PREFACE

As we all are aware, our financial markets have witnessed unprecedented liberalization, growth and reforms over the last decade-prompted by regulatory compulsions and a rapid integration between domestic and global markets. This has demolished the traditional artificial barriers of geographical boundaries and exposed Indias financial sector to direct competition from global giants. And as a result, we are seeing substantial growth in the number of firms (Mutual Funds, brokerages, banks, insurance companies, etc.) and in the number and variety of financial products and services offered by them. Savings form an important part of the economy of any nation. With the 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 a plethora of avenues to the investors. Though certainly not the best or deepest of markets in the world, it has reasonable options for an ordinary man to invest his savings. Mutual funds offer several benefits that are unmatched by other investment options. Post liberalization, the industry has been growing at a rapid pace an has crossed Rs. 100000 crore size in terms of its assets under management. However, due to the low-key investor awareness, the inflow under the industry is yet to overtake the inflows in banks. Rising inflation, falling interest rates and a volatile equity market make a deadly cocktail for the investor for whom mutual funds offer a route out of the impasse. The investments in mutual funds are not without risks because the same forces such as regulatory frameworks, government policies, interest rate structures, performance of companies etc. that rattle the equity and debt markets, act on mutual funds too. But it is the skill of the managing risks that investment managers seek to implement in order to strive and generate superior returns than otherwise possible that makes them a better option than many others.

Money is like a 6th Sense without which the 5 Basic Senses are worthless. Sounds familiar, doesnt it? And financial planning required creating your wealth with this money; so, take a look at this Flash Grid. - Anonymous

Chapter 2

Introduction to Karvy
(Stock Broking Limited)

Background:
In 1982, Group of Hyderabad-based practicing Chartered Accountants started KARVY Consultants Limited with a capital of Rs.1, 50,000 offering auditing and taxation services initially. Later, it forayed into the Registrar and Share Transfer activities and subsequently into financial services. All along, KARVY's strong work ethic and professional background leveraged with Information Technology enabled it to deliver quality to the individual. A decade of commitment, professional integrity and vision helped Karvy achieve a leadership position in its field when it handled the largest number of issues ever handled in the history of the Indian stock market in a year. Thereafter, Karvy made inroads into a host of capital-market services, - corporate and retail -, which proved to be a sound business synergy. Today, Karvy has access to millions of Indian shareholders, besides companies, banks, financial institutions and regulatory agencies. Over the past one and half decades, Karvy has evolved as a veritable link between industry, finance and people. In January 1998, Karvy became the first Depository Participant in Andhra Pradesh. An ISO 9002 company, Karvy's commitment to quality and retail reach has made it an integrated financial services company. An Overview: KARVY, is a premier integrated financial services provider, and ranked among the top five in the country in all its business segments, services over 16 million individual investors in various capacities, and provides investor services to over 300 corporate, comprising the who is who of Corporate India. KARVY covers the entire spectrum of financial services such as Stock broking, Depository Participants, Distribution of financial products - mutual funds, bonds, fixed deposit, equities, Insurance Broking, Commodities Broking, Personal Finance Advisory Services, Merchant Banking & Corporate Finance, placement of equity, IPOs, among others. Karvy has a professional management team and ranks among the best in technology, operations and research of various industrial segments.|

Karvy Milestones:

It has a wide network of 35 branches and 93 customer service points, which give Karvy a tremendous mileage in being close to the retail customer. All of karvy services are also backed by strong quality aspects, which have helped karvy to be certified as an ISO 9002 company by DNV. Some of the achievements: Among the top 5 stock brokers in India (4% of NSE) Indias No.1 Registrar & Securities Transfer Agents Among the top 3 Depository participants Largest Network of Branches &Business Associates ISO 9002 certified operations by DNV Among top 10 investment bankers Largest Distributor of Financial Products. Adjusted as one of the top 50 IT uses in India by MIS Asia and it has the Full Fledged IT driven operations? Largest mobilize of funds as per PRIME DATABASE. First ISO-9002 Certified Registrars in India Ranked as The Most Admired Registrar by MARG.

 First depository participant from Andhra Pradesh. Handled over 500 public issues as Registrars. Handling the Reliance account, which accounts for nearly 10 million account holders?

Range of Services:
Stock broking Mutual fund services Depository participant services Financial products distribution (investments/loan products) Corporate finance & Merchant banking Insurance IT enabled services Personalized advisory services Registrars & Transfer agents

As a part its service range, Karvy provides mutual fund investor services to about 40% of the asset management companies in India and as a result, is now strategically placed to make rapid strides in this business. Karvy provides purchase, redemption and cash management support through its wide network, virtually across the counter, there by offering investors a high degree of liquidity on their investments. Karvy has made a strategic choice to leverage the power of latest technology to provide a cutting edge to its services. Karvys ability to mass customize and offer a diverse range of products for a diverse range of customers has helped mutual fund companies position themselves in the market place. VISION Karvys aspiration of establishing itself as an integrated financial services company is propelled by a vision that is shared by its entire work force. Towards this end Karvy has dedicated itself to 1. Have a single-minded focus on investor servicing. 2. Established Karvy as household name for financial services. 3. Set industry standards. 4. Establish a leadership position in all chosen areas of business. And in the process, become the crucial link between industry, finance and people.

CORE VALUE

Karvys adherence to its core values-integrity, enterprise and innovation has earned it an enviable reputation amongst all the intermediaries and regulatory authorities of the capital and financial market

GROUP COMPANIES
KARVY CONSULTANTS LIMITED Deals in Registrar and Investment Services

KARVY SECURITIES LIMITED Deals in distribution of various investment products, viz., equities, mutual funds, bonds and debentures, fixed deposits, insurance policies for the investor.

KARVY INVESTOR SERVICES LIMITED

Deals in Issue management, Investment Banking and Merchant Banking.

KARVY STOCK BROKING Deals in buying and selling equity shares and debentures on the National Stock Exchange (NSE), the Hyderabad Stock Exchange (HSE) and the over-the-counter Exchange of India (OTCEI).

OBJECTIVES OF STUDY

The primary objective of study is to know the awareness of Mutual Funds and the investors perception towards investing in Mutual Funds as important segment. This study has been carried out to know the marketing activities undertaken under the financial products for Mutual Funds in offering the financial services to the investors & also to other Financial Institutions. Some of the other Objectives of study are as under To clearly understand the nature and role of Mutual Funds in India. To spread awareness of Mutual Funds by explaining to customers the advantage of investing in Mutual Funds. To study the performance analysis of different schemes based on their returns and then comparing it with other Mutual Fund Schemes. To find out investors criteria of investment. To analyze the returns on various schemes of different Mutual Funds, minimizing the risks and maximizing the returns from the investors point of view based on the contingency of past performance. To give brief descriptions about Mutual Funds according to the investors & kindly help them for selecting a right scheme.

Methodology involved:
In order to fulfill the stated objectives of the study, the needed information has been collected from Primary Sources (Primary Data) and Secondary Sources (secondary data). Primary Data: The Primary Data has been collected by interviewing the karvy executives, by careful observation, by listening to the financial advisors while they are discussing various market related issues among themselves & also by accompanying them, when they are approaching different customers. Secondary Data: The Secondary Data has been collected from a variety of sources like Karvy Finapolis, Karvy Publications, Karvy records, books like referring Financial Systems and Services Published by Khan &Jain, Magazines, Past Records, Fact Sheets, and Offer Documents.

LIMITATIONS OF THE STUDY

The study will be based upon the primary and secondary sources of information. The primary data includes the information furnished by the financial executives regarding their strategies to win the customers and markets, because of confidentiary or due to other reasons the information furnished may be some times biased in nature.

The researcher will made observations only in a particular branch of company. The activities may differ from Branch to branch or region to region on state-to-state depending upon the financial as well as on marketing environment of that area. Even the basic view of investors may reflect the study.

Since this study will make only for a short span, it may be a qualitative one. So the study may not cover all the aspects. Due to corporate trade secrecy, the information is not so exclusive.

Chapter - 3 INTRODUCTION TO MUTUAL FUNDS

Mutual Funds: An overview

Introduction
A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI) that pools up the money from individual/corporate investors and invests the same on behalf of the investors/unit holders, in equity shares, government securities,

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Bonds, Call money markets etc, and distributes the profits. In other words, a Mutual Fund allows an investor to indirectly take a position in basket of assets. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy.

A mutual fund operation flow chart A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc. A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks.

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BLOCK DIAGRAM OF MUTUALFUND

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

Meaning
The Mutual Funds are corporations which pools funds & reduce risks by diversified portfolio.

Definition according to Weston J.Fred and Brigham, Engine F

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Mutual Funds are corporations which accept dollars from savers & then use these dollars to buy. Stocks, long terms, bonds, short term debt instruments issued by business or government units; these corporations pools funds & thus reduce risks by diversification.

History of the Indian Mutual Fund Industry:

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. The history of mutual funds in India can be broadly divided into four distinct phases First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. 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. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds. Fourth Phase since February 2003

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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 crore 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 October 31, 2003, there were 31 funds, which manage assets of Rs.126726 crores under 386 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

The graph indicates the growth of assets over the years.

The organization of a Mutual Fund

There are many entities involved and the diagram below illustrates the organizational set up

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They can be explained as under

Trustees Trustees are managed either by the Trust Company or a Board of trustees. It is his responsibility of the trustees to protect the interest of the investors. They are the people within a Mutual Fund organization, who are responsible for ensuring that investors interests are properly taken care of. Asset Management Company (AMC) AMCs manage the investment portfolios of schemes. AMCs incomes from the management fees it charges to the schemes. The management fee is calculated as a percentage of net assets managed. Some countries provide for performance based managed fees as well. The AMC (Asset Management Companies) are appointed by the trustees, by taking into consideration the advice of the mutual funds. The AMC is a private limited company The following are the requirements that are to be fulfilled by AMC: Only SEBI registered AMC can be appointed as investment managers of the mutual funds. AMC must have at least 10crores Rs. net worth. An AMC cannot be an AMC or trustee of another mutual fund. AMC cannot indulge in any other business other than asset management. At least half of the members of the board of AMC have to be independent. The investment management agreement must be entered between the trustees and the AMC. Mutual Fund Manager:

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Mutual fund manager is a person who manages the fund according to the investors objectives. The fundamental investment philosophy of any fund and fund manager should be to basically to protect the capital erosion of the investor in the bad markets and to ensure that he gets superior returns in a bull market. Registrar and Transfer Agent: The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.

Structure of Mutual Funds in India

Custodian The custodian maintains custody of the securities in which the scheme invests. The Mutual Fund shall appoint a custodian to carry out the custodial services. Sponsors The promoter of a Mutual Fund is referred to as Sponsors. As per the regulations, a sponsor means any person who, acting alone or in combination with another body corporate, establishes a Mutual Fund. Others The above are the commonly used tools. But analysts tend to use several creative tools. CHARACTERISTICS OF MUTUAL FUNDS:

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 A Mutual Fund actually belongs to the investors who have pooled their funds. The ownership of the mutual fund is in the hands of the investors. The investment portfolio of the mutual fund is created according to the stated investment objectives of the fund. Investment professionals and other service providers, who earn a fee for their services, from the fund, manage a Mutual Fund. The pool of funds is invested in a portfolio of marketable investments. The value of the portfolio is updated every day. The investors share in the fund is denominated by units. The value of the units changes with changes in the portfolios value, every day. The value of one unit of investment is called as NET ASSET VALUE.

Advantages of Mutual Funds

Diversification The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value. Professional Management Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell. Liquidity It's easy to get your money out of a mutual fund. Write a check, make a call, and you've got the cash. Low cost Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index

Diversification

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The clich, "dont put all your eggs in one basket" really applies to the concept of intelligent investing. Diversification lowers your risk of loss by spreading your money across various industries. It is a rare occasion when all stocks decline at the same time and in the same proportion. Sector funds will spread your investment across only one industry and it would not be wise for your portfolio to be skewed towards these types of funds for obvious reasons. Choice of Schemes Mutual funds offer a variety of schemes that will suit your needs over a lifetime. When you enter a new stage in your life, all you need to do is sit down with your investment advisor who will help you to rearrange your portfolio to suit your altered lifestyle. Affordability As a small investor, you may find that it is not possible to buy shares of larger corporations. Mutual funds generally buy and sell securities in large volumes, which allow investors to benefit from lower trading costs. The smallest investor can get started on mutual funds because of the minimal investment requirements. You can invest with a minimum of Rs. 500 in a on a regular basis. Tax Benefits Investments held by investors for a period of 12 months or more qualify for Capital gains and will be taxed accordingly (10% of the amount by which the investment appreciated, or 20% after factoring in the benefit of cost indexation, whichever is lower). These investments also get the benefit of indexation Rupee Cost Averaging Through using this concept of investing the same amount regularly, mutual funds give you the advantage of getting the average unit price over the long-term. This reduces your risk and also allows you to discipline yourself by actually investing every month or quarterly and not making sporadic investments. For more insight into how Rupee Cost Averaging works. The Transparency of Mutual Funds The performance of a mutual fund is reviewed by various publications and rating agencies, making it easy for investors to compare one to the other. Once you are part of a mutual fund scheme, you are provided with regular updates, for example daily NAVs, as well as information on the specific investments made and the fund managers strategy and outlook of the scheme.

Economies of Scale

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Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than you as an individual would pay. Simplicity Buying a mutual fund is easy! Pretty well any bank has its own line of mutual funds, and the minimum investment is small. Most companies also have automatic purchase plans whereby as little as Rs 500 can be invested on a monthly basis. 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.

Disadvantages of Mutual Funds: Costs Mutual funds don't exist solely to make your life easier--all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject. Dilution It's possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. Taxes When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

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Types of Mutual Funds (Schemes )in India Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The following are listed as underSchemes according to the Maturity Period: A Mutual Fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended funds Open-ended funds operate more like current account deposits in the bank. You can deposit or withdraw money at virtually any time. Open-ended Funds do not have a fixed period of maturity and all deposits and withdrawals are made at NAV based prices. When you deposit money, you get a credit in your account for the money deposited, converted into a number of units at the prevailing purchase price. Similarly, when you withdraw money, your account is debited with the amount withdrawn, converted into certain number of units at the prevailing sale price.

Close-ended funds Close-Ended funds operate more like fixed deposits. They have a definite period of maturity during which, you cannot normally withdraw from the fund. To subscribe to the fund, you can do so only at the time of initial public offer (IPO), and thereafter, if you want to buy or sell units, you can do so only through the secondary market. On reaching maturity, they are redeemed and the proceeds are distributed among the subscribers. There are some schemes, which combine the features of an open-ended, and a closeended fund. They are called Interval Funds. They are open for sale or for redemption at specific intervals and at NAV related prices. Beyond the interval period, such funds operate like close-end funds, and may even be listed in the stock exchanges.

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Schemes according to investment Objective:

Income or Debt funds invest: The type of fund you choose and its investment strategy decides where a fund will invest. To give investors a steady flow of income, Income or Debt funds normally invest in fixedincome securities like bonds and corporate debentures. These schemes have investments with a short-to-medium term period with a specific focus of preserving the capital. Equity or Growth funds invest To provide capital appreciation over a medium to long term, Equity, or Growth funds invest predominantly in stock market instruments. As an investor, you should be prepared to take a certain amount of risk, and wait for a longer period to get returns that are more attractive. Balance Funds To provide both income and capital appreciation, Balanced Funds invest partly in equity and partly in debt. If your risk appetite is moderate, and you are looking for a 3-5 years horizon, balanced funds may be the answer. Money Market or Liquid FundsMoney Market or Liquid Funds allow you to invest your funds for a very short-term, like a few weeks to less than a year. This would allow you to withdraw your money at any time. These schemes invest mainly in short-term instruments like treasury bills, government securities, certificates of deposit, and commercial paper and call money. Generally these schemes are very safe, but give lower returns than the others. LIQUID FUNDS A Liquid Fund is a 100% debt-oriented mutual fund scheme investing in shorter-term debt instruments with the primary focus on liquidity. Advantages Safe Investment Faster Redemption Low market risks High Flexibility Extra Returns

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Chapter 4

AN OVERVIEW OF THE PRODUCT MARKET

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Products Offered By Mutual funds (Schemes):

Start

with a growing market. Swim in a stream that becomes a river and ultimately an ocean. Be a leader in that market, not a follower, and constantly build the best products possible." Just have a look at thisDepending on the investment portfolio that is created, the following are the types of products that are offered by Mutual Funds: Equity Funds Debt Funds Balanced Funds And they can be explained as under

Equity Funds
These funds are those that invest pre-dominantly in equity shares of companies. There are a variety of ways in which an equity portfolio can be created for investors. These schemes, also commonly called Growth Schemes, seek to invest a majority of their funds in equities and a small portion in money market instruments. Such schemes have the potential to deliver superior returns over the long term. However, because they invest in equities, these schemes are exposed to fluctuations in value especially in the short term. Equity schemes are hence not suitable for investors seeking regular income or needing to use their investments in the short-term. They are ideal for investors who have a long-term investment horizon. The NAV prices of equity fund fluctuates with market value of the underlying stock which are influenced by external factors such as social, political as well as economic. Tata Pure Equity Fund and Tata Index Fund are examples of equity schemes.

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General Purpose Equity Schemes The investment objectives of general-purpose equity schemes do not restrict them to invest in specific industries or sectors. They thus have a diversified portfolio of companies across a large spectrum of industries. While they are exposed to equity price risks, diversified general-purpose equity funds seek to reduce the sector or stock specific risks through diversification. They mainly have market risk exposure. Tata Pure Equity Fund is a general-purpose equity scheme. Sector Specific Equity Schemes These schemes restrict their investing to one or more pre-defined sectors, e.g. technology sector. They depend upon the performance of these select sectors only and are hence inherently more risky than general-purpose equity schemes. Ideally suited for informed investors who wish to take a view and risk on the concerned sector. The Tata Life Sciences and Technology Fund is an example of sector specific equity scheme. Special Schemes Index schemes An Index is to use as a measure of the performance of the market as a whole, or a specific sector of the market. It also serves as a relevant benchmark to evaluate the performance of mutual funds. Some investors are interested in investing in the market in general rather than investing in any specific fund. Such investors are happy to receive the returns posted by the markets. As it is not practical to invest in each and every stock in the market in proportion to its size, these investors are comfortable investing in a fund that they believe is a good representative of the entire market. Funds are launched and managed for such investors. An example to such a fund is the Tata Index Fund.

Tax Saving Schemes

Investors (individuals and Hindu Undivided Families ("HUFs")) are being encouraged to invest in equity markets through Equity Linked Savings Scheme ("ELSS") by offering them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched - out until completion of 3 years from the date of allotment of the respective Units. The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS. Subject to such conditions and limitations, as prescribed under Section 88 of the Income tax Act, 1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from income tax, according to the assesses tax bracket. Tata Tax Saving Fund is one such fund.

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 Debt Funds
Debt funds are those that pre-dominantly invest in debt securities. Since most debt securities pay periodic interest to investors, these funds are also known as Income funds. However, it must be remembered that funds investing in debt products can also offer a growth option to their investors. The universe of debt securities comprises of long- term instruments such as bond issues by central and state governments, public financial institutions and private sector companies; and short term instruments such as call money lending; commercial papers, and certificate of deposits and treasury bills. These can be explained by the following diagram-

Income Schemes These schemes invest in money markets, bonds and debentures of corporate companies with medium and long-term maturities. These schemes primarily target current income instead of capital appreciation. Hence, a substantial part of the distributable surplus is given back to the investor by way of dividend distribution. These schemes usually declare quarterly dividends and are suitable for conservative investors who have medium to longterm investment horizon and are looking for regular income through dividend or steady capital appreciation. Tata Income Fund and Tata Income Plus Fund and are examples of bond schemes. Liquid Income Schemes Similar to the Income scheme but with a shorter maturity than Income schemes. An example of this scheme is the Tata Liquid Fund.

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Money Market Schemes These schemes invest in short term instruments such as commercial paper ("CP"), certificates of deposit ("CD"), treasury bills ("T-Bill") and overnight money ("Call"). The schemes are the least volatile of all the types of schemes because of their investments in money market instrument with short-term maturities. These schemes have become popular with institutional investors and high net-worth individuals having short-term surplus funds. Gilt Funds These primarily invest in Government Debt. Hence, the investor usually does not have to worry about credit risk since Government Debt is generally credit risk free. Tata Gilt Securities Fund is an example of one such scheme. Hybrid Schemes These schemes are also commonly called balanced schemes. These invest in both equities as well as debt. By investing in a mix of this nature, balanced schemes seek to attain the objective of income and moderate capital appreciation. Such schemes are ideal for investors with a conservative, long-term orientation. Tata Balanced Fund and Tata Young Citizen's Fund are perfect examples of such hybrid schemes. The Constitution of Schemes Schemes are classified as Close-ended or Open-ended depending upon whether they give the investor the option to redeem at any time (open-ended) or whether the investor has to wait till maturity of the scheme.

Balanced Schemes
Schemes that invest both in debt and equity markets are called balanced funds or schemes. A typical balanced fund would be almost equally invested in both the markets. Therefore the benefits of diversification get further enhanced, as equity and debt markets have different risk and return profiles.

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Risks Associated with Mutual Funds

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RISKS ASSOCIATED WITH MUTUAL FUND INVESTMENT:

Mutual funds offer incredible flexibility in managing investment risk. So whether one consider investment temperament to be conservative, moderate or aggressive, one need to focus on how comfortable or uncomfortable you will be as the value of how investment moves up or down. At the cornerstone of investing is the basic principle that the greater the risk taken, the greater the potential reward. Typically, risk is defined as short-term price variability. But on a long-term basis, risk is the possibility that your accumulated real capital will be insufficient to meet your financial goals. And to reach the financial goals, one must start with an honest appraisal of own personal comfort zone with regard to risk. Individual tolerance for risk varies, creating a distinct "investment personality" for each investor. Some investors can accept short-term volatility with ease, others with near panic. Diversification and Automatic Investing (SIP) are two key techniques you can use to reduce your investment risk considerably and reach your long-term financial goals. Investment Risk: The sect oral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities. Changes in government policy: Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund.

The types of risks can be explained as underTypes of Risks: All investments involve some form of risk. Even an insured bank account is subject to the possibility that inflation will rise faster than your earnings, leaving you with less real purchasing power than when you started (Rs. 1000 gives you less than it got your father when he was your age). Consider these common types of risk and evaluate them against potential rewards when you select an investment. Some more risks which mainly involves are as underMarket Risk: At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to "market risk".

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Inflation Risk: Sometimes referred to as "loss of purchasing power." Whenever inflation sprints forward faster than the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns. Credit Risk: In short, how stable is the company or entity to which you lend your money when you invest. How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures? Interest Risk: Changing interest rates affect both equities and bonds in many ways. Investors are reminded that "predicting" which way rates will go is rarely successful. A diversified portfolio can help in offsetting these changes. Exchange risk: A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive or negative impact on companies which in turn would have an effect on the investment of the fund.

29

RISKS ASSOCIATED WITH MUTUAL FUND

30

Risk Return Grid

Risk Tolerance/ Return Expected

Focus
Debt

Suitable Products
Bank/ Company FD, Debt based Funds

Benefits offered by MFs

Liquidity, Better Post-Tax returns

Low

Medium Partially Equity

Partially Debt,

Balanced Funds, Some Diversified Liquidity, Better Post-Tax returns, Equity Funds and some debt Funds, Better Management, Diversification Mix of shares and Fixed Deposits

High

Equity

Capital Market, Equity Funds (Diversified as well as Sector)

Diversification, Expertise in stock picking, Liquidity, Tax free dividends

Their appeal is not just limited to these categories of investors. Specific goals like career planning for children and retirement plans are also catered to by mutual funds. Children funds have found their way in a big way with many of the fund houses already having launched a children fund. Essentially debt oriented, these schemes invite investments, which are locked till the child attains majority and requires money for higher education. One can invest today and assure financial support to your child when he/she requires them. The schemes have given very good returns of around 14 percent in the last one-year period. These schemes are also designed to provide tax efficiency. The returns generated by these funds come under capital gains and attract tax at concessional rates. Besides this, if the objective was to save taxes, the industry offers equity linked savings schemes as well. Equity-based funds, they can take long-term call on stocks and market conditions without having to worry about redemption pressure as the money is locked in for three years and provide good returns. Some of the ELSS have been exceptional performers in past and cater to equity investor with good performances. The industry offered tax benefits under various sections of the IT Act. For e.g. dividend income is free in the hands of the investor while capital gains are taxed after providing for cost inflation indexation. NET ASSET VALUE (NAV): The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the "per unit". We also abide by the same convention.

31

Calculation of NAV Formulae for calculation of NAV is as under

Market or Fair Value of the schemes NAV =

Current Assets (including accrued income)

Current liabilities and provisions (including accrued expenses)

No. Of Units outstanding under the scheme. Expenses including management fees, custody charges etc. are calculated on a daily basis. A summary is presented in the table below of the various funds and their investment objectives.
RISK AND RETURN GRID Scheme Type Objective Open Close Time Horizon Risk Profile Typical Investment Pattern Equity (%) Debt (%) Money Market Inst./Other s (%) 80-100 0-20 0-20 0-20 0-20

Money Market Income Growth Balanced Tax Saving

Yes Yes Yes Yes Yes

No Yes Yes Yes Yes

short-term

Low

0 0 80-100

0-20 80-100 0-20 0-40 80-100

Medium -Long Low to Medium Term Long Term Long term Long term High

Medium to high 0-60 High 80-100

Optimal Portfolio Theory and Mutual Funds: One examination of the relationship between portfolio returns and risk is the efficient frontier, a curve that is a part of the modern portfolio theory. The curve forms from a graph plotting return and risk indicated by volatility, which is represented by standard deviation. According to the modern portfolio theory, funds lying on the curve are yielding the maximum return possible given the amount of volatility.

32

Notice that as standard deviation increases, so does the return. In the above chart, once expected returns of a portfolio reach a certain level, an investor must take on a large amount of volatility for a small increase in return. Obviously portfolios that have a risk/return relationship plotted far below the curve are not optimal as the investor is taking on a large amount of instability for a small return. To determine if the proposed fund has an optimal return for the amount of volatility acquired, an investor needs to do an analysis of the fund's standard deviation. Note that the modern portfolio theory and volatility are not the only means investors use to determine and analyze risk, which may be caused by many different factors in the market. Not all investors therefore evaluate the chance of losses the same way--things like risk tolerance and investment strategy will affect how an investor views his or her exposure to risk. Standard Deviation: The standard deviation essentially reports a fund's volatility, which indicates the tendency of the returns to rise or fall drastically in a short period of time. A security that is volatile is also considered higher risk because its performance may change quickly in either direction at any moment. The standard deviation of a fund measures this risk by measuring the

33

degree to which the fund fluctuates in relation to its mean return, the average return of a fund over a period of time. A fund that has a consistent four-year return of 3%, for example, would have a mean, or average, of 3%. The standard deviation for this fund would then be 0 because the fund's return in any given year does not differ from its four-year mean of 3%. On the other hand, a fund that in each of the last four years returned -5%, 17%, 2%, and 30% will have a mean return of 11%. The fund will also exhibit a high standard deviation because each year the return of the fund differs from the mean return. This fund is therefore more risky because it fluctuates widely between negative and positive returns within a short period. A note to remember is that, because volatility is only one indicator of the risk affecting a security, a stable past performance of a fund is not necessarily a guarantee of future stability. Since unforeseen market factors can influence volatility, a fund that this year has a standard deviation close or equal to zero may behave differently in the following year. To determine how well a fund is maximizing the return received for its volatility, you can compare the fund to another with a similar investment strategy and similar returns. The fund with the lower standard deviation would be more optimal because it is maximizing the return received for the amount of risk acquired. Consider the following

With the S&P 500 Fund B, the investor would be acquiring a larger amount of volatility risk than necessary to achieve the same returns as Fund A. Fund A would provide the investor with the optimal risk/return relationship. Beta: A fund with a beta very close to 1 means the fund's performance closely matches the index or benchmark--a beta greater than 1 indicates greater volatility than the overall market, and a beta less than 1 indicates less volatility than the benchmark. If, for example, a fund has a beta of 1.05 in relation to the S&P 500, the fund has been moving 5% more

34

than the index. Therefore, if the S&P 500 increased 15%, the fund would be expected to increase 15.75%. On the other hand, a fund with a beta of 2.4 would be expected to move 2.4 times more than its corresponding index. If the S&P 500 moved 10%, the fund would be expected to rise 24%, and, if the S&P 50 declined 10%, the fund would be expected to lose 24%. R-Squared (R2): The R-squared of a fund advises investors if the beta of a mutual fund is measured against an appropriate benchmark-squared values range between 0and 1, where 0 represents the least correlation and 1 represents full correlation. If a fund's beta has an Rsquared value that is close to 1, the beta of the fund should be trusted. On the other hand, an R-squared value that is close to 0 indicates that the beta is not particularly useful because the fund is being compared against an inappropriate benchmark. An inappropriate benchmark will skew more than just beta. Alpha is calculated using beta, so if the R-squared value of a fund is low, it is also wise not to trust the figure given for alpha. Alpha: This is used to measure the extra return rewarded to you for taking on risk posed by factors other than market volatility. Enter alpha, which measures how much if any of this extra risk helped the fund outperform its corresponding benchmark. Using beta, alpha's computation compares the fund's performance to that of the benchmark's risk-adjusted returns and establishes if the fund's returns outperformed the market's, given the same amount of risk. For example, if a fund has an alpha of 1, it means that the fund outperformed the benchmark by 1%. Negative alphas are bad in that they indicate that the fund under performed for the amount of extra, fund-specific risk that the fund's investors undertook. Some of the requirements needed the investors to invest in Mutual FundsPermanent Account Number As per Central Board of Direct Taxes (CBDT) notification dated: December 1, 2004 where the amount invested is for the total value of Rs.50,000/- or more, the sole applicant or in case of application in joint names, each of the applicants should mention his/her Permanent Account Number (PAN) allotted under the IT Act and provide a copy of PAN card/PAN letter/Refund Order or Demand Notice from Income Tax Department where PAN is mentioned or where the same is not allotted /or applied for/ is not an assesse, a declaration vide form 60/61 must be furnished. In case of minor investing more than Rs.50000/- PAN no. of the guardian should be mentioned if the minor does not have any income chargeable to tax.

Systematic Investment PlanReasons to invest-

35

Systematic Investment Plan (SIP) is one of the better ways of investing in Equity Mutual funds. Taking advantage of the two basic principles of the Power of Compounding and Rupee Cost Averaging, Sips work as a powerful tool that can help you create wealth over time. Similar to a recurring deposit with a bank, the investor has the option of investing a fixed amount of money at pre-determined intervals into a fund of his choice.

Benefits Disciplined approach to investments Periodic and regular investment outflow Rupee cost averaging Buy more when NAV is low and less when NAV is high Helps overcome market volatility Power of compounding Profit you earn on your profit is compounding. Longer the period your investment, the more wealth you accumulate No Entry Load Minimum Investment of Rs. 1000/- through a standing instruction.

SIP: How does it work?

SIP Investment Option is mainly available in all MF schemes. Identify the scheme that you want to invest in Give Standing Instruction/Post Dated cheques for the amount you want to Invest (monthly/quarterly). MF units will be allotted based on the schemes selling price on the day of Your SIP transaction.

An Investment case Regular SIP investments ideal to accumulate wealth

SIP:
If Mr.Prakash Shroff would have invested Rs 5000 every month since 1 June 1980 in BSE Sensex (Equity Sheme). The value as on 30 June 2004 would be Rs 1.2 Crore. (Compounded annualized return of 14.5% over 24 years). Growth of a monthly saving of Rs.1000 over a 30-year period will be Rs.32.46 Lacs. At an assumed rate of return of 12%. Total investment outflow is Rs.3.6 Lacs.

May not be true for SIP Investments

You lose Money in a Falling Market

36

Everybody thinks that SIP works in a rising market. In fact, SIP even works better in a falling market. Let us take an example of Mr.Anil who invested from Febraury10, 2003 (BSE Sensex: 5789) to April 10, 2006 (BSE Sensex: 3035)

Return Comparison b/w Lump sum investment v/s SIP

Franklin Blue chip Fund Feb 2003-April 2006 Lump sum Investments SIP Investments Sensex Returns SIP gain over Lump sum SIP gain over Sensex returns 8.03% 19.07% 14.31% 25.55% 23.14% 31.87% -4.28% 3.75% -15.32% HDFC Equity Fund Feb 2003-April 2006 -4.08% 10.23% -15.32% Franklin Prima Fund Feb 2003-April 2006 -6.59% 16.55% -15.32%

SIP: The power of Compounding Rohit

Investment Amount Investment Duration 5000 20 yrs

Rakesh
1000 10 yrs

Final Amount Returns at 15 % p.a.

81333

40456

The longer the period of your investment the more you accumulate. In the table above, though the amount put by Rohit is half of that put by Rakesh; his investment becomes twice as much because of the power of compounding. Systematic Transfer Plan

37

It can be transferred from one plan to another plan very easily through the debit balance system. Systematic Withdrawal Plan If you want money at regular intervals, the fund gives you post-dated checks which you may encash at periodic intervals. Some Funds even offer a tele-transaction facility through a Personal Identification Number (PIN) to help you deposit or withdraw money from the fund. The withdrawals can be made monthly, quarterly, on any date specified by the unit holders. The minimum amount for withdrawal under SWP is Rs 500, while the minimum number of units for withdrawal shall be 50 units. The withdrawal will commence from the Start date mentioned by the unit holder in the Application form for the facility. The units will be redeemed at the Applicable NAV of the respective dates on which such withdrawals are sought. Load Structure and Recurring Expenses: Load is the factor that is applied to the NAV of a scheme to arrive at the price. If a commission is paid to agents, to bring in new business, this represents a cost incurred by the Mutual Fund, for the additional sales. The fund may decide that investors, who are already in the scheme, need not bear this cost. Therefore it may decide to impose this cost on the new investors, by increasing the price at which they can buy units. This is called the sales load. There are two types of loads available in Mutual Funds. They are as underEntry Load An entry load is an additional cost that an investor pays at the point of entry. Assume that your proposed investment is Rs.10, 000/-. Also assume that the current NAV of the fund is Rs.12.00 and that the entry load is Rs.0.50. Then you will receive 10000/12.50 = 800 units. Exit LoadAn exit load is levy that an investor pays at the point of exit. This is levied to dissuade investors from exiting the fund. Assume that the current NAV of the fund is Rs.12.00 and that the exit load is Rs.0.50. Now if you sell 800 units then you stand to receive 800X11.5 = Rs. 9200.

INVESTMENT IN MUTUAL FUNDS CAN EARN MONEY IN TWO WAYS

CAPITAL APPRECIATION An increase in the value of units of the funds is known as capital appreciation. As the value of securities increases, the funds units price also increases. Investors can make these distributions in the form of cash or reinvest them back in the fund.

38

INCOME DISTRIBUTION The fund passes on the profit, which was earned, in the form of dividends. Investors take these distributions in the form of cash or reinvest them back in the fund.

Selecting Funds for Your Portfolio

The chart below can be used to identify the types of funds best suited to your particular investment objectives. Refer to it as you begin to formulate your portfolio.

If Your Basic Objective Is Maximum Capital Growth

You Want The Following Fund Type Aggressive Growth International

These Funds Invest Primarily In Common stocks with potential for very rapid growth. May employ certain aggressive strategies Common stocks with long-term growth potential Common stocks with potential for high dividends and capital appreciation Both highdividendpaying stocks and bonds Money market instruments Short-term municipal notes

Potential Capital Appreciation

Potential Current Income

Potential Risk

Very High

Very Low

High to Very High

High Capital Growth

Growth Specialty/ Sector International High to Very High Very Low High

Current Income & Capital Growth High Current Income Current Income & Protection of Principal tax-free Income & Protection of

Growth and Income Fixed Income Equity Income General Money Market Funds

Moderate

Moderat e High to Very High Moderat e to High Moderat e to

Moderate to High Low to Moderate

Very Low

Very Low

None

tax-exempt Money Market

Low

None

39

Principal Current Income & Maximum Safety of Principal Tax-Exempt Income

and bonds Government Money Market Aggressive Growth International Guaranteed and issued by Govt. A broad range of municipal bonds None

High Moderat e to High Moderat e to High Low

Low to Moderate

Low to Moderate

SUGGESTIONS TO INVESTORS
Investors problem is not lack of choice in investment but in making sensible choices from all investments available, and in some cases, finding out all the details needed to come to these decisions. Normally investors personal opinions are bound to affect his choice of investments. Investors can be classified based on their risk taking capabilities: Risk Averse Risk Prone Medium Risk Taker RISK AVERSE INVESTOR: Risk averse investor is a person who does not intend to take any risk. He expects consistent return on his investments. A majority of his investments constitute bank deposits, LIC etc., which are risk free. Asset management companies (AMCs) exist to help different kinds of investors. Their survival depends on the efficiency of the portfolios. Mutual funds also have funds that assure the investor of constant retur4ns with minimum or almost nil risk. Income funds or balanced funds provide the investor with the constant returns and minimum risk. AMCs will also be guided by the ratings of agencies such as CRISIL, ICRA etc. which provide the risk averse investors with two funds; INCOME FUND. LIQUID FUND GILT SECURITIES FUND

INCOME FUND: Income Fund is a debt scheme (open-ended unfixed deposit), which enables you to enjoy monthly, quarterly, semi-annual tax-free income. The scheme entails low risk along with the steady growth. You can open an account with a minimum investment of Rs.5000 and in multiplies of Rs.1000 thereof. Even for some of the investors the investment depends on there earning groups.

40

LIQUID FUND: Liquid Fund is an open-ended high liquidity income scheme suitable for high net worth individuals and corporates to invest their surplus funds. You can open an account with a minimum investment

Performance of Mutual Funds in India

Present Scenario:
Let us start the discussion of the performance of mutual funds in India from the day the concept of mutual fund took birth in India. The year was 1963. Unit Trust of India invited investors or rather to those who believed in savings, to park their money in UTI Mutual Fund. For 30 years it goaled without a single second player. Though the 1988-year saw some new mutual fund companies, but UTI remained in a monopoly position.
SOME OF TOP PERFORMANCE BASED ON ONE-YEAR RETURNS

41

Category Equity Diversified Equity - Auto Equity - FMCG Equity - Technology Equity - Pharma Equity - Banking Equity - MNC Equity Tax Saving Equity Index Balanced Income (Debt) Money Market Gilt Monthly Income Plan Hybrid Debt - Speciality Debt - Institutional Money Market - Institutional

Top Performer Magnum Emerging Businesses (G) JM Auto Sector Fund (G) Pru ICICI FMCG Fund (G) Magnum IT Fund Magnum Pharma Fund (G) UTI Thematic-Banking Sector(G) Birla MNC Fund (G) Magnum Tax Gain Scheme UTI Master Index Fund (G) Magnum Balanced Fund (G) Tata Income Fund (App.) UTI Liquid Short Term Plan (G) Principal GSec- Inv. Plan (G) HDFC MIP - LTP (G) Pru ICICI AS- Very Aggres. (G) Templeton (I) Childrens AP (G) Pru ICICI STP - Inst. Plan (G) UTI Liquid Cash - (Inst) (G)

3 Mth
16.2 14.3 23.2 13.9 30.4 4.6 24.6 17.7 17.4 13.7 -1.1 1.5 0.8 5.2 22 11.4 1.2 1.4

6 Mth
16.4 23.4 32.5 30.2 32.7 3.1 29.9 22.4 29.6 22.5 7.3 2.9 2.1 10.2 28.6 13.7 2.7 2.9

1 Year
93.1 49.6 104.8 64.5 69.3 30.2 59.4 97.3 52.6 53.4 10 6 5.8 18.5 56.3 17.9 6.1 5.7

Present
The performance of Mutual Funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yes, some 24 million shareholders were accustomed with guaranteed high returns by the beginning of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations of investors touched the sky in profitability factor. However, people were miles away from the preparedness of risks factor after the liberalization. The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance by April 2004. It rose as high as Rs. 1,540bn.

42

The net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative investments. There was rather no choice apart from holding the cash or to further continue investing in shares. One more thing to be noted, since only closed-end funds were floated in the market, the investors disinvested by selling at a loss in the secondary market. The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal, the losses by disinvestments and of courses the lack of transparent rules in the where about rocked confidence among the investors. Partly owing to a relatively weak stock market performance, mutual funds have not yet recovered, with funds trading at an average discount of 1020 percent of their net asset value. The supervisory authority adopted a set of measures to create a transparent and competitive environment in mutual funds. Some of them were like relaxing investment restrictions into the market, introduction of open-ended funds, and paving the gateway for mutual funds to launch pension schemes. The measure was taken to make mutual funds the key instrument for long-term saving. The more the variety offered, the quantitative will be investors. At last to mention, as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time, more and more people will be inclined to invest until and unless they are fully educated with the dos and donts of mutual funds.

AN OVERVIEW OF THE PRESENT MARKET AS ON FEB 17TH

Many market participants are viewing the rate cut on post-office schemes as an indication that RBI may put a hold on the rate hike. Also, lower industrial production growth rate of 5 % in the month of December,05 suggest that RBI may leave rates unchanged in its annual monetary policy in April,2006.Yet, it may review rates again in July 2006 depending upon the prevailing circumstances.

This can be explained by the following table-

43

Recommended schemes to invest

JM Floater ST Floaters

Historical return as Expens Crisil e ratio Rankin on Feb. 17th (%) 1m 0.50 3m 1.46 1.40 1.28 1.42 1.42 1.41 1y 5.68 5.54 5.25 5.52 5.37 5.56 0.50 0.55 0.62 0.45 0.50 0.40

g for quarter ended0 5

1 1 2 2 2 1

Reliance Floating R 0.47 Grind lays Floating R. - ST HDFC Cash MgtSavings 0.45 0.49 0.50 0.48

Liquid

Birla Cash PlusRetail UTI Liquid Cash Regular

Future of Mutual Funds in India

By December 2004, Indian mutual fund industry reached Rs 1, 50,537 crore. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs 40, 90,000 crore.

44

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

Let us discuss with the following table

Aggregate deposits of Scheduled Com Banks in India (Rs.Crore) Month/Year Deposits Change in % over last yr Mar-98 Mar-00 Mar-01 Mar-02 Mar-03 Mar04 Sep-04 4-Dec

605410 851593 989141 1131188 1280853 15 14 13 12 -

1567251 1622579 18 3

Mutual Fund AUMs Growth Month/Year MF AUM's Change in % over last yr

Source from google

Mar-98 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Sep-04 4-Dec 68984 93717 83131 94017 75306 137626 151141 149300 26 13 12 25 45 9 1

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 like Fidelity Investments, US based, with over US$1trillion assets under management worldwide. Our saving rate is over 23%, highest in the world. Only canalizing 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. 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities.

45

Mutual fund can penetrate rural 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.

Some of the best picks according to the investor

Absolute return (in %) as on February 17, 2006.
Equity Diversified Rs. cr.) Asset Size 421.42 453.31 163.07 Asset Size 370.37 28.48 281.17 Asset Size Magnum Balanced Fund (G) HDFC Prudence (G) Pru ICICI Balanced Fund (G) Monthly Income Plan Asset Size 172.93 1,606.25 299.42 NAV Rs. 31.23 Rs. 25.29 Rs. 24.60 NAV Rs. 55.28 Rs. 23.28 Rs. 116.19 NAV Rs. 28.49 Rs. 89.21 Rs. 28.64 NAV 6mth 1yr 2yr 3yr

Magnum Global Fund (G) Magnum Emerging Businesses (G) Sundaram Leadership Fund (G) Equity Tax Saving

34.7 16.4 39.2 6mth

85.0 93.1 76.8 1yr

222.2 --2yr

582.5 --3yr

Magnum Tax Gain Scheme Sundaram Tax Saver (G) HDFC Tax Saver (G) Balanced

22.4 37.5 22.8 6mth

97.3 70.3 74.5 1yr

225.5 175.3 181.7 2yr

698.8 425.9 499.2 3yr

22.5 22.9 21.3 6mth

53.4 49.9 44.9 1yr

105.9 89.0 74.0 2yr

291.0 263.2 197.1 3yr

HDFC MIP - LTP (G) UTI MIS - Advantage Plan (G) Reliance MIP (G) Income (Debt)

788.27 82.34 341.47 Asset Size

Rs. 13.31 Rs. 12.76 Rs. 12.38 NAV

10.2 7.6 7.5 6mth

18.5 16.8 16.4 1yr

28.1 25.4 23.8 2yr

---3yr

46

Pru ICICI Long Term Plan (G) UTI Bond Fund (G) Reliance Short Term Fund (G) Gilt (GI)

209.01 468.82 277.32 Asset Size

Rs. 14.51 Rs. 20.60 Rs. 12.07 NAV

2.2 2.1 2.6 6mth

7.8 8.4 5.8 1yr

18.6 11.2 11.6 2yr

30.6 19.5 19.6 3yr

Reliance Gilt Sec. - LTP (G) Pru ICICI Gilt Inv Plan - PF UTI Gilt Advantage - LTP (G) Money Market

128.66 84.84 86.63

Rs. 12.01 Rs. 10.90 Rs. 14.48 NAV

1.7 2.7 2.3 6mth

5.7 5.1 5.4 1yr

13.6 8.5 6.5 2yr

--21.3 3yr

Asset Size

LIC MF Liquid Fund (G) Can liquid Fund (G) HDFC CMF - Savings Plus (G)

2,537.28 1,251.50 592.23

Rs. 12.56 Rs. 12.65 Rs. 15.06

3.0 2.9 2.8

5.8 5.7 5.7

11.0 10.7 10.4

17.7 16.8 15.2

AWARENESS OF MUTUAL FUNDS:

Mutual fund concept though existing from a long period, when compared to the other investments in capital markets awareness among of mutual funds is very less. Due to the investor camps being held people are being educative towards the benefits available in respect of mutual funds. In the above given, the awareness of various customers. Most of the people are going for investments in the mutual funds. The main reason behind this is that most of the people are not able to concentrate on the market fluctuation from time to time. As mutual funds are maintained by professionals or the fund managers. So it is an advantage to the customers. Basing on the NAV, they can liquidate their investments as per their requirements. Also the brokerage charge that is the entry and exit load are also very low when compared with the shares and also liquidation is possible at any point of time. Some of the Mutual Fund Companies in India
ABN AMRO Mutual Fund Birla Sun Life Mutual Fund Bank of Baroda Mutual Fund (BOB Mutual Fund) HDFC Mutual Fund Kotak Mutual Fund

47

HSBC Mutual Fund ING Vysya Mutual Fund Prudential ICICI Mutual Fund Sahara Mutual Fund State Bank of India Mutual Fund (SBI) Tata Mutual Fund

Description The concept of mutual funds in India dates back to the year 1963. The era between 1963 and 1987 marked the existence of only one mutual fund company in India with Rs. 67bn assets under management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end of the 80s decade, few other mutual fund companies in India took their position in mutual fund market. The new entries of mutual fund companies in India were SBI Mutual Fund, Can bank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund. The succeeding decade showed a new horizon in Indian mutual fund industry. By the end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started penetrating the fund families. In the same year the first Mutual Fund Regulations came into existence with re-registering all mutual funds except UTI. The regulations were further given a revised shape in 1996. Kothari Pioneer was the first private sector mutual fund company in India which has now merged with Franklin Templeton. Just after ten years with private sector players penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India. Given below are some of the Mutual Fund companies given under. Major Mutual Fund Companies in India ABN AMRO Mutual Fund ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund. Birla Sun Life Mutual Fund Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a global organization evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 crores.

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HDFC Mutual Fund HDFC Mutual Fund was setup on June 30, 2000 with two sponsorers namely. Housing Development Finance Corporation Limited and Standard Life Investments Limited.

HSBC Mutual Fund HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund. Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsorers, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June, 1993. Tata Mutual Fund Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703 crores (as on April 30, 2005) of AUM. Kotak Mahindra Mutual Fund Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently having more than 1, 99,818 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities. Reliance Mutual Fund Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities.

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Standard Chartered Mutual Fund Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20, 1999.

Asset Management Companies The AMC, like any company, has a profit and loss account and a balance sheet. The money that the sponsor invests in the AMC would go towards its share capital. The prescribed minimum is Rs10 crores. This helps in meeting the infrastructure costs such as premises, furniture, and etc.relating to asset management and also various expenses until the operation breaks even. Incomes from the AMC s would be in the form of management fees earned from the schemes. Expense would be in infrastructure, systems development, salary cost of staff, corporate advertisements etc. Further, to make a scheme attractive, the AMC may choose to bear certain expenses that it is permitted to charge to the scheme. When the initial or recurring expenses at a scheme level are more than the prescribed ceilings, the excess has to be borne by the AMC.If expenses are more than income, then the capital of the AMC gets eaten up. SEBI Prescribes that the Rs.10 crore minimum share capital is to be maintained at all times. The Trustees are obliged to review the net worth of the AMC quarterly, and ensure that any shortfall is made up. It is mandatory for AMCs to make their financial statements available in their website. Unitholders may, if they so desire, request for the annual report of the AMC. The revenue account and balance sheet of the schemes are independent of the profit and loss account and balance sheet of the AMC. Each scheme would have its own revenue account and balance sheet. Where the AMC proposes to bear initial issue expenses and charge an additional management fee, disclosure has to be made of the fact that such fees shall only be chargeable till the actual initial issue expenses borne by the AMCs, limited to the maximum extent of 6 % of the initial mobilization, are recovered. Some of the AMCs (Asset Management Company) can be briefly explained as under in the following passage. The some of the AMCs are as under:

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Some of the AMCs operating currently are:

Name of the AMCs Birla Sun life Asset Management (I) Private Limited Cholamandalam Cazenove Asset Management Limited DSP Merrill Lynch Asset Management Company Limited Fidelity Asset Management Limited HSBC Asset Management Company Limited HDFC Asset Management Company Limited ING Vysya Asset Management Company Limited J M Capital Management Limited - Private Limited Kotak Mahindra Asset Management Company Limited Prudential ICICI Asset Management Company Limited Principal Infrastructure Asset Management Company Limited Reliance Capital Asset Management Company Limited State Bank of India Funds Management Limited Banks Standard Grind lays Asset Management Company Limited Sundaram Newton Asset Management Company Limited Tata Asset Management Company Limited - Private Indian. Templeton Asset Management (India) Private Limited Unit Trust of India - Nature of ownership - Private Indian Private Foreign Private Foreign Private Indian Private Foreign Private Foreign Private Limited Private Indian Jeevan Banks Private Limited Private Indian - Private Indian Private Foreign Private Foreign - Institutions

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Chapter - 5 COMPARITIVE STUDY

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Reliance India Growth Fund

Type of the Scheme Sponsor Inception Date Closing Date NAV Fund Size Investment Pattern Entry Load Exit Load Minimum Investment Investment Objective Open Ended Growth Scheme Reliance India Mutual Fund Feb. 6th 2006 March 7th 2006 204.9 as on 21st February 2004.65 (31-Jan-06) Equity - upto 87.1 % Debt upto 12.9 % Nil. Below 2 crores 2.25% Above 5 crores 1.25% New - 1000, Existing Rs 500. It Look to capitalize on both long term as well as short term capital market. Performance of the scheme: Data as on Feb 20, 2006

Compounded Annualized Returns Retail Plan

Period Last 1 Year Last 3 Years Last 5 years Returns since inception

Scheme Returns %

81.37% 89.37% 52.26% 33.86%

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Schemewise returns
1 0.8 performance 0.6 attitude 0.4 0.2 0 0 Period zz Last 3 Years Returns since inception 81.37% 89.37% 52.26% 33.86%

year wise consumption Scheme

HDFC MUTUAL FUND

Type of the Scheme Sponsor Inception Date Closing Date NAV Fund Size Investment Pattern Entry Load Exit Load Minimum Investment Investment Objective : : : : : : : : : : : Open Ended Equity Scheme HDFC Growth Mutual Fund 21-January 15-March 113.241 as on 21 Feb. 2508 crores and 88 lakhs Equity - upto 87.1 % Debt upto 12. 2.25% Nil. New - 5000, Existing Rs 1000. To achieve capital appreciation.

Performance of the scheme (as at September 30, 2006)

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Performance Measures
70 60 62.46 54.64 50 % returns 40 30 20 10 0 Last 1 Year(365 days) Last 5 Years(1827 days) Number of Years 59.01 42.34 26.37 16.1 25.39 12.8 Series1 Series2

KOTAK MUTUAL FUND Type of the Scheme Last 1 Year(365 days) : Open Ended Last 3 Years(1096 days) Growth Last 5 Years(1827 days) Scheme Sponsor Since Inception ***(1845 : days) Kotak Mahindra Mutual Fund Inception Date : Closing Date : NAV : Fund Size : Investment Pattern :

Returns (%)^
62.46*# 59.01**# 26.37** 25.39**

Sensex Returns (%) #

54.64* 42.34** 16.10** 12.80**

25 August 2005 31 January 2006 113.241 as on 21 Feb. 252.75 croes Equity - upto 87.1 % Debt upto 12.9 % Entry Load : 2.25% Exit Load : Nil. Minimum Investment : New - 5000, Existing Rs 1000. Investment Objective : To generate capital appreciation from a portfolio of predominantly equity and equity related securities. Compounded Annualized Returns (%) Last 1 Year Kotak 30 53.01 BSE Sensex 38.49 S&P CNX Nifty 31.98

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Last 3 Year Last 5 Year Since Inception

55.74 24.08 28.04

38.81 15.81 14.92

35.57 14.58 15.72

Past performance of the schemes 60 50 40 30 20 10 0 Last 1 YearLast 3 YearLast 5 Year Since Inception Kotak 30 BSE Sensex S&P CNX Nifty

Kotak 30 BSE Sensex S&P CNX Nifty

UTI LIQUID FUND

Type of the Scheme Sponsor Inception Date Closing Date NAV Fund Size Investment Pattern Open Ended Growth Scheme UTI Mutual Fund 23-June 2003 31-January 2006 1140.0886 as 21 Feb. 3139.11 Crores Equity - upto 87.1 % Debt upto 12.9 % Entry Load : Nil Exit Load : Nil. Minimum Investment : New 10000, Existing Rs 5000 Investment Objective : To generate highest possible incomeby investing a diversified portfolio of money market securities. : : : : : : :

Fund performance as on December 30, 2006

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Compounded Annualized Returns Last 1 Year Last 3 Year Last 5 Years Since Launch

Growth Plan 4.90% 4.05% 9.01% 9.38%

Crisil Comp Bond Index 4.76% 4.12% -

Last 3 Year 4.12% 4.10% 4.08% 4.06% 4.04% 4.02% 4.00% Last 3 Year 1 4.05% 2 4.12%

UTI CHILDRENS CAREER INCOME FUND

Type of the Scheme Sponsor Inception Date Closing Date NAV Fund Size Investment Pattern Open Ended Debt Fund Scheme UTI Mutual Fund 31-December 31-January 1140.0886 as 21 Feb. 468.82 crores Equity - upto 87.1 % Debt upto 12.9 % Entry Load : Nil Exit Load : Nil. Minimum Investment : New 10000, Existing Rs 5000 Investment Objective : To generate highest possible income by investing in a diversified portfolio of a money market securities. Compounded Annualized Returns Growth Option Composite Bond Index : : : : : : :

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Last One Year Since Inception

6.15% 2.66%

4.75% 2.20%

Growth Option

2.66% Returns Last One Year Since Inception 6.15%

Equity Fund Growth Performance Sheet

Sub Objective
Equity Growth

Scheme Name

NAV

Reliance Equity Fund Growth

ABN AMRO Equity Fund Growth HDFC Equity Fund Growth Kotak 30 Growth

15.58
21.28 114.23 52.84

Inception Date 7-March06 31-Jan-06 31-Jan-06

Fund Size

1 Month

3 Months

6 Months

1 Year

6.78
259.27 (31-Jan06) 2508.88 (31-Jan06) 275.75 (31-Jan06) 5.88 71.56 6.72

20.55
5.66 69.63 22.40

27.36
5.51 41.45 29.82

56.77
5.38 24.26 62.70

Equity Growth Equity Growth

Equity Growth

31-Jan-06

This can be explained by the following graph as under58

Performance Measures
71.56 69.63 56.77 Values 41.45 27.36 20.55 6.78 1 2 5.88 5.38 5.51 5.66 3 4 24.26 29.82 22.4 6.72 5 6

62.7

No of Months Series1 Series2 Series3 Series4

As given in the following Graph, we can easily observe the following measures as under
From the above four Equity Growth Funds, we can easily describe that,Kotak Growth Fund has shown excellent performance by giving more returns compared to both ABN Amro and HDFC Equity fund during the short term as well as long term period. All the funds have been outperformed the market indices during the six-month period as well as one year period horizon by giving relatively good returns. In the Six-Month time horizon, Kotak Growth Fund has given 29.80% returns followed by HDFC Equity given 41.45 % returns, which shows less than 12% returns. And the next said to be is Reliance Equity Growth Fund giving a n performance as on one year to be as 56.77%. It is giving second besting the given sheet. If we compare the NAV's of the four funds, HDFC has the more value as compared to kotak and ABN Amro Fund. These Funds have comparatively high risks because they normally invest a major part of their corpus in equities.

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LIQUID FUND PERFORMANCE SHEET

Scheme Name NAV

Sub Objective
Liquid Fund Growth

Reliance Liquid Fund Growth 10.39

ABN AMRO Cash Fund Growth HDFC Liquid Fund - Growth 10.72 13.80

Inception Date 16-June06 31-Jan-06 31-Jan-06

Fund Size
2211.87

1 Month

3 Months

6 Months

1 Year

5.74 5.91

5.64

5.83

Cash Fund Growth Liquid Fund Growth

1025.69 (31-Jan06) 1968.91 (31-Jan06) 2937.99 (31-Jan06)

6.78
5.62

4.79
5.53

4.87
5.44

5.00
5.42

Kotak Liquid Fund Growth

13.81

5.29

5.12

5.04

5.01

Liquid Fund Growth

6-oct-06

LIQUID FUND PERFORMANCE SCALE

PERFORMANCE SHEET FOR LIQUID FUNDS

5.01

1 5.83 2 3 4 5 6

5.42

As given in the following Graph, we can easily observe the following measures as under
From the above four Liquid Growth Funds, we can easily describe that, Reliance Liquid Growth Fund has shown excellent performance by giving more returns compared to both ABN Amro and HDFC Equity fund during the short term as well as long term period. All the funds have been outperformed the market indices during the six-month period as well as one year period horizon by giving relatively good returns. In the Six-Month time horizon also Reliance Liquid Growth Fund is performing well in all aspects. Returns followed by HDFC Liquid Fund are giving 5.42 % return, which shows less than 0.41 % returns. And the next said to be is Kotak Liquid Fund giving 5.01 % giving an performance as on one year .It is giving second best in the given sheet. If we compare the NAV's of the four funds, Kotak has the more value as compared to ABN Amro Fund and others. These Funds have comparatively high risks because they normally invest a major part of their corpus in Liquidity.

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BALANCED FUND PERFORMANCE SHEET

Scheme Name NAV

Investment Objective
Balanced

Sub Objective
Balanced Growth

Inception Date
4-Oct-99

Fund Size
150.79 (31-Jan06) 302.38 (31-Jan06) 105.92 (31-Jan06)

1 Month

3 Months

6 Months

1 Year

Birla Balanced Fund Growth

DSP ML Balanced Fund Growth HDFC Balanced Fund - Growth

1.23

9.46

17.38

31.03

23.03 31.25

Balanced
26.44

Balanced Growth Balanced Growth

14-May09
10-Aug-00

4.31 2.34

16.21 9.60

23.52 14.31

39.57 31.09

Balanced
Kotak Balance - Growth 24.14

5.43 29-Nov-99 79.77 (31-Jan-06)

19.43

23.26

49.84

Balanced

Balanced Growth

BALANCED FUND PERFORMANCE SCALE

performance sheet for balanced funds
50 45 40 35 30 25 20 15 10 5 0

Series1 Series2 Series3 Series4

As given in the following Graph, we can easily observe the following measures as under
From the above four Balanced Growth Funds, we can easily describe that, Birla Balanced Growth Fund has shown excellent performance by giving 49.84 % returns compared to others during the short term as well as long term period. All the funds have been outperformed the market indices during the six-month period as well as one year period horizon by giving relatively good returns. In the Six-Month time horizon DSP ML Growth Fund is performing well as compared with HDFC and Birla BF and the next said to be is DSP ML BF giving 39.57% giving an performance as on one year .It is giving second best in the given sheet. If we compare the NAV's of the four funds, DSP ML has the more value as compared to others. These Funds have comparatively high risks because they normally invest a major part of their corpus in equities.

TATA TAX SAVING FUND PERFORMANCE SHEET

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Scheme Name Reliance Tax Saver Fund Growth HDFC Tax saver Fund - Growth

NAV 11.76

Investment Objective
Tax savings

Sub Objective
Growth Growth

Inception Date
16-Feb-99 31-Mar-96

Fund Size
930.91 (31-Jan06) 281.17 (31-Jan06)

3 years 72.38

5 years 35.71

Since Inception 33.79

113.02

78.80

42.32

45.13

Tax savings
Tata Tax Saving Fund UTI Equity Tax Savings Plan Growth 37.05 27.58

Tax savings Tax savings

Growth

31-Mar-96 15-Dec-99

102.92 (31-Jan06) 115.92 (31-Jan06)

67.52 53.87

33.19 27.91

28.81 26.34

Growth

It can be explained by the graph

REPRESENTATION OF TAX SAVING FUNDS
5 MEASURES 4 3 2 1 0 10 20 30 40 50 60 70 80

COMPANY REPRESENTATION Series1 Series2 Series3

As given in the following Graph, we can easily observe the following measures as under
From the above four Tax Saving Growth Funds, we can easily describe that, HDFC tax saver Growth Fund has shown excellent performance by giving 45.13 % returns compared to others during the short term as well as long term period. All the funds have been outperformed the market indices during the six-month period as well as one year period horizon by giving relatively good returns. In the three month time horizon HDFC tax savings Growth Fund is out performing his Excellency by giving a very good returns of 78.80 % returns after all it has come with a decreasing rate with 33.79 since inception. After that comparing with NAVs of the four companies HDFC has the highest value with 113.02 with compared to others and Birla BF and the next said to be is DSP ML BF giving 39.57% giving an performance as on one year .It is giving second best in the given sheet. If we compare the NAV's of the four funds, DSP ML has the more value as compared to others. These Funds have comparatively high risks because they normally invest a major part of their corpus in equities.

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Drawbacks of Mutual Funds

Mutual funds have their drawbacks and may not be for everyone: 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 a mutual fund runs the risk of losing 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 don't use a broker or other financial adviser, 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 if you reinvest the money you made. Management risk: When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's 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.

CONCLUSION
This report is an attempt to make analysis on Comparative study of Mutual Fund. However, what has been reported is only the tip of the iceberg in terms of data that are available. The introduction includes the introduction of that to the basic concept of mutual funds and that of the study. The main objectives of the study research methodology adopted to analyze the objectives and the scope and limitations of the study were described. It includes Company profile and the background of the company i.e., profile of KARVY Securities, its vision, mission, objectives, core values and standards. It includes the details regarding the mutual funds, its characteristics, advantages,

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types, the history of mutual fund industry; the ratios to measure the risk of the Portfolios were discussed. It includes, Risk appetite of the investors dealing with different investment strategies was studied. i.e., how to select a portfolio and manage the finances with best asset allocation which gives better returns. It includes, the detailed analysis of the data gathered through the primary data collection techniques. The findings drawn on the analysis is also given. It includes the suggestions and summary of the study. These suggestions are made to the company to improve their customer relations and services provided by the company. The last section consists of summary and bibliography. However, this study suggests that investors are interested to increase their earnings by investing in different areas; they are concern about the safety of their principal. Now the trends has changed investors are opting Mutual funds as the instrument for generating more returns. As a part of conclusion, it is important to note that the main feature for initiating the investor is that there is a proper channel of study of the performance of the funds by the experts views and suggestions which is handy for the layman to understand.

SUGGESTIONS:
The advantages of Mutual funds should be educating to the public. Covering wide range of promotion can increase the working class people also to well know about the Mutual fund, so that they even come forward to invest. One of the ways to ascertain the right asset allocation is by looking at your life cycle. The basis of this theory lies in the simple maxim that younger people with secure jobs will normally opt for higher returns and take higher risks compared to older retired people. One must remember that these are only indicative strategies and will probably have to be fine-tuned to meet your individual needs. Arranging free seminars in different organizations can increase the awareness about the new Mutual fund schemes

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 Arranging stalls in public places is a good promotion for the organization. The knowledge about the mutual funds and its working should be increased in the market. Tips to make the right investment With so many mutual funds available, choosing the right one can be risky Here are some guidelines: Dont put your trust in only one Fund Company. It is like putting all the eggs in one basket .This will help lesson the risk in the long term. Read the offer document carefully and check the quality of instruments in the portfolio. Be careful of high fee funds. It does not always mean good service. Once should avoid relying on any one investing theme. You should ensure that one sector does not overweigh your funds portfolio. Do not chase a short term performance. Be careful of the bull m market: no one knows how long it will last. The same goes for the bear market. Usually, value funds tend to outpace growth funds and stay up longer. Watch economic trends very closely. Use the internet. Most mutual funds have their own web sites where investors can access half-yearly results, NAVs and portfolios of all their funds. The web sites of the Association of Mutual Funds in India. The investor must select the right advisory body which is having sound knowledge about the product which they are offering. Conducting market surveys can help to know the market condition Professionalized advisory is the most important feature to the investors. Professionalized research, analysis which will be helpful for reducing any kind of risk to overcome and collecting information about the investors and risk tolerance of the individuals helps in targeting the market.

BIBLIOGRAPHY WEBSITES: WWW.AMFIINDIA.COM WWW.KARVY.COM WWW.MUTUALFUNDSINDIA.COM WWW.AMFIINDIA.COM

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WWW.MONEYCONTROL.COM WWW.INVESTOPEDIA.COM WWW.TEMPLETONINDIA.COM WWW.TATAMUTUALFUND.COM WWW.VALUERESEARCH.COM

TEXT BOOKS REFERRED 1) Mutual Funds in India H.SADHAK. 2) Invest India Mutual Fund Hand Book. 3) Amfiindia Hand book for Mutual Funds

ANNEXURE:
Active Portfolio Management Is a systematic and proactive approach to investment with the goal of beating the market. This strategy is based on the premise that markets are not efficient and that there is scope to earn abnormal profits through an active investment strategy. Annualized Return The return a fund would have generated over a year on a compounded basis. This method is the best indicator to measure the performance of a fund. Asset Management Company (AMC) A Company registered with SEBI, which takes investment/disinvestment decisions for the mutual fund, and manages the assets of the

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mutual fund. E.g. for Sun F&C mutual fund, the AMC is Sun F&C Asset Management (India) Pvt. Ltd. Asset Allocation It is the process of allocating the overall corpus to different assets like equities, bonds, real estate, derivatives etc. Back-end Load A kind of redemption change that an investor has to pay for withdrawing his money from the mutual fund. It is basically imposed to discourage investors from exiting the fund. It is also popularly referred to as an Exit Load. Balanced Fund A fund that invests substantially both in debt and equity.

Bottom-up investing It is a strategy of selecting the company for investment first and then crosses checking it by evaluating factors pertaining to the industry and the economy. It is the opposite of the top-down approach to investing. Closed-ended fund A fund where investors have to commit their money for a particular period. In India these closed-ended funds have to necessarily be listed on recognized stock exchanges, which provides and exit route. Contingent deferred sales charge (CDSC) An exit charge permitted under the regulations for a no-load scheme. Continuous Offer Period Is the date from which the units are available for sale and repurchase at a price linked to NAV of the scheme. Corpus of time. The total inevitable funds available with a mutual fund scheme at any point

Credit Risk It is the risk that the issuer of a fixed income security may default on payment of interest and repayment of principal. It is also referred to as default risk. Dated Security redemption. A debt instrument that is long term in nature and has a fixed date of

Debt funds A fund that invests in debt securities like Govt. securities, Treasury Bills, corporate Bonds etc. These funds are generally preferred by investors wanting steady income and not willing to take higher risks. Dematerialization The Process of converting the physical/paper shares in Electronic form. SEBI had made it compulsory to get the shares of some companies dematerialized. In this process the investor opens an account with a Depository Participant (DP) and the number of shares the investor holds is shown in this account. Depository Participant An authorized body who is involved in dematerialization of shares and maintaining of the investors accounts.

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Discount/Premium to (Net Asset Value) NAV it is the difference between the unit price and NAV. If the price is higher than the NAV, the units are trading at premium: if the price is lower, the units are trading at a discount. Diversification It is the investment strategy of not putting all ones eggs in one basket. By diversifying a portfolio across different industries, overall risk of the portfolio is reduced. Dollar Cost Averaging The strategy of dividing the investible amount into a number of equal parts and buying at regular intervals to take advantage of lower prices. This strategy is more beneficial in a bear phase. Efficient Portfolio a portfolio, which ensures maximum return for a given level of risk for an expected return. Factor Fund It is a mutual fund that has a core philosophy of investing in a particular factor or style in the market. They are also referred to as Style Funds. E.g.: of factor funds are mid cap funds, Low P/E funds, Growth funds etc. Financial Pyramid An investment plan in the shape of a pyramid structure where the safest investments are at the base and the riskiest investments are at the peak. Fixed Income Security A type of security that pays fixed interest at regular intervals. These comprise gilt-edged securities, bonds (taxable and tax-free), preference shares and debentures. Less risky than equity shares and had little scope for capital appreciation. Front-End Load An initial amount charged by a fund for its administrative exp or for paying commissions to brokers. If the charge is made at the termination or redemption, it becomes a back-end load. Gilt-edged Security Govt. securities and bonds, usually with a low interest rate. Considered safest investments, as the government security is free from default risk. Originally such certificates were edged with gold and hence the name. Gilt-fund Funds that invest predominantly in govt. securities and treasury bills. It is good for investors who desire safety of principal and adequate liquidity. Go-Go Fund A mutual fund, which invests in highly risky but potentially profitable investments. Such a fund usually has a short life. Equity/Growth funds A fund that invest primarily in equities and has capital appreciation as its investment objective. Fund Manager A professional manager appointed by the Asset Management Company to invest money in accordance with the objects of the scheme. Fundamental Analysis A method of investment analysis based on the fundamentals like turnover, net profit, growth, and vision of a company. The boom or depression of the stock markets is not considered in this analysis.

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Income Fund A fund that usually invests in debentures, bonds, and high dividend shares. Preferred by investors who wants regular income. It pays dividends to the investors out of its earnings. Index Fund A fund whose portfolio is benchmarked against a popular index like the BSE Sensex or the BSE Natex. Such an investment philosophy reflects the belief that the market is efficient and trying to beat the market over the long term is futile. Initial Offer Period The dates on which the initial subscription to the units of the schemes can be made. It is similar to the IPO of an equity issue. This IPO is followed by a continuous offer period. Interest Rate Risk The change in the price of a debt security due to changes in the market interest rates is the interest rate risk. For debt oriented mutual fund schemes, this interest rate risk affects the NAV of the fund. A rise in the interest rates leads to a fall in the price of a fixed income security. Interim Dividend An advance installment of the dividend finally declared. More often one, but sometimes two such payments are made. The final dividend is often at least equal, and sometimes more. The interim dividend is a fair indication of a companys profitability, during the working year. Liquid Fund A fund that invests its corpus in short term instruments like call markets, treasury bills, Commercial Paper (CP), Certificate of Deposit (CD). Liquidity Risk It is the risk in a fixed income security as well as in equities that these securities may not be sold in the market at close to their value. Liquidity risk is characteristic of narrow markets like India. Load A charge by the fund when an investor buys (entry load) or sells (exit load) units in the fund. Market Capitalization Represents the market value of the company. It is a product of the current market price and the number of shares outstanding. Market Instrument A fully negotiable instrument for short-term debt. Market Lot A fixed minimum number of shares, in which or in multiples of which, shares are bought and sold on the stock exchange. The advent of dematerialization of shares will do away the significance of market lot. Net Asset Value (NAV) This is calculated as total assets minus all exp and divided by the number of outstanding units. This is the main performance indicator for a mutual fund, especially when viewed in terms of appreciation over time. No Load Fund Shares of an open-ended fund, which can be bought directly from the fund without any sales charge or brokerage. US-64 is an example of a no-load fund. Offer price The price at which units can be bought from a fund.

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Offshore Fund A fund domiciled outside the country where investments are made. It is often a tax haven, not subject to the tax laws of the holders country. Pari Passu Ranking equally. After conversion of debentures in to shares the new shares created carry the same rights as the existing shares of the company to receive dividends, rights and bonus shares, and to participate in the companys P&L. Passive Portfolio Management Exactly the reverse of active portfolio management. The portfolio manager assumes that markets are efficient and all information is already analyzed and reflected in the prices of shares. This strategy is based on the premise that it is impossible to consistently beat the market. Credit Rating Evaluation of credit risk in fixed income securities. This evaluation is specific to the security rated and is done in India by Crisil, Icra, Care and Duff & Phelps. Record Date It is the date announced by the company/mutual fund, which is a cut-off date for corporate benefits like dividends, rights, bonus etc. Only investors whose names appear in the companys registers on that date are eligible for the said benefits. Reinvestment Plan It is a plan where the earnings of a mutual fund scheme are reinvested back in the fund. Reinvestment Risk It is the risk that the interest on fixed income instruments cannot be reinvested at the same rate. This problem becomes pronounced in a falling interest rate scenario. Sector fund Such funds invest only in stocks belonging to a specific industry usually aimed at growth. For e.g. Kothari Pioneer Info tech Fund. Sector funds are generally considered to be risky in nature. Securities Financial documents which give the owner specific rights of ownership; these include equity and preference shares, debentures, treasury bills, govt bonds, units of MF, and any other marketable documents. Sinking fund Money regularly set aside in a separate funds and invested by a company for the repayment of debt instruments (fixed deposits, debentures, and other loans) or the redemption of preference shares, or for replacement of assets. Sponsor Sponsor is the parent org that contributes the initial capital of the asset management company (AMC). E.g. Kotak Manhindra Finance is the sponsor for Kotak Manhindra MF. SWOT Analysis A type of fundamental analysis of health of a company by examining its strengths, weaknesses, business opportunity and any threat or dangers it might be exposed to. Systematic Risk This is the market risk that a security faces and is essentially nondiversifiable in nature. This risk is caused by macro level factors like changes in inflation, interest rates, budget announcements etc.

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Tax saving fund such funds allow the IT payees to claim a rebate under the IT Act. Technical Analysis A method of prediction of share price movements based on a study of price graphs or charts on the assumption that share price trends are repetitive. Since investor psychology follows a certain pattern, what is seen to have happened before is likely to be repeated. The technical analyst is not concerned with the fundamental strength or weakness of a company or an industry; he only studies price and volume behavior. Top-Down Investment An approach to stock selection which evaluates the prospects of the economy first, then the prospects of the industry and then finally the prospects of a particular company to take an investment decision. It is the opposite of a bottom up approach to investing. Transfer Agents Professional firms, now mostly computerized, which maintain the records of shareholders of their client companies. Treasury Bills These are bills of exchange, i.e., IOUs, issued by the RBI for short term loans, 91 days to 364 days. Trustee The trustee is the legal owner of the mf. The trustee takes into custody or under its control all the capital and property of every scheme of the mf and holds it in trust for the unit holders of the scheme. Unsystematic Risk This is the proportion of risk that is specific to a particular company. This diversifiable risk could arise due to company specific factors like operational factors, financial factors, labor unrest etc. Value Investment Investment in shares whose intrinsic value is above their market price. Fundamental analysts often make recommendations of value investment, as they can spot undervalued shares. Vulture Fund It is a fund that takes over the non performing assets of bank or financial institution at a discount and issues pass-though units to the investors. Venture Capital Fund a limited company formed to provide venture or risk capital to new industries. Zero Coupon Bond A coupon is an interest warrant attached to a debt instrument, and the coupon rate is the rate of interest. A zero coupon bond carries no interest, but is sold at a discount to its face value, which is the maturity value. The difference b/w the discounted price and the maturity value represents the interest on the bond.

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