INFORMATION ABOUT

ORGANIZATION

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INFORMATION ABOUT THE ORGANIZATION

Company Profile

About Religare

Religare is a diversified financial services group of India offering a multitude of

investment options The diverse bouquet of financial services which Religare offers can

be broadly clubbed across three key verticals - Retail, Institutional and Wealth spectrums.

The services extend from asset management, Life Insurance, wealth management to

equity broking, commodity broking, investment banking, lending services, private equity

and venture capital. Religare has also ventured into the alternative investments sphere

through its holistic arts initiative and Film fund. With a view to expand, diversify and

introduce offerings benchmarked against global best practices, Religare operates in the

life insurance space under 'Aegon Religare Life Insurance Company Limited’ and wealth

management under the brand name 'Religare Macquarie Private Wealth'.

Religare has a pan India presence, 1837* locations across 498* cities and towns. It also

currently operates from nine international locations following its acquisition of London's

brokerage & investment firm, Hichens, Harrison & Co. plc. (Now Religare Hichens,

Harrison Plc).

Its incorporation date is 30/01/1984 and its public issue date is 29/10/2007

Vision and Mission

Vision - To build Religare as a globally trusted brand in the financial services domain

and present it as the ‘Investment Gateway of India'.

Mission - Providing complete financial care driven by the core values of diligence and

transparency.

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Brand Essence - Core brand essence is Diligence and Religare is driven by ethical and

dynamic processes for wealth creation.

Group Companies

Religare believes in Diversification as diversification is very necessary to hedge the risk

Religare follow that basic concept that is presented in its group companies. Religare is

currently present in Healthcare, IT, Broking, Aviation and travel business, and film

Production. Below is the list of the group companies given.

Fortis Healthcare Limited

Super Religare Laboratories Limited (formerly SRL Ranbaxy)

Religare Wellness Limited (formerly Fortis Healthworld)

Religare Technova Limited

Religare Voyages Limited

Aegon Religare Life Insurance Company Limited

Religare Macquarie Private Wealth

Religare Securities limited

Global PresenceReligare is having international presence with the name of Religare Hichens, Harrison

Plc it is a leading integrated financial services group out of India. Hichens, Harrison &

Co. plc. (HH), established in 1803, is London's oldest independent Brokerage and

Investment firm with a global footprint. Post its acquisition through REL's indirect

subsidiary-Religare Capital Markets International (UK) Limited, HH has been

rechristened as Religare Hichens Harrison plc (RHH).

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Religare Securities Limited

Religare Securities Limited (RSL), a 100% subsidiary of Religare Enterprises Limited

is a leading equity and securities firm in India. The company currently handles sizeable

volumes traded on NSE and in the realm of online trading and investments; it currently

holds a reasonable share of the market. The major activities and offerings of the company

today are Equity Broking, Depository Participant Services, Portfolio Management

Services, International Advisory Fund Management Services, Institutional Broking and

Research Services, Mutual Funds, Insurance and Commodities. To broaden the gamut of

services offered to its investors, the company offers an online investment portal armed

with a host of revolutionary features.

RSL is a member of the National Stock Exchange of India, Bombay Stock Ex-

change of India, Depository Participant with National Securities Depository Lim-

ited and Central Depository Services (I) Limited, and is a SEBI approved Portfo-

lio Manager.

Religare has been constantly innovating in terms of product and services and to

offer such incisive services to specific user segments it has also started the NRI,

FII, HNI and Corporate Servicing groups. These groups take all the portfolio in-

vestment decisions depending upon a client’s risk / return parameter.

Religare has a very credible Research and Analysis division, which not only

caters to the need of our Institutional clientele, but also gives their valuable inputs

to investment dealers.

The ARN No. of the Religare Securities Ltd. is 33764. The ARN No. is required by to be

available with the broker who deals on behalf of investors or sell the mutual funds of the

different companies present in the market.

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Products and services

Portfolio Management Services

Equity and Derivative

Mutual Funds

Commodity

Depository

International equity & Commodity

Investment Advisory

Insurance

These are the major products and services offered by Religare Securities Limited.

MUTUAL FUNDS

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Mutual fund is defined as the fund managed by an investment company with the financial

objective of generating high Rate of Returns. These asset management or investment

management companies collects money from the investors and invests those money in

different stocks, bonds, short-term money market instruments, and/or other securities in a

diversified manner.

The term Mutual Fund is made up of two words if we break the word we will find that it

refers to funds that are raised and invested mutually. So if you and your friend both pool

your money and invest it jointly, you have created your own mutual fund.

Mutual fund is a trust that pools the savings of a number of investors who share a

common financial goal. The pool of money is than invested in accordance with a

particular objective. The money thus collected is then invested in capital market

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

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

proportion 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 collection of securities at a relatively low cost. Each shareholder

participates in the gain or loss of the fund. Units are issued and can be redeemed as

needed. The funds Net Asset value (NAV) is determined each day.

 

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Source: httpwww.appuonline.comgifsconcept-of-mutual-funds.gif.gif

When an investor subscribes for the units of a mutual fund, he becomes part owner of the

assets of the fund in the same proportion as his investment put up with the corpus (the

total amount of the fund). Mutual Fund investor is also known as a mutual fund

shareholder or a unit holder.

If there is any change in the investments made into capital market instruments (such a

shares, debentures, bonds etc) is reflected in the Net Asset Value (NAV) of the scheme.

NAV is defined as the market value of the Mutual Fund scheme's assets net of its

liabilities. The NAV is calculated by dividing the market value of scheme's assets by the

total number of units issued to the investors.

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For example:

1. If the market value of the assets of a fund is Rs. 10,00,000

2. The total number of units issued to the investors is equal to 1,00,000.

3. Then the NAV of this scheme = (A)/(B), i.e. 10,00,000/1,00,000 or 10.00

4. Now if an investor 'X' owns 5000 units of this scheme

5. Then his total contribution to the fund is Rs.50000

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ADVANTAGES OF MUTUAL FUND1. Portfolio Diversification Mutual Funds invest in a well-diversified portfolio of securities which enables investor to

hold a diversified investment portfolio (whether the amount of investment is big or

small).

2. Professional Management Fund manager undergoes through various research works and has better investment

management skills which ensure higher returns to the investor than what he can manage

on his own. Fund manager is basically indulge himself 24 hours in keeping a track over

the stocks in the portfolio as he is paid for the same and his reputation and career is also

very much related with that work which a person who is employed in some other work

cannot do.

3. Reduction/Diversification of Risk Investors acquire a diversified portfolio of securities even with a small investment in a

Mutual Fund. As it is the basic rule that more diversified is your portfolio less risk is

there. The risk in a diversified portfolio is lesser than investing in merely 2 or 3

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

While investing in a pool of funds with other investors, any loss on one or two securities

is also shared.

4. Reduction of Transaction Costs With the large amount of the investment from different investors economies of scale

(benefits of larger volumes) sets in, mutual funds pay lesser transaction costs because of

large volumes. A benefit passed on to the investors.

5. Liquidity Mutual fund is comparable to the average price of all the shares which an investor would

have bought. So in case of a mutual fund its much easier to exit as compare to equity.An

investor may not be able to sell some of the shares held by him very easily and quickly,

whereas units of a mutual fund are far more liquid.

6. Choice of Schemes

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Mutual funds provide investors with various schemes with different investment

objectives. Investors have the option of investing in a scheme having a correlation

between its investment objectives and their own financial goals. These schemes further

have different plans/options

7. Transparency Funds provide investors with updated information pertaining to the markets and the

schemes. All material facts are disclosed to investors as required by the regulator.

8. Convenience and Flexibility Asset management companies offer many investor services that a direct market investor

cannot get. Investors can switch their holdings from a debt scheme to an equity scheme

and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is

also offered to the investors in most open-end schemes.

9. Safety Mutual Fund industry is part of a well-regulated investment environment where the

interests of the investors are protected by the regulator. All funds are registered with

SEBI and complete transparency is forced.

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DISADVANTAGES OF MUTUAL FUND

1. Costs Control Not in the Hands of an Investor

Investor has to pay investment management fees and fund distribution costs as a

percentage of the value of his investments (as long as he holds the units), irrespective of

the performance of the fund.

2. No Customized Portfolios

The portfolio of securities in which a fund invests is a decision taken by the fund

manager. Investors have no right to interfere in the decision making process of a fund

manager, which some investors find as a constraint in achieving their financial objectives.

3. Difficulty in Selecting a Suitable Fund Scheme

Many investors find it difficult to select one option from the plethora of

funds/schemes/plans available. For this, they may have to take advice from financial

planners in order to invest in the right fund to achieve their objectives.

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BRIEF HISTORY OF

ORGANIZATION

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BRIEF HISTORY OF ORGANIZATIONHistory of Mutual Funds in India

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

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

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

then, the history of mutual funds in India can be broadly divided into six distinct phases.

Phase 1- 1964-87: Growth of Unit Trust of IndiaIn 1963, UTI was established by an act of Parliament. As it was the only entity offering

mutual funds in India, it was a monopoly. Operationally, UTI was set up by the Reserve

Bank of India, but was later de-linked from the RBI. The first scheme, and for long one

of the largest, launched by UTI was Unit Scheme 1964. Over the years, US-64 attracted

the largest number of investors in any single investment scheme. It was also at least

partially the first open- end scheme in the country.

Later in 1970s and 80s, UTI started innovating and offering different schemes to suit the

needs of different classes of investors. Unit Linked Insurance Plan (ULIP) was launched

in 1971. Six new schemes were introduced between 1981 and 1984. During 1984-87, new

schemes such as Children’s Gift Growth Fund (1986) and Master share (1987) were

launched. Master share could be termed as the first diversified equity investment scheme

in India. The first Indian offshore fund, India Fund, was launched in August 1986. During

1990s, UTI catered to the demand for income- oriented schemes by launching Monthly

Income Schemes, a somewhat unusual mutual fund offering “assured returns”.

In absolute terms, the investible funds corpus of UTI was about Rs 600 crores in 1984.

By 1987-88, assets under management of UTI had grown ten times to Rs. 6,700 cr.

Phase 2- 1987-1993: Entry of Public Sector Funds1987 marked the entry of other public sector mutual funds. With the opening up of the

economy, many public sector banks and financial institutions were allowed to establish

mutual funds. State Bank of India established the first non- UTI mutual fund- SBI Mutual

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Fund- in November 1987. This was followed by Can bank Mutual Fund, LIC Mutual

Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB

Mutual Fund. These funds helped in enlarging the investor community and the investible

funds. From 1987-88 to 1992-93, the assets under management increased from Rs.

6,700cr. to Rs. 47,004 cr., nearly seven times.

1992-93

Amount Mobilized(Rs Crores)

Assets UnderManagement(Rs Crores)

Mobilization As %Of Gross DomesticSavings

UTI 11,057 38,247 5.2%

Public Sector 1,964 8,757 0.9%

Total 13,021 47,004 6.1%

During this period, investors showed a marked interest in mutual funds, allocating a large

part of their savings to investments in the funds. UTI was still the largest segment of the

industry, with amount 80% market share.

Phase 3- 1993-1996: Emergence of Private Funds A new era in the mutual fund industry began in 1993 with the permission granted for the

entry of private sector funds. This gave the Indian investors a broader choice of “fund

families” and increasing competition to the existing public sector funds. Quite

significantly, foreign fund management companies were also allowed to operate mutual

funds, most of them coming into Indian through their joint ventures with Indian

promoters. These private funds have brought in with them the latest product innovations,

investment management techniques and investor-servicing technology that make the

Indian mutual fund industry today a vibrant and growing financial intermediary.

During the year 1993-94, five private sector mutual funds launched their schemes

followed by six others in 1994-95. Initially, mobilization of funds by the private mutual

funds was slow. But, this segment of the fund industry began to witness much greater

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investor confidence in due course. One influencing factor was the development of SEBI’s

regulatory framework for the Indian mutual fund industry. Yet important factor has been

the steadily improving performance of several fund houses. Investors in India now clearly

saw the benefits of investing through mutual funds and became discerning and selective.

Phase 4- 1996-99: Growth and SEBI RegulationSince 1996, the mutual fund industry in India saw tighter regulation and higher growth. It

scaled new heights in terms of mobilization of funds and number of players. Deregulation

and liberalization of the Indian economy had introduced competition and provided

impetus to the growth of the industry. Finally, most investors - small or large- started

showing interest in mutual funds.

Measures were taken both by SEBI to protect the investor and by the Government to

enhance investors’ returns through tax benefits. A comprehensive set of regulations for

all mutual funds operating in India was introduced with SEBI (Mutual Fund)

Regulations, 1996. These regulations set uniform standards for all funds. The erstwhile

UTI voluntarily adopted SEBI guidelines for its new schemes. Similarly, the budget of

Union Government in 1999 took a big step in exempting all mutual funds dividends from

income tax in the hands of investors. Both the 1996 regulations and the 1999 Budget

must be considered of historic importance, given their far- reaching impact on the fund

industry.

During this phase, both SEBI and AMFI launched Investor Awareness Programmes

aimed at educating the investors about investing through mutual funds. AMFI published

its booklet titled “Making Mutual Funds Work For You- the Investors’ Guide.”

Phase 5- 1999-2004: Emergence of a large and uniform industryThe other major development in the fund industry has been the creation of a level playing

field for all mutual funds operating in India. This happened in February 2003, when the

UTI act was repealed. Unit Trust of India no longer has a special legal status as a trust

established by an act of Parliament. Instead, it has also adopted the same structure as any

other fund in India- a Trust and an Asset Management Company. UTI Mutual Fund is the

present name of the erstwhile Unit Trust of India. While UTI functioned under a separate

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law of Indian parliament earlier, UTI Mutual Fund is now under the SEBI’s (Mutual

Funds) Regulations, 1996 like all other mutual funds in India. UTI Mutual Fund is still

the largest player in the Indian fund industry. All SEBI compliant schemes of the

erstwhile UTI are under its charge. All new schemes offered by UTI Mutual Fund are

SEBI approved. Other schemes of erstwhile UTI have been placed with a special

undertaking administered by the Government of India. These schemes are being

gradually wound up.

The emergence of a uniform industry with the same structure, operations and regulations

makes it easier for distributors and investors to deal with any fund house in India.

1999 marked the beginning of a new phase in the history of the mutual fund industry in

India, a phase of significant growth in terms of both amounts mobilized from investors

and assets under management. Consider the data below:

Gross Fund Mobilization (Rs. Crores)

From To UTI Public

Sector

Private

Sector

Total

01-April-98 31-March-99 11,679 1,732 7,966 21,377

01-April-99 31-March-00 13,536 4,039 42,173 59,748

01-April-00 31-March-01 12,413 6,192 72,352 92,957

01-April-01 31-March-02 4,643 13,163 1,46,267 1,64,523

01-April-02 31-March-03 5,505 22,923 2,20,551 2,48,979

01-April-03 31-March-03 7,259 58,435 65,694

01-April-03 31-March-04 68,558 5,21,632 5,90,190

01-April-04 31-March-05 1,03,246 7,36,416 8,39,662

01-April-05 31-March-06 1,83,446 9,14,712 10,98,158

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Assets Under Management(Rs. Crores)

As On UTI Public Sector Private Sector Total

31-March-99 53,320 8,292 6,860 68,472

31-March-00 76,547 11,412 25,046 1,13,005

31-March-01 58,017 6,840 25,730 90,587

31-March-02 51,434 8,204 40,956 1,00,594

31-March-03 44,541 12,228 65,036 1,21,805

31-March-03 23,942 55,522 79,464

31-March-04 34,624 1,04,992 1,39,616

31-March-05 32,113 1,17,441 1,49,554

31-March-06 50,348 1,81,514 2,31,862

Between 1999 and 2005, the size of the industry has doubled in terms of assets under

management which have gone from about Rs. 68,000 crores to over Rs. 150,000 crores.

Within the growing industry, the relative market shares of different players in terms of

amount mobilized and assets under management have also undergone changes.

The following chart portrays the relative shares of the different fund categories of the

mutual fund industry in India during the phases discussed above.

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INCOME STATEMENT

Industry : Finance - General BSE

Code : 532915 Book Closure : 25/09/2009

Group : Religare NSE Code : RELIGARE Market Cap

:Rs. 5,023.58 Cr.

ISIN No : INE621H01010 Market Lot : 1 Face

Value : Rs. 10.00

Quarterly Results 2009-2010

 

Annual Results/ Quarterly Results 2008-2009

Quarterly Results

Results Financials Press Release Investor Presentation

Quarter Ended Dec'08    

Quarter Ended Sep'08    

Quarter Ended

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Jun'08

Annual Results

Financials Press Release Investor Presentation

Annual Report

- -

 

Annual Results 2007-2008

 

(Rs in Cr.)

  Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05

Income :

Operating Income  12.55  31.85  15.38  4.59  0.05

 

Expenses

Material Consumed  0.00  0.00  0.00  0.00  0.00

Manufacturing Expenses  0.00  0.00  0.00  0.00  0.00

Personnel Expenses  9.88  1.77  0.31  0.01  0.00

Selling Expenses  0.90  1.09  0.07  0.00  0.00

Adminstrative Expenses  12.44  4.13  1.27  0.06  0.02

Expenses Capitalised  -7.14  -2.48  -0.73  0.00  0.00

 

Cost Of Sales  16.08  4.51  0.92  0.07  0.02

 

Operating Profit  -3.53  27.34  14.47  4.52  0.03

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Other Recurring Income  14.89  0.05  0.00  0.00  0.00

 

Adjusted PBDIT  11.37  27.39  14.47  4.52  0.03

 

Financial Expenses  21.04  4.04  1.61  0.05  0.11

Depreciation  0.31  0.05  0.00  0.00  0.00

Other Write offs  0.00  0.00  0.19  0.00  0.00

 

Adjusted PBT  -9.99  23.31  12.67  4.47  -0.08

 

Tax Charges  5.93  -0.13  0.87  0.00  0.00

 

Adjusted PAT  -15.91  23.44  11.80  4.47  -0.08

Non Recurring Items  0.00  0.00  0.00  0.00  0.00

Other Non Cash adjustments  -0.05  0.01  -0.60  -0.71  -0.06

 

Reported Net Profit  -15.96  23.45  11.80  4.47  -0.08

 

Earnigs Before Appropriation  -6.51  30.72  15.55  3.57  -0.19

 

Equity Dividend  0.00  17.39  6.74  0.00  0.00

Preference Dividend  0.00  0.00  0.00  0.00  0.00

Dividend Tax  0.00  1.53  0.95  0.00  0.00

Retained Earnings  -6.51  11.80  7.86  3.57  -0.19

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1987-88 1992-93 1998-99 1999-00 2004-05 2005-06

UTIPrivate sector

Public sector

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1987-88 1992-93 1998-99 1999-00 2004-05 2005-06

UTIPrivate sector

Public sector

Mutual Fund Mobilization

Mutual Fund Asset Under Management

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The other major development in the fund industry has been the creation of a level playing

field for all mutual funds operating in India. This happened in February 2003, when the

UTI Act was repealed. Unit Trust of India no longer has a special legal status as a trust

established by an Act of Parliament. Instead, it has also adopted the same structure as any

other fund in India- a Trust and an Asset Management Company. UTI Mutual fund is also

now fully governed by SEBI with the same regulations as for all other mutual funds. The

emergence of a uniform industry with the same structure, operations and regulations

makes it easier for the distributors and investors to deal with any fund house in India.

UTI Mutual Fund is still the largest player in the Indian fund industry. All SEBI

compliment schemes of the erstwhile UTI are under its charge. Other schemes of

erstwhile UTI have been placed with a special undertaking administered by the

Government of India. These schemes are being gradually wound up.

Phase 6- From 2004 onwards: Consolidation and GrowthThe industry has lately witnessed a spate of mergers and acquisitions, most recent ones

being the acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C

Mutual Fund by Principal and PNB Mutual Fund by Principal. At the same time, more

international players continue to enter India, including Fidelity, one of the largest funds

in the world. The stage is set now for growth through consolidation and entry of new

international and private sector players. As the end of March 2006, there were 29 funds.

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STRUCTURE PERFORMANCE

PRODUCTS

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STRUCTURE PERFORMANCE PRODUCTS Structure of Mutual Funds in India

Source:httpwww.hsbc.co.in1PA_1_1_S5contentwebsiteimagesinvestmentsgraph_02.gif

The Mutual Funds are structured in two forms: Company form and Trust form.

Company Form : These forms of mutual funds are more popular in US.

Trust Form : In India, mutual funds are organized as Trusts. The Trust is either

managed by a Board of Trustees or by a Trustee Company.

There must be at least 4 members in the Board of Trustees and at least 2/3 of the

members of the board must be independent. Trustee of one mutual fund cannot be

a trustee of another mutual fund.

Trust – Constituents:A Mutual Fund is set up in the form of a Trust which has the following constituents:-

1. Fund Sponsor

2. Mutual Fund as Trust

3. Asset Management Company

4. Other Fund Constituents

Custodian and Depositors

Brokers

Transfer Agent

Distributor

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FUND SPONSOR“Sponsor” is defined under SEBI regulation as any person who. Acting alone or in

combination with another body corporate, establishes a mutual fund. The sponsor of a

fund is akin to the promoter of a company as he gets the fund registered with SEBI. The

sponsor will form a trust and appoint a Board of Trustees. The sponsor will also generally

appoint Asset Management Company as fund Manger. The Sponsor, either directly or

acting through the Trustees, will also appoint a Custodian to hold the fund assets. All

these appointments are made in accordance with SEBI regulations

Mutual Fund as TrustsA mutual fund is constituted in the form of a Public Trust Created under the Indian Trusts

Act, 1882. The Fund sponsor acts as the settler of the trust, contributing to its initial

capital, and appoints a Trustee to hold the assets of the trust for the benefit of unit-

holders, who are the beneficiaries of the trust. The fund Then invites investor to

contribute their Money in the common pool, by subscribing to “units” issued by various

schemes established by the trust units being the evidence of their beneficial intrest in the

fund.

TrusteesThe Trust – the mutual fund – may be managed by Board of Trustees – a body of

individuals, or a trust Company - a corporate body. Most of the funds in India are

managed by Board of Trustees. While the Board of Trustees is governed by the provision

of the Indian trust Act, where the trustees are a corporate body, it would also be required

to comply with the provision of companies Act1, 1956. The Board of Trustees, as an

independent body acts as protector of the unit holders’ interest.

The trustees do not directly manage the portfolio of securities. For this function they

Appoint Asset management Company (AMC). They ensure that the fund is managed by

AMC as per the defined objective and in accordance with the trust deed and SEBI

regulations

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Rights of the Trustees: Trustees appoint the AMC in consultation with the sponsor and according to the

SEBI Regulations.

All Mutual Fund Schemes floated by the AMC have to be approved by the

Trustees.

Trustees can seek information from the AMC regarding the operations and

compliance of the mutual fund.

Trustees can seek remedial actions from AMC, and in cases can dismiss the

AMC.

Trustees review and ensure that the net worth of the AMC is according to the

stipulated norms, every quarter.

Obligations of the Trustees: Trustees must ensure that the transactions of the mutual fund are in accordance

with the trust deed.

Trustees must ensure that the AMC has systems and procedures in place.

Trustees must ensure due diligence on the part of AMC in the appointment of

constituents and business associates.

Trustees must furnish to the SEBI, on half yearly basis a report on the activities of

the AMC.

Trustees must ensure compliance with SEBI Regulations.

ASSET MANAGEMENT COMPANY (AMC)The role of an AMC is to act as the Investment manager of the trust.

The sponsor, or the trustees, if so authorized by the Trust Deed, appoints By AMC. The

AMC so appointed is required to be approved by the SEBI. AMC function under the

supervision of its own Board of Directors, and also under the direction of the trustees and

SEBI

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Regulatory requirements for the AMC: Only SEBI registered AMC can be appointed as investment managers of mutual

funds.

AMC must have a minimum net worth of Rs.10 crores at all times.

An AMC cannot be an AMC or Trustee of another Mutual Fund.

AMCs cannot indulge in any other business, other than that of asset management

At least half of the members of the Board of an AMC have to be independent.

The 4th schedule of SEBI Regulations spells out rights and obligations of both

trustees and AMCs.

The AMC must always act in the interest of the asset management company,

SEBI mandates that a minimum of 50% of the directors of the board of the assets

management company should be independent directors

CUSTODIANA custodian handles the investment back office of a mutual fund. Its responsibilities

include receipt and delivery of securities, collection of income, distribution of dividends

and segregation of assets between the schemes. It also track corporate actions like bonus

issues, right offers, offer for sale, buy back and open offers for acquisition. The sponsor

of a mutual fund cannot act as a custodian to the fund. This condition, formulated in the

interest of investors, ensures that the assets of a mutual fund are not in the hands of its

sponsor. For example, Deutsche Bank is a custodian, but it cannot service Deutsche

Mutual Fund, its mutual fund arm.

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BROKERS

Role of Brokers in a Mutual Fund: They enable the investment managers to buy and sell securities.

Brokers are the registered members of the stock exchange.

They charge a commission for their services.

In some cases, provide investment managers with research reports.

Act as an important source of market information.

REGISTRAR OR TRANSFER AGENTSRegistrars, also known as the transfer agents, are responsible for the investor servicing

functions. This includes issuing and redeeming units, sending fact sheets and annual

reports. Some fund houses handle such functions in-house. Others outsource it to the

Registrars; Karvy and CAMS are the more popular ones. It doesn’t really matter which

model your mutual fund opt for, as long as it is prompt and efficient in servicing you.

Most mutual funds, in addition to registrars, also have investor service centers of their

own in some cities.

Some of the investor – related services are:-

Processing investor applications.

Recording details of the investors.

Sending information to the investors.

Processing dividend payout.

Incorporating changes in the investor information.

DISTRIBUTORSRole of Selling and Distribution Agents:

Selling agents bring investor’s funds for a commission.

Distributors appoint agents and other mechanisms to mobilize funds from the investors.

Banks and post offices also act as distributors.

29

The commission received by the distributors is split into initial commission which

is paid on mobilization of funds and trail commission which is paid depending on

the time the investor stays with the fund.

30

Types of Mutual Funds

Source: httpwww.karvymfs.comimagestypes_mutual-funds.jpg.gif

Open-end FundsFunds that can sell and repurchase units at anytime are classified as Open-end Funds. The

fund size (corpus) of an open-end fund is variable (keeps changing) because of

continuous selling (to investors) and repurchases (from the investors) by the fund. An

open-end fund is not required to keep selling new units to the investors at all times but is

required to always repurchase, when an investor wants to sell his units. The NAV of an

open-end fund is calculated every day.

31

Closed-end FundsFunds that can sell a fixed number of units only during the New Fund Offer (NFO) period

are known as Closed-end Funds. The corpus of a Closed-end Fund remains unchanged at

all times. After the closure of the offer, buying and redemption of units by the investors

directly from the Funds is not allowed. However, to protect the interests of the investors,

SEBI provides investors with two avenues to liquidate their positions:

1. Closed-end Funds are listed on the stock exchanges where investors can buy/sell

units from/to each other similar to that of buying of selling of shares . The trading is

generally done at a discount to the NAV of the scheme. The NAV of a closed-end fund is

computed on a weekly basis

2.Sometimes closed ended funds do offer “Buy back of funds shares/units”, thus

offering another avenue for liquidity.

Load FundsMutual Funds incur various expenses on marketing, distribution, advertising, portfolio

churning, fund manager's salary etc. Many funds recover these expenses from the

investors in the form of load. These funds are known as Load Funds. A load fund may

impose following types of loads on the investors:

* Entry Load - Also known as Front-end load, it refers to the load charged to an

investor at the time of his entry into a scheme. Entry load is deducted from the investor's

contribution amount to the fund.

* Exit Load - Also known as Back-end load, these charges are imposed on an investor

when he redeems his units (exits from the scheme). Exit load is deducted from the

redemption proceeds to an outgoing investor.

* Deferred Load - Deferred load is charged to the scheme over a period of time.

* Contingent Deferred Sales Charge (CDSS) - In some schemes, the percentage of exit

load reduces as the investor stays longer with the fund. This type of load is known as

Contingent Deferred Sales Charge.

32

No-load FundsAll those funds that do not charge any of the above mentioned loads are known as No-

load Funds.

Tax-exempt FundsFunds that invest in securities free from tax are known as Tax-exempt Funds. All open-

end equity oriented funds are exempt from distribution tax (tax for distributing income to

investors). Long term capital gains and dividend income in the hands of investors are tax-

free.

Non-Tax-exempt FundsFunds that invest in taxable securities are known as Non-Tax-exempt Funds. In India, all

funds, except open-end equity oriented funds are liable to pay tax on distribution income.

Profits arising out of sale of units by an investor within 12 months of purchase are

categorized as short-term capital gains, which are taxable. Sale of units of an equity

oriented fund is subject to Securities Transaction Tax (STT). STT is deducted from the

redemption proceeds to an investor.

33

34

Source: The Times of India (Times Business)

Source: httpwww.appuonline.comgifsmutual-fund-types.gif.gif

1. Equity FundsEquity funds are considered to be the more risky funds as compared to other fund types, but

in terms of returns equity funds also provide higher returns than other funds. It is advisable

that an investor looking to invest in an equity fund should invest for long term i.e. for 3 years

or more. There are different types of equity funds each falling into different risk category. In

the order of decreasing risk level, there are following types of equity funds:

35

1.1. Aggressive Growth Funds - There are many types of stocks/shares available

in the

market. Blue chips that are recognized market leaders, less researched stocks that are

considered to have future growth potential, and even some speculative stocks of

somewhat known or unproven issuers. In Aggressive Growth Funds, fund managers

aspire for maximum capital appreciation and invest in less researched shares of

speculative nature. Because of these speculative investments. Consequently they tend to

be more volatile and riskier than other funds.

1.2. Growth Funds - Growth Funds also invest for capital appreciation (with time

horizon of 3 to 5 years) but they are different from Aggressive Growth Funds in the sense

that they invest in companies that are expected to outperform the market in the future.

Without entirely adopting speculative strategies, Growth Funds invest in those companies

that are expected to post above average earnings in the future. Thus these funds are less

volatile than aggressive growth.

1.3. Equity Income or Dividend Yield Funds - The objective of Equity Income

or Dividend Yield Equity Funds is to generate high recurring income and steady capital

appreciation for investors by investing in those companies which issue high dividends

(such as Power or Utility companies whose share prices fluctuate comparatively lesser

than other companies' share prices). Equity Income or Dividend Yield Equity Funds are

generally exposed to the lowest risk level as compared to other equity funds.

As an example, an Equity Income Fund would invest largely in Power/Utility companies’

shares of established companies that pay higher dividends.

1.4. Diversified Equity Funds - A fund that seeks to invest only in equities, expect

for a very small portion in liquid money market securities, but is not focused on any one

or few sectors or shares, may be termed a diversified equity fund. Except for a small

portion of investment in liquid money market, diversified equity funds invest mainly in

equities without any concentration on a particular sector(s). These funds are well

diversified and reduce sector-specific or company-specific risk. However, like all other

36

funds diversified equity funds too are exposed to equity market risk. One prominent type

of diversified equity fund in India is Equity Linked Savings Schemes (ELSS). As per the

mandate, a minimum of 90% of investments by ELSS should be in equities at all times.

ELSS investors are eligible to claim deduction from taxable income (up to Rs 1 lakh) at

the time of filing the income tax return. ELSS usually has a lock-in period and in case of

any redemption by the investor before the expiry of the lock-in period makes him liable

to pay income tax on such income(s) for which he may have received any tax

exemption(s) in the past.

1.5. Equity Index Funds - Equity Index Funds have the objective to match the

performance of a specific stock market index. The portfolio of these funds consists of the

same companies that form the index and is exactly in the same proportion as the index.

Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex) are less risky

than equity index funds that follow narrow sectoral indices (like BSEBANKEX or CNX

Bank Index etc). Narrow indices are less diversified and therefore, are more risky.

1.6. Value Funds - Value Funds invest in those companies that have sound

fundamentals and whose share prices are currently under-valued. The portfolio of these

funds comprises of shares that are trading at a low Price to Earning Ratio (Market Price

per Share / Earning per Share) and a low Market to Book Value (Fundamental Value)

Ratio. Value Funds try to seek out fundamentally sound companies whose shares are

currently under- priced in the market. Value Funds will add only those shares to their

portfolios that are selling at low price- earnings ratios, low market to book value ratios

and are believed to be undervalued compared to their true potential. Value Funds may

select companies from diversified sectors and are exposed to lower risk level as

compared to growth funds or specialty funds. Value stocks are generally from cyclical

industries (such as cement, steel, sugar etc.) which make them volatile in the short-term.

Therefore, it is advisable to invest in Value funds with a long-term time horizon as risk in

the long term, to a large extent, is reduced. It is advisable to invest for a long term in a

value fund

37

The one example of a Value Fund in India is Templeton Fund, which has in its portfolio

shares of Cement/Aluminium and other cyclical industries. Prices of such shares may

fluctuate more than the overall market in both bull and bear markets, making such value

funds more risky than diversified funds in the short- term.

1.7. Specialty Funds - Specialty Funds have stated criteria for investments and their

portfolio comprises of only those companies that meet their criteria. Criteria for some

specialty funds could be to invest/not to invest in particular regions/companies. Specialty

funds are concentrated and thus, are comparatively riskier than diversified funds.. These

funds have a narrow portfolio orientation and invest in only companies that meet pre-

defined criteria. However, most specialty funds tend to be concentrated funds, since

diversification is limited to one type of investment. Clearly, concentrated specialty funds

tend to be more volatile than diversified funds. There are following types of specialty

funds

:

1.7.1 Sector Funds: Sector funds are those equity funds whose portfolio

consists of investments in a particular sector/industry of the market. The exposure

of these funds is limited to a particular sector (say Information Technology, Auto,

Banking, Pharmaceuticals or Fast Moving Consumer Goods) that is why they are

more risky than equity funds as these funds carry sector as well as company

specific risk than a diversified equity fund.

1.7.2. Foreign Securities Funds: These funds invest in equities in one or

more foreign countries thereby achieving diversification across the country’s

border. However theyalso have additional risks such as foreign exchange rate

risk- and their performance depends on the economic conditions of the countries

they invest in. Foreign Securities Equity Funds may invest in a single country or

many countries. Foreign Securities Equity Funds have the option to invest in one

or more foreign companies. Foreign securities funds achieve international

diversification and hence they are less risky than sector funds. However, foreign

securities funds are exposed to foreign exchange rate risk and country risk.

1.7.3. Mid-Cap or Small-Cap Funds: Funds that invest in companies having

lower market capitalization than big blue chip companies are called Mid-Cap or

38

Small-Cap Funds. Market capitalization of Mid-Cap companies is less than that of

big, blue chip companies (less than Rs. 2500 crores but more than Rs. 500 crores)

and Small-Cap companies have market capitalization of less than Rs. 500 crores.

Market Capitalization of a company can be calculated by multiplying the market

price of the company's share by the total number of its outstanding shares in the

market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of

Large-Cap Companies which gives rise to volatility in share prices of these

companies and consequently, investment gets risky. They may thus be more

volatile than other funds, as mid-size or smaller companies’ shares are not very

liquid in the markets. In terms of risk characteristics, small company funds may

be aggressive- growth or just growth type. In terms of investment style, some of

these funds may also be “value investors”.

1.7.4. Option Income Funds*: While not yet available in India, Option

Income Funds write options on a large fraction of their portfolio. Proper use of

options can help to reduce volatility, which is otherwise considered as a risky

instrument. These funds invest in big, high dividend yielding companies, and then

sell options against their stock positions, which generate stable income for

investors.

2. Money Market / Liquid FundsMoney market / liquid funds invest in short-term (maturing within one year) interest bearing

debt instruments. These securities are highly liquid and provide safety of investment, thus

making money market / liquid funds the safest investment option when compared with other

mutual fund types. However, even money market / liquid funds are exposed to the interest

rate risk. The typical investment options for liquid funds include Treasury Bills (issued by

governments), Commercial papers (issued by companies) and Certificates of Deposit (issued

by banks).

39

3. Hybrid FundsAs the name suggests, hybrid funds are those funds whose portfolio includes a blend of

equities, debts and money market securities. Hybrid funds have an equal proportion of debt

and equity in their portfolio. There are following types of hybrid funds in India:

3.1. Balanced Funds - The portfolio of balanced funds include assets like debt

securities, convertible securities, and equity and preference shares held in a relatively

equal proportion. The objectives of balanced funds are to reward investors with a regular

income, moderate capital appreciation and at the same time minimizing the risk of capital

erosion. Balanced funds are appropriate for conservative investors having a long term

investment horizon.

3.2. Growth-and-Income Funds - Funds that combine features of growth funds

and income funds are known as Growth-and-Income Funds. These funds invest in

companies having potential for capital appreciation and those known for issuing high

dividends. The level of risks involved in these funds is lower than growth funds and

higher than income funds.

3.3. Asset Allocation Funds - Mutual funds may invest in financial assets like

equity, debt, money market or non-financial (physical) assets like real estate,

commodities etc.. Asset allocation funds adopt a variable asset allocation strategy that

allows fund managers to switch over from one asset class to another at any time

depending upon their outlook for specific markets. In other words, fund managers may

switch over to equity if they expect equity market to provide good returns and switch

over to debt if they expect debt market to provide better returns. It should be noted that

switching over from one asset class to another is a decision taken by the fund manager on

the basis of his own judgment and understanding of specific markets, and therefore, the

success of these funds depends upon the skill of a fund manager in anticipating market

trends.

4. Debt / Income FundsFunds that invest in medium to long-term debt instruments issued not only by government

but also by private companies banks and other entities belonging to various sectors (like

40

infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk

profile funds that seek to generate fixed current income (and not capital appreciation) to

investors. In order to ensure regular income to investors, debt (or income) funds distribute

large fraction of their surplus to investors. Although debt securities are generally less risky

than equities, they are subject to credit risk (risk of default) by the issuer at the time of

interest or principal payment. To minimize the risk of default, debt funds usually invest in

securities from issuers who are rated by credit rating agencies and are considered to be of

"Investment Grade". Debt funds that target high returns are more risky. However, as

compared to the money market/liquid funds, they do have a higher price fluctuation risk,

since they invest in longer- term securities. Similarly, as compared to Gilt Funds, general

debt funds do have a higher risk of default by their borrowers. Income funds that target high

returns can face more risks

Based on different investment objectives, there can be following types of debt funds:

4.1. Diversified Debt Funds - Debt funds that invest in all debt securities issued by

entities across all industries and sectors of the market are known as diversified debt

funds. The best feature of diversified debt funds is that investments are properly

diversified into all sectors which results in risk reduction. Any loss incurred, on account

of default by a debt issuer, is shared by all investors which further reduces risk for an

individual investor. While debt funds offer high income and less risk than equity funds,

investors need to recognize that debt securities are subject to risk of default by the issuer

on payment of interest or principal.

4.2. Focused Debt Funds - Unlike diversified debt funds, focused debt funds are

narrow focus funds that are confined to investments in selective debt securities, issued by

companies of a specific sector or industry or origin. Some examples of focused debt

funds are sector, specialized and offshore debt funds, funds that invest only in Tax Free

Infrastructure or Municipal Bonds. Although not yet available in India, these funds are

conceivable and may be offered to investors very soon. They have a substantial part of

their portfolio invested in debt instruments and are therefore more income oriented and

inherently less risky than equity funds. The central point to note is that all these narrow-

focus funds have greater risk than diversified debt funds.

41

4.3. High Yield Debt funds - . But, High Yield Debt Funds adopt a different

strategy and prefer securities issued by those issuers who are considered to be of "below

investment grade". The motive behind adopting this sort of risky strategy is to earn higher

interest returns from these issuers. These funds are more volatile and bear higher default

risk, although they may earn at times higher returns for investors. Usually, Debt Funds

control the default risk by investing in securities issued by borrowers who are rated by

credit rating agencies and are considered to be of “investment grade”.

4.4. Assured Return Funds - Although it is not necessary that a fund will meet its

objectives or provide assured returns to investors, but there can be funds that come with a

lock-in period and offer assurance of annual returns to investors during the lock-in

period. Any shortfall in returns is suffered by the sponsors or the Asset Management

Companies (AMCs). These funds are generally debt funds and provide investors with a

low-risk investment opportunity. However, the security of investments depends upon the

net worth of the guarantor (whose name is specified in advance on the offer document).

To safeguard the interests of investors, SEBI permits only those funds to offer assured

return schemes whose sponsors have adequate net-worth to guarantee returns in the

future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans of

UTI) that assured specified returns to investors in the future. UTI was not able to fulfill

its promises and faced large shortfalls in returns. Eventually, government had to intervene

and took over UTI's payment obligations on itself. Currently, no AMC in India offers

assured return schemes to investors, though possible.

4.5. Fixed Term Plan Series - Fixed Term Plan Series usually are closed-end

schemes having short term maturity period (of less than one year) that offer a series of

plans and issue units to investors at regular intervals. Unlike closed-end funds, fixed term

plans are not listed on the exchanges. Fixed term plan series usually invest in debt /

income schemes and target short-term investors. The objective of fixed term plan

schemes is to gratify investors by generating some expected returns in a short period.

42

5. Gilt FundsGilt are also known as Government Securities, Gilt Funds invest in government papers

(named dated securities) having medium to long term maturity period. Issued by the

Government of India, these investments have little credit risk (risk of default) and provide

safety of principal to the investors. However, like all debt funds, gilt funds too are exposed to

interest rate risk. Interest rates and prices of debt securities are inversely related and any

change in the interest rates results in a change in the NAV of debt/gilt funds in an opposite

direction. Gilt securities, like all debt securities, face interest rate risk. Debt securities’ prices

fall when interest rate levels increase. Investors have to understand the potential changes in

NAVs of gilt funds on account of changes in interest rates in the economy.

6. Commodity FundsThose funds that focus on investing in different commodities (like metals, food grains, crude

oil etc.) or commodity companies or commodity futures contracts are termed as Commodity

Funds. A commodity fund that invests in a single commodity or a group of commodities is a

specialized commodity fund and a commodity fund that invests in all available commodities

is a diversified commodity fund and bears less risk than a specialized commodity fund.

"Precious Metals Fund" and Gold Funds (that invest in gold, gold futures or shares of gold

mines) are common examples of commodity funds.

7. Real Estate FundsFunds that invest directly in real estate or lend to real estate developers or invest in

shares/securitized assets of housing finance companies, are known as Specialized Real Estate

Funds. The objective of these funds may be to generate regular income for investors or

capital appreciation.

8. Exchange Traded Funds (ETF)Exchange Traded Funds provide investors with combined benefits of a closed-end and an

open-end mutual fund. Exchange Traded Funds follow stock market indices and are traded

on stock exchanges like a single stock at index linked prices. The biggest advantage offered

43

by these funds is that they offer diversification, flexibility of holding a single share (tradable

at index linked prices) at the same time. Recently introduced in India, these funds are quite

popular abroad.

9. Fund of FundsMutual funds that do not invest in financial or physical assets, but do invest in other mutual

fund schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds

maintain a portfolio comprising of units of other mutual fund schemes, just like conventional

mutual funds maintain a portfolio comprising of equity/debt/money market instruments or

non financial assets. Fund of Funds provide investors with an added advantage of

diversifying into different mutual fund schemes with even a small amount of investment,

which further helps in diversification of risks. However, the expenses of Fund of Funds are

quite high on account of compounding expenses of investments into different mutual fund

schemes.

44

Snapshot of Mutual Fund schemesThe following table summarizes different types of mutual fund schemes, their objective, where do they invest and their

suitability:

Mutual

Fund

Type

Objective Risk Investment

Portfolio

Who should

invest

Investment

horizon

Money

Market

Liquidity +

Moderate

Income +

Reservation of

Capital

Negligible

Treasury

Bills,

Certificate of

Deposits,

Commercial

Papers, Call

Money

Those who

park their funds

in current

accounts or

short-term bank

deposits

2 days - 3 weeks

Short-term

Funds

(Floating -

short-term)

Liquidity +

Moderate

Income

Little

Interest Rate

Call Money,

Commercial

Papers,

Treasury

Bills, CDs,

Short-term

Government

securities.

Those with

surplus

short-term

funds

3 weeks -

3 months

Bond

Funds

(Floating -

Long-term)

Regular

Income

Credit Risk

& Interest

Rate Risk

Predominantl

y Debentures,

Government

securities,

Corporate

Bonds

Salaried &

conservative

investors

More than 9 – 12

months

Gilt Funds Security &

Income

Interest

Rate Risk Government

securities

Salaried &

conservative

investors

1 year and more

45

Equity

Funds

Long-term

Capital

Appreciation

High Risk Stocks

Aggressive

investors with

long term

outlook

 > 3 years

Index

Funds

To generate

returns that

are

commensurate

with returns

of respective

indices

NAV varies

with index

performance

Portfolio

indices like

BSE, NIFTY

etc

Aggressive

investors> 3 years

Balanced

Funds

Growth &

Regular

Income

Capital

Market Risk

and Interest

Rate Risk

Balanced ratio

of equity and

debt funds to

ensure igher

returns at

lower risk

Moderate &

Aggressive> 2 years

Source: Arihant Capital Market Ltd_Mutual Fund Basics.htm

Risk-Return Matrix

46

Source: Arihant Capital Market Ltd_Mutual Fund Basics.htm

On the y axis of the matrix is the returns from different types of mutual fund plans and on

the x axis is the risk associated with different plans. As it is clear from the matrix that

debt funds are the one bearing least risk and giving least returns out of the different plans

than comes balanced funds with moderate risk and returns. It is a very common saying

that High Risk High Returns that goes perfectly with Equity Funds these funds are the

most aggressive funds giveng highest returns with highest amount of risk associated with

them.

47

Source: mfbasic_clip_img2.jpgOn the x axis of the matrix is the returns from different investment options and on y axis

is the risk associated with that option. From the neutral point if you go towards right the

returns increases and if you go towards left returns decreases. Similarly as you go up the

risk increases and as you go down the risk decreases. The matrix shows that equities are

the one which are associated with high risk and high returns as there is no fix amount of

returns one can expect out of equity. On the other hand there is one innovative kind of

investment option known as Mutual Funds. Which also invest your money in shares and

different debt instruments depending on the plan you opt for. These are also giving good

returns and the risk associated with them is much lesser than the Equities. On the other

hand there are two more instruments Bank FD and Postal Savings here the returns are pre

specified i.e. a fix percentage of return you get and the risk associated is also very

negligible.

48

INTRODUCTION TO THE TOPIC

49

INTRODUCTION TO THE TOPICHow to choose the right Mutual Fund

Choosing the right mutual fund scheme out of thousands of schemes available can be

daunting. But it is much easier than it looks. To make it an easier one should follow the

following steps

Step 1: Identify your investment objective

Different people have different needs. Some invest for capital appreciation some for

retirement and some for regular income. Therefore your choice of mutual fund scheme

will vary with your investment objective, age, lifestyle, risk profile, investment horizon,

and family commitments among many other factors. You should ask yourself the

following questions before investing:

1. Why do I want to invest? I need regular income

I need sufficient funds for my daughter’s wedding

I want to buy a house

I need to raise fund for my children’s education

I need extra cash

I need cash for my son’s education.

2. How much risk can I absorb?

Based on your risk taking capacity you can be categorized as:

Very conservative: Liquid and money market funds are best for you

Conservative: Money market and debt funds are best for you

Moderate: Balanced funds or a mixture of equity and debt funds is the right

solution

Aggressive: Predominantly equity funds will suit you

Very aggressive: Equity diversified, international equity and sectoral funds are

best for you .

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In other words you can also ask that in percentage terms:

○5%-10% ○ 10%-15% ○ 15%-20% ○ 20%-25%

○ 25%and above of your investment.

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3. What is my investment horizon? I want to invest my idle funds for two months: Money market funds is the right

solution

I need cash to pay off my load in one year: Debt funds will be more suitable for

you

I want to invest for my child’s education in eight years: Equity Funds will be the

right solution

Once you have done a self-analysis you need to select a scheme category that matches

your investment objectives:

For Capital Appreciation go for equity sectoral funds, equity diversified funds

or balanced funds. either with growth or dividend(Payout or Reinvestment)

For Regular Income and Stability go for income funds/MIPs or Debt funds

For Short-Term Parking of Funds go for liquid funds, floating rate funds, short-

term funds.

For Growth and Tax Savings go for Equity-Linked Savings Schemes.

Investment

ObjectiveInvestment horizon Ideal Instruments

Short-term Investment1- 6 months Liquid/Short-term plans

Capital Appreciation Over 3 years Diversified Equity/ Balanced Funds

Regular Income Flexible Monthly Income Plans / Income Funds

Tax Saving 3 yrs lock-in Equity-Linked Saving Schemes (ELSS)

Now that you have idea about the category of mutual fund that best suits your needs, the

right scheme is just on your way. Now immediately jump to step 2.

Step 2: Do your homework

Before investing your hard earned money it is very important to take care of the

following points about the fund you choose.

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Fund Performance

Investors often feel that a simple way to invest in a mutual fund is to keep investing in

the best performing funds. But they often forget that today’s best performing scheme may

not give you a consistent performance. It may be by sheer luck or any other factor like the

particular sector is performing well that the scheme is currently rated well in

performance. Therefore it is important that you choose the Mutual Fund Company,

scheme and fund manager with a solid track record of investing in both buoyant and

sluggish markets. Or in other words Bullish and in bearish market.

When evaluating a scheme consider its long-term track record rather than short-term

performance. It is important because long-term track record moderates the effects which

unusually good or bad short-term performance can have on a fund's track record. Besides,

longer-term track record compensates for the effects of a fund manager's particular

investment style.

The objective is to differentiate investment skill of the fund manager from luck and to

choose those funds which are performing well and have a bright future.

But remember not to compare apples to oranges:

When measuring past performance, always compare similar funds. This means asset

class, fund objective and financial market. A fund that invests in services sector for

instance, should not be compared to a diversified equity fund.

53

Fund Manager

Find out the fund manager of the fund you want to invest and find his track record and

compare it with his competitor. Levels of excellence vary. Some portfolio managers are

better than others. Another factor considered important is consistent portfolio

management style. Basically consistency in performance is very important. This quality

is the discipline by the fund's managers to establish specific investment criteria and stick

with them rather than trying out whatever is in vogue. A checklist for choosing a fund

manager:

The fund's performance track record

Independent ratings of the fund

The fund manager’s strategy

Discipline

Awards and industry recognition that have been awarded to the fund

Other factors to consider

When choosing the right mutual fund scheme also consider the schemes:

Stock allocation: A good diversified fund should have less than 40% of net

assets spread evenly across the top 10 stocks in its portfolio and no exceptional

concentration in any of these. This helps the fund navigate safely during volatile

periods. Stock picks must be consistent with no frequent churning of stocks by the

fund manager over the past few months.

Sectoral allocation: Your chosen fund must be well diversified across sectors

apart from stocks. Sectoral concentration can be harmful unless the fund has a

top-down investment approach. As diversification hedges your risk so a well

diversified fund is preferred over a sector specific fund. You must combine

similar sectors, such as auto and ancillaries, when considering sectoral allocation.

Different funds may categorize same companies across different sectors due to

lack of standardization. Look for this anomaly when analyzing sectors.

54

Asset allocation: Don’t overlook asset allocation. This tells you about the

spread of assets across stocks, current assets, and cash. Cash reserves of an equity

fund can tell a lot. A high cash level may indicate a fund manager’s discomfort in

staying fully invested in the market. Consistently high cash levels over a few

months may probably indicate lack of good stock-picking opportunities. High

cash reserves are a good sign in a crashing market, minimizing loss, but the fund

must be fully invested in a rising market, maximizing returns.

Turnover ratio: This shows you the stock churning in a fund’s portfolio. It’s

measured by considering the number of stocks bought and sold over a certain

assessment period. A higher or lower Portfolio Turnover Ratio doesn’t matter as

long as it‘s aligned with the fund’s investment philosophy. A high turnover ratio

can be good for equity funds, though high trading costs can lower your returns. A

high turnover ratio fund will be suitable for you if you are an aggressive investor.

But value funds must have low churning, as investments are usually long term.

Expense ratio and loads: A high expense ratio indicates that your fund is

expensive compared to its peers. Currently the expense ratio has a regulatory

ceiling of 2.50% for equity and debt funds. You must check the entry and exit

loads charged by the fund at the time of entry into and exit from the fund,

respectively. NAVs are declared by funds after factoring in the expenses and

loads.

But remember, a fund with an excellent track record but high expenses is a better

investment than a fund with lower expenses but an average track record.

One of the most important questions that investors should consider is that:

55

Is a fund with low NAV better?

Investors often get confused with NAV and try to judge it like a share price. They often

make the NAV of a fund as a deciding criterion for investment. It is a common myth that

a low NAV is cheap and a good buy, but that is not the case. You cannot view a mutual

fund unit like a share. A company’s share price may get overvalued if its price shoots up,

but that is not the case with a mutual fund.

It is irrelevant how high or low the NAV of a fund is. Let’s take an example, say you

want to invest Rs 10,000. Irrespective of which fund you invest in, this amount stays

constant.

Now let's say that your choice is restricted between two funds with identical portfolios.

Since they both have identical portfolios, their value will increase in the same proportion.

You may buy the units of one fund at a higher price than the other. But, the percentage

increase would be the same.

Hence, your investment of Rs 10,000 will increase by the same percentage, irrespective

of the fund you invest in.

So the number of units you get as well as a high or low NAV are irrelevant. Thus, it is

the stocks in a portfolio that determine the returns from a fund, the value of the NAV

being immaterial. The only instance where a higher NAV will get you fewer units that

may affect you is where a dividend has to be received. Dividend is given per unit. So the

fewer the units you get, the lesser the dividend. But even here, total returns will remain

the same.

So from whichever angle you see it, the NAV makes no difference to returns. Mutual

fund schemes have to be judged on their performance, risk and other such factors.

56

How to Rate a Mutual Fund

Check Volatility using Beta Co-efficient

Beta Coefficient is used as a measure to check the relative sensitivity of a mutual fund to

the market. The higher value of the beta means that the more volatile the fund. It is then

considered to very sensitive relatively to the market as a whole. The benchmark for this is

BSE sensex which is assigned a beta of 1. It has been widely used by many investors and

analysts to determine just how volatile a mutual fund is as compared to a standard index.

In India the standard of comparison is provided by SENSEX index. Its usual time frame

is three years back. A stock fund that is 20% more volatile than the stocks of that

constitute the SENSEX would have a beta value of 1.2. Those stock funds that are 15%

less volatile than the SENSEX would have a beta of 0.85.

Beta is not a totally indicative depiction of a stock fund’s situation. If a fund is “thinly

traded,” or in other words there are not too many shares outstanding, large price swings

are possible whenever shares are sold. In general, beta values are a good & reliable way

of determining how a stock fund has done, and in a way, how well it may do in the future.

Beta values for many Indian mutual funds can be found in many financial magazines,

financial websites or special investing periodicals.

For Example Beta of IDFC Imperial Equity fund is .85 that means every 100% increase

in sensex will give 85% increase in the fund.

Find out the Risk vs. Reward using Alpha

Risk and Reward is directly proportional. It totally depends on how much of a risk you

can take that is directly proportional to how much you make gain or lose. Risk vs.

Reward is a concept that almost all investors struggle with and are aware of.

Alpha is the relationship between a fund’s beta value and its actual performance. Higher

alpha values are considered better. Anything above zero is desirable.

57

It also tells us about managers performance. So manager always try to get the value of

Alpha as large as possible.

Net Asset Value

Net asset value or generally known as NAV of a mutual fund is the price per share/unit.

The NAV of a mutual fund is calculated by taking the value of the securities that the fund

is managing and dividing that by the number of shares outstanding. For example a mutual

fund with net assets of Rs 5 crore and 10 lakh shares outstanding has a NAV of Rs 50.

Important points to note on the Prospectus

When you get a prospectus along with the application of a mutual fund, please note the

following most important aspects: Date of issuance, minimum investment, objective,

record of performance, degree of risk and fees.

Do check about any kind of hidden expenses. And most important is the portfolio

Disclosure.

58

59

ULIP v/s Mutual Fund

Unit Links Insurance Plan (ULIP) and Mutual Fund (MF) are the two most preferred

options for investment. But how does the investor decide which one should he/she go for.

Though it is very simple and easy to decide, people tend to confuse themselves most of

the time.

Mutual Funds are pure investments. ULIP’s are combination of Insurance and Mutual

Fund.

Now let us compare ULIP and MF based on certain well known facts:

1) Insurance

ULIPs provide you with insurance cover.

MFs don’t provide you with insurance cover.

A point in favor of ULIPs. But let me clear you that you don’t get this insurance cover

for free. Mortality charges (i.e. the price you pay for the insurance cover) get deducted

from your investment. and ultimately you left with very small amount for investment.

2) Entry LoadULIPs generally come with a huge entry load. For different schemes, this can vary

between 5 to 40% of the first year’s premium. That charges reduce from year after year.

MFs have a small entry load of a maximum of 2.5% which can also be waved off if you

apply directly (i.e. not through an agent).this waver depends upon scheme to scheme.

Here MFs have a huge advantage. If we consider a conservative market return of about

10-15% you may get a zero percent return in the first year.

3) MaturityULIPs generally come with a maturity of 5 to 20 years. That what ever money you put in,

most of it will be locked-in till the maturity.

60

Tax saving MF (Popularly called as Equity Linked Saving Scheme or ELSS) comes with

a lock-in period of 3 years. Other MFs may or may not have a lock-in period.

Again MFs have advantage over ULIPs. ULIPs do allow you to take money out

prematurely but they also put penalties on you for doing that. In some of the mutual funds

there is some exit load as well but that is very nominal about 1%.

4) Compulsion of InvestingULIPs would generally make you pay at least first three premiums.

MFs don’t have any compulsion on future investments.

If you have invested in a MF this year, and in the next year you don’t have enough

income or money to do investments you can decide not to make any investments. Also if

you notice that the MF that you invested in is not giving good returns as compared to

some other Funds scheme, you can decide to invest in some other MF. Basically MF is

more flexible than ULIP

5)Tax SavingBoth the ELSS and ULIP come under 80C and can save you tax. Returns in the both form

of investments are tax free.

6)Market exposureULIPs give you both moderate and aggressive exposure to equity market

Debt and Liquid MF let invest with low risk, but don’t give you tax benefit.

ULIPs need not be aggressive in equity exposure. That is ULIPs need not keep more that

60% of their funds in equity market. ULIPS also allow to change your equity market

exposure. Thus it can help you time the market and still give you tax savings.

If a MF has a less than 60% exposure to equity market the returns from it are not tax free.

Thus you don’t get to take a conservative stand on returns.

7) Flexibility of time of redemptionULIP will get redeemed on maturing. Premature redemption is allowed with some

penalty.

61

In a closed ended MF premature redemption is not allowed one can redeem only after the

majority. But for an open ended scheme one can redeem the MF anytime.

This is mainly useful if the market is down at the maturity time of the investment. In case

of ELSS you can wait till the market comes up again and then redeem them. ULIP

scheme won’t allow you to wait.

Thus, according to my opinion

1) If you wish to take an aggressive exposure to equity market, go ahead any buy MF.

ULIP won’t be able to give you similar returns.

2) If you think you are not disciplined enough to make regular investments and need a

whip to make you invest, invest in ULIP.

3) If you want to take a low exposure to equity market and still get tax free returns, invest

in ULIP but make sure that fund you are invested is conservative fund.

4) If you want Insurance cover and also good return on investment. I would suggest that

you invest in MFs and take a term plan.

62

63

64

METHODOLOGY

65

METHODOLOGYMARKETING RESEARCH

Scope of the study:

The research was carried on in the Northern Region of India. It is restricted to

Delhi(NCR) region. I have interviewed investors from the branch, banks, and some

personal contacts that I know are investors are also used in the research.

RESEARCH OBJECTIVE: To study the Investment pattern of the investors

towards different investment options.

Quantitative research

The type of research used for our purpose is quantitative. This is because the quantitative

research seeks to quantify the data and it applies some form of statistical analysis. The

purpose of our study is to find out how an investor diversify its portfolio to get higher

returns and to find that which option(Mutual Funds, Equity (Shares), Commodities, Real

Estate, Post Office (Nsc etc), Bank Deposit (Govt. Bonds),etc) is most preffered by

investors to invest. Analysis through quantitative research helped us build a hypothesis

and test the same through structured statistical techniques. Recommending a final course

of action would become possible while using the quantitative research. On the other

hand, the use of qualitative research techniques would have given us only an initial

understanding in the study, which is generated through the literature review.

Type of research design

I have adopted both descriptive as well as exploratory research design. The exploratory

approach is useful in this case because I need to get the thorough understanding and

knowledge about the Mutual funds so that I can take the project forward to know how

investors actually invest and weather they prefer Mutual funds over the other investment

options. For this purpose I analyzed through secondary data that was available through

the internet and certain news papers. This was followed by descriptive research.

Descriptive research studies are those studies which are concerned with describing the

investment pattern of the investors, and the relationship between the age, income and the

investment option the choose for their portfolio. Since this study is focused on gathering

66

information about the customer’s preferences, future liabilities and diversification of

portfolio , I have used the descriptive research.

Tips of Research Design

Descriptive

Data collection

Data sources:Both primary as well as secondary data is used for the project .Research is totally

based on primary data. Secondary data used only for the literature purpose.

Research has been done by primary data collection, and primary data has been

collected by interviewing with various investors. The secondary data has been

collected through various websites, newspapers, fact sheets etc.

Secondary data: - Secondary data was collected from internet, magazines, news papers and journals.

Also I studied about the views of investors about the Mutual Funds in the present

scenario.

Primary data: - For understanding the investment patterns and investors

attitude their thinking about the mutual funds at a large. For this purpose I took a

sample that consists of 40 Investors it was a focused group that consist of

investors age group ranging from 25 to 80 and income from 30000 to 120000 and

above this sample is representative of whole population. Thus I have undertaken

primary data collection technique. This is because the secondary data alone could

not be relied upon for the purpose of making judgment about the population. The

sample was taken from Delhi.

67

Types of question asked

Both unstructured and structured type of questions in the questionnaire.

Unstructured questions

These are open ended questions that the respondents have to answer in their own

words.

Structured questionsThese are questions that pre-specify the set of response alternatives and the

response format.

They can take the following forms:

Multiple choice questions: The respondent needs to select one or more of the

responses available to choose from.

Dichotomous questions: Such questions have only two responses, Yes or No

Sampling:

Sampling procedure:

A focused group is selected for the research purpose as my research is for those

who are investors and invested their money in various investment options. The

data was collected through interviewing or by formal and informal talks and

through filling up the questionnaire prepared. After the data collection the data

was entered in SPSS and various statistical measures like Correlation, t-test etc.

are used.

68

Sample size:

The sample size of my project is limited to 40 only. As it was a focused group

survey the maximum limit of sample could not be more than 40. Out of which 38

are investors and 2 was daily traders in stock market. Most of the investors

attempted all the questions

Sample design:

Data has been presented with the help of bar graph, pie charts, etc.

Limitation:.

Research has been done only in Delhi(NCR) region.

Some of the persons were not so responsive.

Possibility of error in data collection.

Possibility of error in analysis of data due to small sample size.

Some respondents were reluctant to disclose personal information which

can affect the validity of all responses.

69

OBJECTIVES

70

OBJECTIVES

Primary Objective:

To Study the investment option in market

Secondary Objective:

To study various financial products like Equity, Mutual Funds, insurance & banks

Services.

To Study the various services provided by mutual fund houses to there investor.

To study the Awareness level of investor about various investment option.

71

DATA ANALISIS &

INTERPRETATION

72

Male, 34, 85%

Female, 6, 15%

MaleFemale

DATA ANALISIS & INTERPRETATIONQ1.GenderThe following pie chart shows the results have which been obtained from the

questionnaire that out of 40, 34 (85%) were males who took the important investment

decisions in their family and only 6 (15%) were females. and this has to be noticed that

all these 6 females are working none of them is a home maker.

Gender Number of InvestorsMale 34

Female 6

Total 40

73

3

21

11

5

0

5

10

15

20

25

Govt. Service Pvt. Service Business Others

Series1

Q2. What is your current occupation?

The following bar graph shows the occupation of the different respondents and out of 40

21 are those who are working in a Pvt. Company followed by 11 involved in some

business then 3 are Govt servants and 5 others they include persons retired form their

jobs or are jobbers.

74

Occupation No. of Investors

Govt. Service 3

Pvt. Service 21

Business 11

Others 5

Total 40

21, 52%

19, 48%Graduate

Post Graduate

Q3. What is your highest level of qualification?

The following bar graph shows the education Qualification of the different respondents

and out of 40, 21 are graduate in different Streams and 19 are post graduate

75

Educational Qualification Number of Investors

Post Graduate 19

Graduate 21

Total 40

15

21

20

2

0

5

10

15

20

25

less than 30000 30001 to 60000 60001 to 90000 90001 to1,20,000

1,20,000 andabove

Series1

Q4. What is monthly family income (approximately)?

In the Income Group of the investors, out of 40 investors, 21 (52%) investors belongs to

the monthly family income group of 30001 to 60000. Second one i.e.15 (38%)

investors are in the monthly family income group of less than 30000 and out of the

remaining 4, 2 (5%) belongs to the income group of 60001 to 90000 and 2(5%) belongs

to 120000 and above.

76

Yes, 38, 95%

No, 2, 5%

Yes

No

Q5. Do you invest your savings?

Here savings are considered the money that is left out after paying all the expenses of the

family and the money which a person put in savings account would not be considered as

investment. Investment is that for which a person has to wait for at least 3 to 4 days to get

money and in savings account that condition is not fulfilled.

So according to the responses the following pie chart is prepared. Which shows that out

of 40 38(95%) invest there money in different investment options and 2(5%) do not

invest their money they are basically the daily jobbers who square off there position on

daily basis and do not let their position open.

77

Invest Savings Number of InvestorsYes 38

No 2

Total 40

27

31

6

107

13

0

5

10

15

20

25

30

35

MutualFunds

Equity(Shares)

Commodities Real Estate Post Office(Nsc etc.)

Bank Deposit(Govt.Bonds)

Series1

Q6. In which of the following investment options do you invest?

From the graph given below it can be inferred that out of 40 investors, 31(77.5%)

investors have invested in equity (shares), Followed by27 (67.5%) in Mutual Funds,

13(32.5%) in Bank Deposits, 10(25%) in Real Estate, 7(17.5%) in Post Office, 6(15%) in

Commodities.

So from the bar diagram it is clear that people most prefer equity than comes mutual

funds in the hierarchy of the choice of their investment

With the same question there is an open ended question attach in the questionnaire the

question was WHY? The following investment option

78

Kind of Investments Options No. of Respondents

Mutual Funds 27(67.5%)

Equity (Shares) 31(77.5%)

Commodities 6(15%)

Real Estate 10(25%)

Post Office (Nsc etc.) 7(17.5%)

Bank Deposit (Govt. Bonds) 13(32.5%)

1

14

17

8

0

2

4

6

8

10

12

14

16

18

0%-10% 10%-20% 20%-30% 30%-40% More than 40%

Series1

Q7. How much percentage of your savings do you invest?

Percentage of savings to invest Number of Investors

0%-10% 1

10%-20% 14

20%-30% 17

30%-40% 8

More than 40% 0

Total 40

From the given sample size it has been seen that most of the investors 17(42%) invest

20%-30% of their savings in different options followed by 14(35%) who invest 10%-20%

of their savings and the range in which most of the investors invest remains between 10%

to 30%

79

8

11

5

8

0

8

0

2

4

6

8

10

12

Up to 6Months

Up to 1 year Up to 2 years Up to 3 years Up to 4 years Up to 5 years

Series1

Q8.What is the time period for which you invest?

Time Period For Investment Number of Investors

Up to 6 Months 8

Up to 1 year 11

Up to 2 years 5

Up to 3 years 8

Up to 4 years 0

Up to 5 years 8

Total 40

It is clear from the above table that about 32(75%) of investors invest with a long term

horizon in their mind generally people invest for a period of 1 year but if you see the

combined figure about 21(55%) out of 40 invest with a horizon of 2 to 5 years.

There are people who invest for very short period even days they basically are the

Jobbers who want to square off their position in a single day and they are the one who are

the highest risk takers their time horizon can go up to 6 months if they stuck in any stock.

It has been seen that they are the investors who invest most of their money in Shares and

their inclination towards Mutual Funds are negligible.

80

6

10

6

10

8

0

2

4

6

8

10

12

5%-10% 10%-15% 15%-20% 20%-25% 25%and above

Series1

Q9. To what extent are you ready to bear the risk in your investments?

Risk on the investment Number of Investors

5%-10% 6

10%-15% 10

15%-20% 6

20%-25% 10

25%and above 8

Total 40

From the above questionnaire it has been analyzed that the risk appetite of most of the

investors 26 out of 40 lies between 10% to 25% and the persons who can take risk more

than 25% are those who age generally the day traders and book their losses of profits on

daily basis. It has been seen that from the past trends that daily traders face huge losses as

compare to that of those who invest for long term as because of the fluctuating nature of

markets prices generally goes up and down on a cyclic basis and the person having

holding power on their investment generally remain in profits.

81

20

20

2

8

0

8

0

5

10

15

20

25

Regularincome

Debt fund DiversifiedEquity

SectorFund (Real

estate,Power,energyetc.)

ELSS(Equitylinkedsaving

scheme)

Others Do notinvest

Series1

Q10. If you invest in Mutual Fund than in which plan?

As Mutual Funds are considered to be the safer variant of equity because of the various

advantages which has been discussed above about 20(65%) of the investors who invest in

mutual funds invest in Diversified Equity plan of Mutual Funds as investors want to take

advantage of equity they generally prefer to invest through a Mutual Fund.

Apart from that 8(25%) of the investors invest in ELSS (Equity Linked Savings Scheme)

they are generally those who are employed and they invest so as to take advantage of tax

benefit which is offered by this plan.

82

Mutual Funds Plans Number of Investors

Regular income 2

Debt fund 0

Diversified Equity 20

Sector Fund 2

ELSS 8

Others 0

Do not invest 8

Total 40

16

14

10

0

2

4

6

8

10

12

14

16

18

Broker Bank Consultant

Series1

Q11.What is your investment Medium?

From the chart given below it can be inferred that the Broker is the most important

investment medium. Out of 40Respondents, 16(40%)invest through a broker, 14(35%)

through Bank and 10(25%) through consultants.

83

Investment Medium Number of Investors

Broker 16

Bank 14

Consultant 10

Total 40

Number of investors

2722

1711

6

31

14

05

101520253035

Number of investors

Case LetThe second last question in the questionnaire is a type of a case study which is a

deliberate effort to actually know how an investor invest if a certain sum of money is

given to Him/Her to invest. The question is given below

Q12. Example If you are given with a sum of 1, 00,000 Rs. than how much do you want to invest in the

Following options?

○ Mutual Fund ……% ○Fixed deposits……% ○ Insurance ......%

○Gold/ Silver…..% ○Post Office-NSC, etc......% ○Shares/Debentures…..%

○Real Estate…...%

Following are the responses of that Question.

Investment Options Number of Investors

Mutual Fund 27

Fixed deposits 22

Insurance 17

Gold/ Silver 11

Post Office-NSC, etc 6

Shares/Debentures 31

Real Estate 14

84

Number of investors

7

9

11

3

1

0

2

4

6

8

10

12

0-20% 20%-40% 40%-60% 60%-80% 80%-100%

Number of investors

From the above graph it can be inferred that out of 40 investors, 31 (77.5%) will invest in

shares/Debentures, 27(67.5%)in Mutual funds, 22(55%) in Fixed Deposits, 17(42.5%)in

Insurance,14(35%) in Real Estate, 11(27.5%) in Gold/Silver, 6(15%) in Post Office.

It can be inferred from the above data that investors prefer Shares the most for their

investment followed by Mutual Funds, Fixed Deposits, Insurance and so on below there

are some bar given that tells how much percentage of money investors want to put in

different options.

Investor of shares/debentures

Shares are the most preferred investment option chosen by the investors. Not only in

numbers but also in percentage of amount invested shares are most preferred. From a

total of 31 investors who invest in shares 20(64.5%) investors invest around 20%-60% of

the money they are given.

85

Shares/Debentures Number of Investors

0-20% 7

20%-40% 9

40%-60% 11

60%-80% 3

80% and above 1

Total 31

Number of investors

15

9

3

0

2

4

6

8

10

12

14

16

0-20% 20%-40% 40%-60% 60%-80% 80%-100%

Number of investors

Investors of Mutual Funds

From the above results it can be inferred that 15(55.5%) investors who invest in Mutual

Funds want to put to the maximum of 20% of the money they have for investment.

Followed by 9(33%) who put up to 40%. it can be said that investors do want to keep

Mutual Funds in their Portfolio but amount of investment is not so high.

86

Mutual Funds Number of Investors

0-20% 15

20%-40% 9

40%-60% 3

60%-80% 0

80% and above 0

Total 27

Number of investors

9

7

5

1

0123456789

10

0-20% 20%-40% 40%-60% 60%-80% 80%-100%

Number of investors

Investors of Fixed Deposits

Like Mutual Funds investors do want to put their money in fixed deposits due to the safe

investment option and known returns the amount of money they want to invest also

ranges from 0% to 40%. Out of 22 16(72.5%) investors want to invest in the given range.

87

Fixed Deposits Number of Investors

0-20% 9

20%-40% 7

40%-60% 5

60%-80% 0

80% and above 1

Total 22

Number of investors

12

4

1

0

2

4

6

8

10

12

14

0-20% 20%-40% 40%-60% 60%-80% 80%-100%

Number of investors

Investors of Insurance

In the order of investment insurance stood at 4th position. Investors understand that

insurance is one of the important option but they want to put only a small amount in that.

The reasons which I got from them is low returns from the ULIP plans. Out of the total of

17 12(70%) of the investors invest to a maximum of 20% of the money they are given.

88

Insurance Number of Investors

0-20% 12

20%-40% 4

40%-60% 1

60%-80% 0

80% and above 0

Total 17

Number of investors

3

8

2

1

0

1

2

3

4

5

6

7

8

9

0-20% 20%-40% 40%-60% 60%-80% 80%-100%

Number of investors

Investors Of Real Estate

Real Estate is one of the investment option which needs huge inflows of money in the

initial stage of investment. If you compare it with shares any one can start his/her

investment even with a small investment of 10000 Rs but if you talk about real estate

lacks of rupees in required.

Following responses are obtained from the questionnaire that out of 14 8(57%) of

investors want to invest 20% to 40% of their investment.

89

Real Estate Number of Investors

0-20% 3

20%-40% 8

40%-60% 2

60%-80% 1

80% and above 0

Total 14

Number of investors

8

3

0

1

2

34

5

6

7

89

0-20% 20%-40% 40%-60% 60%-80% 80%-100%

Number of investors

Investors of Gold/Silver

With the falling of the stock market world wide Gold/Silver comes out to be one of the

safest investment option. It has been seen from decades that year on year gold sees net

positive returns and becomes a safe option. According to the questionnaire out of 11

investors who invest in Gold/Silver 8 want to invest in the range of 0% to 20%.

90

Gold/Silver Number of Investors

0-20% 8

20%-40% 3

40%-60% 0

60%-80% 0

80% and above 0

Total 11

Number of investors

4

1 1

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

0-20% 20%-40% 40%-60% 60%-80% 80%-100%

Number of investors

Investors of Post Office

Earlier investors has few investment options like Fd’s, Post office (for tax savings) etc

but today with the coming of ELSS plans investors prefer those more as compare to the

traditional investment style. It can be clearly seen from the bar graph given below out of

the total sample size of 40 only 6 want to invest in post office and majority of them want

to invest up to 20%

91

Post Office Number of Investors

0-20% 4

20%-40% 1

40%-60% 1

60%-80% 0

80% and above 0

Total 6

0.50 1.00 1.50 2.00 2.50

MutualFunds

0

10

20

30

40

Freq

uenc

y

Mean = 1.325Std. Dev. = 0.47434N = 40

Histogram

Mutual Funds N Valid 40

Missing 0Mean 1.3250Median 1.0000Mode 1.00Std. Deviation .47434Variance .225Skewness .777Std. Error of Skewness .374Kurtosis -1.473Std. Error of Kurtosis .733

Mutual Funds

Frequency Percent

Valid Percent

Cumulative Percent

Valid Yes 27 67.5 67.5 67.5No 13 32.5 32.5 100.0Total 40 100.0 100.0

From the graph it can be deduced that the data is negatively skewed as the difference from the median is positive having a value of .777 this clearly shows that 27 of the respondents want to invest in Mutual Funds as their choice of investment

92

0.50 1.00 1.50 2.00 2.50

Equityshares

0

10

20

30

40

Freq

uenc

y

Mean = 1.225Std. Dev. = 0.4229N = 40

Histogram

Equity (Shares) N Valid 40

Missing 0Mean 1.2250Median 1.0000Mode 1.00Std. Deviation .42290Variance .179Skewness 1.369Std. Error of Skewness .374Kurtosis -.135Std. Error of Kurtosis .733

Equity (Shares)

Frequency Percent

Valid Percent

Cumulative Percent

Valid Yes 31 77.5 77.5 77.5No 9 22.5 22.5 100.0Total 40 100.0 100.0

From the graph it can be said that the data is negatively skewed as the difference from the median is positive having a value of 1.369 this clearly shows that 31 of the respondents want to invest in Equity(shares) as their choice of investment

93

0.50 1.00 1.50 2.00 2.50

Commodities

0

10

20

30

40

50

Freq

uenc

y

Mean = 1.85Std. Dev. = 0.36162N = 40

Histogram

Commodities

N Valid 40Missing 0

Mean 1.8500Median 2.0000Mode 2.00Std. Deviation .36162Variance .131Skewness -2.038Std. Error of Skewness .374Kurtosis 2.263Std. Error of Kurtosis .733

Commodities

Frequency Percent

Valid Percent

Cumulative Percent

Valid Yes 6 15.0 15.0 15.0No 34 85.0 85.0 100.0Total 40 100.0 100.0

From the graph it can be deduced that

the data is positively skewed as the

difference from the median is negative

having a value of -2.038 this clearly

shows that 6 of the respondents want

to invest in commodities as their

choice of investment

Real Estate

94

0.50 1.00 1.50 2.00 2.50

Realestate

0

10

20

30

40

Freq

uenc

y

Mean = 1.75Std. Dev. = 0.43853N = 40

Histogram

N Valid 40Missing 0

Mean 1.7500Median 2.0000Mode 2.00Std. Deviation .43853Variance .192Skewness -1.200Std. Error of Skewness .374Kurtosis -.592Std. Error of Kurtosis .733

Real Estate

Frequency Percent

Valid Percent

Cumulative Percent

Valid yes 10 25.0 25.0 25.0no 30 75.0 75.0 100.0Total 40 100.0 100.0

From the graph it can be deduced that

the data is positively skewed as the

difference from the median is negative

having a value of -1.200 this clearly

shows that 10 of the respondents want to

invest in Real Estate as their choice of

investment

Post Office (Nsc etc.)

95

0.50 1.00 1.50 2.00 2.50

Postoffice

0

10

20

30

40

50

Freq

uenc

y

Mean = 1.825Std. Dev. = 0.38481N = 40

Histogram

N Valid 40Missing 0

Mean 1.8250Median 2.0000Mode 2.00Std. Deviation .38481Variance .148Skewness -1.778Std. Error of Skewness .374Kurtosis 1.220Std. Error of Kurtosis .733

Post Office (Nsc etc.)

Frequency Percent

Valid Percent

Cumulative Percent

Valid yes 7 17.5 17.5 17.5no 33 82.5 82.5 100.0Total 40 100.0 100.0

From the graph it can be deduced

that the data is positively skewed as

the difference from the median is

negative having a value of 1.778 this

clearly shows that 7 of the

Respondents want to invest in Post

Office as their choice of investment

Bank Deposit (Govt. Bonds)

96

0.50 1.00 1.50 2.00 2.50

Bankdeposits

0

10

20

30

40

Freq

uenc

y

Mean = 1.675Std. Dev. = 0.47434N = 40

Histogram

N Valid 40Missing 0

Mean 1.6750Median 2.0000Mode 2.00Std. Deviation .47434Variance .225Skewness -.777Std. Error of Skewness .374Kurtosis -1.473Std. Error of Kurtosis .733

Bank Deposit (Govt. Bonds)

Frequency Percent

Valid Percent

Cumulative Percent

Valid Yes 13 32.5 32.5 32.5No 27 67.5 67.5 100.0Total 40 100.0 100.0

From the graph it can be deduced that the data is positively skewed as the difference from the median is negative having a value of -.777 this clearly shows that 13 of the respondents want to invest in Bank Deposits as their choice of investment

Invest savings

97

0.50 1.00 1.50 2.00 2.50

investsavings

0

20

40

60

80

Freq

uenc

y

Mean = 1.05Std. Dev. = 0.22072N = 40

Histogram

N Valid 40Missing 0

Mean 1.0500Median 1.0000Mode 1.00Std. Deviation .22072Variance .049Skewness 4.292Std. Error of Skewness .374Kurtosis 17.285Std. Error of Kurtosis .733

Invest savings

Frequency Percent

Valid Percent

Cumulative Percent

Valid Yes 38 95.0 95.0 95.0No 2 5.0 5.0 100.0Total 40 100.0 100.0

From the graph it can be deduced that the data is negatively skewed as the difference from the median is positive having a value of 4.292 this clearly shows that 38 of the respondents want to invest their savings in different investment options.

Correlations

98

IncomeMutual Funds

Income Pearson Correlation 1 .016

Sig. (2-tailed) . .922N 40 40

Mutual Funds

Pearson Correlation .016 1

Sig. (2-tailed) .922 .N 40 40

The data given above shows that if you change 1% of your income than .016% change will occur in mutual funds investment

Correlations

IncomeEquity(Shares)

Income Pearson Correlation 1 .037

Sig. (2-tailed) . .818N 40 40

Equity(Shares)

Pearson Correlation .037 1

Sig. (2-tailed) .818 .N 40 40

The data given above shows that if you change 1% of your income than .037% change will occur in mutual funds investment

Correlations

IncomeCommodities

Income Pearson Correlation 1 -.004

Sig. (2-tailed) . .981N 40 40

Commodities Pearson Correlation -.004 1

Sig. (2-tailed) .981 .N 40 40

The data given above shows that if you change 1% of your income than -.004% change will occur in mutual funds investment

99

Correlations

IncomeReal Estate

Income Pearson Correlation 1 .016

Sig. (2-tailed) . .923N 40 40

Real Estate Pearson Correlation .016 1

Sig. (2-tailed) .923 .N 40 40

The data given above shows that if you change 1% of your income than .016% change will occur in mutual funds investment

Correlations

IncomePost Office

Income Pearson Correlation 1 -.016

Sig. (2-tailed) . .921N 40 40

Post Office Pearson Correlation -.016 1

Sig. (2-tailed) .921 .N 40 40

The data given above shows that if you change 1% of your income than -.016% change will occur in mutual funds investment

Correlations

IncomeBank Deposits

Income Pearson Correlation 1 -.190

Sig. (2-tailed) . .240N 40 40

Bank Deposits

Pearson Correlation -.190 1

Sig. (2-tailed) .240 .N 40 40

The data given above shows that if you change 1% of your income than -.190% change will occur in mutual funds investment

100

Correlations

Time Period

Mutual Funds

Time Period Pearson Correlation 1 -.294

Sig. (2-tailed) . .066N 40 40

Mutual Funds Pearson Correlation -.294 1

Sig. (2-tailed) .066 .N 40 40

The data given above shows that if you change 1% of the time period for which you invest than -.294% change will occur in mutual funds investment

Correlations

Time Period

Equity(Shares)

Time Period Pearson Correlation 1 .098

Sig. (2-tailed) . .546N 40 40

Equity(Shares)

Pearson Correlation .098 1

Sig. (2-tailed) .546 .N 40 40

The data given above shows that if you change 1% of the time period for which you invest than .098% change will occur in mutual funds investment

Correlations

Time Period

Commodities

Time Period Pearson Correlation 1 .070

Sig. (2-tailed) . .668N 40 40

Commodities Pearson Correlation .070 1

Sig. (2-tailed) .668 .N 40 40

The data given above shows that if you change 1% of the time period for which you invest than .070% change will occur in mutual funds investment

101

Correlations

Time Period

Real Estate

Time period Pearson Correlation 1 -.289

Sig. (2-tailed) . .071N 40 40

Real Estate Pearson Correlation -.289 1

Sig. (2-tailed) .071 .N 40 40

The data given above shows that if you change 1% of the time period for which you invest than

-.289% change will occur in mutual funds investment

Correlations

Time Period

Post Office

Time Period Pearson Correlation 1 -.230

Sig. (2-tailed) . .153N 40 40

Post Office Pearson Correlation -.230 1

Sig. (2-tailed) .153 .N 40 40

The data given above shows that if you change 1% of the time period for which you invest than -.230% change will occur in mutual funds investment

Correlations

Time Period

Bank Deposits

Time Period Pearson Correlation 1 -.286

Sig. (2-tailed) . .074N 40 40

Bank Deposits Pearson Correlation -.286 1

Sig. (2-tailed) .074 .N 40 40

102

The data given above shows that if you change 1% of the time period for which you invest than -.286% change will occur in mutual funds investment.

Correlations

Time Period Risk

Time Period Pearson Correlation 1 .177

Sig. (2-tailed) . .273N 40 40

Risk Pearson Correlation .177 1

Sig. (2-tailed) .273 .N 40 40

The data given above shows that if you change 1% of the time period for which you invest than .177% change will occur in Risk of you are able to bear.

Summary of results of Descriptive Statistics

Kind of Investments Options Correlation with Time

Period

Mutual Funds -.294

Equity (Shares) .098Commodities .070

Real Estate -.289

Post Office (Nsc etc.) -.230

Bank Deposit (Govt. Bonds) -.286

In terms of time period also equity (Shares) are having the highest value of correlation as

compare to other investment options.

103

Kind of Investments Options Skewness

Mutual Funds .777

Equity (Shares) 1.369Commodities -2.038

Real Estate -1.200

Post Office (Nsc etc.) -1.778

Bank Deposit (Govt. Bonds) -.777

Therefore with the help of descriptive statistics it is proved that investors are most

inclined towards equities for the purpose of investment than comes Mutual Funds in the

preference followed by Bank deposits than Real estate, Post office and finally

commodities.

Kind of Investments Options Correlation With Income

Mutual Funds .016%

Equity (Shares) .037%Commodities -.004%

Real Estate .016%

Post Office (Nsc etc.) -.016%

Bank Deposit (Govt. Bonds) -.190%

The above data proves that equity (shares) is having the maximum degree of correlation

as compare to other investment options.

104

FINDINGS

105

FINDINGS

Findings

1. Out of the total Sample size of 40 maximum number i.e. 85% were males and only

15% were females. Most of the investors were males.

2 In occupation group most of the investors were from the private service followed by

those who are having their own business.

3.In terms of education level nearly half of the investors are Graduate and half are Post

Graduate.

4. About 55% of the total investors lies in the income bracket of 30001 to 60000 followed

by those who have income less than 30000 and only 5% investors have monthly family

income more than 120000.

5.Out of the total sample 38 invest their savings and only 2 were the day traders.

6.When investors were asked that where they want to invest then in terms of preference

Equity(Shares) being the most preferred(77.5%) investment option followed by Mutual

Funds(67.5%).

7. From the given sample size it has been seen that most of the investors 17(42%) invest

20%-30% of their savings in different options followed by 14(35%) who invest 10%-20%

of their savings.

8.Most of the investors want to invest their money to a time period of upto 1 year.

106

9.when it comes to risk bearing capacity there are two classes in which investors

responded the most these were 10%-15% and 20%-25%. In both these options 25% of

investors are ready to bear the risk.

10. Those who invest in Mutual Funds they prefer to invest in Diversified Equity plan

(50%) followed by ELSS(20%)schemes.

11.From the given responses it has been found that Brokers are the medium of most of

the investors(40%) for investment followed by Bank(35%) and than Consultants(25%).

107

CONCLUSION

108

CONCLUSIONConclusion

Investment in a Mutual Fund is a very smart decision taken by any investor in early stage

of his/her life. Today if you hire a professional to manage your fund you need to pay a

heavy amount of fees to that particular professional. Mutual Fund is offering all that

services which a professional is offering at a very nominal cost as that cost is being

shared between the numbers of investors of that fund in the ratio of their investment.

From the research it is concluded that Equity (Shares) are the most preferred investment

option by the investors because of the high volatility and good returns in a short duration

but most of the investors have a bad experience of investing their money in shares as this

investment requires lots of patience and generally investors don’t want to stay invested

for so long and ultimately they have to book losses.

Second most important reason for getting losses in Equities is because of making money

quickly. Investors do not want to wait for longer time and it is proved that most of the

investors have a time horizon of less than 6 months for investing in equities who suffered

losses.

On the other hand Mutual Fund comes in second of preference of the investors. It has

been seen that investors have a long time horizon for investment in Mutual Fund

generally investors invest for more than1 year period of time in mutual fund. These

investors have a much better experience than those investing in Equities as the funds are

very much diversified in a mutual fund as compare to the Equity.

Trust is very much important in the financial marketing that’s why it has been seen that

most of the investors want to invest through a broker as there is a sense of trust comes

with a broker as if that relationship breaks than it is very difficult to make up as the hard

earned money of investors are involved so suggestion from a financial advisor is very

important to maintain that trust.

109

Investors have become very much aware of innovative investment options today as most

of the investors want to invest in Equities and Mutual Funds rather than fixed returns Post

Office schemes and Bank Deposits.

Age plays a very important role in investment decision the investor in the age group of 25

to 40 want to invest in equities as the risk taking capability is more as the investor in the

age group of 50 to 70.

At the end I would like to conclude by saying:

MUTUAL FUND INVESTMENT ARE SUBJECT TO MARKET RISK PLEASE

READ THE OFFER DOCUMENT CAREFULLY BEFORE INVESTING

110

LEARNINGS

The Basic Concepts

In the beginning of my training I learn the basic concepts of the stock market the basic

reason of the stock prices going up and down is taken from the very basic concept of

economics (Demand and Supply). There are many other reasons for the rise or fall of the

prices like some news about the stock (positive of negative) its financial results etc.

After learning the basics of equity market I was put under commodity section to learn the

basics of that market as well commodity market consists of various metals(precious as

well as non precious), crude oil, natural gas, and basic eatables(wheat, jeera, sugar etc.)

Both these sections are backed by back office after learning the basics of these markets it

is very important to understand the working of back office as well. Basic work of back

office is to receive and payment of the money to and from the clients, account opening,

risk management cell is also an important part of Back office. I learned a lot many things

like to check the balance, short margin clients, stocks held in the pool account as well as

in the demat account. After the closing of the market back office all give confirmation to

the clients whose dealing took place on that particular trading session.

Religare securities limited also deals in mutual funds and insurance for that purpose I was

sent to IDFC mutual funds office for the training purpose and icici mutual funds training

was arranged in the office these two trainings helps me a lot in the completion of my

project. I asked my queries with them regarding the mutual fund industry and able to

complete my project.

Training of Kotak life insurance was also arranged in the office. From this training I

learned the importance of insurance in and after the life of a person.

Trading Sessions

When I was through with the basics the another step is to understand the buying and

selling of shares on the live software to know the various keys and shortcut in that

software. After learning that I was made to sit on the terminal to buy and sell shares on

the instructions of the clients.

111

Similar goes with the commodity market as well.

Customer dealing:

The most important part of my training is to handling the customer’s queries. The key to

success for a marketing executive is customer satisfaction and that satisfaction comes

from handling the queries well. For that your basics should be clear so my learning was

that be prepared and do your homework well before going to the customers.

Second most important thing was that in my training I need to make the customers for

that the concept of Targeting is applied and after that if any problem arise than handling

that and making the customer satisfied is most important there are many incidences

where I learned that skill of handling customers.

Corporate culture:

We were exposed to the corporate culture in a brokerage firm . We had to daily report to

our industry guide who helped us throughout our internship and he also guided us in our

project.

112

RECOMMENDATIONS

113

RECOMMENDATIONSRecommendations

1. Religare is using one of the best software for trading (Odin and fast trade) but the

best and the fastest of all in NEAT offered by NSE instead of using Fast Trade

Religare should switch to NEAT which is much better than Fast Trade. For giving

online trading Odin is good for the customers.

2. Instead of charging Rs.500 for account opening that should be reduced to Rs.250

because many other competitors like (Shear khan, India bulls etc.) are not

charging any amount and customers are reluctant to pay. To recover that account

opening charges the AMC(account maintenance charges) should be increased to

Rs. 300 as currently it is at Rs.250 and customers do not take into considerations

about AMC but they highly object on Account Opening Charges.

3. Religare as a brokerage firm is one of the best in the industry. This is the industry

where speed matters a lot. While trading Religare is maintaining that speed but

sometimes it takes too much time in activation of new accounts which arouse a

sense of dissatisfaction in the minds of customers so Religare should work on this

problem and make their account opening more flexible.

4. There should be separate desk for mutual funds in some of the important branches

of Religare as it is one of the most untapped markets and has a great potential of

growth.

5. Before making any investment Financial Advisors should first enquire about

the risk tolerance of the investors/customers, their need and time (how long

they want to invest). By considering these three things they can take the

customers into consideration.

6. Mutual funds offer a lot of benefit which no other single option could offer.

But most of the investors are not aware of what actually a mutual fund is?

They only see it as just another investment option. So the advisors should

try to change their mindsets.

114

7. The advisors should target for more and more young investors. Young

investors as well as persons at the height of their career would like to go for

advisors due to lack of expertise and time.

8. one of the most important way of investing in Mutual Funds are through

Systematic Investment Plan (SIP) Religare need to segregate their

customers on the basis of their occupation and target those whose

occupation is service and tell them the benefits of investing through SIP

mode over the other investment option like Recurring Deposit where the

returns are known.

115

BIBLIOGRAPHY

116

BIBLIOGRAPHY

Sites visited

1. www.religare.in

2. www.mutualfundsindia.com

3. www.amfiindia.com

4. www.sebi.gov.in

5. www.moneycontrol.com

6. www.arhiantcapital.com

Books Referred

7. AMFI Mutual Fund

News Papers Referred

8. The Times Of India

Fact Sheets Referred 9. IDFC Mutual Funds

117

AppendixQuestionnaire

Study of Investment PatternQ1. Personal Details

○ Name………………………………………………………………..

○ Gender: ○ Male ○ Female ○ Age:……………………………….

○ Email Id: ………………………………… ○ Contact Number: …………………………

Q2. What is your current occupation?

○ Govt. Service ○ Pvt. Service ○ Business ○ Others

Q3. What is your highest level of qualification?

○ Graduate ○ Post Graduate ○ Others…………………………………………

Q4. What is monthly family income (approximately)?

○ less than 30000 ○ 30001 to 60000 ○60001 to 90000 ○90001 to 1,20,000

○1,20,000 and above

Q5. Do you invest your savings?

○ Yes ○ No

Q6. If yes then in which of the following you invest?

○ Mutual Funds ○Equity (Shares) ○ Commodities ○ Real Estate

○ Post Office (Nsc etc.) ○Bank Deposit (Govt. Bonds)

WHY?

….............................................................................................................................................................

………………………………………………………………………………………………………….

Q7. How much percentage of your savings do you invest?

○ 0%-10% ○ 10%-20% ○ 20%-30% ○ 30%-40% ○ More than 40%

118

Q8. What is your experience regarding your various investment options?

………………………………………………………………………………………………………………

………………………………………………………………………………………………………………

………………………………………………………………………………………………………………

……………………………………………………………………………………........................................

Q9.What is the time period for which you invest?

○Up to 6 Months ○Up to 1 year ○Up to 2 years ○Up to 3 years

○Up to 4 years ○Up to 5 years

Q10. To what extent are you ready to bear the risk in your investments?

○5%-10% ○ 10%-15% ○ 15%-20% ○ 20%-25% ○ 25%and above

Q11. If you invest in Mutual Fund than in which plan?

○ Regular income ○ Debt fund ○ Diversified Equity

○ Sector Fund (Real estate, Power, energy etc.) ○ELSS (Equity linked saving scheme)

○Others………………………………………………………………………………………………….

Q12. What is your investment Medium?

○ Broker ○ Bank ○ Consultant

Please specify the name of the medium………………………………………………………………..

Q13. Example

If you are given with a sum of 1,00,000 Rs. than how much do you want to invest in the following

options?

○ Mutual Fund ……% ○Fixed deposits……% ○ Insurance ......% ○Gold/ Silver…..%

○Post Office-NSC, etc......% ○Shares/Debentures…..% ○Real Estate…...%

Q14. Any Recommendations

…………………………………………………………………………………………………………

…………………………………………………………………………………………………………

119