Summer Training Report

Summer Training Report
On
“ UTI Mutual Fund & Treasury

Management schemes at UTI Mutual
Fund”
At
UTI Mutual Fund

Bhubaneswar
Prepared By
Mr. Ashabit Panda
Regd. No. 0806272081
Batch 2008-10
Under the Guidance of

LECT.DEVI PRASAD KAR
ON COMPLETION OF SUMMER INTERNSHIP
PROGRAMMEE
ACADEMY OF MANAGEMENT STUDIES

Bhubaneswar
DECLARATION
I hereby declare that this Project Report entitled “Analysis of

UTI Mutual Fund and Treasury Management Schemes in UTI
Mutual Fund” submitted in the partial fulfillment of As a
Summer Internship Trainee of MBA Programmed of Academy
Of Management Studies, BHUBANESWAR is based on
secondary data found by me in various departments, books,
magazines and websites & collected by me in under guidance
of Lect.Devi Prasad Kar
ASHABIT PANDA
Regd no.0806272081
ACKNOWLEDGEMENT
Before going to the thick of things I would like to add some

heartfelt words. I owe a huge debt of thanks and deep sense of gratitude
to my learned guide Mr. UJJWAL CHAKRABORTY [MANAGER] at UTI
MUTUAL FUND Bhubaneswar branch under whose guidance,
supervision and encouragement the present study was undertaken and
completed. Their sympathetic, accommodating and constructive nature
remained a constant source of inspiration for me throughout the duration
of this summer project.
I am thankful to all the personnel in UTI MUTUAL FUND for
utmost co-operation and timely help extended by them for the
completion of the project.
My overriding debt is to Lect.Devi Prasad Kar (Internal Guide)
for providing me the opportunity to take up this project with UTI
MUTUAL FUND.
ASHABIT PANDA
INTRODUCTION
A mutual fund is a common pool of money into which

investors places their contributions that are to be invested in accordance
with a stated objective. The ownership of the fund is thus joint or
“mutual”; the fund belongs to all investors. A single investor’s ownership
of the fund is in the same proportion as the amount of the contribution
made by him or her bears to the total amount of the fund. A mutual fund
uses the money collected from investors to buy those assets which are
specifically permitted by its stated investment objective. Thus, an equity
fund would buy mainly equity assets-ordinary shares, preference shares,
warrants etc. A bond fund would mainly buy debt instruments such as
debentures, bonds, or government securities. It is these assets which
are owned by the investors in the same proportion as their contribution
bears to the total contributions of all investors put together.
Jan 14, 2003 is when UTI Mutual Fund started to pave its path following
the vision of UTI Asset Management Company Limited, who has been
appointed by the UTI Trustee Pvt. Limited Co. for managing the
schemes of UTI Mutual Fund and the schemes transferred/migrated
from the erstwhile Unit Trust of India.
The UTI Asset Management Company provides professionally

managed back office support for all business services of UTI Mutual
Fund in accordance with the provisions of the Investment Management
Agreement, the Trust Deed, the SEBI (Mutual Funds) Regulations and
the objectives of the schemes. State-of-the-art systems and
communications are in place to ensure a seamless flow across the
various activities undertaken by UTIMF.
UTI have a well-qualified, professional fund management team, who

has been highly empowered to manage funds with greater efficiency
and accountability in the sole interest of unit holders. The fund
managers are also ably supported with a strong in-house securities
research department. To ensure better management of funds, a risk
management department is also in operation.
UTIMF has consistently reset and upgraded transparency standards. All

the branches, UFCs and registrar offices are connected on a robust IT
network to ensure cost-effective quick and efficient service. All these
have evolved UTI Mutual Fund to position as a dynamic, responsive,
restructured, efficient and transparent SEBI compliant entity.
OBJECTIVES
 To know about all the schemes of UTI Mutual Fund and its
advantages.
 To know the performance of funds in the market in comparison of

BSE-100 & BSE-30 benchmark.
 To know the advantages of Mutual Fund for different age of

people.
 To know the advantages of Systematic Investment Plan and

advantages in comparison of lump-sum investments.
 To know about all those calculations of Fund and BSE

benchmark returns & risks and to show the chart of performance
of vis-à-vis benchmark.
CORPORATE PROFILE
Unit Trust of India (UTI), set up as a statutory corporation under Unit

Trust of India Act, 1963, stared functioning with effect from 1st July,
1964. Every year, millions of investors entrust their savings in schemes
of UTI. This faith and confidence of investors stem from UTI’s
commitment of offering safety, liquidity and reasonable returns to
investors which has been reflected consistently in its past track record.
UTI has carved out a special position for itself in the mutual fund
industry and in the Indian Capital Market.
UTI AMC is a registered portfolio manager under the SEBI (Portfolio
Managers) Regulations, 1993 on 3rd February 2004, for undertaking
portfolio management services and also acts as the manager and
marketer to offshore funds through its 100 % subsidiary, UTI
International Limited, registered in Guernsey, Channel Islands
UTI Asset Management Company presently manages a corpus of over
Rs. 46,161 Crores* as on 31st January 2008. UTI Mutual Fund has a
track record of managing a variety of schemes catering to the needs of
every class of citizenry. It has a nationwide network consisting 114 UTI
Financial Centers (UFCs) and UTI International offices in London, Dubai
and Bahrain. With a view to reach to common investors at district level,
1 satellite offices have also been opened in select towns and districts.
OBJECTIVES
UTI has been established “with a view to encourage savings and

investment and participation in the income, profits and gains accruing to
the corporation from the acquisition, holding, management and disposal
of securities”.
The three main objectives of UTI are:
1)Enabling common investors to participate in the prosperity of capital
market through portfolio management aimed at reasonable return,
liquidity and safety.
2)Contributing to India’s industrial development by channelizing

household savings into corporate investment and
3)Facilitating orderly development of the capital market.
TRANSFORMATION
UTI’s first scheme UNIT SCHEME 1964 commenced its operation on 1 st

July ,1964.In 1971 UTI came up with its new scheme ”UNIT LINKED
INSURANCE PLAN”. In 1986 came master share the mutual fund
scheme in India. During the 90’s UTI launched many schemes like
MIS,GIUS,GMIS ETC etc., which gives an assured rate of return. During
late 90’s UTI’s asset under management to Rs.70,000 crs.
In 2003 the structure of UTI has undergone a change.UTI has divided

into two independent entities named as SUUTI and UTI Mutual Fund.
Four major financial institutions, State bank of India, Bank of Baroda, life
insurance Corporation of India and Punjab national bank joined as
sponsors of UTI mutual fund. The assured return schemes were
transferred to SUUTI and all the NAV based schemes were vested with
mutual funds.
THE MISSION OF UTI MUTUAL FUND
 The most trusted brand, admired by all stake holders.

 The largest and most efficient money manager with global
presence.
 The most preferred employer.
 The best in class customer service provider.
 The most innovative and best wealth creator.
 A socially responsible organization known for best corporate
governance.
SOURCES AND METHODS

 Formulating objective for the project
 Identifying and defining problems and opportunities.
 Collection of secondary data from books, magazines, web

sites etc.
 Analysis of those secondary data.
 Evaluating the and interpreting the results.
 Putting results in the form of charts and in calculation modes.
 Analysis of those charts.
ADVANTAGES AND DISADVANTAGES OF MUTUAL

FUNDS
A mutual fund is a common pool of money into which investors places

their contributions that are to be invested in accordance with a stated
objective. The ownership of the fund is thus joint or “mutual”; the fund
belongs to all investors. A single investor’s ownership of the fund is in
the same proportion as the amount of the contribution made by him or
her bears to the total amount of the fund. A mutual fund uses the money
collected from investors to buy those assets which are specifically
permitted by its stated investment objective. Thus, an equity fund would
buy mainly equity assets-ordinary shares, preference shares, warrants
etc. A bond fund would mainly buy debt instruments such as
debentures, bonds, or government securities. It is these assets which
are owned by the investors in the same proportion as their contribution
bears to the total contributions of all investors put together.
ADVANTAGES OF MUTUAL FUND
If mutual funds are emerging as the favorite investment vehicle, it is

because of the many advantages they have over other forms and
avenues of investing, particularly for the investor who has limited
resources available in terms of capital and ability to carry out detailed
research and market monitoring. The following are the major
advantages offered by mutual funds to all investors:
 Portfolio diversification: Mutual funds normally invest in
a well diversified portfolio or securities. Each investor in a fund
is a part owner of all of the fund’s assets. This enables him to
hold a diversified investment portfolio even with a small
amount of investment, that would otherwise require big
capital.
 Professional management: Even if an investor has a

big amount of capital available to him, he benefits from the
professional management skills brought in by the fund in the
management of the investor’s portfolio. The investment
management skills, along with the needed research into
available investment options, ensure a much better return
than what an investor can manage on his own. Few investors
have the skills and resources of their own to succeed in
today’s fast moving, global and sophisticated markets.
 Reduction/Diversification of risk: An investor in a

mutual fund acquires a diversified portfolio, no matter how
small his investment. Diversification reduces the risk of loss,
as compared to investing directly in one or two shares or
debentures or other instruments. When an investor invests
directly, all the risk of potential loss is his own. A fund
investors also reduces his risk in another way. While investing
in the pool of funds with other investors, any loss on one or
two securities is also shared with other investors. This risk
reduction is one of the most important benefits of a collective
investment vehicle like the mutual fund.
 Reduction of transaction costs: What is true of risk is

also true of the transaction costs. A direct investor bears all
the costs of investing such as brokerage or custody of
securities. When going through a fund, he has the benefit of
economies of scale; the fund pay lesser costs because of
larger volumes, a benefit passed on to its investors.
 Liquidity: Often, investors hold shares or bonds they cannot
directly, easily and quickly sell. Investment in a mutual fund,
on the other hand, is more liquid. An investor can liquidate the
investment, by selling the units to the fund if open end, or
selling them in the market if the fund is closed end, and collect
funds at the end of a period specified by the mutual fund or
the stock market.
 Convenience and flexibility: Mutual fund management

companies offer many investor services that a direct market
investor cannot get. Investors can easily transfer their
holdings from one scheme to the other; get updated market
information, and so on.
DISADVANTAGES OF INVESTING THROUGH

MUTUAL FUNDS
While the benefits of investing through mutual funds far outweigh the
disadvantages, an investor and his advisor will do well to be aware of
a few shortcomings of using the mutual funds as investment vehicles.
 No control over costs: an investor in a mutual fund has any

control over the overall cost of investing. He pays investment
management fees as long as he remains with the fund, albeit in
return for the professional management and research. Fees are
usually payable as a percentage of the value of his investments,
whether the fund value is rising or declining. A mutual fund
investor also pays fund distribution costs, which he would not
incur in direct investing. However, this shortcoming only means
that there is a cost to obtain benefits of a mutual fund services.
However, this cost is often less than the cost of direct investing by
the investors.
 No tailor-made portfolios: Investors who invest on their own

can build their own portfolios of shares, bonds and other
securities. Investing through funds means he delegates this
decision to the fund managers. The very high net worth
individuals or large corporate investors may find this to be a
constraint in achieving their objectives. However, most mutual
funds help investors overcome this constraint by offering families
of schemes-a large number of different schemes-within the same
fund. An investor can choose from different investment plans and
construct a portfolio of his choice.
 Managing a portfolio of funds: Availability of a large number of

funds can actually mean too much choice for the investor .He
may again need advice on how to select a fund to achieve his
objectives, quite similar to the situation when he has to select
individual shares or bonds to invest in.
TYPES OF FUND
There are many types of mutual funds available to the investors.

However, these different types of funds can be grouped into certain
classifications for better understanding. From the investor’s
perspective, we would follow three basic classifications.
Firstly, funds are usually classified in terms of their constitution-as
closed–end or open-end. The distinction depends upon whether they
give the investors the option to redeem and buy units at any time from
the fund itself(open end) or whether the investors have to await a given
maturity before they can redeem their units to the fund(close end).
Funds can also be grouped in terms of whether they collect from
investors any charges at the time of entry or exit or both, thus reducing
the investible amount or the redemption proceeds. Funds that make
these charges are classified as load funds, and funds that do not make
any of these charges are termed no-load funds.
Finally, funds can also be classified as being tax-exempt or non-tax-
exempt, depending on whether they invest in securities that give tax-
exempt returns or not. Currently in India, this classification may be
somewhat less important, given the recent tax exemptions given to
investors receiving any dividends from all mutual funds.
Under each board classification, we may then distinguish between
several types of funds on the basis of the nature of their portfolios,
meaning whether they invest in equities or fixed income securities or
some combination of both. Every type of fund has a unique risk profile
that is determined by its portfolio, for which reason funds are often
separated into more or less risk bearing .We first look at the fund
classifications and then understand the various types of funds under
them.
. MUTUAL FUND CLASSIFICATIONS
Open-end Vs. Closed-end Funds
An open-end fund is one that has units available for sale and repurchase
at all times. An investor can buy or redeem units from the fund itself at a
price based on the net asset value (NAV) per unit.NAV per unit is
obtained by dividing the amount of the market value of the fund’s
assets(plus accrued income minus the fund’s liabilities) by the number of
units outstanding. The number of units outstanding goes up or down
every time the fund issues new units or repurchases existing units. In
other words, the ‘unit capital’ of an open end mutual fund is not fixed but
variable. The fund size and its total investment amount go up if more
new subscriptions come in from new investors than redemptions by
existing investors; the fund shrinks when redemptions of units exceed
fresh subscriptions.
An open-end fund is not obliged to keep selling/issuing new units at all

times, and many successful funds stop issuing further subscriptions from
new investors after they reach a certain size and think they cannot
manage larger fund without adversely affecting profitability. On the other
hand, an open –end fund rarely denies to its investors the facility to
redeem existing units, subject to certain obvious conditions. For
example, redemption is only possible after the investor’s cheque for
initial subscription has cleared, or until after any ”lock-in period”
specified by the fund is over, or only after the specified redemption
period for collection of funds.
Unlike an open-end fund, the ‘unit capital’ of a closed-end fund is fixed,
as it makes a onetime sale of a fixed number of units. Later on, unlike
open-end funds, closed-end funds do not allow investors to buy or
redeem units directly from the funds. However, to provide the much
needed liquidity to investors, many closed-end funds get themselves
listed on a stock exchange(s).Trading through a stock exchange enables
investors to buy or sell units of a closed-end mutual fund from each
other, through a stockbroker, in the same fashion as buying or selling
shares of a company. The fund’s units may be traded at a discount or
premium to NAV based on investors’ perceptions about the fund’s future
performance and other market factors affecting the demand for or supply
of the fund’s units. Note that the number of outstanding units of a
closed-end fund does not vary on account of trading in the fund’s units
at the stock exchange. On the other hand, funds often do offer” buy-
back of fund shares/units”. Thus offering another avenue for liquidity to
closed-end fund investors. In this case, the mutual fund actually reduces
the number of units outstanding with investors.
Load and No-load funds
Marketing of a new mutual fund scheme involves initial expenses. These

expenses may be recovered from the investors in different ways at
different times. Three usual ways in which a fund’s sales expenses may
be recovered from the investors are:
1) At the time of investor’s entry into the fund/scheme, by deducting a
specific amount from his initial contribution,or
2) By charging the fund/scheme with a fixed amount each year, during

the stated number of years, or
3) At the time of the investor’s exit from the fund/scheme, by deducting a

specified amount from the redemption proceeds payable to the investor.
These charges made by the fund managers to the investors to cover
distribution/sales/marketing expenses are often called “loads”. The load
charges to the investor at the time of his entry into a scheme is called a
“front-end or entry load”. This is the first case above. The load amount
charged to the scheme over a period of time is called a “deferred load”.
This is the second case above.
The load that the investor pays at the time of his exit is called a
“back-end or exit load”. This is the third case above. Some funds may
also charge different amount of loads to the investors, depending upon
how many years the investor has stayed with the fund; the longer the
investor stays with the fund, less the amount of “exit load” he is charged.
This is called “contingent deferred sales charge”.
Note that the front-end load amount is deducted from the initial
contribution/purchase amount paid by the incoming investor, thus
reducing his initial investment amount. Similarly exit loads would reduce
the redemption proceeds paid out to the outgoing investor. If the sales
charge is made on a deferred basis directly to the scheme, the amount
of the load may not be apparent to the investor, as the scheme’s NAV
would reflect the net amount after the deferred load.
Funds that charge front-end, back-end or deferred loads are called load
funds. Funds that make no such charges or loads for sales expenses
are called no-load funds.
In India, SEBI has defined a “load” as the onetime fee payable by
the investor to allow the fund to meet initial issue expenses
including brokers’/agents’/distributors’ commissions, advertising
and marketing expenses. SEBI definition of a load fund would include
all funds that charge a front-end load, which is in line with the
internationally used definition. However, SEBI would consider a fund to
be” a no-load” fund, if an AMC absorbs these initial marketing expenses
and does not charge the fund-a situation that is somewhat special to
India and not widely prevalent elsewhere. Internationally, a fund, even
when it does not make a front-end load, would still be considered a load
fund, if it charges an exit load or a deferred sales load.
The reason for this slightly different definition of a load by SEBI is to be
found in the nature of its regulations. Front-end load, or load as defined
by SEBI, is meant to cover the marketing expenses associate with the
first issue of a scheme. Other expenses are defined as ”recurring
expenses”, rather than as “loads”. SEBI regulations allow AMCs to
recover loads from the investors for the purpose of paying for the initial
issue expenses, subject however to a limit on the maximum amount that
can be charged by the AMC. This limit currently stands at 6%,meaning
that initial issue expenses should not exceed 6% of the initial corpus
mobilized during the initial offer period. Similarly, SEBI has also imposed
a limit on the maximum “recurring expenses” including investment
management and advisory fees, that can be charged to a scheme. The
limits have been related to the level of the weekly net assets. Thus, the
AMC can charge a scheme 2.50% of the average net assets of the
scheme as recurring expenses, if the net assets do not exceed Rs.100
crores,2.25% on the next 300 crores,2.0% on the next 300 crores and
1.75% over Rs.700 crores. In case the scheme intends to invest in
bonds, the maximum percentage limits are less by 0.25%.Further,if the
AMC had absorbed the initial issue expenses, it can charge an
additional 1% of net assets as investment management fees.
From the investors’ perspective, it is important to note that loads are not
charged only by open-end funds; even a closed-end fund can charge a
load to cover the initial issue expenses. It is also important to note that
there are other expenses such as the fund manager’s fees, which are
charged to the investors on an ongoing basis, thus reducing the net
asset value of the fund. If the investor’s objective is to get the benefit of
compounding his initial investment by reinvesting and holding his
investment for a very long term, then, a no-front-load fund is preferable
to a load fund; the initial amount of investment by the fund gets reduced
by the entry load, thus depriving the investor of the benefit of
compounding his returns on the amount invested to the extend of the
load.
Some fund charge only an entry load, and some only an exit load. Such
funds may be thought of as partial load funds. Sometime back, a fund
started a new scheme with deferred load over future years. Some funds
in India waive the initial issue expenses that are borne by the Asset
Management Company or the sponsors, so the entire amount paid in by
the investor gets invested without entry load deduction. At the same
time, some of these no-front-load funds may charge exit loads from time
to time. In other words, from time to time, a no-load fund may become a
load fund. Note that a no-load fund only means a fund that does not
charge sales expenses. All funds still charge the schemes for
management fees and other recurring expenses; it is only that an
investor in a no-load fund enters or exits at the net NAV of the fund,
calculated after accounting for these expenses, but without any further
adjustment for sales expenses from the NAV.
Tax-exempt Vs. Non-Tax-exempt Funds
Generally, when a fund invest in tax-exempt securities, it is called a tax

exempt fund.IN the U.S.A., For example, municipal bonds pay interest
that is tax free, while interest on corporate and other bonds is taxable. In
India, after the 1999 Union Government Budget, all of the dividend
income receipt from any of the mutual funds is tax free in the hands of
the investor. However, funds other than equity funds have to pay a
distribution tax, before distributing income to investors. In other words,
equity mutual fund schemes are tax-exempt investment avenues, while
other funds are taxable for distributable income.
While Indian mutual funds currently offer tax free income, any capital
gains arising out of sale of fund units are taxable. All the tax
considerations are important in the decision on where to invest as the
tax –exemptions or concessions alter the returns obtained from these
investments. Hence, classification of mutual funds from the taxability
perspective has great significance for investors.
Mutual Fund Types
All mutual funds would be either closed-end or open-end, and either

load or no –load. These classifications are general. For example all
open-end funds operate the same way; or in case of a load fund a
deduction is made from investors’ subscription or redemption and only
the net amount used to determine his number of shares purchased or
sold.
A) Board Fund Types by Nature of Investments
Mutual funds may invest in equities, bonds or other fixed income

securities, or short term money market securities. So we have Equity,
bond and money market funds. All of them invest in financial assets.
But there are funds that invest in physical assets. For example, we may
have gold or other precious metal funds, or Real estate funds
B) Board Fund Types by Investment objective
Investors and hence the mutual funds pursue different objectives while
investing. Thus, Growth fund invests from medium to long term capital
appreciation. Income funds invest to generate regular income, and less
for capital appreciation. Value funds invest in equities that are
considered undervalued today, those value will be unlocked in the
future.
C) Broad Fund Types by Risk Profile

The nature of a fund’s portfolio and its investment objective imply
different levels of risk undertaken. Funds are therefore often grouped in
order of risk. Thus Equity funds have a greater risk of capital loss than a
Debt fund that seeks to protect the capital while looking for income.
Money market funds are exposed to less risk than even the Bond funds,
since they invest in short term fixed income securities, as compared to
longer term portfolios of bond funds.
Fund managers often try to alter the risk profile of funds by suitably
changing the investment objective. For example, a fund house may
structure an “Equity income fund” investing in shares that do not
fluctuate much in value and offer steady dividends-say Power sector
companies, or a Real estate income fund that invests only the in income
producing assets. Balanced funds seek to produce a lower risk portfolio
by mixing equity investments with debt investments. Investors and their
advisors need to understand both the investment objective and risk level
of the different types of funds.
Money Market Funds
Often considered to be at the lowest rung in the order of the risk level,
money market funds invest in securities of a short term nature, which
generally means securities of less than one year maturity. The typical,
short term, interest bearing instruments these funds invest in include
Treasury bills issued by govt. Certificate of deposit issued by banks and
commercial paper issued by companies. In India Money Market Mutual
Funds also invest in the interbank call money market. UTI variant in
this category UTI Money Market Mutual Fund.
The major strength of money market funds is the liquidity and
safety of principal that the investors can normally expect from short term
investors.
Gilt Funds
Gilts are government securities with medium to long term maturities,

typically of over one year (under one year instruments being money
market securities).In India, we have now seen the emergence of
Government Securities or Gilt Funds that invest in government paper
called dated securities (unlike Treasury Bills that mature in less than one
year).Since the issuer is the Government/s of India/states, these funds
have little risk of default and hence offer better protection of principal.
However, investors have to recognize the potential changes in values of
debt securities held by the funds that are caused by changes in the
market price of debt securities quoted on the stock exchanges(just like
the equities).Debt securities’ prices fall when interest rate level increase
and vice versa.UTI G-Sec Investment Plan and UTI Gilt Advantage
Funds are available in UTI’s bouquet of schemes. These funds are
generally invested in long term Government Securities having
weighted average maturity of over 20 years. Besides these, the
Short Term variant of G-Sec funds is available it UTI MF which is
known as UTI G-Sec Short Term Fund which is invested in short
term Government Securities having weighted average maturity of 2
years.
Debt Funds or Income Funds
Next in order of the risk level we have the general category debt funds.
Debt funds invest in debt instruments issued not only by governments
but also by private companies, banks and financial institutions and other
entities such as infrastructure companies/utilities. By investing in debt,
this funds target low risk and stable income for the investor as their key
objectives. However as compared to the money market funds, they do
have a higher price fluctuation risk, since they invest in longer term
securities. Similarly, as compared to gilt funds, general debt funds do
have a higher risk of default by their borrowers.
Debt funds are largely considered as income funds as they

do not target capital appreciation, look for high current income, and
therefore distribute a substantial part of their surplus to investors.
Income funds that target returns substantially above market levels can
face more risk. While we have a earlier described the equity income
funds , the income funds fall largely in the category of debt funds as they
invest primarily in fixed income generating debt instruments’. Again,
different investment objectives set by the fund managers would result in
different risk profiles.We have UTI Bond Fund as a reference under
this category.
a)Diversified debt funds
A debt fund that invests in all available types of debt securities, issued
by entities across all industries and sector is a properly diversified debt
fund. While debt funds offer high income and less risk than equity funds,
investors need to recognize that debt securities are subject to risk of
default by the issuer on payment of interest or principals.
A diversified debt fund has the benefit of risk reduction through
diversification and sharing of any default –related losses by a large
number of investors. Hence a diversified debt fund is less risky than a
narrow focus fund that invests in debt securities of a particular sector
or industry.
b) Focused Debt Funds
Some debt funds have a narrow focus, with less diversification in its
investments. Examples includes sector, specialized and offshore debt
funds. The debt funds have a substantial part of their portfolio invested
in debt instruments and are therefore more income oriented and
inherently less risky than equity funds. However the Indian financial
markets have demonstrated that debt funds should not be automatically
considered to be less risky than equity funds, as there have been
relatively large defaults by issuer of debt and many funds have non-
performing assets in their debt portfolios. It should also be recognized
that the market values of debt securities will also fluctuate more as
Indian debt markets witnessed more trading and interest rate volatility in
the future. The central point to note is that all these narrow focused
funds have greater risk than diversified debt funds.
Other examples of focused funds include those that invest only

in corporate debentures and bonds or only in tax free infrastructure
or municipal bonds. While these funds are entirely conceivable now,
they may take some time to appear as a real choice for the Indian
investor. One category of specialized funds that invests in the housing
sector, but offers greater security and safety than other debt
instruments, is the mortgage backed bond funds that invest in special
securities created after securitization of (and thus secured by)loan
receivable of housing finance companies. As the Indian finance markets
witnessed the growth of securitization, such funds may appear on the
mutual fund scene sooner rather than later.
c) High yield debt funds
Usually ,debt funds control the borrower default risk by investing in

securities issued by borrowers who are rated by credit rating agencies
and are considered to be of ”investment grade”. There are, whoever,
high yield debt funds that seek to obtain higher interest returns by
investing in debt instruments that are considered “below investment
grade”. Clearly these funds are exposed to higher risk, funds that invest
in debt instruments that are not backed by tangible assets and rated
below investment grade(popularly known as junk bonds)are called junk
bond funds. These funds tend to be more volatile than other debt
funds, although they may earn higher returns as a result of the higher
risk taken.
D) Assured Return Funds-an Indian Variant

Fundamentally, mutual funds hold assets in trust for investors. All
returns are for account of the investor. The roll of the fund manager is to
provide the professional management service and to ensure the highest
possible return consistent with the investment objective of the fund. The
fund manager or the trustees or the sponsors do not give any guarantee
on the minimum return to the investors. Wherever, in India, historically,
UTI and other funds have offered ”assured return” schemes to investors.
The most popular variant of such scheme is the Monthly Income Plans
of UTI. Returns are indicated in advance for all of the future years of
these closed-end schemes. If there is a short fall, it is born by the
sponsors. Assured return or guaranteed monthly income plans are
essentially Debt/income funds. Assured return debt funds certainly
reduced the risk level considerably, as compared to all other debt or
equity funds, but only to the extent that the guarantor has the required
financial strength. Hence, the market regulator of SEBI permits only
hose funds whose sponsors have adequate net worth to offer assurance
of returns, If occurred explicit guarantee is required from a guarantor
whose name has to be specified in advance in the offer document in the
scheme.
While assured return funds may certainly

considered being the lowest risk type within the debt funds category,
they are still not entirely risk free, as investors have to normally lock in
their funds for the term of the scheme or at least a specified period such
as 3 years. During this period, changes in the financial markets may
result in the investor losing the opportunity to obtain higher returns later
in other debt or equity fund. Besides, the investor does carry some credit
a risk on the guarantor who must remain solvent enough to honour its
guarantee during the lock in period.
E) Fixed Term Plan Series-another Indian

Variant
A mutual fund scheme would normally be either open-end or closed-

end. However, in India mutual funds have involved on innovative middle
option between the two, in response to the investor needs. If a scheme
is open-end, the fund issues new units and redeems them at any time.
The fund does not have a stated maturity or fixed term of investment as
such. Fixed term plan series offers a combination of both these features
to investors, as a series of plans are offered and units are issued at a
frequent interval for short plan duration.
Fixed term plans are essentially closed-end in nature .in that the
mutual fund AMC issues a fixed number of units for each series only
once and closes the issue after an initial offering period, like a closed
end scheme offering. However, a closed-end scheme would normally
make a onetime initial offering of units for a fixed duration generally
exceeding one year. Investors have to hold the units until the end of the
stated duration, or sell them on stock exchange if listed. Fixed term
plans are closed-end, but usually for shorter term-less than a year.
Being of a short direction they are not listed on a stock exchange. Of
course, like any closed-end fund, is plan series can be wound up earlier,
under certain regulatory conditions.
It is also important to bear in mind that the actual structure of the
umbrella scheme under which a fixed term plan series is offered can be
either closed –end or open-end. Some funds in India use a closed-end
structure, while others the open end structure, to offer term plans.
In any case, you can think of fixed term plans as a series of closed end
plans within a scheme. Like the closed-end funds, fixed term plans also
make only a one time offering of units, but such offering are made in a
series of plans under one scheme prospectus or offered documents. No
separate offer document is issued each time a new series is launched.
The scheme under which such fixed term plans are offered is likely to be
an income scheme, since the objective is clearly for the AMC to attempt
to reward investors with an expected return within a short period. Mutual
fund AMCs in India usually offering such plans do not guarantee any
returns, but the product has clearly been designed to attract the short
term investor who would otherwise place the money as fixed term bank
deposits or inter corporate deposit.
Equity Funds
As investors move from debt fund category to equity funds, they face
increased risk levels. However , there is a large variety of equity funds
and all of them are not equally risk prone .Investors and their advisor
need to short out and select the right equity fund that suits their risk
appetite. In the following section, we have presented the equity fund
types, going from the highest risk level to the lowest level within this
category.
Before we look at the equity fund types in terms of the risk level,
we must understand where the risks of equity funds come from and how
they are different from debt funds. Equity fund invest a major portion of
their corpus in equity shares issued by companies, accrued directly in
initial public offerings or through the secondary market. Equity funds
would be exposed to the equity price fluctuation risk at the market level,
at the industry or sector level and at the company specific level. Equity
funds’ net asset values fluctuate with all these price movements. These
price movements are caused by all kinds of external factors, political and
social as well as economic. The issuers of equity shares offer no
guaranteed repayment as in case of debt instruments. Hence, equity
funds are generally considered at the higher end of the risk spectrum
among all funds available in the market. On the other hand, on like debt
instruments are that offer fixed amounts of repayments; equity can
appreciate in value in line with the issuer’s earnings potential, and so
offer the greatest potential for growth in capital.
Equity funds adopt different investment strategies resulting in different
levels of risk. Hence, they are generally separated in to different types in
terms of their investment style.
A)Aggressive Growth Funds
There are many types of stocks/shares available in the market;

blue chips that are recognized market leaders, less researched
stocks that are considered to have future growth potential, and
even some speculative stocks that are considered to have future
growth potential, and even some speculative stocks of somewhat
unknown or unproven issuers. Fund managers seek out and
investment in different types of stocks in line with their own
perception of potential returns and appetite for risk.
As the name suggests, aggressive growth funds target

maximum capital appreciation, invest in less researched or
speculative shares and may adopt speculative investment
strategies to attain their objective of high returns for the investor.
Consequently, they tend to be more volatile and riskier than other
funds.
B) Growth funds
Growth funds invest in companies whose earnings are expected

to rise at an above average rate. These companies may be
operating in sectors like technology considered to have a growth
potential, but not entirely unproven and speculative. The primary
objective of growth funds is capital appreciation over a three to
five year span. Growth funds are therefore less volatile than funds
that target aggressive growth.UTI MasterShare 86 , UTI Equity
Fund, UTI Index Select Fund and UTI Masterplus are few
funds under UTI basket fall under this category.
C)Specialty Funds
These funds have a narrow portfolio orientation and invest in only

companies that meet pre-defined criteria. For example,Some
funds may build portfolios that will exclude Tobacco companies.
Funds that invest in particular regions such as the Middle East or
the ASEAN countries are also an example of specialty funds.
Within the specialty fund category, some funds may be broad
based in terms of the types of investments in the portfolio.
However, most specialty funds tend to be concentrated funds,
since diversification is limited to one type of investment. Clearly
concentrate specialty funds tend to be more volatile than
diversified funds.UTI Leadership Equity Fund as an example
having invested 65% in leaders of a sector.
C.i. Sector funds

Sector funds’ portfolios consist of investment in only one industry
or sector of the market such as information technology,
pharmaceuticals or fast moving consumer goods that have
recently been launched in India. Since sector funds do not
diversified into multiple sectors, they carry a higher level of sector
and company specific risk than diversified equity funds.UTI
Pharma& Healthcare Fund, UTI Banking Sector Fund are few
examples of the sector fund.
C.ii.Thematic Funds
These fund’s asset-allocation and investment-universe are

structured on a “theme”. Not as restrictive as sector funds, the
theme could run well across sectors, such UTI Infrastructure
Fund and UTI Services Fund.
C.iii. Offshore funds

These funds invest in equity in one or foreign countries there by
achieving diversification across the country’s borders. However
they also have additional risks-such as foreign exchange, rate
risk-and their performance depends on the economic conditions
of the countries they invest in. offshore equity funds may invest in
a single country(hence riskier) or many countries(hence more
diversified).India Fund, India Growth Fund, Colombus India
Fund are varieties of Offshore Funds UTI MF launched in
different times.
C.iv. Small-Cap equity funds`
These funds invest in shares of companies with relatively lower

market capitalization than that of big, blue chip companies. They
may thus be more volatile than other funds, as smaller companies
shares are not very liquid in the markets. We can think of these
funds as a segment of speciality funds. In terms of risk
characteristics, small company funds may be aggressive growth
or just growth type. In terms of investment style, some of these
funds may also be ”value investors”.
C.v. Option Income Funds
These funds do not yet exit in India, but option income funds write
options on a significant part of their portfolio. While options are
viewed as risky instruments, they may actually helped to control
volatility, if properly used. Conservative option funds invest in
large, dividend paying companies. And then sell options against
their stock positions. This ensures a stable income stream in the
form of premium income through selling options and dividend.
Now that options on individual shares have become available in
India, such funds may be introduced.
(D)Diversified Equity Funds
A fund that seeks to invest only on equities, except for a very

small portion in liquid money market securities, but is not focused
on any one or few sectors or shares, may be termed a diversified
equity fund. While exposed to all equity price risk diversified
equity fund seek to reduce the sector or stock specific risk
through diversification. They have mainly market risk expose.
Such general proposal proposes but diversified funds are clearly
at the lower risk level than the growth funds.UTI Mastershare,
UTI Masterplus, UTI Wealth Builder , UTI Master Growth, UTI
Contra Funds are the diversified equity funds.
D.i. Equity Linked Saving Schemes: an

Indian variant
In India, the investor have been given tax concessions to

encourage them to invest in equity markets through these special
schemes. Investment in these schemes entitles the investor to
claim an income tax rebate, but usually has a lock-in period
before the end of which funds cannot be withdrawn. These funds
are subject to the general SEBI investment guidelines for any
’equity’ funds, and would be in the diversified equity fund
category. However, as there are no specific restrictions on which
sectors these funds ought to invest in, investors should clearly
look for where the fund management company proposes to invest
and accordingly judge the level of risk involved.UTI is having UTI
Equity Tax Savings Plan in this category. This scheme
provides tax benefit under sec 80© of Income Tax Act
1961.The investments are locked for three years. Generally
these schemes are highly diversified equity funds invested
across the sectors of the economy.
E. Equity Index Fund

An Index fund tracks the performance of a specific stock market
index. The objective is to match the performance of the stock
market by tracking and index that represents the overall market.
The fund invests in shares that constitute the index and in the
same proportion as the index. Since they generally invest in a
diversified market index portfolio, these funds stake only the
overall market risk, while reducing the sector and stock specific
risks through diversification. In India the index funds generally
track NIFTY and BSE Sensex. UTI Master Index Fund is a
variety of equity Index Fund which tracks BSE Sensex. UTI
Nifty Index Fund is a variant of such fund tracks NIFTY.
These two funds are best of the Index funds in the Indian
Mutual Industry.
F. Value funds
The growth funds too reviewed above hold shares of companies

with good or improving profit prospects, and aim primarily at
capital appreciation. They concentrate on the future growth
prospects, may be willing to pay high price/earnings multiples for
companies considered to have good potential. In contrast to the
growth investing, other fund follow value investing approach.
Value funds try to seek out fundamentally sound companies
whose shares are currently under priced in the market. Value
funds will add only those shares to their portfolios that are selling
at low price earnings ratios, low market to book value ratios are
undervalued by other yardsticks.
Value funds have the equity market price fluctuation risk, but
stand often at a lower end of the risk spectrum in comparison with
the growth funds. Value stocks may be form a large number of
sectors and therefore diversified. However, value stocks often
come from cyclical industries.Price of such shares may fluctuate
more than the overall market in both bull and bear markets,
making such value funds more risky than diversified funds in the
short term. However, proponents of value investing recommend it
as a long term approach. In the long term, value funds ought to
be less risky than growth funds or even equity diversified
funds.UTI Master Value is a fund in its kind. It picks up the
stock considering its future potentials but undervalued today
to their intrinsic value and which will create wealth for the
various stake holders in the medium to long term .
Investment tools like low P/E, low P/Book Value and positive
EVA (Economic Value Added) will be used to identify these
type of stocks.
G) Equity Income funds
Usually income funds are in the debt funds category as they

target fixed income investment. However, there are equity funds
that can be designed to give the investor a high level of current
income along with some steady capital appreciation, investing
mainly in shares of companies with high dividend yields.
As an example an equity income fund would invest largely in

power/utility companies shares of established companies that pay
higher dividends and whose prices do not fluctuate as much as
other shares. These equity funds should therefore be less volatile
and less risky than nearly all other equity funds.
1.3.2.5. Hybrid Funds-Quasi Equity/quasi

Debt
WE have seen that in terms of the nature of financial securities
held, there are 3 major mutual fund types: money market, debt
and equity. Many mutual funds mix these different types of
securities in their portfolios. Thus, most funds, equity and debt,
always have some money market securities in their portfolios as
these securities offer the much needed liquidity. However, money
market holdings with constitute a lower proportion in the overall
portfolios of debt or equity funds. There are funds that, however,
seek to hold a relatively balanced a holding of debt and equity
securities in their portfolios. Such funds are termed “hybrid funds”
as they have a dual equity/bond focus. Some of the funds in this
category are described below.
a)Balanced Funds
A balanced fund is one that has portfolio comprising debt

instruments, convertible securities, preference and equity shares.
Their assets are generally held in more or less equal proportion
between debt/money market securities and equities. By investing
in mix of this nature, balanced funds seek to attain the objectives
of income moderate capital appreciation on preservation of
capital, and are ideal for investors with a conservative and long
term orientation.UTI Children Career Plan, UTI Retirement
Benefit Plan, UTI Mahila Unit Scheme, UTI ULIP Insurance
Plan are examples of debt oriented balanced funds. UTI
Balanced Fund is a equity oriented balanced Fund.
b)Growth-and-income funds
Unlike income focused or growth focused funds, these funds seek

to strike a balance between capital appreciation and income for
the investors. Their portfolios are a mix between companies with
good dividend paying record as and those with potential for
capital appreciation. These funds would be less risky than pure
growth funds, though more risky than income funds. UTI
Dividend Yield Fund is designed to provide medium to long
term capital gains and /or dividend distribution by investing
predominantly in equity and equity related instruments
which offer high dividend yield.
c) Asset allocation funds

Normally, an equity fund would have its primary portfolio in
equities most of the time. Similarly, a debt fund would not have
measure equity holdings. In other words their “asset allocation” is
predetermined within certain parameters.
However, there do exist funds that follow variable asset allocation

policies and move in and out of an asset class(equity, debt,
money market, or even non financial asset) depending upon their
outlook for specific markets. In many ways these funds have
objective similar to balanced funds and may seek to diversified
into foreign equities, gold and real estate backed securities in
addition to debt instruments, convertible securities, preference
and equity shares. Asset allocation funds that follow more stable
allocation policies ( which hold relatively fixed proportion of
specific categories) are more like balanced funds. On the other
hand, funds that follow more flexible allocation policies (which
vary their waiting depending upon the fund manager’s outlook)
are more akin to aggressive growth or speculative funds. The
former are for investors who prefer low risk and stable return. The
later carry higher risk and potential for higher return because of
the flexibility enjoyed by the fund managers.
1.3.2.6. Commodity Funds
While all of the debt/equity/money market funds invest in financial

assets, the mutual fund vehicle in suited for investment in any
other-for example-physical asset. Commodity funds specialize in
investing in different commodities directly or through shares or
commodity companies or through commodity futures contracts.
Specialized funds may invest in a single commodity or a
commodity group such as edible oils or grains, while diversified
commodities funds will spread their assets over many
commodities.
A most common example of commodity funds is the so-called

precious metal funds. Gold funds invest in gold , gold futures or
shares of gold mines. Other precious metals funds such as
platinum or silver are also available in other countries. They may
take expose to more than one metal to get some benefit of
diversification. In India a gold fun d may hold potential, given a
large public holdings and interest in gold. However, commodity
funds have not yet developed.
1.3.2.7. Real Estate funds

Specialized real estate funds would invest in real estate directly,
or may fund real estate developers, or lend to them, or buy
shares of housing finance companies or may even buy their
securities assets. The funds may have a growth orientation or
seek to give investors regular income. There has recently been
an initiative to offer such an income fund by the HDFC.
UTI LIQUID FUND
(An open end income scheme)
The investment objective of the scheme is to generate steady and

reasonable income,with low risk and high level of liquidity from a
portfolio of money market securities and high quality debt.The debt
securities of UTI liquid fund is 100% investment in CENTRAL
government securities,Treasury bills, Call money,Repos and money
market instruments.In normal circumstances atleast 65%of the total
portfolio will be invested in securities issued and created by the central
government.The minimum debt security in this fund is 0% and maximum
is 35%(including central government securities.The money market
instrument of UTI liquid fund is while no fixed allocation will normally be
made for investment in money market instrument, the investment in
money market instrument will be kept to the minimum generally to meet
the liquidity needs of the scheme.Here the minimum return is 65% and
maximum return is100%.
THE PLANS AND OPTIONS OF LIQUID FUND
1)uti-LIQUID CASH PLAN(REGULAR)

(i)icome
(ii)monthly
(iii) growth
2)UTI LIQUID CASH PLAN(INSTITUTIONAL)
(i)income-daily
-weekly
-monthly
(ii)growth
3)UTI-LIQUIDSHORT TERMPLAN(REGULAR)
(i)income
(ii)growth)
4)UTI LIQUID SHORT TERM PLAN(INSTITUTIONAL)
(i)income (reinvestment and payout option available)
(ii) growth
MINIMUM APPLICATION AMOUNT
1)UTI Liquid Cash Plan(Regular)-Rs. 1 lac

2)UTI Liquid short term plan(regular)-Rs.30,000
3)UTI Liquid cash plan(Institutional)-Rs.5 crore
4)UTI Liquid short term plan(institutional)- Rs. 1 crore
TAX TREATMENT
The tax treatment for the investors in UTI mutual fund will be as follows:
1) TAX BENEFITS /CONSEQUENCES TO

MUTUAL FUND:
UTI mutual fund is a mutual fund registered with SEBI and as such is
eligible for benefits under section 10(23D)of the Income Tax
Act,1961(hereafter referred to as “the Act” ) to have its entire income
exempt from income tax. The Mutual fund will receive all income
without any deduction of tax at source under the provision of Section
196 (iv) of the Act.
2)TAX BENEFITS /CONSEQUENCES TO UNIT HOLDERS:
A . Tax on income in respect of units:

As per the section 10(35) of Act, income received by investors
under the scheme of UTI Mutual Fund is exempt from income tax in the
hands of the recipient unit holders.
For the debt funds, income distribution tax shall be levied at
12.5% plus surcharge for distribution made to individuals or Hindu
Undivided Families and for any person at 20% plus surcharge w.e.f 9th
july 2004. Further, an additional surcharge of 2 % by way of education
cess would be charged on amount tax inclusive of surcharge.
TDS on income of units :

As per the provision of section 194K and section 196A of the Act
where any Income is credited or paid on or after 1 st April 2003,by a
mutual fund, no tax is required to be deducted at source.
B .Tax on capital gains:
i) Long term capital gains
 Resident Unit holders

Any long term capital gain arising on repurchase of units by
residents is subject to treatment indicated under section 48
and 112 of the income Tax Act1961.Long- Term capital
gains in respect of units held for more than 12 months is
chargeable tax @20% and the surcharge thereon after
factoring the benefit of cost inflation index or tax at the rate
of 10% and the surcharge thereon without indexation,
whichever is lower. In case of individuals ,HUF,AOP,BOI
having total income up to eight and a half lakhs, no
surcharge is leviable and aforesaid having income
excceding eight and half lakhs surcharge is calculated at the
rate of 10%of such income tax. In case Companies
surcharge is calculated at 2.5% of such income tax. Further,
an additional surcharge of 2% by way of educational cess
would be charged on amount of tax inclusive of surcharge.
 Non Resident Unit Holders
Under section 115E of the Income Tax Act,1961,in case of

income of non resident Indians by way of long term capital
gains in respect of units is chargeable at the rate of 20%
plus surcharge and education cess. The chapter exclusively
deals with taxation related to non-resident
Indians . It means other non-resident entities are not
covered. Under section 115 D of the Income Tax Act ,a non-
resident Indian can’t avail the benefit of indexation.
In the alternative the capital gains tax may be
computed by the non-residents under section 112, if it is
more beneficial to them. Under section 112 of the income
tax,1961 long term capital gains are taxed at the rate of
20%plus surcharge and education cess. The benefit of
indexation is also available to the non residents under
section 48 of the income tax act 1961. Gains on short term
capital asset are taxed as regular income.
 Foreign Institutional Investors
Long term capital gains on sale of Units would be taxed at

the rate of 10 % and short term capital gains would be taxed
at 30% as per Finance Act 2003.(Surcharge and
educational cess will have to be further computed on such
tax). Such gains ,in either case, would be calculated without
indexation of cost of acquisition as the first proviso and
second proviso to Section 48 do not apply to foreign
institutional investors by virtue of section 115AD(3) of the
Income Tax Act. The applicable rates would be increased by
applicable surcharge and the education cess on the
aggregate of tax and the surcharge so calculated
ii) Short term capital gains

Units held for not more than twelve months proceeding the
date of their transfer are short term capital assets. Capital gains arising
from the transfer of short term capital assets will be subject to tax at the
normal rates of tax applicable to such assessee.
C. TDS on capital gains
Resident Investors
As per Central Board of Direct Taxes (CBDT) circular No715 dated
8th August 1995, in case of resident unit holders no tax is required to be
deducted from Capital gains arising at the time of repurchase of
redemption of the units.
i) TDS for NRI for capital gains
 Long term capital gains
As per Part II of the First Schedule to the finance act

2004[Clause 1 (b) (i) (C)], the mutual fund is liable to deduct
tax @20%on long term capital gains.
 Short term capital gains
As per part II of the first schedule to the finance act

2004[clause 1(b)(i) G],the mutual is liable to deduct tax
@30% on short term capital gains.
The TDS will have to be increased by a surcharge of 10%
on short term capital gains arising to NRIs whose total
income during the year exceeds or likely to exceed Rs8.5
lacs. Further, an additional surcharge of 2% by way of
education cess would be changed on amount of tax
inclusive of surcharge.
 Foreign institutional investors

In case foreign institutional investors(FLLs) no tax would
be deductible at source from the capital gains arising on re-
purchase /redemption of units in view of the specific
provisions of sec 196D(2) of the act.
As per circular no 728 dated October 30,1995 issued by the
CBDT, in the case Of remittance to a country with which a
Double Taxation Avoidance Agreement (DTAA)is in force ,the
tax should be deducted at the rate provided in the Finance Act
of the relevant year or the rate provided in the DTAA,
whichever is more beneficial to the assessee. In order for the
unit holder to obtain the benefit of a lower rate available under
a DTAA ,the unit holder will be required to provide the Mutual
Fund with a certificate obtained from his Assessing Officer
stating his eligibility for the lower rate. Further , an additional
surcharge of 2% by way of education cess would be charged
on amount of tax inclusive of surcharge.
D. Short term Capital losses
According to section 94 (7) of the Act as amended by the Finance

(No.2) Act 2004 if any person buys or acquires units within a period of
three months prior to the record dated fixed for declaration of dividend or
distribution of income and sells or transfers the same within a period of
nine months from such record date ,then losses arising from such to the
extent of income received or receivable on such units, which are
exempt under the act, will be ignored for the purpose of computing his
income chargeable to tax.
Further, finance(No2)Act 2004 has inserted sub-section (8) in
section 94 which provides that , where additional units have been issued
to any person without any payment ,on the basis of existing units held by
such person then the loss on sale of original units shall be ignored for
the purpose of computing income chargeable to tax, if the original units
were acquired within 3 months prior to the record date fixed for receipt of
additional units held on the date of sale by such person .
E. Value of investment in units under the

scheme exempt from Wealth Tax
F. Investment in units of the Mutual Fund will
rank as eligible form of investment under
Section 11(5)of the Act read will rule 17C(i)of
the income tax rules,1962 for public Religious
and Charitable Trust.
G. The gift tax act, 1958 has abolished the levy

of Gift tax in respect of gifts made on or after
1st October 1998. Thus ,gifts of units on or after
1st October 1998 are exempted from Gift Tax.
Further, subject to certain exceptions ,gifts
from persons exceeding Rs 25,000/- are taxable
as income in the hands of donee on or after
1stSeptember 2004 pursuant to section 2(24)
(xiii) of the act read with section\ 56(2)(v) of the
Act.
UTI-Floating rate fund

(Open ended income scheem)
The investment object of UTI-floating rate fund is to generate regular

income through investment through portfolio comprising substantially of
floating rate debt / money market instruments, fixed rate debt /money
market instruments swapped for floating rate returns and fixed rate debt
securities and money market instruments.
Asset allocation
Instrument Normal Allocation (%to net

asset)
Fixed rate debt securities(including 0-35%
securitized debt ,money market
instruments and Floating Rate Debt
Instruments swapped for fixed rate
returns)
Floating rate debt securitize 65-100%
(including securitized debt ,money
market instruments and fixed rate
debt instruments swapped for
floating rate returns)
OPTION:
The UTI floating rate fund deals with 2(two) plans, those are: Short term
plan and long term plan. Each plan offers a Growth and a Dividend .
Under the dividend option of the Short Term plan dividend will be
compulsorily reinvested.
MINIMUM APPLICATION AMOUNT:
The minimum application is Rs 5000/- per application in multiples of Re

1/- thereafter under both the plans. Minimum account balance Rs 1000/-
under all the plans. Minimum redemption amount Rs 1000/- and in
multiples of Re 1/-
DIVIDEND POLICY:
Short Term Plan :Under short term plan the dividend option is
proposed to declare fortnightly, subject to availability of distributable
profit ,as computed in accordance with SEBI Regulations. Further the
trustee at its sole discretion may also declare interim dividend.
Dividends, if any ,declared will be paid twice in a month to those Unit
holders whose names appear in the Register of Unit holders. Under this
option on the 16th day and the last day of every month.
The dividend so declared shall be compulsory re-invested in the
Scheme by way of allotment of additional units at the price based on the
prevailing ex-dividend NAV per unit
Any such investment will be made without the payment of a load.
The AMC/ Trustee reserves the right to change the record date (i.e16th
day and last business day of each month)
Long Term Plan: Under the dividend option ,it is proposed to declare
quarterly dividend ,subject to availability of distributable profits as
computed in accordance with SEBI Regulations. Further the Trustee at
its sole discretion may also declare interim dividend.
TAX TREATMENT
1. TAX BENEFITS /CONSEQUENCES TO MUTUAL

FUND:
2. TAX BENEFITS /CONSEQUENCESTO UNIT

HOLDERS:
As per the section 10(35) of Act, income received by investors under

the scheme of UTI Mutual Fund is exempt from income tax in the hands
of the recipient unit holders.

As per the provision of section 194K and section 196A of the Act
where any Income is credited or paid on or after 1 st April 2003,by a
mutual fund, no tax is required to be deducted at source.
B. Tax on capital gains:


In the alternative the capital gains tax may be computed by
the non-residents under section 112, if it is more beneficial
to them. Under section 112 of the income tax,1961 long
term capital gains are taxed at the rate of 20%plus
surcharge and education cess. The benefit of indexation is
also available to the non residents under section 48 of the
income tax act 1961. Gains on short term capital asset are
taxed as regular income.


Units held for not more than twelve months proceeding the
date of their transfer are short term capital assets. Capital gains arising
from the transfer of short term capital assets will be subject to tax at the
Resident Investors
8th August 1995, in case of resident unit holders no tax is required to be
deducted from capital gains arising at the time of repurchase of
redemption of the units.


Foreign institutional investors
In case foreign institutional investors(FLLs) no tax would be deductible

at source from the capital gains arising on re-purchase /redemption of
units in view of the specific provisions of sec 196D(2) of the act.
As per circular no 728 dated October 30,1995 issued by the CBDT, in
the case of remittance to a country with which a Double Taxation
Avoidance Agreement (DTAA)is in force ,the tax should be deducted at
the rate provided in the Finance Act of the relevant year or the rate
provided in the DTAA, whichever is more beneficial to the assessee. In
order for the unit holder to obtain the benefit of a lower rate available
under a DTAA ,the unit holder will be required to provide the Mutual
Fund with a certificate obtained from his Assessing Officer stating his
eligibility for the lower rate.
Further , an additional surcharge of 2% by way of education cess

extent of income received or receivable on such units, which are exempt
under the act, will be ignored for the purpose of computing his income
chargeable to tax.
Further, finance(No2)Act 2004 has inserted sub-section (8) in section
94 which provides that , where additional units have been issued to any
person without any payment ,on the basis of existing units held by such
person then the loss on sale of original units shall be ignored for the
purpose of computing income chargeable to tax, if the original units were
acquired within 3 months prior to the record date fixed for receipt of




as income in the hands of donee on or after 1st
September 2004 pursuant to section 2(24)(xiii)
of the act read with section\ 56(2)(v) of the Act.
TREASURY ADVANTAGE FUND

Investment Object: The investment object of Treasury
Advantage Fund is to generate reasonable return commensurate with
objective of low risk and high degree of liquidity
Asset Allocation Pattern of the Scheme:
Types of Money Market and Debt Securities

instruments Government Securities (including Securitized
including Cash /Call debt)
Money
Indicative 65 % - 100% 0% - 35%
allocation (% of
net assets)under
normal
circumstances
OPTION:
The options of treasury advantage fund are growth fund, dividend fund,
institutional plan with growth and dividend short term maturity plans.
MINIMUM APPLICATION AMOUNT:
The minimum application amount of treasury fund is Rs 10,000/- and in

multiples of Re 1, 00,000/- and in multiples Re 1/- for dividend plan. Rs
1core and in multiples of Rs 10,000 /- for institutional plans. Minimum
subsequent amount in multiples of Re 1/, subject to a minimum of Rs
1000 /-. For institutional plans amount must be multiple of 1000/- and
minimum amount must be Rs 25 lacs.
DIVIDEND POLICY:
Under the dividend policy of the treasury fund the scheme envisages
declaration of dividend on a daily basis. Such dividend would be
compulsorily re-invested in the said plan vide allotment of fresh units.
EXPENSES OF THE SCHEME LOAD STRUCTURE :
Under Treasury advantage Fund the entry load is NIL and exit load is
also NIL
RECURRING EXPENSES:
Presently the total recurring expenses that can be charged to the
scheme will not exceed 0.90%/1.10% per annum of the average daily
net asset under the Institutional Plan /Other plans respectively.
Expenses over and above 0.90%p.a/1.10% shall be borne by AMC. In
case any fresh levies are introduced in future, the scheme may be
decide to change the above expenses limit. How ever any such change
in the limit of the expenses to be charged to the scheme shall be
effected only in accordance with the SEBI Regulations.
TAX TREATMENT
3. TAX BENEFITS /CONSEQUENCES TO MUTUAL

FUND:
4. TAX BENEFITS /CONSEQUENCESTO UNIT

HOLDERS:

As per the section 10(35) of Act, income received by investors
under the scheme of UTI Mutual Fund is exempt from income tax in the
hands of the recipient unit holders.
As per the provision of section 194K and section 196A of the Act where
any Income is credited or paid on or after 1st April 2003,by a mutual
fund, no tax is required to be deducted at source.
C. Tax on capital gains:


In the alternative the capital gains tax may be computed by
the non-residents under section 112, if it is more beneficial
to them. Under section 112 of the income tax,1961 long
term capital gains are taxed at the rate of 20%plus
surcharge and education cess. The benefit of indexation is
also available to the non residents under section 48 of the
income tax act 1961. Gains on short term capital asset are
taxed as regular income.

Units held for not more than twelve months proceeding the date of their
transfer are short term capital assets. Capital gains arising from the
transfer of short term capital assets will be subject to tax at the
Resident Investors

8th August 1995, in case of resident unit holders no tax is required
to be deducted from Capital gains arising at the time of
repurchase of redemption of the units.


Foreign institutional investors
In case foreign institutional investors(FLLs) no tax would be deductible

at source from the capital gains arising on re-purchase /redemption of
units in view of the specific provisions of sec 196D(2) of the act.
As per circular no 728 dated October 30,1995 issued by the CBDT, in
the case Of remittance to a country with which a Double Taxation
Avoidance Agreement (DTAA)is in force ,the tax should be deducted at
the rate provided in the Finance Act of the relevant year or the rate
provided in the DTAA, whichever is more beneficial to the assessee. In
order for the unit holder to obtain the benefit of a lower rate available
under a DTAA ,the unit holder will be required to provide the Mutual
Fund with a certificate obtained from his Assessing Officer stating his
eligibility for the lower rate.Further , an additional surcharge of 2% by
way of education cess would be charged on amount of tax inclusive of
surcharge.

extent of income received or receivable on such units, which are
exempt under the act, will be ignored for the purpose of computing his
income chargeable to tax.
Further, finance(No2)Act 2004 has inserted sub-section (8) in section
94 which Provides that , where additional units have been issued to
any person without any payment ,on the basis of existing units held by
such person then the loss on sale of original units shall be ignored for
the purpose of computing income chargeable to tax, if the original units
were acquired within 3 months prior to the record date fixed for receipt of



as income in the hands of donee on or after 1st
September 2004 pursuant to section 2(24)(xiii)
of the act read with section\56(2)(v) of the Act.
Liquid fund: A Few Important Notes
Liquid fund means anything that is almost as good as cash. Real estate
is one of the most liquid asset to have and a saving deposit is the most
liquid.
Next would be a sweep account that allows you to use your fixed
deposit money as cash when you want it.
How ever, if anybody is able to wait for a day between the need for
cash and its supply, there is a mutual fund product that anybody can buy
which works to the person’s advantage. These are called money market
or liquid funds since they are almost as good as having cash and they
because invest in what is called the money market.
Money market:
Money market is a market for short term borrowing and lending. Over
night, two day, ten day, a month, paper is what bought and sold. The
product that are bought and sold are certificate of deposits commercial
papers ,treasury bills.
Definition of liquid fund:
 Debt funds that work in money markets

 Short term parking place for cash
 Low risk MFs
The essence of liquid fund:
If one is in the highest tax bracket ,they are just more tax efficient and
that stacks up as higher post tax returns. Most liquid funds charge no
entry or exit load on existing in less than six months but that are rare
and between. The annual management fee also very reasonable up to
0.70 %.
Most importantly, they are very easy to liquidate and one get his money
back in one day of sending a redemption request and most liquid funds
have a minimum investment amount of 5000 rupees; so they are fairly
accessible to all investors.
The advantage of liquid fund:
 Tax advantage
 Zero entry and exit
 Low annual fee of 0.30 to 0.70%
 Redemption time 1 day
 Minimum investment Rs 5000
These funds have a specific purpose in one’s portfolio. They can be

used to park short term cash. Suppose one is saving up to make an
insurance premium payment in 6 months and one need a vehicle that
will take one till there with a systematic plan. One can use these funds to
target a sure-thing payment that is less than a year. It can be used to
target a down payment for a house that is due less than a year away.
So, one way is to use them as a vehicle to target a certain lump sum
investment.
Now, suppose one has a lump sum and he wants to target
staggered investing. He can again also use liquid fund to do that.
The usefulness of Liquid fund:
 Park short term money

 Bucket to hold money for staggered investment
 Use systematic transfer plans
Before we move on to examine whether they are make really better

investment sense than short term FDs, let’s look at how they differ from
other categories of debt funds.
The most popular long term category of debt funds popularly known
as income or bond funds have much longer tenure liquid funds and
therefore have potentially more downside as also higher returns. Those
are funds we recommend you look at with at least 18 months plus
investment horizon or even longer.
Income funds primarily invest indifferent, albeit longer-tenured
instruments like corporate bonds and government securities.
Then there is one more category of long tenure but very safe funds and
that’s the gilt funds; these invest primarily only primarily only in
government securities.
Liquid Fund Vs Debt Funds:
Income /Debt funds serve longer Tenor which is exposed to interest

rate/
Liquid funds have short term tenor which is less affected by the moment
of interest rate/inflation.
Liquid Funds Vs FDs:

(i) FDs fetch liquid fund fetch higher taxes, where as Liquid funds fetch
less taxes.
(ii) The short term return in liquid funds have an edge over short term
return in FDs.

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Summer Training Report

“ UTI Mutual Fund & Treasury

UTI Mutual Fund

Under the Guidance of

ACADEMY OF MANAGEMENT STUDIES

I hereby declare that this Project Report entitled “Analysis of

Before going to the thick of things I would like to add some

A mutual fund is a common pool of money into which

The UTI Asset Management Company provides professionally

UTI have a well-qualified, professional fund management team, who

UTIMF has consistently reset and upgraded transparency standards. All

 To know the performance of funds in the market in comparison of

 To know the advantages of Mutual Fund for different age of

 To know the advantages of Systematic Investment Plan and

 To know about all those calculations of Fund and BSE

Unit Trust of India (UTI), set up as a statutory corporation under Unit

UTI has been established “with a view to encourage savings and

2)Contributing to India’s industrial development by channelizing

3)Facilitating orderly development of the capital market.

UTI’s first scheme UNIT SCHEME 1964 commenced its operation on 1 st

In 2003 the structure of UTI has undergone a change.UTI has divided

THE MISSION OF UTI MUTUAL FUND

 The most trusted brand, admired by all stake holders.

SOURCES AND METHODS

 Identifying and defining problems and opportunities.

 Collection of secondary data from books, magazines, web

 Analysis of those secondary data.

 Evaluating the and interpreting the results.

 Putting results in the form of charts and in calculation modes.

 Analysis of those charts.

ADVANTAGES AND DISADVANTAGES OF MUTUAL

A mutual fund is a common pool of money into which investors places

ADVANTAGES OF MUTUAL FUND

If mutual funds are emerging as the favorite investment vehicle, it is

 Professional management: Even if an investor has a

 Reduction/Diversification of risk: An investor in a

 Reduction of transaction costs: What is true of risk is

 Convenience and flexibility: Mutual fund management

DISADVANTAGES OF INVESTING THROUGH

 No control over costs: an investor in a mutual fund has any

 No tailor-made portfolios: Investors who invest on their own

 Managing a portfolio of funds: Availability of a large number of

There are many types of mutual funds available to the investors.

Open-end Vs. Closed-end Funds

An open-end fund is not obliged to keep selling/issuing new units at all

Load and No-load funds

Marketing of a new mutual fund scheme involves initial expenses. These

2) By charging the fund/scheme with a fixed amount each year, during

3) At the time of the investor’s exit from the fund/scheme, by deducting a

Tax-exempt Vs. Non-Tax-exempt Funds

Generally, when a fund invest in tax-exempt securities, it is called a tax

Mutual Fund Types

All mutual funds would be either closed-end or open-end, and either

A) Board Fund Types by Nature of Investments

Mutual funds may invest in equities, bonds or other fixed income

B) Board Fund Types by Investment objective

C) Broad Fund Types by Risk Profile

Money Market Funds

Gilts are government securities with medium to long term maturities,

Debt Funds or Income Funds

Debt funds are largely considered as income funds as they

a)Diversified debt funds

b) Focused Debt Funds