Mutual Fund Analysis & Trends Sharekhan

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MUTUAL FUNDANALYSIS &

TRENDS

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARDOF POST GRADUATE DIPLOMA IN MANAGEMENT.

AT SHAREKHAN MUTUAL FUND LTD.

2009

DEVKI NANDAN YADAYAGRADUATE SCHOOL OF BUSINESS & ADMINISTRATION

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TABLE OF CONTENTS

PREFACE

ACKNOWLEDGEMENT

OBJECTIVE OF PROJECT

OBJECTIVE OF STUDY.6

SCOPE OF STUDY..7

LIMITATIONS.............................................................7

JOB DESCRIPTION.9

METHODOLOGY OF WORKRESEARCH DESIGN10

INTRODUCATION

COMPANY OVERVIEW ABOUT SHAREHKAN 11-15

MUTUAL FUND

Introduction to Mutual Funds...17 ORGANISATION OF A MUTUAL FUND. 18

IMPORTANT CHARACTERISTICS OF A MUTUAL FUND18

OBJECTIVES OF A MUTUAL FUND18-19

ADVANTAGES OF MUTUAL FUNDS.19-20

INVESTORS PROFILE 21

TYPES OF MUTUAL FUNDS ..22-28

Investment norms29-36

RISKS ASSOCIATED WITH MUTUAL FUNDS..37

MUTUAL FUND INDUSTRY PHASES 38-

41

PERFORMANCE MEASURES OF MUTUAL FUNDS.42-46

MUTUAL FUND INDUSTRY ANALYSIS 47-53

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NEW TRENDS OF MUTUAL FUND INDUSTRY. 54-59

QUESTIONNAIRE.. 60-64

DATA REPRESENTATION 65-73

MAJOR FINDING 75

RECOMMEDATIONDS 76

Emergence of new business models77

Global Practice..76-77

CONCLUSION.. 78

BIBLIOGRAPHY. 79

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ACKNOWLEDGMENTKnowledge is an experience gained in life, it is the choicest

possession, which should not be shelved but should be happily shared

with others.

I express my gratitude to my esteemed guide, Faculty guide Dr.Vivekanand Singh, NIMBUS ACADEMY OF MANAGEMENT for theirvaluable critiques, assistance and encouragement, which enabled me to

carry on the project successfully. They gave me a wonderful opportunity towork on this project. Their time-to-time guidance and incessant supporthelped me to broaden my outlook on the project I am highly obliged fortheir support throughout the Training.

I would like to express my deep sense of gratitude to my Industryguide, Mr. Rakesh Kunwar, Asst. Manager Sales Sharekhan

Ltd., Greater Kailash Branch, New Delhi, who spent his valuable

time and guided me. I have benefited a great deal from his incisive

analysis and erudite suggestions. The atmosphere of a learning

organization that he has created along with his peers in Greater

Kailash Branch has not only helped me but all the other trainees.

I would like to thanks to all for give their valuable inputs and time.

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PREFACE

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The Broad objective of the project is to make clients and let them know about the

different services offered by the Sharekhan. Also to convince them about how Sharekhan

services out score their rivals. And how in future they will be benefited from the services

offered by Sharekhan.

This project will accomplish to understand the problem faced by the existing client and

find ways to solve their queries at your level otherwise let the above level know about

their problem.

Trainees have to be in regular contacts with their clients so they we come to know about

the problem client are facing. This also helps them to multiply their clients by getting the

further references.

By this trainees are able to make a chain of the customers which expands as they satisfy

their needs.

1. To study about the competitive position of Sharekhan Ltd in Competitive Market.

2. To study about the effectiveness & efficiency of Sharekhan Ltd in relation to its

competitors

3. To study about whether people are satisfied with Sharekhan Services & Management

System or not

4. To study about the difficulties faced bypeople while Trading at Sharekhan.

5. To project Mutual Fund as the productive avenue for investing activities.

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6. To show the wide range of investment options available in Mutual Funds by

explaining its various schemes

SCOPE OF STUDY

To make analysis of. Mutual funds and their performance

To make a comparative analysis of public sector & private sector.

To serve Retail investors concern about the risk factor.

To explain the Scope and methodology of mutual funds.

Find out the growing investment opportunity for the investor in mutual funds

The study will help the organization to formulate marketing strategies so that

they can attract more customers/potential investors towards the company.

To help the investors in getting out the most of their holdings in the stock market

To help the analyst to know the effectiveness of the stock ideas provided by the

organization.

LIMITATION OF STUDY

1. The study is limited only to the analysis of different schemes and its suitability

to different investors according to their risk-taking ability.

2. The study is based on secondary data available from monthly fact sheets,

websites and other books, as primary data was not accessible.

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3. The study is limited by the detailed study of various schemes of different Asset

Management Company.

4. Some respondents either do not have time or willing does not respond as they are

quite annoyed with the phone call

5. Size of the research may not be substantial.

6. There was lack of time on the part of respondents.

7. There may be biasness in information by market participant.

JOB DESCRIPTION

The company placed me as a Summer Trainee. I have been handling the

Following responsibilities:

My job profile was to sale the products of the organization.

My job profile was to coordinate the team and also help them to sale the

product and also help them in field.

My job profile was to generate the leads by cold calling.

My job profile was to understand customers needs and advising them to

make a portfolio as per their investment.

My job profile was to do sales promotion through e-mails, canopies, making

cold calling, distributing pamphlets and etc.

AREA ASSIGNED

I covered areas like Delhi, Ghaziabadand NCR.

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TARGET ASSIGNED

To sell 10 accounts per month.

TARGET MARKET

Different properties dealers.

Charted accountants.

Lawyers

Travel agencies

Transport business

House wives

Businessmen

Corporate Employees etc.

DAY TO DAY JOB DESCRIPTION

Reporting time: 9.30 AM

Fixing appointment with clients. Visit clients place.

Demonstrate the product on Internet to the client.

Completing the formalities like filling the application form and documentation.

Cold calling.

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RESEARCH DESIGN

RESEARCH METHODOLOGY:

The research methodology applied will be basically descriptive study.

DATA COLLECTION:

Data has been collected through literature survey and departmental opinion.

The part of data is collected from various primary sources and secondary sources.

DATA COLLECTION METHOD:

The data is collected through both primary and secondary methods

PRIMARY METHOD:

Information gathered by feedback forms filled by and interview anddiscussions with the customer of various our area.

SECONDARY METHOD:

Secondary data is being collected through following methods;

It will be collected through internal and external sources under internal source through

the sharekhan site i.e. www.sharekhan.com and under external sources through use of

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canopies, advertisements, printed material of the company, brochures analysis is carried

out.

COMPANY PROFILE

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ABOUT SHAREKHAN LIMITED

Sharekhan Ltd. is one of the leading retail stock broking house of SSKI Group which is

running successfully since 1922 in the country. It is the retail broking arm of the

Mumbai-based SSKI Group, which has over eight decades of experience in the stock

broking business. Sharekhan offers its customers a wide range of equity related services

including trade execution on BSE, NSE, Derivatives, depository services, online trading,

investment advice etc.

The firms online trading and investment site - www.sharekhan.com- was launched on

Feb 8, 2000. The site gives access to superior content and transaction facility to retail

customers across the country. Known for its jargon-free, investor friendly language and

high quality research, the site has a registered base of over one lakh customers. The

content-rich and research oriented portal has stood out among its contemporaries because

of its steadfast dedication to offering customers best-of-breed technology and superior

market information. The objective has been to let customers make informed decisions

and to simplify the process of investing in stocks.

On April 17, 2002 Sharekhan launched Speed Trade, a net-based executable application

that emulates the broker terminals along with host of other information relevant to the

Day Traders. This was for the first time that a net-based trading station of this caliber

was offered to the traders. In the last six months Speed Trade has become a de facto

standard for the Day Trading community over the net.

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Sharekhans ground network includes over 640 centers in 280 cities in India which

provide a host of trading related services.

Sharekhan has always believed in investing in technology to build its business. The

company has used some of the best-known names in the IT industry, like Sun

Microsystems, Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette,

Verisign Financial Technologies India Ltd, Spider Software Pvt Ltd. to build its trading

engine and content. The Morakhiya family holds a majority stake in the company.

HSBC, Intel & Carlyle are the other investors.

With a legacy of more than 80 years in the stock markets, the SSKI group ventured into

institutional broking and corporate finance 18 years ago. Presently SSKI is one of the

leading players in institutional broking and corporate finance activities. SSKI holds a

sizeable portion of the market in each of these segments. SSKIs institutional broking

arm accounts for 7% of the market for Foreign Institutional portfolio investment and 5%

of all Domestic Institutional portfolio investment in the country. It has 60 institutional

clients spread over India, Far East, UK and US. Foreign Institutional Investors generate

about 65% of the organizations revenue, with a daily turnover of over US$ 2 million.

The Corporate Finance section has a list of very prestigious clients and has many firsts

to its credit, in terms of the size of deal, sector tapped etc. The group has placed over

US$ 1 billion in private equity deals. Some of the clients include BPL Cellular Holding,

Gujarat Pipavav, Essar, Hutchison, Planetasia, and Shoppers Stop.

PROFILE OF THE COMPANY

Name of the company: Sharekhan ltd.

Year of Establishment: 1925

Headquarter : ShareKhan SSKIA-206 Phoenix HousePhoenix Mills CompoundLower ParelMumbai - Maharashtra, INDIA- 400013

Nature of Business : Service Provider

Services : Depository Services, Online Services andTechnical Research.

Number of Employees : Over 3500

Revenue : Data Not Available

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Website : www.sharekhan.comSlogan : Your Guide to The Financial Jungle.

Vision

To be the best retail brokering Brand in the retail business of stock market.

Mission

To educate and empower the individual investor to make better investment

decisions through quality advice and superior service.

Sharekhan is infact-

Among the top 3 branded retail service providers

No. 1 player in online business

Largest network of branded broking outlets in the country serving more than

7,00,000 clients.

REASON TO CHOOSE SHAREKHAN LIMITED

Experience

SSKI has more than eight decades of trust and credibility in the Indian stock market. In

the Asia Money broker's poll held recently, SSKI won the 'India's Best Broking House

for 2004 ' award. Ever since it launched Sharekhan as its retail broking division in

February 2000, it has been providing institutional-level research and broking services to

individual investors.

Technology

With its online trading account one can buy and sell shares in an instant from any PCwith an internet connection. One can get access to its powerful online trading tools that

will help him take complete control over his investment in shares.

Accessibility

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Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXECUTION services for

investors. These services are accessible through its centers across the country over the

internet (through the website www.sharekhan.com) as well as over the Voice Tool.

Knowledge

In a business where the right information at the right time can translate into direct

profits, one can get access to a wide range of information on Sharekhan limiteds

content-rich portal. One can also get a useful set of knowledge-based tools that will

empower him to take informed decisions.

Convenience

One can call its Dial-N-Trade number to get investment advice and execute his

transactions. Sharekhan ltd. have a dedicated call-centre to provide this service via a Toll

Free Number 1800-22-7500 & 1800-22-7050 from anywhere in India.

Customer Service

Sharekhan limiteds customer service team will assist one for any help that one may

require relating to transactions, billing, demat and other queries. Its customer service can

be contacted via a toll-free number, email or live chat on www.sharekhan.com.

Investment Advice

Sharekhan has dedicated research teams of more than 30 people for fundamental and

technical researches. Its analysts constantly track the pulse of the market and providetimely investment advice to its clients in the form of daily research emails, online chat,

printed reports and SMS on their mobile phone.

PRODUCTS AND SERVICES OF SHAREKHAN LIMITED

The different types of products and services offered by Sharekhan Ltd. are as follows:

Equity and derivatives trading

Depository services

Online services

Commodities trading

Dial-n-trade

Portfolio management

Share shops

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Fundamental research

Technical research

MUTUAL FUND

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Introduction to 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.

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A Mutual Fund is a body corporate registered with the Securities and Exchange Board

of India (SEBI) that pools up the money from individual/corporate investors and

invests the same on behalf of the investors/unit holders, in Equity shares, Governmentsecurities, Bonds, Call Money Markets etc, and distributes the profits. In the other

words, a Mutual Fund allows investors to indirectly take a position in a basket of

assets.

Mutual Fund is a mechanism for pooling the resources by issuing units to the investors

and investing funds in securities in accordance with objectives as disclosed in offer

document. Investments in securities are spread among a wide cross-section of

industries and sectors thus the risk is reduced. Diversification reduces the risk because

all stocks may not move in the same direction in the same proportion at same time.

Investors of mutual funds are known as unit holders.

The investors in proportion to their investments share the profits or losses. The mutual

funds normally come out with a number of schemes with different investment

objectives which are launched from time to time. A Mutual Fund is required to be

registered with Securities Exchange Board of India (SEBI) which regulates securities

markets before it can collect funds from the public.

ORGANISATION OF A MUTUAL FUND:

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There are many entities involved and the diagram below illustrates the organizational

set up of a Mutual Fund:

(For detailed definitions in the above chart refer to annexure 1)

Mutual Funds diversify their risk by holding a portfolio of instead of only one asset.

This is because by holding all your money in just one asset, the entire fortunes of your

portfolio depend on this one asset. By creating a portfolio of a variety of assets, this

risk is substantially reduced.

Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds

contains the same risk as investing in the markets, the only difference being that due to

professional management of funds the controllable risks are substantially reduced. A

very important risk involved in Mutual Fund investments is the market risk. However,

the company specific risks are largely eliminated due to professional fund

management.

IMPORTANT CHARACTERISTICS OF A MUTUAL FUND

A Mutual Fund actually belongs to the investors who have pooled their

Funds. The ownership of the mutual fund is in the hands of the Investors.

A Mutual Fund is managed by investment professional and other

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Service providers, who earns a fee for their services, from the funds.

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

The value of the portfolio is updated every day.

The investors share in the fund is denominated by units. The value

of the units changes with change in the portfolio value, every day. The

value of one unit of investment is called net asset value (NAV).

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

Investment objectives of the Fund.

OBJECTIVES OF A MUTUAL FUND:

To Provide an opportunity for lower income groups to acquire without

Much difficulty, property in the form of shares.

To Cater mainly of the need of individual investors, whose means are small?

To Manage investors portfolio that provides regular income, growth,

Safety, liquidity, tax advantage, professional management and diversification.

ADVANTAGES OF MUTUAL FUNDS:

Reduced Risk.

Diversified investment.

Botheration free investment.

Revolving type of investment (Reinvestment).

Selection and timings of investment.

Wide investment opportunities.

Investments care.

Tax benefits.

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STRUCTURE OF A MUTUAL FUND

INVESTORS PROFILE:

An investor normally prioritizes his investment needs before undertaking an

investment. So different goals will be allocated to different proportions of the total

disposable amount. Investments for specific goals normally find their way into the debt

market as risk reduction is of prime importance, this is the area for the risk-averse

investors and here, Mutual Funds are generally the best option. One can avail of the

benefits of better returns with added benefits of anytime liquidity by investing in open-

ended debt funds at lower risk, this risk of default by any company that one has chosen

to invest in, can be minimized by investing in Mutual Funds as the fund managers

Sponsor

Mutualfund

Trustees

ASSETMANAGEMENTCOMPANY

Custodian

Registrar

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analyze the companies financials more minutely than an individual can do as they have

the expertise to do so.

Moving up the risk spectrum, there are people who would like to take some risk and

invest in equity funds/capital market. However, since their appetite for risk is also

limited, they would rather have some exposure to debt as well. For these investors,

balanced funds provide an easy route of investment, armed with expertise of

investment techniques, they can invest in equity as well as good quality debt thereby

reducing risks and providing the investor with better returns than he could otherwise

manage. Since they can reshuffle their portfolio as per market conditions, they are

likely to generate moderate returns even in pessimistic market conditions.

Next comes the risk takers, risk takers by their nature, would not be averse to investing

in high-risk avenues. Capital markets find their fancy more often than not,

because they have historically generated better returns than any other avenue,

provided, the money was judiciously invested. Though the risk associated is

generally on the higher side of the spectrum, the return-potential compensates for

the risk attached.

TYPES OF MUTUAL FUNDS:

Schemes By Structure

Open-ended Fund/ Scheme

Close-ended Fund/ Scheme

Schemes by investment Objective

Growth / Equity Oriented Scheme

Income / Debt Oriented Scheme

Balanced Scheme

Money Market or Liquid Fund Scheme

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Other Objective

Gilt Fund

Index Funds

Load AND no-load Fund

Tax Saving Schemes

Schemes By Structure In Detail

A mutual fund scheme can be classified into open-ended scheme or close-ended schemedepending on its maturity period

a. Open-ended Fund/ Scheme

The holders of the shares in the Fund can resell them to the issuing Mutual Fund

company at the time. They receive in turn the net assets value (NAV) of the shares at

the time of re-sale. Such Mutual Fund Companies place their funds in the secondary

securities market. They do not participate in new issue market as do pension funds or

life insurance companies. Thus they influence market price of corporate securities.

Open-end investment companies can sell an unlimited number of Shares and thus keep

going larger. The open-end Mutual Fund Company Buys or sells their shares. These

companies sell new shares NAV plus a Loading or management fees and redeem

shares at NAV.In other words, the target amount and the period both are indefinite in

such funds

An open-ended fund or scheme is one that is available for subscription and repurchaseon a continuous basis. These schemes do not have a fixed maturity period. Investors canconveniently buy and sell units at Net Asset Value (NAV) related prices which aredeclared on a daily basis. The key feature of open-end schemes is liquidity.

b. Close-ended Fund/ Scheme

A closedend Fund is open for sale to investors for a specific period, after

which further sales are closed. Any further transaction for buying the units or

repurchasing them, Happen in the secondary markets, where closed end Funds

are listed. Therefore new investors buy from the existing investors, and existing

investors can liquidate their units by selling them to other willing buyers. In a

closed end Funds, thus the pool of Funds can technically be kept constant. The

asset management company (AMC) however, can buy out the units from the

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investors, in the secondary markets, thus reducing the amount of funds held by

outside investors. The price at which units can be sold or redeemed Depends on

the market prices, which are fundamentally linked to the NAV. Investors in

closed end Funds receive either certificates or Depository receipts, for their

holdings in a closed end mutual Fund.

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The

fund is open for subscription only during a specified period at the time of launch of the

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

thereafter they can buy or sell the units of the scheme on the stock exchanges where the

units are listed. In order to provide an exit route to the investors, some close-ended funds

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

NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is

provided to the investor i.e. either repurchase facility or through listing on stock

exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

Schemes according to Investment Objective In Detail

A scheme can also be classified as growth scheme, income scheme, or balanced schemeconsidering its investment objective. Such schemes may be open-ended or close-endedschemes as described earlier. Such schemes may be classified mainly as follows:

a. Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over themedium to long- term. Such schemes normally invest a major part of their corpus inequities. Such funds have comparatively high risks. These schemes provide differentoptions to the investors like dividend option, capital appreciation, etc. and the investorsmay choose an option depending on their preferences. The investors must indicate theoption in the application form. The mutual funds also allow the investors to change theoptions at a later date. Growth schemes are good for investors having a long-termoutlook seeking appreciation over a period of time.

b. Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to

investors. Such schemes generally invest in fixed income securities such asbonds, corporate debentures, Government securities and money market instruments.Such funds are less risky compared to equity schemes. These funds are notaffected because of fluctuations in equity markets. However, opportunities of capitalappreciation are also limited in such funds. The NAVs of such funds are affectedbecause of change in interest rates in the country. If the interest rates fall, NAVs of suchfunds are likely to increase in the short run and vice versa. However, long term

investors may not bother about these fluctuations.

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c. Balanced Scheme

The aim of balanced funds is to provide both growth and regular income assuch schemes invest both in equities and fixed income securities in the proportionindicated in their offer documents. These are appropriate for investors looking for

moderate growth. They generally invest 40-60% in equity and debt instruments. Thesefunds are also affected because of fluctuations in share prices in the stock markets.However, NAVs of such funds are likely to be less volatile compared to pure equityfunds.

d. Money Market or Liquid Fund Schemes

These funds are also income funds and their aim is to provide easy liquidity,preservation of capital and moderate income. These schemes invest exclusively insafer short-term instruments such as treasury bills, certificates of deposit, commercialpaper and inter-bank call money, government securities, etc. Returns on theseschemes fluctuate much less compared to other funds. These funds are appropriate for

corporate and individual investors as a means to park their surplus funds for shortperiods.

Other Schemes In Detail

a. Gilt Funds

These funds invest exclusively in government securities. Governmentsecurities have no default risk. NAVs of these schemes also fluctuate due to

change in interest rates and other economic factors as is the case with income ordebt oriented schemes.

b. Index FundsIndex Funds replicate the portfolio of a particular index such as the BSESensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the

securities in the same weightage comprising of an index. NAVs of such schemes wouldrise or fall in accordance with the rise or fall in the index, though not exactly by thesame percentage due to some factors known as "tracking error" in technical terms.Necessary disclosures in this regard are made in the offer document of the mutual fundscheme.

There are also exchange traded index funds launched by the mutual funds whichare traded on the stock exchanges.

c. Load And No-load FundA Load Fund is one that charges a percentage of NAV for entry or exit. Thatis, each time one buys or sells units in the fund, a charge will be payable. This chargeis used by the mutual fund for marketing and distribution expenses. Suppose theNAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then theinvestors who buy would be required to pay Rs.10.10 and those who offer their unitsfor repurchase to the mutual fund will get only Rs.9.90 per unit. The investorsshould take the loads into consideration while making investment as these affect their

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yields/returns. However, the investors should also consider the performancetrack record and service standards of the mutual fund which are more important.Efficient funds may give higher returns in spite of loads.

A no-load fund is one that does not charge for entry or exit. It means the

investors can enter the fund/scheme at NAV and no additional charges are

payable on purchase or sale of units.

d. Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of theIncome Tax Act, 1961 as the Government offers tax incentives for investment inspecified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemeslaunched by the mutual funds also offer tax benefits. These schemes are growthoriented and invest pre-dominantly in equities. Their growth opportunities andrisks associated are like any equity-oriented scheme.

ORGANISATION AND MANAGEMENT OF MUTUAL FUNDS:-

In India Mutual Fund usually formed as trusts, three parties are generally involved viz.

Settler of the trust or the sponsoring organization.

The trust formed under the Indian trust act, 1982 or the trust company

registered under the Indian companies act, 1956

Fund mangers or The merchant-banking unit

Custodians.

MUTUAL FUNDS TRUST:-

Mutual fund trust is created by the sponsors under the Indian trust act, 1982

Which is the main body in the creation of Mutual Fund trust

The main functions of Mutual Fund trust are as follows:

Planning and formulating Mutual Funds schemes.

Seeking SEBIs approval and authorization to these schemes.

Marketing the schemes for public subscription.

Seeking RBI approval in case NRIs subscription to Mutual Fund is Invited

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Attending to trusteeship function. This function as per guidelines can be

assigned to separately established trust companies too. Trustees are required to

submit a consolidated report six monthly to SEBI to ensure that the guidelines

are fully being complied with trusted are also required to submit an annual

report to the investors in the fund.

FUND MANAGERS (OR) THE ASSES MANAGEMENT COMPANY

(AMC)

AMC has to discharge mainly three functions as under:

I. Taking investment decisions and making investments of the funds through

market dealer/brokers in the secondary market securities or directly in the

primary capital market or money market instruments

II. Realize fund position by taking account of all receivables and realizations,

moving corporate actions involving declaration of dividends,etc to compensate

investors for their investments in units; and

III. Maintaining proper accounting and information for pricing the units and

arriving at net asset value (NAV), the information about the listed schemes and

the transactions of units in the secondary market. AMC has to feed back the

trustees about its fund management operations and has to maintain a perfect

information system.

CUSTODIANS OF MUTUAL FUNDS:-

Mutual funds run by the subsidiaries of the nationalized banks had their

respective sponsor banks as custodians like canara bank, SBI, PNB, etc. Foreign

banks with higher degree of automation in handling the securities have assumed

the role of custodians for mutual funds. With the establishment of stock Holding

Corporation of India the work of custodian for mutual funds is now being

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handled by it for various mutual funds. Besides, industrial investment trust

company acts as sub-custodian for stock Holding Corporation of India for

domestic schemes of UTI, BOI MF, LIC MF, etc

Fee structure:-

Custodian charges range between 0.15% to 0.20% on the net value of the

customers holding for custodian services space is one important factor which has

fixed cost element.

RESPONSIBILITY OF CUSTODIANS:-

Receipt and delivery of securities

Holding of securities.

Collecting income

Holding and processing cost

Corporate actions etc

FUNCTIONS OF CUSTOMERS Safe custody

Trade settlement

Corporate action

Transfer agents

RATE OF RETURN ON MUTUAL FUNDS:-

An investor in mutual fund earns return from two sources:

Income from dividend paid by the mutual fund.

Capital gains arising out of selling the units at a price higher than the

acquisition price

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Formation and regulations:

1. Mutual funds are to be established in the form of trusts under the Indian trusts

act and are to be operated by separate asset management companies (AMC s)2. AMCs shall have a minimum Net worth of Rs. 5 crores;

3. AMCs and Trustees of Mutual Funds are to be two separate legal entities and

that an AMC or its affiliate cannot act as a manager in any other fund;

4. Mutual funds dealing exclusively with money market instruments are to be

regulated by the Reserve Bank Of India

5. Mutual fund dealing primarily in the capital market and also partly money

market instruments are to be regulated by the Securities Exchange Board Of

India (SEBI)

6. All schemes floated by Mutual funds are to be registered with SEBI

Schemes:-

1. Mutual funds are allowed to start and operate both closed-end and open-end

schemes;

2. Each closed-end schemes must have a Minimum corpus (pooling up) of Rs

20 crore;

3. Each open-end scheme must have a Minimum corpus of Rs 50 crore

4. In the case of a Closed End scheme if the Minimum amount of Rs 20 crore

or 60% of the target amount, which ever is higher is not raised then the entire

subscription has to be refunded to the investors;

5. In the case of an Open-Ended schemes, if the Minimum amount ofRs 50 crore

or 60 percent of the targeted amount, which ever is higher, is no raised then

the entire subscription has to be refunded to the investors.

Investment norms:-

1. No mutual fund, under all its schemes can own more than five percent of any

companys paid up capital carrying voting rights;

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2. No mutual fund, under all its schemes taken together can invest more than 10

percent of its funds in shares or debentures or other instruments of any single

company;

3. No mutual fund, under all its schemes taken together can invest more than 15

percent of its fund in the shares and debentures of any specific industry, except

those schemes which are specifically floated for investment in one or more

specified industries in respect to which a declaration has been made in the offer

letter.

4. No individual scheme of mutual funds can invest more than five percent of its

corpus in any one companys share;

5. Mutual funds can invest only in transferable securities either in the money or in

the capital market. Privately placed debentures, securitized debt, and other

unquoted debt, and other unquoted debt instruments holding cannot exceed 10

percent in the case of growth funds and 40 percent in the case of income funds.

Distribution:

Mutual funds are required to distribute at least 90 percent of their profits annually in

any given year. Besides these, there are guidelines governing the operations of mutual

funds in dealing with shares and also seeking to ensure greater investor protection

through detailed disclosure and reporting by the mutual funds. SEBI has also been

granted with powers to over see the constitution as well as the operations of mutual

funds, including a common advertising code. Besides, SEBI can impose penalties on

Mutual funds after due investigation for their failure to comply with the guidelines.

MUTUAL FUND SCHEME TYPES:

Equity Diversified Schemes

These schemes mainly invest in equity. They seek to achieve long-term capital

appreciation by responding to the dynamically changing Indian economy by moving

across sectors such as Lifestyle, Pharma, Cyclical, Technology, etc.

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Sector Schemes

These schemes focus on particular sector as IT, Banking, etc. They seek to generate

long-term capital appreciation by investing in equity and related securities of

companies in that particular sector.

Index Schemes

These schemes aim to provide returns that closely correspond to the return of a

particular stock market index such as BSE Sensex, NSE Nifty, etc. Such schemes

invest in all the stocks comprising the index in approximately the same weightage as

they are given in that index.

Exchange Traded Funds (ETFs)

ETFs invest in stocks underlying a particular stock index like NSE Nifty or BSE

Sensex. They are similar to an index fund with one crucial difference. ETFs are listed

and traded on a stock exchange. In contrast, an index fund is bought and sold by the

fund and its distributors.

Equity Tax Saving Schemes

These work on similar lines as diversified equity funds and seek to achieve long-term

capital appreciation by investing in the entire universe of stocks. The only difference

between these funds and equity-diversified funds is that they demand a lock-in of 3

years to gain tax benefits.

Dynamic Funds

These schemes alter their exposure to different asset classes based on the market

scenario. Such funds typically try to book profits when the markets are overvalued and

remain fully invested in equities when the markets are undervalued. This is suitable for

investors who find it difficult to decide when to quit from equity.

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Balanced Schemes

These schemes seek to achieve long-term capital appreciation with stability of

investment and current income from a balanced portfolio of high quality equity and

fixed-income securities.

Medium-Term Debt Schemes

These schemes have a portfolio of debt and money market instruments where the

average maturity of the underlying portfolio is in the range of five to seven years.

Short-Term Debt Schemes

These schemes have a portfolio of debt and money market instruments where the

average maturity of the underlying portfolio is in the range of one to two years.

Money Market Debt Schemes

These schemes invest in debt securities of a short-term nature, which generally means

securities of less than one-year maturity. The typical short-term interest-bearing

instruments these funds invest in Treasury Bills, Certificates of Deposit, Commercial

Paper and Inter-Bank Call Money Market.

Medium-Term Gilt Schemes

These schemes invest in government securities. The average maturity of the securities

in the scheme is over three years.

Short-Term Gilt Schemes

These schemes invest in government securities. The securities invested in are of short

to medium term maturities.

Floating Rate Funds

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They invest in debt securities with floating interest rates, which are generally linked to

some benchmark rate like MIBOR. Floating rate funds have a high relevance when

interest rates are on the rise helping investors to ride the interest rate rise.

Monthly Income Plans (MIPS)

These are basically debt schemes, which make marginal investments in the range of

10-25% in equity to boost the schemes returns. MIP schemes are ideal for investors

who seek slightly higher return that pure long-term debt schemes at marginally higher

risk.

DIFFERENT MODES OF RECEIVING THE INCOME EARNED

FROM MUTUAL FUND INVESTMENTS

Mutual Funds offer three methods of receiving income:

Growth Plan

In this plan, dividend is neither declared nor paid out to the investor but is built into the

value of the NAV. In other words, the NAV increases over time due to such incomes

and the investor realizes only the capital appreciation on redemption of his investment.

Income Plan

In this plan, dividends are paid-out to the investor. In other words, the NAV only

reflects the capital appreciation or depreciation in market price of the underlying

portfolio.

Dividend Re-investment Plan

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

reinvested back into the scheme at the then prevailing NAV. In other words, the

investor is given additional units and not cash as dividend.

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MUTUAL FUND INVESTING STRATEGIES:

1. Systematic Investment Plans (SIPs)

These are best suited for young people who have started their careers and need to build

their wealth. SIPs entail an investor to invest a fixed sum of money at regular intervalsin the Mutual fund scheme the investor has chosen, an investor opting for SIP in xyz

Mutual Fund scheme will need to invest a certain sum on money every

month/quarter/half-year in the scheme.

2. Systematic Withdrawal Plans (SWPs)

These plans are best suited for people nearing retirement. In these plans, an investor

invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at

regular intervals to take care of his expenses

3. Systematic Transfer Plans (STPs)

They allow the investor to transfer on a periodic basis a specified amount from one

scheme to another within the same fund family meaning two schemes belonging to

the same mutual fund. A transfer will be treated as redemption of units from the

scheme from which the transfer is made. Such redemption or investment will be at the

applicable NAV. This service allows the investor to manage his investments actively to

achieve his objectives. Many funds do not even charge any transaction fees for his

service an added advantage for the active investor.

ADVANTAGES OF INVESTING TRHOURGH MUTUAL FUNDS:

There are several reasons that can be attributed to the growing popularity and

suitability of Mutual Funds as an investment vehicle especially for retail investors :

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ASSET ALLOCATION

Mutual Funds offer the investors a valuable tool Asset Allocation. This is

explained by an example.

An investor investing Rs.1 lakh in a mutual fund scheme, which has collected Rs.100

crores and invested the money in various investment options, will have Rs.1 lakh

spread over a number of investment options as demonstrated below:

Investment Type Percentage of

Allocation (% of

total portfolio)

Total portfolio of

the Mutual Fund

scheme (Rs. In

crores)

Investors portfolio

allocation (Rs.)

EQUITY: 57% 57 57,000

State Bank of India 15% 15 15,000

Infosys Technologies 12% 12 12,000

ABB 10% 10 10,000

Reliance Industries 9% 9 9,000

MICO 7% 7 7,000

Tata Power 4% 4 4,000

DEBT: 43% 43 43,000Govt. Securities 20% 20 20,000

Company Debentures 10% 10 10,000

Institution Bonds 9% 9 9,000

Money Market 4% 4 4,000

Total 100% 100 1,00,000

Thus Asset Allocation is allocating your investments in to different investment

options depending on your risk profile and return expectations.

DIVERSIFICATION

Diversification is spreading your investment amount over a larger number of

investments in order to reduce risk. For instance, if you have Rs.10,000 to invest in

Information Technology (IT) stocks, this amount will only buy you a handful of

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stocks of perhaps one or two companies. A fall in the market price of any of these

company stocks will significantly erode your investment amount instead it makes

sense to invest in an IT sector mutual fund scheme so that your Rs.10,000 is spread

across a larger number of stocks thereby reducing your risk.

PROFESSIONALS AT WORK

Few investors have the time or expertise to manage their personal investments

every day, to efficiently reinvest interest or dividend income, or to investigate the

thousands of securities available in the financial markets. Fund managers are

professionals and experienced in tracking the finance markets, having access to

extensive research and market information, which enables them to decide which

securities to buy and sell for the fund. For an individual investor like you, this

professionalism is built in when you invest in the Mutual Fund.

REDUCTION OF TRANSACTION COSTS

While investing directly in securities, all the costs of investing such as brokerage,

custodial services etc. Borne by you are at the highest rates due to small transaction

sizes. However, when going through a fund, you have the benefit of economies of

scale; the fund pays lesser costs because of larger volumes, a benefit passed on to

its investors like you.

EASY ACCESS TO YOUR MONEY

This is one of the most important benefits of a Mutual Fund. Often you hold shares

or bonds that you cannot directly, easily and quickly sell. In such situations, it

could take several days or even longer before you are able to liquidate his Mutual

Fund investment by selling the units to the fund itself and receive his money within3 working days.

TRANSPARENCY

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The investor gets regular information on the value of his investment in addition to

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

each class of assets and the fund managers investment strategy and outlook.

SAVING TAXES

Tax saving schemes of Mutual Funds offer investor a tax rebate under section 88 of

the Income Tax Act. Under this section, an investor can invest up to Rs.10,000 per

Financial year in a tax saving scheme. The rate of rebate under this section depends

on the investors total income.

INVESTING IN STOCK MARKET INDEX

Index schemes of mutual funds give you the opportunity of investing in scrips that

make up a particular index in the same proportion of weightage that these scrips

have in the index. Thus, the return on your investment mirrors the movement of the

index.

INVESTING IN GOVERNMENT SECURITIES

Gilt and Money Market Schemes of Mutual Funds also give you the opportunity to

invest in Government Securities and Money Markets (including the inter banking

call money market)

WELL-REGULATED INDUSTRY

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

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

Mutual Funds are regularly monitored by SEBI.

CONVENIENCE AND FLEXIBILITY

Mutual Funds offer their investors a number of facilities such as inter-fund transfers,

online checking of holding status etc, which direct investments dont offer.

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RISKS ASSOCIATED WITH MUTUAL FUNDS:-

Investing in Mutual Funds, as with any security, does not come without risk. One of

the most basic economic principles is that risk and reward are directly correlated. In

other words, the greater the potential risk the greater the potential return. The types ofrisk commonly associated with Mutual Funds are:

1) MARKET RISK

Market risk relates to the market value of a security in the future. Market prices

fluctuate and are susceptible to economic and financial trends, supply and demand, and

many other factors that cannot be precisely predicted or controlled.

2) POLITICAL RISK

Changes in the tax laws, trade regulations, administered prices, etc are some of the

many political factors that create market risk. Although collectively, as citizens, we

have indirect control through the power of our vote individually, as investors, we have

virtually no control.

3) INFLATION RISK

Interest rate risk relates to future changes in interest rates. For instance, if an investor

invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV

of the scheme will fall because the scheme will be end up holding debt offering lower

interest rates.

4) BUSINESS RISK

Business risk is the uncertainty concerning the future existence, stability, and

profitability of the issuer of the security. Business risk is inherent in all business

ventures. The future financial stability of a company cannot be predicted or

guaranteed, nor can the price of its securities. Adverse changes in business

circumstances will reduce the market price of the companys equity resulting in

proportionate fall in the NAV of the Mutual Fund scheme, which has invested in the

equity of such a company.

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5) ECONOMIC RISK

Economic risk involves uncertainty in the economy, which, in turn, can have an

adverse effect on a companys business. For instance, if monsoons fail in a year, equity

stocks of agriculture-based companies will fall and NAVs of Mutual Funds, which

have invested in such stocks, will fall proportionately.

MUTUAL FUND INDUSTRY PHASES

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

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

History of Mutual Funds in India can be broadly divided into four distinct phases.

First Phase(1964-87)

Unit Trust of India (UTI) was established on 1963 by an act of parliament. It was set

up by Reserve Bank of India and functioned under the regulatory and administrative

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

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

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

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

management.

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

1987 marked the entry of non-UTI, Public Sector Mutual Funds set up by Public Sector

Banks and Life Insurance Corporation of India (LIC) and General Insurance

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

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

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

90), Bank of Baroda Mutual Fund (Oct 92). LIC established its Mutual Fund in June

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1989 while GIC had set up its Mutual Fund in June 1989 while GIC had set up its

Mutual Fund in December 1990.

At the end of 1993, the Mutual Fund industry had assets under management of

Rs.47,004 crores.

Third Phase-1993-2003 (Entry of Private Sector funds)

With the entry of private sector funds in 1993, a new era started in the Indian Mutual

Fund industry, giving the Indian investors a wider choice of fund families. Also, 1993

was the year in which the first Mutual Fund Regulations came into being, under which

all Mutual Funds, except UTI were to be registered and governed. The erstwhile

Kothari pioneer (now merged with UTI were to be registered and governed. The

erstwhile Kothari pioneer (now merged with Franklin Templeton) was the first Private

Sector Mutual Fund registered in July 1993.

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

and revised Mutual Fund Regulations in 1996. The industry now functions under the

SEBI (Mutual Fund) regulations 1996.

The number of Mutual Fund houses went on increasing, with many foreign Mutual

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

acquisitions. As at the end of January 2003, there were 33 Mutual Funds with total

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

under management was way ahead of other Mutual Funds.

Fourth Phase (since February 2003)

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

bifurcated into two separate entities. One is the specified Undertaking of the Unit Trust

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

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

other schemes. The specified Undertaking of Unit Trust of India, functioning under an

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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. 76,000crores of assets under

management and with the setting up of a UTI Mutual Fund, confirming 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 October 31, 2003, there were 31 funds,

which manage assets of Rs.1, 26,726crores under 386 schemes.

Mutual Fund Industry AUM till FY 03: 79,464 crs No. Of Players :26 CAGR till FY 03:19.55%in 16 yrs (Mar87- Mar03)

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AUM increase: 326388 crs No of players :32

CAGR for period: 43% in 4yrs(2003-2007)

PERFORMANCE MEASURES OF MUTUAL FUNDS:

Mutual Fund industry today, with about 30 players and more than six hundred

schemes, is one of the most preferred investment avenues in India. However, with a

plethora of schemes to choose from, the retail investor faces problems in selecting

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funds. Factors such as investment strategy and management style are qualitative, but

the funds record is an important indicator too.

Though past performance alone cannot be indicative of future performance, it is,

frankly, the only quantitative way to judge how good a fund is at present. Therefore,

there is a need to correctly assess the past performance of different Mutual Funds.

Worldwide, good Mutual Fund companies over are known by their AMCs and this

fame is directly linked to their superior stock selection skills.

For Mutual Funds to grow, AMCs must be held accountable for their selection of

stocks. In other words, there must be some performance indicator that will reveal the

quality of stock selection of various AMCs.

Return alone should not be considered as the basis of measurement of the performance

of a Mutual Fund scheme, it should also include the risk taken by the fund manager

because different funds will have different levels of risk attached to them. Risk

associated with a fund, in a general, can be defined as Variability or fluctuations in the

returns generated by it. The higher the fluctuations in the returns of a fund during a

given period, higher will be the risk associated with it. These fluctuations in the returns

generated by a fund are resultant of two guiding forces. First, general marketfluctuations, which affect all the securities, present in the market, called Market risk or

Systematic risk and second, fluctuations due to specific securities present in the

portfolio of the fund, called Unsystematic risk. The Total Risk of a given fund is sum

of these two and is measured in terms of standard deviation of returns of the fund.

Systematic risk, on the other hand, is measured in terms of Beta, which represents

fluctuations in the NAV of the fund vis--vis market. The more responsive the NAV of

a Mutual Fund is to the changes in the market; higher will be its beta. Beta is

calculated by relating the returns on a Mutual Fund with the returns in the market.

While Unsystematic risk can be diversified through investments in a number of

instruments, systematic risk cannot. By using the risk return relationship, we try to

assess the competitive strength of the Mutual Funds one another in a better way. In

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order to determine the risk-adjusted returns of investment portfolios, several eminent

authors have worked since 1960s to develop composite performance indices to

evaluate a portfolio by comparing alternative portfolios within a particular risk class.

The most important and widely used measures of performance are:

The TreynorMeasure

The Sharpe Measure

Jenson Model

Fama Model

1) The Treynor Measure:-Developed by Jack Treynor, this performance measure evaluates funds on the basis of

Treynor's Index.

This Index is a ratio of return generated by the fund over and above risk free rate of

return (generally taken to be the return on securities backed by the government, as

there is no credit risk associated), during a given period and systematic risk associated

with it (beta). Symbolically, it can be represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where,

Ri represents return on fund,

Rf is risk free rate of return, and

Bi is beta of the fund.

All risk-averse investors would like to maximize this value. While a high and positive

Treynor's Index shows a superior risk-adjusted performance of a fund, a low and

negative Treynor's Index is an indication of unfavorable performance.

2) The Sharpe Measure :-

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In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which

is a ratio of returns generated by the fund over and above risk free rate of return and

the total risk associated with it.

According to Sharpe, it is the total risk of the fund that the investors are concerned

about. So, the model evaluates funds on the basis of reward per unit of total risk.

Symbolically, it can be written as:

Sharpe Index (Si) = (Ri - Rf)/Si

Where,

Si is standard deviation of the fund,

Ri represents return on fund, and

Rf is risk free rate of return.

While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of

a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

Comparison of Sharpe and Treynor

Sharpe and Treynor measures are similar in a way, since they both divide the riskpremium by a numerical risk measure. The total risk is appropriate when we are

evaluating the risk return relationship for well-diversified portfolios. On the other

hand, the systematic risk is the relevant measure of risk when we are evaluating less

than fully diversified portfolios or individual stocks. For a well-diversified portfolio

the total risk is equal to systematic risk. Rankings based on total risk (Sharpe measure)

and systematic risk (Treynor measure) should be identical for a well-diversified

portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified

fund that ranks higher on Treynor measure, compared with another fund that is highly

diversified, will rank lower on Sharpe Measure.

3) Jenson Model:-

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Jenson's model proposes another risk adjusted performance measure. This measure was

developed by Michael Jenson and is sometimes referred to as the differential Return

Method. This measure involves evaluation of the returns that the fund has generated vs.

the returns actually expected out of the fund1 given the level of its systematic risk. The

surplus between the two returns is called Alpha, which measures the performance of a

fund compared with the actual returns over the period. Required return of a fund at a

given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf)

Where,

Ri represents return on fund, and

Rm is average market return during the given period,

Rf is risk free rate of return, and

Bi is Beta deviation of the fund.

After calculating it, Alpha can be obtained by subtracting required return from

the actual return of the fund.

Higher alpha represents superior performance of the fund and vice versa. Limitation ofthis model is that it considers only systematic risk not the entire risk associated with

the fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge

of market is primitive.

4) Fama Model:-

The Eugene Fama model is an extension of Jenson model. This model compares the

performance, measured in terms of returns, of a fund with the required return

commensurate with the total risk associated with it. The difference between these two

is taken as a measure of the performance of the fund and is called Net Selectivity.

The Net Selectivity represents the stock selection skill of the fund manager, as it is the

excess returns over and above the return required to compensate for the total risk taken

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by the fund manager. Higher value of which indicates that fund manager has earned

returns well above the return commensurate with the level of risk taken by him.

Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)

Where,

Ri represents return on fund,

Sm is standard deviation of market returns,

Rm is average market return during the given period, and

Rf is risk free rate of return.

The Net Selectivity is then calculated by subtracting this required return from

the actual return of the fund.

Among the above performance measures, two models namely, Treynor measure and

Jenson model use Systematic risk is based on the premise that the Unsystematic risk is

diversifiable. These models are suitable for large investors like institutional investors

with high risk taking capacities as they do not face paucity of funds and can invest in a

number of options to dilute some risks. For them, a portfolio can be spread across anumber of stocks and sectors. However, Sharpe measure and Fama model that consider

the entire risk associated with fund are suitable for small investors, as the ordinary

investor lacks the necessary skill and resources to diversify. Moreover, the selection of

the fund on the basis of superior stock selection ability of the fund manager will also

help in safeguarding the money invested to a great extent. The investment in funds that

have generated big returns at higher levels of risks leaves the money all the more prone

to risks of all kinds that may exceed the individual investors' risk appetite.

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MUTUAL FUND INDUSTRY ANALYSIS

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INDIAN MUTUAL FUND INDUSTRY

MARKET OF MUTUAL FUNDThe Indian mutual funds industry is witnessing a rapid growth as a result ofinfrastructuraldevelopment, increase in personal financial assets, and rise in foreign participation. Withthegrowing risk appetite, rising income, and increasing awareness, mutual funds in India arebecoming a preferred investment option compared to other investment vehicles likeFixed Deposits (FDs) and postal savings that are considered safe but give comparativelylow returns, according to Indian Mutual Fund Industry.

The Indian mutual fund industry has grown at an impressive pace in terms of Assetsunder Management (AUM) over the past few years. This is well reflected in the fact thatAUM recorded a compounded annual growth rate of 35% during the last five year periodbetween FY 2005 to FY2009. Household financial savings in mutual funds has increasedfrom 1.2% to 7.7% between FY 2004 to FY2008. The number of retail customersinvesting in mutual funds as also the number of distributors across Metros, Tier 2 & Tier3 towns has also growing steadily.

-The Indian mutual funds retail market, growing at a CAGR of about 30%, is

forecasted to reachUS$ 300 Billion by 2015.

-Income and growth schemes made up for majority of Assets Under Management

(AUM) in thecountry.

-At about 84% (as on March 31, 2008), private sector Asset Management

Companies account for majority of mutual fund sales in India.

-Individual investors make up for 96.86% of the total number of investor

accounts and contribute36.9% of the net assets under management.

The share of debt-oriented funds in industry assets increased to 73 per cent in

May 2009 from 66 per cent a year ago. In contrast, the share of equity-oriented

funds has reduced to 26 per cent in May 2009 from 33 per cent a year ago,largely owing to mark to market losses in equity funds as the equity markets hadbeen performing weakly for a large part of this period. Fixed income funds, onthe other hand, have seen net cash inflows of close to Rs 750 billion, accountingfor around 95 per cent of net cash inflows, for year ending May 2009. The fixedincome AAUM for the industry stood at Rs 4.84 trillion in May 2009. Bankinvestment in mutual funds, as per RBI data, topped Rs 1.23 trillion as on June19, 2009, as compared to less than Rs 100 billion in October 2008.

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COMPRETIVE ANALYISIS OF MUTUAL FUND INDUSTRY

we are taking to some company mutual fund scheme to understand to market.

Mutual fund industry has reported a decline in Assets Under Management (AUM)snapping a three month incline in previous months. The AUM has decreased by 17.96%to Rs 4,17,300 crore compared with Rs 5,08,670 crore in February 2009. The industryrecorded the sharpest fall in assets since October last year as income and liquid fundscollectively saw a net outflow of 99,372 crore. The decline in AUMs was primarily dueto huge redemptions from banks and institutional investors in liquid and money marketfunds ahead of financial closure on March 31.

Reliance Mutual fund

Reliance Equity Opportunities Fund is an Open-Ended Equity Scheme.

Reliance Equity Opportunities Fund is an aggressive diversified equity scheme

Reliance Equity Opportunities is to seek to generate capital appreciation and provide

long term growth opportunities by investing in a portfolio constituted of equity

securities and equity related securities.

The fund has a high portfolio turnover ratio.

It has Instrument type such as Equity & Equity related Instruments and Debt & Money

Market Instruments

Reliance Mutual fund continued to be in the first position to Rs 80,962.94 crore in itsAUM in March 2009. However, its AUM has dropped by 0.81% in March 2009 overFebruary 2009.

HDFC MUTUL FUND

HDFC Core and Satellite Fund is an Open-Ended Equity Scheme.

HDFC Core and Satellite Fund is an diversified equity scheme

The Scheme may seek investment opportunity in the ADR / GDR / Foreign Equity

and Debt Securities, in accordance with guidelines stipulated in this regard by SEBI

and RBI from time to time.

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The net assets of the Scheme will be invested primarily in equity and equity related

instruments in a portfolio comprising of 'Core' group of companies and 'Satellite'

group of companies.

The 'Satellite' group will comprise of predominantly small-mid cap companies that

offer higher potential returns but at the same time carry higher risk

HDFC MF retained second position with the average AUM of Rs 57,956.45 crore a riseof 1.92% compared with the month of February 2009 followed by ICICI mutual fund.

ICICI Mutual Fund

ICICI Mutual Fund with an AUM of Rs 51,432.50 crore with a fall of 3.89% in March2009 over February 2009.

RELIANCE EQUITY OPPORTUNITIES FUND:

Reliance Equity Opportunities Fund is an Open-Ended Equity Scheme.

Reliance Equity Opportunities Fund is an aggressive diversified equity scheme

Reliance Equity Opportunities is to seek to generate capital appreciation and provide

long term growth opportunities by investing in a portfolio constituted of equity

securities and equity related securities.

The fund has a high portfolio turnover ratio.

It has Instrument type such as Equity & Equity related Instruments and Debt &

Money Market Instruments.

Reliance-Anil Dhirubhai Ambani Group company Reliance Mutual Fund bought 5.23%stake in Financial Technologies, the promoter of Indias largest commodity exchange,Multi-Commodity bought from the Fidelity group at Rs 502.50 per share. The dealvalues Financial Technologies at Rs 2,304 crore.Fidelity, which held 10.65% in Financial Technologies, sold 8.20% of it in a block deal

for Rs 188.80 crore. Apart from Reliance Mutual Fund, several high net-worth individualinvestors bought the balance 2.97%.

Baroda Pioneer Mutual Fund

Baroda Pioneer Mutual Fund has topped among others by recording AUM growth of30.90% to 1,132.01 lakh crore in March 2009.

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Religare Mutual FUND

Religare Mutual Fund followed it by posting a rise of 11.05% in its AUM. The othermutual funds, in terms of AUM included UTI MF recording a fall of 0.96% to Rs48,754.17 crore in March 2009.

Birla Sun Life MUTUAL FUND

Birla Sun Life MF has recorded a drop of 3.01% in its AUM to Rs 47,096.23 crore andSBI MF also plunged 4.50% to Rs 26,382.68 crore.

HDFC Mutual Fund recorded the highest inflow in AUM of Rs 1,092.06 crore,

while Tata MF recorded the highest outflow of Rs 2,269.87 crore in March 2009.

Assets under management as on March 31, 2009

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Net Inflow/Outflow in Mutual Funds

Net Mutual Fund inflow in Financial Market

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*Till 6th March, 2009

RESULT

Assets Under Management (AUM) of mutual fund industry decreased by 17.96%

to Rs 4,17,300 crore for March over February.

Reliance MF buys 5.23% stake in Finacial Technologies from Fidelity.

Reliance Mutual Fund retained its top positions with AUM of Rs. 80,962.94 crore

till March.

Net outflow in Mutual Funds was Rs. 98,697 crore.

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NEW TRENDS OF MUTUAL FUND INDUSTRY

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RECENT TRENDS IN INDIAN MUTUAL FUND INDUSTRY

RECENT TRENDS

Distribution Mix

The equity AUMs have almost doubled over the last 2 years

The global banks have grown in assets but have lost market share over the last

couple of years.

Domestic and PSU banks have also gained market share

National Distributors contribute 20% of industry assets

With Indian stock markets booming, a lot of brokers are attempting to diversifyand build large distribution businesses

IFAs contribute 44% of the industry assets

There are over 65,000 AMFI Registered distributors in India

Future Trends

Certification of Financial Advisors will be made mandatory.

More no. of professional Financial Advisors to emerge

Introduction of pension products will inculcate long term savings habit

Penetration into rural areas

Distributorsshift of focus to other Financial products like Insurance &

secondary market.

Limited distribution reach.

After sales service might not be efficiently given to investors with direct

investments post initial investment.

Only people with internet access will be at advantage.

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FUTURE OF MUTUAL FUND INDUSTRY

Industry Size

Comparison with other developed market reflects the lack of

penetration in Indian market all point to a significantuntappedopportunityahead

Source: Journal of Financial Economics

Indias current industry size to GDP is approx 12%

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India managed assets to exceed ~$1 Trillion(40 lac crs.)

by 2015

Professionally managed assets (2005 2015)

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The Evolving Indian Mutual Fund Market

MF Retail Assets-USD 300 Billion (12 lac crs.) by 2015

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Tremendous Opportunity across Categories

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QUESTIONNAIRE

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QUESTIONNAIRE

Dear respondent,

I am the student of PGDM equivalent to MBA at Graduate school ofBusiness Administration Gr. Noida. I am doing my summer training fromSHARE KHAN LTD.and as a part of my curriculum, I have chosen a

project entitled MUTUAL FUND ANALYSIS & TRENDSFor this, I am interested to getting your valuable, frank, forthright responseto the questionnaire that follows.

There is no right or wrong to question/statement thatfollows the questionnaire. Only the required for your valuable advice forthis project. The response will be used for academic purpose only.

Thanking youYours truly

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INSTRUCTION FOR RESPONDENT Please tick the following options to your opinions & facts.

Specify according to your decision

Fill the form..NAME & ADDRESS OF FIRM-.............................................................................................................

LOCATION-NAME OF CONTACT PERSON -.DESIGNATION-..

NAME OF CURRENT PROJECT-

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QUESTIONNAIRE

1) Do you know about investment options available?

o

YES NO

2) Most preferable investment scenario.

o BANK

o DERIVATIVES & SECURITES MARKET

o INSURANCE

o BONDS

o REAL ESTATE

o OTHERS3)What is the basic purpose of your investment?

o Liquidity

o Returns

o Capital appreciation

o Tax benefits

o Risk covering

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4) MOST IMPORTANT THINGS YOU TAKE INTO YOUR MINDWHILE MAKING INVESTMENT,

o RISK

o RETURNS

o BOTH

6) Awareness related to security markets

o COMPLETE

o PARTIAL

o NIL

7)Do you have any de-mat & trading account?

o YES NO

8)In which company you have d-mat and trading account?

o SHAREKHAN

o INDIAINFOLINE

o ICICI DIRECT

o INDIA BULLS

o KARVY

o OTHERS

9)Specify the reason of satisfaction with the current broking house.

o OPERATING EXPENCESS

o SERVICE

o BROCKAGE

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DATA REPRESENTATION

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1)Do you know about investment options

available?

KNOWLEDGE %AGE

Yes 80%

No 20%

TOTAL 100

COMMENT

Only 80% people knows the exact meaning of investment.

Because of remaining 20% take his/her residential property as an

investment. According to law purpose this is not an investment

because of it is not create any profit for the owner.

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2) Most preferable investment scenario.

INVESTMENT SCENARIO %AGEBanks 24%

Derivatives & securities market 28%

Insurance 4%

Bonds 20%

Real estate 20%

Others 4%

TOTAL 100

COMMENT

Today scenario is changed so that most area covered by the

derivative and securities market. It is 28% of the total population.

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3) What is the basic purpose of your investment?

INVESTMEN

T PURPOSE

PERCENTAGE

Liquidity 30%

Returns 25%

Capitalappreciation

10%

Tax benefits 20%

Risk covering 5%

Others 10%

TOTAL 100

COMMENT:- 75% people are interested in liquidity,

returns and tax benefits. And remaining 25% are

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interested in capital appreciations, risk covering, and

others.

4)Most important things you take into your mind while making

investments?

FACTOR %AGE

Risk 8%

Returns 17%

Both 75%

TOTAL 100

COMMENT

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75% people are considered the both factors risk as well as returns

but, only 25% considered the risk or returns factor.

6) Awareness related to security markets

KNOWLEDGE PERCENTAGE

Complete 8%

Partial 75%

Nil 17%

TOTAL 100

COMMENT

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On that basis, we conclude that 17% people know nothing about

the securities investments and 75% people have partial knowledge

about it, so, some promotional activities are required for

increasing the awareness about security market.

7) Do you have any de-mat & trading account?

ACCOUNTS PERCENTAGE

Yes 60%

No 40%

TOTAL 100%

COMMENT

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Only 75% respondents have de-mat and trading account and

remaining 25% says no because they dont know why shares move

up and down.

8)In which company you have d-mat and trading account?

COMPANY PERCENTAGE

SHAREKHAN 38%

INDIAINFOLINE 20%

ICICI DIRECT 14%

INDIA BULLS 12%

KARVY 9%

Others 7%

TOTAL 100

COMMENT

In Sharekhan Ltd 38% respondents have de-mat & trading accountbecause of better services and no annual maintenance and othercharges.

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9) Specify the reason of satisfaction with the current broking

house.

SATISFACTION PERCENTAGE

Operating expenses 18%

Services 25%

Brokerage 57%

TOTAL 100

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MAJOR FINDING, RECOMMEDATIONDS& CONCLUSION

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MAJOR FINDING:

Problemof low retention and consequently low profitability, which is one of the

problems plaguing the business.

Equity did not find favor with investors since the market was lack-luster and

performances of funds, barring a few, were quite disappointing for investors.

The industry did see spectacular growth in assets, particularly among the privatesector players, on the back of the continuing debt bull run.

Unfair trade allocations: Another major issue haunting mutual funds relates to

allocation of trades. Industry sources say that most mutual funds do not haveadequate systems and processes to ensure fair trade allocations.

Mutual funds are required to maintain separate records for portfolio transactions

relating to each fund scheme. So that they can have adequate systems and processto ensure fair trade allocations.

Retention of Mutual funds is to be increased. So that the MFs business can grow

with a rapid pace.

The investors are to be motivated to invest in Equity Funds.

More transparency should be exercised by the fund houses.

According to the survey most of the customers of Sharekhan Ltd says that it is

pocket friendly.

Coming to faith 70% say Sharekhan Ltdis better than others stock brokers due to

customers satisfaction.

Lack of promotional activities undertaken by Sharekhan securities Ltd.

Main purposes of investments are returns & liquidity.

Investors take risk as well as returns into their mind while making the

investment.

Businessmen are more interested in the stock market than the others.

Commodity market is less preferred by the investors.

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People want to invest their money in the security market but they havent the

proper knowledge.

People are not aware of hedging in stock market.

People pay more emphasis on brokerage than service provided by brokeragehouses.

SUGGESTIONS:

Commitment should be equalized for every person.

Provide the facility of free demonstrations for all.

Improvement in the opening of De-mat & contract notice procedure is required.

There should be a limited number of clients under the relationship manger. So

that he can handle new as well as old customer properly.

Some promotional activities are required for the awareness of the customer.

People at young age should be encouraged to invest in stock market.

Seminars should be held for providing information to prospective and present

customers.

The Asset Management Company must design the portfolio in such a way, to

increase the returns.

The Asset Management Company must design the portfolio in such a way, to

lessen the risk that is common in the market.

The Asset Management Company must dedicate itself, because it motivates the

investors and potential investors to invest in Mutual Funds.

Emergence of new business models

Discount brokers : Rebates , if legalized can be a way of reducing investors

costs of buying a Mutual Fund. Entities in product selling will have to offerrebates or charge lower entry load

Fee based advisory model : Value-added advisors will charge fee

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Polarization : One pool of AMCs with direct interface with investors & other

continued with distributors.

Advent of No-load funds in India

Variable Pricing Model : A necessity

Global Practice:

Mutual Fund Analysis & Trends Sharekhan

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