Mutual Fund-SyllabusUNIT ITHE CONCEPT AND ROLE OF MUTUAL FUNDSOrigin and growth of Mutual Funds in India, Role in ImportanceTypes of Mutual Fund productsO i ti l d iOrganizational designSponsor, Trustee and AMCUNIT IIINVESTMENT IN MUTUAL FUNDSThe procedure and the processRights and Duties of investorsDos and Dont of mutual fund investmentUNIT IIIVALUATION OF MUTUAL FUND PRODUCTSNAV ConceptsAccountingTaxationValuation NormsValuation Norms

UNIT IVMEASURING AND EVALUATING MUTUAL FUND PERFORMANCERisk and performance evaluationRisk and performance evaluationMeasuring ReturnsTracking Mutual Fund PerformanceRole of SEBI and AMFI

Introduction to Mutual FundIntroduction to Mutual Fund Mutual Funds Plays very important role for the growth and

development of any economy They are vehicles for mobilizing the savings of investors towards

stock or securities market which is the barometer of the health ofeconomy

The Mutual fund over the years in India has shown tremendousgrowth both in terms of AMC and AUM

The increase in investment in mutual fund is due to lack ofknowledge and expertise of investing in the stock market

Mutual fund becomes an attractive instrument of capital market forpretail and institutional investors.

The main basic objective of mutual fund is to reduce risk andprovide return.p

What is Mutual Fund?Mutual fund in simple terms is money- managing institution that pools thesavings of a number of investors who share a common financial goals.The money collected from public then invested in shares, debenture, andy p , ,other securities. It is established in the form of trust who raise money frompublic through sales of units.

Buying mutual fund is like buying a small slice of a big pizza. Hence theprofit and loss share is in proportion to their holding. Every mutual fund ismanage by professional and require to have an independent board ofg y p q ptrustee. It will have SEBI registered custodian to carry out all custodialservices.

The money earned is share amongst the unit holders in proportionate totheir unit holding.

A diversified Scheme Launched Current PriceA diversified Scheme Launched Current Price

Jan-12 Dec-12

Corpus 10,000,000 120,000,000

Unit Price 10 12

NO of Units 1,000,000 1,000,000

No of Investors 2,000 2,000

Each Sharing Units 500 500

Each Having Value 5,000 6,000

Profit 20%

It means large number of investor come togetherfand contributes to a fund which is invested as per

the goal of that fund.

It is most suitable form of investing in any types of assetg y ypclass i.e. Debt, Equity, Commodity, Index etc. One personwith Rs100 can not invest in Reliance but through mutualfund it can investfund it can invest.

Price of RIL 1 000Price of RIL 1,000

No. of People 10

Each having Rs 100Each having Rs 100

Total Amount 1,000

So each person will own 1/10th of one shareSo each person will own 1/10th of one share

Characteristics of Mutual FundCharacteristics of Mutual Fund1. Ownership of the mutual fund: A mutual fund belongs to investors

who pool their money.2. Professional Management3. Marketable instruments: The pool of funds are invested in

marketable securities and hence there is no need to worry onvaluation front. The portfolio value is updated on daily basis.

4. Denomination by units: The share of investors in mutual fund isdenominated in units and hence value is derived as unit multiply byNAV per unit similar to stock where the value of holding derived asnumber of share multiply by price per share.

5. Stated investment objective: The invested portfolio is crated withstated objective of that particular scheme

6. Choice to Investors: investors can invest in open/close, dividend,growth etc or any types of schemes

7. Trust form: All mutual fund are form a trust.

Advantage of Mutual Fund g1) Power of Knowledge/Professional Management:

F d h f i l k l d d i k fFund manager has professional knowledge and experience to take care ofinvestments. Investors need not require to time the market and just leaveto the fund manager to do the needful.These fund manager has specialized knowledge and tools like latestg p gfinancial and non-financial software to help their decision making process.Today there are number of software like Bloomberg, Capitaline, Reuters,Prowess from CMIE, Mutual fund data base from Accord, ICRA etc. Thesesoftware are critical and very costly which are beyond the capability ofy y y p ysmall investor to buy and use.

Most of these fund managers are highly qualified with professional degreeslike CA CFA MBA and have extensive global market knowledge Todaylike CA, CFA, MBA and have extensive global market knowledge. Todaywe are not a de-coupled economy and hence what ever happens in globalmarket same can be replicated on Indian market too. Therefore trackingglobal market and keeping consistent watch is beyond the limit or reach ofsmall investorssmall investors.

2) Off i l ti2) Offering solutionEach and every investor have different set of objective viz retirementy jplanning, planning to buy house, major medical expenses, holiday plan,childrens education, childrens marriage etc. These goals require hugeamount of money and hence the proper financial planning needed tomeet these objectives. The investors through systematic and dedicatedsaving on monthly basis and investing in mutual fund can meet theirobjectives or goals.

Today inflation is one the biggest issue and a major factor responsible toToday inflation is one the biggest issue and a major factor responsible tovalue erosion of our money. We need to generate inflation adjustedreturn to meet our financial objectives. One example let say today myage is 30 years and my monthly expenses is Rs30,000 PM @7% annualinterest we need monthly Rs2 28 368 to meet our monthly expenses atinterest we need monthly Rs2,28,368 to meet our monthly expenses atthe age of 60 year thanks to inflation.

Retirement @ 60 Years Retirementif invest 15,682 PM

P t A 30 D ti 30 YPresent Age 30 Duration 30 Years

Year Left for Retirement 30 Exp. Return 12%

Income 60,000 Maturity Amt @ 60 54,808,236

C t M thl E 30 000Current Monthly Expense 30,000

Saving 30,000Inflation 7.0%

Monthly Exp after 30 years 228 368Monthly Exp. after 30 years 228,368

Money Require @ age 60 54,808,236

If we invest Rs15682 per months assuming we will get 12% PA return ourtotal future valued would be Rs5.8 crore at the end of 30 years. This moneycan be invested in in bank FD and assuming 5% return PA on that we caneasily meet our future monthly expenses requirement at the age of 60 year.y y p q g y

Thats power of compoundingMutual fund investing through SIP would help to achieve our financial goal.

3) Diversification:3) Diversification:Mutual fund is the best way to diversify our investment risk. If weinvest in one stock lets say in reliance, if the stock goes up byinvest in one stock lets say in reliance, if the stock goes up by10% we will earn 10% but it goes down by 10% we will havesuffer 10% loss so high risk and high gain game.

Mutual fund allows an investor to invest Rs1000 in multiplestocks it may more than 100 also. So if lets say 50% stocks goesup and rest go down, our loss will be balance as fund mangerstake out best stock from over 10000 listed Indian companies thetake out best stock from over 10000 listed Indian companies, thechances of stock going down though high but relatively lowerthan un researched stock. So our risk gets diversified.

Some time if the market is bad the fund manger may invest indebt instrument, a pure equity mutual fund invest 75-100% of itsinvestment in equity and 0.-25% in debt. The proportion ofinvestment in debt may go up if equity is not giving good returninvestment in debt may go up if equity is not giving good return.

4) Low cost of investing:4) Low cost of investing:The mutual fund investing is cost effective as an investor needgnot have to pay regular demat fees, security transaction cost,brokerages etc. The retail investment brokerage is very highsome time it is charge at Rs1 per 100 on delivery whereas the itmay be 10-15 paise on intraday The institutional clients howevermay be 10-15 paise on intraday. The institutional clients however,pay very low brokerages up to 3 piase per Rs100 and it may goup to high of 25 paise per Rs100 on delivery basis.

Apart from above, the other cost like demat cost is fully saved incase of mutual fund as compared to individual or directinvestment. Other saving like depositary cost is also saved.

An investor just need to pay fund management fees to mutualfund houses which ranges between 1-1.5% of total outstandingportfolioportfolio.

5) Liquidity:) q yUnlike direct investing in stock market, mutual fund commands veryhigh liquidity. An investor if buys a mid cap stock with daily volume of100-200 stocks, perhaps may not find any buyer if it plans to sell. But in

fmutual fund the liquidity is ample and with one instruction in writtenform to AMC, we can easily redeem our investment.

Everyday before 3 PM just 30 minutes prior to market close one needsEveryday before 3 PM just 30 minutes prior to market close one needsto fill the redemption form and send it to the AMC and same can beredeem on the same days of NAV. Lets say if market goes up by 2 %and you wish to profit from this, you need to send the form before 3 PMt t d NAV l MF b d t d NAVto get same days NAV else MF can be redeem on next days NAV.

Some mutual fund scheme runs into an asset (AUM) worth Rs1000-25000 crore with over millions of units hence there is enough liquidity to25000 crore with over millions of units hence there is enough liquidity tobuy and sell the units and price fluctuation is also limited unlikeindividual stocks where if daily volume is 1000 stock if some one wantsto buy 2000 share the prices may go up 3-5% once the buying orderplaced Similarly if any body wants to sell the stock he may sell at lowerplaced. Similarly if any body wants to sell the stock he may sell at lowerprice due to non availability of buyers.

6) Transparency:6) Transparency:Though the transparency is also quite high in case of directg p y q ginvestment in stock market, mutual fund also offers highdegree of transparency. Most of mutual fund houses givethe back office work to third party like CAMS etc whop ysends the statement on weekly or monthly basis at thesame time, they also send fresh mutual fund statementonce fresh purchase is made.p

The statement contains current cost, value, NAV, the rateat which the purchase or redemption is done etc due toat which the purchase or redemption is done etc. due todevelopment of various trading platforms, the transparencyhas increased drastically. Earlier the share used to getheld in physical form but with demat it is easy to held theheld in physical form but with demat it is easy to held theshare.

7) Tax Benefit:The investors while investing also needs to take care of taxation part. Thegovernment allows the tax deduction for the investment up Rs1 Lakh under section80C of income tax act 1961. The investment avenues include PPF, EPF, Insurance,Government Bond, Payment of principle of housing loan etc. However, some of these, y p p g ,investments have lock in period up to 8-15 years. Insurance for example has lock inperiod of not less than 15 years or more, PPF the withdrawal is not allowed before 8years, bank FD may run between 3-5 years etc.

In all above mentioned instruments, the return is fix (EPF 9.5%, PPF 8.6%, bank FD7-8%, bonds 8-8.5% depending upon duration). The maximum limit is Rs1 lakh eitherin any one segment or equally divided amongst all.

Apart from above, if you invest in ELSS *(Equity Linked Saving Scheme), adeduction of Rs1 lakh is allow. The lock in period is just three years. This one lakh isoff-course not extra but part of over all limits under section 80C.

In addition to above, the long term tax gain is tax free unlike bank FD where we needto capital gain tax. A long term means if investment is held for one year or more, anycapital gain arising is tax free. Lets say if you invest Rs10000 in a MF scheme atcurrent NAV of Rs10 so 1000 units are allotted to your account or folio number. At the

d f 1 l t if NAV i R 12 it th t t l l i R 12000 i t tend of 1 year lets say if NAV is Rs12 per unit, the total value is Rs12000 against costof Rs10000 so Rs2000 is capital gain if these units are sold, an investors need nothave to pay tax on Rs2000 gain.

8) Aff d bilit8) Affordability

An investor with Rs100 cant even buy reliance share as itis trading at Rs1000 but through investing in MF schemehe can in est in more than 1 companies b holding thehe can invest in more than 1 companies by holding thefraction or part of share due to suitable units pricedepending upon NAV .

The mutual fund with large corpus and large units allowsthe small investor with small amount of as low as Rs100to invest in multiple stocks.

9) Solid three tier structure:)The mutual fund has solid three tier structure with sponsor, Trusteeand AMC Each and every parties to this structure have statutoryand AMC. Each and every parties to this structure have statutoryobligation towards safeguarding the interest of investors. Sponsorwith its power full brand and solid experience help is establishing thebest mutual fund house like SBI MF, ICICI Pru AMC, HDFC MF,K t k MF t h th ti th i t b kKotak MF etc where the respective sponsor are their parent banks.

Trustee again supervise the AMC in investment decision andregulate the overall all functioning of AMC Any investment over Rs5regulate the overall all functioning of AMC. Any investment over Rs5crore in any single stocks needs to take prior permission fromtrustees investment committee. Nearly 2/3rd of BOD areindependent who have no economic interest in the AMC or Sponsorp phence best decision is taken in the favor of investors.

AMC again have very deep market knowledge and experience tot k i ht i t t d i itake right investment decision.

10) SEBI Regulated market:) gThe entire mutual fund industry is regulated by SEBI eversince its arrival in 1992. All MF has to be register with SEBIgand they have function within the provision of SEBIregulation. As the SEBI is stock market watchdog, by virtueof that as most of investment goes towards equity marketh it i l t d b SEBIhence it is regulated by SEBI.

SEBI has taken several steps to ensure the interests ofi t t t d b bi th i id t lik f tinvestors are protected by curbing the incident like frontrunning and back running.

Today SEBI also enjoys right similar to CBI and has power toconduct raids and confiscate the property of defaulters.

Evolution of Mutual FundEvolution of Mutual FundMutual fund started in United States in the 1890s. They becamepopular during the 1920s. These early funds were generally of theclosed-end type with a fixed number of shares which often traded atclosed-end type with a fixed number of shares which often traded atprices above the value of the portfolio.

The first open-end mutual fund with redeemable shares wast bli h d M h 21 1924 H l d d f d i destablished on March 21, 1924. However, closed-end funds remained

more popular than open-end funds throughout the 1920s. By 1929,open-end funds accounted for only 5% of the industry's $27 billion intotal assets.

At the end of 2010, there were 7,581 mutual funds in the United Stateswith combined assets of $13 trillion, according to the InvestmentCompany Institute (ICI) a national trade association of investmentCompany Institute (ICI), a national trade association of investmentcompanies in the United States. The ICI reports that worldwide mutualfund assets were $24.7 trillion on the same date.

US t f 57% f ld AUM h 44% US h h ldUS account for over 57% of world AUM whereas 44% US householdsinvest in Mutual Fund.

AUM % f GDP

101 100

120

AUM as % of GDP

88

61 60 60

80

100

7 11 8 19

34 20

10 20

40

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Source: Industry

Country Wise AUM ($ Billion)Country Wise AUM ($ Billion)Country AUM $ Billion

I di 130 0India 130.0

China 380.0

US 13,000.0

UK 1,200.0

Japan 674.0

Canada 834.0

Thailand 93.0

France 1,560.0

Hong Kong 743.0

Australia 1,720.0

Pakistan 2.6

Source: Industry

Saving Pattern in IndiaSaving Pattern in India

Typical India Saving Pattern

16%

8%

54%

3%

8%

11%

3%

Bank FD Currency Calim on Govt. Mutual Fund PPF Insurance

Source: RBI

AUM Growth in IndiaAUM Growth in India

15 16

AUM growth as % of GDP

8

10 11

10

8 9

78

12

6 7

4

8

-2005. 2006 2007 2008 2009 2010 2011 2012 2013

: 2013- Sept 2013

Origin of Mutual Fund in IndiaOrigin of Mutual Fund in IndiaThe EvolutionThe formation of Unit Trust of India marked theevolution of the Indian mutual fund industry in theyear 1963.year 1963.

The primary objective at that time was to attract thell i t d it d ibl th hsmall investors and it was made possible through

the collective efforts of the Government of India andthe Reserve Bank of India.

Phase 1. Establishment and Growth of Unit Trust of India - 1964-87

Unit Trust of India enjoyed complete monopoly when it was established in theyear 1963 by an act of Parliament.

UTI was set up by the Reserve Bank of India and it continued to operate underthe regulatory control of the RBI until the two were de-linked in 1978 and theentire control was transferred in the hands of Industrial Development Bank ofIndia (IDBI).

UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64),which attracted the largest number of investors in any single investment schemeover the years.

UTI launched more innovative schemes in 1970s and 80s to suit the needs ofdifferent investors. It launched ULIP in 1971, six more schemes between 1981-84 Children's Gift Growth Fund and India Fund (India's first offshore fund) in84, Children s Gift Growth Fund and India Fund (India s first offshore fund) in1986, Master share (India's first equity diversified scheme) in 1987 and MonthlyIncome Schemes (offering assured returns) during 1990s.

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

Phase II. Entry of Public Sector Funds - 1987-1993

The Indian mutual fund industry witnessed a number of publicsector players entering the market in the year 1987.

In November 1987, SBI Mutual Fund from the State Bank ofIndia became the first non-UTI mutual fund in India.

SBI Mutual Fund was later followed by Canbank Mutual Fund,LIC Mutual Fund, Indian Bank Mutual Fund, Bank of IndiaMutual Fund, GIC Mutual Fund and PNB Mutual Fund.,

By 1993, the assets under management of the industryincreased seven times to Rs. 47,004 crores.increased seven times to Rs. 47,004 crores.

However, UTI remained to be the leader with about 80%market sharemarket share.

Phase III. Emergence of Private Secor Funds - 1993-96

The permission given to private sector funds includingforeign fund management companies (most of them enteringth h j i t t ith I di t ) t t ththrough joint ventures with Indian promoters) to enter themutual fund industry in 1993, provided a wide range ofchoice to investors and more competition in the industry.

Private funds introduced innovative products, investmenttechniques and investor-servicing technology.

By 1994-95, about 11 private sector funds like Reliance MF,HDFC MF, Fidelity MF, Sundaram BNP Paribas, Merryl h C R b DSP Bl k R k Ch l d llynch, Canara Robaro, DSP Black Rock, Cholamadalam,Birla Sun Life, TATA MF, Kotak, Morgan Stanley MF etc. hadlaunched their schemes. Today we have 44 AMC in India.

Phase IV. Growth and SEBI Regulation - 1996-2004

The mutual fund industry witnessed robust growth and stricter regulation fromthe SEBI after the year 1996.

The mobilization of funds and the number of players operating in the industryThe mobilization of funds and the number of players operating in the industryreached new heights as investors started showing more interest in mutualfunds.

Investors' interests were safeguarded by SEBI and the Government offered taxg ybenefits to the investors in order to encourage them. SEBI (Mutual Funds)Regulations, 1996 was introduced by SEBI that set uniform standards for allmutual funds in India.

The Union Budget in 1999 exempted all dividend incomes in the hands ofinvestors from income tax. Various Investor Awareness Programmed werelaunched during this phase, both by SEBI and AMFI, with an objective toeducate investors and make them informed about the mutual fund industry.

In February 2003, the UTI Act was repealed and UTI was stripped of its Speciallegal status as a trust formed by an Act of Parliament.

Th i bj ti b hi d thi t b i ll t l f d l thThe primary objective behind this was to bring all mutual fund players on thesame level. UTI was re-organized into two parts: 1. The Specified Undertaking(SUUTI), 2. The UTI Mutual Fund

Phase IV. Growth and SEBI Regulation - 1996-2004 cont.

The one is the Specified Undertaking of the Unit Trust of India with assets underp gmanagement of Rs32000 crores as at the end of March 2103, representing broadly,the assets of US 64 scheme, assured return and certain other schemes. These amountis with regard to holding blue chip companies like Axis Bank (23.6%), ITC (11.54%),L&T (8.3%)

The Specified Undertaking of Unit Trust of India, functioning under an administratorand under the rules framed by Government of India and does not come under thepurview of the Mutual Fund Regulations. SUUTI to be winded up by March 2013 andfunds to be transferred to NAMC. The investors for payout worth Rs2000 crore is stillp ynot traceable.

Now the government has planned to windup this company by paying to its inventors by2014.

The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It isregistered with SEBI and functions under the Mutual Fund Regulations.

Presently Unit Trust of India operates under the name of UTI Mutual Fund and its pastschemes (like US-64, Assured Return Schemes) are being gradually wound up.

H UTI M l F d i ill f h l l i h i d I 1999However, UTI Mutual Fund is still one of the largest player in the industry. In 1999,there was a significant growth in mobilization of funds from investors and assets undermanagement which is supported by the following data.

Phase V. Growth and Consolidation - 2004 Onwards

Th i d t h l it d lThe industry has also witnessed several mergersand acquisitions recently, examples are acquisitionof schemes of Alliance Mutual Fund by Birla SunyLife, Sun F&C Mutual Fund and PNB Mutual Fundby Principal Mutual Fund. L&T finance acquireDBS Chola etc.

Recently L&T mutual fund acquires Fidelity

This era has also witnessed a very high and rapidgrowth for asset under management The AUM hasgrowth for asset under management. The AUM hasgrown 21% CAGR between March 2003 to Sept.2012 fro3 Rs87190 crore to 803000 crore.

Indias AUM (Rs Lakh Crore)Year Asset Under Management (Rs Crore)Year Asset Under Management (Rs Crore) Mar 1965 25 Mar 1987 4,564 Mar 1993 47,000 Mar1998 121,805 Mar2003 87,190 Mar 2004 139,616 Mar 2005 149 554Mar 2005 149,554 Mar 2006 231,862 Mar' 2007 326,388 Mar 2008 505,152 Mar 2009 417,300 Mar 2010 613,979 Mar 2011 592,250 June 2011 743 502June 2011 743,502 Sept 2011 712,742 Sept 2012 750,000 Sept.2013 808,000

Source: AMFI / Industry

A t U d M t (AUM) R C

750,000

900,000

Asset Under Management (AUM) Rs Crore

450,000

600,000

150,000

300,000

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Source: AMFI

Amc Name LastPFDate TotalAUM(Cr.) Equity(Cr.) Debt(Cr.) Others(Cr.) NoofSchemes OpenEnded CloseEndedHDFCAssetManagementCompanyLimited 30Nov2013 113,918.5 35,805.9 57,263.6 20,849.0 735.0 224.0 511.0RelianceCapitalAssetManagementLimited 30Nov2013 108,654.5 24,186.7 69,117.8 15,350.0 607.0 322.0 285.0ICICIPrudentialAssetManagementCompanyLimited 30Nov2013 101,308.0 17,385.7 70,487.2 13,435.2 934.0 482.0 452.0BirlaSunlifeAssetManagementCompanyLimited 30Nov2013 86,960.3 10,705.8 62,633.0 13,621.5 730.0 328.0 402.0UTI Asset Management Company Private Limited 30Nov2013 73 161 7 22 215 1 44 304 9 6 641 7 556 0 272 0 284 0UTIAssetManagementCompanyPrivateLimited 30Nov2013 73,161.7 22,215.1 44,304.9 6,641.7 556.0 272.0 284.0SBIFundsManagementPrivateLimited 30Nov2013 66,151.3 13,056.2 46,295.0 6,800.2 403.0 221.0 182.0FranklinTempletonAssetManagement(India)PrivateLimited 30Nov2013 45,081.5 13,058.2 28,019.3 4,004.0 227.0 219.0 8.0IDFCAssetManagementCompanyLimited 30Nov2013 41,096.2 6,236.0 31,881.0 2,979.2 524.0 237.0 287.0KotakMahindraAssetManagementCompanyLimited 30Nov2013 36,662.1 2,790.8 29,095.4 4,776.0 314.0 181.0 133.0DSPBlackRockInvestmentManagersPrivateLimited 30Nov2013 32,553.1 8,820.4 20,634.7 3,098.0 433.0 173.0 260.0TataAssetManagementLimited 30Nov2013 20,390.5 3,803.8 14,871.4 1,715.2 323.0 221.0 102.0D h A M (I di ) P i Li i d 30 N 2013 17 936 3 169 7 15 861 5 1 905 2 369 0 216 0 153 0DeutscheAssetManagement(India)PrivateLimited 30Nov2013 17,936.3 169.7 15,861.5 1,905.2 369.0 216.0 153.0L&TInvestmentManagementLimited 30Nov2013 17,460.7 4,271.8 10,135.4 3,053.5 259.0 152.0 107.0SundaramAssetManagementCompanyLimited 30Nov2013 17,210.0 5,009.1 9,565.8 2,635.0 390.0 223.0 167.0AxisAssetManagementCompanyLtd. 30Nov2013 14,466.2 2,019.3 9,429.7 3,017.2 156.0 90.0 66.0ReligareInvescoAssetManagementCompanyPvtLtd. 30Nov2013 13,532.8 542.5 11,411.8 1,578.5 274.0 178.0 96.0JPMorganAssetManagementIndiaPrivateLimited 30Nov2013 12,314.8 309.0 10,376.9 1,628.9 158.0 84.0 74.0LICNomuraMutualFundAssetManagementCompanyLimited 30Nov2013 8,681.1 636.3 7,895.5 149.4 170.0 98.0 72.0JMFinancialAssetManagementPrivateLimited 30Nov2013 8,050.8 421.3 6,858.5 771.0 131.0 120.0 11.0HSBCGlobalAssetManagement(India)PrivateLimited 30Nov2013 7,564.0 1,146.8 5,763.2 654.0 158.0 117.0 41.0

AmcName LastPFDate TotalAUM(Cr.) Equity(Cr.) Debt(Cr.) Others(Cr.) NoofSchemes OpenEnded CloseEndedHDFCAssetManagementCompanyLimited 30Nov2012 102,144.9 38,808.7 50,635.1 12,701.1 231.0 208.0 23.0Reliance Capital Asset Management Limited 30Nov2012 94 662 9 29 034 7 55 646 4 9 981 8 335 0 288 0 47 0RelianceCapitalAssetManagementLimited 30Nov2012 94,662.9 29,034.7 55,646.4 9,981.8 335.0 288.0 47.0ICICIPrudentialAssetManagementCompanyLimited 30Nov2012 83,847.5 15,969.5 50,733.6 17,144.3 545.0 465.0 80.0BirlaSunlifeAssetManagementCompanyLimited 30Nov2012 79,760.2 10,827.9 54,856.0 14,076.3 326.0 289.0 37.0UTIAssetManagementCompanyPrivateLimited 30Nov2012 70,503.6 24,356.4 40,306.5 5,840.8 287.0 272.0 15.0SBIFundsManagementPrivateLimited 30Nov2012 55,091.2 14,842.9 34,664.2 5,584.0 230.0 216.0 14.0

FranklinTempletonAssetManagement(India)PrivateLimited 30Nov2012 42,672.6 14,116.2 24,149.6 4,406.8 227.0 219.0 8.0DSPBlackRockInvestmentManagersPrivateLimited 30Nov2012 31,251.6 11,550.1 17,164.8 2,536.8 181.0 161.0 20.0

KotakMahindraAssetManagementCompanyLimited 30Nov2012 31,000.9 2,781.1 23,485.1 4,734.7 187.0 181.0 6.0IDFCAssetManagementCompanyLimited 30Nov2012 30,344.5 5,653.3 23,029.5 1,661.6 243.0 219.0 24.0TataAssetManagementLimited 30Nov2012 19,312.5 4,785.0 12,614.6 1,912.9 237.0 221.0 16.0DeutscheAssetManagement(India)PrivateLimited 30Nov2012 18,473.0 221.4 15,464.1 2,787.5 234.0 197.0 37.0

ReligareInvescoAssetManagementCompanyPvtLtd. 30Nov2012 14,652.0 591.2 12,886.5 1,174.3 173.0 170.0 3.0JPMorganAssetManagementIndiaPrivateLimited 30Nov2012 14,346.1 427.6 10,215.7 3,702.8 78.0 66.0 12.0Sundaram Asset Management Company Limited 30Nov2012 13,879.4 6,846.5 6,086.0 946.9 239.0 217.0 22.0SundaramAssetManagementCompanyLimited 30 Nov 2012 13,879.4 6,846.5 6,086.0 946.9 239.0 217.0 22.0

L&TInvestmentManagementLimited 30Nov2012 12,485.3 5,062.0 6,460.0 963.3 158.0 152.0 6.0AxisAssetManagementCompanyLtd. 30Nov2012 11,520.4 1,449.8 7,301.4 2,769.2 106.0 90.0 16.0

CanaraRobecoAssetManagementCompanyLimited 30Nov2012 8,089.8 1,805.5 4,790.4 1,493.8 122.0 120.0 2.0JMFinancialAssetManagementPrivateLimited 30Nov2012 7,384.6 563.7 6,071.2 749.7 120.0 120.0 IDBIAssetManagementLtd. 30Nov2012 6,337.1 273.2 5,706.9 357.0 51.0 51.0

In spite of such a phenomenal growth, Indian MF industry still lacks thesize and strengthThe Indian MF industry is debt oriented with debt fund forms 64% of theAUM.There are 3800 folios per 1 lakh population as compared to 50000 savingp p p p gaccount and 26500 insurance policies

Disadvantages of Investing in Mutual Fundg g

1) R t t t d1) Returns are not guaranteed:

The NAV growth is depend on the price movement ofg p punderline assets viz stocks, bonds, gold, commoditiesetc. The price appreciation of these assets are subject tomany risks such as political risk, liquidity risk, interest raterisk economic downturn risk momentary policy fiscalrisk, economic downturn risk, momentary policy, fiscalpolicy etc.Any negative or unfavorable changes in above wouldlead to value erosion of underline assets which wouldlead to value erosion of underline assets which wouldhamper the NAV of mutual fund. If prices of these assetsmoves up, the NAV also moves which results into positivereturn and vice-versa.return and vice versa.

2) Diversification Penalty (Dilution of return)2) Diversification Penalty (Dilution of return)

Although diversification reduces the amount ofAlthough diversification reduces the amount ofrisk involved in investing in mutual funds, it canalso be a disadvantage due to dilution of returnfrom one stock For example if a single securityfrom one stock. For example, if a single securityheld by a mutual fund doubles in value, themutual fund itself would not double in valuebecause that security is only small part of thebecause that security is only small part of thefund's holdings.

By holding a large number of differentinvestments, mutual funds tend to do neitherexceptionally well nor exceptionally poorlyexceptionally well nor exceptionally poorly.

3) High Fees and Expenses:Most mutual funds charges management and operatingfees for the fund's management expenses (usuallyaround 1 0% to 1 5% per year) In addition mutualaround 1.0% to 1.5% per year). In addition, mutualfunds charge high sales commissions, fees, andredemption fees. Some funds buy and trade shares sooften that the transaction costs add up significantly.often that the transaction costs add up significantly.Some of these expenses are charged on an ongoingbasis, unlike stock investments, for which a commissionis paid only when you buy and sell.p y y y

Though entry load no longer exist, but if any investorexit before one year from mutual fund, then he/sheexit before one year from mutual fund, then he/sheneeds to pay exit load of 1%. Under ULIP schemes thecommission charges once were more than 30% as itwas sold as insurance cum investment product. Now thepcommission has reduced gradually after the interventionof IRDA and SEBI.

4)Poor Performance:4)Poor Performance:

R t t l f d bReturns on a mutual fund are by no meansguaranteed. In fact, in India we have more than3000 mutual fund scheme not all mutual funds3000 mutual fund scheme not all mutual fundsscheme able to beat the benchmark indicessuch as NIFTY, Sensex, BSE 500, Midcap etc, , , pand a growing number of critics now questionwhether or not professional money managershave better stock-picking capabilities than theaverage investor.

5) Loss of Control:

The managers of mutual funds make all the decisionsabout which securities to buy and sell and when to buyy yand sell. This can make it difficult for you when trying tomanage your portfolio.

For example, the tax consequences of a decision by themanager to buy or sell an asset at a certain time mightnot be optimal for you.

You also should remember that you are trusting someoneelse with your money when you invest in a mutual fund.

6) Trading Limitations:Although mutual funds are highly liquid in general, most mutual funds(called open ended funds) cannot be bought or sold in the middle of(called open-ended funds) cannot be bought or sold in the middle ofthe trading day. You can only buy and sell them at the end of the day,after they calculate the current value of their holdings.

At any point during market hour, if market is up and investor plans toredeem its units, it has to send a physical form duly signed by unitholder before 3 PM just 30 minutes prior to market closing. If in meantime, the market goes down the unit holder have to suffer loss whichgis unlike in case of direct investing into stock market where investorsare free to BUY or SELL at any point.

7) Restriction on size: Some mutual funds are too big to find enough7) Restriction on size: Some mutual funds are too big to find enoughgood investments. This is especially true of funds that focus on smallcompanies, given that there are strict rules about how much of asingle company a fund may own depending upon the scheme policydocuments The mutual fund policy document in order to protectdocuments. The mutual fund policy document, in order to protectfrom heavy losses from single stock, caps the maximum holding inone single stock.

S fAs per the SEBI guideline, mutual fund can not invest more than10% of scheme portfolio in single stock or shares (ET article dated1st June 2009)

8) Lower return on holding cash:8) Lower return on holding cash:Mutual funds usually maintain large cashreserves as protection against a large number ofsimultaneous withdrawalssimultaneous withdrawals.

Although this provides investors with liquidity, itAlthough this provides investors with liquidity, itmeans that some of the fund's money is investedin cash instead of assets, which tends to lowerthe investor's potential returnthe investor s potential return.

During market downturn most of mutual fundgmanager hold cash to time the market. Holdingidle cash does not create assets but dilutes theoverall retune of portfoliop

9)Taxes:9)Taxes:The fund manger perform the buying andselling activities without taking intoselling activities without taking intoconsideration of personal income taxapplicability of individual unit holders Forapplicability of individual unit holders. Forexample: when fund a manager sell theshare prior to one year, the capital gain taxp y , p gtriggers and unit holder cant do anythingon that.

As an individual investor to stock markethe would have avoided the capital gain tax.

10) Misleading Advertisement:While investing in mutual fund investorWhile investing in mutual fund, investorneeds to research well as no investment inequity market is guaranteed Some timeequity market is guaranteed. Some timemisleading advertisement with regards toguaranteed return in mutual fund attractsguaranteed return in mutual fund attractsinvestors but in reality there nothingguaranteed in pure equity mutual fundguaranteed in pure equity mutual fund.

Possible cause of non-satisfactory performance of mutual fund can be as followscan be as follows.

1. Excessive diversification of portfolio leads to return dilution hence the return are not as per the expectationnot as per the expectation

2. High commitment to large blue chip stock also gives only average return. As equity investment is high risk high return game so the money needs to be invested various stocks across different size and sectors.

3. High turnover, due to frequent buying and selling also leads to higher brokeragepayment which result into lower return as the brokerage paid on trading is part of overall liability of scheme which will be deducted from AUM form that scheme

4. Some time poor investing decision due to bad stock selection also leads to lower than expected return

5. Wrong judgment about revenue forecast, profitability and under estimation of5. Wrong judgment about revenue forecast, profitability and under estimation of various market risk also leads to lower portfolio return

6. For all investment decision, unit holder can not make fund manager responsible and there is no accountability for fund manager for poor return.

Organization Structure of Mutual Fund

Mutual fund carries three tire structures which arecomprises of Sponsor, AMC and Trustee.

The structure of mutual funds in India is governedby SEBI (Mutual Fund) Regulations 1996 In Indiaby SEBI (Mutual Fund) Regulations, 1996. In India,is mandatory to have a three tier structure ofSponsor-Trustee-Asset Management CompanySponsor Trustee Asset Management Company.

All funds have four main constituents sponsors,trustees asset management companies (AMCs)trustees, asset management companies (AMCs)and custodians. Apart from these, the registrar andtransfer agents also play important roles.

While all mutual funds follow rigorous disclosured t bilit l i d ith thand accountability rules in accordance with the

Securities and Exchange Board of Indias (MutualFunds) Regulations, 1996, here is what you should) g , , yknow about the role of each constituent.

Sponsor:The sponsor takes the initiative to launch and set up a mutualfund It can be a registered company scheduled bank or a

p

fund. It can be a registered company, scheduled bank or afinancial institution. For instance, Prudential Plc and ICICIBank are the sponsors for the Prudential ICICI mutual fundwhereas for SBI Mutual Fund, State Bank of India is thesponsor.

A sponsor must satisfy certain conditions, including havingp y , g gthe requisite capital, a good track record (at least five yearsoperation in financial services), default-free dealings and areputation for fairness.

The sponsor appoints trustees, the AMC and the custodian inaccordance with the Sebi regulations. Once the AMC isgformed, the sponsor is just a stakeholder.

Role of Sponsor:Role of Sponsor:Sponsor is the person who acting alone or in combination with another body corporateestablishes a mutual fundestablishes a mutual fund.

The sponsor establishes the mutual fund and registers the same with SEBI.

Sponsor appoints the Trustees custodians and the AMC with prior approval of SEBISponsor appoints the Trustees, custodians and the AMC with prior approval of SEBIand in accordance with SEBI Regulations.

Sponsor must have a 5-year track record of business interest in the financial markets.

Sponsor must have been profit making in at least 3 of the above 5 years.

Sponsor must contribute at least 40% of the net worth of the Investment Managed andmeet the eligibility criteria prescribed under the Securities and Exchange Board ofI di (M t l F d ) R l ti 1996India (Mutual Funds) Regulations, 1996.

The Sponsor is not responsible or liable for any loss or shortfall resulting from theoperation of the Schemes beyond the initial contribution made by it towards setting upof the Mutual Fund.of the Mutual Fund.

Trustee: The trustees have a fiduciary responsibility towards unit holders to protect theirinterests. They float and market the schemes and secure necessary approvals.They check that the AMCs investments are within the defined limits, that the fundsassets are protected, and ensure that the unit holders get their due returns. Theassets are protected, and ensure that the unit holders get their due returns. Thenew fund offerings have also to be approved by the trustees before being floated.

The Mutual Fund is constituted as a trust in accordance with the provisions of the IndianpTrusts Act, 1882 by the Sponsor. The trust deed is registered under the IndianRegistration Act, 1908

Trustee is usually a company (corporate body) or a Board of Trustees (body ofindividualsindividuals

The main responsibility of the Trustee is to safeguard the interest of the unit holders andinter alia ensure that the AMC functions in the interest of investors and in accordancewith the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996,the

i i f th T t D d d th Off D t f th ti S hprovisions of the Trust Deed and the Offer Documents of the respective Schemes.

At least 2/3rd directors of the Trustee are independent directors who are not associatedwith the Sponsor in any manner.

Trustee & their Role: Trustees appointed by the Sponsor with SEBI approval.

The Trustees have a FIDUCIARY responsibility towards unit holders The Trustees have a FIDUCIARY responsibility towards unit holders

Trustees not liable for acts done in good faith and if they have exercised adequate due diligenceq g

Trustees oversee the functioning of AMC

Trustees approve each MF scheme floated by AMC

The investments in MFs are held by the Trustees

Trustees receive fees for their services.

Obligation to undertake General & specific due diligence Obligation to undertake General & specific due diligence.

Who can be trustee (Eligibility Criteria):Who can be trustee (Eligibility Criteria):

Person of high repute and integrityg p g y

Not guilty of moral turpitude

Not convicted for economic offence under securities laws

Not a part of AMC e.g. Director, Employee or Officer ofAMC

One can be Trustee of two MFs if approved by Board ofTrustees of both the Mutual Funds

Asset management company:Th AMC i h f f h dThe AMC is the face of the company and managesyour money. Appointed by trustees to manage theschemes and the corpus, the AMC functions under thesupervision of its own board of directors and on thesupervision of its own board of directors and on theinstructions of the trustees and SEBI

An AMC takes in estment decisions compensatesAn AMC takes investment decisions, compensatesinvestors through dividends, maintains properaccounting and information for pricing of units,calculates the NAV and provides information on listedcalculates the NAV, and provides information on listedschemes and secondary market unit transactions.Examples are SBI MF, ICICI Prudential, Kotak MF etc.

The AMC is appointed by the Trustee as the Investment Manager of theMutual Fund.

The AMC is required to be approved by the Securities and Exchange Boardof India (SEBI) to act as an asset management company of the MutualFund.

At least 50% of the directors of the AMC are independent directors who arenot associated with the Sponsor in any manner.

The AMC must have a net worth of at least 10 crore at all times The AMC must have a net worth of at least 10 crore at all times. Asset Management Company' is an investment management firm that

invests the pooled funds of retail investors in securities in line with thestated investment objectives.

For a fee, the investment company provides more diversification, liquidity,and professional management consulting service than is normally availableto individual investors.

The diversification of portfolio is done by investing in such securities whichare inversely correlated to each other.

They collect money from investors by way of floating various mutual fundschemes. They charge a small management fee, which is normally 1.5 percent of the total funds managed

Custodian:Custodian:They are Often an independent organization such as aThey are Often, an independent organization, such as abank, takes the custody of securities and other assets ofa mutual fund. The custodian is appointed by the trusteesfor safekeeping the physical securities Thefor safekeeping the physical securities. Thedematerialized securities holdings are held in adepository through a depository participant.

The custodian and depositories work under theinstructions of the AMC and the direction of the trustees.The registrar and transfer agents are responsible forg g pissuing and redeeming units of the mutual fund andproviding other related services, such as preparing thetransfer documents and updating the investor records.

R i t d T f A tRegistrar and Transfer Agent:The AMC if so authorized by the Trust Deed appoints theRegistrar and Transfer Agent to the Mutual Fund.

The Registrar processes the application form, redemptionrequests and dispatches account statements to the unith ldholders.

The Registrar and Transfer agent also handlesg gcommunications with investors and updates investor records.

SBI Mutual FundSBI Mutual Fund SBI Mutual Fund was incorporated in the yearp y

1987 and has over 24 years of rich experience infund management. The company has strong backof countrys largest bank State Bank of Indiaof country s largest bank State Bank of India

It has Joint Venture between SBI and AMUNDI(France) one of the world's leading fund(France), one of the world s leading fundmanagement companies

SBI Funds Management has emerged as one ofthe largest player in India advising variousfinancial institutions, pension funds, and local andinternational asset management companiesinternational asset management companies.

SBI MFIncorporated 1987

N f M t l F d (AMC) SBI M t l F dName of Mutual Fund (AMC) SBI Mutual Fund

Trustee SBI Mutual Fund Trustee Company Private Limited)

Sponsor State Bank of India

Registrar & Transfer Agent Computer Age Management Services Pvt LtdRegistrar & Transfer Agent Computer Age Management Services Pvt. Ltd

Computronics Financial Services India Ltd

Datamatics Financial Software Services Ltd

Custodian Bank of Nova Scotia

Citi BankCiti Bank

HDFC Bank Ltd.

Stock Holding Corporation of India

HDFC MF

Incorporated June 2000

Name of Mutual Fund (AMC) HDFC Mutual Fund

Trustee HDFC Trustee Company Limited

Sponsor Housing Development Finance Corporation Limited;

Standard Life Investments Limited

Registrar & Transfer Agent Computer Age Management Services Pvt. Ltd.

Custodian HDFC Bank Ltd, Citibank N.A & The Bank of Nova Scotia

Current Status of Mutual fund in IndiaCurrent Status of Mutual fund in India

1. In a welcome move, effective from 1st August 2009, SEBI hasdiscontinued the entry load charged by AMC Now if any investordiscontinued the entry load charged by AMC. Now if any investorplans to invest in MF can directly approach the AMC and invest.

2. Due to abolition of entry load, agent do not ask the investors toy , gchurn their portfolio frequently which enable more peace of mindand stable return that earlier.

3 Presently agent ask fee for advising investment in MF which can3. Presently agent ask fee for advising investment in MF which caneither monthly or yearly.

4. No AMC is allowed to launch more than one mutual fund schemewhich is already exiting and AMC is encourage to launch onlyinnovative products. Earlier many AMC launch lots of similarscheme due to non-performance.

Difference between Share and MFPoints Share Mutual Fund

Meaning Funds raised by issuing shares inreturn for cash. It also known as

A mutual fund trust that pools the smallsavings from large number of investors

equity financing having common goals and objectives

Ownership Shareholders Unit Holders

Voting Rights Shareholders carries voting rights Unit holders do not have voting rights

Types of instruments Equity and preference shares By structure (Open ended, close ended ) bybj ti (E it D bt H b id MMMF t )objective (Equity, Debt, Hybrid, MMMF etc)

Risk More Risky Relatively less risky

Examples Share of RIL, ICICI Bank, SBI etc SBIMF, Kotak MF etc

Controlling Authority SEBI SEBI and AMIF (More like association)

Issues Initial issue is done through IPO Initial issue is done through NFO

Difference between Open Ended and Close EndedpPoints Open Ended Close Ended

Availability The units under open endedschemes are available any time

The units are available only during NFO

from AMC

Redeem The units cane be redeem at anypoint by the investors throughAMC

The close ended schemes have per-specified lock-in period and post NFO thesame is listed on stock exchanges and cangbe bought or sold between buyers andsellers of units.

No. of Shares Unlimited number of units areoffered

Number of units are fixed during NFO andlimited number of units are traded on stockoffered limited number of units are traded on stockexchange.

Listing The units may not be listed andcan directly bought or redeemfrom AMC

The units under close ended are listed onstock exchanges.

from AMC

Risk High risk It is based on long term goal hence relativelyless risky

Performance Short term performance is Long term performance is important due toPerformance Short term performance isimportant

Long term performance is important due tolock in features

Trading It trades near to NAV It trades discount to NAV

Difference between ULIPs and Mutual Fund

Points ULIPs Mutual Funds

Regulation IRDA SEBI

Investment Amount Determine by investor andcan modified

Minimum investment is determine byfund manger

Agents Sold by tied-agents Sold by un-tied agents

Expenses No upper limit, expenses Upper limit to expenses are set byp pp , pare determine by insurancecompany

pp p yregulator

Modifying assetallocation

Permitted at nominal cost Exit load have to be borne byinvestorsallocation investors

Tax benefit Tax benefit under section80C for all insuranceproducts

Tax benefit under section 80C forselected tax savings funds

products

Types of Mutual FundTypes of Mutual FundThe types of mutual fund can be divided into followings.

Types based on structureOpen EndedOpen EndedClose EndedInterval Scheme

Open Ended FundsOpen Ended Funds

The open ended mutual fund is one thatThe open ended mutual fund is one thatcan be bought and sold any time duringthe years or available for subscription anythe years or available for subscription anytime if any investor wish to buy or sold.Such fund does not have any fix maturitySuch fund does not have any fix maturityand main advantage of such fund is itsliquidityliquidity.

Key Features of Open Ended FundsKey Features of Open Ended Funds

1) Open end funds are operated by a mutual fund house) p p ywhich raises money from shareholders and invests in agroup of assets, as per the stated objectives of thefund.

2) Open-end funds raise money by selling units of thefund to the public in a manner similar to any otherfund to the public, in a manner similar to any othercompany, which sell its stock to raise the capital.

3) An open-end mutual fund does not have a set numberof units. It continues to sell units to investors and willbuy back them as desired by unit holder.y y

Key Features ContKey FeaturesCont

4) Open-end funds are required to calculate their net4) Open end funds are required to calculate their net asset value (NAV) daily.

5) Open Ended scheme serves as a useful measure of its fair market value on a per-unit basis.p

6) The NAV of the fund is calculated by dividing the 6) e o t e u d s ca cu ated by d d g t efund's assets minus liabilities by the number of shares outstanding.

Key Features ContKey FeaturesCont7) Most of the open-end funds are actively managed and the

fund manager picks the stocks as per the objective of theg p p jfund.

8) Open-end funds keep some portion of their assets in) p p pshort-term and money market securities to provideavailable funds for redemptions.

9) A large portion of most open mutual funds is invested inhighly liquid securities, which enables the fund to raisemoney by selling securities.y y g

10) Since open-end funds are constantly under redemptionpressure, they always have to keep a certain amount ofmoney in cash which they otherwise would havemoney in cash, which they otherwise would haveinvested. This lowers the potential returns

Close Ended FundsClose Ended FundsA closed-end mutual fund has a set number of unitsissued to the public through NFO and has fix maturityperiod.

Buying and selling of units are allowed only in secondarymarkets through stock exchanges.

The investors once purchase the scheme during NFOthey would be allow buying or redeeming once it is openy y g gfor trading on stock exchange and direct buying orselling through AMC does not happed frequently exceptbuyback option.y p

Key Features of Close Ended FundsKey Features of Close Ended Funds

1) A closed-end mutual fund has a set number of1) A closed end mutual fund has a set number ofunits issued to the public through NFO.

2) These funds have a stipulated maturity periodgenerally ranging from 3 to 15 years.g y g g y

3) The fund is open for subscription only during a3) e u d s ope o subsc pt o o y du g aspecified period. Investors can invest in thescheme at the time of the NFO

Key Features Conty4) These funds are closed to new capital after they begin operating

5) The investors are allow to exit the scheme after the stock is listed5) The investors are allow to exit the scheme after the stock is listedon stock exchange or through buyback option from AMC. This isthe two exit opportunity available for unit holder of close endedfund.

6) Closed-end funds don't have to worry about the redemption ofshares, hence they tend to keep less cash in their portfolios andcan invests more capital in the market. Therefore, they have thep , ypotential to generate greater returns as compared to open-endfunds.

7) In case of market panic and mass selling by investors open end7) In case of market panic and mass-selling by investors, open-endfunds need to raise money for redemptions to cope with theliquidity concerns, the manager of an open-ended fund may beforced to sell stocks which affect the value of fund, but closeended funds are not affected by redemption pressureended funds are not affected by redemption pressure.

Key Features Cont8) Once underwritten or close for new subscription, closed-end

funds trade on stock exchanges like stocks or bonds

9) The Liquidity in close ended funds are very low as most ofinvestors invest in close ended fund for capital appreciationsand not for trading

10) The market price of closed-end funds is determined by supplyand demand and not by net-asset value (NAV), as is the casein open-end funds Usually The market price of closed-endin open-end funds. Usually The market price of closed-endfunds is determined by supply and demand and not by net-asset value (NAV), as is the case in open-end funds.

11) The close ended funds generally trades discount to theirunderline value of assets as due to low liquidity it is difficult tofind a buyer when an investor plans to exit the close endedfundfund.

Interval FundsInterval Funds in India combine the characteristics of both the close endedfunds and open ended funds. This means that Interval Funds in India can berepurchased and sold at the time that has been predetermined.

These are close ended but on going funds. Here investors are once enter intosuch funds may sell the units when next interval start and in the absence ofany indication the same fund is gets rollover for the next interval.

Interval Funds in India are usually repurchased every Three, six or twelvemonths or as has been unveiled in the annual report and prospectus of thefund. Interval Funds in India are sold and repurchased at the prices that arerelated to the Net Asset Value (NAV).

The advantage of Interval Funds in India is that it allows the investor moreflexibility than the close ended funds for he can sell it at the predeterminedtime. Further the advantage of Interval Funds in India is that it ensures that thei t h li idit f it l t l i t l f tiinvestor has liquidity of capital at regular intervals of time

The units may be traded on the stock exchange or may be open for sale orredemption during pre-determined intervals at NAV related prices. FMP or theFi d M t it Pl th l f th t f hFixed Maturity Plans are the example for these types of schemes.

Option of Mutual Fund SchemesOption of Mutual Fund SchemesThere are two options in mutual fund schemes dividend payout optionand dividend re-investment option.

Dividend Payout Option: Under this option, the dividend declared ispaid back to the investors. For example if the NAV as on 1st Jan isRs100 and At the end of the year the NAV is at RS112, the fundmanager may Rs12 as dividend and NAV will fall to Rs100 again. It issimply means distribution of profit when NAV price gains. This option

ill t i f di di id d id i d dwill not give power of compounding as dividend paid is expensed andhence return on return will not be available. One reason for opting thedividend payout option is that there dividend is tax free in the hands ofinvestors but tax have to be paid by fund managersinvestors but tax have to be paid by fund managers.

Dividend reinvestment option : Under this option the AMC does notdi id d d R 12 ill b i t d Thi i l ll dpay any dividend and Rs12 will be reinvested. This is also called as

growth option scheme. The growth option provides power ofcompounding and generate good return in long term.

Types of mutual fund based on categories or Objectives.

There are four types of mutual fundbased on categories or Objectives ofmutual fund

1 Equity or Growth Funds1. Equity or Growth Funds2. Debt or Income Funds3 H b id B l d F d3. Hybrid or Balanced Fund4. Money Market or Liquid Funds

Types based on categories or Investment Objectivesyp g j

Equity or Growth Funds Debt or Income Hybrid MMMFs or liquid schemesq y

1) Large Cap2) Mid/Small Cap3) Multi Cap/Diversified

Fund

1) Short Term Income Funds

Hybrid

1) Balance Funds2) Capital Protection Funds

MMMFs or liquid schemes

1) Liquid Funds2) Liquid plus Funds

4) ELSS (Tax Saving)5) Dividend Yield (Special Funds)6) Contra Funds (Special Funds)

2) Long Term Income Funds3) Gilt Funds4) Fix Maturity Plan (FMP)

3) MIP (Monthly Income Plan)

Funds)7) Arbitrage Funds8) International Funds / Fund of Fund / Feeder Fund

(FMP)

Fund9) Exchange Traded Funds10) Index Funds (Special Funds)11) Sectoral Funds (Special Funs)

E it M t l F dEquity Mutual Fund

1) Equity mutual funds are also known as stock mutual) q yfunds. Equity mutual funds invest pooled amounts ofmoney in the stocks of listed companies both in primaryand secondary market.

2) Within equity funds, the structure of a particular fundmay differ from that of another. Equity funds includedi ifi d f d k t it li ti b d f ddiversified funds, market capitalization based funds,sector specific funds, theme based funds and tax savingfunds.

3) E it f d ll i d t idi3) Equity funds are generally aimed at providingcomparatively high returns within the mutual findsfamily, but with a relatively higher degree of risk.

4) Stocks are often categorized by their marketcapitalization (or caps) and can be classified in threecapitalization (or caps), and can be classified in threebasic sizes: small, medium, and large

5) Many mutual funds invest primarily in companies of one5) Many mutual funds invest primarily in companies of oneof these sizes and are thus classified as large-cap, mid-cap or small-cap funds.

6) Equity fund manager uses various approaches to selectthe stock for investment purposes.

7) Each and every equity mutual funds are benchmarkedwith one index which represents broader marketperspectivesperspectives.

8) The fund manager will always try and beat thatbenchmark or index to give better returnbenchmark or index to give better return.

Equity Mutual Fund based on styleq y y1) Growth Funds: These funds invest in stocks of fast growing companies and in stocks that has a

th t ti l i l t M t f th t d thi f d i ht b Lgrowth potential in long term. Most of the assets under this fund might be Large capcompanies and the rest of the assets might be mid cap funds.

The objective of this fund is to produce long term capital gains for the investor ratherthan periodical income from dividends and capital gain distribution.

Growth funds are expected to produce a sizeable return in a span of 4 to 5 yearsGrowth funds are expected to produce a sizeable return in a span of 4 to 5 years.Since they offer higher returns investing in a Growth fund is risky.

2) Value Fund: These funds invest in assets that are under valued. Fund manager usually selectsg y

stocks that have low Price to Earnings ratio, low Market to Book Value ratio etc. Insimple terms a value fund aims to invest in stocks that are not currently recognizedby market forces. Such stocks are traded at a low price in market than their realvalue. In long term these stocks are expected to rise up to their real value andproduce very good capital gains.p y g p g

3) Blended Funds: These funds invest money in both growth and value stocks. The main objective is to

diversified the return and provide mix of both growth and valued fund. The return generated in higher than al e f nds b t lo er than gro th f ndsgenerated in higher than value funds but lower than growth funds

1) Large Cap funds: These funds invest in large market capitalization stocks or companies These funds invest in large market capitalization stocks or companies.

Such stocks are mainly from Nifty, Sensex or top 100 or 200 large capstocks. These stocks are well research and relatively less risky thansmall or mid cap stocks or companies.

These companies are large well established organizations which aresuperior in financial shape, industry leaders and have low debt toequity ratios i.e. Infosys, Bharti Airtel, Reliance Industries, HDFC,q y yHindustan Unilever Limited, etc.

The main advantages areTh f d l l til th id d ll f d These funds are less volatile than mid cap and small cap funds.

They are ideal investments for risk-averse/conservative investors wanting to enter the stock market without owning too much risk.wanting to enter the stock market without owning too much risk.

In the long-term, large cap funds can give good return and outperform the benchmark

I.e HDFC Top 200 fund, Reliance Vision fund etc

2) Mid/Small Cap Funds: Mid cap funds are those mutual funds, which invest in small / medium sized

companies

As there is no standard definition classifying companies as small or mediumAs there is no standard definition classifying companies as small or medium,each mutual fund has its own classification for small and medium sizedcompanies.

Generally, companies with a market capitalization of up to Rs 500 crore arey, p p pclassified as small. Those companies that have a market capitalization betweenRs 500 crore and Rs 1,000 crore are classified as medium sized.

These companies are relatively low value stocks than large cap stocks.

Small / mid sized companies tend to be under researched thus they present anopportunity to invest in a company that is yet to be identified by the market.

Mid cap companies are looked upon as wealth creators and have the potentialto join the league of large cap companies but they are equally risky so high riskand high return game.

Examples: Sundaram BNP Paribas Select Midcap, Franklin India Prima Fund ,HDFC Capital Builder Kotak Indian Mid Cap Fund , HSBC Midcap Equity Fundetc.

3) Multi Cap or Diversified funds

Diversified Equity Mutual Funds invested across the sectors andsize of companies They diversified the investment across differentsize of companies. They diversified the investment across differentsectors like BFSI, Real Estate, Oil and Gas, Infrastructure, Telecom,Information Technology, FMCG etc across different marketcapitalization.

By diversifying investments the fund minimizes the risk of overconcentration in specific sectors. In the long term, diversified equitymutual funds have given good results.g g

Such funds have potential to outperform the benchmark due to itsdiversification mandate. In a falling market, these funds aresupposed to fall less than the market and in a rising market they aresupposed to fall less than the market and in a rising market, they aresupposed to rise higher than the market.

Examples: HDFC Equity, Fidelity Equity fundp q y, y q y

4)ELSS-Equity Linked Saving Scheme (Special Funds)) q y g ( p )

This is like any other equity mutual fund that invest in differentcompanies across different market capitalizations (Large Mid orcompanies across different market capitalizations (Large, Mid orSmall).

These are investments whose main objective is tax savings for thej ginvestor. Investments up to 1 Lakh rupees are exempted from taxunder section 80C.

Such funds have a lock in period (as defined by Fund Company) Such funds have a lock-in period (as defined by Fund Company)and if the investor redeems the fund before lock-in period he will notget the tax exemption. (He must repay the tax exemption he gotwhen he redeem the fund).

Tax savings funds are well diversified and its mandatory that a taxsaving fund must invest in 90% of available equity options at thetime. These manage risk part well but keep in mind its still riskyg p p y

Why some one should invest in ELSS? Tax planning is an essential part of one's financial planning. Efficient tax planning helps top g p p g p g p

reduce the tax liability to the minimum. Broadly, Tax-saving investments options undersection 80C are divided into three major categories:

1. Fixed Income instruments like - PPF, NSC, Infra Bonds, Tax-Saving FDs, EPF, etc.2 E it Li k d i t t lik ELSS ULIP2. Equity Linked instruments like - ELSS, ULIPs.3. And other instruments like - Insurance, etc.

Sr Investment Max Investment Return Tax on return Lock in Risk/ CommentNo. Investment (Rs) (%) Interest Period Safety

Comment

1 ELSS 100,000 Market Driven

Dividend and long term Capital gain is tax 3 Years

High Risk

High Potential to giveinflation adjusted return

free

2 PPF 100,000 8.6% Tax Free 15 Years No riskPartial Withdrawalpossible after 6 Years

3 NSC 100,000 8.4% Interest is taxable 5 Years No risk Maturity Changesf 6 t 53 NSC 100,000 8.4% Interest is taxable 5 Years No risk from 6 to 5 years

4 Time Deposit 100,000 8.8% Interest is taxable 5 Years No risk Low post tax return

Additional Benefit of life cover withdrawal not

5 Life Insurance No Upper Limit NA NA NA NAcover withdrawal not before 3-5 years (In case of Money Back). Return are low

5) Dividend Yield funds

One objective of the fund is to provide periodical income to the investor by investingin stocks of companies that provide very high dividends In addition they try toin stocks of companies that provide very high dividends. In addition they try tomaximize the income by taking advantage of Call Options on the stocks they hold.

As the name suggests main objective of the fund is to provide investors a steadyincome (periodical, may be every month or quarter) from the assets under the fund.

Assets under this fund are usually of large corporations which provide higherdividends consistently.

I t t d thi f d l i k d t i d th Investments under this fund carry a less risk compared to aggressive and growthfunds. This is because not much speculative stock pickings are done under this fundwhich aims high capital gain.

Most stocks under this fund belong to established corporations which provide highMost stocks under this fund belong to established corporations which provide highdividends consistently. In addition to steady income through dividends and capitalgains distribution, this fund also grows in value in long term.

The companies like ONGC, NTPC, Infosys, Reliance, SBI, ITC, Coal India, HeroMotors etc.

TOP 10 dividend paying CoTOP 10 dividend paying Co.

Co_Name Year End DPS (Rs) Equity Dividend (Rs Cr)O N G C 201203 9.75 8341.61Coal India 201203 10 6316.36TCS 201203 25 4893.04ITC 201203 4.5 3518.29NTPC 201203 4 3298.19Infosys 201203 47 2699Reliance Inds. 201203 8.5 2531St Bk of India 201203 35 2348.66St Bk of India 201203 35 2348.66ICICI Bank 201203 16.5 1902.04NMDC 201203 4.5 1784.12

6) Contra Funds

As the name suggests, these funds take a contrarian view onequities The fund manager picks underperforming stocks orequities. The fund manager picks underperforming stocks orsectors, which are likely to perform well in the long run, at cheapvaluations.

These funds are mostly a part of the equity-diversified category. Thedifference lies in the style of investing. For instance, a strengtheningrupee strains the margins of IT companies as their major businesscomes from the US. But, a contra fund manager would pick IT, g pstocks and wait for the rupee to weaken.

Such fund invests in out of flavor stocks and therefore long terminvestment horizon is requiredinvestment horizon is required.

These funds are riskier than regular large cap funds. The fundmanagers call can go completely awry.g g p y y

7) Thematic or Sectoral Funds Sector mutual funds are those mutual funds that restrict their

investments to a particular segment or sector of the economy.

Also known as thematic funds, these funds concentrate on oneindustry such as infrastructure, banking, technology, energy, realestate, power heath care, FMCG, pharmaceuticals etc.

The idea is to allow investors to place bets on specific industries orsectors, which have strong growth potential.

These funds tend to be more volatile than funds holding a diversifiedportfolio of securities in many industries. Such concentratedportfolios can produce tremendous gains or losses, depending onwhether the chosen sector is in or out of flavor.

Sectoral mutual funds come in the high risk high reward categoryand are not suitable for investors having low risk appetite.

8) Arbitrage Funds

These funds try to capitalize on the arbitragey p gopportunities arising out of pricing mismatch of stocks inthe equity and derivative (Futures and Options) segmentof the stock market. They are an ideal way to get ay y gdecent return with moderate amount of risk.

Arbitrage is a strategy that consists of concurrent buying Arbitrage is a strategy that consists of concurrent buyingand selling of equal or comparable securities from atleast two markets in order to profit from the variation intheir prices Buying stock and selling in future is the mosttheir prices. Buying stock and selling in future is the mostwidely used arbitrage strategy in India. This happenswhen there is a significant difference in the price of thestock in cash market and its price in the futures contractstock in cash market and its price in the futures contract

9) International Funds / Fund of Fund / Feeder Fund

A mutual fund that invests in other mutual funds.A fund of funds allows investors to achieve abroad diversification and an appropriate assetallocation with investments in a variety of fundallocation with investments in a variety of fundcategories that are all wrapped up into one fund.

If any investor wants to diversify its investmentsacross various countries fund of fund is the mostappropriate way to invest especially when aninvestor is not aware of the risk associated withthat countrythat country.

10)Exchange Traded Funds (ETF) 0) c a ge aded u ds ( ) As the name suggest, the ETF are those funds that are traded like a

stock through stock exchanges. Exchange Traded Funds are those funds that tracks an index but canExchange Traded Funds are those funds that tracks an index, but can

be traded like a stock. ETFs always bundle together the securities thatare in an index. All equity ETFs are essentially index funds, which is tosay they track the performance of a specific stock or bond index orother benchmark ETF can also be a debt ETFother benchmark. ETF can also be a debt ETF.

An ETF can hold stocks, commodities, bonds and trades close to thenet asset value.

ETFs trade on a stock exchange and can be bought and sold any time ETFs trade on a stock exchange and can be bought and sold any timeduring a trading day unlike mutual fund which are bought at NAV afterthe closing of market for the day.

ETF provide greater flexibility than traditional investment in mutualp g yfund.

ETF generally have one market maker who takes care of liquidityissues

Features of ETF1 Net Asset Value (NAV) is not calculated every day like a mutual fund does as it is traded1. Net Asset Value (NAV) is not calculated every day like a mutual fund does as it is traded

as stock on stock exchanges.2. By owning an ETF, one can get diversification of an index fund as well as the ability to sell

short, buy on margin and purchase as little as one share.3 The purpose of an ETF is to match a particular market index This management of ETF3. The purpose of an ETF is to match a particular market index. This management of ETF

funds are passive. Passive management is the chief distinguishing feature of ETFs. Thismeans the fund manager makes only minor, periodic adjustments to keep the fund in linewith its index. Because they are tied to a particular index.

4. The expense ratios for most ETFs are lower than those of the average mutual fund. Whenbuying and selling ETFs you have to pay the same commission to your broker that you'dbuying and selling ETFs, you have to pay the same commission to your broker that you'dpay on any regular order.

5. All ETFs charges fee which is expressed as a percentage called: Expense Ratio. Theexpense ratio for ETFs are lower than traditional mutual fund products. The lower theexpense ratio the cheaper the fund is One can try to compare expense ratios betweenexpense ratio, the cheaper the fund is. One can try to compare expense ratios betweendifferent ETFs, and buy only those ETF which has lower expenses ratio.

6. ETFs dont charge any front or end loads to investors but investors have to paybrokerages for buying and selling the ETF.

7 ETFs are more efficient than normal mutual funds and since they track indexes they7. ETF s are more efficient than normal mutual funds, and since they track indexes theyhave very low operating and transaction costs associated with them.

8. Only authorized participants can buy or sell shares of ETF from the fund manager. Thatalso only happens in blocks of tens of thousands of ETF shares

9. Some ETFs are design like fund of fund (FOF) which means money collected areg ( ) yinvested in ETFs. Here the expenses ratio is higher and returns are also lower as ETFwill have its own expense ratio apart from FOF expenses.

ExampleExample Lets say a fund manager wants to float an index ETF (Nifty 50). If the total AUM for

that ETF is worth Rs100 crore this money will be invested in all 50 stocks of nifty andthat ETF is worth Rs100 crore, this money will be invested in all 50 stocks of nifty andnumber of units will be release as per face value of unit lets say 10. The fundmanager will give these units 10 crore to market maker or participants who in turn willlist these funds on stock exchange.

Th i t li t d b ll th ETF f t k h b i The investors once listed can buy or sell the ETF from stock exchanges by payingbrokerages to broker. The only difference between traditional mutual fund and ETF isthat since ETF are passive investment, the charges are very low.

The performance of ETF must reflect the benchmark and any deviation is brought toThe performance of ETF must reflect the benchmark and any deviation is brought tonormal by market maker. The role of market participants is to provide liquidity if ETFprices are going up faster than underline index due to lack of liquidity, market makerwill infuse the liquidity to bring price normal and vice-versa.

Th t f ETF i l th t f b h k d t b k if Nift The return from ETF is lower than return from benchmark due to brokerage if Niftygives 10% return ETF can give only 9.5% as 0.5% is brokerage. The market makerwith trade in ETF through arbitrage to make money.

Gold ETFGold ETF is like any other ETF where underline value is gold. They trade like stockon the basis of NAV of underline value of gold. Gold ETF is held through Dmataccount as compared to mutual fund where d-mat is not mandatory. One ETF isrepresented by one gram of goldrepresented by one gram of gold.

This is an ideal invest avenue for investor looking to invest in gold. Instead ofinvesting in physical gold, they can invest in ETFs.

Advantages of gold ETF

Purity is guaranteed Gold provide diversification to the portfoliop p It is treated as an asset class Gold is hedge against inflation It is less volatile than equity Held in electronic form hence no worry of thefty Extremely liquid Tax benefit as holding physical gold worth above Rs15 lakh is require 1% wealth tax Transparent pricing.

I.e. Gold benchmark exchange traded scheme from benchmark MF (GOLDBEES) Kotak MF-KOTAKGOLD, RELGOLD from reliance MF etc.

10) Index Funds

An index fund is a mutual fund that aims to replicate the movements of an index of aspecific financial market. It means they invest the money in a specific index of stock,bond etc.bo d e c

An Index fund follows a passive investing strategy called indexing. It involves trackingan index say for example, the Sensex or the Nifty and builds a portfolio with the samestocks in the same proportions as the index

The only difference between index fund and ETFs is that index funds are like anyother MF product bought and sold between investors and AMC at prevailing NVAunlike in case of ETFs which are bought and sold through stock exchange.

The fund makes no effort to beat the index and in fact it merely tries to earn the samereturn. It is also a passive investment strategy as they invest only in those stock thatare available in that index. The periodic changes are made only when there isreshuffle of index.

Key advantages of Index funds As per efficient markets concept index funds provide optimum returns in the long run. An index fund doesn't have to pay for expensive analysts and frequent trading.

I d f d t k b d i d hi h i l l til th ifi t k t Index funds track a broad index which is less volatile than specific stocks or sectors, thereby lessening the risk for investors

Debt or Income FundDebt or Income FundDebt funds invest a majority of their assets into fixed income bearing instrumentssuch as bonds debentures government securities certificates of depositsuch as bonds, debentures, government securities, certificates of deposit,commercial papers and other money market instruments.

Debt funds are also called income funds as they normally provide a stable income tothe investors, while minimizing the element of risk.

Advantages of Debt or Income funds These fund provides steady and stable return Debt funds are not affected by the fluctuation in stock market This is the ideal investment option for retirees or risk averse person The entry and exit load is nil Zero possibility of negative return

Disadvantages of debt funds

The returns are lower than equity Debt funds are not capable to give inflation adjusted return in long term.

Types of debt or income funsTypes of debt or income funs1) Short Term Bond Funds: -Sh b d f d h h l f dShort-term bond funds, as the name suggests, are the mutual fundschemes that seek to generate income by investing in short termfixed income instruments. Generally these schemes invest incertificate of deposits, commercial paper and bonds with less than

t t itone year to maturity

Investment Strategy They invest mostly in Commercial Papers Certificate of deposits They invest mostly in Commercial Papers, Certificate of deposits,

Corporate Debt, PTC (Pass Through Securities like ABS divided into small parts) & Securitized Debt, etc.

The fund managers prefer to invest in securities with high credit tirating.

The Average Maturity of the portfolio ranges from 3 months to 3 years

Due to shorter maturity the portfolio as a whole does not carry muchDue to shorter maturity, the portfolio as a whole does not carry much of interest rate risk

2) Long Term Bond Funds Long term bond funds as the name suggests are the mutual fund schemesLong-term bond funds, as the name suggests, are the mutual fund schemesthat seek to generate income by investing in Long term fixed incomeinstruments. Generally these schemes invest in debt securities with highermaturity beyond 1 year.

However, they can also hold securities with short maturity. As they aredynamically managed, fund managers flexibly change the duration of thebond as and when needed, thus giving them more room in a changinginterest rate scenariointerest rate scenario.

Investment Strategy

Th i t i l t b d t iti t d PSU They invest in long term bonds, government securities, corporate and PSUDebt, Debentures and also short term instruments like certificate ofdeposits, commercial paper, etc.

The fund managers prefer to invest in securities with high credit rating.Th A M t it f th tf li f 3 t 10 The Average Maturity of the portfolio ranges from 3 years to 10 years.

Due to Longer maturity, they carry high interest rate risk

3) Gilt Funds Gilt f d t l f d th t d i tl i t i tGilt funds are mutual funds that predominantly invest in governmentsecurities (G-Secs). Unlike conventional debt funds that invest in debtinstruments across the board, gilt funds invest only in G-Secs. Governmentsecurities are securities issued by the Reserve Bank of India (RBI) onbehalf of the Government of Indiabehalf of the Government of India.

Investment Strategy

Th i t l i t iti d t i C h & They invest only in government securities and some part in Cash &equivalents.

Government securities includes central government dated securities, stategovernment securities and treasury bills.Wh i t t t f lli f d t t i t b When interest rates are falling, fund managers try to increase returns byincreasing the average maturity of their portfolio.

The Average Maturity of the portfolio ranges from 2-3 years for short term &7-10 years for long term funds.

Fixed Maturity Plans (FMP)FMPs are close ended mutual funds that invests in Debt and Money MarketFMPs are close ended mutual funds that invests in Debt and Money Market instruments for a fixed tenure.

They carry fixed maturity ranging from 1 month to 3 years. Such funds are also part of interval funds which are close ended but on going fundsalso part of interval funds which are close ended but on going funds.

Investment Strategy.

They invest in portfolio consisting of 100% debt and money marketsecurities like certificate of deposits, commercial paper and others likeCorporate Bonds, NCDs, ABS, etc. However, most of the FMPs avoidtaking real estate papers and prefer bank CDs, etc.C i fi d t it i f 1 th t 3 Carries fixed maturity ranging from 1 month to 3 years.

FMPs hold their investment until maturity and are thus least exposed tointerest rate risk.

Hybrid or balance funds

Balanced fund is also known as hybrid fund. It is a type oft l f d th t b bi ti f t kmutual fund that buys a combination of common stock,

preferred stock, bonds, and short-term bonds, to provide bothincome and capital appreciation while avoiding excessiveriskrisk.

Such diversified holdings ensure that these funds will managedownturns in the stock market without too much of a loss Butdownturns in the stock market without too much of a loss. Buton the flip side, balanced funds will usually increase less thanan all-stock fund during a bull market.

Ad t f b l d f dAdvantages of balanced fundsGenerally balanced funds maintain a 60:40 equity debt ratio ThisGenerally, balanced funds maintain a 60:40 equity debt ratio. Thismeans that 60% of their total investment is in equity and the balance40% in debt and cash equivalents.

Balance funds combine the power of equities (shares) and the stability ofdebt market instruments (fixed return investments like bonds) andprovide both income and capital appreciation while avoiding excessiverisk.

Balanced funds continuously rebalance their portfolios to ensure that thebroad asset allocation is not disturbed.

Therefore, the profits earned from the stock markets are encased andinvested in low risk instruments. This helps the investor in maintainingthe appropriate asset mix, without getting into the hassles of rebalancingpp p , g g gthe portfolio on their own.

Types of Hybrid Funds1) C it l P t ti F d1) Capital Protection Funds

Capital protection funds are close-ended mutual fund schemes which (typically) investaround 75% - 80% of their portfolio in debt and the rest in equity and equity relatedinstruments including derivatives.

The debt portion is invested in such a way that the amount on maturity matches thecapital invested. The other portion is invested in equities to generate the higher return forthe fund.

Investment Strategy 1. They invest in Debt as well as equity and equity related instruments like derivatives.

2. Under debt portion, they invest in Corporate Bonds, CDs, Cps, etc of decent credit quality

3. They align their debt as well as equity portfolio in accordance to the tenure of the scheme which varies from 1 year to 5 years.

4 F it l t ti f d h i t f 1 th d bt tf li b i i d4. For a capital protection fund having tenure of 1 year, the debt portfolio being is exposedmore towards short-term maturity papers, while those having tenure of around 5 yearsmay expose their portfolio more towards longer maturity papers.

5. The equity component may invest across market cap segment (i.e. large caps, mid caps5. The equity component may invest across market cap segment (i.e. large caps, mid capsor small caps) depending upon various market and economical factors.

2) Monthly income plan (MIP)Monthly income plans (MIP) are low risk mutual funds which invest in debtsecurities and deliver regular monthly income to investors. An MIP is nothing,g y gbut a deb