Mutual Funds

A Comparative Study on Mutual Fund Companies in India and Analysis of Investment Behavior of Consumers
A Project Report Presented to S.K. Patel Institute Management and Computer Studies Gujarat University Submitted to: Mrs. Pratima On 1st February 2006 In Partial fulfillment of the requirements for the Project Study in the Master of Business Administration Program Submitted by: Chandrakant J. Gohel (64) Pankaj Y. Patel (84)
Acknowledgements
It is a great pleasure on our part to submit this project report on A Comparative Study on Mutual Fund Companies in India and Analysis of Investment Behavior of Consumers. On this occasion we express our sincere gratitude towards Dr. Chinnam Reddy (Director SKPIMCS) who has given this opportunity to work on mutual fund industry. We have been greatly assisted in our endeavors by Mrs. Pratima (Core Faculty, MBA Marketing) under whose guidance we have completed our project.
EXECUTIVE SUMMARY
India is one of the fastest growing economies in the world due to which the income level of people in India is increasing and along with it the savings and investments are also growing. Due to liberalization and deregulation which was announced in New Industrial Policy 1991, has dismantled barriers in the financial market, allowed the entry of new players and created environment for efficient allocation of resources. One of the important industries in emerging financial market is the mutual fund industry. The mutual fund industry has played a significant role in the development of capital market, growth of corporate sectors and financial intermediation. As mutual fund industry in India is relatively new, the level of awareness among the people is less but with the increase in level of awareness the mutual fund industry is also growing. The government has also announced the regulatory measures for the growth of mutual fund industry and protection of investors in mutual funds. Here we have attempted to study mutual fund industry in India, comparison of mutual fund companies and schemes offered by them and investment behavior of consumers. The Indian mutual fund industry came into existence with the establishment of Unit Trust of India in 1964. Unit Trust of India was not efficient enough to expand the mutual fund market. In late 1980s nationalized bank sponsored mutual funds came into existence which helped mutual fund industry to expand its market. The private sector mutual fund entered the industry during early 1990s with greater variety of products and better services. They introduced different kinds of products satisfying the needs of the different classes of investors.
The major limitation of mutual fund industry in India is the lack of awareness among the investors. Most of the investors are not at all aware about what is mutual fund? How it functions? How money collected from investors are invested, etc against which in America more than eighty million people or one half of the households invest in mutual funds. That means that, in the United States alone, trillions of dollars are invested in mutual funds. Mutual fund industry depends on gaining the trust of investors. Once the investors trust is gained it is easy to convince them to invest in mutual funds. The investors are attracted based on the performance of the mutual funds rather than winning the trust of investors. The performance of mutual funds is variable, sometimes it may go up and sometimes it may come down. It is also not sure that the past performance will be repeated in the current period. Still the investors are attracted based on the past performance of mutual funds. The Indian mutual fund industry should come out of this limitation. They should try to attract the investors by gaining their trust rather than showing the past performance of mutual funds. Most of the investors are not aware about the professional fund managers of the mutual funds. They invest in the mutual funds based of the returns which mutual fund yields. The investors are not aware that the fund managers of mutual funds do systematic analysis of the companies in which they are going to invest; they give suggestions to the companies which are not performing well. Therefore the mutual fund industry should try to promote about their professional fund managers, which would help the industry to attract the investors and expand its market. The mutual fund industry in India is still in the developing stage. Many of the mutual fund companies are presently functioning in the urban area, but in country like India where the substantial part of total population lives in the rural area, also the mutual fund companies needs to expand their business in the unexplored rural areas which will lead to the substantial increase in the total amount which is invested in mutual funds.
The basic functioning of mutual fund depends on the equity and debt market. The portfolio of different mutual funds companies constitutes of the investments in any of these markets depending upon the type and scheme of mutual fund. Whenever any of the above mentioned market goes down the respective fund is affected. For example if the market has gone down by 30% but the mutual funds NAV has gone down only by 10% than the investor should understand that the fund manager of such scheme is really efficient. But rather than having such a long view the investors thought is limited to short run and they think that the scheme in which they have invested is not good and they withdraw their money by incurring losses which is one of the major limitation of the investors investing in mutual funds, which the mutual fund company must try to overcome by increasing the awareness regarding the basic functioning of mutual funds and making the customers aware regarding the difference between the absolute and relative returns.
Table of Contents
Sr. No. 1 2 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 3.14 3.15 4 4.1 4.2 4.3 4.4 4.5 4.6 5 6 7 CONTENTS Research Proposal Bank Profile Mutual Funds: An Overview Introduction History of Mutual Funds in India The Definition Concept Structure of Indian Mutual Fund Industry Recent Trends in Mutual Fund industry Market Trends Bank V/S Mutual Funds Global Scenario Types of Mutual Funds Merits of Mutual Fund Investments Demerits of Mutual Fund Investments How to overcome demerits of Mutual Funds? Net Asset Value (NAV) Regulatory Aspects Comparison and Analysis of Mutual Fund Companies Comparison of top ten Equity Schemes Comparison of top ten Debt Schemes Analysis of top three Open Ended Equity Schemes Analysis of top three Close Ended Equity Schemes Analysis of top three Open Ended Debt Schemes Analysis of top three Close Ended Debt Schemes Survey Findings and Analysis Future Scenario Conclusion Glossary Annexure Page No. 1-2 3-4 5-34 5 7 10 11 12 14 15 17 18 21 24 26 28 29 31 35-63 35 36 37 45 51 59 64-72 73 74-77
Bibliography
RESEARCH PROPOSAL
Title of the study:
A Comparative Study of Mutual Fund Companies in India and Analysis of Investment Behavior of Consumers for Centurion Bank.
Research Objectives:
To study mutual fund industry and understand its functioning. To study the legal structure of mutual fund industry. To understand the distribution channels and marketing of mutual funds. To study the management of mutual funds. To analyze and compare the performance of various mutual funds companies. To study the problem and prospects of mutual fund industry. To know the awareness level regarding mutual funds. To know investment behavior of people in mutual funds.
Research Type:
Descriptive research. It will be a descriptive study and will aim at finding out the above objectives.
Sample Size:
100. Random Sampling.
Sample Size Determination:

A reason for sampling is to infer something about population. Sampling distribution is the probability distribution of a specified sample statistics. For all possible random sample of a given size n drawn from population N. In this case the calculation for the sample size can be as follows: n= Z22 e2
Here
Z 2 e2
= value determined from Z table for a confidence level = Variance = Error specification
In the research it was decided to have a confidence level of 97.5% thus from the Z-table its value was noted down which is 1.96. Variance, which is square of Standard Deviation for 5 options, is 2.24. Standard error was kept +0.293 lakhs. Putting these in the formula we get, n = (1.96)2(2.24) (0.293)2 n = 3.8416 * 2.24 .0858 = 100.29
Thus sample size required for survey is 100.
Research Methodology:
a.) Primary Source: Questionnaire. b.) Secondary Sources: Books. Websites. Magazines. Newspapers.
Mutual Funds: An overview
Introduction
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned
through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy. A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc. A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator,
SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes.
History of Mutual Funds in India

The end of millennium marks 36 years of existence of mutual funds in this country. The ride through these 36 years is not been smooth. Investor opinion is still divided. While some are for mutual funds others are against it. UTI commenced its operations from July 1964 .The impetus for establishing a formal institution came from the desire to increase the propensity of the middle and lower groups to save and to invest. UTI came into existence during a period marked by great political and economic uncertainty in India. With war on the borders and economic turmoil that
depressed the financial market, entrepreneurs were hesitant to enter capital market. The already existing companies found it difficult to raise fresh capital, as investors did not respond adequately to new issues. Earnest efforts were required to canalize savings of the community into productive uses in order to speed up the process of industrial growth. The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would be "open to any person or institution to purchase the units offered by the trust. However, this institution as we see it, is intended to cater to the needs of individual investors, and even among them as far as possible, to those whose means are small." His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill the twin objectives of mobilizing retail savings and investing those savings in the capital market and passing on the benefits so accrued to the small investors. UTI commenced its operations from July 1964 "with a view to encouraging savings and investment and participation in the income, profits and gains accruing to the Corporation from the acquisition, holding, management and disposal of securities." Different provisions of the UTI Act laid down the structure of management, scope of business, powers and functions of the Trust as well as accounting, disclosures and regulatory requirements for the Trust. One thing is certain the fund industry is here to stay. The industry was one-entity show till 1986 when the UTI monopoly was broken when SBI and Canbank mutual fund entered the arena. This was followed by the entry of others like BOI, LIC, GIC, etc. sponsored by public sector banks. Starting with an asset base of Rs0.25bn in 1964 the industry has grown at a compounded average growth rate of 26.34% to its current size of Rs1130bn. The period 1986-1993 can be termed as the period of public sector mutual funds (PMFs). From one player in 1985 the number increased to 8 in 1993. The party did not last long. When the private sector made its debut in 1993-94, the stock market was booming. The openings up of the asset management business to private sector in 1993 saw international players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros
and Capital International along with the host of domestic players join the party. But for the equity funds, the period of 1994-96 was one of the worst in the history of Indian Mutual Funds. 1999-2000 Year of the funds Mutual funds have been around for a long period of time to be precise for 36 yrs but the year 1999 saw immense future potential and developments in this sector. This year signaled the year of resurgence of mutual funds and the regaining of investor confidence in these MFs. This time around all the participants are involved in the revival of the funds ----- the AMCs, the unit holders, the other related parties. However the sole factor that gave life to the revival of the funds was the Union Budget. The budget brought about a large number of changes in one stroke. An insight of the Union Budget on mutual funds taxation benefits is provided later. It provided centre stage to the mutual funds, made them more attractive and provides acceptability among the investors. The Union Budget exempted mutual fund dividend given out by equity-oriented schemes from tax, both at the hands of the investor as well as the mutual fund. No longer were the mutual funds interested in selling the concept of mutual funds they wanted to talk business which would mean to increase asset base, and to get asset base and investor base they had to be fully armed with a whole lot of schemes for every investor .So new schemes for new IPOs were inevitable. The quest to attract investors extended beyond just new schemes. The funds started to regulate themselves and were all out on winning the trust and confidence of the investors under the aegis of the Association of Mutual Funds of India (AMFI) One can say that the industry is moving from infancy to adolescence, the industry is maturing and the investors and funds are frankly and openly discussing difficulties opportunities and compulsions.
The Definition
A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund. You can make money from a mutual fund in three ways: 1) 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.
2) 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. 3) 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.
CONCEPT
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:
Mutual Fund Operation Flow Chart
ORGANISATION OF A MUTUAL FUND
Structure of the Indian mutual fund industry

The Indian mutual fund industry is dominated by the Unit Trust of India which has a total corpus of Rs700bn collected from more than 20 million investors. The UTI has many funds/schemes in all categories ie equity, balanced, income etc with some being openended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. UTI was floated by financial institutions and is governed by a special act of Parliament. Most of its investors believe that the UTI is government owned and controlled, which, while legally incorrect, is true for all practical purposes.
The second largest categories of mutual funds are the ones floated by nationalized banks. Canbank Asset Management floated by Canara Bank and SBI Funds Management floated by the State Bank of India are the largest of these. GIC AMC floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones. The aggregate corpus of funds managed by this category of AMCs is about Rs150bn. The third largest categories of mutual funds are the ones floated by the private sector and by foreign asset management companies. The largest of these are Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs250bn Some of the AMCs operating currently are:
Name of the AMC Alliance Capital Asset Management (I) Private Limited Birla Sun Life Asset Management Company Limited Bank of Baroda Asset Management Company Limited Bank of India Asset Management Company Limited Canbank Investment Management Services Limited
Nature of ownership Private foreign Private Indian Banks Banks Banks
Cholamandalam Cazenove Asset Management Company Limited Private foreign Dundee Asset Management Company Limited DSP Merrill Lynch Asset Management Company Limited Escorts Asset Management Limited First India Asset Management Limited Private foreign Private foreign Private Indian Private Indian
GIC Asset Management Company Limited IDBI Investment Management Company Limited Indfund Management Limited ING Investment Asset Management Company Private Limited J M Capital Management Limited Jardine Fleming (I) Asset Management Limited Kotak Mahindra Asset Management Company Limited Kothari Pioneer Asset Management Company Limited Jeevan Bima Sahayog Asset Management Company Limited Morgan Stanley Asset Management Company Private Limited Punjab National Bank Asset Management Company Limited Reliance Capital Asset Management Company Limited State Bank of India Funds Management Limited Shriram Asset Management Company Limited Sun F and C Asset Management (I) Private Limited Sundaram Newton Asset Management Company Limited Tata Asset Management Company Limited Credit Capital Asset Management Company Limited Templeton Asset Management (India) Private Limited
Institutions Institutions Banks Private foreign Private Indian Private foreign Private Indian Private Indian Institutions Private foreign Banks Private Indian Banks Private Indian Private foreign Private foreign Private Indian Private Indian Private foreign
Unit Trust of India Zurich Asset Management Company (I) Limited
Institutions Private foreign
Recent trends in mutual fund industry

The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure,
usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these.
Market Trends
A lone UTI with just one scheme in 1964 now competes with as many as 400 odd products and 34 players in the market. In spite of the stiff competition and losing market share, UTI still remains a formidable force to reckon with. Last six years have been the most turbulent as well as exiting ones for the industry. New players have come in, while others have decided to close shop by either selling off or merging with others. Product innovation is now pass with the game shifting to performance delivery in fund management as well as service. Those directly associated with the fund management industry like distributors, registrars and transfer agents, and even the regulators have become more mature and responsible. The industry is also having a profound impact on financial markets. While UTI has always been a dominant player on the bourses as well as the debt markets, the new generation of private funds which have gained substantial mass are now seen flexing their muscles. Fund managers, by their selection criteria for stocks have forced corporate governance on the industry. By rewarding honest and transparent management with higher valuations, a system of risk-reward has been created where the corporate sector is more transparent then before. Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded Rs300bn. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn.
What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40 crore in the case of public sector funds. Mutual funds are now also competing with commercial banks in the race for retail investors savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99. India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future.
Banks v/s Mutual Funds
BANKS Returns Low
MUTUAL FUNDS Better Low Moderate More Low but improving Better Transparent
Administrative exp. High Risk Low
Investment options Less Network Liquidity Quality of assets High penetration At a cost Not transparent
Interest calculation Minimum balance between 10th. & 30th. Of every month Everyday Guarantee Maximum Rs.1 lakh on deposits None
Global Scenario
Some basic facts
The money market mutual fund segment has a total corpus of $ 1.48 trillion in the U.S. against a corpus of $ 100 million in India.
Out of the top 10 mutual funds worldwide, eight are bank- sponsored. Only Fidelity and Capital are non-bank mutual funds in this group.
In the U.S. the total number of schemes is higher than that of the listed companies while in India we have just 277 schemes
Internationally, mutual funds are allowed to go short. In India fund managers do not have such leeway.
On- line trading is a great idea to reduce management expenses from the current 2 % of total assets to about 0.75 % of the total assets.
Internationally, online investing continues its meteoric rise. Many have debated about the success of e- commerce and its breakthroughs, but it is true that this aspect of technology could and will change the way financial sectors function. However, mutual funds cannot be left far behind. They have realized the potential of the Internet and are equipping themselves to perform better.
In fact in advanced countries like the U.S.A, mutual funds buy- sell transactions have already begun on the Net, while in India the Net is used as a source of Information. Such changes could facilitate easy access, lower intermediation costs and better services for all. A research agency that specializes in internet technology estimates that over the next four years Mutual Fund Assets traded online will grow ten folds from $ 128 billion to $ 1,227 billion ; whereas equity assets traded on-line will increase during the period from $ 246 billion to $ 1,561 billion. This will increase the share of mutual funds from 34% to 40% during the period. Such increases in volumes are expected to bring about large changes in the way Mutual Funds conduct their business. Here are some of the basic changes that have taken place since the advent of the Net.
Lower Costs:
Mutual funds could bring down their administrative costs to 0.75% if trading is done online. As per SEBI regulations, bond funds can charge a maximum of 2.25% and equity funds can charge 2.5% as administrative fees. Therefore if the administrative costs are low, the benefits are passed down and hence Mutual Funds are able to attract mire investors and increase their asset base.
Better advice:
Mutual funds could provide better advice to their investors through the Net rather than through the traditional investment routes where there is an additional channel to deal with the Brokers. Direct dealing with the fund could help the investor with their financial planning.
In India, brokers could get more Net savvy than investors and could help the investors with the knowledge through get from the Net.
New investors would prefer online :
Mutual funds can target investors who are young individuals and who are Net savvy, since servicing them would be easier on the Net.
India has around 1.6 million net users who are prime target for these funds and this could just be the beginning. The Internet users are going to increases dramatically and mutual funds are going to be the best beneficiary. With smaller administrative costs more funds would be mobilized .A fund manager must be ready to tackle the volatility and will have to maintain sufficient amount of investments which are high liquidity and low yielding investments to honor redemption.
Net based advertisements:
There will be more sites involved in ads and promotion of mutual funds. In the U.S. sites like AOL offer detailed research and financial details about the functioning of different funds and their performance statistics. A is witnessing a genesis in this area . There are many sites such as indiainfoline.com and indiafn.com that are doing something similar and providing advice to investors regarding their investments. In the U.S. most mutual funds concentrate only on financial funds like equity and debt. Some like real estate funds and commodity funds also take an exposure to physical assets. The latter type of funds are preferred by corporate who want to hedge their exposure to the commodities they deal with. For instance, a cable manufacturer who needs 100 tons of Copper in the month of January could buy an equivalent amount of copper by investing in a copper fund. For Example, Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed percentage of its corpus in Gold, Silver, Swiss francs, specific stocks on various bourses around the world, short term and long-term U.S. treasuries etc. In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real estate funds (investing in real estate and other related assets as well.).In India, the Canada
based Dundee mutual fund is planning to launch a gold and a real estate fund before the year-end. In developed countries like the U.S.A there are funds to satisfy everybodys requirement, but in India only the tip of the iceberg has been explored. In the near future India too will concentrate on financial as well as physical funds.
Types of Mutual Funds

Mutual fund schemes may be classified on the basis of its structure and its investment objective. By Structure: Open-ended Funds An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. Closed-ended Funds A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Interval Funds
Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices. By Investment Objective: Growth Funds The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth. Money Market Funds The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in
the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. Load Funds A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history. No-Load Funds A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work. Other Schemes: Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction under Income Tax Act, 1961. Special Schemes
Industry Specific Schemes
Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, Pharmaceuticals etc.
Index Schemes
Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50.
Sectoral Schemes
Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.
Merits of Mutual Fund investment

Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Return Potential Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Low Costs
Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. Affordability Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. Well Regulated All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.
Demerits of Mutual Fund investment:

Professional Management Many investors debate over whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. Dilution It's possible to have too much diversification. Because funds have small holdings in so many 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. Entry and exit costs Mutual funds are a victim of their own success. When a large body like a fund invests in shares, the concentrated buying or selling often results in adverse price movements ie at the time of buying, the fund ends up paying a higher price and while selling it realizes a lower price. This problem is especially severe in emerging markets like India, where, excluding a few stocks, even the stocks in the Sensex are not liquid, let alone stocks in the NSE 50 or the CRISIL 500. So, there is simply no way that a fund can beat the Sensex or any other index, if it blindly invests in the same stocks as those in the Sensex and in the same proportion. For obvious reasons, this problem is even more severe for funds investing in small capitalization stocks. However, given the large size of the debt market, excluding UTI, most debt funds do not face this problem.
Wait time before investment It takes time for a mutual fund to invest money. Unfortunately, most mutual funds receive money when markets are in a boom phase and investors are willing to try out mutual funds. Since it is difficult to invest all funds in one day, there is some money waiting to be invested. Further, there may be a time lag before investment opportunities are identified. This ensures that the fund underperforms the index. For open-ended funds, there is the added problem of perpetually keeping some money in liquid assets to meet redemptions. The problem of impracticability of quick investments is likely to be reduced to some extent with the introduction of index futures. Fund management costs The costs of the fund management process are deducted from the fund. This includes marketing and initial costs deducted at the time of entry itself, called "load". Then there is the annual asset management fee and expenses, together called the expense ratio. Usually, the former is not counted while measuring performance, while the latter is. A standard 2% expense ratio means that, everything else being equal, the fund manager underperforms the benchmark index by an equal amount. Cost of churn The portfolio of a fund does not remain constant. The extent to which the portfolio changes is a function of the style of the individual fund manager ie whether he is a buy and hold type of manager or one who aggressively churns the fund. It is also dependent on the volatility of the fund size i.e. whether the fund constantly receives fresh subscriptions and redemptions. Such portfolio changes have associated costs of brokerage, custody fees, registration fees etc. which lowers the portfolio return commensurately. Change of index composition World over, the indices keep changing to reflect changing market conditions. There is an inherent survivorship bias in this process, with the bad stocks weeded out and replaced by emerging blue chips. This is a severe problem in India with the Sensex having been
changed twice in the last 5 years, with each change being quite substantial. Another reason for change index composition is Mergers & Acquisitions. The weightages of the shares of a particular company in the index changes if it acquires a large company not a part of the index. How to overcome demerits of the mutual funds? Tendency to take conformist decisions From the above points, it is quite clear that the only way a fund can beat the index is through investment of some part of its portfolio in some shares where it gets excellent returns, much more than the index. This will pull up the overall average return. In order to obtain such exceptional returns, the fund manager has to take a strong view and invest in some uncommon or unfancied investment options. Most people are unwilling to do that. They follow the principle "No fund manager ever got fired for investing in Hindustan Lever" i.e. if something goes wrong with an unusual investment, the fund manager will be questioned but if anything goes wrong with the blue chip, then you can always blame it on the "environment" or "uncontrollable factors" knowing fully well that there are many other fund managers who have made the same decision. Unfortunately, if the fund manager does the same thing as several others of his class, chances are that he will produce average results. This does not mean that if a fund manager takes "active" views and invests in heavily researched "uncommon" ideas, the fund will necessarily outperform the index. If the idea does not work, it will result in poor fund performance. But if no such view is taken, there is absolutely no chance that the fund will outperform the index.
Net Asset Value (NAV)

The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the "per unit". We also abide by the same convention. Calculation of NAV The most important part of the calculation is the valuation of the assets owned by the fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the asset value is given below. Asset value is equal to Sum of market value of shares/debentures + Liquid assets/cash held, if any + Dividends/interest accrued Amount due on unpaid assets Expenses accrued but not paid Details on the above items For liquid shares/debentures, valuation is done on the basis of the last or closing market price on the principal exchange where the security is traded.
For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be estimated. For shares, this could be the book value per share or an estimated market price if suitable benchmarks are available. For debentures and bonds, value is estimated on the basis of yields of comparable liquid securities after adjusting for illiquidity. The value of fixed interest bearing securities moves in a direction opposite to interest rate changes Valuation of debentures and bonds is a big problem since most of them are unlisted and thinly traded. This gives considerable leeway to the AMCs on valuation and some of the AMCs are believed to take advantage of this and adopt flexible valuation policies depending on the situation. Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with every passing day, interest is said to be accrued, at the daily interest rate, which is calculated by dividing the periodic interest payment with the number of days in each period. Thus, accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date. Usually, dividends are proposed at the time of the Annual General meeting and become due on the record date. There is a gap between the dates on which it becomes due and the actual payment date. In the intermediate period, it is deemed to be "accrued". Expenses including management fees, custody charges etc. are calculated on a daily basis.
Regulatory Aspects
Schemes of a Mutual Fund
The asset management company shall launch no scheme unless the trustees approve such scheme and a copy of the offer document has been filed with the Board.
Every mutual fund shall along with the offer document of each scheme pay filing fees.
The offer document shall contain disclosures which are adequate in order to enable the investors to make informed investment decision including the disclosure on maximum investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor A close-ended scheme shall be fully redeemed at the end of the maturity period. "Unless a majority of the unit holders otherwise decide for its rollover by passing a resolution".
The mutual fund and asset management company shall be liable to refund the application money to the applicants,(i) If the mutual fund fails to receive the minimum subscription amount referred to in clause (a) of subregulation (1); (ii) If the moneys received from the applicants for units are in excess of subscription as referred to in clause (b) of subregulation (1).
The asset management company shall issue to the applicant whose application has been accepted, unit certificates or a statement of accounts specifying the number
of units allotted to the applicant as soon as possible but not later than six weeks from the date of closure of the initial subscription list and or from the date of receipt of the request from the unit holders in any open ended scheme. Rules Regarding Advertisement:
The offer document and advertisement materials shall not be misleading or contain any statement or opinion, which are incorrect or false.
Investment Objectives and Valuation Policies:
The price at which the units may be subscribed or sold and the price at which such units may at any time be repurchased by the mutual fund shall be made available to the investors.
General Obligations:
Every asset management company for each scheme shall keep and maintain proper books of accounts, records and documents, for each scheme so as to explain its transactions and to disclose at any point of time the financial position of each scheme and in particular give a true and fair view of the state of affairs of the fund and intimate to the Board the place where such books of accounts, records and documents are maintained.
The financial year for all the schemes shall end as of March 31 of each year. Every mutual fund or the asset management company shall prepare in respect of each financial year an annual report and annual statement of accounts of the schemes and the fund as specified in Eleventh Schedule.
Every mutual fund shall have the annual statement of accounts audited by an auditor who is not in any way associated with the auditor of the asset management company.
Procedure for Action In Case Of Default:
On and from the date of the suspension of the certificate or the approval, as the case may be, the mutual fund, trustees or asset management company, shall cease to carry on any activity as a mutual fund, trustee or asset management company, during the period of suspension, and shall be subject to the directions of the Board with regard to any records, documents, or securities that may be in its custody or control, relating to its activities as mutual fund, trustees or asset management company.
Restrictions on Investments:
A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer, which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of asset management company.
A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt instruments issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the Board of Trustees and the Board of asset Management Company.
No mutual fund under all its schemes should own more than ten per cent of any company's paid up capital carrying voting rights. Such transfers are done at the prevailing market price for quoted instruments on spot of the scheme to which such transfer has been made. basis. The securities so transferred shall be in conformity with the investment objective
A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees, provided that aggregate interscheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund.
The initial issue expenses in respect of any scheme may not exceed six per cent of the funds raised under that scheme. Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver the securities and shall in no case put itself in a position whereby it has to make short sale or carry forward transaction or engage in badla finance.
Every mutual fund shall, get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of long-term nature.
Pending deployment of funds of a scheme in securities in terms of investment objectives of the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial banks.
No mutual fund scheme shall make any investment in; i. ii. Any unlisted security of an associate or group company of the sponsor; or Any security issued by way of private placement by an associate or group company of the sponsor; or The listed securities of group companies of the sponsor which is in excess of 30% of the net assets [of all the schemes of a mutual fund]
No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares or equity related instruments of any company. Provided that, the limit of 10 per cent shall not be applicable for investments in index fund or sector or industry specific scheme.
A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or equity related investments in case of open-ended scheme and 10% of its NAV in case of close-ended scheme.
Comparison and Analysis of Mutual Fund companies

Comparison of top ten Equity schemes
Open Ended - Equity: Diversified - Since Launch Return Fund Tata Equity Opportunities Magnum Emerging Businesses Nifty Junior BeES HSBC Equity Chola Midcap Fund Sundaram Select Midcap Reliance Banking Birla Dividend Yield Plus Birla Mid Cap DSPML Top 100 Equity NAV (Date) Returns(%) 31.58 (8-Jul) 87.75 17.78 (8-Jul) 77.80 47.02 (8-Jul) 67.28 37.89 (8-Jul) 67.01 16.31 (8-Jul) 63.10 42.74 (8-Jul) 63.00 27.79 (8-Jul) 61.53 30.40 (8-Jul) 58.43 35.36 (8-Jul) 57.77 28.94 (8-Jul) 56.34 Return as on 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05
Closed Ended - Equity: Tax Planning - Since Launch Return Fund UTI MEPUS Birla Taxplan '98 UTI MEP '99 Franklin India Taxshield '98 Franklin India Taxshield '97 Franklin India Taxshield '99 Sundaram Taxsaver '98 Franklin India Taxshield '96 Sundaram Taxsaver '97 UTI MEP '98 NAV (Date) Returns(%) 23.90 (8-Jul) 56.78 114.72 (8-Jul) 39.84 34.74 (8-Jul) 34.17 68.91 (8-Jul) 30.38 70.58 (8-Jul) 26.63 41.53 (8-Jul) 25.46 40.82 (8-Jul) 21.32 59.04 (8-Jul) 21.10 20.85 (8-Jul) 19.94 19.91 (8-Jul) 19.58 Return as on 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05
Comparison of top ten Debt schemes

Open Ended - Gilt: Medium & Long-term - Since Launch Return Fund NAV (Date) Returns(%) Return as on Templeton India GSF Composite 22.47 (8-Jul) 14.32 8/07/05 DSPML GSF Longer Duration 21.58 (8-Jul) 14.19 8/07/05
Birla Gilt Plus Regular Tata GSF Alliance MIP JM G-Sec PF Plan Kotak Gilt Investment Regular Prudential ICICI Gilt Investment FT India MIP JM G-Sec Regular Plan
21.12 21.61 21.46 20.53 22.12 20.34 17.68 19.75
(8-Jul) (8-Jul) (8-Jul) (8-Jul) (8-Jul) (8-Jul) (8-Jul) (8-Jul)
13.90 13.86 13.60 13.25 12.89 12.75 12.67 12.50
8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05
Closed Ended - Debt: Specialty - Since Launch Return Fund Libra Bond FMPII Prudential ICICI FMP Y24 JM FMP YSW HDFC Fixed Investment Plan June 2004(2) Principal FMP 371D June04 Reliance FTS Annual Plan4 Tata Fixed Horizon YI Aug04 Grindlays Fixed Saving Scheme Annual 2 HDFC Fixed Investment Plan July 2004(2) Prudential ICICI FMP Q25-15M Inst NAV (Date) Returns(%) Return as on 11.65 (8-Jul) 16.50 8/07/05 10.73 (8-Jul) 5.57 8/07/05 10.56 (8-Jul) 5.44 8/07/05 10.54 (8-Jul) 5.31 8/07/05 10.54 (4-Jul) 5.27 8/07/05 10.51 (8-Jul) 5.06 8/07/05 10.50 (8-Jul) 5.01 8/07/05 10.50 (6-Jul) 4.96 8/07/05 10.49 (8-Jul) 4.85 8/07/05 10.48 (8-Jul) 4.80 8/07/05
Analysis of top three Open Ended Equity Schemes

Tata Equity Opportunities-G Current Stats & Profile Latest NAV 31.583 (08/07/05) 52-Week High 31.583 (08/07/05) 52-Week Low 18.8713 (09/07/04) Fund Category Equity: Diversified Type Open End Launch Date March 2003 Risk Grade Not Rated Return Grade Not Rated Net Assets (Cr) 258.52 (30/06/05) Benchmark Sensex Trailing Returns As on 08 Jul 2005 Fund Category Year to Date 13.41 11.90 1-Month 2.31 3.02 3-Month 10.05 9.71 1-Year 70.11 61.42 3-Year -41.69 5-Year -18.65 Return Since Launch 87.75 -Returns up to 1 year are absolute and over 1 year are annualized.
Relative Performance (Fund Vs Category Average)
Asset Allocation As on 30/06/05 Equity Debt Others

% Net Assets 94.01 0.00 5.99
Sector Weightings As on 30/06/05 Services Textiles Chemicals Technology Metals & Metal Products Construction Diversified % Net Assets 10.93 10.20 10.02 9.74 8.43 8.22 7.12
Basic/Engineering FMCG Energy Automobile Financial Services Health Care
7.05 6.07 5.16 4.04 2.54 2.07
The scheme aims to provide capital appreciation by investing in equity and equity related instruments of well researched value and growth oriented companies. Tata Equity Opportunities has had a promising start so far. True to its name, the fund has been quite adept at sighting the opportunities within the equity market and tapping them to deliver superior returns. For instance, it started out with over 60 per cent allocation to large-cap stocks but when the mid-cap led stock market rally took off, it was quick to gauge the underlying opportunity and promptly increase its mid-cap allocation to over 50 per cent. A highly-diversified equity portfolio dominated by mid-cap and small-cap stocks such as Bharat Electronics, Divi's Laboratories, D-Link and Sundaram-Clayton ensured that the fund rode the broader market rally with panache and delivered a mammoth 195 per cent return during the bull run between April 25, 2003 and January 14, 2004. It outperformed the benchmark BSE Sensex by a huge margin and ranked first in its category, leaving its peers gasping for breath. But when the bull market ended and a bearish sentiment engulfed the markets, the fund could not replicate its bull market outperformance. A major reason for this was that the fund had pared its mid-cap allocation for large-cap PSU banks and energy stocks but this
strategy backfired as these stocks fell more rapidly compared to the mid-caps. As a result, the fund lost a fifth of its value by May 17, 2004. Within the universe of large-cap stocks, the fund has been very selective and doesn't believe in holding on to them over long periods. For instance, bigwigs such as Reliance, SBI and Infosys have been frequently in and out of its portfolio over the past year. On the mid-cap front, the fund has adopted a two-pronged approach: buy-and-hold strategy for fundamentally sound stocks such as Divi's Laboratories and Crompton Greaves and get in-book profits-get out strategy for the more volatile stocks. Overall, the fund has been nothing short of a star performer delivering 123 per cent returns over the whole cycle while the benchmark Sensex rose only 50 per cent during the same period. However, the fund's short history is far too short for it to build up a real track record. The true test of the fund will be come only when it is able to keep its head above the water when the stock markets are drowning. Magnum Emerging Businesses-G Current Stats & Profile Latest NAV 17.78 (08/07/05) 52-Week High 17.78 (08/07/05) 52-Week Low 10.14 (15/10/04) Fund Category Equity: Diversified Type Open End Launch Date September 2004 Risk Grade Not Rated Return Grade Not Rated Net Assets (Cr) 208.12 (30/06/05) Benchmark Sensex Trailing Returns As on 08 Jul 2005 Fund Category Year to Date 36.35 11.90 1-Month 4.65 3.02 3-Month 20.62 9.71 1-Year -61.42 3-Year -41.69 5-Year -18.65 Return Since Launch 77.80 -Returns upto 1 year are absolute and over 1 year are annualised.
Asset Allocation As on 30/06/05 Equity Debt Others Sector Weightings As on 30/06/05 Textiles Basic/Engineering Chemicals Construction Diversified Health Care Automobile Metals & Metal Products FMCG Services Technology % Net Assets 21.96 20.25 11.25 9.07 8.65 7.80 6.29 6.19 6.18 3.12 2.51 % Net Assets 106.76 0.00 -6.76
The scheme would primarily focus its investments in emerging business themes, primarily based on the export or outsourcing opportunities and global opportunities of such themes. It will also focus on emerging domestic investment themes. Nifty Junior BeES Current Stats & Profile Latest NAV 47.0209 (08/07/05) 52-Week High 47.2051 (08/03/05) 52-Week Low 29.4687 (09/07/04) Fund Category Equity: Index Type Open End Launch Date February 2003 Risk Grade Not Rated Return Grade Not Rated Net Assets (Cr) 9.00 (30/06/05) Benchmark Nifty Junior Trailing Returns As on 08 Jul 2005 Fund Category Year to Date 4.60 7.70 1-Month 2.04 4.45 3-Month 8.93 9.55 1-Year 63.08 48.07 3-Year -27.77 5-Year -8.12 Return Since Launch 67.28 -Returns upto 1 year are absolute and over 1 year are annualised.
Asset Allocation As on 31/03/05 Equity Debt Others % Net Assets 99.54 0.00 0.46
Sector Weightings As on 31/03/05 Financial Services Technology Health Care Automobile Basic/Engineering Metals & Metal Products Energy Services Chemicals FMCG Textiles % Net Assets 38.52 15.60 14.36 6.47 5.89 4.66 4.41 2.48 2.29 1.54 1.22
The scheme aims to provide returns that closely correspond to the returns of securities as represented by the CNX Nifty Junior Index, subject to tracking error. It will invest at least 90% of its total assets in the stocks of its corresponding underlying index, but may hold up to 10% of its total assets in stocks not included in the underlying index.
Analysis of top three Closed Ended Equity Schemes

UTI MEPUS Current Stats & Profile Latest NAV 23.9 (08/07/05) 52-Week High 23.96 (06/07/05) 52-Week Low 16.66 (14/07/04) Equity: Tax Fund Category Planning Type Close End Launch Date March 2003 Risk Grade Not Rated Return Grade Not Rated Net Assets (Cr) 924.30 (30/06/05) Benchmark Sensex Trailing Returns As on 08 Jul 2005 Fund Category Year to Date 9.33 8.77 1-Month 3.02 3.04 3-Month 11.06 8.05 1-Year 52.10 50.40 3-Year -38.11 5-Year -15.82 Return Since Launch 56.78 -Returns upto 1 year are absolute and over 1 year are annualised.
Asset Allocation As on 30/06/05 Equity Debt Others Sector Weightings As on 30/06/05 Health Care Technology Basic/Engineering Construction Diversified Metals & Metal Products Financial Services FMCG Automobile Services Energy Textiles Chemicals % Net Assets 18.78 18.65 16.27 6.08 4.67 4.66 4.33 4.04 3.64 3.08 2.18 0.51 0.25 % Net Assets 88.48 0.00 11.52
The scheme is due for redemption in 2009. The scheme seeks long-term capital appreciation through investments of atleast 80 per cent in growth-oriented equities. Birla Taxplan '98 Current Stats & Profile Latest NAV 114.72 (08/07/05) 52-Week High 114.72 (08/07/05) 52-Week Low 68.32 (09/07/04) Equity: Tax Fund Category Planning Type Close End Launch Date March 1998 Risk Grade Below Average Return Grade High Net Assets (Cr) 5.03 (30/06/05) Benchmark Sensex Trailing Returns As on 08 Jul 2005 Fund Category Year to Date 17.30 8.77 1-Month 2.92 3.04 3-Month 10.38 8.05 1-Year 70.21 50.40 3-Year 57.03 38.11 5-Year 20.91 15.82 Return Since Launch 39.84 -Returns upto 1 year are absolute and over 1 year are annualised.
Sector Weightings As on 30/06/05 Health Care Technology FMCG Financial Services Basic/Engineering Services Diversified Automobile % Net Assets 20.38 18.65 18.58 16.34 8.41 7.96 3.74 2.94
The scheme aims at achieving long term growth of capital along with income tax relief for investment .At least 80% of the funds will be invested in equity instruments. The scheme is due for redemption in 2008.
UTI MEP '99 Current Stats & Profile Latest NAV 34.74 (08/07/05) 52-Week High 35.09 (10/03/05) 52-Week Low 23.54 (14/07/04) Equity: Tax Fund Category Planning Type Close End Launch Date March 1999 Risk Grade Average Return Grade Above Average Net Assets (Cr) 5.51 (30/06/05) Benchmark Sensex
Trailing Returns As on 08 Jul 2005 Fund Category Year to Date 4.39 8.77 1-Month 3.30 3.04 3-Month 5.11 8.05 1-Year 50.32 50.40 3-Year 39.77 38.11 5-Year 19.32 15.82 Return Since Launch 34.17 -Returns upto 1 year are absolute and over 1 year are annualised.
Asset Allocation As on 30/06/05 Equity Debt Others Sector Weightings As on 30/06/05 Technology Financial Services Basic/Engineering Diversified Construction Textiles Metals & Metal Products Services Energy % Net Assets 17.97 10.90 10.83 8.21 6.56 3.85 3.71 1.38 1.23 % Net Assets 64.65 0.00 35.33
The scheme is due for redemption in 2009. The scheme seeks long-term capital appreciation through investments of atleast 80 per cent in growth-oriented equities.
Analysis of top three Open Ended Debt Scheme
Templeton IGSF Composite-G
Current Stats & Profile Latest NAV 22.4685 (08/07/05) 52-Week High 22.7064 (22/06/05) 52-Week Low 21.5132 (08/11/04) Gilt: Medium & Fund Category Long-term Type Open End Launch Date June 1999 Risk Grade Above Average Return Grade Above Average Net Assets (Cr) 350.13 (30/06/05) Benchmark I-Sec Com Index
Trailing Returns As on 08 Jul 2005 Fund Category Year to Date 1.31 1.83 1-Month -1.01 -0.58 3-Month 0.61 1.04 1-Year 1.20 1.93 3-Year 9.21 7.34 5-Year 13.99 11.88 Return Since Launch 14.32 -Returns upto 1 year are absolute and over 1 year are annualised.
Asset Allocation As on 30/06/05 % Net Assets
Equity Debt Others

Credit Rating Breakup Rating As on 30/06/05 GOI Securities Cash & Money Market
0.00 93.69 6.31
% Net Assets 93.69 6.31
The fund seeks to generate credit risk-free return from investment in government securities. With a top quartile ranking for three successive years and consistently category-beating quarterly returns, Templeton India Government Securities Fund (TIGSF) usually gives tough competition to its rivals. High variability in performance is embedded in a typical high-performing gilt fund and TIGSF is no exception. But then, the fund adequately compensates investors for these risks. Even though interest rates have generally traveled southwards over the last two years, there have been occasional sharp rises as well. Analysing the fund's performance during these periods justifies its high risk nature. Whenever interest rates fell sharply, TIGSF has been in the top quartile of its category. And whenever they moved up, the fund has promptly dropped to the bottom quartile. During May 2002 to January 2003, interest rates fell by nearly 2.56 per cent and TIGSF gained 24.97 per cent, trouncing 86 per cent of its 29 peers. When interest rates rose by 0.89 per cent during January 21 to February 14, TIGSF shed 6.14 per cent, trailing behind 75 per cent of its peers. What makes for this extreme performance? A high average maturity. Average maturity measures the average time left till the maturity of the securities that make up a portfolio. TIGSF's average maturity has been higher than the maturity of an average gilt fund and thus positions the fund to gain more than its peers when interest rates rise and lose more when interest rates fall. However TIGSF does try to mitigate the risk by actively realigning the average maturity of the portfolio when needed. Anticipating an interest rate
hike in third quarter of 2000, TIGSF brought down the maturity from 7 years in April to 4 years in June. Still, it couldn't completely escape the downfall during June and July. After that, as interest rates started their long southward march 2000, an above average maturity has been the norm with TIGSF. While the fund has tried to limit maturity when interest rates rise, given the highly volatile nature of the underlying market, shorter maturity just reduces losses but doesn't eliminate them. TIGSF has been eminently suitable for investors who are willing to take a little bit of rough with the smooth and are not worried about staying invested long enough for the good times to outdo the bad.
DSPML GSF Longer Duration-G
Current Stats & Profile Latest NAV 21.5762 (08/07/05) 52-Week High 21.854 (23/06/05) 52-Week Low 20.4058 (12/08/04) Fund Category Gilt: Medium &
Trailing Returns As on 08 Jul 2005 Year to Date 1-Month 3-Month
Fund Category 3.03 1.83 -0.86 -0.58 1.91 1.04
Type Launch Date Risk Grade Return Grade Net Assets (Cr) Benchmark
Long-term Open End September 1999 Above Average High 47.01 (30/06/05) I-Sec Li-BEX
1-Year 4.04 1.93 3-Year 9.47 7.34 5-Year 14.18 11.88 Return Since Launch 14.19 -Returns upto 1 year are absolute and over 1 year are annualised.
The scheme seeks to generate returns through investments in central government securities with maturity between one and 30 years. This fund from DSP Merrill Lynch had one of the best risk-reward profiles in the category, making it a solid offering for long-term investors. While this fund is likely to give you a smooth ride, the occasional misfire cannot be ruled out, as it is the case now. A consistent top quartile return in the
past two calendar years is pleasing to investors, while active duration management with a relatively concentrated holding has been its key feature. Though the fund's portfolio has been spread over a large number of securities, this is hardly a cause for concern as most government securities are actively traded in the market. In earlier years, the fund's investments were confined to just two to five government securities. However, as spreads have become narrower, the fund has relied more on trading profits and hence the numbers of holdings have increased up to eight securities in 2003. That apart, in the past four months, the fund has placed heavy bets on longer tenure gilts, making it a relatively aggressive player in the category. The biggest plus of DSPML GSF Longer Duration fund has been its ability to actively realign its portfolio maturity as needed. And for that it has always loaded up with liquid securities. This has helped it in deriving maximum gains during the rate cuts. For instance, during the October 2002 bank rate-cut, it increased its average maturity from 9.51 years in September 2002 to 12.13 years in October and further to 15.68 years the next month. The story was similar during the October 2001 rate cut. Thus, in the last quarter of both calendar years, it bested its peers by a huge margin. The best example of the fund's astute portfolio management was seen during the volatile first quarter of 2003. While the category was down 0.06 per cent, DSPML GSF Longer Duration was up 1.14 per cent. Though it had a high average maturity at that time, an average 13 per cent cash helped it in curtailing losses. High cash exposure is not new for this fund. During the rate hike of July 2000, the fund's cash stake was 26 per cent, which acted as a shield against the resulting fall. This fund has got all the constituents that a gilt fund investor should looks for: below average expenses, lower downside risk and consistent returns. Birla Gilt Plus Regular-G Current Stats & Profile Latest NAV 21.1177 (08/07/05) 52-Week High 21.3029 (23/06/05) Trailing Returns As on 08 Jul 2005 Year to Date
Fund Category 2.14 1.83
52-Week Low Fund Category Type Launch Date Risk Grade Return Grade Net Assets (Cr) Benchmark
19.8864 (08/11/04) Gilt: Medium & Long-term Open End October 1999 High Above Average 141.26 (30/06/05) I-Sec Com Index
1-Month -0.77 -0.58 3-Month 1.47 1.04 1-Year 1.18 1.93 3-Year 8.83 7.34 5-Year 13.80 11.88 Return Since Launch 13.90 -Returns upto 1 year are absolute and over 1 year are annualised.
Asset Allocation As on 30/06/05 Equity Debt Others Credit Rating Breakup Rating As on 30/06/05 GOI Securities Treasury Bills Cash & Money Market % Net Assets 0.00 93.27 6.74 % Net Assets 84.5 4 8.72 6.74
The scheme seeks to generate income and capital appreciation through investments in government securities and T-Bills with short to medium term residual maturities. Aggressive interest rate risk management is what Birla Gilt Plus Regular brings to the investors' kitty. And this aggression has translated into an increasingly exciting performance. The fund had a middling 2000, but after that it seems to have taken permanent residence in the top quartile of its category. Like any typical gilt fund, Birla Gilt Plus Regular too has been hurt whenever the interest rates have made a sharp upwards movement. Though when interest rates rose unexpectedly in July 2000, it could save its skin as more than half of its portfolio was cash. As a result, it lost half as much as its average peers. After that period, as interest rates kept on falling, the fund actively capitalised by increasing the average maturity of the portfolio. When interest rates fell by 3 per cent during October 2000 to December 2001, the fund gained 31.14 per cent, trouncing 12 out of the other 16 gilt funds. For instance, in April '01 on a favourables credit policy, the fund quickly stretched its maturity from 5.54 years in March to 8.3 years. And with anticipated interest rate cut not coming through till July, it again reduced the portfolio maturity to 4.95 years in July. Higher maturity increases the vulnerability to downside also as was witnessed during sharp interest rate spike over April to May 2002 and January to February 2003. However improved performance during the latter period reflects the astute management of interest rate risk. Even though Birla Gilt Plus was a big loser during these periods, it could recoup the losses in the first quarter of this calendar, whereas it was down almost half a percent in the second quarter of 2002. Post first quarter volatility, as interest rates headed south, Birla Gilt Plus Regular Plan has been the big beneficiary. A visible change in the portfolio has been the high concentration in its top five holdings. But that should not cause panic, as the underlying instruments can be bought and sold easily.
In all, with above average return and average risk profile, Birla Gilt Plus Regular Plan is a decent pick for those seeking a pure interest rate risk exposure. There is one caveat though, the fund's relatively high expense ratio makes it a little costlier than our other picks in this category.
Analysis of top three Closed Ended Debt Schemes
Libra Bond FMPII
Current Stats & Profile Latest NAV 11.65 (08/07/05) 52-Week High 11.67 (05/07/05) 52-Week Low 9.63 (27/09/04) Fund Category Debt: Speciality Type Close End Launch Date September 2004 Risk Grade Not Rated Return Grade Not Rated Net Assets (Cr) 12.10 (30/06/05) Benchmark Crisil Comp BFI
Trailing Returns As on 08 Jul 2005 Fund Category Year to Date 10.95 2.57 1-Month 0.26 0.16 3-Month 7.97 1.43 1-Year -1.06 3-Year --5-Year --Return Since Launch 16.50 -Returns upto 1 year are absolute and over 1 year are annualised.
Asset Allocation
As on 30/06/05 Equity Debt Others
% Net Assets 0.00 91.86 8.14
It is the best scheme as compared to all other close ended debt scheme and it has given returns which are thrice as compared to other schemes of its category. Pru ICICI FMP Y24-G Current Stats & Profile Latest NAV 10.7347 (08/07/05) 52-Week High 10.7347 (08/07/05) 52-Week Low 10.1699 (12/07/04) Fund Category Debt: Speciality Type Close End Launch Date March 2004 Risk Grade Not Rated Return Grade Not Rated Net Assets (Cr) 74.01 (30/06/05) Benchmark NSE MIBOR Trailing Returns As on 08 Jul 2005 Fund Category Year to Date 3.26 2.57 1-Month 0.57 0.16 3-Month 1.83 1.43 1-Year 5.61 1.06 3-Year --5-Year --Return Since Launch 5.57 -Returns upto 1 year are absolute and over 1 year are annualised.
Asset Allocation As on 30/06/05 Equity Debt Others Credit Rating Breakup Rating As on 30/06/05 AAA Unrated AA+ AA Net Receivables Cash & Money Market % Net Assets 0.00 95.89 4.11
% Net Assets 56.4 1 19.0 7 13.3 1 7.10 3.65 0.46
The scheme seeks to generate regular returns by investing in fixed income securities normally maturing in line with the time profile of the plan. Ideal for investors with surpluses for approximately a period of one year.
JM FMP YSW Current Stats & Profile Latest NAV 10.5577 (08/07/05) 52-Week High 10.5577 (08/07/05) 52-Week Low 10.0227 (12/07/04) Fund Category Debt: Speciality Type Close End Launch Date June 2004 Risk Grade Not Rated Return Grade Not Rated Net Assets (Cr) 113.22 (30/06/05) Benchmark -Trailing Returns As on 08 Jul 2005 Fund Category Year to Date 2.82 2.57 1-Month 0.43 0.16 3-Month 1.32 1.43 1-Year 5.41 1.06 3-Year --5-Year --Return Since Launch 5.44 -Returns upto 1 year are absolute and over 1 year are annualised.
Credit Rating Breakup Rating As on 31/05/05 Cash & Bank Deposits P1+ AA+
% Net Assets 62.98 19.10 17.92
It is not advisable for the customers to invest in the schemes with such a lower returns as investing directly in government securities can give better returns.
Survey Findings and Analysis
1. How many members are there in your family? Ans. () 1-2 () 3-4 () 5-6 () 7+
1 to 2 6
3 to 4 32
5 to 6 44
7+ 18
Family members
18%
6% 32% 1 to 2 3 to 4 5 to 6 7+
44%
Out of the sample size of 100, 6% of the respondents were having the family members between 1 to 2, 32% of the respondents were having the family members between 3 to 4, 44% of the respondents were having the family members between 5 to 6 and 18% of the respondents were having more than 7 family members.
2. Which of the below mentioned category do you belong? Ans. () Businessman () Professional () Salaried () Retired
() Others, please specify ___________
Businessman Professional Salaried 36 48 7
Retired
9
Others
0
Occupation
9%
0% 48%
Businessman Professional Salaried Retired Others
36% 7%
Out of the sample size of 100, 48% were businessmen, 7% were professionals, 36% were salaried and 9% were retired.
3. What proportion of total income do you save? (In %)
Ans. () below 10
() 11-30
() 31-50
() above 50
below 10
31
11 to 30
43
31 to 50 17
above 50 9
Savings
9% 17% 31% below 10 11 to 30 31 to 50 above 50 43%
Out of the sample size of 100, 31% of the people saved income below 10% of their total income, 43% of the people saved income between11% to 31% of their total income, 17% of the people saved income between 31% to 50% of their total income and 9% of the people saved income above 50% of their total income.
4. Where do you most prefer to invest your money?
Ans. a. () Government securities b. () Fixed Deposits c. () Mutual Funds d. () Equity Market e. () Others, please specify_________
Government Securities
54
Fixed Deposits
27
Mutual Funds
2
Equity Market
8
Others
9
Investment preference
Government Securities Fixed Deposits Mutual Funds
8% 2% 27%
9%
54%
Equity Market Others
Out of the sample size of 100, 54% preferred to invest in government securities, 27% preferred to invest in fixed deposits, 2% preferred to invest in mutual funds, 8% preferred to invest in equity market and 9% preferred to invest in other securities.
5. Do you have access to any financial consultants for management of your funds? Ans. () Yes () No
Yes
23
No
77
Financial Consultant
23% Yes No 77%
Out of the sample size of 100, 23% of respondents were having financial consultants and 77% of respondents were not having access to any financial consultant.
6. Are your aware about the functioning of the mutual fund? Ans. () Yes () No
Yes 14
No 86
Awareness about mutual fund functioning
14% Yes No 86%
Out of the sample size of 100, only 14% of the respondents were aware about the functioning of the mutual funds while 86% of the respondents were not aware about the functioning of the mutual funds. 7. Which companies do you prefer for investing in mutual fund? Ans. Out of the respondents surveyed the customers who preferred to invest in mutual funds invested in Tata M.F, HDFC M.F, ICICI M.F, Franklin M.F, Reliance M.F, DSP M.F and SBI M.F. 8. What level of risk you are willing to take for investing in above mentioned mutual funds? Ans. () Low risk () Medium risk () High risk
Low risk
24
Medium risk
56
High risk
20
Willingness to take risk
20%
24% Low risk Medium risk High risk 56%
Out of 100 respondents, 24% of the respondents preferred to invest in mutual funds with low risk even if the returns were low, 56% preferred to invest in mutual funds with medium risk and medium return while 20% of them preferred to invest in mutual funds with high returns even if the risk was high.
9. What proportion of total savings do you invest in mutual funds? (In %) Ans. () nil () below 10 () 11-30 () 31-50 () above 50
nil
below 10
11 to 30
31 to 50
above 50
79
16
investments in mutual funds 5% 16% 0% 0% nil below 10 11 to 30 31 to 50 79% above 50
Out of 100 respondents, 79% of the respondents didnt at all invested in mutual funds out of their savings, 16% of the respondents invested up to 10% of their total savings in mutual funds while the rest 5% of the respondents invested between 11-30% of their total savings in mutual funds.
10. Which type of mutual fund would you prefer to invest? Ans. () Equity () Balanced () Debt () not prefer
Equity
37
Balanced Debt
21 0
not prefer
42
Type of mutual fund for investing
42%
37%
Equity Balanced Debt not prefer
0%
21%
Out of the 100 respondents, 37% of the respondents preferred to invest in equity scheme of mutual funds, 21% of the respondents preferred to invest in balanced scheme of mutual funds ,42% of the respondents did not preferred to invest in mutual funds and no one preferred to invest in debt mutual funds.
Future Scenario
The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investors shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over.
Out of ten public sector players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come. But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind. The mutual fund industry is awaiting the introduction of derivatives in India as this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.
Conclusion
Basic Understanding
A mutual fund brings together a group of people and invests their money in stocks, bonds and other securities.
The advantages of mutual fund are professional management, diversification, economies of scale, simplicity and liquidity. The disadvantages of mutual fund are high cost, over diversification, possible tax consequences and the inability of management to guarantee a superior return. There are many types of mutual funds. You can classify funds based on asset class, investing strategy, region, etc. Mutual funds have lots of cost. Cost can be broken down into ongoing fees (represented by the expense ratio) and transaction fees (loads). The biggest problems with mutual funds are their cost and fees. Mutual funds are easy to buy and sell. You can either buy them directly from the fund company or through a third party. Mutual funds ads can be very deceiving.
Comparison
Here we have consider top 10 equity open ended and close ended schemes and top 10 debt open ended and close ended schemes for the comparison. Here the base of comparison is taken as a return (percentage) of the schemes which are since inception compounded returns. Out of the top 10 schemes which are given on the bases of returns, for the purpose of analysis top 3 of all the equity and debt schemes are considered. If we look at the opened equity schemes than the highest returns of the top 10 is 87.75% and the lowest returns is 56.34%. By this we can say that investing in open ended equity schemes gives better returns as compared to government securities, fixed deposits or any other category of mutual fund. Now, we see the portfolio of the top 3 open ended equity schemes than the major portion of which their portfolio was constructed included services, textiles, chemical, engineering and financial services. Thus we can say that
these sectors are in boom and the mutual funds having their substantial portion of their portfolio in this sector perform outstanding. Considering the close ended equity schemes if we look at the top 10 mutual funds schemes on the basis of the returns then we would see that the highest return is 56.78% and the lowest return is 19.58% which is better as compare to government securities and fixed deposits. Now if we consider the top 3 of the schemes then the major portfolio construction includes service, textile, chemical, health and care, and technology. Thus, we can say that in long run the above mentioned sectors performance is good compare to other sectors. Here the performance is considered in long run because in close ended equity schemes the maturity period is fixed which generally minimum three years. Now, if we compare the open ended debt scheme then the highest return is 14.32% and the lowest return is 12.50%. Thus we can say that the investment in open ended debt schemes is also better as compare to government securities and fixed deposits. In debt schemes the portfolio constitutes majority of GOI securities which can be bought and sold in the market as the scheme is open ended, due to which the return which we see here is reasonably good. Considering the close ended debt scheme the highest return which we would see is 16.50% and lowest return is 4.80%. If we look at all the top 10 return of the close ended debt scheme then except the first all the others are less then 6% which is less or equivalent as compare to government securities and fixed deposits. The major portfolio of the top 3 close ended debt schemes constitutes of AAA rating securities, cash and bank deposits, but here the benefit of purchase and sale is not available to the investor and thus the securities which are held by the fund manager are of long run in nature which gives them little but assure returns.
Survey
The awareness level regarding mutual funds is very less in India. The people are not aware of the advantage that they can get by investing in mutual funds nor they are aware of the basic functioning of mutual funds. Thus the investment in mutual fund is negligible. People in India prefer to invest in government securities and fixed deposits of nationalize banks were they can have complete safety of their funds though they get less returns. The people willing to take risk also invest in equity markets, land, gold etc. In order to get higher returns which they can also get from the mutual funds by taking bit lesser risk as compare to equity market and others. Access to financial consultant for the management of the funds is costly so very few people prefer to have their own financial consultant for the management of their funds. People generally see the past performance of the mutual funds for investing their money in it which is not the right way to analyze the funds portfolio. Here the investor should look at the portfolio of the mutual funds and should analysis it by himself by checking the percentage of money invested in a particular industry and the boom or recession in that particular industry according to their present scenario. Generally people want higher returns from their investment but their willingness to take risk is not that higher as compared to their expectation? Out of the responded surveyed only 20% of the responded were willing to take higher risk in order to get higher returns and the rest 80% of the investor were not willing to take the higher risk though they were expecting higher return which was illusionary. Due to the lower awareness level of mutual funds among the people the proportion of the total savings which the people invested in mutual funds in order to get returns was also negligible out of the responded survey only 21% of the responded were investing their money in mutual funds which was less than 30% of their savings and the rest 79% of the responded did not invested in mutual funds.
An equity mutual fund gives the highest returns as compared to the balanced and debt mutual funds. Balance mutual funds gives the returns which higher than debt mutual funds and the returns derived from the debt mutual funds are equivalent or even less as compared to government securities or fixed deposits. 58% of the responded survey prefer to invest in equity and balanced mutual funds. No one prefers to invest in debt mutual funds. Even after understanding the basic functioning of the mutual funds 42% of the responded did not prefer to invest in mutual funds.
Glossary
A
Advisor
The organization employed by a mutual fund to give professional advice on the fund's investments and to supervise the management of its assets. Asked or Offering Price The price at which a mutual fund's shares can be purchased. The asked or offering price means the current net asset value (NAV) per share plus sales charge, if any. For a no-load fund, the asked price is the same as the NAV. Asset Allocation Fund A fund that spreads its portfolio among a wide variety of investments, including domestic and foreign stocks and bonds, government securities, gold bullion and real estate stocks. This gives small investors far more diversification than they could get allocating money on their own. Some of these funds keep the proportions allocated between different sectors relatively constant, while others alter the mix as market conditions change. Automatic Reinvestment A service offered by most mutual funds whereby income dividends and capital gain distributions are automatically invested into the fund by buying additional shares and thus building up holdings through the effects of compounding.
B Balanced Fund A mutual fund that maintains a balanced portfolio, generally 60% bonds or preferred stocks and 40% common stocks. Bid or Sell Price
The price at which a mutual fund's shares are redeemed (bought back) by the fund. The bid or redemption price means the current net asset value per share, less any redemption fee or back-end load. Bond Fund A mutual fund whose portfolio consists primarily of corporate or Government bonds. These funds generally emphasize income rather than growth. C Capital Appreciation Fund A mutual fund that seeks maximum capital appreciation through the use of investment techniques involving greater than ordinary risk, such as borrowing money in order to provide leverage, short-selling and high portfolio turnover. Capital Gains Distributions Payments (usually annually) to mutual fund shareholders of gains realized on the sale of portfolio securities. Capital Growth A rise in market value of a mutual fund's securities, reflected in its net asset value per share. This is a specific long-term objective of many mutual funds. Certificate of Deposit Interest-bearing, short-term debt instrument issued by banks and thrifts. Closed-End Investment Company An investment company that offers a limited number of shares. They are traded in the securities markets, usually through brokers. Price is determined by supply and demand.
Unlike open-end investment companies (mutual funds), closed-end funds do not redeem their shares. Commercial Paper Short-term, unsecured promissory notes with maturities no longer than 270 days. They are issued by corporations, to fund short-term credit needs.
Common Stock Fund An open-end investment company whose holdings consist mainly of common stocks and usually emphasize growth. Confirm Date The date the fund processed your transaction, typically the same day or the day after your trade date. Custodian The bank or trust company that maintains a mutual fund's assets, including its portfolio of securities or some record of them. Provides safekeeping of securities but has no role in portfolio management.
D Daily Dividend Fund This term applies to funds that declare their income dividends on a daily basis and reinvest or distribute monthly.
Deferred Compensation Plan A tax-sheltered investment plan to which employees of state and local governments can defer a percentage of their salary. Distributor An individual or a corporation serving as principal underwriter of a mutual fund's shares, buying shares directly from the fund, and reselling them to other investors. Diversification The policy of spreading investments among a range of different securities to reduce the risks inherent in investing. E Exchange Privilege (Or switching privilege) The right to transfer investments from one fund into another, generally within the same fund group, at nominal cost. Expense Ratio The ratio of total expenses to net assets of the fund. Expenses include management fees, the cost of shareholder mailings and other administrative expenses. The ratio is listed in a fund's prospectus. Expense ratios may be a function of a fund's size rather than of its success in controlling expenses. F Fiscal Year An accounting period consisting of 12 consecutive months. G
Global Fund A fund that invests in both Indian. And foreign securities. Growth Fund A mutual fund whose primary investment objective is long-term growth of capital. It invests principally in common stocks with significant growth potential. I Income Dividend Payment of interest and dividends earned on the fund's portfolio securities after operating expenses are deducted. Income Fund A mutual fund that primarily seeks current income rather than growth of capital. It will tend to invest in stocks and bonds that normally pay high dividends and interest. Index Fund A mutual fund that seeks to mirror general stock-market performance by matching its portfolio to a broad-based index, most often the S&P CNX Nifty index.
International Fund A fund that invests in securities traded in markets outside India.
Investment Company
A corporation, partnership or trust that invests the pooled money of many investors. It provides greater professional management and diversification of investments than most investors can obtain independently. Mutual funds, or "open-end" investment companies, are the most popular form of investment company. Investment Objective The financial goal (long-term growth, current income, etc.) that an investor or a mutual fund pursues. L Load A sales charge or commission assessed by certain mutual funds ("load funds,") to cover their selling costs. The commission is generally stated as a portion of the fund's offering price, usually on a sliding scale from one to 8.5%. Load Fund A mutual fund that levies a sales charge up to 6%, which is included in the offering price of its shares, and is sold by a broker or salesman. A front-end load is the fee charged when buying into a fund; a back-end load is the fee charged when getting out of a fund.
Low-Load Fund A mutual fund that charges a small sales commission, usually 3.5% or less, for the purchase of its shares. M
Management Fee The amount a mutual fund pays to its investment adviser for services rendered, including management of the fund's portfolio. In general, this fee ranges from .5% to 1% of the fund's asset value. Money Market Fund A mutual fund that aims to pay money market interest rates. This is accomplished by investing in safe, highly liquid securities, including bank certificates of deposit, commercial paper, government securities and repurchase agreements. Money Market funds make these high interest securities available to the average investor seeking immediate income and high investment safety. N Net Asset Value Per Share The current market worth of a mutual fund share. Calculated daily by taking the funds total assets securities, cash and any accrued earnings deducting liabilities, and dividing the remainder by the number of shares outstanding. No-Load Fund A commission-free mutual fund that sells its shares at net asset value, either directly to the public or through an affiliated distributor, without the addition of a sales charge.
P Payable Date The date on which distributions are paid to shareholders who do not want to reinvest them. This date can be anywhere from one week to one month after the Record Date.
Payroll Deduction Plan An arrangement between an employer and a mutual fund, authorized by the employee, through which a specified sum is deducted from an employee's salary to buy shares in the fund.
Portfolio Turnover Rate The rate at which the fund's portfolio securities are changed each year. If a fund's assets total Rs100mn and the fund bought and sold Rs100mn worth of securities that year, its portfolio turnover rate would be 100%. Aggressively managed funds generally have higher portfolio turnover rates than do conservative funds that invest for the long term. High portfolio turnover rates generally add to the expenses of a fund. Prospectus An official document that each investment company must publish, describing the mutual fund and offering its shares for sale. It contains information required by the Securities and Exchange Commission.
R Record Date The date the fund determines who its shareholders are; "shareholders of record" who will receive the fund's income dividend and/or net capital gains distribution. Frequently the business day immediately prior to the Ex-Dividend Date.
Redemption Fee A fee charged by a limited number of funds for redeeming, or buying back, fund shares. Redemption Price The price at which a mutual fund's shares are redeemed (bought back) by the less expensive fund. The redemption price is usually equal to the current net asset value per share. Regional Fund A mutual fund that concentrates its investments within a specific geographic area, usually the fund's local region. The objective is to take advantage of regional growth potential before the national investment community does. Reinvestment Date (Payable Date) The date on which a share's dividend and/or capital gains will be reinvested (if requested) in additional fund shares. Reinvestment Privilege A service that most mutual funds offer whereby a shareholder's income dividends and capital gains distributions are automatically reinvested in additional shares.
S Sector Fund A fund that operates several specialized industry sector portfolios under one umbrella. Transfers between the various portfolios can usually be executed by telephone at little or no cost.
Specialty Fund A mutual fund specializing in the securities of a particular industry or group of industries or special types of securities. Systematic Investment Plans In case of Systematic Investment Plans, instead of a lump sum amount, investor invests a pre-specified amount in a scheme at pre-specified intervals at the then prevailing NAV. Systematic Withdrawal Plans Many mutual funds offer withdrawal programs whereby shareholders receive payments from their investments. These payments are usually drawn from the funds dividend income and capital gain distributions, if any, and from principal only when necessary. U Underwriter The organization that acts as the distributor of a mutual fund's shares to broker/dealers and the public.
V Voluntary Plan A flexible plan for capital accumulation, involving no specified time frame or total sum to be invested.
Y Yield Income or return received from an investment, usually expressed as a percentage of market price, over a designated period. For a mutual fund, yield is interest or dividend before any gain or loss in the price per share. Z Zero Coupon Bond Bond sold at a fraction of its face value. It appreciates gradually, but no periodic interest payments are made. Earnings accumulate until maturity, when the bond is redeemable at full face value. Nonetheless, interest is taxable as it accrues.
Annexure
Questionnaire
(Information provided by you would be kept secret and it is only for the research purpose) 1. How many members are there in your family? Ans. () 1-2 () 3-4 () 5-6 () 7+ 2. Which of the below mentioned category do you belong? Ans. () Businessman () Professional () Salaried () Others, please specify ___________ 3. What proportion of total income do you save? (In %) Ans. () below 10 () 11-30 () 31-50 () above 50 () Retired
4. Where do you most prefer to invest your money? Ans. a. () Government securities b. () Fixed Deposits c. () Mutual Funds d. () Equity Market e. () Others, please specify_________ 5. Do you have access to any financial consultants for management of your funds? Ans. () Yes () No
6. Are your aware about the functioning of the mutual fund? Ans. () Yes () No
7. Which companies do you prefer for investing in mutual fund? Ans.
8. What level of risk you are willing to take for investing in above mentioned mutual funds? Ans. () Low risk () Medium risk () High risk
9. What proportion of total savings do you invest in mutual funds? (In %) Ans. () nil () below 10 () 11-30 () 31-50 () above 50
10. Which type of mutual fund would you prefer to invest? Ans. () Equity () Balanced () Debt () not prefer
11. Personal information a. Name b. Phone no. c. Address d. Gender e. Age
Bibliography
Books:
L.K. Bansal, Mutual Funds Management and Working, 1997 Edition H. Sadhak, Mutual funds in India, 1998 Edition Newspapers: Economic Times Business Standard Websites: www.mutualfundsindia.com www.amfiindia.com www.sebi.com www.indiainfoline.com www.valueresearchonline.com

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A Comparative Study on Mutual Fund Companies in India and Analysis of Investment Behavior of Consumers

Sample Size Determination:

Thus sample size required for survey is 100.

Mutual Funds: An overview

History of Mutual Funds in India

Mutual Fund Operation Flow Chart

ORGANISATION OF A MUTUAL FUND

Structure of the Indian mutual fund industry

Nature of ownership Private foreign Private Indian Banks Banks Banks

Unit Trust of India Zurich Asset Management Company (I) Limited

Institutions Private foreign

Recent trends in mutual fund industry

Banks v/s Mutual Funds

BANKS Returns Low

Administrative exp. High Risk Low

New investors would prefer online :

Net based advertisements:

Types of Mutual Funds

Industry Specific Schemes

Merits of Mutual Fund investment

Demerits of Mutual Fund investment:

Net Asset Value (NAV)

Investment Objectives and Valuation Policies:

Procedure for Action In Case Of Default:

Comparison and Analysis of Mutual Fund companies

Comparison of top ten Debt schemes

21.12 21.61 21.46 20.53 22.12 20.34 17.68 19.75

(8-Jul) (8-Jul) (8-Jul) (8-Jul) (8-Jul) (8-Jul) (8-Jul) (8-Jul)

13.90 13.86 13.60 13.25 12.89 12.75 12.67 12.50

8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05 8/07/05

Analysis of top three Open Ended Equity Schemes

Relative Performance (Fund Vs Category Average)

Asset Allocation As on 30/06/05 Equity Debt Others

Basic/Engineering FMCG Energy Automobile Financial Services Health Care

7.05 6.07 5.16 4.04 2.54 2.07

Relative Performance (Fund Vs Category Average)

Relative Performance (Fund Vs Category Average)

Analysis of top three Closed Ended Equity Schemes

Relative Performance (Fund Vs Category Average)

Relative Performance (Fund Vs Category Average)

Analysis of top three Open Ended Debt Scheme

Templeton IGSF Composite-G

Relative Performance (Fund Vs Category Average)

Asset Allocation As on 30/06/05 % Net Assets

Equity Debt Others

0.00 93.69 6.31

% Net Assets 93.69 6.31

DSPML GSF Longer Duration-G

Trailing Returns As on 08 Jul 2005 Year to Date 1-Month 3-Month

Fund Category 3.03 1.83 -0.86 -0.58 1.91 1.04

Relative Performance (Fund Vs Category Average)

Fund Category 2.14 1.83

Relative Performance (Fund Vs Category Average)

Analysis of top three Closed Ended Debt Schemes

Libra Bond FMPII

Relative Performance (Fund Vs Category Average)

As on 30/06/05 Equity Debt Others

% Net Assets 0.00 91.86 8.14

Relative Performance (Fund Vs Category Average)

% Net Assets 56.4 1 19.0 7 13.3 1 7.10 3.65 0.46

Relative Performance (Fund Vs Category Average)

% Net Assets 62.98 19.10 17.92