New Icici Report

8/9/2019 New Icici Report

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Acknowledgement

I would like to thank ICICI Bank Ltd., Jaipur for providing me with an opportunity

to work on my summer project.

I would like to thank my project guide Mr. Bhupendra Singh for providing me

continuous guidance & support and for his valuable inputs during the course of my

project.

The staff at ICICI Bank Ltd. was very co-operative and helped me a lot by

providing required information whenever I needed it.

I am thankful to my Faculty Guide Prof. Vishal Anand for their continuous support

and guidance.

And finally I would like to thank all the faculty at Maharishi Arvind Institute of

Science & Management, Jaipur. for equipping me to carry out this study.

Ramesh Rao

Submitted By:- Ramesh Rao 1


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1. INTRODUCTION TO ICICI BANK

ICICI Bank is India's second-largest bank with total assets of about Rs.

2,513.89 bn (US$ 56.3 bn) at March 31, 2006 and profit after tax of Rs.

25.40 bn (US$ 569 mn) for the year ended March 31, 2006 (Rs. 20.05 bn

(US$ 449 mn) for the year ended March 31, 2005). ICICI Bank has a

network of about 614 branches and extension counters and over 2,200

ATMs. ICICI Bank offers a wide range of banking products and financial

services to corporate and retail customers through a variety of delivery

channels and through its specialized subsidiaries and affiliates in the areas

of investment banking, life and non-life insurance, venture capital and

asset management.

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian

financial institution, and was its wholly owned subsidiary. ICICI's

shareholding in ICICI Bank was reduced to 46% through a public offering

of shares in India in fiscal 1998, an equity offering in the form of ADRs

listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank ofMadura Limited in an all-stock amalgamation in fiscal 2001, and

secondary market sales by ICICI to institutional investors in fiscal 2001

and fiscal 2002. ICICI was formed in 1955 at the initiative of the World

Bank, the Government of India and representatives of Indian industry. The

principal objective was to create a development financial institution for

providing medium-term and long-term project financing to Indian

businesses. In the 1990s, ICICI transformed its business from a

development financial institution offering only project finance to a

diversified financial services group offering a wide variety of products and

services, both directly and through a number of subsidiaries and affiliates

like ICICI Bank. In 1999, ICICI become the first Indian company and the



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first bank or financial institution from non-Japan Asia to be listed on the

NYSE.

In October 2001, the Boards of Directors of ICICI and ICICI Bank

approved the merger of ICICI and two of its wholly owned retail finance

subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital

Services Limited, with ICICI Bank. Shareholders of ICICI and ICICI

BANK approved the merger in January 2002, by the High Court of

Gujarat at Ahmedabad in March 2002, and by the High Court of

Judicature at Mumbai and the Reserve Bank of India in April 2002.

Consequent to the merger, the ICICI group's financing and banking

operations, both wholesale and retail, have been integrated in a singleentity.



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KINDS OF INVESTMENTS

There are many investment vehicles available. But in general, all forms of investments

may be divided into two categories: one is security form of investment (Marketable) and

another is non-security form of investment (Non-Marketable). Security form includes

Bonds, Debentures, Taxable & Tax free Public Sector Bonds, Preferences Shares, and

Equity Shares. Non-security form includes N.S.S., N.C.C., Provident Funds, Fixed

Deposits, life Insurance Policies and Mutual Fund Schemes. We can also divide

investment in "Debt" and "Equity" investments also. Anytime one allows someone to usehis money to make money, it is considered a "debt" investment. This category would

include bank certificates of deposit; bonds (of all types); fixed annuities; cash value of

whole or universal life insurance; notes receivable; etc. "Equity" investments actually

allow investor to take an ownership position and include stocks, real estate, tangible

assets such as gold; and collectibles such as art, antiques, etc.

Debt investments usually involve little, if any, risk of principal, and low to moderate

returns. These returns are derived from interest and/or dividends. Equity investments

expose all of investors investment capital to the risk of losing his principal, and

generally derive most of their investment return from appreciation of the value of the

underlying asset (capital gains).

Factors to be considered while Selecting an Investment

Although there are numerous factors that may be considered, some of the most important

are:

Risk

Rate of Return

Impact of Taxes on Return

Marketability and Liquidity

Safety

Diversification



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Risk

There are many kinds of risk in investing. Some forms of risk may be more important to

an investor than others. If one learns to identify each of these types of risk, he can then

determine which of these have importance, as he structure his investment portfolio.

Risk of Principal If the investment selected performs poorly, the amount of

money which was invested can be lost, in part or in whole.

Market/Volatility Risk The value of the investment selected may move up or

down due to changes in the particular financial market he has invested in.

Purchasing Power Risk This is uncertainty over the future purchasing power

of the income and principal from a selected investment. This is created by

changes in the general price level of the economy.

Interest Rate Risk Investments which are providing fixed income (such as

bonds, CDs, etc). will experience changes in price as interest rates increase and

decrease. In general, a rise in market interest rates tends to cause a decline in

market prices for existing securities and conversely, a decline in interest rates

tends to cause an increase in market prices for existing securities, thus creating an

inverse relationship with the general level of interest rates

Tax Risk This involves the potential tax consequences involved with a

particular investment to include federal and state income, estate, inheritance and

gift taxes.

Rate of Return

Expected future return is what causes an investor to select an investment. And, since the

purpose of investing is to earn a return sufficient to fund his goal(s), he should understand

how he would receive this return. It may take a variety of forms to include interest,

dividends, rental income, business profits, and capital gains. The total amount of

earnings on an investment is "total return". And this is generally broken down into two

main components:

Current Income income received regularly over the course of the investment

(dividends, interest or rent)



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Capital Gains the increase in the market value of the specific investment

vehicle. This return is generally not received or recognized until the asset is sold.

Another factor affecting Rate of Return is the potential effect of compounding (earning

interest on interest). If interest, dividends, etc. are allowed to remain in the investment

and in turn, receive the benefit of future growth, the result is compounding.

The interaction between these first two factors creates the Risk/Return Trade Off. The

amount of risk associated with a given investment vehicle is directly related to its

expected return. This is known as the "Universal Rule of Investing". So, theoretically, the

more risk one is willing to take, the higher return he should expect to receive. To give

some perspective, a "risk-free" rate of return would be an investment that provides a

positive return with zero risk (i.e. a 91-day Treasury bill). This is often used as abenchmark against which other investments are measured. As risk is increased, so should

return potential. Bank rate can be also used as a benchmark against other investments.

Impact of Taxes on Return

It has been said that it doesnt matter what you get; only what you get to keep ! For this

reason, it is very important to differentiate between the Return received from an

investment and its "after-tax" Return.

There are several considerations here:

An investment may yield income that is currently taxable as ordinary income,

such as interest on Certificates of Deposit, corporate bonds, etc. In this case, the

After-Tax Yield is going to be less than its Current Yield (interest rate). This

can be determined by multiplying the current yield by "1" minus the investors

income tax rate.

An investment may yield income that is tax exempt, such as interest from some

municipal bonds. So, the after-tax yield for a fully tax-exempt investment equals

the Current Yield.

An investment may yield returns that are taxable only when realized and

recognized as capital gains. For example capital appreciation on the shares of a

particular company. Further, due to favorable capital gains treatment, when the

shares of stock are finally sold, the tax rate will be lower than the tax rate would



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have been had the shares produced dividends which would have been taxed as

ordinary income.

These were very simple examples, when in fact; the implications of tax treatment

of investment income can be very complex. Investors professional tax and

investment adviser can assist him in determining the impact of his investment

positioning on his personal tax situation.

Marketability and Liquidity

These terms are sometimes used synonymously, but they are not the same thing.

Marketabilityrefers to the degree to which there is an active market in which an

investment can be readily traded.

Liquidityrefers to the ability to readily convert an investment into cash without

losing any of the principal invested. An investment with liquidity has a highly

stable price.

Some investments are neither marketable nor liquid; others are marketable, but not

liquid; or liquid, but not marketable; while others are both marketable & liquid.

Although marketability and liquidity are desirable, it is often necessary to have a "trade-

off", since highly marketable or liquid assets usually yield less than less marketable or

illiquid investments. So, an important question for one investor to consider is "Is

marketability or liquidity important enough to give up some yield?" This, of course,

depends on investors overall situation.

Diversification

Diversification is an important investment policy to consider in constructing a portfolio.

It refers to the defensive strategy of spreading investment rupees into several different

investments in order to minimize risk. There are numerous types of diversification.

Investor might diversify between stocks and bonds (equity and debt); between liquid and

non-liquid investments; between one investment objective and another; etc.



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The principal of diversification is that the prices or values of all differing investment

opportunities do not go up or down at the same time or in the same magnitude, so an

investor can protect at least a portion of his/her investment assets by diversifying.

SELECTING AN INVESTMENT



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DEBT INVESTMENTS

What kinds of debt investments (fixed income securities) should investor consider for hisportfolio, and how will they impact his investment return? Fixed income securities

promise the investor a stated amount of income periodically. The most common fixed

income investments include:

Corporate Bonds

Convertible Bonds

Zero Coupon Bonds

Municipal Bonds

RBI Treasury bills, notes and bonds

Preferred Stocks and Convertible Preferred Stocks

Savings Accounts

Certificates of Deposits

Fixed Deposits with Banks

EQUITY INVESTMENTS

Not only equity shares of any co. are considered as equity investment, but there are many

investments that can be considered equity investments. Common characteristics are more

risk and expected return in the form of capital appreciation rather than regular income.

These can be:-

Common Stocks

Real Estate

Energy/Oil and Gas

Puts and Calls/Options Commodities

Art, Antiques, Collectibles

Tangibles (Precious metals and gemstones)

Common Stocks



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What Are the Investment Characteristics of Common Stock?

When one investor purchases a "share" of stock, he becomes a fractional owner interest in

that company. As a common stockholder, he will actually have an ownership position in

the company. He may receive dividend income, but only after all other debt obligations

have been met by the company. Also, if the value of his share of stock increases over the

time he holds it, he will experience a capital gain at the time he sells his share of stock.

But, in the event the company does not meet its financial objectives, there may be no

dividends paid, and the value of his share of stock may stay the same or even decrease.

There is no guarantee that there will be a return on his investment.

Issuers of common stock are corporations. As a shareholder, he will have the right to vote

on company decisions (one vote for each share of stock purchased). He may vote in

person at the annual stockholders meeting, or he may vote by proxy.

Are There Different Kinds of Stocks?

Stocks may be categorized in many ways. Classification by type is probably the most

common method of categorizing.

Blue Chip Stocks These are stocks of high quality with long and stable records of

earnings and dividends. They are well-established and hold strong financial credentials

(i.e. Reliance, ITC, Infosys)

Growth Stocks These are stocks which experience high rates of growth in operations

and earnings.

Income Stocks These are stocks that are selected primarily for the dividends they pay.

They have been able to demonstrate a stable stream of earnings.

Speculative Stocks These are stocks of companies which may be expected to have

significant immediate growth, such as a company which may have recently developed a



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new patent etc. There is usually no proven record of earnings, and these are considered

high-risk companies.

Cyclical and Defensive Stocks - Cyclical stocks are those whose movement tends to

follow the business cycle of the economy as a whole. When the economy as a whole is

expanding, the prices of these stocks are increasing. These are industries such as

automotive, lumber, steel, etc. Defensive or "counter-cyclical" stocks, on the other hand,

can be expected to remain stable throughout the periods of contraction in the business

cycle. They are usually dividend stocks and their earnings tend to keep market prices up

during periods of economic decline.

DEVELOPMENT OF MUTUAL FUNDS INDIA



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

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

was then to attract the small investors and introduce them to the market investments.

Since then, the history of Mutual Funds in India can be broadly divided into three distinct

phases.

PHASE 1: July1964-nov.1987 (Unit Trust of India)

The Indian Mutual Fund industry is dominated by the Unit Trust of India, which has a

total corpus of Rs700bn, collected from more than 20 million investors. The UTI has

many funds/schemes in all categories i.e. equity, balanced, income etc with some being

open-ended and some being closed-ended. The Unit Scheme 1964 commonly referred to

as US 64, which is a balanced fund, is the biggest scheme with a corpus of about

Rs200bn. This phase was marked by monopoly of UTI. This foundation was laid by the

parliament in 1963 with the enactment of Unit Trust of India(UTI) Act. UTI alone

managed the show with 5 open ended funds till 1987.

1987-88

Amount mobilized

(Rs. Crores)

Assets under

Management

(Rs. Crores)

Mobilization as %

Of Gross Domestic

Savings

UTI 2,175 6,700 3.1%

Total 2,175 6,700 3.1%

PHASE 2: 1987-1993 (Public Sector Competition)

The second largest categories of Mutual Funds are the ones floated by nationalized banks.

This period was marked by the entry of non-UTI public sector Mutual Funds in the

market bringing competition with the opening up of economy.



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The first non-UTI Mutual Fund-SBI MF-was launched by SBI in November1987.it was

followed by

Canbank MF Scheme December 1987

LIC MF Scheme June 1989

Indian Bank MF Scheme January 1990

Bank of India 1991

GIC MF Scheme

PNB MF Scheme 1992

The entry of public sector MF created wave in the market attracted small investors.

Before 1989 there was no regulatory guidelines for MF industry in India, the first suchguideline for setting up a regulatory MF were issued by RBI in October 1989 but they

were applicable only to MFs floated by banks. Comprehensive guidelines were issued by

GOI in June 1990 but these were amended in SEBI (MF) Regulation 1993 w.e.f.20

January 1993.

1992-93

Amount mobilized

(Rs. Crores)

Assets under

Management

(Rs. Crores)

Mobilization as %

Of Gross Domestic

Savings

UTI 11,507 38,247 5.2%

Public Sector 1,964 8,757 0.9%

Total 13,021 47,004 6.1%

PHASE 3: 1993-1996 (Emergence of Private Funds)

A new era in MF industry began with entry of private sector funds in 1993 posing a

serious competition to existing public sector funds The first private sector mutual fund to

launch a scheme was Madras based Kothari Pioneer MF launched Open ended scheme

Prima Fund in November 1993.ICICI, 20th Century, Morgan Stanley, Taurus also came

in the same year. These 5 MF launched 7 schemes & mobilized Rs.1559.6 Crore during



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first year 1993-94.most of these private sector funds were floated by Indian organization

alongwith experienced foreign asset Management Company.

1998-99

Amount mobilized

(Rs. Crores)

Assets under

Management

(Rs. Crores)

Mobilization as %

Of Gross Domestic

Savings

UTI 11,679 53,320 2.79%

Public Sector 1,732 8,292 0.08%

Private Sector 7,966* 6,860* 1.14%

Total 21,377 68,472 5.1%

* Figures of asset under Management are after taking account of Redemptions. Amounts

Mobilized are gross.

April-Oct99

Amount mobilized

(Rs. Crores)

Assets under

Management

(Rs. Crores)

UTI 8,312 64,276Public Sector 1,222 8,656

Private Sector 13,789* 14,017*

Total 23,323 86,949

PHASE 4: 1996 (SEBI Regulation for Mutual Funds)



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A comprehensive set of regulations for all Mutual Funds operating in India has been

accomplished with SEBI (Mutual Fund) Regulation, 1996. These regulations set uniform

standards for all Mutual Funds.

GROWTH OF MUTUAL FUND INDUSTRY IN INDIA ACROSS THE

DEVELOPMENT PHASES DISCUSSED ABOVE

Synoptic View Of Asset And Mobilization Across The Phases of Development

UTI Public Sector Private Sector

1987-88 Mobilization 100%

Assets 100%

1992-93 Mobilization 80% 20%Assets 80% 20%

1998-93 Mobilization 50% 10% 40%

Assets 80% 10% 10%

Apr-Oct99 Mobilization 30% 5% 65%

Assets 70% 10% 30%

MUTUAL FUNDS INVESTMENTS

What Are Mutual Funds?

Mutual funds are large professionally managed portfolios that are formed by many

individual investors who collectively pool their resources in order to achieve a high level

of diversification. More investors, by far, invest in mutual funds than in any other type of

investment product. There are two types of mutual funds:

Open-End Investment Companies In these funds, investors buy and sell shares from

the fund itself. There is no limit to the number of shares a fund can sell, and buy and sell

transactions are carried out at prices based on the current value of all the securities in the

funds portfolio. Net Asset Value (NAV) is based on the current value of all securities



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held in the funds portfolio, and represents the price at which the investor can sell his/her

shares.

Closed-End Investment Companies Closed end companies operate with a fixed

number of shares outstanding and do not regularly issue new shares. These shares are

listed and traded on an organized securities exchange, and trades may be at a discount or

premium.

Through mutual funds, small investors are able to enjoy a much higher degree of

diversification than they would be able to attain though individual stock or bond

purchases on their own. Most mutual fund accounts can be opened with small initialinvestments. In addition, experienced professional managers select the securities to be

purchased and make timing decisions concerning buying and selling on the most

advantageous basis.

In addition, funds are highly marketable, and mutual funds offer numerous services to

meet individual investor needs. Funds are easy to acquire or sell, and there is very little

paperwork or record-keeping required of the investor. Finally, the return on many funds

has exceeded the average return of many other comparable investments.

How does one make Money in a Mutual Fund?

Mutual funds have three potential sources of return:

Dividend Income The underlying stocks in the fund may pay a dividend, and the

mutual fund investor receives his/her proportionate share of those dividends. (This is

considered taxable income.)

Capital Gains Distributions The fund may sell one of its stock holdings at a profit, and

the individual fund investors will again receive a proportionate share of this capital gain.



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(This is also a taxable event, and may or may not qualify for favorable taxable gains

treatment.).

Increase in Share Value Above Purchase Price The share of the mutual fund itself

may increase in value over the purchase price. This gain is not realized until the share of

the fund is ultimately sold, at which time it will receive capital gains treatment for tax

purposes.

The overall return (gain or loss) of the fund is based on these three sources.

What Types of Investments are Available through Mutual Funds?Almost any type of investment is available through mutual funds. A funds investment

objective must be disclosed in its prospectus. The most common fund objectives are:

Growth Funds The objective is capital appreciation achieved through long term growth

and capital gains.

Aggressive Growth Funds The objective of the fund is more aggressive or speculative,

but is still growth-oriented.

Equity Income Funds The objective emphasizes current income (usually through

high-yielding stocks); capital preservation; and may also seek capital gains.

Balanced Funds These funds hold a balanced portfolio of both stocks and bonds, in

order to generate a well-balanced return of current income and long term capital gains.

Bond FundsThese funds invest in bonds of various grades and kinds, based on their

stated objective. They could include government bond funds, mortgage backed bond

funds, high-grade corporate bond funds, convertible bond funds, municipal fond funds,

etc.



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Money Market Funds These funds include a portfolio of short-term money market

instruments and have high liquidity, but limited investment return.

Sector Funds These funds concentrate in one ore more specific industries that make up

the targeted sector such as technology, health, energy, etc.

Socially Responsible Funds These funds focus on consideration of issues other than

financial; that is, moral, ethical or environmental. These funds might abstain from

investing in a particular industry (such as tobacco), or might target firms whose services

are acting in accordance with identified desired principles.

International Funds These funds invest in foreign securities. Some confine investment

to a particular country or geographic region; while others are more broad-based.

Global Funds These funds invest in foreign securities similar to international funds, but

also invest in Indian companies operating abroad by subscribing GDRs and ADRs.

(Usually multi-national firms)

Note: International and Global Funds are influenced by factors not present in domestic

mutual funds such as changing foreign market conditions and political climates, as well

as fluctuation in the Rupee Value in relation to foreign currencies. For these reasons,

these funds are generally thought to be of higher risk than domestic funds.

Asset Allocation Funds The managers of these funds allocate specific blocks of

invested funds into different objectives and re-arrange this allocation as market

conditions change.

STRUCTURE



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Structure of the Indian Mutual Fund Industry

The Unit Trust of India dominates the Indian mutual fund industry. The UTI has many

funds/schemes in all categories i.e. equity, balanced, income, etc with some being open-

ended and some being close-ended. UTI was floated by financial institutions and is

governed by a special act of Parliament. Most of its investors believe that the UTI is

government owned and controlled, which, while legally incorrect, is true for all practical

purposes.

The second category of mutual funds is the ones floated by nationalized banks. Canbank

Asset Management floated by Canara Bank and SBI Funds Management floated by the

State Bank of India are the largest of these. GIC

AMC floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the

LIC are some of the other prominent ones.

The third largest category of mutual funds is the ones floated by the private sector and by

foreign asset management companies. The largest of these are Birla Sun Life AMC,

Standard Chartered AMC, etc.

TYPES OF MUTUAL FUNDS

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

objective.

(1) By Structure/Operational classification:

Open-ended Funds-

An open-ended fund is one that is available for subscription all through the year.

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



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

liquidity.

Closed-ended Funds-

A closed-ended fund has a stipulated maturity period that generally ranges from 3 to

15 years. The fund is open for subscription only during a specified period. 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.

Interval Funds-

Interval funds combine the features of open-ended and closed-ended schemes. They

are open for sale or redemption during pre-determined intervals at NAV related

prices.

(2) By Investment Objective/ Portfolio Classification:

Growth Funds-

The aim of growth funds is to provide capital appreciation over the medium to long

term. Such scheme normally invests a majority of their corpus in equities. It has

been proven that returns from stocks, have outperformed most other kind of

investments held over the long term. Growth schemes are ideal for investors having a

long-term outlook seeking growth over a period of time.



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Income Funds-

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

schemes generally invest in fixed income securities such as bonds, corporate

debentures and Government securities. Income funds are ideal for capital stability and

regular income.

Balanced Funds-

The aim of these funds is to provide both growth and regular incomes. Such schemes

periodically distribute a part of their earnings and invest both in equities and debts.

These are ideal for investors looking for a combination of income and moderate

growth.

Money Market Funds-

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

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

such as treasury bills commercial paper etc. These are ideal for Corporate and

individual as a means to park their surplus funds for short-term periods.

(3) Tax Saving Scheme

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

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

specified avenues. Investments made in Equity Linked Savings Schemes and

pension schemes re allowed as deduction u/s 88 of I T Act 1961.

(4) Special Schemes



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Industry Specific Scheme

Industry specific scheme invest only in the industries specified in the offer document.

The investment of these funds is limited to specific industries like InfoTech, FMCG,

and Pharmaceuticals etc.

Index Scheme-

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

BSE Sensex or the NSE 50

Sectoral Scheme

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

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



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CONSTITUTION OF THE MUTUAL FUND

An attempt was made for first time in SEBI GUIDELINES 1992 to spell out for

managing the affairs of mutual funds ensuring arms length distance between the sponsor

and the fund. The four custodians and asset management company. Moreover in reality

pooled funds of small investors were being put to use for the advantage of the sponsors.

Four constituents for the management of mutual fund are presented in chart


Sponsors

(Promoters)

Asset

Management

Company(Managing the

investments of

fund)

Mutual

Fund

(A Trust)

TRUSTEES

(Holdingproperty of

Fund)


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SPONSORS

It refers to anybody corporate which initiates the launching of a mutual fund. It is this

agency, which of its own or in collaboration with other body corporate comply the

formalities of establishing a mutual fund. SEBI ensures that sponsors should have

professional competence, financial soundness and general reputation of fairness and

integrity in business transactions. Sponsor is normally not responsible for any loss or

shortfall resulting from the operations of any scheme of the fund beyond its initial

contribution towards the constitution of the trust fund.

TRUSTEES

A trustee is a person who holds the property of the mutual fund in trust for the benefits of

the units holders. A company is appointed as a trustee to manage the mutual fund. To

ensure fair dealings, mutual fund regulations require that one cannot be a trustee or a

director of a trustee company in more than one mutual fund.

Further at least fifty percent of the trustees are to be independent of the sponsors.

Trustees take into their custody, or under their control all the property of the mutual fund.

It is trustees duty to observe and ensure that AMC is managing schemes in accordance


CUSTODIANS(SAFE CUSTODY OF

FUND SECURITIES ETC.)


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with the trust deed. Trustees for their services are paid trusteeship fee, which is to be

specified in the trust deed.

CUSTODIANS

SEBI requires that each mutual fund shall have a custodian for managing the scrips

bought from the market who is not in anyway associated with the AMC. He cannot act as

sponsor or trustee of any mutual fund. Further he is not permitted to act as a custodian of

more than one mutual fund without the approval of SEBI. Custodians main assignment

is safekeeping of the securities or participation in any clearing system on behalf of the

client to effect deliveries of the securities.

Depending on the volume there can be co-custodian for a mutual fund. These custodians

are entitled to receive custodianship fee based on the average weekly value of net assets

or sale and purchase of securities along with per certificate custody charges.

Asset Management Company (Investment manager)

Asset Management Company as the name implies is to be a body corporate whose

Memorandum and Articles of Association are to be approved by SEBI. It is the AMC,

which operates all the schemes of the fund. AMC can act as AMC an AMC of only one

mutual fund and cannot act as a trustee of any other mutual fund. To ensure efficient

management SEBI desires that existing AMC should have a sound track record, dividend

paying capacity and profitability, etc. Regulations require that at least 50% of the

directors should be such who do not have any association with the sponsors or the

trustees.

WORKING OF ASSET MANAGEMENT COMPANY



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It is not required that AMC performs all its functions of its own. It can hire services of

outside agencies as per its requirements or perform all functions of its own. The main

agencies services of which an AMC may require are depicted in the chart.

ASSET MANAGEMENT COMPANY

Registrar Lend Legal

And Managers advisors

Transfer

Agent

Fund Investment Fund Accounting Advisors Manager

REGISTRAR AND TRANSFER AGENT.

FUND ACCOUNTING.

LEND MANAGERS.

INVESTMENT ADVISORS.

LEGAL ADVISORS.

FUND MANAGER.

AUDITORS.



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REGISTRAR AND TRANSFER AGENTS are assigned the job of receiving

and processing the application forms of investors, issuing unit certificates, sending refund

orders, according all transfers of all units and maintaining all such records, repurchasing

the units, redemption of units, issuing dividend or income warrants.

FUND ACCOUNTINGagain depending upon on the size of the fund, its age and

number of expected transactions may be assigned to specialized agencies. All accounting

transaction is recorded and records are maintained by such agencies.

LEAD MANAGERS select and co-ordinate activities of intermediaries such as

advertising agency, printers etc. They normally engaged by AMC for extensive campaign

about the scheme to attract the investors. They assist AMC in approach potential

investors through personal as well as through impersonal promotion.

INVESTMENT ADVISORSmay be appointed by AMC if it cannot afford to cope

up with the workload of its own. Investment advisors analyze the market and strategies

on a continuous basis. Majority of Indian Mutual Fund have their own market analysis

that design their own investment strategies.

LEGAL ADVISORS are also sometimes appointed to get legal guidance about

planning and execution of different schemes. A group of advocates and solicitors may be

appointed as legal advisors. AMC is also required to have an auditor to undertake

independent inspection and verification of its accounting activities. AMCs may also

appoint a separate fund manager for each scheme. Such assets manager adheres to the

guidelines evolved by AMC of its own or designed through investment advisors.

Functions of AMC

The two main functions of an Asset Management Company are discussed in detail here.

{A} Investment



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The major strength of any AMC lies in its investment function. The investment

department may be classified in four segments. These can be:

Fund Manager

Research and Planning Cell

Dealer

Underwriter

[1] Fund Manager

Asset Management Companies manage the investment of fund through a fund manager.

His basic function is to decide about which, when, how much and at what rate securities

are to be sold or bought. To a great extent the success of any scheme depends on the

caliber of the fund manager.

Many mutual funds especially in bank sponsored funds, the entire investment exercise is

not left to one individual. One mutual fund has created two committees. First is

Investment Committee which is broad based committee having even nominees of the

sponsor. It collectively decides about the primary market investment. The second is

Market Operation Committee having the assignment of disinvestments and interacting

with secondary market.

[2] Research and Planning Cell

This performs a very sensitive and technical assignment. Depending upon on the

operational policies, such unit can be created by AMC on its own or research findings can

be with respect of securities as well as prospective investors. This section also assists

planning new schemes and designing innovations in schemes.



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[3] Dealer

To executive the sale and purchase transactions in capital or money market, a separate

section may be created under the charge of a person called dealer having deep

understanding of stock market operations.

Sometimes, this division is under charge of marketing division of AMC. Such brokers are

to be approved Board of Directors of AMC.

[4] Underwriter

Recently mutual funds have been permitted by SEBI to go in for underwriting of public

issues to generate additional income for their schemes. Activity will be subject to the

following underwriting restrictions:

For the purposes of the SEBI underwriters regulations, the capital adequacy of the

mutual fund shall be the original corpus of any of the scheme(s) and the undistributed

gains lying to the credit of the scheme(s).

The total underwriting obligations of the scheme shall not exceed the total value of

the corpus of any scheme together with undistributed profits lying to the credit of the

scheme.

No understanding commitment may be undertaken in respect of the scheme during

the period of six months prior to the date of redemption of any scheme.

{B} MARKETING

Marketing is a big challenge in business especially for mutual fund. Mutual funds deal

with small investors hard earned money. The main challenge of marketing to mutual fund



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is that with same product, customers with diversified profile viz demographic, socio-

economic background, life style and psychographics are to be served.

It is the marketing division, which complies with the formalities to market the product i.e.

a new scheme. Marketing people also evolve the target amount of a scheme. The most

crucial marketing strategy is evolved to the best advantage of the fund.

Marketing division has to evaluate the market potentials, strengths and weaknesses. For

each scheme, what is its market share is very crucial question to design its future

strategies. To identify which section of society is under serviced, is another important

assignment of marketing division.

A mutual fund is an investment vehicle for those who want to spread their risk and seek

returns, which are better than those available from bank deposits. Such investor education

should also be taken up by marketing division to avoid facing situations of loose of faith

of investor heavy off-loading, resulting in the huge discount to NAV.

Marketing people also have a say in dividend policy of the mutual fund. Sufficient

infrastructure facilities are to be created for quality and prompt services.

Marketing a scheme is to be taken as marketing a consumer product.

Marketing for mutual fund is not deal-based but is relationship based. The psychology

of investor needs deep insight. There are potential investors in the present investors of the

scheme. So understanding and responding to their needs obviously will bring mutual

funds new investors besides retaining the present.



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NET ASSET VALUE (NAV)

The net asset value of the fund is the cumulative market value of the assets fund net of its

liabilities. In other words, if the fund ids dissolved or liquidated, by selling off the entire

asset in the fund, this is the amount that the shareholders would collectively own. This

give rise to the concept of net asset value per unit, which is the value represented by the

ownership of one unit in the fund.

CALCULATION OF NAV

The most important part of the calculation is the valuation of the asset owned by the fund.

Once it is calculated, the NAV is simply the net asset value of assets divided by the

number of units outstanding the detailed methodology for the calculation of the asset

value is given below:

Asset value is equal to

Sum of market value of shares/ debentures

+Liquid assets/ cash held, if any

+Dividend/ interest accrued



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-Amount due on unpaid assets

-Expenses accrued but not paid

NAV is computed as follows: -

(Market or Fair Value of schemes investments+ Current assets includingaccrued income-Current liabilities and Provisions including accrued expenses) / Number

of units outstanding at the end of the day.

DETAILS OF THE ABOVE ITEMS

For liquid shares/debentures, valuation is done on the basis of the last closing marketprice on the principal exchange where the security is trading. For illiquid and unlisted and

/or thinly traded shares and debentures

The value has to be estimated. For shares, this could be the book value per share or may

be market price. For debentures and bonds, value is estimated on the basis of yields of

comparable liquid securities after adjusting liquidity. The value of fixed interest bearing

securities moves in the direction opposite to the interest rate changes valuation of

debentures and bond is a big problem since most of them are unlisted and thinly traded.

This gives considerably leeway to the AMCs on the valuation and some of the AMCs are

believed to take advantage of this and adopt flexible valuation policies depending on the

situation. Interest is payable on these on a periodic basis. Accrued interest on a particular

day is equal to the daily interest rate multiplied by the number o days since the last

interest payment date.



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Usually, dividends are proposed at the time of the Annual General Meeting and become

due on the record date. There is a gap between the dates on which it becomes due and the

actual payment date. In the intermediate period, it is deemed to be: accrued.

Expenses including management fees, custody charges etc. are calculated on a daily

basis.

BENEFITS OF MUTUAL FUND INVESTMENT

PROFESSIONAL MANAGEMENT

Mutual fund provide the services of experienced and skilled professionals backed by a

dedicated investment research team that analyses the performance and prospects of

companies and selects suitable investments to achieve the objectives of the scheme.

DIVERSIFICATION

Mutual fund invests in a number of companies across a broad cross-section of industries

and sectors. This kind of diversification enables to reducing the risk.

CONVENIENT ADMINISTRATION

Mutual fund reduces paper work and helps to avoid many problems such as bad

deliveries, delayed payment etc and improves the administration efficiency.

RETURN POTENTIAL

Over a medium to long term, mutual fund have the potential to provide higher return as

they invest in a diversified basket of selected securities.

LOW COST



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Mutual fund are relatively less expensive way to invest compared to directly investing in

the capital markets because the benefits of scale in brokerage, custodial and other fees

translate into lower costs for investors.

LIQUIDITY

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

related prices from the mutual fund. In closed ended, units can be sold on a stock

exchange at prevailing market price or the investor can avail of the direct repurchase at

NAV related prices by the mutual fund.

TRANSPERENCY

You get regular information on the value of your investment in addition to disclosure on

the specific investment made by your scheme, the proportion invested in each class of

asset and the fund managers investment strategy and outlook.

FLEXIBILITY

Through features such as regular investment plans, regular withdrawal plans and dividend

reinvestment plans, you can systematically invest or withdraw funds according to your

needs and convenience.

AFFORDABILITY

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

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

investment strategy



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WELL REGULATED

All mutual funds are registered with SEBI and they function within the provision of strict

regulations designed to protect the interests of investors. The operations of mutual funds

are regularly monitored by SEBI

What Services/Facilities Are Offered By Mutual Funds?

Numerous services are offered by mutual funds to include:

Automatic Investment Plans Investors may direct specific amounts of money from

paychecks or bank accounts into the mutual fund on a regular basis (usually monthly).

Automatic Re-Investment Plans Dividends and other distributions are automatically

used to buy additional shares in the fund.

Regular Income For shareholders wishing to receive monthly income, a pre-determined

amount can be withdrawn on a regular basis, with a check mailed to the investor. These

amounts may be a fixed amount or tied to interest and dividend earnings.

Conversion Privileges Investors investing in a "family" of funds may switch from one

fund to another, if their investment objective should change or if they feel the change

would enhance their investment performance. These switches are usually made withoutadditional sales charge. (This switch would, however, trigger capital gains taxation, if

applicable.)

Retirement Plans Investors may use mutual funds to set up specialty accounts such as

IRAs or self-employment Retirement plans



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What are the Purchase Cost Considerations in Buying a Mutual Fund?

Loads - Funds may beLoad Funds (those on which a sales commission is charged when

shares are purchased) orNo-Load Funds (those in which no fees are charged to purchase

the fund. Load funds may be structured in several different ways:

Entry load/front-end load:- expenses deducted from initial investment at time of

purchase.

Exit load/Back-end load:- expenses are not deducted from initial investment, but are

deducted from proceeds at time of redemption. This is also known as a "deferred sales

charge".

Annual Charges: - Fees are assessed annually

Management Fees These fees represent the cost incurred in hiring a professional

money manager to manage the fund. These fees are assessed annually and can range from

less than % to 2-% of assets under management. All funds (both Load and No-Load)have these fees.

Funds are required to disclose all fees and charges through theirprospectus (document

given to prospective purchasers detailing fund objectives, expenses and investment return

history).



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RESEARCH METHODOLOGY

Research Design

The research was Descriptive in nature as it dealt with describing the market and the

buying behavior of consumers. The research was designed to discover the potentiality of

the mutual fund market at Jaipur and also the survey of the investors to know about their

perception, the psychological factors associated with the product, the benefits they are

looking forth from the product and how do they rank in terms of risk and returns

associated with it. The research was carried out after dividing the market into segments

and the segment selected for the research was Jaipur Stock Exchange Limited (JSEL for

Stock Brokers) and Industrialists considering them the potential investors for this

investment avenue i.e. mutual fund.

Sample Design

The first step in order to accomplish the task was to draw a sample. To serve this

purpose, the sampling technique adapted was: Random Sampling. For that purpose

JSEL and Industrial areas at Jaipur was visited and maximum number of Stock Brokers

and Industrialists were surveyed with an avowed objective of minimizing bias and

maximizing the reliability of the data. Also, by adopting this procedure it was ensured



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that the sample drawn would have the same composition and characteristics of the

population.

Type of Universe

The investors/potential investors were basically those from the JSEL and Industrialists at

Jaipur. The Universe comprised of the finite number of customers and it can be

considered homogenous in nature, to a great extent.

Size of the Sample

Since, the population was homogenous in nature to a large extent, hence a sample size of

25 respondents were taken into account to achieve the objective of the study. Other

prominent factors, kept in view while determining the size of the sample were size of thepopulation, the number of questions in the schedule, the sampling procedure adopted and

the time constraint. Thus a sample consisting of 25 respondents were chosen, which

fulfilled the requirements of efficiency, reliability and flexibility.

Method of Data Collection

Schedule {Performa containing set of Questions} was developed to conduct the survey.

The researcher put to the respondents the questions from the Performa and recorded the

replies.

The schedule was the best available alternatives for data collection. The other options

were that of Interview and Questionnaire. The schedule had many features which added



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value to its use as a tool for accumulation of required information. Firstly, the segment

i.e. Industrialists segment which is very busy profession; the chances of the non-response

would have been very large. Moreover, if the mailing was used it would have made the

task of follow up extremely difficult.

Interview as a tool, is quite economical but it is difficult to record and retain the

information and especially if the queries include open ended questions. Moreover,

schedule serves the purpose of a structured form of the interview.

Though, schedule has limitations like, error on behalf of researcher while recording the

response or putting forward the query. It solved the purpose of data collection for the

project.

Contents of the Schedule

The schedule mainly comprised close- ended questions. A structured schedule was

preferred for the study. Also, the language of the questions was kept as simple as possible

and the questions were made as unambiguous as possible. The questions have been

arranged in a form to provide all the needed information in maximum possible

standardized form. The schedule consisted of questions, which probed for the preferenceand the reasons for certain buying pattern of the respondents.

In order to evaluate the efficiency of the schedule, a pilot survey was carried out. On the

basis of the findings of the pilot survey, necessary alternations were made in the schedule

to make it more effective.



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LIMITATIONS OF THE STUDY

Due to time constraint the survey could be conducted only in Jaipur. This proved to

be a limitation because the results thus obtained cannot be accurately generalized for

the entire country.

The nature of the project demanded the information to be collected in full details andhence the questionnaire was a much lengthier one. Which took much time of the

subjects to fill and hence some of them did not give complete information.

The sampling error that appeared due to the kind of sampling technique adopted.

Indifference and lack of interest disposed by a few respondents leading to unauthentic

responses.

Time proved to be a major constraint as far as collection and analysis of data was

concerned.

To overcome the above limitations and to minimize their impact on the findings of my

report I had to meet more respondents than my actual sample size.



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Q 1. With what purpose do you

invest?

15%

35%30%

20%Savings

Returns

Tax benefitSafety

The investors main purpose of investment is good returns and then tax benefits. After

that safety of funds is considered and then the savings. And so their investment pattern

depends upon the above-mentioned factors.



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Q.2. Are you aware of mutual funds as

an investment avenue?

90%

10%

Yes

No

Investors preference for financial assets is diverse and varied. 90% respondents said Yes

and 10% said that they are unaware, such a high percentage of aware investors indicated

that mutual fund concept is though recent in Jaipur, it is there in the mindset of the

investors.



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Q.3. Have you ever invested in a

mutual fund?

78%

22%

No

Yes

Mutual fund is a recent phenomenon with regard to Jaipur. The study conveyed positive

sentiments towards it, almost 78% said that they had invested in mutual fund and only

22% said that they have not invested.



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If no, is there any specific reasons for

the same?

45%

32%

23% Unassuredreturns

Risky

Both

The findings were based on three parameters-

1. Un assured returns

2. Risky

3. Both

45% of the investors are reluctant due to unassured returns while 32% investors find

investment in MFs risky option while 23% dont invest due to both the reasons.



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Q.4. How would you rank an

investment in Mutual Funds on the

following parameters

42%

26%

15%

17%Liquidity

Returns

Safety

Tax benefit

Considering the fact that every individual has got his/her requirements regarding an

investment. Their investment decisions are mainly based upon-

1. Liquidity

2. Returns

3. Safety

4. Tax benefit

In present scenario the mutual fund investor basically looks for liquidity next feature is

returns, safety and then tax benefit.



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Q.5. Would you like to invest in a low

return and low risk Mutual Fund?

60%

40%No

Yes

Investors basically look for high return investments but still 40% investors prefer low

return and low risk mutual fund i.e. 100% debt fund.



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Q.6. If in MF, then you invest in-

50%30%

20%

Balanced Fund

Equity Fund

Debt Fund

50% of the investors make their investments in balance funds so as to have risk and

returns in equal ratio.

30% of the investors make their investments in equity funds so as to earn higher returns.

And,

20% of the investors make their investments in debt funds so as to have moderate returns

with low risk.



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Q.7. Investors' readiness stage about

the products of MF

32%

12%20%

36%Unaware

Aware

Interested

Intending to invest

This forms the behavioral base for segmenting the market. A market consists of people in

different stages of readiness to buy a product. Some are unaware of, some are aware

some are interested and some are intending by the product.

36% of the respondents are intending to buy the product. But 32% are unaware about the

product 20% are interested and 12% are aware of the product of SCMF.



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For individual investors

Q.1 What is the general investmentpattern.

21%

11%

36%

32% Mutual FundsInsurance

Share Market

Real Estate

The investors like industrialists have their main investment in share market, as they are

risk players i.e. 36 % and then 32 % have their investment in real estate and 21 % prefer

to invest in mutual funds and 11 % in Insurance sector.



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Q.2 Schemes of MF most prefered

70%

15%

10% 5%GDBF

GSSIF-IPGSSIF-MT

GGSF

The individual investors prefer mainly GDBF i.e. 70% as it as it is most active trading

fund and it provides maximum returns with low risk.

GSSIF-IP attracts 15% of individual investors

GSSIF-MT is prefer by 10% investors and

5% prefer GGSF.



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Q.3 Options under schemes of MF

prefered.

75%

7%

18%Growth

Dividend Pay Out

DividendReinvestment

75% of the investors prefer growth plan in the schemes as it provides long term capital

gain benefits along with the returns and then 18% prefer dividend reinvestment plan as

the dividend gets reinvested thereby increasing number of units and 7% investors prefer

dividend payout option which provides periodic returns.

For institutional investors



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Q.1 What is the general investment

pattern.

65%10%

20%5%

Current Account

Mutual FundsShare Market

Others

65 % of the institutional investors have their investments in current account to avail the

liquidity and 20 % prefer to invest in share market so as to earn higher returns while 10 %

invest in mutual funds and 5 % in other investment avenues.



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Q.2 Schemes of MF most prefered

40%

60%

GCF

GFRF

The 60 % institutional investors invests in GFRF as it provides

100 % capital preservation and adjust according to the increasing benchmark rate to give

higher returns and,

40% investors invest in GCF.

FINDINGS OF THE RESEARCH



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1. Most of the respondents were either businessmen or professionals.

63%19%

6%12%

Businessmen

professionals

executives

Govt.Employee

2. Average range of the income was above Rs.5,00,000.3. High Net-worth Individuals prefer private banks or foreign banks than the

Nationalized ones.

32%

18%22%

28%Private Banks Other

Than ICICI Bank

ICICI Bank

Nationalised Banks

Foreign Banks

4. Most respondents were having FDs and Saving A/cs in their Banks.



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5. Preferred time varies between mid-term to long-term i.e. 2 to 10 years.

6. Following chart depicts the asset allocation adopted by HNIs.

48%

52%

Financial Asset s

Physical Assets

7. Most High Net-worth Individuals maintain emergency funds.

8. Most High Net-worth Individuals are moderately aggressive.

4%

11%

21%

58%

6%

0% 20% 40% 60% 80%

C

MC

M

MA

A



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9. These attributes are considered by High Net-worth Individuals before investing

their savings.

Attributes Definitely

Important

Somewhat

Important

Neutral Somewhat

Not Imp.

Not at all

Imp.

Time Period 60% 22% 8% 7% 3%

Return/Yield 88% 12% - - -

Risk 72% 28% - - -

Marketability 68% 26% 3% 2% 1%

Liquidity 55% 23% 12% 6% 4%

Safety 85% 15% - - -Diversification 48% 24% 20% 8% -

10. High Net-worth Individuals prefer these financial instruments/Assets.

15%

32%

36%

64%

72%

78%

16%

25%

56%57%

42%

48%

28%

18% 18%

24%

28% 29%28%26%

16%

8%10%

4%

60%

47%

15%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1 2 3 4 5 6 7 8 9

Strongly preferred Preferred Less preferred



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1-Bonds/Debentures

2-Equity Shares

3-Derivatives

4-Gold/Precious Metals

5-Real Assets

6-Automobiles

7-Debt Oriented Mutual Funds

8-Equity oriented Mutual Funds

9-Insurance



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ANNEXURE-II

BIBLIOGRAPHY

Internet:

www.icicibank.com

www.rbi.org.in

www.indiainfoline.com

Magazines:

Business Today (Various Issues)

Business World (Various Issues)

Business India (Various Issues)

News Papers:

Economic times

Business standard

http://www.icicibank.com/http://www.rbi.org.in/http://www.mansworldindia.com/http://www.icicibank.com/http://www.rbi.org.in/http://www.mansworldindia.com/


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Business line

Financial express

Text books:

Research Methodology By C.R.Kothari.

Investment Management By Avadhani

Financial management By Prasanna Chandra.

Investment By William Sharpe

New Icici Report

Documents

Transcript of New Icici Report