INTRODUCTION

Mutual funds are a very new type of intermediary on the Indian financial scene.Mutual fund is the trust at low. It is a special type of managed, pooled portfolio financial company, or financial service organization. That sells/units/stocks in itself to the public to obtain its resources and it invest the savings so mobilized or pooled in a large, diversified and sound portfolio of equity shares, Bonds, Money market instruments etc., In the US an alternative form of this is the unit investment trust which is an unmanaged fixed-income security portfolio put together by a sponsor and handled by an independent trustee. Redeemable trust certificates are sold to investors NAV (Net Asset Value) plus a small commission. All interest/dividend and principal repayment are distributed to the holders of the certificates. The sponsor makes a secondary market in these certificates for those who wish to sell the securities of the trust are almost always kept unchanged in the case of fixed income securities, the trust ceases to exist when the bonds mature.

The story of UTI began in 1964, the first mutual fund setup a Trust in terms of UTI Act, 1963. It was an associate institute of the RBI till February, 1976 when it was made an associate institute of IDBI. UTI got its borrowings powers from this parent institute. schemes. UTI provides attractive investment opportunities through issues of units and shares under various

OBJECTIVES & METHODOLOGY OF THE STUDY

An attempt has been made in this section to discuss about the objectives of the study and methodology employed in this study. Attempts are also made to present the need of the study, scope of the study, sources of collection of data & limitations prescribed for the study.

OBJECTIVES OF THE STUDY

The Objectives and the Methodology employed in the study are as follows. Attempts are also made to present the need and scope of the study. The following are the Main and other objectives of the study is as follows

(1). To evaluate the performance of open-ended balanced growth schemes of five mutual fund players. (2) To assign Rank- to -Rank profile based on Net Asset Value (NAV). Besides the above, the other objectives are: a. This study enables an investor, the concepts constituents, advantages, disadvantages, types and Risks associated with the mutual fund industry. b. To guide the rationale investors to take wise investment decisions. c. To suggest the Tax benefits associated with the investments in Mutual funds under various schemes.

NEED OF THE STUDY

The need of the present study is evaluate the performance of mutual fund players in India. This study is confined to balanced growth funds of Birala Sun Life, ICICI Prudential, Tata, JM finance, and Kotak mutual funds.

(1)

The present study entitled on An Overview of Mutual fund Industry in India With reference to Kotak Mutual funds, is an empirical study which covers the concept, characteristics, Investment process and Risk return profile of mutual funds according to SEBI guidelines.

(2)

Mutual funds are diversified investments and the pattern of investment is based on the principle dont put all eggs in one basket. The investor is provided with the rightist information depending upon their investing objective and respective risk return profile.

SCOPE OF THE STUDY

The present study focus its attential on the performance of Tata, Biral Sun Life, ICICI Prudential, JM finance in general Kotak in Particular. A mtual fund is a pure intermediary which perform a basic function of buying and selling of securities on behalf of its unit holders easily, economically, conveniently and profitably. Financial sector reforms since 1991 targeted operational flexibility and functional autonomy to financial service industry to enhance, efficiency productivity and profitability. Mutual funds are important segment of the financial system hence this study evaluates the mutual fund industry in general and the Kotak mutual funds in particular. The period of two months i.e April, 2010 and May, 2010 is taken as a reasonable period for this study.

SOURCES OF COLLECTION OF DATA

The data that is collected for this study can be divided into two types. 1. Primary sources of collection of data. 2. Secondary sources of collections of data. 1. PRIMARY SOURCES OF COLLECTION OF DATA The primary data collected from the corporate office of the Kotak Mahindra Mutual Funds Pvt., Ltd.,, Hyderabad . The information which is collected from the present study is of prime in nature. 2. SECONDARY SOURCES OF COLLECTION OF DATA It is from various annual reports of Kotak Mahindra Mutual Funds Pvt., Ltd.,, Hyderabad. It is intended to collect the information form various publications and also from various University Libraries.

PERIOD OF THE STUDY

For the sake of the present study, during the period of April To May, 2009 is taken as a reasonable period for drawing conclusions on Mutual Fund Industry in India.

SIGNIFICANCE OF THE STUDY

1)

Over the past decades mutual funds have grown. Intensely in popularity and have experience a considerable growth rate.

2)

Mutual funds are popular because they make it easy for small investors to invest their money in a diversified pool of securities.

3) 4)

As the mutual fund industry has evoved over the year. Mutual funds are a very new type of intermediary on the Indian financial scene.Mutual fund is the trust at low. It is a special type of managed, pooled portfolio financial company, or financial service organization. That sells/units/stocks in itself to the public to obtain its resources and it invest the savings so mobilized or pooled in a large, diversified and sound portfolio of equity shares, Bonds, Money market instruments etc.,

5)

Mutual funds also provides investors:

Continuous supervision and analysis. Investment consultancy. Judicious investment decisions. Expert, Experience, Professional, Management of portfolio at affordable cost.

6)

Hence the present study is concerned mainly with the operational

efficiency of balanced growth funds of five mutual fund industry players.

AN OVERVIEW OF MUTUAL FUND INDUSTRY IN INDIA

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

MUTUAL FUND OPERATION FLOW CHART

ORGANISATION OF A MUTUAL FUND

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

HISTORY OF THE MUTUAL FUND INDUSTRY

A mutual fund is a managed group of owned securities of several corporations receive dividends on the shares that they hold and realize capital gains or losses on their securities traded. Investors purchase shares in the mutual fund if it was individual security. After paying operating costs, the earnings of the mutual fund are distributed to the investors, in proportion to the amount of money invested. Investors hope that a loss on one holding will be made up by a gain on another. Heeding the adage Dont put all eggs in one basket the holders of mutual-fund shares are able collectively to ;gain the4 advantage by diversifying their investments, which might be beyond their financial means invidually.

A mutual fund may be either an open-end or a closed-end fund. An openend mutual fund does not have a set number of shares; it may be considered as a fluid capital stock. The number of shares changes as Investors buys or sell their shares. Investors are able to buy and sell their shares of the company at any time for a market price. However the open-end market price is influenced greatly by the fund managers. On the other hand, closed-end mutual fund has a fixed number of shares and the value of the shares fluctuates with the market. But with close-end fu8nds, the fund manager has less influence because the price of the underlining owned securities has greater influence. The modern mutual fund was first introduced in Belgium in 1822. This form of investment soon spread to Great Britain and France. Mutual funds became popular in the United States in the 1920s and continue to be popular since the 1930s, especially opened mutual funds. Mutual funds experience a period of tremendous growth after world war II, especially in the 1980s and 1990s. 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 Reserve Bank Of India. The history of mutual funds in India cab be broadly divided into four distinct phases First Phase 1964-87 Unit Trust of India (UTI) was established don 1963by an Act of parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched

10

by UTI was Unit Scheme 1964. at the end of 1988 UTI had Rs.6,700 crores of assets under management.

Second phase 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non UTI, public sector mutual funds set up by public sector banks and life insurance Corporation of India (LIC) and general Insurance Corporation of India (GIC). SBI mutual fund was the first non UTI mutual fund established in June 1987 fallowed by can bank mutual fund (Dec 87), Punjab national bank mutual fund (AUG 89), Indian bank mutual fund (Nov 89), Bank of India (Jun 90), Bank Of Baroda mutual fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up it mutual fund in December 1990. At the end of 1993, the mutual fund industry had asset under management of Rs. 47,004 crores

Third Phase 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector fund in 1993, in new era started in the India mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was ;the year in which the first mutual fund regulation come into being under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari pioneer was the first private sector mutual fund registered in July 1993. The SEBI (Mutual Fund), 1993, regulations were substituted by a more comprehensive and revised Mutual Fund Regulation in 1996. The industry now functions functions under the SEBI (Mutual Fund) Regulation 1996.

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The number of mutual fund housed when on increasing, with many foreign mutual funds setting up funds in Indian and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.

Fourth Phase Since February 2003

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 if India with assets under management o;f Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The specified undertaking of unit trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the mutual fund regulations. The second is the UTI Mutual Fund, 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 phjase o;f consolidation and growth.

FUTURE SCENARIO

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The asset bas e will continue to grow at an annual rate of about 30 to 35% over the next few years as investors shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over.Out of ten public sector players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come. But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind.

The mutual fund industry is awaiting the introduction of derivatives in India as would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV).SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on the regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.

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PROFESSIONAL FUNDS

MANAGEMENT

OF

MUTUAL

Mutual funds use professional managers to make the decisions regarding which companies securities should be bought and sold. The managers of the mutual fund decide how the pooled funds will be invested. Investment opportunities are abundant and complex. Fund managers are expected to know what is available, the risks and gains possible, the cost of acquiring and selling the investments and the law and regulations in the industry. The ability of the managers to select porofitable investments and to sell those likely to decline in value is a key factor for the mutual fund to earn money for the investors.

MARKET TRENDS
Alone UTI with just one scheme in 1964 now comets with as many as 400 odd products and 34 players in the market. In spite of the stiff competition and losing market share, UTI still remains a formidable force to reckon with. Last six years have been the most turbulent as will as exiting ones for the industry. New players have come in, while others have decided to close shop by either selling off or merging with others. Product innovation is now pass with the game shifting to performance directly associated with the fund management industry like distributors registrars and transfer agents, and even the regulators have become mature and responsible. The industry is also having a profound impact on financial markets. While UTI has always been a dominant player on the bourses as well as the debt markets, the new generations of private funds which have gained substantial mass are now seen flexing their muscles. Fund managers, by their selection criteria for stocks have forced corporate governance on the industry. By

14

rewarding honest and transparent management with higher valuations, a system of risk-reward has been created where the corporate sector is more transparent then before. Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs 1000bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998-99. in the current year mobilization till now have exceeded Rs300bn. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn. It is noticed that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40 crore in the case of public sector funds. Mutual funds are now also competing with commercial banks in the race for retail investors savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99. India is at the first stage of a revolution that has already peaked in the U.S the U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trends is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other

15

assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely.

MUTUAL FUND COMPANIES

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 Rsa. 67bn assets under management (AUM).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 Kothari pioneer was the first private sector mutual fund company I India which has now merged with Franklin Templeton. Just after ten years with private sector players penetration, the total assets rose up to Rs. 1218.05bn. Today there are 33 mutual fund companies in India.

MAJOR MUTUAL FUND COMPANIES I INDIA ABN AMRO MUTUAL FUND

ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. As the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. Was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund.

BIRLA SUN LIFE MUTUAL FUND

Birla sun life Mutual Funds is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a golbl organization evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan,

16

Indonesia and Bermuda apart from India. Birla sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 crores.

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 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 sponsorers namely Housing Development Finance Corporation Limited and Standard Life Investments Limited.

HSBC MUTUAL FUND

HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund.

ING VYSYA MUTUAL FUND

17

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.

ICICI PRUDINTIAL MUTUAL FUND

The mutual fund of ICICI is a joint venture with prudential Plc. of America, one of the largest life insurance companies in the US of A. ICICI PRUDENTIAL Mutual Fund was setup on 13th of October, 1993 with two sponsor, prudential Plc. and ICICI Ltd. The trustee Company formed is ICICI PURDENTIAL Trust Ltd. And the AMC is ICICI PRUDENTIAL Asset Management Company Limited incorporated on 22an of June, 1993.

SAHARA MUTUAL FUND

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.

SBI MUTUAL FUND

State bank of India Mutual Fund is the firs 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

18

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 sponsor 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 Limiters is one of the fastest in the country with more than Rs. 7,703 crores (as on April 30, 2005) of AUM.

KOTAK MAHINDRA MUTUAL FUND

Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently having more than 1,99,818 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk- return profiles. It was the firs company to launch dedicated gilt scheme investing only in government securities.

UTI MUTUAL FUND

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 of UTI Mutual Fund are Bank of Baroda (BOB), Punjab Bat ional Bank (PNB), State Bank of India (SBI), and Life

19

Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds.

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 undiversified 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

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The group, Franklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (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 and Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.

MORGAN STANLEY MUTUAL FUND INDIA

Morgan Stanley is a worldwide financial services company and its 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

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Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital Management Corp. of Delaware (USA) as sponsored. The Trustee is ACAM Trust Company Pvt. Ltd. And AMC, the Alliance Capital Asset Management India (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 16, 2000 and headquartered in Mumbai, Asset Management Company Pvt. Ltd. Is the AMC.

CANBANK MUTUAL FUND

Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the sponsor. Canbank Investment Management Services Ltd. Incorporated on March 2, 1993 is the AMC. The Corporate Office of the AMC is in Mumbai.

CHOLA MUTUAL FUND

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

LIC MUTUAL FUND

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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 Sashay Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund.

PROFILE OF THE ORGANISATION Corporate Profile

Kotak Mahindra is one of India's leading financial institutions, offering complete financial solutions that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the financial needs of individuals and corporates. Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned subsidiary of KMBL, is the Asset Manager for Kotak Mahindra Mutual Fund (KMMF). KMAMC started operations in December 1998 and has over 4 Lac investors in various schemes. KMMF offers schemes catering to investors with varying risk - return profiles and was the first fund house in the country to launch a dedicated gilt scheme investing only in government securities. KMMF has been registered with SEBI vide registration number MF/038/98/1 dated 23rd June 1998. The sponsor company, Kotak Mahindra Finance Limited (KMFL), was converted into Kotak Mahindra Bank Limited (Kotak Bank) in March 2003 their being granted a Banking License by Reserve Bank of India. KMFL promoted by Mr. Uday S Kotak, Mr. S.A.A.Pinto and Kotak & Co., was incorporated on

23

November 21, 1985, under the name Kotak Capital Management Finance Limited In early 1986, the promoters were joined by Late Mr.Harish Mahindra and Mr. Anand G Mahindra and the Companys name was changed to Kotak Mahindra Finance Limited. Kotak & Co is a highly respected trading company of Mumbai, with international business. KMFL started with a capital base of Rs.30.88 lakhs. From being a provider of a single financial product, KMFL grew substantially during the seventeen years of its existence into a highly diversified financial services company and has now converted into a Bank. As on September 30, 2005, the net worth of Kotak Bank is around Rs. 800 crore and combined with its subsidiaries, the Group net worth (before minority interest) is around Rs. 2,000 crore. There are over 47,000 shareholders of Kotak Bank. The Sponsor and its subsidiaries / associates offer wide ranging financial services such as loans, lease and hire purchase, consumer finance, home loans, commercial vehicles and car finance, investment banking, stock broking, primary market distribution of equity and debt products and life insurance. The group has offices in over 88 Indian cities and also present internationally in Mauritius, London, Dubai and New York. Kotak Mahindra (UK) Limited, an ultimate subsidiary of Kotak Bank, is the first company owned from India to be registered with the Financial Services Authority in UK. Kotak Mahindra Old Mutual Life Insurance Limited is a joint venture between Kotak Bank and Old Mutual Plc based in the UK and with large presence in the South African insurance market. Some of the other subsidiaries of Kotak Bank are Kotak Mahindra Securities Limited, Kotak Mahindra Prime Limited, Kotak Mahindra International Limited, Kotak Mahindra Private-Equity Trustee Limited, Kotak Mahindra Investments Limited, Kotak Mahindra Inc., and Kotak Forex Brokerage Limited.The Sponsor has been consistently profitable and dividend paying company since inception. All group companies are professionally run

24

companies, employing over 5,000 professional staff including CAs, MBAs and Engineers.

Credit recognitions and awards:

NDTV AWARDS, 2006

LIPPER FUND AWARDS, 2006 ICRA AWARDS, 2006 ICRA MFR 1 (December 2004 & December 2005) OUTLOOK MONEY BEST WEALTH CREATOR DEBT 2003 CRISIL BEST FUND AWARD 2003

KOTAK MAHINDRA GROUP

Kotak Mahindra is one of India's leading financial conglomerates, offering complete financial solutions that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the diverse financial needs of individuals and corporate. The group has a net worth of over Rs. 5,609 crore, employs around 17,100 people in its various businesses and has a distribution network of branches, franchisees, representative offices and satellite offices across 344 cities and towns in India and offices in New York, London, Dubai, Mauritius and Singapore. The Group services around 3.6 million customer accounts.

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The journey so far

Key group companies and their businesses

Kotak Mahindra Bank The Kotak Mahindra Group's flagship company, Kotak Mahindra Finance Ltd which was established in 1985, was converted into a bank- Kotak Mahindra Bank Ltd in March 2003 becoming the first Indian company to convert into a Bank. Its banking operations offer a central platform for customer relationships across the group's various businesses. The bank has presence in Commercial Vehicles, Retail Finance, Corporate Banking, Treasury and Housing Finance.

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Kotak Mahindra Capital Company Kotak Mahindra Capital Company Limited (KMCC) is India's premier Investment Bank. KMCC's core business areas include Equity Issuances, Mergers & Acquisitions, Structured Finance and Advisory Services.

Kotak Securities Kotak Securities Ltd. is one of India's largest brokerage and securities distribution houses. Over the years, Kotak Securities has been one of the leading investment broking houses catering to the needs of both institutional and non-institutional investor categories with presence all over the country through franchisees and coordinators. Kotak Securities Ltd. offers online (through www.kotaksecurities.com) and offline services based on well-researched expertise and financial products to noninstitutional investors.

Kotak Mahindra Prime Kotak Mahindra Prime Limited (KMP) (formerly known as Kotak Mahindra Primus Limited) has been formed with the objective of financing the retail and wholesale trade of passenger and multi utility vehicles in India. KMP offers customers retail finance for both new as well as used cars and wholesale finance to dealers in the automobile trade. KMP continues to be among the leading car finance companies in India.

Kotak Mahindra Asset Management Company Kotak Mahindra Asset Management Company Kotak Mahindra Asset Management Company (KMAMC), a subsidiary of Kotak Mahindra Bank, is the asset manager for Kotak Mahindra Mutual Fund (KMMF). KMMF manages funds in excess of Rs 20,800 crore and offers schemes catering to investors with

27

varying risk-return profiles. It was the first fund house in the country to launch a dedicated gilt scheme investing only in government securities.

Kotak Mahindra Old Mutual Life Insurance Limited Kotak Mahindra Old Mutual Life Insurance Limited is a joint venture between Kotak Mahindra Bank Ltd. and Old Mutual plc. Kotak Life Insurance helps customers to take important financial decisions at every stage in life by offering them a wide range of innovative life insurance products, to make them financially independent.

DIRECTORS TRUSTEE COMPANY

Uday S. Kotak B.Com, MMS has been an Executive Vice

Chairman and Managing Director of Kotak Mahindra Bank Limited (Formerly known as Kotak Mahindra Finance Limited) since August 1, 2002. Mr. Kotak is the principal founder and promoter of Kotak Mahindra Finance Ltd. He is responsible for the growth of Kotak Mahindra from a fledgling finance company in 1985 to a financial institution providing the full basket of financial services today. He serves as Chairman of the Board.

Mr. Amit Desai is a graduate in Commerce and Law from the

Bombay University. He is an advocate and has about 20 years of experience in criminal, economic and revenue laws. Mr. Desai is associated with the Sponsor.

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Mr. Girish Sharedalal is a graduate in Commerce and Arts and

also a Fellow of the Institute of Chartered Accountants of India. Formerly a Senior Partner of Messrs Dalal, Desai and Kumana, a firm of Chartered Accountants, he has about 44 years of experience in the field of audit, taxation and management consultancy.

Mr. Tushar Mavani is a graduate in Commerce and Law from the

Bombay University. He is a partner with Messrs Mulla & Mulla & Craigie Blunt & Caroe and has about 14 years of experience in the legal field.

Mr. Anirudha Barwe is a postgraduate in Mathematics and also a

Certified Associate of Indian Institute of Bankers, Mumbai. Mr. Barwe has about 43 years of experience in the field of banking and financial services. Mr. Barwe was actively associated with and responsible to a great extent for the success of the Resurgent India Bond issue of SBI. Mr. Barwe retired as the Managing Director of SBI Capital Markets Limited in October 1998. After retirement, Mr. Barwe worked with IDFC as Chief Financial Officer for 3 years.

Mr. Chandrashekhar Sathe is a graduate with B. Tech.(Chemical

Engineering) from IIT, Mumbai. He has over 27 years' experience in Banking and Finance. He has been a part of the Senior Management team of the Kotak Mahindra Group since 1992 and was responsible for setting up the Fixed Income Securities capability of Kotak Mahindra Capital Company. Mr. Sathe is a widely consulted expert on Foreign Exchange and Money Markets in India and is a frequent contributor to financial newspapers, magazines and TV News channels. Mr. Sathe was the Chief

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Executive Officer of the AMC for the period, 1st April, 1998 to 30th November, 2001 and currently heads the Risk Management function at Kotak Mahindra Bank Limited. Mr. Sathe is associated with the Sponsor.

3.3 SCHEME DETAILS OF KOTAK MAHINDRA

1. KOTAK 30
Objective: - The investment objective is to generate capital appreciation from a portfolio of predominantly equity and equity related securities with investment in, generally not more than 30 stock. Structure :Open Ended Equity Growth Scheme

Minimum investment:- Rs 5,000

2. KOTAK TECH
Objective: - The investment objective is to generate capital appreciation from a predominantly equity and equity related securities issued by multinational companies. Structure: - Open Ended Equity Growth Scheme. Minimum investment:- Rs 5,000

30

3. KOTAK MNC

Objective: - The investment objective is to generate capital appreciation from a portfolio of predominantly equity and equity related securities issued by multinational companies. Structure: Open Ended Equity Growth Scheme

Minimum investment: - Rs 5,000

4. KOTAK BALANCE

Objective: -

The investment objective is to achieve growth by investing in

Equity and equity related instruments, balanced with income generation by Investing in debt and money market instruments Structure :Open Ended Balanced Scheme.

Minimum investment:- Rs 5,000

5. KOTAK INCOME PLUS

Objective: - To enhance returns over a portfolio of debt instruments with a moderate exposure in Equity & Equity related instruments Structure:- Open Ended Income Scheme Minimum Investment: - Rs 5,000

31

6. KOTAK GILT
Objective: - To generate risk free returns through investments in sovereign Securities issued by the central government and / or a state or reverse repos in such securities Structure: Open Ended Dedicated Gilt Scheme government and /

Minimum Investment: - Savings & investment Plan; Rs 5,000 Serial Plans; Rs 10 lakhs

7. KOTAK BOND

Objective: - To create a portfolio of debt and money market instruments of different maturities so as to spread the risk across a wide maturity Horizon & different kinds of issuers in the debt market Kotak Bond Short Term Plan To provide reasonable returns and high level of liquidity by investing in debt & money market instruments of different maturities, So as to spread the risk across different kinds of issuers in the debt market.

Structure: -

Open Ended Debt Scheme

Minimum Investment: - Deposit Plan Rs 5,000

32

Wholesale Plan: Rs 1 lakh Short Term Plan: Rs5, 000 Institutional Plan; Rs 1 crore

8. KOTAK LIQUID

Objective; - To provide reasonable returns and high level of liquidity by Investing in debt and money market instruments of different Maturities so as to spread the risk across different kinds of Issuers in the debt markets Structure; - Open Ended Debt Scheme Minimum Investment: - Rs 5,000 Institutional plan: Rs 1 crore Institutional Premium Plan: Rs 20 crores

9. KOTAK FLOATER
Objective: - To reduce the interest rate risk associated with investments in fixed rate instruments by investing predominantly in floating rate securities, money market Instruments and using appropriate derivatives Structure: Open Ended Debt Scheme

Minimum Investment: Rs 5,000.

33

10. KOTAK DYNAMIC INCOME

Objective: To maximize returns through an active management of a portfolio of debt and securities. Open Ended Debt Scheme

Structure:

Minimum Investment: Rs 5,000

11. KOTAK GLOBAL INDIA

Objective: To generate capital appreciation from a diversified portfolio of

predominantly equity and equity related securities issued by globally competitive Indian Companies.

Highlights Investment in a diversified equity portfolio of Globally Competitive Indian Companies. Tax advantage Recurring Investment Facility available during continuous offer. Redemption on all Working days.

34

FACILITIES MAHINDRA

PROVIDED BY KOTAK

1. Systematic Investment Plan (SIP):

Management of one's finances to attain a defined goal calls for a lot of discipline, many a times self-imposed. Our Systematic Investment Plan is a tool, which can help you, inject this discipline in your financial management efforts. Our Systematic Investment Plan (SIP) provides you the facility to periodically invest a fixed sum over any defined period of time (6 months or more) in a disciplined manner. SIPs help in arresting uncertainties associated with trying to time the market and thus, in the long term tends to iron out market fluctuations. It brings down your average cost of acquisition of units. As you would allocate a fixed sum every month, you would buy more units when the prices of our units are lower than when they are higher.

2. Systematic Withdrawal Plan (SWP):

Our Systematic Withdrawal Plan (SWP) is designed receive a regular stream of payouts in a defined frequency and to book profits periodically Through our SWP you can redeem defined sums at a pre-defined frequency by giving a one-time instruction to us. You may choose to regularly withdraw either a fixed sum or just the appreciation on your investments.

35

This facility caters to two segments of investor needs: 1) Investors wanting defined, regular funds inflow from their investments. 2) Investors interested in booking gains at a regular interval.

3. Systematic Transfer Plan (STP):

Systematic Transfer Plan (SWP) caters a phased entry into the Equity markets rather than putting in all your money at one trench and to book profits from your equity holdings. Through our STP you can choose to switch your investments from one Kotak Mutual scheme to another at a predefined frequency by giving a one-time instruction to us. You also have a choice between switching a fixed sum or only the appreciation on your investments. You can choose to transfer either a fixed sum every defined period or only the appreciation on your investments over that period from one scheme to another. The later is helpful, where you do not want the transfer to disturb your capital contribution.

4. Direct Credit Facility:

Our Direct Credit Facility comes automatically to you (unless you choose otherwise) if you hold an account with any of the 12 banks listed below: ABN AMRO Bank Citi Bank HSBC HDFC IndusindS Bank Kotak Mahindra Bank

36

Centurion Bank of Punjab ICICI Deutsche Bank IDBI Bank

Standard Chartered UTI Bank

Direct Credit is safer, faster and convenient compared to the conventional cheque payout mechanism.

5. ECS of Dividends:
ECS (Electronic Clearing Service) is a Reserve Bank of India offering to facilitate, among others, faster and seamless payout of dividends directly into your bank account. ECS as a mechanism for payout of Dividends is faster, convenient, cost-effective and hassle-free. Besides, you don't run the risk of loss of dividend instruments in transit and the associated delays in obtaining a duplicate instrument. This facility is currently offered across all banks in over 48 locations.

6. Online Transactions Facility:

Our Online Transactions Facility allows you to have instant access to your investments at any time from anywhere just at the click of a button. Here's a list of all facilities you can avail by signing in for our Online Transactions Facility: -Redemption. -Switch Over. -Account Statement.

7. Email Communication:
The world over, e-mail has been revolutionizing communication. No more need to have paper trails; e-mail makes communication real-time, easy to store and retrieve and cost-effective.
37

You can now opt to receive all your communication from us over e-mail: - Account Statement for your investments -Transaction Confirmations -Daily NAVs and Dividend Updates -Market Reviews -Information on product launches, service initiatives, dividends, etc. -Annual Reports -Other Statutory Communication

8. SMS Services:
With cell phones fast qualifying for an assured parking in every pocket, we could not resist allowing you that extra convenience to be in touch with your investments whenever you wish, wherever you are. Try our SMS facility to : -Access the latest NAVs and Dividends for our various schemes on SMS. -Receive information on product launches, service initiatives, dividends, etc. on SMS. -Post your queries to our Dedicated Services Desk.

9. Updates from Markets:

Market Review-Weekly Market Review [ended 29th February 2008] Performance-Monthly Performance Snapshot [as on 31/12/2007] Half Yearly Accounts and Portfolio- March 2007&September 2007 Fact Sheet- Current Month, Yearly Fact Sheet
38

KMAMC Annual Report-2006 - 2007

Credit Policy for 2007-08

CONCEPTUAL FRAME WORK MUTUAL FUNDS

Mutual Funds are professionally managed pool of money from a group of investors. A Mutual fund manager invests your funds in securities including stocks and bonds, Money Market instruments or some combination and decides the best time to buy and sell. By pooling your resources with other investors in Mutual Funds, you can diversify even a small investment over a wide spectrum.

With the emergence of the capital market at the center stage of the Indian financial system from its marginal role a decade earlier, the Indian capital market also witnessed during the same period a significant institutional development in the form of diversified structure of Mutual Funds. A Mutual fund is a special type of investment institution which acts as an investment conduit.

It pools the savings, particularly of the relatively small investors, and invests them in a well-diversified portfolio of sound investment. As an investment intermediary, it offers a variety of services/advantages to the relatively small investors who on their own cannot successfully construct and

39

manage investment portfolio mainly due to the small size of their funds, lack of expertise and experience, and so on.

Regulated by the Investment Company Act of 1940, mutual funds are open-ended investment companies that pool investors' money into a fund operated by a portfolio manager. This manager then turns around and invests this large pool of shareholder money in a portfolio of various assets, or combinations of assets. This may include investments in stocks, bonds, options, futures, currencies, treasuries and money market securities. Depending on the stated objective of the fund, each will vary in regard to content and risk. Funds issue and redeem shares on demand at the fund's NAV, or net asset value. Mutual fund management fees typically range between 0.5% and 2% of assets per year, but exchange fees and other administrative charges also apply.

DEFINITION :

According to SEBI - Mutual Fund is defined as - A fund established in the form of a trust to raise moneys through the sale of units to the public or a section of the public under one or more schemes for investing in securities, including money market instruments.

Mutual Fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document.

40

OBJECTIVES OF MUTUAL FUNDS

The objectives sought to be achieved by Mutual funds are as follows : To provide an opportunity for lower income groups to acquire without much difficulty property in the form of shares. To cater mainly to the need of individual investors whose means are small? To manage investors portfolios in a manner that provides regular income, growth, safety, liquidity and diversification.

ADVANTAGES OF MUTUAL FUNDS

The following are 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

41

DISADVANTAGES FUNDS

OF

INVESTING

IN

MUTUAL

-- Many funds charge hefty fees, leading to lower overall returns. -- Over time, statistics have shown that most actively managed funds tend to under perform their benchmark averages. -- Mutual funds cannot be bought or sold during regular trading hours, but instead are priced just once per day.

TYPES OF MUTUAL FUND SCHEMES

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

BY STRUCTURE
Open Ended Schemes Close Ended Schemes Interval Schemes

BY INVESTMENT OBJECTIVE
Growth Schemes Income Schemes Balanced Schemes Money Market Schemes

42

OTHER SCHEMES
Tax Saving Schemes Special Schemes Index Schemes Sector Specific Schemes

SCHEMES OF MUTUAL FUNDS

Mutual fund schemes are usually open-ended (Perpetually open for investors and redemption) or close-ended (with a fixed term). A Mutual Fund scheme issues units that are normally priced at Rs.10/- during the initial offer. The number of units you own against the total number of units issued by a Mutual Fund scheme determines your share in the profits or losses in the scheme.

The Mutual Funds can be classified under the following types:

ACCORDING TO STRUCTURE

STRUCTURE

OPEN-ENDED SCHEME

CLOSED-ENDED SCHEME

INTERVAL SCHEME

43

OPEN - ENDED SCHEME

An open-ended scheme is a scheme in which an investor can buy and sell units on a daily basis. The scheme has a perpetual existence and flexible, ever changing corpus. Open-Ended schemes do not have a fixed maturity period. The investors are free to buy and sell any number of units, at any point of time, at prices that are linked to the NAV of the units.

In these schemes the investor can invest and disinvest any amount, any time after a short initial lock in period. This scheme gives investors with instant liquidity and fund announces sale and repurchase price from time to time. The units can be bought from and sold to any Mutual Fund.

ADVANTAGES

OF

OPEN-ENDED

FUNDS

OVER

CLOSE-ENDED FUNDS
Any time Entry Option.

44

 This provides ready liquidity to the investors and avoids reliance on transfer deeds, signature verifications and bad deliveries. Allows to enter the fund at any time and even to invest at regular intervals. Any time Exit Option.

CLOSE ENDED SCHEME

A Close-ended scheme has a stipulated maturity period. E.g. 5-7 years. A Close-ended scheme is one in which the subscription period for the Mutual Fund remains open only for a specific period, called the redemption period. At the end of this period, the entire corpus is disinvested and the proceeds distributed to unit holders. After final distribution the scheme ceases to exist. Such schemes can be rolled over by approval of unit holders.

Reasons for fluctuations in NAV

Investors doubts about the abilities of the funds management. Lack of sales effort (Brokers earn less commission on closed end schemes than on open ended schemes). Risk ness of the fund. Lack of marketability of the funds units.

45

INTERVAL SCHEMES

Interval schemes are those that combine both the features of both openended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale redemption during during predetermined intervals at NAV related prices.

ACCORDING TO INVESTMENT OBJECTIVE

EQUITY SCHEME

DEBT OR BOND SCHEME

BALANCED SCHEME INVESTMENT OBJECTIVE MONEY MARKET SCHEME GROWTH & INCOME FUND

OTHER SCHEMES

46

TYPES OF RISK

All investments involve some form of risk. Even an insured band account is subject to the possibility that inflation will rise faster than your earnings, leaving you with less real purchasing power than when you started (Rs.1000 gets you less than it got your father when he was your age). Consider these common types of risks and evaluate them against potential rewards when you select an investment.

1) Market Risk:

At times the prices or yields of the all the securities

in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and a fledging corporation may be affected. This change in price is due to Market Risk.

2) Inflation Risk: Some times referred to as loss of purchasing

power. Whenever inflation sprints forward faster than the earnings on your

47

investment, you run the risk that youll actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your return.

3) Credit Risk: In short, how stable is the company or entity to which

you lend your money when you invest. How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures.

4) Interest Risk: Changing interest rates affect both equities and bonds
in many ways. Investors are minded that predicting which way rates Effect of loss rev professionals and inability to adapt: An industries key asset is often the personnel who run the business i.e. intellectual properties or the key employees of the respective companies. Given the ever-changing complexion of few industries and the high obsolescence levels, availability of qualified, trained and motivated personnel is very critical for the success of industries in few sectors. It is, therefore, necessary to attract key personnel and also to retain them to meet the changing environment and challenges the sector offers. Failure or inability to attract/retain such qualified key personnel may impact the prospects of the companies in the particular sector in which fund invests.

5) Exchange risk: A number of companies generate revenues in foreign

currencies and may have investments or expenses also denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive

48

negative impact on companies which in turn would have an effect on the investment of the fund.

6). Changes in government policy: Changes in government

policy especially in regard to the tax benefits may impact business prospects of the companies leading to an impact on the investments made by the fund.

RISK RETURN GRID

RISK TOLERANCE/ RETURN EXPECTED Low Debt SUITABLE FOCUS PRODUCTS Bank/company OFFERED MFS FD, Liquidity, BY Better BENEFITS

Debt based Funds Post-Tax return Balanced Funds, Liquidity, Better some Equity some Diversified Post-Tax Funds debt are Better returns,

Partially Medium Debt, Partially Equity

Funds, Management,

Mix of share and Diversification Fixed Deposits Capital Market, Diversification, Equity Funds Expertise in stock Tax free dividends

High

Equity

(Diversified as well picking, Liquidity, as Sector)

49

CLASSES OF MUTUAL FUND SHARES:

The most common variations of share classes for load mutual funds are frontload A shares, back-end load B shares, and level-load C shares.

Class A Shares:
A mutual fund's A Shares charge a front-end load at the time of purchase. This is a sales fee that is charged as a percentage of the total investment and is used to compensate the financial representative who sells the fund. The amount of the front-end load is subtracted from the original investment. For example: If an investor places $10,000 in a mutual fund with a front-end load of 2%, then the total sales charge would be $200. The remaining $9,800 will go toward the purchase of shares in the fund. A shares may also impose an asset-based sales charge. Investors do not pay these charges directly. Instead, they are taken from the fund's assets. The fund then uses these fees to market and distribute its shares. The 12b-1 fee, which can equal a maximum of 0.25% per year, is an example of an asset-based sales charge.

Class B Shares:
B Shares charge back-end loads. When an investor purchases the B shares of a mutual fund, the sales charge is deferred until the fund is sold. This deferred load

50

usually decreases each year. B shares typically charge a higher asset-based sales charge than Class A shares For example: The B shares of a mutual fund may carry a 5% load if shares are sold within the first year. This back-end load of 5%, however, could be reduced by 1 % every year, until it is eliminated in the 5th year. Some B shares automatically convert to A shares after a specified period of time, which reduces the 12b-1 fees

Class C Shares:
Class C shares typically do not impose a front-end load, but will often charge a nominal fee if the shares are sold within one year. Class C shares often impose a high asset-based sales charge, but will not convert to A shares when the load reverts to zero.

USAGE OF MUTUAL FUND

Since the Investment Company Act of 1940, a mutual fund is one of three basic types of investment companies available in the United States. Mutual funds can invest in many kinds of securities. The most common are cash instruments, stock, and bonds, but there are hundreds of sub-categories. Stock funds, for instance, can invest primarily in the shares of a particular industry, such as technology or utilities. These are known as sector funds. Bond funds can vary according to risk (e.g., high-yield junk bonds or investment-grade corporate bonds), type of issuers (e.g., government agencies, corporations, or municipalities), or maturity of the bonds (short- or long-term). Both stock and bond funds can invest in primarily U.S. securities (domestic funds), both U.S. and foreign securities (global funds), or primarily foreign securities (international funds). Most mutual funds' investment portfolios are continually adjusted under the supervision of a professional manager, who forecasts cash flows into and out of

51

the fund by investors, as well as the future performance of investments appropriate for the fund and chooses those which he or she believes will most closely match the fund's stated investment objective. A mutual fund is administered under an advisory contract with a management company, which may hire or fire fund managers. Mutual funds are subject to a special set of regulatory, accounting, and tax rules. In the U.S., unlike most other types of business entities, they are not taxed on their income as long as they distribute 90% of it to their shareholders and the funds meet certain diversification requirements in the Internal Revenue Code. Also, the type of income they earn is often unchanged as it passes through to the shareholders. Mutual fund distributions of tax-free municipal bond income are tax-free to the shareholder. Taxable distributions can be either ordinary income or capital gains, depending on how the fund earned those distributions. Net losses are not distributed or passed through to fund investors.

NET ASSET VALUE

The net asset value, or NAV, is the current market value of a fund's holdings, less the fund's liabilities, usually expressed as a per-share amount. For most funds, the NAV is determined daily, after the close of trading on some specified financial exchange, but some funds update their NAV multiple times during the trading day. The public offering price, or POP, is the NAV plus a sales charge. Open-end funds sell shares at the POP and redeem shares at the NAV, and so process orders only after the NAV is determined. Closed-end funds (the shares of which are traded by investors) may trade at a higher or lower price than their NAV; this is known as a premium or discount, respectively. If a fund is divided into multiple classes of shares, each class will typically have its own NAV, reflecting differences in fees and expenses paid by the different classes. Some mutual funds own securities which are not regularly traded on any formal exchange. These may be shares in very small or bankrupt companies;

52

they may be derivatives; or they may be private investments in unregistered financial instruments (such as stock in a non-public company). In the absence of a public market for these securities, it is the responsibility of the fund manager to form an estimate of their value when computing the NAV. How much of a fund's assets may be invested in such securities is stated in the fund's prospectus.

MANAGEMENT FEES
The management fee for the fund is usually synonymous with the contractual investment advisory fee charged for the management of a fund's investments. However, as many fund companies include administrative fees in the advisory fee component, when attempting to compare the total management expenses of different funds, it is helpful to define management fee as equal to the contractual advisory fee + the contractual administrator fee. This "levels the playing field" when comparing management fee components across multiple funds. Contractual advisory fees may be structured as "flat-rate" fees, i.e., a single fee charged to the fund, regardless of the asset size of the fund. However, many funds have contractual fees which include breakpoints so that as the value of a fund's assets increases, the advisory fee paid decreases. Another way in which the advisory fees remain competitive is by structuring the fee so that it is based on the value of all of the assets of a group or a complex of funds rather than those of a single fund.

NON-MANAGEMENT EXPENSES
Apart from the management fee, there are certain non-management expenses which most funds must pay. Some of the more significant (in terms of amount) non-management expenses are: transfer agent expenses (this is usually the person you get on the other end of the phone line when you want to purchase/sell shares of a fund), custodian expense (the fund's assets are kept in custody by a bank which charges a custody fee), legal/audit expense, fund
53

accounting expense, registration expense (the SEC charges a registration fee when funds file registration statements with it), board of directors/trustees expense (the members of the board who oversee the fund are usually paid a fee for their time spent at meetings), and printing and postage expense (incurred when printing and delivering shareholder reports).

INVESTOR FEES AND EXPENSES

Fees and expenses borne by the investor vary based on the arrangement made with the investor's broker. Sales loads (or contingent deferred sales loads (CDSL)) are not included in the fund's total expense ratio (TER) because they do not pass through the statement of operations for the fund. Additionally, funds may charge early redemption fees to discourage investors from swapping money into and out of the fund quickly, which may force the fund to make bad trades to obtain the necessary liquidity. For example, Fidelity Diversified International Fund (FDIVX) charges a 1 percent fee on money removed from the fund in less than 30 days.

BROKERAGE COMMISSIONS
An additional expense which does not pass through the statement of operations and cannot be controlled by the investor is brokerage commissions. Brokerage commissions are incorporated into the price of the fund and are reported usually 3 months after the fund's annual report in the statement of additional information. Brokerage commissions are directly related to portfolio turnover (portfolio turnover refers to the number of times the fund's assets are bought and sold over the course of a year). Usually, higher rate of portfolio turnover returns in higher brokerage commissions. The advisors of mutual fund companies are required to achieve "best execution" through brokerage arrangements so that the commissions charged to the fund will not be excessive.

54

DATA ANALYSIS

FUND

TATA OPEN-ENDED BALANCED GROWTH FUND

OBJECTIVE :

Aims to invest in equity and debt oriented securities so as to

give investor balanced returns.

PORTFOLIO OF THE FUND

Sector A B C D E F G FM CG Energy Finance Engineering machinery APR 2010 15.14 14.94 8.65 &industry 6.65 4.98 4.85 2.72
55

May 2010 15.89 13.28 8.05 8.47 7.21 5.08 3.05

Communication Technology Health care

H I J

Diversified Automobile Services

2.65 2.06 1.94

2.69 2.52 2.02

TATA OPEN-ENDED BALANCED GROWTH FUND

16 14 12 10 8 6 4 2 0 30-Apr-10 30-May-10

Sector wise chart

56

CHART SHOWING ASSET ALLOCATION OF TATA BALNCED FUND

17.48%

16.14% 66.38%

Equity

Debt

Money Market

FUND

BIRLA OPEN-ENDED BALANCED GROWTH FUND The Scheme aims to balance income requirements

OBJECTIVE

with growth of capital through balanced mix of investment in equity and debt.

57

PORTFOLIO OF THE FUND

Sector

Apr 2010 May 2010 16.39 12.45 6.18 12.89 11.32 7.44 6.61 5.02

A B C D E

Health care FM CG Energy

Engineering & industry 5.28 machinery Diversified 4.56

F G H I J

Financial Chemical Technology Services Communication

4.54 4.22 3.86 3.03 1.31

4.80 4.34 4.01 3.74 2.01

58

Sector wise chart:

A l l o c a t i o n

18 16 14 12 10 8 6 4 2 0

3 0 /0 4 /2 0 3 0 /0 5 /2 0

A B C D E F G H I J

Sector Name

59

CHART SHOWING ASSET ALLOCATION OF BIRLA BALANCED

8.40%

29.36%

62.24%

Equity

Debt

Money Market

The BIRLA Balanced Fund Portfolio consists of 62.24% Equity

holdings, 29.36% Debt, 8.40% Money Market. It is evident from the data that though the Investors have risk taking ability, they balanced their investments by investing in Debt also.

FUND

PRU ICICI OPEN-ENDED BALANCED GROWTH FUND : Aims to invest in equity and debt oriented securities

OBJECTIVE

so as to give investor balanced returns.

60

PORTFOLIO OF THE FUND

Sector A B C D E F G H I J Energy Financial FM CG Diversified Communication Metals

Apr 10 6.95 5.65 4.43 4.29 4.15 3.62

May 10 5.80 4.92 4.48 4.01 4.65 4.87 5.2 4.3 3.8 3.2

Engineering & industry 3.53 machinery Chemicals Health care Technology 3.26 2.67 2.67

61

Sector wise chart:

7 6 5
A l l o c a t i o n

4 3 2 1 0
Sector Name

3 0 -A p r 3 1 -M a y

A B C D E F G H I J

62

CHART SHOWING ASSET ALLOCATION OF PRU ICICI BALANCED FUND

4 3 .1 3 %

5 6 .8 7 %

Equity

Debt

The Pru ICICI Balanced Fund Portfolio consists of 53.87% Equity

holdings, 43.13% Debt. It is evident from the data that though the Investors have risk taking ability, they balanced their investments by investing in Debt also. FUND : DSP BLACK ROCK OPEN-ENDED BALANCED GROWTH FUND OBJECTIVE : Seeks to generate long term capital appreciation and

current income from a portfolio constituted of equity and equity related securities as well as fixed income securities.

63

PORTFOLIO OF THE FUND

Sector A B C D E F G H I J Energy FM CG

Apr 2010 may 2010 16.42 14.19 11.72 10.93 8.51 4.65 5.05 3.01 2.88 4.87 3.28 1.67

Health care 8.43 Engineering & Industrial 3.88 Machinery Technology Automobile Finance Services Chemicals Diversified 3.85 2.92 2.83 2.57 2.51 1.84

64

SECTOR WISE CHART:

18
A l l o c a t i o n

16 14 12 10 8 6 4 2 0 A B C D E F G H
Sector Name

30-Apr-10 31-May-10

CHART SHOWING ASSET ALLOCATION OF DSP MERRILL LYNCH BALANCED FUND

16.25%

20.16% 63.59%

Equity holdings

Money market

Debt holdings

65

FUND OBJECTIVE

: :

JM FINANCIAL OPEN-ENDED BALANCED GROWTH Aims to provide investors with liquidity and current

income along with capital appreciation.

PORTFOLIO OF THE FUND

Sector A B C D E F G H Financials Engineering Communication Energy Automobile Diversified Construction Textiles APR10 11.38 7.75 7.64 7.34 5.60 5.07 4.71 2.60 MAY 10 12.72 19.12 9.49 11.44 4.64 2.92 4.58 0.00

66

20 18 16 14 12 10 8 6 4 2 0

30-04-2010 31-05-2010

A B C D E F G H

CHART SHOWING ASSET ALLOCATION OF JM FINANCIAL BALANCED FUND

26.27%

52.09%

21.64%

Equity

Debt

Money market

67

TATA OPEN-ENDED BALANCED GROWTH FUND

DATE 1st JUN 30thAUG 31st oct 09 NAV 60.67 53.24 56.00 31st dec 28th feb 30th apr 41.84 43.56 48.95 31st May10 58.60

Fund performance and NAV values over a period of 1 year.

70

60

50

40

30

20

10

1s

08 un tj

tA 1s 3

ug

tO 1s 3

ct

ec -D 31

t 28

b Fe

th 30

r Ap

tM 1s 3

09 ry a

68

BIRLA OPEN-ENDED BALANCED GROWTH FUND

DATE 1st Jun09

30th

aug

31st oct

31st dec

28st feb

30th apr

31st May10

NAV

31.60

28.722

27.0411 25.2149 26.9224 29.2455

32.29

Fund performance and NAV values over a period of 1 year.

35

30

25

20

15

10

1s

u tj

ne 30

th

g au 3

h 0t

t oc 3

td 1s

ec 2

h 8t

b fe 3

h 0t

r ap 3 h 0t

a m

10 20 y

69

Pru ICICI OPEN-ENDED BALANCED GROWTH FUND

DATE 1st june09 NAV 37.78

30th

aug

31st Oct 34.79

31th

dec

28th feb 30th Apr 27.16 29.39

31st May10 33.83

33.26

25.86

Fund performance and NAV values over a period of 1 year.

40 35 30 25 20 15 10 5 0

1s

ne Ju t

08

th 30

g Au

r b ct 10 ec fe ap to td ay s th th s 31 tM 28 30 31 1s 3

70

KOTAK OPEN-ENDED BALANCED GROWTH FUND

DATE 1st June09 NAV 48.69

30th july 30thSep 43.73 46.07

30th Nov 36.46

31st

Jan

31st mar 39.67

31st May10 47.91

36.91

Fund performance and NAV values over a period of 1 year.

50 45 40 35 30 25 20 15 10 5 0

1s

e un tj

09 20

t 30

ly ju

th 30

p se

t 30

v no

ar ay an m m tj s st th 31 31 30

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JM FINANCIAL OPEN-ENDED BALANCED GROWTH FUND

DATE 1st june 30th 08 July NAV 24.12 21.13

31st Sep 22.12

30th

Nov

31st jan 15.00

31thMar 14.85

31st May09 20.76

14.06

Fund performance and NAV values over a period of 1 year.

25

20

15

10

9 0 v p ly 10 10 ju e0 y r1 se no n n a a th ja st th ju M m 30 st 31 30 st st th 1 31 31 30

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INTERPRETATION PERFORMANCE EVALUATION

We are interested in discovering if the management of a mutual fund is performing well; that is, has management done better through its selective buying and selling of securities than would have been achieved through merely buying the market picking a large number of securities randomly and holding them throughout the period? One of the most popular ways of measuring managements performance is by comparing the yields for the managed portfolio with the market or with a random portfolio.

The following formula can be used to evaluate Mutual fund performance:-

NAVt + Dt 1 NAVt 1

Where: NAV t = Dt= per-share net asset value at the end of year t Capital appreciation during year.

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NAV t-1 =

per-share net asset value at the end of the previous year.

PERFORMANCE FUNDS

EVALUATION

OF

SELECTED

NAV t-1 = 1stJune, 2009 NAVt= 31st may2010

1)

TATA Open-Ended Balanced growth Fund

D t (NAV t NAV t-1 NAV t ) -1.07
1

NAV t-

60.67 59.60 Applying the formula we get= = = -1.07 59.8878 -0.0176 x 100 -1.76 %

2)

BIRLA Open-Ended Balanced growth Fund

D t (NAV t NAV t-1 31.6 NAV t 32.29 ) 0.69
1

NAV t-

Applying the formula we get= = = 0.69 31.6 0.0218 x 100 2.18%

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3)

Pru ICICI Open-Ended Balanced growth Fund

D t (NAV t NAV t-1 NAV t ) -3.95
1

NAV t-

37.78 33.83 Applying the formula we get= = = -3.95__ 37.78 -0.1045x 100 -10.45%

4) Fund

DSP MERRILL LYNCH Open-Ended Balanced growth

D t (NAV t NAV t-1 48.69 NAV t 47.91 ) -0.78

1

NAV t-

Applying the formula we get= = = -0.78__ 48.69 -0.01606x 100 -1.6%

5)

JM FINANCIAL Open-Ended Balanced growth Fund

D t (NAV t NAV t-1 24.12 NAV t 20.76 ) -10.9269
1

NAV t-

Applying the formula we get= -3.36__ 24.12

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-0.139 x 100 =

-13.93%

FUND PERFORMANCE RANKING

Name of the Fund Birla open-ended Balanced Growth Fund

NAV 2.18%

Rank 1 2

DSP Merrill Lynch open-ended Balanced Growth Fund Tata open-ended Balanced Growth Fund -1.76% Pru ICICI open-ended Balanced Growth Fund -10.45%
4

-1.6% 3

4 5

JM Financial open-ended Balanced Growth Fund 2

0 -2 -4

-13.93%

CHART SHOWING PERFORMANCE OF FUNDS

-6 -8 -1 0 -1 2 -1 4

LA RI B

AK OT

A I E IC AT T IC NC A U 76 PR FIN JM

SWOT ANALYSIS Strengths

1. Simplified speed and quality of services offered by Mutual Fund Companies. 2. As on investment tool for the investors to boost. 3. Wide range of investment schemes offered by mutual fund companies to meet various requirements of investors. 4. Diversification of funds which minimizes the risk.

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Weakness
1. NAV range doesnt seem to fit in with corporate compensation. There is positioning and pricing problem. 2. Delays in infrastructure development may dampen the growth rate of NAVs of different schemes, which in turn affects the investor to invest. 3. Deregulation of interest rates may affect the profitability of companies. 4. Stiff competition from existing mutual fund companies and new Entrants.

Opportunities
1. Perceptive changes in life style. 2. Addition of level of new class of entrepreneurs to the broad base of middle class of the market. 3. The range of schemes and services offered by mutual fund companies is large enough for all investors to have a slice of cake. 4. The falling interest rates would make to raise capital at less cost. Hence more opportunities for companies. 5. Globalization is buying fresh opportunities in terms of foreign tie-ups.

Threats:
1. Risk of scams. 2. Severe increase in the competition among mutual fund companies results in decreasing the spread.

FINDIGS OF THE STUDY

The following findings are emerged from the Present Study entitled on An Overview of Mutual Fund Industry in India A Study with reference to Kotak Mahindra Asset Management Co., Ltd. In a nutshell, these are: Highest number of investors come from salary class.

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Most of the people in between the age group of 25-35 invest their money up to 6% of their annual income in Mutual fund.

Five balanced fund schemes are chosen for the study TATA, BIRLA SUN LIFE, ICICI PRUDENTIAL, JM FINANCE, KOTAK MUTUAL FUNDS. The funds chosen for the study are some of the top performance in the market.

The fund investment is a combination of equity, debt and money market. As such the investments are diversified and the risk is balanced.

The mutual funds are one of the biggest advantages to the investors those who invest their money in all his favorite stocks and bonds.

Mutual Funds have still not become truly Investment Vehicle for small Investors.

Homeholds preference for Instruments match their risk perception. Based on the duration of operation of schemes, the first preference for open ended schemes.
This survey further revals that the scheme selection decision is made by respondents on their own, and other sources influencing their selection decision are News Paper and Magazines, Brokers and Agents, Televisions and Suggestions from Friends.

SUGGESTIONS

Some of the recommendations and suggestions emerged from the study are as follows and an attempt has been made in this section to make some recommendations which are useful to existing and prospective investors.

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The study on An Overview of Mutual Fund Industry In India With Reference to Kotak Mahindra Asset Management Co., Ltd., recommended the following.

SUGGESTIONS BY RBI TO MUTUAL FUND INDUSTRY

Bank and financial institutions will need clearance from the RBI to setup MMMFs before seeking registration from SEBI.

As per RBI regulations MMMFs are at present allowed to be setup departmentally as MMDA or as separated trust but now awards MMMFs have to setup a trust only. Accordingly, RBI will withdraw permission given to banks to setup MMDs.

RBI also decided to offer check righting facilities to gilt funds and those liquid income funds of mutual funds which invest not less than 80% of their investment in money market instruments.

RBI allows mutual funds to arise funds against certificate of deposits to meet the liquidity requirements of mutual funds.

SUGGESTIONS BY SEBI TO MUTUAL FUND INDUSTRY

1. SEBI bars use of equity derivatives by Mutual Funds and it is added that the total expousure to options premium should not exceed 20% of the Net Asset Scheme.

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2. SEBI has allowed Mutual Funds to enter into plain vanilla interest rate scraps for hedging purposes and in a circular it specified the format for Mutual funds to disclose their derivatives in their half yearly report. 3. These are refined guidelines of old norms for derivatives to safe guard the interest of investors

SUGGESTIONS BY AMFI TO MUTUAL FUND INDUSTRY

AMFI apposes monthly AUM, declaration especially on the equity side of Mutual funds.

AMFI issued revised standard KYC and Non-acceptance of third party payments with effect from 1st October 2010

From September 10, 2010 onwards it is mandatory to combine with KYC (Know Your Customer) before applying for ARN (AMFI Registration Number) registration

BIBLIOGRAPHY
REFERNCE BOOKS S.no. BOOK NAME AUTHOUR PUBLISHERS 1 INVESTMENT AVDHANI, HIMALAYA AND

81

AND SECURITIES IN INDIA

PUBLISHERS, DELHI

FINANCIAL MARKETS AND INSTITUTIONS

BHOLE L.M, TATA Mc GRAW HILLS, DELHI

BANKING POLICY IN INDIA

GHOSH D, ALLIED PUBLICATIONS, DELHI GIDDY. I.H, ALTOS, DELHI

GLOBAL FINANCIAL MARKETS

INDIAN FINANCIAL SYSTEM

KHAN M.Y, TATA Mc GRAW HILLS, DELHI

INDIAN FINANCIAL SYSTEM

VARSHNEY P.N, SUTANCHANDAN & SONS, NEW DELHI

MONEY, BANKING AND FINANCIAL MARKETS

AVARABACH, ROBERT.D, MACMILLAN, LONDON.

MANAGEMENT OF INDIAN FINANCIAL INSTITUTION

SRIVASTAVA R.M, HIMALAYA PUBLISHERS, DELHI VERMA J.C, BHARAT

GUDIE TO

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MUTUAL FUNDS AND INVESTMETN PORT FOLIO 10 VARIOUS REPORTS OF RBI

PULISHING, NEW DELHI

RBI PUBLICATIONS, MUMBAI

MAGAZINES
Business World Business Today

URLs

www.mutualfundsindia.com www.stockholding.com www.moneypore.com www.amfiindia.com www.rbi.org www.nseindia.com

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www.sebi.com www.kotak.com

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