Concept of Mutual Fund: A Mutual Fund is a trust that pools the saving of a number of investors who shares a common

financial goal. The money is thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned though these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a mutual fund is 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 assets in a mutual fund's portfolio are managed by a professional money manager(s) who decides which securities to buy and sell based on the fund's investment objective, detailed in the fund's prospectus. When somebody invests in a mutual fund, they are actually buying shares in the fund, which means that they own a small percentage of the fund's entire portfolio. These shares are a fractional representation of the entire mutual fund's diversified holdings. The price of a share at any time is called the fund's net asset value, or NAV.

If somebody invests Rs.1, 000 in a mutual fund with an NAV of Rs.24.75, they will receive 40.40 shares of that fund. (Unlike stocks, one can own fractional shares in a mutual fund). When the value of the portfolio increases, the value of your investment also increases. If, however, the value of the fund decreases, your investment value will decrease as well. The primary asset categories found in mutual funds are money markets, bonds, and/or stocks. Mutual funds may invest in a single asset class or a combination of all. Maintaining the weight of each category and the decision on when to buy or sell is the function of the mutual fund's manager(s). Typically, the fund category indicates the primary investments (holdings)

of the fund. For example, a fund that holds 85% stocks, 10% bonds and 5% cash equivalents is typically categorized as a stock fund. The flow chart below describes broadly the working of mutual fund:

Investors

Returns

Fund House

Securities Based on Common Financial Goal

Why mutual fund? Mutual funds are a popular investment for many types of investors because they offer a convenient, cost-effective and easy way to invest in the financial markets. Mutual fund is only one kind of financial intermediary. In a sense, mutual fund is the purest form of financial intermediary because there is almost perfect pass through of money between unit holders and the securities in which they invest. Unit holders are indicated-a-priori in what type securities their funds will be invested. Value of the securities held in the portfolio is translated on daily basis directly to the value of the units held by the unit holders. Contrastingly a commercial bank is not a pass through type of financial intermediary. Bank collect deposit from depositors and these depositors have no knowledge of how their funds will be used. Bank invest the money of depositors where they feel appropriate at a specific time and banks give

interest on these deposits which is not linked with how the loans and advances perform. very important to understand that an investor can lose money in a mutual fund. Though

It is

regulations ensure disciplined investments in ceilings on expenses that are charged to the unit holders. Unit holders assume investment risk, including the possible loss of principal, because mutual fund invest in securities whose value rise and fall. Unlike bank deposits, mutual funds are not insured under Deposit Insurance & Credit Guarantee Corporation Act, 1961. Mutual fund unit holders are fund shareholders, while bank depositors are the banks creditors .

How Mutual Funds work:

Every mutual fund has a goal - either growing its assets (capital gains) and/or generating income (dividends) for its investors. Distributions in the form of capital gains (short-term and long-term) and dividends may be passed on (paid) to shareholders as income or reinvested to purchase more shares. For tax purposes, one must keep track of their distributions and cost basis of purchased/reinvested shares.

Returns

As an investor, we want to know the fund's return-its track record over a specified period of time. So what exactly is "return"?

A mutual fund's return is the rate of increase or decrease in its value over a specific period of time usually expressed in the following increments: one, three, five, and ten year, year to date, and since the inception of the fund. Since return is a common measure of performance, you can use it to evaluate and compare mutual funds within the same fund category. Generally expressed as an annualized percentage rate, return is calculated assuming that all

distributions from the fund are reinvested.Since average returns can sometimes "hide" shortterm highs and lows, you should evaluate returns for a time period of several years-not just one year or less. A fund that has a high return in one year may have experienced losses in other years-these fluctuations may not be apparent in its average return. While a fund's return shows its track record, keep in mind that past performance is no guarantee of future results. When using returns to compare funds, always use net returns. Net returns are the true returns of both load and no-load funds after deducting all costs and expenses.

Types of Mutual funds: Existing types of mutual funds can be classified into three types. They are: Based on Maturity period:

Open-ended mutual fund Close-ended mutual funds.

Based on Investment objective:

Growth scheme or Equity scheme Income scheme or debt oriented scheme Balanced scheme Money market scheme.

Other Equity-related schemes:

Tax savings scheme Index scheme

Sectoral scheme.

As a prospective mutual fund investor, you can decide to invest in growth scheme, income scheme or balance scheme either as an open-ended or a close-ended mutual fund. Open ended mutual funds: If you are looking for a scheme that gives you the feasibility for subscription all through the year, an open-ended mutual fund is the appropriate choice. With no fixed maturity period, you can buy and sell units at Net Asset Value (NAV) prices. Ease of liquidity is the key aspect of open-ended mutual funds.

Close ended mutual funds: Unlike an open-ended mutual fund, you have the option for subscription only during a specified period, normally at the time of public issue of shares or debentures. Also, the maturity period is fixed ranging from 3-15 years. Once the initial public issue of shares is over, you can buy or sell the units on the respective stock exchanges. An additional feature of close-ended mutual fund is the option of selling the units back to the mutual fund, at NAV related prices. Growth scheme or Equity scheme If you do not expect immediate liquidity and willing to gain over a period of time, growth scheme could be your preferred choice. Under the growth scheme, mutual funds invest a majority of funds in equities (shares) and a small portion in money market instruments. Over a long period of time they promise increased return on investments but are exposed to high risks given the perennial fluctuation in equity markets, which is influenced by external factors such as social, political and economic factors.

Income scheme Also termed as monthly income scheme, this involves investing in income funds that can fetch you regular and steady income. Investments are made in fixed income securities such as bonds, corporate debentures, money market instruments and government securities. You may not benefit from capital appreciation as it is very limited but the risks are much lower compared to the growth fund. Fluctuations in the equity market may not affect you, but the change in interest rates (as and when it become effective) is likely to have an impact on returns. The net asset value of your funds is likely to increase or decrease with corresponding changes in interest rates.

Balanced scheme Investing in balanced fund, you enjoy the twin benefits of growth and a regular income. This is possible as the funds are invested both in equities (shares) and fixed income securities (such as bonds, corporate debentures and government securities). This means, in case the proportion of investment is higher in equities than in fixed income securities, as an investor you would be exposed to higher risks. Money Market schemes Easy liquidity, preservation of capital and moderate income- these are key aspects of money market schemes. Under this scheme, your funds are invested exclusively in short-term instruments such as treasury bills, commercial paper, certificates of deposit and inter-bank call money, government securities etc. Commercially safe, it is less volatile compared to other funds. You can select money market schemes for its short period and less risks.

Tax Savings scheme Equity linked savings schemes (ELSS) and pension schemes are the two schemes that offer tax rebates or tax benefits. Subscriptions to the units not more than Rs.10, 000 would be eligible to a deduction from Income tax. Governed by the provisions of the Income Tax Act, you can enjoy Tax incentives for investments in specified avenues. However, you cannot assign/transfer/pledge/redeem/switch the units purchased under this scheme until completion of 3 years from the date of allotment of individual units. Index schemes Under this scheme, the performance of the market as a whole, or a specific sector is assessed. This helps you to decide on whether to invest on the market as a whole or in any specific fund. Sectoral schemes You can decide to invest in specific sectors namely, FMCG, Information Technology, Banking, Pharmaceuticals etc. Sectoral schemes pose high risk as compared to equity schemes. This is because the portfolio is less diversified and very specific, concentrating on selected industrial group.

Following is a glossary of some risks to consider when investing in mutual funds.

Call Risk. The possibility that falling interest rates will cause a bond issuer to redeemor callits high-yielding bond before the bond's maturity date. Country Risk. The possibility that political events (a war, national elections), financial problems (rising inflation, government default), or natural disasters (an earthquake, a poor harvest) will weaken a country's economy and cause investments in that country to decline. Credit Risk. The possibility that a bond issuer will fail to repay interest and principal in a timely manner. Also called default risk. Currency Risk. The possibility that returns could be reduced for Americans investing in foreign securities because of a rise in the value of the U.S. dollar against foreign currencies. Also called exchange-rate risk.

Income Risk. The possibility that a fixed-income fund's dividends will decline as a result of falling overall interest rates. Industry Risk. The possibility that a group of stocks in a single industry will decline in price due to developments in that industry. Inflation Risk. The possibility that increases in the cost of living will reduce or eliminate a fund's real inflation-adjusted returns. Interest Rate Risk. The possibility that a bond fund will decline in value because of an increase in interest rates. Manager Risk. The possibility that an actively managed mutual fund's investment adviser will fail to execute the fund's investment strategy effectively resulting in the failure of stated objectives. Market Risk. The possibility that stock fund or bond fund prices overall will decline over short or even extended periods. Stock and bond markets tend to move in cycles, with periods when prices rise and other periods when prices fall.

Mutual Funds Industry in India The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets Under Management (AUM) was Rs. 67bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry.The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling. The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under. 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) Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank 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 in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management. 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 This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as on January 2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation

of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

Major Players in Indian Mutual Fund industry: Some of the major players on the Indian mutual fund scene: ABN AMRO Mutual Fund Benchmark Mutual Fund Birla Mutual Fund BOB Mutual Fund Canbank Mutual Fund Chola Mutual Fund Deutsche Mutual Fund DSP Merrill Lynch Mutual Fund Escorts Mutual Fund Fidelity Mutual Fund Franklin Templeton Investments HDFC Mutual Fund HSBC Mutual Fund ING Vysya Mutual Fund JM Financial Mutual Fund Kotak Mahindra Mutual Fund LIC Mutual Fund Morgan Stanley Mutual Fund PRINCIPAL Mutual Fund Prudential ICICI Mutual Fund UTI Mutual Fund Sahara Mutual Fund SBI Mutual Fund Standard Chartered Mutual Fund Sundaram Mutual Fund Tata Mutual Fund

Taurus Mutual Fund Unit Trust of India UTI Mutual Fund

COMPANY INTRODUCTION INTRODUCTION: UTI Mutual Fund is managed by UTI Asset Management Company Private Limited (Estb: Jan 14, 2003) who has been appointed by the UTI Trustee Company Private Limited for managing the schemes of UTI Mutual Fund and the schemes transferred / migrated from UTI Mutual Fund. The UTI Asset Management Company has its registered office at: UTI Tower, Gn Block, Bandra - Kurla Complex, Bandra (East), Mumbai - 400 051 will provide professionally managed back office support for all business services of UTI Mutual Fund (excluding fund management) in accordance with the provisions of the Investment Management Agreement, the Trust Deed, the SEBI (Mutual Funds) Regulations and the objectives of the schemes. State-of-the-art systems and communications are in place to ensure a seamless flow across the various activities undertaken by UTI AMC. UTI AMC is a registered portfolio manager under the SEBI (Portfolio Managers) Regulations, 1993 on February 3 2004, for undertaking portfolio management services and also acts as the manager and marketer to offshore funds through its 100 % subsidiary, UTI International Limited, registered in Guernsey, Channel Islands. UTI Mutual Fund has come into existence with effect from 1st February 2003. UTI Asset Management Company presently manages a corpus of over Rs.29000 Crores. UTI Mutual Fund has a track record of managing a variety of schemes catering to the needs of every class of citizenry. It has a nationwide network consisting 68 UTI Financial Centers (UFCs) and UTI International offices in London, Dubai and Bahrain. With a view to reach to

common investors at district level, 4 satellite offices have also been opened in select towns and districts. It has a well-qualified, professional fund management team, who has been highly empowered to manage funds with greater efficiency and accountability in the sole interest of unit holders. The fund managers are also ably supported with a strong in-house equity research department. To ensure better management of funds, a risk management department is also in operation. It has reset and upgraded transparency standards for the mutual funds industry. All the branches, UFCs and registrar offices are connected on a robust IT network to ensure cost-effective quick and efficient service. All these have evolved UTI Mutual Fund to position as a dynamic, responsive, restructured, efficient, and transparent and SEBI compliant entity SPONSORS: Three leading public sector banks - Bank of Baroda (BOB), Punjab National Bank (PNB) and State Bank of India (SBI) and Life Insurance Corporation of India (LIC), the largest public financial investment institution and life insurer in India have entered into an agreement with the Government of India Sponsors of the UTI Mutual Fund. Ba n k o f Ba r o d a Bank of Baroda was established in July 1908 by Maharaja - Sir Sayajirao Gaikwad III. During the period since inception, it has always maintained its practice of sound value based banking to emerge as one of the premier public sector Banks of the country today. It has a track record of uninterrupted profits since inception in 1908. The financial strength of the Bank and its long tradition of efficient customer service are drawn substantially from the extensive reach of its 2,715 strong branch network (as of 31.03.2003) covering almost every State and Union Territory in the Country. The Bank is also one of the few Indian Banks with a formidable presence overseas with 38 branches. Thus, the total branch network is 2,753 as at

31.03.2006 Life Insurance Corporation of India Life Insurance Corporation of India (LIC) is amongst the largest insurance companies in the world, serving over 10 crore policy holders and managing a Fund of over Rs.-186000 crores. Punjab National Bank PNB is a statutory body performing banking activities in terms of Banking Companies (Acquisition and Transfer of undertaking) Act 1970 under which the Undertaking of the Bank was taken over by the Central Government. The main object of the bank under the said Act is asAn act to provide for the acquisition and transfer of the undertaking of certain banking companies, having regard to their size, resources coverage and organization, in order to further to control the heights of the economy, to meet progressively and serve better, the needs of the development of the economy and to promote the welfare of the people, in conformity with the policy of the State towards securing the principles laid down in clause (b) and (c) of Article 39 of the Constitution of India and for matter connected therewith or incidental therein. Punjab National Bank has 4037 branches and 4 subsidiaries. The bank has a deposit size of Rs.75813.49 crores as on 31.03.2003. State Bank of India The State Bank of India is the largest public sector bank in India with 9033 branches in India and 48 offices in 28 countries worldwide. In addition to this, SBI also has 17 subsidiaries The sponsors are neither responsible nor liable for any loss resulting from the operation of all the schemes of UTI Mutual Fund beyond the contribution of an amount of Rs.10000/- made by them towards setting up of the UTI Mutual Fund. UTI Trustee Company Private Limited

A company incorporated under The Companies Act, 1956 will be the Trustee of transferred/migrated schemes are the first and sole trustee of the Mutual Fund under the Trust Deed dated December 9, 2002 executed between the Sponsors and the Trustee Company (the Trustee)

SOME OF THE FUNDS OF UTI WITH THEIR OBJECTIVES

UTI Master Share

An equity fund aiming to provide benefit of capital appreciation and income distribution through investing in equity.

UTI Master Plus (Equity)

Capital appreciation through investments in Equities and equity related instruments, convertible debentures, derivatives in India and also in overseas markets.

UTI Equity Fund

UTI equity fund is opened-ended equity scheme with an objective of investing at least 80% of its funds in equity and equity related instrument with medium to high risk profile and up to 20% in debt and money market instrument with low to medium risk profile.

UTI Contra Fund To provide long-term capital appreciation / dividend distribution through investments in listed equities and equity relayed instruments. The fund offers an opportunity to benefit from the impact of

non rational investors behavior by focusing on stocks that are currently under valued because of emotional and behavioral patterns present in the stock market

UTI Wealth Builder To achieve long term capital appreciation by investing predominantly in a diversified portfolio of equity and equity related instruments.

UTI Infrastructure Fund An open-ended equity fund with the objective to provide capital appreciation through investing in the stocks of the companies engaged in the sectors like Metals, Building materials, oil and gas, power, chemicals, engineering etc. The fund will invest in the stocks of the companies which form part of infrastructure industries.

UTI Dividend fund An open-ended equity scheme which aims to provide medium to long term capital gains and/or dividend distribution by investing in equity or equity related instruments, which offer high dividend yield.

UTI Services Industries Fund An open-ended equity scheme which invests in the equities of the Services Sector companies in the country. One of the growth sector funds aiming to provide growth of capital over a period of time as well as to make income distribution by investing the funds in stocks of companies engaged in service sectors.