Line trading System (BOLT). Presently, we are ISO 27001:2005 certified, which is a ISO version of BS 7799 for Information Security. The BSE Index, SENSEX, is India's first and most popular Stock Market benchmark index. Exchange traded funds (ETF) on SENSEX, are listed on BSE and in Hong Kong. Futures and options on the index are also traded at BSE. BSE continues to innovate: Became the first national exchange to launch its website in Gujarati and Hindi and now Marathi Purchased of Marketplace Technologies in 2009 to enhance the in-house technology development capabilities of the BSE and allow faster time-to-market for new products Launched a reporting platform for corporate bonds christened the ICDM or Indian

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Corporate Debt Market Acquired a 15% stake in United Stock Exchange (USE) to drive the development and growth of the currency and interest rate derivatives markets Launched 'BSE StAR MF' Mutual fund trading platform, which enables exchange members to use its existing infrastructure for transaction in MF schemes. BSE now offers AMFI Certification for Mutual Fund Advisors through BSE Training Institute (BTI) Co-location facilities for Algorithmic trading BSE also successfully launched the BSE IPO index and PSU website BSE revamped its website with wide range of new features like 'Live streaming quotes for SENSEX companies', 'Advanced Stock Reach', 'SENSEX View', 'Market Galaxy', and 'Members' Launched 'BSE SENSEX MOBILE STREAMER'

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SENSEX Formation

Understanding Sensex

Sensex is primarily an index reflecting the Bombay Stock Exchange (BSE). Established in 1875, the Bombay stock exchange did not have an official index till1st Jan 1986 the sensex was adopted for gauging the performance of the Indian markets. The other important index in India is the National Stock Exchange (NSE) barometer – the Nifty. The sensex comprises of 30 prominent stocks derived from all the key sectors which are traded actively in the exchange. Thus the sensex truly reflects the movement of the Indian stock markets. Calculation Methodology for Sensex

Like all the other major financial indices of the world the sensex has also shifted to the ‘Free Float market capitalization’ methodology to determine its figures with effect from September 1, 2003. The level of the index is a direct reflection of the performance of the 30 selected key stocks in the market. Free-float market capitalization is defined as that proportion of total shares issued by the company that are readily available for trading in the market. It generally excludes promoters’ holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. So, simply put, Free-float market capitalization is the proportion of total shares available for trading to the general public.

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The BSE Sensex currently consists of the following 30 major Indian companies as of 17 February 2012.[3]

Company Industry Scrip

1 Housing Development Finance Corporation

Consumer finance 500010

2 Cipla Pharmaceuticals 500087

3 Bharat Heavy Electricals Electrical equipments 500103

4 State Bank Of India Banking 500112

5 HDFC Bank Banking 500180

6 Hero Motocorp Automotive 500182

7 Infosys Information Technology 500209

8 Oil and Natural Gas Corporation

Oil and gas 500312

9 Reliance Industries Oil and gas 500325

10 Tata Power Power 500400

11 Hindalco Industries Metals and Mining 500440

12 Tata Steel Steel 500470

13 Larsen & Toubro Conglomerate 500510

14 Mahindra & Mahindra Automotive 500520

15 Tata Motors Automotive 500570

16 Hindustan Unilever Consumer goods 500696

17 ITC Conglomerate 500875

18 Sterlite Industries Metals and Mining 500900

19 Wipro Information Technology 507685

20 Sun Pharmaceutical Pharmaceuticals 524715

21 GAIL Oil and gas 532155

22 ICICI Bank Banking 532174

23 Jindal Steel & Power Steel and power 532286

24 Bharti Airtel Telecommunication 532454

25 Maruti Suzuki Automotive 532500

26 Tata Consultancy Services Information Technology 532540

27 NTPC Power 532555

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28 DLF Real estate 532868

29 Bajaj Auto Automotive 532977

30 Coal India Metals and Mining 533278

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NSE INDIA

Purpose

Committed to improve the financial well-being of people. Vision

To continue to be a leader, establish global presence, facilitate the financial well being of people. Values

NSE is committed to the following core values : Integrity

Customer focussed culture Trust, respect and care for the individual Passion for excellence Teamwork The National Stock Exchange (NSE) is India's leading stock exchange covering various cities and towns across the country. NSE was set up by leading institutions to provide a modern, fully automated screen-based trading system with national reach. The Exchange has brought about unparalleled transparency, speed & efficiency, safety and market integrity. It has set up facilities that serve as a model for the securities industry in terms of systems, practices and procedures. NSE has played a catalytic role in reforming the Indian securities market in terms of microstructure, market practices and trading volumes. The market today uses state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism, and has witnessed several innovations in products & services viz. demutualisation of stock exchange governance, screen based trading, compression of settlement cycles, dematerialisation and electronic transfer of securities, securities lending and borrowing, professionalisation of trading members, fine-tuned risk management systems, emergence of clearing corporations to assume counterparty risks, market of debt and derivative instruments and intensive use of information technology

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How is a mutual fund set up?

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unitholders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. However, Unit Trust of India (UTI) is not registered with SEBI (as on January 15, 2002).

How to know the performance of a mutual fund scheme?

The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) http://www.amfiindia.com/ and thus the investors can access NAVs of all mutual funds at one place

The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format.

The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year.

Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should

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study these reports and keep themselves informed about the performance of various schemes of different mutual funds.

Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc.

On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme.

How to know where the mutual fund scheme has invested money mobilised from

the investors?

The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis which are published in the newspapers. Some mutual funds send the portfolios to their unitholders.

The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc.

Some of the mutual funds send newsletters to the unitholders on quarterly basis which also contain portfolios of the schemes.

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Investment

Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time.[1] In contrast putting money into something with an expectation of gain without thorough analysis, without security of principal, and without security of return is gambling. Putting money into something with an expectation of gain with thorough analysis, without security of principal, and without security of return is speculation. As such, those shareholders who fail to thoroughly analyze their stock purchases, such as owners of mutual funds, could well be called gamblers. Indeed, given the efficient market hypothesis, which implies that a thorough analysis of stock data is irrational, most rational shareholders are, by definition, not investors, but speculators. Investment is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and finance whether for households, firms, or governments. To avoid speculation an investment must be either directly backed by the pledge of sufficient collateral or insured by sufficient assets pledged by a third party.[original research?] A thoroughly analyzed loan of money backed by collateral with greater immediate value than the loan amount may be considered an investment. A financial instrument that is insured by the pledge of assets from a third party, such as a deposit in a financial institution insured by a government agency may be considered an investment

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Savings

Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in a bank or pension plan.[1] Saving also includes reducing expenditures, such as recurring costs. In terms of personal finance, saving specifies low-risk preservation of money, as in a deposit account, versus investment, wherein risk is higher. There is some disagreement about what counts as saving. For example, the part of a person's income that is spent on mortgage loan repayments is not spent on present consumption and is therefore saving by the above definition, even though people do not always think of repaying a loan as saving. However, in the U.S. measurement of the numbers behind its gross national product (i.e., the National Income and Product Accounts), personal interest payments are not treated as "saving" unless the institutions and people who receive them save them. "Saving" differs from "savings." The former refers to an increase in one's assets, an increase in net worth, whereas the latter refers to one part of one's assets, usually deposits in savings accounts, or to all of one's assets. Saving refers to an activity occurring over time, a flow variable, whereas savings refers to something that exists at any one time, a stock variable. Saving is closely related to investment. By not using income to buy consumer goods and services, it is possible for resources to instead be invested by being used to produce fixed capital, such as factories and machinery. Saving can therefore be vital to increase the amount of fixed capital available, which contributes to economic growth. However, increased saving does not always correspond to increased investment. If savings are stashed in or under a mattress, or otherwise not deposited into a financial intermediary such as a bank, there is no chance for those savings to be recycled as investment by business. This means that saving may increase without increasing investment, possibly causing a short-fall of demand (a pile-up of inventories, a cut-back of production, employment, and income, and thus a recession) rather than to economic growth. In the short term, if saving falls below investment, it can lead to a growth of aggregate demand and an economic boom. In the long term if saving falls below investment it eventually reduces investment and detracts from future growth. Future growth is made possible by foregoing present consumption to increase investment.

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However savings kept in a mattress amount to an (interest-free) loan to the government or central bank, who can recycle this loan. In a primitive agricultural economy savings might take the form of holding back the best of the corn harvest as seed corn for the next planting season. If the whole crop were consumed the economy would deteriorate to hunting and gathering the next season. Investing is the proactive use of your money to make more money or, to say it another way, it is your money working for you. Investing is different from saving. Saving is a passive activity, even though it uses the same principle of compounding. Saving is more focused on safety of principal (the amount you start out with) and less concerned with return. Your focus in investing is on return and can run the spectrum from conservative to very aggressive in terms of risk. One way you measure results is by the expected return weighed against the anticipated risks. It is easy to slip into an unnecessarily complex discussion about whether a particular financial transaction was an investment or a savings deposit. However, it is important to understand that investing has some distinctive characteristics, which separate it from pure savings. Since we are discussing stocks, I’ll limit the characteristics to that type of investment: •Ownership •Upside Potential •Risk Each of these characteristics sets investing in stocks apart from savings in several different ways. Ownership When you buy stock, you are buying a piece of a company – you become a part owner. This ownership gives you certain rights, including voting on important matters before the company and participating in the profits if the company distributes dividends. Virtually no savings instruments give you ownership. You may own a bank CD, but you don’t own part of the bank. You may own a U.S. Treasury bond, but you don’t own the government. Upside Potential When you own stock, you participate in the growth of the company. As the value of the company increases, so does you investment. If profits increase, you may receive bigger

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dividend checks. The stock price may continue to rise for a long period. Many of the early employees of Microsoft are millionaires because their stock has gone up dramatically. If you have a bank CD that pays 3%, it is unlikely the bank’s president is going to call you one day and say, ‘we’ve had a great year, so I’m raising your interest rate to 6%.’ Risk Along with the potential for extraordinary gain is the potential for loss. These two go hand in hand. You can lose money investing in stocks. If the thought of losing money makes your stomach knot up, stick to savings instruments. However, you should know that even the safest savings instrument carries unseen risks. Most savings instruments trade security for return, meaning they pay very little. When you factor in inflation and taxes, many so-called safe savings instruments return almost nothing and some can actually lose ground.

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What is the Difference Between Saving and Investing?

The difference between saving and investing is clarified with an explanation of saving and savings, and investing and investments. Once you understand these

distinctions; the difference between saving and investing is fairly easy.

Saving is the act of preserving income for a future use; or an amount of income that is not currently consumed. After the act of saving you may choose

to place the money in savings or investments.

Savings are the asset amounts that are preserved for future consumption. The main objective of savings is to preserve the money. Savings would incur

little or no risk to the original capital. Because of the relatively low risk; savings will generally provide a low rate of return.

Investing is the act of placing money in risk assets expected to grow from

producing a product or service of benefit to others. Investing generally involves putting the original investment at risk with the hope of higher returns

than savings.

Investments are the risk assets owned with the expectation of increased value in the future. Investments generally incur risk of your original capital

and provide a wider range of investment returns than savings.

Some people confuse investing with gambling. This is one good reason it’s important to differentiate and compartmentalize saving, investing, and gambling.

Most gambling involves risking capital and dividing a fixed amount among winners and losers based on chance. This is different from investing where you

place your money in an asset expected to increase in value over time.

Keep your saving, investing, and gambling activities completely separate from one another. This will help you focus on the objectives for your capital and

improve your chances of meeting your wealth building goals.

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How does a Mutual Fund work?

INVESTORS

BENEFITS OF OPEN ENDED MUTUAL FUNDS:

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Investment Options: Mutual Funds stand out – Detailed Explanation

Savings form an important part of the economy of any nation. With the savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents a plethora of avenues to the investors. Though certainly not the best or deepest of markets in the world, it has reasonable options for an ordinary man to invest his savings. Let us examine several of them:

Banks

Considered as the safest of all options, banks have been the roots of the financial systems in India. Promoted as the means to social development, banks in India have indeed played an important role in the rural upliftment. For an ordinary person though, they have acted as the safest investment avenue wherein a person deposits money and earns interest on it. The two main modes of investment in banks, savings accounts and Fixed deposits have been effectively used by one and all. However, today the interest rate structure in the country is headed southwards, keeping in line with global trends. With the banks offering little above 9 percent in their fixed deposits for one year, the yields have come down substantially in recent times. Add to this, the inflationary pressures in economy and you have a position where the savings are not earning. The inflation is creeping up, to almost 8 percent at times, and this means that the value of money saved goes down instead of going up. This effectively mars any chance of gaining from the investments in banks.

Post Office schemes

Just like banks, post offices in India have a wide network. Spread across the nation, they offer financial assistance as well as serving the basic requirements of communication. Among all saving options, Post office schemes have been offering the highest rates. Added to it is the fact that the investments are safe with the department being a Government of India entity. So the two basic and most sought for features, those of return safety and quantum of returns were being handsomely taken care of. Though certainly not the most efficient systems in terms of service standards and liquidity, these have still managed to attract the attention of small, retail investors. However, with the government announcing its intention of reducing the interest rates in small savings options, this avenue is

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expected to lose some of the investors. Public Provident Funds act as options to save for the post retirement period for most people and have been considered good option largely due to the fact that returns were higher than most other options and also helped people gain from tax benefits under various sections. This option too is likely to lose some of its sheen on account of reduction in the rates offered.

Company Fixed Deposits

Another oft-used route to invest has been the fixed deposit schemes floated by companies. Companies have used fixed deposit schemes as a means of mobilizing funds for their operations and have paid interest on them. The safer a company is rated, the lesser the return offered has been the thumb rule. However, there are several potential roadblocks in these. First of all, the danger of financial position of the company not being understood by the investor lurks. The investors rely on intermediaries who more often than not, don�t reveal the entire truth. Secondly, liquidity is a major problem with the amount being received months after the due dates. Premature redemption is generally not entertained without cuts in the returns offered and though they present a reasonable option to counter interest rate risk (especially when the economy is headed for a low interest regime), the safety of principal amount has been found lacking. Many cases like the Kuber Group and DCM Group fiascoes have resulted in low confidence in this option.

The options discussed above are essentially for the risk-averse, people who think of safety and then quantum of return, in that order. For the brave, it is dabbling in the stock market. Stock markets provide an option to invest in a high risk, high return game. While the potential return is much more than 10-11 percent any of the options discussed above can generally generate, the risk is undoubtedly of the highest order. But then, the general principle of encountering greater risks and uncertainty when one seeks higher returns holds true. However, as enticing as it might appear, people generally are clueless as to how the stock market functions and in the process can endanger the hard-earned money.

For those who are not adept at understanding the stock market, the task of generating superior returns at similar levels of risk is arduous to say the least. This is where Mutual Funds come into picture.

Mutual Funds are essentially investment vehicles where people with similar investment objective come together to pool their money and then invest

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accordingly. Each unit of any scheme represents the proportion of pool owned by the unit holder (investor). Appreciation or reduction in value of investments is reflected in net asset value (NAV) of the concerned scheme, which is declared by the fund from time to time. Mutual fund schemes are managed by respective Asset Management Companies (AMC). Different business groups/ financial institutions/ banks have sponsored these AMCs, either alone or in collaboration with reputed international firms. Several international funds like Alliance and Templeton are also operating independently in India. Many more international Mutual Fund giants are expected to come into Indian markets in the near future.

The benefits on offer are many with good post-tax returns and reasonable safety being the hallmark that we normally associate with them. Some of the other major benefits of investing in them are:

Number of available options

Mutual funds invest according to the underlying investment objective as specified at the time of launching a scheme. So, we have equity funds, debt funds, gilt funds and many others that cater to the different needs of the investor. The availability of these options makes them a good option. While equity funds can be as risky as the stock markets themselves, debt funds offer the kind of security that is aimed for at the time of making investments. Money market funds offer the liquidity that is desired by big investors who wish to park surplus funds for very short-term periods. Balance Funds acter to the investors having an appetite for risk greater than the debt funds but less than the equity funds. The only pertinent factor here is that the fund has to be selected keeping the risk profile of the investor in mind because the products listed above have different risks associated with them. So, while equity funds are a good bet for a long term, they may not find favour with corporates or High Networth Individuals (HNIs) who have short-term needs.

Diversification

Investments are spread across a wide cross-section of industries and sectors and so the risk is reduced. Diversification reduces the risk because all stocks don�t move in the same direction at the same time. One can achieve this diversification through a Mutual Fund with far less money than one can on his own.

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Professional Management

Mutual Funds employ the services of skilled professionals who have years of experience to back them up. They use intensive research techniques to analyze each investment option for the potential of returns along with their risk levels to come up with the figures for performance that determine the suitability of any potential investment.

Potential of Returns

Returns in the mutual funds are generally better than any other option in any other avenue over a reasonable period of time. People can pick their investment horizon and stay put in the chosen fund for the duration. Equity funds can outperform most other investments over long periods by placing long-term calls on fundamentally good stocks. The debt funds too will outperform other options such as banks. Though they are affected by the interest rate risk in general, the returns generated are more as they pick securities with different duration that have different yields and so are able to increase the overall returns from the portfolio.

Liquidity

Fixed deposits with companies or in banks are usually not withdrawn premature because there is a penal clause attached to it. The investors can withdraw or redeem money at the Net Asset Value related prices in the open-end schemes. In closed-end schemes, the units can be transacted at the prevailing market price on a stock exchange. Mutual funds also provide the facility of direct repurchase at NAV related prices. The market prices of these schemes are dependent on the NAVs of funds and may trade at more than NAV (known as Premium) or less than NAV (known as Discount) depending on the expected future trend of NAV which in turn is linked to general market conditions. Bullish market may result in schemes trading at Premium while in bearish markets the funds usually trade at Discount. This means that the money can be withdrawn anytime, without much reduction in yield. Some mutual funds however, charge exit loads for withdrawal within a period linked to

Besides these important features, mutual funds also offer several other key traits. Important among them are:

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Well Regulated

Unlike the company fixed deposits, where there is little control with the investment being considered as unsecured debt from the legal point of view, the Mutual Fund industry is very well regulated. All investments have to be accounted for, decisions judiciously taken. SEBI acts as a true watchdog in this case and can impose penalties on the AMCs at fault. The regulations, designed to protect the investors� interests are also implemented effectively.

Transparency

Being under a regulatory framework, mutual funds have to disclose their holdings, investment pattern and all the information that can be considered as material, before all investors. This means that the investment strategy, outlooks of the market and scheme related details are disclosed with reasonable frequency to ensure that transparency exists in the system. This is unlike any other investment option in India where the investor knows nothing as nothing is disclosed.

Flexible, Affordable and a Low Cost affair

Mutual Funds offer a relatively less expensive way to invest when compared to other avenues such as capital market operations. The fee in terms of brokerages, custodial fees and other management fees are substantially lower than other options and are directly linked to the performance of the scheme. Investment in mutual funds also offers a lot of flexibility with features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans enabling systematic investment or withdrawal of funds. Even the investors, who could otherwise not enter stock markets with low investible funds, can benefit from a portfolio comprising of high-priced stocks because they are purchased from pooled funds.

As has been discussed, mutual funds offer several benefits that are unmatched by other investment options. Post liberalization, the industry has been growing at a rapid pace and has crossed Rs. 100000 crore size in terms of its assets under management. However, due to the low key investor awareness, the inflow under the industry is yet to overtake the inflows in banks. Rising inflation, falling interest rates and a volatile equity market make a deadly cocktail for the investor for whom mutual funds offer a route out of the impasse. The investments in mutual funds are not without risks because the same forces such as regulatory

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frameworks, government policies, interest rate structures, performance of companies etc. that rattle the equity and debt markets, act on mutual funds too. But it is the skill of the managing risks that investment managers seek to implement in order to strive and generate superior returns than otherwise possible that makes them a better option than many others.

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CHANGING TREND OF INVESTMENT PATTERN IN INDIA

This project is about hoe the Investor's Behavior is changing and they are now leaving behind the sacred investment options like the fixed deposits, company deposits, gold etc. Investors are now looking towards equity linked investment options. Like most developed and developing countries the mutual fund cult has been catching on in India. There are various reasons for this. Mutual Fund makes it easy and less costly for investors to satisfy their need for capital growth, income preservation. And in addition to this a mutual fund brings the benefit of diversification and money management to the individual investor, providing an opportunity for financial success that was once available only to a select few. In this project I have given a brief about economy, inflation, and equity and debt market. Then it is explained how to cope with the inflation and how mutual fund is one of the best investment options today. A brief about mutual fund industry and the some information about HDFC Mutual Fund and its various products.

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INTRODUCTION: Many individuals find investments to be fascinating because they can participate in the decision making process and see the results of their choices. Not all investments will be profitable, as investor wills not always make the correct investment decisions over the period of years; however, you should earn a positive return on a diversified portfolio. In addition, there is a thrill from the major success, along with the agony associated with the stock that dramatically rose after you sold or did not buy. Both the big fish you catch and the fish that get away can make wonderful stories. Investing is not a game but a serious subject that can have a major impact on investor's future well being. Virtually everyone makes investments. Even if the individual does not select specific assets such as stock, investments are still made through participation in pension plan, and employee saving programme or through purchase of life insurance or a home. Each of this investment has common characteristics such as potential return and the risk you must bear. The future is uncertain, and you must determine how much risk you are willing to bear since higher return is associated with accepting more risk. In 1986, Microsoft Corporation first offered its stock to the public. Nine years later, the stock's value had increased over 5,000 percent- a $ 10,000 investment was worth over $ 5,00,000 in the same year, worlds of wonder also offered its stocks to the public. Nine years later the company was defunct- a $ 10,000 was worth nothing. These are two examples of emerging firms that could do exceedingly well or fail. Would investing in large, well establish firms generate more consistent returns? The answer depends, of course, on which firms were invested in. Over the years some investments have generated extraordinary gains, while others have produced only mediocre returns, and still others have resulted in substantial losses. The individual should start by specifying investment goals. Once these goals are established, the individual should be aware of the mechanics of investing and the environment in which investment decisions are made. These include the process by which securities are issued and subsequently bought and sold, the regulations and tax laws that have been enacted by various levels of government, and the sources of information concerning investment that are available to the individual. An understanding if this financial background leads to three important general financial concepts that apply to investing. Toady the field of investment is even more dynamic than it was only a decade ago. World event rapidly-events that alter the values of specific assets the individual has so

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many assets to choose from, and the amount of information available to the investors is staggering and continually growing. Furthermore, inflation has served to increased awareness of the importance of financial planning and wise investing. In this project I will first talk about economy, inflation, equity markets and debt markets to understand investments behavior.

INFLATION: Inflation is a situation where there is ' too much money chasing too few goods'. In such times buyers bid up prices of scarce products/services The scarcity could be caused by supply issues or a faster than expected rise in demand. Irrespective of what causes inflation, the impact is the same. The value of the currency you are holding declines. Let's explain this with the help of an example. Suppose the Indian Rupee was freely exchangeable with only one commodity- crude oil. Let's assume the conversion rate is Re 1= 1 barrel of crude (wish it were true!). Now there is tension in the Gulf region resulting in reduced supply. Due to the subsequent rise in price of crude oil in international markets, we would now have to pay more Rupees for every barrel of oil. Suppose crude prices rise by 10%. The new exchange rate will be Rs. 1.1 = 1 barrel of declined from 1 barrel of crude per Rupee to only 0.91 barrel of crude per Rupee this is the erosion in the value of the currency that we are talking about. Also note that while the Indian Rupee may be appreciating vis-à-vis other currencies, in the ' real sense' there is erosion in value. Another important fallout one can expect due to rising inflation is higher interest rates. The central banks aim to reduce demand in the economy by rising the cost of money. When making fresh investments or evaluating your existing holdings in potentially inflationary times you need to keep two things in mind: The possibility of higher interest rates The erosion in the value of the currency

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CONCLUSION:

The unique investment strategy of letting the maturity of the debt investment run down with time and targeting equity investments to capture dividends is targeted to deliver positive returns over medium time frame. The investment strategy of the fixed income portfolio is designed to remove the impact of interest rate movements over the medium term. The strategy of targeting dividends in equities over a period is expected to improve the yield of the fund. The above investment strategy expects to minimize capital loss in adverse market condition and deliver moderate returns in stable/positive market conditions. So, if you are looking for an investment product that offers you low risk of capital loss and the potential to earn reasonable returns in the uncertain environment of today, HDFC Multiple Yield Fund might be the right fund for you.

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Avenues for Investments:

� Postal savings

� Bank Deposits / Company deposits

� RBI bonds

� Govt. Securities

� Equity

� Commodity

� Real Estate

Present scenario :

� Fixed income investments

� Low Interest rate

� All traditional popular investments are taxable now

� Few Options only

� Equity Market

� Difficult To Predict

� Tough to Understand

� Highly risky

� Requires full time attention

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FACTORS AFFECTING WHILE SELECTING INVESTMENT AVENUE

1. Risk involve in investment instrument 2. Time horizon while investing in different instrument. 3. Liquidity available. 4. Lock in/ lock out. Eg:-FD is having lockin while other investment like mutual fund equity are free to withdraw anytime. 5. Returns:-Returns from some of the instruments are very much higher compared to some traditional avenues to investors

AVENUES RISK RETURN

MUTUAL FUND Medium High

EQUITY FUND High High

REAL ESTATE Medium Medium/High

GOLD Low Medium/High

COMPANY FD Low Low

BANK FD Low Low

POST OFFICE MIS Low Low

INSURANCE Low Low

CONVENIENCE:- Eg:- 1-Post Office MIS(Monthly Investment Saving) require cost of human ours. 2-While investment like mutual fund,equity,insurance,Bank FD,company fd are easily to buy andsell. Brokers are available freely who are selling the product. They are awarded by the selling company by brokerage.Services of this brokers are of high quality as they want regular business from their current investors.

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TIME HORIZON:-

It is almost necessary to understand to the investor that different investment avenues have different time horizon to invest so that to get the optimum return. Eg:-fixed deposit having a fixed time of investment and fixed returns while the avenues which have lighter risk takes lots of time to generate return. An optimum investment portfolio requires blend investment with different time horizon

AVENUE TIME HORIZON

Mutual Fund 5-7 YRS

FD 1YRS

Company FD 3 YRS

Real Estate 10 YRS

Insurance AS PER NEED(10 YRS OR MORE)

Equity 5-7 YRS

Gold Long Term

Bank Deposit Flexible-All Term

.

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Mutual Fund v/s Other Investment Avenues

A. Company Fixed Deposits v/s mutual fund:

A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. This amount today would get you less than quarter of an Infosys share! Thus it would be affordable for an investor to build a portfolio of investments through a mutual fund rather than investing directly in the stock market.

B. Bank Fixed deposits v/s mutual fund:

Bank Fixed deposits are similar to company fixed deposits excepting that the Bank FD’s are more safe and chances of default are very less. Banks operate under stringent requirements regarding Statutory Liquidity Ration (SLR) and Cash Reserve Ratio (CRR). Further, Deposit Insurance and Credit Guarantee Corporation (DICGC) protect bank deposits.

C. Bonds and Debentures v/s Mutual fund:

1. Credit rating of a bond is an indication of the inherent default risk in the investment. However unlike fixed deposits, bonds and debentures are transferable securities.

2. If security does not get traded in the market, then the liquidity remains on paper. In this respect an open-end mutual fund scheme offering continuous sale / repurchase option is superior.

3. There could be capital gain / capital loss to investor incase of an early exit, because the investment is subject to market risk. This is normally less in Mutual fund as the investment is made in basket of funds and hence your investment gets diversified.

D. Equity v/s Mutual fund:

1. It is not possible for a common man to lay his hands on all that information needed to make an equity investment. Mutual fund handled by professionals make prudent investment decisions.

2. Mutual fund investment offers diversification irrespective of the size of investment. Individual investor investing in equity scheme may not have this advantage especially if he does not have that sort of investible funds.

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E. Life insurance v/s Mutual Fund:

1. Life insurance is hedge against risk – and not really an investment option. 2. But occasionally, on account of mis-pricing of products in India, life insurance

products have offered a return that is higher than a comparable “safe” fixed return.

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CONCLUSION

Mutual fund has become one of the important sources for investing. It is quite likely that a more efficient portfolio can be constructed directly from funds. Thus, the two-step process of choosing an asset allocation based on the information about benchmark indexes and then choosing funds in each category may be one of the best realistically attainable approaches. To use this approach to portfolio selection effectively, investors would benefit from estimates of future asset returns, risks and correlations, as well as from fund management’s disclosure of future asset exposures and appropriate benchmarks.It has been a great opportunity for me to get a first experience of Mutual Funds. My study is to get the feel of how the work is carried out in relation to fund’s portfolio aspect. I got an opportunity in relation to the documentation and also the portfolio analysis that have been carrying out in facilitating the investor and the fund manager

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BIBLIOGRAPHY

Websites:-

• www.amfiindia.com

• www.moneycontrol.com

• www.hdfcfund.com

• www.google.com

• www.bseindia.com

• www.nseindia.com

• www.mutualfund.com