A STUDY

ON
‘ROLE AND CONCEPT OF MUTUAL FUNDS’
(Conducted on behalf of ‘NJ INDIAINVEST PVT. LTD.’)
[From 15th January, 2004 to 15th March, 2004)
A Project Report submitted in partial fulfillment of the requirements
For the award of the degree of
BACHELOR OF BUSINESS ADMINISTRATION
TO
SOUTH GUJARAT UNIVERSITY, SURAT

Submitted By:
Under the guidance of
PROF. PARITA BENGALI

Submitted To:
March 2004
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1.1 ABOUT NJ INDIAINVEST PVT. LTD.

NJ India invests pvt. Ltd. (formerly known as NJ capitastocks) was
started in 1994 to cater to the growing financial services sector. NJ India
invests evolved out as a client focused need based investment advisory
firm. At NJ we regard mutual fund as one of the best investment avenue
available to satisfy any kind of investment need. We have gained
expertise in analyzing mutual fund schemes, and an in-depth study on
various parameters is carried out on a regular basis.
Step-in towards successful investment making: -
Presenting NJ India invest, a company evolved over the past eight
years as a client focused need based investment advisory firm. The
sole business of the organization is to manage client’s investments to
fulfill their needs from cap-a-pie.

1.2 OBJECTIVES OF NJ INDIAINVEST

1. The first & main objective of the firm is to provide financial services to
investors.

2. To provide a need based investment advisory services to the clients for

investing their surplus at a right place.

3. To crate awareness of mutual fund among the people & to prove that
the mutual is that the mutual fund is one of the best investment avenues
available to satisfy any kind of investment need.

4. To analyze the various schemes of mutual fund & an in-depth study on

various parameters is carried out on a regular basis.
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5. To manage clients investment to fulfill there needs from cap-a-pie.

1.3 THE PROCESS OF NJ INDIAINVEST PVT. LTD.

At NJ, people are education centric, the relationship managers will help
you in identifying & understanding your needs and help you develop a
portfolio across different asset classes commensurate to your needs, the
experts will give a feel on the various asset classes and explain you the
risk associated with each in a simple and lucid manner to put you at calm.
Once the investment made will be backed by periodic valuation reports
and regular relevant information through newsletters, mailers, e-mail,
road shows etc.

The prime concern of the people at NJ is to help you attain peace of mind
on the investment front.

The mutual funds are becoming the most popular investment vehicle
offering various kind of scheme with different investment objectives. An
investment through mutual funds is one of the safest, easiest &
convenient ways of the successful investment making. The investments
are in congruence to the laid down investment objectives securing the
goals & objectives of the unit holders.

A plethora of mutual fund schemes with different features makes the right
choice for an investor difficult. NJ has a dedicated task force to analyze
the different schemes of mutual funds across various parameters on an
ongoing basis. An arduous process with strict disciplinary levels is
followed before offering any product, scheme or recommendation, as NJ
believes that it is morally bound as trustees to its client’s investments.
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At NJ internationally accepted practices are brought closer to domestic

client through an approach of globalization instead of elitist approach
presently being employed in the industry.

1.4 PRODUCTS OF NJ INDIAINVEST(PRODUCT RACK)

The following are the main products rack for which NJ India invest
provide services to the clients.

 Mutual Funds
 Fixed Deposits
 Infrastructure Bonds
 RBI Relief Bonds
 Approved securities for charitable trust
 Insurance

1.5 ACTIVITIES OR SERVICES OF NJ INDIAINVEST

TO ITS CLIENTS: -

Daily NAV through e-mail

 Monthly comparison sheets of various funds across different
parameters
 Financial planner for their clients
 Regular information related to mutual fund industry
 Systematic information dissemination
 Systematic monitoring & advisory services
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 NJ investor planner provides services like tailor made planning for

your financial goal such as child education, daughter’s marriage,
and retirement plan.
 NJ funds research concern to get in-depth analysis of various funds
subscribe to their monthly ‘the fund fact sheet’
 NJ e-mail services for getting your investment valuation report
online @www.njindiainvest.com (India preferred investment
window) powered by fin logic India.

NJ-SERVICE DIFFENTIAL: -
1. Meritorious selection of funds
2. Understanding clients needs
3. Designing of portfolio mix
4. Evaluation of different schemes of mutual funds.

1.6 E-SERVICES OF NJ INDIAINVEST

NJ e-services are powered by a comprehensive website

http//www.njindiainvest.com. It covers detailed information about the
Indian mutual industry, it posses various financial planners to satisfy
investment goals like retirement planning, child’s marriage planning etc,
it also possess various analytical tools to measure the performance of
mutual fund schemes. Viz.returns calculator, SIP returns calculator, and
many others. There is a separate desk for the clients to get their portfolio
information on fingertips.

THE CLIENT DESK @ NJ indiainvest.com

 Transaction summary report (mutual funds, fixed deposits, RBI
Bonds & others)
 Portfolio valuation reports
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 Portfolio performance reports

 Profit & loss account (FY wise)
 Tax statements
 Consolidated sector & stocks profile for equity investments
through mutual funds
 Consolidated rating & script-profile across debt funds through
mutual funds
 Consolidate asset allocation report across various assets
 Alert processing facility across different parameters

1.7 ACHIEVEMENTS OF NJ INDIAINVEST

 Have gained a dominant place in the Indian mutual fund

distribution business
 Certified by the association of Mutual Funds as AMFI registered
mutual fund advisors
 Won the Pru Chairman’s Award thrice in 2000, 02 & 03 for
outstanding sales performance in the schemes of prudential ICICI
Mutual Fund. The chairman, prudential plc, presented the awards
at London.
 Won many other awards & certificates for outstanding
performance in various mutual fund schemes.

1.8 NJ RESEARCH DESK

 Dedicated portfolio planning & restructuring on demand

 The weekly performance sheet (it covers performance of leading
mutual fund schemes)
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 Various subscription services via e-mail.

 The monthly fund fact sheet (it covers comprehensive analysis of
various mutual fund schemes)
 Sharing relevant information related to the Indian investment
world.

1.9 COMMITMENTS BY NJ INDIAINVEST

1. To provide reliable information:

NJ India invest provides reliable information to their ‘fund fact sheet’ &
also provides services related to various investment avenues of different
companies.

2. To identify right products: -

To identify right products out of different avenues of investment for the
different investors according to there needs.

Example:
Monthly income schemes for the investor who wants monthly & regular
income.

3. To maintain all record in privacy: -

It maintains the records of NAV, dividends & has appreciation of
different companies. It also makes records of performance of different
companies.

4. To optimize return based on risk: -

NJ India invest also commit with the to optimize return based on risk by
comparing various investment options & their schemes & also provide
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advises to investors for minimum risk & maximum returns i.e. for
optimum investment option.

5. To preserve the client capital: -

It preserves the client capital at right place & provides them best services
for their investment.

1.10 NJ SERVICE CENTERS

Head office: -

914,917, 9th floor, vishwa karma arcade,

Majuragate,
Surat-395001
Tel.: 0261-3095213/3095214/5531685

Other centers: -

Ahmedabad: Bhavnagar:
707, 7th flr, Sakar V, B/h. Natraj Cinema, 110, Madhav Hill, Wagavadi Rd,
Ashram Rd., Ahmedabad-380 009. Bhavnagar-364 001.
Tel.: 079-6583518/19 Tel.: 0278-2415550
Fax: 079-6425570 Fax: 0278-252341
Mobile: 98241-06294 Mobile: 94262-88690
E-mail: manish@njindiainvest.com E-mail: jignesh_bh@njindiainvest.com

Anand: Meshana:
B-17, vaibhav Towers, 133, 4th Floor,
Anand Vidhya Nagar, Anand. Mahatma Gandhi Shopping Centre,
Tel.: 02692-249433 Rajmahal Rd, Mehsana-1
Mobile: 98244-76660 Mobile: 98244-76444
E-mail: anand@njindiainvest.com E-mail: rahul@njindiainvest.com

Bangalore: Mumbai:
s-418, Manipal center, s-block, 94-‘b’, Mittal Tower,
47, Dickenson Rd, 210, Nariman Point, Mumbai-400 021
Bangalore-560 042. Tel.: 022-5632 5264/65/66
Tel.: 080-5092444 Fax: 022-5632 5267
Mobile: 98454-25604 Mobile: 98200-83758
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E-mail: tusar@njindiainvest.com E-mail: naveen@njindiainvest.com

Baroda: Navsari:
313, Sidharth Complex, Nr. Hotel Express, 104, Diamond Trade Centre,
R.C.Dutt Rd., Alkapuri, Sattapir, Sayaji Rd.,
Baroda-5 Navsari-396 445.
Tel.: 0265-2337757 Tel.: 02637-253782
Mobile: 98241-06293 Fax: 02637-256229
E-mail: vinay@njindiainvest.com E-mail: sheetal@njindiainvest.com

Rajkot: Surat:
528, Star Chamber, 11/1236, Nanavat Main Rd,
Harihar Chowk, Surat-395 003
Rajkot-1 Tel.: 0261-2425995, 2429284,
Tel.: 0281-227616 Fax: 0261-2453014
Mobile: 98243-75756 Mobile: 98241-14952
E-mail: prashant@njindiainvest.com E-mail: parar@njindiainvest.com

Valsad: Vapi:
108, Amar Chamber, 108, Royal Arcade Chambers
Station Rd, Near G.I.D.C. Office Char Rasta,
Valsad-396 001 Vapi-396 195
Tel.:02632-244193 Mobile: 98244-76333
Mobile: 98244-76556 E-mail: himanshu@njindiainvest.com
E-mail: paras@njindiainvest.com
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2.1 INTRODUCTION

In the current situation every person wants some returns from his surplus
amount or if he has more money than he need for current consumption,
then he is a potential investor. Generally he may deposit his surplus in a
bank account to earn a fixed rate of interest or purchase a speculative
share on the stock market or buy gold or contribute to a provident fund
account or buy a piece of art or invest in some other form. Whatever his
decision, he is essentially making a sacrifice in the present in the hope of
deriving benefits in future. Every investment decision has two key
aspects:
1. Time
2. Risk
While the sacrifice occurs in the present & is certain, the benefits come in
future & may be uncertain.

2.2 INVESTMENT

Investment is the employment of funds with the aim of achieving

additional income or growth in value. The essential quality of an
investment is that it involves ‘waiting’ for a reward, it involves the
commitment of resources, which have been saved, or put away from
current consumption in the hope that some benefits will accrues in future.
The term investment does not appear to be as simple as it has been
defined. Financial experts & economist have further categorized
investment.
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2.3 CHARACTERISICS OF INVESTMENT

Certain features characterize all investments. The following are the main
characteristic features if investments: -

1.Return: -
All investments are characterized by the expectation of a return. In fact,
investments are made with the primary objective of deriving a return. The
return may be received in the form of yield plus capital appreciation. The
difference between the sale price & the purchase price is capital
appreciation. The dividend or interest received from the investment is the
yield. Different types of investments promise different rates of return.
The return from an investment depends upon the nature of investment,
the maturity period & a host of other factors.

2.Risk: -

Risk is inherent in any investment. The risk may relate to loss of capital,
delay in repayment of capital, nonpayment of interest, or variability of
returns. While some investments like government securities & bank
deposits are almost risk less, others are more risky. The risk of an
investment depends on the following factors.
a. The longer the maturity period, the longer is the risk.
b. The lower the credit worthiness of the borrower, the higher is the
risk.
c. The risk varies with the nature of investment. Investments in
ownership securities like equity share carry higher risk compared
to investments in debt instrument like debentures & bonds.
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3. Safety: -

The safety of an investment implies the certainty of return of capital

without loss of money or time. Safety is another features which an
investors desire for his investments. Every investor expects to get back
his capital on maturity without loss & without delay.

4. Liquidity: -

An investment, which is easily saleable, or marketable without loss of

money & without loss of time is said to possess liquidity. Some
investments like company deposits, bank deposits, P.O. deposits, NSC,
NSS etc. are not marketable. Some investment instrument like preference
shares & debentures are marketable, but there are no buyers in many
cases & hence their liquidity is negligible. Equity shares of companies
listed on stock exchanges are easily marketable through the stock
exchanges.

An investor generally prefers liquidity for his investment, safety of his

funds, a good return with minimum risk or minimization of risk &
maximization of return.

2.4 IMPORTANCE OF INVESTMENT

In the current situation, investment is becomes necessary for everyone &

it is important & useful in the following ways:

1. Retirement planning: -

Investment decision has become significant as people retire between the

ages of 55 & 60. Also, the trend shows longer life expectancy. The
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earning from employment should, therefore, be calculated in such a

manner that a portion should be put away as a savings. Savings by
themselves do not increase wealth; these must be invested in such a way
that the principal & income will be adequate for a greater number of
retirement years. Increase in working population, proper planning for life
span & longevity have ensured the need for balanced investments.

2. Increasing rates of taxation: -

Taxation is one of the crucial factors in any country, which introduce an

element of compulsion, in a person’s saving. In the form investments,
there are various forms of saving outlets in our country, which help in
bringing down the tax level by offering deductions in personal income.

For examples: -
 Unit linked insurance plan,
 Life insurance,
 National saving certificates,
 Development bonds,
 Post office cumulative deposit schemes etc.

3. Rates of interest: -

It is also an important aspect for sound investment plan. It varies between

investment & another. This may vary between risky & safe investment,
they may also differ due different benefits schemes offered by the
investments. These aspects must be considered before actually investing.
The investor has to include in his portfolio several kinds of investments
stability of interest is as important as receiving high rate of interest.
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4. Inflation: -

Since the last decade, now a day’s inflation becomes a continuous

problem. In these years of rising prices, several problems are associated
coupled with a falling standard of living. Before funds are invested,
erosion of the resource will have to be carefully considered in order to
make the right choice of investments. The investor will try & search
outlets, which gives him a high rate of return in form of interest to cover
any decrease due to inflation. He will also have to judge whether the
interest or return will be continuous or there is a likelihood of irregularity.
Coupled with high rate of interest, he will have to find an outlet, which
will ensure safety of principal. Beside high rate of interest & safety of
principal an investor also has to always bear in mind the taxation angle,
the interest earned through investment should not unduly increase his
taxation burden otherwise; the benefit derived from interest will be
compensated by an increase in taxation.

5. Income: -

For increasing in employment opportunities in India., investment

decisions have assumed importance. After independence with the stage of
development in the country a number of organization & services came
into being.
For example: -
 The Indian administrative services,
 Banking recruitment services,
 Expansion in private corporate sector,
 Public sector enterprises,
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 Establishing of financial institutions, tourism, hotels, and

education.

More avenues for investment have led to the ability & willingness of
working people to save & invest their funds.

6. Investment channels: -

The growth & development of country leading to greater economic

activity has led to the introduction of a vast array of investment outlays.
Apart from putting aside saving in savings banks where interest is low,
investor has the choice of a variety of instruments. The question to reason
out is which is the most suitable channel? Which media will give a
balanced growth & stability of return? The investor in his choice of
investment will give a balanced growth & stability of return? The
investor in his choice of investment will have try & achieve a proper mix
between high rates of return to reap the benefits of both.

For example: -
 Fixed deposit in corporate sector
 Unit trust schemes
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2.5 TYPES OF INVESTMENT: -

Equity
Shares

Mutual Fund
Schemes

Tax Sheltered
Schemes

Deposits

Investment Fixed Income

Avenues Securities

Life Insurance

Precious
Objects

Real Estate

Financial
Derivatives
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MUTUAL FUND SCHEMES: -

An investor can participant in various schemes floated by mutual fund

instead of buying equity shares. In mutual funds invest in equity shares &
fixed income securities. There are three broad types of mutual fund
schemes.

 Growth schemes
 Income schemes
 Balanced schemes
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3.1 HISTORY OF MUTUAL FUNDS

When three Boston securities executives pooled their money together in

1924 to create the first mutual fund, they had no idea how popular mutual
funds would become.

The idea of pooling money together for investing purposes started in

Europe in the mid-1800s. The first pooled fund in the U.S. was created in
1893 for the faculty and staff of Harvard University. On March 21st, 1924
the first official mutual fund was born. It was called the Massachusetts
investors trust.

After one year, the Massachusetts investors trust grew from $50000 in
assets in 1924 to $392000 in assets (with around 200 shareholders). In
contrast, there are over 10000 mutual funds in the U.S. today totaling
around $7 trillion (with approximately 83 million individual investors)
according to the investment company institute.

3.2 INTRODUCTION OF MUTUAL FUNDS

Not all people understand the dynamic and the complexities of the
financial markets- whether it is the share market or any other financial
market. The retail investor goes on the sentiments of the market without
actually studying the fundamental of the security in which an investment
is being made. Moreover the retail investor usually does not have large
sum of money and this can be done on a regular basis.

A Mutual Fund is a trust that pools the savings of a number of investors

who share a common financial goal. The money thus collected is invested
by the fund manager in different types of securities depending upon the
objective of the scheme. These could range from shares to debentures to
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money market instruments. The income earned through these investments

and the capital appreciations realized by the scheme are shared by its unit
holders in proportion to the number of units owned by 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
portfolio at a relatively low cost. The small savings of all the investors
are put together to increase the buying power and hire a professional
manager to invest and monitor the money. Anybody with an investible
surplus of as little as a few thousand rupees can invest in Mutual Funds.
Each Mutual Fund scheme has a defined investment objective and
strategy.

In simple words, “A mutual fund collects the savings from small

investors, invest them in government and other corporate securities and
earn income through interest and dividends besides capital gains. It works
on the principal of small drops of water make a high earn.”

The securities and exchange board of India regulation, 1993 defines

mutual funds as

“A fund established in the formed of a trust by a sponsor to raise monies

by the trustee through the sale of unit to the public under one or more
schemes for investing in securities in accordance with these regulations.”

3.3 CONCEPT OF MUTUAL FUNDS

In order to get a clear understanding as to what is the underlying concept

of mutual fund let us see the following example.

In a cooperative housing society that has 100 apartments, a security guard

is to be appointed. You find out that a good security guard costs Rs 2000
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per month. Now for a single household to pay Rs 2000/- every month, it
would be a heavy burden.

Now if all the households got together and shared the cost then it would
make a better economic decision. Because all the residents of the housing
society have the same need and therefore it makes sense to pool together.

For this act of pooling together you approach the residents’ welfare
association (RWA). All the 100 flat owners contribute Rs 20 per month
and ask (RWA) to appoint a security guard. Now it is the RWA’s
responsibility to ensure that the security guard is doing his job
effectively. They also monitor his performance. If the RWA is unhappy
with the security guard they can change the guard. The members keep
contributing. If one flat owner sells his flat and moves out of the society,
another flat owner takes his place and starts contributing.

Now in a mutual fund structure there is a trust, which is like the members
of the c0-operative society. The asset management company is something
like the RWA who is responsible for getting the right kind of security
guard and monitoring whether he is doing the right kind of job or not.
And lastly the security guard is the investment.

3.4 MUTUAL FUNDS - A GLOBALLY PROVEN INVESTMENT

All investments whether in shares, debentures or deposits involve risk.

Share value may go down depending upon the performance of the
company, the industry, state of capital markets and the economy.
Generally however, longer the term, lesser the risk. Companies may
default in payment of interest and principal on their
debentures/bonds/deposits. While risk cannot be eliminated, skillful
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management can minimize risk. Mutual Funds help to reduce risk through
diversification and professional management. The experience and
expertise of Mutual Fund managers in selecting fundamentally sound
securities and timing their purchases and sales help them to build a
diversified portfolio that minimizes risk and maximizes returns.

Worldwide, the Mutual Fund, or Unit Trust as it is called in some parts of

the world, has almost overtaken bank deposits and total assets of
insurance funds. As of date, in the US alone there are over 5,000 Mutual
Funds with total assets of over US $ 3 trillion (Rs.l00 lakh crores). In
India there are 38 Mutual Funds and over 300 schemes with total assets
of approximately Rs. 100,000 crores. The Securities and
ExchangeBoardof India (SEBI) regulate all mutual funds in India.

3.5 TYPES OF MUTUAL FUNDS SCHEME

Whenever a mutual fund scheme is launched it will have a specific
investment objective i.e. it clarifies that where the money received under
the scheme would be invested. Mutual fund schemes may be classified on
the basis of its structure and its investment objective

By Structure

Open-end Funds

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

A closed-end fund has a stipulated maturity period which generally

ranging from 3 to 15 years. The fund is open for subscription only during
a specified period. Investors can invest in the scheme at the time of the
initial public issue and thereafter they can buy or sell the units of the
scheme on the stock exchanges where they are listed. In order to provide
an exit route to the investors, some close-ended funds give an option of
selling back the units to the Mutual Fund through periodic repurchase at
NAV related prices. SEBI Regulations stipulate that at least one of the
two exit routes is provided to the investor.

Interval Funds

Interval funds combine the features of open-ended and close-ended

schemes. They are open for sale or redemption during pre-determined
intervals at NAV related prices.

By 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 proved that returns from stocks, have
outperformed most other kind of investments held over the long term.
Growth schemes are ideal for investors having a long-term outlook
seeking growth over a period of time.
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Income Funds

The aim of income funds is to provide regular and steady income to

investors. Such schemes generally invest in fixed income securities such
as bonds, corporate debentures and Government securities. Income Funds
are ideal for capital stability and regular income.

Balanced Funds

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

of capital and moderate income. These schemes generally invest in safer
short-term instruments such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money. Returns on these schemes
may fluctuate depending upon the interest rates prevailing in the market.
These are ideal for Corporate and individual investors as a means to park
their surplus funds for short periods.
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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
Savings Schemes (ELSS) and Pension Schemes are allowed as deduction
u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities
to investors to save capital gains u/s 54EA and 54EB by investing in
Mutual Funds.

Special Schemes

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the

offer document. The investment of these funds is limited to specific
industries like InfoTech, FMCG, and Pharmaceuticals etc.

Index Schemes

Index Funds attempt to replicate the performance of a particular index

such as the BSE Sensex or the NSE 50

Sectoral Schemes

Sectoral Funds are those, which invest, exclusively in a specified sector.

This could be an industry or a group of industries or various segments
such as 'A' Group shares or initial public offerings.
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3.6 BENEFITS OF INVESTING IN MUTUAL FUNDS

Professional Management

Mutual Funds provide the services of experienced and skilled

professionals, backed by a dedicated investment research team that
analyses the performance and prospects of companies and selects suitable
investments to achieve the objectives of the scheme.

Diversification

Mutual Funds invest in a number of companies across a broad cross-

section of industries and sectors. This diversification reduces the risk
because seldom do all stocks decline at the same time and in the same
proportion. You achieve this diversification through a Mutual Fund with
far less money than you can do on your own.

Convenient Administration

Investing in a Mutual Fund reduces paperwork and helps you avoid many
problems such as bad deliveries, delayed payments and follow up with
brokers and companies. Mutual Funds save your time and make investing
easy and convenient.

Return Potential

Over a medium to long-term, Mutual Funds have the potential to provide

a higher return as they invest in a diversified basket of selected securities.
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Low Costs

Mutual Funds are a relatively less expensive way to invest compared to

directly investing in the capital markets because the benefits of scale in
brokerage, custodial and other fees translate into lower costs for
investors.

Liquidity

In open-end schemes, the investor gets the money back promptly at net
asset value related prices from the Mutual Fund. In closed-end schemes,
the units can be sold on a stock exchange at the prevailing market price or
the investor can avail of the facility of direct repurchase at NAV related
prices by the mutual fund.

Transparency

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

to disclosure on the specific investments made by your scheme, the
proportion invested in each class of assets and the fund manager's
investment strategy and outlook.

Flexibility

Through features such as regular investment plans, regular withdrawal

plans and dividend reinvestment plans, you can systematically invest or
withdraw funds according to your needs and convenience.
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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.

Choice of Schemes

Mutual Funds offer a family of schemes to suit your varying needs over a
lifetime.

Well Regulated

All Mutual Funds are registered with SEBI and they function within the
provisions of strict regulations designed to protect the interests of
investors. The operations of Mutual Funds are regularly monitored by
SEBI.
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4.1 MUTUAL FUND FLOW CHART

It is a trust that pools savings of a number of investors who share

common financial goal. Professional investment managers than this fund
in a way that helps the investor achieve their goal.

Many investors join together and entrust their funds to professional

money managers. These funds are then invested in securities. The capital
gains, dividend and interest income are they passed back to investors
either through dividends or as increase in the value of the fund.

The flow chart below describes broadly the working of a mutual fund:

4.2 ORGANISATION OF A MUTUAL FUND

A mutual fund is set up in the form of a trust, which has sponsor, trustees,
Asset Management Company (AMC) and custodian. The trust is
established by a sponsor or more than one sponsor who is like promoter
of a company. The trustees of the mutual fund hold its property for the
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benefit of the unit holders. Asset Management Company (AMC)

approved by SEBI manages the funds by making investments in various
types of securities. Custodian, who is registered with SEBI, holds the
securities of various schemes of the fund in its custody. The trustees are
vested with the general power of superintendence and direction over
AMC. They monitor the performance and compliance of SEBI
Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of

trustee company or board of trustees must be independent i.e. they should
not be associated with the sponsors. Also, 50% of the directors of AMC
must be independent. All mutual funds are required to be registered with
SEBI before they launch any scheme. However, Unit Trust of India (UTI)
is not registered with SEBI (as on January 15, 2002).

Sponsor

A mutual fund is initiated by a sponsor, which organizes and markets the

fund. It specifies the investment objectives of the fund, the risk
associated, the costs involved in the process and the board rules for entry
into and exit from the fund and the other areas of operation. In India the
 NJ IndiaInvest

sponsor requires an approval from the securities exchange board of India-

SEBI.

A sponsor then hires an asset management company to invest the funds

according to the investment objective. It also hires another entity to be the
custodian of assets of the fund and perhaps a third one to handle registry
work for the unit holders of the fund.

Asset Management Company

The asset management company is formally appointed by the trustees of

the trust to manage money on their behalf.

Based on the rules of the land a sponsor can also hold 100% stake in the
A.M.C for e.g. DSP Merrill Lynch Equity Funds is a mutual benefit trust
registered under the Indian trust act. The trustees have appointed DSP
Merrill Lynch Asset Management Company Pvt. Ltd. To manage the
funds in the trust.

The AMC receives a fee for its services. Currently SEBI permits a fee of
1.2% p.a. of the asset value of the fund for a fund less than 10 crores.
This AMC reports to the trustees who have to safeguard the interests of
the investors of the investors in the mutual funds

Trustees Company

The sponsor promotes the Trustee Company or the trust. The trustees
include experienced and eminent people representing a cross section of
the industry and the society. They not only monitor performance of the
AMC but also oversee operations of the custodian and transfer agent.

Custodian
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The A.M.C has to hire an outside custodian, which is responsible for the
custody of the assets of the fund. The custodian is also responsible for
receipt of all kinds of cash and non-cash benefits such as bonus,
dividends and rights. It is usually a bank or any other financially sound
institution

Registrar and transfer agents

The AMC hires this agency for taking care of purchase and sale of the
units of the fund, issue certificates/account statements to investors, make
dividend payments etc. Eg.karvy consultants.

4.3 Indian Mutual Fund Industry

4.4 REGULATION ABOUT MUTUAL FUND BY SEBI

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There was no uniform regulation of the mutual funds industry till a few
years ago. The UTI was regulated by a special Act of Parliament while
funds promoted by public sector banks were subject to RBI Guidelines of
July 1989. The Securities & Exchange Board of India (SEBI) was formed
in 1993 as a capital market regulator. One of its responsibilities was to
regulate the mutual fund industry and it came up with comprehensive
regulations for the industry in 1993. The rules for the formation,
administration and management of mutual funds in India were clearly
laid down. Regulations also prescribed disclosure requirements.

The regulations were thoroughly reviewed and re-notified in December

1996. The revised guidelines tighten the accounting and disclosure
requirements in line with recommendations of The Expert Committee on
Accounting Policies, Net Asset Values and Pricing of Mutual Funds. The
SEBI (Mutual Funds) Regulations 1996 have been further amended in
1997, 1998 and 1999. Today, all mutual funds are regulated by SEBI.
Efforts have been made to bring UTI schemes under SEBI's ambit with
the result that the capital market regulator now regulates all schemes,
with the exception of Unit 64.

4.5 HOW TO INVEST IN MUTUAL FUND

READING A PROSPECTUS
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When you request information on a mutual fund, they usually send you a
letter mentioning how great the fund is, the necessary forms you will
have to fill out to invest in the fund, and a prospectus. You can usually
just throw away the letter because it is often more of an advertisement
than anything else. But you should definitely read the prospectus because
it has all the information you need about the mutual fund.

The prospectus is usually broken up into different sections so we'll go

over what each section's purpose is and what you should look for in it.

OBJECTIVE STATEMENT

Usually near the front of a prospectus is a small summary or statement

that explains the mutual fund. This short section tells what the goals of
the mutual fund are and how it plans to reach these goals.

The objective statement is really important in choosing your fund. When

you choose a fund, it is important to choose one based on your
investment objective and risk tolerance. The objective statement should
agree with how you want your money managed because, after all, it is
your money. For example, if you wanted to reduce your exposure to risk
and invest for the long-term, you wouldn't want to put your money in a
fund that invests in technology stocks or other risky stocks.

PERFORMANCE

The performance section usually gives you information on how the

mutual fund has performed. There is often a table that gives you the
fund's performance over the last year, three years, five years, and
sometimes ten years.
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The fund's performance usually helps you see how the fund might
perform but you should not use this to decide if you are going to invest in
it or not. Funds that do well one year don't always do well the next.

It's often wise to compare the fund's performance with that of the index.
If a fund consistently under performs the index by 5% or more, it may not
be a fund that you want to invest in for the long-term because that
difference can mean the difference of retiring with Rs.200, 000 and
retiring with Rs.1.5 million.

Usually in the performance section, there is a small part where they show
how a Rs.10, 000 investment would perform over time. This helps give
you an idea of how your money would do if you invested in it but this
number generally doesn't include taxes and inflation so your portfolio
would probably not return as much as the prospectus says.

FEES AND EXPENSES

Like most things in life, a mutual fund doesn't operate for free. It costs a
mutual fund family a lot of money to manage everyone's money so they
put in some little fees that the investors pay in order to make up for the
fund's expenses.

One fee that you will come across is a management fee, which all funds
charge. Mutual funds charge this fee so that the fund can be run. The
money collected from the shareholders from this fee is used to pay for the
expenses incurred from buying and selling large amounts of shares in
stocks. This fee usually ranges from about 0.5% up to over 2%.

Another fee that you're likely to encounter is a 12b-1 fee. The money
collected from charging this fee is usually used for marketing and
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advertising the fund. This fee usually ranges between 0.25-0.75%.

However, not all funds charge a 12b-1 fee.

One fee that is a little less common but still exists in many funds is a
deferred sales load. Frequent buying and selling of shares in a mutual
fund costs the mutual fund money so they created a deferred sales charge
to discourage this activity. This fee sometimes disappears after a certain
period and can range from 0.5% up to 5%.

When you are looking through a prospectus, be sure that you look over
these fees because even if a mutual fund performs well, high expenses
may limit its growth.

The following are the steps, which will guide you to invest in Mutual
Funds: -

Step One - Identify your Investment needs

Your financial goals will vary, based on your age, lifestyle, financial
independence, family commitments, and level of income and expenses
among many other factors. Therefore, the first step is to assess your
needs. You can begin by defining your investment objectives and needs,
which could be regular income, buying a home or finance a wedding or
educate your children or a combination of all these needs, the quantum of
risk you are willing to take and your cash flow requirements.

Step Two - Choose the right Mutual Fund

The important thing is to choose the right mutual fund scheme, which
suits your requirements. The offer document of the scheme tells you its
objectives and provides supplementary details like the track record of
other schemes managed by the same Fund Manager. Some factors to
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evaluate before choosing a particular Mutual Fund are the track record of
the performance of the fund over the last few years in relation to the
appropriate yardstick and similar funds in the same category. Other
factors could be the portfolio allocation, the dividend yield and the degree
of transparency as reflected in the frequency and quality of their
communications.

Step Three - Select the ideal mix of Schemes

Investing in just one Mutual Fund scheme may not meet all your
investment needs. You may consider investing in a combination of
schemes to achieve your specific goals.

Step Four - Invest regularly

The best approach is to invest a fixed amount at specific intervals, say

every month. By investing a fixed sum each month, you buy fewer units
when the price is higher and more units when the price is low, thus
bringing down your average cost per unit. This is called rupee cost
averaging and do investors all over the world follow a disciplined
investment strategy. You can also avail the systematic investment plan
facility offered by many open-end funds.

Step Five- Start early

It is desirable to start investing early and stick to a regular investment

plan. If you start now, you will make more than if you wait and invest
later. The power of compounding lets you earn income on income and
your money multiplies at a compounded rate of return.

Step Six - The final step

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

4.6 RIGHTS OF A MUTUAL FUND UNIT HOLDER

A unit holder in a Mutual Fund scheme governed by the SEBI (Mutual
Funds) Regulations is entitled to:

1. Receive unit certificates or statements of accounts confirming the

title within 6 weeks from the date of closure of the subscription or

within 6 weeks from the date of request for a unit certificate is
received by the Mutual Fund.
2. Receive information about the investment policies, investment

objectives, financial position and general affairs of the scheme.

3. Receive dividend within 42 days of their declaration and receive

the redemption or repurchase proceeds within 10 days from the

date of redemption or repurchase.
4. Vote in accordance with the Regulations to:-

• Approve or disapprove any change in the fundamental investment

policies of the scheme, which are likely to modify the scheme or
affect the interest of the unit holder. The dissenting unit holder has
a right to redeem the investment.
• Change the Asset Management Company.
• Wind up the schemes.

5. Inspect the documents of the Mutual Funds.

4.7 RISK FACTORS IN MUTUAL FUNDS

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GENERAL RISK FACTORS: -

Mutual Funds and securities investments are subject to market risks and
there can be no assurance or guarantee that the schemes of
the Schemes objectives will be achieved.

 As with any investment in securities, the Net Asset Value of Units

issued under the Schemes may go up or down depending on the
various factors and forces affecting the capital markets and debt
markets.

 Past performance of the Sponsor/AMC/Mutual Fund, does not

indicate the future performance of the schemes of the Mutual Fund.

 The NAV of the schemes may be affected, interalia, by changes in

the markets interest rates, trading volumes, settlement periods and
transfer procedures.

 The Sponsor is not responsible or liable for any loss or shortfall

resulting from the operations of the schemes beyond the initial
contribution of Rs. 2 lakhs made by them towards setting up of the
Mutual Fund, which has been invested in the Equity Fund.

 The names of the Schemes do not in any manner indicated either

the quality of the Schemes, their future prospects or returns.

 Investors in the Schemes are not being offered any guarantee/

assured returns.
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OTHER SPECIFIC RISK FACTORS: -

 Interest Rate Risk

As with all debts securities, changes in interest rtes will affect the
schemes’ Net Asset Value as the prices of securities generally increase as
interest rates decline and generally decrease as interest rates rise. Prices
of long-term securities generally fluctuate more in response to interest
rate changes than do shorter-term securities. Interest rates movement in
the Indian Debt Markets can be volatile leading to the possibility of large
price movements up or down in Debt and Money market securities and
thereby to possibly large movements in the Net Asset Value.

 Liquidity or Marketability Risk

This refers to the ease at which a security can be sold at or near its true
value. The primary measure of liquidity risk is the spread between the bid
price and the offer price quoted by a dealer. Liquidity risk is
characteristics of the Indian fixed income market.

 Credit Risk
Credit risk or default risk refers to the risk that an issuer of a fixed
income security may default (i.e., will be unable to make timely principle
and interest payments on the security). Because of this risk debentures are
sold at a yield spread above those offered on Treasury securities, which
are sovereign obligations and generally considered to be free of credit
risk. Normally, the value of a fixed income security will fluctuate
depending upon the actual changes in the perceived level of credit risk as
well as the actual event of default.
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 Reinvestment Risk
This risk refers to the interest rate levels at which cash flows received
from the securities in the schemes or from maturities in the scheme are
reinvested. The additional income from reinvestment is the “interest on
interest” component. The risk is that the rate at which interim cash flows
can be reinvested will fall

4.8 OPTIONS OF VARIOUS MUTUAL FUNDS

 Suspension of sale/redemption/Switching of units

The mutual fund at its sole discretion reserves the right to withdraw sale
and repurchase or switching of the units in the schemes. The unit holders
will have the option to switch all or part of their investment in the scheme
to any other scheme established by the mutual fund or with the same
scheme from one plan to another, which is available for investment at that
time, at the prevailing terms of the scheme to which the switch is taking
place.

 Growth Option

The scheme will not declare any dividend under this option. The income
earned by the scheme will remain invested in the scheme and will be
reflected in the NAV. This option is suitable for investors who are not
looking for regular income. There will be no distribution of income and
return to investors will be only by way of capital gains.

 Dividend option

Under the option the trustee may declare dividends. Such dividend shall
be declared monthly and unless the trustee determines otherwise the
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record date for the purpose shall be the 12th of the month concerned and
12th of the month is not a working day. The dividend shall not be paid out.
Any dividend declared shall be re-invested in the plan.

 Dividend reinvestment

The investors opting for dividend option may choose to reinvest the
dividend to be received by them in additional units of the scheme. Under
this provision, the dividend due and payable to the unit holders will be
compulsorily and without any further act by the unit holder reinvested in
the scheme dividend to the unit holders and constructive receipt of the
same amount from each unit holder, for investment in units.

4.9 PLANS ARE AVAILABLE IN MUTUAL FUND

 Systematic Investment Plan

SIP is available for planned and regular investments under this plan unit
holders can benefit by investing specified rupee amounts periodically for
a continuous period. This concept is called rupee cost averaging. The
program allows unit holders to save month by purchasing additional units
of the scheme.

New investors can enroll for SIP facility on opening an account with an
initial minimum amount of Rs. 1,000/- However, for the cash Mug fund-
liquid option, the initial minimum amount for SIP facility is Rs. 10,000/-
and Mug Fund money at call option, the initial minimum amount for SIP
facility is Rs. 1,00,000/-.
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 Systematic Withdrawal Plan

The unit holder con option for systematic withdrawal plan on monthly,
quarterly, semi-annual or annual bases to.

• Redeem a fixed number of units

• Redeem enough units to provide a fixed amount of money

Once the unit holder enrolls for an SWP, the plan would continue
until.

• The unit holder instructs the fund stop periodic withdrawal in

writing
• The unit holders’ accounts balance is zero.

The unit holder can select the repurchase date from a predetermined set of
dates. If no date is selected, the repurchased will be made on the 11th of
the month. If the selected date is not a business day, the repurchase will
take place on the next business day.

 Systematic switching plan

The unit holder can option for a SSP on a monthly, quarterly, semi-
annual or annual basis to switch a fixed number of units or amount in one
scheme to another scheme within the fund family or from one option to
another.

A switch instruction received from any joint owners in case the made of
holding is anyone or service is building on all joint owners. All switches
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are subject to the minimum investment and eligibility requirements of the

scheme.

4.10 TERMS AVAILABLE IN MUTUAL FUND

 Determination of NAV

The Net Asset Value of the Scheme(s) will be calculated on a daily basis
shown below:

NAV per unit = (Market / Fair value of securities + Accrued income

+ Receivables – Accrued Expenses – Liabilities)
No. Of Units Outstanding Of the Scheme/plan

The dividend paid on Units under the Dividend Plan and distribution tax
(if applicable, as per the prevalent tax provisions) on the amount of
Dividend distributed shall be deducted in computing the NAV of the
Units under the Dividend Plan each time Dividend is declared and till it is
distributed. Consequently once the Dividend is distributed under the
Dividend Plan, the NAV of the Units under the Dividend Plan will
always remain lower than the NAV of the Units under the Growth Plan.
The income earned / accrued and profits realized attributable to the Units
under the Growth Plan shall remain invested and shall be deemed to have
been invested in the Growth Plan to the exclusiveness of the Units under
the Dividend Plan, and would be reflected in the NAV of the Units under
the Growth Plan.
Net Asset Value shall be calculated as of the close of every Business
Day. Calculation of the Schemes’ Net Asset Value will be subject to such
rules or regulations that SEBI may issue from time to time and will be
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subject to audit on an annual basis. The computation and disclosure of the

Net Asset Value and the repurchase price shall be in conformance with
SEBI (MF) Regulations, 1996.

Example: -
Suppose IBDI mutual fund has introduced a scheme called balanced fund
scheme, the scheme size is 100 crores. The value of each unit isRs.10. It
has invested all the funds in shares & debentures & market value of
investment comes to Rs. 300 crores.

Now NAV = 300 crores * value of each unit

100 crores
= 3 * 10
= 30
Thus the value of each unit of Rs.10 is worth Rs.30.

 Recurring Expenses

The total annual recurring expenses of the scheme excluding issue or

redemption expenses, the following recurring expenses can be charged to
the fund:

 Marketing and selling expense including agent’s commission;

 Brokerage and transaction cost;
 Trustees fees;
 Registrar’s charges;
 Audit fees;
 Custodian fees;
 Expenses on investor communication, account statements,
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 Dividend/redemption cheques and warrants;

 Insurance premium paid by the fund;
 Cost of statutory advertisements.

 Entry load
An AMC may decide that investor should pay more than NAV for their
investment in each unit of the scheme. These incremental amount paid by
new investor is called the ‘Entry load’ or ‘front end load’. Thus, if a
scheme has NAV of Rs 11 and entry load of 5%, the investor would pay
Rs 11.55 for each unit.

Sale price = NAV + Entry Load

The entry load (Re. 0.55 in the above case) would be retained in a
separate account from which the AMC would meet part of its selling and
distribution expenses. Generally, debt schemes do not have an entry load.

 Exit Load

An AMC may decide that sellers would recover less than NAV for the
units they sell in a scheme. This shortfall, borne by existing investors is
called the ‘exit load’ or ‘back end load’. Thus, if a scheme has NAV of
Rs. 11 and exit load of 5%, the investor would recover only Rs 10.45 for
each unit.

The exit load (Re 0.55 in this case) would go into a separate account from
which the AMC would meet part of its selling and distribution expenses.

Re-purchase price = NAV – Exit load

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TAXATION & MUTUAL FUNDS

5.1 INCOME TAX

I. Exemption u/s Sec 10(33):

Under the provisions of section 10(33) of the Income-tax Act, 1961 (the
Act), income received by all categories of unit holders would be exempt
from income tax in their hands. In view of this position, no tax will be
deducted (No TDS) at source from such distribution by the fund.
The Finance Act 2001 has inserted a provision to section 10(33) with
effect from April 1, 2000 (i.e. FY 1999 - 2000) to provide that income
arising from transfer of units of Unit Trust of India or a mutual fund shall
not under the clause.

Explanation: Due to the above provisions, Dividend distributed is tax-

free in the hands of the investor.

II. CAPITAL GAINS TAX

Long Term Capital Gains Tax

Sec 2(42A): Under Section 2(42A) of the Act, a unit of a Mutual Fund is
treated as long-term capital asset if the same is held for more than 12
months.
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Sec 112: Under Sec 112 of the Act, capital gains chargeable on transfer
of long-term capital assets are subject to following rates of tax:
Resident Individual & HUF 20% plus surcharge.
Partnership Firms & Indian Companies 20% plus surcharge.
Foreign Companies 20% (no surcharge)

Capital gains will be computed after taking into account cost of

acquisition as adjusted by Cost Inflation Index notified by the Central
Government.
"Units" are included in the proviso to the sub-section (1) to Section
112 of the Act and hence Unit holders can opt for being taxed at 10%
(plus applicable surcharge) without the cost inflation index benefit or
20% (plus applicable surcharge) with the cost inflation index benefit
whichever is beneficial.

Sec115AB: For Overseas Financial Organizations/Foreign Institutional

Investors/Overseas Corporate Bodies fulfilling conditions laid down
under Section 115AB (Offshore Fund).

Under Section 115AB of the Income Tax Act, 1961, long term capital
gains in respect of units held for a period of more than 12 months will be
chargeable at the rate of 10%. Such gains will be calculated without
indexation of cost of acquisition. No surcharge is applicable for taxes
under section 115AB, in respect of corporate bodies.

Sec 115E: Under Sec 115E of the Act, capital gains chargeable on
transfer of long-term capital assets are subject to following rates of tax:
Non-Resident Indians 20% (No surcharge)
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Cost Inflation Indexation adjustment not applicable to NRIs

Short Term Capital Gains Tax

The Finance Act 2001 has inserted sub - section (7) in section 94 with
effect from April 1, 2001 (i.e. FY 2001-02). According to this newly
inserted sub section, if any person buys or acquires units within a period
of 3 months prior to the record date fixed for declaration of dividend or
distribution of Income and sells or transfers the same within a period of
three months from such record date, then capital losses arising from such
sale to the extent of dividend or income received or receivable on such
units will be ignored for the purpose of computing his income tax.

Sec 2(42B): Under Section 2(42B) of the Act, a unit of a Mutual Fund is
treated as short-term capital asset if the same is held for less than 12
months.

Short-term Capital Gains/Losses are directly added/subtracted to/from

total income and taxed as per the relevant slabs. The maximum tax
liabilities are as follows:

Resident Individual & HUF 30% plus surcharge.

Partnership Firms & Indian Companies 35% plus surcharge.
Indian Companies 35% plus surcharge.
Non-Resident Indians 30% (no surcharge)
Foreign Companies 48% (no surcharge)
Sec 115AD: For FIIs under Section 115AD of the Income Tax Act, 1961,
short term capital gains would be tax at 30%.

Tax Deduction at Source (TDS)

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Residents: As per section 194K and 196A of the Act, where any income
is credited or paid on or after June 1, 1999 by a Mutual Fund, no tax is
required to be deducted at source. (No TDS on dividend).

As per CBDT Circular No. 715 dated August 8, 1995 in case of

resident unit holders, no tax is required to be deducted at source
from capital gains arising at the time of repurchase or redemption of
the units.
Non-residents: As per section 194K and 196A of the Act, where any
income is credited or paid on or after June 1, 1999 by a Mutual Fund, no
tax is required to be deducted at source. (No TDS on dividend).

TDS on Capital Gains Short-term Long-Term

Non-Resident Indians 30% + surcharge 20% + surcharge
Foreign Companies 48% 20%

As per circular No. 728 dated October 30, 1995 issued by the CBDT, in
the case of a remittance to a country with which a Double Taxation
Avoidance Agreement (DTAA) is in force, the tax should be deducted at
the rate provided in the Finance Act of the relevant year or at the rate
provided in the DTAA which ever is more beneficial to the assesses. In
order for the unit holder to obtain the benefit of a lower rate available
under DTAA the Unit holder will be required to provide the Mutual Fund
with a certificate obtained from his Assessing Officer stating his
eligibility for the lower rate.

Wealth Tax

Sec 2 (ea): Units held under the Mutual Fund Schemes are not treated as
assets within the meaning of the Wealth Tax Act, 1957 and therefore, not
liable to Wealth Tax.
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Gift Tax

The Units of any value can be gifted without attracting any Gift Tax
payable either by the donor or the done, after October 1, 1998, by virtue
of repayment of Gift Tax Act, 1958.

5.2 TAX IMPACT TO THE MUTUAL FUND

Sec 10(23D): Under provisions of section 10(23D) of the Act, any

income received by the Mutual Fund is exempt from tax.

Sec 115R: Under Section 115R, the Income distributed to a unit holder of
a Mutual Fund shall be charged to tax at a flat rate of 20% (plus
surcharge, if any) to be payable by the Mutual Fund. However, the above
distribution tax will be exempted for a period of three years, commencing
from Financial Year 1999-2000 i.e. April 1, 1999 for open-ended Equity
Oriented Funds (funds investing more than50% in equity or equity related
instruments).

Explanation: Due to the above provision, Dividend distributed is tax-

free in the hands of the investor, however prior to distributing Dividend
the Mutual Fund will pay to the Government dividend distribution tax of
10% (plus surcharge). Such charge will not form part of the annual
recurring expense chargeable to the scheme.

5.3 DIVIDENDS ARE NOW TAX FREE, IN THE HANDS OF THE

INVESTORS

BEFORE (2002 – 2003) AFTER (2003 – 2004)

DIVIDEND TAXABLE IN DIVIDENDS TAX-FREE IN
HANDS OF INVESTORS – AT HANDS OF INVESTORS
10%, 20%, or 30% (as the case may
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be).
12.5% DISTRIBUTION TAX ON
NO DISTRIBUTION TAX ON CORPORATE DIVIDEND
DIVIDEND DECLARED OP
PAID. DISTRIBUTION TAX ON
MUTUAL FUNDS
10% TDS ON DIVIDEND IN Equity Schemes – Nil
EXCESS OF Rs. 2,500 Debt Schemes – 12.5%

NO TDS.

5.4 SECTION 88 BENEFITS

Section 88 gives investors who are individuals or Hindu Undivided
Families (HUFs) the option of saving on income tax by investing in
specified assets including insurance premium, Public Provident Fund
(PPF), National Saving Certificate (NSC), etc. the section provides a
basic investment limit of Rs 70000 for such investments. The actual
benefits to investors is a reduction in tax as follows:

Income upto Rs 150,000 20%

Income between Rs 150,001 and Rs 500,000 15%

Income above Rs 500,000 no benefit

Until the pervious year, benefit at the rate of 20 per cent was available
even for investors having above Rs 150,000.

Investment in equity Linked Savings Schemes (ELSS), upto a limit of Rs

10000, is entitled to the tax rebate, within the basic investment limit of Rs
70000.

Investment in pension funds too is entitled to the tax rebate, within the
basic investment limit of Rs 70000. However, there is no sub-limit (like
 NJ IndiaInvest

Rs 10000 for ELSS). Therefore, benefit would be available upto

investment of Rs 70000 in pension funds, if the investor has not invested
in any of the other specified assets.

Section 80CCC too offers tax benefit for investment in pension funds.
The differences between the provisions of the two sections are:

 Under section 80CCC the amount invested, upto Rs 10000 is deducted

from the income. Section 88 however provides for a rebate from the
income tax.
 The benefit under section 88CCC is available for all investors, unlike
the rebate under section 88 that is linked to income level.

The basic investment limit of Rs 70000 under section 88 can go up to Rs

100000 if the investors invest in certain approved issues of bonds, shares
or units where the proceeds are to finance infrastructure development. If
the investor has not invested in any of the other specified asset, when the
entire investment limit of Rs 100000 can be availed of through
investment in infrastructures related securities/units.

The table below would clarify the investment limit upto which benefit of
section88 would be available with different combination of investment of
Rs 100000.

Investment Plan A Plan B Plan C Plan D

LIC, PPF etc. Rs 60,000 Rs 50,000 Rs 50,000 -
ELSS Rs 10,000 Rs 10,000 Rs 25,000 -
Pension Fund - Rs 25,000 Rs 25,000 -
Infrastructure Rs 30,000 Rs 15,000 - Rs 1,00,000
Total Rs 1,00,000 Rs 1,00,000 Rs 1,00,000 Rs 1,00,000
Investment Rs 1,00,000 Rs 85,000 Rs 70,000 Rs 1,00,000
considered
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for Sec 88
Comment # ##

# - Excess over Rs 70,000 in the first 3 asset categories, i.e. Rs 15,000 is

disallowed. Limit available for infrastructure securities is underutilized.
Investment benefit for sec 88 can go up to Rs 100,000 by transferring Rs
15,000 of investment from any of the other categories to infrastructure.

## - Excess over Rs 10,000 disallowed in the case of ELSS; also the Rs

70,000 limit for the first 3 asset categories is breached. Limit available
for an infrastructure security is not utilized. Investment benefit for sec88
can go up to Rs 100,000 by transferring Rs 15,000 of investment from
ELSS, and a further Rs 15,000 form any of the first 3 asset categories to
infrastructure.
 NJ IndiaInvest

(1) ICICI PRU. EQUITY FUNDS SCHEME

 NJ IndiaInvest

SCHEME PRU ICICI POWER GR

DETAIL
S
Launch Date Oct. 4, 1994
Type Open ended growth fund
Option Cumulative & dividend
Objective To generate capital appreciation by actively
investing in equity/equity related securities.
For defensive consideration, the scheme may
invest in debt, money market investments, to
the extent permitted under the regulations.
Entry Load For Inv. Of less than Rs.10 lakes: 2.25% of
applicable NAV; 2 for Inv. Of Rs.10 lakes and
above but less than Rs.3 crores; for Inv. Of
Rs.3 crores and above: nil.

Exit Load Nil

Cut Of Time 3:00 PM
Redemption Generally within 3 business days for specialized
Process RBI locations. And an additional of 3 business
days for non-RBI locations.
Min.Investmen Rs.500 & in multiples thereof
t
Liquidity -
NAV Calculated & declared on every business day
calculatio
n
SWP Min. of Rs. 500 & multiples thereof
SIP Monthly: Min. Rs.1000 + 8 postdated cheques for
Rs.500 each.
Quarterly: Min. Rs. 1000 + 4 postdated cheques for
a Min. of Rs.1000 each.
Tax Benefits Capital gain tax & indexation benefits.
 NJ IndiaInvest

(2) HDFC EQUITY FUNDS SCHEME

SCHEMES HDFC EQUITY FUND

DETAILS
Launch Date 1 January, 1995
Type Open-ended equity growth scheme
Objective To achieve capital appreciation
Investment Equities & equity related instruments in 80-
Pattern 100 normal allocations from medium to
high risk. & Debt & money market
instruments from 0-20 normal allocation
from low to medium.
Investment Plan Growth & Dividend
Entry Load 2.00% - less than Rs 2 crore
0.25% - Rs 2 crore and above upto Rs 5
crore
Nil – Rs 5 crore and above
Exit Load Nil
Cut Of Time 3:30 p.m.
Min.Investment Rs 500 and in multiples of Rs 100 thereof
Lock-in Period Nil
Redemption Normally dispatched wiyhin 3 business
Priceeds days.
NAV All the business days- between 9:30 a.m. to
3:30 p.m.
Nominal Facility Available
Tax Benefits Tax deduction at source & capital gains tax
 NJ IndiaInvest

(3) PRINCIPAL EQUITY FUND SCHEME

SCHEME PRINCIPAL EQUITY FUND

DETAILS
Launch Date 14 June, 1995
Type Open ended equity scheme
Option Growth. Dividend
Objective The objective of the scheme is to provide
investors long-term capital appreciation.
Entry Load 1.90% - less than Rs. 50 lakhs
0.50% - Rs 50 lakhs and above upto Rs 1
crore
0.25% - Rs 1 crore & above
Exit Load Nil
Cut Of Time 3:30 p.m.
Redemption Proc Will be dispatched within 3 business days.
Min.Investment New Investor: Rs 5000
Exiting Investor: Rs 500
Liquidity Sale & repurchase on all business days.
NAV All the business days
Tex Benefits Indexation benefits, no gift tax, no wealth
tax.
 NJ IndiaInvest

(4) JM EQUITY FUND SCHEME

SCHEME JM EQUITY FUND

DETAILS
Launch Date 12 December, 1994
Investment Pattern Equity, Debt, G-Sec, Money Market
Instruments
Type Open ended growth scheme
Objective Optimum capital growth & appreciation
Plans Growth Dividend
Entry Load 2%
Exit Load Nil
Redemption Time 3 working days
NAV Calculation All the business days
Minimum Rs 1000
Investment
Dealing Time 3:00 p.m.
 NJ IndiaInvest

(5) TATA PURE EQUITY FUND

SCHEME TATA PURE EQUITY FUND

DETAILS
Inception Date March 23,1998
Structure of scheme Open Ended Equity
Scheme objective To provide long term growth / income
distrubution
NAV determination All Business Days
Entry Load For investments >= Rs. 1 cr.: Nil & for
investments < 1 cr.: 2.25%
Exit Load Nil
Investment Plan Growth & Dividend
Minimum Rs. 5000/- & in multiples of Rs.1/-
Investment
Minimum Rs. 1000/- & in multiples of Rs. 1/-
Additional
Investment
Nominal Facility Available
Tax Benefit Tax Deduction At Source & Capital Gain
Tax
 NJ IndiaInvest

EQUITY FUNDS

ICICI HDFC PRINCI- JM TATA

PAL
Date Of 04-Oct-94 23-Dec- 25- Oct- 01- Dec- 07- May -
Inception 94 00 94 98
Corpus Pr. 805.80 977.98 90.87 20.59 107.49
Month in crs.
Corpus Cur. 720.92 986.05 88.45 22.13 115.00
Month in crs.
% Change in -10.53% 0.82% -2.66% 7.46% 6.99%
Corpus
Top 10 Stocks SBI Infosys Maruti udyog Tata Moters Maruti Udyog
8.66 9.78 10.13 6.93 6.21
Infosys Grasim Ind ACC SBI Bharti Tel.
6.38 9.76 7.39 4.47 5.23
HCL Tech SBI SBI BOB SBI
5.01 9.10 6.84 3.95 5.13
Hughes S/W Marutiudyog RIL IPCL Hero Honda
4.91 6.57 6.81 3.78 Motors 5.11
RIL BHEL Satyam TISCO RIL
4.43 6.30 Comp 6.55 3.74 4.92
JaiPrakashInd Satyam Com Canara Bank BHEL ITC
4.18 6.13 5.86 3.6 4.25
ABB RIL Guj. Ambuja LNT GE Shipping
4.14 5.68 5.84 3.43 Co. 4.24
GE Shipping BharatEle ICICI Bank RIL ACC
4.10 5.10 4.81 3.29 3.80
BHEL Zee tel Goodlass Hindalco Lupin
3.85 4.46 Nerolac 4.01 3.12 3.67
Siemens India Indo Rama Shree NALCO Grasim Ind.
3.84 Synth – 3.54 cements 3.69 3.12 3.62
Total 49.50 66.42 61.93 39.43 46.19
Total 1.22 2.23 4.94 7.78 5.20
Debt/Cash/C
A
Benchmark NSE 50 NSE 500 NSE 50 BSE 30 BSE 30
NAV as on 1 30.75 52.29 19.68 15.21 23.56
Jan - 04
NAV as on 31 28.87 51.26 18.63 14.61 22.32
Jan – 04
 NJ IndiaInvest

PERFORMANCE RANKING

NOTE: all returns bellow 1 yr. Are on simple annualized basis

& above 1 yrs. Are on a compound annualized basis.

DIFFERENT Average NAV

COMPANY Last 180 days Last 1 year Last 2 year Last 3 year
ICICI 110.56 120.88 60.37
HDFC 115.95 128.89 62.70 37.28
PRINCIPAL 80.27 81.26 42.51 15.17
JM 108.37 99.05 47.97 12.55
TATA 132.95 144.03 53.78 21.18

Performance Ranking

200
150 last 180
NAV

days
100
50 last 1 year

0
last 2 year
L
I

TA
FC

JM
IC

PA
IC

HD

TA

last 3 year
CI
IN
PR

Company

CONCLUSION:

From the above chart it is clear that last 3 years performance of the
HDFC is high and ICICI is low. And last 2 years performance of the
HDFC & ICICI is the most likely same and low is principal and in the
last 180 days the TATA’s performance is stable and principal
performance is also is stable in low ranking. So, in the current days
TATA mutual funds is the best performer then HDFC, ICICI & JM
mutual funds.
 NJ IndiaInvest

7.1 INTRODUCTION

For findings the awareness of mutual fund I had done survey on it. For
that I choose a segment of L.I.C. Agents & Postal Agents segment given
by NJ Indiainvest. In Questionnaire there is a question related to different
investment avenue, parameter considered while convince their clients for
investing & their interest for knowing more about mutual fund & bits
schemes.

7.2 ANALYSIS OF SURVEY

I had done survey of 100 L.I.C. & Postal Agents during my survey the
analysis of survey question wise & findings from it are as under.

Q-1 In which investment avenues do you suggests your client to invest?

From the survey I have found that out of 100 agents followings is the
suggestion that the agents give to his clients for invest their money.

Investment Avenues NO Of People

Post Office savings schemes 47
RBI Relief Bonds 03
Shares 04
Bank Fixed Deposits 05
Insurance (LIC) 38
Government Securities 02
Others 01
 NJ IndiaInvest

Post Office Saving

schemes
RBI Relief Bonds

Shares

Bank Fixed Deposits

Insurance(LIC)

Govt.Securities

Others

Findings:
From the above graph it is clear that most of the people invested in the
LIC, & Post Office Saving Schemes. It means people invest in those
investment avenue which are more safe. So, it clear that people does not
want to invest in any unknown & risky investment avenues.

Q – 2 Rank the parameters given that your client’s preference?

From the survey I am found that out of 100 agents following is the
average parameters of his clients preference.

Parameters 1st 2nd 3rd 4th 5th

Safety 85 10 05 00 00
Returns 08 20 27 25 20
Liquidity 01 10 19 42 28
Maturity 01 15 24 25 35
Tax efficiency 05 45 25 08 07
90
Total 100 100 100 100 100
80
70
1st
60
2nd
50
3rd
40
30
4th
20
5th
10
0
Saftey Returns Liquidity Maturity Tax
Efficiency
 NJ IndiaInvest

Findings:
From the above graph one can easily find that most of the people give
first rank to safety. Here 85% i.e. 85 agents out of 100 gave first
preference to parameters- safety. It means only 15% agents gave
importance first to other parameters while 45% agents gave second rank
to Tax-Efficiency. Only one agent out of 100 show liquidity first & also
one agent out of 100 show maturity & all other gives it less important
than other factors.

Q – 3 Which type of services you provide to your clients?

During my survey I have found that out of 100 agents following is
the service providing by the agents to its clients.

Pre. Post Investment Doorstep Sharing

Investment Collection Brokerage
42 39 25 2

Pre.Investment
Post Investment
Doorstep Collection
Sharing Brokerage

Findings:
From the above chart it is clear that the most of agents would like
pre.investment services to their clients and than after post investment
services.

Q-4 Are you aware of mutual funds as an investment avenue?

 NJ IndiaInvest

From the survey it is clear to me that out of 100 agents following is

the data for awareness of mutual funds as an investment avenue.

Option No Of People
YES 19
NO 81

YES
NO

Findings:
From the above chart it is clear that awareness among agents about
mutual fund as investment avenues is not quite well i.e. 19 agents out of
100 know about the scheme of mutual fund but they know only little bit
about it.

Q-5 Are you suggesting mutual fund as an investment avenues?

From the survey it is clear to me that out of 100 agents following is
the data for suggesting mutual funds to their clients.

Option No Of People
YES 12
NO 88

YES
NO
 NJ IndiaInvest

Findings:
The suggestion of mutual funds schemes by the agents is very less i.e.
12% means only 12 agents suggest mutual fund to its clients.

Q-6 If yes, then which scheme you generally suggest?

From the survey it is clear that out of 12 agents who are know
about mutual funds are suggest following schemes to their clients.

Name Of Schemes No Of People

Equity fund 2
Growth fund 1
Liquid fund 3
Income fund 1
Balance fund 1
Sectoral fund 0
Tax savings fund 5
Monthly Income Plan 7

Findings:
Only 25 agents know about the schemes of mutual funds & most of them
are suggest about the Monthly Income Plan.

Q-7 Would you like to know more about the schemes of mutual funds?

From the my survey it is clear to me that out of 100 agents only 22

agents are interested for more in mutual funds.

Option No Of People
YES 22
 NJ IndiaInvest

NO 78

YES
NO

Findings:
22 % Agents want to know more about scheme of mutual fund but 78%
are not interested in it. We can find from the above graph that now a days
people like to know about the new investment avenues.

7.3 CONCLUSION:

From all the above graph & findings from it one can finds that there a
need for increasing the awareness of different schemes of mutual funds &
benefits & risk associates with it& also provides data on different
schemes & safety under that investment as we find the above analysis
that most of the agents see safety first for investing in any avenues.
 NJ IndiaInvest

FINDINGS & SUGGESTIONS:

 Very few people know only about Mutual Funds & their different
schemes. So, there is a need for increasing awareness of mutual
fund & its schemes.

 Company also have to compare Mutual Funds with other

investment option & also give details on them from the safety,
returns & other points of view. So, people think on it & in future
they will also invest in such schemes.

 Customer should get specific idea about the optimum portfolios

that give maximum returns with minimum risk.

 company have to find out the reason for why people are not

interested for investing in mutual funds & also find solution to

remove their wrong concept about mutual fund & company.

 Most of people who know about the mutual fund, but they don’t
have trust on AMC. Therefore, they have to take steps into gain
investor’s trust.

 Company should have to also arrange different programmes &

seminars, which give guidelines on mutual fund & risk-return

concern with it. Therefore, knowledge of people increasing.
 NJ IndiaInvest

BIBILIOGRAPHY:

Name of the Books Author Publishing

House

1. Investment Management V. A. Avadhani Himalaya

2. Performance Appraisal Ramesh Chander

of Mutual Fund in India

3. Capital Market in India E. Gordan &

K.N. Natarajan

Website:

www.njindiainvest.com
www.navindia.com
www.mutualfundIndia.co
m

Fact Sheet-Feb 2004 of NJ IndiaInvest Pvt. Ltd