Our Project Final

EXECUTIVE SUMMARY
utual Funds were started in the year 1822 at Netherlands. Originally name of the Mutual fund was investment trusts. In USA it is called Mutual Fund and in Britain it was called Unit Trust. In India, it has started since 1964. In the starting of Mutual Concept in India only one AMC was in the resistance. It is Unit Trust of India. Right now there are 38 AMCs and they have lunched more then 300 schemes. As per the record of the Association of Mutual Fund in India; since end of month of January 2006, Indian AMCs are managing assets of Rs. 20798.610.7 lakhs. The economy is highly influenced by the Financial System of the country. The Indian Financial System has been broadly divided into two segments: the organized and unorganized. An investor has a wide array of investment avenues available. Economic well being in the long run depends significantly on how wise he invests. In present financial scenario where gold has lost its investment value, since last two decade and also there is no attractive return in the bank FD, PPF, KVP, NSC, MIS, and other Post saving sachems. Due to uncertainty in share market and low return in the inflationary economy, investor are puzzled, that where to invest their money from which they can get better return with flexibility, tax benefit and as well as capital appreciation. So it is necessary for investor to find the answer and way of capital growth with better return than uncertain share market and other low yield investment avenues. Mutual fund is indeed of great benefit in this respect. They provide the services of experienced and skilled professionals who determine this
K.S.SCHOOL OF BUSINESS MANAGEMENT 1
risk and monitor them on going basis. They are also backed by through research. When investors are confronted with an outstanding range of products, form traditional bank deposits to downright shady moneymultiples schemes, it has to be judged on the yardsticks of returns, liquidity, safety, convenience and tax efficiency. An important question facing many investors across the country today is whether one should invest in a bank fixed deposit the amount with a debt-oriented Mutual Fund. There is one apex body that regulates and promotes mutual fund in India. This apex body is AMFI (Association of Mutual Fund in India). AMFI also regulates advisers of mutual fund. AMFI conduct the test that is compulsory for all the mutual fund advisers. The data is contained form insurance advisors, income tax consultant, post office agent, and stockbroker. So the basic objective of the study was to test the potentiality and develop the business of mutual funds by obtaining the data form Independent financial advisors. The sample size is 102. The study uses convenient sampling for Financial Advisers; contacting personally and interviewing them collect the data: questionnaire is used as the instrument for research.
K.S.SCHOOL OF BUSINESS MANAGEMENT
MUTUAL FUNDS
All About Mutual Funds Before we understand what is mutual fund, its very important to know the area in which mutual funds works, the basic understanding of stocks and bonds. Stocks: Stocks represent shares of ownership in a public company. Examples of public companies include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned investment traded on the market. Bonds: Bonds are basically the money which you lend to the government or a company, and in return you can receive interest on your invested amount, which is back over predetermined amounts of time. Bonds are considered to be the most common lending investment traded on the market. There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.
What Is Mutual Fund A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.
Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns. 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 Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act in 1963, and started its operations in 1964 with the issue of units under the scheme US-64. Overview of existing schemes existed in mutual fund category. Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.
Type of Mutual Fund Schemes
BY STRUCTURE 1. Open Ended Schemes: 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. 2. Close Ended Schemes: 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. 3. Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices
BY NATURE 1. Equity fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund managers outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows:

Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS)
Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix. 2. Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:
Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.
Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures. Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, interbank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.
4. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provide growth and the debt part provides stability in returns.
Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.
BY INVESTMENT OBJECTIVE
Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50). Money Market Schemes: Money Market Schemes aim 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 interbank call money.
OTHER SCHEMES
Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under
9
Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate. Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index. Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.
Types of returns
There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:
Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.
If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.
Pros & cons of investing in mutual funds: For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.
Advantages of Investing Mutual Funds: 1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. 2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. 3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. 4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want.
5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis. Disadvantages of Investing Mutual Funds: 1. Professional Management- Some funds doesnt perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself, for picking up stocks. 2. Costs The biggest source of AMC income, is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. 3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 4. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.
Mutual Funds Industry in India

The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets under Management (AUM) were Rs. 67bn. The private sector entry to the fund family raised the AUM to Rs. 470 in in March 1993 and till April 2004, it reached the height of 1,540 bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry. The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling. The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.
Major Players of Mutual Funds In India

Period (Last&nbsp1 Week)
Rank
Scheme Name
Date NAV (Rs.) Mar 26 , 2008 Mar 26 , 2008 8.45
Last Since 1 Inception Week 5.12 -94.64
JM Core 11 Fund - Series 1 Growth Tata Indo-Global Infrastructure Fund - Growth Tata Capital Builder Fund Growth Standard Chartered Enterprise Equity Fund - Growth
8.26
5.05
-40.42
Mar 12.44 26 , 2008 Mar 14.07 26 , 2008
5.03
15.35
20.92
DBS Chola Infrastructure Fund - Growth ICICI Prudential Fusion Fund Series III Institutional Growth DSP Merrill Lynch Micro Cap Fund - Regular Growth ICICI Prudential Fusion Fund Series III - Retail - Growth
Mar 26 , 2008 Mar 26 , 2008
9.01
4.65
-17.17
10.2
4.62
23.69
Mar 26 , 2008
9.93
4.56
-0.85
Mar 10.19 26 , 2008 6.36
4.51
22.39
DBS Chola Small Mar Cap Fund 26 , Growth 2008
3.75
-81.78
10
Principal Personal Mar 124.66 3.44 Taxsaver 25 , 2008 Benchmark Split Capital Fund Mar 141.51 3.14 26 ,
29.97
11
13.71
Plan A - Preferred 2008 Units 12 ICICI Prudential FMP - Series 33 Plan A - Growth Tata SIP Fund Series I - Growth Mar 26 , 2008 9.89 2.91 -7.88
13
Mar 10.25 26 , 2008 Mar 25 , 2008 Mar 26 , 2008 7.64
2.38
2.39
14
Sahara R.E.A.L Fund - Growth
1.86
-49.52
15
Tata SIP Fund Series II Growth
9.93
1.58
-0.94
A mutual fund is a professionally-managed firm of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.in other words we can say that A Mutual Fund is a trust registered with the Securities and Exchange Board of India (SEBI), which pools up the money from individual / corporate investors and invests the same on behalf of the investors /unit holders, in equity shares, Government securities, Bonds, Call money markets etc., and distributes the profits. The value of each unit of the mutual fund, known as the net asset value (NAV), is mostly calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding. The value of all the securities in the portfolio in calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the funds NAV. NAV = Total value of the fund No. of shares currently issued and outstanding
Advantages of a MF
Mutual Funds provide the benefit of cheap access to expensive stocks Mutual funds diversify the risk of the investor by investing in a basket of assets A team of professional fund managers manages them with indepth research inputs from investment analysts.
History of the Indian mutual fund industry:

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 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament 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 Canbank 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)
1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. 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 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. consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
Categories of mutual funds:
Mutual funds can be classified as follow: Based on their structure:

Open-ended funds: Investors can buy a nd sell the units from the fund, at any point of time. Close-ended funds: These funds raise money from investors only once. Therefore, after the offer period, fresh investments can not be made into the fund. If the fund is listed on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity window on a periodic basis such as
monthly or weekly. Redemption of units can be made during specified intervals. Therefore, such funds have relatively low liquidity. Based on their investment objective: Equity funds: These funds invest in equities and equity related instruments. With fluctuating share prices, such funds show volatile performance, even losses. However, short term fluctuations in the market, generally smoothens out in the long term, thereby offering higher returns at relatively lower volatility. At the same time, such funds can yield great capital appreciation as, historically, equities have outperformed all asset classes in the long term. Hence, investment in equity funds should be considered for a period of at least 3-5 years. It can be further classified as: i) Index funds: In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their portfolio mirrors the benchmark index both in terms of composition and individual stock weight ages. ii) Equity diversified funds: 100% of the capital is invested in equities spreading across different sectors and stocks. iii) Dividend yield funds: it is similar to the equity diversified funds except that they invest in companies offering high dividend yields. iv)Thematic funds: Invest 100% of the assets in sectors which are related through some theme. e.g. -An infrastructure fund invests in power, construction, cements sectors etc. v) Sector funds: Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will invest in banking stocks.
vi) ELSS:Equity Linked Saving Scheme provides tax benefit to the investors. Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. Following are balanced funds classes: i) Debt-oriented funds -Investment below 65% in equities. ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt. Debt fund: They invest only in debt instruments, and are a good option for investors averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds depending on your investment horizon and needs. i) Liquid funds: These funds invest 100% in money market instruments, a large portion being invested in call money market. ii)Gilt funds ST: They invest 100% of their portfolio in government securities of and T-bills. iii) Floating rate funds: Invest in short-term debt papers. Floaters invest in debt instruments which have variable coupon rate. iv) Arbitrage fund: They generate income through arbitrage opportunities due to mis-pricing between cash market and derivatives
market. Funds are allocated to equities, derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities. v)Gilt funds LT: They invest 100% of their portfolio in long-term government securities. vi) Income funds LT: Typically, such funds invest a major portion of the portfolio in long-term debt papers. vii) MIPs-:Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of 10%-30% to equities. viii)FMPs: fixed monthly plans invest in debt papers whose maturity is in line with that of the fund.
Investment strategies
1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA) 2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund. 3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.
Risk v/s. return:
Working of a Mutual fund
The entire mutual fund industry operates in a very organized way. The investors, known as unit holders, handover their savings to the AMCs under various schemes. The objective of the investment should match with the objective of the fund to best suit the investors needs. The AMCs further invest the funds into various securities according to the investment objective. The return generated from the investments is passed on to the investors or reinvested as mentioned in the offer document.
Mutual Funds Before we understand what is mutual fund, its very important to know the area in which mutual funds works, the basic understanding of stocks and bonds. Stocks: Stocks represent shares of ownership in a public company. Examples of public companies include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned investment traded on the market. Bonds: Bonds are basically the money which you lend to the government or a company, and in return you can receive interest on your invested amount, which is back over predetermined amounts of time. Bonds are considered to be the most common lending investment traded on the market. There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds. What Is Mutual Fund A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs
than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns. 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
Overview of existing schemes existed in mutual fund category
Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.
Type of Mutual Fund Schemes

BY STRUCTURE
Open Ended Schemes 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. Close Ended Schemes 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 Schemes Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices. BY NATURE Under this the mutual fund is categorized on the basis of Investment Objective. By nature the mutual fund is categorized as follow
1. Equity fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund managers outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows:

Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS)
Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix. 2. Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:
Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.
Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.
MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures. Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, interbank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.
3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.
BY INVESTMENT OBJECTIVE
Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in documents (normally 50:50). Money Market Schemes: Money Market Schemes aim 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 interbank call money.
OTHER SCHEMES
Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.
Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index. Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.
Types of returns:
There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:
Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit.
Advantages of Investing Mutual Funds:

1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. 2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. 3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. 4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. 5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.
Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesnt perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself, for picking up stocks. 2. Costs The biggest source of AMC income, is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. 3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 4. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.
COMPARISON OF OTHER INVESTMENT & MUTUAL FUNDS

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 currant consumption in the hope that some benefits will accrue in future. The term Investment, does not appear to be as simple as it has been defined. Financial experts and economists have further categorized investment. Investment is the allocation of monetary resources to assets that are expected to yield some gain or positive return over a given period of time. These assets range from safe investments to risky investments. Investments in these form are call Financial Investments. From the above definitions we can say that main intention of investment any financial return. The nature of investment in the financial sense differs from its use in the economic sense. To the economist, Investment means the net additions to the economys capital stock, which consists of goods, and services that are used in production of other goods and services. The financial and economic meanings of investment are related to each other because investment is a part of the savings of individuals, which flow into the capital market directly or through institutions, dividend in new and secondhand capital financing. Investor as suppliers and investors as users of long-term funds find a meeting place in the market. In this book however, investment will be used in its financial
sense and investment will include those instruments and institutional media into which savings are placed. Reasons for Investments Investments are both important and useful in the context of present-day conditions. Some factors that have made investment decisions increasingly important are: (a) Longer life expectancy: Investment decisions have become significant as most people in India retire between the ages of 55 to 60 years. Also, the trend shows longer life expectancy. The 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 and income will be adequate for a greater number of retirement years. The importance of investment decisions is further enhanced by the fact that there are an increasing number of women working in organizations. These women will be responsible for planning their own investments during their working in organizations. These women will be responsible for planning their own investments during their working life so that after retirement, they are able to have a stable income. Increasing in the working population, proper planning for life span and longevity have ensured the need for balanced investments (b) Increasing Rate of Taxation: Taxation is one of crucial factors in any country, which introduces an element of compulsion in a persons savings. There are various forms of savings outlets in our country in the form of investments which helps in bring down the tax level by offering deductions in personal income.
These will be discussed in greater detail under availability of investment Options later in the chapter. Some examples, however, may be cited hare. Benefits in tax accrue out of investment in Equity Link Savings Scheme (ELSS), Unit Linked Insurance Plan, Life Insurance, National Savings Certificates, Development Bonds, and Post Office Cumulative Deposit Schemes etc. (c)Interest Rate: Another aspect, which is necessary for a sound investment plan, is the level of interest rates. Interest rates vary between one investment and another. These may vary between risky and safe investments; they may also differ due to different benefit schemes offered by the investments. These aspects must be considered before actually allocating any amount. A high rate of interest may not be the only factor favoring the outlets for investment. The investor has to include in his portfolio several kinds of investments. Stability of interest is as important as receiving a high rate of interest. This book is concerned with determining whether the investor is getting an acceptable return commenAhmedabade with the risks that are taken. (d) Inflation: Inflation has become continues problem since the last decade. In these years of rising prices, several problems are associated coupled with a falling standard of living. Before funds are invested, erosion of the resources will have to be carefully considered in odder to make the right choice of investor will try and search an outlet which will give him a high rate of return in the form of interest or return will be continuous or there is a likelihood of irregularity. Coupled with high rate of interest, he will have to find outlets, which will ensure safety of principal. Besides high rate of Interest and safety of principal, an investor also has to
always bear in mind the taxation burden. Otherwise, the benefit derived from interest will be offset by an increase in taxation. (e)Income: Another reason why investment decisions have assumed importance is the general increase in employment opportunities in India. After independence, with the stages of development in the country, a number of new organizations and services were formed. The Banking Recruitment Services, the Indian Administrative Services, Public Sector Enterprises, expansion in the Private Corporate Sector, establishing of Financial Institutions, Tourism, Hotels, and Education are some examples. The employment opportunities gave rise to both male and female working force. More incomes and more avenues of investment have led to the ability and willingness of working people to save and investments have led to the ability and willingness of working people to save and invest their funds. (f) Investment Channels: The growth and development of the country leading to greater economic activity has led to the introduction of a vast array of investment outlets. Apart from putting aside savings in savings in savings banks where interest is low, investors have the choice of a variety of instruments. The question to reason out is which is the most suitable channel? Which Options will give a balanced growth and stability of return? The investor in his choice of investment will have to try and achieve a proper mix between high rate of return and stability of return to reap the benefits of both. Some of the instruments available are corporate stock, provident fund, life insurance, fixed deposit in the corporate sector, Mutual fund Schemes and so on. These will be discussed in greater detail in the head of Investment Options.
Investment Options
Many types of investment Options or channels for making investment are available. A sound investment program can be constructed if the investor familiarizes himself with the various alternative investments available. Investment Options are of several kinds- some are simple and direct, other present complex problems of analysis and investigation. Some are familiar; others are relatively new and unidentified. Some investments are appropriate for one type of investor and another may be suitable to another person. The ultimate objective of the investor is to derive a variety of investments that meet this preference for risk and expected return. The investor will select the portfolio, which will maximize his utility. Security presents a wide range of risk from risk-free instruments to highly speculative shares and debentures. From this board spectrum, the investor will have to select those securities that maximize his utility. The investor, in other words, has a optimization problems. He has to choose the security, which will maximize his expected returns subject to certain considerations. The investment decision is an optimization problem but the objective function varies from investor to investor. It is not only the construction of a portfolio that will promise the highest expected return but also it is the satisfaction of the need of the investor. For instance, one investor may face a situation when he requires extreme liquidity. He may also want safety of securities. Therefore, he will have to choose a security with low returns, another investor would not mi9nd risk because he dose not have financial problems but he would like a high return. Such an investor can put his savings in growth shares, as he is willing to accept risk. Another important consideration is the temperament and psychology of the investor. Some investors are temperamentally suited to take risks, there is other who is not willing to invest in risky securities
even if the return to take risks, there are others who are not willing to invest in risky securities even if the return is high. One investor may prefer safe government bonds whereas another may be willing to invest in blue chip equity shares of a company.
Investment Options Direct Investment Alternatives Fixed Principal A Investment (i) Cash (ii) Savings Account (iii) Savings Certificates (iv) Government Bonds (v) Corporate Bonds Variable Principal B Securities (i) Equity Share (ii) Convertible Bonds Debenture (iii) Preference Shares C Non-Secured Investments
(i) Real Estate (ii) Mortgages (iii) Commodities (iv) Business Ventures (v) Art, Antique and other Valuables
Indirect Investments (i) Pension Funds (ii) Provident Fund (iii) Insurance (iv) Investment Companies (v) Mutual Funds
These Options alternatives have basically been categorized as direct and indirect investment alternatives. Direct investments are those where the individual marks his own choice and investment decision. Indirect investments are those where the individual has no direct hold on the amount he invests. He contributes are those in which the individual has no direct hold on the amount he invests. He contributes his savings to certain organizations like Life Insurance Corporation (LIC) or Unit Trust of India (UTI) and depends upon them to market investments on his and other peoples behalf. So, there is no direct responsibility or hold on the securities. Give below is an explanation of
direct investment alternatives and indirect investment opportunities. Fixed principal investments are those which principal amount and the terminal value are known with certainty. Cash has a definite and constant rupee value whether it is deposited in a bank or kept in a cash box. It does not earn any return. Savings accounts have a fixed return; they differ only in terms of time period. The principal amount is fixed plus interest earned. Savings certificate are quite deferent from savings account some examples being National Savings Certificates, Bank Savings Certificates and Postal Savings Certificates. Government bonds and corporate bonds and debentures are sold having a fixed maturity value and a fixed rate of income over time. The variable principal securities differ from the fixed principal securities because their terminal values are not known with certainty. The price of preference shares is determined by demand and supply forces even though preference share is determined by demand and supply forces even though preference shareholders have a fixed return. Equity share also have no fixed return or maturity date. Convertible securities such as convertible debentures or preference shares can convert themselves into equity shares according to certain prescribed conditions and thus have features of fixed principal securities supplemented by the possibility of a variable terminal value. Debentures, preference shares and equity shares are examples of securities sold by corporations to investor to raise necessary funds. Non-Security Investments differ from securities in other categories. Real estate may be the ownership of a single home or include residential and commercial properties. The terminal value of a real estate is uncertain but generally there is a price appreciation, where depreciation can be claim in tax. Real estate is less liquid than corporate securities. Mortgages represent the financing of real estate. It has a periodic fixed income and principal is recovered at a stated maturity
date. Commodities are bought and sold in spot market; contracts to buy and sell commodities at a future date are traded in future markets. Business ventures refer to direct ownership investments in new or growing business before firms sell securities on a public basis. Art, antiques and other valuables such as silver, fine china and jewellery are another type of specialized investments which offer aesthetic qualities also. An individual also makes indirect investment for retirements benefits; in the form of Provide dent Funds and Pension, Life Insurance Policy, investment company securities and securities of Unit Trust (Mutual Fund). Individuals have no control over these investments. They are entrusted to the care of the particular organization. The organizations like Life Insurance Corporation or Unit Trust, Provident Fund are managed according to their investment policy by a group of trustees on behalf of the investor. The examples of indirect investment alternatives are an important and rapidly growing segment of our economy. In choosing specific investments, investors will need definite ideas regarding a number of features that their portfolio should have. These features should be consistent with investors objectives and in addition should have additional conveniences and advantages.
Investment Process- Stages in Investment

The investment process is generally described in four stages.
The Process of Investing
1 Investment Policy Determination of Ingestible wealth Determination of Portfolio objectives Identification of potential investment assets Consideration of attributes of investment assets Allocation of wealth to assets categories
2 Investment Analysis Analysis of the Economy Equity Stock Analysis Screening of industries Analysis of industries Quantitative analysis of Stocks
Debenture and bond Analysis Analysis of yield structure Consideration of debentures Quantitative analysis of Debenture Other Assets analysis
3 Investment Valuation Valuation of stock Valuation of debenture and bonds Valuation of other assets
4 Portfolio Construction Determinations of diversification level Consideration of investment timing Selection of investment assets Allocation of ingestible wealth to investment assets Evaluation of portfolio for feedback
1. Investment Policy:
The first stage determines and involves personal financial affairs and objectives before making investments. It may also be called preparation of the investment policy stage. The investor has to see that he should be able to create an emergency fund, an element of liquidity and quick convertibility of security into cash. This stage may, therefore, be considered appropriate for identifying investment assets and considering the various features of investments.
Investment Analysis:
When an individual has arranged a logical order of the types of investments that he requires on his portfolio, the next step is to analyze the securities available for investment. He must make a comparative analysis of the type of industry, kind of security and fixed or variable securities. The primary concern at this stage would be form beliefs regarding future behaviors or prices and stocks, the expected returns and associated risk.
2. Valuation of Securities
The third step is perhaps the most important consideration of the valuation of investments. Investment value, in general, is taken to be the present worth to the owners of future benefits from investments. The investor has to bear in mind the value of these investments. Appropriate sets of weight have to be applied with the use of forecasted benefits to estimate the asset allows a determination of the relative attractiveness of the assets. Each asset must be valued on its individual merit. Finally, the portfolio should be constructed.
3. Portfolio Construction
Portfolio construction requires knowledge of the different aspects of securities. These are briefly recapitulated here, consisting of safety and growth of principal, liquidity of assets after taking into account the stage involving investment timing, selection of investment, and allocation of savings to different investments and feedback of portfolio. While evaluating securities, the investor should realize that investments are made under conditions of uncertainty. There cannot be a magic formula, which will always work. The investor should be concerned with concepts and applications that will satisfy his investment objectives and constantly evaluate the performance of his investments. It need be, the investor may consider switching over to alternative proposals.
Categories of Investments
Individual invest his savings in many sources. In once portfolio there is more then one category of investment. Normally a person wants to invest in life insurance. Because it gives safety to investors that after his/her death his/her familial will get financial sport. Then individual investor likes to invest in any highly safe category of investment like government securities and postal savings schemes. Then individual may think for any little beat risky investments like Equity Share, Derivatives, Commodities, Mutual Funds, Bank Fix Deposits and Debentures. Here are some categories of investment with their brief details. 1. Postal Investments Schemes: In India, Post office has best network. Each village, town and cities are having post office. So we can say that post office can connect all the
citizens in allover the country. This is the reason why post office is best source savings and investments. In India Post offices saving schemes are most popular. These schemes include Term Deposit, National Savings Certificate, Kishan Vikas Patra, Recurring Deposit, Monthly Income Scheme and Bachat Khata (Savings Account). a) Time Deposit: A Time Deposit is an investment option that pays annual interest rates between 6.25 and 7.5 per cent, compounded quarterly, and is available through post-offices across the country. Investment Objectives
Suitability
Time Deposits are suitable for capital appreciation in the sense that investors money grows at a pre-determined rate. Unlike certain other investment options, where returns are commenAhmedabade with the risks, the rate of growth is also high; Time Deposits return a lower, but safer, growth in investment. Therefore, Time Deposits are one of the better ways to get a relatively high interest rate for investors savings. The only condition is that they are bound for some specific period of time.
Regular Income:
Time Deposits are not meant for regular income. Since Time Deposits, as their name suggests, are time-bound, investor get a lump sum (principal + interest) at the maturity of the deposit.
Over Taking Inflation
Time Deposits are not the ideal investment option if the rate of inflation is either too high or is fluctuating beyond a limit. Since the rate
of return in case of a Time Deposit is fixed, they cannot guard investor against a high rate of inflation.
Borrow Against
Investor can borrow against a Time Deposit. The balance in inventors account can be pledged as a security for a loan. Risk Considerations
Safety of Principle
With Government of India-backing, Investors principal is as assured as it is in any other post office account.
Safety of Return
With backing from the Government of India, Investors interest income from Time Deposits is assured.
Unique Risk
There are no risks unique to this investment option. Only, if the rate of inflation is higher than Investors rate of returns, or in case the inflation is fluctuating too much, Investors real returns may be just modest. With a low coupon, Investors real returns will simply disappear during high inflation. So, while investing in a Time Deposit, keep in mind the prevailing inflation rate and calculate Investors real returns before opting for one.
Credit Rating
Time Deposits, like any other post-office investment instrument, are not commercially rated since they are backed by the GOI and are extremely safe. Buying, Selling and Holding
Buying
A Time Deposit account can be opened at any post-office.

Minimum investment and range of investment
The minimum investment in a Time Deposit could be as low as Rs 50. There is no upper limit on investment.
Duration
Time Deposits have a term ranging between 1 and 5 years. The scheme pays annual interest, but it is compounded quarterly, thus giving a higher yield. Time deposit for 1 year offers a coupon rate of 6.25 per cent, a 2-year deposit offers an interest of 6.5 per cent, and 3 years is 7.25 per cent while a 5-year Time Deposit offers 7.5 per cent return.
Period One Year Two Year Three Year Five Year
Rate 6.25% 6.50% 7.25% 7.50%
Secondary Market
Time Deposits can only be bought from a post-office and, on maturity, be encased from there itself.
Liquidity
While 2, 3, and 5-year Time Deposits can be closed after one year, they entail a loss in the interest accrued for the time the account has been in operation.
Market Value
Since a Time Deposit is not traded, it does not have a market value. Updates on Investors Time Deposit account can be had from the postoffice where Investor has opened an account. Also, any changes in the interest rates are advertised through national dailies.
Mode of Holding
Investor can open a Time Deposit either as a single holder, or with a partner under a joint account. On opening a Time Deposit, Investor will receive an account statement stating the amount deposited and the duration of the account. Tax Implications Interest income up to Rs 9,000 from Time Deposits is exempt under section 80L of the Income Tax Act, 1961, and no tax is deducted at source, i.e., the interest income from a Time Deposit is also exempt from TDS. (b) Recurring Deposit Account A Post-Office Recurring Deposit Account (RDA) is akin to a Recurring Deposit in a bank, where Investor invests a fixed amount on a monthly basis. The deposit has a fixed tenure, and the scheme is a powerful tool for regular savings. As the name says, the RDA is a systematic way of saving money. The scheme is meant for investors who want to deposit a fixed amount regularly, in order to get a tidy sum after
five years. If Investor invests Rs 10 every month, he will get back Rs 728.90 after 5 year. Investment Objectives
Suitability
Recurring Deposits accumulate money at a fixed rate of interest (currently 7.5 per cent per annum), compounded quarterly, and investors investment appreciates in five years. But it does not offer capital appreciation in the sense that investors do not buy a recurring deposit at a lower price and sell at a higher price.
Suitable for Regular Income
A recurring deposit is a tool for long-term savings, and is not meant for earning regular income. In fact, it works in the contrary way in the sense that Investor regularly pays up the monthly installments and gets a lump sum after 5 years.
Over Take Inflation
Since a RDA offers a fixed rate of return, it does not provide adequate safeguards against inflation if it crosses 7.5 per cent in a year. Therefore, the lower the gap between the interest rate on a RDA and the rate of inflation, the lower is Investors real rate of return from it.
Borrow Against
The borrowing facility is not available in the post office RDA scheme. Risk Considerations
Safety of Principal
The post office RDA scheme has the backing of the Government of India. Hence, the principal amount is assured. This is a safe investment, and a good opportunity for long-term savings.
Safety of Return
Interest income is assured at the prescribed rate of interest. As mentioned earlier, this scheme has the backing of the Government of India, and is deemed to be risk-free.
Unique Risk
The post office RDA is a very safe investment channel, and there are no risks associated with Investors investment in it. However, high inflation is a cause of concern as this diminishes the real rate of return on Investors post office RDA.
Credit Rating
The RDA scheme does not require any commercial rating as it has the backing of the Government of India. It is deemed to be risk-free.
Buying, Selling, and Holding

Buying
A post-office RDA can be opened at any post office in the country by filling up the appropriate forms.
Minimum Investment and Range
The minimum investment in a post-office RDA is Rs 10. There is no prescribed upper limit on Investors investment. The advantage with post-office deposits is that it offers a fixed rate of return at 7.5 per cent while banks constantly change their recurring deposit rates depending on their demand supply position. The only disadvantage is that Investor will have to visit the post office every month whereas in
the case of banks, the amount will be automatically deducted from Investors account.
Duration
The post-office RDA scheme has tenure of five years. This can be extended for a further five years if Investor so desire.
Secondary Market
There are no provisions for a post office RDA to be traded in the secondary market. It is also not transferable.
Liquidity
Only one withdrawal is allowed after one year of opening a postoffice RDA. Investor can withdraw up to half the balance lying to Investors credit. On premature closure (after one year), interest is payable as per the rate for the Post Office Savings Bank Account.
Market Value
Since a recurring deposit is not traded in the secondary market, it does not have a market value. Investors can get regular updates from their post office on the accumulated sum. Mode of Holding An individual adult as a single person account can open an RDA, two adults in a joint mode, or by a guardian on behalf of the minor who has attained the age of 10 years in his own name. RDA can also be held by a HUF, Trust, regimental fund, welfare fund, company, banking company, corporation, association, institution, registered society, or local authority. Accounts can also be opened in the name of a minor or a person of unsound mind.
Tax Implications Although the investment in post-office RDA is itself not subject to tax benefits, interest income up to Rs 9,000 per annum is exempt from tax under Section 80L of the Income Tax Act, 1961.
(c) Monthly Income Scheme The post-office monthly income scheme (MIS) provides for monthly payment of interest income to investors. It is meant for investors who want to invest a lump-sum amount initially and earn interest on a monthly basis for their livelihood. The scheme is, therefore, a boon for retired persons. The post-office MIS gives a return of 8 per cent plus a bonus of 10 per cent on maturity. However, this 10 per cent bonus is not available in case of premature withdrawals. Investment Objectives
Suitability
The MIS is not suitable for an increase in Investors investment. It is meant to provide a source of regular income on a long-term basis. Suitable For Regular Income The Monthly Income Scheme, as its name suggests, is best suited to provide regular income. Interest is payable on a monthly basis at the pre-specified rate.
Over Take Inflation
With a fixed rate of return, the MIS does not provide adequate safeguards against high inflation rates.
Borrow Against
Depends if the banker accepts it as a security.

RISK CONSIDERATIONS
Safety of Principal
Like all post-office schemes, the MIS has the backing of the Government of India, and is, therefore, a safe investment. Investor can be assured of getting Investors full investment back.
Safety of Return
Investors monthly interest income is assured at the specified rate of interest. Since this scheme has the backing of the Government of India, it is a safe investment channel.
Unique Risk
There are no risks associated with Investors investment in MIS. This is a risk-free investment that is backed by the Government of India. This is a monthly income plan that is utilized by those in need of a regular source of income, and is most suited to retired individuals. So, economic factors such as interest rates do not affect investment decisions as far as the MIS in concerned.
Credit Rating
The MIS does not require any commercial ratings as it has the backing of the Government of India. It is considered to be free of risk.

Buying
Investor can buy a post office MIS at any post-office in India.
Minimum Investment and Range
The minimum investment in a Post-Office MIS is Rs 6,000 for both single and joint accounts. The maximum investment for a single account is Rs 3 lakh and Rs 6 lakh for a joint account.
Duration
The duration of the MIS is six years.

Secondary Market
Investor cannot trade Investors MIS in the secondary market.

Liquidity
Investors can withdraw money before three years, but at a discount of 5 per cent. No such deduction will be made if an account is closed after three years. Premature closure of the account is permitted any time after the expiry of a period of one year of opening the account. Deduction of an amount equal to 5 per cent of the deposit is to be made when the account is prematurely closed.
Market Value
As mentioned earlier, post-office MIS cannot be traded in the secondary market. Therefore, the question of market value of MIS does not arise.
Mode of Holding
Post office MIS is held physically in the form of a certificate issued by the post office. In addition, the investor is provided with a passbook to record his transactions against his MIS. Tax Implications The interest income accruing from a post-office MIS is exempt from tax under Section 80L of the Income Tax Act, 1961. Moreover, no TDS is deductible on the interest income. The balance is exempt from Wealth Tax.
(d) National Savings Certificates National Savings Certificates (NSC) is an assured return scheme, armed with powerful tax rebates under Section 88 of the Income Tax Act, 1961. Interest is payable at 8 per cent, compounded half-yearly for a duration of 6 years. Investment Objectives
Suitability for Investment
NSC combines growth in money with reductions in tax liability as per the provisions of the Income Tax Act, 1961. The scheme offers a coupon of 8 per cent, compounded semi-annually. So, Rs 1,000 invested in NSCs become Rs 1,610 on maturity after 6 years.
NSCs are not meant to provide a regular income flow. They are an instrument for facilitating long-term savings.
Over Take Inflation
With a fixed rate of return, the NSC cannot provide adequate safeguards against the risk of a high inflation rate.
Borrow Against
Investor can borrow against Investors NSC by pledging it after the permission of the concerned post-master. Investor can pledge Investors NSC to any of the following: 1. The President of India or Governor of a State in his official capacity. The RBI or a scheduled bank or a co-operative society (including a cooperative bank). 2. A corporation or a government company.
3. A local authority 4. A Housing Finance Company approved by the National Housing Bank and notified by the Central Government.
Risk Considerations
Safety of Principal
The NSC has the backing of the Government of India. Therefore, Investment is assured. Safety of Income Since the NSC has the backing of the Government of India, Investors income at the prescribed rate of interest is assured. This is a safe longterm savings option.
Unique Risks
No, there are no risks associated with Investors investment in the NSC. As mentioned, the NSC Scheme is backed by the Government of India, and, thus, is completely risk-free. NSC is, essentially, a tax-saving scheme. Economic factors do not affect investment decisions as far as the NSC is concerned.
Credit Rating
The NSC does not require a commercial rating. Buying, Selling, and Holding
Buying
NSC application forms are available at all post-offices. The application can be made either in person or through an agent of small savings schemes. The following types of certificates are issued: (1) Single Holder Type Certificate:
This can be issued to: i) An adult for himself or on behalf of a minor. ii) A Trust. (2) Joint 'A' Type Certificate: This may be issued jointly to two adults payable to both holders jointly or to the survivor. (3) Joint 'B' Type Certificate: This may be issued jointly to two adults payable to either of the holders or to the survivor. Payment for purchase of NSC can be made by either of the following: (a) Cash (b) Cheque, pay order, or demand draft drawn in favor of the postmaster (c) Surrender of a matured old certificate duly discharged (d) Presenting a duly signed withdrawal form or cheque, together with the pass-book for withdrawal from the post-office savings account standing at the credit of the purchase at the same post office Minimum Investment and Range Of Investment NSCs are issued in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. There is no prescribed upper limit on investment in NSCs.
Duration
The maturity period (duration) of a NSC scheme is 6 years.

Secondary Market
NSCs cannot be traded in the secondary market. But they can be transferred from one person to another through the post office on payment of a prescribed fee.
Liquidity
NSCs do not offer any scope of premature withdrawal except on death or forfeiture by pledgee or by court order. However, NSCs can be transferred from one person to another through the post office on the payment of a prescribed fee. They can also be transferred from one post office to another. If a certificate is lost, destroyed, stolen or mutilated, the post-office on payment of the prescribed fee can issue a duplicate.
Market Value
As mentioned earlier, there is no secondary market for NSCs. Therefore; the question of market value of NSCs does not arise.
Mode of Holding
NSCs are held physically in the form of Certificates issued to the investors by the post office. Tax Implications Moreover, the annual interest income (till five years) is deemed reinvested under Section 88, and is eligible for a 20 per cent tax rebate. The rebate is calculated at 30 per cent if Investors gross annual salary is up to Rs 1,00,000. However, the interest income at the end of the sixth year is not eligible for tax breaks. The interest income every year also qualifies for exemption under Section 80L of the Income Tax Act, which means that interest income up to Rs 9,000 is tax-exempt. Thus, while Investor can claim 20 per cent tax rebate on reinvested interest income, the entire interest income will be taxfree if it is lower than Rs 9,000. An added advantage is that TDS (Tax Deductible at Source) is not applicable on the NSC.
(e) Kisan Vikas Patra Kisan Vikas Patra (KVP) doubles Investors money in 8 years and 7 months with the advantage of premature withdrawal. KVP is sold through all Head Post Offices and other authorized post offices throughout India. The rate of return is 8 per cent, compounded annually. Investment Objectives
Suitability
KVP accumulates money at a fixed rate, and Investors money doubles in 8 years and 7 months.
KVP is not meant for regular income. It is for those looking for a safe avenue of investment without the pressing need for a regular source of income.
Overtake Inflation
With a fixed rate of return, KVP does not provide safeguards against the perils of high inflation rates.
Borrow Against
Depending on whether the finance company or the bank from where Investor are raising the loan accepts it or not. Some banks accept it for raising house loans.
Risk Considerations
Safety of Principal
The KVP has the backing of the Government of India and, hence, the principal is assured and it is deemed to be a safe avenue for investing Investors money.
Safety of Return
Income is assured at the prescribed rate of interest. As mentioned, this is a risk-free investment channel as the KVP comes with the backing of the Government of India.
Unique Risk
There are no risks associated with Investors investment in the Kisan Vikas Patra. It is a good option if Investor is looking for hassle-free investment as it assures a certain sum of money at the expiry of the duration of Investors investment. Interest rates affect the decision to buy, hold, or sell (encase prematurely) relating to KVP. The Government of India has reduced the interest rates on KVP and other post office schemes in 2001. Consequently, the tenure of this "Double Investors Money" scheme has been increased from 6.5 years to 7 years and 3 months. Currently it is 8 years and 7 months. In future it may be increased.
Credit Rating
Since the KVP has the backing of the Government of India and is, therefore, extremely safe, it does not require any commercial rating. Buying, Selling, and Holding
Buying
Investor can buy KVP by filling up the appropriate application form available at post offices across the country.
Minimum Investment And Range Of Investment
The minimum investment in KVP is Rs 100. Certificates are available in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000, Rs 10,000 and Rs 50,000. The denomination of Rs 50,000 is sold through head post offices only. There is no limit on holding of these certificates. Any number of certificates can be purchased. A KVP is sold at face value; the maturity value is printed on the Certificate.
Duration
The KVP has tenure of 7 years and 3 months, in which time Investors principal investment doubles in value. However, there are options for premature encashment, subject to certain rules and loss of interest.
Secondary Market
KVP is not a bearer certificate, and is not easily transferable. Permission of the postmaster is required for any transfer. These cannot be traded in the secondary market.
Liquidity
If the premature encashment takes place within a period of one year from the date of purchase of the certificate, only the face value of the certificate shall be payable. No interest is payable in this case. After the expiry of one year, but before two years and six months from the date of the issue of the certificate, the face value of the certificate together with simple interest at the specified rate for the completed months for which the certificate has been held, shall be payable. If a certificate is encased any time after expiry of two-and-a-half years, the amount payable is as specified by the government from time to time.
Market Value
As mentioned earlier, KVP cannot be traded in the secondary market and, hence, the question of its market value does not arise.
Mode of Holding
KVP is held physically in the form of certificates that are issued to the investors by the post office. The option of holding KVP in demat form is not available. Tax Implications Although no TDS is applicable on the interest income from KVP, there are no tax incentives as per the provisions of the Income Tax Act, 1961. 2) Public Provident Fund A Public Provident Fund (PPF) is a long-term savings plan with powerful tax benefits. Investors money grows at 8 per cent per annum, and the Government of India (GOI) guarantees this. Investor may consider this option if investor are not looking for short-term liquidity or regular income. Normal maturity period is 15 years from the close of the financial year in which the initial subscription was made.
Maturity values for investors PPF account depending on what investor invest each year How Investors Money grows In a PPF Account Amount Invested Per Annum (Rs) 100 5,000 10,000 15,000 30,000 45,000 60,000 Total Amount Invested within 15 Years (Rs) 1,500 75,000 1,50,000 2,25,000 4,50,000 6,75,000 9,00,000 Amount Received After 15 Years*(Rs) 2,715 1,35,760 2,71,520 4,07,280 8,14,560 12,21,840 16,29,120
*Note: - Return offered is 8% per annum so compounded value factor of annuity of 1 Rupee for 15 years is 27.152 Rupees Investment Objectives
Suitability
A PPF account is not aimed at generating capital appreciation since it has no secondary market. It is mainly suitable for long-term saving and for availing of tax incentives. The lump-sum amount that investor receive on maturity (at the end of 15 years) is completely tax-free.
Suitable For Regular Income
PPF does not provide any avenues for regular income. It provides for accumulation of interest income over a 15-year period, and the lumpsum amount (principal + interest) is payable on maturity.
Overtake Inflation
A PPF account does not provide protection against high inflation. In certain years when the inflation rate is high, the real rate of return on investors PPF may be marginal. This depends on the prevailing rate of interest on investors PPF at any given time. These rates are notified by the GOI in the Official Gazette from time to time, and are calculated in such manner as is specified in the scheme.
Borrow Against
Loans can be availed of from the third to sixth year at 1 per cent per annum if repaid within 36 months. Else, interest on loan is set at 6 per cent per annum. Amount of such loans will not exceed 25 per cent of the amount that stood to investors credit at the end of the second year immediately preceding the year in which the loan is applied for. Investor will continue to earn interest at the specified rate on investors balance in the PPF Account after availing of the loan facility. Risk Considerations
Safety of Principal
Investors principal is assured. The PPF Scheme has the backing of the GOI, and is considered completely risk-free.
Safety of Income
Since the PPF Scheme is backed by the GOI, investors interest income is assured.
Unique Risks
Investor can safely put investors money in a PPF Scheme, as it is risk-free. Although factors like inflation and interest rate fluctuations may determine whether investor opt for a PPF Account or not, the decision to invest in a PPF Account is based on the twin benefits of long-term savings and tax incentives. Please note that if the government reduces interest rates and investor are already operating an account, and then the new interest rates will be applicable to investors account. Subsequent interest calculations will be on the new rate of interest.
Credit Rating
Since the PPF Scheme has the backing of the GOI, it does not require any commercial rating. Buying, Selling, and Holding
Opening Account
A PPF Account can be opened in any Head Post-Office, GPO, any Selection Grade Post Office, any branch of the State Bank of India, and selected branches of other nationalized banks.
Minimum Investment And Range Of Investment
The minimum investment in a PPF account is Rs 100 per annum for each year of the Scheme. The maximum prescribed contribution is Rs 60,000 per annum. The highlight of the scheme is that investor can vary investors investments between Rs 100 and Rs 70,000 every year in multiples of Rs 5. The maximum number of installments in a year is 12. No fixed investment in required.
Duration
The duration of a PPF account is 15 years, i.e., 15 complete financial years. If a person opens a PPF account on February 9, 2001, the
account will mature on April 1, 2017. Even after the expiry of 15 years, the PPF Account can be extended for duration of five years at a time.
Secondary Market
PPF account cannot be traded in the secondary market.

Liquidity
On expiry of five financial years from the end of the financial year in which the initial subscription was made, investors have the facility of one withdrawal every year. The maximum amount available for withdrawal is 50 per cent of the balance at the end of the year immediately preceding the year of withdrawal or the fourth year immediately preceding the year of withdrawal, whichever is lower. For instance, if investor has Rs 50,000 at the end of the fifth financial year, and Rs 90,000 at the end of the eighth financial year, investor can withdraw up to Rs 25,000 (50 per cent of Rs 50,000). Importantly, there are no penalties for availing of the withdrawal facility.
Market Value
As mentioned earlier, since a PPF Account does not have a secondary market, it cannot be traded. Therefore, the question of market value of a PPF Account does not arise. However, investors can get updates on their account balances from the bank where the PPF account is held.
Mode of Holding
A PPF Account passbook is issued to the depositor by the bank where the account is held, which can be updated from time to time.
Tax Implications Besides long-term savings, the most attractive feature of PPF is the tax incentives it offers. The interest income earned in PPF and the lump-sum amount received on maturity or premature withdrawal is completely tax-free as per the pro-visions of the Income Tax Act, 1961. The scheme also offers tax benefits at 20 per cent of the amount invested every year. Thus, on an annual investment of Rs 60,000, an investor can reduce his total tax outgo by Rs 12,000. Rebate is calculated at 30 per cent if investors gross annual salary is up to Rs 1,00,000. This also helps to reduce the actual amount invested over a 15-year period. Investor can also open an account in the name of investors spouse or children including married daughters and claim the tax rebate if the contribution is made out of investors personal taxable income. 3) Resave Bank of Indias Relief Bond Some bonds have a special provision that allows the investor to save on tax. These are termed as Tax-Saving Bonds, and are widely used by individual investors as a tax-saving tool. Examples of such bonds are: a) Infrastructure Bonds under Section 88 of the Income Tax Act, 1961 b) Capital Gains Bonds under Section 54EC of the Income Tax Act, 1961 c) RBI Tax Relief Bonds RBI Relief Bonds are instruments that are issued by the RBI, and currently carry an 8 per cent rate of interest, which was reduced from 9 per cent early this year. The interest is compounded half-yearly. Maturity period of RBI Bonds is five years, and interest received is tax-free in the hands of the investor.
Investment Objectives
Suitability
RBI Bonds are not very suitable if investor is looking for an increase on investors investment. Since RBI Bonds carry interest at 8 per cent, capital appreciation is better in other safe instruments that offer a higher rate of return. However, if safety is of paramount importance to investor, investor couldn't ask for a better deal as this is the safest instrument to invest in. In case of the cumulative option, bonds issued at a face value of Rs 1,000 are redeemed at Rs 1,601.
Investor can opt to receive interest either on a half-yearly basis or on maturity of the instrument, along with the principal invested. If investor opts for the first option, i.e., to receive interest on a halfyearly basis, investor will receive interest every six months from the date of issue of the bond up to 30th June or 31st December, whichever is earlier. Interest is paid on 1st July and 1st January each year.
Overtake Inflation
RBI bonds do not offer any protection against inflationary pressures. As with other instruments of a similar nature, this risk has to be borne by the investor.
Borrow Against
Investor can borrow against RBI Bonds by pledging them as security in a bank.
Risk Considerations
Safety of Principal
RBI Bonds are issued by the country's central bank, the Reserve Bank of India. These are among the safest instruments available for investment, and investor can be assured of getting back the full amount of investors investment. Safety of Income Investors income from RBI bonds is assured. Since the issuing entity is the country's central bank, the risk on this investment is nil. In case of the half-yearly interest payment option, the rate of return is 8 per cent. In case of the Cumulative Scheme, where investor receives the total interest at the end of the tenure of 5 years, the simple interest works out to 10.32 per cent at the end of the tenure.
Unique Risk
No, there are no risks associated with investors investment in RBI bonds. This is one of the safest investments investor can make. Inflation and fluctuations in interest rates affect investment decisions in RBI Relief Bonds. An increase in the interest rates result in a decrease in bond prices, and vice-versa, if investor want to sell them in the secondary market.
Credit Rating
No, since the issuing party is the country's central bank-the RBI-these bonds are extremely safe, and require no commercial ratings.

Buying
Application forms for RBI Bonds are available and accepted at all branches of the Reserve Bank of India, designated branches of the State Bank of India, and designated branches of nationalized banks across the country.
Minimum Investment and Range of Investment
The minimum investment on RBI Relief Bonds is Rs 1,000. Investor can apply in multiples of Rs 1,000 thereafter. There is no prescribed upper limit to investors investment in this instrument.
Duration
The period of holding of RBI Bonds is five years from the date of issue. The bonds are repayable on the expiration of 5 years from the date of their issue.
Secondary Market
Yes, the bonds can be sold or transferred to another party. If the bonds are in the form of Bond Ledger Account (BLA), they can be transferred by execution of a Transfer Deed in the prescribed form. However, transfer shall not be deemed as complete until the name of transferee is registered as holder of the Bond in the Office of Issue. A new BLA will be opened in the name of the transferee (whom the bond has been sold to) for the remaining period by closing the BLA of the transferor (original holder of the bond). The Bond in the form of Promissory Note (PN) will be transferable by endorsement and delivery.
Liquidity
While RBI Bonds cannot be redeemed prematurely and must be held for the entire duration of 5 years, investor can always exercise the option of selling RBI Bonds in the secondary market if investor so desire.
Market Value
Market value of RBI Relief Bonds is determined on the basis of prevailing (8 %) interest 7rates and market conditions.
Mode of Holding
RBI Relief Bonds can be held at the credit of the holder in an account called BLA or in the form of PN. The bond can be held in demat form, i.e., a certificate of holding will be issued to the holder of bonds in the BLA. The bonds in the form of BLA are issued and held with the public debt offices of the RBI or any branch of a scheduled bank authorized by the RBI. The bonds in the form of PN are issued only at the offices of RBI. However, bonds issued in one form will not be eligible for conversion into the other.
Tax Implications Interest received on RBI Relief Bonds is completely exempt from income tax as per the provisions of the Income Tax Act, 1961. RBI Relief Bonds are also exempt from Wealth Tax. However, there is no tax benefit on the amount invested in these bonds.
4) Infrastructure Bond Infrastructure bonds are available through issues of ICICI and IDBI, brought out in the name of ICICI Safety Bonds and IDBI Flexi bonds.
These provide tax-saving benefits under Section 88 of the Income Tax Act, 1961, for the investor. Investor can reduce investors tax liability by up to Rs 100,000 per annum For instance, the tax-saving bond from ICICI for the month of July 2001 provides two options: a) Face value of Rs 5,000 for 3 years @ 8% interest payable annually. b) Deep Discount Bonds: Carrying a face value of Rs 6,600, these bonds are available for Rs 5,000, and are issued for 3 years and 4 months, after which they are redeemed at their face value, i.e., Rs 6,600, the difference being the interest investor entitled to. The terms for the IDBI Bonds are similar. According to the July 2001 bond issue from ICICI, the yield to investors (including tax benefits) works out to approximately 18.5 per cent per annum in the first option and approximately 16.7 per cent per annum in the second.
Suitability
Deep Discount Bonds are suitable for an increase in investors investment. These bonds, which are sold at a discount on their face value, are redeemed at their face value on maturity of the instrument, the difference being investors gain.
Suitable For Regular Income
Yes, interest on Infrastructure bonds is payable at 8 per cent annually.

Overtake Inflation
Infrastructure bonds do not offer any protection against high inflation since the rate of interest they offer is pre-determined, and is not indexed for inflation.
Borrow Against
Yes, investor can borrow against infrastructure bonds by pledging them with a bank. The amount depends on the market value of the bond and the credit quality of the instrument.
Risk Considerations
Safety of Principal
Although Infrastructure Bonds are considered to be pretty safe, investor cannot be assured of getting investors full investment back as bonds such as ICICI and IDBI bonds are unsecured instruments. The value of the bond is subject to market forces, if investors want to sell them before their maturity. Also, in the rare case of the company issuing the bonds going under, investor can not sell the company's assets to recover investors investments. Hence, investor should check the credit rating of such instruments before taking an investment decision.
Safety of Income
Since both ICICI and IDBI are considered to be financially healthy institutions, income from bonds issued by these institutions is generally assured.
Unique Risks
If the bonds have a Call option, it implies that the issuer has the right to pre-maturely redeem the bonds if it so desires. Thus, look out for this in the offer document carefully. Inflation and interest rate movements are the two significant economic factors that play a vital role in the investment decisions of Infrastructure Bonds.
Credit Rating
Yes, they are. In fact, CARE, CRISIL, and Fitch rate both ICICI Safety Bonds and IDBI Flexi bonds AAA. This means that both the aforementioned bonds belong to the highest safety category.

Buying
Both ICICI Safety Bonds and IDBI Flexi bonds have regular issues. Application forms can be obtained directly from these institutions or through brokers and intermediaries. Also, IDBI Bonds are listed on the stock exchange, and can be purchased from there too.
Minimum Investment and Range Of Investment
Both these bonds can be purchased at Rs 5,000 each. Investor has to apply for a minimum of 1 bond. There are no upper ceilings imposed upon the purchase of such bonds.
Duration
The duration of the ICICI Safety Bonds vary according to the option chosen by the investor. Under the first option (mentioned earlier), the duration of is 3 years; under the second option, the duration is 3 years and 4 months. IDBI Flexi Bonds are of similar duration.
Secondary Market
If listed, bonds can be sold in the secondary debt market. IDBI Bonds are listed on both the BSE and the NSE, and can be sold in the secondary debt market. However, to avail of the tax benefits under Section 88 of the Income Tax Act, 1961, investors investment in the bond must hold good for at least 3 years.
Liquidity
ICICI offers ''Anytime Facility'' on its Safety Bonds whereby the bonds can be sold back to ICICI directly at the prevailing market price. An investor holding IDBI Bonds can exercise the option of early redemption of the instrument subject to the options available on a specified instrument as spelt out in the offer letter.
Market Value
The market value of a bond is linked to its yield on maturity and the prevailing interest rates. Price of a bond will fall if interest rates rise and vice-versa. If the credit rating of the issuer changes, the market price of such bond may be affected. ICICI provides regular updates on the market value of its various bonds on its Website, http://www.icici.com/.
Mode Of Holding
Both ICICI Safety Bonds and IDBI Flexi bonds provide investors the option of purchasing and holding the instruments either as physical certificates or in the demat form.
Tax Implications According to Section 88 of the Income Tax Act, 1961, 20 per cent of the amount invested in Infrastructure Bonds qualifies for tax rebates. For instance, if investor buys Rs 40,000 worth of tax-saving bonds, and investors tax liability is Rs 10,000, then 20 per cent of Rs 40,000, i.e., Rs 8,000 will be deducted from investors tax liability. In that case, instead of paying Rs 10,000, investor will now pay Rs 2,000 only to the Income Tax Department.
The maximum investment on which investor can claim a rebate is Rs 80,000, i.e., maximum rebate allowed is Rs 16,000. If investors are an author, playwright, artist, musician, actor, or sportsman, the rebate is calculated at 25 per cent instead of the usual 20 per cent. As per Union Budget 2001, the rebate will be calculated at 30 per cent for salaried individuals whose salary is up to Rs 1,00,000.
5) Bank Fixed Deposits When investor deposit a certain sum in a bank with a fixed rate of interest and a specified time period, it is called a bank Fixed Deposit (FD). At maturity, investor are entitled to receive the principal amount as well as the interest earned at the pre-specified rate during that period. The rate of interest for Bank Fixed Deposits varies between 4 and 11 per cent, depending on the maturity period of the FD and the amount invested. The interest can be calculated monthly, quarterly, half-yearly, or annually, and varies from bank to bank. They are one the most common savings avenue, and account for a substantial portion of an average investor's savings. The facilities vary from bank to bank. Some services offered are withdrawal through cheques on maturity, break deposit through premature withdrawal, and overdraft facility etc.
Duration 15-30 days 30-45 days 46-90 days 91-180 days 181-365 days 1-1.5 years 1.5-2 years 2-3 years 3-5 years 5 years
Interest rate (%) per annum 5-7 % 5-8 % 6-8 % 6.5-9.5 % 7-9.5 % 8.5-10.25 % 8.5-10.5 % 9-10.5 % 9.5-10.5 % 9.5-11 %
Suitability
While a Bank FD does provide for an increase in investors initial investment, it may be at a lower rate than other comparable fixedreturn instruments. Since capital appreciation in any investment option depends on the safety of that option, and banks being among the safest avenues, the increase in investment is modest.
A Bank FD does not provide regular interest income, but a lumpsum amount on its maturity. Since the lump-sum amount depends on
the rate of interest, currently between 4 and 11 per cent, Bank FDs are not suitable for regular income.
Overtake Inflation
With a fixed return, which is lower than other assured return options, banks cannot guard against inflation. In fact, this is the main problem with Bank FDs as any return has to be calculated keeping inflation in mind.
Borrow Against
Yes, in some cases, loans up to 90 per cent of the deposit amount can be taken from the bank against fixed deposit receipts.
Risk Considerations
Safety of Principal
Almost 100 per cent. Bank Deposits are the safest investment option after post-office schemes since the banks function according to the parameters set by the Reserve Bank of India (RBI), which frames regulations keeping in mind the interest of the investors.
Safety of Income
There is no regular income in this option as the payment is made in one lump sum after the expiry of the tenure of the Bank Fixed Deposit.
Unique Risks
Not really. Since all the banks operating in the country, irrespective of whether they are nationalized, private, or foreign, are governed by the RBI's rules and regulations, which give due weight age to the interest of the investor, there is little chance of an investment in a bank deposit going under. In fact, till recently, all bank deposits were insured under the Deposit Insurance & Credit Guarantee
Scheme of India, which has now been made optional. Nevertheless, bank deposits are still among the safest modes of investment. The thing to consider before investing in a FD is the rate of interest and the inflation rate. A high inflation rate can simply chip away investors real returns. So, it is critical to take the inflation rate into consideration to arrive at the real rate of interest.
Credit Rating
No, Bank FDs are not commercially rated. Since Bank FDs are extremely secure, the only thing to check out while investing in one is the interest rate being offered and investors convenience.

Opening Account
Investor can get a bank FD at any bank, be it nationalized, private, or foreign. Investor has to open a FD account with the bank, and make the deposit. However, some banks insist that investor maintain a savings account with them to operate a FD.
Minimum Investment and Range Of Investment
Minimum investment in an FD varies from bank to bank. It could be as low as Rs 500 in case of nationalized banks, and could go up to Rs 10,000 in private banks and Rs 50,000 in some foreign banks. Banks are free to offer interest rates on their FDs, depending on the interest rate scenario, the government's monetary policy, and their own money supply position.
Duration
Bank FDs have varying duration: from 15 days to more than 5 years. Depending on their duration, the interest also varies.
Secondary Market
No, a bank FD can only be encased from the bank it was taken from.
Liquidity
Bank FDs are liquid to the extent that premature withdrawal of a bank FD is allowed. However, that involves a loss of interest.
Market Value
Since Bank FDs cannot be sold in the market, they do not have a market value. The interest on a Bank FD is determined by individual banks, keeping the market forces in mind. Banks periodically mail to investor account statements or issue passbooks through which investor can track investors account status
Mode of Holding
When a depositor opens an FD account with a bank, a passbook or an account statement is issued to him, which can be updated from time to time, depending on the duration of the FD and the frequency of the interest calculation.
Tax Implications Interest income from a Bank FD qualifies for exemption under section 80L, which means that interest income up to Rs 9,000 is tax-exempt. 6) Debentures/ Corporate Fixed Deposits Fixed deposits in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits. Financial institutions and Non-Banking Finance Companies (NBFCs) also accept such deposits. Deposits thus mobilized are governed by the Companies Act under Section 58A. These deposits are unsecured, i.e., if the company defaults, the investor cannot sell the company to recover his capital, thus making them a risky investment option. NBFCs are small organizations, and have modest fixed and manpower costs. Therefore, they can pass on the benefits to the investor in the form of a higher rate of interest. NBFCs suffer from a credibility crisis. So be absolutely sure to check the credit rating. AAA rating is the safest. According to latest RBI guidelines, NBFCs and companies cannot offer more than 14 per cent interest on public deposits.
Suitability
A Company/NBFC Fixed Deposit provides for faster appreciation in the principal amount than bank fixed deposits and post-office schemes. However, the increase in the interest rate is essentially due to the fact that it entails more risk as compared to banks and post-office schemes.
Suitable for Income
Yes, Company/NBFC Fixed Deposits are suitable for regular income with the option to receive monthly, quarterly, half-yearly, and annual interest income. Moreover, the interest rates offered are higher than banks.
Overtake Inflation
A Company/NBFC Fixed Deposit provides investor with limited protection against inflation, with comparatively higher returns than other assured return options.
Borrow Against
Yes, investor can borrow against a Company/NBFC Fixed Deposit from banks, but it depends on the credit rating of the company investor have invested in. Moreover, some NBFCs also offer a loan facility on the deposits investors maintain with them.
Risk Considerations
Safety of Principal
Company Fixed Deposits are unsecured instruments, i.e., there are no assets backing them up. Therefore, in case the company/NBFC goes under, chances are that investor may not get investors principal sum back. It depends on the strength of the company and its ability to pay back investors deposit at the time of its maturity. While investing in an NBFC, always remember to first check out its credit rating. Also, beware of NBFCs offering ridiculously high rates of interest.
Safety of Income
Not at all secured. Some NBFCs have known to default on their interest and principal payments. Investor must check out the liquidity position and its revenue plan before investing in an NBFC.
Unique Risks
If the Company/NBFC goes under, there is no assurance of investors principal amount. Moreover, there is no guarantee of investors receiving the regular-interval income from the company. Inflation and interest rate movements are one of the major factors affecting the decision to invest in a Company/NBFC Fixed Deposit. Also, investor must keep the safety considerations and the company/NBFCs credit rating and credibility in mind before investing in one.
Credit Rating
Yes, Company/NBFC Fixed Deposits are rated by credit rating agencies like CARE, CRISIL and ICRA. A company rated lower by credit rating agency is likely to offer a higher rate of interest and viceversa. An AAA rating signifies highest safety, and D or FD means the company is in default.

Buying
Company Fixed Deposits forms are available through various broking agencies or directly with the companies. Similar is the case for the NBFCs.
Some of the options available are: 1. Monthly income deposits, where interest is paid every month. 2. Quarterly income deposits, where interest is paid once every quarter. 3. Cumulative deposits, where interest is accumulated and paid along with the principal at the time of maturity. 4. Recurring deposits, similar to the recurring deposits of banks.
Minimum Investment and Range of Investment
Minimum investment in a Company/NBFC Fixed deposit varies from company to company. Normally, the minimum investment is Rs 5,000. For individual investors, there is no upper ceiling. In case of recurring deposits, the minimum amount is normally Rs 100 per month.
Duration
Company/NBFC Fixed Deposits have varying duration; they may vary from a minimum of 6 months to 5 years or even more.
Secondary Market
No, a company/NBFC Fixed Deposit can only be encased at the Company/ NBFC it was invested in.
Liquidity
A company/NBFC Fixed Deposit is liquid to the extent that premature withdrawal is allowed, but it entails a loss of interest.
Market Value
Company/NBFC Fixed Deposits do not have a market value since they can't be sold or purchased in the secondary market.
Mode of Holding
When a depositor invests in a Company/NBFC Fixed Deposit, a receipt and acknowledgement is issued to him.
Tax Implications Interest from a Company/NBFC Fixed Deposit is fully taxable, and is not covered under Section 80L of the Income Tax Act. Therefore no deductions are allowed from interest income.
3.3 Comparison of Deferent Investment Categories Table 1 Ca Capit n Inflatio Cred Inc al Tax bor Investme Safet Liquid n it om Appr Benef ro nt y ity Protect Ratin e eciati its w ion g on aga inst Bank Fixed Deposits No Yes ~ Yes No No Yes No
Recurring Bank No Deposits Company Fixed Yes Deposits Bonds/De Yes bentures Infrastruc ture No Bonds
Yes
Yes
Yes
No
Yes
No
Yes
No
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
No
Yes
Yes
No
No
Yes
Yes
RBI Relief Bonds National Savings Certificat es National Savings Scheme Kisan Vikas Patra Post Office Monthly Income Scheme
No
No
Yes
Yes
No
No
Yes
No
No
Yes
Yes
Yes
No
No
Yes
No
No
Yes
Yes
Yes
No
No
No
No
No
Yes
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Post Office No Recurring Deposits Time Deposits Mutual Fund No ~
Yes
Yes
No
No
No
Yes Yes
~ Yes
Yes ~
~ Yes
No
Yes
No Yes
May be Yes
Table 2
Investment (1) Postal Savings MIS KVP NSC Time Deposit:One year Two Year Three Year Five Year Recurring Deposit Nil Nil Nil Nil Nil 6.25% 6.50% 7.25% 7.50% 7.50% 1y 2y 3y 5y 5y No Limit No Limit No Limit No Limit No Limit Risk Return Maturity Mini-Max
Nil Nil Nil
8% 8% 8%
6y 8y7m 6y
3,00,000 Max No Limit No Limit
(2) PPF (3) RBI Bond
Nil Nil
8% 8%
15 y 6y
500 to 70000 No Limit
(4) Equity Share (5) Debenture (6) Bank FD:15-45 Days 46-90 Days 90-180 Days 180 D to 12 M 13 M to 24 M 25 M to 36 M more then 36 M (7) Mutual Fund (8)Real Ested
Highly Partly
Flucating Fixed
NA As per Scheme
No Limit No Limit
Partly Partly Partly Partly Partly Partly Partly Uncertainty Highly
4% 5.50% 5.75% 6.25% 7.50% 8% 8.50% 12 to 15% Rent
15-45 Days 46-90 Days 90-180 Days 180 D to 12 M 13 M to 24 M 25 M to 36 M more then 36 M NA NA
No Limit No Limit No Limit No Limit No Limit No Limit No Limit No Limit No Limit
Bank & Mutual Funds ATTRIBUTES Returns Administrative exp. Risk Investment options Network Liquidity Quality of assets Interest calculation BANKS MUTUAL FUNDS Low Better High Low Low Moderate Less More High penetration Low but improving At a cost Better Not transparent Transparent Minimum balance between 10th. & 30th. Of every Everyday month Maximum Rs.1 lakh on None deposits
Guarantee
3.3.1 Stock Market Related Investments
Shares
Compa Publ Mutual ny ic FundsDebentu Sect Debt re or oriente Bon d ds Yes Varies Yes Vari es Yes 5-6%
Mutual FundsEquity oriented
Safety Returns
No Varies
Yes 15-18%
Lock-in Period Liquidity Tax Benefit
Infinite Yes L.T.C.G.= 0% S.T.C.G.= 10%
5 & 7yrs No u/s 80C
5& 7yrs No u/s 80C
No Yes
No Yes
u/s 80C L.T.C.G.= 0% S.T.C.G.= 10%
Transferab ility Min. Investment
No No
Yes 5000 or 10000
Yes 6000 or 1000 0 No Limi t No
Yes 1000
Yes 500
Max. Investment Convenien ce
No Limit
No Limit No
No Limit Yes
No Limit
No
Yes
Transpare ncy
No
No
No
Yes
Yes
Can Beat Inflation
Yes
No
No
No
Yes
rate Secondary Market Mortgage Yes No Yes No Yes Yes No Yes No Yes
By above tables we can say that Mutual fund is better in all the investment categories. MF higher return still it is safer investment instrument. Invest in the Stock Market may give higher return but it is not safe. Compare to Stock market, MF is safer because MF has better diversified portfolio. MF also invests in stock Market but not only in Stock market. In the portfolio of MF there are equity shares, debt instruments and money markets instruments. It has not only liquidity but also flexibility to invest in the MF. If investor wants to redeem his MF, he can get his money at currant NAV (Net Asset Value) so investor can get return for the time period he had invested. In KVP, NSC, and MIS and in F.D. investor has not given this type of Liquidity; Investor has to lose their return on his investment. `Investor of MF can transfer his money to other scheme also. Investors have to note that MF also provided options of dividend or growth. With dividend option investor can get dividend whenever it will declare. In Growth option NAV of the fund Increase. An investor, who has invested in real assets, has no liquidity and flexibility of this kind. In real assets investors money is blocked for long time. Mutual fund is also convenient to investors. Adviser go to investors place, explain the different schemes and if investor is convince then by filing the application form and giving cheque or Demand Draft investor can purchase unit of MF. After that AMC sends statement to investors in particular time period in regular bases. In this statement, Investor can know his owned units with their currant NAV. With this statement there is a redemption form by which investor can redeem his units if he wants.
3.3.2 Reasons for preference of mutual funds score over stocks To be sure, mutual funds are a great way to invest in equities, but there are some reasons for the same, more fundamental than just soaring investor interest. For retail investors, who have money, but don't have time and expertise, mutual funds are perhaps the only way to invest in stock markets. Also the mutual fund route is certainly a lot more 'surer' and less risky than investing directly in stocks.
1. Power of Knowledge When you don't have it, outsource it - that is a mantra a lot of corporate are chanting. There is no reason why investors should not do the same. Investing in equities requires a fair understanding of global and domestic economics, interest rates, political events, stock market among a host of other factors. If you don't have a view on these factors, then you must find someone who has one. That's where mutual funds come in. 2. Diversification A lot of investors take to stocks because they find them very exciting. During a rally, stocks move up a lot faster than mutual funds. They clock blistering growth and set the cash registers ringing, so to speak. Mutual funds on the other hand are steady and therefore perceived as boring. The point investors miss out on is that mutual funds work towards risk mitigation before they work towards clocking growth. By diversifying across a number of stocks and sectors, investors lower the risk during a market downturn that usually follows a blistering market rally. Let's understand this in light of what actually happened in the stock markets some years ago.
Mutual funds save the day 01-Jan-99 14-Feb-00 17-Oct-00 Indices BSE Sensex Diversified Equity Funds Sundaram Growth (G) Templeton India Growth (D) HDFC Equity (G) Stocks Wipro Infosys Mphasis BFL 100.00 100.00 100.00 359.76 366.26 316.45 115.56 219.59 58.13 100.00 100.00 100.00 246.30 225.50 301.18 153.70 164.22 192.47 100.00 193.58 119.75
It was 1999- early 2000. On display was one of the most scorching stock market rallies the country had ever seen until then. Technology, media and telecom were the leading lights of the new economy. Then the stock market collapsed burning a big hole in investor portfolios. However, as is evident from the above table, mutual funds did a better job at safeguarding the investor's portfolio than stocks. Consider the performance of the leading software stocks in that rally. While they did hit the roof at the peak of the rally, their fall from grace is just as well-documented. At the end (in October 2000 when the market fall stemmed) the diversified equity funds in our sample were in
much better shape than the BSE Sensex and the stocks except Infosys. The mutual funds did better than the stocks mainly due to prudent fund management based on the virtues of diversification. 3. Solid structure Mutual funds have a solid 3-tier structure in place that works in the investor's interest. The promoter/sponsor sets up a mutual fund, but does not exercise direct control over it. For this, it sets up a board of trustees. The trustees in turn set up an asset management company (AMC). The latter looks after the day-to-day administration, sales, marketing and fund management. This way there is very little link between the sponsor/promoter and the mutual fund schemes. This ensures that mutual fund schemes are managed professionally without any 'interference'. On the other hand, Indian companies still have some way to go before they can be managed as professionally as mutual funds. The promoter's 'involvement' is considered normal and any negative news at the promoter's level often percolates down to the stock.
4. Offering solutions How many times have we heard this before - mutual funds are very flexible? There is a reason for that. Today mutual funds have evolved at a level that gives investors solutions for retirement planning, planning for child's education/marriage, even buying a house to outline a few goals. There are mutual funds tailor-made to help investors achieve these financial goals. With stocks it's a little different. Stocks do not offer solutions apart from a very broad solution of providing capital appreciation. You can't
provide for retirement or for a child's education through stocks, rather you must build a customized portfolio of stocks and debt and actively manage it to help you meet a financial goal. That is exactly what mutual funds do. 5. Tax neutral You might say that even in the mind of the finance minister, there is no difference between stocks and equity-oriented funds, at least not where tax benefits are concerned. Long-term capital gains on both stocks and equity-oriented funds are tax-free. Likewise, short-term gains on both are taxed at 10% plus surcharge and education cess. Also dividends from both are tax-free in the hands of investors. So investors do not stand to lose out on any tax benefit by investing in equity funds vis--vis stocks So we can sat that MF it self invests in other instrument by this it gives benefits of all instruments category and save investors from drawbacks of other instruments categories.
ABOUT THE NJ INDIAINVEST

Overview of Company:Two dynamic young men after completing their education were about to start their career when they sow the growing scope of the financial service sector. Both of them decided to jump into the same field and came out with the dynamic concept of NJ Capitalstock, which is known as NJ IndiaInvest now. The word NJ stands for the first letter of Neeraj Choksi and Jignesh Desai the founder directors of NJ IndiaInvest. This business was started in the year 1994; it was the period when private company was entering the field of financial services. This is the time when NJ IndiaInvest evolved out as a client focused need based investment advisory firm. NJ has achieved expertise in need base investment of clients. NJ has a very well trained men power to meet the need of the clients and market. With the help of which the organization has achieved growth in past, is growing and will be growing in future. At NJ they regard mutual fund as one of the best investment avenue available to satisfy any kind of investment need. With a very well qualified work force they have gained expertise in analyzing mutual fund schemes, and in-depth study on various parameters is carried out on a regular basis. NJ IndiaInvest is a company, which is involved in this business from past nine years as a client focused need based investment advisory firm. It has developed its own IT Industry known as Finlogic India Pvt. Ltd. i.e. technology to support client as well as its employees in their daily routine work. There is a very qualified staff for IT who has prepared a website for the organization known as
www.njindiainvest.com which provides a valuable support to clients as well as to the employees in trading. All the valuable information is available on their above mentioned web site. NJ IndiaInvest is a modern concept organization that was growing in past, growing in present and will be growing in future.
Vision And Mission Statement Of N J Indiainvest :-
Vision Statement of NJ :To be the leader in our sector of business through: Total Customer Satisfaction, Commitment to Excellence, Determination to Succeed & Finally to provide Peace of mind on investment front to society. Mission Statement :Ensure creation of value by providing a Differentiating edge to the activities of Our customers, investors and distributors through Technnovative solutions while Fulfilling our social obligations and maintaining high Professional and ethical Standards along with the service standards. Quality Policy Of NJ IndiaInvest :NJ AIMS AT PROVIDING HIGH QUALITY SERVICE ON INVESTMENT FRONT THROUGH SYSTEMATIC & PROFESSIONAL APPROACH BACKED BY TOTAL MANAGEMENTCOMMITMENT & TEAM WORK TO ACHIEVE CUSTOMER SATISFACTIONAT A COST THAT REPRESENTS VALUE. THEY AS A WHOLE ARE COMMITTED TO PRACTICE A POLICY
RIGHT AT THE FIRST TIME & CONTINEOUS IMPROVEMENT IN THEIR ACTION & DEALING
Philosophy at NJ India Invest
To provide reliable information
To honor their service commitments
To maintain all records in privacy
To preserve client capital
To provide appropriate feedback
To guide their future investment To restructure investment plan on demand Finally to provide complete solution
Peace of mind on the investment front.

NJ India Invest Process :The sole business of the organization is to manage clients investments and to fulfill their need from cap-a-pie. At NJ the people are education centric, the relationship managers will help you in identifying and understanding Investors need and help you develop a portfolio across different asset classes commenAhmedabade to Investors needs. This practice is only performed at NJ and this is what makes it superior to other competition in this same field. There are well-trained experts who 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 is planned and done they dont leave their client in between, but they back them by periodic valuation reports and regular relevant information through newsletters, mailers, e-mail, road shows etc. The prime concern of the people at NJ will be to help you attain peace of mind on the investment front. They are dealing in following investment products: Mutual Funds Fixed Deposits Infrastructure Bonds Approved Securities for Charitable Trust The above are the core Investment in which they deal and where they have developed their competency.
AMCs with NJ India Invest:Alliance Capital Mutual Fund Birla Mutual Fund Cholamandalam Cazenove Mutual Fund DSP Merrill Lynch Mutual Fund Dundee Mutual Fund
Escorts Mutual Fund
First India Mutual Fund
Franklin Templeton Mutual Fund Pioneer ITI HDFC Mutual Fund
HSBC Mutual Fund IDBI Principal
IL & FS Mutual Fund ING Savings Trust JM Mutual Fund
LIC Mutual Fund Prudential ICICI Mutual Fund Reliance Capital
SBI Mutual Standard Chartered Mutual Fund Sun F&C Mutual Fund
Sundaram Mutual Fund
Tata Mutual
Unit Trust Of India
Zurich India Mutual Fund
Mutual Funds Investment Rules - By NJs View:The mutual funds are becoming the most popular investment vehicle offering various kinds of schemes with different investment objectives. They believe that an investment through mutual funds is one of the safest, easiest and convenient ways of successful investment making. The investments are in congruence to the laid down investment objectives securing the goals and objectives of the unit holders. A plethora of mutual fund schemes with different features makes the right choice for an investor difficult. They at NJ have 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 they believe that they are morally bound as trustees to their clients investments.
Today choice is a problem. Whether the exercise is one of spending or of investing wherever they go, there is a plethora of choices. Especially in the case of mutual funds-the array is mind boggling-so how one goes about selecting a mutual fund. Well theyll start with the premise, not aiming for a perfect plan-just a good one. So the below mentioned steps given by them, will guide to a selection of some smart alternatives. Rule 1. Select Funds with Low Expense Ratios Costs matter - and their impact is likely to grow in importance in the years ahead. It is costs, pure and simple, that has accounted forand will continue to account forthe lion's share of the shortfall of the typical mutual funds in the stock market. Remember, these costs are borne out of the returns and to that extent, take a portion out of them. So it is obvious that in times of low returns these costs will chew up a higher part of the market return which ought to be available for you. As these costs are raked from the table of the market casino, the croupiers with the largest rakes are the fund managers. The fees and expenses you pay to them are rising even faster than the industry's soaring asset base. But, yes, larger fund groups have lower costs. Thus you owe it to yourself to select from among funds where the manager-croupiers exercise at least some restraint, evidenced by expense ratios that are well below industry norms. Rule 2. Emphasize Funds with Low Portfolio Turnover Once your money is invested in a fund, most funds continue to buy and then sell securities unremittingly, and then sell them and buy them over and over again. The shorter the holding period of a stock the more akin to short-term speculation than to long-term investing, is the philosophy. So who pays for these transactional costs of churning the portfolio-you
of course-from your returns? This high turnover is in part the product of trading by hyperactive portfolio managers, anxious to garner a performance edge on their peers, however fruitless the quest. But there is also turnover among the managers themselves. All too often when a manager departs, the new manager's broom sweeps clean, as he reorders the portfolio to comport with his own strategies. So, be aware, not only of a fund's turnover rate (it's shown in the prospectus), but also both its management and company's propensity to move managers around, sometimes seemingly at the drop of a hat. Turnover costs can cut your long-term returns by a meaningful amount, so do your best to find funds both with portfolio holdings and portfolio managers that will stay the course. Rule 3. Realize That Taxes Are Fund Costs Too As impatient, aggressive fund managers buy and sell stocks at a furious rate, they pay virtually no attention whatsoever to the taxes such activity will require you to pay. So look for tax-efficient fundsnot only those that have been so in the past, but those that have policies that emphasize ongoing tax-efficiency. Rule 4. Be Careful About What You Pay for Fund Selection Advice Many investors need sensible advice in fund selection and asset allocationand many do not. If you are convinced you do not need advice, it is unwise to pay for it, either in the form of front-end sales commissions or fees paid to registered investment advisers and financial planners, usually beginning at about 1% of assets and paid directly by the investor. The best advisers help you minimize the costs of the croupiers in the stock market casino by steering you toward funds with low expenses, low turnover, and high tax-efficiency. Equally important, they can also help you to minimize the many pitfalls of fund selection,
provide you with sound asset allocation guidance, and give you personal attention. If you are among the many investors who need this sort of advice, get it. But be sure to carefully select Investors adviser and know exactly the fees involved. Rule 5. Beware of Past Performance to Predict Future Performance For Investors dream of a perfect plan to be realized, you must select superior mutual funds. To an amazing extent, investors rely on past performance to make their selections. However there is simply no way of predicting a fund's future success based on its past track record. Indeed, the one thing that appears certain about the future relative performance of successful funds is this: Performance superiority will not be sustained. This pattern is called "Reversion to the Mean," a sort of law of gravity that seems to be almost universally applicable in the financial markets. It is not a statistical aberration. Reversion to the mean, then, seems almost preordained in fund performance, frustrating the dreams of so many investors who invest on the basis of past returns. Finally, index funds alone have relative predictability. They provide precisely the market's return, less their costs, decade after decade after decade. Rule 6. Rely on Past Performance to Measure Consistency and Risk While the dream of the perfect investment plan will rarely be fully realized, there are ways to avoid having it become a living nightmare. If past fund performance cannot foretell the future, it can still be an important consideration in selecting funds that have a fighting chance to earn consistent returns relative to peer funds with similar styles and objectives. Compare, for example, a large-cap blend (growth and value) fund with other large-cap blend funds, and see how it stands each year. The "good" fund is in the top half in seven years, in the bottom quartile
but once. The "bad" fund is in the top half five times, but in the bottom quartile, four. It is consistency of return, not aggregate return, which tells the important story to the intelligent investor. So, careful analysis of past performance can tell us a lot about return. But it can also tell us a lot about risk. Risk is a crucial element in investing. Generally speaking, value funds carry distinctly less risk than growth funds, and large-cap funds carry less risk than small-cap funds. For example, small-cap growth funds carry 65% higher risk than large-cap value funds. The character, integrity, stability, and judgment of a fund's management are the qualities on which Investors dream of the perfect plan should rely. In all of Investors searching for the quantities that describe investment returns, so dont ignore the qualities of those who will be the stewards of Investors precious assets. Rule 7. Consider the Implications of Asset Size Any investor seeking the perfect plan must be aware of asset size and its implications for the future returns of the funds selected. By far, the biggest problem is that investors seeking extraordinary future returns focus on extraordinary past returns, frequently accomplished when a fund was small. Such returns are simply not repeatable; indeed they may not even be honest. Size, as such, is not necessarily bad. A giant market index fund, indeed, may have inherent advantages over a very small one. And the past record of a fund investing in large-cap stocks on a longterm basis is likely relevant even if the fund has grown to a large size. But giant size limits the investment universe from which a manager must select the fund's investments, as well as limiting (for better or worse) his ability to actively trade the fund's holdings. As a result, funds that were once actively managed gradually come to resemble market index funds, without disclosing it, and without the benefit of low cost that indexing provides.
Rule 8. Don't Own Too Many FundsAnd Don't Trade Them And lastly: Limit the number of funds you own, and don't trade them. To paraphrase the old adage, "Too many funds spoil the perfect plan." Why should this be so? First, the more funds you own, the greater the chance that a truly inspired fund selection will have its success spoiled by another fund that falls on its face. The problem has been called "diversification," for it leads investors to build a portfolio of funds containing so many individual stocks that it becomes contradictory for the holder. Even more counterproductive is the active trading of mutual funds. Typically, an investor today holds funds for but three years, an absurdly inadequate time frame for appraising the results of an investment program that should be inherently long term by nature. What is worse is that the funds may have been ill-selected in the first instancefunds with inflated performance, funds investing in hot market sectors, funds advertised on television, funds that trade actively and relinquish much of their profit to taxes, funds with high costs that didn't seem to matter when their past records looked so good. But the worst aspect of trading funds is that it allows the counterproductive emotions of investing to supersede the productive economics of investing. The dream of a perfect plan will never come true if mutual fund shares are traded as if they were stocks.
Services provided to valuable Clients & Agents: 1. Dedicated portfolio planning & restructuring on demand 2. The Weekly Performance Sheet (it covers performance of leading mutual fund schemes) 3. The Monthly Fund Fact Sheet (it covers comprehensive analysis of various mutual fund)
4. Various Subscription services via e-mail 5. Sharing relevant information related to the Indian Investment world. Over and all they also provide net-based services to their clients and agents. Their e-services are powered by a comprehensive website http:/www.njindiainvest.com. It covers detailed information about the Mutual industry, it passes various financial planners to satisfy investment goals like retirement planning, childs marriage planning etc, it also posses various analytical tools to measure the performance of Mutual Fund schemes viz. Returns Calculators, SIP Returns Calculator, and many others. There is a separate desk for the clients to get their portfolio information on fingertips. THE CLIENT DESK @ njindiainvest.com These are some information and reports, which one can get from web.
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Transaction Summary Report (Mutual Funds, fixed Deposits, RBI Bonds & others) Portfolio Valuation Report Portfolio performance Report Profit & Loss Account (FY wise) Consolidated sector & stock 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
Achievements of NJ India Invest:NJ India Invest is a growing company that can be very well proved from the below achievements.
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Have gained a dominant place in the Indian Mutual fund Distribution Business Certified by the association of Mutual Funds as AMFI registered mutual fund advisor Won the Pru chairmans Award twice in the year 2000 & 2002 for outstanding performance in the schemes of prudential ICICI Mutual fund. The Chairman, Prudential, presented the awards at London both the times. Won many other awards & certificates for outstanding performance in various mutual fund schemes. It has acquired about 15 to 17% share of total mutual fund business of Gujarat. Received the Award for year 2003-04 from HDFC Mutual fund for highest selling of Mutual Fund. The award was received by director at Scotland. Asset under Management more than 850 Crores.
AMFI
Association of Mutual Funds in India
AMFI is apex body which regulates Mutual Funds in India just like IRDA for Insurance. AMFI was introducing at September 22, 1995 as a nonprofit organization. It regulates all registered Assets Management Companies of Mutual Fund working in India.
It is operated by Board of Directors. In this board Chairmen is governor person and 0ther 10 directors are representative of the different asset management companies. AMFI conduct the test and by this test license of mutual fund adviser is given. AMFI has different committee to regulate and valuate the different funds and its schemes. List of Committee. 1. Committee on Valuation 2. Committee on Certification Program for Intermediaries & Employees 3. Committee on Best Practices 4. Committee on RBI Related Matters 5. Committee on Registration of AMFI Certified Distributors
Objective of AMFI 1. To define and maintain high professional and ethical standards in all areas of operation of mutual fund industry 2. 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. 3. To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry. 4. To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry. 5. 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. 6. To undertake nation wide investor awareness programme so as to promote proper understanding of the concept and working of mutual funds. 7. To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies. Activity of AMFI AMFI is doing many activities which promote the mutual fund in India. They communicate with the ministry of finance for making environment favorable to mutual fund. It also manages the programs for general awareness on mutual fund. AMFI also manage the Examination by which they regulate the advisor of the mutual funds. AMFI also publish
the information regarding the Mutual funds. It announces latest NAV of the all open ended funds by putting this detail on its websitewww.amfiindia.com. It registers the new asset management company and all new schemes. Before introducing any scheme, AMC has to get permission of AMFI. If AMFIs committee finds the scheme beneficial for investors then license is given to this scheme to be introduced.
The AMFI Test Program Mutual funds are emerging as an important financial intermediary for the investing public in India. Conceptually and operationally they are different. The investors need to understand the working of a mutual fund and the increasingly diverse and complex investment options brought to them by a large number of mutual funds. AMFI believes that the key channel in bringing the mutual funds to a large number of investors all over the country is the network of intermediaries/distributors. The intermediaries/distributors have to take on the role of financial advisors to investors, a role for which they need preparation. AMFI Mutual Fund Certification and Registration Program has been put together to give the fund distributors the knowledge and insights required for them to become both better intermediaries and more informed mutual fund advisors. Even mutual fund employees need to understand the complexities of how the funds function internally and externally. AMFI Mutual Fund Certification AMFI Mutual Fund Certification is based on a testing program. There are two modules of the test. The first is the AMFI Mutual Fund (Basic) Module. This is a general test covering the concept, structure and other
essential general topics. This is meant for those who would like to have a basic knowledge of concept and working of Mutual Funds and for Mutual Fund employees (other than those engaged in sales and marketing of mutual fund schemes). Part One of the AMFI workbooks forms the syllabus for this module and can be taken independently by anyone who desires to acquire basic knowledge of the functioning of the mutual fund without seeking to become a fund distributor or engage in sales and marketing of mutual fund schemes. The second module is the AMFI Mutual Fund (Advisors) Module and it covers additional subjects such as Financial Planning, risks in fund investing, model portfolio selection etc. Part One and Two of the AMFI workbook together constitute the syllabus for this module. Accordingly, all fund distributors or intermediaries and Mutual Fund employees engaged in selling and marketing of mutual fund schemes will be required to take AMFI Mutual Fund (Advisors) module.
Certification is Compulsory Passing the AMFI Test has been made mandatory by SEBI in a phased manner. As per SEBI Circular dated September 25, 2001 all agents/distributors appointed from November 1, 2001 have to obtain AMFI certification prior to their appointment. In case of firms and corporate the requirement of certification is applicable to persons engaged in sales and marketing. Existing agent distributors are expected to pass the certification program by September 30, 2003.
NJ Fundz Network and AMFI Test NJ India Invest Pvt Ltd is one of the corporate mutual funds. Nj makes sub broker who are AMFI Test clear. Nj provides commercial and technical support to its sub-broker. Nj pass on commission to its sub broker. Nj earns margin of commission. So we can say that broker earns for themselves and also for Nj also. It is nature formula more brokers more investor are cover and more investor gives more commission. In sort Nj is interested to increase its network of brokers. For that Nj helps AMFI for conducting Test. Nj collects forms of interested candidate of test. And when it is sufficient then at the end of the month test was conduct in the City.
Unit Holders
Sponsors Trustees
Mutual Fund
AMC
Transfer Agent
SEBI
10 Reasons Why an Insurance Agent should sell Mutual Funds Evolution is a universal truth. Each one of us thinks of how he/she can be a better person than he was before. This article has the same spirit running behind it. Today a single solution provider is seen more and more as one distanced to the reality, the need of the markets. The question remains as to how one adapts to the new rules of the game and survives. Making Advisers themselves updated and offering multiple solutions is also an evolution.
The investment needs of people are diverse and ranges from short term deployment of surplus money to long term investing for creation of wealth. However, there is one investment product where a person can ideally find the right fund/scheme according to his risk profile, investment objective and investment horizon. Mutual funds offer many advantages over other investment avenues and are ideal for all types of investors. Offering mutual funds in Advisers portfolio would mean a next step by Adviser in that evolution.
Reason 1: Easy to make more clients In India, the penetration of insurance is very high as compared to mutual funds. Every new client that Adviser meet probably must have had already taken insurance before. But in comparison, mutual funds today have very little penetration. Chances are that more 9 out 10 people that Adviser meet would have not invested in mutual funds (we are talking of metro cities here, imagine about small towns and villages!). This leaves a large room open for Adviser to easily enter the market and make new clients.
Reason 2: Less competition in the market There are about 15 lakh insurance agents spread across every nook and corner of this country catering to the insurance need. Even Advisers client may have more than a couple of insurance agents to choose from. In comparison, there are merely 30,000 AMFI certified mutual fund advisors (AMFI certification is a perquisite to selling mutual funds) in the entire country! There is a very huge demand for quality mutual fund agents. Our own estimates show a genuine need of more than 2 lakh agents in the field. The point is the completion is less, and the time is right. Reason 3: More satisfaction to Advisers clients If Adviser is not selling mutual funds then Adviser must not be aware of what they truly are and the possibilities that they offer in providing matching solutions to meet the diverse needs of different clients. The point is that with mutual funds in Advisers offering, Adviser are in a much better position to fully meet the clients financial and investment needs. Advisers client would ideally like Adviser to do that and will be happy once to offer him multiple solutions. Reason 4: Additional source of income Mutual fund is one product today that potentially has no limits to the volumes that Adviser can generate. The important differentiation here with insurance is that Adviser income is not based on the premium Adviser collect but on the entire AUM (assets under management) that Adviser have mobilized. An agents AUM running into crores in quite common in the industry. The income from mutual funds can complement Advisers earnings from insurance.
Reason 5: Leveraging existing clientele base Mutual fund is just the perfect answer to that question. The truth is that there is a lot of potential to generate further income from Advisers existing clientele base. Much of the investment needs of clients are unexplored and unfulfilled that Adviser can satisfy. Reason 6: Strong industry growth ahead There is definitely a very strong growth of mutual funds visible ahead. The reasons are many good product, low penetration, huge market, growing income, changing mindset, lack of other attractive investment products, etc. If Adviser looks at an advanced country like US, almost every third household invests in mutual funds. The US MF industry size is about 67% of the US GDP and is 1.5 times of the bank deposits in US. The situation is though almost opposite in India with the MF industry size here equal to about 6% of GDP and bank deposits 10.50 times of the total industry size. The potential is huge and India is expected to follow in on the lines of the more developed countries. Reason 7: Retention and loyalty of clients Probably Adviser has already guessed the reason why offering mutual funds would help Adviser in retention and loyalty of Advisers clients. The underlying logic can be found even in the growth of multiplexes and shopping malls after all the human nature is basically the same People today look for easy, fast, and single service point that provides them with solutions that meets their multiple needs. Advisers client would probably invest in mutual funds some day or later why not Adviser does the same before anyone else gets to Advisers client?
Reason 8: Greater choice of products Till now we havent really talked about what choices Adviser can offer to Advisers clients In fact, Adviser can offer solutions ranging from cash-flow management, to long-term goal oriented planning to Advisers clients. Advisers basket would include pure equity funds (Diversified / Sectorial / Index Funds) to pure debt funds (Gilt / Income / Short Term Plans / Floating / Liquid Funds) to hybrid funds (MIPs / Balance / Arbitrage Funds) to the tax saving ELSS. With a vast range of Fund houses and many schemes the choices are virtually endless, and one is sure to find what one needs. Reason 9: Be a Complete Financial Advisor What next to Insurance? There is an opportunity for Adviser to transcend to the next level and offer real solutions that will truly add value to Advisers clients. Adviser would develop Advisers self and grow more as a Financial advisor rather than an Insurance agent. The learning can extend beyond products to markets, to equities, debt, economy, etc to understanding financial planning, funds management, etc. Reason 10: Helps in selling ULIPs
If Advisers focus is also selling ULIPS then, dealing in mutual funds should also help Adviser in better understanding them and helping communicate the same to Advisers clients. It is a general observation in western countries that as an economy progresses, term plans and ULIPs have increasing % of fresh investments from clients as far as insurance is considered. Our presence in mutual funds would be an advantage to Adviser going forward.
The first step in becoming a mutual fund advisor is appearing for AMFI certification examination. After clearing the same and taking the registration number (ARN code) can Adviser start advising and selling mutual funds? NJ Fundz Network, a network of financial advisors, runs an I-Gurukul program which provides complete training and course material for the exams. NJ Fundz Network infect offers a unique platform that gives complete solutions to independent financial advisors for carrying advisory business including marketing, technology support, administration, advisory, etc.
RESEARCH METHODOLOGY
Problem Description:To study the awareness about mutual funds among Independent Financial Advisors (Insurance Agents) and to compare other investment options vis--vis mutual funds. It has been perceived that there is a huge potential market in the Ahmedabad city. Ahmedabad is well known for its Textile Industry. In the city there are other companies having their offices. So in Ahmedabad city there may be more business and more business brings more people in the city. Since this bright future of city every service sector has good chance to get good business in Ahmedabad. Since last 5 years mutual fund industry is grooving fast. In last two month there was 14 new fund offers are introduced. To understand the investor and to convince them to invest in Mutual fund, more adviser of Mutual fund are needed. To be Adviser of Mutual Fund is easier for the person who is already dealing with other category of investment e.g. Small savings, Insurance. Because of they have good cliental base, they may be successes in mutual fund selling. So we can say that there is good chance for every financial adviser to be Broker of Mutual fund. To make them broker fist we have to make aware them with the mutual fund and search their opinion against the mutual fund. This is analytical research. The awareness is to be found out after knowing the behavioral study of independent financial advisors they have different options available in the market for investment.
Research Objectives: To study the perception of independent financial advisors about different investment options available in the market. To know priority level between different criteria of investment like safety level, retunes, liquidity, tax benefit, maturity of investment. To study about different type of services provided by independent financial advisors to their clients. To know the awareness of Mutual Funds in the market of Ahmedabad and its surrounding areas. To study about the different types of services provided by professional Mutual Fund Distributors. To find out how many independent financial advisors want to attain the Business Opportunity program arranged by N.J. India Invest. To find how many independent financial advisors are AMFI certified and how many are interested to become registered mutual fund advisor. Sampling: Sampling Method In the context of this project the survey, this is of independent financial advisors done by convenient sampling method. Taking Addresses and Contact Number from Relationship managers and other persons who are ready to give contact of Insurance agents. Sample size Our total sample size is 102. In this sample 80 Advisors are LIC Agent. Out of them 21 advisers are also advisers in other financial services e.g. Mutual fund, Postal investment and bank deposits. Out of LIC Agents 11 advisers are working part time as an Adviser. Their main business
is other then advisory profession. 9 advisers are working for privet insurance companies. 7 advisors are Postal investment Agents and 5 Advisers are Charter Accountants. And 1 adviser was share broker. Sample Area The survey is done in the central city of Ahmedabad and its surrounding areas. So the sample area is consider as Ahmedabad as whole. Sources of data: Primary Data In this research the source of primary data is Individual Financial Advisors, form that the segment is used in research, is Insurance Advisors. Secondary Data To know the information about current market scenario making use of internet, magazines, newspaper, periodicals and fact sheets of different Asset Management Companies. Communication Approach. Research tool is the questionnaire filled up by the independent financial advisors and informal interview of independent financial advisors conducted by ous.
Benefits of this Report 1. Persons who have no knowledge about Investment instruments, can know the different instrument of investment 2. One can aware of mutual fund without any queries. 3. This report may be a motivating tool for investors. 4. Assets Management Company can get direction for appointing adviser of Mutual funds. 5. NJ India Invest Pvt. Can get a list of persons who want to be Adviser of Mutual Fund under them. 6. Financial Advisers, who wants to be adviser of Mutual Fund, can get perfect information and procedure from this report. 6.6 Limitation 1. This report is limited to research area of Ahmedabad citys Financial advisers only 2. My research has covered only sample size of 100 advisers. It is very small sample comparatively. So my analysis is base on this small sized sample which may be not reliable at 100% 3. I had done sampling by convenient sampling method, so it may influence the searchers data. 4. Time is main constraint of the research as they have been given training period of 8 weeks is short for such studies.
ANALYSIS OF DATA
There are 11 questions included in questionnaire. Data of all the response presented below and also the answers of the entire questions are interpreted one by one. 1. Attribution preferred by IFA Rank Attribution Total 1 2 3 4 5 Safety Liquidity Return Tax benefit Maturity 79 5 17 1 0 15 31 46 7 3 6 51 28 9 9 1 14 11 23 52 1 1 0 62 38 102 102 102 102 102
To analyze this rank related data, rank has given points. Points are allotted as per bellow. Rank Points 1 80 2 40 3 20 4 10 5 5
Points Related Table Points Attribution 1 Safety Liquidity Return Tax benefit Maturity 6320 400 2 600 3 120 4 10 5 5 5 0 310 190 7055 44.6 Total %
1240 1020 140 560 180 180 110 230 520
2805 17.73 3870 24.46 1080 1010 6.83 6.38
1360 1840 80 0 280 120
Attribution Preferred by IFA
Safety 7% 24% Tax benefit 18% Maturity 6% 45% Liquidity Return
Interpretation:In the Ahmedabad City, there are large number of family are middle class. This class of persons prefers safety first in their investment of their savings. Returns on the investment are also important but safety of principle invested is most important then it. The Financial advisers have also understood it and they give their views in questioners. As per the Advisers view, on an average one investor is taking all attribute in mind while investing his savings. But first he considers safety then return comes. Liquidity is also important while taking decision of investment. Investor wants their investment in liquid form so that when ever they want their money they can easily get at lowest lose of return. Some investors want to kept some money or save money for any future need. This type of need use to conceder maturity period of investment. Some investor also wants to invest their money in such a security which gives them a tax benefit.
2. Suggestion to Client by IFA Rank Security 1 Stock Insurance Fixed Deposit Gov. Security P.O. Savings KVP NSC PPF MIS Mutual Fund 2 3 4 3 3 2 2 2 5 5 3 0 2 1 6 7 8 9 10 6 0 8 1 102 102 102 102 102 102 102 102 102 102 8 28 9 80 8 0 1 0 1 4 1 1 0 1 2 9 21 5 3 2 1 Total
1 16 23 18 41 2 3 8 37 38 7 4 26 34 29 0 0 2 0 4 0 0 1 4 8
0 11 16 15 18 30 11 1 4 0 7 15 22 38 14 0 7 2
9 21 18 16 27 1 6 1 5
5 13 26 29 11 7 6 24 23 4
6 16 6
To analyze this rank related data, rank has given points. Points are allotted as per bellow
Rank Points
6 4
7 3
8 9 10 2 1 0
80 40 20 10 5
Points Related Table Points Security 1 Stock Insuranc e Fixed Deposit Gov. Security P.O. Savings KVP NSC 640 2 3 4 30 30 20 20 20 15 0 22 0 5 25 15 0 10 5 90 19 0 6 36 12 4 8 12 12 0 56 7 6 3 6 4 8 2 4 1 2 3 3 0 8 1 0 2 4 6 7 4 5 2 2 4 9 6 0 1 8 3 8 3 4 0 0 1 0 Tota l %
112 18 0 0
0 2110 0 6805 0 0 0 176 434 215
12.3 6 39.8 6 1.03 2.54 1.26
640 320 20 0 0 80 0 0 40 0
160 20 40 440 40 32 0 30 0
0 1155 6.77 0 1370 8.02
320 280
PPF MIS Mutual Fund
280
18 0 52 0 46 0
21 0 29 0 40
90 55 30
64 28 64
8 1 1 8 1 8
2 2 1 0
2 0 4
909
5.32 10.7 4
400 520 480 960
0 1833
0 2066 12.1
45 40 35 30 25 20 15 10 5 39.86
Suggestions to Clients by IFA
12.36 6.77 1.03 2.54 1.26 8.02 5.32
10.74
12.1
Securities
Interpretation:80 Advisers has given fist preference to insurance as an investment. In the sample of this survey, out of 102 Adviser 89 advisers are insurance agents so it is nature that they first suggest insurance as an investment. But it is not only one reason why insurance is given that much preference. Insurance is fist need of any investors. The most valuable reason behind this is the Insurance covers Life Risk of the prospect and also giving the return as a bonus to their client. This is not available in any other investment avenues. The insurance also gives the tax benefits, and people prefer it because it is the safer than others. Now Insurance companies also offers different types of planes in which investor can get higher return with life protection facilities. We can also see the more then 33% preference is given to invest in Post Office Saving schemes like KVP, NSC, and MIS because it has several benefits like; it has the highest interest rate of 8% on saving. And in various scheme the interest is tax-free. And the most applicable reason behind it is that the Government undertakes it. So the risk is lower than others. But Post Office Savings Account is not suggested largely because it does not give higher return. Fixed Deposit is not much attractive in the view of adviser; because they are not provided doorstep collection service like post office, and returns also very weak, less than 8 %. The FDs are a very long term investment though they are also not much advised by Advisers. Stocks are also get less percent because they are very risky and in future it may be its return affect the negatively to the market credit of Advisers.
PPF and Government Securities are having full safety of principal and it also gives tax benefits but their maturity period is little beet longer. So it is not much attractive in the eyes of advisers. Suggesting mutual fund Yes No Of Respondents % 71 No 31 Total 102 100
69.61 30.39
Suggesting Mutual fund
71 102 Yes No 31 Total
Interpretation: Now Mutual fund is not new concept for the advisers in the investment avenues. All most 70 % Advisers suggest the MF. This ratio is increase in last one year. Before one year this ratio is less then 50%. 99 mutual funds schemes have paid hard their investors in the form of dividends in
year 2005. In the year 2004, 75 schemes had declared dividend. Equity mutual funds are set to make record profits of almost Rs. 850 crore for their funbd house in the year 2005-06. Portfolio of equity mutual fund rose by 74 persent or Rs. 28,640.25 crore to Rs. 67,352.72 crore during the first eitht month of 2005-06. This is expected to result in a record income for the industry as a fund house charge management fees of 1025% on their equity schemes based on the size of a portfolio. All the investor and their advisers are aware of it. Now days AMCs are also spend more money in advertisement of and promotion. So in the last years performance of MF funds and more advertise create awareness among people and advisers. But awareness ration of Mutual fund among the adviser is not reach at the 100 % level. Because of Mutual Fund is still new concept in the investment avenues for some Advisers or the mutual funds portfolio is based on the equity market and debt market: So, the Advisers dont want to make investment of their client in the stock market related instruments because the market is fluctuant every minute and it is very risky than other investment avenues. Though equity is the sector where you get good return on the long term investment but the people see the equity sector as a short term investment and in this case the chances are very high for loss and gaining of money. Many advisers now come to know that the investment in mutual fund is based on diversified sectors. It means that mutual fund companies do not invest in one or two scripts of share market. But the investment portfolio contains scripts from diversified sector. Even if one or two sector is facing declining move doesnt affect proportionately the total return.
3. Reasons for not suggesting Mutual Fund Attributes High Risk Lack of Knowledge Unasserted Return Poor Incentive Structure Poor Performance Past Failure Total Advisers 3 22 5 0 1 0 31 % 9.68 70.97 16.13 0 3.23 0 100
25 20 15 10 5 0 High Risk
22
Reasons for Not Suggesting MF
5 3 0 1 Poor Performance 0 Past Failure
Lack of Knowledge
Unasserted Return
Poor Incentive Structure
Interpretation: By this data we can say that main reason why 31 advisers do not suggest Mutual funds as an investment Instrument. This reason is that this group of advisers is not much aware of Mutual fund. It is natural that one can not advise without he has much knowledge in particular field. Advisers will only suggest those investment products, in which they have good Knowledge. We can not refuse that investment in mutual fund is risky due to investment in stock. In my serve 3% advisers believe that Mutual fund is highly risky. This is true but not fully. Invest in stock exchange is highest risky among all investment instruments. Mutual fund can not give fixed return as KVP NSC and F.D. gives. So Advisers can not give any promise to investors that investment in mutual fund gives higher return. So in my serve 5% advisers do not suggest mutual fund because uncertainty of returns in Mutual funds. It is true if Stock market gives high return mutual fund can not give like it. It is also true that dept related fund gives low return. So some advisers meant that Mutual Funds performance is low but it is not true for all funds. And in the market there are very less schemes which are debt related. If investor wants higher return adviser can suggest equity funds.
4. Attributes Preferred by Advisers Rank 1 Low Risk Tax Benefit Flexibility Return Liquidity Professional Management Good Invective Structure 2 3 4 5 6 7 5 71 71 71 71 71 71 71 Total
14 19 9 6 0 3 7
6 10 8
7 14 15 20 6 9 19 17 4 15 8 1 8 1 3 1 0
32 20 8
12 16 27 5 4 3 5 4
9 14 13 23 3 3 4 7 12 38
To analyze this rank related data, rank has given points. Points are allotted as per bellow Rank Point 1 100 2 3 4 5 6 7
50 25 10 5 2 1
Rank 1 Low Risk 2 3 4 5 6 7
Total
1400 950 225 60 50 16 5
2706 19.69
Tax Benefit Flexibility Return Liquidity Professional Management Good Invective Structure
600 0
150 175 140 45 40 6 350 225 190 51 8 15 3 2 1 0
1156 839
8.41 6.1
3200 1000 200 80
4486 32.64 2755 20.05 1103 698 8.03 5.08
1200 800 675 50 24 6 400 300
250 225 140 39 46 3 200 75 40 21 24 38
Attributes Preferred by Advisers

5% 8% 20% Low Risk Tax Benefit Flexibility 20% 8% Return Liquidity 6% Professional Management Good Incentive Structure 33%
Interpretations: Here in the above graph can be clearly seen that there is a mix interpretation of the benefits of mutual fund. Nearly 33% presence goes to return. Advisers prefer Mutual Fund because they believe that Mutual fund gives more return compeer to other investments. With Return One has to also consider risk associated with the instrument while taking decision of investment. 20% preferences go to low risk. It mean that adviser believe that in mutual fund, there is low risk camper to other instruments which gives high returns like Mutual funds. In investment instrument other main attributes investor want is liquidity. Mutual fund gives these benefits to their investors. 20% Advisers preference goes to Liquidity. Mutual fund is managed by Professional persons. Mutual funds advisers have to clear one test called AMFI Test. Fund manager has good experience in investment management and skillful knowledge of stock market changes. These all information say us that Mutual Fund Professional management. Incentive Structure is also motivating factor for the advisers. On an average for equity fund adviser may get 3% to 5%. It means, if investor invest Rs. 1,00,000 throve adviser then adviser can get Rs. 3000 to Rs. 5000. It is good incentive structure camper to other Investment Instruments except insurance. Agents of Life insurance get around 25% of first premium.
5. AMFI Certified Yes No of Respondent % 10 9.8 No 92 90.2 Total 102 100
AMFI Certificate
10 Yes 102 92 Total
No
Interpretation: The AMFI stand for the Association of Mutual Fund in India. AMFI is dedicated to developing the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in all areas with a view to protecting and promoting the
interests of mutual funds and their unit holders. As per SEBI Circular dated September 25, 2001 all agents/distributors appointed from November 1, 2001 have to obtain AMFI certification prior to their appointment. In case of firms and corporate the requirement of certification is applicable to persons engaged in sales and marketing. We can see that only 10% has just clear the AMFI Exam as a Mutual Fund Advisor. So we can say that in the market there are very few advisers of mutual fund who are authorized to sale mutual funds units. Mutual fund is growing and we want more AMFI certified Advisers.
6. Adviser wants to give AMFI (Advisors) Module Yes No of Respondent % 45 No 47 Total 92 100
48.91 51.09
Adviser wants to give AMFI (Advisors) Module

45 92 No 47 Total Yes
Interpretation: As they seen in above question that the AMFI is the requirement of certification applicable to persons engaged in sales and marketing of Mutual fund. AMFI Mutual Fund Test is open to all persons who wish to test their own knowledge of mutual funds. There are no restrictions of age or qualifications for anyone to take the Test. Looking to the currant wants of the investors advisers want to provide advisory service on the Mutual Funds. So 49% Advisers want to give this AMFI exam to be the Mutual Fund Advisor. Getting the knowledge about the mutual fund and to understanding the functioning
of Mutual Fund industry the Advisers want to appear in the AMFI Exam. But 51% does not want to appear for the Exam. Some advisers who do not want give exam, they have lack of time or they are afraid of frailer in the exam. Some advisers are not having good gripe on English language so they do not want to give exam. Some advises is aged who has not interested to earn more or their learning capacity being low. One main reason for not giving exam is group system. In one group of advises one has AMFI clear and by his name all the grope member sale the Mutual Funds. They share the commission after wards.
7. AMFI Certifiers Dealer. Dealer NJ IndiaInvest Karvy Direct With AMC Total Advisers 7 1 2 10 % 70 10 20 100
7 6 5 4 3 2 1 0 NJ IndiaInvest Karvy Axis Title Direct With AMC Advisers
Axis Title
Interpretation: NJ IndiaInvest prefers only AMFI clear advisers under its dealership. In Gujarat, NJ IndiaInvest is Best Distributor of mutual funds. NJ provides lots of services to the advisers who are working under it. NJ provides knowledge to all advisers for each scheme. NJ manages to send new fund offers application forms to each adviser. NJ also gives its contribution in sales promotion and advertises campaigns. Main feature of NJ is its technical supports. NJ provides individual clients portfolio on the net. By this facility Adviser can easily provides his service to his clients. Adviser can give latest NAV. So client can know their latest value of investment. NJ also manages to conduct AMFI Test in the different cities. NJ provides so many services to their advisers. Because of good services, person who wants to be Adviser of mutual fund come at NJ and start working with NJ. Some advisers are working direcly with AMCs. It gives more brokerage to the advisers but services are lesser then NJ provides.
8. Reasons for Choosing Dealer. Rank 1 2 3 4 5 Better Service Better AMC Good Reputation Better Incentive Structure Timely Brokerage 5 2 2 0 1 0 0 1 2 7 0 2 3 5 0 2 3 1 2 2 3 3 3 1 0 10 10 10 10 10 Total
To analyze this rank related data, rank has given points. Points are allotted as per bellow Rank Points 1 2 3 4 5
80 40 20 10 5
Rank 1 Better Service Better AMC Good Reputation 2 3 4 5 5
Total
400 80 40 0 0 0 0
525 75 190
33.87 4.84 12.26
20 20 35
80 60 50 0
Better Incentive Structure Timely Brokerage
160 120 20 20 10 240 120 60 10 0
330 430
21.29 27.74
Chart Title
Better Service 28% 34% Good Reputation Better Incentive Structure Timely Brokerage 21% 12% 5% Better AMC
Interpretation: When advisers choose a dealer, they want better service and their brokerage on time. Incentive structure is also a main attribute for choosing dealer. Out of 10 AMFI certified advisers, 5 advisers have given reason for best services. These 5 advisers are working with NJ. 2 Advisers have chosen their dealer because they want better incentive structure. And rest 3 advisers choose for timely brokerage.
9. Adviser interested to attend BOP Yes No of Respondent % 46 45.1
No 56 54.9
Total 102 100
Adviser interested to attend BOP
Yes 45% 55%
No
Interpretation: Every Business associate people look for the opportunities to expand their business. And N J India Invest Pvt. Ltd. is providing them these opportunities and opens new door for getting business. BOP means the Business Opportunity Program. The N J India is arranging the BOP to making the awareness of Mutual Fund Industry.
In BOP they are inviting those interesting Advisers and give them knowledge about the Mutual Fund concept, how it work, and the facility providing by the N J India to them. In this competitive era the knowledge should be update to stand in competition and this is the program in which at least they get the some knowledge updating about the mutual fund. By the graph we can see that 45%of the IFA wants to attend it.
10. Advisers want to more information about mutual fund Yes No of Respondent % 28 No 74 Total 102 100
27.45 72.55
Advisers want to more information about mutual fund

27%
Yes
No
73%
Interpretation: The IFA might be busy with there routing work so they are wants the information from the Representative. N J India is sending their Executive for giving them knowledge about the Mutual Fund Industry and its the marketing strategy of the N J India to making the awareness of Mutual Fund among the IFA.
11. Popularity NJ India Invest Pvt Ltd Yes No of Respondent % 51 50 No 51 50 Total 102 100
Popularity NJ IndiaInvest
50%
50%
Yes No
Interpretation: Among the Financial Advisers, NJ IndiaInvest Pvt Ltd is known 50%. NJ s policy is simplicity. NJ does not spend in unnecessary expence of advertisement. NJ IndiaInvest is the Gujarat States NO 1 Distributor for mutual fund. In all over the India NJ is at the Fifth place. In the last NFO of SBI Blue Chip fund, NJ was stand at second place. NJ had participated in the Udyog 2006 a event manage by the Southern Gujarat Chamber of Commerce & Industry.
CONCLUSION
Mutual Fund is good concept of investment with collects the
savings and invests in different sector and different market in such a way that investment get highest return. This return will be paid back to Unit holder. The perception of Independent Financial Advisor is that insurance is a best investment option among all investment products and then other options are coming into consideration. And stock is least advisable according to their view. Most of Advisers now suggesting mutual fund. Today Advisers are kept them selves full of knowledge of all investment instruments. And their researches allow them to suggest Mutual Fund as Investment Avenue. Still some advisers have not suggested the Mutual funds as investment instrument. The basic reason behind that is, lack of knowledge about mutual funds, which is followed by high risk and unasserted returns. Safety is at the peak of all attributes list of investment products in the mindset of Advisers, which is followed by tax benefit, returns, maturity and liquidity. Advisers are highly providing pre-investment advisory services and doorstep collection services. Some of the Advisers are follow their clients and provide post-investment advisory services also. Sharing of brokerage and online valuation report providing is very less in a practice. There is very poor awareness of asset management companies among independent financial advisors.
Most of Advisers are not certified with AMFI (Advisors) Exam.
There is a mix trend in attending Business Opportunity Program, arranged by NJ INDIAINVEST, and giving exam.
RECOMMENDATIONS
Give more stress on safety attributes because Independent Financial Advisors are more concern about safety of the investments of their clients. 30 % of Independent Financial Advisors who are not suggesting their clients to invest in mutual funds due to their lack of knowledge of mutual funds. So NJ India Invest should arrange mutual fund awareness Program of Independent Financial Advisors on regular basis. By providing better service NJ India Invest should try to switch the Independent Financial Advisors who are directly working with AMC to join with them. NJ India Invest should arrange special mutual fund awareness program for general public. So they can directly work with NJ India Invest as direct client. Majority of the Government employees take into consideration tax benefits before making any investment. So NJ India Invest should highlight tax benefits in mutual funds. NJ India Invest should launch its brand awareness campaign to be number one in Mutual fund advisory service provider.
Appendix - A Questioner Name : ____________________________________________ Address : ____________________________________________ Telephone No ________ : _____________ Mobile No. :
E-Mail Address : ____________________________________________ Profession _________ : _________________ No of Clients :
Q-1 Rank the parameters given below according to your customers preference? Safety Liquidity Returns Tax Benefit Maturity Any Other : ______________
Q-2 what do you suggest your clients for investment? Give the Rank Stocks Insurance Fixed Deposits KVP NSC PPF
Govt. Securities P. O. Savings
MIS Mutual Fund
Any Other: _____________________ If you advise your client to invest in mutual funds, answer the questions from Q.4 onwards: Q.3 Why do you not advise your clients to invest in mutual funds? High risk Lack of knowledge Unasserted return Q.4 (Give rank in order of preference): Low risk Tax benefit Flexibility Return Liquidity Professional management Good incentive structure Poor incentive structure Poor performance Past failure
Q-5 Have you cleared your AMFI (Advisors) exam? Yes No
Q-6 If no, would you like to give it? Yes No
If No give reasons: ____________________________________________________
Q-7 If yes then which dealer or broker you generally work with? ______________________________________________________ ______
Q-8 Why do you prefer to work with that dealer? (Give rank in order of preference) Better service Better AMC Good Reputation ___________________ Better incentive structure Timely brokerage Any other:
Q-9 Would you like to attend business opportunity programme arranged by NJ India Invest? Yes No
Q-10 Do you know that NJ India Finance is the No. 1 Mutual Fund distributor In Gujarat? Yes No
Q-11 Can NJ India Invest send a representative for more information about Mutual Funds? Yes No
References ___________________________________________________ ___________________________________________________
Only For Office Use.
Working with NJ Highly Interested Interested Not Interested
Appendix - B
List of Abbreviations Asset Management Company Association of Mutual Funds of India Asset under Management Fixed Deposit High Net worth Individual Human Resource Individual Financial Advisor Kisan Vikas Patra Monthly Income Scheme Net Asset Value National Saving Certificate Mutual Funds Public Provident Fund Security and Exchange Board of India Unit Trust of India
AMC AMFI AUM FD HNI HR IFA KVP MIS NAV NSC MF PPF SEBI UTI

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EXECUTIVE SUMMARY

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

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Type of Mutual Fund Schemes

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Mutual Funds Industry in India

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Major Players of Mutual Funds In India

Date NAV (Rs.) Mar 26 , 2008 Mar 26 , 2008 8.45

Last Since 1 Inception Week 5.12 -94.64

Mar 12.44 26 , 2008 Mar 14.07 26 , 2008

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Mar 26 , 2008 Mar 26 , 2008

Mar 10.19 26 , 2008 6.36

DBS Chola Small Mar Cap Fund 26 , Growth 2008

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Mar 10.25 26 , 2008 Mar 25 , 2008 Mar 26 , 2008 7.64

Sahara R.E.A.L Fund - Growth

Tata SIP Fund Series II Growth

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History of the Indian mutual fund industry:

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Categories of mutual funds:

Mutual funds can be classified as follow: Based on their structure:

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Risk v/s. return:

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Working of a Mutual fund

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Overview of existing schemes existed in mutual fund category

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Type of Mutual Fund Schemes

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Advantages of Investing Mutual Funds:

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Disadvantages of Investing Mutual Funds:

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COMPARISON OF OTHER INVESTMENT & MUTUAL FUNDS

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Investment Process- Stages in Investment

The Process of Investing

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A Time Deposit account can be opened at any post-office.

Period One Year Two Year Three Year Five Year

Rate 6.25% 6.50% 7.25% 7.50%

Buying, Selling, and Holding

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Depends if the banker accepts it as a security.

Buying, Selling, and Holding

Investor can buy a post office MIS at any post-office in India.

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