About J&K Bank………

J&K Bank one of the leading banks in the country is a brand with heritage,

widespread presence and a strong track record of solid performance and stability

under very difficult conditions. It is also unique in that it is a private sector Bank,

despite the government holding a major stake; it is the sole banker and lender of

last resort to the Government of J&K. It is the only private sector bank designated

as RBI’s agent for banking business, and it carries out the banking business of

the central government in the state.

J&K Bank is today one of the fast growing banks in India with a network of more

than 500 branches/offices spread across the country offering world-class banking

products/services to its customers. Today the bank has a status of value driven

organization and is always working towards building trust with its stakeholders,

for which it has adopted a strategy directing to developing a sound foundation of

relationship and trust aimed at achieving excellence, which of course, comes

from the womb of good corporate governance.

The J&K Bank one of the most vibrant banking institutions was founded on

October 1, 1938 and it commenced business from July 4, 1939. It has been the

first of its nature and composition as a State owned bank in the country. The

Bank was established as a semi State Bank with participation in capital by State

and the public under the control of State Government. Following the extension of

Central laws to the state of Jammu & Kashmir, the bank was defined as a

government company as per the provisions of Indian companies act 1956.

In its formative years the bank had to encounter several serious problems at the

time of independence when out of its total of ten branches two branches of

Muzaffaraba d and Mirpur fell to the other side of the line of control (now Pak

Occupied Kashmir) along with cash and other assets in 1947, however the state

Government came to its rescue with the assistance of Rs. 6 Lakhs to meet its

claims.

The excellence achieved by bank in its operations stemming from the roots of

voluntary governance has not gone unrecognized and bank has recently bagged

three very prestigious awards for fair business practices and commitment to

social obligations.

Board of Directors of J&K Bank……..

J&K Bank’s diverse and rich culture is abundantly evident in its Board Members, who provide direction to the Bank in order to achieve its vision. A brief profile of our eminent Board Members is as under:

MUSHTAQ AHMAD

MUSHTAQ AHMED (Chairman & CEO )

Having joined the Bank in 1972 as Probationary Officer (PO), Mr. Mushtaq Ahmad has a distinguishing career of 36 years as a prudent banker. His personal progression has been a vital and contributing element of the unfolding

success story of J&K Bank since more than three decades.Before his retirement as Executive Director of the Bank in February 2008, he held some of the most significant positions in the bank and discharged all his duties with honesty and distinctive vision.His person makes an ideal blend of specialized knowledge and practical experience in almost all the critical fields of contemporary banking, which include Credit/Risk Management, Strategy and Business Development, Assets & Liability Management, Human Resource Development, Investments, Treasury, Forex operations, International Banking, Insurance etc.As a leading banker, he commands huge respect for his prudence, esteem for his discipline and affection for his leadership skills in the Bank as well as the industry.

As a top executive, Mushtaq Ahmad lays great emphasis on talent search, human resources development, skill enhancement, besides team building.

SUDHANSHU PANDEY, IAS

Mr. Sudhanshu Pandey, IAS, is Commissioner Secretary to Government, Finance Department, J&K, Govt. A post graduate in Life Science (Botany) with specialization in Environmental Management and Ecology (Gold Medal), University of Allahabad, MBA in Financial Management; Business Management and

Financial Management, Institute of Management, Ahmadabad, Reforms in Government, Indian Institute of Management, Bangalore and Decentralized Industrial Development, Japan. Mr. Sudhansh Pandey began his career with Indian Forest Services in 1985 and thereafter, joined the Indian Administrative Services in 1987. Mr. Sudhanshu Pandey has served the IAS in various distinguished capacities, which include Sub-Divisional Magistrate, Bhaderwah (J&K), Additional Secretary Education(GOJK), Addl. Chief Executive, Shri Mata Vaishno Devi Shrine Board, Katra (Udhampur), District Development Commissioner and District Magistrate, Doda, J&K, Special Secretary to Governor, J&K, Managing Director, SIDCO, Director Information, Director Employment and Special Secretary, Labor and Employment, J&K, Director & PS to MoS , Ministry of Commerce and Industry, GOI, Director & PS to Mos , Ministry of External Affairs, GoI, Counselor and Director, Tagore Centre for Information, Education, Commerce and Culture, Embassy of India, Berlin and Divisional Commissioner, Jammu. Mr. Sudhanshu Pandey has additionally also held the position of Chairman of the Confederation of Indian Industries (J&K

Chapter) for two years, besides serving on the Board of Directors of several reputed Public and Private Sector Companies including RPG group and Modi group, as Managing Director of SIDCO. Mr. Sudhanshu Pandey is the recipient of Governor’s Medal (1997), a highest recognition awarded in the state and also the State Government Medal (2008), in honor of his exemplary services for the state of J&K.

M. I. SHAHDAD

Mr. M. I. Shahdad is a holder of Master’s Degree in Economics and LLB from Aligarh Muslim University. He has made significant contribution to Commerce Industry by being associated with Kashmir Chamber of Commerce & Industry in the capacity of President and other prominent positions. Mr. M. I. Shahdad has had a long association with the Bank as

Director, during which he has made valuable contribution and provided tremendous value addition to the organization.

VIKRANT KUTHIALA

Mr. Vikrant Kuthiala is B.com (Hons) from Hindu College, Delhi University. He is a prominent Businessman from Jammu with interests in steel manufacturing and hydel projects. He is also representing on the committees of various academic and professional organizations, prominent being the Regional Advisory Committee of Central Excise &

Customs, J&K, Chamber of Commerce & Industry, Jammu and J&K State Committee of Federation of Industries of India, New Delhi. He is also a Member of India Islamic Cultural Centre, New Delhi and INTACH, J&K Chapter, Jammu.

PROF. NISAR ALI

Prof. Nisar Ali is a Ph.D in Economics from Osmania University, Hyderabad. He is a Professor from Post-Graduate Department of Economics, University of Kashmir.Prof. Nisar Ali is also Dean, Faculty of Social Sciences University of Kashmir and Member, J&K State Finance Commission. He has served in various prominent positions with the University and has many research papers

and publications to his credit.

RAKESH KUMAR GUPTA

Mr. R.K. Gupta, aged 47 years, is a professional Chartered Accountant with 25 years standing possessing skill in Finance, Taxation, Auditing and Corporate Legal Affairs. He started his professional career with M/s Gupta Gupta & Associates in January 1986 and heads this renowned firm of Chartered Accountants since then. Mr. Gupta remained in Executive

Committee of the Jammu & Kashmir Branch of the Institute of Chartered Accountants of India for three terms from 1991-1994; 1994-1998 and 2006-2009. During these three terms he represented the Branch as its Treasurer, Secretary, Vice-Chairman and Chairman. Mr. Gupta has been member of Tax Payers Committee of this Region. He has also been member of Research Committee & Direct Tax Committee of The Institute of Chartered Accountants of India. He is also empanelled as Peer Reviewer with Peer Review Board of the ICAI. Having authored various articles, Mr. Gupta has to his credit published Articles in The Chartered Accountant Journal and also in Current Tax.com on the issues of Taxation and Accounting Standards. Mr. Gupta has been Guest Speaker on many occasions for various Seminars and Study Circle meets of Chartered Accountants & others.  Mr. Gupta is Member of Taxation Advisory Committee and other Committees of

Chamber of Commerce & Industry, Jammu. He is also a Trustee in Charitable Institutions providing education to the under privileged children and relief to the needy. In view of his interest in social activities and sports, Mr. Gupta is also a member of Sports and Health Committee of Prestigious Social Club.

A. M. MATTO

Mr. A. M. Matto is a Graduate in Commerce and World Explorer. He is a high silhouette Businessman having his interests in the manufacture and export of Kashmir Handicrafts. He has made significant contribution to commerce industry by being associated with it in the capacity of President and other prominent positions. Mr. A. M. Matto

has had a long association with the Bank as Director, during which he has made valuable contribution to the Institution with his rich and varied experiences.

NIHAL GARWARE

Mr. Nihal Chandrakant Garware is a holder of Bachelor of Arts Degree (U.S.A.) and the scion of well known Industrialist family of India – the Garwares. 

Mr. Nihal Chandrakant Garware, is at present Head of the Legal Department and Liaison Department in some of the Garware Companies. He has been a Director in various companies in the Garware Group, where his responsibilities have ranged from Production, Sales, Legal, Liaison to Finance. He is Advisor to outside Companies like Ama Pvt. Ltd., D. Y. Patil Group and Sharad Pawar International School. He is also the founder member of The Youth Wing of Indian Merchants Chamber Of Commerce.

Origin of the word “BANK”…….

The name bank derives from the Italian word banco "desk/bench", used during

the Renaissance by Florentines bankers, who used to make their transactions

above a desk covered by a green tablecloth. However, there are traces of

banking activity even in ancient times. In fact, the word traces its origins back to

the Ancient Roman Empire, where moneylenders would set up their stalls in the

middle of enclosed courtyards called macella on a long bench called a bancu,

from which the words banco and bank are derived. As a moneychanger, the

merchant at the bancu did not so much invest money as merely convert the

foreign currency into the only legal tender in Rome- that of the Imperial Mint.

Concept of a Bank………

A banker or bank is a financial institution that acts as a payment agent for

customers, and borrows and lends money. The first modern bank was founded in

Italy at Genoa in 1406, its name was "Banco di San Giorgio" (Bank of St.

George).Banks act as payment agents by conducting checking or current

accounts for customers, paying cheques drawn by customers on the bank, and

collecting cheques deposited to customers' current accounts. Banks also enable

customer payments via other payment methods such as telegraphic transfer,

EFTPOS, and ATM.

Banks borrow money by accepting funds deposited on current account,

accepting term deposits and by issuing debt securities such as banknotes and

bonds. Banks lend money by making advances to customers on current account,

by making installment loans, and by investing in marketable debt securities and

other forms of lending.

Banks provide almost all payment services, and a bank account is considered

indispensable by most businesses, individuals and governments. Non-banks that

provide payment services such as remittance companies are not normally

considered an adequate substitute for having a bank account.

Banks borrow most funds borrowed from households and non-financial

businesses, and lend most funds lent to households and non-financial

businesses, but non-bank lenders provide a significant and in many cases

adequate substitute for bank loans, and money market funds, cash management

trusts and other non-bank financial institutions in many cases provide an

adequate substitute to banks for lending savings to.

Economic Functions of a Bank……..

1. Issue of money: in the form of banknotes and current accounts subject

to cheques or payment at the customer's order. These claims on banks

can act as money because they are negotiable and/or repayable on

demand, and hence valued at par and effectively transferable by mere

delivery in the case of banknotes, or by drawing cheques, delivering it to

the payee to bank or cash.

2. Netting and settlement of payments: banks act both as collection

agent and paying agents for customers, and participate in inter-bank

clearing and settlement systems to collect, present, be presented with,

and pay payment instruments. This enables banks to economize on

reserves held for settlement of payments, since inward and outward

payments offset each other. It also enables payment flows between

geographical areas to offset, reducing the cost of settling payments

between geographical areas.

3. Credit intermediation : banks borrow and lend back-to-back on their

own account as middle men

4. Credit quality improvement : banks lend money to ordinary

commercial and personal borrowers (ordinary credit quality), but are high

quality borrowers. The improvement comes from diversification of the

bank's assets and the bank's own capital which provides a buffer to

absorb losses without defaulting on its own obligations. However, since

banknotes and deposits are generally unsecured, if the bank gets into

difficulty and pledges assets as security to try to get the funding it needs to

continue to operate, this puts the note holders and depositors in an

economically subordinated position.

5. Maturity transformation: banks borrow more on demand debt and

short term debt, but provide more long term loans. Bank can do this

because they can aggregate issues (e.g. accepting deposits and issuing

banknotes) and redemptions (e.g. withdrawals and redemptions of

banknotes), maintain reserves of cash, invest in marketable securities that

can be readily converted to cash if needed, and raise replacement funding

as needed from various sources (e.g. wholesale cash markets and

securities markets) because they have a high and more well known credit

quality than most other borrowers.

Banks in India…….

Banks in India can be categorized into non-scheduled banks and scheduled

banks. Scheduled banks constitute of commercial banks and co-operative banks.

There are about 67,000 branches of Scheduled banks spread across India.

During the first phase of financial reforms, there was a nationalization of 14 major

banks in 1969. This crucial step led to a shift from Class banking to Mass

banking. Since then the growth of the banking industry in India has been a

continuous process.

As far as the present scenario is concerned the banking industry is in a transition

phase. The Public Sector Banks (PSBs), which are the foundation of the Indian

Banking system account for more than 78 per cent of total banking industry

assets. Unfortunately they are burdened with excessive Non Performing assets

(NPAs), massive manpower and lack of modern technology. On the other hand

the Private Sector Banks in India is witnessing immense progress. They are

leaders in Internet banking, mobile banking, phone banking, ATMs.

On the other hand the Public Sector Banks are still facing the problem of

unhappy employees. There has been a decrease of 20% in the employee

strength of the private sector in the wake of the Voluntary Retirement Schemes

(VRS). As far as foreign banks are concerned they are likely to succeed in India.

Indusland Bank was the first private bank to be set up in India. IDBI, ING Vyasa

Bank, SBI Commercial and International Bank Ltd, Dhanalakshmi Bank Ltd,

Karur Vysya Bank Ltd, Bank of Rajasthan Ltd etc are some Private Sector

Banks.

Banks from the Public Sector include Punjab National bank, Vijaya Bank, UCO

Bank, Oriental Bank, Allahabad Bank, Andhra Bank etc. ANZ Grind lays Bank,

ABN-AMRO Bank, American Express Bank Ltd; Citibank etc are some foreign

banks operating in India. Currently (2007), banking in India is generally fairly

mature in terms of supply, product range and reach-even though reach in rural

India still remains a challenge for the private sector and foreign banks. In terms

of quality of assets and capital adequacy, Indian banks are considered to have

clean, strong and transparent balance sheets relative to other banks in

comparable economies in its region.

The Reserve Bank of India is an autonomous body, with minimal pressure from

the government. The stated policy of the Bank on the Indian Rupee is to manage

volatility but without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some

time-especially in its services sector-the demand for banking services, especially

retail banking, mortgages and investment services are expected to be strong.

One may also expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its

stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first

time an investor has been allowed to hold more than 5% in a private sector bank

since the RBI announced norms in 2005 that any stake exceeding 5% in the

private sector banks would need to be vetted by them.

Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector

banks (that is with the Government of India holding a stake), 29 private banks

(these do not have government stake; they may be publicly listed and traded on

stock exchanges) and 31 foreign banks. They have a combined network of over

53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating

agency, the public sector banks hold over 75 percent of total assets of the banking

industry, with the private and foreign banks holding 18.2% and 6.5% respectively.

Banking in IndiaCentral Bank Reserve Bank of India

Nationalized Banks

State Bank of India · Allahabad Bank · Andhra Bank · Bank of Baroda ·

Bank of India · Bank of Maharashtra · Canara Bank · Central Bank of

India · Corporation Bank · Dena Bank · Indian Bank · Indian Overseas

Bank · Oriental Bank of Commerce · Punjab & Sind Bank · Punjab

National Bank · Syndicate Bank · Union Bank of India · United Bank of

India · UCO Bank · Vijaya Bank · IDBI Bank

Private Banks

Axis Bank · Bank of Rajasthan · Bharat Overseas Bank · Catholic Syrian

Bank · Centurion Bank of Punjab · City Union Bank · Development Credit

Bank · Dhanalakshmi Bank · Federal Bank · Ganesh Bank of Kurundwad ·

HDFC Bank · ICICI Bank · IndusInd Bank · ING Vysya Bank · Jammu &

Kashmir Bank · Karnataka Bank Limited · Karur Vysya Bank · Kotak

Mahindra Bank · Lakshmi Vilas Bank · Nainital Bank · Ratnakar Bank ·

SBI Commercial and International Bank · South Indian Bank · Tamilnad

Mercantile Bank Ltd. · YES Bank

Foreign Banks Citibank · HSBC · Standard Chartered

Regional Rural Banks South Malabar Gramin Bank

Corporate Governance of J&K Bank……..

J&K Bank has been committed to all the basic tenets of good Corporate

Governance well before the Securities and Exchange Board of India and the

Stock Exchanges pursuant to Clause 49 of the Listing Agreement mandated

these. Now, it is our Endeavour to go beyond the letter of the Corporate

Governance codes and apply it innovatively in a more meaningful manner

thereby making it relevant to the organization that is operating in a specific

environment, which is different from the generic Anglo-Saxon one. In line with the

vision, J&K Bank wants to use Corporate Governance innovatively in a

transitional economy like Jammu and Kashmir.

The Bank wants to use Corporate Governance as an instrument of economic and

social transformation. In due course, we would set our self-targets of social and

economic reporting as a part of annual disclosures. This will help us

conceptualize and contextualize the form and content of Corporate Governance

in a developing state. Given the fact that J&K Bank is and is seen as a great

success of” public-private partnership”, our Bank as a business is expected to

play a role in social transformation of the economy. This lends urgency to

implementation of good governance practices which go beyond the Corporate

Governance code. Operating in an environment that is emerging from a situation

of civil strife, the issue of Corporate Governance assumes a different and greater

relevance. We, as the prime corporation of Jammu and Kashmir, have a vested

interest in making the state a safe place for business. J&K Bank has a key role to

play in providing public and private services, financial infrastructure and

employment.

As such, the efficiency and accountability of the corporation is a matter of both

private and public interest, and governance, therefore, comes at the top of the

agenda. The fact that the bank is state owned but professionally managed,

having a large size of international investors, governance is critical. For us

Corporate Governance is concerned with the systems of laws, regulations, and

practices, which will promote enterprise, ensure accountability and trigger

performance. The J&K Bank, for one, stands for being more accountable,

practice self-policing and make financial transactions transparent and

constitutional, of our directors to make J&K Bank an engine of social

transformation. As an eminent corporate jurist (Chancellor William T. Allen) from

US says, “A corporate director has civic responsibility. The people, who accept

this responsibility, do it conscientiously and well deserve our respect as they are

serving a nation.

Vision of J&K Bank……….

The vision of J&K Bank is not to be like any other commercial bank operating in

Jammu and Kashmir but to be the developmental bank of the state intrinsically

involved in its overall socio-economic development.

In synchronization with this vision, J&K Bank adopted a new strategy of

substantially increasing the investment in the state, particularly in productive

sectors like horticulture, handicrafts etc and developmental sectors like primary

education.

Mission of J&K Bank……….

Our mission is two-fold: To provide the people of J&K international quality

financial service and solutions and to be a super-specialist bank in the rest of the

country. The two together will make us the most profitable bank in the country.

Quick Facts about J&K Bank………

First meeting of BOD’s-7th Jan 1938.

First manager: Mr. Sohan lal khotari.

First Chairman: Major general Roy Bahadur Bishan Dass (CM).

First safe deposit vault at Residency Road: 1940

Appointment of staff on professional basis: 1945

First outside branch: Amritsar.

Loss of two braches –Mirpur and Muzafarabad on partition 1947.

Sponsored first Regional rural bank: Jammu rural bank 1976.

Responsibility of payment of pension to civil pensioners of state 1976.

Bank declared as A class bank 1976

Permission granted by RBI to deal in the foreign exchange business 1981

Sponsored another regional rural bank Kamraz rural bank 1981.

Customer service cell 1984.

Introduction of MICR technology 1987.

Historic period Golden Jubilee, creation of J&K bank golden jubilee 1989.

Brand Identity……….

The new identity for J&K Bank is a visual representation of the

Bank’s philosophy and business strategy. The three colored

squares represent the regions of Jammu, Kashmir and Ladakh.

The counter-form created by the interaction of the squares is a

falcon with outstretched wings – a symbol of power and

empowerment.

The synergy between the three regions propels the bank towards new horizons.

Green signifies growth and renewal, blue conveys stability and unity, and red

represents energy and power. All these attributes are integrated and assimilated

in the white counter-form.

View of the Organization……….

CorporateHeadquarters

Zonal Offices

Branch Network

ATM and otherChannels

Eleven Divisions

Ten Zonal Offices

555+Business units

200+centers

Corporate Social Responsibility………

The Corporate Social Responsibility (CSR) of the J&K Bank seeks to

recognize obligations towards society and aims to integrate the CSR ideals

into its mission for optimizing both business and social performance. It

stresses on promoting work life balance, give attention to social and

environmental concerns and host of factors that facilitate business pursuits

and accomplishment of economic goals. The CSR is not just recognized as

promulgating the Bank's own values and principles of philanthropy but also

the values and principles of all those who have a stake in it or are affected by

its operations. By supporting social cause aligned to the mission the CSR

strategy differentiates the Bank's brand and enhances its reputation. The

Bank manages social issues in the same manner as any other strategic

business issues.

The Bank besides playing its role in economic development of the State and

country contributes significantly towards the social cause. The Bank has

established its credentials for the poor and needy by donating generously for

various philanthropic activities aimed at ameliorating their sufferings. Be it

victims of natural calamity, like fire, flood, snowstorm or tsunami and disabled

or patients with serious ailment who lack reliable means of survival, the bank

has been all through supporting them. The one and a half decades long

turmoil in the State of J&K has added to the agonies of people with hundreds

of children losing their parents to fend for themselves in this harsh world. The

Bank realizing its responsibility of saving the life/ future of these blooming

children, adopt several of them by providing financial support either through

various orphanages where they are sheltered or directly to the orphans by

bearing their educational or other expenditure.

The Bank would continue to provide study scholarships to the poor and needy

students including students from far-flung areas, who without such support

would have been school dropouts. The Bank shall continue donations for the

development of infrastructure (computers, books, TV's, prosthetic support etc)

to various NGOs, societies, trusts, institutions, etc. involved in socio-

economic development of the society. The physically challenged persons

belonging to socially and economically deprived classes especially children

shall be helped by acquiring prosthetic support by meeting partly or fully cost

of surgery with pre and post medication.

In order to enable socially and economically weaker classes to live a healthy

life the bank shall endeavor to give financial support to the needy and poor

patients, afflicted with dreaded diseases like Cancer, cardiac failure, Kidney

failure etc. for their treatment / surgery.

Heritage preservation is an important responsibility of every conscious

individual, institution or agency. The thrust areas to assist in this respect for

the Bank will be preservation of historical/religious monuments, development

of tourist sites, national properties, museums, libraries, protection of

environment/ecology etc. and sponsoring seminars and awareness camps,

art and literary works, 3rd cultural activities, social service camps, college or

university students clubs etc.

The Bank has been playing a vital role in the promotion of tourism and it is in

this backdrop that the Bank has been shouldering the responsibility of

registering yatris for the Shri. Amarnathji Yatra through its extensive network

of branches spread across the country. The Yatra is an annual religious

function of Hindu community, wherein devotees travel by foot to pay

obeisance to Holy Shiv Lingam at Shri Amarnathji cave. The Bank puts in

place special registration counters at all branches of the Bank outside the

state and some selected branches in Jammu and Kashmir State. In addition

to this, accidental insurance cover facility of Bajaj Allianz General Insurance

Co. Ltd. to the pilgrims at a nominal premium is made available to the yatris.

During the Yatra, the bank establishes mobile branches even at the holy

cave. People in general and pilgrims in particular all over the country have

appreciated this effort and won lot of applause for the Bank.

Apart from above activities the Bank has been constructing/developing the

public utility service like public parks, bus stands, drinking water posts,

lavatories, conveniences, rain shelters. In addition to this, the bank organizes

relief camps, service camps, night shelters, health resorts, health clinics,

disaster & calamity management centers, rehabilitation centers etc.

With the objective of promoting the philanthropic activities, other social and

environmental issues, the bank has a CSR policy in place embodying the

broader principles for providing donations. The donations are made within the

prescribed limit of 1% of the published profit for the previous year. It focuses

on economic, social, cultural and geographical backwardness of the area.

The bank provides financial assistance for the benefit of Handicapped

persons/ orphans/ poor patients suffering from serious ailments.

Provides direct assistance or through Prime Minister's Relief Fund or Chief

Minister's Relief Fund or any other national level or state level calamity relief

fund to needy who have suffered due to natural disaster and calamities.

Helps in rehabilitation of handicapped children/ persons belonging to

depressed classes of society.

Provides for procurement of devices / apertures for kidney transplantation;

cardiac interventions; cancer patients; AIDS HIV and other dreaded diseases,

philanthropic support for people belonging to economically deprived sections

of the society.

Provides financial support to orphanages.

Provides scholarships to meritorious students of depressed sections of the

society at various levels with focus on the needy.

Provides technical and financial support for the Heritage Preservation through

sponsorship of awareness seminars, organizing social service camps,

sponsoring Art & Literary works and preservation and development of

important Historical, religious, tourist sites, museums, libraries, archives,

scientific organizations and National properties.

Provides financial assistance for protection of Environment/ecology.

Constructs and develops the public utility services like bus stands,

development of parks, construction of drinking water posts, lavatories,

conveniences etc.

The donations are directly made to depressed class of society including

physically challenged person or through a Non Governmental Organization

engaged in the ameliorating of the suffering of this class of society.

The Bank's CSR is rooted in its Corporate Governance philosophy, which in

turn is woven around Bank's commitment to ethical practices in the conduct of

its business, while striving in the constant quest to grow with profits and

enhance shareholders value and align interests of the stakeholders and

society through adoption of best international practices and standards.

Managing CSR is not viewed as an extra cost or burden but is viewed not

only as making good business sense but also contributing to the long-term

prosperity of our Bank and ultimately its survival. Being a good neighbor and

showing that you care on the one hand and being a successful business on

the other, are flip sides of the same coin.

The Bank donated Rs.1 lakh to Maharaja Ranjit Singh Trust, New Delhi, for

the upliftment of downtrodden sections of the society. The Bank gave

donation to the Foundation for inter-community Relations Delhi for upliftment

of society. A financial assistance to the tune of Rs.1.00 lakh for the welfare of

Gujjars was given to Gurjar Desh Charitable Trust, Jammu.

The Bank donated sewing machines to destitute widows through Bhartiya

Dalit Sahitya Academy, Jammu. Showing its eagerness for the upliftment of

women, the Bank donated embroidery machines to Women's Welfare

Society, Kachhama, Kupwara. The Bank also gave donation to NGO Friends

Association for Ladies and Orphans Welfare (FAOW), Srinagar.

Devastating fire in village Batpora (Wathora), Kashmir rendered hundreds of

people homeless and two persons lost their lives. The Bank organized a relief

camp and distributed 50 Kgs of rice and Rs. 5000 to each of the affected

family. Similarly, another relief camp was organized for the fire victims at

Seer, Anantnag (South Kashmir), where blankets, eatables and domestic

utensils were distributed among the sufferers. A camp was also organized by

the Bank at Lasipora, Pahalgam, where cash was distributed among the fire

victims.

With a view to help Kargil war sufferers of Drass area in Ladakh region in

their rehabilitation, the Bank organized a relief camp. Blankets and eatables

were distributed among the people covering about 1500 families settled in 17

villages in and around Drass, who had migrated to Sankoo, Saliskote and

other far flung areas of Kargil. Stationery items were distributed among the

school going children.

Insurance Service through J&K Bank……..

In life insurance segment, the bank joined hands with MetLife International

(USA) and it culminated into the launch of MetLife India Insurance Company

Private Limited, which was incorporated in India on April 11, 2001. MetLife

India is a joint venture between MetLife International Holdings Inc., the J&K

Bank, M. Pallonji and Co. Private Limited and other small private investors.

MetLife India is headquartered in Bangalore.

It is remarkable that MetLife International, headquartered in New York, is

number one insurer in the United States based on over US$ 2 trillion of life

insurance in force and serves approximately 9 million individual households in

the U.S. as well as 87 of the Fortune 100 companies. It has its affiliates,

subsidiaries and representative offices in 15 countries.

The bank is also Corporate Agent of MetLife and is marketing its products

through its strong branch network.

The Bank has entered into an alliance with Bajaj Allianz to distribute their

non-life products.

These products are available at all branches of the bank across India.

Remittance Services through J&K Bank……..

The bank has a tie –up with Western Union Financial Services Inc., an

international leader in money transfer services through its primary agent

SITA, a division of Kuoni Travels India Pvt. (“Kuoni”) to provide inbound

money transfer services to customers across the country. As a result of this

association, people in general and J&K Bank customers in particular are

availing the facility of receiving money from their relatives and friends abroad

using the Western Union Money Transfer service.

Our bank has also an arrangement with Reliance Capital –Travel mate to

provide inbound money transfer services to customers across the country. A

number of branches in J & K and all the branches outside state have been

added to the existing list to bring more customers to the bank’s fold for

availing this facility.

J&K Bank’s Tie up with foreign AMC’s for Mutual Funds…….

J&K bank Ltd. has joined its hands with various foreign Asset Management

Companies for entering into a joint-venture for its proposed mutual fund venture.

The bank has been approached by many foreign AMC’s, who have shown a

keen interest in joining hands with it. The joint-venture becomes important for

J&K bank as it would provide the expertise required for running the Asset

Management Business. The bank already has a network of more than 500

branches, which could be leveraged to market the schemes. It is a great

opportunity to exploit the virgin market for mutual funds in Jammu & Kashmir

where J&K Bank is having around 280 branches,"

Role of J&K Bank in Mutual Funds……..

J&K Bank has entered into tie-ups with reputed Asset Management

Companies for distribution of Mutual Fund products.

Mutual Fund industry is one of the fastest growing segments in financial

services in India. Over the years, banks in India have emerged as the biggest

distributors of financial products. This has helped the banks to capture and

retain their huge client base and simultaneously adding a steady stream of

fee based income.

Mutual Funds have become an attractive proposition for investors in the

current context and for J&K Bank it will be a good investment option to have

in our product portfolio. This shall be an important step towards converting the

bank branch into a financial supermarket addressing all the financial needs of

the customers thus helping the bank retain the customers within its fold.

Moreover the branch can augment its fee based income the Bank aims to

match to industry standards.

The AMC’s with which the Bank has entered into an arrangement are: UTI, Kotak

and Reliance Capital Asset Management. The Bank shall undertake distribution of

their current schemes as well as NFO (New Fund Offer) as and when the AMC comes

up with the same.

Moving forward challenges ahead………

Barrier less entry of foreign banks from 2009 (GATS).

Capital account convertibility

Global market integration

Sub prime crises

Possible mergers and acquisitions

Application of BASIL-II norms

Mutual Fund…….

A mutual fund is a common pool or fund of capital mobilized from a large

number of investors and invested on their behalf in several securities in the

market. All the returns from such investments, both in terms of dividends and

capital appreciation, net of various incidental expenses, accrue to the investors.

A mutual fund provides many financial and non-financial benefits to the investors.

Like shares, all mutual funds provide returns in the form of dividends and capital

appreciation and even bonus issues. But by far the most significant benefit is one

of risk reduction or risk diversification.

When one invests in the stock of anyone company, one is exposed to several

random risks. For instance, the company may go bankrupt, it may suffer huge

unexpected losses or the management may not be honest or efficient. Investing

in a mutual fund protects investors from such random or non- Systematic risks.

How does this protection work? It is well known from one's grandma that one

should not put all one’s in a single basket. Thus, any investment portfolio must be

well diversified. It is difficult for a small investor to diversify the investment over

30 or 50 different securities or more. Also, being laypersons, it maybe wiser to

leave the selection of securities to an expert agency. This is where the mutual

fund steps in by pooling together investments from a large number of small

investors and then investing the accumulated proceeds in a well diversified

basket of securities. Thus, investors get the benefit of diversification without

actually doing so themselves.

It is therefore usually better for small investors to invest in a mutual fund directly

rather than invest in 30 to 50 securities on their own. The capital required for

investing in several securities on one's own is considerably higher than that

needed for investing in a mutual fund. For example, if one wants to invest Rs.

10,000, it is not sufficient to build a diversified portfolio. However, this amount

can be easily invested in a, mutual fund, which typically invests in a large number

of companies. Thus, a mutual fund offers the benefit of diversification even at a

low level of investment. As a consequence of wide diversification, its expected

returns tend to be lower and less volatile than the returns from anyone security.

Furthermore, transaction costs for the investors tend to be lower while dealing

with a single mutual fund as against transacting in a large number of securities.

There is also no need to research or track a large number of different companies

or regularly keep a check on the dividend returns from dozens of' different

companies.

Thus, much of the value of mutual funds to small investor comes from risk

diversification or risk mitigation, professional management, switching among

schemes, affordability, liquidity, lower transaction costs, research, international

investment facilities, etc.

Mutual funds render a large range of services that are not available to an investor

who invests in securities directly.

A mutual fund is thus, as much a financial product as a financial service. Of

course, the services rendered by a mutual fund are not free. Nothing worthwhile

ever is. Unit holders have to pay for the recurring transactions, annual fees, entry

and exit loads and so forth, irrespective of whether the fund generate returns or

not.

All this should not create the impression that mutual fund investments are only

for small investors. Large entities, including banks, insurance companies and

financial institutions routinely invest in mutual funds.

Investors subscribe to units of a mutual fund just as shareholders subscribe to

shares of a company. Also, a mutual fund, like a company, does not guarantee

any dividend.

Mutual fund managers use their discretion to decide whether or not to declare

dividends, based on the profitability of the fund, market conditions, etc.

Even when they do so, the dividend per unit may vary from period to period and

these variations may be considerably higher than in the case of shares. This is

because companies normally like to smoothen out the equity dividends over a

period of time. This means that they strive hard to maintain dividends even in a

bad year to convey the impression to the market that all is well with the company.

But such considerations do not constrain mutual funds since their major

preoccupation is to provide well-diversified portfolio returns, whatever they may

be.

Mutual fund dividends can be paid only from the revenue income and realized

capital gains of the underlying portfolio and not from previous profits as in the

case of shares.

Each unit of a mutual fund represents a unit holder’s proportionate ownership of

the fund's portfolio holdings. The investors of mutual funds are known as unit

holders. The companies that operate the mutual funds are known as Asset

Management Companies (AMC’s) or Investment Managers. (Appendix 1 lists the

AMC’s operating in India). An AMC may float more than one fund (also called

schemes), each with an objective and investment mandate of its own. The terms

mutual fund, fund or scheme are often used interchangeably.

Benefits from investing in a Mutual Fund…….

Small investments: Mutual funds help you to reap the benefit of returns by a portfolio spread across a wide spectrum of companies with small investments. Such a spread would not have been possible without their assistance.

Professional Fund Management: Professionals having considerable expertise, experience and resources manage the pool of money collected by a mutual fund. They thoroughly analyze the markets and economy to pick good investment opportunities.

Spreading Risk / Diversification: An investor with a limited amount of fund might be able to invest in only one or two stocks / bonds, thus increasing his or her risk. However, a mutual fund will spread its risk by investing a number of sound stocks or bonds. A fund normally invests in companies across a wide range of industries, so the risk is diversified at the same time taking advantage of the position it holds. Also in cases of liquidity crisis where stocks are sold at a distress, mutual funds have the advantage of the redemption option at the NAV’s.

Transparency and interactivity: Mutual Funds regularly provide investors with information on the value of their investments. Mutual Funds also provide complete portfolio disclosure of the investments made by various schemes and also the proportion invested in each asset type. Mutual Funds clearly layout their investment strategy to the investor.

Liquidity: Closed ended funds have their units listed at the stock exchange, thus they can be bought and sold at their market value. Over and above this the units can be directly redeemed to the Mutual Fund as and when they announce the repurchase.

Choice: The large amount of Mutual Funds offer the investor a wide variety to choose from. An investor can pick up a scheme depending upon his risk / return profile.

Regulations: All the mutual funds are registered with SEBI and they function within the provisions of strict regulation designed to protect the interests of the investor.

Mutual Funds give returns in two ways - Capital Appreciation or Dividend Distribution.

Capital Appreciation: An increase in the value of the units of the fund is known as capital appreciation. As the value of individual securities in the fund

increases, the fund's unit price increases. An investor can book a profit by selling the units at prices higher than the price at which he bought the units.

Dividend Distribution: The profit earned by the fund is distributed among

unit holders in the form of dividends. Dividend distribution again is of two types. It

can either be re-invested in the fund or can be on paid to the investor.

A Mutual Fund is not an alternative investment option to stocks and bond; rather

it pools the money of several investors and invests this in stocks, bonds, money

market instruments and other types of securities. 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 appreciation

realized is shared by its unit holders in proportion to the number of units owned

by them. Thus a Mutual Fund is the most suitable investment for the common

man as it offers an opportunity to invest in a diversified, professionally managed

basket of securities at a relatively low cost. The flow chart below describes

broadly the working of a mutual fund:

Mutual Fund Operation Flow Chart

Types of Mutual Fund………

Mutual funds may be categorized in many ways. At the most fundamental level, mutual funds may be close-ended or open-ended, which are the types of mutual funds categorized by their structure.

Close-ended funds are redeemable funds having a pre-specified life, at

the end of which the capital is returned to the investors. These are listed in the

stock exchanges. After one has subscribed for the units at the time of the initial

public offer, these cannot be sold back to the AMC until the end of the fund's life.

Nor can one buy new units from the mutual fund. However, if one wishes to

redeem (sell) the holdings or buy into such a fund before the date of maturity of

the fund, one may do so in the stock exchange where the units are listed.

Morgan Stanley Growth Fund is an example of a well-known close-ended mutual

fund.

Open ended funds on the other hand have no finite life or maturity

period, having no finite life. They are also far more prevalent than close-ended

funds. They are open for investment and redemption throughout the year. But

they are not listed in a stock exchange. It is the AMC of the fund that offers to sell

and buy the units from the investors at what is called the Net Asset Value (NAV).

New investors can also buy units of a mutual fund directly from the AMC and not

from the secondary market. So in an open-ended scheme the number of

outstanding units varies on a daily basis, while in a close-ended scheme the

outstanding units at any point in time remain constant. Thus, in an open-ended

scheme, the fund size constantly increases or decreases on a daily basis

depending on whether redemption by existing unit holders is less than

subscriptions from new investors or vice versa.

The next level classification of mutual funds is based on their characteristics

with respect to the risk level of the asset invested nature of asset invested, the

fund's objective, industry to which the invested assets belong, trading and

investment strategies adopted, structure, frequency of dividend payments, and

so forth.

Mutual funds based on an asset class of investment may be equity funds,

debt funds, money market funds, Gilt fund, real estate funds and so forth. As the

names suggest, equity funds primarily invest in a portfolio of equity shares; debt

funds in fixed return instruments; money market funds in short-term money

market instruments like certificate of deposit, commercial paper. Inter bank call

money market etc; gilt funds in gilt or bullion or related securities; and real estate

funds invest in real estate.

Growth funds, balanced funds and Income funds describe the extent of the

combination of different asset classes in the investments. For instance, a growth

fund invests predominantly in equities and very little in debt (e.g. a ratio of 80:20).

Also, a growth fund concentrates more on growing the value of the fund by re-

investing rather than on paying out dividends.

An income fund on the other hand invests in the reverse ratio, e.g. around

20:80 in equities and debt securities respectively. The accent here is more on

paying out a steady dividend or income stream.

A balanced fund strikes the golden mean investing in a more or less equal

mix of equity and debt securities. In general however, all funds keep a small

fraction, perhaps around 5 to 10 per cent of the corpus, invested in money

market instruments for easy liquidity. This ensures that the mutual fund is able to

pay for the units as and when they come for redemption from unit holders.

Industry specific or sectoral funds focus upon specific industries or

sectors. For example, the sector of focus could be information technology,

biotechnology, pharmaceuticals, banking, emerging stocks, small and medium

enterprises, or even geographic sectors, such as emerging markets, Asia Pacific,

India, China and so forth., For example, a FMCG fund limits its investments to

securities issued by companies engaged in the business of fast moving

consumer goods and other similar businesses. An MNC fund invests in

multinational or transnational companies. Often the name of a sectoral fund fairly

describes the investment objective of the fund. For example, HSBC Floating Rate

Fund Short Term Plan invests mostly in floating rate short-term debt instruments.

A real estate fund basically invests in real estate properties. Like regular

mutual funds, real estate funds pool money from investors, but unlike other

funds, they predominantly invest in securities issued by real estate companies

and in the absence of these securities they invest in real estate properties. Again,

unlike other funds, calculation of the daily NAV’s for these funds is not as

straightforward as the valuation of the underlying investment units. This is

because real estate is typically much more illiquid than securities and real estate

prices are not available with as much frequency as securities on. a day-to-day

basis. Real estate funds are only just making an entry in the Indian capital

market. Recently SEBI spelt out the guidelines for these funds and some AMC’s

are in the process of launching these funds.

Then there are index funds that invest in companies belonging to specific

indices such as Sensex or Nifty.

Schemes or funds may also be characterized by their investment objective.

For example, a fund may be called a Children's Fund or Young Citizens' Fund,

etc. A children's fund may enable parents or relatives to invest with the specific

purpose of generating savings to meet the anticipated expenses of their children

in the future. Young Citizen's Fund may be directed at young professionals. A

dividend re-investment plan may not payout periodic dividends but may re-invest

the dividends into new units. Typically, these schemes are open-ended in nature

and often carry a lock-in provision, so that the unit holders have to wait till this

period is over before redeeming the units. Often AMCs suffix their funds with G/

Q/ MD/ WD/ DD along with the name to indicate a growth plan or quarterly/

monthly/weekly/daily payment of dividends (See Box 77.1).

Box 77.1Name Option

Floating Rate Short Term Plan (G) Growth

Floating Rate Short Term Plan (MD) Monthly Dividend

Floating Rate Short Term Plan (WD) Weekly Dividend

Floating Rate Short Term Plan (DD) Daily Dividend

For example, HSBC Mutual Fund offers the above options for its HSBC

Floating Rate Fund Short Term Plan. Mostly the fund invests in floating rate debt

instruments.

Incidentally, even when a mutual fund offers a 'daily dividend option' in reality

they may not actually distribute cash on a daily basis. They may simply re-invest

the daily dividend back into the scheme so that additional units are allotted to unit

holders.

As stated earlier, a single AMC may offer many different mutual funds or

schemes. Appendix 2 provides a list of various mutual categories of mutual funds

being offered by the HDFC Mutual Fund.

Different kinds of mutual funds available in India……..

With the growth of the mutual fund industry in India, the AMCs offer

schemes with many innovative features to cater to different clients. Figure 78.1

lists a few of the schemes along with their objectives that are offered by various

AMC’s in India. Even though these schemes have many common features, the

AMC’s of each of these try to incorporate some unique features into each fund in

order to create a special appeal for some select group of investors. The offer

document of each scheme of the AMC’s, provide this information in greater detail

in their websites.

Structural arrangement of an average mutual fund…….

Mutual funds in India function under a 3-tier structure as indicated in Figure

79.1. The promoters or sponsors intending to float a mutual fund appoint trustees

and set up an AMC, which in turn appoints a custodian/depository, registrars,

transfer agents and auditors.

The mutual fund industry in India and all the participants involved in this

business are governed by SEBI. A sponsor or promoter first applies to SEBI to

get a registration in order to start mutual fund activities. SEBI grants a certificate

of registration if the sponsors fulfill the necessary criteria of experience,

profitability, positive net worth, etc.

Lewis Carroll on Types of Mutual Funds(with apologies in Alice's Adventures in Wonderland)

'Never imagine mutual funds not to be otherwise than whatthey might appear to others that what they are or might havebeen was not otherwise than what they had been would have

appeared to them to be otherwise.'

Next, the sponsor forms a trust under the provisions of the Indian Trusts Act,

1882, appoints trustees and forms a board of trustees. The composition of the

board of trustees is governed by SEBI. For example, a certain number of trustees

have to be independent persons, not associated with the sponsors in any manner

whatsoever.

Entities in a Mutual Fund Business

The trustees play a critical role as they 'hold in trust' the investments of the

investors/ unit holders of the mutual fund. The trust deed contains clauses that

are necessary for protecting the interests of the unit holders. In general, the

trustees act as a self- regulating body and protectors of the unit holders' money.

The board of trustees does not manage the day-to-day activities of the

mutual fund directly. Instead, it appoints an Asset Management Company (AMC)

to perform that task. Normally an AMC is registered under the Companies Act,

1956.

It may be a private limited company or a wholly owned subsidiary of a public

limited company or even a joint venture. Table 79.1 lists three AMC’s under

different forms of ownership.

SEBI also requires that AMC’s have a certain minimum net worth

contributed by the sponsors. Thus, de facto an AMC manages a mutual fund

scheme while, de jure the trustees manage them. The trustees also monitor the

performance of the AMC and ensure that it complies with various regulations of

SEBI.

A custodian holds the securities of various schemes of the fund in their

custody. Before dematerialization of shares was introduced, share transfers were

done in physical form. As mutual funds regularly buy and sell huge volumes of

securities, the custodians used to receive, transfer and hold the physical

certificates on behalf of an AMC. However, following demat of securities; the

term custodian has given way to the depository. A depository maintains an on-

line record of ownership of securities bought and sold by a mutual fund in

dematerialized form, just as a bank records the balance in one's account.

The registrar is appointed in order to accept and process the unit holders'

applications, and inform the AMC regarding the amount received for subscription,

redemption and so forth.

Transfer agents are responsible for issuing and redeeming units of the

scheme and provide other related services such as preparation of transfer

documents and updating investor records. They are the conduit through which

fresh units are issued to new buyers or units sent back to the AMC for

redemption.

The trustees appoint the top management of the AMC, such as Chief

Investment Officer or Chief Executive Officer as well as fund manager(s) for the

various schemes. The trust company also appoints an auditor to audit the books

of accounts of all the schemes. Auditing the financial details for a specific

scheme, is an important aspect as in the past there have been several instances

where AMC’s have resorted to inter-scheme transfer of securities to make a

specific scheme more attractive. Such manipulations acquire ominous

proportions particularly when the transfer of securities from one scheme to

another is done at a price different from the market price. In such cases, unit

holders of one scheme benefit at the cost of another.

Having organized its structure comprehensively, an AMC is ready to float

various schemes, each one tailored to the requirements of different sections of

the public. An AMC may appoint separate fund managers for each scheme under

its umbrella or may assign two or three schemes to a specific fund manager.

One of the important aspects of this multi-tiered organization structure in the

mutual fund business is to clearly segregate the involvement of sponsors. The

trust company and the board of trustees form the proverbial Chinese wall

between the promoters of the mutual fund business and the money invested by

millions of unit holders. Apart from their other supervisory roles, the trustees also

ensure that aggregate investment by the sponsor promoted AMC into the listed

securities of group companies of the sponsors, does not exceed a certain limit. In

short, the trustees ensure that sponsors do not use the AMC as a vehicle to

channel the unit holders' money to their own group companies.

Example of the above structural arrangement……..

Let us consider the mutual funds floated by Kotak Mahindra. Kotak Mahindra

Bank Limited (KMBL), as the sponsor, established Kotak Mahindra Trustee

Company Limited (KMTCL) as the trustee company. KMBL also floated Kotak

Mahindra Asset Management Company Limited (KMAMC) as the

AMC/Investment Manager. KMAMC offers many different kinds of schemes such

as, Kotak Global India, Kotak Savings Plan, Kotak MNC, Kotak Tech, etc.

Computer Age Management Services Private Limited is the registrars, Deutsche

Bank and ABN AMRO are the custodians and Price Waterhouse is the auditors

for the fund.

Difference between IPO of a mutual fund and IPO of a company

Depending upon the type of mutual fund an AMC expects its potential

investors to be interested in; it makes an initial public offer (IPO) for a suitably

designed scheme. Until the middle of 2005, AMC’s announced an IPO every time

they launched a new scheme. But this confused the investors somewhat, as

normally only the first public issue of a company is called an IPO (all subsequent

issues to public merely being public issues). Hence the AMFI (Association of

Mutual Funds in India) and SEBI instructed the AMC’s to use the term NFO (New

Fund Offer) rather than IPO for launching their new schemes. AMFI is the

association of all AMC’s registered with SEBI, which promotes professional and

ethical standards in the mutual fund industry in India. But this is not the only point

of difference between the IPO of a company and the NFO of a mutual fund.

One other difference pertains to the issue of pricing. In an IPO, a company

may issue shares at a premium over the par value. For example, an IPO may be

priced at Rs. 60 per share, representing Rs. 50 premium over the face value of

Rs. 10 per share. But the concept of a 'premium' is not applicable in case of

mutual fund units, which carry only their face value.

Another difference pertains to the matter of oversubscription. In an IPO, a

company is normally required to return the over-subscribed amount to the

investors (though companies can exercise greenshoe option). However, in an

NFO, the AMC retains the entire -amount that it mobilizes. Incidentally, it may be

noted that this also impacts the pricing of shares vis-à-vis units following the

public offer. This is because, when an IPO of a company is over-subscribed by a

large margin, there is a huge unfulfilled demand and that pushes up the price of

shares following the public offer. However nothing like that happens in case of

NFO’s of mutual funds. The fund starts trading at the Net Asset Value (NAV),

(Question 85 has more on calculation of NAV) which in turn depends upon the

value of the underlying portfolio of the relevant scheme.

Lastly, the price of a share may be influenced by speculation, rumors,

corporate performance, forces of demand and supply, etc. so that there could be

significant swings in share prices. However the NAV of a mutual fund scheme is

largely governed by the value of the underlying securities (which could add up to

30, 50 or even more securities) into which the fund stays invested and is hence

far less volatile. For example, it is not unknown for the market price of a share to

double over a relatively short period of time. But for the NAV of a particular

scheme to double in the same time, each and every one of the underlying

securities will have to double in their market price, which is highly unlikely.

Offer Document of Mutual Fund…….

When launching any new scheme, the AMC prepares an offer document. This

provides the name of the scheme, its specific investment objectives, entry/exit

load structure and other attributes such as, minimum investment requirement,

face value, periodicity of dividend payments and so forth. The document often

contains so much information that it runs into 60-70 pages, although in

newspapers there is usually only a quarter-page highlights in the form of an

advertisement. Almost all mutual funds put their offer document on their

websites.

Once the offer closes, the AMC issues the units of the scheme to the

investors and the funds mobilized are invested according to the broad investment

objectives indicated in the offer document. For example, the investment objective

or investments mandate of a certain scheme may be to invest at least 70 per

cent in equity and equity-related securities issued by service sector companies

and the balance in debt and money market instruments. Thus, such a scheme

targets itself at those investors who feel that investing a sizeable amount in the

services sector affords a good opportunity of investment. This mandate indicates

that if one is an investor looking for a regular income from the investment and/ or

if one has a very short-term investment horizon, then this scheme may not be

suitable.

The offer document also indicates whether a unit holder will receive a -

return through regular dividend or only the capital appreciation on the investment,

or a combination of both. It may also require the unit holder to specify whether

dividends should be paid daily, weekly, monthly or quarterly and so forth. The

document also specifies the face value of a unit (which may vary depending on

the scheme) and the minimum application amount for a single unit holder, etc.

Costs associated with investing in mutual funds……

The offer document provides details of the various costs associated with

investing in the funds. Needless to say, an AMC incurs several expenses in

managing the fund on behalf of the investors. Some of these are recurring

expenses while others are one-time.

The annual recurring expenses recovered as fund management fees from

the investors include trustee fees, custodian fees, registrar fees, investment

management and advisory fees and other recurring operating expenses. This

includes ongoing marketing and selling expenses, brokerage and transaction

costs, audit fees, costs related to providing accounting statement, dividend

redemption cheques and warrants, insurance premium paid by the fund, salaries

to staff, etc. In general, mutual funds cannot exceed the fund management fees

indicated in the offer document.

The AMC passes on these annual recurring expenses or fund management

fees to the investors as entry or exit loads.

The annual recurring expense is normally expressed as a percentage of the net

assets and is referred to as expense ratio. SEBI has given directives on the

expense ratio to be charged by AMC’s. This ratio is a graded ratio. For example,

equity funds may charge up to 2.5 per cent of the average weekly net asset of

the fund for the first Rs. 1,000 million, 2.25 per cent on the next Rs. 3,000 million,

2 per cent on the following Rs. 3,000 million and 1.75 per cent on any amount

above this. Debt funds, balanced funds, and liquid funds may charge different

amounts as prescribed by SEBI. These expense ratios form an upper limit. Given

the structure of expenses, the bigger funds will obviously have lower expense

ratios.

Entry load or the front-end charge is applied when investors buy units of a

scheme. Thus, if the entry load is 2 per cent, then the AMC deducts 2 per cent of

the total fund mobilized straight away and invests the balance 98 per cent of the

corpus to create the investors' portfolio. Hence, if the face value of a scheme is

Rs. 10, the opening NAV will be only Rs. 9.80 and not Rs. 10, since 2 per cent is

deducted towards expenses.

Exit Load, or the back-end load, is levied when an investor exits the scheme

(i.e. sells his units). For example, if a fund charges an exit load of 2 per cent and

the NAV of the scheme is Rs. 20 only Rs. 19.60 will be received when the units

are redeemed or sold.

Normally AMC’s do not charge both entry and exit loads for a given scheme. A

scheme may also be a no-load scheme, if the AMC chooses not to levy any load

whatsoever on a scheme.

There are some variations to these loads. One of them goes by a rather

pompous terminology as contingent deferred sales charges (or CDSC). CDSC is

a back-end load with a difference. It varies depending upon the duration for

which an investor remains invested in .the scheme. Typically, it rewards an

investor for loyalty that is, for remaining with the scheme longer. For example, a

fund may levy a CDSC of 2 per cent if the investment is for less than one year

from the time of investing; 1.5 per cent if it is between one and two years; 1 per

cent for between two and three years; 0.5 per cent if it is between three and four

years; and there is no charge if the investment is for more than four years. CDSC

is normally computed on the face value of the unit or the NAV whichever is lower.

More often than not, CDSC is levied by debt funds more than equity funds.

Exit loads are generally structured so as to discourage large redemptions

and in a certain period they carry higher exit loads while smaller redemptions

during the same period may carry smaller exit loads. Similarly, large investors

are rewarded with lower or no entry load in order to attract a bigger corpus while

small investors are levied a higher load. Surprisingly, there have been occasions

when some AMC’s have inexplicably done the opposite, i.e. levied lower exit load

(in percentage terms) to be compared etc. NAV’s and performance of other

schemes of the fund, both past and present and other relevant information,

including financial information about the sponsors and information about the

board members of the mutual fund trust company etc. are also mentioned in this.

The offer document also lists out details of the growth or dividend options.

For example, under dividend option it may mention the periodicity of dividends

and reinvestment plans, etc. It also clearly mentions the day of the week on

which the AMC will declare the dividend. For example, in the case of HSBC

Floating Rate Short Term Plan-Monthly Dividend Option, the dividend is declared

on the last Friday of each month. Similarly, the exact date for quarterly and

weekly dividend is also mentioned.

While the offer document with its 60-70 pages of information might appear

intimidating to the newly initiated, in reality these documents are fairly

standardized and one soon learns which information is more relevant. It is

however, very important to read the fine prints more than anything else. A simple

and trivial sounding term like automatic renewal could create a great problem as

it may give the AMC the right to shift the investment from a close-ended fund

upon its maturity to some other fund, unless redemption instructions are

communicated to them on time.

To sum up then, one should not only look for important factors that could

affect the risk and return of the investment in a scheme, but also develop the skill

to read the fine prints. The devil, as they say, often lurks in the details.

Net asset value (NAV) and its calculation…….

It is important here to first distinguish between the NA V of fund and the

NAV of a unit. The NAV of a fund at any point in time is the sum total of the

market value of the assets (securities) that comprise its portfolio, net of any

liabilities at that time. In other words, the NAV of a fund is the amount that all the

unit holders will receive after paying all its liabilities. The NAV of a unit or NAV

per unit on any given day simply the NAV of the fund divided by the number of

outstanding units of the scheme on that day. For example, if the market value of

securities of a mutual fund scheme is Rs. 20 million, net of all its liabilities on a

given day and the mutual fund has 1 million units outstanding on that day, the

NAV per unit will be Rs. 20.

The most common use of the term NAV represents the NAV per unit. This is

the price at which all the buying and selling of units with the AMC takes place.

Simply put, NAV is the market value of the securities held by the scheme. As the

market price of the underlying securities change daily, so also does the NAV of a

scheme, although the change is much less than that of a single security.

AMC’s are required to calculate the NAV of all open-ended schemes on a

daily basis and at the least on a weekly basis for close-ended ones, and publish

these in a minimum of two national newspapers. The NAV’s are also available on

the websites of the respective AMC’s as well as on the website of AMFI.

The specific formula for computing the NAV is as follows:

A. (Market Value of Investments + Receivables + Other Accrued Income +

Other Assets)

LessB. (Accrued Expenses + Other Payables + Other Liabilities)

Divided byC. Number of units outstanding on the NAV computation date

Clearly all the items against A above are the various assets of the mutual

fund, while all the items against B are the liabilities. The market value of

investments of the fund is impacted by the individual market prices of the

invested securities. Receivables come about in the process of transacting the

units where certain sale proceeds of the scheme are yet to be received. Other

accrued income and assets may typically be the various dividends or interest

accrued from the fund's investments, but not yet received.

Similarly, accrued expenses may represent various loads, issuing expenses

or other accrued expenses payable to the AMC from the scheme. The payables

and other liabilities may be occasioned in the course of units being transacted,

where the scheme has yet to pay the unit holders for their redemptions. They

could also be the dividends of the units themselves that are payable to the unit

holders.

The net amount of the two sets of items (A and B) represents the net asset

value (or net market value or net realizable value) of the fund for the unit holders

as a whole. When divided by item C, namely the number of units outstanding on

the NAV computation date, it yields the NAV per unit.

It can thus be seen that the NAV is impacted every time an investor buys

into or exits from the scheme. Clearly, large-scale redemptions have an effect of

lowering the NAV. Even though all funds maintain some liquidity for meeting the

needs of normal redemptions, large-scale redemptions may force a fund

manager to sell large volumes of securities in a hurry. This may put a downward

pressure on the market value of the securities being redeemed, which in turn

may result in a lower NAV. Also, if such a large-scale redemption has to be

undertaken when the market conditions are unfavorable, the NAV again takes a

dip. If the fund holds stocks whose values were expected to go up in the future,

the interest of the non-redeeming unit holders is compromised as their NAV’s

become much lower, as they are deprived of future appreciation of market value

of those stocks.

Incidentally, the NAV of a close-ended fund is different, and is generally less

than its market price. There are several reasons for this phenomenon. Perhaps

the most significant of them is the fact that while the NAV is computed at the end

of the day, it is effectively reported only the next day, by which time the market

value of the underlying securities may have risen (though of course this need not

always be the case). When the market price of a fund is greater than the NAV, it

is said to trade at a premium; and when it is lower than the NAV, it is said to

trade at a discount. It is noteworthy that this does not apply to open-ended funds,

as they are not quoted in the stock exchanges and hence have no market value;

they have only NAV’s.

Does NAV reflect the best estimate of the net market value of a scheme's investments?

This depends on what one means by the term 'best estimate'. It is a fact that

computation of NAV is not without some problems. For example NAV depends a

lot on the market prices of all the underlying securities of the scheme.

However, market prices are not always available for every invested security. For

example, shares of many companies in India are traded very infrequently. Again,

trading in most corporate debt securities is negligible. Often, securities like

convertible debentures or warrants do not trade at all or the trading may be too

thin for the prices to be representative.

Thus, the calculation of the NAV is hindered by the problem of non-availability of

daily market prices for all the underlying securities. It is for these reasons that the

market price and the NAV of a fund are rarely the same. What is worse is that

such situations often present an attractive incentive for the mutual funds to

manipulate the computation of the NAV’s. The intensity of the problem is mild or

strong depending on the proportion of the scheme invested in illiquid stocks. To

help minimize this problem, SEBI has prescribed detailed guidelines on how no

traded or thinly traded securities and other types of illiquid securities such as

convertible debentures, call money papers, short term-deposits with banks and

securities with put and call options, etc. are to be valued for the purposes of

computing NAV.

Difference between index funds and mutual funds………

An index fund is also a mutual fund, except that it only invests in securities of

companies underlying a major market index. For example, a mutual fund that

invests only in the 50 securities underlying the Nifty will track only the Nifty. Index

funds characteristically mimic popular indices like Sensex, Nifty, BSE-I00 or other

major market indices such as Crisil Composite Bond Index, etc. Index funds may

also mimic specific industry indices.

An index fund that tracks a specific index not only invests in the securities

that comprise the index, but does this in the same proportion as they are

represented in the index. For example, a mutual fund tracking the Sensex will

invest in the stocks of 30 companies that make up the Sensex index, in the same

proportion as the weights assigned to these companies in the index. Fund based

on the Sense x would thus invest 8.28 per cent of the total portfolio in Infosys,

12.33 per cent in Reliance Industries, 6.65 per cent in ICICI Bank and so forth,

on that day. Depending upon the changes in underlying share prices on the next

day, the weights of the shares in SENSEX would change again, and the fund

manager would alter the portfolio accordingly so that the weight age of shares

both in the portfolio and the Sensex are the same.

At times, fund managers may depart from this norm by changing the

weights of some or, all of the securities in the index depending upon their

perception of the specific stocks securities comprising the index. However, such

funds cannot strictly be called pure index funds. For example, ING Vysya Nifty

Plus Fund invests 70 per cent of the total corpus in the same proportion to that of

the Nifty, while the balance 25 per cent of the fund is invested in a few other

stocks from the Nifty itself, in order to create an overweight position in these

stocks.

Typically, a fund's offer document details the actual portfolio composition within

the larger investment objective of tracking a specific index. Index funds provide certain features that other mutual funds do not and vice versa. To begin with index funds are more diversified than other types of mutual funds. In other types of funds, a fund manager selects the securities for investment while in an index fund, security selection is not an issue. Of course, that can swing returns either way, but risk is precisely about volatility or swing of

returns. An index fund on the other hand, takes away the selection of securities from the fund manager and reduces his job to simply mimicking an index.

Thus, an index fund keeps the volatility of returns close to the market volatility, because by definition an index is merely a representation of the market as a whole. For these reasons, the indexed management strategy is called a passive management strategy. This is also why entry/ exit loads on index funds tend to be lower compared to other kinds of equity funds that require active management strategies for stock selection.

However in times of market upswings, AMC’s have been known to charge or increase the entry load on index funds in order to capitalize on the good performance of the market. One must therefore closely examine the entry/ exit load structure in any index fund particularly when they try to buy or sell units during a market upswing.

Index funds are not suitable for investors wanting to beat the- market, as beating the market with index funds is an oxymoron, simply because the return on an index fund moves in line with the market. Nor are they suitable for an investor with a very short-term investment horizon, as swinging with the market is a fairly long affair. (Appendix-3 lists some of the index funds.)

On the whole, however, index funds provide a safer (less risky) investment opportunity, unlike actively managed funds, which entail higher risk. Normally there is very little variation in the returns of index funds, as all stock indices are usually highly correlated.

Shareholder’s Rights……..

Owners of shares in mutual funds receive investment income dividends derived

from dividends and interest earned on securities in the portfolio. Capital gains

distributions are made when and if long-term gains are realized on the sale of

securities in the portfolio. Income dividends are paid quarterly or semiannually;

capital gains distributions are usually made annually, toward the end of the fiscal

year of the fund. A variety of services are offered to shareholders by mutual

funds. Most funds provide accumulation plans, in which investors may buy

shares at regular intervals, have dividends reinvested automatically, and accept

capital gains distributions in additional shares. A few mutual funds offer

contractual plans wherein the shareholder agrees to invest a certain amount

each month. Many financial institutions offer a so-called family of open-end

mutual funds, allowing investors to divide their savings among funds with varying

objectives but managed by the same sponsor and to switch from one fund to

another at little or no cost. A number of funds also offer withdrawal plans, under

which shareholders may receive payments from their investment at regular

intervals while income dividends and capital gains are routinely reinvested.

Mutual Funds in Indian Capital Market…….

Retail investors usually want to participate in the Capital market but due to paucity of funds, lack of expertise knowledge and limited risk - bearing capacity they have limited access to capital market. Mutual funds provide a mechanism that helps the retail investors enter the capital market. The mutual funds manage their funds for maximum gain at minimum risk and in the most professional way and work as agent for growth and stability of capital market. Till 1964, there was no mutual fund in India. In 1963, UTI Act, 1963 was enacted for the establishment of first mutual fund. The UTI launched its first scheme, US-64, in 1964 which later became the most popular unit scheme in India. In 1987, the RBI issued bank-sponsored mutual funds. Government of India also issued Guidelines in 1991 for setting up of mutual funds. In the first phase, i.e., from 1964 to 1987, there was single mutual fund (UTI) structure. After 1987, some of the commercialbanks started mutual fund schemes, and this second phase continued till 1992.

The third phase started after the set up of SEBI in 1992 when the private sector

mutual funds were also encouraged. Since then, there h as been a growth in

number of mutual funds as well as the numbers and types of schemes. During

last 10 years, mutual funds have become very popular among retail investors.

The increase in number of mutual funds and their schemes speak of the

underlying strength of the investors' confidence in them. Some of the mutual

funds operating in India are as follows (in alphabetical order):

ABN Amro

Alliance Capital

Bank of Baroda

Benchmark

Birla Sunlife

Canbank

Cholamandolam

Deutsche

DSP Merril Lynch

Escorts

Fidelity

Franklin Tempelton

GIC

HDFC

ING Vysya

JM

Kotak Mahindra

LIC

Morgan

Principal

Reliance

Sahara

SBI

Standard

Chartered

Sun F&C

Sundarum

Tata

Tauras

UTI

The multiplicity of mutual funds has intensified competition and led to product innovation. Each of these mutual funds has a number of scheme operating with different features and characteristics. There are more than 400 schemes in operation at present.Immediately after its constitution, SEBI issued the Mutual Fund Regulations in 1993. However, with the growth of mutual funds, it was imperative that they should follow uniform policies in respect of NA~ valuation of investment, accounting practices, etc. SEBI prepared a Mutual Fund 2000 Report and on the basis of this report, it prepared more stringent and comprehensive regulations in 1996 known as SEBI (Mutual Fund) Regulations, 1996. Since then, there have been number of amendments in Regulations, 1996. Besides, SEBI has also issued several Guidelines in respect of working of mutual funds.

Some of the provisions of the Regulations, 2000 and Guidelines are as follows:

1. The sponsor, who wants to establish a mutual fund, should have a sound track record and a general reputation of fairness and integrity i.e., must be in business of financial services for 5 years, etc.

2. A mutual fund is constituted in form of trust. The trust shall incorporate an Asset Management Company (AMC). The trustees shall ensure that the AMC has been managing the schemes independently of other activities.

3. The trust shall periodically review the investor complaints received and shall be redressed by the AMC.

4. The mutual fund shall appoint a custodian to carry out the custodial services for the schemes. The sponsor or its associates shall not have 50% or more of the share capital of the custodians.

5. No scheme shall be launched by the AMC unless the offer document contains disclosures which are adequate in order to enable the investors to make informed investment decisions.

6. Advertisement in respect of every scheme shall be in conformity with the Advertisement Code.

7. Every close-ended scheme shall be listed at a recognized stock exchange, or there will be a repurchase facility.

8. The close-ended schemes may be converted into open-ended schemes under certain conditions. A close-ended scheme may be allowed to be rolled over if necessary disclosures about NAV, etc., are made to the unit holders.

9. In case of over-subscription for a new scheme, the applicants applying for upto 5,000 units shall be allotted full. The refund to applicants, if any, shall be made within 6 weeks from the date of closure of the list.

10. No guaranteed return shall be provided in a scheme, unless such return is fully guaranteed by the sponsor or the AMC.

11. An open-ended scheme shall be wound up after the expiration of the fixed period, or 75% of the unit holders decide so, after repaying the amount due to the unit-holders.

12. The money collected under any scheme shall be invested only in transferable securities in money market or capital market or private placed debts or securitized debts.

13. The mutual fund shall not borrow any money except to meet temporary liquidity needs and borrowing, if any, need not be more than 20% of NAV of the scheme, and for period of less than 6 months.

14. The funds of a scheme shall not be used in option trading or a carry forward transaction. However, derivatives can be traded by a mutual fund at a recognized stock exchange.

15. A mutual fund can enter into underwriting agreement.16. NAV for each scheme shall be calculated by dividing the total assets of

the scheme by the number of outstanding units. The NAV of the scheme shall be published in two daily newspapers at interval of not exceeding one week.

17. In case of open-ended schemes, the repurchase and sale price shall be published at least once a week.

18. The mutual fund shall ensure that the repurchase price of a unit is not less than 93% of NAV and the sale price is not more than 107% of NAV. In

case of close-ended schemes, the repurchase price shall not be less than 95% of the NAV.

19. The AMC may charge the mutual fund with investment and advisory fees as per rates prescribed in the Regulations. The issue expenses and redemption expenses of a scheme shall not exceed the limits given in the Regulations.

20. The mutual funds are required to raise at least Rs. 20 crores or Rs. 50 crores (for close-ended and open-ended schemes respectively) or 60% of the target amount, otherwise the entire subscription be refunded.

21. The unquoted debt instruments shall not exceed 10% in case of growth funds and 40% in case of income funds.

22. Investment in one company under any scheme should be restricted to 5% of the corpus of the scheme. Under all schemes, the investment in one company should be restricted to 5% of the paid-up capital of the company. Total investment in all securities (Debts and shares) in one company shall be restricted to 10% of the corpus of the mutual fund.

23. Funds under the same AMC should not be lent or invested from one scheme to another, unless the funds are transferred at the prevailing market price.

24. All mutual funds must distribute a minimum of 90% of their profits in any given year. The earnings must be segregated as current income, short-term capital gain and long-term capital gain.

25. Trading by mutual funds shall be restricted to hedging and portfolio balancing purposes only. The securities held shall be marked to market by the AMC to ensure full coverage of the investments made in derivative products.

26. Mutual funds are permitted to participate in the Securities Lending Scheme of SEBI under certain guidelines.

27. Mutual funds are allowed to invest in ADRs/GDRs issued by Indian companies. They can also invest in foreign securities under certain conditions and within limits.

28. Mutual funds can also invest up to 10% their funds in equity or listed overseas companies which have a shareholding of at least 10% in an Indian company listed on a recognized stock exchange.

29. The AMC and the trustees are required to review and disclose the performance of their schemes. They are also required to disclose the performance of the benchmark indices. Any of the following indices may be selected for this purpose: BSE Sensex, S&P CNX Nifty, BSE 100, BSE 200 or S&P CNX Nifty 500.

30. Several Guidelines have been prescribed in respect of advertisement to be issued by mutual funds. Any advertisement, communication, sales literature, or presentation, etc., should not be misleading.

31. Detailed guidelines are prescribed for valuation of investments. For this purpose, the investments are classified into traded, thinly traded and non-traded investments.

32. Guidelines for identification and provisioning for NPA are also provided. For this purpose, an asset is NPA if the principal/interest is not received for one quarter. On NPA, no interest shall be accrued. If any interest is already accrued, it shall be provided. A provision @ 10%, 20% or 25% of the book value of NPA is required depending upon the period for which it is NPA.

33. A mutual fund and the AMC, before the expiry of 1 month from the close of

half year, shall publish its financial results in respect of that half year.

Mutual Fund Companies in India……….

Overview

ABN AMRO Mutual Fund

ABN AMRO Mutual Funds are promoted by ABN AMRO

Bank, one of the leading banks of the world. In India, the

investment management business of the bank is handled

by ABN AMRO Asset Management (India) Limited, which is a part of the global

network of ABN AMRO Asset Management.

ABN AMRO Asset Management is one of the world's leading asset management

companies with more than 70 years of experience in managing funds for

individual customers and institutional clients including central banks, pension

funds, insurance companies and other institutions.

Benchmark Mutual Fund

Benchmark Mutual Fund is one of the leading asset management

companies of India. Benchmark Mutual Fund specializes in

managing Exchange Traded Funds (ETFs). The objective of Benchmark Mutual

Fund is to provide low cost innovative products that enhance returns at

acceptable levels of risk.

Benchmark Mutual Fund employs quantitative techniques of investing. These

techniques involve gathering massive amounts of financial information, analyzing

and transforming it to develop disciplined and rigorous models of investing.

Birla Sun Life Mutual Fund

Birla Sun Life Mutual Fund is a joint venture between Aditya Birla

Group and Sun Life Financial. The Aditya Birla Group is India's first

truly multinational corporation. It is a dominant player in viscose

staple fiber, non-ferrous metals, cement, viscose filament yarn, branded apparel,

carbon black, chemicals, fertilizers, sponge iron, insulators, financial services,

telecom, BPO and IT services. Sun Life Financial is a leading international

financial services organization providing a diverse range of protection and wealth

accumulation products. The company has operations in key markets worldwide,

including Canada, the United States, the United Kingdom, Ireland, Hong Kong,

the Philippines, Japan, Indonesia, India, China and Bermuda.

BOB Mutual Fund

BOB Mutual Fund is sponsored by Bank of Baroda.

Bank of Baroda was established in July 1908 by

Maharaja of Baroda Sir Sayajirao Gaikwad III. The

bank has a 2,704 strong branch network all over the

country. Bank of Baroda is one of the few Indian Banks with a formidable

presence overseas with 39 branches.

BOB Mutual Fund has been established and set up as a Trust under the Indian

Trusts Act, 1882 by Bank of Baroda and registered with SEBI. BOB Asset

Management Company Ltd. is a wholly owned subsidiary of Bank of Baroda

incorporated on November 05, 1992 acts as an Investment Manager to the BOB

Mutual Fund.

Canbank Mutual Fund

Canbank Mutual Funds are sponsored by Canara Bank. The bank

was established in 1906 and is a leading nationalized Bank

operating in India and abroad, through its network of branches in

India and offices in London, Moscow, UAE (Exchange Companies)

and Hong Kong.

The investments of Canbank Mutual Funds are managed by Canbank

Investment Management Services Ltd, the Asset Management Company of

Canara Bank.

DBS Chola Mutual Fund

DBS Chola Mutual Funds are managed by Cholamandalam

AMC Limited (CAMC). The company was set up in 1996, as a

joint venture with Cazenove Investment Management of the UK.

Cholamandalam is part of the Murugappa Group, Rs. 6250 crores conglomerate.

Cholamandalam Financial Services Group (Cholamandalam FSG) is a pan-

Indian, composite financial services provider. In 2001, the Murugappa Group

acquired Cazenove’s stake in the company. CAMC presently manages over

Rs.1000 crores of assets.

Deutsche Mutual Fund

Deutsche Mutual Funds are managed by Deutsche Asset Management, which is a member of the Deutsche Bank Group. Deutsche Asset Management is one of the leaders in

global asset management. It has offices in 42 countries and manages over US$633.23 billion in assets (As on 31 March 2006). Deutsche Asset Management entered India in 2002, when its subsidiary Deutsche Asset Management, India was established. As on April 2006, the company manages assets worth Rs 3500 crores.

DSP Merrill Lynch Mutual Fund

DSP Merrill Lynch Mutual Funds are managed by DSP Merrill Lynch Fund Managers. DSP Merrill Lynch Ltd. (DSPML) is a premier financial services provider and Merrill Lynch (ML) holds 90% stake in DSPML. DSPML was originally called

DSP Financial Consultants Ltd. The firm traces its origins to D. S. Purbhoodas & Co., a securities and brokerage firm with over 140 years of experience in the Indian market. Merrill Lynch is one of the world's leading wealth management, capital markets and advisory companies with offices in 37 countries and territories and total client assets of approximately $1.5 trillion.

Escorts Mutual Fund

Escorts mutual funds are promoted by the business conglomerate Escorts group. The Escorts Group is among India's leading engineering conglomerates operating in the high growth sectors of

agri-machinery, construction & material handling equipment, railway equipment and auto components. Escorts Asset Management Limited manages Escorts mutual funds.

Franklin Templeton Mutual Fund

Franklin Templeton Mutual Funds are managed by Franklin Templeton Investments - a global investment management major. Franklin Templeton started their India operations in 1996 as Templeton Asset Management India Pvt. Limited.

It flagged off the mutual fund business with the launch of Templeton India Growth Fund in September 1996. Franklin Templeton Asset Management (India) Private Limited acts as the asset management company with Templeton holding a majority of 75 per cent of the equity.

Fidelity Mutual Fund

Fidelity International Limited (FIL) was established about 40 years ago. It operates in markets outside the Americas.

Fidelity International Limited and its subsidiaries manage over $279 billion for major institutions and millions of investors around the world. In 2006, Fidelity won 19 awards from Lipper and Standard & Poor's for short, medium and long term bond funds.

In 2005, Fidelity launched its Indian arm and its first Indian mutual fund, was the Fidelity Equity Fund. Since then Fidelity has broadened its range and it offers ELSS, Cash Fund, and a host of other equity funds.

HDFC Mutual Fund

HDFC (Housing Development Finance Corporation Limited) is

one of the dominant players in the Indian mutual fund space.

HDFC was incorporated in 1977 as the first specialized

Mortgage Company in India. HDFC Mutual Funds are handled by HDFC Asset

Management Company Limited.

HDFC Asset Management Company was incorporated under the Companies Act,

1956, on December 10, 1999, and was approved to act as an Asset

Management Company for the Mutual Fund by SEBI on July 3, 2000. The

company also provides portfolio management / advisory services.

HSBC Mutual Fund

HSBC Mutual Funds in India are managed by HSBC Asset Management (India) Private Limited. HSBC Asset Management (India) Private Limited has adopted the

brand name HSBC Investments. HSBC Investments is part of the HSBC Group, which is one of the largest banking and financial services organizations in the world.

The HSBC Group network has some 9,700 offices in 77 countries and territories

in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa

ING Mutual Fund

ING Mutual Funds are managed by ING Investment

Management. ING Group is a global financial institution of

Dutch origin which offers banking, insurance and asset

management to more than 60 million clients in over 50 countries. In India, ING

offers banking, insurance and asset management services. The corporate office

of ING Investment Management is situated at Mumbai. ING Investment

Management has presence in thirty four cities across the country and manages

mutual fund assets of over Rs. 5000 crores.

JM Financial Mutual Fund

JM Financial Mutual Fund is one of India's first private

sector mutual funds. The fund is a part of the JM Financial

Group and commenced it operations in 1993-94. JM

Financial Group was founded in 1950s by the Kampani family. J.M. Financial &

Investment Consultancy Services was founded on September 15, 1973. JM

Financial Mutual Funds are managed by JM Financial Asset Management

Private Limited which started operations in December 1994.

Kotak Mahindra Mutual Fund

Kotak Mahindra Mutual Fund is sponsored by Kotak

Mahindra Bank Limited, which is part of the Kotak Mahindra

Group. Kotak Mahindra is one of India's leading financial

institutions offering complete financial solutions ranging from

commercial banking, to stock broking, to mutual funds, to life insurance, to

investment banking. Kotak Mahindra Mutual Funds are managed by Kotak

Mahindra Asset Management Co. Ltd., a wholly owned subsidiary of the bank.

LIC Mutual Fund

LIC Mutual Fund was set up by Life Insurance

Corporation of India on 19th June 1989 with a corpus of

Rs. 2 crores. LIC Mutual Funds are managed by LIC

Mutual Fund Asset Management Company Ltd which was formed on 20th April

1994 in compliance with the Securities and Exchange Board of India (Mutual

Funds) Regulations, 1993.

Lotus India Mutual Fund

Lotus India Mutual Fund is managed by Lotus India AMC, a joint

venture between the Fullerton Fund Management Group (Fullerton)

and Sabre Capital Worldwide (Sabre).

Alexandra Fund Management (AFM) is the sponsor of Lotus India AMC. Both

Fullerton and AFM are wholly owned by Temasek Holdings (Pte) Ltd., Singapore.

Presently, Lotus India AMC has presence in 48 cities including 8 Official Points of

Acceptance (OPA).

Morgan Stanley Mutual Fund

Morgan Stanley is a global financial services firm and

a market leader in securities, investment

management and credit services. It has more than

600 offices in 27 countries and manages $421 billion in assets for institutional

and individual clients around the world. Morgan Stanley Investment Management

(MSIM), the asset management company of Morgan Stanley was established in

1975.

Morgan Stanley entered Indian market in 1989 with the launch of India Magnum

Fund. In 1994, Morgan Stanley launched Morgan Stanley Growth Fund (MSGF).

It is one of the largest private sector schemes investing in equities.

Principal Mutual Fund

Principal Mutual Fund (formerly known as IDBI-Principal Mutual

Fund) is a joint venture of Principal Mauritius, Punjab National

Bank and Vijaya Bank. The Mutual Fund was initially set up by

Industrial Development Bank of India (IDBI) in 1994.

Subsequently, on March 31, 2000, Principal Financial Services Inc. USA

acquired 50% stake and in June 2003 it acquired 100% stake and became sole

sponsor through its wholly owned subsidiary Principal Financial Group

(Mauritius) Limited.

In May 2004, Principal Financial Group collaborated with two public sector

banks- Punjab National Bank (PNB) and Vijaya Bank to form a joint venture the

stake of Principal Mauritius, Punjab National Bank and Vijaya Bank in the fund is

65%, 30% and 5% respectively.

Prudential ICICI Mutual Fund

Prudential ICICI Mutual Fund is one of the largest mutual fund houses in India. Prudential ICICI Mutual Fund is a joint venture between Prudential plc, one of UK's largest players in the insurance & fund management sectors and ICICI Bank, a well-

known and trusted name in financial services in India. Prudential Plc holds 55 per cent of the asset management company and the balance is held by ICICI Bank.

Quantum Mutual Fund

Quantum was India's first equity research company set up by Ajit Dayal in 1990. From 1990 TO 1992, Quantum did research assignments for Barings, Jardine Fleming, Kleinwort/ Asian Capital Partners, and Yasuda. From 1992 to 1995 Quantum became local partner of Jardine Fleming in India. From 1996 to 1998, Quantum was

local advisor to Walden Nikko India Ventures Fund. From 1996 to 1997, Quantum was local advisor to Prolific India Opportunities Fund. For the period 1997 to 2004, Quantum was local advisor to Hansberger Global Investors Inc. Ajit Dayal, the founder of Quantum Advisors is also the founder of www.equitymaster.com and www.personalfn.com, India's premier financial website.

Reliance Mutual Fund

Reliance Mutual Fund (RMF) is the biggest Mutual Fund house in

India. It has been sponsored by Reliance Capital Ltd (RCL). RCL

has been promoted by Reliance Industries Ltd., one of India's

largest private sector enterprises. Reliance Capital Asset

Management Ltd manages the investments of Reliance Mutual Fund.

Sahara Mutual Fund

Sahara Mutual Fund is sponsored by Sahara India Financial

Corporation Limited (SIFCL), which is the flagship company

of Sahara India Group. SIFCL is the First Residuary Non-

Banking Company (RNBC) in India that has been granted certificate of

registration by RBI. Sahara India Group is a multi-product business conglomerate

with diverse interests in fields such as Aviation, Life Insurance, Parabanking,

Housing, Infrastructure & Tourism, Consumer Products, Media & Entertainment.

SBI Mutual Fund

SBI Mutual Fund is India's largest bank sponsored mutual fund with an investor base of over 3 million. SBI Mutual Fund is a joint venture between the State Bank of India,

India's largest banking enterprise and Societe Generale Asset Management of France, one of the world's leading fund management companies.

Since its inception SBI Mutual Fund has launched thirty-two schemes and successfully redeemed fifteen of them. SBI Mutual Fund schemes have consistently outperformed benchmark indices. SBI Mutual is the first bank-sponsored fund to launch an offshore fund - Resurgent India Opportunities Fund.

Presently, SBI Mutual Fund manages over Rs. 17000 crores of assets. The fund has a network of 100 collection branches, 26 investor service centres, 28 investor service desks and 40 district organizers.

Standard Chartered Mutual Fund

Standard Chartered Mutual Fund is sponsored by the Standard Chartered Group. Standard Chartered is one of the world's most international banks, with employees

representing 80 nationalities.

Standard Chartered Mutual Fund was among the first to launch an active

management debt fund-the Dynamic Bond Fund - that had the capability to mimic

a cash fund or an income fund depending on market situations. Standard

Chartered Mutual Fund currently manages assets in excess of Rs. 13400 crores.

Sundaram BNP Paribas Mutual Fund

Sundaram BNP Paribas Mutual Fund investments are managed by Sundaram BNP Paribas Asset Management Company Limited. The sponsor of the fund

is SUNDARAM Finance, one of India’s leading financial services companies. The Asset Management Company was started in 1996 as a joint venture between

SUNDARAM Finance (61%) and Newton Investment Management (39%). After

the acquisition of Newton by US-based Mellon Financial Corporation,

SUNDARAM Finance, in 2002, acquired the 39% stake of Newton in the AMC.

Tata Mutual Fund

Tata Mutual Fund investments are managed by Tata Asset

Management Limited. Tata Asset Management Limited offers a

wide range of investment products for institutional and

individual investors. The company is a part of the Tata group - one of India's

largest and most respected industrial group. The Tata Group is one of India's

best-known conglomerate in the private sector with a turnover of around US $

14.25 billion. As on April 30, 2007, Tata Asset Management Limited, had Rs.

15412.93 crores of assets under management.

Taurus Mutual Fund

Taurus Mutual Funds are handled by Taurus Asset Management

Company Limited, which was incorporated in 1994 under Companies

Act 1956 and authorized by SEBI to act as Asset Management

Company. Initially, IFC Washington, Edinburgh Fund Managers

(EFM) London and Lazard India Limited were the major shareholders of the

company. Over a period of time, some changes have taken place. The paid up

capital of the Company is Rs.12.55 crores. Presently, the majority shareholders

in the Company are HB Portfolio Limited, RRB Securities Ltd., and HB

Stockholdings Ltd. The main sources of income of the company are:

management fees charged from various schemes, and return on deployment of

net worth.

UTI Mutual Fund

UTI Mutual Fund came into existence on 1st February 2003.

Bank of Baroda (BOB), Punjab National Bank (PNB) and State

Bank of India (SBI) and Life Insurance Corporation of India (LIC)

are the sponsors of the UTI Mutual Fund. UTI Mutual Fund is managed by UTI

Asset Management Company Private Limited (AMC). UTI AMC is a registered

portfolio manager under the SEBI (Portfolio Managers) Regulations, 1993 for

undertaking portfolio management services and also acts as the manager and

marketer to offshore funds. UTI Mutual Fund has a nationwide network

consisting 70 UTI Financial Centers (UFCs) and UTI International offices in

London, Dubai and Bahrain.

Mutual Funds Distributed by J&K Bank……..

Jammu & Kashmir Bank (J&K Bank) which has emerged as a versatile banking choice and is in the process of negotiations with various foreign asset management companies for entering into a joint-venture for its proposed mutual fund venture. The bank has been approached by many foreign AMC’s, who have shown a keen interest in joining hands with it. The bank is in process of negotiations and if necessary, the bank is even willing to give the foreign partner a majority stake. The controlling stake is not a consideration for the bank as the bank is looking for total synergy. The AMC companies use an asset allocation pattern as: 65%-100% Equity and 0%-35% Debt.

Mutual fund industry has emerged as one of the fastest growing segment in financial service and has become an attractive proposition for investors in the current context. Over the years banks in India have emerged as the biggest distributor of financial products. The bank enjoys a kind of monopoly in J&K and is now looking for distribution of mutual fund as economic activities which is picking up. As forecasted 25-30% growth in the advances portfolio and also deposit growth supporting their low-cost deposits will be from J&K stake.

The joint-venture becomes important for J&K bank as it would provide the expertise required for running the asset management business. The bank already has a network of 400 branches, which could be leveraged to market the schemes. As the bank is not in need of money, since it already had an investment portfolio of more Rs 2,500 crore.

The bank, which was expecting to get the in-principle approval from the Securities Exchange Board of India (Sebi) by November, is still awaiting permission. The bank's assistant general manager, Mumbai, AK Durani said, "There were certain queries raised by the Reserve Bank of India (RBI) and Sebi, which we have replied to and expect to get the permission very soon."

The bank is expecting to get a registration within a week or so after the in-principle approval for the asset management company. The directors for the AMC as well as the trustees have already been identified. However, if the negotiations with a foreign AMC conclude before that, the board would be dissolved to include the directors of the foreign AMC if required.

The bank is likely to base the controlling office for the AMC in the North, where it has the maximum number of branches. However, it would also depend largely on what decision is arrived on after the induction of the joint venture partner. The bank has changed the policy in order to exploit the virgin market for mutual funds in Jammu & Kashmir where the bank has around 280 branches.

The mutual fund to be launched would come out with three schemes - debt, growth and a balanced scheme. The schemes will be designed with certain unique features by the key personnel of the AMC. J&K bank's deposits have grown 46 per cent against the national average of 13.50 per cent per cent. The total deposit of the bank crossed Rs 9,422 crore as on March 31, 2007. The net profit increased by 41 per cent at Rs 120 crore during the same period and the total investments increased by 44 per cent to Rs 4,254 crore as on March 31, 2007.

The bank is has MOU with various companies for mutual fund distribution in J&K State, The existing MOU with UTI Asset Management Company Private Limited (UTIAMC) for the distribution of their existing and new mutual fund products. The J&K Bank is highlighting the need of selling third party products in J&K through 400 branches. Going by the market trends there is need to diversify various service portfolios by selling more and more third party products so that bank can boost its non interest income. The target has been kept at 25 pc.

The Bank is in the process of consolidating infrastructure and the HR base to augment the expanding business needs as envisaged in the renewed growth strategy. For that purpose, bank has conducted many recruitment drives to appoint Relationship/ Financial Services Executives who would be appointed soon. The S&BD and T&ISD has developed an policy to move out from the ‘walking business’ mode and put in an extra effort to promote sales through better marketing practices and develop an extensive market reach and better HR base than its competitors.

As per Mr. Ashok Kumar, Regional Head UTI while admiring the professional approach of J&K Bank said that mutual funds were the vehicles to carry the benefits of 8% growth to common people. But the most effective channel to distribute such products is the bank, and here we have a tie-up with J&K Bank

the market leader in the valley, he added. The fund will be offered as 3-year close-ended equity scheme.

The scheme will invest in different sectors of infrastructure. The minimum investment amount for the said NFO shall be Rs 5000/- and in the multiples of Re1/- thereafter without any upper limit.

Need for selling mutual funds……..

To offer various financial products under single roof.

To increase the banks fee based income.

Bank’s vision of increasing the fee based income to 25% of total income by 2010.

Reduction of net interest margin of bank.

J&K Bank’s Tie – Ups with various AMC’s…….

Kotak Mahindra Asset Management Company

Reliance Capital Asset Management Company

UTI Asset Management Company

SBI Asset Management Company

Tie- ups in pipeline………

Birla Sunlife Asset Management Company

Sundaram BNP Paribas AMC

ING Vysya Asset Management Company

Tata Asset Management Company

Commission for distribution of mutual funds by J&K Bank…….

J&K Bank is distributing mutual fund products on commission basis.

The rate of commission depends upon the kind if NFO Distributed.

The commission rate varies from 2.5% to 4% of the total amount mobilized through J&K Bank.

Role of J&K Bank in Mutual Fund…….

J&K Bank has entered into tie-ups with reputed Asset Management Companies for distribution of Mutual Fund products. Mutual Fund industry is one of the fastest growing segments in financial services in India. Over the years, banks in India have emerged as the biggest distributors of financial products. This has helped the banks to capture and retain their huge client base and simultaneously adding a steady stream of fee based income.

Mutual Funds have become an attractive proposition for investors in the current context and for J&K Bank it will be a good investment option to have in our product portfolio. This shall be an important step towards converting the bank branch into a financial supermarket addressing all the financial needs of the customers thus helping the bank retain the customers within its fold.

Moreover the branch can augment its fee based income the Bank aims to match to industry standards. The AMC’s with which the Bank has entered into an arrangement are: UTI, Kotak and Reliance Mutual Fund.