A Mutua Fund

7/30/2019 A Mutua Fund

1/95


2/95

2

ABSTRACT

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 they earned, is divided based on the number of units, which they hold.

The mutual fund industry started in India 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 grew fairly 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.

The advantages of mutual fund are professional management, diversification,

economies of scale, simplicity, and liquidity. The disadvantages of mutual fund are

high costs, over-diversification, possible tax consequences, and the inability of

management to guarantee a superior return.

The biggest problems with mutual funds are their costs and fees it include

Purchase fee, Redemption fee, Exchange fee, Management fee, Account fee &

Transaction Costs. There are some loads which add to the cost of mutual fund. Load is

a type of commission depending on the type of funds.

Mutual funds are easy to buy and sell. You can either buy them directly from

the fund company 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 were subsequently mandated by SEBI. In addition, this year AMFI was involved

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


3/95

3

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

expansion of the foreign owned mutual fund companies and the decline of the

companies floated by nationalized banks and smaller private sector players. People

want to invest in this institution because they know that this institution will never

dissatisfy them at any cost. You should always keep this into your mind that if

particular mutual funding scheme is on larger scale then next time, you might not get

the same results so being a careful investor you should take your major step diligently

otherwise you will be unable to obtain the high returns.


4/95

4

TABLE OF CONTENTS

Chapter No. Name of the concept Page No.

I

Introduction 7-9

Need of the study 10

Objectives of the study 11

Scope of the study 12

Methodology of the study 13-17

Limitations of the study 18

II Review of Literature 19-41

III

Company Profile42-50

Industry Profile 51-66

IV Data analysis and interpretation 67-84

V

Findings 85-86

Suggestions 87-89

Conclusions 90-91

Bibliography 92-95


5/95

5

LIST OF TABLES

Table No. Table Title Page No.

1

Respondents Age

68

2Respondents Profession

69

3 Marital Status 70

4 Respondents Income Levels 71

5 Customer Preferred Investment Sector 72

6 Individuals Preferred Investment Plan 73

7 Usage Of Mutual Funds As An Investment By Investors 74

8 Preferred Type Of Mutual Funds 75

9Customers Risk Preference While Taking Decision OnMF Investments

76

10 Type Of Investment Scheme 77

11 Period Of Investment Plan 78

12 Preferred Sectoral Funds 79

13 Reasons For Investing In Mutual Funds 80

14 Factors For Investing In Mutual Funds 81

15Average Returns From Investment In Mutual Funds

82

16Mutual Fund Is Better Than Other Investments

83

17Advise Friends To Invest In Mutual Funds

84


6/95

6

LIST OF FIGURES

Figure No. Figure Title Page No.

1 Mutual Fund Operation Flow Chart 8

2 Types Of Mutual Funds Schemes 30

3Respondents Age

68

4Respondents Profession

69

5 Marital Status 70

6 Respondents Income Levels 71

7 Customer Preferred Investment Sector 72

8 Individuals Preferred Investment Plan 73

9Usage Of Mutual Funds As An Investment ByInvestors

74

10 Preferred Type Of Mutual Funds 75

11Customers Risk Preference While Taking Decision OnMF Investments

76

12 Type Of Investment Scheme 77

13 Period Of Investment Plan 78

14 Preferred Sectoral Funds 79

15Reasons For Investing In Mutual Funds

80

16Factors For Investing In Mutual Funds

81

17Average Returns From Investment In Mutual Funds

82

18Mutual Fund Is Better Than Other Investments

83

19Advise Friends To Invest In Mutual Funds

84


7/95

7

CHAPTER- I

INTRODUCTION


8/95

8

INTRODUCTION

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

an investor with an investable surplus. He can invest in Bank Deposits, Corporate

Debentures, and Bonds where there is low risk but low return. He may invest in Stock

of companies where the risk is high and the returns are also proportionately high. The

recent trends in the Stock Market have shown that an 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 we had wealth management

services provided by many institutions. However they proved too costly for a small

investor. These investors have found a good shelter with the mutual funds.

A Mutual Fund is a trust that pools the savings of a number of investors who

share a common financial goal. The money thus collected is then invested in capital

market instruments such as shares, debentures and other securities. The income earned

through these investments and the capital appreciations realized are shared by its unit

holders in proportion to the number of units owned by them. Thus a Mutual Fund is the

most suitable investment for the common man as it offers an opportunity to invest in a

diversified, -professionally managed basket of securities at a relatively low cost. The

flow chart below describes broadly the working of a mutual fund:

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

same in diversified financial instruments in terms of objectives set out in the trusts deed

with the view to reduce the risk and maximize the income and capital appreciation for

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

interest is to professionally manage the funds provided by the investors and provide a

return on them after deducting reasonable 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 to the needs of the individual investor whose means are small

and to manage investors portfolio in a manner that provides a regular income, growth,

safety, liquidity and diversification opportunities.


9/95

9

Figure 1: Mutual Fund Operation Flow Chart

Source: Secondary Data

The project is basically carried out to give good guidelines for investors. The

project will also educate the investors about mutual funds and its growth.

The project idea is to project mutual funds as the better avenue for investment.

Mutual fund is productive package for a lay-investor with limited finances. Mutual fund

is a very old practice in U.S., and it has made a recent entry into India. Common man in

India still finds Bank as a safe door for investment. This shows that mutual funds

have not gained a strong foot-hold in his life.

The project creates an awareness that the mutual fund is worthy investment

practice. The various schemes of mutual funds provide the investor with a wide range

of investment options according to his risk-bearing capacities and interest. Besides,

they also give a handy return to the investor. The future challenges for mutual funds in

India are also considered.


10/95

10

NEED OF THE STUDY

A small investor is the one who is able to correctly plan & decide in which

profitable & safe instrument to invest. To lock up ones hard earned money in a savings

banks account is not enough to counter the monster of inflation. Using simple concepts

of diversification, power of compound interest, stable returns & limited exposure to

equity investment, one can maximize his returns on investments & multiply ones

savings.

Investment is a serious proposition one has to look into various factors before

deciding on the instruments in which to invest. To save is not enough. One must invest

wisely & get maximum returns. One must plan investment in such a way that his

investment objectives are satisfied. A sound investment is one which gives the investorreasonable returns with a proper profitable management.

The study basically is made to educate the investors about Mutual Funds. It

analyzes the various schemes to highlight the risk and return of diversity of investment

that mutual funds offer. Thus, through the study one would understand how a common

man could fruitfully convert a pittance into great penny by wisely investing into the

right scheme according to his risk- taking abilities.

The primary objective of doing this project is to know about mutual funds and

its functioning. This project helps us to know in detail about mutual fund industry right

from its inception stage, growth and future prospects. It also helps in understanding

different schemes of mutual funds. The study is focused on prominent funds in India

and their schemes like equity, income, balance as well as the returns associated with

those schemes.

The project study tries to ascertain the asset allocation, entry load, exit load,

associated with the mutual funds. Ultimately this would help in understanding the

benefits of mutual funds to investors.


11/95

11

OBJECTIVES OF THE STUDY

The primary objective of doing this project is to know about mutual funds and

its functioning. This project helps us to know in detail about mutual fund industry right

from its inception stage, growth and future prospects. It also helps in understandingdifferent schemes of mutual funds. The study is focused on prominent funds in India

and their schemes like equity, income, balance as well as the returns associated with

those schemes.

1. To give a brief idea about the benefits available from Mutual Fundinvestment.

2. To project mutual funds as the productive avenue to invest in contrast tothe laxity of bank investing

3. To give an idea of the types of schemes available.4. To help an investor to make a right choice of investment, while considering

the inherent risk factors

5. To discuss about the market trends of Mutual Fund investment.6. To study some of the mutual fund schemes.7. To study some mutual fund companies and their funds.8. Observe the fund management process of mutual funds.9. Explore the recent developments in the mutual funds in India.10.To give an idea about the regulations of mutual funds.


12/95

12

SCOPE OF THE STUDY

A mutual fund, also referred to as an open-end fund, is an investment company

that spreads its money across a diversified portfolio of securities -- including stocks,

bonds, or money market instruments. Shareholders who invest in a fund each own a

representative portion of those investments, less any expenses charged by the fund.

Mutual fund investors make money either by receiving dividends and interest

from their investments, or by the rise in value of the securities. Dividends, interest and

profits from the sale of any securities (capital gains) are passed on to the shareholders

in the form of distributions. And shareholders generally are allowed to sell (redeem)

their shares at any time for the closing market price of the fund on that day.

The study is limited to the overview of mutual funds in India. It helps in

understanding different schemes of mutual funds. The project tries to explain the asset

allocation, entry load, exit load, associated with the mutual funds. The project also

helps in understanding the benefits of mutual funds to investors. The project does not

advise anyone to invest in a particular mutual fund. It only reviews the advantages and

disadvantages of mutual funds and tries to compare the prominent mutual fund

companies operating in India.


13/95

13

RESEARCH METHODOLOGY

Research Methodology is a term made up of two words, research &

methodology. Research means search for knowledge. It is a scientific and systematic

search for potential information on a specific topic. It is an art of scientificinvestigation. It is careful investigation or inquiry especially for search of new fact in

any branch of knowledge.

Research is a systematic method of finding solutions to problems. According to

Clifford woody, research comprises of defining and redefining problem, formulating

hypothesis or suggested solutions, collecting, organizing and evaluating data, reaching

conclusions, testing conclusions to determine whether they fit the formulated

hypothesis

For the purpose of study, both primary and secondary data has been collected.

The observational method and survey research method is used to collect the primary

data.

The necessary data has also been collected from official records and other

published sources. The collected data is classified, tabulated, analyzed and interpreted

later.

Methods Of Data Collection

Data can be of two types primary and secondary data. Primary data are those which

are collected afresh and for the first time, and it is in original form. Primary data can be

collected either through experiment or through survey. The researcher has chosen the

survey method for data collection.

The two types of data collection:

1. Primary data2. Secondary data

Primary data

Primary data is personally developed data and it gives latest information andoffers much greater accuracy and reliability.


14/95

14

There are various sources for obtaining primary data i.e., Mail survey, personalinterview,

Field survey, panel research and observation approach etc. The study to maximum extent dependent on primary data, which is collected by

way of structures personal interview with customers.

Methods that can be used for collection of primary data are as follows:

Direct personal observation: Under this method, the investigator presentshimself personally before the informant and obtains first hand information.

This method provides greater degree of accuracy.

Telephone survey: Under this method the investigator, instead of presentinghimself before the informants, contacts them on telephone and collects

information from them.

Indirect personal interview: Under this method, instead of directlyapproaching the informants, the investigator interviews several third persons

who are directly or indirectly concerned with the subject matter of the

enquiry and who are in possession of the requisite information. This method

is highly suitable where the direct personal investigation is not practicable

either because the informants are unwilling or reluctant to supply theinformation or where the information desired is complex or the study in

hand is extensive.

Questionnaire method: Under this method, the investigator prepares aquestionnaire containing a number of questions pertaining to the field of

enquiry. Under this method, the investigator directly contact the person and

collect the information through questionnaire related to the data. The aims

and objectives of collecting the information, and requesting the respondents

to cooperate by furnishing the correct replies and fill the questionnaire with

correct information. The success of this method depends upon the proper

drafting of the questionnaire and the cooperation of the respondents.


15/95

15

Secondary data

Secondary data is the published data. It is already available for using and its

saves time. The mail source of secondary data are published market surveys,

government publications advertising research report and internal source such as sales,sales records orders, customers complaints and other business record etc. the study has

also depended on secondary data to little extent, which is collected through internal

source.

Methods that can be used for collection of secondary data are as follows:

Published sources: There are a number of national organisations andinternational agencies, which collect and publish statistical data relating to

business, trade, labour, price, consumption, production, etc. These

publications of the various organisations are useful sources of secondary

data.

Unpublished sources: The records maintained by private firms or businesshouses who may not like to release their data to any outside agency are

known as unpublished sources of collection of secondary data.

In case of survey, data can be collected by any one or more of the following ways:

Observation Questionnaire Personal or Group Interview Telephone survey Communication with respondents Analysis of documents and historical records Case study Small group study of random behavior


16/95

16

Questionnaire method of data collection is chosen to collect the data due to limited

time in hand. While designing data-collection procedure, adequate safeguards against

bias and unreliability must be ensured. Whichever method is selected, questions must

be well examined and be made unambiguous. The collected data has been checked for

completeness, comprehensibility, consistently and reliability. Secondary data which

have already been collected and analyzed by someone else is also used to prepare the

report. Various information from journals, historical documents, magazines and reports

is also used to prepare the report.

For the present piece of research, the following methods have been used:

Questionnaire Interview Observation

Sample Of The Study

A sample design is a definite plan for obtaining a sample from the samplingframe. It refers to the technique or the procedure the researcher would adopt in

selecting some sampling units from which inferences about the population isdrawn. Sampling design is determined before any data are actually collected

for obtaining a sample from a given population. The researchers must decide

the way of selecting a sample.

There are various methods o sampling like systematic sampling, randomsampling, deliberate sampling, mixed sampling, cluster sampling, etc. Among

these methods of sampling researcher has used random sampling so that bias

can be eliminated and sampling error can be estimated. Designing samples

should be made in such a fashion that the samples may yield accurate

information with minimum amount of research effort.


17/95

17

Sampling

Sampling may be defined as the selection of some part of an aggregate ortotality on the basis of which a judgment or inference about an entire

population by examining only a part of it.

The items so selected constitute what is technically called a sample, theirselection process or technique is called sample design and the survey

conducted in the basis of sample is described as sample survey.

Sample Size

In sampling design the most complicated question is: what should be the size of

the sample. If the sample size is too small, it may not serve to achieve the objectives

and if it is too large, we may incur huge cost and waste resources. So sample must be of

an optimum size that is, it should neither be excessively large nor too small. Here,

researcher has taken 50 as the sample size.

About The Questionnaire

In this method a questionnaire is sent to the employees concerned with a request

to answer the questions and return the questionnaire. The questionnaire consisted of a

number of questions printed or typed in a definite order. The employees have to answer

the questions on their own. This method of data collection is chosen due to low cost

incurred, it is free from bias of the interviewer and respondents have adequate time.


18/95

18

LIMITATIONS

Every study has its own limitations in terms of methodology and available resources for

its conduct. This study was not an exception and was carried out under the following

limitations:

The data was collected through questionnaire. The responds from therespondents may not be accurate.

The sample taken for the study was only 50 and the results drawn may not beaccurate.

Since the organization has strict control, it acts as another barrier for gettingdata.

Few respondents were reluctant while answering the questions The time was also one of the hindrances in the research Some important information was not there due to confidentiality involved in it Accuracy of the study is limited due to the possible bias of the respondents The lack of information sources for the analysis part


19/95

19

CHAPTER II - REVIEW OF LITERATURE


20/95

20

Mutual Funds

Mutual FundsOverview:

There are a lot of investment avenues available today in the financial market foran investor with an investable surplus. He can invest in Bank Deposits, Corporate

Debentures, and Bonds where there is low risk but low return. He may invest in Stock of

companies where the risk is high and the returns are also proportionately high. The recent

trends in the Stock Market have shown that an 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 we had wealth management services

provided by many institutions. However they proved too costly for a small investor. These

investors have found a good shelter with the mutual funds.

A mutual fund, also referred to as an open-end fund, is an investment company

that spreads its money across a diversified portfolio of securities -- including stocks, bonds,

or money market instruments. Shareholders who invest in a fund each own a representative

portion of those investments, less any expenses charged by the fund.

Mutual funds have been around for a long time, dating back to the early 19th

century. The first modern American mutual fund opened in 1924, yet it was only in the

1990s that mutual funds became mainstream investments, as the number of households

owning them nearly tripled during that decade. With recent surveys showing that over 88%

of all investors participate in mutual funds, you're probably already familiar with these

investments, or perhaps even own some. In any case, it's important that you know exactly

how these investments work and how you can use them to your advantage.

A mutual fund is a special type of company that pools together money from

many investors and invests it on behalf of the group, in accordance with a stated set of

objectives. Mutual funds raise the money by selling shares of the fund to the public, much

like any other company can sell stock in itself to the public. Funds then take the money they

receive from the sale of their shares (along with any money made from previous

investments) and use it to purchase various investment vehicles, such as stocks, bonds and

money market instruments. In return for the money they give to the fund when purchasing


21/95

21

shares, shareholders receive an equity position in the fund and, in effect, in each of its

underlying securities. For most mutual funds, shareholders are free to sell their shares at any

time, although the price of a share in a mutual fund will fluctuate daily, depending upon the

performance of the securities held by the fund.

Mutual fund investors make money either by receiving dividends and interest

from their investments, or by the rise in value of the securities. Dividends, interest and

profits from the sale of any securities (capital gains) are passed on to the shareholders in the

form of distributions. And shareholders generally are allowed to sell (redeem) their shares at

any time for the closing market price of the fund on that day.

Concept Of Mutual Funds:

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

contributions that 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 is in the same proportion as the amount of the contribution made by

him or her bears to the total amount of the fund.

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

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

view to reduce the risk and maximize the income and capital appreciation for distributionfor the members. A Mutual Fund is a corporation and the fund managers interest is to

professionally manage the funds provided by the investors and provide a return on them

after deducting reasonable 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

to the needs of the individual investor whose means are small and to manage investors

portfolio in a manner that provides a regular income, growth, safety, liquidity anddiversification opportunities.


22/95

22

Definitions:

Mutual funds are collective savings and investment vehicles where savings of small

(or sometimes big) investors are pooled together to invest for their mutual benefit and

returns distributed proportionately.

A mutual fund is an investment that pools your money with the money of an unlimited

number of other investors. In return, you and the other investors each own shares of the

fund. The fund's assets are invested according to an investment objective into the fund's

portfolio of investments. Aggressive growth funds seek long-term capital growth by

investing primarily in stocks of fast-growing smaller companies or market segments.

Aggressive growth funds are also called capital appreciation funds.

Why Select Mutual Funds?

The risk return trade-off indicates that if investor is willing to take higher risk then

correspondingly he can expect higher returns and vise versa if he pertains to lower risk

instruments, which would be satisfied by lower returns. For example, if an investors opt for

bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest

in capital protected funds and the profit-bonds that give out more return which is slightly

higher as compared to the bank deposits but the risk involved also increases in the same

proportion.

Thus investors choose mutual funds as their primary means of investing, as Mutual

funds provide professional management, diversification, convenience and liquidity. That

doesnt mean mutual fund investments riskfree.

This is because the money that is pooled in are not invested only in debts funds which

are less riskier but are also invested in the stock markets which involves a higher risk but

can expect higher returns. Hedge fund involves a very high risk since it is mostly traded in

the derivatives market which is considered very volatile.


23/95

23

History Of Mutual Funds In India:

The mutual fund industry in India started in 1963 with the formation of Unit

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

history of mutual funds in India can be broadly divided into four distinct phases

First Phase1964-87 (UTI Monopoly):

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 Phase1987-1993 (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 Can bank 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 Phase1993-2003 (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.


24/95

24

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 PhaseSince 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 Ltd, sponsored by SBI, PNB, BOB and

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

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

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

conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking

place among different private sector funds, the mutual fund industry has entered its

current phase of consolidation and growth. As at the end of September, 2004, there

were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.


25/95

25

Recent Trends in Mutual Funds Industry

The Indian Mutual fund industry, despite all that has been said about it is still in a

nascent stage and has extremely bright future ahead. The industry is still one-tenth size of

the banking deposits in the country.

The private sector mutual fund industry in its resent avatar is barely 7 years old. The

total asset under management over the past 4 to 5 tears has almost remain stagnant around

the Rs 100, 000 crore mark.

This has put a question mark in front of the claims that mutual funds are growing part

of the financial savings and planning industry in India. It holds scope for growth. In India

this industry began with the setting up of the Unit Trust Of India (UTI) in 1964 by the

government of India in order to mobiles small saving. During the past 37 years, UTI has

grown to be a dominant player in the industry with assets with over Rs 76,547 crore as of

March2000. However, trouble hit UTI has lost its dominant position in the industry and the

asset under management has slipped drastically to Rs 46,396 crore.

Private sector mutual funds, which were permitted along with foreign partners in 1993,

now enjoy a dominant position in the country. Kothari Pioneer Mutual fund was the first

fund to be established in the private sector with foreign fund. The private sector now

controls around RS 45,818 crore assets under management, almost half the size of the

industry.

The mutual fund industry has become a fastest growing sector in the countrys capital

and financial market with an average compounded growth rate of 20 percent over the past

five years. This is despite increasing competition with more than 30 asset management

companies for investors money. As on June 2002, the industry has Rs 100,703 crore asset

under management spread across 36 funds with more than 390 schemes.

Substantial development have made; spurred on by changes and amendments in

regulation as the mutual fund regulation that established a comprehensive legal framework

for the mutual fund industry to develop coherently. The securities and Exchange Board Of

India (SEBI) came out with comprehensive regulation in 1993 which defined the structure

of the mutual fund and asset management Companies for the first time.


26/95

26

The industry is in the process of evolving into a bigger and better investment medium

for all market segment, Say Kavita Hurry, CEO ING Investment Management, further,

currently, ING Investments manages around Rs.364 crore as on June 2002.

Structure Of Mutual FundsSponsor

Company

Establishes MF as aTrust

Registers MF with SEBI

Managed by a Board ofTrustees Mutual Fund

Hold Unitholders Fund

in MFEnsure Compliance toSEBI Enter into

Agreement with MC

Asset Management

Company

Registrars and

Transfer Agents

Custodian

Bankers

Float, MF FundsManagers Fund as PerSEBI guidelines &AMC Agreement

Provides Necessary

Custodian Services

Provide BankingServices

Provide Registrars Services

and act as transfers Agents

Appointed byBoard of Trustees

Appointed byTrustees

Appointed by

AMC

Appointed byAMC


27/95

27

The formation and operations of mutual funds in India is solely guided by SEBI

(Mutual Fund) Regulations, 1993, which came into force on 20 January 1993. The

regulations have since been replaced by the Securities and Exchange Board of India (Mutual

Funds) Regulations, 1996, through a notification on 9 December 1996.

The above figure gives an idea of the structure of Indian mutual funds. A mutual

fund comprises four separate entities, namely sponsor, mutual fund trust, AMC and

custodian. They are of course assisted by other independent administrative entities like

banks, registrars and transfer agents. We may discuss in brief the formation of different

entities, their functions and obligations.

The sponsor for a mutual fund can by any person who, acting alone or in

combination with another body corporate establishes the mutual fund and gets it registered

with SEBI. The sponsor is required to contribute at least 40 per cent of the minimum net

worth (Rs 10 crore) of the asset management company. The sponsor must have a sound

track record and general reputation of fairness and integrity in all his business transactions.

As per SEBI Regulation, 1996, a mutual fund is to be formed by the sponsor

and registered with SEBI. A mutual fund shall be constituted in the form of a trust and the

instrument of trust shall be in the form of a deed, duly registered under the provisions of the

Indian Registration Act, 1908, executed by the sponsor in favour of trustees named in such

an instrument.

The board of trustees manages the mutual fund and the sponsor executes the

trust deeds in favor of the trustees. The mutual fund raises money through sale of units

under one or more schemes for investing in securities in accordance with SEBI guidelines.

It is the job of the mutual fund trustees to see that the schemes floated and managed by the

AMC appointed by the trustees, are in accordance with the trust deeds and SEBI guidelines.

It is also the responsibilities of the trustees to control the capital property of mutual funds

schemes.

The trustees have the right to obtain relevant information from the AMC, as

well as a quarterly report on its activities. They can also dismiss the AMC under specific

condition as per SEBI regulations.


28/95

28

A t least half the trustees should be independent persons. The AMC or its employees

cannot act as a trustee. No person who is appointed as a trustee of a mutual fund can be

appointed as a trustee of any other mutual fund unless he is an independent trustee and prior

permission is obtained from the mutual fund in which he is a trustee. The trustees are

required to submit half-yearly reports to SEBI on the activities of the mutual fund. The

trustees appoint a custodian and supervise their activities. The trustees can be removed only

with prior approval of SEBI.

Benefits Of Mutual Fund Investments

1. Professional Management:

Mutual Funds provide the services of experienced and skilled professionals,

backed by a dedicated investment research team that analyses the performance and

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

scheme.

2. 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.

3. Convenient Administration:

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

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

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

4. Return Potential:

Over a medium to long-term, Mutual Funds have the potential to provide ahigher return as they invest in a diversified basket of selected securities.


29/95

29

5. 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.

6. Liquidity:

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

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

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

direct repurchase at NAV related prices by the Mutual Fund.

7. 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.

8. 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.

9. Affordability:

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

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

its investment strategy.


30/95

30

TYPES OFMUTUAL FUNDS

BY STRUCTURE

Open - EndedSchemes

Close - EndedSchemes

IntervalSchemes

BY NATURE

Equity Fund

Debt Funds

Balanced Funds

BY INVESTMENTOBJECTIVE

GrowthSchemes

IncomeSchemes

BalancedSchemes

Money MarketSchemes

OTHERSCHEMES

Tax SavingSchemes

Index Schemes

Sector SpecificSchemes

Structure And Constituents Of Fund

Figure 2: Types Of Mutual Funds Schemes

Source: Secondary Data

Mutual fund schemes may be classified on the basis of its structure and its investment

objective.

1. By Structure:

A. Openended funds:

An openend fund is one that is available for subscription all through the year.

These do not have a fixed maturity. Investors can conveniently buy and sell units at Net

Asset Value (NAV) related prices. The key feature of open-end schemes is liquidity.

B. Closed-ended funds:

A closed end funds has a stipulated maturity period which generally raging

from 3 to 15 years. The funds are open for subscription only during a specified period.

Investors can invest in the scheme at the time of the initial public issue and thereafter they


31/95

31

can buy or sell the units of the scheme on the stock exchanges where they are listed. In

order to provide an exist 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.

SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor.

C. Interval Funds:

Interval funds combine the features of open-ended schemes. They are open for

sale or redemption during pre-determined intervals at NAV related prices.

2. By Nature:

A. Equity Funds:

These funds invest a maximum part of their corpus into equities holdings. The

structure of the fund may vary different for different schemes and the fund managers

outlook on different stocks. The Equity Funds are sub-classified depending upon their

investment objective, as follows:

Diversified Equity Funds

Mid-Cap Funds

Sector Specific Funds

Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank

high on the risk-return matrix.

B. Debt Funds:

The objective of these Funds is to invest in debt papers. Government authorities,

private companies, banks and financial institutions are some of the major issuers of

debt papers. By investing in debt instruments, these funds ensure low risk and providestable income to the investors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by Government, popularlyknown as Government of India debt papers. These Funds carry zero Default risk

but are associated with Interest Rate risk. These schemes are safer as they invest

in papers backed by Government.


32/95

32

Income Funds: Invest a major portion into various debt instruments such asbonds, corporate debentures and Government securities.

MIPs: Invests maximum of their total corpus in debt instruments while theytake minimum exposure in equities. It gets benefit of both equity and debt

market. These scheme ranks slightly high on the risk-return matrix when

compared with other debt schemes.

Short Term Plans (STPs): Meant for investment horizon for three to sixmonths. These funds primarily invest in short term papers like Certificate of

Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is

also invested in corporate debentures.

Liquid Funds: Also known as Money Market Schemes, These funds provideseasy liquidity and preservation of capital. These schemes invest in short-term

instruments like Treasury Bills, inter-bank call money market, CPs and CDs.

These funds are meant for short-term cash management of corporate houses and

are meant for an investment horizon of 1day to 3 months. These schemes rank

low on risk-return matrix and are considered to be the safest amongst all

categories of mutual funds.

C. Balanced Funds:

As the name suggest they, are a mix of both equity and debt funds. They invest

in both equities and fixed income securities, which are in line with pre-defined investment

objective of the scheme. These schemes aim to provide investors with the best of both the

worlds. Equity part provides growth and the debt part provides stability in returns.

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

schemes periodically distribute a part of their earning and invest both in equities and fixed

income securities in the proportion indicated in their offer documents. In a rising stock

market, the NAV of these schemes may not normally keep pace, or fall equally when the

market falls. These are ideal for investors looking for a combination of income and

moderate growth.


33/95

33

D. Money Market Funds:

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

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

treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returnson these schemes may fluctuate depending upon the interest rate prevailing in the market.

These are ideal for Corporate and individual investors as a means to park their surplus funds

for short periods.

E. Load Funds:

A Load Funds is one that charges a commission for entry of exit. That is, each

time you buy or sell units in the fund, a commission will be payable. Typically entry exit

loads range from 1% to 2%. It could be corpus is put to work.

F. No-Load Funds:

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

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

of a no load is that the entire corpus is put to work.

3. Schemes in Mutual Funds

I. Tax Saving Schemes

These schemes offer tax rebates to the investor under specific provisions of the

Indian Income Tax laws as the Government offers tax incentives for investment in specified

avenues. Investments in Equity Linked Saving Schemes (ELSS) and Pension Schemes are

allowed as deduction u/s 88 of the Income Tax Act. The Act also provide opportunities to

investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided

the capital asset has been sold to April 1, 2000 and the amount is invested before September

30, 2000.

II. Industry Specific Schemes:

Industry Specific Schemes invest in the industries specified in the offer

document. The investment or these funds is limited to specific like InfoTech, FMCG and

Pharmaceuticals etc.


34/95

34

III. Index Schemes:

Index Funds attempt to replicate the performance of a particular index such as

the BSE Sensex or the NSE

IV. Sectoral Schemes:

Sectoral Funds are those, which invest exclusively in a specified industry or a

group of industries or various segments such as A Group shares or initial public offerings.

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.

Advantages Of Mutual Funds:

If mutual funds are emerging as the favorite investment vehicle, it is because of

the many advantages they have over other forms and the avenues of investing, particularly

for the investor who has limited resources available in terms of capital and the ability to

carry out detailed research and market monitoring. The following are the major advantages

offered by mutual funds to all investors:

1. Portfolio Diversification:

Each investor in the fund is a part owner of all the funds assets, thus enabling

him to hold a diversified investment portfolio even with a small amount of investment that

would otherwise require big capital.

2. Professional Management:

Even if an investor has a big amount of capital available to him, he benefits

from the professional management skills brought in by the fund in the management of the

investors portfolio. The investment management skills, along with the needed research into

available investment options, ensure a much better return than what an investor can manage


35/95

35

on his own. Few investors have the skill and resources of their own to succ eed in todays

fast moving, global and sophisticated markets.

3. Reduction/Diversification Of Risk:

When an investor invests directly, all the risk of potential loss is his own,

whether he places a deposit with a company or a bank, or he buys a share or debenture on

his own or in any other from. While investing in the pool of funds with investors, the

potential losses are also shared with other investors. The risk reduction is one of the most

important benefits of a collective investment vehicle like the mutual fund.

4. Reduction Of Transaction Costs:

What is true of risk as also true of the transaction costs. The investor bears all

the costs of investing such as brokerage or custody of securities. When going through a

fund, he has the benefit of economies of scale; the funds pay lesser costs because of larger

volumes, a benefit passed on to its investors.

5. Liquidity:

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

sell. When they invest in the units of a fund, they can generally cash their investments any

time, by selling their units to the fund if open-ended, or selling them in the market if the

fund is close-end. Liquidity of investment is clearly a big benefit.

6. Convenience And Flexibility:

Mutual fund management companies offer many investor services that a direct

market investor cannot get. Investors can easily transfer their holding from one scheme to

the other; get updated market information and so on.

7. Tax Benefits:

Any income distributed after March 31, 2002 will be subject to tax in the

assessment of all Unit holders. However, as a measure of concession to Unit holders of

open-ended equity-oriented funds, income distributions for the year ending March 31, 2003,

will be taxed at a concessional rate of 10.5%.


36/95

36

In case of Individuals and Hindu Undivided Families a deduction upto Rs. 9,000 from the

Total Income will be admissible in respect of income from investments specified in Section

80L, including income from Units of the Mutual Fund. Units of the schemes are not subject

to Wealth-Tax and Gift-Tax.

Disadvantages Of Mutual Funds:

1. No Control Over Costs:

An investor in a mutual fund has no control of the overall costs of investing.

The investor pays investment management fees as long as he remains with the fund, albeit

in return for the professional management and research. Fees are payable even if the value

of his investments is declining. A mutual fund investor also pays fund distribution costs,

which he would not incur in direct investing. However, this shortcoming only means that

there is a cost to obtain the mutual fund services.

2. No Tailor-Made Portfolio:

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

bonds and other securities. Investing through fund means he delegates this decision to the

fund managers. The very-high-net-worth individuals or large corporate investors may find

this to be a constraint in achieving their objectives. However, most mutual fund managers

help investors overcome this constraint by offering families of funds- a large number of

different schemes- within their own management company. An investor can choose from

different investment plans and constructs a portfolio to his choice.

4. Managing A Portfolio Of Funds:

Availability of a large number of funds can actually mean too much choice for

the investor. He may again need advice on how to select a fund to achieve his objectives,

quite similar to the situation when he has individual shares or bonds to select.

5. The Wisdom Of Professional Management:

That's right, this is not an advantage. The average mutual fund manager is no

better at picking stocks than the average nonprofessional, but charges fees.


37/95

37

6. No Control:

Unlike picking your own individual stocks, a mutual fund puts you in the

passenger seat of somebody else's car

7. Dilution:

Mutual funds generally have such small holdings of so many different stocks

that insanely great performance by a fund's top holdings still doesn't make much of a

difference in a mutual fund's total performance.

8. Buried Costs:

Many mutual funds specialize in burying their costs and in hiring salesmen who

do not make those costs clear to their clients.

Types of Returns on Mutual Fund:

There are three ways, where the total returns provided by mutual funds can be

enjoyed by investors:

Income is earned from dividends on stocks and interest on bonds. A fund pays outnearly all income it receives over the year to fund owners in the form of a

distribution.

If the fund sells securities that have increased in price, the fund has a capital gain.Most funds also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the fund's shares

increase in price. You can then sell your mutual fund shares for a profit. Funds will also

usually give you a choice either to receive a check for distributions or to reinvest the

earnings and get more shares.


38/95

38

Return Risk Matrix:

Risk Factors Of Mutual Funds:

The Risk-Return Trade-Off:

The most important relationship to understand is the risk-return trade-off.

Higher the risk greater the returns / loss and lower the risk lesser the returns/loss.

Hence it is up to you, the investor to decide how much risk you are willing to

take. In order to do this you must first be aware of the different types of risks involved with

your investment decision.

Market Risk:

Sometimes prices and yields of all securities rise and fall. Broad outside

influences affecting the market in general lead to this. This is true, may it be big

corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic

Investment Plan (SIP) that works on the concept of Rupee Cost Averaging (RCA)

might help mitigate this risk.

Mutual

Funds

Equity

Bank FD

PostalSavings

Venture

Capital

HIGHER RISKHIGHIER RETURNS

LOWER RISKHIGIER RETURNS

LOWER RISKLOWER RETURNS

HIGHIER RISKMODERATE RETURNS


39/95

39

Credit Risk:

The debt servicing ability (may it be interest payments or repayment of

principal) of a company through its cashflows determines the Credit Risk faced by you. This

credit risk is measured by independent rating agencies like CRISIL who rate companies andtheir paper. A AAA ratingis considered the safest whereas a D rating is considered poor

credit quality. A well-diversified portfolio might help mitigate this risk.

Inflation Risk:

Things you hear people talk about: "Rs. 100 today is worth more than Rs. 100 tomorrow."

"Remember the time when a bus ride casted 50 paisa?" "Mehangai Ka Jamana Hai."

The root cause, Inflation. Inflation is the loss of purchasing power over time. A

lot of times people make conservative investment decisions to protect their capital but end

up with a sum of money that can buy less than what the principal could at the time of the

investment. This happens when inflation grows faster than the return on your investment. A

well-diversified portfolio with some investment in equities might help mitigate this risk.

Interest Rate Risk:

In a free market economy interest rates are difficult if not impossible to predict.

Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise

the prices of bonds fall and vice versa. Equity might be negatively affected as well in a

rising interest rate environment. A well-diversified portfolio might help mitigate this risk.

Political / Government Policy Risk:

Changes in government policy and political decision can change the investment

environment. They can create a favorable environment for investment or vice versa.

Liquidity Risk:

Liquidity risk arises when it becomes difficult to sell the securities that one has

purchased. Liquidity Risk can be partly mitigated by diversification, staggering of

maturities as well as internal risk controls that lean towards purchase of liquid securities.


40/95

40

Major Players In Mutual Fund Industry

Name Of The Fund No. Of

Schemes

Asset Under Management (RS.

Crore)

Alliance Mutual Fund 36 3309.03

Bench Mark Mutual Fund 1 6.1

Birla Mutual Fund 35 3436.79

Bob Mutual Fund 8 31

CAN Bank Mutual Fund 14 692.04

Chola Mutual Fund 25 812.67

India Infoline Mutual Fund 20 3154.67

Dundee Mutual Fund 19 20.72

Escorts Mutual Fund 13 83.91

First India Mutual Fund 5 0.7

Franklin Tempeltion Mutual Fund 25 3919.52

GIC Mutual Fund 13 333.29

HDFC Mutual Fund 22 4707.32

IDBI-Principal Mutual Fund 33 1346.61

IL & FS Mutual Fund 18 537.72

ING Mutual Fund 15 396.31

JF Mutual Fund 3 201.8

JM Mutual Fund 21 1199.2

Kotak Mutual Fund 30 1907.35

Morgan Stanley Mutual Fund 1 793.87

Pioneer ITI Mutual Fund 62 3517.77PNB Mutual Fund 8 149.76

PRU ICICI Mutual Fund 52 7006.72

Reliance Capital Mutual Fund 15 2913.25

SBI Mutual Fund 42 3215.40


41/95

41

Standard Chartered Mutual Fund 30 3294.63

SUN F& C Mutual Fund 26 413.11

Sundaram Mutual Fund 11 702.25

Tata Mutual Fund 20 893

Taurus Mutual Fund 11 59.76

UTI Mutual Fund 103 509.83

Zurich India Mutual Fund 39 255.11

LIC Mutual Fund 27 2340.3


42/95

42

CHAPTER III - COMPANY PROFILE


43/95

43

Zen Securities Ltd.

Company Overview

Zen Securities Limited (ZSL) is one of the leading financial services

company -providing Financial and Investment related Services and Products.

The Company commenced as a proprietary concern of M/s K. Ravindra

Babu in 1986 was converted to a Limited company in February 1995 as Zen

Securities Ltd. Zen has the distinction of being the First Corporate Member from

Hyderabad and also the first A.P. based broking firm to start trading on the National

Stock Exchange (NSE).

ZEN is a registered Member on the Capital Market Segment and Futures &Options segment of both NSE and BSE.

ZEN is also a Depository Participant (DP) with National Securities

Depository Ltd. (NSDL) and also with Central Depositories Services Ltd. (CDSL).

ZEN is also a SEBI Registered Portfolio Manager offering Portfolio Management

Services to clients.

Zen Comtrade Pvt. Limited a 100% subsidiary of ZSL and is a member of

National Commodities & Derivatives Exchange Limited (NCDEX) and Multi

Commodity Exchange (MCX).

ZEN operates from Hyderabad as it head office and has branches and

associates in Andhra Pradesh, Tamil Nadu, Maharashtra, Karnataka, West Bengal

and Orissa. The Company operates from over 140 locations with ove 500 trading

terminals.

Core Values

We are committed to honesty, integrity and ethics in all that we do. We create significant value by bringing together innovation, knowledge and

experience to help our customers achieve their goals.

We treat customers the way we would want to be treated.


44/95

44

We deliver happiness to customers, employees and other stakeholders. We work with passion, commitment and enthusiasm to deliver excellence. We are a socially responsible and environment-friendly corporate citizen.

Services Offered:

1. Investment advisory services2. Trading in cash market of NSE and BSE3. Trading in Futures and Options on NSE and BSE4. Internet Trading in Stocks, futures and Options both NSE and BSE5. Mutual Funds advisory service6. Depository Services in Both NSDL and CDSL7. Trading in Commodities on MCX and NCDEX8. Portfolio Management Services9. NRI Investor Services10.PAN Application Service11.Mutual Fund KYC Registration Service12.New Pension System(NPS)13.Fixed Income Securities / Fixed Deposits / RBI Bonds / Tax Saving Bonds

1. Stock Broking:

Zen Securities Limited provides the following equity related trading services to the

investors:

Capital Market Segment of NSE and BSE Futures & Options segment of NSE and BSE

ZEN operates from Hyderabad as it head office and has branches and associates in

Andhra Pradesh, Tamil Nadu, Maharashtra, Karnataka, West Bengal and Orissa.

The Company operates from over 140 locations with over 500 trading terminals


45/95

45

2. Internet Trading:

Internet trading is easy, convenient and reliable with ZenTr@de. Advantages

of ZenTr@de - Internet Trading Platform

Flexible and advanced trading platform

Simple, reliable and easy to use Futures & Options segment of NSE and BSE Integrated payment gatewaysfacilitates online transfer of funds from your

banks (ICICI /Axis/Corp / Yes bank etc.) for instant limits (on funds

transferred)

Integrated with Zen DP accountseamless settlement Take full control of trading and trade with privacy from any place of your

choice.

Choice of Trading from Internet or Branch Choice of Browser based or EXE based trading

Market watch

Streaming market quotes Multiple market watch Integrated market watch for viewing NSE / BSE / NSE FAO on one screen Access to trade in NSE / BSE and NSE FAO Segments

INTRADAY and DELIVERY differentiation

Different limits for INTRADAY and DELIVERY Auto square off of all INTRADAY orders 15 minutes before close of trading Convert INTRADAY trades to DELIVERY trades on availability of

credit/margin source


46/95

46

Access to statements

Stock Statements - View Stocks in your DP account and also Zen Benfaccount

StatementsView Cash available in your Zen Broking account Mutual FundsView Transaction/Holding statements with Latest NAVs Networth Statement - Networth statement of assets with Zen,

(Stocks+Cash+Mutual funds)

3. Mutual Funds:

One stop shop for a range of Mutual fund products from top Mutual fundssuch as HDFC, ICICI Prudential, Birla sun life, Franklin Templeton,

Reliance , HSBC, Sundaram BNP Paribas, Fidelity and many more

Cost-effective, prompt and trustworthy service Facility to view your account information online 24 X 7, Updates every day. You can view your latest Holding statement You can view your latest transaction statement You can view value of all your mutual funds in one consolidated statement Easy and convenient application process Good Advice keeping your financial goals in mind Offline presence in various locations convenient to you for better service

4. Depository Services

Zen is a depository participant offering flexible, cost effective and

transparent depository services to its clients .Zen is a depository participant with the

National Securities Depository Limited and Central Depository Services (India)

Limited for trading and settlement of dematerialised shares. Zen performs clearing

services for all securities transactions through its accounts. Zen offers depository


47/95

47

services to create a seamless transaction platform execute trades through Zen

Securities and settle these transactions through the Zen Depository Services.

Zen Depository Services is a part of our value added services for our clients

that creates multiple interfaces with the client and provides for a solution that takescare of all your needs

Basic Services Provided by Zen DP

Account Opening Account Transfers - Market and Off-Market Dematerialisation Re-materialization Pledge

5. Portfolio Management Services

We follow a simple yet effective philosophy of wealth creation through a

long-term investment strategy that focuses on quality and undervalued businesses

run by people of competence and integrity. We firmly believe that there will always

be opportunities for wealth creation, irrespective of the Sensex movements. At Zen,

we follow an elaborate procedure of studying each company in detail before we in

invest in them.

We assess the size and durability of the opportunity.

We focus on the track record of the company, pedigree of the management,

quality of earnings, growth potential and most importantly, sustainability of

earnings/ growth.

We then shortlist companies applying various quantitative and qualitative

filters. We constantly monitor the business and revise the values accordingly. We

follow a disciplined approach to investing.


48/95

48

6. NRI Services

ZEN Securities offers a total solution to its NRI clients. We offer services

under the RBI's Portfolio Investment Scheme (PIS) to buy and sell shares through

the Indian stock exchanges.

We coordinate with the RBI approved Bank to open an NRI account. We

will also open the Brokerage account and the Demat Account for the NRI. These

three accounts will be opened simultaneously in the NRI's name.

We will coordinate the transfer of shares to/from NRI's demat account and

money to/from NRI's bank account as per the settlement.

We have setup a separate NRI Services team to guide the NRI through the

application process and the day to day investment process.

Founder of Zen Securities

Shri Ravindra Babu Kantheti founded Zen Securities Ltd as a stock broking

company and led its evolution into a highly respectable financial services company

known for its ethics and values.

He passionately believed that one can be successful in business without

compromising on ethics. Thru Zen he demonstrated this philosophy and inspired

every one of us by setting an example.

His ethical, transparent and trustworthy approach to business has inspired all

of us to build a very vibrant, successful and strong organisation.

We at Zen totally rededicate ourselves to continue to build the organisation

on sound foundations of trust, values and relationship with clients, servicing theirinvestment needs as set out by our founder Sri K.Ravindra Babu.

Board of Directors

Directors of Zen Securities Ltd. have considerable experience and expertise

ranging over many industries such as financial services, pharmaceuticals,


49/95

49

manufacturing, banking and Information Technology among others. They are some

of the most highly respected people in their professional circles.

Mr. Pratap Kantheti, Managing Director

Mr. Pratap Kantheti is the Managing Director of the company. He is a

Chartered Financial Analyst (CFA) and also has a Masters in Business

Administration (MBA) in Finance. He has a deep understanding of and exposure to

the financial services sector.

Mr. Satish Kantheti, Jt. Managing Director

Mr. Satish Kantheti looks after the Portfolio Management Services and

Equity Research divisions of the Company. He is a Chartered Financial Analyst

(CFA) and also has a Masters in Business Administration (MBA) in Finance. He

overseas the Equity Research division and the Portfolio Management divisions.

Mr. K. Gandhi, Director

Mr. K. Gandhi is one of the founder directors of the company. He holds a

Masters degree in Electrical and Communication Engineering from IIT Bombay. He

has extensive experience in IT and General Management.

Mr. Satyanarayana Ch. Ravi (RS), Whole Time Director

Mr. Satyanarayana Ch. Ravi has more than two decades of experience in the

fields of Management, Administration, Manufacturing, and Marketing. He holds a

Bachelors degree in Chemical Engineering.

Mr. Sambasiva Rao Patibandla, Executive Director

Mr. Sambasiva Rao has worked with several multinational pharmaceuticals

companies before incorporating and running a successful pharmacy business venture

in U.S. He relocated to India entered the Stock broking industry in 1994. He is the

Executive Director of company. He has a Masters degree in Pharmacy.

Mr. Narayanan Narayanan, Director

Mr. Narayanan is a very experienced Investment Analyst and Tax Consultant

possessing a deep understanding about investments and stock market dynamics.


50/95

50

Mr. Ajay Kumar Mikkilineni, Director

Mr. Ajay Kumar Mikkilineni has over a decade of experience in senior

positions of the Pharmaceutical industry and also has twelve years of experience in

the banking sector. He holds a Masters degree in Agriculture.

Mr. K.Venkat Reddy,Director

Mr. K.Venkat Reddy is a chemical engineer. He worked in reputed industrial

houses in Paper & Power sectors for 16 years and in Financial markets for 10 years.

He has extensive experience in the areas of project management and strategic

management.

Mr. K. Narasimha Rao, Director

Mr. K. Narasimha Rao is a Post Graduate in Literature. He is the Chief

Agent of A.P. LIC Mutual Fund since June 2002. He is an LIC agent since 1980 and

has extensive knowledge about the securities and insurance markets.

Mr. Namashivaya Renukuntla, Director and Head of Compliance

Mr. Namashivaya Renukuntla has vast experience in the field of stock

broking and has a deep understanding of the regulatory framework of the Capital

Markets. He heads the Commodity Broking business of the Company. He holds abachelors degree in Civil Engineering and a Masters in Business Administration

(MBA.)


51/95

51

INDUSTRY PROFILE

Financial Markets

Finance is the pre-requisite for modern business and financial institutions play a

vital role in the economic system. It is through financial markets and institutions that

the financial system of an economy works. Financial markets refer to the institutional

arrangements for dealing in financial assets and credit instruments of different types

such as currency, cheques, bank deposits, bills, bonds, equities, etc.

Financial market is a broad term describing any marketplace where buyers and

sellers participate in the trade of assets such as equities, bonds, currencies and

derivatives. They are typically defined by having transparent pricing, basic regulations

on trading, costs and fees and market forces determining the prices of securities that

trade.

Generally, there is no specific place or location to indicate a financial market.

Wherever a financial transaction takes place, it is deemed to have taken place in the

financial market. Hence financial markets are pervasive in nature since financial

transactions are themselves very pervasive throughout the economic system. For

instance, issue of equity shares, granting of loan by term lending institutions, deposit of

money into a bank, purchase of debentures, sale of shares and so on.

In a nutshell, financial markets are the credit markets catering to the various

needs of the individuals, firms and institutions by facilitating buying and selling of

financial assets, claims and services.


52/95

52

CLASSIFICATION OF FINANCIAL MARKETS

Financial

markets

Organized

markets

Capital Markets

Industrial

Securities

Market

Primary Market

Secondary

market

Government

Securities

Market

Long-term loan

market

Money Markets

Call Money

Market

Commercial Bill

Market

Treasury Bill

Market

Unorganized

markets

Money Lenders,

Indigenuos

Bankers


53/95

53

Capital Market

The capital market is a market for financial assets which have a long or

indefinite maturity. Generally, it deals with long term securities which have a period of

above one year. In the widest sense, it consists of a series of channels through whichthe savings of the community are made available for industrial and commercial

enterprises and public authorities. As a whole, capital market facilitates raising of

capital.

The major functions performed by a capital market are:

1. Mobilization of financial resources on a nation-wide scale.2. Securing the foreign capital and know-how to fill up deficit in the

required resources for economic growth at a faster rate.

3. Effective allocation of the mobilized financial resources, by directing thesame to projects yielding highest yield or to the projects needed to promote balanced

economic development.

http://www.economywatch.com/market/market-types/financial-market-

types.htmlCapital market consists of primary market and secondary market.

Primary market:

Primary market is a market for new issues or new financial claims. Hence it is

also called as New Issue Market. It basically deals with those securities which are

issued to the public for the first time. The market, therefore, makes available a new

block of securities for public subscription. In other words, it deals with raising of fresh

capital by companies either for cash or for consideration other than cash. The best

example could be Initial Public Offering (IPO) where a firm offers shares to the public

for the first time.

Secondary market:

Secondary market is a market where existing securities are traded. In other

words, securities which have already passed through new issue market are traded in this

market. Generally, such securities are quoted in the stock exchange and it provides a
http://www.economywatch.com/market/market-types/financial-market-types.htmlhttp://www.economywatch.com/market/market-types/financial-market-types.htmlhttp://www.economywatch.com/market/market-types/financial-market-types.htmlhttp://www.economywatch.com/market/market-types/financial-market-types.html


54/95

54

continuous and regular market for buying and selling of securities. This market consists

of all stock exchanges recognized by the government of India.

Money Market:

Money markets are the markets for short-term, highly liquid debt securities.

Money market securities are generally very safe investments which return relatively

low interest rate that is most appropriate for temporary cash storage or short term time

needs. It consists of a number of sub-markets which collectively constitute the money

market namely call money market, commercial bills market, acceptance market, and

Treasury bill market.

Derivatives Market:

The derivatives market is thefinancial marketforderivatives,financial instruments

like futures contracts or options, which are derived from other forms of assets. A

derivative is a security whose price is dependent upon or derived from one or more

underlying assets. The derivative itself is merely a contract between two or more

parties. Its value is determined by fluctuations in the underlying asset. The most

common underlying assets include stocks, bonds, commodities, currencies, interest

rates and market indexes. The important financial derivatives are the following:

Forwards: Forwards are the oldest of all the derivatives. A forward contractrefers to an agreement between two parties to exchange an agreed quantity of an

asset for cash at a certain date in future at a predetermined price specified in that

agreement. The promised asset may be currency, commodity, instrument etc.

Futures: Future contract is very similar to a forward contract in all respectsexcepting the fact that it is completely a standardized one. It is nothing but a

standardized forward contract which is legally enforceable and always traded on

an organized exchange.

Options: A financial derivative that represents a contract sold by one party(option writer) to another party (option holder). The contract offers the buyer

the right, but not the obligation, to buy (call) or sell (put) a security or other

financial asset at an agreed-upon price (the strike price) during a certain period
http://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Financial_instrumenthttp://en.wikipedia.org/wiki/Financial_instrumenthttp://en.wikipedia.org/wiki/Financial_instrumenthttp://en.wikipedia.org/wiki/Underlying_assethttp://en.wikipedia.org/wiki/Underlying_assethttp://en.wikipedia.org/wiki/Underlying_assethttp://en.wikipedia.org/wiki/Financial_instrumenthttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Financial_market


55/95

55

of time or on a specific date (exercise date). Call options give the option to buy

at certain price, so the buyer would want the stock to go up. Put options give the

option to sell at a certain price, so the buyer would want the stock to go down.

Swaps: It is yet another exciting trading instrument. Infact, it is the combinationof forwards by two counterparties. It is arranged to reap the benefits arising

from the fluctuations in the market either currency market or interest rate

market or any other market for that matter.

Foreign Exchange Market

It is a market in which participants are able to buy, sell, exchange and speculate

on currencies. Foreign exchange markets are made up of banks, commercial

companies, central banks, investment management firms, hedge funds, and retail forex

brokers and investors. The forex market is considered to be the largest financial market

in the world. It is a worldwide decentralized over-the-counterfinancial market for the

trading of currencies. Because the currency markets are large and liquid, they are

believed to be the most efficient financial markets. It is important to realize that the

foreign exchange market is not a single exchange, but is constructed of a global

network of computers that connects participants from all parts of the world.

Commodities Market

It is a physical or virtual marketplace for buying, selling and trading raw or

primary products. For investors' purposes there are currently about 50 major

commodity markets worldwide that facilitate investment trade in nearly 100 primary

commodities. Commodities are split into two types: hard and soft commodities. Hard

commodities are typically natural resources that must be mined or extracted (gold,

rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn,

wheat, coffee, sugar, soybeans, pork, etc.)

Indian Financial Markets

India Financial market is one of the oldest in the world and is considered to be

the fastest growing and best among all the markets of the emerging economies. The

history of Indian capital markets dates back 200 years toward the end of the 18th
http://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Over-the-counter_(finance)


56/95

56

century when India was under the rule of the East India Company. The development of

the capital market in India concentrated around Mumbai where no less than 200 to 250

securities brokers were activeduring the second half of the 19th century.

The financial market in India today is more developed than many other sectorsbecause it was organized long before with the securities exchanges of Mumbai,

Ahmadabad and Kolkata were established as early as the 19th century.

By the early 1960s the total number of securities exchanges in India rose to

eight, including Mumbai, Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi,

Bangalore and Pune. Today there are 21 regional securities exchanges in India in

addition to the centralized NSE (National Stock Exchange) and OTCEI (Over the

Counter Exchange of India).

However the stock markets in India remained stagnant due to stringent controls

on the market economy that allowed only a handful of monopolies to dominate their

respective sectors. The corporate sector wasn't allowed into many industry segments,

which were dominated by the state controlled public sector resulting in stagnation of

the economy right up to the early 1990s. Thereafter when the Indian economy began

liberalizing and the controls began to be dismantled or eased out; the securities markets

witnessed a flurry of IPOs that were launched. This resulted in many new companies

across different industry segments to come up with newer products and services.

A remarkable feature of the growth of the Indian economy in recent years has

been the role played by its securities markets in assisting and fuelling that growth with

money rose within the economy. This was in marked contrast to the initial phase of

growth in many of the fast growing economies of East Asia that witnessed huge doses

of FDI (Foreign Direct Investment) spurring growth in their initial days of market

decontrol. During this phase in India much of the organized sector has been affected by

high growth as the financial markets played an all-inclusive role in sustaining financial

resource mobilization. Many PSUs (Public Sector Undertakings) that decided to offload

part of their equity were also helped by the well-organized securities market in India.


57/95

57

The launch of the NSE (National Stock Exchange) and the OTCEI (Over the

Counter Exchange of India) during the mid 1990s by the government of India was

meant to usher in an easier and more transparent form of trading in securities. The NSE

was conceived as the market for trading in the securities of companies from the large-

scale sector and the OTCEI for those from the small-scale sector. While the NSE has

not just done well to grow and evolve into the virtual backbone of capital markets in

India the OTCEI struggled and is yet to show any sign of growth and development. The

integration of IT into the capital market infrastructure has been particularly smooth in

India due to the countrys world class IT industry. This has pushed up the operational

efficiency of the Indian stock market to global standards and as a result the country has

been able to capitalize on

A Mutua Fund

Documents

Transcript of A Mutua Fund