INDUSTRY PROFILE

The mutual fund industry is a lot like the film star of the finance business. Though it is perhaps the smallest segment of the industry, it is also the most glamorous in that it is a young industry where there are changes in the rules of the game everyday, and there are constant shifts and upheavals. The mutual fund is structured around a fairly simple concept, the mitigation of risk through the spreading of investments across multiple entities, which is achieved by the pooling of a number of small investments into a large bucket. Yet it has been the subject of perhaps the most elaborate and prolonged regulatory effort in the history of the country. A little history: The mutual fund industry started in India in a small way with the UTI Act creating what was effectively a small savings division within the RBI. Over a period of 25 years this grew fairly successfully and gave investors a good return, and therefore in 1989, as the next logical step, public sector banks and financial institutions were allowed to float mutual funds and their success emboldened the government to allow the private sector to foray into this area. The initial years of the industry also saw the emerging years of the Indian equity market, when a number of mistakes were made and hence the mutual fund schemes, which invested in lesser-known stocks and at very high levels, became loss leaders for retail investors. From those days to today the retail investor, for whom the mutual fund is actually intended, has not yet returned to the industry in a big way. But to be fair, the industry too has focused on brining in the large investor, so that it can create a significant base corpus, which can make the retail investor feel more secure. The Indian MF industry has Rs 5.67 lakh crore of assets under management. As per data released by Association of Mutual Funds in India, the asset base of all mutual fund combined has risen by 7.32% in April, the first month of the current fiscal. As of now, there are 33 fund houses in the country including 16 joint ventures and 3 whollyowned foreign asset managers. According to a recent McKinsey report, the total AUM of the Indian mutual fund industry could grow to $350-440 billion by 2012, expanding 33% annually. While the revenue and profit (PAT) pools of Indian AMCs are pegged at $542 million and $220 million respectively, it is at par with fund

houses

in developed economies. Operating profits for AMCs in India, as a

percentage of average assets under management, were at 32 basis points in 200607, while the number was 12 bps in UK, 17 bps in Germany and 18 bps in the US, in the same time frame. History The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be broadly divided into four distinct phases: First Phase 1964-87 An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. Fourth Phase since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

GROWTH OF MUTUAL FUND INDUSTRY IN INDIA While the Indian mutual fund industry has grown in size by about 320% from March, 1993 (Rs. 470 billion) to December, 2004 (Rs. 1505 billion) in terms of AUM, the AUM of the sector excluding UTI has grown over 8 times from Rs. 152 billion. Though India is a minor player in the global mutual fund industry, its AUM as a proportion of the global AUM has steadily increased and has doubled over its levels in 1999. The growth rate of Indian mutual fund industry has been increasing for the last few years. It was approximately 0.12% in the year of 1999.

Some facts for the growth of mutual funds in India

100% growth in the last 6 years. Number of foreign AMCs is in the queue to enter the Indian markets. Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion. Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products. SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Trying to curb the late trading practices. Introduction of Financial Planners who can provide need based advice.

The main broking firms working in India :-

Angel Trade - Part of Angel Group The Angel Group has emerged as one of the top 5 retail stock broking houses in India, having memberships on BSE, NSE and the two leading commodity exchanges in the country i.e. NCDEX and MCX. Angel Broking Ltd is also registered as a depository participant with CDSL.web site url : http://www.angeltrade.com/ Reliance Money Reliance Money is part of the Reliance Anil Dhirubhai Ambani Group and promoted by Reliance Capital, the fastest growing private sector financial service company in India. Reliance Money, the Broking and Distribution arm of Reliance Capital provides a single window platform for transacting in a wide range of asset classes, including Equity, Equity & Commodity Derivatives, IPOs, Mutual Funds, Life & General Insurance, Money Changing and Money Transfer, Gold Coins amongst others.web site url http://www.reliancemoney.com Anand Rathi Securities Ltd Anand Rathi Securities provides financial and advisory services including wealth management, investment banking, corporate advisory, brokerage & distribution of equities, commodities, mutual funds and insurance - all of which are supported by powerful research teams.web site url : http://www.rathi.com/ ICICI Direct ICICI Direct Online share and mutual funds trading facility by the ICICI group.web site url : http://www.icicidirect.com/ India Bulls Indiabulls is Indias leading retail financial services company with 70 locations spread across 62 cities. While our size and strong balance sheet allow us to provide you with

varied products and services at very attractive prices, our over 450 Client Relationship Managers are dedicated to serving your unique needs.web site url : http://www.indiabulls.com/ Motilal Oswal Motilal Oswal One of the top-3 stock-broking houses in India, with a dominant position in both institutional and retail broking, MOSt is amongst the best-capitalized firms in the broking industry in terms of net worth. Company was founded in 1987 as a small sub-broking unit, with just two people running the show. Focus on customerfirst-attitude, ethical and transparent business practices, respect for professionalism, research-based value investing and implementation of cutting-edge technology have enabled it to blossom into a thousand-member team. web site url : http://www.motilaloswal.com

Investment
The dictionary meaning of investment is to commit money in order to earn a financial return or to make use of the money for future benefits or advantages. People commit money to investments with an expectation to increase their future wealth by investing money to spend in future years. For example, if you invest Rs. 1000 today and earn 10 %over the next year, you will have Rs.1100 one year from today. An investment can be described as perfect if it satisfies all the needs of all investors. So, the starting point in searching for the perfect investment would be to examine investor needs. If all those needs are met by the investment, then that investment can be termed the perfect investment. Most investors and advisors spend a great deal of time understanding the merits of the thousands of investments available in India. Little time, however, is spent understanding the needs of the investor and ensuring that the most appropriate investments are selected for him.

The Investment Needs of an Investor

By and large, most investors have eight common needs from their investments: 1. Security of Original Capital; 2. Wealth Accumulation; 3. Comfort Factor; 4. Tax Efficiency; 5. Life Cover; 6. Income; 7. Simplicity; 8. Ease of Withdrawal; 9. Communication.

Security of original capital: The chance of losing some capital has been a primary need. This is perhaps the strongest need among investors in India, who have suffered regularly due to failures of the financial system. Wealth accumulation: This is largely a factor of investment performance, including both short-term performance of an investment and long-term performance of a portfolio. Wealth accumulation is the ultimate measure of the success of an investment decision. Comfort factor: This refers to the peace of mind associated with an investment. Avoiding discomfort is probably a greater need than receiving comfort. Reputation plays an important part in delivering the comfort factor. Tax efficiency: Legitimate reduction in the amount of tax payable is an important part of the Indian psyche. Every rupee saved in taxes goes towards wealth accumulation. Life Cover: Many investors look for investments that offer good return with adequate life cover to manage the situations in case of any eventualities. Income: This refers to money distributed at intervals by an investment, which are usually used by the investor for meeting regular expenses. Income needs tend to be fairly constant because they are related to lifestyle and are well understood by investors. Simplicity: Investment instruments are complex, but investors need to understand what is being done with their money. A planner should also deliver simplicity to investors. Ease of withdrawal: This refers to the ability to invest long term but withdraw funds when desired. This is strongly linked to a sense of ownership. It is normally triggered by a need to spend capital, change investments or cater to changes in other needs. Access to a long-term investment at short notice can only be had at a substantial cost.

Communication: This refers to informing and educating investors about the purpose and progress of their investments. The need to communicate increases when investments are threatened. 1: Security of original capital is more important when performance falls. 2: Performance is more important when investments are performing well. 3: Failures engender a desire for an increase in the comfort factor.

Perfect investment would have been achieved if all the above-mentioned needs had been met to satisfaction. But there is always a trade-off involved in making investments. As long as the investment strategy matches the needs of investor according to the priority assigned to them, he should be happy. The Ideal Investment strategy should be a customized one for each investor depending on his risk-return profile, his satisfaction level, his income, and his expectations. Accurate planning gives accurate results. And for that there must be an efficient and trustworthy roadmap to achieve the ultimate goal of wealth maximization. Choosing the Right Investment Options After understanding the concept of investment, the investors would like to know how to go about the task of investment, how much to invest at any moment and when to buy or sell the securities, This depends on investment process as investment policy, investment analysis, valuation of securities, portfolio construction and portfolio evaluation and revision. Every investor tries to derive maximum economic advantage from his investment activity. For evaluating an investment avenues are based upon the rate of return, risk and uncertainty, capital appreciation, marketability, tax advantage and convenience of investment. The following Table should give the clear picture relating to the investors investment decisions in various financial market instruments. The choice of the best investment options will depend on personal circumstances as well as general market conditions. For example, a good investment for a long-term retirement plan may not be a good investment for higher education

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expenses.In most cases, the right investment is a balance of three things: Liquidity, Safety and Return.

Investment Options in India

Fixed Deposits They cover the fixed deposits of varied tenors offered by the commercial banks and other non-banking financial institutions. These are generally a low risk prepositions as the commercial banks are believed to return the amount due without default. By and large these FDs are the preferred choice of risk-averse Indian

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investors who rate safety of capital & ease of investment above all parameters. Largely, these investments earn a marginal rate of return of 6-8% per annum. Government Bonds The Central and State Governments raise money from the market through a variety of Small Saving Schemes like national saving certificates, Kisan Vikas Patra, Post Office Deposits, Provident Funds, etc. These schemes are risk free as the government does not default in payments. But the interest rates offered by them are in the range of 7% - 9%. Money-back insurance - Insurance in India is mostly sold and bought as investment products. They are preferred because of their add-on benefits like financial life-cover, tax-savings and satisfactory returns. Even if one does not manage to save money and invest regularly in financial instruments, with insurance, the policyholder has no choice. If he does not pay his premiums on time, his insurance cover will lapse. Money-back Insurance schemes are used as investment avenues as they offer partial cash-back at certain intervals. This money can be utilized for childrens education, marriage, etc. Endowment Insurance These policies are term policies. Investors have to pay the premiums for a particular term, and at maturity the accrued bonus and other benefits are returned to the policyholder if he survives at maturity. Bullion Market Precious metals like gold and silver had been a safe heaven for Indian investors since ages. Besides jewellery these metals are used for investment purposes also. Since last 1 year, both Gold and Silver have highly appreciated in value both in the domestic as well as the international markets. In addition to its attributes as a store of value, the case for investing in gold revolves around the role it can play as a portfolio diversifier. Stock Market Indian stock markets particularly the BSE and the NSE, had been a preferred destination not only for the Indian investors but also for the Foreign investors. Although Indian Markets had been through tough times due to various scams, but history shows that they recovered very fast. Many types of scrip had been value creators for the investors. People have earned fortunes from the stock markets,

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but there are people who have lost everything due to incorrect timings or selection of fundamentally weak companies. Real Estate- Returns are almost guaranteed because property values are always on the rise due to a growing world population. Residential real estate is more than just an investment. There are more ways than ever before to profit from real estate investment. Mutual Funds - There is a collection of investors in Mutual funds that have professional fund managers that invest in the stock market collectively on behalf of investors. Mutual funds offer a better route to investing in equities for lay investors. A mutual fund acts like a professional fund manager, investing the money and passing the returns to its investors. All it deducts is a management fee and its expenses, which are declared in its offer document. Unit Linked Insurance Plans - ULIPs are remarkably alike to mutual funds in terms of their structure and functioning; premium payments made are converted into units and a net asset value (NAV) is declared for the same. In traditional insurance products, the sum assured is the corner stone; in ULIPs premium payments is the key component.

INVESTMENTS AVENUES:-

There are various investments avenues provided by a country to its people depending upon the development of the country itself. The developed countries like the USA and the Japan provide variety of investments as compared to our country. In India before the post liberalization era there were limited investments avenues available to the people in which they could invest. With the opening up of the economy the number of investments avenues have also increased and the quality of the investments have also improved due to the use of the professional activity of the players involved in this segment. Today investment is no longer a process of trial and

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error and it has become a systematized process, which involves the use of the professional investment solution provider to play a greater role in the investment process. Earlier the investments were made without any analysis as the complexity involved the investment process were not there and also there was no availability of variety of instruments. But today as the number of investment options have increased and with the variety of investments options available the investor has to take decision according to his own risk and return analysis.

INVESTMENT FACTOR
The motive behind our investments is to make money and increase our monetary wealth. With so many factors involved, investment decision is a complex one. Small investors often go with their gut feelings when trying to choose among numerous alternatives to invest. Big investors use various analyzing techniques. Globalization and the growth of internet have introduced many new opportunities and threats to ponder upon. When investing, you are committing your assets for sometime, that is why you need to cover all aspects before making an investment decision. Expected Return: The most basic investment decisions revolve around the comparison of expected return and risk involved. No investor will take on higher risk if there is no chance of equally higher returns. Investors strive to reach on the best trade-off point between risk and return which go well with their financial requirements. These expected returns are not always equal to what an investor actually gets after some time. The possibility that actual return will not be the same what they expect is called risk.

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Risk factor: There is hardly some form of investment which doesn't involve risk. Government securities come close to be called risk free; but even they have some risks attached to them. Risk actually is the balancing factor of the financial markets. Various types of investment risk exist, such as financial risk, currency risk, inflation risk or capital risk are the most common one. Different investors react differently to these risks. While majority of the investors are risk averse, there are some investors who are seeking more risky ones with expectations of higher yields. Investors Hunch: Every investor will finish off with a different conclusion although the market, economy and all statistical facts and figures are same for everyone. This difference comes from the investor's intuition. Some will start from research; by collecting lots of information and then analyzing to decide, others start from defining their objectives and then going for opportunities that suit their needs. Globalization factor: Investors have slowly started to realize the advantages of international investments. Some emerging markets present better returns while other stable markets provide lesser risks. Investors have often conquered risk by diversification, and an international market provides more opportunities to achieve portfolio diversification as compared to a local market. Ignoring global markets for investment is turning your back on a whole new world of opportunities. Age Factor: It will be wrong if I say age is not an important factor when it comes to insurance or investments because age is the most important factor. Every investor has his or her own strategy, style and risk tolerance. Obviously no one investment will be appropriate for everyone. Have you ever considered that certain investments may be

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more or less suitable for your portfolio based on your age? Below is an overview to help you identify investment opportunities according to your stage in life. Risk When we talk about investments and consider the age factor, it all boils down to risk. Weve all heard the old clinch? About greater risk bringing greater rewards. On the other hand, it can also result in greater loss. So as we define which types of investments are appropriate at each stage of the human life cycle, we do it within the framework of risk level involved.

BEHAVIOUR FINANCE

A field of finance that proposes psychology-based theories to explain stock market anomalies. Within behavioral finance, it is assumed that the information structure and the characteristics of market participants systematically influence individuals' investment decisions as well as market outcomes. Behavioral Finance, a study of investor market behavior that derives from psychological principles of decision making, to explain why people buy or sell the stocks they do. Behavioral finance is a new subject in the field of finance and is very popular in stock markets across the world for investment decisions. However, in India, this subject is not used too much in the stock market. But Mr Parag Parikh, Chairman of Parag Parikh Financial Advisory Financial Services, has been applying the concept of behavioral finance while investing in the stock market. Mr. Parikh, who has studied behavioral finance at Harvard University, shares his views and experiences on this emerging field. Behavioral Finance focuses upon how investors interpret and act on information to make informed investment decisions. Investors do not always behave in a rational, 16

predictable and an unbiased manner indicated by the quantitative models. Behavioral finance places an emphasis upon investor behavior leading to various market anomalies. "Behavioral Economics is the combination of psychology and economics that investigates what happens in markets in which some of the agents display human limitations and complications. We begin with a preliminary question about relevance. Does some combination of market forces, learning and evolution render these human qualities irrelevant? No. Because of limits of arbitrage less than perfect agents survive and influence market outcomes. We then discuss three important ways in which humans deviate from the standard economic model. Bounded rationality reflects the limited cognitive abilities that constrain human problem solving. Bounded willpower captures the fact that people sometimes make choices that are not in their long-run interest. Bounded self-interest incorporates the comforting fact that humans are often willing to sacrifice their own interests to help others. We then illustrate how these concepts can be applied in two settings: finance and savings. Financial markets have greater arbitrage opportunities than other markets, so behavioral factors might be thought to be less important here, but we show that even here the limits of arbitrage create anomalies that the psychology of decision making helps explain. Since saving for retirement requires both complex calculations and willpower, behavioral factors are essential elements of any complete descriptive theory." "Behavioral finance and behavioral economics are closely related fields which apply scientific research on human and social cognitive and emotional biases to better understand economic decisions and how they affect market prices, returns and the allocation of resources."

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Investor Behavior The behavior of investors has been well documented; there are numerous theories that attempt to explain the regret and overreaction that buyers and sellers experience when it comes to money and the potential gains and losses on that money. Investors' psyche overpowers rational thinking during times of stress, whether that stress is a result of euphoria or fear. The typical non-professional investor is putting his hard-earned cash at stake and, while hoping for a gain, wants to protect that cash against losses. Investors get investment "information" from many sources, such as mainstream media, financial news, friends, family and co-workers. Oftentimes investors get enticed by the market during periods of market calm (low volatility) and prolonged bull markets. Bull markets are periods when the market tends to go up indiscriminately. During such times of market exuberance, investors tend to listen to stories from friends or family members about how much money they are making in the market, creating a stir and compelling those not invested to test the waters. Likewise, when investors read stories about a bad economy or hear reports about a volatile or negative market period, fear takes over and they sell at the bottom. (Not all investors are mentally prepared for when a much-awaited bull market finally comes charging in. Bad Timing The lag between when an event occurs and when it is reported is what typically causes investors to lose money. The media will report a bull market only once it has already hit; unless the trend continues, stocks will retract in upcoming periods. Investors, influenced by the reports, often choose these times of premium valuations to build up their portfolios. It is worrisome when the daily stock market report leads off the mainstream news because it creates a buzz and investors make decisions based on "opinions" that are often outdated. Market uncertainty creates fear and brings about an atmosphere of emotional investing.

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Time Tested Theory The theory that many market participants buy at the top and sell at the bottom has proved to be true based on historical money flow analysis. Money flow analysis looks at the net flow of funds for mutual funds. Over a period from 1988 through 2009, money flow analysis showed that when the market hit its peak or valley, money flows were at the highest levels. Money continued to flow into funds until the market hit bottom, and only then did investors start to pull money out of the market and money flows turned negative. The net outflows peaked at market bottoms and continued to be negative even as the market moved into an upward trend. Because the market was shown to fall before funds were sold, and funds were often reinvested after the market had already moved up, its clear that investors often fail to time their trades in the most beneficial manner.

A Bright Spot Despite the strong tendencies that investors portray at the peaks and valleys, they have gotten other periods correct. Throughout the 1990s, there was a steady flow of funds into the market during a period when the market was on a prolonged bull run. Likewise from 2004 to 2007, during another strong bull market, investors poured money into the market. So it can be hypothesized that during periods of very little volatility (such as prolonged bull markets), investors become more comfortable in the market and begin to invest. However, during periods of volatility, or when bull or bear markets begin and end regularly, money flows tend to reflect confusion and the timing of the flows becomes mismatched with actual market movement.

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Strategies to Take the Emotion Out of Investing A 2009 study of investment behavior by DALBAR showed that over the 20-year period from January 1989 to December 2008, the S&P 500 returned an average annual 8.4% but the average stock investor returned only 1.9% annually. The evidence suggests that emotional investing gets the best of the typical investor during periods of uncertainty. There are strategies, however, that can alleviate the guesswork and reduce the effect of poorly timing fund flows. The most effective tends to be the dollar-cost averaging of investment dollars. Dollar cost averaging is a strategy where equal amounts of dollars are invested at a regular, predetermined interval. This strategy is good during all market conditions. During a downward trend, investors are purchasing shares at cheaper and cheaper prices. During an upward trend, the shares previously held in the portfolio are producing capital gains and fewer shares are being added at the higher price. The key to this strategy is to stay the course- set the strategy and don't tamper with it unless a major change warrants revisiting and rebalancing the established course. (There is more than one way to work this strategy. Another technique to diminish the emotional response to market investing is to diversify a portfolio. There have been only a handful of times in history when all markets have moved in unison and diversification provided little protection. In most normal market cycles, the use of a diversification strategy provides downward protection. Diversifying a portfolio can take many forms investing in different industries, different geographies, and different types of investments and even hedging with alternative investments like real estate and private equity. There are distinctive market conditions that favor each of these subsectors of the market, so a portfolio made up of all these various types of investments should provide protection in a range of market conditions.

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What behavioral finance is and how it works?

Behavioral finance is the study of investors' psychology while making financial decisions. Investors fall prey to their own and sometimes others' mistakes due to the use of emotions in financial decision-making. Behavioral finance tries to understand how people forget fundamentals and make investments based on emotions.

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Mutual Fund

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The one investment vehicle that has truly come of age in India in the past decade is mutual funds. Today, the mutual fund industry in the country manages around Rs 329,162 crore (As of Dec, 2006) of assets, a large part of which comes from retail investors. And this amount is invested not just in equities, but also in the entire gamut of debt instruments. Mutual funds have emerged as a proxy for investing in avenues that are out of reach of most retail investors, particularly government securities and money market instruments. Specialization is the order of the day, be it with regard to a schemes investments objective or its targeted investment universe. Given the plethora of options on hand and the hard-sell adopted by mutual funds vying for a piece of your savings, finding the right scheme can sometimes seem a bit daunting. Mind you, its not just about going with the fund that gives you the highest returns. Its also about managing risk finding funds that suit your risk appetite and investment needs. So, how can you, the retail investor, create wealth for yourself by investing through mutual funds? To answer that, we need to get down to brass tackswhat exactly is a mutual fund? Very simply, a mutual fund is an investment vehicle that pools in the monies of several investors, and collectively invests this amount in either the equity market or the debt market, or both, depending upon the funds objective. This means you can access either the equity or the debt market, or both, without investing directly in equity or debt

Concept of a Mutual Fund A Mutual Fund is a trust that pools the savings of a number of investors whon 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 realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is

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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:-

Savings form an important part of the economy of any nation. With savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents multiple avenues to the investors. Though certainly not the best or deepest of markets in the world, it has ignited the growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings. Investment goals vary from person to person. While somebody wants security, others might give more weightage to returns alone. Somebody else might want to plan for his childs education while somebody might be saving for the proverbial rainy day or even life after retirement. With objectives defying any range, it is obvious that the products required will vary as well.

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Investors earn from a Mutual Fund in three ways: 1. Income is earned from dividends declared by mutual fund schemes from time to time. 2. If the fund sells securities that have increased in price, the fund has a capital gain. This is reflected in the price of each unit. When investors sell these units at prices higher than their purchase price, they stand to make a gain. 3. If fund holdings increase in price but are not sold by the fund manager, the fund's unit price increases. You can then sell your mutual fund units for a profit. This is tantamount to a valuation gain. Though still at a nascent stage, Indian MF industry offers a plethora of schemes and serves broadly all type of investors. The range of products includes equity funds, debt, liquid, gilt and balanced funds. There are also funds meant exclusively for young and old, small and large investors. Moreover, the setup of a legal structure, which has enough teeth to safeguard investors interest, ensures that the investors are not cheated out of their hard-earned money. All in all, benefits provided by them cut across the boundaries of investor category and thus create for them, a universal appeal. Investors of all categories could choose to invest on their own in multiple options but opt for mutual funds for the sole reason that all benefits come in a package.

History of Mutual Funds in India 1963 Establishment of Unit Trust of India 1964 Unit Scheme 1964 launched 1987 Entry of non-UTI, Public Sector mutual funds 1993 Entry of private sector funds First Mutual Fund regulations came into being 1996 Substitution of prevalent rules by SEBI (Mutual Funds) Regulations 1996

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2003 UTI bifurcated into two separate entities Specified Undertaking of Unit Trust of India UTI Mutual Fund

2004 Existence of 421 schemes, managing assets worth Rs. 153108

Frequently used terms

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.

Sale Price

Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.

Repurchase Price

Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.

Redemption Price

Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.

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Sales Load

Is a charge collected by a scheme when it sells the units? Also called, Front-end load. Schemes that do not charge a load are called No Load schemes.

Repurchase or Back-end Load

Is a charge collected by a scheme when it buys back the units from the unit holders?

Types of mutual fund schemes

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A wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry. By structure: a) b) c) open-ended schemes close-ended schemes interval schemes

By investment objective: a) b) c) d) growth schemes income schemes Balanced schemes money market schemes

Other schemes: a) b) c) d) Tax saving schemes special schemes index schemes sector specific schemes

By Structure

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(a) Open-ended schemes Open-ended or open mutual funds are much more common than closed-ended funds and meet the true definition of a mutual fund a financial intermediary that allows a group of investors to pool their money together to meet an investment objective to make money! An individual or team of professional money managers manage the pooled assets and choose investments, which create the funds portfolio. They are established by a fund sponsor, usually a mutual fund company, and valued by the fund company or an outside agent. This means that the funds portfolio is valued at "fair market" value, which is the closing market value for listed public securities. An open-ended fund can be freely sold and repurchased by investors. Buying and Selling: Open funds sell and redeem shares at any time directly to shareholders. To make an investment, you purchase a number of shares through a representative, or if you have an account with the investment firm, you can buy online, or send a check. The price you pay per share will be based on the funds net asset value as determined by the mutual fund company. Open funds have no time duration, and can be purchased or redeemed at any time, but not on the stock market. An open fund issues and redeems shares on demand, whenever investors put money into the fund or take it out. Since this happens routinely every day, total assets of the fund grow and shrink as money flows in and out daily. The more investors buy a fund, the more shares there will be. There's no limit to the number of shares the fund can issue. Nor is the value of each individual share affected by the number outstanding, because net asset value is determined solely by the change in prices of the stocks or bonds the fund owns, not the size of the fund itself. Some open-ended funds charge an entry load (i.e., a sales charge), usually a percentage of the net asset value, which is deducted from the amount invested.

Advantages:

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Open funds are much more flexible and provide instant liquidity as funds sell shares daily. You will generally get a redemption (sell) request processed promptly, and receive your proceeds by check in 3-4 days. A majority of open mutual funds also allow transferring among various funds of the same family without charging any fees. Open funds range in risk depending on their investment strategies and objectives, but still provide flexibility and the benefit of diversified investments, allowing your assets to be allocated among many different types of holdings. Diversifying your investment is key because your assets are not impacted by the fluctuation price of only one stock. If a stock in the fund drops in value, it may not impact your total investment as another holding in the fund may be up. But, if you have all of your assets in that one stock, and it takes a dive, youre likely to feel a more considerable loss. Risks: Risk depends on the quality and the kind of portfolio you invest in. One unique risk to open funds is that they may be subject to inflows at one time or sudden redemptions, which leads to a spurt or a fall in the portfolio value, thus affecting your returns. Also, some funds invest in certain sectors or industries in which the value of the in the portfolio can fluctuate due to various market forces, thus affecting the returns of the fund. (b) Close-ended schemes Close-ended or closed mutual funds are really financial securities that are traded on the stock market. Similar to a company, a closed-ended fund issues a fixed number of shares in an initial public offering, which trade on an exchange. Share prices are determined not by the total net asset value (NAV), but by investor demand. A sponsor, either a mutual fund company or investment dealer, will raise funds through a process commonly known as underwriting to create a fund with specific investment objectives. The fund retains an investment manager to manage the fund assets in the manner specified. Buying and Selling:

30

Unlike standard mutual funds, you cannot simply mail a check and buy closed fund shares at the calculated net asset value price. Shares are purchased in the open market similar to stocks. Information regarding prices and net asset values are listed on stock exchanges, however, liquidity is very poor. The time to buy closed funds is immediately after they are issued. Often the share price drops below the net asset value, thus selling at a discount. A minimum investment of as much as $5000 may apply, and unlike the more common open funds discussed below, there is typically a five-year commitment. Advantages: The prospect of buying closed funds at a discount makes them appealing to experienced investors. The discount is the difference between the market price of the closed-end fund and its total net asset value. As the stocks in the fund increase in value, the discount usually decreases and becomes a premium instead. Savvy investors search for closed-end funds with solid returns that are trading at large discounts and then bet that the gap between the discount and the underlying asset value will close. So one advantage to closed-end funds is that you can still enjoy the benefits of professional investment management and a diversified portfolio of high quality stocks, with the ability to buy at a discount. Risks: Investing in closed-end funds is more appropriate for seasoned investors. Depending on their investment objective and underlying portfolio, closed-ended funds can be fairly volatile, and their value can fluctuate drastically. Shares can trade at a hefty discount and deprive you from realizing the true value of your shares. Since there is no liquidity, investors must buy a fund with a strong portfolio, when units are trading at a good discount, and the stock market is in position to rise.

31

By 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: a) Growth / Equity Oriented Schemes The aim of growth funds is to provide capital appreciation over the medium to longterm. 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. Equity funds As explained earlier, such funds invest only in stocks, the riskiest of asset classes. With share prices fluctuating daily, such funds show volatile performance, even losses. However, these funds can yield great capital appreciation as, historically, equities have outperformed all asset classes. At present, there are four types of equity funds available in the market. In the increasing order of risk, these are: Index funds These funds track a key stock market index, like the BSE (Bombay Stock Exchange) Sensex or the NSE (National Stock Exchange) S&P CNX Nifty. Hence, their portfolio mirrors the index they track, both in terms of composition and the individual stock weightages. For instance, an index fund that tracks the Sensex will invest only in the Sensex stocks. The idea is to replicate the performance of the benchmarked index to near accuracy.

32

Investing through index funds is a passive investment strategy, as a funds performance will invariably mimic the index concerned, barring a minor "tracking error". Usually, theres a difference between the total returns given by a stock index and those given by index funds benchmarked to it. Termed as tracking error, it arises because the index fund charges management fees, marketing expenses and transaction costs (impact cost and brokerage) to its unitholders. So, if the Sensex appreciates 10 per cent during a particular period while an index fund mirroring the Sensex rises 9 per cent, the fund is said to have a tracking error of 1 per cent. To illustrate with an example, assume you invested Rs 1,000 in an index fund based on the Sensex on 1 April 1978, when the index was launched (base: 100). In August, when the Sensex was at 3.457, your investment would be worth Rs 34,570, which works out to an annualised return of 17.2 per cent. A tracking error of 1 per cent would bring down your annualised return to 16.2 per cent. Obviously, the lower the tracking error, the better the index fund.

Diversified funds Such funds have the mandate to invest in the entire universe of stocks. Although by definition, such funds are meant to have a diversified portfolio (spread across industries and companies), the stock selection is entirely the prerogative of the fund manager. This discretionary power in the hands of the fund manager can work both ways for an equity fund. On the one hand, astute stock-picking by a fund manager can enable the fund to deliver market-beating returns; on the other hand, if the fund managers picks languish, the returns will be far lower. The crux of the matter is that your returns from a diversified fund depend a lot on the fund managers capabilities to make the right investment decisions. On your part, watch out for the extent of diversification prescribed and practised by your fund manager. Understand that a portfolio concentrated in a few sectors or companies is a

33

high risk, high return proposition. If you dont want to take on a high degree of risk, stick to funds that are diversified not just in name but also in appearance. Tax-saving funds Also known as ELSS or equity-linked savings schemes, these funds offer benefits under Section 88 of the Income-Tax Act. So, on an investment of up to Rs 10,000 a year in an ELSS, you can claim a tax exemption of 20 per cent from your taxable income. You can invest more than Rs 10,000, but you wont get the Section 88 benefits for the amount in excess of Rs 10,000. The only drawback to ELSS is that you are locked into the scheme for three years. In terms of investment profile, tax-saving funds are like diversified funds. The one difference is that because of the three year lock-in clause, tax-saving funds get more time to reap the benefits from their stock picks, unlike plain diversified funds, whose portfolios sometimes tend to get dictated by redemption compulsions.

Sector funds The riskiest among equity funds, sector funds invest only in stocks of a specific industry, say IT or FMCG. A sector funds NAV will zoom if the sector performs well; however, if the sector languishes, the schemes NAV too will stay depressed. Barring a few defensive, evergreen sectors like FMCG and pharma, most other industries alternate between periods of strong growth and bouts of slowdowns. The way to make money from sector funds is to catch these cyclesget in when the sector is poised for an upswing and exit before it slips back. Therefore, unless you understand a sector well enough to make such calls, and get them right, avoid sector funds.

34

a) 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. Such funds attempt to generate a steady income while preserving investors capital. Therefore, they invest exclusively in fixed-income instruments securities like bonds, debentures, Government of India securities, and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. There are basically three types of debt funds. Income funds By definition, such funds can invest in the entire gamut of debt instruments. Most income funds park a major part of their corpus in corporate bonds and debentures, as the returns there are the higher than those available on government-backed paper. But there is also the risk of defaulta company could fail to service its debt obligations. Gilt funds They invest only in government securities and T-billsinstruments on which repayment of principal and periodic payment of interest is assured by the government. So, unlike income funds, they dont face the spectre of default on their investments. This element of safety is why, in normal market conditions, gilt funds tend to give marginally lower returns than income funds. Liquid funds

35

They invest in money market instruments (duration of up to one year) such as treasury bills, call money, CPs and CDs. Among debt funds, liquid funds are the least volatile. They are ideal for investors seeking low-risk investment avenues to park their short-term surpluses. The risk in debt funds Although debt funds invest in fixed-income instruments, it doesnt follow that they are risk-free. Sure, debt funds are insulated from the vagaries of the stock market, and so dont show the same degree of volatility in their performance as equity funds. Still, they face some inherent risk, namely credit risk, interest rate risk and liquidity risk. Interest rate risk: This is common to all three types of debt funds, and is the prime reason why the NAVs of debt funds dont show a steady, consistent rise. Interest rate risk arises as a result of the inverse relationship between interest rates and prices of debt securities. Prices of debt securities react to changes in investor perceptions on interest rates in the economy and on the prevelant demand and supply for debt paper. If interest rates rise, prices of existing debt securities fall to realign themselves with the new market yield. This, in turn, brings down the NAV of a debt fund. On the other hand, if interest rates fall, existing debt securities become more precious, and rise in value, in line with the new market yield. This pushes up the NAVs of debt funds. Credit risk: This throws light on the quality of debt instruments a fund holds. In the case of debt instruments, safety of principal and timely payment of interest is paramount. There is no credit risk attached with government paper, but that is not the case with debt securities issued by companies. The ability of a company to meet its obligations on the debt securities issued by it is determined by the credit rating given to its debt paper. The higher the credit rating of the instrument, the lower is the chance of the issuer defaulting on the underlying commitments, and vice-versa. A higher-rated debt paper is also normally much more liquid than lower-rated paper. Credit risk is not an issue with gilt funds and liquid funds. Gilt funds invest only in government paper, which are safe. Liquid funds too make a bulk of their investments

36

in avenues that promise a high degree of safety. For income funds, however, credit risk is real, as they invest primarily in corporate paper. Liquidity risk: This refers to the ease with which a security can be sold in the market. While there is brisk trading in government securities and money market instruments, corporate securities arent actively traded. More so, when you go down the rating scalethere is little demand for low-rated debt paper. As with credit risk, gilt funds and liquid risk dont face any liquidity risk. Thats not the case with income funds, though. An income fund that has a big exposure to low-rated debt instruments could find it difficult to raise money when faced with large redemptions. a) 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. As the name suggests, balanced funds have an exposure to both equity and debt instruments. They invest in a pre-determined proportion in equity and debtnormally 60:40 in favour of equity. On the risk ladder, they fall somewhere between equity and debt funds, depending on the funds debt-equity spiltthe higher the equity holding, the higher the risk. Therefore, they are a good option for investors who would like greater returns than from pure debt, and are willing to take on a little more risk in the process.

37

(a) 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 periods.

Other types of funds (a) Pooled Funds A "pooled fund" is a unit trust in which investors contribute funds that are then invested, or managed, by a third party. A pooled fund operates like a mutual fund, but is not required to have a prospectus under securities law. Pooled funds are offered by trust companies, investment management firms, insurance companies, and other organizations. Pooled funds and mutual funds are substantially the same, but differ in their legal form. Like a mutual fund, a pooled fund is a trust that is set up under a "trust indenture". This specifies how the pooled fund will operate and what the duties of the various parties to the trust indenture will be. The trust indenture specifies an investment policy for the pooled fund and how management fees will be charged. Pooled funds, like mutual funds, are "unit trusts". This means that investors deposit funds into the trust in exchange for "units" of the fund, which reflect a pro-rata share of the fund's investments. The fund trust indenture will specify how units are issued and redeemed, as well as, the frequency and procedures for valuations. Pooled funds can be either "closed" or "open". An "open" pooled fund is the most common type of pooled fund, and allows units to be redeemed at scheduled valuations. A "closed" pooled fund does not allow redemptions, except in specific circumstances or

38

at termination of the trust. Closed pooled funds are usually established to hold illiquid investments such as real estate or very specialized investment programs, such as hedge funds. The major difference between pooled funds and mutual funds is their legal status under securities law. Pooled funds are not "public" investments, which means investment and trading in pooled funds is restricted. Securities legislation define the rules for a "public" security. Publicly issued securities must meet certain requirements before issue, particularly in information disclosure through their prospectus, or reporting by issuers. Pooled funds are exempt from prospectus requirements under securities law, usually under the "private placement", or "sophisticated investor", clauses in the Securities Act. This means that investments in pooled funds must be over $150,000. Financial institutions such as banks, trust companies or investment counselling firms are allowed to invest their clients in their own pooled funds, by specific exemptions granted under the Securities Act. Each pooled fund investment must be reported to the relevant Securities Commission. Once a client is invested in a pool fund, the result is identical to being in a mutual fund with the same investment mandate. Fees for pooled funds can either be charged inside or outside the fund. Valuation of pooled funds can be less frequent, as there tends to be less activity with fewer and more sophisticated pooled fund investors. Pooled fund fees are usually lower than mutual funds, as these funds are created to deal with larger investors. Pooled funds are allowed to charge their expenses from operations against the fund assets, and the trust indenture provides for the sponsor, or trustee, to hire outside agents to perform certain tasks, such as custody and unit record-keeping. (a) Insurance Segregated Funds An insurance segregated fund is an insurance contract issued under insurance legislation by an insurance company. Its value is based on the performance of a portfolio of marketable securities, such as stocks and bonds. As an insurance contract, a segregated fund is an obligation of an insurance company and forms part of its assets. Insurance companies "segregate" the portfolios which these contracts are based on, dividing these assets from their

39

general assets. The contracts have a minimum value, the price at which they were issued. It is important to realize that a insurance segregated fund might look and act like a mutual fund, but that it is actually something quite different. A mutual fund is a trust, or sometimes a company, which owns title to the actual securities in the funds. The unitholders own the trust which in turn owns the assets. An insurance segregated fund is an insurance contract or a "variable rate annuity". Legally, the insurance company issues the contract the same way it would an annuity or life insurance policy under the relevant insurance legislation. The buyer or "policy holder" has contracted for a payment that is based on the underlying prices of the portfolio that supports the contract but does not have a direct claim or ownership on the securities that form the portfolio. Although insurance companies "segregate" the assets to support these contracts, the holder of the contract does not own these assets. The insurance contract nature of a segregated fund makes for an interesting feature that insurance companies often use in their marketing. The contract can be issued with an initial "book value" that the company can agree to pay no matter what the actual value of the portfolio supporting the contract. If the market value of the portfolio falls below the book value, the company agrees to pay no less than the book value which is known as the "minimum value guarantee" or the "higher of book or market". Initially, this guarantee feature has some value. Since marketable securities increase over longer periods of time it becomes less important over time. Another wrinkle of segregated funds is their tax status. Since they are insurance contracts, they are taxed as such. Sometimes segregated funds are used as investment options for "universal" or "whole life" life insurance which provides a savings option as well as insurance. Life companies market the tax shelter aspects of these contracts, which allow compounding of investment income untaxed while inside the insurance contract. Another sales aspect of segregated funds is their characteristics under bankruptcy legislation in some jurisdictions. In Canada, for example, an insurance contract is not

40

available to creditors in a bankruptcy. This means an RRSP that uses segregated funds would be protected from creditors in a bankruptcy while an RRSP which invested in mutual funds would be exposed. In summary, although insurance segregated funds look and function like mutual funds, they are actually insurance contracts based on the valuation of a portfolio of marketable securities. As always, investors are wise to consider all the aspects of insurance contracts in their legal jurisdiction prior to investment.

(a) Specific Sectoral & Thematic 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. Thematic funds are those fund which invest in a stocks which will benefit from a particular theme like Outsourcing, Infrastructure 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. Restrain the urge to invest in sector/thematic funds no matter how compelling an argument your agent or the fund house makes. Over the long-term, there is little value that a restrictive and narrow theme can bring to the table. It is best to opt for a broad investment mandate that is best championed by well-diversified equity funds.

UTI Thematic Fund: UTI Mutual Fund has filed with the Securities and Exchange Board of India for an omnibus fund that will have six options. The UTI Thematic Fund is the umbrella fund. It will have sub-funds that will focus on large-cap stocks, mid-cap stocks, auto, banking, PSU stocks and basic industries. UTI now has a UTI Growth Sectors Umbrella with five options that focus on investing in stocks in the services, petro, healthcare pharmaceuticals, information technology, and consumer products.

41

The new fund also proposes to provide investors four automatic triggers that could be used for exit: value, appreciation, date and stop loss.

Factors affecting Management style of a scheme Its one thing to understand mutual funds and their working; its another to ride on this potent investment vehicle to create wealth in tune with your risk profile and investment needs. Here are seven factors that go a long way in helping an AMC meet its investors investment objectives. The factors listed below evaluate factors affecting the management style of a mutual fund scheme. Knowing the profile Investors investments reflect his risk-taking capacity. Equity funds might lure when the market is rising and peers are making money, but if you are not cut out for the risk that accompanies it, dont bite the bait. So, check if the investors objective matches yours. Investors will invest only after they have found their match. If they are racked by uncertainty, they seek expert advice from a qualified financial advisor. Identifying the investment horizon How long on an average does the investor want to stay invested in a fund is as important as deciding upon your risk profile. Investors would invest in an equity fund only if they are willing to stay on for at least two years. For income and gilt funds, have a one-year perspective at least. Anything less than one year, the only option among mutual funds is liquid funds. Declare and Inform Watch what you commit. Investors look out for the Offer Document and Hey Information Memorandum (KIM) before they commit their money to a fund. The offer document contains essential details pertaining to the fund, including the summary information (type of scheme, name of the asset management company and price of

42

units, among other things), investment objectives and investment procedure, financial information and risk factors. The fund fact sheet Fund fact sheets give investors valuable information of how the fund has performed in the past. It gives investors access to the funds portfolio, its diversification levels and its performance in the past. The more fact sheets they examine, the better is their comfort level. Diversification across fund houses If Investors are routing a substantial sum through mutual funds, they would diversify across fund houses. That way, they spread their risk. Chasing incentives Some financial intermediaries give upfront incentives, in the form of a percentage of the investors initial investment, to invest in a particular fund. Many amateur investors get lured into such incentives and invest in such attractive schemes, which may not meet their future expectations. The ideal investors focus would be to find a fund that matches his investment needs and risk profile, and is a performer. Tracking investments The investors job doesnt end at the point of making the investment. They do track your investment on a regular basis, be it in an equity, debt or balanced fund.

Data Analysis 43

Individual preference in the investment avenues

Categories Share market Mutual fund Insurance Bank Property

Highly Preferred (%) 8 17 29 28 18

Total

100

Factors which investor considered before investing in particular company:-

44

Factors Financial Position

Percentage

20

Current Market Price

18

Goodwill

33

Future Prospectus

25

Other

Perception Of People According To Age:-

45

Age

Portfolio

below 30

80% in stocks or 10% in 10% in fixed income

mutual

funds cash

30 t0 40

70% in stocks or 10% in 20% in fixed income

mutual

funds cash

40 to 50

60% in stocks or 10% in 30% in fixed income

mutual funds cash

50 to 60

50% in stocks or 10% in 40% in fixed income

mutual

funds cash

above 60

40% in stocks or 10% in 50% in fixed income

mutual funds cash

46

COMPANY PROFILE

Company Profile

47

Religare Enterprises Limited is Ranbaxy Laboratories Limited promoted financial product and service Provider Company. Religare is one of the leading integrated financial services institutions of India. The company offers a large and diverse bouquet of services ranging from equities, commodities, insurance broking, to wealth advisory, portfolio management services, personal finance services, Investment banking and institutional broking services. Religares retail network spreads across the length and breadth of the country with its presence through more than 1,217 locations across more than 392 cities and towns. Having spread itself fairly well across the country and with the promise of not resting on its laurels, it has also aggressively started eyeing global geographies Religare Enterprises is one of the fastest growing and leading integrated financial services institutions of India. The company offers three kind of business. 1. Vertical retail, 2. Wealth management and 3. Institutional spectrums. It offers wide range of services including equities, commodities, insurance broking, wealth advisory, portfolio management services, personal finance services, Investment banking and institutional broking services. Religare retail network spreads across more than 900 locations across more than 300 cities and towns in India. BRAND IDENTITY

48

NAME

Religare is a Latin word that translates as to bind together. This name has been chosen to reflect the integrated nature of the financial services the company offers. The name is intended to unite and bring together the phenomenon of money and wealth to co-exist and serve the interest of individuals and institutions, alike.

SYMBOL

The Religare name is paired with the symbol of a four-leaf clover. The four-leaf clover is used to define the rare quality of good fortune that is the aim of every financial plan. It has traditionally been considered good fortune to find a single four leaf clover considering that statistically one may need to search through over 10,000 three-leaf clovers to even find one four leaf clover. Each leaf of the four-leaf clover has a special meaning in the sphere of Religare.

The first leaf of the clover represents Hope. The aspirations to succeed. The dream of becoming. Of new possibilities. It is the beginning of every step and the foundations on which a person reaches for the stars.

49

The second leaf of the clover represents Trust. The ability to place ones own faith in another. To have a relationship as partners in a team. To accomplish a given goal with the balance that brings satisfaction to all not in the binding but in the bond that is built.

The third leaf of the clover represents Care. The secret ingredient that is the cement in every relationship. The truth of feeling that underlines sincerity and the triumph of diligence in every aspect. From it springs true warmth of service and the ability to adapt to evolving environments with consideration to all.

The fourth and final leaf of the clover represents Good Fortune. Signifying that rare ability to meld opportunity and planning with circumstance to generate those often looked for remunerative moments of success

Hope. Trust. Care. Good fortune. All elements perfectly combine in the emblematic and rare, four-leaf clover to visually symbolize the values that bind together and form the core of the Religare vision.

Religare Group

50

RELIGARE GROUP: REL IGARE in recent years has expanded its reach in health care and financial services wherein it has multiple specialty hospital and labs which provide health care services and multiple financial services such as secondary market equity services, portfolio management services, depository services etc. RELIGARE financial services group comprises of Religare Securities Limited, RELIGARE Comdex Limited and RELIGARE Finevest Limited which provide services in Equity, Commodity and Financial Services business & Religare Insurance Advisory Ltd.

RELIGARE SECURITIES LIMITED 1. Member of National Stock Exchange of India and Bombay Stock Exchange of India. 51

2. Depository Participant with National Securities Depository Limited (NSDL) and

Central Depository Services Limited (CDSL). A SEBI approved Portfolio Manager. RSL provides platform to all segments of the investor to leverage the immense opportunity offered by equity investing in India either on their own or through managed funds in Portfolio Management. The ARN No. of the Religare Securities Ltd. is 33764. The ARN No. is required by to be available with the broker who deals on behalf of investors or sell the mutual funds of the different companies present in the market.

52

Religare (company) is an integrated financial services institution offering a wide range of financial products and services to retail investors, high net worth individuals and corporate and institutional clients including equity and commodity broking, online trading, wealth advisory services, investment banking and insurance broking.

Religare has grown rapidly from what was largely an equity trading company into a diversified financial services company operating through its 11 subsidiaries.

As on June 30, 2008, Religare has operations at 1,575 locations across 465 cities and towns and a large management team leading group of over 9,500 employees

Recently acquired Hichens, Harrison & Co. (Hichens), one of the oldest broking firm in London, for a sum of GBP 55.5 million.

Acquisition to boost the institutional and investment banking operations of Religare and extend its geographical reach to London, South Africa, Argentina, Brazil, Dubai, Qatar, Singapore, Malaysia and Indonesia.

Diversified Integrated Financial Services Platform

Recently growth and established business testimony of Religares commitment towards becoming the investment gateway of India.

53

Diversified product portfolio with individually focused management teams to create optimum balance and result.

Vision and Mission

Vision

To 54

build

Religare as a globally trusted brand in the financial services domain and present it as the Investment Gateway of India

Mission Providing financial care driven by the core values of diligence and transparency.

BRAND ESSENCE Religare is driven by ethical and dynamic processes for wealth creation.

Religare Enterprises Limited

55

Religare Securities Limited

Religare Finvest Limited

Equity Broking Online Investment Portal Portfolio Management Services Depository Services

Lending and Distribution business Proposed Custodial business

Religare Commodities Limited

Religare Insurance Broking Limited

Commodity Broking

Life Insurance General Insurance Reinsurance

Religare Capital Markets Limited

Religare Arts Initiative Limited

Investment Banking Proposed Institutional Broking

Business of Art Gallery launched - arts-i

Religare Realty Limited

Religare Venture Capital Limited

In house Real Estate Management Company

Private Equity and Investment Manager

Religare Hichens Harrison**

Religare Asset Management*

Equity

Corporate Broking Institutional Broking

Arts Initiative

Derivatives Sales Corporate finance

Commodity

SERVICES :-

Investment Banking

REL
Wealth Advisory Services Personal

Mutual Fund

Insurance

56 Credit

Organization Structure:

57

In India Religares geographical distribution is shown as follows:

58

Religare Enterprises Ltd.

Religares Joint Ventures

AEGON RELIGARE LIFE INSURANCE COMPANY

59

Life insurance Business (AEGON as a partner)

RELIGARE MACQUARIE WEALTH MANAGMENT LTD. PrivateWealthBusiness (Macquarie, Australian Financial Services major as a partner)

Vistaar Religare -The Film Fund Indias first SEBI approved filmfund(Vistaar as a partner)

Milestone Religare Private equity Fund Milestone, one of Indias premier independent Fund houses and Religare have come together and trough the JV have formed an entity, Milestone Religare investment advisors pvt ltd.

Other Group Companies

60

Fortis Healthcare Limited, established in 1996 was founded on the vision of creating an integrated healthcare delivery system. With 22 hospitals in India, including multi-specialty & super specialty centres, the management is aggressively working towards taking this number to a significant level in the next few years to provide quality healthcare facilities and services across the nation.

Super Religare Laboratories Limited (formerly SRL Ranbaxy) within 11 years of inception has become the largest Pathological Laboratory network in South Asia. It started a revolution in diagnostic services in India by ushering in the most specialized technologies, backed by innovation and diligence. The current footprint extends well beyond India in the Middle East and parts of Europe.

Religare Wellness Limited (formerly Fortis Health world) is one of the leading players in the wellness retail space with a footprint of over 100 stores across India. The group envisages setting up a pan India world class retail network of wellness stores that would provide comprehensive solutions under one roof.

Religare Technova Limited (formerly Fortis Financial Services Limited)

Religare Enterprises Limited Key Data:

61

Ticker:

532915

Country:

INDIA

Exchanges:

BOM

Major Industry:

Financial

Sub Industry:

Securities Brokerage

2010 Sales

16,718,848,000 (Year Ending Jan 2011).

Employees:

N/A

Currency:

Indian Rupees

Market Cap:

52,403,658,000

Fiscal Yr Ends:

March

Shares Outstanding: 127,813,800

Share Type:

Ordinary

Closely Held Shares: 42,765,660

Religare Finevest Religare Finevest Limited (RFL), a Non Banking Finance Company (NBFC) is aggressively making a name in the financial services arena in India. In a fast paced, constantly changing dynamic business environment, RFL has delivered the most competitive products and services. RFL is primarily engaged in the business of providing finance against securities in the secondary market. It also provides finance for application in Initial Public Offers to non-retail clients in the primary market. RFL is also planning to initiate personal loan portfolio as fund based activity and mutual fund distribution as fee based activities Along with this, the company also undertakes non-fund based advisory operations in the field of Corporate Financing in the nature of Credit Syndication which includes bills discounting, intercorporate

62

deposit, working capital loan syndication, placement of private equity and other structured products

Religare Insurance Advisory Ltd. Religare has been taking care of financial services for long but there was a missing link. Financial planning is incomplete without protective measure i.e. structured products to take care of event of things that may go wrong consequently; Religare is soon coming up with Religare Insurance Advisory Services Limited. As composite insurance broker, we would deal in both insurance and reinsurance, providing our clients risk transfer solutions on life and non-life sides. This service will take benefit of Religares vast business empire spread throughout the country -- providing our valued clients insurance services across India. We aim to have a wide reach with our services literally! Thats why we are catering the insurance requirements of both retail and corporate segments with products of all the insurance companies on life and non-life side Still, there is more in store. We also cater individuals with a complete suite of insurance solutions, both life and general to mitigate risks to life and assets through our existing network of over 150 branches expected to reach 250 by the end of this year! For corporate clients, we will be offering value based customized solutions to cover all risks which their business is exposed to. Our clients will be supported by an operations team equipped with the best of technology support. Religare Insurance Advisory aims to provide neutral, transparent and professional risk transfer advice to become the first choice of India

About Religare Securities Limited (RSL)

63

One of the leading integrated financial services groups of India Diverse range of offerings Client base of more than 5000,000 and growing across the retail, wealth and Institutional Spectrum. Pan India and global footprint. Width and depth of management leading a formidable employee base. Best-in-class Research. Sweetly placed to spot new opportunities and power ahead.

The Religare Edge Diverse offerings Dynamic Management Team State-of-the art technology Vast Distribution and Reach Robust Brand Recognition Synergistic partnerships Innovative Initiatives

Client Interface

64

Retail SpectrumTo cater to a large number of retail clients by offering all products under one roof through the Branch Network and Online mode:-

Equity and Commodity Trading Personal Financial Services Mutual Funds Insurance Saving Products Personal Credit Personal Loans Loans against Shares Online Investment Portal

Institutional SpectrumTo Forge & build strong relationships with Corporate Client and Institutions Institutional Equity Broking Investment Banking Merchant Banking Transaction Advisory Corporate Finance 65

Wealth Spectrum To provide customized wealth advisory services to High Net

SWOT ANALYSIS

STRENGTHS:-

1. Brokerage:-In Religare Securities if a person buy any share or sell same day that is called intraday .In intraday our company charge only .02%.In case of holding share for next day in that condition brokerage charge .20% .That is least from other Company.

2.Software:-In our company use Odin software that is approved by Security exchange board of india.That gives accurate information of price .Company also give to customer odin diet software for online trading.

3.Top Quality research & advisory Services- Only Religare gives top quality research analysis .That research team give good suggestion and tips for buy or sell share.

4.Demat a/c and trading Account Demat a/c and trading a/c is online share trading with offline trading .Only Religare gives this kind of services.

66

WEAKNESS:1.low account limit-company gives only 5 days limit for holding share payment. OPPORTUNITY:1.Service based market. THREATS:1.Government Policy 2. Market Fluctuations

CUSTOMERS In Religare Securities presently there are every type of customers like, Businessperson, Service class, students etc. the people who hold their money in the saving account and in other investment in which the returns are very less are the main target customers of the company. The executive performs as a consultant for the customers and if he shows little bit of interest in Capital Market, he provides him the thorough knowledge about the investment. Traditionally the Business firms want to invest their money in stock market , but now service class person { govt. & private } are also showing interest in investing their money in share market. Still the general people dont know the right way to invest their money. They are unaware of the trading take place in the market, but they are interested in Share Market. So those types of people are in target, of the company to be the future consumer of their products COMPETITORS

67

Though there are many competitors in market but Religare has to face tough competition among the following:-

1. India infoline 2. Angel broking 3. Reliance Money 4. ICICI Direct.com 5. HDFC Bank 6. Anand Rathi securities Ltd. 7. Systematic Securities Ltd. 8. Swastika Securities 9. Emkay Securities 10. Kotak Securities Ltd. 11 .India bulls securities ltd. 12.Karvy securities ltd 13.IDBI bank securities ltd.

SECURITIES

AND

EXCHANGE

BOARD

OF

INDIA

(MUTUAL

FUNDS)

REGULATIONS, 1996 The fast growing industry is regulated by Securities and Exchange Board of India (SEBI) since inception of SEBI as a statutory body. SEBI initially formulated 68

SECURITIES

AND

EXCHANGE

BOARD

OF

INDIA

(MUTUAL

FUNDS)

REGULATIONS, 1993 providing detailed procedure for establishment, registration, constitution, management of trustees, asset management company, about schemes/products to be designed, about investment of funds collected, general obligation of MFs, about inspection, audit etc. based on experience gained and feedback received from the market SEBI revised the guidelines of 1993 and issued fresh guidelines in 1996 titled SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) REGULATIONS, 1996. The said regulations as amended from time to time are in force even today. The SEBI mutual fund regulations contain ten chapters and twelve schedules. Chapters containing material subjects relating to regulation and conduct of business by Mutual Funds.

REGISTRATION OF MUTUAL FUND: Application for registration 1. An application for registration of a mutual fund shall be made to the Board in Form A by the sponsor. Application fee to accompany the application 2. Every application for registration under regulation 3 shall be accompanied by nonrefundable application fee as specified in the Second Schedule. Application to conform to the requirements 3. An application which is not complete in all respects shall be liable to be rejected: Provided that, before rejecting any such application, the applicant shall be given an opportunity to complete such formalities within such time as may be specified by the Board. Furnishing information 4. The Board may require the sponsor to furnish such further information or clarification as may be required by it.

69

Eligibility criteria 5. For the purpose of grant of a certificate of registration, the applicant has to fulfill the following, namely : (a) the sponsor should have a sound track record and general reputation of fairness and integrity in all his business transactions. Explanation : For the purposes of this clause sound track record shall mean the sponsor should, (i) be carrying on business in financial services for a period of not less than five years; and (ii) the networth is positive in all the immediately preceding five years; and (iii) the networth in the immediately preceding year is more than the capital contribution of the sponsor in the asset management company; and (iv) the sponsor has profits after providing for depreciation, interest and tax in three out of the immediately preceding five years, including the fifth year; (b) in the case of an existing mutual fund, such fund is in the form of a trust and the trust deed has been approved by the Board; (c) the sponsor has contributed or contributes at least 40% to the net worth of the asset management company: Provided that any person who holds 40% or more of the net worth of an asset management company shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria specified in these regulations; (d) the sponsor or any of its directors or the principal officer to be employed by the mutual fund should not have been guilty of fraud or has not been convicted of an offence involving moral turpitude or has not been found guilty of any economic offence; (e) appointment of trustees to act as trustees for the mutual fund in accordance with the provisions of the regulations; 70

(f) appointment of asset management company to manage the mutual fund and operate the scheme of such funds in accordance with the provisions of these regulations; (g) appointment of a custodian in order to keep custody of the securities 10[or gold and gold related instruments and carry out the custodian activities as may be authorized by the trustees.

Consideration of application 8. The Board, may on receipt of all information decide the application.

Grant of Certificate of Registration 9. The Board may register the mutual fund and grant a certificate in Form B on the applicant paying the registration fee as specified in Second Schedule.

Terms and conditions of registration 10. The registration granted to a mutual fund under regulation 9, shall be subject to the following terms and conditions: (a) the trustees, the sponsor, the asset management company and the custodian shall comply with the provisions of these regulations; (b) the mutual fund shall forthwith inform the Board, if any information or particulars previously submitted to the Board was misleading or false in any material respect; (c) the mutual fund shall forthwith inform the Board, of any material change in the information or particulars previously furnished, which have a bearing on the registration granted by it; (d) payment of fees as specified in the regulations and the Second Schedule.

71

Rejection of application 11. Where the sponsor does not satisfy the eligibility criteria mentioned in regulation 7, the Board may reject the application and inform the applicant of the same.

Payment of annual service fee: 12. A mutual fund shall pay before the 15th April each year a service fee as specified in the Second Schedule for every financial year from the year following the year of registration: Provided that the Board may, on being satisfied with the reasons for the delay permit the mutual fund to pay the service fee at any time before the expiry of two months from the commencement of the financial year to which such fee relates. Failure to pay annual service fee 13. The Board may not permit a mutual fund who has not paid service fee to launch any scheme.

How to invest in Mutual Fund

Step one

Identify YOUR INVESTMENT NEEDS

72

Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, and level of income and expenses among many other factors. Therefore, the first step is to assess your needs. You can begin by defining your investment objectives and needs, which could be regular income, buying a home or finance a wedding or educate your children or a combination of all these needs, the quantum of risk you are willing to take and your cash flow requirements.

Step Two

CHOOSE THE RIGHT MUTUAL FUND The important thing is to choose the right mutual fund scheme, which suits your requirements. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are the track record of the performance of the fund over the last few years in relation to the appropriate yardstick and similar funds in the same category. Other factors could be the portfolio allocation, the dividend yield and the degree of transparency as reflected in the frequency and quality of their communications.

Step Three

SELECT THE IDEAL MIX OF SCHEMES Investing in just one Mutual Fund scheme may not meet all your investment needs. You may consider investing in a combination of schemes to achieve your specific goals.

73

Step four

INVEST REGULARLY The best approach is to invest a fixed amount at specific intervals, say every month. By investing a fixed sum each month, you buy fewer units when the price is higher and more units when the price is low, thus bringing down your average cost per unit. This is called rupee cost averaging and do investors all over the world follow a disciplined investment strategy. You can also avail the systematic investment plan facility offered by many open-end funds.

Step Five-

START EARLY It is desirable to start investing early and stick to a regular investment plan. If you start now, you will make more than if you wait and invest later. The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return.

74

CHARACTERISTICS OF MUTUAL FUNDS

The ownership is in the hands of the investors who have pooled in their funds. It is managed by a team of investment professionals and other service providers. The pool of funds is invested in a portfolio of marketable investments. The investors share is denominated by units whose value is called as Net Asset Value (NAV) which changes everyday. The investment portfolio is created according to the stated investment objectives of the fund.

Advantages of Mutual Funds 1. Professional Management :-Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. This risk of default by any company that one has chosen to invest in, can be minimized by investing in mutual funds as the fund managers analyze the companies financials more minutely than an individual can do as they have the expertise to do so. They can manage the maturity of their portfolio by investing in instruments of varied maturity profiles. 2. Diversification:- Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. 3. Convenient Administration:- Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up 75

with brokers and companies. Mutual Funds save your time and make investing easy and convenient. 4. Return Potential:- Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Apart from liquidity, these funds have also provided very good post-tax returns on year to year basis. Even historically, we find that some of the debt funds have generated superior returns at relatively low level of risks. On an average debt funds have posted returns over 10 percent over one-year horizon. The best performing funds have given returns of around 14 percent in the last one-year period. In nutshell we can say that these funds have delivered more than what one expects of debt avenues such as post office schemes or bank fixed deposits. Though they are charged with a dividend distribution tax on dividend payout at 12.5 percent (plus a surcharge of 10 percent), the net income received is still tax free in the hands of investor and is generally much more than all other avenues, on a post tax basis. 5. Low Costs:- Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. 6. Liquidity:- In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Since there is no penalty on pre-mature withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity. Moreover, mutual funds are better placed to absorb the fluctuations in the prices of the securities as a result of interest rate variation and one can benefits from any such price movement. 7. Transparency:- Investors get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

76

8. Flexibility:Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans; you can systematically invest or withdraw funds according to your needs and convenience. 9. Affordability:- A single person cannot invest in multiple high-priced stocks for the sole reason that his pockets are not likely to be deep enough. This limits him from diversifying his portfolio as well as benefiting from multiple investments. Here again, investing through MF route enables an investor to invest in many good stocks and reap benefits even through a small investment. Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. 10.Choice of Schemes:- Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. 11. Well Regulated:- All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. 12. Tax Benefits:Last but not the least, mutual funds offer significant tax advantages. Dividends distributed by them are tax-free in the hands of the investor. They also give you the advantages of capital gains taxation. If you hold units beyond one year, you get the benefits of indexation. Simply put, indexation benefits increase your purchase cost by a certain portion, depending upon the yearly cost-inflation index (which is calculated to account for rising inflation), thereby reducing the gap between your actual purchase cost and selling price. This reduces your tax liability. Whats more, tax-saving schemes and pension schemes give you the added advantage of benefits under Section 88. You can avail of a 20 per cent tax exemption on an investment of up to Rs 10,000 in the scheme in a year.

77

DISADVANTAGES OF MUTUAL FUNDS Mutual funds have their following drawbacks: No Guarantees No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through mutual fund runs the risk of losing the money. Fees and Commissions All funds charge administrative fees to cover their day to day expenses. Some funds also charge sales commissions or loads to compensate brokers, financial consultants, or financial planners. Even if you dont use a broker or other financial advisor, you will pay a sales commission if you buy shares in a Load Fund. Taxes During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even you reinvest the money you made. Management Risk When you invest in mutual fund, you depend on fund manager to make the right decisions regarding the funds portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in index funds, you forego management risk because these funds do not employ managers.

78

MAJOR FUNDS OF RELIGARE MF

(EQUITY FUND) Investment Objective
The objective of the scheme would be to generate opportunities for growth along with possibility of consistent returns by investing predominantly in a portfolio of stocks of companies engaged in the commodity business within the following sectors Oil& Gas, Metals, Materials & Agriculture and in debt & money market instruments

DEBT FUND)
Investment Objective
The objective of the scheme is to provide the investors an opportunity to earn, in accordance with their requirements, through capital gains or through regular dividends, returns that would be higher than the returns offered by comparable investment avenues through investment in debt & money market securities.

Aegon Balanced Fund Investment Objective

To provide investors long term capital appreciation along with the liquidity of an openended scheme by investing in a mix of debt and equity. The scheme will invest in a diversified portfolio of equities of high growth companies and balance the risk through investing the rest in a relatively safe portfolio of debt.

79

SERVICES RENDERED by Religare Securities Ltd:

EQUITY AND DERIVATIVE TRADING: The term equity derivative describes a class of financial instruments whose value is at least partly derived from one or more underlying equity securities. Market Participants trade equity derivatives in order to transfer or transform certain risks Associated the underlying. Options are by far the most common equity derivative, However there are many other types of equity derivatives that are actively traded. INSTITUTIONAL DISTRIBUTON SERVICE The Client Service Manager will be responsible for all aspects of client reporting For institutional investment clients and industry organizations. The candidate will Also be responsible for client servicing which includes working with clients, Internal groups and UK based portfolio management. DEPOSITORY SERVICES Depository is an organization which holds your securities in electronic (also Known as Book entry) form, in the same manner as a bank holds your money. Further, a depository also transfers your securities without actually handling securities, in the same day as a bank transfers funds without actually handling cash. COMMODITIES BROKING SERVICES Commodity Broking Services specializes in offering online accounts to clients wishing to deal in the Foreign Exchange, Bullion, Futures, Commodities, CFDs and International/Domestic Equities markets all from the one account. Commodity Broking Services specialize in offering commodity price risk Management to agricultural producers and end users.

WEALTH MANAGEMENT SERVICES 80

Wealth management services are provided by banks, professional trust companies, and brokerages. For those with sizeable assets [usually over $500,000], professional wealth management can help you plan your estate or invest your assets based on personal criteria and financial goals. INVESTMENT BANKING Investment Banking is facing a strangle of challenges today lower margins compliance issues, workflow disconnects and data redundancies. Investment banks need a partner who can work in market-time to address all these business challenges. INSURANCE BROKING The term Insurance Broker became a regulated term under the Insurance Brokers (Registration) Act 1977which was designed to thwart the bogus practices of firms holding themselves as brokers but in fact acting as representative of one or more favored insurance companies. Insurance brokerage is largely associated with general insurance (car, house etc.) rather than life insurance, although some brokers continued to provide investment and life insurance brokerage until the onset of more onerous Financial Services Authority regulation in 2001. Insurance broking is carried out today by many types of organizations including traditional brokerages, Independent Financial Advisers (IFAs) and telephone or webbased firms.

81

RESEARCH METHODOLOGY
82

OBJECTIVES:
To study about the mutual funds industry. To study the approach of investors towards mutual funds and Religaire. To study the behavior of the investors whether they prefer mutual funds or Religaire?

SCOPE OF THE STUDY:

Subject matter is related to the investors approach towards mutual funds and Religaire. People of age between 20 to 60 Area limited to Chandigarh. Demographics include names, age, qualification, occupation, marital status and annual income.

STEPS OF RESEARCH DESIGN:

Define the information needed:This first step states that what is the

information that is actually required. Information in this case we require is that what is the approach of investors while investing their money in mutual funds and Religaire e.g. what do they consider while deciding as to invest in which of the two i.e mutual funds or Religaire. Also, it studies the extent to which the investors are aware of the various costs that one bears while making any investment. So, the information sought and information generated is only possible after defining the information needed.

Design the research:-

A research design is a framework or blueprint

for conducting the research project. It details the procedures necessary

83

for obtaining the information needed to solve research problems. In this project, the research design is explorative in nature.

Specify the scaling procedures:- Scaling involves creating a continuum on which measured objects are located. Both nominal and interval scales have been used for this purpose.

Construct and pretest a questionnaire:formalized set of questions for

A questionnaire is a information from

obtaining

respondents. Where as pretesting refers to the testing of the questionnaire on a small sample of respondents in order to identify and eliminate potential problems. Population All the clients of State bank of India and State bank of Patiala who are investing money in mutual funds and Religaire, both.

Sample Unit Investors and non-investors.

Sample Size This study involves 50 respondents.

Sampling Technique:

The sample size has been taken by non-random convenience sampling technique

Data Collection:

84

Data has been collected both from primary as well as secondary sources as described below: Primary sources Primary data was obtained through questionnaires filled by people and through direct communication with respondents in the form of Interview.

Secondary sources The secondary sources of data were taken from the various websites ,

books, journals reports, articles etc. This mainly provided information about the mutual fund and Religaire industry in India.

Plan for data analysis : Analysis of data is planned with the help of mean, chi-square technique and analysis of variance.

LIMITATIONS: No study is free from limitations. The limitations of this study can be:

Sample size taken is small and may not be sufficient to predict the results with 100% accuracy.

The result is based on primary and secondary data that has its own limitations. The study only covers the area of Chandigarh that may not be applicable to other areas.

FACTS & FINDINGS

85

Highest number of investors comes from the salaried class.

Highest number of investors comes from the age group of 25-35. Most of the people have been investing their money n the share market belong to Rs.400000 and above income group. Mostly investors prefer monitoring their investment on monthly basis. Most of the people invest upto 6% of their annual income in mutual funds. Most of the people between the age group of 25 35 invest their money in share market.

CONCLUSION
A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixes income instruments, real 86

estate, derivatives and other assets have become mature and information driven. Today each and every person is fully aware of every kind of investment proposal. Everybody wants to invest money, which entitled of low risk, high returns and easy redemption. In my opinion before investing in mutual funds, one should be fully aware of each and everything. At the same time Religaire as an investment avenue is good for people who has interest in staying for a longer period of time, that is around 10 years and above. Also in the coming times, Religaire will grow faster. Religaire are actually being publicized more and also the other traditional endowment policies are becoming unattractive because of lower interest rate. It is good for people who were investing in ULIP policies of insurance companies as their investments earn them a better return than the other policies.

RECOMMENDATION & SUGGESTIONS

The performance of the mutual fund depends on the previous years Net Asset Value of the fund. All schemes are doing well. But the future is uncertain. So, the AMC (Asset under Management Companies) should take the following steps: 87

1. The people do not want to take risk. The AMC should launch more diversified funds so that the risk becomes minimum. This will lure more and more people to invest in mutual funds. 2. The expectation of the people from the mutual funds is high. So, the portfolio of the fund should be prepared taking into consideration the expectations of the people. 3. Try tp reduce fund charges, administration charges and other charges which helps to invest more funds in the security market and earn good returns. 4. Diffferent campaigns should be launched to educate people regarding mutual funds. 5. companies should give regular dividends as it depicts profitability. 6. Mutual funds should concentrate on differentiating the portfolio of their MF than their competitors MF 7. Companies should give handsome brokerage to brokers so that they get attracted towards distribution of the funds.

SWOT ANALYSIS

STRENGTHS

88

Original research Integrated technology platform Pan India distribution Religare enterprises Limited have developed into brand

WEAKNESS Lack of banking arm to complete the bank broker depositary chain Insignificance presence in institutional segments

OPPORTUNITIES Changing demographic with higher disposable income and increasing complex financial instruments will drive the demand for investment advisory services Rapid penetration of internet and computer needs that technology enabled services will gain market share

THREATS Economic slowdown Stock market fall will have a cascading effect on mutual fund mobilization Increase or decrease in interest rates can effect debt or income mobilizations Future changes in personal taxation rules can impact insurance sales Increasing competition from large and particularly foreign players

89

ANALYSIS & INTERPRETATION

The feedback of 50 customers has been taken and the findings along with its analysis are as follows: -

No of persons (parentage) who invest in Mutual Fund?

90

Yes 87%

No 13%

100 80 60 40 20 0 1 Yes Yes No No

Interpretation:
This question is asked by 50 respondents who is having their PAN card and having little knowledge about mutual fund. Now a days the interest about the market developed in peoples

Your account is in which of following DP (Depository participant)

Sharekhan Indiabulls 5paisa 7% 45% 3%

Religare ICICI 24% 8%

HDFC 13%

91

45 40 35 30 25 20 15 10 5 0 1 Religare Sharekhan Sharekhan Indiabulls 5paisa Religare ICICI HDFC

Interpretation:
Investor mainly prefer to trade through India bulls only followed by the Religare, HDFC, ICICIand Sherkhan.

Reason Behind in not investing in mutual fund.

High Risk 48%

Not proper Knowledge Time Cons. 17% 36%

92

50 45 40 35 30 25 20 15 10 5 0 1 Time Cons. No Knw. High Risk High Risk No Knw. Time Cons.

Interpretation: 24 respondents not invest in mutual fund because of high risk 9 respondents is not having proper knowledge and 18 are do not have time to track the market among 10 respondents

Average Trading amount in one transaction

0-5000 10

500010000 9

1000020000 19

2000050000 30

50000500000 27

>50000 0 5

93

0-5000 5000-10000 10000-20000 20000-50000 50000-500000 > 500000

Interpretation:
Above graph shows that 5 respondents do transaction of average Rs 5000/- in one time. And 4 respondents do trade of Rs 5000-10000/- . Amount and 10 respondents do trade around of Rs 10000-20000/- in one time and 15 respondents prefer Rs 20000-50000/- in doing transaction once, 14 out of remaining go for 50000-500000 rs. Amount and remaining do average trading of amount above Rs 500000/- .

Financial Instrument in which investors prefer most

Equity 38

MF 23

Fixed deposits 18

Insurance policy 21

94

40 35 30 25 20 15 10 5 0 1 Eq MF FD Ins Eq MF FD Ins

Interpretation: Above graph shows that most of the respondents around 19 out of 50 prefer equity market for investment, and 12 respondents go for mutual funds, and 9 among 50 choose fixed deposits as an investment option and remaining 10 go for insurance policies.

Which sector is more secure?

St.Mrk t 16 MF 84

95

S t.Mrkt MF

Interpretation: For the above question 42 respondents accept that mutual funds are safest investment option. while 8 respondents think that share market is more safe then mutual funds.

Investment decisions of the customers are influenced on the basis of following grounds.

Own

Broker

Eco. Pol

Mkt. Rum

Frnd

96

20

11

37

22

10

40 35 30 25 20 15 10 5 0 1 Frnd Eco. Pol Own Own Broker Eco. Pol Mkt. Rum Frnd

Interpretation:
As above graph is showing that investment decisions of 6 respondents are influenced by broker and 18 respondents decision are based on eco.pol most of the time and 11 respondents take their investment decision according to the market rumors and 5 respondents decisions are

influenced by their friend and only 10 respondents take their decision their self.

Are you satisfied with your current investment? Yes 63 No 37

97

Ys e N o

Interpretation:
From above table and graph we came to know that 32 respondents are satisfied with their current investments and rest 18 respondents are not satisfied with their investment.

What are the factors which you considered before investing in particular company?

Financial Position 23

Cur. MP 18

Goodwill 37

Fut. Prospects 26

Other 4

98

FinPos Cur. MP G/W Fut. Pros Other

Interpretation:

Above graph shows that 12 respondents out of 50 consider financial position before investing in particular company, 9 respondents prefer current market price and 18 respondents consider goodwill of particular company and 13 respondents consider future prospects and remaining 2 respondents look for other factor before investment.

Which factors do you consider before investing?

Safety 27

LowRi sk 6

Hg ret 39

Mat Pd 26

T&C 2

99

40 35 30 25 20 15 10 5 0 1 T&C Hg ret Safety Safety LowRisk Hg ret Mat Pd T&C

Interpretation:

From above table and graph 14 respondents out of 50 look for safety while investing and 3 respondents consider lower risk ,19 respondent look for high return and remaining 13 and 1 respondents consider respectively Mat Pd and Terms and conditions while investing in market.

What Would be your % of investment of your capital in the three segments.

Com. Mrkt 9

Sh Mrk 60

ULIP 31

100

S Mrk h UL IP C . Mrkt om

Interpretation:

According to the above graph and table, if an investor will has to invest in all three segments (share market, Mutual fund and commodity market),then most of the respondents will invest 60% of their capital in share market and 31% of their capital, they will invest in MF and remaining 9% capital will be invested in commodity market.

What are your reasons for investment?

Reg Grw 47

Cap App 40

Ret 13

101

R G eg rw C App ap R et

Interpretation:
According to the above graph and table 24 respondents out of 50 invest for regular growth of their investment and rest 20 and 6 invest for capital appreciation and return respectively.

Your current portfolio consists of mainly which segment?

SH MRKT 47

MF 10

ULIP 23

COM MKT 16

GOVT BOND 4

102

S m h rkt MF UL IP C Mkt om G B ovt ond

Interpretation:

From the above table and graph 24 respondents prefer share market segment in their portfolio and 5, 11 ,8 and 2 prefer respectively mutual fund,ulip,commodity market and govt. bonds in their portfolio.

QUESTIONNAIRE Name of Respondent : Age occupation: Email-ID : : : __________________________________________

103

Q1. (a) Do you invest in mutual fund?

(1)Yes

(2)

No

(b) Which is your broker/broking house?

(1) Sharekhan

(2) Indiabulls

(3) 5 Paisa

(4) Religare

(5) ICICI

(6)

HDFC

Q.2 (a) If No, What is the reason behind this?

(1) High risk factor (2) No knowledge (3) Time constraints

(b) Would you like to trade in mutual fund with in one year?

(1) Yes

(2)

No

Q.3 How much do you trade in mutual fund?

0-5000 10000-20000 5000-10000

20000-50000 500000

50000-500000

More than

104

Q.4 In which Financial Instrument would you like to prefer to invest?

(a) Equity

(b) Mutual Funds

(c) Fixed Deposits

(d) Insurance

Q.5 which sector is more secure?

(a) Stock Market

(b) Mutual fund

Q.6 Investment decisions of the customers are influenced on which of following basis? (a) Oneself (b) Brokers

(c) Eco. Policies

(d) Market Rumors

(e) Friends Relatives Q.7 Are you satisfied with your current investment?

(a)

Yes

(b)

No

Q.8 what are the factors which you considered before investing in particular company?

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(a)Financial Position

(b) Current market position

(c) Goodwill

(d) Future Prospectus

(e) Another

Q.9. which factors do you consider before investing? a) Safety of principal b) low risk c) higher returns d) maturity period e) terms & conditions

Q.10 Do you have any other investment in mutual fund? a) Yes b) no

Q11.what would be your % of investment of your capital in the three? (A) Sh market (b) Mutual fund (c)Comm. Market

Q12.you would describe your financial position as being: a) very unstable b) somewhat unstable c) mod. Stable d) stable e) very stable Q13. What are your reasons for investment?

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a) Regular growth b) capital appreciation c) retirement

Q14 your current portfolio consists of? a) sh mkt b) MF c) ULIP d) Com. mkt investment e) govt. bonds

Thank you,

Date_______________

Signature__________

Bibliography
BOOKS Research methodology : Websites:
www.sharekhan.com

C.R. Kothari

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www.indiainfoline.com http://www.financialexpress.com/fe_full_story.php?content_id=147783 http://en.wikipedia.org/wiki/India http://www.censusindia.net/results/provindia3.html sify.com/sifyimagine/fullstory.php?id=13213758 http://sify.com/sifyimagine/fullstory.php?id=13213758 http://www.forbes.com/facesinthenews/2005/04/21/0421autofacescan02.html www.kotaksecurities.com www.sharekhanltd.com www.hdfcsecurities.com www.spaisa.com www.moneypore.com www.icicidirect.com www.religare.in www.inforeligare.in www.mutualfunds.com WWW.Moneycontrol.com

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