Вы находитесь на странице: 1из 87


KLES’s Institute of Management Studies and


Title of the Project


1. To have a detailed study of MUTUAL FUNDS.

Sub- objectives:

1. To
know the factors that influence investors while taking investment

2. To
know the advantages and disadvantages of Mutual funds.

3. To know whether the investors are interested in investing Lump sum [one
time investment] or SIP[Systematic Investment Plan].

KLES’s Institute of Management Studies and



KLES’s Institute of Management Studies and



I take this opportunity to extend my heartfelt gratitude to all who have

supported me to successfully accomplish the summer project, which was a

tremendous learning experience for me.


KANNUR for giving permission to undertake the project.

I specially thank Mr. JINU ISAC Head of Department, KIMT


I am grateful to Sri S. Narayanan, Chief Finance Manager (Accounts),

ARDC, Bangalore for giving approval to undertake the project in such a

prestigious organization.

I would like to profoundly thank my external guide Sri. S. Ramesh,

Manager (Finance), Book-keeping Section, ARDC and Sri. D.E. Sreenivas

Reddy, HAL, ARDC for their extensive support and encouragement to carry out

the study at the company.

KLES’s Institute of Management Studies and

My sincere thanks to Sri. Balasubramany, HR Officer, ARDC,

Bangalore for giving permission to carry-out the project.

Lastly, I take the privilege to thank my internal guide Mrs. Prasanna

Prakash, Lecturer, NHCE, Bangalore who has been source of inspiration to me

and for guiding me well throughout the study to complete it successfully.


KLES’s Institute of Management Studies and



Mutual Fund industry today, with about 43 players and more than five hundred
schemes, is one of the most preferred investment avenues in India. However, with
a plethora of schemes to choose from, the retail investor faces problems in
selecting funds. Factors such as investment strategy and management style are
qualitative, but the funds record is an important indicator too. Though past
performance alone cannot be indicative of future performance, it is, frankly, the
only quantitative way to judge how good a fund is at present. Therefore, there is a
need to correctly assess the past performance of different mutual funds.

Worldwide, good mutual fund companies over are known by their AMCs and
this fame is directly linked to their superior stock selection skills. For mutual
funds to grow, AMCs must be held accountable for their selection of stocks. In
other words, there must be some performance indicator that will reveal the quality
of stock selection of various AMCs.

KLES’s Institute of Management Studies and

Return alone should not be considered as the basis of measurement of the
performance of a mutual fund scheme, it should also include the risk taken by the
fund manager because different funds will have different levels of risk attached to
them. Risk associated with a fund, in a general, can be defined as variability or
fluctuations in the returns generated by it. The higher the fluctuations in the
returns of a fund during a given period, higher will be the risk associated with it.
These fluctuations in the returns generated by a fund are resultant of two guiding
forces. First, general market fluctuations, which affect all the securities present in
the market, called market risk or systematic risk and second, fluctuations due to

specific securities present in the portfolio of the fund, called unsystematic risk.
The Total Risk of a given fund is sum of these two and is measured in terms of
standard deviation of returns of the fund.

Systematic risk, on the other hand, is measured in terms of Beta, which

represents fluctuations in the NAV of the fund vis-à-vis market. The more
responsive the NAV of a Mutual Fund is to the changes in the market; higher will
be its beta. Beta is calculated by relating the returns on a mutual fund with the
returns in the market. While unsystematic risk can be diversified through
investments in a number of instruments, systematic risk can not. By using the risk
return relationship, we try to assess the competitive strength of the mutual funds
vis-à-vis one another in a better way.

In order to determine the risk-adjusted returns of investment portfolios, several

eminent authors have worked since 1960s to develop composite performance

KLES’s Institute of Management Studies and

indices to evaluate a portfolio by comparing alternative portfolios within a
particular risk class.


This project work is been done in the esteemed organization called GEOJITH
BNP PARIBAS. Let us have the introduction of the esteemed GEOJITH

GEOJITH BNP PARIBAS is driven by ethical and dynamic process for wealth
creation. Based on this, the company started its endeavor in the financial market.
In the year events 1988 - The company, Geojit Securities Limited (GSL), was
a partnership firm, with two partners - Mr. C.J. George and Mr. Ranjit, under the
name and style of M/s Geojit & Company established on 4th November, to act as
stock and share brokers with membership on the Cochin Stock Exchange.

KLES’s Institute of Management Studies and


Geojith BNP Paribas is a leading retail fianancial services company in India

with a strong presence in the Middle East. Company is a member of the National
Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Over 4,95,000
clients are serviced via a network of over 500 offices. Geojith BNP Paribas is an
experienced cash and derivatives broker and is strong in the distribution of
financial products. The company provides integrated financial solutions to its
corporate, retail and wealth management clients. Today, we provide various
financial services, which include Mutual fund, Equities, Futures & Options,

Derivatives, Currency Futures, Property Services, Life Insurance, General

Insurance, Margin Funding, Loans against Shares, Portfolio Management
Services, Commodity Broking. And another important event is global banking
major BNP Paribas took a stake in 2007 to become the single argest shareholder.
Other major shareholders are KSIDC (Kerala State Industrial Development
Corporation) and Mr. Rakesh Jhunjhunwala.

Geojith BNP Paribas is proud of being a truly professional financial service

provider managed by a highly skilled team, who have proven track record in their
respective domains.

Barjeel Geojith Securities, the joint venture with the Al Saud Group in the
United Arab Emiratesis headquarted in Dubai with branches in Abu Dhabi, Ras
Al Khaimah, Sharjah and Muscat. Aloula Geojith Brokerage Co., the joint
venture with Al Johar Group in Saudi Arabia is headquartered in Riyadh.

KLES’s Institute of Management Studies and

Company also has a business partnership with the Bank of Bahrain and Kuwait.
Further, it has a joint venture with BNP Paribas Securities India Pvt. Ltd.

Among the many industry first achieved, prominent are the launch of Internet
Trading in the year 2000, launch of an integrated internet trading system for Cash
& Derivatives segments in 2002. In 2006, the company became the first Indian
stock broking company to commence domestic retail brokerage operations in any
foreign country through its joint venture Aloula Geojith. Company was the first
brokerage to offer full Direct Market Access execution in India for institutional

Unlike a traditional broking firm, Geojith BNP Paribas works on the philosophy
of partnering for wealth creation. We not only execute trades for our clients but
also provide them critical and timely investment advice.

KLES’s Institute of Management Studies and



To be India's first Multinational providing complete financial services solution

across the globe.


KLES’s Institute of Management Studies and

Providing integrated financial care driven by the relationship of trust and

Geojith BNP paribas team is led by a very eminent Board of Directors who
provide policy guidance and work under the active leadership of its CEO &
Managing Director and support of its Central Guidance Team.

KLES’s Institute of Management Studies and















KLES’s Institute of Management Studies and



That is, you may trade from our branches or trade on your own over the net and
with that you get our expertise and assistance. Equity financing, or equity
funding, is trading a percentage of a business for a specific amount of money.
This form of financing enables a business to receive the capital needed without
taking on additional debt. Outside investors will want to see an owner also
investing their own money to show they are willing to share the risks. While it is
possible to attract investors.
It has been designed to provide world-class experience and expertise to investors.

R-ALLY as the name suggests is the perfect partner for savvy investors. Clients
opting for this service would be provided services managed by a team of
dedicated relationship managers and experienced trade dealers. They would not
only assist the client in information dissemination but would also take care of all
post trade requirements.

Commodities as a word originated from the French word ‘commdite’ meaning
‘benefit, profit’. Rightly so! The kind of continuously growing turnover which
commodities market has seen is incredible, benefiting both producers and buyers.

KLES’s Institute of Management Studies and

These amazing results have transformed commodities as a most sought after asset
class. And this has caught attention of the whole world.

Commodities market is particularly significant to our country as India is

essentially a commodity-based economy. Therefore, it should not be surprising to
see that Indian Commodities Market is also taking giant strides, growing at a
scorching pace and is well poised to occupy its rightful place in the world. This
has provided the Indian investors with new emerging investment opportunities in
the area of commodities.

Commodity Derivatives trading in India is now done through the electronic

trading platform of two popular exchanges NCDEX (National Commodity &
Derivative Exchange Limited) and MCX (Multi Commodity Exchange). The
various commodities being traded on the exchanges include precious metals,
crude oil, agro-commodities amongst others.

Geojith BNP Paribas is among the few major Depository Participants holding
securities. The company provides depository services to investors as a Depository
Participant with NSDL and CDSL.
The Depository system in India links issuers, depository participants, National
Securities Depository Limited (NSDL) and Central Depository Services (India)
Limited (CDSL) and clearing house / clearing corporation of stock exchanges.
These facilitate holding of securities in dematerialized form and securities
transactions are processed by means of account transfers.

KLES’s Institute of Management Studies and


Portfolio Management Services

Portfolio Management Services manage our client’s wealth more efficiently;

reduce risk by diversifying across assets, sectors and funds, and maximizing
returns. Expert Portfolio Managers find best of avenues to achieve optimum
returns at managed levels of risk.
This service could also be called as “transparent collective investments”. You get
an upper hand in many ways

KLES’s Institute of Management Studies and



In the modern world we have many investment opportunities for wealth

creation. Mutual fund is a best investment opportunities now a days. There are
lots of Indian and foreign players in the mutual fund industry. Here I introduce
the mutual fund in India and its advantages to the unitholders. Now a days mutual
fund is growing sector in India. Investing in mutual funds can be a good way to
diversify your money and a great way to get your kids investing in something
other than the bank. Diversifying money, or placing it in several different
investments, is a wise thing to do.

Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. Each scheme of a mutual fund can have different
character and objectives. Mutual funds issue units to the investors, which
represent an equitable right in the assets of the mutual fund. Investing in a mutual
fund is like investing in a whole bunch of stocks all at the same time. It's like a
collection or a portfolio of stocks.

Let us start the discussion of the performance of mutual funds in India from
the day the concept of mutual fund took birth in India. The year was 1963. Unit
Trust of India invited investors or rather to those who believed in savings, to park

KLES’s Institute of Management Studies and

their money in UTI Mutual Fund. If your money is in just one place, and that one
investment doesn't do well, all of your money doesn't do well. If, on the other

hand, you spread your money out over several different types of investments, the
road to creating wealth won't be as bumpy and you'll sleep better at night. You
may want to consider having part of your money in the banks, part in stocks, and
some in mutual funds. In simply this is called investment diversification.

The no. of fund houses are offering various different products in the public.
The major and largest fund houses in India are Reliance MF. And other fund
houses are ICICI Prudential, Birla Sunlife MF, DSP BLACKROCK, HDFC etc,.
This market was made open to private players in 1993 after the historic
constitutional amendments brought forward by the then Congress led government
under the existing regime of Liberalization, Privatization and Globalization
(LPG). The first private sector fund to operate in India was Kothari Pioneer which
was later merged with Franklin Templeton. we never invest the whole amount
into one security only that is we should diversify our funds in different
investment opportunities.

If you're interested in investing in mutual funds, or have purchased stocks or

bond since retirement, chances are you'll want to know all you can about how to
make money in mutual funds. While making money with mutual funds is
definitely a positive move in terms of making a profit and increasing the
effectiveness of your financial portfolio, you can also learn about how to invest

KLES’s Institute of Management Studies and

your money in other ventures, and how to set up certain funds and accounts of
your own at a later date.

With the increase in Mutual Fund players in India, a need for Mutual Fund
Association in India was generated to function as a non-profit organization.

Association of Mutual Funds in India (AMFI) was incorporated on 22nd

August, 1995. Now U.K. SINHA is the AMFI new Chairman. He is the
Chairman and Managing director of U.T.I ASSET MANAGEMENT CO.
They follow the principle of both protecting and promoting the interests of
mutual funds as well as their unit holders.

KLES’s Institute of Management Studies and



A mutual fund is a professionally managed type of collective investment

scheme that pools money from many investors and invests typically in investment
securities (stocks, bonds, short-term money market instruments, other mutual
funds, other securities, and/or commodities such as precious metals). The mutual
fund will have a fund manager that trades (buys and sells) the fund's investments
in accordance with the funds investment objectives.


The first mutual fund to be introduced in India was way back in 1963 when the
Government of India launched Unit Trust of India (UTI). UTI enjoyed a

KLES’s Institute of Management Studies and

monopoly in the Indian mutual fund market till 1987 when a host of other
government controlled Indian financial companies came up with their own funds.
These included State Bank of India, Canara Bank, Punjab National Bank etc. This
market was made open to private players in 1993 after the historic constitutional
amendments brought forward by the Congress led government under the existing
regime of Liberalization, Privatization and Globalization (LPG). The first

private sector fund to operate in India was Kothari Pioneer which was later
merged with Franklin Templeton.

Mutual funds are money-managing institutions set up to professionally

invest the money pooled in from the public. These scheme are managed by
Asset Management Company (AMC) which are sponsored by different financial

institutions or the company.

Each unit of these schemes reflects the share of investor in the respective fund
and its appreciation is judged by the Net Asset Value (NAV) of the scheme. The
NAV is directly linked to the bullish and bearish trends of the markets as the
pooled money is invested either inequity shares or in debentures or treasury bills.
Indian Mutual Funds unveils this multi-dimensional avenue, with its intricacies,
in a fashionable manner as mutual funds up-hold ample scope of generating
decent returns by some thoughtful investment.

KLES’s Institute of Management Studies and



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

KLES’s Institute of Management Studies and


Mutual Fund Operation Flow Chart


Almost everybody has the ambition to get rich without lifting a finger - that's
because there's plenty of us out there that are driven by laziness and greed. We
like to find ways for having our cash work for us, or apply the Law of Leverage,
which is to multiply our efforts through others. A classic example of that would
be an Egyptian Pharaoh having his slaves build infrastructure or gather the rice
grains which he uses for sale/trade - he doesn't do anything, but gets all the work
done and gets richer and richer. You're not a Pharaoh, so how do you get rich?
Well one way would be putting your money in a median that can help you reach
that particular financial goal.

KLES’s Institute of Management Studies and

One "vehicle" that can get you there are mutual funds, how does this work?
Simple: what you do is buy mutual funds from a mutual fund company or broker.
From there, the company that you've entrusted your cash with invests it into a
variety of short term investments, like the following: assets, bonds, stocks and
securities. What happens next, if all does go well, is you receive dividends for
each of the mutual funds you've purchased, which is your share of the profit made
off it. Some people (many perhaps) find the whole process scary because they
have no idea what to do first or feel that it's too much risk to take.

Fear not old friend, your investment is being managed by the company's team
of investment professionals - these guys know exactly what they're doing and find
the best ways possible to ensure that you make money. It's like having a
symbiotic relationship with them: if they do good, you do good, heck all of you

do good. Usually an investment manager does the buying and selling on your
behalf, making sure all goes in your favor. As the investments diversify, the risk
of loss gets lower and lower, which is clearly what everybody wants. There are
three types of mutual funds, the first being: equity funds - which is basically
investing in common stocks.

This is considered to be very risky, but it can also mean lots of money for you.
The second type are the fixed income funds, which is a lot safer due to the fact
that they're basically government and corporate securities. Here you don't take
that much risk, which in some cases could mean that you don't earn that much (as
compared to investing in equity funds). Lastly, we have balanced mutual funds,

KLES’s Institute of Management Studies and

which consists of stocks and bonds. This type of investment is the safest amongst
the three stated here, but it also is the "slowest earner" of all.


The Evolution

The formation of Unit Trust of India marked the evolution of the Indian mutual
fund industry in the year 1963. The primary objective at that time was to attract
the small investors and it was made possible through the collective efforts of the
Government of India and the Reserve Bank of India. The history of mutual fund
industry in India can be better understood divided into following phases:

KLES’s Institute of Management Studies and

Phase 1. Establishment and Growth of Unit Trust of India - 1964-87

Unit Trust of India enjoyed complete monopoly when it was established in the
year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India
and it continued to operate under the regulatory control of the RBI until the two
were de-linked in 1978 and the entire control was tranferred in the hands of
Industrial Development Bank of India (IDBI). UTI launched its first scheme in
1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of
investors in any single investment scheme over the years.

UTI launched more innovative schemes in 1970s and 80s to suit the needs of
different investors. It launched ULIP in 1971, six more schemes between 1981-
84, Children's Gift Growth Fund and India Fund (India's first offshore fund) in
1986, Mastershare (Inida's first equity diversified scheme) in 1987 and Monthly
Income Schemes (offering assured returns) during 1990s. By the end of 1987,
UTI's assets under management grew ten times to Rs 6700 crores.

Phase II. Entry of Public Sector Funds - 1987-1993

The Indian mutual fund industry witnessed a number of public sector players
entering the market in the year 1987. In November 1987, SBI Mutual Fund from
the State Bank of India became the first non-UTI mutual fund in India. SBI
Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund,
Indian Bank Muatual Fund, Bank of India Mutual Fund, GIC Mutual Fund and
PNB Mutual Fund. By 1993, the assets under management of the industry

KLES’s Institute of Management Studies and

increased seven times to Rs. 47,004 crores. However, UTI remained to be the
leader with about 80% market share.

Amou Assets
on as %
1992- nt Under
of gross
93 Mobili Managem
sed ent

UTI 11,057 38,247 5.2%

1,964 8,757 0.9%
Total 13,021 47,004 6.1%

KLES’s Institute of Management Studies and


Phase III. Emergence of Private Sector Funds - 1993-96

The permission given to private sector funds including foreign fund

management companies (most of them entering through joint ventures with
Indian promoters) to enter the mutal fund industry in 1993, provided a wide range
of choice to investors and more competition in the industry. Private funds
introduced innovative products, investment techniques and investor-servicing
technology. By 1994-95, about 11 private sector funds had launched their

Phase IV. Growth and SEBI Regulation - 1996-2004

The mutual fund industry witnessed robust growth and stricter regulation from
the SEBI after the year 1996. The mobilisation of funds and the number of
players operating in the industry reached new heights as investors started showing
more interest in mutual fund.

Investors' interests were safeguarded by SEBI and the Government offered tax
benefits to the investors in order to encourage them. SEBI (Mutual Funds)
Regulations, 1996 was introduced by SEBI that set uniform standards for all
mutual funds in India. The Union Budget in 1999 exempted all dividend incomes
in the hands of investors from income tax. Various Investor Awareness
Programmes were launched during this phase, both by SEBI and AMFI, with an
objective to educate investors and make them informed about the mutual fund

KLES’s Institute of Management Studies and



In February 2003, the UTI Act was repealed and UTI was stripped of its
Special legal status as a trust formed by an Act of Parliament. The primary
objective behind this was to bring all mutal fund players on the same level. UTI
was re-organised into two parts: 1. The Specified Undertaking, 2. The UTI
Mutual Fund Presently Unit Trust of India operates under the name of UTI
Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are
being gradually wound up. However, UTI Mutual Fund is still the largest player
in the industry. In 1999, there was a significant growth in mobilisation of funds
from investors.

Phase V. Growth and Consolidation - 2004 Onwards

The industry has also witnessed several mergers and acquisitions recently,
examples of which are acquisition of schemes of Alliance Mutual Fund by Birla
Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual
Fund. Simultaneously, more international mutal fund players have entered India
like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the
end of March 2006. This is a continuing phase of growth of the industry through
consolidation and entry of new international and private sector players.

KLES’s Institute of Management Studies and


Major fund houses in India

The fund houses to operate in India are:

Birla Sunlife
Bank of Baroda
ING Vysya
ICICI Prudential
SBI Mutual Fund
Kotak Mahindra
Unit Trust of India
Franklin Templeton
Sundaram Mutual Fund
Religare Mutual Fund
Principal Mutual Fund

KLES’s Institute of Management Studies and


Mutual funds are an under tapped market in India

Despite being available in the market for over two decades now with assets
under management equaling Rs 7,81,71,152 Lakhs (as of 28 February,2010), less
than 10% of Indian households have invested in mutual funds. A recent report on
Mutual Funds Investments in India published by research and analytics firm,
Boston Analytics, suggests investors are holding back from putting their money
in mutual funds due to their perceived high risk and a lack of information on how
mutual funds work. This report is based on a survey of approximately 10,000
respondents in 15 Indian cities and towns as of March 2010.There are 43 Mutual
Funds at present.

The primary reason for not investing appears to be correlated with city size.
For example, as depicted in the exhibit below, among respondents with a high
savings rate, close to 40% of those who live in metros and Tier I cities cited such
investments were very risky, whereas 33% of those in Tier II cities said they did
not how and where to invest in such assets.

KLES’s Institute of Management Studies and


On the other hand, among those who invested, close to nine out of ten
respondents did so because they felt these assets to be more professionally
managed than other asset classes. Exhibit 2 lists some of the influencing factors
for investing in mutual funds. Interestingly, while non-investors cite “risk” as
one of the primary reasons they do not invest in mutual funds, those who do
invest cite the fact that they are “professionally managed” and “more diverse”
most often as the reasons they invest in mutual funds versus other investments.

KLES’s Institute of Management Studies and


Theoretical Background for the project work

Mutual Funds

A mutual fund is set up in the form of a trust, which has sponsor, trustees, and
asset management company (AMC) and custodian. The trust is established by a
sponsor or more than one sponsor who is like promoter of a company. The
trustees of the mutual fund hold its property for the benefit of the unitholders.
Asset Management Company (AMC) approved by SEBI manages the funds by
making investments in various types of securities. Custodian, who is registered
with SEBI, holds the securities of various schemes of the fund in its custody. The
trustees are vested with the general power of superintendence and direction over
AMC. They monitor the performance and compliance of SEBI Regulations by the
mutual fund.

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

KLES’s Institute of Management Studies and

Unit Trust of India was the first mutual fund set up in India in the year 1963.
In early 1990s, Government allowed public sector banks and institutions to set up
mutual funds.

In the year 1992, Securities and exchange Board of India (SEBI) Act was
passed. The objectives of SEBI are - to protect the interest of investors in
securities and to promote the development of and to regulate the securities

As far as mutual funds are concerned, SEBI formulates policies and regulates
the mutual funds to protect the interest of the investors. SEBI notified regulations
for the mutual funds in 1993. Thereafter, mutual funds sponsored by private
sector entities were allowed to enter the capital market. The regulations were
fully revised in 1996 and have been amended thereafter from time to time. SEBI
has also issued guidelines to the mutual funds from time to time to protect the
interests of investors.

All mutual funds whether promoted by public sector or private sector entities
including those promoted by foreign entities are governed by the same set of
Regulations. There is no distinction in regulatory requirements for these mutual
funds and all are subject to monitoring and inspections by SEBI. The risks
associated with the schemes launched by the mutual funds sponsored by these
entities are of similar type. It may be mentioned here that Unit Trust of India
(UTI) is not registered with SEBI as a mutual fund (as on January 15, 2002).

KLES’s Institute of Management Studies and



Mutual funds can invest in many different kinds of securities. The most
common are cash, stock, and bonds, but there are hundreds of sub-categories.
Stock funds, for instance, can invest primarily in the shares of a particular
industry, such as technology or utilities. These are known as sector funds. Bond
funds can vary according to risk (e.g., high-yield or junk bonds, investment-grade
corporate bonds), type of issuers (e.g., government agencies, corporations, or
municipalities), or maturity of the bonds (short- or long-term)

Most mutual funds' investment portfolios are continually adjusted under the
supervision of a professional manager, who forecasts the future performance of
investments appropriate for the fund and chooses those which he or she believes
will most closely match the fund's stated investment objective. A mutual fund is
administered through a parent management company, which may hire or fire fund

Mutual funds are liable to a special set of regulatory, accounting, and tax rules.
Unlike most other types of business entities, they are not taxed on their income as
long as they distribute substantially all of it to their shareholders. Also, the type of
income they earn is often unchanged as it passes through to the shareholders.
Mutual fund distributions of tax-free municipal bond income are also tax-free to

KLES’s Institute of Management Studies and

the shareholder. Taxable distributions can be either ordinary income or capital
gains, depending on how the fund earned those distributions.

Why to choose Mutual Funds:-

Investing in Mutual Funds offers several benefits:

• Professional expertise:

Funds managers are professionals who track the market on an on-going basis with
their mix of professional qualification and market knowledge, they are better
placed than the average investors to understand the markets.

• Diversification:

Since a Mutual Fund scheme invests in number of stocks and/or Debentures, the
associated risks are greatly reduced.

• Relatively less expensive:

When compared to direct investments in the capital market, Mutual Funds Cost
less. This is due to savings in brokerage costs, demat costs, Depository costs etc.

• Liquidity:

KLES’s Institute of Management Studies and

Investments in Mutual Funds are completely liquid and can be redeemed at
their Net Assets Value-related price on any working day.

• Transparency:

You will always have access to up-to-date information on the value of your
investment in additional to the complete portfolio of investments, the
Proportion allocated to different assets and the fund manager’s investment

Advantages of investing in mutual funds

 Professional management
 Investment diversification
 Liquidity
 Explicit investment goals

Disadvantages of investing in mutual funds

 many funds charge hefty fees, leading to lower overall returns.

KLES’s Institute of Management Studies and

 Over time, statistics have shown that most actively managed funds tend to
underperform their benchmark averages.
 Mutual funds cannot be bought or sold during regular trading hours, but instead
are priced just once per day.

Mutual Fund Investing vs. Stock Investing

It seems strange to compare mutual funds to stocks since mutual funds are
primarily composed of stocks, but it is important to distinguish the two because
there are some notable advantages to using mutual funds.

Get Focused: I will admit that investing in individual stocks can be fun because
each company has a unique story. However, it is important for people to focus on
making money. Investing isn't a game. Your financial future depends on where
you put you hard earned dollars and it shouldn't be taken lightly.

Diversification: There is no greater advantage to using mutual funds than

diversification. Do you honestly believe wealthy investors purchase just a couple
of stocks? Of course not! If they are not using mutual funds (many do), than they
are purchasing a large number of stocks.

KLES’s Institute of Management Studies and


High Performance MF - Tips on How to choose them

Most people who invest in mutual funds don't know what they are doing.
They take advice from someone at a bank or perhaps a friend and plunk
down money into a fund. Sometimes this strategy works, but most of the
time, it doesn't.

When you invest your money in a mutual fund, you are trusting someone
to invest in the stock market for you. Because of this, you want to be sure
this person knows what he or she is doing. Also, you want to make sure
that this person is not charging you too much to manage your money for
you. Mutual funds fees are "hidden," in the sense that they do not charge
you an upfront fee but rather a percentage of the amount of money in
your account. If this percentage is too high, you would do better just
blindly picking stocks yourself.

Here are four helpful tips for choosing the right mutual funds.

1. Keep the fees low. Generally, expense fees should not be much higher
than 1% if it is just a basic domestic equity fund. You should never invest
money in a fund that also charges a "load," which is an additional fee that
is ridiculous to pay. Never invest in funds that charge loads; those funds
are for suckers.

KLES’s Institute of Management Studies and

2. Check the asset base. Mutual fund managers only know of so many
good investments. When they have too much money to manage, they
begin investing in stocks they don't like much but need to invest in

anyway or else they'll just have money laying around. There's little reason
to invest in a fund with over $5 billion in assets. It's best if it's under $2
billion generally.

3. Consider an index fund. This is a fund that tracks a stock index, such
as the S&P 500. For these funds, the manager just buys whatever stocks
happen to be in the index. Since this is not much work, the fees are much
lower. Even though this method is simple, it has proven to perform better
than most mutual funds. Some high performance index funds include
FSMKX (Fidelity S&P 500) and VIMSX (Vanguard S&P 400 Midcap.

4. Evaluate the fund's strategy. If you have a long term outlook, look for a
more aggressive fund that invests in small-cap stocks, international
stocks, and riskier stocks in general. High risk tends to result in high
performance in the long run. If you are more risk-averse, consider an
S&P 500 index fund.

KLES’s Institute of Management Studies and


Performance of Mutual Funds [NAV]

The performance of a particular scheme of a mutual fund is denoted by
Net Asset Value (NAV)

Mutual funds invest the money collected from the investors in securities
markets. In simple words, Net Asset Value is the market value of the
securities held by the scheme. Since market value of securities changes
every day, NAV of a scheme also varies on day to day basis. The NAV
per unit is the market value of securities of a scheme divided by the total
number of units of the scheme on any particular date. For example, if the
market value of securities of a mutual fund scheme is Rs 200 lakhs and
the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors,
then the NAV per unit of the fund is Rs.20. NAV is required to be
disclosed by the mutual funds on a regular basis - daily or weekly -
depending on the type of scheme.

KLES’s Institute of Management Studies and


Mutual Funds: An Investment Tool For Small


Human beings from their very inception want to earn and save
something for unwanted situations. In earlier stage he puts his earnings
under the soil to keep it safe from being stolen. Later banking system was
developed and subsequently different kind of instruments for investment
is being used. Nowadays, investments in share market instruments are
much preferred by big as well as small investors. Everyone wants to earn
extraordinary returns from share market booms. And Mutual Funds are
one of such ways through investments in share markets are being carried
out by small and marginal investors. A Mutual fund is an investment
company that issues shares to the public. The money it receives from
shareholders is pooled and invested in a wide range of stocks, bonds, or
other money market instruments to meet specific investment objectives.
The various instruments included in a fund's portfolio are handled by
professional money managers in line with the stated investment policy of
the fund.

The essential purpose behind mutual fund is to secure two important

benefits for small and retail investors, viz. (i) minimization of risk
through diversification, and (ii) professional management of invested
funds. Risk associated with investment can be minimized by spreading

KLES’s Institute of Management Studies and

the investment over a dozen, or even hundreds of companies, which
seems to be impossible for small investors. Thus, diversification of

investment reduces risk. Professional money management is required to

become successful in the game of investment. Most of small investors
can not devote the time and resources required for managing their
investments. This is easily carried out by fund managers, thus producing
better results.

Mutual funds in India are structured as follows:

Each mutual fund has a Board of Trustees, an Asset Management

Company (AMC or the manager) and unit holders. In India, we also have
a promoters or sponsor who takes the initiative of starting a mutual fund
but has no active role after the fund has been launched. The sponsor
remains only a shareholder of the AMC. As per the Securities and
Exchange Board of India (SEBI) guidelines, the effective control of the
AMC is not with the sponsor but with the Board of Trustees. SEBI
guidelines provide the framework within which mutual funds in India
have to operate. Maximum limits have been prescribed for management
fees and other chargeable expense; SEBI also regulates many other
aspects of mutual funds' operations and policies.

KLES’s Institute of Management Studies and


Association of Mutual Funds in India (AMFI)

With the increase in Mutual Fund players in India, a need for Mutual
Fund Association in India was generated to function as a non-profit
organization. Association of Mutual Funds in India (AMFI) was
incorporated on 22nd August, 1995.

AMFI is an apex body of all Asset Management Companies (AMC)

which has been registered with Securities Exchange Board of India
(SEBI). Till date all the AMCs are that have launched mutual fund
schemes are its members. It functions under the supervision and
guidelines of its Board of Directors.

Association of Mutual Funds India has brought down the Indian

Mutual Fund Industry to a professional and healthy market with ethical
lines enhancing and maintaining standards. It follows the principle of
both protecting and promoting the interests of mutual funds as well as
their unit holders.

KLES’s Institute of Management Studies and


The objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 30 registered

AMCs of the country. It has certain defined objectives which juxtaposes
the guidelines of its Board of Directors. The objectives are as follows:

 This Mutual Fund Association of India maintains high professional

and ethical standards in all areas of operation of the industry.

 It also recommends and promotes the top class business practices

and code of conduct which is followed by members and related
people engaged in the activities of Mutual Fund and Asset
Management. The agencies who are by any means connected or
involved in the field of capital markets and financial services also
involved in this code of conduct of the association.

 AMFI interacts with SEBI and works according to SEBIs

guidelines in the Mutual Fund industry.

KLES’s Institute of Management Studies and

 Associations of Mutual Fund of India do represent the Government
of India, the Reserve Bank of India and other related bodies on
matters relating to the Mutual Fund Industry.

 It develops a team of well qualified and trained Agent distributors.

It implements a programme of training and certification for all
intermediaries and other engaged in the mutual fund industry.

 AMFI undertakes all India awareness programme for investors in

order to promote proper understanding of the concept and working
of Mutual Funds.

 At last but not the least Association of Mutual Fund of India also
disseminate information on Mutual Fund Industry and undertakes
studies and research either directly or in association with other

The sponsors of Association of Mutual Funds in India

Bank Sponsored

 SBI Fund Management Ltd.

 BOB Asset Management Co. Ltd.
 Canbank Investment Management Services Ltd.
 UTI Asset Management Company Pvt. Ltd.

KLES’s Institute of Management Studies and



 GIC Asset Management Co. Ltd.

 Jeevan Bima Sahayog Asset Management Co. Ltd.

Private Sector

 Benchmark Asset Management Co. Pvt. Ltd.

 Cholamandalam Asset Management Co. Ltd.
 Credit Capital Asset Management Co. Ltd.
 Escorts Asset Management Ltd.
 JM Financial Mutual Fund
 Kotak Mahindra Asset Management Co. Ltd.
 Reliance Capital Asset Management Ltd.
 Sahara Asset Management Co. Pvt. Ltd
 Sundaram Asset Management Company Ltd.
 Tata Asset Management Private Ltd.

Predominantly India Joint Ventures:-

KLES’s Institute of Management Studies and

 Birla Sun Life Asset Management Co. Ltd.
 DSP Merrill Lynch Fund Managers Limited
 HDFC Asset Management Company Ltd.

Predominantly Foreign Joint Ventures:-

 ABN AMRO Asset Management (I) Ltd.

 Alliance Capital Asset Management (India) Pvt. Ltd.
 Deutsche Asset Management (India) Pvt. Ltd.

 Fidelity Fund Management Private Limited

 Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.
 HSBC Asset Management (India) Private Ltd.
 ING Investment Management (India) Pvt. Ltd.
 Morgan Stanley Investment Management Pvt. Ltd.
 Principal Asset Management Co. Pvt. Ltd.
 Prudential ICICI Asset Management Co. Ltd.

KLES’s Institute of Management Studies and


Types of Mutual Funds

Schemes according to Maturity Period

A mutual fund scheme can be classified into open-ended scheme or close-

ended scheme depending on its maturity period.

 Open-ended Fund/ Scheme

An open-ended fund or scheme is one that is available for subscription

and repurchase on a continuous basis. These schemes do not have a fixed
maturity period. Investors can conveniently buy and sell units at Net
Asset Value (NAV) related prices which are declared on a daily basis.
The key feature of open-end schemes is liquidity.

KLES’s Institute of Management Studies and

 Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7

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

either repurchase facility or through listing on stock exchanges. These

mutual funds schemes disclose NAV generally on weekly basis.

Schemes according to Investment Objective

A scheme can also be classified as growth scheme, income scheme, or

balanced scheme considering its investment objective. Such schemes may
be open-ended or close-ended schemes as described earlier. Such
schemes may be classified mainly as follows

 Growth / Equity Oriented Scheme:-

KLES’s Institute of Management Studies and

The aim of growth funds is to provide capital appreciation over the
medium to long- term. Such schemes normally invest a major part of their
corpus in equities. Such funds have comparatively high risks. These
schemes provide different options to the investors like dividend option,
capital appreciation, etc. and the investors may choose an option
depending on their preferences. The investors must indicate the option in
the application form. The mutual funds also allow the investors to change
the options at a later date. Growth schemes are good for investors having
a long-term outlook seeking appreciation over a period of time.

 Income / Debt Oriented Scheme

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

investors. Such schemes generally invest in fixed income securities such
as bonds, corporate debentures, Government securities and money market
instruments. Such funds are less risky compared to equity schemes. These
funds are not affected because of fluctuations in equity markets.
However, opportunities of capital appreciation are also limited in such
funds. The NAVs of such funds are affected because of change in interest
rates in the country. If the interest rates fall, NAVs of such funds are
likely to increase in the short run and vice versa. However, long term
investors may not bother about these fluctuations.

KLES’s Institute of Management Studies and

 Balanced Fund

The aim of balanced funds is to provide both growth and regular income
as such schemes invest both in equities and fixed income securities in the
proportion indicated in their offer documents. These are appropriate for
investors looking for moderate growth. They generally invest 40-60% in
equity and debt instruments. These funds are also affected because of
fluctuations in share prices in the stock markets. However, NAVs of such
funds are likely to be less volatile compared to pure equity funds.

 Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy
liquidity, preservation of capital and moderate income. These schemes
invest exclusively in safer short-term instruments such as treasury bills,
certificates of deposit, commercial paper and inter-bank call money,
government securities, etc. Returns on these schemes fluctuate much less
compared to other funds. These funds are appropriate for corporate and
individual investors as a means to park their surplus funds for short

 Gilt Fund

KLES’s Institute of Management Studies and

These funds invest exclusively in government securities. Government
securities have no default risk. NAVs of these schemes also fluctuate due
to change in interest rates and other economic factors as is the case with
income or debt oriented schemes.

 Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE
Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in
the securities in the same weightage comprising of an index. NAVs of
such schemes would rise or fall in accordance with the rise or fall in the
index, though not exactly by the same percentage due to some factors

known as "tracking error" in technical terms. Necessary disclosures in

this regard are made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds
which are traded on the stock exchanges.

KLES’s Institute of Management Studies and

Sector specific funds/schemes: -

These are the funds/schemes, which invest in the securities of only those
sectors or industries as specified in the offer documents.
e.g. Pharmaceuticals, Software, Fast Moving Consumer
Goods (FMCG), Petroleum stocks, etc. The returns in these
funds are dependent on the performance of the respective
sectors/industries. While these funds may give higher
returns, they are more risky compared to diversified funds.
Investors need to keep a watch on the performance of those
sectors/industries and must exit at an appropriate time.
They may also seek advice of an expert.

 Tax Saving Schemes: -

These schemes offer tax rebates to the investors under specific

provisions of the Income Tax Act, 1961 as the Government offers tax
incentives for investment in specified avenues. e.g. Equity Linked
Savings Schemes (ELSS). Pension schemes launched by the mutual funds
also offer tax benefits. These schemes are growth oriented and invest pre-
dominantly in equities. Their growth opportunities and risks associated
are like any equity-oriented scheme.

 Load or no-load Fund:

KLES’s Institute of Management Studies and

A Load Fund is one that charges a percentage of NAV for entry or exit.
That is, each time one buys or sells units in the fund, a charge will be
payable. This charge is used by the mutual fund for marketing and
distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as
well as exit load charged is 1%, then the investors who buy would be
required to pay Rs.10.10 and those who offer their units for repurchase to
the mutual fund will get only Rs.9.90 per unit. The investors should take
the loads into consideration while making investment as these affect their
yields/returns. However, the investors should also consider the
performance track record and service standards of the mutual fund which
are more important. Efficient funds may give higher returns in spite of

A no-load fund is one that does not charge for entry or exit. It means the
investors can enter the fund/scheme at NAV and no additional charges
are payable on purchase or sale of units.

KLES’s Institute of Management Studies and


Sales or repurchase/redemption price

The price or NAV a unit holder is charged while investing in an open-

ended scheme is called sales price. It may include sales load, if

Repurchase or redemption price is the price or NAV at which an open-

ended scheme purchases or redeems its units from the unit holders. It may
include exit load, if applicable.

Assured return scheme

Assured return schemes are those schemes that assure a specific return to
the unitholders irrespective of performance of the scheme.

A scheme cannot promise returns unless such returns are fully guaranteed
by the sponsor or AMC and this is required to be disclosed in the offer

Investors should carefully read the offer document whether return is

assured for the entire period of the scheme or only for a certain period.
Some schemes assure returns one year at a time and they review and
change it at the beginning of the next year.

Can a mutual fund change the asset allocation while deploying funds
of investors?

KLES’s Institute of Management Studies and

Considering the market trends, any prudent fund managers can change
the asset allocation i.e. he can invest higher or lower percentage of the

fund in equity or debt instruments compared to what is disclosed in the

offer document. It can be done on a short term basis on defensive
considerations i.e. to protect the NAV. Hence the fund managers are
allowed certain flexibility in altering the asset allocation considering the
interest of the investors. In case the mutual fund wants to change the asset
allocation on a permanent basis, they are required to inform the
unitholders and giving them option to exit the scheme at prevailing NAV
without any load.

How to invest in a scheme of a mutual fund?

Mutual funds normally come out with an advertisement in newspapers

publishing the date of launch of the new schemes. Investors can also
contact the agents and distributors of mutual funds who are spread all
over the country for necessary information and application forms. Forms
can be deposited with mutual funds through the agents and distributors
who provide such services. Now a days, the post offices and banks also
distribute the units of mutual funds. However, the investors may please
note that the mutual funds schemes being marketed by banks and post
offices should not be taken as their own schemes and no assurance of
returns is given by them. The only role of banks and post offices is to
help in distribution of mutual funds schemes to the investors.

KLES’s Institute of Management Studies and

Investors should not be carried away by commission/gifts given by
agents/distributors for investing in a particular scheme. On the other hand

they must consider the track record of the mutual fund and should take
objective decisions.

Importance of Offer Document

An abridged offer document, which contains very useful information, is

required to be given to the prospective investor by the mutual fund. The
application form for subscription to a scheme is an integral part of the
offer document. SEBI has prescribed minimum disclosures in the offer
document. An investor, before investing in a scheme, should carefully
read the offer document. Due care must be given to portions relating to
main features of the scheme, risk factors, initial issue expenses and
recurring expenses to be charged to the scheme, entry or exit loads,
sponsor's track record, educational qualification and work experience of
key personnel including fund managers, performance of other schemes
launched by the mutual fund in the past, pending litigations and penalties
imposed, etc.

Statement of account

Mutual funds are required to despatch certificates or statements of

accounts within six weeks from the date of closure of the initial

KLES’s Institute of Management Studies and

subscription of the scheme. In case of close-ended schemes, the investors
would get either a demat account statement or unit certificates as these
are traded in the stock exchanges. In case of open-ended schemes, a
statement of account is issued by the mutual fund within 30 days from the

date of closure of initial public offer of the scheme. The procedure of

repurchase is mentioned in the offer document.

Transfer of Units

According to SEBI Regulations, transfer of units is required to be done

within thirty days from the date of lodgment of certificates with the
mutual fund.

Dividend warrants

A mutual fund is required to dispatch to the unitholders the dividend

warrants within 30 days of the declaration of the dividend and the
redemption or repurchase proceeds within 10 working days from the date
of redemption or repurchase request made by the unitholders.

In case of failures to dispatch the redemption/repurchase proceeds within

the stipulated time period, Asset Management Company is liable to pay
interest as specified by SEBI from time to time (15% at present).

Information on Mutual Funds

KLES’s Institute of Management Studies and

Almost all the mutual funds have their own web sites. Investors can also
access the NAVs, half-yearly results and portfolios of all mutual funds at
the web site of Association of mutual funds in India (AMFI)
www.amfiindia.com. AMFI has also published useful literature for the

Investors can log on to the web site of SEBI www.sebi.gov.in and go to

"Mutual Funds" section for information on SEBI regulations and
guidelines, data on mutual funds, draft offer documents filed by mutual
funds, addresses of mutual funds, etc. Also, in the annual reports of SEBI
available on the web site, a lot of information on mutual funds is given.

There are a number of other web sites which give a lot of information of
various schemes of mutual funds including yields over a period of time.
Many newspapers also publish useful information on mutual funds on
daily and weekly basis. Investors may approach their agents and
distributors to guide them in this regard.

Complaint redressing

Investors would find the name of contact person in the offer document of
the mutual fund scheme that they may approach in case of any query,
complaints or grievances. Trustees of a mutual fund monitor the activities
of the mutual fund. The names of the directors of asset Management

KLES’s Institute of Management Studies and

Company and trustees are also given in the offer documents. Investors
can also approach SEBI for redressal of their complaints. On receipt of
complaints, SEBI takes up the matter with the concerned mutual fund and
follows up with them till the matter is resolved. Investors may send their
complaints to:


The Government brought Mutual Funds in the Securities market under

the regulatory framework of the Securities and Exchange board of India
(SEBI) in the year 1993.

SEBI issued guidelines in the year 1991 and comprehensive set of

regulations relating to the organization and management of Mutual Funds
in 1993.

SEBI REGULATIONS 1993 (20.1.1993)

The regulations bar Mutual Funds from options trading, short selling
and carrying forward transactions in securities. The Mutual Funds have
been permitted to invest only in transferable securities in the money and
capital markets or any privately placed debentures or securities debt.

KLES’s Institute of Management Studies and

Restrictions have also been placed on them to ensure that investments
under an individual scheme, do not exceed five per cent and investment
in all the schemes put together does not exceed 10 per cent of the corpus.
Investments under all the schemes cannot exceed 15 per cent of the funds
in the shares and debentures of a single company.

SEBI grants registration to only those mutual funds that can prove an
efficient and orderly conduct of business. The track record of sponsors, a
minimum experience of five years in the relevant field of Investment,
financial services, integrity in business transactions and financial

soundness are taken into account. The regulations also prescribe the
advertisement code for the marketing schemes of Mutual Funds, the
contents of the trust deed, the investment management agreement and the
scheme-wise balance sheet. Mutual Funds are required to be formed as
trusts and managed by separately formed as trusts and managed by
separately formed Asset Management Companies (AMC). The minimum
net worth of such AMC is stipulated at Rs.5 crores of which, the Mutual
Fund should have a custodian who is not associated in any way with the
AMC and registered with the SEBI.

The minimum amount raised in closed-ended scheme should be Rs.20

Crores and for the open-ended scheme, Rs.50 Crores. In case, the
amount collected falls short of the minimum prescribed, the entire
amount should be refunded not later than six weeks from the date of
closure of the scheme. If this is not done, the fund is required to pay an

KLES’s Institute of Management Studies and

interest at the rate of 15 per cent per annum from the date of expiry of six
weeks. In addition to these, the Mutual Funds are obliged to maintain
books of accounts and provision for depreciation and bad debts.

Further, the Mutual Funds are now under the obligation to publish
scheme-wise annual reports, furnish six month un-audited accounts,
quarterly statements of the movements of the net asset value and
quarterly portfolio statements to the SEBI. There is also a stipulation that
the Mutual Funds should ensure adequate disclosures to the investors.
SEBI has agreed to let the Mutual Funds buy back the units of their
schemes. However, the funds cannot advertise this facility in their

prospectus. SEBI is also empowered to appoint an auditor to investigate

into the books of accounts or the affairs of the Mutual Funds.

SEBI can suspend the registration of Mutual Funds in the case of

deliberate manipulation, price rigging or deterioration of the financial
position of Mutual Funds.


SEBI announced the amended Mutual Fund Regulations on December

9, 1996 covering Registration of Mutual Funds, Constitution and
Management of Mutual funds and Operation of Trustees, Constitution
and Management of Asset Management Companies (AMCs) and
custodian schemes of MFs, investment objectives and valuation policies,

KLES’s Institute of Management Studies and

general obligations, inspection and audit. The revision has been carried
out with the objective of improving investor protection, imparting a
greater degree of flexibility and promoting innovation.

The increase in the number of MFs and the types of schemes offered
by them necessitated uniform norms for valuation of investments and
accounting practices in order to enable the investors to judge their
performance on a comparable basis. The Mutual Fund Regulations is
sued in December 1996 provide for a scheme-wise report and justification
of performance, disclosure of large investments which constitute a
significant portion of the portfolio and disclosure of the movements in the
unit capital.

The existing Asset Management Companies are required to increase

their net worth from Rs.10 crores within one year from the date of
notification of the amended guidelines. AMCs are also allowed to do
other fund-based businesses such as providing investment management
services to offshore funds, other Mutual Funds, Venture Capital Funds
and Insurance Companies. The amended guidelines retained the former
fee structure of the AMCs of 1.25% of weekly average Net Asset Value
(NAV) up to Rs.100 crores and 1% of NAV for net assets in excess of
Rs.100 crores.

The consent of the investors has to be obtained for bringing about any
change in the fundamental attributes of the scheme on the basis of which
the unit holders had made initial investments. The regulation empowers

KLES’s Institute of Management Studies and

the investor. The amended guidelines require portfolio disclosure,
standardization of accounting policies, valuation norms for NAV and
pricing. The regulations also sought to address the areas of misuse of
funds by introducing prohibitions and restrictions on affiliate transactions
and investment exposures to companies belonging to the group of
sponsors of mutual funds. The payment of early bird incentive for
various schemes has been allowed provided they are viewed as interest
payment of early bird incentive for early investment with full disclosure.

The various Mutual Funds are allowed to mention an indicative

return for schemes for fixed income securities. In 1998-99 the Mutual
Funds Regulation were amended to permit Mutual Funds to trade in
derivatives for the purpose of hedging and portfolio balancing. SEBI

registered Mutual Funds and Fund managers are permitted to invest in

overseas markets, initially within an overall limit of US $500 million and
a ceiling for an individual fund at US$ 50 million.

SEBI made (October 8, 1999) investment guidelines for MFs more

stringent. The new guidelines restrict MFs to invest no more than 10% of
NAV of a scheme in share or share related instruments of a single
company. MF’s in rated debt instruments of a single issuer is restricted
to 15% of NAV of the scheme (up to 20% with prior approval of Board
of Trustees or AMC). Restrictions in un- rated debt instruments and in
shares of unlisted companies. The new norms also specify a maximum
limit of 25% of NAV for any scheme for investment in listed group

KLES’s Institute of Management Studies and

companies as against an umbrella limit of 25% of NAV of all schemes
taken together earlier. SEBI increased (June 7, 2000) the maximum
investment limit for MFs in listed companies from 5% to 10% of NAV in
respect of open-ended funds. Changes in fundamental attributes of a
scheme was also allowed without the consent of three fourths of unit
holders provided the unit holders are given the exit option at NAV
without any exit load. MFs are also not to make assurance or claim that
is likely to mislead investors. They are also banned from making claims
in advertisement based on past performance.

KLES’s Institute of Management Studies and


Future of Mutual Funds in India

At the end of 2005 July, Indian mutual fund industry reached Rs. 1,
75, 918 Crores. It is estimated that by 2010 March-end, the total assets of
all scheduled commercial banks should be Rs. 40, 90, 000 crores.

The annual composite rate of growth is expected 13.4% during the rest
of the decade. In the last 5 years we have seen annual growth rate of 9%.
According to the current growth rate, the year 2010, mutual fund assets is

Going by the above facts and generally, mutual funds have often been
considered a good route to invest and earn returns with reasonable safety.
Small and big investors have both invested in instruments that have suited
their needs. And so equity and debt funds have attracted investments
alike. The performance of the investments, equity in particular, for the
last one-year, has however been disappointing for the investors.

The fall in NAVs of equity funds, and it is really steep in some, even
to the extent of 60-70 percent, has left investors disgusted. Such backlash
was only to be expected when funds, in a hurry to post good returns
invested in volatile tech stocks. The move, though good under conducive
market conditions, is the point of rebuttal now. Owing to volatility in
market and profit warnings by some IT majors, tech stocks have been on
the downhill journey and the result is fall in NAVs of most equity funds.

KLES’s Institute of Management Studies and


This hurts the investor but then investments in equity are never safe.
Mutual funds are not just guilty of mismanaging their risks as the recent
survey by Price water house Coopers indicates but also not educating
their investors enough on the risks facing them. It is for the mutual
benefit of the investors as well as mutual funds that investor is educated
enough or else an agitated investor might route his investments to other
avenues that are considered safe.

Debt funds are safe investments and generate returns far in excess of
what other so-called safe avenues such as banks generate. Despite this,
the inflow of funds in debt funds and banks is by no means comparable.
The factor contributing to this the lack of understanding caused by
improper guidance by the intermediaries.

Till now, Investor education has been one of the issues, less cared for,
by the industry. The industry focused upon the amounts and not why a
person wanted to invest or whether a particular product suited him or not.
While educating the customer might not have been on the cards earlier,
the things are beginning to change now.

With SEBI passing on the guidelines, the funds will engage in investor
education. The guidelines state that funds will utilize the income earned
on unclaimed money lying with them for a period exceeding three years
to educate the investors. AMFI has started a certification program for

KLES’s Institute of Management Studies and

intermediaries. This will be made mandatory for the intermediaries and is
aimed at educating the investors about the risks attached to the schemes

and to inculcate adequate skills into the intermediaries to help the

investors choose the right kind of fund. Steps such as these are aimed at
obliterating various flaws in the system by standardizing the knowledge
base of intermediaries, as they are the interface between the investor and
the funds.

Although the investors themselves are also guilty of picking funds that
were not suited for them, the blame can’t lie square on their shoulders
alone. The industry has also got to bear some of it. With such programs
becoming mandatory, it can be ensured to some extent that ignorance
ceases to be an aspect associated with the industry.

Till now, investors have been ignorant about the kind of fund to be
picked or how to select a fund. Teaching an investor how to select a fund
is thus an important aspect. Educated investors can, on their part, ask
pertinent questions to find funds that qualify to be in their portfolio as per
their risk bearing capacity.

It would not be improper to say that investor education is still the key
to managing the funds handed over by investors. The investors are
important to the industry and likewise, mutual funds form an important
avenue for an investor. It would thus be of critical importance to educate
people for an informed investor is in the best position to pick up Schemes

KLES’s Institute of Management Studies and

as per his need. This would also infuse some confidence in the minds of
the investors who under the current scenario seem to be losing faith on
account of the falls suffered in recent times.

An educated and informed intermediary stands the best chance of

understanding the needs of the client and also of winning his confidence
through proper guidance. As it is, investor education will remain a key
issue for mutual funds in the longer run and educating the intermediaries
will be the first step towards it.

New Fund Offerings [NFO’s]

New fund offerings are both open ended and closed ended funds. This
fund will primarily have a top down approach to identify and create a
diversified Portfolio of Companies, which present the most attractive
investment opportunity. New fund offerings are close-ended fund with 3
years tenor. Usually NFO’s open for one month and then again reopens
after one month from last date of filling the application. Usually investors
go for open-ended scheme in NFO’s as the investors can enter and exit
from the funds at any time and on the other hand some investors go for
NFO’s with closed ended scheme. They go for different options
depending on the amount invested as if they invested huge amount they
can go for either for dividend or growth option. On the other hand if the
amount invested is less than they go for growth option.

KLES’s Institute of Management Studies and


The Load structure (during the NFO) is as follows

1) Entry load will is not charged.
2) Exit load is NIL.

Minimum investment in NFO’s is Rs 5000. NAV and repurchases NAV

to be disclosed on all business days. Dividend, Growth and dividend
reinvestment options will be available. In some cases payout facility is
available only during close-ended tenor of the scheme. There will be
completely tax-free on the dividends and depending on the Companies.

Advantages of New Fund Offerings [NFO’s]

1. As NFO’s are for longer period there is safety of amount invested in

Mutual fund.
2. The expected returns of investors are achieved through NFO’s.
3. The returns which investors get in investing NFO’s is better than On-
going fund.
4. The initial price of the fund starts from Rs 10.
5. Their will be no entry load and exit load after three years, in case of
closed ended.

Disadvantages of New Fund Offerings [NFO’s]:

KLES’s Institute of Management Studies and


1. Long period to wait to redeem the amount invested by investors.

2. Exit load is charged if the amount is redeemed before 3 years.
3. The amount is to be invested within given period of time.

4.Some time the amount is blocked and their will be no performance of

the funds.
5. There is no track records as the fund will new and it creates confusion
as whether to invest in fund or not.

On-Going Funds

New funds after certain period of time that is usually 3 years

automatically become On-Going Funds. This is the fund where most
investors are interested invest in mutual fund. On-going funds are
preferred as they don’t carry exit load and can be redeemed whenever
investors want their money back.

Investors usually invest in On-going funds on the basis of

performance of funds and track records of previous years . In On-
going funds usually investors go for Open-ended scheme as they can
be redeemed any time. There is no Block of funds as the invested amount
is directly brought into market. The options which on-going funds carry
are dividend, and dividend reinvestment.

KLES’s Institute of Management Studies and


Advantages of on going funds

1. The amount which is invested can be redeemed at any time.

2. There is no particular time to invest as the amount can be invested
through SIP [Systematic Investment Policy] Scheme.
3. The funds can be purchased when the NAV value comes down.
4. The returns on the investment are good.
5. Before investing into fund the investors will be having idea about that
fund as
there will track records of the fund.

Disadvantages of On-going Fund

1. There is entry load in case of on-going fund.

2. The demand of on-going is less as compared to NFO’s,because the
are unaware of on-going funds as there is less promotional activity.
3. Investors have to update themselves according to change of market

KLES’s Institute of Management Studies and



The compounded annual return on a mutual fund scheme represents the

return to investors from a scheme since the date of issue. It is calculated
on NAV basis or price basis. On NAV basis it reflects the return
generated by the fund manager on NAV. On price basis it reflects the
return to investors by way of market or repurchase price

Net Asset Value (NAV)

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

KLES’s Institute of Management Studies and


Computation of Net Asset Value

The Net Asset Value (NAV) of the units will be determined as of every
working day and for such other days as may be required for the purpose
of transaction of units.
The NAV shall be calculated in accordance with the following formula,
or such other formula as may be prescribed by SEBI from time to time.

Market /Fair value of scheme’s investments + Receivable+

Accrued Income + Other Assets – Accrued Expenses –
Payables-Other liabilities
Number of Units Outstanding

KLES’s Institute of Management Studies and


Rational behind choice of the project

Main purpose for choosing this topic is that the Mutual Funds have
recorded the tremendous growth in the investment sector. Mutual Funds
have contributed major portion in the growth of the economy. It also
involves lots of growth opportunity. As for finance student it will be a
great learning experience to have the project on Mutual Funds which has
the scope to have clear-cut insight of Mutual funds. The topic requires the
efforts on collecting the historical records of the Mutual Funds and equity
Market and other investment avenues. It was helpful me to have the brief
idea about all those investment avenues also.

Another important thing i have learnt is, as this project was objected
towards the role of AMFI in the mutual fund. Also SEBI Rules &
Regulation in Mutual Fund and advantages & disadvantages of New
Fund Offerings[NFO’s] and On-going Funds. it helped me to study in
which scheme and which fund I have to invest and suggest others to
invest in mutual fund avenue when compared with other investment
avenues available. This made me to select the funds, which have good
track records with greater consistency. Therefore it ignited the push
towards putting hard efforts to make this report a competitive one.

KLES’s Institute of Management Studies and

And another thing is that this project report will be helpful for me to
get into the good company in this field kick-start my career. The project
work also helps the organization by way of being a proof to prove the

Mutual Fund as the best investment avenue and make the clients agree to
invest hence increase the volume and profits.

KLES’s Institute of Management Studies and



To me: -

This project is helpful to complete the requirements of the MBA course.

And it also helps me to get the knowledge in the field of Mutual Fund.
The project work also gives me the experience and knowledge of working
in an organisation, which we have to face in near future. It gives the
opportunity to find our strengths and weaknesses and adjust ourselves
with the organisation life style, and understand what is going in present

To the organization

During the project work I also helped the organization in its day- to-
Activities, which gave me the experience, and was one among in
working with
the organization.

KLES’s Institute of Management Studies and




The methods used in collecting information to carry out the


Data collection method

Primary data as well as secondary data is used to collect the

• Primary data
Information was gathered from discussion with the clients of the
company. And the further details will be collected through the
company officials.

• Secondary data:
Secondary data was collected from the various websites like

KLES’s Institute of Management Studies and



1. Professionals are not interested in investing mutual funds whether it

may be in NFO’s or On-going funds due to time and they
don’t have any idea about market.

2. Usually when NFO’s are there majority of them will go for

government sector if any, compared to private sector.

3. Investment prefer to invest inNFO’s as it is for longer period and


4. As many of them are influenced by friends and advisors,there

should be some groups made and groups are to be update with
knowledge mutual funds.

5. It is found that the organization has the good client base in the equity

KLES’s Institute of Management Studies and



1. Their should be awareness created to know about mutual funds and

some tools should be used to convince to invest in mutual funds.
2. The company should see that they get expected returns on the
amount invested.
3. The company should advice in the Systematic Investment Policy
(SIP) and recommend to invest in SIP.
5. There should be some person appointed from the company or
organization to tell and convince the professionals to invest in
NFO’s and On-going Funds.
6. They should be given some important knowledge about different
funds and schemes
7. Advisors should convince the investors to go for investment in both
private and government companies and should tell the benefits in
investing different companies.
8. Company has to tell about On-going Funds and their performance
during the Year .
9. The investors don’t get knowledge about mutual funds through
medias, so they are to contacted and should be told about the funds
and their performances.
10. The company can increase its market in the area of Mutual Funds
also. It can be done through targeting the equity market customers
and convincing them to invest in Mutual Funds also.

KLES’s Institute of Management Studies and



Websites :-

Magazines and Newspapers:-

Business world
Business Line
Business Standard
Mutual Fund Insight

TV Channels:-
NDTV Profit

And the fact sheets of the funds considered for the study.

KLES’s Institute of Management Studies and


KLES’s Institute of Management Studies and


KLES’s Institute of Management Studies and


KLES’s Institute of Management Studies and


KLES’s Institute of Management Studies and


KLES’s Institute of Management Studies and