To

AMFI Mutual Fund

Testing Program

Duration – 2 days
1
 PROGRAM OBJECTIVES
At the end of the program you will be able to:

1. Explain the Concept, Role and Functioning of Mutual

Funds

2. Appreciate the need for a sales person to act as a

financial planner for the client

3. Preparation for passing AMFI Certification Test.

2
 AMFI Test
• AMFI Test will be manual & will be conducted by an officer of Indian
Institute of Capital Markets, Mumbai
• Duration of the test 1 hr. and 30 minutes
• The question paper consists of 74 questions of 100 marks
• Each question paper may be different
• You will be given four options and you have to darken the right option
in the annexed sheet
• Minimum pass marks is 50
• There is negative marking for wrong answers, 0.25% marks deducted
for every wrong answer
• You will have questions on numericals, use of calculator is allowed
• Bring HB pencil and eraser with you in the test

3
 Recommended Reading Material
• AMFI Workbook

Reference Books:

• Mutual Funds in India – H. Sadhak

• Indian Mutual Funds Handbook – Sundar Sankaran

• How Mutual Funds Work – Fredman and Wiles

4
 Chapter 1 – Concept and Role of Mutual Fund

Concept of a Mutual Fund

• A Mutual Fund is a pool of money collected from a large no. of
investors (min. 20). The funds so collected are invested in a
diversified portfolio of marketable securities by the professional
Fund Managers.
• The contributors and beneficiaries of the fund are the same
class of people i.e. the investors. The pool of funds held
mutually by investors is called a Mutual Fund.
• Mutual Fund has pass through structure. All gains and
losses of the fund are s-h-a-r-e-d- by the investors
• Ownership of fund is mutual & beneficial & proportionate to
contributions made by each investor

5
MUTUAL FUND OPERATION FLOW CHART

Investors
Passed Pool their
back to money with

Returns Fund Manager

Generates Invest in

Securities

6
 Advantages of Investing through Mutual Funds
• Advantages of investing in the Financial Markets through
Mutual Funds over Direct Investment are as under:
1. A Diversified Portfolio of Investments
2. Professional Fund Management
3. Easy Liquidity
4. Higher Flexibility & Convenience
5. Lower Transaction Cost

7
 Disadvantages of Investing through Mutual Funds
• Disadvantages of investing in the Financial Markets
through Mutual Funds over Direct Investment are:

1. Expenses borne by the investor

1. No Tailor-made Portfolios

8
 History of Mutual Funds
H is t o r y o f M u t u a l F u n d s in I n d ia

Phase I P h a se II P h a se III
1964 - 1987 1987 - 1993 1993 - 1996

U TI A ct 1963 B a n k s , P S U s , F Is P r iv a t e / F o r e ig n
U T I F o rm e d a llo w e d t o s e t u p M F s p la y e r s a llo w e d
to s e t u p M F s

U n it S c h e m e 1 9 6 4 SBI M F 2nd M F
1st M F Schem e a f t e r U T I in 1 9 8 7

M a ste r S h a re 1 9 8 6
1 s t E q u it y M F S c h e m e

9
 History of Mutual Funds
H is t o r y o f M u t u a l F u n d s in I n d ia

P h a se IV Phase V P h ase V I
1996 - 1999 1999 - 2004 2 0 0 4 o n w a rds

S E B I R e g u la t io n s U T I A ct 1 9 63 C o n s o lid a t io n &
1996 r e p e a le d in F e b ' 0 3 G ro w th

UTI M F 29 M Fs as at
F o r m e d in 2 0 0 3 3 1 -0 3 -2 0 0 6

E m e rg e n ce o f 2 ,3 1 ,8 6 2 C rs
la r g e & u n if io r m AUM
in d u s t r y

10
 Assets under Management (AUM)
(Rs. in Crs)

Private
As at UTI Public Sector Total
Sector

31/3/99 53,320 8,292 6,860 68,472

31/3/01 58,017 6,840 25,730 90,587

31/3/04 - 34,624 1,04,992 1,39,616

31/3/05 - 32,113 1,17,441 1,49,554

31/3/06 - 50,348 1,81,514 2,31,862

11
Structure of Mutual Fund Schemes

M u tu a l F u n d S c h e m e s

C lo s e E n d e d F u n d s O pen Ended Funds

M u tu a l F u n d S c h e m e s

Load Funds N o Load Funds

12
 Close Ended Funds
• Close Ended Fund:
– Fund has fixed maturity date
– Units can be purchased from MF during NFO Period only
– Units Redeemed by the Fund when scheme expiries
– Exit before maturity date either by selling units on the
Stock Exchange where listed or through buy-back option
– Units traded on Stock Exchange at a discount to NAV
– No. of units & Unit Capital remain constant

13
 Open Ended Funds
• Open Ended Fund:
– Fund has no fixed maturity date

– Units open for Sale / Repurchase at all times

– No. of units & Unit Capital of the fund keeps on

changing daily

14
 Load Funds
• Load is one time sales charge payable by the investors when
they enter / exit a Load Fund.
• Loads are charged to recover initial issue expenses which
inter-alia include marketing & selling expenses, brokerage,
advertising costs, printing costs
• There can be Entry load or Exit load or both or Contingent
Deferred Sales Charge [CDSC]
• Entry load is also called Front-end load.
• Exit load is also called Back-end load
• CDSC is usually charged within 4 years of entry for recovering
initial expenses and it decreases with the holding period

15
 No Load Funds & Impact of Loads
• In a No load fund,
– Marketing and Selling expenses of the fund scheme
borne by the AMC &
– The investor buys and sells units at NAV price
• Return on investment (ROI) in Load Fund is reduced
– When the investor buys a unit from the MFs, he pays
more than NAV i.e. (NAV + Entry Load)
– When the investor sells the unit to the MF, he gets less
than NAV i.e. (NAV – exit load)

16
 Example on Loads and Returns
Date Action NAV (Rs) Entry Load Exit Load

1/1/1999 Entry 11.00 2% -

31/12/1999 Exit 12.00 - 1%

ROI with Loads

Amount invested = 11 + 0.22 = 11.22 Rs.
Amount received = 12 – 0.12 = 11.88 Rs.
Gain = 0.66 Rs.
ROI = (0.66 x 100) /11.22 = 5.88%
ROI without loads = 12 – 11 = 111 x 100 = 9.09%

17
 Classification of Mutual Fund Schemes

M u tu a l F u n d S c h e m e s

I n v e s t m e n t C la s s I n v e s t m e n t O b je c t iv e I n v e s t m e n t R is k I n v e s t m e n t T im e H o r iz o n

E q u it y F u n d G ro w th F u n d H ig h R is k F u n d L o n g T e rm
D ebt Fund In co m e F u n d M o d e r a t e R is k F u n d M e d iu m T e r m
M o n e y M a rk e t F u n d C ash Fund L o w R is k F u n d S h o rt T e rm

18
 Types of Equity Funds

E q u it y F u n d s

In d e x Fu n ds D iv e r s ifie d E q u ity F u n d s S p e c ia lit y F u n d s

ELSS Funds S e cto r F u n d s

D iv id e n d Y ie ld F u n d s M id C a p F u n d s

G ro w th F u n d s S m a ll C a p F u n d s

V a lu e F u n d s A g g r e s s iv e G r o w t h F u n d s

Note: Index Funds replicate a chosen underlying index. Exposed to

tracking error
ELSS Funds section 80 C benefit with 3 yr lock-in period

19
 Types of Debt Funds
D ebt Funds

G ilt F u n d s Bond Funds S p e c ia lit y D e b t F u n d s

I n v e s t in D a te d S e c u r it ie s I n v e s t in G o v t . S e c u r it ie s Fo cu ssed D ebt Fu n ds
& T r e a s u r y B ills & C o rp o rate B o n d s

E x p o s e d to I n te r e s t R a t e R is k D iv e r s ifie d D e b t F u n d s H ig h Y ie ld D e b t F u n d s

N o C r e d it R is k A s s u re d R e tu rn D e b t F u n d s E x p o s e d t o S e c t o r R is k

F ix e d M a t u r it y P la n s E x p o s e d to I n te r e s t R a t e R is k

E x p o s e d to I n te r e s t R a t e R is k E x p o s e d t o C r e d it R is k

E x p o s e d t o C r e d it R is k

Note: Fixed Maturity Plan are close ended funds maturing at

periods from 15 days to more than 1 year

20
 Money Market Funds
• Money Market Funds are also called as Liquid Funds

• Liquid funds invest in Debt Securities with less than 1

year of maturity

• They offer high liquidity & safety of principal

• They are low risk and low return funds

21
 Balanced Funds
• A fund scheme investing in debt, equity and money
market instruments within pre-specified proportions is
called a Balanced Fund or a Hybrid Fund.

• If the fund manager is allowed to change the proportion

of investment into debt, equity and money market
depending upon market perception it is called Asset
Allocation Fund with flexible asset allocation.

22
 Types of Hybrid Funds

H y b r id F u n d s

B a la n c e d F u n d s A s s e t A llo c a tio n F u n d s

E q u it y O r ie n t e d B a la n c e d F u n d s F le x ib le A s s e t A llo c a t io n
D e b t O r ie n t e d B a la n c e d F u n d s

M o n t h ly I n c o m e P la n s
G ro w th & In c o m e F u n d s

23
 Other Fund Categories

• Commodity Funds : Invest in Commodity

Stocks
• Real Estate Funds : Invest in Stocks of
Real Estate Cos
• Exchange Traded Funds : Trade like a Single
Stock on the Stock
Exchange
• Fund of Funds : Invest in other Mutual
Fund Schemes

24
 Exchange Traded Funds (ETF)

• Exchange Traded Funds track a chosen market index

and trades like a stock on the stock exchange

• Units of ETF can be bought and sold on the stock

exchange through brokers at the prevailing market price
which keeps on changing during the day

• Investors can exchange ETF units with underlying shares

• ETFs are less expensive and more efficient in tracking

the index performance as compared to Index Funds

25
 Real Estate Funds
• Real Estate Funds may invest
a. Directly in Real Estate, or
b. may fund Real Estate developers
c. Buy shares of Housing Finance companies or their
securitised assets
d. These funds may have growth orientation or give
regular income to investors

• Fund of Funds invest in Mutual Fund Schemes and not

in securities
26
 Risk Return Hierarchy of Different Funds

Risk High
Sector Funds
Diversified Equity Funds
Index Funds
Balanced Funds
Debt Funds
Gilt Funds
Risk Low MMMF

Low return High return potential

27
 Chapter 2 – Fund Structure and Constituents

Mutual Fund Structure

• Mutual Funds originated in U.S.A
• In U.S.A Mutual Funds are set up as investment companies
and not as trust.
• In U.K open ended funds are in the form of Unit Trust and
close ended funds are corporate entities although called
Investment Trust
• Mutual Funds in India are set up as Unit Trusts under the
Indian Trusts Act, 1882
• As per SEBI Regulations, Mutual Fund has a 3 tier structure:
– Sponsor
– Trustee
– Asset Management Company

28
 Constituents of a Mutual Fund
• Functionaries involved in managing the investors money
under the overall supervision of Trustees are:
1. Asset Management Company
2. Custodian & Depository Participant
3. Registrars & Transfer Agents (R & T Agents)
4. Distributors

29
 Role of Sponsor
• Sponsor is a person (an entity) who sets up a
Mutual Fund
• Sponsor
– settles the Trust,
– makes initial contribution for setting up the Trust
– executes Trust Deed with the Trustees
– appoints the Board of Trustees
– owns minimum 40% of share holding of AMC

30
 Who can be a Sponsor?
• A sponsor of a Mutual Fund must satisfy the following
criteria
1. Must have positive net worth
2. Minimum 5 years’ track record
3. History of positive After Tax Profit for 3 out of 5 years
including fifth year
4. Must be a ‘Fit and Proper’ person

31
 Trustee
• The Mutual Fund set up as Trust, is managed either by a Trust
Company or a Board of Trustees
• The Board of Trustees and Trustee Company are governed by the
Indian Trust Act, 1882
• The Trustee Company is also subject to the provisions of the Indian
Companies Act.
• It is the responsibility of the Trustees to protect the Interests
of the Investors / Unit holders
• The AMC and other functionaries of Mutual Funds are functionally
accountable to the Trustees
• Trustees have to exercise General Due Diligence and Specific
Due Diligence. Specific Due Diligence includes obtaining compliance
certificates at regular intervals, etc.

32
 Trustee
• Trustees appointed by the Sponsor with SEBI approval
• At least 2/3rd Trustees must be Independent
• Trustees liable to investors for acts not done in good faith
and if they have not exercised adequate due diligence
• Trustees approve each MF scheme floated by AMC
• Trustees are the registered owners of Fund Assets
• Trustees receive fees for their services

33
 Trustee
• Eligibility Conditions for becoming a Trustee:
– Person of high repute and integrity
– Not convicted for economic offence under securities
laws
• A Trustee cannot be a part of AMC as Director, Employee
or Officer of the AMC
• Trustee of one Mutual Fund cannot be a Trustee of
another Mutual Fund.

34
 Asset Management Company (AMC)
• Trustees appoint the AMC if so authorized by the Trust
Deed with prior approval of SEBI
• AMC is constituted as a Company under the Indian
Companies Act
• AMC has to maintain net worth of not less than
Rs. 10 crores at all times
• At least 50% of Directors of AMC to be independent
directors

35
 Asset Management Company
• AMC can do only the following businesses
– Asset Management Services
– Portfolio Management Services
– Portfolio Advisory Services

• AMC can be terminated/changed with the consent of

– Majority of Trustees or
– Unit holders representing at least 75% of Unit Capital
– With prior approval of SEBI

36
 Role of AMC
• AMC is the Fund Manager for managing Mutual Fund Assets
• AMC prepares different MF schemes which are approved by the
Trustees
• AMC accountable to the Trustees
• AMC charges Asset Management Fees subject to ceiling
prescribed by SEBI.
• There is an Asset Management Agreement between AMC
and Trustees

37
 Role of Custodian, DP & R & T Agent
Custodian
• SEBI registered entity
• Appointed by Trustees
• Keeps records and account of
securities / investments
• Collects benefits under
investments
• Sponsor & custodian cannot be
same entity
• Depository Participant deals
with securities of the mutual
fund held in demat form
R & T agent
• SEBI registered entity
• Appointed by Trustees
• Keeps record of unit holders
account
• Issues, redeems, transfers units
of mutual fund schemes
• R & T agent is a separate entity
• Distributors appointed by
AMC
38
 Fund Mergers & Scheme Takeovers
• A Mutual Fund’s constitution may be changed as
under:
1. AMC may be taken over by another sponsor
2. Two AMC’s may merge with each other and new AMC
may manage erstwhile schemes separately
3. Trustees may change the AMC
4. Fund Schemes may be merged with other schemes of
the same AMC

39
 Merger of two AMC’s
• If 2 AMC’s merge :

– Approval of Trustees of both AMC’s required

– Approval of SEBI required

– Approval of High Court also required

– Unit holders are informed and given option to exit at

NAV price without any exit load
40
 Take Over of AMC or Scheme/s of AMC
• AMC Take-over by new Sponsor:
– Trustees approval required
– SEBI clearance required
– Unit holders to be informed

Recent Example: Alliance MF taken over by Birla MF

• Scheme Take-over:
– Scheme of one Mutual Fund taken over by another Mutual Fund
 Trustees approval required
 SEBI’s approval required
 Unit holders informed & can exit without exit loads

Recent Example: Schemes of Zurich MF acquired by HDFC MF

• Amendments to Trust Deed, Offer Document, AMC Agreement may
become necessary
41
 Chapter 3 - Legal & Regulatory Framework

Regulatory Agencies for the Fund & its Constituents

R e g u la t o r s

S .E .B .I . R .B .I .

C a p it a l M a r k e t s M o n e y M a rk e t In s tru m e n ts
M u tu a l F u n d s

Ministry of Finance is supervisory body for RBI & SEBI

Company Law Board is the apex regulatory authority for companies.

Grievance against AMC or Trustee Company can be redressed by CLB

42
Regulatory Agencies for the Fund & its Constituents
Registrar of Companies (ROC) oversees the compliance by the
AMC and Trustee company with the provisions of Companies Act.
Annual accounts have to be filed with the ROC.

Department of Company Affairs can prosecute directors for non

compliance with the provisions of the Companies Act.

Mutual Fund Trustees are accountable to Public Trustees for

compliance with Indian Trust Act 1882

Charity Commissioner is the overall head for all Public Trusts

43
 Self Regulatory Organisations (SRO)
• SROs are second tier regulatory mechanism created by market
participants to regulate the working of the group of persons
• If SRO is registered with the regulatory authority, they have the
powers to enforce rules, seek information, conduct inspection and
award penalties.
• Registered SRO obtains these powers from the regulatory authority
who delegate these powers to them.
• All Stock Exchanges are SROs and are supervised by SEBI
• Close Ended Funds listed on SE observe listing Agreement
Requirements of Stock Exchanges
• AMFI is an Association of Mutual Funds in India (like Investment
Company Institute in U.S.A.) was incorporated in 1995 and is still not
recognized as an SRO

44
 Role of AMFI
• AMFI is governed by Board of Directors elected from Mutual
Fund members
• Role of AMFI
– To promote interests of MF’s & Unit Holders and interact
with SEBI / RBI / Govt. / Regulators
– To set ethical, commercial & professional standards
– To increase public awareness of MF industry
– To promote Best Business Practices & Code of Conduct for
persons engaged in the activities of Mutual Funds & AMCs
– To implement program of certification for all intermediaries
and others engaged in Mutual Fund selling

45
 Investors’ Rights
Investors are the beneficial owners of fund assets and have:
• Right of proportionate ‘beneficial’ ownership of scheme’s Assets
• Right to Timely Service
– Receiving dividend warrants within 30 days of the dividend
declaration
– Right to get penal interest at 15% if redemption proceeds not
sent to the investor within 10 working days
– Right to claim redemption proceeds even after 3 years at NAV
applicable at the end of 3rd year
– Reopening of open-ended scheme for sale and repurchase
within 30 days from the closure of IPO

46
 Investors’ Rights
• Right to Information
– Any information from the Trustee that have adverse bearing on
their investments
– Right to receive a copy of annual financial statements within 6
months
– Right to receive a statement of portfolio of investments within
one month from the close of each half year unless it is
published in newspapers
• Right to wind up a close ended scheme by unit holders
representing at least 75% of Unit Capital
• Right to terminate the AMC by unit holders representing at least
75% of Unit Capital

47
 Investors’ Rights to Services
• Investors have a right to be informed in writing plus through
advertisement in one English newspaper and one advertisement in
one local daily newspaper where head office is located about any
change in fundamental attributes of the scheme.
• Fundamental attributes of the scheme are
– The type of scheme
– Load structure
– Expense structure
– Investment objectives, policies and pattern
• Unit holders are given the option to exit at prevailing NAV
without any exit load.

48
 Investor Rights to Services
• Investor’s right to inspect documents such as
– Trust Deed,
– Investment Management Agreement,
– Custodian Agreement
– SEBI Regulations, 1996 on Mutual Funds
– Indian Trust Act, 1882

49
 Legal limitation to Investor’s Rights
• Investors cannot sue the Mutual Fund which is a Trust but
can sue the Trustees

• Investors have the right to sue the sponsors for short

fall in the assured returns only if the offer document has
specifically provided guarantee by the named sponsor

• Prospective investors can not sue the Trustees, AMC or

Custodians

50
 Investor’s Obligations & Complaint Redressal
• Mutual Fund investors should read Offer Documents,
understand Risk factors, monitor performance of
investments
• Mutual Fund investors can seek redressal of their
grievance through SEBI intervention
• Mutual Fund investors cannot seek redressal under
Companies Act since they are neither share holders
nor depositors in AMC

51
 Chapter 4 – Offer Document

Offer Document
• Offer Document of a MF scheme is a legal document prepared &
issued by AMC on behalf of trustees, inviting public to
subscribing to units of MF scheme
• Offer Document discloses adequate information for investors to
take informed investment decisions
• First time investors must read OD before deciding to invest
• Offer Document issued once at the time of launching a scheme
(NFO) for Close Ended Funds
• For Open Ended Funds, OD issued at NFO stage & revised every
2 years. Addendums for changes issued till revised OD is available

52
 Broad Contents of Offer Document
i. Summary information on cover page
ii. Standard Risk Factors & Scheme Specific Risk Factors
iii. Legal & Regulatory Compliance (Due Diligence) Certificate
signed by the Compliance Officer
iv. Financial information on Expenses, load structure & Condense
Financial Information of Schemes launched in last 3 financial
years
v. Constitution of MF - its Sponsors, Trustees, AMC, Custodians,
R&T Agents & their functions
vi. Investment objectives and policies
vii. Unit holder’s rights

53
 Contents of Offer Document on Cover Page
• Mandatory disclosures on Cover Page of Offer Document
– Name of the Mutual Fund
– Name of the Scheme
– Type of Scheme
– Name of the Asset Management Company
– Price of Units
– Opening, Closing and earliest closing date
– Mandatory Statement (SEBI Disclaimer)

54
 Key Information Memorandum & Its Format
• Key Information Memorandum (KIM)
– An abridged version of Offer Document which includes
investment objective, Asset Allocation Pattern, Plans and
options, Benchmark Index and Dividend policy, names of
fund manager and trustee companies, performance of the
scheme over the last 1, 3, 5 years as compared to
benchmark, expenses, sources of obtaining NAV, investor
grievance contact details, mechanism to receive annual
financial results, half-yearly portfolio disclosure
– Always accompanied by Application form
– To be in the format as prescribed by SEBI

55
 Offer Document
• Offer Document filed with SEBI with fees of Rs. 25000/- (Rs. 1
lakh since August, 2006)
• SEBI does not approve or disapprove anything contained in the
OD. SEBI only verifies whether all necessary disclosures have
been made and whether the terms of the offer are clearly
spelled out. Modifications if any advised by SEBI within 21 days
of its filing.
• Offer Document valid for 6 months for launching of scheme
from the date of receipt by AMC of SEBI letter containing
observations.

56
 Offer Document
Offer Document contains Financial Information on:
• Expenses
– Sales load, Redemption load
– Contingent Deferred Sales Charge
– Initial Issue Expenses for the scheme and for schemes
launched during last one year
– Estimated annual recurring expenses
• Condensed financial information about
– schemes launched during last 3 years and
– their performance
57
 Offer Document
• Offer Document provides information on
– Constitution of Mutual Fund
– Name of Sponsor / Board of Trustees / AMC / Custodian /
Registrar
– Duties & Responsibilities of Trustees / AMC / Custodian /
Registrar
– Names & Background of Key Personnel of AMC
– Name, age, qualification & experience of Fund Managers
– Details of Investor Relation Officer

58
 Offer Document
• Offer Document provides information on Investment
Objectives and Investment Policies of the scheme
– Short description of types of Securities for investment
– Asset Allocation percentages
– Policy of Diversification
– Portfolio Turnover Policy
– Investment Limitations

59
 Offer Document
Offer Document contains information on borrowing policy
• Mutual Funds are not allowed to borrow for making
investments
• However Mutual Funds can make temporary borrowing
for a maximum period of 6 months for the following 2
purposes
– For paying dividend
– For redeeming units
• The total borrowings cannot exceed 20% of the Net
Assets of the Scheme

60
 Offer Document
The other contents of Offer Document are:

i. Procedure for redemption of units

ii. Valuation of Securities norms and NAV calculation norms

iii. Description of Accounting Policies

iv. Tax treatment of Investments as per existing laws

61
 Offer Document
v. Minimum subscription amount

vi. Offer period : Calendar of opening, closing, allotment

etc.

vii. Name of SE where Close ended units will be listed

viii. Procedure for transfer and transmission of units

ix. Different plans under the scheme

x. Dividends and Distribution Policy

xi. Procedure for winding up of the scheme

62
 Offer Document
Standard Risk factors stated in Offer Document are:
• NAV can go up and down depending upon Capital market
movements
• Past performance of AMC is not indicative of future
performance
• Name of the scheme does not indicate its quality or
prospects
• There is no guarantee that objectives of the scheme will
be met
Scheme specific Risk Factors are also disclosed

63
 Chapter 5 - Fund Distribution & Sales Practices

Who can invest in a Mutual Fund Scheme?

• Indian Residents
– Resident Individuals & HUF
– Indian companies
– Partnership Firms
– Indian Trusts & Charitable Institutions
– Insurance Companies
– Banks
– Financial Institutions
– NBFCs
– Provident Funds
– Mutual Funds

64
 Who can invest in a Mutual Fund Scheme?
• Non Residents
– NRIs & Persons of Indian Origin
– Overseas Corporate Bodies (OCBs)

• Foreign Entities
– FIIs registered with SEBI

• Foreign nationals cannot invest in MF

• An Indian national has to redeem his units if he

becomes a foreign national (US/Australian citizen)

65
 Distribution Channels - Types
1. Direct Marketing through Sales Staff / Mailers
2. Individual Agents as Distributors and Advisors
3. Institutional Intermediaries
– Fund distribution companies
– Finance Companies
– Investment Advisory Companies
– Banks and Institutions
– Post Offices to cover wider geographical area
– Brokers and Sub-brokers
Private Sector MF prefer established Fund distribution
Companies as Fund Distributors

66
 AMFI Registered Distributors
• AMFI Registration No. (ARN) card necessary before
selling MF units for

1. Newly recruited

2. Existing distributors

3. Employees of AMC

• Fund managers are not required to pass any test

67
 Agent’s Commission
• Commission to agents has two components (i) Initial
Commission & (ii) Trail commission
• Rate of trail commission depends on the holding period in
the scheme
• AMFI has prohibited parting / sharing of commission (see
AMFI Guidelines & Norms for Intermediaries
[AGNI] )
• SEBI does not prescribe any ceiling on commission rates.
AMC decides commission rates

68
 Desirable Sales Practices
• AMFI has recommended a set of desirable sales practices for Mutual
Fund Agents which are of recommendatory type and are as under :
– Know the important characteristics of scheme
– Know Your Client Profile (Identity, Age, Risk Tolerance,
Income Level, etc.)
– Understand client’s needs (investment objective, return
expectation, cash flow requirement, etc.)
– Assist in making the right choice of scheme & plan
– Encourage regular investment & commitment to invest
– Personalized post sales service

69
 SEBI Advertisement Code
• SEBI has prescribed advertisement code for mutual funds which is
mandatory and is as under:
– Standard measures to compare such as Annual Yield, CAGR etc.
– Annualised yields for at least one, three, five years & since
launch
– For less than 1 year performance, Absolute Return without
annualisation
– Past gains may not repeat in future
– Risk factors prominently stated
– Appropriate benchmark to be chosen
– Any ranking of fund to be explained

70
 AMFI Code of Ethics
• AMFI has prescribed Code of Ethics for Mutual Funds which is
as under:
– Funds to be managed in the interest of unit holders
– Unit holders to be treated equally & fairly
– Funds to ensure meaningful disclosures
– Funds to avoid conflict of interest in dealings by Directors,
Officers or Employees
– Funds to stick to ethical standards and fairness in dealings
– Funds to observe high standards of care, diligence, services
and disclosure announcements

71
 Chapter 6 – Accounting, Valuation & Taxation

Accounting Standards for Mutual Funds

• 9th Schedule of SEBI (Mutual Funds) Regulations 1996
lays down the framework for accounting and disclosure
norms for Mutual Funds.
• Mutual Funds prepare a separate Balance Sheet & Profit &
Loss A/c for each Scheme
• Mutual Fund investments are marked to market and
carried in the accounts at market value and not at cost
price.

72
 Accounting Standards for Mutual Funds
• Face Value of the unit is accounted in the unit capital account.
• Premium / discount on face value represents the unrealised
gains / losses and are accounted in unit premium reserve
account
• Realised gains / losses are accounted in the income
equalisation account.
• Equalisation Account is used to ensure dividends are not
distributed out of unrealized profits
• Unit capital appears on the liability side and investments appear
on the asset side of the balance sheet.

73
 NAV
Net Assets = Sum total of all Assets - Liabilities of the Fund

Assets = Market value of Investments + Receivables

+ Accrued income + Other Assets

Liabilities = Accrued expenses + Payables + Other Liabilities

Net Assets of the Scheme

NAV of a Unit =
Number of Units Outstanding
Q: Can you calculate NAV if total assets and total No.of units are given?

74
 Exercise
Calculate NAV of Fund Unit in the following case:

• No. of units: 10,000

• Market value of investments in Govt. Securities : Rs. 1 lakh

• Market Value of investments in Corporate Bonds:Rs. 1 lakh

• Other Assets of the fund: Rs. 20,000/-

• Liabilities of the fund: Rs. 25,000/-

• Payables by the fund: Rs. 5,000-

75
 Net Asset Value Disclosure
• Date on which NAV is calculated is called Valuation Date

• Open ended Funds are required to compute and

disclose NAV daily

• Close ended Funds can compute NAV’s every week

but disclose daily

• NAV Calculation has to consider up to date transactions

76
 Net Asset Value Disclosure
• All income, expenditure to be accounted upto date of valuation
• Non accrual of income of small amounts not affecting NAV by
more than 1% permitted
• Non-recorded transactions not affecting NAV calculation by
more than 2% permitted.
• If actual NAV is found more than declared NAV, AMC can
– recover money from investors who buys units &
– Pay the difference to the investors who sold units
– & vice-versa
• NAV to be displayed on Mutual Fund & AMFI Website by 8.00
p.m. daily (now 9.00 p.m.)

77
 Allocation / Cancellation of Units
• For all valid applications received before or upto the Cut-
off time (3:00pm), units are allotted / cancelled based
on NAV at the end of the same day
• For valid application received after the cut-off time
(3:00pm), units are allotted / cancelled based upon NAV
of the next business day.
• The above rule does not apply to liquid fund schemes
• NAVs are required to be rounded off upto 2 decimal
places for all funds except liquid funds where it is
calculated upto 4 decimal places

78
 Factors affecting Net Asset Value of a Unit
• NAV of a unit is affected by 4 set of factors:

– Purchase & sale of investment securities

– Sale & purchase of Units

– Valuation of all investment securities held

– Accrual of income & expenses

79
 Regulations on Pricing of a Fund Unit
• SEBI Regulations on pricing of Mutual Fund units
– For Open Ended Funds
 Repurchase price not lower than 93% of NAV
 Sale price cannot be more than 107% of NAV
 Difference between the repurchase and sale price of
a Unit cannot be more than 7%
– For Close Ended Funds
 The difference in repurchase price cannot be more
than 5% of NAV

80
 Charges in a Mutual Fund
• Mutual Funds can recover two types of Expenses
a. Initial issue expenses
b. Recurring Expenses
• Initial Issue Expenses
– effective April 04’ 2006 allowed up to 6% for Close
Ended Funds only
– Close Ended Funds cannot charge Entry Loads
– Open Ended Funds can recover expenses of sales &
distribution through Entry Loads

81
 Maximum Recurring Expenses
Recurring Expenses cannot exceed the following regulatory limits

Average Weekly Assets For Equity Funds For Bond Funds

For first Rs.100 crs 2.50% 2.25%

For next Rs.300 crs 2.25% 2.00%

For next Rs.300 crs 2.0% 1.75%

On the Balance Average

1.75% 1.50%
Weekly Assets

82
 Exercise
• Calculate maximum recurring expenses that can be
charged by a mutual fund whose average weekly assets
are Rs. 1000 crores in Equity scheme

• What will be the amount if the same assets are in debt

scheme?

83
 Asset Management Fees
• AMC fees as per SEBI Regulations are a part of
recurring expenses and cannot exceed:
– 1.25% of the 1st Rs. 100 crs of weekly Average Net
Assets
– 1.00% for Net Assets in excess of Rs. 100 crs
– AMC may charge additional 1% of weekly
Average Net Assets for “No Load” Funds
• Asset Management fees are usually lower for Debt Funds
Calculate AMC Fees on Net Assets of Rs. 500 Crores?

84
 Amortization of Initial Expenses
• Close Ended Funds do not charge initial expenses upfront
but amortize the same over the period of years of the
scheme
• Initial Expenses amortized on a weekly basis over the
period of the scheme. e.g for a 5 yr scheme, amortized
over 260 weeks
• Investor exiting before expiry of period of scheme will be
charged unrecovered initial issue expenses

85
 Disclosure and Reporting Requirements
• AMC to prepare Annual Report and Annual Statement of
Account for each scheme
• Annual Statement of Account to be audited by an Auditor
independent of the Auditor of AMC
• AMC accounts to be prepared & audited separately
• Within 6 months of Accounting year, Fund shall
– Display the scheme wise Annual Reports on their web site,
including AMFI web site
– Mail the Annual Report / Abridged Annual Report to all unit
holders
– Disclose portfolio of investments

86
 Disclosure and Reporting Requirements
– Mutual Funds to forward a copy of Annual Report to
SEBI including details of investments & deposits
– Mutual funds to submit to SEBI
 Copies of Audited Annual Statement of Accounts for
each scheme annually
 Copy of six monthly unaudited accounts within 30
days
– Publish unaudited H.Yly financial results in one English
& one Regional Newspaper within 30 days

87
 Accounting Policies
• Dividend / Bonus recognized on the date share is quoted ex-
dividend / ex-bonus
• Average cost considered for determining gain / loss on sale of
shares
• Purchase / sale of investments recognized on the trade date,
and not on settlement date
• Debt Investments to be taken as Non Performing Assets
– if interest or Principal amount remains unpaid for one quarter.
One quarter to be counted from the date immediately after the
due date
– e.g. If Interest due 30th June 2006 remains unpaid on
1/10/2006 it becomes NPA on 1/10/2006

88
 Provisioning of NPA – Debt Securities
If interest remain unpaid for 6 10% of Book Value
months

If interest remain unpaid for 9 20% of Book Value

months

If interest remain unpaid for 12 Another 20% of Book Value

months

If interest remain unpaid for 15 Another 25% of Book Value

months

If interest remain unpaid for 18 Balance 25% of Book Value

months

89
 Valuation Norms for Mutual Funds
• Valuation Norms prescribed by SEBI to protect investors’
interests.
• Valuation Norms are based upon fair portfolio valuation
method and are uniform across all funds
• Uniform valuation practices ensure that every one
can compare the performance of different schemes
and AMC.
• Valuation methodologies prescribed by SEBI regulations to
be disclosed in OD for investor’s information.

90
 Valuation Norms for Shares
• Shares are divided into 3 categories
i. Traded Shares – If traded price is not more than 30 days
old
ii. Thinly Traded Shares – If no. of shares traded is less
than 50,000 shares or value of traded share is Rs. 5 lakhs
or less in a month
iii. Non Traded Shares – Those shares which do not fall in
category i or ii
• Traded Shares valued as per market price at principal
exchange
• Thinly Traded / Non Traded Shares valued based upon
capitalisation of earnings and book value as per SEBI
approved norms

91
 Illiquid Shares
• Illiquid Shares i.e. Non traded, Thinly Traded & Unlisted
Equity Shares
– not to exceed 15% for Open Ended Fund Assets
– not to exceed 20% for Close Ended Fund Assets

• Value of Illiquid securities in excess of above limits to be

taken as zero

92
 Valuation of Traded Debt Securities
• A Debt Security (other than Govt. Security) is treated as traded,
if traded any day during the last 15 days
• Trading can be on a stock exchange or between institutions
• Market lot for trading in debt securities is 5 Crores
• Debt Security having trading value of less than Rs. 15 crores in
the 15 days prior to the valuation date is classified as Thinly
Traded
• A Debt Security if not traded in last 15 days is called Non
Traded or Thinly Traded Debt Security

93
Valuation Norms for Thinly-traded and Non-Traded Debt Securities

• Non-Traded / Thinly Traded / Unlisted debt securities are

valued by providing appropriate spread (based upon
credit risk and liquidity risk) over risk free benchmark yield
curve. Yield curve is a graph constructed based upon
yields on GOI securities for different maturities

10.5%
9.5%
9%
Spread bet GOI & AA 8.5% AA Bond Yield Curve
8%
7% AAA Bond Yield Curve
Spread bet GOI & AAA 2 yrs 20 yrs GOI Yield Curve

94
 Gross Current Yield (GCY)

• Coupon (Rate of Interest) of a Bond and Yield of a Bond may

be different.
• Yields are of two types G.C.Y & G.R.Y
• Gross Current Yield (GCY) is the current yield on investments
• Gross Current Yield is calculated by dividing the coupon by
the Market Price x 100
Exercise
• Calculate GCY of 10% bond of face value of Rs. 100/-
maturing after 1 year and purchased at Rs. 102/-

95
 Gross Redemption Yield (GRY)
• If purchase price is the same as Face Value of Bond, YTM will
be the same as Coupon Rate
• If purchase price is more than the Face Value, YTM will be
lower than the Coupon Rate
• If purchase price is less than the Face Value, YTM will be
more than the Coupon Rate
• Gross Redemption Yield (GRY) or Yield to Maturity (YTM) is the
rate of return on investment in a bond
• Internal Rate of return on an investment in bond is computed
based on : Coupon Rate, Purchase Price, Period to Maturity

96
 Taxation of MF’s and of Investors
• Income earned by Mutual Fund registered with SEBI is exempt
from tax under section 10(23 D) of I.T Act
• Dividend Income received by the investor is exempt from tax after
1999 – 2000 Budget
• Dividend distributed to unit holder by a closed end or open ended
debt fund is liable to dividend distribution tax at the rate stipulated by
the govt. from time to time
• Dividend distribution tax impacts every investor since it results in
lowering of NAV
• Open Ended equity oriented funds with more than 50% invested in
Equity do not pay any DDT (since changed to 65% in F.Y 2006-2007)
• No TDS on any income distributed by Mutual Funds

97
 Taxation of MF’s and of Investors

• Do Equity oriented Mutual Fund Schemes pay STT? Yes

• Do Equity oriented Mutual Funds pay DDT? No

• Section 80 C of I.T Act allows benefit of deduction from

income for amount invested in ELSS upto Rs. 1 Lac.

98
 Impact of Dividend Distribution Tax
How 33.99% is less than 14.16%?

• Investor pays the tax indirectly, since NAV comes down to

the extent of tax paid by the Fund.
• DD Tax bears no relationship to the investor’s tax bracket.
• Dividend reinvested is also subject to Dividend Distribution
Tax.
• In Growth Plans, Dividend Distribution Tax not applied,
since no dividend is distributed.
• 33.99% tax on earnings through short term capital gains
is actually less than 14.16% DD Tax in bond funds

99
 Short / Long Term Capital Gains Tax
• Short Term Capital Gain if units held for 12 months or
less
• Long Term Capital Gain if units held for more than 12
months
• Short Term Capital Gains at normal tax rates as applicable
to investor except for Equity Funds where it is 10%
• Long Term Capital Gains taxed at
– 20% with indexation + Surcharge of 10% + EC at 2%
or at
– 10% without indexation of cost + Surcharge + EC

100
 Short / Long Term Capital Gains Tax
• Under Section 111 of I.T Act
– Short Term Capital Gain tax on
– Equity oriented schemes at
– Govt. specified rates if STT is charged
– Currently it is 10% + SC + EC

• No Long Term Capital Gain Tax if STT charged

101
 Long term Capital Gains Tax
• Option to pay 20% or 10% lies with investor for each and
every security

• No Capital Gain Tax payable if entire Capital gain

invested within 6 months in Capital Gain Bonds of
NABARD, NHAI, REC U/S 54 EC of I.T Act with a lock-in
period of 3 years

102
 Calculating Capital Gain Tax - An Example
• Mr. H Invests Rs.2 lacs in MF units during FY 97-98
• After 2 years, he sells units and gets Rs.2.4 lacs
• His tax liability will be: CII 99-00 : 389, CII 97-98 : 331 ,
Ratio : 389/331=1.18
• Indexed Cost (2,00,000 x 1.18) = Rs.2,36,000
• Capital Gains – Rs.4,000
• Long Term Capital Gain tax of Mr. H:
Rs.4,000* 20%=Rs.800 or 10% of Rs. 40,000/- i.e.
Rs. 4,000/-

• Obviously he will select the option of paying Rs. 800/-

103
 Wealth Tax

• Ownership of Units not included in ‘Net Wealth’

• Hence no Wealth Tax Payable on Mutual Fund units

104
 Chapter 7 - Investor Services

Investor Services
• Application forms for investing in mutual fund schemes can be:
i. Downloaded from mutual fund website
ii. Obtained from distribution channels
iii. Application through internet allowed
• The Procedure for application by NRIs/ OCB provided in the OD/KIM
• Mandatory requirement of bank details to be given in the Application
Form for redemption purposes.
• PAN no. to be given if investment is Rs. 50,000/- or more. Since 2 nd
July, 2007 PAN details and copy mandatory for all MF investments
• Joint Accounts can be operated jointly by all or by any one of the
owner as applicable but redemption cheque will be issued in the
name of the first holder only

105
 Application Procedure for Purchase of MF Units
• The Application Form is an important agreement on the
part of the investor of having read and understood the OD
• The various modes of payment for buying mutual fund
units are specified in the OD
• NRIs can pay
– by demand drafts or cheques from FCNR/NRE accounts
if benefits are to be repatriated.
– payment can be made from NRO/NRNR A/c if benefits
to be paid in India in Indian currency.

106
 Application Procedure for Purchase of MF Units
• FIIs can remit directly from abroad or pay from their
Foreign Currency or Non Resident Rupee A/c.

• Offer Documents contains procedure purchasing and

redeeming of units

• Introduction of Multi purpose Application Form

dispenses with the need for existing Investors to fill up full
Application Form for making further investments

107
 Investment Plans and Services
Investment Plans offered by Mutual Funds are:
1. Automatic Investment Plan or Systematic Investment Plan (SIP)
– Regular Investment of fixed amount periodically (Rupee Cost
Averaging Advantage)
2. Automatic Reinvestment Plan or Systematic Reinvestment Plan
(SRP) Reinvestment of Dividend at Ex dividend NAV
3. Automatic Withdrawal Plan or Systematic Withdrawal Plan (SWP)
– Regular withdrawals at periodical intervals
4. Automatic Transfer Plan or Systematic Transfer Plan (STP)
– Selling units of one scheme & buying units of another scheme at
regular periodical intervals of the same AMC

108
 Options under Mutual Fund Schemes
• Options offered under the Mutual Fund Schemes are usually
as under:

– Dividend Payout option – NAV reduces

– Dividend Reinvestment option – No. of units increases
– Growth option – NAV increases

109
 Other Services offered by Mutual Funds
• Phone Transactions

• Internet / Email transactions

• Cheque writing facility for Liquid Funds

• Periodic (Qly) statement of Investment Portfolio

disclosures

110
 Other Services offered by Mutual Funds
• Mutual Funds cannot give loan against fund units
• Banks can give loan against Mutual Fund units by pledging
• Nomination facility allowed under Indian Trust Act
• Units can be transferred to another person under close ended
funds
• Transfer in Open Ended Fund happens upon
– death of unit-holder or
– when units are pledged or
– by operation of law i.e insolvency or
– winding up of the corporate investor

111
Chapter 8 – Investment Management: Managing Equity And Debt Portfolios

Investment Management
• Investor’s returns in Mutual Fund Schemes impacted by
following factors:

– Fund Management Style

– Time Horizon of investments

– Class of Investment

112
 Part I : Managing Equity Portfolios

Types of Equity Instruments

Equity linked instruments for investments are:

• Equity Shares (confer part ownership, potential for growth)

• Preference Shares (fixed rate of dividend)

• Equity Warrants (right to apply for equity share on a future

date at a pre fixed price)

• Convertible Debentures (debenture converted into shares

later on)

113
Decision flow from universe to Portfolio
construction and Stock Selection
Entire Stock Universe (5700)

Liquid Stock Filters (500)

Likely to
have value
Bias
Stocks With P/E Below 15x Earnings (200)

Earnings Stability (100)

Quality
companies
Sound Management (70)

Final Portfolio (50)

114
 Equity Portfolio Management
• An Equity Portfolio Manager’s task consists of 2 major steps:
a) Constructing a Portfolio of Equity linked Instruments in line
with investment objectives of the fund
b) Constantly rebalancing the portfolio to produce capital
appreciations and earnings through dividends that would
reward the investors with superior returns.
• Volatility of an equity fund comes from
a) Degree of diversification
b) Fund manager’s success in market timings
c) Kind of stock in a portfolio (small or large, growth
or value)

115
 Management of Equity Portfolios
• Management of Equity Portfolios involves
1. Decisions about
i. Asset Allocation
ii. Stock Selection
iii. Market timing
2. Monitoring of performance
3. Re-balancing of portfolio of investments
4. Evaluation of performance against benchmarks
5. Risk assessment and Risk management

116
 Positive Features of Indian Equity Market
i. Largest number of listed stocks (9400 companies listed on all stock
exchanges as at 31/3/04 out of which 7200 listed at BSE with a
market cap of over 13 Lac Crores)
ii. Industrial diversity (50 Industries / Sectors represented)
iii. Electronic Trading and Settlement System
iv. Growing number of Institutional Players
v. Lower Transactions Cost
vi. Lower Settlement Risks (T + 2 Rolling Settlement System)

117
 Negative Features for Indian Equity Market
i. Concentration of market cap and liquidity
– Group A shares at BSE 140,
– Group B1 Shares - 1100
– Group B2 Shares - 4500
ii. High levels of volatility (see index movements)
iii. Information inadequacies
– Disclosure of information
– Insider trading (by company employees having
unpublished price sensitive information)
iv. Lack of depth for large volumes

118
 Market Capitalisation based Classification of Shares
• Large cap companies
– High Liquidity
– Low Transaction costs

• Mid cap companies

– Moderate Liquidity
– More transaction cost

• Small cap companies

– High Profit potential
– High Transactions costs
– High Volatility

• Different Indices and Benchmarks for Large / Mid / Small Cap

119
 Earning based Classification of Shares
• What is PE and what is Dividend Yield?

• Price/Earnings Ratios
– Higher the P/E, greater the growth potential
– Lower the P/E, lower the growth potential

• Dividend yield
– Lower the dividend yield, higher the growth
potential
– Higher the dividend yield, lower the growth potential

120
 Cyclical, Growth, Value Stocks
• Cyclical Stocks
– Earnings linked with market cycles of business

• Growth Stocks
– Low Asset base
– High growth potential
– Higher P/Es & low dividend yield

• Value Stocks
– Large Asset base
– Long term good track record
– Moderate P/E & moderate dividend yield
– Presently undervalued as compared to intrinsic value of
stock
121
 Passive v/s Active Fund Management Style
• Passive Fund Management Style
– Replicates a chosen Index
– Index linked returns with some tracking error
– Low fees
– Low costs

• Active Fund Management Style

– Aims at out-performing the benchmark returns
– Focuses on stock selection and market timings
– Higher fees
– Higher costs

122
 Active Fund Management Strategies
• Growth Investment Strategy
– Fund Manager selects stocks of companies
– having potential of above average rate of growth in
earnings.

• Value Investment Strategy

– Fund Manger selects stocks of companies
– with good track record,
– stability of earnings
– and are currently undervalued
123
Role of Security Research in Active Fund Management
• 3 types of research done by security analysts:
i. Fundamental Analysis
 Research inputs based upon financials & operations of
the company and its profit potential
ii. Technical Analysis
 Analysis of market price and volumes based upon
demand and supply position & past trend charts
iii. Quantitative Analysis
 Analysis of Sectors and Industries based upon
macroeconomic factors

124
Organisation Structure of Equity Portfolio Management
Organizational Structure of Equity Portfolio Management in MF consists
of
1. Fund Manager/s
– Focuses on Asset Allocation, Industry Exposure
– Selects stocks &
– Fixes price range for purchase & sale
2. Security Analysts & Researchers
– research companies and
– recommend buy & sell of stocks
3. Security Dealers
– Collect market intelligence
– Place buy and sell orders with brokers

125
 Rules For Successful Equity Portfolio Management
• Set realistic returns based on a Benchmark

• Develop an investment strategy based upon objectives &

time horizons

• Avoid over diversification of portfolio & have well

diversified portfolio

• Develop a flexible approach to investing in equity markets

126
 What are Equity Derivatives?
• Derivative is a future contract or option contract to buy or
sell specified no. of shares of a company at agreed price
on specified future date.

• In an option contract the buyer of the option has a right

but not the obligation to buy specified no. of shares at
agreed price on a future date and he pays premium for
getting this right.

127
 Use of Equity Derivatives
• Mutual Funds use futures and option contract on equity
index or individual stocks
– for hedging portfolio risk and, or
– for portfolio rebalancing

• Mutual funds can trade in derivates contract for

enhancing returns

128
 Part II : Managing Debt Portfolios

Debt Securities
• Debt securities are also called Fixed Income Securities providing
regular returns
• Debt market is primarily a wholesale market for large players like
financial institutions, insurance cos, banks, mutual funds
• Types of Debt Securities are:
1. Central / State Government Securities
2. PSU Bonds
3. FI Bonds
4. Bank Bonds
5. Corporate Debentures
Central Govt. Securities dominate the debt market in size & volume of trades

129
 Debt Securities
• Debt Securities can also be classified as follows:

1. Fixed rate / Floating rate Debt Securities

2. Coupon Bonds / Cumulative Bonds

3. Listed / Un-listed Debt Securities

4. Rated / Un-rated Debt Securities

5. Secured / Unsecured Bonds

130
 Money Market Securities
• All Debt Securities maturing within one year are called
Money Market Securities

• Money Market Securities / Instruments are:

– T-Bills
– CDs
– CPs
– Call Money
– Repos (Repurchase options)

131
 Indian Debt Market Size as at 31/3/2004
Market Capitalisation
Type of security
(Rs. In Crores)
Central Government Securities 9,59,301
Treasury Bills 32,692
State Government Securities 79,340
PSU Bonds 56,831
Others (FI, Bank, Corporate Bonds, CD, CP) 87,697
Total of Debt & Money Market 12,15,861

Govt. Securities are also called Dated Securities

132
 Basic Characteristics of a Debt Security / Bond
• Bonds have the following 4 key characteristics set at the time
of issue:
i. Face Value or Par Value of the Bond
ii. Coupon (Rate of Interest) paid on the Par Value of
the Bond
iii. Maturity Date of the bond
iv. Put or Call options: Put option gives a right to the holder
of the bond to return the bond to the issuer and get back
the money from the company. Call Option gives right to
the issuing company to call back the bond and pay the
money to the bond holder

133
 Risks of Investing in Debt Securities / Bonds
• Major risks in fixed income securities / bonds are
– Interest Rate Risk
– Credit Risk
• Other risks in bond investments are
– Re-investment Risk
– Liquidity Risk
– Call / Put Option Risk

Note: Equity Funds are not exposed to above risks except liquidity
risk

134
 Yields Spreads & Credit Risk
• Credit risk is priced using the ratings of credit rating
agencies. Credit rating agencies are i) CRISIL ii) CARE
iii) ICRA iv) FITCH
• Higher the credit rating, lower the spread over GOI
securities Yield Curve
• Yield curve is a graph constructed based upon
yields on GOI securities for different maturities
• Offer Document states the credit quality of bonds for
investment in the scheme

135
 Duration of a Bond
• Term of the bond is period to maturity of a bond
• Duration of the bond is the weighted average maturity
period of a bond
• Zero coupon bond has duration equal to the term of the bond
• Coupon bonds have duration lower than Term of the bond
• Duration is an indicator of the interest rate risk of a bond, when
interest rates change the value of the bond changes in the
opposite direction.
• Higher the duration, greater the change in price and risky the
bond becomes. If the duration of the bond is 3 years, a 1%
rise in interest rates will bring down the value of the
bond by 3%.

136
 Debt Management
• Passive Debt Management Style involves Buy and Hold Strategy
exposing the portfolio to Interest Rate Risk and Credit Risk
• Active Debt Management Style involves managing duration
of the bond and its credit quality for reducing risk
• Debt Fund Managers use derivatives (forward contracts and
swap contracts) for hedging and balancing their portfolios
• Organisation of debt funds consists of i) Economist for interest
rate forecast, ii) Fund manager, iii) Dealer

137
 Part III : Investment Policy and Restrictions

Investment Policy of a Fund

• Investment policy of a Mutual Fund scheme can be found in the
Offer Document
• For Equity Fund See kind of Sectoral Allocation & companies to
invest
• For Debt Fund See types of instruments, credit rating, proposed
average maturity, minimum & maximum MM instruments
percentage
• For Balanced Fund see equity & debt proportions stated in OD
• For Money Market Fund (Liquid Fund) see types of instruments
preferred & their rating profile

138
Regulatory Restrictions on Investment Management Decisions
• SEBI regulations provide prudential guidelines for investment
management function of the Mutual Fund
• Following are significant regulatory requirements:
– Mutual Fund can invest only in marketable (transferable)
securities
– Mutual Fund cannot lend money or give loans
– All investments by Mutual Funds have to be on delivery
basis i.e. Mutual Fund has to pay for every buy transaction
and give delivery for every sell transaction. It cannot square
off the position (no short selling allowed)

139
Regulatory Restrictions on Investment Management Decisions
• Limit on investment in company shares
– A Mutual Fund under all its schemes can hold not more than 10%
of the paid-up capital of a company.
– Mutual fund scheme can invest not more than 10% of NAV in the
shares of a single company except for sectoral / index funds
• Limit on investment in company bonds
– Investment in rated investment grade bonds of a single company
can be up to 15% of the Net Assets (can be raised to 20%
with Trustees approval)
– Investment in un-rated bonds of one company cannot exceed
10% of Net Assets of a scheme and total investments in un-
rated debt securities cannot exceed 25% of Net Assets of the
scheme.

140
 Regulatory Restrictions on
Investment Management Decisions
• Limit on investment in unlisted shares in Mutual Fund Equity Scheme
– Investment in unlisted shares cannot exceed 5% of Net Assets
for an open ended scheme and 10% of Net Assets for a closed
ended scheme.
• Limit on investment in sponsor group company shares and bonds
– A Mutual Fund cannot invest in unlisted securities or
privately placed securities of Sponsor or Sponsor Group
Companies
– A Mutual Fund can invest in listed securities of the
sponsor / Sponsor Group Cos upto 25% of Net Assets
• A Mutual Fund cannot lend money but can lend securities under SEBI
approved stock lending scheme

141
 Regulatory Investment Restrictions
• Mutual Funds can invest in ADRs / GDRs of companies
• Minimum no. of investors in a scheme 20 & no single investor
to hold over 25% of the corpus
• Can a Mutual fund invest in mutual fund schemes?
– Yes! A mutual fund can invest its funds under its schemes
into other schemes of same AMC or of other AMCs subject to
a maximum of 5% of Net Assets.
• Does a Fund of Funds invest in Mutual Fund Schemes?
– Yes! 100% of the funds

142
 Regulatory Investment Restrictions
• Can Mutual Fund buy securities of one scheme from another
scheme?
– Yes! if objectives of both the schemes are same. Purchase will be
at current market prices on spot delivery basis.
• Can a Mutual Fund invest in bank FDs?
– Yes! Mutual fund can park its money in short term fixed deposits
of Scheduled Commercial Banks pending deployment into regular
investments but cannot charge AMC fees
• Can a Mutual Fund borrow money?
– Yes! upto 20% of Net Assets for maximum 6 months for
paying dividend/redeeming units

143
 Chapter 9 – Measuring and Evaluating Mutual Fund Performance

Measuring MF Performance
• Returns to investors in Mutual Fund are through
– Dividends and
– Capital Gains
• Investor should track the value of his investments in terms
of
– Return on such investments
– Decide whether he needs to switch to another fund.
• SEBI regulations mandate disclosure of returns for a
period of 1, 3, 5 years and since inception.
• No annualisation of returns for a period of less than 1 year

144
Methods of Measuring / Evaluating MF Performance
• Absolute Return Method
• Simple Annual Return Method
• Total Return Method
• Total Return Method when Dividend is Reinvested
• Compounded Annual Average Rate Method (CAGR)
• Expense Ratio Method
• Income Ratio Method
• Portfolio Turn over Ratio Method
• Transaction Cost Method
• Fund Size
• Cash Holding Percentage
145
 Absolute Return Method
• Absolute Return
– Is return on investment for a specific period without
annualizing

• Absolute Return is calculated on investment for less than 1

year period

• If NAV Changes from 20 to 22 in 6 months,

2
 100  10%
– Absolute Return is 20

146
 Simple Annual Return Method
• Simple Annual Return Method computes returns as follows

• Lets take the previous example

– NAV changed from 20 to 22 in 16 months period

 22  20  
12
 100  7.5%
– Simple Annualized Return is
20 16

147
 Total Return Methods
• There are 2 methods for calculating total returns

– Method 1 - Total Returns can be calculated without

reinvesting dividend received

– Method 2 - Total Return can also be calculated when

Dividend is not received but reinvested. Reinvestment of
dividend is done at ex-dividend NAV price

• See Example for calculating Total Returns under above 2

methods
Contd….

148
 Example: Total Return Method when Dividend
received but not reinvested
• Assume Units are purchased when NAV is 20
• Assume that Dividend of Rs. 4/- is distributed when NAV Ex Dividend
is 21
• Assume NAV at the end of the year is Rs. 22/-
• Simple Total Return for the year will be as under:

 22  20   4  100  30%
20
Note: It is incorrect to say that because of its simplicity Total Return
Method is preferred to Total Return Method when Dividend is
reinvested

149
 Example: Total Return Method when Dividend is
reinvested at ex-dividend NAV price
• In the previous example if the dividend is reinvested when
the ex dividend NAV is Rs. 21
• Units allotted for Rs. 4 at NAV of Rs. 21 = 0.19
• No. of Units after reinvestment of dividend = 1.19
• End Value of 1.19 units = 1.19 x Rs. 22 = 26.18
• Beginning value of 1 unit = Rs. 20
• Gain on investment = 26.18 – 20 = 6.18
6.18
• Total Return on investment in % =  100  30.9%
20

150
 CAGR Method - An Example
• Begin NAV – 100
• End NAV – 200
• Period of Investment – 10 years
• Average Annual Compound Return - Is it 10% or lower ?
10
 R 
200  100  1  
 100 
• Solving for ‘R’ gives Annualised compound rate of 7.1773% or 7.2%
• Apply thumb rule of 72
• SEBI prescribes Average Annual Compound Return Method to be
followed for advertising Returns for over 1 year Period.

151
 Returns impacted by Loads
• CAGR and Total Return when dividend is reinvested measure ROI

• The above example assumes a No Load Fund.

• If there is an Entry Load, you pay more than NAV and get lesser
number of units.

• If there is Exit Load, you get less than NAV.

152
 Expense Ratio / Income Ratio Method of Fund Evaluation
• Funds can be evaluated based on Expense ratio and Income
ratio
• Expense Ratio: It is the ratio of total expenses to Average Net
Assets of the fund.
– This ratio is important for evaluating Bond Funds
[Note: Bond Funds with low expense ratios are preferred]
• Income Ratio = Net Investment Income of the Fund
Average Net Assets of the Fund
• Income ratio is important for evaluating Bond Funds

153
 Portfolio Turn Over Rate Method of Fund Evaluation
• Another Measure of Fund Evaluation is Portfolio Turn Over Rate
• Portfolio Turnover Rate = Total Sales & Purchases
Average Net Assets of the Fund

• Higher Turn Over Rate indicates

– More churning of Portfolio
– More transaction costs

• Portfolio turn over rate relevant for actively managed funds

154
Importance of Benchmarking in Evaluating Fund Performance

• Three methods of evaluating Fund Performance

i. Evaluating Fund Performance against Benchmarks

i. Evaluating Fund Performance against other Peer

Group Mutual Fund Schemes

i. Evaluating Fund Performance against other Financial

Products

155
 Fund Evaluation against Benchmarks
3 Types of Benchmarks :

i. Relative to Market as a whole.

ii. Relative to other Mutual Funds

iii. Relative to other comparable financial products.

156
 Benchmarks for Equity Funds

Type of Equity Fund Name of Benchmark

BSE Sensex Index or

Index Funds
S&P CNX Nifty Index
Diversified Equity
BSE 200 Index
Funds
Sector Specific
Sector Funds
Index
Growth Funds with over 60% in Equity should use Broad Equity
Index ( BSE 200 Index)

157
Benchmarks For Debt Funds & Money Market Funds

Type of Debt Fund Name of Benchmark

Gilt Fund Government Security Index

Debt Fund Corporate Bond Index

Mibor reflecting inter bank
Money Market
call money market interest
Fund
rates.
Bond Funds with over 60% in Bonds to use Bond Market Index
Balanced Funds should use Tailor made Index

158
 Benchmarking against other Mutual Funds.
Peer Group Comparisons :

• Performance of Fund can be compared with similar

schemes of other Mutual funds.

• Criteria for Peer Group Comparison would be similarity in

– Investment objectives and rating profile of portfolios
– Average maturity of debt portfolios
– Size of fund ( big or small)

• Higher Expense Ratio of a Debt Fund hurts long term debt

investors
159
 Benchmarking with other Financial Products
• Comparison with other comparable Financial
Products

i. Risk Return Relationship to be considered

ii. Liquidity factors to be considered

iii. Average Annualised compound returns to be

compared.

160
 Sources for tracking Mutual Fund Performance
• Following sources of information can be used to track
performance of Mutual Fund Schemes
i. Mutual Funds Annual periodic Reports.
ii. Mutual Funds website.
iii. AMFI website
iv. Daily Financial News Papers.
v. Fund Tracking Agencies – Credence, Value Research &
Lipper India
vi. Newsletters from brokers.
vii. Offer Document of the Fund for earlier schemes
viii. Analytical Articles

161
 Chapter 10 – Helping Investors With Financial Planning

What is Financial Planning ?

• As Fund Distributors you need to help the investor to do proper
Financial Planning before he decides to invest his funds
• Financial Planning includes
– Identifying all financial needs of an individual
– Translating the needs into monetary goals at different times in
the future
– Planning the financial investments to provide and satisfy future
financial needs to achieve goals
• Objective of financial planning
– Right amount of money made available in the
– Right hands at the
– Right time in the future to achieve an individual’s financial goals

162
 Who is a Financial Planner?
• A Financial Planner is a person who

– Uses the financial planning process

– Helps in determining the goals of the investor

– Identifies
 Financial planning needs of the customer
 His Present priorities &
 Products that will suit customer’s needs
163
 Advantages of a Distributor becoming a Financial Planner
• Strong Potential for such services
– High saving habit
– Low awareness of various investment options
– Complexity of various investments

• Limited supply of financial planners in India

• Benefit of establishing long-term relationships with clients

• Benefit of building a profitable business

164
 What makes a good Financial Planner?
• Building Trust with the client
• Good Knowledge of Financial products / options
• Familiarity with Taxation & Estate planning issues
• Understanding of various Life stages in a client’s life
• Independent judgment and balanced thinking
• Organized way of working
• Regular contact with clients
• Clear focus on the overall financial well-being of client

165
 Role of Financial Planner and Fund Manager
• Role of Financial Planner
– Financial Planner discusses goals with the client and
recommends asset allocation for achieving the financial
goals
– Financial planner recommends the schemes of the
mutual fund house in which the client should invest
• Role of Fund Manager
– Fund manager of the mutual fund analyses the markets
makes choice of individual securities and constructs
investment portfolio

166
 Basic Terms used in Financial Planning
• What is Financial Planning?
– Advising clients on how to achieve their financial goals
• What are Financial Goals and Objectives?
– Needs of clients converted into Financial Terms
• What is Asset Allocation?
– Determining proportion of allocation of client’s investments
across various asset classes such as Equity, Bond and Money
Market.
• What is Risk Tolerance?
– Extent of loss a client can tolerate, psychologically and
financially and for how long he can withstand such decline in
value

167
 Basic Terms used in Financial Planning
• What is a Financial Plan?
– It is a document that details clearly in writing
 financial goals
 available resources
 time frame for investment
 asset allocation
 specific investments
 clear action plan towards implementation
• What is Portfolio Rebalancing?
– It is a process of making changes in equity and bond
portfolios to achieve the target value

168
 Financial Planning Process – 8 Steps involved
1. Establishing & Defining the Client – Planner Relationship

2. Gathering Client Data, Defining Client Goals

3. Analyzing and Evaluating a Clients Financial Status

4. Determining and Shaping Risk Tolerance Level

5. Ascertaining Clients Tax Situation

6. Developing & Presenting Financial Planning Recommendations

7. Executing the Plan & making the Client Invest

8. Reviewing Progress & Portfolio Rebalancing

169
 Common Mistakes in Financial Planning
Mutual Fund distributor must learn to avoid the common mistakes:
1. Often ‘Measurable financial goals’ are not set
2. Often Financial decisions are made in isolation
3. Often Financial Planning is confused with investing. Financial
Planning precedes investing
4. Financial Plans are not re-evaluated periodically
5. Financial Planning considered relevant only for wealthy
6. Clients think that F.P required when they get older
7. Financial Planning is considered same as retirement planning
8. Client’s wait till they face Financial crises to begin F.P
9. Client’s expect unrealistic returns on investments
10. Client’s think that using Financial Planner means losing control
11. Client’s believe Financial Planning is primarily Tax Planning
170
 Key Issues in Financial Planning
• A Financial Planner should make the client understand the
following key issues:
– To set Measurable Financial Goals
– To understand the Effect of each Financial Decision
– To re-evaluate Financial Situation Periodically
– To start Planning as soon as possible
– To be Realistic in Expectations
– To realize that the ‘Client is in Charge’ of Funds

171
 Normal Life Cycle Stages of an Individual
• Childhood Stage (up to 18 years)

• Young Unmarried Stage (22 – 27 yrs)

• Young Married Stage (27 – 30 yrs)

• Married with Young Children Stage (30 – 37 yrs)

• Married with Older Children Stage (48 – 53 yrs)

• Post Family/Pre-Retirement Stage (53 – 58 yrs)

• Retirement Stage (58 – 60 yrs)

172
 Financial Planning & Mutual Funds
• Individuals have 2 types of needs
– Protection Needs
– Investment Needs
• For protection needs,
– Pure Risk Plan of a Life Insurance company is the
recommended option
• For investment needs,
– Mutual Fund schemes are the recommended options
• Unit Linked Insurance is a new option satisfying both protection
& investment needs but a Mutual Fund with Term Insurance is a
better option

173
 Wealth Cycle Stages of Investors
• What is Wealth Cycle classification of investors?
– In this classification, investors are classified based upon their approach to
savings & investments rather than age or life cycle stage
• The following table illustrates this:
Stages Financial Needs Investment Preferences
Accumulation Stage (25 – Investing long term for
Growth funds options
43 yrs) identified goals
Near term needs for
Transition Stage (43
funds as pre-specified Balanced funds
– 48 yrs)
needs draw closer
Reaping Stage (48 – 58) Higher liquidity needs Liquid and debt funds
Inter-generational transfer Long term investment
Growth funds
stage (58 – 60) for inheritance
Sudden Wealth stage ??? Liquid funds

174
 Wealth Cycle Stages of Investors
• The Sudden Wealth Stage refers to winning lotteries. Park in
Money Market Funds
• Another method of investing is goal oriented investing,
where financial planner breaks up the investment portfolio into
a Retirement Component, Children’s Component, an Asset
acquisition Component and then recommends specific strategies
to achieve each goal
• You create wealth by investing in equity over long term
• You preserve wealth by investing in debt funds over medium
term

175
Chapter 11 – Recommending Financial Planning Strategies to Investors

Investment Strategies for Investors

• What are the basic principles of financial planning that
investor should use in creating their investment strategy?
i. Invest long term and harness the power of
compounding by choosing Growth option
ii. Start investing early
iii. Keep investing regularly. Use SIP
iv. Have realistic expectation of returns on Investments

176
 Rupee Cost Averaging strategy of Investment
• Some of the recommended strategies are:
a. Rupee Cost Averaging
b. Value Averaging
• Rupee Cost Averaging (RCA) involves the following
– A fixed amount is invested at regular periods
– More units are bought when NAV is low
– Fewer units are bought when NAV is high
– Over a period, average purchase price per unit is lower than
average NAV
– Investor use SIP to implement RCA
• Limitation of RCA is that t does not tell you when to sell and when to
switch

177
 Value Averaging Strategy of Investment
Value Averaging Strategy involves the following

• A fixed amount is targeted as a desired value of the

portfolio at regular intervals

• If market values go up
– Units are sold to restore target value

• If market values go down

– More investments are made to maintain target value

178
 Value Averaging Strategy
• Value Averaging Strategy is superior to RCA

• It enables you to book profits at higher NAVs and invest at

lower NAVS

• Investors can use SWP to implement Value Averaging

Strategy

• Investors can use MM Funds and Equity Funds to

implement Value Averaging Strategy

179
 Asset Allocation Principles
• What is Asset Allocation?
– Asset Allocation is determining the percentages of
investments to be held in Equities, Bonds and Money Market
instruments.
• Over 95% of returns on Managed Portfolio come from the right
level of Asset Allocation amongst stock, bonds & cash.
• Asset Allocation differs for Investors depending upon
– their personal situation,
– financial goals and
– risk appetite

180
Model Portfolio for Investors Benjamin Graham’s
50/50 Balance Strategy for Asset Allocation
• 50/50 split between Equities and Bonds –

– A common sense approach

– Conservative investment approach

– When value of equity goes up, balance restored by

liquidating part of equity portfolio or vice versa.

– Good to get half the returns of a rising market and

avoid the full losses of a falling market.
181
Bogle’s Strategic Asset Allocation Strategy For Investors
• Bogle recommends the following factors to be considered in strategic
asset allocation strategy for investors:
– Age
– Financial Circumstances
– Objectives
Equity / Debt
For Younger Investors in Accumulation Phase 80/20
For Older Investors in Accumulation Phase 70/30
For Younger Investors in Distribution Phase 60/40
For Older Investors in Distribution Phase 50/50

182
 Model Portfolio for Investors suggested by Bogle
• Bogle’s Thumb Rule for Asset Allocation

– Debt Portion of an investor’s portfolio to be equal to

his age.

– 30 year old investor – 70/30 (Equity /Debt Allocation)

183
 Fixed v/s Flexible Asset Allocation Strategy
• Asset Allocation percentages can be on Fixed or Flexible Basis
• Fixed Ratio of Asset Allocation:
– Balance maintained by liquidating a part of the position in
the Asset class with higher return and
– reinvesting in the other assets with lower returns
• Flexible Ratio of Asset Allocation :
– Not doing any rebalancing of original portfolio of bonds &
equities and
– letting the profits run
• Fixed ratio approach works better in bull markets

184
 Tactical Asset Allocation Strategy
• Tactical Asset Allocation means change in Asset
Allocation percentages based on Fund Manager’s views on
the future movements in asset prices.

• Fund Manager may invest more in shares of small

companies than large companies.

• Fund Manager may change the equity & debt mix where
he expects greater returns.

185
Chapter 12 – Selecting the Right Investment Products for Investors

Asset Types - Physical & Financial Assets

• Physical Assets: Real Estate & Gold
• Financial Assets
– Bank Deposits: - Equity / preference shares
Bond / Debentures
– Company Deposits: - Commercial Papers
– NSC, KVP, PPF: - Certificate of Deposits
– RBI Relief Bonds: - Life Insurance Policies
Mutual Funds, ULIP

186
 PPF & NSC
• PPF
– In PPF you can deposit max. Rs. 70,000/- in a financial year
– You can take loan in the third financial year from the start
date
– Partial withdrawal allowed in the seventh financial year
– Section 80 C benefit allowed on contributions
– Interest is tax free
– Matures on 1st April after completing 15 years

• NSC
– No limit on maximum amount, matures after 6 years
– Contributions + accrued interest eligible for Section
80 C upto Rs. 1 lakh allowed with investments in PPF,
ELSS, PF, etc.
187
 Guaranteed and Non-Guaranteed Investments
• Guaranteed Investments: Capital protection and
interest rates are guaranteed by the borrower e.g.
– Bank Deposits
– Government Savings Instruments

• Non-Guaranteed Investments: Capital protection and

interest rates are NOT guaranteed e.g.
– Mutual Funds
– Equity Investments

188
 Physical Assets
• Individuals can invest in physical assets e.g. Gold & Real
Estate
• Govt. has permitted issue of Gold Bonds by Banks
• Investors are allowed to invest in Exchange Traded Gold
Funds. ETF invest in gold and returns linked with gold
price movements
• Real Estate Funds invest in real estate, in shares of
housing finance companies, in securitised debts of housing
finance companies, construction companies etc.

189
 Financial Products & Issuers
ISSUER PRODUCT AVAILABLE TO
Banks Fixed Deposits Investors &
MFs
Corporates Shares Investors &
MFs
Bonds, Investors &
Debentures MFs
Fixed Deposits Investors
Government Govt. Securities Investors &
MFs
PPF Investors only
FIs Bonds Investors &
MFs
Insurance Insurance Policies Individuals only
190
Cos.
 Evaluating Financial Products
PRODUCT SAFETY/CONVINENCE LIQUIDITY RETURN VOLATILITY

Equity Low High/low High-Mod. High

FI Bonds High Moderate Mod.-High Moderate

Debentures Moderate Low Mod.-Low Moderate

Corp. FD Low Low Moderate Low

Bank Dep. High High Low-High Low

PPF High Moderate Moderate Low

Life Ins. High Low Low-Mod Low

Gold High Moderate Mod.-Low Moderate

Real Estate Moderate Low High-Low High

MF High High High Moderate

191
 Why MF is the Best Option?

• MF combines the advantage of each of the investment

product choices

• It reduces the short comings of other options

• Returns in mutual funds get adjusted for market changes /

movements

192
Investing through MF’s V/s Direct Equity Investment
• Identifying stocks without detailed research is difficult in
direct equity investment
• Diversification easily achieved through Mutual Funds
• Mutual Funds employ Professional Fund Managers
• Investments made as per scheme objective in MFs
• Mutual Funds offer more liquidity
• Transactions costs are lower for Mutual Funds
• Mutual Funds offer convenience and flexibility

193
 Investor’s Perspectives: MF’s v/s. Other Products
Product INVESTMENT OBJECTIVE RISK TOLERANCE. TIME HORIZON

Equity Capital Growth High Long Term

FI Bonds Regular Income Low Med-Long
Debentures Regular Income Moderate Med-Long
Comp. FD Regular Income High Medium Term
Bank Deposits Regular Income Low Flex-All Terms
PPF Income Low Long Term
Life Insurance Risk Cover Low Long Term
Gold Inflation Hedge Low Long Term
Real Estate Inflation Hedge High Long Term
Mutual Funds Capital Growth Income H-M-Low Flex-All Terms

194
Chapter 13 – Helping Investors understand Risks in Fund Investing

Classification of Investors
• Risk Tolerance Levels of Investors & Risk Level of Funds:
Investors Funds

Low Risk Funds: Money Market Fund

Low Risk Tolerance
& Government Securities Fund

Moderate Risk Funds: Bond Funds,

Moderate Risk Tolerance
Balanced Funds, MIP

High Risk Funds: Index Funds,

High Risk Tolerance Diversified Equity Fund, Sector Fund,
Aggressive Growth Fund, High Yield Fund

195
 Risks in Mutual Fund Investing

• Risk means the possibility of financial loss or volatility of

returns

• A fund with stable, positive returns is less risky

– than a fund with fluctuating returns.

196
 Risks in Equity Funds
• Volatility of returns in an equity fund comes from
i. Kinds of stocks
ii. Degree of diversification
iii. Fund manager’s success at market timings
• Equity funds are exposed to equity price risks arising out of
– Company Specific Risk
– Sector Specific Risk
– Market Risk
• Market Risk means
– Fluctuations in the return of a fund caused by broad
economic, political and other market factors.

197
 Risk Measures of an Equity Fund
• Market risk can be measured in 2 ways:

– Beta Co-efficient method of measuring market risk

– EX Marks or ‘R Squared’ method of measuring market

risk

• Standard Deviation method measures the total risk of the

fund

198
 Risk Measures
• Beta Coefficient Measure of Risk :
– Beta value relates a fund’s return with a market index.
– Measures the sensitivity of the Fund’s returns to changes in
the Market Index.
– Beta of 1– Fund moves with the market i.e. Passive Index
Fund
– Beta of less than 1 –Fund less volatile than the market e.g.
Defensive Fund.
– Beta of More than 1 – Higher Beta – greater returns in
rising markets and higher losses in falling markets e.g.
Aggressive Fund.

199
 Risk Measures
• Ex-Marks or ‘R-squared’ Measure of Risk
– This method compares the returns from the fund and returns from
the market index and measures the extent of co-relation.
– Index fund has complete co-relation with the market and its ex-
marks would be 100%
– A Fund with higher Ex-marks is better diversified than a Fund with a
lower Ex-Mark
• STANDARD DEVIATION MEASURE OF RISK
– Standard Deviation method measures the deviations of
Fund’s returns from the mean level.
– Standard deviation method is a broader & better concept than Beta.
– Measures total risk and not just the market risk of the portfolio.

200
 Using Benchmarks for Measuring MF Performance

• SEBI prescribes guidelines for using benchmarks and

comparing the performance of the fund with the
benchmarks.

• If mutual fund has given returns of 4% during a specific

period as against 1% returns of benchmark, we can say
that the fund has performed well, better than the
benchmark.

201
 Risk Adjusted Performance Measures
• Risk adjusted return is a better measure of fund performance
• Sharpe Ratio or Treynor Ratio measures Risk adjusted returns
of a fund
• Risk adjusted Return is measured by using Sharpe Ratio or Treynor
Ratio. Sharpe Ratio compares excess returns for per unit of risk with
standard deviation (Total Return). Treynor Ratio compares excess
returns for per unit of risk with the market risk (Beta) to rank funds.
Risk Premium Risk Premium
SHARPE RATIO  TREYNOR RATIO 
Fund' s Standard Deviation Fund' s Beta

• Risk Premium is the difference between the Fund’s Average return and
Risk free return on Government Securities or Treasury Bills over a
given period

202
 Risk Measurement of Debt Funds
• Beta value not relevant risk measure for Debt Funds.

• Risk to Debt Funds can be measured in terms of

i. Duration of the Debt Portfolio
ii. Credit Rating of the Debt Portfolio

• Longer the average maturity (duration) of a debt portfolio

– greater the loss if interest rates go up.

• The credit quality of the Fund.

– Higher the credit rating, safer the Fund

203
Chapter 14 – Recommending Model Portfolios and Selecting the Right Fund

Model Portfolios for Client’s Recommended by Jacobs

• For Young Unmarried Professional –
– 50% in Aggressive Equity Funds
– 25% in High Yield Bond Funds and Growth & Income Funds.
– 25% in Conservative Money Market Funds.

• For Young Couple with 2 incomes & 2 children

– 10% in Money Market Funds.
– 30% in Aggressive Equity Funds.
– 25% in High Yield Bond Funds and Long Term Growth Funds.
– 35% in Municipal Bond Funds.

204
 Model Portfolios for Client’s Recommended by Jacobs
• For Older Couple, Single Income
– 30% in Short Term Municipal Funds.
– 35% in Long Term Municipal Funds.
– 25% in Moderately Aggressive Equity Funds.
– 10% in Emerging Growth Equity Funds.

• For Recently Retired Couple

– 35% in Conservative Equity Funds for Capital Preservation.
– 25% in Moderately Aggressive Equity for modest Capital Growth.
– 40% in Money Market Funds.

205
 Jacobs’ Model Portfolio for Investors
• Investors in Accumulation Phase : Age 25 - 40

Asset Class Allocation %

Diversified Equity, Sector & Balanced

65 to 80
Funds

Income & Gilt Funds 15 to 30

Liquid Funds & Bank Deposits 5

206
 Jacobs’ Model Portfolio for Investors
• Investors in Transition Phase : Age 40 - 50

– Mid-forties when children are approaching the age of

higher education or marriage.

– Start converting
 some of your equity investment into Income and
Cash Funds
 to prepare for these financial commitments.

207
 Jacobs’ Model Portfolio for Investors
• Investors in Distribution or Reaping Phase :
Age 50 +

Asset Class Allocation %

Diversified Equity & Balanced
15 to 30
Funds
Income Funds 65 to 80

Cash Funds 5

208
Model Portfolio for Indian Investors Based on Mutual
Funds available in India
• Investors in Sudden Wealth Stage :

– Keep money in Liquid Funds.

– Take time to decide what to do with the money.

• Affluent Investors :
– Wealth Creating Individuals – 70% to 80% in Diversified
Equity and Sector Funds.

– Wealth Preserving Individuals - 70% to 80% in Income, Gilt

& Liquid Funds.
209
 Equity Fund Selection for a Client
• Select Specific Fund Scheme for inclusion in the Model portfolio.
Bogle’s Approach :
• How to select Equity Funds?
i. Classify the available Equity Schemes into Index Fund,
Diversified Equity Fund, Sector Fund
ii. Either select Diversified Equity or Index Fund providing
broad diversification.
iii. or select Sector Fund where risk and return vary from
market.
iv. Evaluate past returns records of available funds

210
 Equity Fund Selection for a Client
• Review salient feature of a scheme
– Fund size
– Fund age
– Portfolio Manager’s experience
– Cost of investing
– Portfolio characteristics (cash position, portfolio
concentration,Market Capitalization)
– Portfolio Turnover
– ExMarks, Beta, Gross Dividend yield.

211
 Debt Fund Selection for a Client

• For young investor – Long Term Bond Funds

• For Retired Investors – Monthly Income Funds

212
 Debt Fund Selection for a Client
• Determine the right selection criteria
– Fund Age
– Fund Size
– Relative yields
– Relative Costs
– Portfolio Characteristics
– Average Maturity
– Tax implication
– Past Returns
Note: Lower expense ratio in a debt fund improves yield

213
 Chapter 15 – Business Ethics for Mutual Funds

What is meant by Business Ethics?

• Business Ethics means rules of acceptable & good conduct
• Every person engaged in any business must comply with a
set of rules of good conduct
• In addition to laws, rules of ethics are adopted by the
business practitioners themselves
• Ethics go beyond the laws
• Laws are enforced by regulator, ethical codes are self
enforced.

214
 What is the Need for Business Ethics?
• The need for Business Ethics arises
– from the need to protect the Consumer
– when the seller is strong & buyer is weak
• Ethical practices means practices in the interest of the
consumer of a product or user of a service
• A consumer who feels cheated once will not buy the
product again.
• Mutual funds and their sales person are required to
adopt ethical and good business practices.

215
 What is the Need for Business Ethics?
• Consumer of goods and services expects the goods and
services to meet the promises made.

• A sales person is expected to know the product

thoroughly.

• Not promising more than what the product gives is an

ethical business practice.

• AMFI’s code sets a common set of rules for all the funds.

216
 Objectives of Business Ethics
• One major objective of business ethics is being honest, open
and transparent with your potential clients.
• Another objective of business ethics is to protect the
consumer of goods & services from being cheated or
exploited
• In Mutual Fund industry the product is described in detail in
the Offer Document.
• To protect the investors from being cheated or exploited,
rules are framed by Govt. / SEBI
• AMFI sets rules of good conduct by fund distributors (AGNI)

217
 Some Key Terms of Business Ethics
• Fair Business Practices:
– ensure that business is conducted both in the interest of the
seller and consumer / investor.
• Ethical Standards:
– are bench marks set for acceptable level of performance
• Ethical Norms or Guidelines:
– These norms may be voluntary or compulsory
• A Code of Conduct:
– It is voluntarily adopted set of good conduct, acceptable to
the business participants, the regulators & SRO’s

218
 Some Key Terms of Business Ethics
• Ethical Business Practices:
– They ensure with the compliance with Rules & Code of
Good Conduct.

• Conflict of Interest:
– In Mutual Fund business there are situations where the
interest of the investor runs counter to the interest of
the agent.

219
Business Ethics & Mutual Fund Regulations in India
• The main role of SEBI is to protect the interest of the
investors.

• SEBI guidelines require Mutual Funds and AMFI to develop

Code of Conduct for
– Distributors
– Fund Managers
– All employees
– Associated persons of AMC & Trustee Company

220
Business Ethics & Mutual Fund Regulations in India
• SEBI mandates that all activities are done in the best
interest of the investors and it monitors 3 areas
– Fund structure and governance
– Exercise of Voting Rights by Funds
– Fund operations
• The Mutual Fund structure in India is
– a 3 tier structure
– with sponsor, trustees & AMC as independent bodies

221
 Business Ethics & Mutual Fund Regulations in India
• AMC’s are supervised by independent Trustees
– who have fiduciary responsibility towards the investors.
• There is a separation of functions,
– AMC charged with investment of funds and they don’t hold
asset of the fund.
– The Trust holds investment assets in fiduciary capacity since
beneficial owners are investors.
– Trustees actually don’t hold the trusts assets – investment
assets are held by the custodians,
• By separating ownership, management & custody of
assets fraudulent use of assets is prevented.

222
 Business Ethics & Mutual Fund Regulations in India
• Board of trustees have at least 2/3rd independent directors
– thus ensuring independence of organization.

• AMC board has at least 50% independent directors

– thus reducing the influence of the promoter.

• The Mutual Funds have to exercise voting rights in the

companies
– in the interest of fund investors and
– not in the interest of fund managers or promoters or
employees.

• It is an ethical but not a legal requirement

223
 Business Ethics & Mutual Fund Regulations in India
• SEBI expects day to day fund operations to be free from unethical
business practices.
– Insider trading regulations (to prevent employees to take
advantage of unpublished price sensitive information)
– No preferential treatment to selected investors
– Uniform cut off time for accepting subscription application & for
determining applicability of uniform NAVs to all customers
– Control over Personal Trading by Fund Managers and
employees
– Personal trades to be disclosed by the Fund Managers
– Directors to disclose all securities transactions of over 1 lakh

224
Business Ethics & Mutual Fund Regulations in India
– Regulations require the trustees of the mutual fund to
certify that the personnel of the AMC do not indulge in
Front Running or self dealing.

– There are Regulations on Fund Advertisements.

– SEBI has made it mandatory for the AMC to appoint a

Compliance Officer to ensure implementation of laws
and Mutual Fund Regulation & voluntary Code of
Conduct.

225
 Business Ethics & Mutual Fund Regulations in India
• SEBI requires all distributors to follow a Code of Conduct.

• AMFI has put in place amore detailed Code of Conduct

called AGNI (AMFI Guidelines & Norms for Intermediaries)

• Mutual funds have to report any violation of all these

regulations

226
*** Best of Luck ***
&
*** Thank You ***

227
 Capital Protection Funds
• In July 2006, SABI has permitted Mutual Funds to float Capital
Protection Fund Schemes
• The Capital Invested by the investor in such funds is
guaranteed to be protected
• Such funds are closed ended nature and mature after 3 to 5
years
• There is no provision repurchase of units during the tenure of
the fund
• Listing of such funds on stock exchange is not mandatory
• Such funds invest mainly in debt papers and small portion of the
fund is invested in equity to provide better returns.
• Such Funds can invest only in Rated Papers

228
 Inverse Index Funds
• Inverse Index Funds are used to hedge / guard your
portfolio
• You can hedge your positions in the derivative
market to protect your portfolio
• Minimum ticket size is of Rs. 3 Lakhs in derivatives
• The other alternative is to use Inverse Index Funds
• Benchmark is first to start Inverse Index Fund in
India
• With a Mutual Fund Scheme even Retail Investor’s
with a portfolio of Rs. 1 lakh can hedge a part of
their holding

229
 Inverse Index Funds
• Inverse Index Funds with a passively managed Index Fund that will
perform the opposite of the Benchmark Index
• Benchmark Scheme follows Nifty 50 Share Index
• If Nifty goes down by 1% on a particular day, the Benchmark Inverse
Index Fund should increase by 1% & vice-versa
• Inverse Index Funds are ideal schemes for bearish investors who
believe that the market will fall & want to profit from its decline &
want to protect their portfolio’s
• In short invest index funds provide an option for investors who want
to hedge their Equity exposures taken either directly or through other
Mutual Funds

230
 Types of Diversified Equity Funds
• Equity Linked Savings Scheme

• Market Capitalisation Based Funds – Large, Mid,

Small Cap Funds – If Investment Strategy proves correct
the returns generated could surpass those delivered by the
Vanilla Diversified Equity Funds

• Theme Based Funds – Focus lies on specific theme and

investing on those companies which on similar themes. e.g.
Globally competitive Indian Companies or Multinational
Companies operating in India or Companies offering High
Dividend Yield

231
 Types of Diversified Equity Funds
• Opportunity Funds – Basically Diversified Equity or Sector or
Market Cap Based Funds with special focus making most of the
opportunities available in the Domestic & International Markets.
e.g. Infrastructure Funds.
• Dynamic Asset Allocation Funds – Have Flexibility to
invest partly / fully in Equity & / or Debt in line with the limits /
parameters pre-determined by the Fund House to take
advantage of market conditions. In a rising market return
generated by dynamic funds are lower than that of diversified
funds.
• Contra Funds – Equity Diversified Schemes following a Value
Investment Strategy to reap significant capital appreciation.
However you are not able to ride the rally on stocks that are
currently finding favor with the markets which the diversified
fund can do.

232
 Assets under Management (AUM)
as at the end of 30th Sept. 2006
Sr. No Mutual Fund Name AUM (Rs. in Lakhs)
1 ABN AMRO Mutual Fund 461809.90
2 Benchmark Mutual Fund 388230.50
3 Birla Sun Life Mutual Fund 1461532.46
4 BOB Mutual Fund 20015.47
5 Canbank Mutual Fund 261921.61
6 DBS Chola Mutual Fund 217089.83
7 Deutsche Mutual Fund 547751.40
8 DSP Merrill Lynch Mutual Fund 1146684.63
9 Escorts Mutual Fund 11799.13
10 Fidelity Mutual Fund 537779.63

233
 Assets under Management (AUM)
as at the end of 30th Sept. 2006
Sr. No Mutual Fund Name AUM (Rs. in Lakhs)
11 Franklin Templeton Mutual Fund 2306019.46
12 HDFC Mutual Fund 2563855.97
13 HSBC Mutual Fund 952288.56
14 ING Vysya Mutual Fund 372478.70
15 JM Financial Mutual Fund 427108.75
16 Kotak Mahindra Mutual Fund 1094921.52
17 L.I.C Mutual Fund 1027704.00
18 Lotus India Mutual Fund N/A
19 Morgan Stanley Mutual Fund 283380.35
20 PRINCIPAL Mutual Fund 1055667.20

234
 Assets under Management (AUM)
as at the end of 30th Sept. 2006
Sr. No Mutual Fund Name AUM (Rs. in Lakhs)
21 Prudential ICICI Mutual Fund 3021038.28
22 Quantum Mutual Fund 3949.07
23 Reliance Mutual Fund 2864837.51
24 Sahara Mutual Fund 22816.59
25 SBI Mutual Fund 1510106.01
26 Standard Chartered Mutual Fund 1176463.12
27 Sundaram BNP Paribas Mutual Fund 629249.76
28 Tata Mutual Fund 1249984.82
29 Taurus Mutual Fund 28628.23
30 UTI Mutual Fund 3475511.14
Grand Total 29120623.60

235
 Assets under Management (AUM)
as at the end of 31ST Dec. 2007
Sr. No Mutual Fund Name AUM (Rs. in Crores)
1 Reliance 80780
2 UTI 56854
3 ICICI 56820
4 HDFC 48561
5 Birla 31839
6 Franklin 31443
7 SBI 29242
8 Tata 23518
9 DSP 22517
10 Kotak 20867

236
 Assets under Management (AUM)
as at the end of 31ST Dec. 2007
Sr. No Mutual Fund Name AUM (Rs. in Crores)
11 HSBC 15864
12 LIC 13859
13 Principal 13819
14 Standard Chartered 13121
15 J M Financial 12555
16 Sunderam 12203
17 Deutsche 11292
18 Fidelity 11079
19 ING 9003
20 ABN Amro 7945
21 Others 439260
TOTAL 5,60,000

237
 AUM of Mutual Fund Industry

As at Amount
(Rs. in Crores)

31.07.2006 264,067

30.06.2007 400,333

31.07.2007 486,513

238
AUM of ULIP of Life Insurance Companies
as at 31-3-2007

Company AUM Equity

(Rs.Crores) (Rs.Crores)
ICICI Pru 20,000 12,200

Bajaj Allianz 9,900 6,025

HDFC SL 6,500 3,300

SBI Life 5,750 2,600

Birla Sun Life 4,453 1,914

239
 Local MFs Pale against World
• India is placed among the Top 10 Global Economies in terms of GDP
and is the 4th largest in terms of Purchasing Power Parity (PPP)
• In terms of AUM in Mutual Funds India ranks 25th with Assets of Rs.
3.4 lakh crores (U.S $ 76.5 billion) as at 30th November 2006
• U.S ranks no. 1 with 12.4 Trillion U.S $ of MF Assets
• MF Assets to GDP (PPP basis) – ratio for U.S is 75.2%, for U.K it is
34.9% & 1.3% for India
• Worldwide 47% of MF Assets are in Equities, in India it is 34%. Bond
Funds world wide 19% (26% for India). MM Funds 18% world wide
(34% for India). Balanced Fund 9% world wide (3% for India of the
total)
• In U.S 90% of MF Assets owned by Individual Investors, in India
dominated by institutional investors

240
 Gist of SEBI / AMFI Circulars
• AMFI by its circular dated 1st October 2006, has laid down
procedure for implementation of AML Guidelines issued
by SEBI for client identification, for preservation of
records and implementation schedule.

• Criteria for reporting suspicious transactions also laid

down by AMFI

• SEBI vide its circular dated 2nd August 2006 has raised
investment limit in ADRs / GDRs / Foreign Securities and
Overseas ETFs by MFs from 1 billion to 2 billion U.S $

241
 Gist of SEBI / AMFI Circulars
• SEBI vide its notification dated 3rd August 2006, has
revised the filing fees structure as under:
– Application fees payable by MFs will be Rs. 1 lakh
– Registration fees payable by MFs will be Rs. 50 lakhs
– Filing fees for OD will be 0.03% of amount raised in
NFO subject to minimum of Rs. 1 lakh

242
Interval Funds (H.T. Business India 17-9-07)
• Interval Funds have features of both Open ended and Close
ended funds
• These are open for entry and exit at several intervals like open
ended funds
• Unlike fixed maturity plans, there is no need to close the
scheme and pay off the investors as per NAV on stipulated date
• Under Interval funds there are several plans like Monthly plan,
Quarterly plan, Half yearly plan
• At each of these intervals, they open for subscription and
redemption
• Exists may be allowed on other dates with exit charge

243
 T.O.I. – 1.1.2008
• No entry note for Direct Mutual Investments w.e.f.
4.1.2008 as per SEBI Directive
• Direct Investment means making direct applications
received from AMC / Internet and submitted to AMC or
collection center or investor service center without routing
through distributor, broker or agent
• Ceiling on Index funds and Exchange Traded funds for
recurring expenses being reduced to 1.5%
• KYC norms (verification of PAN & Address Proof) being
made compulsory for all investments in MFs w.e.f. 1.2.08

244
 E.T. – 3.1.2008

• Central Bank had allowed banks shortselling in

Government securities for a 5 day period in Jan. 2007
• RBI had allowed bond traders to take possessions in a
security prior to its auction through the ‘when issued’
platform in July 2006
• RBI is permitting banks and bond houses to cover their
positions in shortsells and when issued transactions
outside the NDS – OM platform i.e. through the modes of
communication outside the online domain such as
telephone or email. RBI has clarified that all such
transactions will need to be settled only on the negotiable
dealing systems’ order matching platform

245
 E.T. – 3.1.2008
• SEBI is permitting Mutual Funds to shortsell in equities
and do borrowing and lending of shares for settling the
trade effective from 1.2.2008
• SEBI is permitting shortselling of equities by all
institutional investors including FIIs w.e.f. 1.2.2008
• SEBI had banned shortselling by institutional investors in
2001 in the aftermath of Ketan Parekh scam

246
 SEBI issues New Reality MF Norms (Dec.07)
• Only listed close ended schemes can be launched by trusts
• NAVs to be declared on yearly basis
• At least 90% of annual net income to be distributed as dividend
• Trustees to be a Bank / Trustee Company of a bank / PFI / Insurance
company / Corporate Entity
• Real Estate Fund (Real Estate Investment Trust) to be managed by
Real Estate Management Company
• Trust and REMC must have net worth of min. 5 Crores
• All schemes to be rated by an appraisal agency
• Can invest only real estate and should be generally income-generating
(mostly commercial completed properties)
• Real Estate funds cannot invest in vacant land

247
 SEBI issues New Reality MF Norms (Dec.07)
• Not more than 15% in single real estate project and not more than
25% of all projects of a single group
• Every scheme will have independent property valuer
• Real Estate Investment Trust and Real Estate Investment
Management Companies will be independent of Mutual Fund Trust
and Mutual Fund Asset Management Company
• They can invest in Real Estate Assets but not in Securities of the Real
Estate Companies / Mortgage backed Securities
• These Trusts will deliver recurring returns to investors and a potential
for capital appreciation
• Real Estate Investment Trusts may be subjected to tax whereas
Mutual Funds are exempt from tax
• Real Estate Investment Companies will have to incur stamp duty cost
by entering into long lease agreement or buying properties

248
 SEBI / AMFI Circulars on Mutual Funds
• SEBI vide its circular dt. 26.9.07 has enhanced limits of overseas
investments by MFs up to US$ 5 billion. Within this overall limit, MFs
can make overseas investments subject to max. US$ 300 million per
MF
• The overall ceiling for investment in overseas ETFs is US$1 billion
subject to max. of US$50 million per MF
• SEBI vide its circular dt. 26.10.07 has clarified that tenure of term
deposits placed on margin for trading in derivatives shall not exceed
182 days
• AMFI Best Practices Guidelines Circular dt. 5.9.07 have declared
Saturday as a non-business day for all schemes of MFs
• AMFI vide its Best Practices Guidelines Circular dt. 5.9.07 has revised
the guidelines for obtaining NOC from the existing distributor for
switching over to another distributor to mitigate any inconvenience
caused to the investor

249
 SEBI / AMFI Circulars on Mutual Funds
• AMFI vide its Best Practices Guidelines Circular dt. 3.10.07 has notified
that demand draft charges reimbursed to investors to be borne by the
AMC and not by the scheme
• SEBI vide its circular dt. 16.11.07 has reduced the expenses to be
charged for Index Fund Scheme and for Exchange Traded Index
Funds to a maximum of 1.5% including AMC fees which can be max. .
075%
• SEBI vide its cirular dt. 31.12.07 has specified no entry load to be
charged for direct applications received by AMC including fresh
investments, additional purchases, switch in & switch outs effective
from 4.1.08
• SEBI is proposing fast tracking for launch of MF products
• AMFI vide its Best Practices Guidelines Circular dt. 25.10.07 has
standardized the fact sheets and news letters to be issued by all MFs
to help investors to make a meaningful comparison of schemes of
different fund houses
250
 SEBI / AMFI Circulars on Mutual Funds
• AMFI vide its letter 3.1.08 has clarified that investors may
opt for multiple nominations instead of single nomination
as it is in accordance with law
• Vide notification dt. 31.10.07 issued by SEBI, MFs have
been allowed to enter into short selling transactions on a
regular stock exchange subject to framework relating to
short selling and securities lending & borrowings specified
by the Board

251