finance project on “Analysis on Performance Of Mutual Fund Companies in India”

c c

³Analysis on Performance Of Mutual Fund Companies in India´

c

R A Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by the (pro rata). 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 portfolio at a relatively low cost. Anybody with an inventible surplus of as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy. A mutual fund is the ideal investment vehicle for today's complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc. A mutual fund is answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas - research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual fund gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks.

{

c c


c

A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). E.g. ICICI is the sponsor of the ICICI PRUDENTIAL AMC Ltd., which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes. A mutual fund is a collective investment fund formed with the objective of raising money from a large number of investors and investing it in accordance with a specified objective to provide returns that accrue pro rata to all the investors in proportion to their investment. The units held by an investor represent the stake of the investors in the fund. A professionally qualified and experienced team manages the investments and all other functions. With the large pool of money, a mutual fund is able to exploit economies of scale in the areas of research, investing, shuffling the investments and transaction processing - it is able to hire professionals in these functions at a very low cost per investor. As per SEBI regulations, mutual funds can offer guaranteed returns for a maximum period of one year. In case returns are guaranteed, the name of the guarantor and how the guarantee would be honored is required to be disclosed in the offer document.

c c


c

[ R Mutual Fund in India (1964-2000) The end of millennium marks 36 years of existence of mutual funds in this country. The ride through these 36 years is not been smooth. Investor opinion is still divided. While some are for mutual funds others are against it. UTI commenced its operations from July 1964. The impetus for establishing a formal institution came from the desire to increase the propensity of the middle and lower groups to save and to invest. UTI came into existence during a period marked by great political and economic uncertainty in India. With war on the borders and economic turmoil that depressed the financial market, entrepreneurs were hesitant to enter the capital market. The already existing companies found it difficult to raise fresh capital, as investors did not respond adequately to new issues. Earnest efforts were required to canalize savings of the community into productive uses in order to speed up the process of industrial growth. The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would be "open to any person or institution to purchase the units offered by the trust. However, this institution as we see it, is intended to cater to the needs of individual investors, and even among them as far as possible, to those whose means are small" His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill the twin objectives of mobilizing retail savings and investing those savings in the capital market and passing on the benefits so accrued to the small investors. UTI commenced its operations from July 1964 "with a view to encouraging savings and investment and participation in the income, profits and gains accruing to the Corporation from the acquisition, holding, management and disposal of securities." Different provisions of the UTI Act laid down the structure of management, scope of business, powers and functions of the Trust as well as accounting, disclosures and regulatory requirements for the Trust.

å

c c


c

One thing is certain - the fund industry is here to stay. The industry was one-entity show till 1986 when the UTI monopoly was broken when SBI and Canbank mutual fund entered the arena. This was followed by the entry of others like BOI, LIC, GIC, etc. sponsored by public sector banks. Starting with an asset base of Rs 0.25bn in 1964 the industry has grown at a compounded average growth rate of 26.34% to its current size of Rs 1130bn. The period 1986-1993 can be termed as the period of public sector mutual funds (PMFs). From one player in 1985 the number increased to 8 in 1993. The party did not last long. When the private sector made its debate in 1993-94, the stock market was booming. The opening up of the asset management business to private sector in 1993 saw international players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and Capital International along with the period of 1994-96 was one of the worst in the history of Indian Mutual Funds.

1999-2000 year of the funds:Mutual funds have been around for a long period of time to be precise for 36 yrs but the year 1999 saw3 immense future potential and developments in this sector. This year signaled the year of resurgence of mutual funds and the regaining of investor confidence in these MF's. This time around all the participants are involved in the revival of the funds the AMC's, the unit holders, the other related parties. However the sole factor that gave lift to the revival of the funds was the Union Budget. The budget brought about a large number of changes in one stroke. An insight of the Union Budget on mutual funds taxation benefits is provided later. It provided center stage to the mutual funds, made them more attractive and provides acceptability among the investors. The Union Budget exempted mutual fund dividend given out by equity-oriented schemes from tax, both at the hands of the investor as well as the mutual fund. No longer were the mutual funds interested in selling the concept of mutual fund. No longer were the mutual funds interested in selling the concept of mutual funds they wanted to talk business, which would mean to increase asset base, and to get asset base, and investor base they had to be fully armed with a whole lot of schemes for every investor. So new schemes for new IPO's were inevitable. The quest to attract investors extended beyond just new schemes. The

X

c c


c

funds started to regulate themselves and were all out on winning the trust and confidence of the investors under the aegis of the Association of Mutual Funds of India (AMFI). One can say that the industry is moving from infancy to adolescence, the industry is maturing and the investors and funds are frankly and openly discussing difficulties opportunities and compulsions. The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen a dramatic improvements, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family raised the AUM to Rs. 470 bn in March 1993 and till April 2004, it reached the height of 1,540 bn.

- 2 2 2 c The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under. First Phase : 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase: 1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund Ë

c c


c

(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management. ëhird Phase: 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. Fourth Phase: Since February 2003 This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29, 835 crores (as on January 2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

A

c c


c

l @lassification of Indian Mutual Fund Industry

The private sector players, after an indifferent start in the early years, have made a strong impression especially in the larger cities, with a high quality of fund management, sales and customer service. This sector has dented UTI's dominance resulting in a falling market share towards the end of the last millennium.

c

ù

c c


c

R R p ëI-Pioneer of Mutual Fund in India

UTI commenced its operations from July 1964 .The impetus for establishing a formal institution came from the desire to increase the propensity of the middle and lower groups to save and to invest. UTI came into existence during a period marked by great political and economic uncertainty in India. With war on the borders and economic turmoil that depressed the financial market, entrepreneurs were hesitant to enter capital market. The already existing companies found it difficult to raise fresh capital, as investors did not respond adequately to new issues. Earnest efforts were required to canalize savings of the community into productive uses in order to speed up the process of industrial growth. The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would be "open to any person or institution to purchase the units offered by the trust. However, this institution as we see it, is intended to cater to the needs of individual investors, and even among them as far as possible, to those whose means are small." His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill the twin objectives of mobilizing retail savings and investing those savings in the capital market and passing on the benefits so accrued to the small investors. UTI commenced its operations from July 1964

× Different provisions of the UTI Act laid down the structure of management, scope of business, powers and functions of the Trust as well as accounting, disclosures and regulatory requirements for the Trust. One thing is certain ± the fund industry is here to stay.

´

c c


c

p

Investment Philosophy of ëI Mutual Fund

UTI Mutual Fund¶s investment philosophy is to deliver consistent and stable returns in the medium to long term with a fairly lower volatility of fund returns compared to the ½ . It believes in having a balanced and well-diversified portfolio for all the funds and a rigorous in house research based approach to all its investments. It is committed to adopt and maintain good fund management practices and a process based investment management. UTI Mutual Fund follows an c of giving as equal an importance to asset allocation and sectoral allocation, as is given to security selection while managing any fund. It combines top-down and bottom-up approaches to enable the portfolios/funds to adapt to different market conditions so as to prevent missing an investment opportunity. In terms of its funds performance, UTI Mutual Fund aims to consistently remain in the top quartile vis-à-vis the funds in the peer group. SPONSORS OF ëI Më FNDS Three leading public sector banks ± Bank of Baroda (BOB), Punjab National Bank (PNB) and State Bank of India (SBI) and Life Insurance Corporation of India (LIC), the largest public financial investment institution and life insurer in India have entered into an agreement with the Government of India as Sponsors of the UTI Mutual Fund. The industry was one-entity show till 1986 when the UTI monopoly was broken when SBI and Canbank mutual fund entered the arena. This was followed by the entry of others like BOI, LIC, GIC, etc. sponsored by public sector banks. Starting with an asset base of Rs0.25bn in 1964 the industry has grown at a compounded average growth rate of 26.34% to its current size of Rs1130bn.The period 1986-1993 can be termed as the period of public sector mutual funds (PMFs). From one player in 1985 the number increased to 8 in 1993. The party did not last long. When the private sector made its debut in 1993-94, the stock market was booming. The opening up of the asset management business to private sector in 1993 saw international players like Jardine Fleming, JP Morgan, George Soros and Capital International along with the host of domestic players.

*

c c


c

N MRO Mutual Fund

ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund.

irla Sun ife Mutual Fund

Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a global organization evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 crores. ank of aroda Mutual Fund (O Mutual Fund) Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian. HDF@ Mutual Fund

HDFC Mutual Fund was setup on June 30, 2000 with two sponsor namely Housing Development Finance Corporation Limited and Standard Life Investments Limited.

{

c c


c

HS@ Mutual Fund

HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund.

ING Vysya Mutual Fund

ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. Ltd. was incorporated on April 6, 1998.

Prudential I@I@I Mutual Fund

The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsor, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June, 1993.

Sahara Mutual Fund Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 crore. {{

c c


c

State ank of India Mutual Fund

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes.

ëata Mutual Fund

Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsors for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703 crores (as on April 30, 2005) of AUM.

Kotak Mahindra Mutual Fund

Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is {

c c


c

presently having more than 1,99,818 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities.

Reliance Mutual Fund

Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. Franklin ëempleton India Mutual Fund The group, Frnaklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.

Morgan Stanley Mutual Fund India

{å

c c


c

Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investmenty management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and non-profit organisations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified equity scheme serving the needs of Indian retail investors focussing on a long-term capital appreciation. I@ Mutual Fund

Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund.

GI@ Mutual Fund

GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of India undertaking and the four Public Sector General Insurance Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882.

{X

c c


c

The mutual fund industry has been growing annually at the rate of 9% for the past 5 years & is expected to double the current AUM by the end of March 2010, according to AMFI. Further the annual composite growth rate of the industry is expected to be around 13% in the next 10 years. The industry, which in 1993 had less than 10 schemes, today has 460 schemes offered by mutual funds. The schemes are more diverse & offer a wide array of choices to investors.

The following factors have attributed to the spurt in the growth of the industry in recent times: p

uoyant stock market

If there is one major reason for the industry to grow at such levels it is the booming stock market over the last three years. The buoyant stock market, which has gained 18% in the last one year & 90% in the last three years. p

Product innovation

The innovative schemes launched by the mutual fund houses have given investors option to choose funds, which suits his investment needs. Introduction of innovative schemes like hybrid funds (fund for funds), children funds, & fixed maturity plans & new schemes such as exchangetraded funds & commodity-based funds have helped galvanize the industry growth. The innovations have changed the once uninteresting mutual fund offerings to a menu consisting of tailor-made schemes for investors. p

Increased competition

The entry of new players, both foreign as well as local, has helped the industry to expand further. This has been ably supported by a slew of new schemes from existing players as well. Further, the consolidation in the industry has just started. Many big international fund houses like Fidelity & Vanguard have entered the market. These fund houses individual assets are more than the size of the entire Indian mutual fund industry; this certainly will help improve the growth levels of the industry. {Ë

c c


c

p

ëechnology

The technology wave, which has transformed many industries in how they operate & survive, has also come to the aid of the mutual fund in dusty to widen its reach, offer flexibility & convenience to investors. The advantages include lower distribution costs through online transactions, more customized & personal advice to customers & reaching out to the growing young & net-savvy population of India. p

Deeper penetration into the @ountry

Though India has a good savings rate, the savings are channelized more into insurance & banking themes, which carry lesser risk, mutual fund players are slowly realizing the potential of the B & C class cities of India, many of which are seeing good growth in income levels as major plays from diversified industries such as, Services, Banking, Retailing & Petroleum are setting up their bases in these cities. Increased penetration is helping the industry improve its assets under management. The potential will huge for the Indian mutual fund industry as the present markets are still dominated by corporate & investors from A class cities. p

ëax incentives

Tax benefits extended to the mutual fund investors investing in equity mutual fund schemes too have acted as a catalyst for the growth of the industry. As of now, dividend is tax-free in the hands of investors. Also, the removal of long-term capital gains tax is a major catalyst.

{A

c c


c

R R c

l 100% growth in the last 6 years. l Number of foreign AMC¶s is in the queue to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management Worldwide. l Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. l We have approximately 29 mutual funds which are much less than US having more than 800. There is a big scope for expansion. l 'B' & 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities. l Mutual fund can penetrate rural like the Indian insurance industry with simple & limited products. l SEBI allowing the MF's to launch commodity mutual funds. l Emphasis on better corporate governance. l Trying to curb the late trading practices. l Introduction of Financial Planners who can provide need based advice. ( {ù

c c


c

Though India enjoys a good savings rate, e mutual fund industry gets very little out of this. If this money gets channelized into mutual funds it will help India match other well-developed markets like the US, Canada, etc. Another issue facing the industry is that, till now the Indian mutual funds have focused on the µA¶ cities & haven¶t made much impact on the µB¶ & µC¶ class cities & the rural areas, which we also seen a marked increase in income levels & spending power.

ëhe Following re ëhe Major @hallenges ëhat ëhe Industry Is Facing: Poor Reach Lack of deeper distribution networks & channels is hurting e growth of the industry. This is an ea of concern for the mutual fund industry, which has not been able to penetrate deeper into the country & has en limited to the metros & µA¶ class cities. If the mutual fund industry comes up with better distribution models & increases its reach it could tap into a huge potential investor markets of the rural & other µB¶ & µC¶ class cities, which are also witnessing good growth in disposable incomes. anks Still Dominate The biggest hindrance to the growth of the industry lies in its inability to attract the savings of the public, which constitute the major investment sources in other developed mutual fund markets. A large pool of money in savings in India is still with the state-run & private banks. Impact of Global Developments Though the economic reforms have brought India on the global investment map, this also exposes Indian financial market, including Indian mutual fund industry, to the volatility in international markets. Fluctuations in the global markets & financial systems will now be evident as the Indian markets get linked to other foreign markets. Managing risks in such a scenario will be a key challenge for the Indian mutual fund industry.

{´

c c


c

Operational Hassles Operational inefficiencies are still hampering the growth prospects of the industry. Lengthy transaction cycles & old- fashioned returns distribution models like cheque-based returns are preventing the industry to grow at good rates. Investments in technology take up huge capital & are pretty risky for the mutual fund companies to invest in. The rapid obsolescence of technology & huge upfront investment costs are also getting in the way of the mutual funds from embracing the technology wave. ack of Investment dvisors The lack of investment advisors, especially to give personalized investment advice to the investors is creating roadblocks for the growth in mutual funds. Further the awareness levels in India about the mutual fund industry are largely restricted to the high income investors & A class cities. These rules out the potentially huge B, C class cities & rural areas, which have strong growth potential. Lack of access, distribution models & advisors in these areas have blocked out a large pool of potential investors for the industry. Enter Product Innovation Enter the new world of exciting, innovative & niche products. Take a look at the varieties that are on offer on the mutual fund palate. These products are tailor-made to suit specific needs of investors. This is a far cry from the old days when investors had to be content with only a handful of schemes which hardly met their varied needs. However, thanks to the intensifying competition, the industry players have been coming out with several innovative schemes in order to differentiate & attract potential investors×

c

c c {*

c c


c

c

î According to James L. Pierce, it is non-depository or non-banking financial intermediary which acts as an ½ î Frank Reily defines mutual funds as ³ ½ ´. î Joel Ross defines mutual fund as î VNR dictionary of business and finance says mutual fund is ½ î Thomson dictionary of banking defines a unit trust as ½ ½ ½ ½ ½

c c c

c c


c

ÿ !! Different Mutual fund categories as previously defined have inherently different risk characteristics and should not be compared side by side. A bond fund with below average risk. For example should not be compared to stock fund with below average risk. Even though both funds have low risk for their respective categories, stock funds overall have a higher risk/return potential than bond funds. Of all the asset classes, cash investments (i.e. money markets) offer the greatest price stability but have yielded the lowest long-term return. Bond typically experience mote short term price swings, and in turn have generated higher long term returns. However, stocks historically have been subject to the greatest short term price fluctuations and have provided the highest long term returns. Investors looking for a fund which incorporates ass asset classes may consider a balanced or hybrid

mutual fund width different asset classes. At the discretion of the

manager(s), securities are bought, sold and shifted between funds with different asset classes according to market conditions. Mutual funds face risks based on the investments they hold. For example, a bonk fund faces interest rate risk and income risk. Bond values are inversely related to interest rates. If interest rates go up, bonk values will go down and vice versa. Bond income is also affected by the change in interest rates. Bond yields are directly related to interest rates falling as interest rates fall and finding as interest rise. Income risk is greater for a short term bond fund than for long term bond fund. Similarly, a sector stock fund (which invests in a single industry, such as telecommunications) is at risk that its price will decline due to developments in its industry. A stock fund that invests across many industries is more sheltered from this risk.

{

c c


c

Following is a glossary of some risks to consider when investing in Mutual Funds: 1. @all Risk: The possibility that falling interest rates will cause a bond issuer to redeem-or call-its high-yielding bond before the bond¶s maturity date. 2. @ountry Risk: The possibility that political events (a war, national elections), financial problems (rising inflation, government default), or natural disasters (an earthquake, a poor harvest) will waken a country¶s economy and cause investments in that country to decline. 3. @redit Risk: The possibility that a bond issuer will fail to repay interest and principal in a timely manner. Also called default risk. 4. @urrency Risk: The possibility that returns could be reduced for Americans investing in foreign securities because of a rise in the value of the U.S. dollar against foreign currencies also called exchange-rate risk. Ë c Income Risk: The possibility that a fixed-income fund¶s dividends will decline as a result of falling overall interest rates. 6 c Industry Risk: The possibility that a group of stocks in a single industry will decline in price due to developments in that industry. 7 c Inflation Risk: The possibility that increases in the cost of living will reduce or eliminate a fund¶s real inflation-adjusted returns. 8 c Interest Rate Risk: The possibility that a bond fund will decline in value because of an increase in interest rates. 9 c Manager Risk: The possibility that an actively managed Mutual Fund¶s investment adviser will fail to execute the fund¶s investment strategy effectively resulting in the failure of stated objectives. { c Market Risk: The possibility that stock fund or bond fund prices overall will decline

over short or even extended periods. Stock and bond markets tend to move in cycles, with periods when prices à à à à

× × ë

à à à à ×

c c


c

R Any Mutual Fund is as safe or unsafe as the assets that it invests in. There are two basic categories of Mutual Funds with others being variations or mixtures of these. Firstly, there are those that invest purely in equity shares (called equity funds or ³growth funds´) and secondly, there are those that invest purely in bonds, debentures and other interest bearing instruments called ³income´ or ³debt´ funds. The NAV of growth funds fluctuates in line with the fluctuation of the shares held by them. They can also witness face substantial erosion in value, which could be permanent in some cases. On the other hand, prices of debt instruments fluctuate to a much lesser degree and an income fund is extremely unlikely to face erosion in value ± especially of the permanent kind. Most Mutual Funds have qualified and experienced personnel, who understand the risks of investing. But, nobody is immune from making mistakes. However, funds diversify the investment portfolio substantially so that default in any single investment (in the case of an income fund) will not affect the overall performance of a fund in a significant manner. In the event of default of a part of the portfolio, an income fund is extremely unlikely to face erosion in face value. Generally, Mutual Funds are not guaranteed by anybody. However, in the Indian context, some of the Mutual Funds have floated ³guaranteed´ or ³assured´ return schemes which guarantee a certain annual return or guarantee a buyback at a specified price after some time. Examples of these include funds floated by the UTI, Can bank Mutual Fund, SBI Mutual l fund, LIC Mutual Fund etc. Many of these funds have not earned returns that they promised and the asset management companies of the respective Mutual Funds or their sponsors have made good their promises. The biggest case pertains to the US64, which never guaranteed any returns but is being bailed out by the government due to the millions of individuals who have invested in it.

å

c c


c

" Mutual fund schemes may be classified on the basis of its structure and its investments.

[ ± Open-ended Funds An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. ± @losed-ended Funds A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor.

X

c c


c

l Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.

[ [ l Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and government securities. Income Funds are ideal for capital stability and regular income.

l alanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth. l Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long-term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. Ë

c c


c

l Money Market Funds The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. l oad Funds A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history. l No-oad Funds A no-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work. A

c c


c

1. ëax saving Schemes Investors (individuals and Hindu Undivided Families (³HUFs´)) are being encouraged to invest in equity markets through Equity Linked Savings Scheme (³ELSS´) by offering them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched ± out until completion of 3 years from the date of allotment of the respective Units. The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS. These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA by investing in Mutual Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000. 2. Industry Specific Schemes Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG and Pharmaceuticals etc. å c Index Schemes Index Funds attempt to replicate the performance of a particular index such as the BSE Sense or the NSE 50 4. Sectoral Schemes Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.

ù

c c


c

Open-ended: Open for entry or exit through out the year, and the prices are based on NAV of the units. @lose-ended: Open initially for entry during the IPO and thereafter it is closed for entry as well as exit. Has a fixed redemption date. Interval funds: These are the funds, which open for entry or exit at certain specified periods during the year.

È Gilt Funds The funds are invested only in Central/State Government securities No principal risk on the product. Best suited for the medium-long term investors who are averse to risk È iquid (@ash) Fund These funds invest in very short-term instruments Ideal for corporate, institutional investors and business houses Period of investment may be as low as one day Used as a stop gap arrangement before investing/utilizing the money for other purposes.

È Debt (Income) Funds These funds invest in debt instruments (bonds, debentures, GOI securities, etc) The returns are steadier and can be benchmarked against comparable Debt instruments in the markets Best suited for the medium-long term investors who are averse to risks

È alanced Funds A combination of the above two types where in some part of the money is invested in debt and some in equity market. Generally it is seen as a step through from debt funds towards the equity funds for the investors who were not willing to invest in the equity funds up till now. Best suited for medium-long term investors who are willing to take moderate risk. ´

c c


c

È Equity (Growth) Funds These funds invest in stocks of various companies. The returns here are volatile as they are directly linked to the stock Markets. Best suited for long term investors who are not averse to taking risk. Over a long period of time these funds give the maximum returns.

p À ÀÀ À

À

*

c c


c

· #

%$

The performance of a particular scheme of mutual fund is denoted by Net Assets Value (NAV).Mutual fund invest the money collected from the investors in securities markets. In simple word, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market vale of securities of a scheme divided buy the total no of units of the scheme on any particular date. For example if the market value if securities of a mutual fund scheme is Rs. 200 lakhs and mutual fund has issue 10 lakhs units of Rs.10 each to the investors, then the NAV per unit of the fund is Rs. 20 . NAV is required to be disclosed by the mutual funds on a regular basis ±daily of weekly- depending on the type of scheme. The net assets value (NAV) is the actual value of one unit of a given scheme on any given business day. The NAV reflect the liquidation value of the funds investments on that particular day after accounting for all expenses. It is calculated by deducting all liabilities except unit capital of the fund from the realizable value of all assets and dividing it by number of units outstanding. So NAV is equals toMarket / fair value of schemes (+) Receivables (+) ccrued income (+) Other assets (-) ccrued expenses (-) Payables (-) Other liability (/) Number of unit outstanding

å

c c


c

c

In the above graph shows how Mutual Fund works and how investor earns money by investing in the Mutual Fund. Investors put their saving as an investment in mutual fund. The fund manager is a person who takes the decisions where the money should be invested in securities according to the scheme¶s objective. Securities include Equities, Debentures, Govt. securities, Bonds and Commercial Paper etc. These securities generate returns to the fund manager. The fund manager passes beck return to the investor.

c c c c

å{

c c


c

"R R Following are the steps for investing in Mutual Fund : 1) Identify your Investment needs Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, and level of income and expenses among many other factors. Therefore, the first step is to assess your needs. You can begin by defining your investment objectives and needs which could be regular income, buying a home or finance a wedding or educate your children or a combination of all these needs, the quantum of risk you are willing to take and your cash flow requirements. 2) @hoose the right Mutual Fund The important thing is to choose the right mutual fund scheme which suits your requirements. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are the track record of the performance of the fund over the last few years in relation to the appropriate yardstick and similar funds in the same category. Other factors could be the portfolio allocation, the dividend yield and the degree of transparency as reflected in the frequency and quality of their communications for selecting the right scheme as per your specific requirements. å) Select the ideal mix of SchemesInvesting in just one Mutual Fund scheme may not meet all your investment needs. You may consider investing in a combination of schemes to achieve your specific

goals.

å

c c


c

X The best approach is to invest a fixed amount at specific intervals, say every month. By investing a fixed sum each month, you buy fewer units when the price is higher and more units when the price is low, thus bringing down your average cost per unit. This is called rupee cost averaging and is a disciplined investment strategy followed by investors all over the world. You can also avail the systematic investment plan facility offered by many open end funds.

Ë It is desirable to start investing early and stick to a regular investment plan. If you start now, you will make more than if you wait and invest later. The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return.

A All you need to do now is to Click here for online application forms of various mutual fund schemes and start investing. You may reap the rewards in the years to come. Mutual Funds are suitable for every kind of investor - whether starting a career or retiring, conservative or risk taking, growth oriented or income seeking.

Choosing a fund is similar to choosing a stock. As with a stock, you need to do research & decide which fund is best for your investment goals. If you have a short time horizon & are reasonably risk adverse you may want to consider growth & income funds. If you are investing for the longer-term & feel like you can take a risk, you may want to look at aggressive growth funds. After choosing a fund category, you will need to look for specific funds. The Ameritrade site, like others on the Web, will allow you to look up funds by family. A fund family is the group of funds run by one company.

åå

c c


c

At some sites, you can also view a Mutual Fund screen. In a fund screen, you can enter criteria that you would like to find in a fund. For example, you can search for no-load growth & income funds having investment returns greater than 5%. This Fund Fact screen will provide much of the information you need to make an informed decision. The information you should look for is outlined below.

[ This section provides basic information on the fund such as the fund family, its categories, its NAV, & how much it has invested in the market.

Some funds have minimum initial & subsequent investments of $1000 or more. Note that these minimums may vary for regular investments & IRAs.

This section lists all the fees involved with buying into, carrying and/or selling your shares in the fund. The list should include the loads, the 12b-1 fee, the management fee & the expense ratio.

This provides some important statistics such as mention in industry statistics section.

This tells you how much a fund trades in its stock. If its turnover is 100% or greater it means that it changes its entire portfolio at least once a year. A fund having higher turnover will have more expenses. Again, this can be positive or negative, but it is up to you to research the reasons & decide whether or not you want to invest.

åX

c c


c

It measures the range of performance by a Mutual Fund. It shows how volatile the returns of a fund are over a 3-year (generally) period of time. Ninety-five percent of the time, a fund will perform within 2 standard deviations of its mean or average. This means that if a fund has a 10% return & a Standard Deviation of 5%, it has exhibited returns between 0% & 20%, ninety-five percent of the time. If you have to choose between two funds with the same average returns & you are more risk averse, you may want to consider the fund with the lower standard deviation.

It is the correlation (between 1 & 100) of the fund to the stock market as measured by an index, normally the S&P 500. For example, if a fund has an R-Squared of 90, 90 percent of the movement was due to the market; not to the actions of the fund manager. This number can help you decide whether or not the beta is relevant to the fund's performance. If the number is high, then the beta is a more relevant measure of fund risk compared to the R-squared correlation. If it is low, then the fund's beta is not as important a measure of its risk.

It measures the performance of a fund, given its risk. In other words, it takes the returns of the fund & compares them to the returns that would be predicted given the market's performance & the fund's beta. If Alpha is positive, it means the fund outperformed expectations. If it is negative, then the fund underperformed against expectations.

[ It represents the risk of the fund in relation to the stock market as a whole as represented by the S&P 500 Index. The S&P 500 Index has a beta of 1.00. If a Mutual Fund has a beta of 1.25 it means that its portfolio is 25% riskier than the market as a whole. If it has a beta of 0.75 then the fund carries 25% less risk than the market as a whole. If two funds with the same investment objective have the same returns you may want to compare their betas.

åË

c c


c

It provides the basic information about the fund such as the address, phone number & Web site. Most importantly, it provides you with a profile of the fund manager. This is important because managers have individual styles & different track records. If a fund has a new manager, their investment pattern & track record could diverge dramatically from the past performance of the fund.

This is a description of how the fund views its investments. It tells you the categories of stocks it invests in & might tell you one of the rankings from a rating agency. It can also tell you the top holdings of the fund, which will give a clearer picture of the manager's philosophy.

It shows the history of the fund, including total returns, which are the returns of the fund including all expenses incurred during the year. It also shows the best & worst returns for a period. There is a caveat in looking at historical data; one year will not necessarily be reflective of the next year. Conditions will vary from year to year, as will returns.

This will allow you to evaluate a fund's risk & investment philosophy by looking at the types of assets in the portfolio, the sectors they invest in & their top 10 holdings. Over time, you can compare these numbers to get a feel for how long a fund holds investments or assets. This can be valuable information in deciding whether the fund's philosophy & risk matches your own.

åA

c c


c

dvantages Of Mutual Funds Mutual funds serve as a link between the saving public and the capital markets. They mobilize savings from the investors and bring them to borrowers in the capital markets. Today mutual funds are fast emerging as the favorite investment vehicle because of the many advantages they have over other forms and avenues of investing. The major advantages offered by mutual funds to all investors are: ± Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. ± Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. ± @onvenient dministration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. ± Return Potential Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. ± ow @ost Mutual Finds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. åù

c c


c

± iquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. ± ëransparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. ± Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. ±

ffordability

Investors individually may lack sufficient funds to invest in high-grade stock. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. ± ÿell Regulated

All Mutual Funds are registered with SEBI and they function within the provision of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

å´

c c


c

Some of the Disadvantages of investing in Mutual Funds are given below: Potential loss Unlike a bank deposit, the investment in a mutual fund could fall in value, as the fund is nothing bur a portfolio of different securities. Apart from a few assured returns schemes, the fund does not guarantee any minimum percentage of return. ëhe Diversification Penalty While diversification reduces the risk of loss from holding a single security, it also limits the larger gains if a single security increases dramatically in value. Also, diversification does not protect the unit holders totally from an overall decline in the market. Risks Involved Changing market conditions can create fluctuations in the value of a Mutual Fund investment. There are fees & expenses associated with investing in Mutual Funds that do not usually occur when purchasing individual securities directly. As with any type of investment, there are drawbacks associated with Mutual Funds. No Guarantees The value of your Mutual Fund investment, unlike a bank deposit, could fall & be worth less than the principle initially invested. And, while a money market fund seeks a stable share price, its yield fluctuates, unlike a certificate of deposit. In addition, Mutual Funds are not insured or guaranteed by an agency of the U.S. government. Bond funds, unlike purchasing a bond directly, will not re-pay the principle at a set point in time. ëhe Diversification Penalty While diversification reduces the risk of loss from holding a single security, it also limits the larger gains if a single security increases dramatically in value. Also, diversification does not protect the unit holders totally from an overall decline in the market.

å*

c c


c

Hidden @osts In some cases, the efficiencies of fund ownership are offset by a combination of sales commissions, 12b-1 fees, redemption fees, & operating expenses. If the fund is purchased in a taxable account, taxes may have to be paid on capital gains. Keep track of the cost basis of your initial purchase & new shares that are acquired by reinvesting distributions. It's important to compare the costs of funds you are considering. Always look at "net" returns when comparing fund performances. Net return is the bottom line; an investment's true return after all costs is deducted. Prospectuses will not contain all the costs that affect the net return on your investment. This is why it is important to compare net returns whether or not the fund in a no-load or load fund. Expenses Because Mutual Funds are professionally managed investments, there are management fees & operating expenses associated with investing in a fund. These fees & expenses charged by the fund are passed onto shareholders & deducted from the fund's return. These expenses are typically expressed as the expense ratio - the percent of fund assets spent (annually) on day-to-day operations. Expense ratios can vary widely among funds. Expense ratios for Mutual Funds commonly range from 0.2% to 2.0%, depending on the fund. Consult the fund's prospectus to determine the expense ratio for a specific fund.

X

c c


c

Mutual Funds ± ORG NIZ ëION There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund: How important is an M@ ( sset Management @ompany) behind a mutual fund? AMC controls the operations and functioning of a mutual fund. It is very critical to the performance of a mutual fund as it decides on the style of functioning, people who are going to manage the funds, the commitment to service quality and overall supervision.

The financial strength and the commitment of the AMC sponsors to the business are very key issues. This is because most AMCs lose money in the first few years of operations. In most X{

c c


c

cases, these losses are much more than the capital requirements stipulated by SEBI. Hence, a sponsor which is financially weak or which cannot capital to the business either because of its inability or unwillingness will result in an unhealthy operation. There will be a tendency to cut corners and unwillingness to spend money to expand operations. This is the last place where high quality persons would want to remain and work. The AMC then remains stunted and the sponsors lose interest. The worst affected are the investors. This is exactly what has happened with some AMCs promoted by Indian business houses. This is also a problem that has afflicted some of the AMCs floated by nationalized banks. In these organizations, the traditional thinking is prevalent which can be summarized as "money is power". Since mutual fund business did not have access to too much money, a posting in the AMC became punishment postings for some personnel who were not doing well in the parent organization or who lost out in the organizational politics. The management of the banks also did not allow these AMCs to become independent viable businesses. The CEO¶s of the AMCs did not have any clue of the mutual fund business and neither were they interested in it ± the entire effort was spent in getting a posting back in the parent. The fund managers had no experience in the activity making a mockery of "professional management". The sad results are there to see. Some of the parents had to provide funds to bridge the gap in "assured return schemes". It looks extremely likely that some of these AMCs will no longer exist in a few years.

X

c c


c

Ôà

Xå

c c


c

RR · %%$%·R·R·R&R' With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organisation. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995.AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders.

ëhe role of ssociation of Mutual Funds in India The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows: 1. This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry. 2. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. 3. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. 4. Association of Mutual Fund of India does represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. 5. It develops a team of well qualified and trained Agent distributors. It implements a program of training and certification for all intermediaries and other engaged in the mutual fund industry. XX

c c


c

6. AMFI undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds. 7. At last but not the least association of mutual fund of India also disseminate information on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.

Sponsor of ssociation of Mutual Funds in India

ö

Bank Sponsored p

SBI Fund Management Ltd.

p

BOB Asset Management Co. Ltd.

p

Canbank Investment Management Services Ltd.

p

UTI Asset Management Company Pvt. Ltd.

Institutions p

GIC Asset Management Co. Ltd.

p

Jeevan Bima Sahayog Asset Management Co. Ltd.

Private Sector Indian:p

BenchMark Asset Management Co. Pvt. Ltd.

p

Cholamandalam Asset Management Co. Ltd.

p

Credit Capital Asset Management Co. Ltd.

p

Escorts Asset Management Ltd.

p

JM Financial Mutual Fund

p

Kotak Mahindra Asset Management Co. Ltd.

p

Reliance Capital Asset Management Ltd.

p

Sahara Asset Management Co. Pvt. Ltd

p

Sundaram Asset Management Company Ltd.

p

Tata Asset Management Private Ltd.

XË

c c


c

Predominantly India Joint Ventures:p

Birla Sun Life Asset Management Co. Ltd.

p

DSP Merrill Lynch Fund Managers Limited

p

HDFC Asset Management Company Ltd.

Predominantly Foreign Joint Ventures:p

ABN AMRO Asset Management (I) Ltd.

p

Alliance Capital Asset Management (India) Pvt. Ltd.

p

Deutsche Asset Management (India) Pvt. Ltd.

p

Fidelity Fund Management Private Limited

p

Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.

p

HSBC Asset Management (India) Private Ltd.

p

ING Investment Management (India) Pvt. Ltd.

p

Morgan Stanley Investment Management Pvt. Ltd.

p

Principal Asset Management Co. Pvt. Ltd.

p

Prudential ICICI Asset Management Co. Ltd.

p

Standard Chartered Asset Mgmt Co. Pvt. Ltd.

c

XA

c c


c

[R( ( The SEBI regulations for the establishment and issue of schemes by mutual funds are as follows:

Mutual fund shall be established in the form of trusts under the Indian Trust Act and managed by separately formed Asset Management Company.

Money market mutual fund would be regulated by the RBI and other mutual funds would be regulated by SEBI.

Fifty per cent members of the board of AMC must be independent directors and must have no connection with sponsoring organization.

The directors should have at least 10 years experience in the field of portfolio management, financial administration, etc.

The AMC should have a minimum net worth of Rs. 10 crores.

The SEBI has the authority to withdraw the authorization of AMC if they fail to work for the interest of investors. This stipulation is not applicable to banks sponsoring mutual funds.

An AMC cannot act as the AMC for another mutual fund.

AMCs are also allowed to do other fund based businesses such as providing investment management services to offshore funds, other mutual funds, venture capital funds, and insurance companies.

The minimum amount to be raised with each closed-end scheme should be Rs. 20 crores and for the open-ended scheme Rs. 50 crores.

Each scheme of the mutual fund is registered with SEBI before it is floated in the market.

Closed-end schemes should not be kept open for subscription for more than 45 days. For open-ended schemes, the first 45 days should be considered for determining the target figure.

If the minimum amount or 60% of the target amount is not raised, the entire subscription has to be returned to the investors.

For each scheme, there should be a separate and responsible fund manager.

Xù

c c


c

The SEBI guidelines (1999) restrict MFs to invest not more than 10% of NAV of a scheme in shares or share related instruments of a single company.

SEBI increased the maximum investment limit for MFs in listed companies from 5 to 10% of NAV in respect of the open-ended funds.

The initial issue expenses should not exceed 6% of the funds raised under each scheme.

All mutual funds must distribute a minimum of 90% of their profits in any given year.

Every mutual fund is required to send the audited annual statements of accounts and six months un audited accounts of net assets for each of its schemes to the SEBI.

The SEBI shall lay down a common advertising code for all mutual funds to comply with.

The SEBI after due investigation may impose penalty on mutual funds for violating the guidelines.

· ($ [$RR · Every asset management company for each scheme shall keep and maintain proper books of accounts, records and documents, for each scheme so as to explain its transactions and to disclose at any point of time the financial position of each scheme and in particular give a true and fair view of the state of affairs of the fund and intimate to the Board the place where such books of accounts, records and documents are maintained. ± The financial year for all the schemes shall end as of March 31 of each year. ± Every mutual fund or the asset management company shall prepare in respect of each financial year an annual report and annual statement of accounts of the schemes and the fund as specified in Eleventh Schedule. ± Every mutual fund shall have the annual statement of accounts audited by an auditor who is not in any way associated with the auditor of the asset management company.

X´

c c


c

È PRO@EDRE FOR

@ëION IN @ SE OF DEF ë

± On and from the date of the suspension of the certificate or the approval, as the case may be, the mutual fund, trustees or asset management company, shall cease to carry on any activity as a mutual fund, trustee or asset management company, during the period of suspension, and shall be subject to the directions of the Board with regard to any records, documents, or securities that may be in its custody or control, relating to its activities as mutual fund, trustees or asset management company. ± RESëRI@ëIONS ON INVESëMENëS ± A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer, which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of asset management company ± A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt instruments issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the Board of Trustees and the Board of asset management company. ± No mutual fund under all its schemes should own more than ten per cent of any company's paid up capital carrying voting rights. ± Transfers of investments from one scheme to another scheme in the same mutual fund shall be allowed only if, - Such transfers are done at the prevailing market price for quoted instruments on spot basis. ± The securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made. ± A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees, provided that aggregate inter scheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund.

X*

c c


c

± The initial issue expenses in respect of any scheme may not exceed six per cent of the funds raised under that scheme. ± Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver the securities and shall in no case put itself in a position whereby it has to make short sale or carry forward transaction or engage in badla finance. ± Every mutual fund shall, get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of long-term nature. ± Pending deployment of funds of a scheme in securities in terms of investment objectives of the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial banks. ± No mutual fund scheme shall make any investment in; ± Any unlisted security of an associate or group company of the sponsor; or ± Any security issued by way of private placement by an associate or group company of the sponsor; or ± The listed securities of group companies of the sponsor which is in excess of 30% of the net assets [of all the schemes of a mutual fund] ± No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares or equity related instruments of any company. Provided that, the limit of 10 per cent shall not be applicable for investments in index fund or sector or industry specific scheme. ± A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or equity related investments in case of open-ended scheme and 10% of its NAV in case of close-ended scheme.

c c c Ë

c c


c

( %

[ È À à à à à à à à à à à à à × È À à

à à × È À à à à à à àà à à à à àà× È w à À È Êà à à à à à à× ë à à à × È @ Ê @ ×

c c c c c c c c

Ë{

c c


c

R R R R·R à à à × à

à × à à à à à à à× à

× à à×

± À ± @ ± ëà @à ± [ ± ·[ @ ± à @ ± à

[ ± Ôà @àà [ Ô@[

± à à à à [ ± à à à à

Ë

c c


c

c

c

!c "cc !c

c c

cc c

c c

c c

c

c

With the growth of the economy and the capital market in India, the size of investor has also increased rapidly. Infect, small investors in India have regularly invested in public issues to finance big and small green-field projects of known and unknown promoters. They have been benefited out of such investments in the past. As the stock market crumbled later on and new issues flopped, small investors again started to look for a good opportunity. In this situation, mutual funds provide that they are able to deliver the goods. The concept of mutual funds was conceived to mobilize savings from the people and invest them in a mix of corporate and government securities. The mutual fund operators actively manage the portfolio of schemes and earn income through dividend, interest and capital gains which is eventually passed on to mutual fund investors so mutual funds are financial intermediaries. c

Ëå

c c


c

( Research simply means a search for facts- answers to questions and solutions to problem. It is a purposive investigation. It is also called an ³organized inquiry´ .It seeks to find explanations to unexplained phenomenon, to clarify the doubtful prepositions and to correct the misconceived facts.

p

The report revolves around how a particular person chooses a mutual fund scheme among many schemes and for a company what is to be taken care for a mutual fund. Hence the research statement is cccc c c cc c c

± The Primary Objective of my Project Report is to know about ³What investors expect with

regard to the choice of mutual funds´

± p

To know about the investment pattern of mutual funds investors

p

To know about objective & expectations of mutual fund investors.

p

To know about the most favored mutual fund company among investors.

p

To know about the most favored mutual fund schemes.

p

To know about the satisfaction level of mutual fund investors.

p

To measure the performance of mutual fund companies.

ö

@ollection Of Data : ë à à à

! à×

ö

iuestionnaire Design : Ô " @

ö

ocation : Randomly selected region

ËX

c c


c

ö Population : Ê

à à Ê [ à ö

Sample Size : à

ö ëhe Secondary Data re @ollected From : m Internet m Other related books m News papers & magazines m Broachers of the company

ö imitations : m Time constraints m Lack of enough resources m Cost constraints m Lack of experience m Unavailability of confidential data ö Research Plan: For the execution of research, the given steps are taken Introduction Of Mutual Funds Background and History Mutual Funds About Mutual Funds Governance Of Mutual Funds Research Design

ËË

c c


c

i

For checking the investor¶s expectations towards a mutual fund company, I have interviewed 100 people. I used questionnaire technique for collecting the data. The analysis and collected data is interpreted as follows i{ It is very necessary to have an idea about how much does a person earn in a single year, means what is his annual income. As we all know that the investments made by any person is solely depends on how much he earns. That is the reason why i have put this question about an annual income of the respondents, on the top of the questionnaire. So that i can know of which group of annual income individuals are investing in the mutual fund. All of my respondents are Mutual Fund Investors in any of the mutual fund company. I have got information that which of the annual group is investing in mutual fund as follows:

{

{

XË

Ë

{

{

À

ù ù À À À

À À

À

ËA

c c


c

Looking at the above figure one can see that the more number of the investors of the mutual funds are the second annual group and that is for annual income of Rs. 1 Lac to Rs. 3 Lacs. From the above received data I can see that this out of total mutual fund investor 45 % are from that group only, which can be defined as a very big portion of the total investors, in this group I observed that there are more number of govt. servants, small businessmen investors. These are the people who are not invested for the purpose of speculating but they required a constant income from the investments. On the other hand I can see that income group of Rs. 3 Lacs to Rs. 5 Lacs having 31 investors in mutual fund out of total 100 investors. So, we can expect that people from this income groups are also attracting to ward mutual fund now a days in expectation of earning stable income at a lower risk level. i All the benefits offered by the mutual funds can be included under the head objective for investing in mutual Funds The objective can be either good amount of return on the investments, or lower rate of risk in term of threat for possible risk, or investment may be for the purpose of minimizing the Tax liability or it can be for the saving purpose. These all are some of the major objectives for Investments in Mutual Funds in India. There are some other objectives like investment diversification, liquidity, assured allotment, transparency and also professional management, these are not affecting much at the time of making decision regarding why one is going for mutual fund investment. At the time, when i asked what are the objectives of the investment at time of investing in any Mutual Fund? I received following response:

Ëù

c c


c

Objective

No of Respondents

Risk

11

Return

4Ë

ëax enefit

2Ë

Savings

10

Diversification

0

iquidity

0

ssured llmnt

0

Small Invst

9

ëransperency

0

Professional Mgt

0

À

À

{ {

{{

{

Looking at the above chart, which is showing different objectives for Mutual Fund Investors to invest in Mutual Funds, I can get idea that most of the mutual fund investors are always looking towards how much return they are getting by investing in the mutual fund. About 45 % out of our total investors respondents are investing in mutual fund for the purpose of having stable return. As we know that most of the investors of mutual fund are selecting mutual funds for Ë´

c c


c

investment only because mutual fund is the only investment which are offering a good and stable return. As about 45 % of total investors are from the income group of Rs. 1 lac to Rs. 3 lacs, so obviously they are not investing for speculative or capital gain purpose, they always looking for the higher return than Banks are offering to these investors but also at stable rate. So, same is here also most of the investors¶ objective for investing in mutual fund is only stable return. According to the very first question about 45 % of our total investors respondents, are having annual income between 1 Lac to 3 Lacs. So, most of them are falling under the tax paying group. So, about 25 % of the total respondents are investing in mutual fund for the purpose of minimizing their tax liability. Minimum Risk in mutual funds and Savings are also two important objectives for investing in mutual funds. As investors of mutual funds are don¶t want to bear more risk burden on the investment and savings. i After having a figure of the annual income of individual and also for what purpose he is investing in a Mutual Fund. Now in the third question I have asked them about the investments made in a year. With the help of this question I come to know that how much a person likes to invest in mutual fund out of his total annual income in a year. Investment in Mutual Fund

No of Respondents

ess than 10 %

16

10 % to 1Ë %

Ë8

1Ë % to 20 %

2Ë

More than 20 %

1

Ë*

c c


c

À

{

{ {

So, looking at the above chart we can easily get the idea that most of the investors of all income group are likely to invest about 10 % to 15 % of their total annual income in mutual funds. This amount can be varying according to which income group that investor is which means if he is from the income group of Rs. 1 Lac to Rs. 3 Lacs then his investment in mutual fund will be up to Rs. 10000 to Rs. 45000 in a year. As we all know that mutual fund are the investments which provide a stable and sure return at a low rate of risk so, here all the investors making investments with that intensions only. Most of the investors are having conservative approach so that they can earn stable return on one hand and with bearing lower rate of risk for having loss on the other hand. Thus out of the total 100 mutual fund investors about 58 % investors are investing about 10 % to 15 % of their total annual income for a year. iX As there are about 38 companies are there in India which are providing service of Mutual Fund Investments to investors. Here all the mutual fund companies are having different criteria for providing these services. There are some companies which are offering higher return like Reliance Mutual Fund, like wise there are also some companies which are concentrating more on Tax benefits (ELSS). à à à à à à

à à ×

A

c c


c

[

{

Ë

[

{

Ë

[

Ë

--

c

c

c c

c

Looking at the above chart for Mutual Fund Companies in which investors are like to invest more. I got the idea about the popularity of UTI Mutual Fund in India.

A{

c c


c

As UTI was very first to start Mutual Fund services in India in the year 1964. at that time it was the only company which was providing different mutual fund services. From that time, till today UTI has got a good market share out of total mutual fund market in India as well as it is having more number of mutual fund investors than any other mutual fund companies. Out of the total 100 investors about 30 investors are there who had invested in UTI mutual fund. So, more than half of the total investors are still think that UTI is the best investing in mutual funds. On the other hand, from the last some year Reliance has got pace in Mutual Fund industry by providing different mutual fund schemes to investors. Looking at the above chart we can got that idea. About 41 investors are investing in Reliance Mutual Fund out of 100 investors. Thus, is providing good competition to the UTI mutual funds. One of the reason for getting much success by Reliance Mutual Funds in the Mutual Fund Industry, is also a Brand name of the Reliance in the Indian market. So, we can assume that in coming years Reliance may became a first preference for investors those who want to go for mutual fund investments. Moreover , he competition among the private players has become very stiff so it is nowadays considered to be a very important field for any investor to make a safe investment. iË To know about the expectations of Mutual Fund Investors, it was very necessary for me to know the reason for selecting that company for the purpose of investments. For that I asked them above mentioned question that ³what is the reason for selecting that company´, whether it is News Papers, Magazines, Television Advertisements, or any mutual funds Agent or is there any friend or relative who influences you to select that company. In response to this I have got information as under :

A

c c


c

Reason for Selection

No of respondent

News Paper

å7

Magazine

14

gents

19

Friends/Relatives

22

ëelevision ds

8

Others

0

ÀcÀc c À cc Xc åËc åc

åùc

Ëc c

{*c

{Ëc {c

c

{Xc ć

Ëc c

c c

c

c c À c c c

c c

c

Looking at the above chart one can measure that the main reason for investment in mutual fund by any mutual investors. So, here what ever advertisements are being given by any of the mutual funds company are much more effective than any other medias for information. According to the chart we can say that about 37 % of the total investors were influenced by the advertisement in news papers. Second rank can be given to Friend and Relative of individual, with about 22 % of the total investors influenced by that media. Here Agents of mutual fund are also proved very good influencing point factor. Aå

c c


c

iA For my research it was very important for me to know where the investors find the opportunities with investment. Where the money should be invested is a question for discussion. Hence I directly asked in which scheme they mostly invest. The results I got is as follows. Scheme

Respondent

Growth

40

Debt

20

Hybrid

30

Others

10

-#

c

c

!

"

The given data shows that people are mostly interested in investing in growth scheme as they want to be along term investor and thus they can ensure a better return. Moreover some investors invest in hybrid scheme also so that they can have both types of benefit Growth and Income. i This question is the most important question in my Questionnaire as this is the question which will give information about the performance of the mutual fund. Here, i asked investors about their satisfaction level for that mutual fund whether they are highly dissatisfied, dissatisfied or satisfied, highly satisfied or not regarding their chosen fund¶s performance. From the satisfaction level on investors form the mutual fund i can measure the performance of that mutual fund. Here one of the important thing to be noted that it might be possible that some

AX

c c


c

time though mutual fund has performed well as a whole then also investors is not satisfied with the performance of that mutual fund, that can be possible only when mutual fund has not performed well for the purpose why investor invested.

Satisfaction evel

No of Respondents

Highly Dissatisfy

0

Dissatisfy

1

verage

å7

Satisfy

Ë4

Highly Satisfy

8 c cc

Ac

c ËXc

Ëc Xc åùc

åc c {c c À cc

c

{c

c c c

ć

c

c

c c

As, most of the investors of mutual funds are going for any mutual fund only after having proper information about that mutual fund. And they are investing in that mutual fund only when they are fully agree that the mutual fund will fulfill their objective for which they have selected that mutual fund. That is the reason why I have got more number of respondents who are Satisfied with the performance of that mutual fund. And those investors are about 54 % of the total investors. On the other hand 37 % are having a feeling of average satisfaction. So, at last one can say that more

AË

c c


c

than half of the mutual funds have satisfied their investors with their performance seeing my sample. i Normally people invest in mutual funds for getting the stable return so what is their exact perception for returns is an important question for my analysis. My collected data if shown diagrammatically is as follows.c À$ c

No of Respondentsc

#c$%c

&$c

$%#c

'(c

&$%#c

'$c

)(%#c

*(c

c

--

À$

%&'

&'%

&'%

&'%

Seeing the above table one can conclude that most of the investors are looking for returns which varies from 15 to 25. But in reality it is tough to get this much returns. There are some people also who ask for normal rate of return i.e. more than 5 % i

The above question gives a clear cut idea about what investors think about the mutual fund industry. In the question they are given choice to select among the best financial instruments available today. The collected data demonstrated the given results. Industries

[

c

AA

c c


c

16

No of

15

20

10

11

23

$c

Respondents

&(!$

)$$ c$!

!

The above tabulation shows that most of the people still today consider stock markets as one of the good place for the investment. The second rank goes to the mutual fund because they give high returns and maintain the investors¶ interest through providing better advisory and information at reasonable cost. i {

The last question I kept open ended hence while giving answer, the investor has to think for it. Most of the investors are satisfied so they expect all possible new facilities like providing easy structure, better fund management services, accurate advisory through analysis of world market, etc. At last I collected the necessary information on what investors perceived regarding the mutual fund as a industry and do they still consider a mutual fund as a good investment opportunity and if no, what they want extra. But overall I found it very much positive and the attitude towards this industry was very much impressive.

Aù

c c


c

± R One of the important steps in mutual fund management process is the evaluation of the mutual funds during the time horizon concerned.From the investors point of view, the performance evaluation is to verify whether superior performance is attributable to the skills of the fund manager and many other factors. Evaluation is very much important for the fund¶s performance. One has to be constantly watching the NAV value and its earned return over a period of time so that the company creates good reputation in the market.

ëIME HORIZON FOR Më FND EV ëION Time horizon is an important factor, which decides the mutual fund performance over a temporal horizon. If the time horizon is very less, than the mutual fund performance will be unduly affected by technical factors like market sentiment and the exercise may not serve the purpose. If the time horizon is very long , it may not provide an opportunity for any mid course correction. The timing shall first be decided based on investment horizon of the investor then the time horizon should be subdivided into equal time slots to take up the evaluation. My research contains what are the important things for a fund which makes it famous for the investment purpose. Some of the important factors are fund manager, fund objective, asset allocation, sector allocation, risk factor involved. All these things together decide the success of the fund. Hence I selected 10 top funds as on 1/05/2009 considering last 6 months.

A´

c c


c

They are as follows. #c*

À

1

1c # #c 2 !c !c $!c 3c c)+,c)((-.

*+c,À./

0 cc)'

&&.$&-*

+/.&+'-

2

+c2 !c!c$!c3c

c)+,c)((-

+.&-/

+&.-/)-

3

o)c)$c c$!c3c

c)+,c)((-

-.)*+-

$'.&&&+

4

c1 $! c4 $#$ c$!c c)+,c)((-

&(./)

'-.0+(*

+./+

'-.'(-)

)(.($

'-.&)&)

+./+

'+.0+'+c

&).0

'+.0&'-

+.$/-&

'+.$/&$

+.0-

'+.)+'+

3cc 5

c 1 $! c #$!c 56$c c)+,c)(($!c3c$ cc3c

6

c1 $! c4 $#$ c$!c c)+,c)((3c

7

c 1 $! c #7 c $!c 3c c)+,c)((13c c

8

cÀ#c4 $#$ c$!c c)+,c)((3c c

9

c #c +c +# c c)+,c)(($!c3c c

10

c 1 $! c #$!c 56$c c)+,c)(($!c3cÀ c3c

Why these schemes are successful in current situation is a discussion point for my research. I just went in depth and tried to check out some of the important points for every scheme.

A*

c c


c

c1 2 2c3"c4"c "c5c467 The primary investment objective of the Scheme is to seek capital appreciation by investing predominantly in units of MLIIF - WGF. The Scheme may, at the discretion of the Investment Manager, also invest in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus. The Scheme may also invest a certain portion of its corpus in money market securities and/or units of money market/liquid schemes of DSP Merrill Lynch Mutual Fund, in order to meet liquidity requirements from time to time. However, there is no assurance that the investment objective of the Scheme will be realized.

Fund Facts p Increase/Decrease in Fund Size since Feb 27, 2009 (Rs. in crores): 96.69 p Mutual Fund Company :

DSP Blackrock Mutual Fund Tulsiani Chambers, West Wing, 11th Floor, Nariman Point Mumbai Tel.-56578000

p Asset Management Company: As Above p

Î c c×ccc ccc ccc c×cccccc cccÎc×ccc ccc

c

SCHEME PERFORMANCE( last month)

c

ù

c c


c

ccc ccccc c 1 month

3 months 6 months 1 year

3 years

5 years

Since Inception

-7.63

8.96

NA

NA

9.98

87.18

-14.68

c cc cc c c Mean Standard Deviation Sharpe Beta

-0.45 7.81 -0.07 0.36

c c

Treynor Sortino Correlation Fama

-1.56 -0.12 0.35 1.29

c

Sector Allocation Current Assets Mutual Funds

-2.45 102.45

Asset Allocation Equity 00.01

Debt 2.44

Cash & Equivalent -2.45

c ù{

c c


c

4c3"c4"c "c8c467 The primary investment objective of the Scheme is to provide long term capital appreciation by investing predominantly in units of AIG PB Equity Fund Gold. The Scheme may, at the discretion of the Investment Manager, also invest in the units of other similar overseas mutual fund schemes. The Scheme may also invest a certain portion of its corpus in debt and money market securities and/or units of debt/liquid schemes of Mutual Funds, in order to meet liquidity requirements from time to time.

Fund Facts p Increase/Decrease in Fund Size since Feb 27, 2009 (Rs. in crores): 16.07 p Mutual Fund Company :

AIG Global Investment Group Mutual Fund FCH House, Ground Floor, Peninsula Corporate Park Ganpatrao Kadam Marg, Lower Mumbai Tel.-40930000 p Asset Management Company: As Above p Registrar : Computer Age Management Services Private Limited A&B, Lakshmi Bhavan 609, Anna Salai Chennai p Î c c8.20 as on Apr 28, 2009c cccccc c10.68 as on Jul 14, 2008 cccÎc4.58 as on Oct 27, 2008

Parel


c ù

c c


c

ccc ccccc c 1 Month

3 Months

6 Months

1 Year

3 Years

5 Years

-8.18

4.56

81.97

NA

NA

NA

Since Inception -18.46


-0.52 7.01 -0.09 0.23


c c

-1.24 -0.07 0.32 1.02ss

c

Sector Allocation Current Assets Mutual Funds Securities

-1.34 99.66 1.67

Asset Allocation Equity

Debt

98.91

0.76

Cash & Equivalent 0.33

c

ùå

c c


c

occ 9c "c5c467 The investment objective of the Scheme is to provide capital appreciation by investing in equity and equity related securities using a combination of strategies

Fund Facts p Increase/Decrease in Fund Size since Feb 27, 2009 (Rs. in crores): 0.59 p

Mutual Fund Company : JM Financial Mutual Fund 5th Floor, A Wing , Laxmi Tower Bandra Kurla Complex. Mumbai Tel.-39877777

p Asset Management Company: As Above p

p

Registrar :

Karvy Computershare Pvt. Ltd. 21, Avenue 4, Street No 1, Banjara Hills Hyderbad cc Î c c9.25 as on Apr 29, 2009 ccc c9.90 as on Sep 25, 2008 cccÎc5.93 as on Oct 27, 2008


c c

ùX

c c


c

ccc ccccc c 1 Month

3 Months

6 Months

1 Year

3 Years

5 Years

10.39

10.69

53.11

NA

NA

NA


c cc cc c Mean Standard Deviation Sharpe Beta

-0.48 7.49 -0.92 0.37

c c


-1.34 -0.09 0.29 1.06

c

Sector Allocation Banks Cement Computers - Software & Education Current Assets Electricals & Electrical Equipments Engineering & Industrial Machinery Metals Oil & Gas, Petroleum & Refinery Plastic Power Generation, Transmission & Equip Sugar Telecom Tobacco & Pan Masala

6.59 4.51 -5.98 24.13 6.02 8.48 7.66 6.35 3.65 22.96 3.11 7.60 4.90


Debt 0.00


ùË

c c


c

c"c! c "c8c c467 To provide capital appreciation and income distribution to unitholders by investing predominantly in equity/equity related securities of the companies belonging to infrastructure development and the balance in debt securities and money market instruments including call money

Fund Facts p

Increase/Decrease in Fund Size since Feb 27, 2009 (Rs. in crores): 186.26

p Mutual Fund Company : ICICI Prudential Mutual Fund 8th Floor, Peninsula Tower, Ganpatrao Kadam Marg, Off Senapati Bapat Marg, Lower Parel Mumbai Tel.-24997000 ,24999777 p Asset Management Company: As Above p Registrar : Computer Age Management Services Private Limited A&B, Lakshmi Bhavan 609, Anna Salai Chennai cc p Î c cc10.72 as on Apr 29, 2009 ccccccccc c15.64 as on May 5, 2008 cccccccccÎc7.51 as on Oct 27, 2008


ùA

c c


c

ccc ccccc c 1 Month

3 Months

6 Months

1 Year

3 Years

5 Years

10.65

19.07

39.68

-31.62

NA

NA


-1.22 -0.35 1.01 0.18

Since Inception 2.40


-1.14 6.00 -0.21 1.03

c c c

Sector Allocation Auto & Auto ancilliaries Banks Cement Consumer Durables Current Assets Electricals & Electrical Equipments Engineering & Industrial Machinery Hotels & Resorts Housing & Construction Metals Miscellaneous Oil & Gas, Petroleum & Refinery Plastic Power Generation, Transmission & Equip Shipping Steel Telecom Textiles Transport & Travel

0.68 15.46 0.50 0.14 10.68 1.47 2.07 0.48 3.82 3.98 31.84 8.43 0.46 5.27 0.85 3.95 8.49 0.26 1.17


Debt 0.00


ùù

c c


c

c"c "c :9c "c8ccc8c467 Seeks to generate long-term capital appreciation and income distribution to unitholders from a portfolio that is invested in equity and equity related securities of about 20 companies belonging to thelarge cap domain and the balance in debt securities and money market instruments. The Fund Manager will always select stocks for investment from among Top 200 stocks in terms of market capitalization on the National Stock Exchange of India Ltd. If the total assets under management under this scheme goes above Rs.1000 crores the Fund Manager reserves the right to increase the number of companies to more than 20.

Fund Facts p Increase/Decrease in Fund Size since Feb 27, 2009 (Rs. in crores): 40.06 p Mutual Fund Company : ICICI Prudential Mutual Fund

p p

p

8th Floor, Peninsula Tower, Ganpatrao Kadam Marg, Off Senapati Bapat Marg, Lower Parel Mumbai Tel.-24997000 ,24999777 Asset Management Company: As Abovec Registrar : Computer Age Management Services Private Limited A&B, Lakshmi Bhavan 609, Anna Salai Chennai cc Î c cc8.78 as on Apr 29, 2009 ccc c10.11 as on Aug 11, 2008 cccÎc6.08 as on Oct 27, 2008

ù´

c c


c


ccc ccccc c 1 Month

3 Months

6 Months

1 Year

3 Years

5 Years

9.29

19.63

39.31

NA

NA

NA


-1.35 -0.54 0.48 0.14



-1.05 6.10 -0.27 1.005

c c c

Sector Allocation Auto & Auto ancilliaries Banks Computers - Software & Education Current Assets Electricals & Electrical Equipments Engineering & Industrial Machinery Finance Miscellaneous Oil & Gas, Petroleum & Refinery Paints Power Generation, Transmission & Equip Steel Telecom Tobacco & Pan Masala

5.74 6.26 10.95 9.24 3.04 2.10 2.64 12.86 19.00 2.72 8.60 2.38 9.12 5.35

ù*

c c


c


Debt 0.00


c"c! c "c5c467c To provide capital appreciation and income distribution to unitholders by investing predominantly in equity/equity related securities of the companies belonging to infrastructure development and the balance in debt securities and money market instruments including call money

Fund Facts p Increase/Decrease in Fund Size since Feb 27, 2009 (Rs. in crores): 186.26 p Mutual Fund Company : ICICI Prudential Mutual Fund 8th Floor, Peninsula Tower, Ganpatrao Kadam Marg, Off Senapati Bapat Marg, Lower Parel Mumbai Tel.-24997000 ,24999777 p Asset Management Company: As Abovec p Registrar : Computer Age Management Services Private Limited A&B, Lakshmi Bhavan 609, Anna Salai Chennai cc p Î c cc20.05 as on Apr 29, 2009 cccccccccccc c29.49 as on May 2, 2008 cccÎc14.11 as on Oct 27, 2008

´

c c


c


ccc ccccc c 1 Month

3 Months

6 Months

1 Year

3 Years

5 Years

10.65

18.83

39.12

-32.12

6.69

NA


-1.27 -0.35 0.99 0.15



-1.16 5.99 -0.21 1.00

c c c

Sector Allocation Auto & Auto ancilliaries Banks Cement Consumer Durables Current Assets Electricals & Electrical Equipments Engineering & Industrial Machinery Hotels & Resorts Housing & Construction Metals

0.68 15.46 0.50 0.14 10.68 1.47 2.07 0.48 3.82 3.98

´{

c c


c

Miscellaneous Oil & Gas, Petroleum & Refinery Plastic Power Generation, Transmission & Equip Shipping Steel Telecom Textiles Transport & Travel

31.84 8.43 0.46 5.27 0.85 3.95 8.49 0.26 1.17


Debt 0.00


c"c 9c "c8c8c467cc To generate returns through a combination of dividend income and capital appreciation by investing primarily in a well-diversified portfolio of value stocks.

Fund Facts p Increase/Decrease in Fund Size since Feb 27, 2009 (Rs. in crores): 10.01 p Mutual Fund Company : ICICI Prudential Mutual Fund

p p

8th Floor, Peninsula Tower, Ganpatrao Kadam Marg, Off Senapati Bapat Marg, Lower Parel Mumbai Tel.-24997000 ,24999777 Asset Management Company: As Abovec Registrar : Computer Age Management Services Private Limited A&B, Lakshmi Bhavan 609, Anna Salai Chennai cc c

´

c c


c

p Î c cc× ccc ccc cccccccccccc c× cccccc ccccccccccccÎc×ccc c cc

c SCHEME PERFORMANCE( last month)

ccc ccccc c 1 Month

3 Months

6 Months

1 Year

3 Years

5 Years

19.01

22.73

38.68

-30.10

-9.14

NA


-1.44 -0.36 0.85 0.08



-1.15 5.60 -0.22 1.00

c c c

c c ´å

c c


c

Sector Allocation Auto & Auto ancilliaries Banks Cement Computers - Software & Education Current Assets Edible Oil & Vanaspati Electricals & Electrical Equipments Electronics Fertilizers, Pesticides & Agrochemicals Finance Miscellaneous Oil & Gas, Petroleum & Refinery Packaging Paper Pharmaceuticals Power Generation, Transmission & Equip Rubber & Tyres Shipping Steel Tea Textiles

7.37 15.18 2.10 4.29 5.60 3.44 1.85 2.27 5.46 3.78 3.70 5.48 0.55 2.66 16.78 5.57 1.10 2.21 5.88 4.44 0.28


Debt 0.00


c c ´X

c c


c

c; c! c "c8c467cc The objective of CanInfrastructure Scheme is to generate income / capital appreciation by investing in equities and equity related instruments of companies in the infrastructure sector.

Fund Facts p Increase/Decrease in Fund Size since Feb 27, 2009 (Rs. in crores): 5.09 p Mutual Fund Company : Canara Robeco Mutual Fund 4th Floor, Construction House, 5 Walchand Hirachand Road, Ballard Estate Mumbai Tel.-66585000 ,66585086 p Asset Management Company: As Abovec p Registrar : Computer Age Management Services Private Limited A&B, Lakshmi Bhavan 609, Anna Salai Chennai cc p Î c cc×ccc ccc ccccccccc c×cccccc ccccccccccccÎc×ccc c cc c


ccc ccccc c 1 Month

3 Months

6 Months

1 Year

3 Years

5 Years

12.40

20.92

38.61

-37.28

-2.96

NA


c cc cc c ´Ë

c c


c

c Mean Standard Deviation Sharpe Beta

-1.53 6.00 -0.27 0.98

c c c


-1.67 -0.46 0.97 -0.21

c

Sector Allocation Banks Cement Current Assets Engineering & Industrial Machinery Finance Housing & Construction Metals Oil & Gas, Petroleum & Refinery Power Generation, Transmission & Equip Steel Telecom

12.71 3.41 8.10 7.94 2.12 1.01 2.14 30.91 8.78 7.11 15.77


Debt 0.00


c c Á

c c


c

2c 9 cc c "c8c467cc The Objective of the Scheme is to generate income by investing in Debt & Money Market securities and to generate capital appreciation by investing in equity and equity related securities.

Fund Facts p Increase/Decrease in Fund Size since Feb 27, 2009 (Rs. in crores): 6.31 p Mutual Fund Company : Kotak Mahindra Mutual Fund Sakhar Bhavan 9th Floor, 91-92, Nariman Point Mumbai Tel.-66384444 p Asset Management Company: As Abovec p Registrar : Computer Age Management Services Private Limited A&B, Lakshmi Bhavan 609, Anna Salai Chennai cc p Î c cc×ccc cccc ccccccccc c×ccccccc cccccccccÎc×ccc c cc SCHEME PERFORMANCE( last month)

ccc ccccc c 1 Month

3 Months

6 Months

1 Year

3 Years

5 Years

9.73

20.67

38.57

-40.39

NA

NA


´ù

c c


c


-1.26 7.11 -0.19 1.18

c c c


-1.15 -0.32 1.18 -0.32

Sector Allocation Auto & Auto ancilliaries Banks Cement Computers - Software & Education Current Assets Diversified Electricals & Electrical Equipments Electronics Engineering & Industrial Machinery Entertainment Finance Housing & Construction Metals Miscellaneous Oil & Gas, Petroleum & Refinery Pharmaceuticals Power Generation, Transmission & Equip Steel Telecom Tobacco & Pan Masala

0.20 33.45 0.12 0.73 -111.25 0.18 0.30 0.04 0.23 0.03 52.23 9.10 0.21 110.14 2.09 0.20 0.71 0.27 0.80 0.23


Debt 75.33

Cash & Equivalent -92.74

´´

c c


c

c"c "c :9c "c8cc5c467c Seeks to generate long-term capital appreciation and income distribution to unitholders from a portfolio that is invested in equity and equity related securities of about 20 companies belonging to thelarge cap domain and the balance in debt securities and money market instruments. The Fund Manager will always select stocks for investment from among Top 200 stocks in terms of market capitalization on the National Stock Exchange of India Ltd. If the total assets under management under this scheme goes above Rs.1000 crores the Fund Manager reserves the right to increase the number of companies to more than 20.

Fund Facts p Increase/Decrease in Fund Size since Feb 27, 2009 (Rs. in crores): 40.06 p Mutual Fund Company : ICICI Prudential Mutual Fund 8th Floor, Peninsula Tower, Ganpatrao Kadam Marg, Off Senapati Bapat Marg, Lower Parel Mumbai Tel.-24997000 ,24999777 p Asset Management Company: As Abovec p Registrar : Computer Age Management Services Private Limited A&B, Lakshmi Bhavan 609, Anna Salai Chennai cc p Î c cc×ccc ccc ccccccccc c×ccc ccc ccccccÎc×ccc c c SCHEME PERFORMANCE( last month)

´*

c c


c

ccc ccccc c 1 Month

3 Months

6 Months

1 Year

3 Years

5 Years

9.11

19.20

38.28

NA

NA

NA



-1.30 7.48 -0.25 1.87

c c c


-1.68 -0.45 1.42 -0.86

Sector Allocation Auto & Auto ancilliaries Banks Computers - Software & Education Current Assets Electricals & Electrical Equipments Engineering & Industrial Machinery Finance Miscellaneous Oil & Gas, Petroleum & Refinery Paints Power Generation, Transmission & Equip Steel Telecom Tobacco & Pan Masala

5.74 6.26 10.95 9.24 3.04 2.10 2.64 12.86 19.00 2.72 8.60 2.38 9.12 5.35


Debt 0.00


*

c c


c

There are actually more than 5000 schemes in mutual fund industry where different companies fight for high returns with less risk involvement and try to increase the investors¶ wealth. So, what makes only some schemes achieve the high standards is a debatable issue. The above information if put together can make one able to find out certain points which will be useful to the company as well as the investors. Some of the points are as follows 1) Every fund has a specific objective and that specific objective only makes the fund to earn high return. For example, c1 2 2c3"c4"c "c5c467cscheme has a specific objective of investing in other DSP liquid schemes and marketable securities. So for every fund there has to be a specific objective so that they can plan accordingly. 2)There are different fund managers taking care of different schemes so its important for them to have eough and deep knowledge regarding where to invest money to earn higher returns. 3) The funds have to be formulated flexibly in a manner that if any drastic change takes place in the economy, it must be coping up with it. 4) The fund must be having less standard deviation and high correlation. There are various techniques available for measuring mutual fund performance. On of them is Teynor and Sharpe performance measurement.

Wiiliam Sharpe has attempted to get a summery measure of Mutual Fund performance. His measure properly adjust performance for risk. Sharpe Index is given by : È S = (Ra ± Rf)/ÿa Ra = verage Return of the mutual fund Rf = verage Return on risk free security ÿa = Standard deviation of the mutual fund

*{

c c


c Thus, the Sharpe Index measure the risk premium of the Mutual Fund (where the risk premium is the access return required by the investors for the assumption of risk) relative to the Total amount of risk in the mutual fund. Hence higher the Index , better for the scheme .

ëREYNOR¶S ME SRE The Treynor Index measure the risk premium of the mutual fund, where risk premium aquals the difference between the return of the mutual fund and the risk less rate. This risk premium is related to the amount of systematic risk assumed in the mutual fund. So the Treynor index sums up the risk and return of a mutual fund in a single number, while categorizing the performance of the mutual fund.

È ë = (Ra ± Rf)/2 Ra = verage Return of the mutual fund Rf =

verage Return on risk free security

2 = Standard deviation of the mutual fund It evaluates the performance of the mutual fund based on the systematic risk of the mutual fund. Beta is a measure of the systematic risk. Higher the ë value better the performance of the mutual fund. Therefore, I can conclude that using this techniques a fund manager can plan for the future of the fund and manage it efficiently. 5) There must be a proper balance in Asset allocation seeing the market opportunity because every investor is interested in increasing their NAV, if there is improper mix of assets , it will be dangerous for the company itself. The asset allocation is defined as the mixture of different types of capital investment like equity , debt , or cash (liquid assets) etc. 6) Last but not the least, the accumulated money should be invested in the different industries after carrying out a market research because on that investment decision only the whole success of the scheme depends.

t last the success of a fund lies in the given important factors È Risk and Return È Sector llocation

*

c c


c

The research here is to find out the investors¶ need and preferences and what they actually want in a mutual fund. After analysis of collected data, it is noted that still today people want a handsome return with long term security in a fund. Investors today invest in a fund where the fund objective is clear which is going to produce positive returns for them in short period. Moreover they see the risk element as we know today is the recession time so what would be the guarantee of making average returns in a fund. So here the risk element plays dominant role. But overall one can see that the investors have different needs and accordingly they choose a fund for e.g tax saving funds at the end of financial year. The report is based on both analysis where form one side it is evaluating what an investor wants in a fund and the other side what successful funds have done for the better future for their unit holders. At last I conclude that in India, mutual fund can be treated as a booming industry for the investors and if the industry is conscious enough to take care of the given analyzed points for the investor, it can do a lot better in the future seeing growth of the industry with comparison to other developed countries like U.S. and U.K. and still there is a need of proper understanding of mutual funds as I observed that many people don¶t even know the exact meaning of ³what is a fund ??´

*å

c c


c

[ " The data regarding the mutual fund schemes and companies have been collected by the given sources.

3;
6c 7c 1c""c

c

*X

finance project on “Analysis on Performance Of Mutual Fund Companies in India”

Recommend Documents