INTRODUCTION

Mutual funds:
Def:
A mutual fund is made up of money that is pooled together by a
large number of investors who give their money to a fund manager to
invest in a large portfolio of stocks or bonds

MUTUAL FUND FLOW CHART

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 A mutual fund is a professionally managed investment company that
combines the money of many individuals and invests this “pooled” money in a
wide variety of different securities.
It is by pooling the money of many individuals that mutual funds are
able to provide the diversification and money management (along with many
other advantages) that were once reserved only for the wealthy.
Professional money managers take this pool of money and invest it in a
wide variety of stocks, bonds, or other securities depending on the investment
objective, or goal, of the particular fund. It is the investment objective of the
fund that guides the manager in selecting the various securities for the fund.
It is the investment objective of the fund that also guides the investor on
which funds to invest in. Since different investors have different objectives,
there are a number of different kinds of mutual funds, i.e., some funds may
provide monthly income while others seek long-term capital appreciation.
Mutual funds can be classified according to their investment objective.
Some of the classifications include money market funds, growth funds,
balanced funds, income funds, and many others.
When you invest in a fund you hope that the value will rise and you can
eventually sell your shares for a profit. This is one of the ways you can profit
with mutual funds. Another way is through capital gains. When a fund sells a
security for a higher price than it originally paid for it, it is known as a capital
gain. Most funds distribute their capital gains to shareholders at least annually,
some more often.
The last way to profit with mutual funds is with dividends or interest. If
the fund has invested in bonds or dividend-paying stocks, it must pass the
dividends or interest earned on to its shareholders. Like capital gains, this is
done at least annually.
When you invest your money in a mutual fund, you buy shares in that
fund. To determine the price of those shares, each day the fund adds up the
total value of the securities held in its portfolio. This total is divided by the

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 number of shares outstanding. The resulting figure is known as the Net Asset
Value or NAV.
To find out the value of your holdings, you simply multiply the number
of shares you own by the net asset value. The NAV of most funds is listed in
most daily newspapers. The NAV will change daily depending on how well the
underlying securities of the fund perform. If the securities held by the fund go
up in value so will the value of your shares.
As stated above, mutual funds are generally classified according to the
investment objective of the fund. They are also classified according to how they
are bought and sold. There are open- or closed-end funds and there is load or
no-load funds.

An open-end fund is a mutual fund that continuously issues new shares

as needed and buys them back when investors wish to sell. There is no limit to
how many shares an open-end fund can sell. The buy and sell price is based on
the net asset value of the fund. The majorities of mutual funds on the market
today is open-end funds and are the type we are concerned with in this tutorial.
The characteristics of a closed-end fund more closely resemble that of an
individual stock. A closed-end fund is a mutual fund that issues a fixed number
of shares which are then traded (bought and sold) on a stock exchange or over
the counter.

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NEED OF THE STUDY

 The study is basically on the analysis of tax saving schemes of selected

mutual funds. A study is made to have a comparative analysis of various
companies i.e. {HDFC, Fidelity, ICICI, Reliance} With Birla sun life
AMC.

 Through the study one would understand how a common man could
fruitfully convert savings in to a great penny by wisely investing into the
right scheme according to his risk taking ability. The study will gives a
clear understanding of investment options which gives tax benefit under
section 80(c).

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OBJECTIVES

The main objectives of the present study are as follows :

The following mutual fund companies have selected for the study

 To compare the tax saving schemes of selected mutual funds and their
performance.

 To know the growth of tax saving schemes in mutual funds.

 To know how the tax saving schemes performance in comparing the

market i.e. Sensex & Nifty.

 To know the various fluctuations in different schemes of the selected

mutual funds.

 To suggest the investors in selection of the best tax saving schemes for
Maximizing their return.

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METHODOLOGY

Source of data:

Primary Data:

The data was collected through BIRLA SUN LIFE, in course of:

 Attending AMFI [Association of Mutual Funds of India] Training

Programmed
 in BIRLA SUN LIFE AMC LIMITED.
 Interviewing the Internal Employees in BIRLA SUN LIFE AMC
LIMITED.

Secondary Data:

The Secondary Data was provided for the study through

 Browsing from the internet

 Text books like Investment Management, Financial management
 News paper like Business line, Economic Times, Times of India,
India Today etc.
 Business Magazines like Mutual fund insight, Invest time etc.

Note: Internet played a major role in collection of Data

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LIMITATIONS OF THE STUDY

 The concept of mutual fund is like an ocean, so detailed study of each

and every component of this concept is not studied because of the limited
time constraint.

 The data collected for this study are limited to open-ended schemes.

 Study is constrained to selective mutual funds only.

 The study is limited to comparative analysis of Tax savings schemes

(ELSS) in mutual funds.

 The data is collected from internet from the web sites AMC, so the
accuracy of the facts may be limited.

 Performance of Net Asset is not given in full details.

 The observation & conclusions may not be applicable in real time

industry as the study is confirmed to specific period and usage of limited
statistical tools.

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ROLE OF A MUTUAL FUND

Mutual Fund acts as a vehicle to canalize the savings and

investments in the economy. The primary role of Mutual Funds is they act as
wealth creation and capital preservation instruments. They are a product like
none other in the investment market, offerings varied and diverse options and
advantages to investments.
Mutual Fund as an investments avenue has become a very
large sector managing nearly Rs.170, 000crores of investments for about 10
millions investors in India.
Worldwide, the asset management business is the largest
financial service with around assets of $ 4 trillion and about 500 million
customers. They play an effective and efficient part in the economic space.

THE FOLLOWING CHART SHOWS THE WORKING OF MUTUAL

FUNDS

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ADVANTAGES OF MUTUAL FUNDS:

The advantages of investing in a Mutual Fund are:

 Professional Management
 Diversification
 Convenient Administration
 Return Potential
 Low Costs
 Liquidity
 Transparency
 Flexibility
 Choice of schemes
 Tax benefits
 well regulated

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Professional Management:

The investor avails of the services of experienced and skilled professionals who
are backed by a dedicated investment research team, which 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. Investor achieve
this diversification through a Mutual Fund with far less money than he can do
on his own.

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-ended schemes, investor can get his money back promptly at net asset
value related prices from the Mutual Fund itself. With close-ended schemes,
investor can sell his units on a stock exchange at the prevailing market price or
avail of the facility of direct repurchase at NAV related prices which some
close-ended and interval schemes offer periodically.

Transparency:

Investor get regular information on the value of his investment in addition to

disclosure on the specific investments made by investment scheme, the
proportion invested in each class of assets and the fund manager's investment
strategy and outlook.

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Flexibility:

Through features such as regular investment plans, regular withdrawal plans

and dividend reinvestment plans, investor can systematically invest or withdraw
funds according to his needs and convenience.

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.

DISADVANTAGES

 Discretion
 Reach
 No Control over Costs

MUTUAL FUND ORGANZATION

The primary components of a mutual fund are:

1) SPONSOR

The sponsor is the agency which provides the initial capital and name to
the mutual fund.

2) TRUSTEE

The Trustee is appointed based on their credentials goodwill, &

experience from different spheres of activity. The Trustee appoints the asset
management company and its directors. The main role of the Trustee is to
ensure that the operations and objectives of the fund and the schemes do not
divert from their primary investments goals.

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Structure of Mutual Fund:

33) ASSET MANAGEMENT COMPANY (AMC)

The role of Asset Management Company is to formulate schemes,

mobilize funds, recruit investment managers, sales team and market funds to

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 investors. The Asset Management Company also appoints a custodian a
Registrar to the fund.

4) CUSTODIAN
Mutual fund companies are not allowed to hold various securities
and financial instruments with them, therefore the custodian normally a Bank
is appointed to act in this role for safe keeping of the securities and transact on
the advice of the Asset Management Company.

5) REGISTRAR
A Registrar or Transfer Agent is appointed to undertake manual and
other day to day transaction like bank works. Accounts statements preparation
and forwarding the same to the investors for this purpose they are paid some
fees by the Asset Management Company.

6) SEBI
SEBI (securities Exchange Board of India) is the regulator of mutual
fund investments in India. It drafts the rules regulations and compliance for
mutual funds.

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TYPES OF MUTUAL FUNDS
The various schemes offered by mutual funds would be classified under
different subheads.

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1. Open - Ended Schemes:
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.

2. Close - Ended Schemes:

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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

3. Interval Schemes:
Interval Schemes are that scheme, which combines the features of open-ended
and close-ended schemes. The units may be traded on the stock exchange or
may be open for sale or redemption during pre-determined intervals at NAV
related prices.
1) BY OBJECTIVE
The primary objective of these systems of schemes is to preserve capital
and capital appreciation .As per the needs of the investor; schemes are
formulated to suit them.
2) BY LOCK IN PERIOD
The schemes that come under these categories are closed ended and
open ended schemes
Close ended schemes –Have specific lock in periods and normally tax
saving schemes and fixed maturity plans are example.
Open ended schemes –Any time entry and exit is possible in these types
of schemes.

3) BY INVESTMENTS PATTERN:
Across the available spectrum of securities, broadly Equity and Debt
oriented.

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4) ULIP: The unique feature of this scheme is that it covers risk, up to the
extent of investment.

TYPES OF EQUITY FUNDS

1) GROWTH ORIENTED
The investment in this type of approach is to select stocks which move
aggressively in the market. The primary objective is capital appreciation.
These funds are highly risky.
2) VALUE ORIENTED
These are funds which invest in stocks have future potential and are
normally of a longer gestation period. The objective is to preserve capital and
income generation.
3) SECTORIAL FUNDS
These funds primarily invest in unique sectors comprising stocks within
the sectors like IT, pharmacy, petroleum, FMCG (food manufacturers and
consumer goods) and Capital goods. The performance of these funds is
normally cyclical and movement varies according to up and downturn in
various sectors. These are also very risky.

4) INDEX FUND
These funds act as a mirror image of the index they are investing in the
proportion of individual stock is as per the weight age of the stock in the index.

5) FUNDS BY CAPITALIZATION
Stock selection is restricted within the limits of the market capitalization
of the stock in the index. Basically these are small, medium and large
capitalization companies as per the parameters set by the stock exchange.

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6) EXCHANGE LISTED FUNDS
These are the funds like any other the main difference being their listing
on stock exchange just like shares and they can buy and sold in the same way.

7) ELSS (EQUITY LINKED SAVING SCHEMES)

ELSS gives exemption, rebates to the investors buying into the scheme
as per the section specified in the Income Tax, 1961.
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 of India. 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 in 1963 by the 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.6700croreRs of assets under management.

SECOND PHASE – (1987 – 1993) (ENTRY OF PUBLIC SECTOR FUNDS):

Marked the entry of non- UTI , public sector Mutual funds set up by
public sector banks and life Insurance corporation of India (LIC)
SBI Mutual fund was first non-UTI Mutual fund established in
June 1987 followed by can bank Mutual fund in (Dec87), Punjab National
Bank Mutual Fund(Aug 89), Indian Bank Mutual Fund(Aug 89), Bank of

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 India(jun90), Bank of Baroda Mutual Fund(oct92). LIC established its Mutual
Fund in June 1989while GIC had set up its mutual fund in December 1990.

THIRD PHASE – 1993 –2003 (ENTRY 0F 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 all mutual funds,
except UTI were to be registered and governed. The erstwhile Kothari pioneer
(now merged with Franklin Templeton) was 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 function under the SBI (MUTUAL Funds) Regulations 1996.

The number of Mutual Fund houses went on increasing, with many

foreign Mutual funds setting up 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, 541crores of assets under

management was a way ahead of other Mutual funds.

FOURTH PHASE – Since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated into two separate entities. One is the specified Undertaking
of the Unit Trust of India wish assets under management of Rs.29, 835crores as
at the end of January 2003, representing broadly, the assets of US 64 scheme,

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assured return and certain other schemes. The Specified Undertaking of Unit
Trust of India, functioning under an administrator and under the rules framed by
Government of India and does not come under the purview of the Mutual Fund
Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB
and LIC. It is registered with SEBI and functions under the Mutual Fund
Regulations. With the bifurcation of the erstwhile UTI which had in March
2000 more than Rs.76, 000 crores of assets under management and with the
setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund
Regulations, and with recent mergers taking place among different private
sector funds, the mutual fund industry has entered its current phase of
consolidation and growth.

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PERFORMANCE OF MUTUAL FUNDS IN INDIA :

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.

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.

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.

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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
don’ts of mutual funds.

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Mutual fund AMC’s Assets Under Management (June 2010):

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Some Mutual Fund Companies in India:

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 player’s penetration, the total assets rose up to Rs. 1218.05 bn.
Today there are 37 mutual fund companies in India.

Major Mutual Fund Companies in India:

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.

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The new entries of mutual fund companies in India were SBI Mutual Fund,
Canbank 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 player’s penetration, the total assets rose up to Rs. 1218.05 bn. Today
there are 37 mutual fund companies in India.

FUTURE OF MUTUAL FUNDS IN INDIA

Indian mutual fund industry reached Rs 5, 50,564 crore. It is estimated that by

2011 March-end, the total assets of all scheduled commercial banks should be
Rs 1, 50, 90,000 crore.

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

 100% growth in the last 6 years.

 AMFI saving rate is over 23%, highest in the world. Only channelizing
these savings in mutual funds sector is required.

 AMC have approximately 37 mutual funds which are much less than US
having more than 800. There is a big scope for expansion.

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  '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.

 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.

 Trying to curb the late trading practices.

Introduction Of Financial Planes Who Can Provide Need Based Advice. Which
Manage Assets Of Rs.153108crores Under 421 Schemes

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.
61,533crores

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.

Bank of Baroda Mutual Fund (BOB Mutual Fund)

Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October
30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management

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Company Limited is the AMC 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 sponsores
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.

ING Vysya Mutual Fund

ING Vysya 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 incorporated on April 6,
1998.

Prudential ICICI Mutual Fund

The mutual fund of ICICI is a joint venture with Prudential Plc. of

America. Prudential CICI Mutual Fund was setup on 13th of October, 1993 with
two sponsors, 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.

Sahara Mutual Fund

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 Sahara Mutual Fund was set up on July 18, 1996 with Sahara India
Financial Corporation Ltd. as the sponsor. Sahara Asset 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 cr.
approximately. Today it is the largest Bank sponsored Mutual Fund in India.
They have already launched 35 Schemes out of which 15 have already yielded
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

Tata Mutual Fund (TMF) 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 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 . 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.

Unit Trust of India Mutual Fund

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 UTI Asset Management Company Private Limited, established in Jan 14,
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.20000 Crore. The sponsor’s of UTI Mutual Fund are BOB, PNB,
State Bank of India (SBI), and Life Insurance Corporation of India (LIC).

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.

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.

Franklin Templeton India Mutual Fund

The group, Franklin Templeton Investments is a California (USA) based
company with a global AUM of US$ 409.2 (as of April 30, 2005). It is one of
the largest financial services groups 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.

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Morgan Stanley Mutual Fund India
Morgan Stanley is a worldwide financial services company and it’s
leading in the market in securities, investment management and credit services.
Morgan Stanley Investment Management (MISM) 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 extended to high net worth individuals and retail investors. In
India it is known as Morgan Stanley Investment Management Private Limited
(MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is
the first close end diversified equity scheme serving the needs of Indian retail
investors focusing on a long-term capital appreciation.

Escorts Mutual Fund

Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance
Limited as its sponsor. The Trustee Company is Escorts Investment Trust
Limited. Its AMC was incorporated on December 1, 1995 with the name Escorts
Asset Management Limited.

Alliance Capital Mutual Fund

Alliance Capital Mutual Fund was setup on December 30, 1994 with
Alliance Capital Management Corp. of Delaware (USA) as sponsored
.TheTrusteeis ACAM Trust Company Pvt. Ltd. and AMC, The ACMF (Pvt.)
Ltd. with the corporate office in Mumbai

Benchmark Mutual Fund Benchmark Mutual Fund was setup on June 12,
2001 with Niche Financial Services Pvt. Ltd. as the sponsored and Benchmark
Trustee Company Pvt. Ltd. as the Trustee Company. Incorporated on October

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16, 2000 and headquartered in Mumbai, Benchmark Asset Management
Company Pvt. Ltd. is the AMC.

LIC Mutual Fund

Life Insurance Corporation of India set up LIC Mutual Fund on 19th June
1989. It contributed Rs. 2 Crores 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 business on 29th April 1994. The
Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset
Management Company Ltd as the Investment Managers’ for LIC Mutual Fund.

Future of Mutual Funds in India

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.
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.

Some facts for the growth of mutual funds in India

 100% growth in the last 6 years.

 Number of foreign AMC's are in the que 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

channelizing these savings in mutual funds sector is required.

31
  We have approximately 29 mutual funds which are 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.

 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 practice.

32
ABOUT BIRLA SUNLIFE

Birla sun life financial services

Birla sun life financial services offer a range of financial services for
resident Indians and non resident Indians. Brought together by two large,
powerful and reputed business houses, the Aditya Birla group and sun life
financial, it is our aim to offer diverse and top quality financial services to
customers. The mutual fund and insurance companies provide wealth
management and protection products to customers while the distribution and
securities companies provide brokerage and trading services for investment in
equities, debt securities, fixed deposits, etc.

 Birla sun life asset management company limited

 Birla sun life insurance company limited
 Birla sun life distribution company limited

Birla sun life asset Management Company limited

A joint venture between sun life assurance Company, the Canada-based

financial service organization and the Indian industrial house of Aditya Birla,
this amc was launched in the mid-90 s (in 1994). Both the partners are well
known in all areas that they operate in. While Aditya Birla is a household name
in India and has renowned brands in businesses spread across industries as wide
ranging as aluminum (hindalco), textiles (Grasim), fertilizers (indo-gulf),
finance (Birla global finance ltd.) And rayon (India rayon), sun life is a leading
financial service organization in North America.

Sun life provides services related to risk management, money

management and wealth management across globe. Having established itself at
Toronto in 1871, it has now spread its wings across Asia pacific, u.s.a. And u.k.

33
It also has a significant presence through mfs investment management in U.S.
And U.K spectrum united mutual funds in Canada.

The major strengths of the group are its expertise drawn from managing
assets over the globe, a big agent network and an ability to cater to the need of
people. Drawing on the expertise of a worldwide staff of over 10,000 people
and a network of more than 65,000 agents and distributors, sun life is
committed to providing not just products and services, but solutions for clients
financial and risk management needs.

Birla sun life mutual fund follows a conservative long-term approach to

investment, which is based on identifying companies that have good credit-
worthiness and are fundamentally strong. It places a lot of emphasis on quality
of management and risk control. This is done through extensive analysis that
includes factory visits and field research. It has one of the largest team of
research analysts in the industry. The company is one of India’s leading, private
mutual funds with a large customer base. It has been recognized nationally with
coveted awards.

Track record:

With a proven track record of over 15 years, Birla sun life mutual fund
has been a catalyst towards the growth of the private sector asset management
business.

Innovations:

Birla sun life mutual fund was the first to launch

 Birla sun life cash plus, a liquid fund.

 Birla sun life dividend yield plus which is a dividend yield fund.
 Birla bond index fund (a debt index fund) which replicates the Crisil .
Investment philosophy:

Birla sun life mutual fund follows a long-term, fundamental research

based approach to investment. The approach is to identify companies, which
have excellent credit-worthiness and strong fundamentals. The fundamentals

34
include the quality of the company's management, sustainability of its business
model and its competitive position, amongst other factors. Birla sun life asset
Management Company (bslamc) has one of the largest team of research analysts
in the industry, dedicated to tracking down the best companies to invest in.

Bslamc will always strive to provide transparent, ethical and research-based

investments and wealth management services.

Geographical reach:

Today, bslamc is present in 111 locations, including 74 branches.

Product offerings:

Birla sun life mutual fund offers a range of investment options, which
include diversified and sector specific equity schemes, fund-of-fund schemes,
hybrid and monthly income funds, a wide range of debt and treasury products
and offshore funds. Bslamc also provides private wealth management services

Section 94(6) Of the Income Tax Act 1961

To Unit-Holder (Resident) : Section 94(6) if the Income Tax Act, 1961, now
provides that any person who buys or acquires any securities or unit within a
period of three months prior to the record date and such person sells or transfers
such securities or unit within a period of three months after such date and the
dividend or income on such securities or unit on account of such purchase and
sale of securities or unit, to the extent such loss does not exceed the amount of
dividend or income received or receivable on such securities or unit, shall be
ignored for the purposes of computing right income chargeable to tax.
Section 10(33) of the Income Tax Act, 1961
The dividend received by the investors from the scheme will be
exempt from income tax for all categories of investors under Section 10(33) of
the Income Tax Act, 1961. The scheme will pay a distribution tax currently @
10% plus surcharge if the portfolio holds less than 50 percent debt securities on
an average during the last one year period.

35
Section 88 of the Income Tax Act, 1961
Specified units of mutual fund schemes qualify for rebate under
Section 88 of the Income Tax Act, 1961, subscription to the Units of the Scheme
by Individuals and Hindu Undivided Families, not exceeding Rupees ten
thousand would be eligible to a deduction, from income-tax, of an amount equal
to 20% of the amount so subscribed. In the case of subscription by an
individual, whose income is derived from the exercise of his profession as an
author, playwright, artist, musician, actor or sportsman (including an athlete),
the deduction admissible would be at the rate of 25%.

Tax Deducted at Source (TDS)

There will nor be any Tax Deduction at Source on payment to
resident unit-holders towards redemption or dividends.
Capital Gains benefit under Section 112 of the Income Tax Act 1961
Long-term capital gains in respect of Units held for a period of
more than 12 months will be chargeable under Section 112 of the Income Tax
Act, 1961, at a concessional rate of tax @ 20% (excluding surcharge) from the
full value of consideration; the following amounts would be deductible to arrive
at the amount of capital gains:
1. Cost of acquisition as adjusted by Cost Inflation Index notified by the
Central Government and
2. Expenditure incurred wholly and exclusively in connection with such
transfer
Investors can also opt to pay tax @ 10% (excluding
surcharge) on such Long Term Capital Gains, but without the cost inflation
indexation benefit.

36
To Non-Residents/OCBs
Capital Gains under Section 112 of the Income Tax Act 1961
Long term capital gains in respect of Units held for a period of more
than 12 months will be chargeable under Sec 112 of the Income Tax Act, 1961
at a concessional rate of tax of 20%. The capital gains would be calculated after
indexation of the cost of acquisition. Investors can opt to pay tax @ 10%
(excluding surcharge) on Long Term Capital Gains, but with out the cost
inflation indexation benefit.
Tax Deduction at source (TDS)
Redemptions/ Exchanges/ Switches by non-residents/ OCBs/ Fills
will be subjected to tax deduction at source at the rates in force and certificates
for tax deducted will be issued.
To Charitable Trusts
Investment in the units of the schemes is an eligible mode of
investment under Section 11(5) of the income tax act with regard to Income Tax
Rule 17C.
Securities Transaction Tax
The Securities Transaction Tax (STT) is levied on the value of a
transaction. So when you redeem your units in an equity fund (not debt) or
switch them to another scheme, STT of 0.25 per cent will be applicable.
Wealth Tax
Mutual Fund units are not liable to Wealth Tax.

To the Fund
Open Ended Mutual Funds are exempt from income tax Section 10 [23D]
of the Act.

37
TAX SAVING OPTIONS u/s 80C
Most of us think of investing in tax only in the month of March and as the
D-day approaches, there is a rush to invest in any tax-saving avenue – be it
infrastructure bonds, ELSS schemes or PPF without any proper thought before
investing. Ideally, investing for tax saving purposes, should be an integral part
of your portfolio plan, helping you reach your investment goals in a tax efficient
way.
The number of tax saving options on offer not only serve the purpose of
saving tax but also offer other benefits such as risk coverage, capital
appreciation, retirement savings etc. In this section, we have attempted to give a
comparison of the various tax-saving investments, which should help you make
an informed and intelligent decision regarding your tax investments.
The comparison is done in a group of two on the parameters of safety,
returns, and tenure and tax benefits. The argument behind grouping of those
avenues is not very complicated; we just want to address the dilemma of much
talked groups. For instance, one can ask whether investment in NSC is better
when compared to Infrastructure bond.
The grouping has not been addressed. In this section, we suggest those
readers to compare in their own for this kind of grouping after taking a look at
the arguments of the available grouping

38
DIRECTORS OF BIRLA SUN LIFE AMC:

ADITYA BIRLA GROUP SUN LIFE FINANCIAL

Mr. Kumar Mangalam Birla * Mr. Donald Stewart*

Director Chairman
Industrialist
Chief Executive Officer,
Sun Life Financial Inc.

Mr. Ajay Srinivasan Mr. Stephan Rajotte

Director Director
Chief Executive - Financial Services,
President,
Aditya Birla Group.
Sun Life Financial Asia.

Mr. Ashok Goenka Mr. S. S. Raman

Director Director
Educationist
IRS, Tax Expert

Mr. N. N. Jambusaria Mr. N. C. Singhal

Director Director
Actuary

Mr. Bala subhramanyam Mr. Venkatesh Mysore

CEO
AdityaBirla Group Alternate Director
Vice President & Country Head
(India), Sun Life Financial Inc.

39
Birla sun life Insurance Company limited

Insurance is not about something going wrong. It's often about things
going right. One of the wonders of human nature is that we never believe
anything can actually go wrong. Surely, life has its share of ifs. At Birla sun life
however, we believe it has its equally pleasant share of buts as well. We at Birla
sun life stand committed to helping you realize those happy moments which
make a life. Be it living the same lifestyle in your post retirement days or
providing a secure future for your loved ones, in case something happens to
you.

Birla sun life Distribution Company limited

At Birla sun life distribution, we put knowledge, expertise and experience

to good use to preserve, nurture and nourish your wealth. For your today and
your tomorrow.

Birla sun life is a part of the joint venture between the Aditya Birla group
and sun life financial of Canada. The synergy of these two accomplished
conglomerates brings you global financial know-how and local market insight.

It is said that: "to acquire wealth is difficult, to preserve it more difficult,

but to nourish it wisely, the most difficult of all."

Our commitment to excellence along with a roots up approach to research and

analysis, coupled with technology driven processes has enabled us to excel at
this challenging task and in a span of four years emerge as one of the leading
distribution houses of the country.

"Knowledge is a treasure but practice is the key to it"

We believe that the desire for knowledge increases with the acquisition of
it. At Birla sun life distribution we make the best use of intellect and expertise
putting knowledge to good practice. As and when and where you need it.

40
 For us the concept of perfect service is constantly expanding. This along
with transparent business ethics, inspired and innovative solutions is what our
investors have come to expect from us.

A fact, which has been reaffirmed by recognition and awards, conferred

on us by the leading names of the India financial services industry.

Departmental details

Amc Birla sun life asset management company ltd

Mutual fund Birla sun life mutual fund

Set up date Dec24-1994

Incorporation date Sept-05-1994

Birla global finance ltd, sun life(India) amc

Sponsor investments

Trustee Birla sun life trusteeco.ltd

Chairman Mr.kumarmangalam Birla

41
42
Vision:

To be the most trusted name in investment and wealth management, to be

the preferred employer in the industry and to be a catalyst for growth and
excellence of the asset management business in India.

Values:
 Integrity
 Commitment
 Passion
 Seamlessness
 Speed

Mission:
To consistently pursue investor’s wealth optimization by:
 achieving superior and consistent investment results
 Creating a conducive environment to hone and retain talent
 Providing customer delight
 Institutionalizing system-approach in all aspects of functioning upholding
highest standards of ethical values at all times

Awards: “18 Prestigious Awards, Yet the Biggest Award is the smile on
our Client’s Faces

“BEST MUTUAL FUND HOUSE OF THE YEAR” 2008-2009”

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Investment team:

 CEO: Mr. ANIL KUMAR

 CEO: Mr. BALASUBRAMNYAN

Equity Team:

 Mr. Ajay Argal – Co-Head, Equity

 Mr. Mahesh Patil – Co-Head, Equity

 Mr. Sanjay Chawla - Fund Manager (Equity)

 Mr. Ajay Garg – Fund Manager (Equity)

 Mr. Vineet Maloo – Fund Manager (Equity)

 Mr. Atul Penkar – Fund Manager (Equity)

 Mr. Ankit Sancheti – Fund Manager(Equity)

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The major companies of the Group are among India's leading corporate,
these include:

Company Products / services

Grasim cement, viscose staple fiber, rayon grade
pulp, ready mix concrete, chemicals,
textiles
 UltraTech Cement Ltd* cement, ready mix concrete
 Samruddhi Cement Cement
Hindalco aluminum, copper
 Novelis Inc.* aluminum rolled products, cans, primary
metal, recycling
 Aditya Birla Minerals Australia - copper mines
Ltd*
 Aditya Birla Chemicals caustic soda
(India) Limited*
 Utkal Alumina Alumina
International Limited*
 Aditya Birla Science and R&D
Technology Company Ltd

Aditya Birla Nuvo branded garments, viscose filament yarn,

carbon black, agribusiness, insulators,
textiles
 Birla Sun Life Insurance life insurance
Company Ltd **
 Birla Sun Life Asset asset management
Management Company
Ltd
 Aditya Birla Finance non banking financial services
Limited *
45
 Aditya Birla Money Mart distribution and wealth management
ltd
 Aditya Birla Money Ltd * Broking
 Aditya Birla Capital private equity investment, advisory and
Advisors Private Ltd management
 Idea Cellular Ltd. cellular services
 Aditya Birla Retail FMCG products, fruits, vegetables,
Limited groceries, frozen food, bakery, homecare
and pharmacy

46
 A mutual fund is a professionally managed investment company that
combines the money of many individuals and invests this “pooled” money in a
wide variety of different securities.
It is by pooling the money of many individuals that mutual funds are
able to provide the diversification and money management (along with many
other advantages) that were once reserved only for the wealthy.
Professional money managers take this pool of money and invest it in a
wide variety of stocks, bonds, or other securities depending on the investment
objective, or goal, of the particular fund. It is the investment objective of the
fund that guides the manager in selecting the various securities for the fund.
It is the investment objective of the fund that also guides the investor on
which funds to invest in. Since different investors have different objectives,
there are a number of different kinds of mutual funds, i.e., some funds may
provide monthly income while others seek long-term capital appreciation.
Mutual funds can be classified according to their investment objective.
Some of the classifications include money market funds, growth funds,
balanced funds, income funds, and many others.
CAPITAL APPRECIATION AND TAX SAVING
The union budget 2005 is expected to go a long way in bringing retail
investors to the capital markets and transforming the traditional Indian savers
into investors. Consequently, this change could set the traditional investors into
the habit of market-linked returns, rather than sticking only to traditional
investment avenues of assured returns.

An introduction of section 80C, in the Union Budget 2005, would allow

an assesses to save tax by investing in ELSS schemes up to Rs.100,000 and at
the same time avail the potential of equity markets. The robust state of Indian
capital markets today deserve much higher retail participation than the current
2.5% of the India’s total household financial savings.

Types of Mutual Funds Schemes in India

47
 Wide variety of Mutual Fund Schemes exists to cater to the needs such as
financial position, risk tolerance and return expectations etc. thus mutual funds
has Variety of flavors, Being a collection of many stocks, an investors can go
for picking a mutual fund might be easy. There are over hundreds of mutual
funds scheme to choose from. It is easier to think of mutual funds in categories,
mentioned below.
Overview of existing schemes existed in mutual fund category.
BY STRUCTURE
1. Open - Ended Schemes:
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.

2. Close - Ended Schemes:

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
3. Interval Schemes:
Interval Schemes are that scheme, which combines the features of open-ended
the and close-ended schemes. The units may be traded on the stock exchange or
may be open for sale or redemption during pre-determined intervals at NAV
related prices.

48
49
 The risk return trade-off indicates that if investor is willing to take higher
risk then correspondingly he can expect higher returns and vise versa if he
pertains to lower risk instruments, which would be satisfied by lower returns.
For example, if an investors opt for bank FD, which provide moderate return
with minimal risk. But as he moves ahead to invest in capital protected funds
and the profit-bonds that give out more return which is slightly higher as
compared to the bank deposits but the risk involved also increases in the same
proportion.
Thus investors choose mutual funds as their primary means of investing,
as Mutual funds provide professional management, diversification, convenience
and liquidity. That doesn’t mean mutual fund investments risk free. This is
because the money that is pooled in are not invested only in debts funds which
are less riskier but are also invested in the stock markets which involves a
higher risk but can expect higher returns. Hedge fund involves a very high risk
since it is mostly traded in the derivatives market which is considered very
volatile.
Overview of existing schemes existed in mutual fund category:
BY NATURE
Equity fund:
These funds invest a maximum part of their corpus into equities holdings.
The structure of the fund may vary different for different schemes and the fund
manager’s outlook on different stocks. The Equity Funds are sub-classified
depending upon their investment objective, as follows:
 Diversified Equity Funds
 Mid-Cap Funds
 Sector Specific Funds
 Tax Savings Funds (ELSS)
Equity investments are meant for a longer time horizon, thus Equity funds
rank high on the risk-return matrix.

50
Debt funds:

The objective of these Funds is to invest in debt papers. Government authorities,

private companies, banks and financial institutions are some of the major issuers
of debt papers. By investing in debt instruments, these funds ensure low risk
and
Provide stable income to the investors. Debt funds are further classified as
 Gilt Funds:
Funds Invest their corpus in securities issued by Government,
popularly known as Government of India debt papers. These Funds carry
zero Default risk but are associated with Interest Rate risk. These
schemes are safer as they invest in papers backed by Government.
 Income Funds:
Funds Invest a major portion into various debt instruments such
as bonds, corporate debentures and Government securities.
 MIPs:
MIPs Invests maximum of their total corpus in debt instruments while
they take minimum exposure in equities. It gets benefit of both equity and
debt market. These scheme ranks slightly high on the risk-return matrix
when compared with other debt schemes.
 Short Term Plans (STPs): Meant for investment horizon for three to six
months. These funds primarily invest in short term papers like Certificate
of Deposits (CDs) and Commercial Papers (CPs). Some portion of the
corpus is also invested in corporate debentures.
 Liquid Funds:
Funds Also known as Money Market Schemes, These funds
provides easy liquidity and preservation of capital. These schemes invest
in short-term instruments like Treasury Bills, inter-bank call money
market, CPs and CDs. These funds are meant for short-term cash
management of corporate houses and are meant for an investment horizon
of 1day to 3 months. These schemes rank low on risk-return matrix and
are considered to be the safest amongst all categories of mutual funds

Balanced funds:
51
 As the name suggest they, are a mix of both equity and debt funds. They
invest in both equities and fixed income securities, which are in line with pre-
defined investment objective of the scheme. These schemes aim to provide
investors with the best of both the worlds. Equity part provides growth and the
debt part provides stability in returns.

Further the mutual funds can be broadly classified on the basis of

investment parameter.
Each category of funds is backed by an investment philosophy, which is pre-
defined in the objectives of the fund. The investor can align his own investment
needs with the funds objective and invest accordingly

By investment objective.
Growth Schemes:
Growth Schemes are also known as equity schemes. The aim of these schemes
is to provide capital appreciation over medium to long term. These scheme
As normally invest a major part of their fund in equities and are willing to bear
short-term decline in value for possible future appreciation.
Income Schemes:
Schemes
Income Schemes are also known as debt schemes. The aim of these schemes is
to provide regular and steady income to investors. These schemes generally
invest in fixed income securities such as bonds and corporate debentures.
Capital appreciation in such schemes may be limited.
Balanced Schemes:
Balanced Schemes aim to provide both growth and income by periodically
distributing a part of the income and capital gains they earn. These schemes
invest in both shares and fixed income securities, in the proportion indicated in
their offer documents (normally 50:50).

Money Market Schemes:

Schemes

52
Money Market Schemes aim 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.

Other schemes

Tax Saving Schemes:

Tax-saving schemes offer tax rebates to the investors under tax laws prescribed
from time to time. Under Sec.80C of the Income Tax Act, contributions made to
any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes:
Index schemes attempt to replicate the performance of a particular index such
as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of
only those stocks that constitute the index. The percentage of each stock to the
total holding will be identical to the stocks index weight age. And hence, the
returns from such schemes would be more or less equivalent to those of the
Index.

Sector Specific Schemes: and

These are the funds/schemes which invest in the securities of only those sectors
or industries as specified in the offer documents. E.g. Pharmaceuticals,
Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The
returns in these funds are dependent on the performance of the respective
sectors/industries. While these funds may give higher returns, they are more
risky compared to diversified funds. Investors need to keep a watch on the
performance of those sectors/industries and must exit at an appropriate time.

Types of returns
53
 There are three ways, where the total returns provided by mutual funds can
be enjoyed by investors:

 Income is earned from dividends on stocks and interest on bonds. A fund

pays out nearly all income it receives over the year to fund owners in the
form of a distribution.
 If the fund sells securities that have increased in price, the fund has a
capital gain. Most funds also pass on these gains to investors in a
distribution
 If fund holdings increase in price but are not sold by the fund manager,
the fund's shares increase in price. You can then sell your mutual fund
shares for a profit. Funds will also usually give you a choice either to
receive a check for distributions or to reinvest the earnings and get more
shares.

FREQUENTLY USED TERMS:

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”.

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.

54
 Market or Fair Value of Scheme’s / Plan(s) investments (+) Current
Assets. (-) current Liabilities and Provisions

NAV = ------------------------------------------------------------------------------------

No. of Units outstanding under Scheme / Plan(s)

For liquid shares/debentures, valuation is done on the basis of the last or closing
market price on the principal exchange where the security is traded.

For illiquid and unlisted and/or thinly traded shares or debentures, the value has
to be estimated. For shares, this could be the book value per share or an
estimated market price if suitable benchmarks are available.

For debentures and bonds, value is estimated on the basis of yields of

comparable liquid securities after adjusting for illiquidity. The value of fixed
interest bearing securities moves in a direction opposite to interest rate changes
Valuation of debentures and bonds is a big problem since most of them are
unlisted and thinly traded. This gives considerable leeway to the AMCs on
valuation and some of the AMCs are believed to take advantage of this and
adopt flexible valuation policies depending on the situation.

Sale Price:
It is the price investor pay when he invests in a scheme. It is also called Offer
Price. It may include a sales load.

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

Redemption Price:
It is the price at which open-ended schemes repurchase their units and close-
ended schemes redeem their units on maturity. Such prices are NAV related.

55
Sales Load:
It is a charge collected by a scheme when it sells the units. Also called,
‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’
schemes.

Repurchase or ‘Back-end’ Load:

It is a charge collected by a scheme when it buys back the units from the unit
holders.

The value of fixed interest bearing securities moves in a direction opposite to

interest rate changes Valuation of debentures and bonds is a big problem since
most of them are unlisted and thinly traded. This gives considerable leeway to
the AMCs on valuation and some of the AMCs are believed to take advantage of
this and adopt flexible valuation policies depending on the situation.

Interest is payable on debentures/bonds on a periodic basis say every 6

months. But, with every passing day, interest is said to be accrued, at the daily
interest rate, which is calculated by dividing the periodic interest payment with
the number of days in each period. Thus, accrued interest on a particular day is
equal to the daily interest rate multiplied by the number of days since the last
interest payment date.
Usually, dividends are proposed at the time of the Annual General meeting and
become due on the record date. There is a gap between the dates on which it
becomes due and the actual payment date. In the intermediate period, it is
deemed to be “accrued”. Expenses including management fees, custody charges
etc. are calculated on a daily basis.

56
Is a fund with a low NAV a better investment option than a fund with a
higher NAV:

Since one can buy more units when the NAV is low, isn't it cheaper: Should
mutual fund schemes with a higher NAV be avoided: These are questions,
which trouble many first-time investors in mutual funds.
The answer to these questions is that it is irrelevant how high or low the
NAV of a fund is. The amount of one’s investment remaining unchanged,
between two funds with identical portfolios, a low NAV would mean a higher
number of units held and consequently a high NAV would mean lower num
ber of units held. But under both circumstances, the product of the number of
units and the applicable NAV, which is the value of your investment, would be
identical. Thus it is the stocks in a portfolio that determine returns from a fund,
the value of the NAV being immaterial.
When one sells those units, the return will be the same as that of another
scheme, which has performed similarly. The 'cost' of a scheme in terms of its
NAV has nothing to do with returns. What you want to buy in a scheme is its
performance. The only instance where a higher NAV may adversely affect you
is where a dividend has to be received. This happens because a scheme with a
higher NAV will result in a fewer number of units and as dividends are paid out
on face value, higher NAV will result in lower absolute dividends due to the
smaller number of units.
But even here, total returns will remain the same. So from whichever
angle you see it, the NAV makes no difference to returns. Mutual fund schemes
have to be judged on their performance. And the simplest way to do this is to
compare returns over similar periods.

57
 Cost
s Involved in Mutual funds
An investor must know that there are certain costs involved while investing in
mutual funds. Mutual funds costs can be classified into 2 broad categories.

Operating expenses – which are paid out of the funds earnings and
Sales charges – that are directly deducted from your investment. It is not
compulsory that every Mutual funds levy sales charges but they certainly have
operating expenses. No doubt they influence returns on investment in a fund.

Operating Expenses:
These referred to cost incurred to operate a Mutual fund. Advisory fees paid to
investment managers, Audit fees to chartered accountant, custodial fees, register
and transfer agent fees, trustee fee, agent commission. Operating expenses also
known as expenses ratio, which is annual expenses, expressed as a percentage
of the funds average daily net assets mutual funds. The break up of these
expenses is required to be reported in the schemes offer document or
prospectus.
Operating expenses
Expenses Ratio = ------------------------
Average Net Assets
For instant, if funds Rs. 100 crores and expenses 20 lakhs. Then the expenses
ratio is 2%, expenses ratio is available in the offer document and from historical
per unit statistics included in the financial results of the fund, which are
published by annually. Un-audited for the half year ending September 30 and
audited for the physically year end I march 30.
Depending upon scheme and net asset, operating expense are determined
by limits mandated by SEBI Mutual funds regulation Act. Any excess over
specified limits as to be born by Asset Management Company, the trustees or
sponsors.

58
Sale Charges:

There are known commonly sales loads, these are charged directly to investor.
Sales loads are used by mutual fund for the payment of agent’s commission,
distribution and marketing expenses. These charges have no effect on the
performance of the scheme. Sales loads are usually expression percentage and
or of two types front-end and back-end.
Front-End Load:
It is a one time fixed fee paid by an investor when buying a Mutual funds
scheme. It determines public offer price which intern decides how much of
your initial investment actually get invested the standard practice of arriving a
public offer price is as follows.
Net Asset Value
Public offer price = ------------------------
(1 – front-end load)
Let us assume, An investor invests Rs. 10,000 in a scheme that charges a 2%
front end load at a NAV per unit Rs. 10 using the formula public offer price =
10/(1-0.02) is Rs. 10.20. So only 980 units are allotted to the investor

Amount invested
Number of units allotted = -----------------------
Public Offer Price

10,000/10.20 = 980 units at a NAV of Rs. 10

This means units worth 980 are allotted to him an initial investment of Rs.
10,000. Front-end loads tend to decrease as initial investment amount increase.
Back-End Load:

59
May be a fixed fee redemption or a contingent deferred sales charges – A
redemption load continues so long as the redeeming or selling of the units of the
units of a fund does not take place in the event of a back end load is applied.
The redemption price is arrive are using following formula.
Net Asset Value
Redemption price = --------------------------
(1 + back end load)
Let us assume an investor redeems units valued at Rs. 10,000 in a scheme that
charges a 2% back end load at a NAV per units of Rs. 10 using the formula
redemption price 10/(1 + 0.02) = Rs. 9.80. So, what the investor gets in hand is
9800 (9.8 x 1000).
Contingent Deferred Sales Charges (CDSC):
Contingent deferred sales charges are a structured back end load. It is paid when
the units are redeemed during the initial years of ownership. It is for a pre-
determined period only and reduced over the time you invested for a fund. The
longer the investor remains in a fund the lower the CDSC.
The SEBI (Mutual fund regulation 1996) stipulate that a CDSC may be
charge only for first 4 years after purchase of units and also stipulate the
maximum CDSC that can we charge every year. The SEBI mutual funds
regulation 1996 do not allow either the front end load or back end load to any
combination is higher than 7%.
Transaction Cost:
Some funds may also impose a switch over fee which is a charge on transfer of
investment from one scheme to another with in a same mutual funds family and
also to switch from one plan (short term) to another (long term) within same
scheme.
Returns and benchmark
There are many ways to measure the performance of an equity fund. But the
most basic method is to check the performance of the fund against its
benchmark.

60
In case of equity funds, the benchmark is usually an index such as the BSE
Sensex or the Nifty. For sector funds such as pharmacy or IT funds, it is sect
oral indices such as BSE Healthcare Index or CNX IT index that are the correct
benchmarks.
These indices are a collection of stocks that, together, are meant to
represent the equity market. For example, the BSE Sensex is a weighted average
of prices of 30 select stocks and S&P CNX Nifty of 50 select stocks.
The fund manager’s responsibility is to manage his portfolio in such a
manner that over time, he or she is able to generate returns that are superior to
that of the benchmark indices. Each fund chooses a particular benchmark index
and tries to outperform it. So, while checking the performance of your actively
managed fund, do check how it performs against its benchmark.
You can assess the performance of your mutual fund investment by
computing appreciation in the NAV of the scheme over different periods of
time, against relevant benchmarks. Another significance of the benchmark is
that it gives you a rough indication as to what kind of stocks the fund is likely to
invest in.
Various types of benchmarks
Equity-oriented funds are usually benchmarked against the CNX Nifty,
CNX Nifty Junior, CNX 100, CNX 500 and CNX Midcap indices maintained
by the NSE or against the Sensex, BSE Midcap, BSE 100 or 200 maintained by
the BSE.
Debt funds, balanced funds and Monthly Income Plans are usually measured
against either benchmarks created by CRISIL or against blended (combinations
of existing indices) indices constructed by the fund house.

Are benchmarks best standards:

However, the stated benchmarks are not always the best standard for
performance evaluation as many a time funds take liberties while managing the
fund. There are times when the fund managers invest actively in stocks outside

61
the benchmark, in order to maximize their returns. At times, the fund may also
invest in a class of stocks that are not correctly reflected in the benchmark.

A fund supposed to invest in large-cap stocks (stocks with high market

capitalization) may dabble in mid-cap or small-cap stocks, to improve returns.
These investments entail taking higher risk as mid-cap and small-cap stocks are
subject to greater volatility compared to large caps.

As the number of schemes in the market increases, fund houses have been
coming out with ‘thematic’ schemes to attract investors. For example, if
infrastructure stocks are the flavor of the season, you see fund houses launching
infrastructure funds. When you compare their returns with the large-cap indices,
they often deliver superlative returns. But the returns may not appear in such
good light compared to a sector index such as the BSE Capital Goods.

Benchmark comparisons also have to factor in how challenging the year

has been for the peer group. A fund may have outperformed the benchmark by a
small margin when all its peers have comfortably trounced the index. In such a
case, out performance against the benchmark may not be of much comfort to the
investor.

62
MEASURES OF RETURNS IN MUTUAL FUNDS

Returns on the mutual funds are measured using the following parameters.
 Beta
 Sharpe Ratio
 Treynor Ratio
 Tracking Error
 Jenson Model
 Fama Model

Beta:
This is a popular measure of the extent to which the fund returns are impacted
by the market factors. Returns from the fund and expected to be linearly related
to the returns from the underlying market. A fund with a higher Beta is more
risky then one with lower beta.
Treynor Ratio:
The Treynor ratio is similar to the Sharpe ratio. Instead of comprising the
fund’s risk-adjusted performance to the risk-free return, it compares the fund’s
risk-adjusted performance to the relative index.

Trey nor’s Index (Ti) =(Ri-Rf)/Bi

Where, Ri represents return on fund, Rf is risk free rate of return and Bi is

beta of the fund.
All risk-averse investors would like to maximize this value. While
a high and positive Trey onr’s Index shows a superior risk-adjusted performance
of a fund, a low and negative Trey onr’s Index is an indication of unfavorable
performance.

63
Sharpe Ratio:

Sharpe ratio is used in ranking the funds based on the comparison of the excess
return per unit of risk, risk being measured by the standard deviation. Excess
return is defined as the actual return of the fund less the risk free rate. The
return on the 90-day Treasury bill is taken as the risk free rate.

Sharpe index (Si) = (Ri –Rf)/ Si, Where, Si is standard deviation of the fund.

While a high and positive Sharpe Ratio shows a superior risk-adjusted

performance of a fund, a low and negative Sharpe Ratio is an indication of
unfavorable performance.

Comparison of Sharpe and Treynor:

Sharpe and Treynor measures are similar in a way, since they both
divide the risk premium by a numerical risk measure. The total risk is
appropriate when we are evaluating the risk return relationship for well-
diversified portfolios. On the other hand, the systematic risk is the relevant
measure of risk when we evaluating less than fully diversified portfolios or
individual stocks.
For a well-diversified portfolio the total risk is equal to systematic risk.
Rankings based on total risk (Sharpe measure) and systematic risk (Treynor
measure) should be identical for a will-diversified portfolio, as the total risk-is
reduced to systematic risk.
Therefore, a poorly diversified fund that ranks higher on Treynor
measure, compared with another fund that is highly diversified, will rank lower
on Sharpe Measure.

64
Tracking Error:

Tracking error is a performance measurement term, which quantifies the extent

to which a mutual fund portfolio’s returns at variance with the underlying
benchmark in the case of index funds this measure is very important. Index
funds are supposed to replicate the index and hence have a minimal tracking
error. Index funds are compared and ranked based on their tracking error.

Jenson Model

Jenson’s model proposes another risk adjusted performance

measure. This measure was developed by Michael Jenson and is sometimes
referred to as the Differential Return Method. This measure involves evaluation
of the returns that the fund has generated vs. the returns actually expected out of
the fund given the level of its systematic risk. The surplus between the two
returns is called Alpha, which measures the performance of a fund compared
with the actual returns over the period. Required return of a fund at a given level
of risk (Bi) can be calculated as:

Jenson Model = Ri-Rf+Bi (Rm-Rf)

Where, Rm is average market return during the given period. After calculating
I, alpha can be obtained by subtracting required return from the actual return of
the fund. Higher alpha represents superior performance of the fund and vice
versa. Limitation of this model is that it considers only systematic risk not the
entire risk associated with the fund and an ordinary investor cannot mitigate
risk, as his knowledge of market is primitive.

65
Fama Model:

The Eugene fama model is an extension of Jenson model. This model

compares the performance, measured in terms of returns, of a fund with the
required return commensurate with the total risk associated with it. The
difference between these is taken as a measure of the performance of the fund
and is called net selectivity.
The net selectivity represents the stock selection skill of the fund
manager, as it is the excess return over and above the return required to
compensate for the total risk taken by the fund manager. Higher value of which
indicates that fund manager has earned returns well above the return
commensurate with the level of risk taken by him.

Required return can be calculated as: Pi=Rf+Si/Sm*(Rm-Rf)

Where, Sm is standard deviation of market returns. The net selectivity is

then calculated by subtracting this required return from the actual return of the
fund.Among the above performance measures, two models namely, Treynor
measure and Jenson model use systematic risk based on the premise that the
unsystematic risk is diversifiable. These models are suitable for large investors
like institutional investors with high risk taking capacities as they do not face
paucity of funds and can invest in a number of options to dilute some risks. For
them, a portfolio can be spread across a number of stocks and sectors. However,
Sharpe measure and Fama model that consider the entire risk associated with
fund are suitable for small investors, as the ordinary investor lacks the necessary
skill and resources to diversify.

66
How to choose a better Mutual fund:

Choosing a mutual fund is not an easy task with so many funds. We think that
the correct first step towards deciding is to decide on a way of deciding. Rarely
do investors-normal investors, who do something else for a living-have a
systematic checklist of things that they should evaluate about a fund, which they
are considering buying. Here's our blueprint for a structured approach to fund
selection. There are four basic areas that you must evaluate in a fund to decide
whether it's a good investment.

Performance:

Performance comparisons must be used only to compare the same type of fund.
They are meaningless otherwise. Only when used within the same category of
funds do performance numbers tell you anything at all. By the time you come to
the stage when you are comparing performance numbers of different funds, you
should already have a good idea of how much you will invest in that category.
Risk: Almost all investing is risky, at least those investments that get you any
meaningful returns. In general it is said that the riskier a fund, the more its
potential for earning high returns, at least most of the time. However, this is a
simplified view that implies that a given amount of risk always gets you the
same returns. This is simply not true because not all funds are equally well-run.
The true measure of risk is whether a fund is able to give you the kind of returns
that justify the kind of risk it is taking.

Evidently, this is not as easy to measure as returns. There are a wide

variety of statistical techniques that can be used to measure this, and we distil a
combination of performance and risk measurement into the Value Research
Fund Rating. When we say that a fund has a five- or four-star rating, it means
that the fund, compared to similar funds, performed better, given its risk level.

67
Portfolio: Unlike performance and risk, portfolio is one of the 'internals' of a
fund. It is internal in the sense that the result of good, bad or ugly portfolios is
already reflected in the first two measures and it's perfectly OK for you to
choose funds on the basis of those two measures alone without actually
bothering about what they own.
Our basic analysis of portfolios measures whether a fund (we are talking
about equity funds here) holds mostly large, medium or small companies. It also
looks at whether a fund prefers companies that may be overpriced but which are
growing fast or whether it prefers low-priced stocks belonging to companies
that are growing at a more gentle pace.
For fixed income funds, an analogous analysis tells one whether a fund
prefers volatile but potentially high return long-duration securities or stable and
low return short-duration securities. Also, one can analyze whether a fund
prefers safer (lower returns) securities or riskier (higher returns) securities.

Management: Fund management is a fairly creative and personality-oriented

activity. This may not be true of some types of funds like shorter-term fixed-
income funds and, of course, index funds, but equity investment is more of an
art than a science.
When you are buying a fund because you like its track record (and unless
you can foresee the future, that's the only way to buy a fund), what you are
actually buying is a fund manager's (or sometimes a fund management team's)
track record. What you need to make sure is that the fund manager who was
responsible for the part of the fund's track record that you are buying into is still
there. A high-performance equity fund with a new manager is a like a new fund.
Cost: While these are the four main points on which to evaluate a fund, there is
one more factor that is becoming increasingly important and that is cost. Funds

68
are not run for free and nor are they run at an identical cost. While the
difference in different funds' cost is not large, these can compound to significant
variations, especially for fixed income funds where the performance differential
between funds is quite small to begin with.
Even for equity funds, it may not be worth buying a higher cost fund that
appears to be only slightly better than a lower cost one. Remember, there is no
reason for one AMC to have much higher costs than others, apart from the fact
that it wants to have a higher margin, or that it wants to spend more on things
like marketing, which are of no relevance to you. If an AMC wants higher
returns from its business, then it must justify it by giving you higher returns on
your investments.

Tax Aspects Of Mutual Funds Under It Act 1961

To Unit-Holder (Resident)
Section 94(6) Of the Income Tax Act 1961
Section 94(6) if the Income Tax Act, 1961, now provides that any
person who buys or acquires any securities or unit within a period of three
months prior to the record date and such person sells or transfers such securities
or unit within a period of three months after such date and the dividend or
income on such securities or unit on account of such purchase and sale of
securities or unit, to the extent such loss does not exceed the amount of dividend
or income received or receivable on such securities or unit, shall be ignored for
the purposes of computing right income chargeable to tax.
Section 10(33) of the Income Tax Act, 1961
The dividend received by the investors from the scheme will be
exempt from income tax for all categories of investors under Section 10(33) of
the Income Tax Act, 1961. The scheme will pay a distribution tax currently @
10% plus surcharge if the portfolio holds less than 50 percent debt securities on
an average during the last one year period.

69
Section 88 of the Income Tax Act, 1961
Specified units of mutual fund schemes qualify for rebate under
Section 88 of the Income Tax Act, 1961, subscription to the Units of the Scheme
by Individuals and Hindu Undivided Families, not exceeding Rupees ten
thousand would be eligible to a deduction, from income-tax, of an amount equal
to 20% of the amount so subscribed. In the case of subscription by an
individual, whose income is derived from the exercise of his profession as an
author, playwright, artist, musician, actor or sportsman (including an athlete),
the deduction admissible would be at the rate of 25%.

Tax Deducted at Source (TDS)

There will nor be any Tax Deduction at Source on payment to
resident unit-holders towards redemption or dividends.

Capital Gains benefit under Section 112 of the Income Tax Act 1961
Long-term capital gains in respect of Units held for a period of
more than 12 months will be chargeable under Section 112 of the Income Tax
Act, 1961, at a concessional rate of tax @ 20% (excluding surcharge) From the
full value of consideration; the following amounts would be deductible to arrive
at the amount of capital gains:

3. Cost of acquisition as adjusted by Cost Inflation Index notified by the

Central Government and
4. Expenditure incurred wholly and exclusively in connection with such
transfer

Investors can also opt to pay tax @ 10% (excluding surcharge) on such
Long Term Capital Gains, but without the cost inflation indexation benefit.

70
To Non-Residents/OCBs

Capital Gains under Section 112 of the Income Tax Act 1961
Long term capital gains in respect of Units held for a period of more
than 12 months will be chargeable under Sec 112 of the Income Tax Act, 1961
at a concessional rate of tax of 20%. The capital gains would be calculated after
indexation of the cost of acquisition. Investors can opt to pay tax @ 10%
(excluding surcharge) on Long Term Capital Gains, but with out the cost
inflation indexation benefit.
Tax Deduction at source (TDS)
Redemptions/ Exchanges/ Switches by non-residents/ OCBs/ Fills
will be subjected to tax deduction at source at the rates in force and certificates
for tax deducted will be issued.
To Charitable Trusts
Investment in the units of the schemes is an eligible mode of
investment under Section 11(5) of the income tax act with regard to Income Tax
Rule 17C.
Securities Transaction Tax
The Securities Transaction Tax (STT) is levied on the value of a
transaction. So when you redeem your units in an equity fund (not debt) or
switch them to another scheme, STT of 0.25 per cent will be applicable.

Wealth Tax
Mutual Fund units are not liable to Wealth Tax.
To the Fund
Open Ended Mutual Funds are exempt from income tax Section 10 [23D]
of the Act.

71
TAX SAVING OPTIONS u/s 80C

Most of us think of investing in tax only in the month of March and as the
D-day approaches, there is a rush to invest in any tax-saving avenue – be it
infrastructure bonds, ELSS schemes or PPF without any proper thought before
investing. Ideally, investing for tax saving purposes, should be an integral part
of your portfolio plan, helping you reach your investment goals in a tax efficient
way.

The number of tax saving options on offer not only serve the purpose of
saving tax but also offer other benefits such as risk coverage, capital
appreciation, retirement savings etc. In this section, we have attempted to give a
comparison of the various tax-saving investments, which should help you make
an informed and intelligent decision regarding your tax investments.
The comparison is done in a group of two on the parameters of safety,
returns, and tenure and tax benefits. The argument behind grouping of those
avenues is not very complicated; we just want to address the dilemma of much
talked groups. For instance, one can ask whether investment in NSC is better
when compared to Infrastructure bond.

The grouping has not been addressed. In this section, we suggest those
readers to compare in their own for this kind of grouping after taking a look at
the arguments of the available grouping.

72
SWOT ANALYSIS OF MUTUAL FUNDS

Strengths

 Simplify speed and quality of services offered by mutual fund

companies.

 As a investment tool for the investors to boost their savings.

 Wide range of investment schemes offered by a mutual fund

companies to meet various requirements of investors.

 Generates returns along with tax saving options.

Weakness

 NAV range doesn’t seem to fit in with corporate compensations.

There is positioning and pricing problem.

 Delay in infrastructure development may dampen the growth rate of

NAV’S of different schemes. Which in turn affect investors to
invest.

 Deregulation of interest rates may affect the probability of

companies.

73
Opportunities

 Perceptive changes in life style.

 Addition of level of new class of entrepreneurs to the board base of

middle class of the market.

 The range of schemes and services offered by mutual fund

companies is large enough for all investors to have a slice of cake.

 The falling interest rates would make to raise capital at less cost.
Hence more opportunities for companies.

 Globalization is buying fresh opportunities in terms of foreign tie-

ups.

Threats

 Risk of scams

Several increase in the competition among mutual companies result in

decreasing the spread.

74
 ANALYSIS OF TAX SAVINGS SCHEMES OF SELECTED MUTUAL
FUNDS

I. BIRLA SUN LIFE MUTUAL FUND:

SCHEME: BIRLA SUN LIFE TAX RELIEF 96

INVESTMENT OBJECTIVE:
An open – ended equity linked savings scheme (ELSS) with the objective of
long-term growth of capital through a portfolio with a target allocation of 80%
equity, 20% debt and money market securities.
BENCH MARK: BSE 200
FUND MANAGER: Mr. Ajay Garg
INCEPTION DATE: march 29 1996
ASSET SIZE: 412.50 CRORES

TABLE 4.1
BIRLA SUN LIFE MUTUAL FUND APR MAY JUNE
TAX SAVING (ELSS) GROWTH (HIGH) 11.28 11.17 11.44
GROWTH (LOW) 11.01 10.35 10.62

TAX SAVING (ELSS) DIVIDEND (HIGH) 83.49 82.17 84.77

DIVIDEND (LOW) 81.57 76.67 78.67

75
Graph 4.1

Growth:

It is found that the NAV of BIRLA SUN LIFE tax saver fund in growth plan is
highest at 11.44 and least at 10.35

Dividend:

It is found that the NAV of BIRLA SUN LIFE tax saver fund in growth plan is
highest at 84.77 and least at 76.77

76
II. ICICI MUTUAL FUND

SCHEME: ICICI PRUDENTIAL TAX PLAN

INVESTMENT OBJECTIVE:

To seek to generate long- term capital appreciation from a portfolio that is

invested predominantly in equity and equity relative securities.

FUND MANAGES: Sankaran Naren

BENCH MARK: S&P CNX Nifty.

INCEPTION DATE: August 1999

ASSET SIZE: 1,222 CRORES

TABLE 4.2

ICICI MUTUAL FUND APR MAY JUNE

TAX SAVING (ELSS) GROWTH (HIGH) 130.84 129.76 132.14
GROWTH (LOW) 127.73 121.25 124.96

TAX SAVING (ELSS) DIVIDEND (HIGH) 19.51 19.35 19.71

DIVIDEND (LOW) 19.04 18.08 18.56

77
Graph 4.2

Growth:

It is found that the NAV of ICICI Prudential Tax Plan growth plan is highest at
132.14 and least at 121.25

Dividend:

It is found that the NAV of ICICI Prudential Tax growth plan is highest at 19.71
and least at 18.08

78
HDFC MUTUAL FUND

SCHEME: HDFC TAX SAVER

INVESTMENT OBJECTIVE:
To achieve long-term growth of capital.

BENCH MARK: S&P CNX 500

FUND MANAGER: vinay kulkarni.
INCEPTION: march 31, 1996
ASSET SIZE:2633 CRORES

TABLE 4.3

HDFC MUTUAL FUND APR MAY JUNE

TAX SAVING (ELSS) GROWTH (HIGH) 210.9 208.4 218.2
GROWTH (LOW) 206.7 198.5 205.1

TAX SAVING (ELSS) DIVIDEND (HIGH) 59.25 58.55 61.66

DIVIDEND (LOW) 58.06 55.76 57.64

79
Graph 4.3

Growth:

It is
found
that the
NAV of
HDFC
tax saver fund in growth plan is highest at 218.2 and least at 198.5

Dividend:

It is found that the NAV of HDFC tax saver fund in growth plan is highest at
61.66 and least at 55.76

FIDELITY MUTUAL FUNDS

SCHEME: FIDELITY TAX ADVANTAGE FUND

80
INVESTMENT OBJECTIVE:
To generate long - term capital growth from a diversified portfolio of
predominantly equity and equity – related securities.

BENCH MARK: BSE-200 Index

FUND MANAGER: SANDEEP KOTHARI
INCEPTION DATE: FEBRUARY 27, 2006
ASSET SIZE: 1219 Crores

TABLE 4.4

FIDELITY MUTUAL FUND APR MAY JUNE

TAX SAVING (ELSS) GROWTH (HIGH) 19.57 19.53 20.51
GROWTH (LOW) 19.13 18.86 19.21

TAX SAVING (ELSS) DIVIDEND (HIGH) 17.58 17.53 18.46

DIVIDEND (LOW) 17.17 16.6 17.24

81
Graph 4.5

Growth:

It is found
that the
NAV of
Fidelity
Tax
Advantage Fund growth plan is highest at 20.51 and least at 18.86

Dividend:

It is found that the NAV of Fidelity Tax Advantage Fund growth plan is highest
at 18.46 and least at 16.60

82
RELIANCE MUTUAL FUND

SCHEME: RELIANCE TAX SAVER FUND

INVESTMENT OBJECTIVE:
The primary objective of the scheme is to generate long - term capital
appreciation from a portfolio that is invested predominantly in equity and equity
related instruments.
BENCH MARK: BSE 100 Index
FUND MANAGER: Ashwani Kumar
INCEPTION: 22-sep-2005
ASSET SIZE: 1231.0483

TABLE 4.5

RELIANCE MUTUAL FUND APR MAY JUNE

TAX SAVING (ELSS) GROWTH (HIGH) 19.86 18.54 18.45
GROWTH (LOW) 18.89 18.07 18.55

TAX SAVING (ELSS) DIVIDEND (HIGH) 15.18 14.93 15.48

DIVIDEND (LOW) 14.72 14.08 14.46

83
Graph 4.5

Growth:

It is found that the NAV of Reliance Tax saver fund in growth plan is highest at
19.86 and least at 18.07

Dividend:

It is found that the NAV of Reliance tax saver fund growth plan is highest at
15.48 and least at 14.08

84
 TOTAL COMPARATIVE ANALYSIS ON NAV'S & RETURNS

TAX SAVING SCHMES (GROWTH/OPTION):

COMPANY APRIL MAY JUNE

2010 2010 2010 RETURNS RANKING
NAME HIGH HIGH HIGH
BIRLA SUN 0.38 5
LIFE MUTUAL 11.28 11.17 11.44
FUND

RELIANCE 19.48 19.33 19.86 0.68 4

MUTUAL
FUND

FIDELITY 19.57 19.53 20.51 1.02 3

MUTUAL
FUNDS

ICICI MUTUAL 130.84 129.76 132.14 4.18 2

FUND

HDFC 210.9 208.4 218.2 12.3 1

MUTUAL
FUND

ANALYSIS: - The above table compares the rise and fall of NAV of tax
saving funds of various companies for a period of 3 months.

INTERPRETATION:-
The Returns of ICICI during the period of study is: 4.18
The Returns of HDFC during the period of study is: 12.3
The Returns of FIDELITY during the period of study is: 1.02
The Returns of RELIANCE during the period of study is: 0.68
The Returns of BIRLA SUN LIFE during the period of study is: 0.38

85
 Graph:

TAX SAVING SCHEMES (GROWTH/OPTION):

RET
UR
NS

14

12

10
Birla
8 Reliance
Fidelity
6 ICICI
Hdfc
4

Birla Reliance Fidelity ICICI HDFC

COMPANIES

86
TAX SAVING SCHEMES (DIVIDEND/OPTION)

COMPANY JAN FEB MAR

2010 2010 2010 RETURN RANKING
NAME S
HIGH HIGH HIGH
BIRLA SUN LIFE 83.49 82.17 84.77 3.92 1
MUTUAL FUND

HDFC MUTUAL 59.25 59.01 61.66 2.89 2

FUND

FIDELITY 17.58 17.53 18.46 1.44 3

MUTUAL FUNDS

RELIANCE 15.18 14.93 15.48 0.80 4

MUTUAL FUND

ICICI MUTUAL 19.51 19.35 19.71 0.42 5

FUND

ANALYSIS: - The above table compares the rise and fall of NAV of tax
saving funds of various companies for a period of 3 months.

INTERPRETATION: -
The Returns of ICICI during the period of study is: 0.42
The Returns of RELIANCE during the period of study is: 0.80
The Returns of HDFC during the period of study is: 2.89
The Returns of FIDELITY during the period of study is: 1.44
The Returns of BIRLA SUN LIFE during the period of study is: 3.92
87
 Graph:

TAX SAVING SCHEMES (DIVIDEND/OPTION)

RET
UR
NS

4.5
4
3.5
3
2.5 Series1
2 Series2
1.5
1
0.5
0
Birla Reliance Fidelity ICICI Hdfc

COMPANIES
 FINDINGS

1. It is observed that of the tax saving scheme of growth option, the

Reliance, HDFC and Fidelity mutual funds are performing better, as the
returns are compared to other similar organization.

2. It is observed that of the tax saving scheme of dividend option, the Birla,
Reliance and Fidelity mutual funds are performing well, as the returns are
compared to other similar group.

3. Among tax saving schemes the dividend and growth in Fidelity mutual
funds NAV returns of tax saving scheme is satisfactory.

4. Among tax saving funds in growth options of HDFC mutual funds are
having high NAV values.

5. Among tax saving funds in dividend options of BIRLA SUNLIFE

mutual funds is having high NAV values.

6. It is found that Birla Sun Life Tax Relief ’96 fund is the best performing
equity fund among all the selected AMC’s as it is performing consistently
even in volatile conditions.
 SUGGESTIONS

 As the market analysis shows that only some investors know and aware
about the mutual fund. Some more advertisements should be given about
the mutual fund schemes, their asset allocation pattern and returns.

 More Tele calling should be done by the trainees of the concerned mutual
fund company to the customers to explain about the products and its
features.

 As whole industry the Birla is in the 4th position, so company can use this
image for more business.

 The company should conduct stalls, campaign programs at public places

during the evening session to educate the prospective responding persons.

 The asset allocation plays a vital role in the fund’s performance so it is

suggested that the mutual fund to diversify its asset in a proper manner.
 BIBLIOGRAPHY

Journals
 Investime
 Mutual Fund Insight

News Papers:

 Economic Times
 The Hindu Business Line.

Magazines:

 Mutual Fund Insight

 Money Out look
 Value Research
 Knowledge Information Memorandum[KIM’s]

Websites Visited:

www.amfiindia.com
www.mutualfundsindia.com
www.sebi.gov.in
www.indiainfoline.com
www.eastindiavyapaar.com
www.moneycontrol.com
www.valueresearchonline.com
www.bseindia.com