A REPORT ON DESCRIPTIVE STUDY OF MUTUAL FUNDS AND STUDY OF

INVESTORS PERCEPTION ABOUT INVESTMENT IN MUTUAL FUNDS

Undertaken at

ANANDRATHI SHARES AND STOCK BROKERS LTD.

Gurudham crossing, Varanasi.

Submitted By
TANUJ KUMAR
PGIRM/04/34
SMS Varanasi

Submitted To
Mr. Ashish goel
Designation: Branch manager
Anandrathi shares and stock brokers ltd
Gurudham crossing, Varanasi
STUDENT’S DECLARATION

I, Tanuj Kumar, student of PGDM (IRM), here by declare that project entitled
“Descriptive Study of Mutual Funds and Study of Investors Behaviour of
Investment in Mutual Funds” submitted in the partial fulfillment of my own
accurate work.

I further declare that all the facts and figures furnished in this project report are the
outcome of my own intensive research and findings.

Submitted By
Tanuj Kumar
IRM/04/34
 ACKNOWLEDGEMENT

“Expression of feelings by words makes them less significant when it comes to

make statement of gratitude”

It gives me pleasure to express my most profound regards and sense of great

indebtedness and sincere gratitude to my Company Guide Mr. Ashish Goel
(Branch Manager, AnandRathi Shares and Stock brokers ltd. Gurudham crossing,
Varanasi).

I would thank to my mentor Mr. Pawan Shukla (AnandRathi shares and stock
brokers ltd., Gurudham, VNS) for his guidance in preparing this report

I would thank to my project mentor Ms. Supriya Ashoka for his guidance in
preparing this report.

I would also like to thank my co employees who gave guidance and support during
the completion of the project.

Tanuj Kumar

PGIRM/04/34
 CONTENTS

CHAPTER 1 1.0 Summary

1.1 Company Profile

CHAPTER 2 2.0 INTRODUCTION

2.1 Overview of Indian Mutual Fund Industry

2.2 About Mutual Funds
2.3 How Mutual Funds is Structured
2.4 Mutual Funds History
2.5 Types of Mutual Funds
2.6 Mutual Funds v/s Banks
2.7 Benefits of Investment in Mutual Funds
2.8 Accounting and Valuation

CHAPTER 3 3.0 MAJOR PLAYERS

3.1 About major Mutual Funds Companies

3.2 Competition in Mutual Fund Industry

CHAPTER 4 4.0 OBJECTIVES AND METHODOLOGY

4.1 Significance of the Study

4.2 Managerial Usefulness of the Study
4.3 Objectives
4.4 Scope of the Study
4.5 Methodology

CHAPTER 5 5.0 DATA ANALYSIS AND INTERPRETATION

5.1 FINDINGS
5.2 LIMITATIONS

CHAPTER 6 6.1 Annexure

6.2 Bibliography
 SUMMARY
Indian Stock market has undergone tremendous changes over the years.
Investment in Mutual Funds has become a major alternative among Investors. The
project has been carried out to have an overview of Mutual Fund Industry and to
understand investor’s perception about Mutual Funds in the context of their trading
preference, explore investor’s risk perception & find out their preference over Top
Mutual funds.

The methodology used was data collection using Schedule. Secondary data
was collected from Internet and Books. Primary Data was collected through survey
among existing clients along with the other investors. The procedure adopted to
select sample was simple random sampling

The research design is analytical in nature. A questionnaire was

prepared and distributed to Investors. The investor’s profile is based on the results
of a questionnaire that the Investors completed. The Sample consists of 100
investors from various broker’s premises. The target customers were Investors who
are trading in the stock market. The area of survey was restricted to people residing
in Varanasi.

COMPANY PROFILE

ORGANIZATION HISTORY

• Company Profile
• Milestones
• AR Core Strengths
• Management Team

About Anand Rathi

AnandRathi shares and stock brokers ltd. (AR) is a leading full service securities
firm providing the entire gamut of financial services. The firm, founded in 1994 by
Mr. Anand Rathi, today has a pan India presence as well as an international
presence through offices in Dubai and Bangkok. AR provides a breadth of financial
and advisory services including wealth management, investment banking, corporate
advisory, brokerage & distribution of equities, commodities, mutual funds and
insurance, structured products - all of which are supported by powerful research
teams.
The firm's philosophy is entirely client centric, with a clear focus on providing long
term value addition to clients, while maintaining the highest standards of
excellence, ethics and professionalism. The entire firm activities are divided across
distinct client groups: Individuals, Private Clients, Corporate and Institutions and
was recently ranked by Asia Money 2006 poll amongst South Asia's top 5 wealth
managers for the ultra-rich.

In year 2007 Citigroup Venture Capital International joined the group as a financial
partner.

Equity & Derivatives Brokerage

AnandRathi shares and stock brokers ltd. provides end-to-end equity

solutions to institutional and individual investors. Consistent delivery of high quality
advice on individual stocks, sector trends and investment strategy has established us
a competent and reliable research unit across the country.

Clients can trade through us online on BSE and NSE for both equities and
derivatives. They are supported by dedicated sales & trading teams in our trading
desks across the country. Research and investment ideas can be accessed by clients
either through their designated dealers, email, web or SMS

Milestones

1994: Started activities in consulting and Institutional equity sales with staff of 15

1995: Set up a research desk and empanelled with major institutional investors

1997: Introduced investment banking businesses. Retail brokerage services

launched

1999: Lead managed first IPO and executed first M & A deal

2001: Initiated Wealth Management Services

2002: Retail business expansion recommences with ownership model

2003: Wealth Management assets cross Rs 1500 crores. Insurance broking

launched, Launch of Wealth Management services in Dubai. Retail Branch network
exceeds 50

2004: Commodities brokerage and real estate services introduced, Wealth

Management assets cross Rs 3000 crores, Institutional equities business re-
launched and senior research team put in place, Retail Branch network expands
across 100 locations within India.

2005: Real Estate Private Equity Fund Launched, Retail Branch network expands
across 200 locations within India.

2006: AR Middle East, WOS acquires membership of Dubai Gold & Commodity
Exchange (DGCX) , Ranked amongst South Asia's top 5 wealth managers for the
ultra-rich by Asia Money 2006 poll, Ranked 6th in FY2006 for All India Broker
Performance in equity distribution in the High Net worth Individuals (HNI)
Category, Ranked 9th in the Retail Category having more than 5% market share,
Completes its presence in all States across the country with offices at 300+
locations within India

2007:Citigroup Venture Capital International picks up 19.9% equity stake , Retail

customer base crosses 100 thousand, Establishes presence in over 350 locations

AR Core Strengths
Breadth of Services

In line with its client-centric philosophy, the firm offers to its clients the entire
spectrum of financial services ranging from brokerage services in equities and
commodities, distribution of mutual funds, IPO’s and insurance products, real
estate, investment banking, merger and acquisitions, corporate finance and
corporate advisory.
Clients deal with a relationship manager who leverages and brings
together the product specialists from across the firm to create an optimum solution
to the client needs.

Management Team

AR brings together a highly professional core management team that comprises of

individuals with extensive business as well as industry experience.

In-Depth Research

Our research expertise is at the core of the value proposition that we offer to our
clients. Research teams across the firm continuously track various markets and
products. The aim is however common - to go far deeper than others, to deliver
incisive insights and ideas and be accountable for results.
Management Team

The senior Management comprises a diverse talent pool that brings together rich
experience from across industry as well as financial services.

Mr. Anand Rathi - Group Chairman

Chartered Accountant
Past President, BSE
Held several Senior Management positions with one of India's largest industrial
groups

Mr. Pradeep Gupta - Vice Chairman

Plus 17 years of experience in Financial Services

Mr. Amit Rathi - Managing Director

Chartered Accountant & MBA
Plus 11 years of experience in Financial Services

ACQUISITION:
ANZ Grind lays : $ 1.34 bn from August 2000.

Hong Kong Consumer Bank : $ 1.32 bn

Thailand Nakornthan Bank : $ 320 million

Indonesians Bank Per-Mata : $ 366 million from Oct. 2004.

Korea First Bank : $ 3.3 bn from Apr. 2005.

Standard Chartered PLC is listed on both the London Stock Exchange and the
Stock Exchange of Hong Kong and is in the top 25 FTSE-100 companies, by
market capitalization. Top 100 companies list, no other bank present except Bank
of America’s position 69th and position of standard chartered bank is 74th.

Offices of ANANDRATHI SHARES AND STOCK BROKERS LTD. are in 197

cities across 28 states & it has also branches in Dubai & Bangkok with more than
44000 employees. It has daily turnover in excess of Rs.4bn. It has 1, 00,000+
clients nationwide. It is also leading distributor of IPO’s.
In India where ANANDRATHI SHARES AND STOCK BROKERS LTD. is
present in 21 STATES:

Andhra Pradesh
Assam
Bihar
Chhattisgarh
Delhi
Goa
Gujarat
Haryana
Jammu & Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Orissa
Punjab
Rajasthan
Tamil Nadu
Uttar Pradesh
Uttaranchal
West Bengal

LIST OF PRODUCTS :
 Demat Accounts
 Mutual Funds
 Derivatives
 Commodities
 Bonds
 Trading Account
 Insurance
 Fixed deposits
MISSION
To be India's first Multinational providing complete financial services solution
across the globe

VISION
Providing integrated financial care driven by the relationship of trust and
confidence.

INTRODUCTION

Investment in share markets are influenced by the analysis & reasoning

which help in predicting the market to some extent. Over the past years a number
of technical & theories for analysis have evolved, these combined with modern
technology guides the investor. The big players in the market, like Foreign
Institutional Investors, Mutual Funds, etc. have the expertise for various analytical
tools & make use of them. The small investors are not in a position to benefit from
the market the way Mutual Funds can do. Generally a small investor’s investments
are based on market sentiments, inside information, through grapevine, tips &
intuition. The small investors depend on brokers and brokerage house for his
investments. They can invest through the Mutual Funds who are more experienced
and expert in this field than a small investor himself.

In recent years a large number of players have entered into his market.
The project has been carried out to have an overview of Mutual Fund Industry and
to understand investor’s perception about Mutual Funds in the context of their
trading preference, explore investor’s risk perception & find out their preference
over Top Mutual

INDUSTRY PROFILE

The mutual fund industry is a lot like the film star of the finance business. Though
it is perhaps the smallest segment of the industry, it is also the most glamorous – in
that it is a young industry where there are changes in the rules of the game every
day, and there are constant shifts and up heavals. The mutual fund is structured
around a fairly simple concept, the mitigation of risk through the spreading of
investments across multiple entities, which is achieved by the pooling of a number
of small investments into a large bucket. Yet it has been the subject of perhaps the
most elaborate and prolonged regulatory effort in the history of the country.
A little history: The mutual fund industry started in India in a small way with the
UTI Act creating what was effectively a small savings division within the RBI.
Over a period of 25 years this grew fairly successfully and gave investors a good
return, and therefore in 1989, as the next logical step, public sector banks and
financial institutions were allowed to float mutual funds and their success
emboldened the government to allow the private sector to foray into this area. The
initial years of the industry also saw the emerging years of the Indian equity
market, when a number of mistakes were made and hence the mutual fund
schemes, which invested in lesser-known stocks and at very high levels, became
loss leaders for retail investors. From those days to today the retail investor, for
whom the mutual fund is actually intended, has not yet returned to the industry in a
big way. But to be fair, the industry too has focused on brining in the large investor,
so that it can create a significant base corpus, which can make the retail investor
feel more secure.

The Indian MF industry has Rs 5.67 lakh crore of assets under

management. As per data released by Association of Mutual Funds in India,
the asset base of all mutual fund combined has risen by 7.32% in April, the
first month of the current fiscal. As of now, there are 33 fund houses in
the country including 16 joint ventures and 3 wholly owned foreign asset
managers.
According to a recent McKinsey report, the total AUM of the Indian mutual
fund industry could grow to $350-440 billion by 2012, expanding 33%
annually. While the revenue and profit (PAT) pools of Indian AMCs are pegged
at $542 million and $220 million respectively, it is at par with fund houses
in developed economies. Operating profits for AMCs in India, as a percentage
of average assets under management, were at 32 basis points in 2006-07,
while the number was 12 bps in UK, 17 bps in Germany and 18 bps in the US,
in the same time frame.

HISTORY OF MUTUAL FUND

The mutual fund industry in India started in 1963 with the formation of Unit Trust
of India, at the initiative of the Government of India and Reserve Bank. The history
of mutual funds in India can be broadly divided into four distinct phases: -

First Phase – 1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. 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)

1987 marked the entry of non- UTI, public sector mutual funds set up by public
sector banks and Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund
established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab
National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of
India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual
fund in June 1989 while GIC had set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management of
Rs.47,004 crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund families.
Also, 1993 was the year in which the first Mutual Fund Regulations came into
being, under which all mutual funds, except UTI were to be registered and
governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton)
was the first private sector mutual fund registered in July 1993.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit
Trust of India with assets under management of Rs.29,835 crores as at the end of
January 2003, representing broadly, the assets of US 64 scheme, assured return and
certain other schemes. The Specified Undertaking of Unit Trust of India,
functioning under an 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 assets under management 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.

ECONOMIC ENVIRONMENT

GROWTH OF MUTUAL FUND INDUSTRY IN INDIA

While the Indian mutual fund industry has grown in size by about 320% from
March, 1993 (Rs. 470 billion) to December, 2004 (Rs. 1505 billion) in terms of
AUM, the AUM of the sector excluding UTI has grown over 8 times from Rs. 152
billion in March 1999 to $ 148 billion as at March 2008.
Though India is a minor player in the global mutual fund industry, its AUM as a
proportion of the global AUM has steadily increased and has doubled over its
levels in 1999.

The growth rate of Indian mutual fund industry has been increasing for the last few
years. It was approximately 0.12% in the year of 1999 and it is noticed 0.25% in
2004 in terms of AUM as percentage of global AUM.

Some facts for the growth of mutual funds in India

 100% growth in the last 6 years.

 Number of foreign AMC’s is in the queue to enter the Indian markets.

 Our saving rate is over 23%, highest in the world. Only channelizing these
savings in mutual funds sector is required.

 We have approximately 29 mutual funds which is much less than US having

more than 800. There is a big scope for expansion.

 Mutual fund can penetrate rurals like the Indian insurance industry with
simple and limited products.
  SEBI allowing the MF's to launch commodity mutual funds.

 Emphasis on better corporate governance.

 Trying to curb the late trading practices.

 Introduction of Financial Planners who can provide need based advice.

Recent trends in mutual fund industry

The most important trend in the mutual fund industry is the aggressive expansion of
the foreign owned mutual fund companies and the decline of the companies floated
by the nationalized banks and smaller private sector players.

Many nationalized banks got into the mutual fund business in the early nineties and
got off to a start due to the stock market boom was prevailing. These banks did not
really understand the mutual fund business and they just viewed it as another kind
of banking activity. Few hired specialized staff and generally chose to transfer staff
from the parent organizations. The performance of most of the schemes floated by
these funds was not good. Some schemes had offered guaranteed returns and their
parent organizations had to bail out these AMCs by paying large amounts of money
as a difference between the guaranteed and actual returns. The service levels were
also very bad. Most of these AMCs have not been able to retain staff, float new
schemes etc.

TECHNOLOGICAL ENVIRONMENT

IMPACT OF TECHNOLOGY

Mutual fund, during the last one decade brought out several innovations in their
products and is offering value added services to their investors. Some of the value
added services that are being offered are:

• Electronic fund transfer facility.

• Investment and re-purchase facility through internet.
• Added features like accident insurance cover, mediclaim etc.
• Holding the investment in electronic form, doing away with the traditional
form of unit certificates.
• Cheque writing facilities.
 • Systematic withdrawal and deposit facility.

ONLINE MUTUAL FUND TRADING

The innovation the industry saw was in the field of distribution to make it more
easily accessible to an ever increasing number of investors across the country. For
the first time in India the mutual fund start using the automated trading, clearing
and settlement system of stock exchanges for sale and repurchase of open-ended
de-materialized mutual fund units.

Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP) were
options introduced which have come in very handy for the investor to maximize
their returns from their investments. SIP ensures that there is a regular investment
that the investor makes on specified dates making his purchases to spread out
reducing the effect of the short term volatility of markets. SWP was designed to
ensure that investors who wanted a regular income or cash flow from their
investments were able to do so with a pre-defined automated form. Today the SW
facility has come in handy for the investors to reduce their taxes.

LEGAL AND POLITICAL ENVIRONMENT

ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

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 organization.
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 board of directors. AMFI 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
interest of mutual funds as well as their unit holders.

It has been a forum where mutual funds have been able to present their views,
debate and participate in creating their own regulatory framework. The association
was created originally as a body that would lobby with the regulator to ensure that
the fund viewpoint was heard. Today, it is usually the body that is consulted on
matters long before regulations are framed, and it often initiates many regulatory
changes that prevent malpractices that emerge from time to time.

AMFI works through a number of committees, some of which are standing

committees to address areas where there is a need for constant vigil and
improvements and other which are adhoc committees constituted to address
specific issues. These committees consist of industry professionals from among the
member mutual funds. There is now some thought that AMFI should become a
self-regulatory organization since it has worked so effectively as an industry body.

OBJECTIVES:

 To define and maintain high professional and ethical standards in all areas of
operation of mutual fund industry

 To recommend and promote best business practices and code of conduct to be

followed by members and others engaged in the activities of mutual fund and asset
management including agencies connected or involved in the field of capital
markets and financial services.

 To interact with the Securities and Exchange Board of India (SEBI) and to
represent to SEBI on all matters concerning the mutual fund industry.

 To represent to the Government, Reserve Bank of India and other bodies on all
matters relating to the Mutual Fund Industry.

 To develop a cadre of well trained Agent distributors and to implement a

programme of training and certification for all intermediaries and other engaged in
the industry.

 To undertake nationwide investor awareness programme so as to promote

proper understanding of the concept and working of mutual funds.

 To disseminate information on Mutual Fund Industry and to undertake studies

and research directly and/or in association with other bodies.

MEMBERS OF AMFI:

o Bank Sponsored
1. Joint Ventures - Predominantly Indian
 1. Canara Robeco Asset Management Company Limited
2. SBI Funds Management Private Limited
2. Others
1. Baroda Pioneer Asset Management Company Limited
2. UTI Asset Management Company Ltd
o Institutions

1. LIC Mutual Fund Asset Management Company Limited

o Private Sector

1. Indian
1. Benchmark Asset Management Company Pvt. Ltd.
2. DBS Cholamandalam Asset Management Ltd.
3. Deutsche Asset Management (India) Pvt. Ltd.
4. Edelweiss Asset Management Limited
5. Escorts Asset Management Limited
6. IDFC Asset Management Company Private Limited
7. JM Financial Asset Management Private Limited
8. Kotak Mahindra Asset Management Company
Limited(KMAMCL)
9. Quantum Asset Management Co. Private Ltd.
10.Reliance Capital Asset Management Ltd.
11.Sahara Asset Management Company Private Limited
12.Tata Asset Management Limited
13.Taurus Asset Management Company Limited
2. Foreign
1. AIG Global Asset Management Company (India) Pvt. Ltd.
2. FIL Fund Management Private Limited
3. Franklin Templeton Asset Management (India) Private Limited
4. Mirae Asset Global Investment Management (India) Pvt. Ltd.
3. Joint Ventures - Predominantly Indian
1. Birla Sun Life Asset Management Company Limited
2. DSP Merrill Lynch Fund Managers Limited
3. HDFC Asset Management Company Limited
4. ICICI Prudential Asset Mgmt.Company Limited
5. Sundaram BNP Paribas Asset Management Company Limited
4. Joint Ventures - Predominantly Foreign
1. ABN AMRO Asset Management (India) Pvt. Ltd.
2. Bharti AXA Investment Managers Private Limited
 3. HSBC Asset Management (India) Private Ltd.
4. ING Investment Management (India) Pvt. Ltd.
5. JPMorgan Asset Management India Pvt. Ltd.
6. Lotus India Asset Management Co. Private Ltd.
7. Morgan Stanley Investment Management Pvt.Ltd.
8. Principal Pnb Asset Management Co. Pvt. Ltd.

REGULATORY MEASURES BY SEBI

Like Banking & Insurance up to the nineties of the last century, Mutual Fund
industry in India was set up and functioned exclusively in the state monopoly
represented by the Unit Trust of India. This monopoly was diluted in the eighties
by allowing nationalized banks and insurance companies (LIC & GIC) to set up
their institutions under the Indian Trusts Act to transact mutual fund business,
allowing the Indian investor the option to choose between different service
providers. Unit Trust was a statutory corporation governed by its own incorporating
act. There was no separate regulatory authority up to the time SEBI was made a
statutory authority in 1992. but it was only in the year 1993, when a government
took a policy decision to deregulate Indian Economy from government control and
to transform it market oriented, that the industry was opened to competition from
private and foreign players. By the year 2000 there came to be established in the
market 34 mutual funds offerings a variety of about 550 schemes.

SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS)

REGULATIONS, 1996

The fast growing industry is regulated by Securities and Exchange Board of India
(SEBI) since inception of SEBI as a statutory body. SEBI initially formulated
“SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS)
REGULATIONS, 1993” providing detailed procedure for establishment,
registration, constitution, management of trustees, asset management company,
about schemes/products to be designed, about investment of funds collected,
general obligation of MFs, about inspection, audit etc. based on experience gained
and feedback received from the market SEBI revised the guidelines of 1993 and
issued fresh guidelines in 1996 titled “SECURITIES AND EXCHANGE BOARD
OF INDIA (MUTUAL FUNDS) REGULATIONS, 1996”. The said regulations as
amended from time to time are in force even today.
The SEBI mutual fund regulations contain ten chapters and twelve schedules.
Chapters containing material subjects relating to regulation and conduct of business
by Mutual Funds.

REGISTRATION OF MUTUAL FUND:

Application for registration

1. An application for registration of a mutual fund shall be made to the Board in

Form A by the sponsor.

Application fee to accompany the application

2. Every application for registration under regulation 3 shall be accompanied by

nonrefundable application fee as specified in the Second Schedule.

Application to conform to the requirements

3. An application which is not complete in all respects shall be liable to be rejected:

Provided that, before rejecting any such application, the applicant shall be given an
opportunity to complete such formalities within such time as may be specified by
the Board.

Furnishing information

4. The Board may require the sponsor to furnish such further information or
clarification as may be required by it.

Eligibility criteria

5. For the purpose of grant of a certificate of registration, the applicant has to fulfill
the following, namely :—

(a) the sponsor should have a sound track record and general reputation of fairness
and integrity in all his business transactions.

Explanation : For the purposes of this clause “sound track record” shall mean the

sponsor should,—

(i) be carrying on business in financial services for a period of not less than five
years; and

(ii) The networth is positive in all the immediately preceding five years; and

(iii) the networth in the immediately preceding year is more than the capital

contribution of the sponsor in the asset management company; and

(iv) The sponsor has profits after providing for depreciation, interest and tax in
three out of the immediately preceding five years, including the fifth year;

(b) In the case of an existing mutual fund, such fund is in the form of a trust and the
trust deed has been approved by the Board;

(c) The sponsor has contributed or contributes at least 40% to the net worth of the
asset management company:

Provided that any person who holds 40% or more of the net worth of an asset

management company shall be deemed to be a sponsor and will be required to

fulfill the eligibility criteria specified in these regulations;

(d) the sponsor or any of its directors or the principal officer to be employed by the
mutual fund should not have been guilty of fraud or has not been convicted of an
offence involving moral turpitude or has not been found guilty of any economic
offence;

(e) appointment of trustees to act as trustees for the mutual fund in accordance with
the provisions of the regulations;

(f) appointment of asset management company to manage the mutual fund and
operate the scheme of such funds in accordance with the provisions of these
regulations;

(g) appointment of a custodian in order to keep custody of the securities 10[or gold
and gold related instruments and carry out the custodian activities as may be
authorized by the trustees.

Consideration of application

8. The Board, may on receipt of all information decide the application.

Grant of Certificate of Registration

9. The Board may register the mutual fund and grant a certificate in Form B on the
applicant paying the registration fee as specified in Second Schedule.

Terms and conditions of registration

10. The registration granted to a mutual fund under regulation 9, shall be subject to
the following terms and conditions:

(a) the trustees, the sponsor, the asset management company and the custodian
shall comply with the provisions of these regulations;

(b) the mutual fund shall forthwith inform the Board, if any information or
particulars previously submitted to the Board was misleading or false in any
material respect;

(c) the mutual fund shall forthwith inform the Board, of any material change in the

information or particulars previously furnished, which have a bearing on the

registration granted by it;

(d) payment of fees as specified in the regulations and the Second Schedule.

Rejection of application

11. Where the sponsor does not satisfy the eligibility criteria mentioned in
regulation 7, the Board may reject the application and inform the applicant of the
same.

Payment of annual service fee:

12. A mutual fund shall pay before the 15th April each year a service fee as
specified in the Second Schedule for every financial year from the year following
the year of registration:

Provided that the Board may, on being satisfied with the reasons for the delay
permit the mutual fund to pay the service fee at any time before the expiry of two
months from the commencement of the financial year to which such fee relates.

Failure to pay annual service fee

13. The Board may not permit a mutual fund who has not paid service fee to launch
any scheme.

CONSTITUTION AND MANAGEMENT OF ASSET MANAGEMENT

COMPANY AND CUSTODIAN

Application by an asset management company

14. (1) The application for the approval of the asset management company shall be
made in Form D.

(2) The provisions of regulations 5, 6 and 8 shall, so far as may be, apply to the

application made under sub-regulation (1) as they apply to the application for
registration of a mutual fund.

Appointment of an asset management company

15. (1) The sponsor or, if so authorised by the trust deed, the trustee, shall appoint
an asset management company, which has been approved by the Board under sub-
regulation(2) of regulation 21.

(2) The appointment of an asset management company can be terminated by

majority of the trustees or by seventy-five per cent of the unit holders of the
scheme.

(3) Any change in the appointment of the asset management company shall be
subject to prior approval of the Board and the unit holders.

Eligibility criteria for appointment of asset management company

16. (1) For grant of approval of the asset management company the applicant has to
fulfill the following :—

(a) in case the asset management company is an existing asset management

company it has a sound track record, general reputation and fairness in transactions.

Explanation: For the purpose of this clause sound track record shall mean the

networth and the profitability of the asset management company;

(aa) the asset management company is a fit and proper person;

(b) the directors of the asset management company are persons having adequate
professional experience in finance and financial services related field and not found
guilty of moral turpitude or convicted of any economic offence or violation of any
securities laws;

(c) the key personnel of the asset management company 27[have not been found
guilty of moral turpitude or convicted of economic offence or violation of securities
laws or worked for any asset management company or mutual fund or any
intermediary 29[during the period when its] registration has been suspended or
cancelled at any time by the Board;

(d) the board of directors of such asset management company has at least fifty per
cent directors, who are not associate of, or associated in any manner with, the
sponsor or any of its subsidiaries or the trustees;

(e) the Chairman of the asset management company is not a trustee of any mutual
fund;

(f) the asset management company has a networth of not less than rupees ten
crores :

Provided that an asset management company already granted approval under the
provisions of Securities and Exchange Board of India (Mutual Funds) Regulations,
1993 shall within a period of twelve months from the date of notification of these
regulations increase its networth to rupees ten crores :

Provided [further] that the period specified in the first proviso may be extended in
appropriate cases by the Board up to three years for reasons to be recorded in
writing :

Provided further that no new schemes shall be allowed to be launched or managed

by such asset management company till the networth has been raised to rupees ten
crores.

Explanation : For the purposes of this clause, “networth” means the aggregate of
the paid up capital and free reserves of the asset management company after

deducting therefrom miscellaneous expenditure to the extent not written off or

adjusted or deferred revenue expenditure, intangible assets and accumulated losses.

(2) The Board may, after considering an application with reference to the matters

specified in sub-regulation (1), grant approval to the asset management company.

Terms and conditions to be complied with

17. The approval granted under sub-regulation (2) of regulation 21 shall be subject
to the

following conditions, namely:—

(a) any director of the asset management company shall not hold the office of the

director in another asset management company unless such person is an

independent director referred to in clause (d) of sub-regulation (1) of regulation 21
and approval of the Board of asset management company of which such person is a
director, has been obtained;

(b) the asset management company shall forthwith inform the Board of any
material change in the information or particulars previously furnished, which have
a bearing on the approval granted by it;

(c) no appointment of a director of an asset management company shall be made

without prior approval of the trustees;

(d) the asset management company undertakes to comply with these regulations;

(e) no change in the controlling interest of the asset management company shall be
made unless,—

(i) prior approval of the trustees and the Board is obtained;

(ii) a written communication about the proposed change is sent to each unit holder
and an advertisement is given in one English daily newspaper having

nationwide circulation and in a newspaper published in the language of the

region where the Head Office of the mutual fund is situated; and

(iii) the unit holders are given an option to exit on the prevailing Net Asset Value

without any exit load;]

(f) the asset management company shall furnish such information and documents to
the trustees as and when required by the trustees.

Procedure where approval is not granted

18. Where an application made under regulation 19 for grant of approval does not
satisfy the eligibility criteria laid down in regulation 21, the Board may reject the
application.

Restrictions on business activities of the asset management company

19. The asset management company shall—

(1) not act as a trustee of any mutual fund;

(2) not undertake any other business activities except activities in the nature of

portfolio management services, management and advisory services to offshore

funds, pension funds, provident funds, venture capital funds, management of
insurance funds, financial consultancy and exchange of research on commercial
basis if any of such activities are not in conflict with the activities of the mutual
fund :

Provided that the asset management company may itself or through its subsidiaries
undertake such activities if it satisfies the Board that the key personnel of the asset
management company, the systems, back office, bank and securities accounts are
segregated activity-wise and there exist systems to prohibit access to inside
information of various activities :

Provided further that asset management company shall meet capital adequacy
requirements, if any, separately for each such activity and obtain separate approval,
if necessary under the relevant regulations.

(3) The asset management company shall not invest in any of its schemes unless
full disclosure of its intention to invest has been made in the offer documents 34[in
case of schemes launched after the notification of these regulations:

Provided that an asset management company shall not be entitled to charge any
fees on its investment in that scheme.

Asset management company and its obligations

20. (1) The asset management company shall take all reasonable steps and exercise
due diligence to ensure that the investment of funds pertaining to any scheme is not
contrary to the provisions of these regulations and the trust deed.

(2) The asset management company shall exercise due diligence and care in all its
investment decisions as would be exercised by other persons engaged in the same
business.

(3) The asset management company shall be responsible for the acts of commission
or omission by its employees or the persons whose services have been procured by
the asset management company.

(4) The asset management company shall submit to the trustees quarterly reports of
each year on its activities and the compliance with these regulations.

(5) The trustees at the request of the asset management company may terminate the
assignment of the asset management company at any time:

Provided that such termination shall become effective only after the trustees have
accepted the termination of assignment and communicated their decision in writing
to the asset management company.

(6) Notwithstanding anything contained in any contract or agreement or

termination, the asset management company or its directors or other officers shall
not be absolved of liability to the mutual fund for their acts of commission or
omission, while holding such position or office.

(6A) The Chief Executive Officer (whatever his designation may be) of the asset

management company shall ensure that the mutual fund complies with all the
provisions of these regulations and the guidelines or circulars issued in relation
thereto from time to time and that the investments made by the fund managers are
in the interest of the unit holders and shall also be responsible for the overall risk
management function of the mutual fund.

Explanation.—For the purpose of this sub-regulation, the words “these

regulations” shall mean and include the Securities and Exchange Board of India
(Mutual Funds) Regulations, 1996 as amended from time to time.

(6B) The fund managers (whatever the designation may be) shall ensure that the
funds of the schemes are invested to achieve the objectives of the scheme and in the
interest of the unit holders.
(7) (a) An asset management company shall not through any broker associated with
the sponsor, purchase or sell securities, which is average of 5 per cent or more of
the aggregate purchases and sale of securities made by the mutual fund in all its
schemes :

Provided that for the purpose of this sub-regulation, the aggregate purchase and
sale of securities shall exclude sale and distribution of units issued by the mutual
fund:

Provided further that the aforesaid limit of 5 per cent shall apply for a block of
any three months.

(b) An asset management company shall not purchase or sell securities through any
broker [other than a broker referred to in clause (a) of sub-regulation (7) which is
average of 5 per cent or more of the aggregate purchases and sale of securities
made by the mutual fund in all its schemes, unless the asset management company
has recorded in writing the justification for exceeding the limit of 5 per cent and
reports of all such investments are sent to the trustees on a quarterly basis :

Provided that the aforesaid limit shall apply for a block of three months.

(8) An asset management company shall not utilise the services of the sponsor or
any of its associates, employees or their relatives, for the purpose of any securities
transaction and distribution and sale of securities:

Provided that an asset management company may utilise such services if

disclosure to that effect is made to the unit holders and the brokerage or
commission paid is also disclosed in the half-yearly annual accounts of the mutual
fund :

Provided further that the mutual funds shall disclose at the time of declaring half
yearly and yearly results:

(i) Any underwriting obligations undertaken by the schemes of the mutual funds
with respect to issue of securities associate companies,

(ii) Devolvement, if any,

(iii) Subscription by the schemes in the issues lead managed by associate

companies,

(iv) Subscription to any issue of equity or debt on private placement basis where
the sponsor or its associate companies have acted as arranger or manager.
(9) The asset management company shall file with the trustees the details of
transactions in securities by the key personnel of the asset management company in
their own name or on behalf of the asset management company and shall also
report to the Board, as and when required by the Board.

(10) In case the asset management company enters into any securities transactions
with any of its associates a report to that effect shall be sent to the trustees at its
next meeting.

(11) In case any company has invested more than 5 per cent of the net asset value
of a scheme, the investment made by that scheme or by any other scheme of the
same mutual fund in that company or its subsidiaries shall be brought to the notice
of the trustees by the asset management company and be disclosed in the half-
yearly and annual accounts of the respective schemes with justification for such
investment 40 provided the latter

Investment has been made within one year of the date of the former investment
calculated on either side.

(12) The asset management company shall file with the trustees and the Board—

(a) Detailed bio-data of all its directors along with their interest in other companies
within fifteen days of their appointment;

(b) Any change in the interests of directors every six months; and

(c) A quarterly report to the trustees giving details and adequate justification about
the purchase and sale of the securities of the group companies of the sponsor or the
asset management company, as the case may be, by the mutual fund during the said
quarter.

(13) Each director of the asset management company shall file the details of his
transactions of dealing in securities with the trustees on a quarterly basis in
accordance with guidelines issued by the Board.

(14) The asset management company shall not appoint any person as key personnel
who has been found guilty of any economic offence or involved in violation of
securities laws.

(15) The asset management company shall appoint registrars and share transfer
agents who are registered with the Board:
Provided if the work relating to the transfer of units is processed in-house, the
charges at competitive market rates may be debited to the scheme and for rates
higher than the competitive market rates, prior approval of the trustees shall be
obtained and reasons for charging higher rates shall be disclosed in the annual
accounts.

(16) The asset management company shall abide by the Code of Conduct as
specified in the Fifth Schedule.

Appointment of custodian

21. (1) The mutual fund shall appoint a Custodian to carry out the custodial
services for the schemes of the fund and sent intimation of the same to the Board
within fifteen days of the appointment of the Custodian:

Provided that in case of a gold exchange traded fund scheme, the assets of the
scheme being gold or gold related instruments may be kept in custody of a bank
which is registered as a custodian with the Board.

(2) No custodian in which the sponsor or its associates hold 50 per cent or more of
the voting rights of the share capital of the custodian or where 50 per cent or more
of the directors of the custodian represent the interest of the sponsor or its
associates shall act as custodian for a mutual fund constituted by the same sponsor
or any of its associates or subsidiary company.

Agreement with custodian

22. The mutual fund shall enter into a custodian agreement with the custodian,
which shall contain the clauses which are necessary for the efficient and orderly
conduct of the affairs of the custodian:

Provided that the agreement, the service contract, terms and appointment of the

custodian shall be entered into with the prior approval of the trustees.
CHARACTERISTICS OF MUTUAL FUNDS

• The ownership is in the hands of the investors who have pooled in their
funds.

• It is managed by a team of investment professionals and other service

providers.

• The pool of funds is invested in a portfolio of marketable investments.

• The investors share is denominated by ‘units’ whose value is called as Net

Asset Value (NAV) which changes every day.

• The investment portfolio is created according to the stated investment

objectives of the fund.

ADVANTAGES OF MUTUAL FUNDS

Portfolio Diversification

Mutual funds invest in a number of companies. This diversification reduces the

risk because it happens very rarely that all the stock’s decline at the same time and
in the same proportion. So this is the main advantage of mutual funds.

Professional Management

Mutual funds provide the services of experienced and skilled professionals,

assisted by investment research team that analysis the performance and prospects of
companies and select the suitable investments to achieve the objectives of the
scheme.

Low Costs

Mutual funds are a relatively less expensive way to invest as compare to

directly investing in a capital markets because of less amount of brokerage and
other fees.

Liquidity
 This is the main advantage of mutual fund, that is whenever an investor needs
money he can easily get redemption, which is not possible in most of other options
of investment. In open-ended schemes of mutual fund, the investor gets the money
back at net asset value and on the other hand in close-ended schemes the units can
be sold in a stock exchange at a prevailing market price.

Transparency

In mutual fund, investors get full information of the value of their investment, the
proportion of money invested in each class of assets and the fund manager’s
investment strategy

Flexibility

Flexibility is also the main advantage of mutual fund. Through this investors
can systematically invest or withdraw funds according to their needs and
convenience like regular investment plans, regular withdrawal plans, dividend
reinvestment plans etc.

Convenient Administration

Investing in a mutual fund reduces paperwork and helps investors to avoid

many problems like bad deliveries, delayed payments and follow up with brokers
and companies. Mutual funds save time and make investing easy.

Affordability

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

A mutual fund because of its large corpus allows even a small investor to take the
benefit of its investment strategy.

Well Regulated

All mutual funds are registered with SEBI and they function within the
provisions of strict regulations designed to protect the interest of investors. The
operations of mutual funds are regularly monitored by SEBI.

DISADVANTAGES OF MUTUAL FUNDS

No Guarantees

No investment is risk free. If the entire stock market declines in value, the value
of mutual fund shares will go down as well, no matter how balanced the portfolio.
Investors encounter fewer risks when they invest in mutual funds than when they
buy and sell stocks on their own. However, anyone who invests through mutual
fund runs the risk of losing the money.

Fees and Commissions

All funds charge administrative fees to cover their day to day expenses. Some
funds also charge sales commissions or loads to compensate brokers, financial
consultants, or financial planners. Even if you don’t use a broker or other financial
advisor, you will pay a sales commission if you buy shares in a Load Fund.

Taxes

During a typical year, most actively managed mutual funds sell anywhere from
20 to 70 percent of the securities in their portfolios. If your fund makes a profit on
its sales, you will pay taxes on the income you receive, even you reinvest the
money you made.

Management Risk

When you invest in mutual fund, you depend on fund manager to make the right
decisions regarding the fund’s portfolio. If the manager does not perform as well as
you had hoped, you might not make as much money on your investment as you
expected. Of course, if you invest in index funds, you forego management risk
because these funds do not employ managers.

STRUCTURE OF MUTUAL FUND

There are many entities involved and the diagram below illustrates the structure of
mutual funds: -
 SEBI
The regulation of mutual funds operating in India falls under the preview of
authority of the “Securities and Exchange Board of India” (SEBI). Any person
proposing to set up a mutual fund in India is required under the SEBI (Mutual
Funds) Regulations, 1996 to be registered with the SEBI.

Sponsor

The sponsor should contribute at least 40% to the net worth of the AMC.
However, if any person holds 40% or more of the net worth of an AMC shall be
deemed to be a sponsor and will be required to fulfill the eligibility criteria in the
Mutual Fund Regulations. The sponsor or any of its directors or the principal
officer employed by the mutual fund should not be guilty of fraud or guilty of any
economic offence.
Trustees

The mutual fund is required to have an independent Board of Trustees, i.e. two
third of the trustees should be independent persons who are not associated with the
sponsors in any manner. An AMC or any of its officers or employees are not
eligible to act as a trustee of any mutual fund. The trustees are responsible for -
inter alia – ensuring that the AMC has all its systems in place, all key personnel,
auditors, registrar etc. have been appointed prior to the launch of any scheme.

Asset Management Company

The sponsors or the trustees are required to appoint an AMC to manage the
assets of the mutual fund. Under the mutual fund regulations, the applicant must
satisfy certain eligibility criteria in order to qualify to register with SEBI as an
AMC.

1. The sponsor must have at least 40% stake in the AMC.

2. The chairman of the AMC is not a trustee of any mutual fund.

3. The AMC should have and must at all times maintain a minimum net worth
of Cr. 100 million.

4. The director of the AMC should be a person having adequate professional

experience.

5. The board of directors of such AMC has at least 50% directors who are not
associate of or associated in any manner with the sponsor or any of its
subsidiaries or the trustees.

The Transfer Agents

The transfer agent is contracted by the AMC and is responsible for maintaining
the register of investors / unit holders and every day settlements of purchases and
redemption of units. The role of a transfer agent is to collect data from distributors
relating to daily purchases and redemption of units.

Custodian
 The mutual fund is required, under the Mutual Fund Regulations, to appoint a
custodian to carry out the custodial services for the schemes of the fund. Only
institutions with substantial organizational strength, service capability in terms of
computerization and other infrastructure facilities are approved to act as custodians.
The custodian must be totally delinked from the AMC and must be registered with
SEBI.

Unit Holders
They are the parties to whom the mutual fund is sold. They are ultimate
beneficiary of the income earned by the mutual funds.

TYPES OF MUTUAL FUND SCHEMES

In India, there are many companies, both public and private that are engaged in the
trading of mutual funds. Wide varieties of Mutual Fund Schemes exist to cater to
the needs such as financial position, risk tolerance and return expectations etc.
Investment can be made either in the debt Securities or equity .The table below
gives an overview into the existing types of schemes in the Industry.

TYPES OF MUTUAL FUND SCHEME

By Investment
By structure Other
Objectives Scheme
s
Open-ended Tax saving
Schemes Debt Equity fund
Schemes Schemes

Close Ended MM Mutual

Large cap Sector
Schemes fund fund specific fund

FMP Mid cap Index

Interval Schemes Fund Schemes

Other Debt Small cap

Schemes fund

Any Other
Equity
Fund
Generally two options are available for every scheme regarding dividend payout
and growth option. By opting for growth option an investor can have the benefit of
long-term growth in the stock market on the other side by opting for the dividend
option an investor can maintain his liquidity by receiving dividend time to time.
Sometime people refer dividend option as dividend fund and growth fund.
Generally decisions regarding declaration of the dividend depend upon the
performance of stock market and performance of the fund.

OPTION REGARDING DIVIDEND

Dividend Growth

Payout Reinvested

Systematic Investment Plan (SIP)

Systematic investment plan is like Recurring Deposit in which investor invests

in the particular scheme on regular intervals. In the case it is convenient for salaried
class and middle-income group. In this case on regular interval units of specified
amount is created. An investor can make payment by regular payments by issuing
cheques, post dated cheques, ECS, standing Mandate etc. SIP can be started in the
any open-ended fund if there is provision of it. There are some entry and exit load
barriers for discontinuation and redemption of the fund before the said period.

According to Structure

Open – Ended Funds

An open – ended fund is one that is available for subscription all through the year.
These do not have a fixed maturity. Investors can conveniently buy and sell units at
Net Asset Value (NAV) related prices. The key feature of open – ended schemes is
liquidity.
Close – Ended Funds

A close – ended 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 same time of the initial public
issue and thereafter they can buy and 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.

Interval Funds

Interval funds combine the features of open – ended and close – ended schemes.
They are open for sales or redemption during pre-determined intervals at their
NAV.

According to Investment Objective:

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 are much better than the
other investments had over the long term. Growth schemes are ideal for investors
having a long term outlook seeking growth over a period of time.

Income Funds

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

Balanced Funds

The aim of 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.
Money Market Funds

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

preservation of capital and moderate income. These schemes generally invest in
safe 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.

Other Schemes
Tax Saving Schemes

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 Saving 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.

Special Schemes:

Index Schemes

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

the BSE Sensex or the NSE 50.

Sector Specific Schemes

Sector 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.

Bond Schemes

It seeks investment in bonds, debentures and debt related instrument to

generate regular income flow.

FREQUENTLY USED TERMS

 Advisor - Is employed by a mutual fund organization to give professional advice
on the fund’s investments and to supervise the management of its asset.

Diversification – The policy of spreading investments among a range of different

securities to reduce the risk.

Net Asset Value (NAV) - Net Asset Value is the market value of the assets of the
scheme minus its liabilities. The per unit NAV is the net asset value of the scheme
divided by the number of units outstanding on the Valuation Date.

Sales Price - Is the price you pay when you invest in a scheme. Also called Offer
Price. It may include a sales load.

Repurchase Price - Is the price at which a close-ended scheme repurchases its

units and it may include a back-end load. This is also called Bid Price.

Redemption Price - Is the price at which open-ended schemes repurchase their

units and close-ended schemes redeem their units on maturity. Such prices are
NAV related.

Sales Load - Is a charge collected by a scheme when it sells the units. Also called
‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.

Structure of the Indian Mutual Fund industry

The largest categories of Mutual Funds are the ones floated by the private sector
and by Foreign Asset Management Companies. The largest of these are Prudential
ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets managed by
this category of AMCs is in excess of Rs.350 bn. Earlier the Indian Mutual Fund
industry was dominated by the Unit Trust of India which has a total corpus of
Rs.700 bn collected from more than 20 million investors. The UTI has many
funds/schemes in all categories i.e. equity, balanced, income etc. with some being
open-ended and some being closed-ended. The Unit Scheme 1964 commonly
referred to as US 64, which is a balanced fund, is the biggest scheme with a corpus
of about Rs.200 bn. UTI was floated by financial institutions and is governed by a
special Act of Parliament. Most of its investors believe that the UTI is government
owned and controlled, which, while legally incorrect, is true for all practical
purposes.

The second largest categories of mutual funds are the ones floated by nationalized
banks. Canbank Asset Management floated by Canara Bank and SBI Funds
Management floated by the State Bank of India are the largest of these. GIC AMC
floated by the General Insurance Corporation and Jeevan Bima Sahayog AMC
floated by the LIC are some of the other prominent ones. The aggregate corpus of
funds managed by this category of AMCs is about Rs.200 bn.

ABOUT MUTUAL FUNDS

A Mutual Fund is a trust that pools the savings of a number of investors who share
a common financial goal. The money thus collected is then invested in capital
market instruments such as shares, debentures and other securities. The income
earned through these investments and the capital appreciation realized is shared by
its unit holders in proportion to the number of units owned by them. Thus a Mutual
Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at
a relatively low cost. The flow chart below describes broadly the working of a
mutual fund
• The structure of Mutual Funds in India is governed by SEBI (Mutual Fund)
Regulations, 1996.

• It is mandatory to have a three tier structure of Sponsor – Trustee – Asset

Management Company.

• The trust is established by a Sponsor or more than one sponsor who is like a
promoter of a company. He appoints the Trustees who are responsible to the
investors of the fund.
• The Trustees of the mutual fund hold its property for the benefit of the unit
holders.

• Asset Management Company (AMC) approved by SEBI is the business face of

the mutual fund as it manages all the affairs of the fund by making investments
in various types of securities.

• Custodian, who is registered with SEBI, holds the securities of various

schemes of the funds in its custody.

WHY MUTUAL FUNDS

An investor normally prioritizes his investment needs before undertaking an
investment. So different goals will be allocated different proportions of the total
disposable amount. Investments for specific goals normally find their way into the
debt market as risk reduction is of prime importance. This is the area for the risk-
averse investors and here, mutual funds are generally the best option. The reasons
are not difficult to see.

One can avail of the benefits of better returns with added benefits of anytime
liquidity by investing in open-ended debt funds at lower risk. Many people have
burnt their fingers by investing in fixed deposits of companies who were assuring
high returns but have gone bust in course of time leading to distraught investors as
well as pending cases in the Company Law Board.

This risk of default by any company that one has chosen to invest in, can be
minimized by investing in mutual funds as the fund managers analyze the
companies’ financials more minutely than an individual can do as they have the
expertise to do so. They can manage the maturity of their portfolio by investing in
instruments of varied maturity profiles. Since there is no penalty on pre-mature
withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity.
Moreover, mutual funds are better placed to absorb the fluctuations in the prices of
the securities as a result of interest rate variation and one can benefits from any
such price movement.

Apart from liquidity, these funds have also provided very good post-tax returns on
year to year basis. Even historically, we find that some of the debt funds have
generated superior returns at relatively low level of risks. On an average debt funds
have posted returns over 10 percent over one-year horizon. The best performing
funds have given returns of around 14 percent in the last one-year period. In
nutshell we can say that these funds have delivered more than what one expects of
debt avenues such as post office schemes or bank fixed deposits. Though they are
charged with a dividend distribution tax on dividend payout at 10 percent (plus a
surcharge of 10 percent), the net income received is still tax free in the hands of
investor and is generally much more than all other avenues, on a post-tax basis.

Moving up in the risk spectrum, we have people who would like to take some risk
and invest in equity funds/capital market. However, since their appetite for risk is
also limited, they would rather have some exposure to debt as well. For these
investors, balanced funds provide an easy route of investment. Armed with the
expertise of investment techniques, they can invest in equity as well as good quality
debt thereby reducing risks and providing the investor with better returns than he
could otherwise manage. Since they can reshuffle their portfolio as per market
conditions, they are likely to generate moderate returns even in pessimistic market
conditions.

This risk of default by any company that one has chosen to invest in, can be
minimized by investing in mutual funds as the fund managers analyze the
companies’ financials more minutely than an individual can do as they have the
expertise to do so. They can manage the maturity of their portfolio by investing in
instruments of varied maturity profiles. Since there is no penalty on pre-mature
withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity.
Moreover, mutual funds are better placed to absorb the fluctuations in the prices of
the securities as a result of interest rate variation and one can benefits from any
such price movement.

Next come the risk takers. Risk takers by their very nature, would not be averse to
investing in high-risk avenues. Capital markets find their fancy more often than
not, because they have historically generated better returns than any other avenue,
provided, the money was judiciously invested. Though the risk associated is
generally on the higher side of the spectrum, the return-potential compensates for
the risk attached.

Capital markets interest people, albeit not all for there are several problems
associated. First issue is that of expertise. While investing directly into capital
market one has to be analytical enough to judge the valuation of the stock and
understand the complex undertones of the stock. One needs to judge the right
valuation for exiting the stock too. It is very difficult for a small investor to keep
track of the movements of the market. Entrusting the job to experts, who watch the
trends of the market and analyze the valuations of the stocks will solve this
problem for an investor. Mutual funds specialize in identification of stocks through
dedicated experts in the field and this enables them to pick stocks at the right
moment. Sector funds provide an edge and generate good returns if the particular
sector is doing well.

Next problem is that of funds/money. A single person can’t invest in multiple high-
priced stocks for the sole reason that his pockets are not likely to be deep enough.
This limits him from diversifying his portfolio as well as benefiting from multiple
investments.

Here again, investing through MF route enables an investor to invest in many good
stocks and reap benefits even through a small investment. This not only diversifies
the portfolio and helps in generating returns from a number of sectors but reduces
the risk as well. Though identification of the right fund might not be an easy task,
availability of good investment consultants and counselors will help investors take
informed decision.

How are the Mutual Funds Structured?

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

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

• Trust Form: In India, mutual funds are organized as Trusts. The Trust is
either managed by a Board of Trustees or by a Trustee Company. There must
be at least 4 members in the Board of Trustees and at least 2/3 of the
members of the board must be independent. Trustee of one mutual fund
cannot be a trustee of another mutual fund.

Unit Trusts – Constituents:

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

1. Fund Sponsor
2. Mutual Fund as Trust
3. Asset Management Company

4. Other Fund Constituents

4.1. Custodian and Depositors
4.2. Brokers
4.3. Transfer Agent
4.4. Distributors

FUND SPONSOR

What a promoter is to a company, a sponsor is to a mutual fund. The sponsor

initiates the idea to set up a mutual fund. It could be a financial services company, a
bank or a financial institution. It could be Indian or foreign. It could do it alone or
through a joint venture. In order to run a mutual fund in India, the sponsor has to
obtain a license from SEBI. For this, it has to satisfy certain conditions, such as on
capital and profits, track record (at least five years in financial services), default-
free dealings and a general reputation for fairness. The sponsor must have been
profit making in at least 3 years of the above 5 years.

The Sponsor appoints the Trustees, Custodian and the AMC with the prior approval
of SEBI and in accordance with SEBI Regulations.

Like the company promoter, the sponsor takes big-picture decisions related to the
mutual fund, leaving money management and other such nitty-gritty to the other
constituents, whom it appoints. The sponsor should inspire confidence in you as a
money manager and, preferably, be profitable. Financial muscle, so long as it is
complemented by good fund management, helps, as money is then not an
impediment for the mutual fund- it can hire the best talent, invest in technology and
continuously offer high service standards to the investors.

In the days of assured return schemes, sponsors also had to fulfill return promises
made to the unit holders. This sometimes meant meeting shortfalls from their own
pockets, as the government did for UTI. Now that assured return schemes are
passed, such bailouts won’t be required. All things considered, choose sponsors
who are good money managers, who have a reputation for fair business practices
and who have deep pockets.

TRUST

The Mutual Fund is constituted as a Trust in accordance with the provisions of

the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the
Indian Registration Act, 1908. The Trust appoints the Trustees who are responsible
to the investors of the fund.

TRUSTEES

Trustees are like internal regulators in a mutual fund, and their job is to
protect the interests of the unit holders. Trustees are appointed by the sponsors, and
can be either individuals or corporate bodies. In order to ensure they are impartial
and fair, SEBI rules mandate that at least two-thirds of the trustees be independent,
i.e., not have any association with the sponsor.

Trustees appoint the AMC, which subsequently, seeks their approval for the work it
does, and reports periodically to them on how the business being run. Trustees float
and market schemes, and secure necessary approvals. They check if the AMCs
investments are within defined limits and whether the fund’s assets are protected.
Trustees can be held accountable for financial irregularities in the mutual fund.
Rights of the Trustees:

 Trustees appoint the AMC in consultation with the sponsor and according to
the SEBI Regulations.

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

 Trustees can seek information from the AMC regarding the operations and
compliance of the mutual fund.

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

 Trustees review and ensure that the net worth of the AMC is according to the
stipulated norms, every quarter.

Obligations of the Trustees:

 Trustees must ensure that the transactions of the mutual fund are in
accordance with the trust deed.

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

 Trustees must ensure due diligence on the part of AMC in the appointment
of constituents and business associates.

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

 Trustees must ensure compliance with SEBI Regulations.

ASSET MANAGEMENT COMPANY (AMC)

An AMC is the legal entity formed by the sponsor to run a mutual fund. The AMC
is usually a private limited company in which the sponsors and their associates or
joint venture partners are the shareholders. The trustees sign an investment
agreement with the AMC, which spells out the functions of the AMC. It is the
AMC that employs fund managers and analysts, and other personnel. It is the AMC
that handles all operational matters of a mutual fund – from launching schemes to
managing them to interacting with investors.
The people in the AMC who should matter the most to you are those who take
investment decisions. There is the head of the fund house, generally referred to as
the Chief Executive Officer (CEO). Under him comes the Chief Investment Officer
(CIO), who shapes the fund’s investment philosophy, and fund managers, who
manages its schemes. They are assisted by a team of analysts, who track markets,
sectors and companies.

Although these people are employed by the AMC, its you, the unit holders, who
pays their salaries, partly or wholly. Each scheme pays the AMC an annual ‘fund
management fee’, which is linked to the scheme size and results in a corresponding
drop in your return. If a scheme’s corpus is up to Rs.100 crores it pays 1.25% of its
corpus a year; on over Rs.100 crores, the fee is 1% of the corpus. So, if a fund
house has two schemes, with a corpus of Rs.100 crores and Rs.200 crores
respectively, the AMC will earn Rs.3.25 crore (1.25+2) as fund management fee
that year.

If an AMCs expenses for the year exceed what it earns as fund management fee
from its schemes, the balance has to be met by the sponsor. Again, financial
strength comes into play: a cash-rich sponsor can easily pump in money to meet
short falls, while a sponsor with less financial clout might force the AMC to trim
costs, which could well turn into an exercise in cutting corners.

Regulatory requirements for the AMC:

 Only SEBI registered AMC can be appointed as investment managers of

mutual funds.

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

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

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

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

independent.

 The 4th schedule of SEBI Regulations spells out rights and obligations of
both trustees and AMCs.

Obligations of the AMC:

  Investments have to be according to the investment management agreement
and SEBI regulations.

 The actions of its employees and associates have to be as mandated by the

trustees.

 AMCs have to submit detailed quarterly reports on the working and

performance of the mutual fund.

 AMCs have to make the necessary statutory disclosures on portfolio, NAV

and price to the investors.

Restrictions on the AMC:

 AMCs cannot launch a scheme without the prior approval of the trustees.

 AMCs have to provide full details of the investments by employees and

Board members in all cases where the investment exceeds Rs.1 lakh.

 AMCs cannot take up any activity that is in conflict with the activities of the
mutual fund.

Conditions under which two AMCs can be merged:

SEBI Regulations require the following:

 SEBI and Trustees of both the funds must approve of the merger.

 Unit holders should be notified of the merger, and provided the option to exit
at NAV without load.

Conditions under which an AMC can be taken over:

SEBI approval is required for the change of ownership and unit holders have to
be informed of the takeover.

Scheme take over: If an existing mutual fund scheme is taken over by another
AMC, it is called as scheme take over. The two mutual funds continue to exist.
Trustee and SEBI approval and notification of the unit holders are required for
scheme take over.
CUSTODIAN

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

responsibilities include receipt and delivery of securities, collection of income,
distribution of dividends and segregation of assets between the schemes. It also
track corporate actions like bonus issues, right offers, offer for sale, buy back and
open offers for acquisition. The sponsor of a mutual fund cannot act as a custodian
to the fund. This condition, formulated in the interest of investors, ensures that the
assets of a mutual fund are not in the hands of its sponsor. For example, Deutsche
Bank is a custodian, but it cannot service Deutsche Mutual Fund, its mutual fund
arm.

BROKERS

Role of Brokers in a Mutual Fund:

 They enable the investment managers to buy and sell securities.

 Brokers are the registered members of the stock exchange.

 They charge a commission for their services.

 In some cases, provide investment managers with research reports.

 Act as an important source of market information.

REGISTRAR OR TRANSFER AGENTS

Registrars, also known as the transfer agents, are responsible for the investor
servicing functions. This includes issuing and redeeming units, sending fact sheets
and annual reports. Some fund houses handle such functions in-house. Others
outsource it to the Registrars; Karvy and CAMS are the more popular ones. It
doesn’t really matter which model your mutual fund opt for, as long as it is prompt
and efficient in servicing you. Most mutual funds, in addition to registrars, also
have investor service centers of their own in some cities.

Some of the investor – related services are:-

 Processing investor applications.

 Recording details of the investors.

  Sending information to the investors.

 Processing dividend payout.

 Incorporating changes in the investor information.

 Keeping investor information up to date.

DISTRIBUTORS

Role of Selling and Distribution Agents:

 Selling agents bring investor’s funds for a commission.

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

 Banks and post offices also act as distributors.

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

which is paid on mobilization of funds and trail commission which is paid
depending on the time the investor stays with the fund.

GROWTH IN ASSETS UNDER MANAGEMENT

Mutual Funds & Assets Under Management

(Rs.in crores)
Mutual Fund Name No. of Corpus Under management
Schemes* As on Corpus As on Corpus Net
inc/dec
in corpus
AIG Global Investment May 31, Apr 30,
44 787.21 845.89 -58.68
Group Mutual Fund 2010 2010
May 31, Apr 30,
Axis Mutual Fund 60 4,753.39 5,175.09 -421.7
2010 2010
Baroda Pioneer Mutual May 29, Apr 30,
31 3,874.76 2,653.02 1221.74
Fund 2009 2009
Benchmark Mutual Feb 29, Jan 31,
17 4,954.72 5,611.00 -656.276
Fund 2008 2008
Bharti AXA Mutual 45 May 31, 758.98 Apr 30, 612.55 146.43
Fund 2010 2010
Birla Sun Life Mutual Feb 28, Jan 31,
219 49,983.17 44,798.22 5184.95
Fund 2009 2009
Canara Robeco Mutual May 31, Apr 30,
89 10,381.33 10,409.48 -28.15
Fund 2010 2010
May 31, Apr 30,
Deutsche Mutual Fund 120 9,302.37 9,936.17 -633.805
2010 2010
DSP Blackrock Mutual May 31, Apr 30,
96 19,721.83 19,990.07 -268.239
Fund 2010 2010
May 31, Apr 30,
Edelweiss Mutual Fund 40 316.86 243.80 73.06
2010 2010
May 31, Apr 30,
Escorts Mutual Fund 30 195.75 204.45 -8.7
2010 2010
Apr 30, Mar 31,
Fidelity Mutual Fund 61 7,524.24 7,550.92 -26.688
2010 2010
May 31, Apr 30,
Fortis Mutual Fund 103 6,815.18 8,035.16 -1219.98
2010 2010
Franklin Templeton Apr 30, Mar 31,
171 36,066.84 32,329.71 3737.13
Mutual Fund 2010 2010
May 31, Apr 30,
HDFC Mutual Fund 172 96,114.57 102,978.13 -6863.56
2010 2010
May 31, Apr 30,
HSBC Mutual Fund 88 5,406.71 6,029.19 -622.471
2010 2010
ICICI Prudential May 29, Mar 31,
328 68,324.06 51,456.11 16867.947
Mutual Fund 2009 2009
Aug 31, Jul 31,
IDFC Mutual Fund 175 24,002.59 24,214.88 -212.284
2009 2009
Apr 30, Mar 31,
ING Mutual Fund 92 57,575.02 8,608.29 48966.73
2008 2008
JM Financial Mutual May 31, Apr 30,
90 8,159.68 10,216.23 -2056.551
Fund 2010 2010
May 31, Apr 30,
JPMorgan Mutual Fund 31 3,663.95 3,602.00 61.95
2010 2010
Kotak Mahindra Mutual May 31, Apr 30,
121 36,776.24 39,660.69 -2884.455
Fund 2010 2010
May 31, Apr 30,
L&T Mutual Fund 65 5,378.96 5,424.42 -45.46
2010 2010
May 31, Apr 30,
LIC Mutual Fund 62 36,204.22 37,893.84 -1689.62
2010 2010
Mirae Asset Mutual Mar 31, Sep 30,
37 215.25 250.36 -35.11
Fund 2010 2009
Morgan Stanley Mutual 11 May 31, 2,267.26 Apr 30, 2,334.24 -66.98
 Fund 2010 2010
May 31, Apr 30,
Peerless Mutual Fund 22 1,086.68 665.20 421.48
2010 2010
PRINCIPAL Mutual Jun 30, May 31,
85 6,448.66 7,837.90 -1389.24
Fund 2010 2010
May 31, Apr 30,
Quantum Mutual Fund 11 99.18 102.38 -3.2
2010 2010
May 31, Apr 30,
Reliance Mutual Fund 191 109,485.69 120,588.05 -11102.36
2010 2010
Mar 31, Apr 30,
Religare Mutual Fund 89 9,418.36 8,618.52 799.84
2010 2009
May 31, Apr 30,
Sahara Mutual Fund 44 735.86 777.31 -41.45
2010 2010
May 31, Apr 30,
SBI Mutual Fund 118 33,738.17 37,213.06 -3474.89
2010 2010
May 31, Apr 30,
Shinsei Mutual Fund 11 291.80 259.85 31.95
2010 2010
Sundaram BNP Paribas May 31, Apr 30,
143 13,651.56 14,392.86 -741.3
Mutual Fund 2010 2010
May 31, Apr 30,
Tata Mutual Fund 170 21,168.00 22,034.33 -866.335
2010 2010
Dec 31, Oct 31,
Taurus Mutual Fund 49 209.23 210.68 -1.445
2008 2008
May 31, Apr 30,
UTI Mutual Fund 209 73,277.52 80,636.36 -7358.84
2010 2010

UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the
Unit Trust of India effective from February 2003. The Assets under management of
the Specified Undertaking of the Unit Trust of India has therefore been excluded
from the total assets of the industry as a whole from February 2003 onwards.

The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. The
performance of mutual funds in India through figures is appreciable. From Rs.
67bn. the Assets Under Management rose to Rs. 470 bn. in March 1993 and the
figure had a three times higher performance by April 2004. It rose as high as Rs.
1,540bn.
 The net asset value (NAV) of mutual funds in India declined when stock
prices started falling in the year 1992. Those days, the market regulations did not
allow portfolio shifts into alternative investments. There was rather no choice apart
from holding the cash or to further continue investing in shares. One more thing to
be noted, since only closed-end funds were floated in the market, the investors
disinvested by selling at a loss in the secondary market.

The performance of mutual funds in India suffered qualitatively. The 1992

stock market scandal, the losses by disinvestments and of course the lack of
transparent rules in the whereabouts rocked confidence among the investors.

Funds now have shifted their focus to the recession free sectors like
pharmaceuticals, FMCG and technology sector. Funds performances are
improving. Funds collection, which averaged at less than Rs100bn per annum over
five-year period spanning 1993-98 doubled to Rs210bn in 1998-99. In the 2000
mobilization had exceeded Rs300bn. Total collection for the financial year ending
March 2000 reached Rs450bn.

India had been at the first stage of a revolution that has already
peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its
bank deposits. In India, mutual fund assets are not even 10% of the bank deposits,
but this trend is beginning to change. The figures indicate that in the first quarter of
the year 1999-2000 mutual fund assets went up by 115% whereas bank deposits
rose by only 17%. (Source: Thinktank, The Financial Express September, 99)
This is forcing a large number of banks to adopt the concept of narrow banking
wherein the deposits are kept in Gilts and some other assets which improves
liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they
will not close down completely. Their role as intermediaries cannot be ignored. It is
just that Mutual Funds are going to change the way banks do business in the future

BANKS V/S MUTUAL FUNDS:

Mutual Funds are now also competing with commercial banks in the race for retail
investor’s savings and corporate float money. The power shift towards mutual
funds has become obvious. The coming few years will show that the traditional
saving avenues are losing out in the current scenario. Many investors are realizing
that investments in savings accounts are as good as locking up their deposits in a
closet. The fund mobilization trend by mutual funds indicates that money is going
to mutual fund in a big way.

India is at the first stage of a revolution that has already peaked in the U.S. The
U.S. boasts of an Asset base that is much higher than its bank deposits. In India,
mutual fund assets are not even 10 per cent of the bank deposits, but this trend is
beginning to change. This is forcing a large number of banks to adopt the concept
of narrow banking wherein the deposits are kept in Gilts and some other assets
which improves liquidity and reduces risk. The basic fact lies that banks cannot be
ignored and they will not close down completely. Their role as intermediaries
cannot be ignored. It is just that mutual funds are going to change the way banks do
business in the future.

CATEGORY BANKS MUTUAL FUNDS

Returns Low High

Administrative exp. High Low

Risk Low Moderate

Investment options Less More

Network High penetration Low but improving

Liquidity At a cost Better

Quality of assets Not transparent Transparent

Interest calculation Minimum balance Everyday

between 10 & 30th of
th

every month
 RISKS ASSOCIATED WITH MUTUAL FUNDS

The most important relationship to understand is the risk-return trade-off. Higher

the risk greater the returns/loss and lower the risk lesser the returns/loss.

Hence it is upto you, the investor to decide how much risk you are willing to take.
In order to do this you must first be aware of the different types of risks involved
with your investment decision.

MARKET RISK

Sometimes prices and yields of all securities rise and fall. Broad outside influences
affecting the market in general lead to this. This is true, may it be big corporations
or smaller mid-sized companies. This is known as Market Risk. A Systematic
Investment Plan (“SIP”) that works on the concept of Rupee Cost Averaging
(“RCA”) might help mitigate this risk.

CREDIT RISK

The debt servicing ability (may it be interest payments or repayment of principal)

of a company through its cashflows determines the Credit Risk faced by you. This
credit risk is measured by independent rating agencies like CRISIL who rate
companies and their paper. An ‘AAA’ rating is considered the safest whereas a ‘D’
rating is considered poor credit quality. A well-diversified portfolio might help
mitigate this risk.

INFLATION RISK

Things you hear people talk about: “Rs. 100 today is worth more than Rs. 100
tomorrow.” “Remember the time when a bus ride costed 50 paisa?” “Mehangai Ka
Jamana Hai.”

The root cause , Inflation. Inflation is the loss of purchasing power over time. A lot
of times people make conservative investment decisions to protect their capital but
end up with a sum of money that can buy less than what the principal could at the
time of the investment. This happens when inflation grows faster than the return on
your investment. A well-diversified portfolio with some investment in equities
might help mitigate this risk.

INTEREST RATE RISK

In a free market economy interest rates are difficult if not impossible to predict.
Changes in interest rates affect the prices of bonds as well as equities. If interest
rates rise the prices of bonds fall and vice versa. Equity might be negatively
affected as well in a rising interest rate environment. A well-diversified portfolio
might help mitigate this risk.

POLITICAL RISK

Changes in government policy and political decision can change the investment
environment. They can create a favorable environment for investment or vice versa.
LIQUIDITY RISK

Liquidity risk arises when it becomes difficult to sell the securities that one has
purchased. Liquidity Risk can be partly mitigated by diversification, staggering of
maturities as well as internal risk controls that lean towards purchase of liquid
securities. You have been reading about diversification above, but what is it?
Diversification The nuclear weapon in your arsenal for your fight against Risk. It
simply means that you must spread your investment across different securities
(stocks, bonds, money market instruments, real estate, fixed deposits etc.) and
different sectors (auto, textile, information technology etc.). This kind of a
diversification may add to the stability of your returns,

ACCOUNTING AND VALUATION

Net Asset Value (NAV)

The net asset value of the fund is the cumulative market value of the assets fund net
of its liabilities. In other words, if the fund is dissolved or liquidated by selling off
all the assets in the fund, this is the amount that the shareholders would collectively
own. This gives rise to the concept of net asset value per unit, which is the value
represented by the ownership of one unit in the fund. It is calculated simply by
dividing the net asset value of the fund by the number of units. However, most
people refer loosely to the NAV per unit as NAV, ignoring the “per unit”. We also
abide by the same convention.

Calculation of Net Asset Value

The most important part of the calculation is the valuation of the assets owned by
the fund. Once it is calculated, the NAV is simply the net value of assets divided by
the number of the units outstanding. The detailed methodology for the calculation
of the net asset value is given below:

NAV = Market value of investments

+ Current assets and other assets

+ Accrued income

- Current liabilities and other liabilities

 - Accrued expenses

BETA RATIO

A high beta is good or bad depending on the state of the market. If the market
sentiments are bullish, i.e., the market is seeing a rise in general, then a high beta
stock is better and if the market sentiment is bearish then low beta is preferred.

A beta of 1 indicates that the security's price will move with the market. A beta
less than 1 means that the security will be less volatile than the market. A beta
greater than 1 indicates that the security's price will be more volatile than the
market.

R_SQUARED

A statistical measure that represents the percentage of a fund's or

security's movements that are explained by movements in a benchmark index. R-
squared values range from 0 to 100. An R-squared of 100 means that all
movements of a security are completely explained by movements in index

A higher R-squared value will indicate a more useful beta figure.

SHARP RATIO

High returns are generally associated with a high degree of volatility. The Sharpe
ratio represents this trade off between risk and returns. At the same time it also
factors in the desire to generate returns, which are higher than those from risk free
returns.

The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance
is.

Sharpe Index = (Ri – Rf) / Si

Where,

Ri = Return on Fund.
Rf = Risk free rate of Return.

Si = Standard Deviation of the fund.

EXPENSE RATIO

The percentage of total fund assets that is used to cover expenses associated with
the operation of a mutual fund. This amount is taken out of the fund's assets and
lowers the return that fund holders achieve. These expenses include management
fees and operating expenses

. So lesser the expense ratio the better it is for the investors

CHAPTER-3

MAJOR PLAYERS IN MUTUAL FUNDS INDUSTRY

ABNAMRO 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.

Birla Sun Life 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. Reently it crossed AUM of Rs. 10,000 Crores.

Bank of Baroda Mutual Fund (BOB 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.

HDFC 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.

HSBC Mutual Fund

HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital
Markets (India) Private Limited as the sponsor. The 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 ICICI 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 sponsors, 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.

State Bank 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.

Tata 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 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 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.

Unit Trust of India Mutual Fund

UTI Asset Management Company Private Limited, established in Jan 14, 2003,
manages the UTI Mutual Fund with the support of UTI Trustee Company Private
Limited. UTI Asset Management Company presently manages a corpus of over
Rs.20000 Crore. The sponsors of UTI Mutual Fund are Bank of Baroda (BOB),
Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance
Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds,
Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance
Funds.

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.

Standard Chartered Mutual Fund

Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by
Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt.
Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which
was incorporated with SEBI on December 20,1999.

Franklin Templeton India Mutual Fund

The group, Franklin 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 FundIndia

Morgan Stanley is a worldwide financial services company and its leading in the
market in securities, investment 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 organizations. 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 focusing on a long-term capital
appreciation.

Escorts Mutual Fund

Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited as
its sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC
was incorporated on December 1, 1995 with the name Escorts Asset Management
Limited.

Alliance Capital Mutual Fund

Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance
Capital Management Corp. of Delaware (USA) as sponsorer. The Trustee is
ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital Asset
Management India (Pvt.) Ltd. with the corporate office in Mumbai.

Benchmark Mutual Fund

Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services
Pvt. Ltd. as the sponsorer and Benchmark Trustee Company Pvt. Ltd. as the
Trustee Company. Incorporated on October 16, 2000 and headquartered in
Mumbai, Benchmark Asset Management Company Pvt. Ltd. is the AMC.

Canbank Mutual Fund

Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank acting
as the sponsor. Canbank Investment Management Services Ltd. incorporated on
March 2, 1993 is the AMC. The Corporate Office of the AMC is in Mumbai.

Chola Mutual Fund

Chola Mutual Fund under the sponsorship of Cholamandalam Investment &

Finance Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co.
Ltd. is the Trustee Company and AMC is Cholamandalam AMC Limited.

LIC 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.

GIC 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.
Fidelity Investments

Fidelity Investments was founded in 1946. Fidelity Investments is an international

provider of financial services and investment resources that help individuals and
institutions meet their financial objectives.

COMPETITION IN MUTUAL FUNDS INDUSTRY

The most important trend in the mutual fund industry is the aggressive expansion of
the foreign owned mutual fund companies and the decline of the companies floated
by nationalized banks and smaller private sector players.

Many nationalized banks got into the mutual fund business in the early nineties and
got off to a good start due to the stock market boom prevailing then. These banks
did not really understand the mutual fund business and they just viewed it as
another kind of banking activity. Few hired specialized staff and generally chose to
transfer staff from the parent organizations. The performance of most of the
schemes floated by these funds was not good. Some schemes had offered
guaranteed returns and their parent organizations had to bail out these AMCs by
paying large amounts of money as the difference between the guaranteed and actual
returns. The service levels were also very bad. Most of these AMCs have not been
able to retain staff, float new schemes etc. and it is doubtful whether, barring a few
exceptions, they have serious plans of continuing the activity in a major way.

The experience of some of the AMCs floated by private sector Indian companies
was also very similar. They quickly realized that the AMC business is a business,
which makes money in a long term and requires deep-pocketed support in the
intermediate years. Some have sold out to foreign owned companies, some have
merged with others and there is general restructuring going on.

The foreign owned companies have deep pockets and have come in here with the
expectation of a long haul. They can be credited with introducing many new
practices such as new product innovation, sharp improvement in service standards
and disclosure, usage of technology, broker education and support etc. In fact, they
have forced the industry to upgrade itself and service levels of organizations like
UTI have improved dramatically in the last few years in response to the
competition provided by these.

CHAPTER 4: OBJECTIVES AND METHODOLOGY

Significance:
Significance of the project is to find out prospect investors of Mutual Funds and
also to provide key information about the investor’s perception and preferences by
Mutual Fund industry. The study will help in getting information about their
performance at distributors as well as at their own investment center or why people
go for Mutual Fund for investments. Study will also helps in finding out the
problems related to distribution.

Managerial Usefulness of Study:

 The study also provides the problems related to distribution of Mutual Fund
so that they can improve the service rendered by them as a distributor.

 The study will also give information about prospective investors both
individual as well as institutional clients in areas of surrey where they can
get lead.

 The study provides the complete information about all close competitors in
Mutual Fund investment.

 It provides the AMC a feedback from customers regarding their problems

and perception about investing in mutual funds so that they can improve their
services

Objectives:

 To study the Mutual funds industry in detail

 To study the Investment procedure in Mutual funds

 To study the Accounting and Valuation methods of Mutual Funds

 To study in brief various Mutual funds promoted by AnandRathi shares and

stock brokers ltd..

 To study the investors Preference regarding Investment in Mutual Funds

Scope of the Study:

 In current scenario, the bank rates have been cut down rapidly due to severe
competition, so people are not going for contemporary deposits because that
cannot provide them the better returns or the desired interest rates. So, they can
look for some other investment options like Mutual Funds, which can provide
 them higher returns in medium to long term and can easily meet their financial
goals.

 To look out for new prospective customers who are willing to invest in Mutual
Funds.

Methodology:

RESEARCH METHODOLOGY

I decided to do the project in two parts. The first part of the project is comprised of
the study of Mutual Funds as a whole and the second part deals with the investors
perception regarding their investment preferences about investment in Mutual
Funds.

The first part of the project i.e. descriptive study is comprising an overall
study of Mutual funds as what it is ,why to invest and where to invest, risk factor
associated with it ie, an overview of whole Mutual fund industry.

The second part of the project that is related to investors perception about
investment in Mutual funds available in market. Indian Stock market has
undergone tremendous changes over the years. Investment in Mutual Funds has
become a major alternative among Investors. The project has been carried out to
understand investor’s perception about Mutual Funds in the context of their trading
preference and explore investor’s risk perception .

The first part of the project relating the study of Mutual funds is collected through
secondary data obtained from internet & books whereas the second part relating the
Investors perception about investment in Mutual Funds is covered using primary
data.

SOURCE OF DATA COLLECTION

Both Primary and Secondary data are required

Primary data is the first hand information collected directly from the
respondents . The tool used here is questionnaire. Primary Data is collected through
survey among existing clients along with the other investors

Secondary data is collected through internet , books

I had prepared a questionnaire for collecting information about second part of the
project.

DATA ANALYSIS

AND
 INTERPRETATION

INVESTMENT IN MUTUAL FUNDS

 9%
yes

28% no

63% earlier,now
stopped

Interpretation:- The major part of the sample taken has invested in the Mutual
Funds. The demand for the mutual funds have increased in the past few years with
many Foreign players entering in the Indian market, Fidelity, Franklin Templeton,
DSP Meryll Lynch to name few. Still there are few who are not investing in MF.

EXPERIENCE IN THE MARKET

 Experience

Less Than a Year

26%

1-4 Years
53%

21% More Than 4

Years

Interpretation:- The experience in the market was the factor which influenced the
investments. There are very few who have experience of less than a year. These are
those investors who entered into the market after noticing the rise in the market.
The achievement of 12,000 mark by SENSEX was motivational force in this.
Major part was having vast experience that is of more than 4 years. These are the
ones who have been in the market and saw it rising to conquer the 10.000 peak

Trading Preference of the Investors

 T ra d in g P re fe re n c e

16% 2 8%
S pe cula tion
Inve stm ent
B oth
56 %

Interpretation:- The presence in the market is because of two reasons. Either the
investors prefer to speculate and benefit out of it or it is simply to have it as one
more investment avenue just like the fixed deposits, etc. Main purpose of
investment in MF by people was not to speculate. They considered it as a safer
avenue for investment rather than going to Share Market which is much risky as
compared to MF. Few still prefer to speculate and wait for NAVs to appreciate.

Average Investment Period of Investors

 Average Investment Period

50% 42%

23% 25%
10%
S1
0%
Less Than 3-9 Months 9 months - More Than
3 months 2 Year 2 Year
Investment Period

Less Than 3-9 Months 9 months - More Than

Series1 23% 10% 42% 25%

Interpretation:- The investment period is very important to increase the profits.

The timing must be right enough to benefit from fluctuations. The smart investor
decides it in advance for how much time he would be keeping his money in the
market and when he should leave squaring-up. Many people consider the
investment for 9 months – 2 years as a right option. Still some want to be invested
for over 2 years. The least responded to the 3-9 months period.

Factors Influencing the Investment Decision of Investors

 F acto rs In flu en cin g In vestm en t

40%
32% 30%
30%

20% 20%

10% 10%
6%
2%
0%
Broke News M agzi Frien Self O ther
Series1 32% 10% 6% 20% 30% 2%

Interpretation:- There are many factors which influence the investment decision
of the investors. It may be the current news (political, technological, financial, etc.),
Magazines, friends, etc. in the study it proved that many people trust the brokers
most for the investment decisions. These are the ones who have less experience.
The “Self-Evaluation” is the next major factor. The experienced person trust
himself thereafter he/she invests. Magazines and current News also matters. Any
bad news can make a person change his/her decision.

RISK TAKING
 Moderate

High

Low

0% 20% 40% 60%

Interpretation:- “The higher the Risk, the more the Profits”. The people need to
take the risk to enjoy the benefits. Some investors were willing to take lower risk
and this was the reason they gave for investing in the MF. Most of the people
would like moderate level of risk in there investments.

Expected Rise in Income

 E x p e c te d R is e In In c o m e

8%
12%
U p to 1 5 %
48%
1 5 -2 5 %
2 5 -3 5 %
32% M o re th a n 3 5 %

Interpretation:- The optimism is shown in the attitude of the respondents. The

confidence was appreciable with which they are looking forward to a rise in their
investments. Major part of the sample feels that the rise would be of around 15%.
Only 8% of the respondents were confident enough to expect a rise of upto 35%.

Preference In Mutual Funds

 P reference in Mutual Funds
E quity B alanced Income Money Market
E LS S S IP Others

17% 2% 19%

15% 18%

9%
20%

Interpretation:- There are different types of mutual funds available in the market
according to the needs of the investors. There are Equity funds, SIP, Income Funds,
Balanced Funds, etc. The highest sought after fund is the Income fund which offers
a regular income through investments in the Govt. Bonds. The risk is also low in
this. It was followed by the Equity Fund which offers higher returns but it is riskier
also. Some people would like to have Equity Linked Saving Schemes (ELSS). This
provides some exemption in the Tax also.

Investor’s willingness to take Loss

 L o s s W illin g T o T a k e

60% 53%
50%
40% 35%
P e rc e n ta g3 e0 %
20%
12%
10%
0%
L e s s tha n 5 %5 -1 0 % M o re T ha n
10%
C a te g o ry

Interpretation:- The willingness to bear the loss was not high. Most of the
investors were not willing to bear a loss of more than 5%. Very few agreed to be
able to bear a loss of more than 10%. The desire for having profits is higher but
nobody was ready to take loss.

Types of Schemes
 T ype of Schem es

44%

56%

C lo s e d E n d e d F O
u npdesn E n d e d F u n d s

Interpretation:- The schemes offered in the market are of two types, closed ended
and open ended. The more demand was for the Close ended funds with a locking
period of around 2-3 years. The exit load refrain the person from quitting earlier.

BRAND NAME EFFECTIVENESS

 56%
60%

50%

40%

30%
23% 21%

20%

10%

0%

Interpretation:- From the data collected it is clear that most of the people are not
influenced by the company name while investing in a Fund

INFLUENCE
 60% 56%

50%

40%

30%
23% 21%

20%

10%

0%
BY NAV RETURNS Both

Interpretation:- From the data collected it is clear that most of people look at the
returns that the Mutual funds are providing .They look at the returns not the current
NAV

However there is some class of people who look at these parameters and their
percentage is 23% and some consider both factors while investing in funds and
their percentage is 21%.

FINDINGS
The study done was a tool to analyze the present setup and to know the investors
perception regarding investment in Mutual Funds . The study proved fruitful and
many facts came to the light. The following were the findings of the study:
• People with less experience were inclined towards investment in the Mutual
Funds. It attracted as a safer avenue as compared to share market.
• 48% respondents reflected confidence and optimism in the context of their
investments.
• Mutual Funds are more of an investment option than the speculative avenue.
People tend to gain through long investments rather than through short term.
• Income funds and ELSS are among the few top funds
• People are not willing to take much risk and bear loss.
• Broker’s advice matters to as much as 32% of the people. Major part of
people preferred self-evaluation as best.

Most of the people look at the returns that are given by a Funds56% are in this
favour and only 23% people are there who consider Fund name and current NAV
of the fund before investing into a Mutual Fund

Experience was the main factor that made a person invest in mutual funds

LIMITATIONS
There were certain limitations faced during the study.

 Some people were not willing to disclose the investment profile

 .The biased ness was being taken care of.

 The area of sample was decided after taking into consideration the major
factors like

 Availability of investors

 Approachability,

 Time available with investor for interaction, etc.

ANNEXURE
QUESTIONNAIRE

Name: ...…………………….. Occupation: ………………………

Phone: ...……………………..

Investment Presently Held:

Please list the value of the assets in your total investments portfolio :( in Rs.)

Stocks: ______ Mutual Funds: _______

Bonds: ______ Bullion: _______

Options: ______ Govt. Securities:_______

Real Estate: ______ Bank Deposits: _______

(1) Over the next 3-5 years, do you expect your annual income to change?

Increase Decrease Remain the

same

(2) Do you invest in Mutual Funds?

Yes No Earlier, now stopped

(3) What is your Experience in the market?

Less than a year 1-4 years More than 4

years

(4) What is your Trading Preference?

Speculation Investment Both

(5) What is your Average investment period?

Less than 3 months. 3 to 9 months.

9 months to 2 year. More than 2 year.

(6) Factors influencing the investment decisions?

Advice from Broker Current news

Reviews in Financial Magazines Advice from Friends
Self Evaluation Others___________

(7) How much Risk are you willing to take?

High Low Moderate

(8) What is your preference in Mutual Funds?

A. Equity. B. Income

C. Money Market Funds D. ELSS

E. Balanced Funds F. SIP

G. Others

(9) How much Appreciation do you expect from your Investments?

up to 15% 15%-25% 25%-35%

more than 35%
(10) How much loss are you willing to take?

High Moderate Low

(11) Which type of Mutual funds do you prefer?

Open Ended Schemes Closed Ended Schemes

(12) Do you get influenced by the name of Company promoting Mutual

Funds?

No Yes

(13) Do you get influenced by the returns given by a fund or by the current
NAV of a fund?

By NAV By Returns Both

(14) Any suggestions:

…………………………………………………………….....................................

…………………………………………………………………………………….

BIBLIOGRAPHY
Sites visited
1. www.AnandRathi shares and stock brokers ltd. .in

2. www.mutualfundsindia.com

3. www.indiainfoline.com

4. www.amfiindia.com

5. www.sebi.gov.in

Books Referred
amfi Mutual Fund
 PART – B

ON THE JOB TRAINING

CONTENTS

 Title of the On Job Training

 Objectives

 Target/ Task Assigned

 Strategies Applied

 Achievements

 Limitations

 Conclusion

 Corporate learning

 Recommendations
ON THE JOB TRAINING
Title
To generate leads by telecalling, canopies, presentations at various Banks or
corporate offices & also by personal meetings and to close the deal along with the
handling of the customer’s queries regarding share trading, account opening and
maintenance, software installation and demonstration .

Objectives
• To create awareness among the people about the different products and
services offered by the company in the market through telecalling, canopies,
presentations etc.
• To generate leads for endorsement of deals.
• To accompany the ‘relationship manager’ on his visits to the prospective
clients.
• To open demat accounts.
• To learn how to work in a team.
• To acquaint myself with the work culture.
• To understand the operating terminals of both equity & commodity market.
• To learn the trading procedures of equity & commodity market.

Target/Task
• Overall Target: To generate business and gain experience in the tenure of
two months of summer internship project.

Strategy
To achieve a goal successfully one needs to sketch a perfect roadmap or strategy to
the destination and also need to follow the path strictly. The strategies applied to
achieve the above mentioned targets are –
Hunt for prospective customers through following Marketing Strategies:-
 Telecalling
 Arranging Canopy
  Personal Visits
 Clients References
 Promotional Activities
 Database provided by the co. or yellow pages.

Achievements
 Applauded for managing the task of Account Opening efficiently.
 Given business (4 SIP).
 Generated revenues for the organization by performing heavy trading on
behalf of the self developed clients.
I took an active part in CANOPY ACTIVITY at ANANDRATHI, VARANASI.

LIMITATION
 Being a service industry, the quality is main concern in differentiation and it
is not exactly measurable.

CONCLUSIONS
• In a nutshell, I have learned various practical aspects of trading in the stock
market.
• I have made about 50-100 calls per day in the initial days of training so as to
generate maximum leads.
• In addition, I did personal meetings with clients in order to close the deals.
• I handled the queries of both the new & existing clients of the company
pertaining to different issues like opening of accounts, trading procedures
etc.
• I also assisted in executing trades from the existing clients so as to get
brokerage for the company.
• I also took part in canopy activity at ANANDRATHI, Varanasi
I also took part in presentations at various banks.

CORPORATE LEARNINGS
To be a part of AnandRathi was the best opportunity for me to had:
 A practical exposure of Financial world.
 Independently handling of clients.
 Came to know the practical problems of clients.
 Learnt the technical procedures and analysis of various research systems, such
as marketing research and equity research.
 Learnt corporate culture.

Recommendations
[1] First Aid Kit for New Entrant into Securities Market this will be a new step
towards a good service provider in this field. After all, this market depends on the
after sales service. After seeing such a boost in the share market, not only our Adult
generation but also the young generation is also so much excited to enter the share
market. Now the actual problem starts specially with the young ones in excitement
initially they invests the money & due to lack of experience they loose big block of
money in one go & later they blames the company about the loss. So, to make them
train in the field we should provide them the initial precautions that they should
take while enter into the market.

“The More You Care For Your Customer More The Faith Will Get Develop
From Customer Side”

[2] Provision for Class Room training for the new investors for the above reason
same thing to boost there moral and to give them something related to the market
will help them. Also some tips can also be given to these investor during the
session as a precautions.

[3] Toll Free Number customers generally want to call to the respective branch for
asking some problems or give orders, a customer can save the money by dialing on
the toll free number. It gives a feeling to the customer that company care for them.

[4] Customer Care for general query handle initially customer want to solve his or
her problem at the moment as it arises. Our relationship manager many times don’t
have that much time to discuss all that details on phone, they may sometime get
busy with the meeting with client. So for general query handle we can have a
separate section.

(5) More Appointments of Relationship managers There should be more

appointments pf RM so that every customer get equalized attention