1

Sikkim-Manipal University
of Health
Medical and Technological Sciences
Manipal - 576104.


PROJECT REPORT
Submitted in partial Fulfillment of
Master of Business Administration (MBA-FINANCE)
Entitled

Comparative Performance Measurement of
Mutual Funds in India

By

Amrita Verma
Roll no.1208010879
Study Center: Eduway Academy Pvt. Ltd.
CBD Belapur, Navi Mumbai (Center code-1736)

Sikkim-Manipal University of Health,
Medical and technological Sciences
Distance Education Wing
Syndicate House
Manipal-576104.

SEPTEMBER 2014




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Acknowledgements


I would like to take this opportunity to thank all those people without whom
this project would have been impossible.

First and foremost, Mr. Arvind Sonawane, for his expert guidance, and
encouragement.

I would like to thank Miss. Maryam R Shaikh, for guiding me to prepare for this
project.


I am extremely grateful to those who directly and indirectly helped me in
completing my project work and making it successful.




Amrita Verma
Roll no. 1208010879
MBA Student














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Students Declaration

I, Amrita Verma, student of MBA Programme, (Roll no.1208010879),
Sikkim-Manipal University studying through Eduway Academy Pvt.Ltd (center
code: 01736) CBD Belapur hereby declare that this project entitled

Comparative Performance Measurement
of Mutual Funds in India


Submitted in partial fulfillment for the degree of Masters of Business
Administration (MBA) to Sikkim-Manipal University, India is my original work
and not submitted for the award of any Degree, Diploma, Fellowship or any
other similar Title or Prizes.


All the above information provided from our institution is true to the best of
my knowledge to fulfill and restrict this project work only and his information
exceeds beyond. These facts and figures quoted here are true information but
not to quote or publish else than outside of this project work.


Place: Eduway Academy Pvt Ltd,
CBD Belapur

Amrita Verma
Date: Roll no.1208010879
Sikkim-Manipal University MBA Student










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Bonafide Certificate:


BONAFIDE CERTIFICATE

This is to Certified that this project report titled

Comparative performance Measurement of
Mutual Funds in India
is the bonafide work of Amrita Verma Who carried out the project work under
my supervision.




Signature Signature
Head of Department Faculty Incharge
Department: Management Department:
Mangement Institution: EAPL Institution: EAPL









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Study center: Eduway Academy Pvt. Ltd.


Project Assessment

Examiners Certification

This MBA Project Report
By

Amrita Verma
Roll no.1208010879

of
Sikkim-Manipal University
Undertaken through Eduway Academy, CBD Belapur

Entitled
Is approved and Accepted in Quality and Form



Internal Examiner: Signature:
Name:
Qualification:
Designation:
Department:
Institution:


External Examiner: Signature:
Name:
Qualification:
Designation:
Department:
Institution:
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University Guide Certification

This is to certify that this MBA Project Entitled

Comparative performance measurement
of Mutual Funds in India

Is submitted in partial Fulfillment of the requirement Degree of

MASTER OF BUSINESS ADMINISTRATION (MBA)
By

Amrita Verma
Roll no: 1208010879

Under
Sikkim-Manipal University of Health, Medical and Technology Sciences,
Manipal.

Has worked under my supervision and guidance. I hereby state that no part of
this report has been submitted for the award of any Degree, Diploma,
Fellowship or any other similar titles or prizes and that the work has not been
published in any journal or magazine.
Certified By

Name:
Designation:
Organization:
Signature:
Date :




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The HR Manager

____________________________________ Date:


Dear Sir/Madam,

___________________________ is a bona fide student of Sikkim Manipal
University Department of Distance Education, currently enrolled in the third
semester of the MBA program, with specialization in the area of
_________________.

As part of the requirements of the MBA degree, he/she is required to complete
a Project of approximately eight months duration in his/her area of
specialization. This should ideally be a live Project on an ongoing problem
faced by the organization, under the supervision of a company guide. The
objective of the project is to enable the student to apply his/her theoretical
knowledge, problem solving and analytical skills and to equip himself/herself
to face the challenges of the real world. Evaluation of the project will be based
on a written report, as well as an oral presentation, after which a certificate of
completion should be given by the organization.

I would be grateful if an opportunity could be given to
_______________________ work on such a project in your esteemed
organization. Please review his/her enclosed resume and let me know if a
suitable project would be available in his/her area of specialization.

Looking forward to a positive response,

Sincerely,



Company Head
Signature with Seal


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INDEX

Sr.No. TOPIC Page no.
1 EXECUTIVE SUMMARY
9
2 RESEARCH OBJECTIVE
10
3 SCOPE OF PROJECT
10
4 RESEARCH METHODOLGY
10
5 FINDINGS AND ANALYSIS
11
6 LIMITATIONS
11
7 ABOUT INDIA INFOLINE
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8 INTRODUCTION OF MUTUAL FUND
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9 RECOMMENDATION
37
10 CONCLUSION
42




























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Executive Summary

The project has been carried out at India Infoline Ltd with the title
Comparative Analysis of Mutual Fund on the basis of Alpha, Beta and Standard
Deviation.
The main function of having analysis of Mutual fund is to pinpoint the strong
points and weaknesses of mutual fund schemes.
For this I have taken the following parameters: Analyzing Mutual Fund using:-
1. Alpha: - I came to know how particulars Mutual Fund schemes performed related to
what it was expected to do.
2. Beta:- By comparing Mutual Fund on the basis of beta we come to know how
volatile a particular Mutual Fund as related to stock market is.
3. Standard Deviation:- The standard deviation of a fund measures this risk by
measuring the degree to which the fund fluctuates in relation to its mean return.
4. Schemes selected for project:-

Equity Diversified

Balanced Fund

Debt fund

Liquid fund
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RESEARCH OBJECTIVE:

To evaluate investment performance of selected mutual funds in terms of risk and
return. Also to analyze the performance of mutual fund schemes on the basis of various
parameters. Primarily to understand the basic concepts of Mutual fund and its benefits as
an investment avenue.
Secondly, to compare and evaluate the performance of different schemes of mutual
fund companies on the basis of risk, return and volatility


SCOPE OF PROJECT:

The Schemes were categorized and selected on evaluating their performance and
relative risk. The scope of the project is mainly concentrated on the different categories
of the mutual funds such as equity schemes, debt funds, balanced funds and liquid fund.



RESEARCH METHODOLGY:

Research Methodology is a very organized and systematic medium through which a
particular case or problem can be solved. It is analytical, descriptive and quantitative
research where the comparison between the different mutual fund schemes is made on the
basis of risk, volatility and return.
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FINDINGS AND ANALYSIS:

The collection of information is based on the secondary probe. The information
has been collected through various books, and internet.
An attempt has been made to evaluate the performance of the selected mutual
fund schemes. Performance of mutual fund schemes has been evaluated by using the
following performance measures
(a) Risk

(b) Standard Deviation.
(c) Beta


LIMITATIONS:

To get an insight in the process of risk and return and deployment of funds by
fund manager is difficult.
The project is unable to analyse each and every scheme of mutual funds to create
awarness about risk and return. The risk and return of mutual fund schemes can
change according to the market conditions
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ABOUT THE COMPANY

INDIA INFOLINE:

INDIA INFOLINE is a one-stop financial services shop, most respected for
quality of its advice, personalized service and cutting-edge technology.
VISION is to be the most respected company in the financial services space.

India Infoline Ltd:

India Infoline Ltd is listed on both the leading stock exchanges in India, viz. the Stock
Exchange, Mumbai (BSE) and the National Stock Exchange (NSE). The India Infoline
group, comprising the holding company, India Infoline Ltd and its subsidiaries, straddles the
entire financial services space with offerings ranging from Equity research, Equities and
derivatives trading, Commodities trading, Portfolio Management Services, Mutual Funds,
Life Insurance, Fixed deposits, GoI bonds and other small savings instruments to loan
products and Investment banking. India Infoline also owns and manages the websites,
www.indiainfoline.com and www.5paisa.com .


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India Info line Ltd, being a listed entity, is regulated by SEBI (Securities and
Exchange Board of India). It undertakes equities research which is acknowledged by
none other than Forbes as 'Best of the Web' and 'a must read for investors in Asia'
India Infoline's research is available not just over the internet but also on
international wire services like Bloomberg , Thomson First Call and Internet Securities
where it is amongst the most read Indian brokers.
Its various subsidiaries are in different lines of business and hence are governed
by different regulators.
Geographical presence

IIL has pan-India presence across 94 cities. It started off with major branches in
metros and now it is focusing on Tier II and III cities. In Q1-FY07 the company opened
56 branches, taking the total number of branches to 233 branches. Almost 50%of the
revenue comes from centers in Maharashtra and Delhi.
Followed by other regions.






















Investment Highlights

Strong growth in Industry volumes and rising retail participation Average daily volumes
in the equity markets (cash and derivative combined) have increased by
72%from to Rs.167bn in FY 05 to Rs.288bn in FY 06.With the economy growing at 7-

8% a mounting per capita income and growing BPO culture, there is a new class of young
investors, which are moving towards the equity market.
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IIL is majorly present in the retail segment. With the rising income levels, risk- taking
ability of people and the confidence in the India Inc, participation from the retail crowd is
increasing y-o-y. IIL is aggressively increasing its presence by opening branches in
different cities. In FY QI-07, they roll out 56 new branches and acquired 25000 new
customers. And it expects them to have 350 and 430 branches by FY 08 respectively.





The subsidiaries of India Info line Ltd are: India Infoline Securities Pvt Ltd:
India Infoline Securities Pvt Ltd is a 100% subsidiary of India Infoline Ltd, which is
engaged in the businesses of Equities broking and Portfolio Management Services. It
holds memberships of both the leading stock exchanges of India viz. the Stock Exchange,
Mumbai (BSE) and the National Stock Exchange (NSE). It offers broking services in the Cash
and Derivatives segments of the NSE as well as the Cash segment of the BSE.
India Infoline Commodities Pvt Ltd:

India Infoline Commodities Pvt Ltd is a 100% subsidiary of India Infoline Ltd,
which is engaged in the business of commodities broking. They have memberships with
the MCX and NCDEX, two leading Indian commodities exchanges, and has recently
acquired membership of DGCX.

India Infoline Distribution Co Ltd (IILD):

India Infoline Distribution Co Ltd is a 100% subsidiary of India Infoline Ltd and is
engaged in the business of distribution of Mutual Funds, IPOs, Fixed Deposits and
other small savings products. It is one of the largest 'vendor-independent' distribution
houses and has a wide pan-India footprint of over 232 branches coupled with a huge
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number of 'feet-on-street', which help source and service customers across the length and
breadth of India.
Mortgages & Loans:

IILD has also entered the business of distribution of mortgages and loan products
during the year 2005-2006.
India Infoline Insurance Services Ltd:

India Infoline Insurance Services Ltd is also a 100% subsidiary of India Infoline Ltd
and is a registered Corporate Agent with the Insurance Regulatory and Development
Authority (IRDA). It is the largest Corporate Agent for ICICI Prudential Life Insurance Co
Ltd, which is India's largest private Life Insurance Company.
India Infoline Investment Services Ltd:

India Infoline Investment Service Ltd is also a 100% subsidiary of India Infoline Ltd.
It has an NBFC licence from the Reserve Bank of India (RBI) and offers margin- funding
facility to the broking customers.

Management of India infoline: Mr. Nirmal Jain
Nirmal Jain is the founder and Chairman of India Info line Ltd. He holds an MBA
degree from IIM Ahmedabad, and is a Chartered Accountant and a Cost Accountant. He
has had an impeccable professional and academic track record. He then joined hands with
two local brokers to set up their equity research division Inquire, in 1994. His work set
new standards for equity research in India. In 1995, he founded his own independent
financial research company, now known as India Info line Ltd.

Mr. R Venkataraman

Venkataraman is the co-promoter and Executive Director of India Infoline Ltd. He
holds a B.Tech degree in Electronics and Electrical Communications Engineering from
IIT Kharagpur and an MBA degree from IIM Bangalore. He has held senior managerial
positions in various divisions of ICICI Limited, including ICICI Securities Limited, their
investment banking joint venture with J P Morgan of USA and with BZW and Taib Capital
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Corporation Limited. He has also held the position of Assistant Vice President with G E
Capital Services India Limited in their private equity division.

The Board of Directors

Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India

Infoline comprises:

1. Mr Sat Pal Khattar (Non Executive Director) Mr Sanjiv Ahuja (Independent Director)
2. Mr Nilesh Vikamsey (Independent Director) Mr Kranti Sinha (Independent Director)
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INTRODUCTION TO MUTUAL FUND

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 invested by the fund manager in
different types of securities depending upon the objective of the scheme.
These could range from shares to debentures to money market instruments. The income earned
through these investments and the capital appreciation realized by the scheme are shared by its
unit holders in proportion to the number of units owned by them (pro rata).






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

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.
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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.
Draft offer document is to be prepared at the time of launching the fund. Typically, it pre
specifies the investment objectives of the fund, the risk associated, the costs involved in the
process and the broad rules for entry into and exit from the fund and other areas of operation. In
India, as in most countries, these sponsors need approval from a regulator, SEBI (Securities
exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial
strength in granting approval to the fund for commencing operations.
A sponsor then hires an asset management company to invest the funds according to the
investment objective. It also hires another entity to be the custodian of the assets of the fund and
perhaps a third one to handle registry work for the unit holders (subscribers) of the fund.
In the Indian context, the sponsors promote the Asset Management Company also, in
which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset
Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset
Management Company Ltd., which has floated different mutual funds schemes and also acts
as an asset manager for the funds collected under the schemes.

ORGANIZATION OF A MUTUAL FUND




There are many entities involved and the diagram below illustrates the organizational set up
of a mutual fund


Organization of a Mutual Fund

A Mutual Fund is set up in the form of trust, which has sponsor, trustees, asset management
company (AMC), and custodian. The trust is established by sponsor or more than one sponsor who
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is like a promoter of company. The trustee of mutual fund holds its property for the benefit of unit
holders. Asset Management Company (AMC) approved by SEBI manages the funds by making
investments in various types of securities. Custodian, who registered with SEBI, holds the securities
of the fund in its custody. The trustees are vested with the general power of superintendence and
direction over AMC. They monitor the performance and compliance of SEBI regulations by mutual
fund.
SEBI regulations required that at least two thirds of the directors of trustee company or
board of trustees must be independent i.e. they should not be associated with sponsors. Also, 50%
of the directors of the AMC must be independent. All mutual funds are required to be registered
with SEBI before they launch their schemes.

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 a
AUM of
Rs.10, 000 crores.

BANK OF BARODA MUTUAL FUND

Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30,

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1992 under the sponsorship of Bank of Baroda. BOB Assets Management Company Limited is
the AUM of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is
the custodian.

HDFC MUTUAL FUND

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

ING VYSYA MUTUAL FUND

ING Yysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It
is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. Ltd.
was on corporaed on April 6, 1998.
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 13
October, 1993 with two sponsors, Prudential Plc. and the AMC is Prudential ICICI Asset
Management Company Limited incorporated on 22 June, 1993.

SAHARA MUTUAL FUND

Sahara Mutual Fund was setup on July 18, 1996 with Sahara India financial Corporation Ltd.
as the sponsor. Sahara Assets Management Company Private Limited incorporated on August 31,
1995 works as the AMC of Sahara Mutual Fund. The paid up capital of the AMC stands at Rs.25.8
crore.
STATE BANK OF INDIA MUTUAL FUND

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch
offshore fund, the India Magnum Fund with a corpus of Rs.225 crore approximately.
Today it is the largest Bank sponsored Mutual Fund in India. They already launched 35
schemes out of which 15 have already yield handsome returns to investors. State Bank of India
Mutual Fund has more than Rs.5, 500 crores as AUM. Now it has an investor base of over 8
lakhs spread over 18 schemes.

TATA MUTUAL FUND
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TATA Mutual Fund is a Trust under the Indian Trust Act, 1882. the sponsors for Tata Mutual
Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. the investment manger is Tata
management Limited is one of the fastest in the country with more than Rs.7,703 Crore(as on 2005)
of AUM.
KOTAK MAHINDRA ASSTE MANAGEMENT COMPANY

Kotak Mahindra Asset Management Company is a subsidiary of KMBL. It is presently
having more than 1, 99,818 investors in its various schemes. KMAMC stared 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 to dedicated gilt scheme investing only
in government securities.
UNIT TRUST OF INDIA MUTUAL FUND

UTI Asset Management Company Private Limited, established in Jan 24, 2003 manages
the UTI Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset
Management Company presently manages a corpus of over Rs.20,
000 crore. The sponsors of UTI Mutual Fund are Bank of Baroda, Punjab National Bank, State Bank
of India, and Life Insurance Corporation of India. The schemes of UTI Mutual Fund are Liquid
Funds, assets Management Funds, Index Funds and Balanced Funds.
RELIANCE MUTUAL FUND

Reliance Mutual Fund 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 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.

STANDARD CHARTERED MUTUAL FUND

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

FRANKLIN TEMPLETON MUTUAL FUND

The group, Franklin Templeton investment is a California based company with a global AUM
of US $409.2(as on 2005). It is one of the largest financial service group in the world. Investors can
buy or sell the Mutual Fund through their financial advisor or through mail or through their website.
They have open end Diversified Equity schemes, Open end Sector Equity schemes, Open end
Hybrid schemes, Open end tax saving schemes, Open end income and liquid schemes, Closed
end Income schemes and Open end Fund of Funds schemes to offer.
MORGAN STANLEY MUTUAL FUND

Morgan Stanley is a world wide financial services company and its leading in the market in
securities, investment management and credit services. Morgan Stanley investment management
was established in the year 1975. it provides customized asset management services and products
to governments, corporations, pension funds and non profit organizations. Its services are also
extending to high net worth individuals and retail investors. In India it is known as Morgan
Stanley investment management Private Ltd. and its AMC is Morgan Stanley Mutual Fund. This is
the first closed end diversified equity scheme serving the needs of Indian retail investors
focusing on the long term capital appreciation.

ESCORT MUTUAL FUNDS

Escort Mutual Funds was set up on April 15
th
, 1996 with Escorts Finance Ltd. as its sponsor.
The Trustee Company is Escorts Investments Trust Ltd.. its AMC was incorporated on Dec1st,
95 with the name Escorts Asset Management Ltd.



ALLAINCE CAPITAL MUTUAL FUND

Allaince Capital Mutual Fund was set up on December 30, 1994 with Alliance Capital
Management Corp. of Delaware (USA) as sponsor. The Trustee is ACAM Trust Company Pvt. Ltd.
and AMC, the Alliance Capital Asset Management India Pvt. Ltd. with the corporate office in
Mumbai.
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BENCHMARK MUTUAL FUND

Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt.
Ltd. as the sponsor and Benchmark Trustee Company Pvt. Ltd. as the trustee Company.
incorporated on October 16, 2000 and headquartered in Mumbai, Benchmark Assets Management
Company Pvt. Ltd. is the AMC.

CAN BANK MUTUAL FUND

Can Bank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as
the sponsor. Canara bank investment Management Service Ltd. incorporated on March 2, 1993 is
the AMC. The Corporate Office of the AMC is in Mumbai.
CHOLA MUTUAL FUND

Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance
Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee
Company and AMC is Cholamandalam AMC Limited.

LIC MUTUAL FUND

Life Insurance Corporation on India setup LIC Mutual Fund on 19
th
June 1989. It contributed
Rs.2 crore towards the corpus of the Fund. LIC Mutual Fund was constituted as a trust in
accordance with the provisions of the Indian trust Act, 1882. The Company started its bsiness on
29
th
April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset
Management Company Ltd. as the Investment Managers for mutual fund.

GIC MUTUAL FUND

GIC Mutual Fund, sponsored by General Insurance Corporation of India, a government of
India undertaking and the four Public Sector General Insurance Companies, viz. National
Insurance Co. Ltd, the New India Assurance Co. Ltd. the Oriental Insurance Co. Ltd and United
India Insurance Co. Ltd and is constituted as a Trust in Accordance with the provisions of the
Indian Trusts Act, 1882.

Types of Mutual Funds
Mutual fund schemes may be classified on the basis of its structure and its investment objective.
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By Structure:

Open-ended Funds

An open-end fund is one that is available for subscription all through the year. These do
not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV")
related prices. The key feature of open-end schemes is liquidity.

Closed-ended Funds

A closed-end fund has a stipulated maturity period which generally ranging from

3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest
in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of
the scheme on the stock exchanges where they are listed. In order to provide an exit route to the
investors, some close-ended funds give an option of selling back the units to the Mutual Fund
through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one
of the two exit routes is provided to the investor.
Interval Funds

Interval funds combine the features of open-ended and close-ended schemes. They are
open for sale or redemption during pre-determined intervals at NAV related prices.

By Investment Objective: Growth Funds:
The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a majority of their corpus in equities. It has been proven
that returns from stocks, have outperformed most other kind of investments held over the long
term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a
period of time.
Income Funds:

The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate debentures and
Government securities. Income Funds are ideal for capital stability and regular income.

Balanced Funds:

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The aim of balanced funds is to provide both growth and regular income. Such schemes
periodically distribute a part of their earning and invest both in equities and fixed income
securities in the proportion indicated in their offer documents. In a rising stock market, the NAV
of these schemes may not normally keep pace, or fall equally when the market falls. These are
ideal for investors looking for a combination of income and moderate growth.
Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of capital
and moderate income. These schemes generally invest in safer short-term instruments such as
treasury bills, certificates of deposit, commercial paper and inter- bank call money. Returns on
these schemes may fluctuate depending upon the interest rates prevailing in the market. These
are ideal for Corporate and individual investors as a means to park their surplus funds for short
periods.

Load Funds:

A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or
sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to
2%. It could be worth paying the load, if the fund has a good performance history.
No-Load Funds:

A No-Load Fund is one that does not charge a commission for entry or exit. That is, no
commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is
that the entire corpus is put to work.

Other Schemes:
Tax Saving Schemes:

These schemes offer tax rebates to the investors under specific provisions of the Indian
Income Tax laws as the Government offers tax incentives for investment in specified avenues.
Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed
as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to
investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the
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capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30,
2000.

Special Schemes:

Industry Specific Schemes:

Industry Specific Schemes invest only in the industries specified in the offer document.
The investment of these funds is limited to specific industries like InfoTech, FMCG, Pharmaceuticals
etc.
Index Schemes:

Index Funds attempt to replicate the performance of a particular index such as the

BSE Sensex or the NSE 50.

Sectoral Schemes:

Sectoral Funds are those, which invest exclusively in a specified industry or a group of
industries or various segments such as 'A' Group shares or initial public offerings.

BENEFITS OF MUTUAL FUND INVESTMENT

Professional Management:

Mutual Funds provide the services of experienced and skilled professionals, backed by
a dedicated investment research team that analyses the performance and prospects of
companies and selects suitable investments to achieve the objectives of the scheme.

Diversification:

Mutual Funds invest in a number of companies across a broad cross-section of industries and
sectors. This diversification reduces the risk because seldom do all stocks decline at the same time
and in the same proportion. You achieve this diversification through a Mutual Fund with far less
money than you can do on your own.





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Convenient Administration:

Investing in a Mutual Fund reduces paperwork and helps you avoid many problems
such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds
save your time and make investing easy and convenient.

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.

Low Costs:

Mutual Funds are a relatively less expensive way to invest compared to directly investing in
the capital markets because the benefits of scale in brokerage, custodial and other fees translate
into lower costs for investors.

Liquidity:

In open-end schemes, the investor gets the money back promptly at net asset value
related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock
exchange at the prevailing market price or the investor can avail of the facility of direct repurchase
at NAV related prices by the Mutual Fund.

Transparency:

You get regular information on the value of your investment in addition to disclosure
on the specific investments made by your scheme, the proportion invested in each class of assets
and the fund manager's investment strategy and outlook.
Flexibility:

Through features such as regular investment plans, regular withdrawal plans and dividend
reinvestment plans, you can systematically invest or withdraw funds according to your needs and
convenience.
Affordability

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Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund
because of its large corpus allows even a small investor to take the benefit of its investment
strategy.
Choice of Schemes

Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

Well Regulated

All Mutual Funds are registered with SEBI and they function within the provisions of
strict regulations designed to protect the interests of investors. The operations of Mutual
Funds are regularly monitored by SEBI.


LIMITATION OF MUTUAL FUND INVESTMENT

1. No Control Over Cost:

An Investor in mutual fund has no control over the overall costs of investing. He pays an
investment management fee (which is a percentage of his investments) as long as he remains
invested in fund, whether the fund value is rising or declining. He also has to pay fund distribution
costs, which he would not incur in direct investing.
However this only means that there is a cost to obtain the benefits of mutual fund services.
This cost is often less than the cost of direct investing.

2. No Tailor-Made Portfolios:

Investing through mutual funds means delegation of the decision of portfolio composition to
the fund managers. The very high net worth individuals or large corporate investors may find this to
be a constraint in achieving their objectives.
However, most mutual funds help investors overcome this constraint by offering large no. of
schemes within the same fund.

3. Managing A Portfolio Of Funds:

Availability of large no. of funds can actually mean too much choice for the investors.
He may again need advice on how to select a fund to achieve his objectives.AMFI has taken
initiative in this regard by starting a training and certification program for prospective Mutual Fund
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Advisors. SEBI has made this certification compulsory for every mutual fund advisor interested in
selling mutual fund.

4. 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.

5. Cost of Churn:

The portfolio of fund does not remain constant. The extent to which the portfolio changes is
a function of the style of the individual fund manager i.e. whether he is a buy and hold type of
manager or one who aggressively churns the fund. It is also dependent on the volatility of the
fund size i.e. whether the fund constantly receives fresh subscriptions and redemptions.
Such portfolio changes have associated costs of brokerage, custody fees etc. that lowers the
portfolio return commensurately.

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.

Calculation of NAV

The most important part of the calculation is the valuation of the assets owned by the fund.
Once it is calculated, the NAV is simply the net value of assets divided by the number of units
outstanding. The detailed methodology for the calculation of the asset value is given below.
Asset value is equal to

Sum of market value of shares/debentures

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+ Liquid assets/cash held, if any

+ Dividends/interest accrued Amount due on unpaid assets Expenses accrued but not paid
HISTORY OF MUTUAL FUND

Mutual Funds in India (1964-2000)

The end of millennium marks 36 years of existence of mutual funds in this country.
The ride through these 36 years is not been smooth. Investor opinion is still divided. While
some are for mutual funds others are against it.
UTI commenced its operations from July 1964 .The impetus for establishing a formal
institution came from the desire to increase the propensity of the middle and lower groups to save
and to invest. UTI came into existence during a period marked by great political and economic
uncertainty in India. With war on the borders and economic turmoil that depressed the financial
market, entrepreneurs were hesitant to enter capital market.
UTI commenced its operations from July 1964 "with a view to encouraging savings and
investment and participation in the income, profits and gains accruing to the Corporation from the
acquisition, holding, management and disposal of securities." Different provisions of the UTI
Act laid down the structure of management, scope of business, powers and functions of the
Trust as well as accounting, disclosures and regulatory requirements for the Trust.
The opening up of the asset management business to private sector in 1993 saw
international players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and Capital
International along with the host of domestic players join the party. But for the equity funds,
the period of 1994-96 was one of the worst in the history of Indian Mutual Funds.

1999-2000 Year of the funds

Mutual funds have been around for a long period of time to be precise for 36 yrs but the
year 1999 saw immense future potential and developments in this sector. This year signaled the
year of resurgence of mutual funds and the regaining of investor confidence in these MFs. This
time around all the participants are involved in the revival of the funds the AMCs, the unit
holders, the other related parties. However the sole factor that gave lifr to the revival of the
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funds was the Union Budget. The budget brought about a large number of changes in one stroke.
An insight of the Union Budget on mutual funds taxation benefits is provided later.
It provided Centre stage to the mutual funds, made them more attractive and provides
acceptability among the investors. The Union Budget exempted mutual fund dividend given out
by equity-oriented schemes from tax, both at the hands of the investor as well as the mutual
fund. No longer were the mutual funds interested in selling the concept of mutual funds they
wanted to talk business which would mean to increase asset base, and to get asset base and
investor base they had to be fully armed with a whole lot of schemes for every investor .So new
schemes for new IPOs were inevitable. The quest to attract investors extended beyond just new
schemes. The funds started to regulate themselves and were all out on winning the trust and
confidence of the investors under the aegis of the Association of Mutual Funds of India (AMFI)
One cam say that the industry is moving from infancy to adolescence, the industry is
maturing and the investors and funds are frankly and openly discussing difficulties
opportunities and compulsions.
Future Scenario

The asset base will continue to grow at an annual rate of about 30 to 35 % over the next
few years as investors shift their assets from banks and other traditional avenues. Some of
the older public and private sector players will either close shop or be taken over.
Out of ten public sector players five will sell out, close down or merge with stronger
players in three to four years. In the private sector this trend has already started with two
mergers and one takeover. Here too some of them will down their shutters in the near future to
come.
But this does not mean there is no room for other players. The market will witness a flurry
of new players entering the arena. There will be a large number of offers from various asset
management companies in the time to come. Some big names like Fidelity, Principal, Old Mutual
etc. are looking at Indian market seriously. One important reason for it is that most major
players already have presence here and hence these big names would hardly like to get left
behind.
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The mutual fund industry is awaiting the introduction of derivatives in India as this would
enable it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV).
SEBI is working out the norms for enabling the existing mutual fund schemes to trade in
derivatives. Importantly, many market players have called on the Regulator to initiate the
process immediately, so that the mutual funds can implement the changes that are required to
trade in Derivatives.

GROWTH IN ASSETS UNDER MANAGEMENT








RECENT TRENDS IN MUTUAL FUND INDUSTRY

The most important trend in the mutual fund industry is the aggressive expansion of the foreign
owned mutual fund companies and the decline of the companies floated by nationalized banks and
smaller private sector players. Many nationalized banks got into the mutual fund business in the
early nineties and got off to a good start due to the stock market boom prevailing then. These
banks did not really understand the mutual fund business and they just viewed it as another kind
of banking activity.
Few hired specialized staff and generally chose to transfer staff from the parent organizations. The
performance of most of the schemes floated by these funds was not good. Some schemes had
offered guaranteed returns and their parent organizations had to bail out these AMCs by paying
large amounts of money as the difference between the guaranteed and actual returns. The service
levels were also very bad.
Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful
whether, barring a few exceptions, they have serious plans of continuing the activity in a major
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way. The experience of some of the AMCs floated by private sector Indian companies was also
very similar. They quickly realized that the AMC business is a business, which makes money in
the long term and requires deep-pocketed support in the intermediate years.
Some have sold out to foreign owned companies, some have merged with others and
there is general restructuring going on. The foreign owned companies have deep pockets and
have come in here with the expectation of a long haul. They can be credited with introducing many
new practices such as new product innovation, sharp improvement in service standards and
disclosure, usage of technology, broker education and support etc. In fact, they have forced
the industry to upgrade itself and service levels of organizations like UTI have improved
dramatically in the last few years in response to the competition provided by these.

WHY SHOULD INVESTORS INVEST IN MUTUAL FUND?

An investor avails of the service of experienced and skilled professionals who are backed by a
dedicated of companies and selects suitable investments to achieve the objectives of the schemes.

Mutual funds invest in a number of companies across a broad cross- section of industries
and sectors. This diversification reduces the risk because seldom do all the stocks decline
at the same time and in the same proportion. The investors achieve this diversification
through a mutual fund with far less money than you can do on our own.

Investing in a mutual fund reduces paperwork and helps an investor avoid many problems
such as bad deliveries, delayed payments and unnecessary follow.

























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EMERGING ISSUES IN MUTUAL FUND

Rating of Mutual Fund Schemes:

Total returns has been the criteria for measuring the performance of mutual fund. Therefore,
CRISIL has development a composite performance ranking which measures performance for each of
the open- ended schemes. According to CRISIL, this measures is applicable only to those schemes,
which are at least two years old and disclose 100% of their portfolios.

Changes in Mutual Fund due to the Advent of Net:

As per SEBI regulations, bond funds and equity funds can charge a maximum of

2.25% and 2.5% as administrative fees, respectively. Mutual Funds could bring down their
administrative costs to 0.75%, if trading is done online and consequently improves the return
potential of their schemes. Mutual Funds could provide better advise or servise to their investors
through the Net.

New Norms on NPA Classification:

The Malegan committee has made important recommendations regarding norms on
classification of NPAs in debt securities and norms for valuation of liquid securities in a mutual
fund schemes. The committee has recommended that debt securities held by mutual fund in
their portfolio can be classified as NPA, if the principal or interest is not received for six months.
The mutual funds will have to disclose the NPAs to unit holders in a half-yearly basis.

INFLUENCE OF TECHNOLOGY:

A majority of the mutual fund have their own websites providing basic information
relating to the schemes. Mutual Fund has begun to use electronic fund transfer method top
remit their dividends and redemption proceeds. However, the most significant influence of
technology is seen in servicing investors. So technology can bridge the gap between investor
education and products positioning.

PRODUCT INNOVATION:

Product innovation is an emerging feature in the mutual fund industry in India. Most of
the products offered by mutual fund can be divided among three classes of cash funds, income
funds and equity funds. The year 2002 was different in that the products offered were far more
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innovative. Templeton India launched a debt fund that would invest predominantly in floating
rate bonds.

INDICES FOR MUTUAL FUNDS:

The AMFI has recently launched four indices for gilt funds and another set of indices for
balanced funds, bond funds, monthly income plans and liquid funds. The indices, which have
been developed and will be maintained by ICICI securities and finance companied and
CRISIL.com, respectively, will be mandated for use by mutual funds to enable the comparison of
performance.

FUNDS OF FUNDS:

The SEBI may soon permit mutual funds to float a new category of funds called funds of
funds, which will invest in other mutual fund schemes. These scheme will enable people to
invest in different mutual funds schemes through a single find.

MUTUAL FUND BEST PRCTICES

THE PRACTICE OF RESTFUL Risk- Reward Relationship:
A clear and direct relationship of risk with reward has to be developed and the concept
instilled in the mind of the investor, and this is the basis of all classification of Mutual Fund.

Ease of Business:

The business of Mutual Fund is not an easy one. It is easy only for the ones who have either
been in the business for a long time, or for the people, institutions which have been in the
investment space for a long time and are willing to experiment and learn from their mistake, and
can be flexible.

Service:

The service provision ought to be flawless, for after all, Mutual Fund is a service, and the
only way the number of customers can be increased and the existing ones retained is by
providing a higher level of service, thereby increasing customer satisfaction.

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Trust / Transparency:

A high level of transparency has to be built into the system of processes and
investments in Mutual Fund. This is of vital importance as the terms Transparency and Trust, in
the case of Mutual Funds is synonyms. Trust in the firm would come only with transparency.
And with Trust would come more business.
Fairness to Investors:

This, of course, is an offshoot of the previous point that we made. No business can
survive unless it is fair to the customer. However, what is important here is that it has to be made
evidently clear that the firm is actually being fair to its customers. Modesty doesnt help, and this
has to be told to your customers so that they actually notice.
Utility:

The objective of the investment have to be always kept in mind while marketing Mutual Fund, for
if there is a deviation, its utility is lost, or the customers remain unsatisfied.
Liquidity:

This has again and again highlighted, for it the basic premise that most investors invest in
Mutual Fund only because of the high level of liquidity. There has to be a good market development
for your issue, so that there is a ready market available for them.














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RECOMMENDATION

Remember to pack the following investment gems in your luggage as you set forth on your
financial journey. These guideposts reinforce and expand the key points covered throughout
Building Your Mutual Fund Portfolio.

Diversify for investment success: Develop a solid plan based on your age, time horizon,
liquidity needs, income and risk tolerance. Stick with it until your circumstances change.
Periodically rebalance your holdings to y o u r original asset allocation benchmark:
By doing this, you will wind up selling shares in expensive funds and reinvesting in
cheaper ones.
Invest as much as you can in stock funds: As a rough rule, try to hold a percentage
at least equal to 100 minus your age in stocks. Senior citizens might consider 110
minus their ages to avoid growing too conservative.
Dont hop from fund to fund: Traders often lag the long-range returns of the stock and
bonds markets.
Set your sights on building wealth slowly: Get rich quick schemes often backfire.
People who amass fortunes through speculation frequently also learn how it feels to get
poor quickly
Keep it simple: Basic investment plans often work best on the quest for wealth.

Avoid gimmicks: Dont invest in anything you dont understand. Pain vanilla funds
survive the test of time better than faddish peers that make use of derivatives and other
arcane strategies.
Do your home work before starting out: Never buy or sell Mutual Funds solely on the basis
of tips. If a suggestion seems to have merit, do your own analysis.
Focus on risk, return and cost when evaluating funds: Keep in mind that a funds risk
and expenses are easier to predict than its return.
Judge past performance with a grain of salt: Historic returns dont always predict
future results, especially if a funds management or investment style has changed recently.
Dont neglect the prospectus: Youll find the guts of this document in the financial -
highlights. Look for past expense rations, portfolio turnovers, total annual returns and year
to year changes in assets
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Consider hiring a stockbroker or financial planner if you need help with your
portfolio: Just make sure the individual is competent and will your needs. The more
you understand about investment risks, return and costs, better you can evaluate the kind of
jobs your advisor is doing.
Dont overlook estate planning in your investment game plan: A living trust has
important advantage over a will.
Make sure your Mutual Fund accounts are titled correctly: Individual, joint, custodial and
trust account are four common alternatives. The manners of titling takes precedence over
any instructions in your heirs know about your accounts.
Take advantage of fund company service: Telephone reps often can furnish answers to
your questions.
Let time work for you: At 10 percent annually the long run average return on stocks
your money doubles every 7.3 years, quadruples every 14.6 years and expands tenfold every
24.2 years.
Emphasize time over market timing: Buy good stock funds and stay with them for the long
haul. Even professional have trouble predicting the markets next move.
Invest regularly: Its been demonstrated that you can do well over the long haul even if
you invest money each year at or near the markets annual peak.
Recognize that the risk of being in stock decreases as your holding period lengthens:
Known as time diversification, it works because the good years far outweigh the bad over
lengthy period. On average, seven out of every ten years are winners in the stock market.
Save as much of your paycheck as you can: The older you get and the higher your
income, the larger the percentage you should strive to set aside.
Consider painless and efficient automatic investment plans, as offered by many fund
companies. Your monthly investment go straight into your chosen fund from either a bank
account or your paycheck.
Pay attention to what T-bills yield relative to stocks: by dividing the yield on the former
by the yield on the latter, when 91 days T-bills yield more than twice the sensex 30s
yield, it could signal that stocks have become overpriced
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Conversely, recognize the excellent value offered by stocks any time the T- bills /stock
yield ration is considerably below 2. At the extreme, stock market condition could be highly
favorable when both numbers are about equal.
Dont expect good or bad times to last forever. Stocks can stay overvalued or
undervalued for surprisingly long stretches, but bull markets always come to an end, and
so do bear markets.
Use standard deviation instead of beta to evaluate a mutual fund risk: The former is a
pure, unbiased measure of volatility, which is not tied to a particular stock- price index as
is beta. Standard deviation measures the extent to which returns bob up and down around
their average.
Examine your funds composite PE ratio: The average price earnings ratio for all the
stocks it holds. If a funds PE is well above that of the Sensex 30s, it faces greater possible
losses in a correction or bear market.
Remember that volatile funds might not be so bad when held in appropriate proportions
within a broad portfolio. Combining funds that rise and fall at different times could
result in an overall smoother ride.
Combine funds that follow the growth and value stock picking styles: as one style
normally is out of favour when the other is in. your portfolios fluctuations will be less
erratic if you include investments from both camps.
Dont give up stock funds, even if youre retired: A 65 year old retiree can expect to
live another 20 years or so. If you need income, take your dividends in cash. If thats
insufficient, make systematic withdrawals from a diversified portfolio.
But dont set up a systematic withdrawal plan without forst calculating how long your
capital will last: given your expected return and withdrawal rate. Considering the impact
of taxes and inflation, you risk depleting your nest egg if your annual withdrawal rate
exceeds about 6 percent.
Stay away from funds that are not members of reputable families: Unless you know the
manager has an excellent record. In particular, avoid tiny funds those with assts less than
400 million unless they are promising members of an established group
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Dont assume that laggard funds will bounce back: Long term losers have perennially
poor performance records, along with outsized expenses, a small and declining asset
base, high portfolio turnover and, sometimes, legal problems.
Dont look to your nest egg for thrills and excitement: Some times, relatively dull
investments, such as index funds, are best.
Keep in minds that about 70 percent of actively managed funds under perform the
market: because operating expenses, transaction costs and cash holdings lower returns.
This represents the main argument in favor of index funds.
Favor index funds for a meaningful core portion of your stock allocation: say 25 to 50
percent or so. With these portfolios you need not worry that a fund manager might jump
ship. With a passive approach, it doesnt matter so much whos in control.
Beware of gimmicks when shopping for an index fund: Avoid enhanced index
portfolios that claim they can outperform the sensex or other benchmarks. Plain vanilla
products with rock bottom costs are best.
Include small cap and international funds in your portfolio for better risk adjusted
performance: Younger investors with long time horizons should take a significant stake
in these categories.
Look beyond a funds name to its actual investment policies and portfolio holdings.
Avoid small stock portfolios with assets greater than 20,000 million or so unless
youre convinced the management is exceptionally talented.
Keep in mind that small stocks move in cycles of five to seven years, during which they
either outperform or underperform the large blue chips.
Conversely, do take bigger positions in small stocks when theyre cheap: Small
companies represent excellent value when the PE of any funds approximates that of the
sensex.
Dont hesitate to venture abroad: International investing is a great way to round out a
portfolio, since about two-thirds of world stock market values exist outside India.
Lean to international rather than global funds for your over-seas exposure:The former
invest exclusively in foreign markets, whereas the latter have stakes in stateside
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stocks as well. With international funds, you can fine tune your overseas exposure
more precisely.
Check the foreign weightings of your domestic stock funds: which could hold up to 15
percent or more of their assets in non- Indian issues to try to improve performance.
You may already have more international exposure than you think.
Maintain modest stake in emerging stock markets: as well if you have a lengthy
investment horizon. Developing nations offer exciting long term growth potential.
Dont expect international diversification to reduce your portfolios volatility all the
time: Normally, it works reasonably well, but during a global panic, all the worlds
major stock exchanges could tumble together.


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CONCLUSION:
I order to study the concept of mutual fund we should note that a mutual fund is a trust that pools
the money of several investors and manages investments on behalf. The fund collects this money
from investors through various schemes. Each schemes is differentiated by its objectives of
investments or in other words a broadly defined purpose of how the collected money is going to
be involved.
Investors invest in mutual fund due to following advantages: they have professional
management, diversification, convenient administration, return potential, low cost, liquidity.
By comparing the above mentioned schemes I came to know the risk and return relation between
the specified schemes. Therefore investors before investing in any Mutual Fund schemes they
should study the risk and return relation. And if the risk and returns is been matched with their
planning, then only the investors should go for Mutual Fund schemes.
So the future of mutual funds in India is bright, because it meets investor s needs perfectly. This
will give boost to Indian investors and will attract foreign investors also. It will lead to the growth of
strong institutional framework that can support the capital markets in the long run.