Mutual Fund Project LLM2

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COMPARATIVESTUDY OF MUTUAL

FUNDS

PREPARED BY : -- MOUMITA DEY

CLASS : -- LLM 2ND YEAR(BUSINESS LAW)Academic year :-- 2012-2013

UNDER GUIDANCE OF : --

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SYNOPSYS:1. ABSTRACT

2. IMPORTANCE OF RESEARCH

3. SCOPE OF RESEARCH

4. LIMITATIONS

5. OBJECTIVES OF STUDY

6. HYPOTHESYS OF STUDY

7. RESEARCH METHODOLOGY

8. CHPTERISATION

i. CHAPTERI - MUTUAL FUND--- DEFINITION,CONCEPT,

HISTORY, ORGANISATIONAL STRUCTURE

ii. CHAPTERIITYPES OF MUTUAL FUND SCHEME &

ADVANTAGES & DISADVANTAGES OF

MUTUAL FUND

iii. CHAPTERIII- MUTUAL FUND COMPANIES IN INDIA-AN

OVERVIEW & CURRENT SCENARIO

iv. CHAPTERIV- PERFORMANCE, RISK FACTORS &FEES &

FEES & EXPENSES OF MUTUAL FUND

v. CHAPTERVCOMPARISON BETWEEN VARIOUS MUTUAL

FUNDS

8. CONCLUSION AND SUGESSTIONS

9. REFERENCES

10. ACKNOWLEDGEMENT

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ABSTRACT

The rise in the level of capital market has manifested the importance Mutual Funds as

investment medium. Mutual Funds are now are becoming a preferred investment destination

for the investors as fund houses offer not only the expertise in managing funds but also a host

of other services.

Over the last five year period from Mar03 to Mar08, the money invested by FIIs was

Rs.2,09,213cr into the stock market as compared to Rs.38,964cr by mutual funds, yet MFs

collectively made an annualized return of 34% while it was 30% in case of FIIs.

Total Assets Under Management(AUM) in India as of today is $92b. Volatile markets and year

end accounting considerations have shaved 6% off in March, but much of that money should

flow back in April. The next five years will see the Indian Asset Management business grow at

least 33% annually says a study by McKinsey.

Funds in the diversified equity category which has the largest number of funds(194) as well as

the highest investor interest lost an average of 28.3% in Q4,2007-08 but gained an average of

21.4% over the four quarters. Equity funds are estimated to have had net inflows of Rs.7000cr

for March 2008.More than 80% of equity funds managed to outperform Sensex in terms of

returns over the last five years.

Investors money inflow to mutual funds has sidelined for the time being but the over all long

term fundamental outlook on the economy remains intact. To lower the impact of volatility one

can stay invested in diversified equity funds over a longer period of time through the route of

Systematic Investment Plan.

IMPORTANCE OF RESEARCH

The main purpose of doing this project was to know about mutual fund and its functioning. This

helps to know in details about the mutual fund industry right from its inception stage , growth ,

and future prospects.

It also helps in understanding different scheme of mutual funds.

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Investment in mutual funds gives you exposure to equity and debt markets. These funds are

marketed as a safe haven or as smart investment vehicles for novice investors.

The middle-class Indian investor who plays hot tips for a quick buck at the bourses is the stuff of

legends. The middle-class Indian investor who runs out of luck and loses not only his money but

his peace of mind too is somewhat less famous by choice. Mutual funds, on the other hand, sell

us middling miracles. Consequently proof enough for a research on Mutual Funds, which has

exacting returns.

OBJECTIVE OF THE PROJECT

Objectives are the ends that states specifically how goal be achieved. Every study must have an

objective for which all the efforts have been done. Without objective no research can be

conducted and no result can be obtained. On the basis of objective all the research process is

followed. Objectives are the main aspect of every study. The objective of the study gives

direction to go through the research problem. It guides the researcher and keeps him on track.

The objectives of my research are as follows:--

To give a brief idea about benefits available from mutual fund investment

To study some performance measure of mutual fund investment

To give a brief idea about types of schemes available

To give a brief idea about market trends of mutual fund industry

To study some mutual fund companies in India

To explore recent development of Mutual Funds in India.

To know the risk and return associated with mutual fund

To analyze concept and parameters of mutual fund

SCOPE OF THE PROJECT

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The project covers the financial instruments mobilizing in the Indian Capital market in particular

the Mutual Funds.

The mutual funds analysed for their performance are determined over a period of 5 years

fluctuations and returns.

The project shelves some of the top asset management companies operating in India ,

segregated on the basis of their performance over a period of time. Scooping further the

project inundates the success ratio of the funds administered by top AMCs.

The scope stretches to make people aware about concept of mutual fund as well as to provide

information about advantages and disadvantages of mutual fund

LIMITATIONS

A well managed portfolio of various individual scripts which is rare, would not help to draw a

line of difference between portfolio managed through mutual funds and the former.

The median used to choose the top AMCs and the mutual funds to be analysed is relative and

personalized and need not be accepted industry wide. Inaccessibility to certain information and

data relating to the project on account of it being confidential.

Market volatility would affect individuals perception which would rather not be likely the way it

is expressed, thus resulting in a very relative data.

The lack of information sources for the analysis part.

Though I tried to collect some primary data but they were too inadequate for the purposesof

the study.

Time and money are critical factors limiting this study.

The data provided by the prospects may not be 100% correct as they too have their limitations

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The study is limited to selected mutual fund schemes

RESEARCH METHODOLOGY

Research refers to search for knowledge. One can also define research as scientific and

systematic search for pertinent information on a specific topic.it is an srt of scientific

investigation.research methodology is the way to syatematically solve a problem. The

methodology adopted in this study is explained below:

Type of research

The research is qualitative and descriptive in nature. Qualitative research is that research which

talks about quality of the subject to be researched and descriptive research is one that

describes thing as exist in present.

Method of research

A thorough study of literature on the mutual fund industry in India will be done. Different

measures will be adopted to understand and evaluate the risks and returns of funds efficiently

and effectively.

An extensive study of various articles and publications of SEBI, AMFI and government of India

and other agencies with respect to the demographics of the population of the country and their

investing pattern will be a part of the methodology adopted. The project will be carried out

mainly through two researches:

The present study is empirical one and quantitative in approach. This study is based on primary

as well as secondary data. The empirical data have been collected by conducting a survey by

using an interview schedule. It was also thought proper that view perceptions of

entrepreneurs, through structured questionnaires to suggest the suitable policy measures. So,

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the researcher also interacted with the representatives of mutual fund companies for in depth

discussions.

The interview schedule has been structured .For identifying the variables to be used in theinterview schedule; the researcher conducted a trial interview. A rough draft of the interview

schedule was prepared and was circulated among fellow researchers for critical evaluation. The

draft was then revised in the light of their comments. Their suggestions were incorporated and

the final draft is prepared.

It has equally focused on qualitative methods of research. Secondary and published

documented data has been collected through various sources and analyzed accordingly.

Secondary data were also collected from published and unpublished sources. They werecollected from books, journals, reports and published documents

To make the study more meaningful and policy oriented available literature and studies have

been consulted and reviewed.

HYPOTHESYS

HYPOTHESIS

The Hypothesis of the study involves Comparison between:

1.Kotak Opportunities fund.2.Reliance Equity Opportunities fund.3.Franklin India Flexi

fund.4.HDFC Core & satellite fund.5.HSBC India Opportunities fund.The comparison between

these schemes is made based on the following factorsA)Sharpes RatioB)Treynors RatioC)

(Beta) co-efficient.D)Returns

Sources of data:

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Primary sources I have used questionnaire as primary source for collecting data

Secondary sources I had collected my secondary data from website , journals etc.

Every investor requires a healthy return on his/her investments. But since the market is very

volatile and due to lack of expertise they may fail to do so. So a study of these mutual funds will

help one to equip with unwarranted knowledge about the elements that help trade between

risk and return thereby improving effectiveness. A meticulous study on the scalability at which

the mutual funds operate along with diagnosis of the market conditions would endure

managing the investment portfolio efficiently. The study would also immunize on risks and

foresee healthy returns; incidentally in worst of conditions it has given a return of 18 per cent.

CHAPTER 1

INTRODUCTION:

What are Mutual Funds?

Mutual funds is an investment vehicle that is made by pooling funds from investment insecurities such as stocks, bonds, money market instruments and other similar assets. Mutual

funds are operated by fund managers, who invest the fund's capital in attempt to produce

capital gains. As the investment is made across a wide industries and sectors, the associated

risk is reduced to minimum. Mutual fund is issued to an individual based on the capital

invested. Investors of mutual funds are referred as unitholders.

The profit or loss in the investment is equally shared by all the investors according to

proportion of investment made. Mutual funds are launched in form of schemes with different

investment objectives from time to time. A mutual fund scheme should be registered with

Securities and Exchange Board of India (SEBI)

Mutual funds have been a significant source of investment in both government and corporate

securities. It has been for decades the monopoly of the state with UTI being the key player, with

invested funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned insurance companies also

hold a portfolio of stocks. Presently, numerous mutual funds exist, including private and foreign

companies. Banks - mainly state-owned too have established Mutual Funds (MFs). Foreign

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participation in mutual funds and asset management companies is permitted on a case by case

basis.

A Mutual Fund is a trust that pools the savings of a number of investors who share a commonfinancial goal. The money thus collected is then invested in capital market instruments such as

shares, debentures and other securities. The income earned through these investments and the

capital appreciations realized are shared by its unit holders in proportion to the number of units

owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it

offers an opportunity to invest in a diversified, professionally managed basket of securities at a

relatively low cost. The flow chart below describes broadly the working of a mutual fund:

CONCEPT:

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

are to be invested in accordance with a stated objective. The ownership of the fund is thus joint

or mutual; the fund belongs to all investors. A single investors ownership of the fund isin the

same proportion as the amount of the contribution made by him or her bears to the

totalamount of the fund.

Mutual Funds are trusts, which accept savings from investors and invest the same indiversified

financial instruments in terms of objectives set out in the trusts deed with the view

toreduce the risk and maximize the income and capital appreciation for

distribution for themembers. A Mutual Fund is a corporation and the fund managers interest is

to professionallymanage the funds provided by the investors and provide a return on them

after deductingreasonable management fees.The objective sought to be achieved by Mutual

Fund is to provide an opportunity for lower income groups to acquire without much difficulty

financial assets. They cater mainly tothe needs of the individual investor whose means are small

and to manage investors portfolio in

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amanner that provides a regular income, growth, safety, liquidity and diversificationopportuniti

es

A mutual fund is a scheme in which several people invest their money for a common financial

cause. The collected money invests in the capital market and the money, which theyearned, is

divided based on the number of units, which they hold.The mutual fund industry started inIndia in a small way with the UTI Act creating what was effectively a small savings division

within the RBI. Over a period of 25 years this grewfairly successfully and gave investors a good

return, and therefore in 1989, as the next logical step, public sector banks and financial

institutions were allowed to float mutual funds and their success emboldened the

government to allow the private sector to foray into this area.

There aresome loads which add to the cost of mutual fund. Load is a type of commission

depending on thetype of funds.Mutual funds are easy to buy and sell. You can either buy them

directly from the fundcompany or through a third party. Before investing in any funds one

should consider some factor like objective, risk, Fund Managers and scheme track record, Cost

factor etc.There are many, many types of mutual funds. You can classify funds based

Structure(open-ended & close-ended), Nature (equity, debt, balanced), Investment objective

(growth,income, money market) etc.A code of conduct and registration structure for mutual

fund intermediaries, which weresubsequently mandated by SEBI. In addition, this year AMFI

was involved in a number of developments and enhancements to the regulatory framework.

INTRODUCTION OF MUTUAL FUND

There are a lot of investment avenues available today in the financial market for an investor

withan investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds

wherethere is low risk but low return. He may invest in Stock of companies where the risk ishigh andthe returns are also proportionately high. The recent trends in the Stock Market have

shown thatan average retail investor always lost with periodic bearish tends. People began

opting for portfolio managers with expertise in stock markets who would invest on their

behalf. Thus wehad wealth management services provided by many institutions. However they

proved too costlyfor a small investor. These investors have found a good shelter with the

mutual funds.

IMPORTANT CHARACTERISTICS OF A MUTUAL FUND

A Mutual Fund actually belongs to the investors who have pooled their Funds. The ownership of

the mutual fund is in the hands of the Investors

A Mutual Fund is managed by investment professional and other Service providers, who earns a

fee for their services, from the fund

The pool of Funds is invested in a portfolio of marketable investments.

The value of the portfolio is updated every day.

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The investors share in the fundis denominated by units. The valueof the units changes with

change in the portfolio value, every day. Thevalue of one unit of investment is called net

asset value (NAV).

The investment portfolio of the mutual fund is created according to The statedInvestment

objectives of the Fund

HISTORY OF MUTUAL FUNDS:

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. 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 theReserve 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.

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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.

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 graph indicates the growth of assets under management over the years.GROWTH INASSETS UNDER MANAGEMENT

(Source:www.amfiindia.com )

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ORGANISATION OF A MUTUAL FUND:

There are many entities involved and the diagram below illustrates the organizational set up of

a mutual fund:

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More About Mutual funds

According to SEBI "Mutual Fund" means a fund established in the form of a trust to raise

monies through the sale of units to the public or a section of the public under one or more

schemes for investing in securities, including money market instruments;"

To the ordinary individual investor lacking expertise and specialized skill in dealing proficiently

with the securities market a Mutual Fund is the most suitable investment forum as it offers an

opportunity to invest in a diversified, professionally managed basket of securities at a relatively

low cost. India has a burgeoning population of middle class now estimated around 300 million.

A typical Indian middle class family can pool liquid savings ranging from Rs.2 to Rs.10 Lacs.

Investment of this money in Banks keeps the fund liquid and safe, but with the falling rate of

interest offered by Banks on Deposits, it is no longer attractive. At best a small part can be

parked in bank deposits, but what are the other sources of remunerative investment

possibilities open to the common man? Mutual Fund is the ready answer, as direct PMS

investment is out of the scope of these individuals. Viewed in this sense India is globally one of

the best markets for Mutual Fund Business, so also for Insurance business. This is the reason

that foreign companies compete with one another in setting up insurance and mutual fund

business shops in India. The sheer magnitude of the population of educated white-collar

employees with raising incomes and a well-organized stock market at par with global standards,

provide unlimited scope for development of financial services based on PMS like mutual fund

and insurance.

The alternative to mutual fund is direct investment by the investor in equities and bonds or

corporate deposits. All investments whether in shares, debentures or deposits involve risk:

share value may go down depending upon the performance of the company, the industry, state

of capital markets and the economy. Generally, however, longer the term, lesser is the risk.

Companies may default in payment of interest/ principal on their debentures/bonds/deposits;

the rate of interest on an investment may fall short of the rate of inflation reducing the

purchasing power. While risk cannot be eliminated, skillful management can minimise risk.

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Mutual Funds help to reduce risk through diversification and professional management. The

experience and expertise of Mutual Fund managers in selecting fundamentally sound securities

and timing their purchases and sales help them to build a diversified portfolio that minimises

risk and maximises returns.

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CHAPTER 2

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WORKING OF MUTUAL FUNDS

The mutual fund collects money directly or through brokers from investors. The

money isinvested in various instruments depending on the objective of the scheme. The income

generated by selling securities or capital appreciation of these securities is passed on to the

investors in proportion to their investment in the scheme. The investments are divided into

units and thevalue of the units will be reflected in Net Asset Value or NAV of the unit. NAV is

the marketvalue of the assets of the scheme minus its liabilities. The per unit NAV is the net

asset value of the scheme divided by the number of units outstanding on the valuation date.

Mutual fundcompanies provide daily net asset value of their schemes to their investors. NAV is

important, asit will determine the price at which you buy or redeem the units of a scheme.

Depending on theload structure of the scheme, you have to pay entry or exit load.

Types of mutual fund schemes

The expertise and professional skill developed by different Mutual Funds in Portfolio

Management can be better expressed by listing the different financial products they have

developed to be offered to the investors:

Mutual funds

Classification

By Maturityperoid

ByInvestmentObjective

Others

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TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk

tolerance and return expectations etc. thus mutual funds has Variety of flavors,Being a

collection of many stocks, an investors can go for picking a mutual fund might be easy.There are

over hundreds of mutual funds scheme to choose from. It is easier to think of mutualfunds in

categories, mentioned below.

There are 3 principal types of mutual funds in the United States:open-end funds,unit investmenttrusts(UITs); andclosed-end funds.Exchange-traded funds(ETFs) are open-end funds or unitinvestment trusts that trade on an exchange; they have gained in popularity recently. While theterm "mutual fund" may refer to all three types of registered investment companies, it is morecommonly used to refer exclusively to the open-end type

Income Funds:-

The aim of income funds is to provide regular and steady income toinvestors. Such schemes

generally invest in fixed income securities such as bonds, corporate debentures and

Government securities. Income Funds areideal for capital stability and regular income

Features

: - The main features of the Income funds are:

y

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The investor is assured of regular income at periodic intervals, saysHalf- yearly or years and so

on.

y

The main objective of this type fund is to declare regular dividendsand not capital appreciation.

y

The pattern of investment is oriented towards high and fixed incomeyielding securities like

debentures, bonds etc.

y

This is best suited to the old and retired people who may not have anyregular income.

y

It concerns itself with short run gains only

Growth Funds:-

The aim of growth funds is to provide capital appreciation over themedium to long- term. Such

schemes normally invest a majority of their corpus in equities. It has been proven that returns

from stocks, haveoutperformed most other kind of investments held over the long

term.Growth schemes are ideal for investors having a long-term outlook seekinggrowth over a

period of time.

Features

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: - The main features of the Growth funds are:

y

The Growth oriented fund aims at meeting the investors' needfor capital appreciation.

y

The Investment strategy therefore, conforms to the Fundobjective by investing the fund

predominantly on equities withhigh growth potential.

y

The Fund tries to get capital appreciation by taking much risk and investing on risk bearing

equities and high growth equityshares.

y

The Fund may declare dividend, but its principal objective isonly capital appreciation.

y

This is best suited to salaried and business people who havehigh risk bearing capacity and

ability to defer liquidity. Theycan accumulate wealth for future needs.

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Balance Funds:-

The aim of balanced funds is to provide both growth and regular income. Such schemes

periodically distribute a part of their earning andinvest both in equities and fixed income

securities in the proportionindicated in their offer documents. In a rising stock market, the NAV

of these schemes may not normally keep pace, or fall equally when the marketfalls. These are

ideal for investors looking for a combination of income andmoderate growth.

Specialised Funds:-

Index schemes:-The primary purpose of an Index is to serve as a measure of the performance of

the market as a whole, or a specific sector of the market. AnIndex also serves as a relevant

benchmark to evaluate the performance of mutual funds. Some investors are interested in

investing in the market ingeneral rather than investing in any specific fund. Such investors are

happyto receive the returns posted by the markets. As it is not practical to invest ineach and

every stock in the market in proportion to its size, these investorsare comfortable investing in a

fund that they believe is a good representativeof the entire market. Index Funds are launched

and managed for suchinvestors. An example to such a fund is the HDFC Index Fund.

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Tax Saving schemes:

Investors (individuals and Hindu Undivided Families HUFs) are being encouraged to invest in

equity markets through Equity Linked SavingsScheme (ELSS) by offering them a tax rebate.

Units purchased cannot beassigned / transferred/ pledged / redeemed / switched out until

completionof 3 years from the date of allotment of the respective Units.

Money Market Funds:

The aim of money market funds is to provide easy liquidity, preservation of capital and

moderate income. These schemes generallyinvest in safer short-term instruments such as

treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on

theseschemes may fluctuate depending upon the interest rates prevailing in themarket. These

are ideal for corporate and individual investors as a means to park their surplus funds for short

periods.

Load Funds

A Load Fund is one that charges a commission for entry or exit. Thatis, each time you buy or sell

units in the fund, a commission will be payable.Typically entry and exit loads range from 1% to

2%. It could be worth paying the load, if the fund has a good performance history.

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No-Load Funds

A No-Load Fund is one that does not charge a commission for entryor exit. That is, no

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

is that the entire corpus is put towork

1. Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or close-ended

scheme depending on its maturity period.

Open-end funds

o An open-ended fund or scheme is one that is available for subscription and

repurchase on a continuous basis. These schemes do not have a fixed maturity

period

Open-end mutual funds must be willing to buy back their shares from their investors at

the end of every business day at the net asset value computed that day. Most open-end

funds also sell shares to the public every business day; these shares are also priced at

net asset value. A professional investment manager oversees the portfolio, buying and

selling securities as appropriate. The total investment in the fund will vary based on

share purchases, share redemptions and fluctuation in market valuation. There is no

legal limit on the number of shares that can be issued.

Open-end funds are the most common type of mutual fund. At the end of 2011, there

were 7,581 open-end mutual funds in the United States with combined assets of $11.6

trillion.

Exchange-traded funds

Main article:Exchange-traded fund

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A relatively recent innovation, the exchange-traded fund or ETF is often structured as an open-end investment company, though ETFs may also be structured as unit investment trusts,partnerships, investments trust, grantor trusts or bonds (as anexchange-traded note). ETFscombine characteristics of both closed-end funds and open-end funds. Like closed-end funds,ETFs are traded throughout the day on a stock exchange at a price determined by the market.

However, as with open-end funds, investors normally receive a price that is close to net assetvalue. To keep the market price close to net asset value, ETFs issue and redeem large blocks oftheir shares with institutional investors.

Closed-end funds

o Close-ended Fund/Scheme: A close-ended fund or scheme has a stipulated

maturity period e.g. 5-7 years. The fund is open for subscription only during a

specified period at the time of launch of the scheme. Investors can invest in the

scheme at the time of the initial public issue and thereafter they can buy or sell

the units of the scheme on the stock exchanges where the units are listed. In

order to provide an exit route to the investors, some close-ended funds give an

option of selling back the units to the mutual fund through periodic repurchase

at NAV related prices. These mutual funds schemes disclose NAV generally on

weekly basis

Closed-end funds generally issue shares to the public only once, when they are created

through an initial public offering. Their shares are then listed for trading on a stock

exchange. Investors who no longer wish to invest in the fund cannot sell their shares

back to the fund (as they can with an open-end fund). Instead, they must sell their

shares to another investor in the market; the price they receive may be significantly

different from net asset value. It may be at a "premium" to net asset value (meaning

that it is higher than net asset value) or, more commonly, at a "discount" to net asset

value (meaning that it is lower than net asset value). A professional investment manager

oversees the portfolio, buying and selling securities as appropriate.

At the end of 2011, there were 634 closed-end funds in the United States with

combined assets of $239 billion.[13]

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Unit investment trusts

Unit investment trusts or UITs issue shares to the public only once, when they are

created. UITs generally have a limited life span, established at creation. Investors can

redeem shares directly with the fund at any time (as with an open-end fund) or wait to

redeem upon termination of the trust. Less commonly, they can sell their shares in the

open market.

Unit investment trusts do not have a professional investment manager. Their portfolio

of securities is established at the creation of the UIT and does not change.

At the end of 2011, there were 6,022 UITs in the United States with combined assets of

$60 billion.[13]

2. Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme

considering its investment objective. Such schemes may be open-ended or close-ended

schemes as described earlier. Such schemes may be classified mainly as follows:

o Growth / Equity Oriented Scheme: The aim of growth funds is to provide capital

appreciation over the medium to long- term. Such schemes normally invest a

major part of their corpus in equities. Such funds have comparatively high risks.

These schemes provide different options to the investors like dividend option,

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capital appreciation, etc. and the investors may choose an option depending on

their preferences. The mutual funds also allow the investors to change the

options at a later date. Growth schemes are good for investors having a long-

term outlook seeking appreciation over a period of time.

o Income / Debt Oriented Scheme: The aim of income funds is to provide regular

and steady income to investors. Such schemes generally invest in fixed income

securities such as bonds, corporate debentures, Government securities and

money market instruments. Such funds are less risky compared to equity

schemes. These funds are not affected because of fluctuations in equity markets.

However, opportunities of capital appreciation are also limited in such funds.

The NAVs of such funds are affected because of change in interest rates in the

country. If the interest rates fall, NAVs of such funds are likely to increase in the

short run and vice versa. However, long term investors may not bother about

these fluctuations.

o Balanced Fund: The aim of balanced funds is to provide both growth and regular

income as such schemes invest both in equities and fixed income securities in

the proportion indicated in their offer documents. These are appropriate for

investors looking for moderate growth. They generally invest 40-60% in equityand debt instruments. These funds are also affected because of fluctuations in

share prices in the stock markets. However, NAVs of such funds are likely to be

less volatile compared to pure equity funds.

3. Money Market or Liquid Fund:

These funds are also income funds and their aim is to provide easy liquidity,

preservation of capital and moderate income. These schemes invest exclusively in safershort-term instruments such as treasury bills, certificates of deposit, commercial paper

and inter-bank call money, government securities, etc. Returns on these schemes

fluctuate much less compared to other funds. These funds are appropriate for corporate

and individual investors as a means to park their surplus funds for short periods.

4. Gilt Fund:

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These funds invest exclusively in government securities. Government securities have no

default risk. NAVs of these schemes also fluctuate due to change in interest rates and

other economic factors as is the case with income or debt oriented schemes.

5. Index Funds:

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index,

S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the same

weightage comprising of an index. NAVs of such schemes would rise or fall in

accordance with the rise or fall in the index, though not exactly by the same percentage

due to some factors known as "tracking error" in technical terms. Necessary disclosures

in this regard are made in the offer document of the mutual fund scheme. There are

also exchange traded index funds launched by the mutual funds which are traded on the

stock exchanges.

6. Sector specific funds/schemes:

These are the funds/schemes, which invest in the securities of only those sectors, or

industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast

Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are

dependent on the performance of the respective sectors/industries. While these funds

may give higher returns, they are more risky compared to diversified funds. Investors

need to keep a watch on the performance of those sectors/industries and must exit at

an appropriate time. They may also seek advice of an expert.

7. Tax Saving Schemes:

These schemes offer tax rebates to the investors under specific provisions of the Income

Tax Act, 1961 as the Government offers tax incentives for investment in specified

avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the

mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-

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dominantly in equities. Their growth opportunities and risks associated are like any

equity-oriented scheme

8. Load or no-load Fund:

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

one buys or sells units in the fund, a charge will be payable. This charge is used by the

mutual fund for marketing and distribution expenses. However, the investors should

also consider the performance track record and service standards of the mutual fund,

which are more important. Efficient funds may give higher returns in spite of loads.

9. No-load fund: is one that does not charge for entry or exit. It means the investors can

enter the fund/scheme at NAV and no additional charges are payable on purchase or

sale of units.

10.Monthly Income Plan:

To generate regular income through investments in debt and money market

instruments and also to generate long-term capital appreciation by investing a

portion in equity related instruments.

Fund Objective :-Investors seeking regular income through investments in fixed

income securities so as to get monthly/quarterly/half yearly dividend. The

secondary objective of the scheme is to generate long term capital appreciation

by investing a portion of schemes assets in equity and equity related

instruments. Suitable for investor with medium risk profile and seeking regular

income.

11.FMPs ( Fixed Maturity Plans ): These are close-ended income schemes with a fixed

maturity date. The period could range from fifteen days to as long as two years or more.When the period comes to an end, the scheme matures and money is paid back. Like an

income scheme, FMPs invest in fixed income instruments i.e. bonds, government

securities, money market instruments etc. The tenure of these instruments depends on

the tenure of the scheme.

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FMPs effectively eliminate interest rate risk. This is done by employing a specific

investment strategy. FMPs invest in instruments that mature at the same time

their schemes come to an end. So a 90-day FMP will invest in instruments that

mature within 90 days.

For all practical purposes, an FMP is an income scheme of a mutual fund. Hence,

the tax incidence would be similar to that on traditional income schemes. The

dividend from an FMP will be tax free in the hands of an individual investor.

However, it would be subject to the dividend distribution tax.

Redemptions from investments held for less than a year will be short-term gains

and added to the investor's income to be taxed at slab rates applicable. If such

an investment were held for more than a year, the long-term gains would gettaxed at 20 per cent with indexation or at 10 per cent without. These rates are

subject to the surcharge and education cess as normally applicable. One can

avail the benefit of double indexation and save tax on FMPs held for more than

one year.

Different Modes of Receiving the Income Earned From Mutual

Fund Investments

Mutual funds offer three methods of receiving income:

Growth plan:

In this plan, dividend is neither declared or paid out to the investor but is built into the value ofthe NAV. In other words, the NAV increases over time due to such incomes and the investorrealizes only the capital appreciation on redemption of his investment.

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Income funds:

In this plan, dividend are paid outs to the investor. In other words, the NAV only reflects thecapital appreciation or depreciation in market price of the underlying portfolio.

Dividend re-investment plan:

In this case, dividend is declared but not paid out to the investor, instead, it is reinvested back

into the scheme at the then prevailing NAV. In other words, the investor is given additional unitsand not cash as dividend.

Net asset value (NAV)

The net asset value of the fund is the cumulative market value of the asset fund net of itsliabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the

fund, this is the amount that the shareholders would collectively own. This gives ride to theconcept of net asset value per unit, which is the value, represented by the ownership of one unitin the fund. It is calculated simply by dividing the net asset value of the fund by the number ofunits. However, most people refer loosely to the NAV per unit as NAV, ignoring the per unit.We also abide by the same convention.

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ADVANTAGES AND DISADVANTAGES

Reduction Of Transaction Costs:

What is true of risk as also true of the transaction costs. Theinvestor bears all the costs of investing such as brokerage orcustody of securities. When going through a fund, he hasthe benefit of economies of scale; the funds pay lesser costsbecause of larger volumes, a benefit passed on to its investors.

Liquidity:

Often, investors hold shares or bonds they cannot directly, easily

and quickly sell. Whenthey invest in the units of a fund, they cangenerally cash their investments any time, by sellingtheir units tothe fund if open-ended, or selling them in the market if the fund isclose-end.Liquidity of investment is clearly a big benefit.

6.

Convenience And Flexibility:

Mutual fund management companies offer many investor servicesthat a direct marketinvestor cannot get. Investors can easilytransfer their holding from one scheme to the other; getupdatedmarket information and so on.

7.

Tax Benefits:

Any income distributed after March 31, 2002 will be subject to taxin the assessment of all Unit holders. However, as a measure ofconcession to Unit holders of open-ended equity-oriented funds,

income distributions for the year ending March 31, 2003, will betaxed at aconcessional rate of 10.5%.In case of Individuals andHindu Undivided Families a deduction upto Rs. 9,000 fromtheTotal Income will be admissible in respect of income frominvestments specified in Section 80L,including income from Unitsof the Mutual Fund. Units of the schemes are not subjecttoWealth-Tax and Gift-Tax.

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8.Choice of Schemes:

Mutual Funds offer a family of schemes to suit your varying needsover a lifetime.

16

9.Well Regulated:

All Mutual Funds are registered with SEBI and they function withinthe provisions of strictregulations designed to protect the interestsof investors. The operations of Mutual Funds areregularlymonitored by SEBI.

10.Transparency:

You get regular information on the value of your investment inaddition to disclosure on thespecific investments made by yourscheme, the proportion invested in each class of assetsand thefund manager's investment strategy and outlook.

DISADVANTAGES OF INVESTING THROUGH

MUTUALFUNDS:1.

No Control Over Costs:

An investor in a mutual fund has no control of the overall costs ofinvesting. The investor pays investment management fees aslong as he remains with the fund, albeit in return for

the professional management and research. Fees are payableeven if the value of his investments isdeclining. A mutual fundinvestor also pays fund distribution costs, which he would notincur indirect investing. However, this shortcoming only meansthat there is a cost to obtain the mutualfund services.

2.

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No Tailor-Made Portfolio:

Investors who invest on their own can build their own portfolios of

shares and bonds andother securities. Investing through fundmeans he delegates this decision to the fund managers.The very-high-net-worth individuals or large corporate investors may findthis to be a constraintin achieving their objectives. However, mostmutual fund managers help investors overcome thisconstraint byoffering families of funds- a large number of different schemes-within their ownmanagement company. An investor can choosefrom different investment plans and constructs a portfolio to his

choice.17

3.Managing A Portfolio Of Funds:

Availability of a large number of funds can actually mean toomuch choice for theinvestor. He may again need advice on how toselect a fund to achieve his objectives, quitesimilar to the situation

when he has individual shares or bonds to select.4.The Wisdom Of Professional Management:

That's right, this is not an advantage. The average mutual fundmanager is no better at picking stocks than the averagenonprofessional, but charges fees.

5.

No Control:

Unlike picking your own individual stocks, a mutual fund puts youin the passenger seatof somebody else's car

6.Dilution:

Mutual funds generally have such small holdings of so many different stocks thatinsanely great performance by a fund's top

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holdings still doesn't make much of a difference in amutual fund'stotal performance.

7.Buried Costs:

Many mutual funds specialize in burying their costs and in hiringsalesmen who do notmake those costs clear to their clients

The Advantages of Investing in a Mutual Fund

The advantages of investing in a Mutual Fund extending PMS to the small investors are as

under:

Professional Management- The investor avails of the services of experienced and skilled

professionals who are backed by a dedicated investment research team, which analyses

the performance and prospects of companies and selects suitable investments to

achieve the objectives of the scheme.

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

section of industries and sectors. This diversification reduces the risk because seldom do

all stocks decline at the same time and in the same proportion. You achieve this

diversification through a Mutual Fund with far less money than you can do on your own.

Convenient Administration - Investing in a Mutual Fund reduces paperwork and helps

you avoid many problems such as bad deliveries, delayed payments and unnecessary

follow up with brokers and companies. Mutual Funds save your time and make investing

easy and convenient.

Return Potential Over a medium to long-term - Mutual Funds have the potential to

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

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Low Costs - Mutual Funds are a relatively less expensive way to invest compared to

directly investing in the capital markets because the benefits of scale in brokerage,

custodial and other fees translate into lower costs for investors.

Liquidity- In open-ended schemes, you can get your money back promptly at net asset

value related prices from the Mutual Fund itself. With close-ended schemes, you can sell

your units on a stock exchange at the prevailing market price or avail of the facility of

direct repurchase at NAV related prices which some close-ended and interval schemes

offer you periodically.

Transparency- You get regular information on the value of your investment in addition

to disclosure on the specific investments made by your scheme, the proportion invested

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

Flexibility- Through features such as regular investment plans, regular withdrawal plans

and dividend reinvestment plans, you can systematically invest or withdraw funds

according to your needs and convenience.

Choice of Schemes- Mutual Funds offers a family of schemes to suit your varying needs

over a lifetime.

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

provisions of strict regulations designed to protect the interests of investors. Theoperations of Mutual Funds are regularly monitored by SEBI.

Advantages of Mutual Funds:- The advantages of investing in a Mutual Fund are:

Professional Management

Diversification

Convenient Administration

Return Potential

Low Costs

Liquidity

Transparency

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Flexibility

Disadvantages:

No Control over Cost

No Tailor-made Portfolios

Managing a Portfolio of Funds

Mutual funds have advantages compared to direct investing in individual securities.[3]Theseinclude:

Increased diversification

Daily liquidity Professional investment management

Ability to participate in investments that may be available only to larger investors

Service and convenience

Government oversight

Ease of comparison

Mutual funds have disadvantages as well, which include[4]:

Fees

Less control over timing of recognition of gains

Less predictable income No opportunity to customize

CHAPTER 3

STRUCTURE OF A MUTUAL FUND:

India has a legal framework within which Mutual Fund have to be constituted. In Indiaopen and

close-end funds operate under the same regulatory structure i.e. as unit Trusts. AMutual Fund

in India is allowed to issue open-end and close-end schemes under a common legalstructure.

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The structure that is required to be followed by any Mutual Fund in India is laid downunder

SEBI (Mutual Fund) Regulations, 1996.

The Fund Sponsor:

Sponsor is defined under SEBI regulations as any person who, acting alone or incombination of

another corporate body establishes a Mutual Fund. The sponsor of the fund isakin to the

promoter of a company as he gets the fund registered with SEBI. The sponsor forms atrust and

appoints a Board of Trustees. The sponsor also appoints the Asset ManagementCompany as

fund managers. The sponsor either directly or acting through the trustees will alsoappoint a

custodian to hold funds assets. All these are made in accordance with the regulationand

guidelines of SEBI.

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

40% of the net worth of the Asset Management Company and possesses a sound financialtrack

record over 5 years prior to registration

Overview of Indian Mutual Fund Industry

Assets under management

As of the end on 31 January 2008, the mutual fund industry had a debt and equity assets ofRs

5,50,157 crore. Its equity corpus ofRs 2,20,263 lakh crore accounts for over 3 per cent of the

total market capitalization of BSE, at Rs 58 lakh crore. Its holding in Indian companies ranges

between 1 per cent and almost 29 per cent, making them an influential shareholder. Together

with banks, insurance companies and FIIs- collectively called institutional investors- they have

the ability to ask company managements some tough questions. Indias market for mutual

funds has generated substantial growth in assets under management over the past 10 years.

Money flows by type of fund

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A detailed breakdown of the fund inflows over the past years 2005-2006 shows particularly

strong inflows into equity funds, an indication that investors in India see strong growth

potential for Indias domestic firms. Most of the money flowing into equity funds is from

individual investors, and appears to include both funds owned by the wealthy, which tend to

invest via the growing private banking channel, and funds from regular retail investors, who are

growing in number in step with growth in the middle class.

Ownership of mutual fund shares

One notable characteristic of Indias mutual fund market is the high percentage of shares

owned by corporations. According to the Association of Mutual Funds in India ( AMFI ) ,

Individual investors held slightly under 50% of mutual fund assets, and corporations held over

50% as of the end of march 2007. This high percentage of corporate ownership can be tracked

back to tax reforms instituted in 1999 that lowered the tax rate on dividend and interest

income from mutual funds, and made that rate lower than the corporate tax levied on income

from securities held directly by corporations.

Although there is no official data regarding the type investor in each class, the typical pattern

seems to be that individual investors primarily invest in equity funds, while corporate investors

favor bond funds, particularly short-term money market products that provide a way for

corp[orations to invest surplus cash.

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MUTUAL FUND COMPANIES IN

INDIA:The concept of mutual funds in India dates back to the year 1963. The era between 1963and

1987 marked the existance of only one mutual fund company in India with Rs.

67bn assetsunder management (AUM), by the end of its monopoly era, the Unit Trust of

India (UTI). By theend of the 80s decade, few other mutua l fund compan ies inIndia took their position in mutualfund market.The new entries of mutual fund

companies in India were SBI Mutual Fund, Canbank Mutual Fund, Punjab

National Bank Mutual Fund, Indian Bank Mutua l Fund, Bank of IndiaMutual

Fund.The succeeding decade showed a new horizon in Indian mutual fund industry. By the

endof 1993, the to ta l AUM of the indus t ry was Rs . 470.04 bn . The

p r i v a t e s ec to r funds s t a r t ed pene trating the fund families. In the same year

the first Mutu al Fund Regula tions came intoexistance with re-registering all mutual

funds except UTI. The regulations were further given arevised shape in 1996.Kothari Pioneer

was the first private sector mutual fund company in India which has nowmerged with

Franklin Templeton. Just after ten years with private sector players penetration, theto t a l

a s se t s r ose up t o Rs . 1218 .05 bn . Today t he re a r e 33 mutua l f und

compan ie s i n Ind i a .

Major Mutual Fund Companies in India

ABN AMRO Mutual Fund

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Birla Sun Life Mutual Fund

Bank of Baroda Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund

Prudential ICICI Mutual Fund

State Bank of India Mutual Fund

Tata Mutual Fund

Unit Trust of India Mutual Fund

Reliance Mutual Fund

Standard Chartered Mutual Fund

Franklin Templeton India Mutual Fund

Morgan Stanley Mutual Fund India

Escorts Mutual Fund

Alliance Capital Mutual Fund

Benchmark Mutual Fund

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Canbank Mutual Fund

Chola Mutual Fund

LIC Mutual Fund

GIC Mutual Fund

ABN AMRO MUTUAL FUND

ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee(India)Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India)

Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian ofABN AMRO Mutual Fund.

BIRLA SUN LIFE MUTUAL FUND

Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun LifeFinancial. Sun Life Financial is a global organization evolved in 1871 and isbeing represented in Canada, the US, the Philippines, Japan, Indonesia and Bermudaapart from India. Birla Sun life Mutual Fund follows a conservative long-term approachto investment. Recently it crossed a AUM of Rs.10, 000 crores.

BANK OF BARODA MUTUAL FUND

Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992under the sponsorship of Bank of Baroda. BOB Assets Management Company Limitedis the AUM of BOB Mutual Fund and was incorporated on November 5, 1992. DeutscheBank AG is the custodian.

HDFC MUTUAL FUND

HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namelyHousing Development Finance Corporation Limited and Standard Life InvestmentsLimited.

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ING VYSYA MUTUAL FUND

ING Yysya Mutual Fund was setup on February 11, 1999 with the same named TrusteeCompany. It is a joint venture of Vysya and ING. The AMC, INGInvestment Management (India) Pvt. Ltd. was on corporaed on April 6, 1998.

PRUDENTIAL ICICI MUTUAL FUND

The mutual fund of ICICI is a joint venture with Prudential Plc. Of America, one of thelargest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setupon 13 October, 1993 with two sponsors, Prudential Plc. and the AMC is Prudential ICICI

Asset Management Company Limited incorporated on 22 June, 1993.

SAHARA MUTUAL FUND

Sahara Mutual Fund was setup on July 18, 1996 with Sahara India financial CorporationLtd. as the sponsor. Sahara Assets Management Company Private Limited incorporatedon August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid up capital ofthe AMC stands at Rs.25.8 crore.

STATE BANK OF INDIA MUTUAL FUND

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund tolaunch offshore fund, the India Magnum Fund with a corpus of Rs.225 croreapproximately. Today it is the largest Bank sponsored Mutual Fund in India. Theyalready launched 35 schemes out of which 15 have already yield handsome returns toinvestors. State Bank of India Mutual Fund has more than Rs.5, 500 crores as

AUM. Now it has an investor base of over 8 lakhs spread over 18 schemes.

TATA MUTUAL FUND

TATA Mutual Fund is a Trust under the Indian Trust Act, 1882. the sponsors for TataMutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. the investment

manger is Tata management Limited is one of the fastest in the country with more thanRs.7,703 Crore(as on 2005) of AUM.

KOTAK MAHINDRA ASSET MANAGEMENT COMPANY

Kotak Mahindra Asset Management Company is a subsidiary of KMBL. It is presentlyhaving more than 1, 99,818 investors in its various schemes. KMAMC stared itsoperations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to

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investors with varying risk return profiles. It was the first company to launchto dedicated gilt scheme investing only in government securities.

UNIT TRUST OF INDIA MUTUAL FUND

UTI Asset Management Company Private Limited, established in Jan 24, 2003manages the UTI Mutual Fund with the support of UTI Trustee Company PrivateLimited. UTI Asset Management Company presently manages a corpus of overRs.20, 000 crore. The sponsors of UTI Mutual Fund are Bank of Baroda, PunjabNational Bank, State Bank of India, and Life Insurance Corporation of India. Theschemes of UTI Mutual Fund are Liquid Funds, assets Management Funds, IndexFunds and BalancedFunds.

RELIANCE MUTUAL FUNDReliance Mutual Fund was established as trust under Indian Trusts Act, 1882.Thesponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limitedis the Trustee. It was registered on June 30, 1995 as Reliance Mutual Fund which waschanged on March 11, 2004. Reliance Mutual Fund was formed for launching of variousschemes under which, units are issued to the public with a view to contribute to thecapital market and to provide investors the opportunities to make investmentsin diversified securities.

STANDARD CHARTERED MUTUAL FUND

Standard Chartered Mutual Fund was setup on March 13, 2000 sponsored by StandardChartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd.Standard Chartered Asset Management Company Pvt. Ltd is the AMC whichwas incorporated with SEBI on December 20, 1999.

FRANKLIN TEMPLETON MUTUAL FUND

The group, Franklin Templeton investment is a California based company with a global

AUM of US $409.2(as on 2005). It is one of the largest financial service group in theworld. Investors can buy or sell the Mutual Fund through their financial advisoror through mail or through their website. They have open end Diversified Equityschemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end taxsaving schemes, Open end income and liquid schemes, Closed end Income schemesand Open end Fund of Funds schemes to offer.

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MORGAN STANLEY MUTUAL FUND

Morgan Stanley is a world wide financial services company and its leading in themarket in securities, investment management and credit services. Morgan Stanley

investment management was established in the year 1975. it provides customized assetmanagement services and products to governments, corporations, pension funds andnon profit organizations. Its services are also extending to high net worth individuals andretail investors. In India it is known as Morgan Stanley investment managementPrivate Ltd. and its AMC is Morgan Stanley Mutual Fund. This is the first closed enddiversified equity scheme serving the needs of Indian retail investors focusing on thelong termcapital appreciation.

ESCORT MUTUAL FUNDS

Escort Mutual Funds was set up on April 15 th, 1996 with Escorts Finance Ltd. as itssponsor. The Trustee Company is Escorts Investments Trust Ltd.. its AMCwas incorporated on Dec1st, 95 with the name Escorts Asset Management Ltd.

ALLAINCE CAPITAL MUTUAL FUND

Allaince Capital Mutual Fund was set up on December 30, 1994 with Alliance CapitalManagement Corp. of Delaware (USA) as sponsor. The Trustee is ACAM TrustCompany Pvt. Ltd. and AMC, the Alliance Capital Asset Management India Pvt.

Ltd. with the corporate office in Mumbai.

BENCHMARK MUTUAL FUND

Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt.Ltd. as the sponsor and Benchmark Trustee Company Pvt. Ltd. as the trusteeCompany. incorporated on October 16, 2000 and headquartered inMumbai, Benchmark Assets Management Company Pvt. Ltd. is the AMC.

CAN BANK MUTUAL FUND

Can Bank Mutual Fund was setup on December 19, 1987 with Canara Bank acting asthe sponsor. Canara bank investment Management Service Ltd. incorporated on March2, 1993 is the AMC. The Corporate Office of the AMC is in Mumbai.

CHOLA MUTUAL FUND

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Chola Mutual Fund under the sponsorship of Cholamandalam Investment & FinanceCompany Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is theTrustee Company and AMC is Cholamandalam AMC Limited.

LIC MUTUAL FUND

Life Insurance Corporation on India setup LIC Mutual Fund on 19 th June 1989. Itcontributed Rs.2 crore towards the corpus of the Fund. LIC Mutual Fund wasconstituted as a trust in accordance with the provisions of the Indian trust Act, 1882.The Company started its bsiness on 29th April 1994. The Trustees of LIC Mutual Fundhave appointed Jeevan Bima Sahayog Asset Management Company Ltd. as theInvestment Managers for mutual fund.

GIC MUTUAL FUNDGIC Mutual Fund, sponsored by General Insurance Corporation of India, agovernment of India undertaking and the four Public Sector General InsuranceCompanies, viz. National Insurance Co. Ltd, the New India Assurance Co. Ltd. theOriental Insurance Co. Ltd and United India Insurance Co. Ltd and is constituted asa Trust in Accordance with the provisions of the Indian Trusts Act, 1882.

For the first time in the history of Indian mutual fund industry, Unit Trust of India

MutualFund has slipped from the first slot. Earlier, in May 2006, the Prudential ICICI

Mutual Fund wasranked at the number one slot in terms of total assets.In the very next

month, the UTIMF had regained its top position as the largest fund housein India. Now,

according to the current pegging order and the data released by Association

of Mutua l Funds i n Ind i a (AMFI ) , t he Re l i ance Mutua l Fund , w i th a

Jan uar y -en d AUM o f Rs39,020 crore has become the largest mutual fund in IndiaOn

the o the r hand , UTIMF, w i th an AUM of Rs 37 ,535 c ro re , ha s gone t o

seco md position. The Prudential ICICI MF has slipped to the third position with an AUM

of Rs 34,746crore.It happened for the first time in last one year that a private sector mutualfund house has reachedto the top slot in terms of asset under management (AUM). In the last

one year to January, AUMof the Indian fund industry has risen by 64% to Rs 3.39 lakh

crore.According to the data released by Association o f Mutual Funds in India

(AMFI) , thecombined average AUM of the 35 fund houses in the country increased to Rs

5,512.99 billion inApril compared to Rs 4,932.86 billion in MarchReliance MF maintained

its top position as the largest fund house in the country with Rs74.25 billion jump in AUM

to Rs 883.87 billion at April-end.T he se co nd -l ar ge st fu nd ho us e HD FC MF

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ga ine d R s 5 9. 24 bil l io n i n i ts AU M a t R s 6 38 .8 0 billion.ICICI Prudential

and state-run UTI MF added Rs 46.16 billion and Rs 57.35 billion rerespectively to

their assets last month. ICICI Prudential`s AUM stood at Rs 560.49 billion at theend of

April, while UTI MF had assets worth Rs 544.89 billion.T he o ther fu nd hou ses

which saw an increase in the i r average AUM in Apr i l inc lude-Canara

Robeco MF, IDFC MF, DSP BlackRock, Deutsche MF, Kotak Mahindra MF and

LICMF.

SEBI REGULATIONS

:

As far as mutual funds are concerned, SEBI formulates policies and regulates the mutualfunds

to protect the interest of the investors.

SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by

private sector entities were allowed to enter the capital market.

The regulations were fully revised in 1996 and have been amended thereafter from time totime.

SEBI has also issued guidelines to the mutual funds from time to time to protect the interestsof

investors.

All mutual funds whether promoted by public sector or private sector entities including

those promoted by foreign entities are governed by the same set of Regulations. The

risksassociated with the schemes launched by the mutual funds sponsored by these entities are

of similar type. There is no distinction in regulatory requirements for these mutual fundsand allare subject to monitoring and inspections by SEBI.

SEBI Regulations require that at least two thirds of the directors of trustee company or boardof

trustees must be independent i.e. they should not be associated with the sponsors.

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Also, 50% of the directors of AMC must be independent. All mutual funds are required to

beregistered with SEBI before they launch any scheme.

Further SEBI Regualtions, inter-alia, stipulate that MFs cannot gurarnatee returns in anyscheme

and that each scheme is subject to 20 : 25 condition [I.e minimum 20 investors per scheme andone investor can hold more than 25% stake in the corpus in that one scheme].

Also SEBI has permitted MFs to launch schemes overseas subject various restrictions andalso

to launch schemes linked to Real Estate, Options and Futures, Commodities, etc.

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ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI):

With the increase in mutual fund players in India, a need for mutual fund association inIndia was

generated to function as a non-profit organisation. Association of Mutual Funds inIndia (AMFI)

was incorporated on 22nd August, 1995.AMFI is an apex body of all Asset Management

Companies (AMC) which has beenregistered with SEBI. Till date all the AMCs are that have

launched mutual fund schemes are itsmembers. It functions under the supervision and

guidelines of its Board of Directors.Association of Mutual Funds India has brought down the

Indian Mutual Fund Industry toa professional and healthy market with ethical lines enhancing

and maintaining standards. Itfollows the principle of both protecting and promoting the interests

of mutual funds as well astheir unit holders.

The Objectives of Association of Mutual Funds in India:

The Association of Mutual

Funds of India works with 30 registered AMCs of thecountry. It has certain defined objectives w

hich juxtaposes the guidelines of its Board of Directors. The objectives are as follows:

This mutual fund association of India maintains high professional and ethical standards inall

areas of operation of the industry.

It also recommends and promotes the top class business practices and code of conductwhich is

followed by members and related people engaged in the activities of mutualfund and asset

management. The agencies who are by any means connected or involvedin the field of capital

markets and financial services also involved in this code of conductof the association.

AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fundindustry.

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Association of Mutual Fund of India do represent the Government of India, the ReserveBank of

India and other related bodies on matters relating to the Mutual Fund Industry.

It develops a team of well qualified and trained Agent distributors. It implements a programme of

training and certification for all intermediaries and other engaged in themutual fund industry.

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AMFI undertakes all India awareness programme for investors in order to promote

proper understanding of the concept and working of mutual funds.

At last but not the least association of mutual fund of India also disseminate

informationson Mutual Fund

Industry and undertakes studies and research either directly or inassociation with other bodies.

AMFI Publications:

AMFI publish mainly two types of bulletin. One is on the monthly basis and the other isquarterly.

These publications are of great support for the investors to get intimation of theknowhow of their

parked money

restrictions into the market, introduction of open-ended funds, and paving the gateway

for mutual funds to launch pension schemes.The measure was taken to make mutual funds the

key instrument for long-term saving.The more the variety offered, the quantitative will be

investors.Several private sectors Mutual Funds were launched in 1993 and 1994. The share of

the private players has risen rapidly since then. Currently there are 34 Mutual Fund

organizations inIndia managing 1,02,000 crores.At last to mention, as long as mutual fund

companies are performing with lower risks andhigher profitability within a short span of time,

more and more people will be inclined to investuntil and unless they are fully educated with the

dos and donts of mutual funds.Mutual fund industry has seen a lot of changes in past few years

with multinationalcompanies coming into the country, bringing in their professional expertise in

managing fundsworldwide. In the past few months there has been a consolidation phase going

on in the mutualfund industry in India. Now investors have a wide range of Schemes to choose

from dependingon their individual profiles.

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MUTUAL FUND COMPANIES IN INDIA:

The concept of mutual funds in India dates back to the year 1963. The era between 1963and

1987 marked the existance of only one mutual fund company in India with Rs.

67bn assetsunder management (AUM), by the end of its monopoly era, the Unit Trust of India(UTI). By theend of the 80s decade, few other mutual fund companies in India took their position

in mutualfund market.The new entries of mutual fund companies in India were SBI Mutual Fund,

Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of

IndiaMutual Fund.The succeeding decade showed a new horizon in Indian mutual fund industry.

By the endof 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds

started penetrating the fund families. In the same year the first Mutual Fund Regulations came

intoexistance with re-registering all mutual funds except UTI. The regulations were further given

arevised shape in 1996.Kothari Pioneer was the first private sector mutual fund company in

India which has nowmerged with Franklin Templeton. Just after ten years with private sector

players penetration, thetotal assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund

companies in India.

Major Mutual Fund Companies in India

ABN AMRO Mutual Fund

Birla Sun Life Mutual Fund

Bank of Baroda Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund

Prudential ICICI Mutual Fund

State Bank of India Mutual Fund

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Tata Mutual Fund

Unit Trust of India Mutual Fund

Reliance Mutual Fund

Standard Chartered Mutual Fund

Franklin Templeton India Mutual Fund

Morgan Stanley Mutual Fund India

Escorts Mutual Fund

Alliance Capital Mutual Fund

Benchmark Mutual Fund

Canbank Mutual Fund

Chola Mutual Fund

LIC Mutual Fund

GIC Mutual Fund

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For the first time in the history of Indian mutual fund industry, Unit Trust of India MutualFund has

slipped from the first slot. Earlier, in May 2006, the Prudential ICICI Mutual Fund wasranked at

the number one slot in terms of total assets.In the very next month, the UTIMF had regained itstop position as the largest fund housein India. Now, according to the current pegging order and

the data released by Association of Mutual Funds in India (AMFI), the Reliance Mutual Fund,

with a January-end AUM of Rs39,020 crore has become the largest mutual fund in IndiaOn the

other hand, UTIMF, with an AUM of Rs 37,535 crore, has gone to secomd position. The

Prudential ICICI MF has slipped to the third position with an AUM of Rs 34,746crore.It

happened for the first time in last one year that a private sector mutual fund house has

reachedto the top slot in terms of asset under management (AUM). In the last one year to

January, AUMof the Indian fund industry has risen by 64% to Rs 3.39 lakh crore.According to

the data released by Association of Mutual Funds in India (AMFI), thecombined average AUM of

the 35 fund houses in the country increased to Rs 5,512.99 billion inApril compared to Rs

4,932.86 billion in MarchReliance MF maintained its top position as the largest fund house in the

country with Rs74.25 billion jump in AUM to Rs 883.87 billion at April-end.The second-largest

fund house HDFC MF gained Rs 59.24 billion in its AUM at Rs 638.80 billion.ICICI Prudential

and state-run UTI MF added Rs 46.16 billion and Rs 57.35 billion rerespectively to their assets

last month. ICICI Prudential`s AUM stood at Rs 560.49 billion at theend of April, while UTI MF

had assets worth Rs 544.89 billion.The other fund houses which saw an increase in their

average AUM in April include-Canara Robeco MF, IDFC MF, DSP BlackRock, Deutsche MF,

Kotak Mahindra MF and LICMF.

CURRENT SCENARIO:

The fund industry has grown phenomenally over the past couple of years, and as on 31 January

2008, it had a debt and equity assets of Rs 5,50,157 crore. Its equity corpus ofRs 2,20,263 lakh

crore accounts for over 3 per cent of the total market capitalization of BSE, at Rs 58 lakh crore.

Its holding in Indian companies ranges between 1 per cent and almost 29 per cent, making

them an influential shareholder. Together with banks, insurance companies and FIIs-

collectively called institutional investors- they have the ability to ask company managements

some tough questions.

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More significant than this stupendous growth has been the regulatory changes that the capital

market watchdog, Securities and Exchange Board of India, introduced in the past two years.

Outgoing Sebi Chairman M.Damodarans two year stint as chairman of Unit Trust of India

helped him reform the industry by making it much more transparent than before. In the

process, mutual funds have become a tad cheaper.

Until 2007, for instance, initial issue expenses on close-ended funds, which could be as high as 6

per cent of the amount raised, could be amortized over the tenure of the fund. This basically

meant that even if an investor put in Rs 1 lakh, effectively only Rs 94,000 got invested by the

fund. The initial expenses of the fund include commissions paid to distributors and money

spent on billboards for advertising the new offer. In 2006, the regulator had scrapped the

amortization benefit for open-ended schemes. Not surprisingly, asset management companies

started launching closed-ended funds. Of the 34 new fund offers in 2007, 24 were closed-

ended. In January this year, SEBI said all c