a comparative analysis of mutual funds in private sector bank & public sector bank (1)

8/9/2019 A Comparative Analysis of Mutual Funds in Private Sector Bank & Public Sector Bank (1)

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A DISSERTATION REPORT

ON

“A COMPARATIVE ANALYSIS OF MUTUALFUNDS IN PRIVATE SECTOR BANK &

PUBLIC SECTOR BANK.”

A report submitted to GALGOTIAS UNIVERSITY for the partial

ulfillme!t of "#A De$ree %&''(%&')

GALGOTIAS UNIVRSITY

Submitted By

DECLARATION

I Vishnu Dutt Sharma to declare that the Research project report entitled

“TOI!" #ein$ su#mitted to the GALGOTIAS UNIV%RSITY &or the partial

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&ul&illment o& the re(uirement &or the de$ree o& )aster o& *usiness

Administration is m+ o,n endea-ors and it has not #een su#mitted earlier to

an+ institution.uni-ersit+ &or an+ de$ree/

lace0

Date0 1Vishnu Dutt Sharma2

T!b"e #$ C#%te%t

S.N#. C#%te%t

A'%#("ed)me%t

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* I%t+#duti#%

)utual &und0 )eanin$ and de&inition

resent Scenario

Role o& Re$ulator+ *odies

, Re-ie( #$ Lite+!tu+e

Re/e!+0 Met0#d#"#)y

O#jecti-e o& the Research

Research ro#lem

4+pothesis

Research Desi$n

Sample and Data !ollection

1 Pe+$#+m!%e E-!"u!ti#% #$ Mutu!" Fu%d/

er&ormance chart o& di&&erent *an5

Selection o& schemes

2 Fi%di%)/ !%d Su))e/ti#%/

3 Re#mme%d!ti#%

4 C#%"u/i#%

5 Bib"i#)+!60y

7 Re$e+e%e/

*8 9"#//!+y

ACKNO:LED9EMENT

In pursuit o& an GD) ro$ram6 dissertation report is a critical component o& the entire

learnin$ e7perience that a *8School o&&ers in terms o& learnin$/ These e&&orts are

indi-idual6 standin$ in isolation/ Such indi-idual e&&orts re(uire three thin$s &or their

&urther de-elopment/ These three thin$s #ein$ 9 “Reason6 Rationalit+ and Sel&8%steem"/

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The com#ination o& these three #asic traits deli-ers roducti-it+/ 4o,e-er6 time and

a$ain this producti-it+ re(uires encoura$ement and $uidance/ Various ,ealth

mana$ement and in-estment #an5in$ has $i-en me the opportunit+ to $ain in-alua#le

e7perience under the $uidance o& m+ &acult+ $uide

Their continuous support and cooperation alon$ ,ith their -alua#le in hand e7perience

a#out the *an5in$ industr+ pro-ided me ,ith the conceptual understandin$ and practical

approach needed to ,or5 e&&icientl+ &or this project/

I am also inde#ted to )r/ )d/ Samshad Ahmad 1Sales )ana$er 4D;! *an52 &or sharin$

-ital in&ormation critical to the accomplishment o& the project o#jecti-es and pro-idin$

direction in pursuance o& the project/

I ,ould also li5e to than5 m+ &amil+ and &riends &or the moral support I $ot &rom them

durin$ m+ hectic schedule/

I hope this report re&lectin$ m+ learnin$ in the past ei$ht ,ee5s is as #ene&icial to the

or$ani


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lar$est and dominatin$ constituent o& the Indian &inancial ser-ice sector in the -er+ near

&uture/ The mar5et is e7pected to $ro, at a !AGR o& =>? and touch USD @>> #n #+

3>'3/ 4o,e-er6 the industr+ &aces a num#er o& issues to reach the desired $oal/ This

report co-ers -arious issues and challen$es in Indian mutual &und industr+ and deli#erates

#asis &or this up#eat outloo5/

Mutu!" Fu%d ; Me!%i%) & C#%e6t

In-estors are al,a+s in (uest &or &indin$ ne, ,a+s to $enerate optimal return &rom their

in-estments6 and &or such In-estors stoc5 mar5ets pro-ide a &air pla+in$ $round/ Thou$h

the stoc5 mar5et lures ,ith enhanced return on in-estment6 the inherent ris5 in-ol-ed

5eeps retail in-estors a,a+ &rom enterin$ stoc5 mar5et/ Lar$e In-estors ha-in$ the ris5 appetite can ta5e head8on the stoc5 mar5et/

There must #e some ,a+ &or retail in-estors to enter the mar5et &or achie-in$ that optimal

return and 5eepin$ the ris5 under control/

This led to in-ention o& ne, concept in ;inancial )ana$ement/ )utual ;unds/

A#+di%) t# I%-e/t I%di! E#%#mi F#u%d!ti#%6 a Mutu!" Fu%d is a trust that pools

the sa-in$s o& a num#er o& in-estors ,ho share a common &inancial $oal/ The mone+ thus

collected is then in-ested in capital mar5et instruments such as shares6 de#entures and

other securities/ The income earned throu$h these in-estments and the capital

appreciation realised are shared #+ its unit holders in proportion to the num#er o& units

o,ned #+ them/ Thus a )utual ;und is the most suita#le in-estment &or the common man

as it o&&ers an opportunit+ to in-est in a di-ersi&ied6 pro&essionall+ mana$ed #as5et o&

securities at a relati-el+ lo, cost/ A#+di%) t# AMFI It is a &und operated #+ a

pro&essional in-estment &irm that raises mone+ &rom shareholders and in-ests it in a

-ariet+ o& stoc5s6 #onds6 mone+ mar5et instruments6 &utures or commodities that meet the

in-estment o#jecti-es o& the &und/ )utual &unds allo, in-estors to #ene&it &rom

pro&essional mana$ement and asset di-ersi&ication6 &or ,hich a &ee is char$ed/

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A )utual ;und is the ideal in-estment -ehicle &or toda+Bs comple7 and modern

&inancial scenario/ )ar5ets &or e(uit+ shares6 #onds and other &i7ed income

instruments6 real estate6 deri-ati-es and other assets ha-e #ecome mature and

in&ormation dri-en/ rice chan$es in these assets are dri-en #+ $lo#al e-ents

occurrin$ in &ara,a+ places/ A t+pical indi-idual is unli5el+ to ha-e the 5no,led$e6

s5ills6 inclination and time to 5eep trac5 o& e-ents6 understand their implications and

act speedil+/ An indi-idual also &inds it di&&icult to 5eep trac5 o& o,nership o& his

assets6 in-estments6 #ro5era$e dues and #an5 transactions etc/

A )utual ;und is the ans,er to all these situations/ It appoints pro&essionall+

(uali&ied and e7perienced sta&& that mana$es each o& these &unctions on a &ull time

#asis/ The lar$e pool o& mone+ collected in the &und allo,s it to hire such sta&& at a-er+ lo, cost to each in-estor/ In e&&ect6 the mutual &und -ehicle e7ploits economies

o& scale in all three areas 8 research6 in-estments and transaction processin$/

The &lo, chart #elo, descri#es #roadl+ the ,or5in$ o& a mutual &und0

Mutu!" Fu%d O6e+!ti#% F"#( C0!+t

Source0 ,,,/am&iindia/com

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O+)!%i

mana$e their in-estments/ These mana$ers decide ,hat securities the &und ,ill

#u+ and sell/

• Re)u"!t#+y #-e+/i)0t )utual &unds are su#ject to man+ $o-ernment re$ulations

that protect in-estors &rom &raud/

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• Li=uidity ItFs eas+ to $et +our mone+ out o& a mutual &und/ rite a chec56 ma5e

a call6 and +ouF-e $ot the cash/

• C#%-e%ie%e You can usuall+ #u+ mutual &und shares #+ mail6 phone6 or o-er

the Internet/

• L#( #/t )utual &und e7penses are o&ten no more than '/@ percent o& +our

in-estment/ %7penses &or Inde7 ;unds are less than that6 #ecause inde7 &unds are

not acti-el+ mana$ed/ Instead6 the+ automaticall+ #u+ stoc5 in companies that are

listed on a speci&ic inde7

T+!%/6!+e%y )utual &unds NAVBs are pu#lished on A);I ,e#site and the

,e#sites o& respecti-e )utual &unds on dail+ #asis/

F"e>ibi"ity )utual &unds o&&er -aried &le7i#ilit+ o& in-estin$ in #ond mar5et6

mone+ mar5et6 stoc5 mar5et and so on/

C0#ie #$ /0eme/ )utual &unds o&&er -arious schemes/ &or e/$/ Standard

!harted o&&ers schemes ,hich in-ests in IO6 de#t mar5et6 e(uit+ lin5a$e etc/

T!> be%e$it/ )utual &unds o&&er ta7 #ene&its i& loc58in period is o& minimum :+ears/

9+#(t0 i% !//et u%de+ m!%!)eme%t ?AUM@


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P+e/e%t Se%!+i#

The Indian mutual &unds industr+ is #oomin$ as the num#er o& pla+ers is on the rise and

products are #ein$ rolled out #+ the do8+ear period/ I& one ta5es the last &i-e +ears6 the+ account &or se-en o& the top '> and

o-er a :8+ear period6 si7 o& the '> #est per&ormin$ mutual &unds are &rom India/

4o,e-er this is in the medium and lon$ term se$ments/ I& one ta5es a short8term -ie,6

there is no Indian &und amon$ the top '> $lo#al per&ormers o-er last +ear 1No-em#er '6

3>>C to Octo#er :'6 3>>E2 under pre-ie,/ This is despite the &act that the last t,el-e

months ha-e #een amon$ the #est periods e-er &or Indian mar5ets6 ,ith the *om#a+

Inde7 1sense72 risin$ #+ C=/3?/

A/ #$ t#d!y t0e /i:8>>E2 the AU) o& the mutual &und industr+ has risen

su#stantiall+ a#out 3EE?/

The ); sector has :> acti-e pla+ers and the+ ha-e mopped up nearl+ #illion throu$h

e(uit+ mutual &und schemes/ )ar5et pundits e7pect that this ,ill &urther $ro, to '>8'3

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#illion/ Thirt+8ei$ht ne, e(uit+ schemes ,ere launched in 3>>C and $arnered around

C/: #illion/ Ne, cate$ories o& &unds6 li5e capital protection8oriented &unds and e(uit+

deri-ati-e &unds ,ere launched/

In calendar +ear 3>>C6 the total AU) o& mutual &unds $re, C/=E percent to cross the C

#illion/ The ); industr+ had achie-ed this landmar5 &irst in Au$ust 3>>C accordin$ to

the data released #+ Association o& )utual ;unds in India 1A);I2/

hile6 the Securities and %7chan$e *oard o& India 1S%*I2 has alread+ made &e,

amendments &or launch o& $old e7chan$e8traded &unds6 ,here#+ in-estors can trade in

$old as an+ other instrument6 it is li5el+ to ta5e a &inal call on realt+ &unds as ,ell/

C#%/#"id!ti#% !%d )+#(t0

The ); industr+ has #een seein$ &e, consolidations/ ith the Indian ); industr+

,itnessin$ sustained hi$h $ro,th6 it is natural that the &orei$n pla+ers are e+ein$ the hu$e

Indian opportunit+/ It is li5el+ to $et &urther #oost ,ith major pla+ers li5e AIG6 Hapanese

Shinsai *an5 and Ni55o A)! plannin$ to set shops in the countr+/ Indian ); mar5et is

e7pected to ,itness the entr+ o& more $lo#al mutual &unds in 3>>/

;i-e leadin$ $lo#al asset mana$ement companies are plannin$ to enter IndiaFs mutual

&und industr+ in the &ace o& the spectacular C@ per cent $ro,th in 3>>C/ American

International Group 1AIG26 H )or$an6 AKA In-estment6 orean &inancial ser-ices major

)ira$e Asset Group and a Hapanese compan+ are plannin$ to &ora+ into the ); #usiness

in India in 3>>/ This +ear at least &our to &i-e international pla+ers should come in/ The

more the merrier6 A);I !hairman A// urien said in a statement/

%7istin$ &orei$n &unds li5e ;ran5lin Templeton6 )errill L+nch6 ;idelit+ and 4S*! made

$ood returns in 3>>C/ Out o& :> A)!s in the countr+ no,6 nine are predominantl+

controlled #+ $lo#al pla+ers/

The non8resident Indians 1NRIs2 ha-e also increased their e7posure in the Indian mutual

&und industr+ #+ :> times in the past &our +ears/ hile the NRI share in total AU) in

Hanuar+ 3>>: stood at '>3 million6 in Hanuar+ 3>>E6 the &i$ure rose to :/' #illion6

accordin$ to industr+ estimates/ In percenta$e terms6 the NRI share has risen &rom >/@?

to more than =?/

The Reser-e *an5 o& India 1R*I2 has recentl+ hi5ed the in-estment limit o& mutual &unds

in &orei$n e(uit+ and de#t instruments &rom the current US 3 #illion to US : #illion/

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This is a re&orm step/ Domestic mutual &unds are +et to e-en come near the e7istin$ limit

o& 3 #illion as the Indian mar5ets currentl+ loo5 to #e more attracti-e/

The mutual &und 1);2 industr+ is see5in$ to $et ta7 relie& on de#t schemes and a solution

to the issue o& treatin$ ;und o& ;unds 1;o;2 schemes on par ,ith e(uit+ schemes &rom

this *ud$et/ The decisions6 it e7pects6 ,ill #oost retail participation in these schemes/ The

de#t8oriented mutual &und schemes6 at present6 pa+ around '3/@ per cent and institutional

in-estors pa+ 3: per cent distri#ution ta7 plus surchar$e and cess on the premium the+

earn on their in-estment6 ,hile e(uit+8oriented schemes are e7empt &rom these ta7es/

The industr+ in its ,ish list6 ,hich it su#mitted to the &inance ministr+6 sou$ht

nulli&ication or reduction o& this ta7/ The industr+ e7pects the $o-ernment to ta5e a call

on this issue/ I& the ta7 limit is #rou$ht do,n6 the industr+ ,ill #e a#le to attract &ar more

retail in-estments that6 at present6 $o to con-entional in-estment sources/

St!y i%-e/ted

I& the mar5et remains su#dued in 3>>E6 returns &rom the e(uit+ schemes ma+ narro,

do,n6 #ut it still ,ill #e nearl+ 3> percent6 predicts mar5et anal+sts/ ith ne, products6

as man+ as @=6>>> distri#utors 1includin$ > #an5s26 retail in-estors are clearl+ s,armin$

in lar$e num#ers to in-est in mutual &unds/ A);I #elie-es this trend ,ill rein&orce itsel&

as inno-ati-e products ,o-en around commodities6 and e-en real estate6 ma5e their entr+

in the comin$ da+s/

A total o& ': ne, &und houses are either ,aitin$ &or S%*IFs appro-al or ha-e plans to

enter the Indian mutual &und mar5et/ Accordin$ to Lipper The #est per&ormer o-er the

&i-e and ten8+ear period is Reliance Gro,th ;und6 ,hich has $i-en a compounded annual

return o& E'/:? and :@/3'? respecti-el+ a$ainst the sense7Fs impro-ement o& :=/'>?

and '@/'=? respecti-el+/

Accordin$ to o#ser-ers6 the $ro,th in ); has #een spectacular so &ar and the #ottom line

and top line o& the industr+ is attracti-e/ ith more pla+ers enterin$ the mar5et6 the

industr+ is e7pected to $ro, 3:? to 3=? a +ear/ The +ields are $ood/ The AU) ,ill

,itness tremendous $ro,th/

A//et/ U%de+ M!%!)eme%t ?AUM@ !/ !t t0e e%d #$ !%;,884 *Rs i! La+hs,

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Mutu!" Fu%d N!me

AUM A-e+!)e AUM F#+ T0e M#%t0

E>"udi%) Fu%dO$ Fu%d/

Fu%d O$ Fu%d/E>"udi%) Fu%d

O$ Fu%d/Fu%d O$ Fu%d/

'/ A*N A)RO )utual ;und @'===/@@ :C=C3/J3 @'@:'/=J :C=''/C'

3/ AIG Glo#al In-estment Group )utual;und

N.A N.A N.A N.A

:/ *enchmar5 )utual ;und C>EC@C/'E > E'=JE:/3 >

=/ *irla Sun Li&e )utual ;und 3''JJ'/@ 3>:'/= 'J>'E>/=' 3>3E/'

@/ *O* )utual ;und '':J/E= > ''C/C@ >

C/ !an#an5 )utual ;und 3:>E@/EE > 3''>@3/@ >

E/ D*S !hola )utual ;und 33C:3=/C= > 33=EC=/J >

/ Deutsche )utual ;und C:3JC@/@' > C@33C3/'@ >

J/ DS )errill L+nch )utual ;und ':=:JC/3 > ':3'J>'/>@ >

'>/ %scorts )utual ;und '3EC/= > '3'>:/3= >

''/ ;idelit+ )utual ;und @E3E/3 J@>@/' @EC/'C '>'=/>

'3/ ;ran5lin Templeton )utual ;und 3:J>E@C/@ ::J3'/>' 3:C==3:/:J ::J:C/JE

':/ 4D;! )utual ;und :'=3=E=/': > :':'J@J/=E >

'=/ 4S*! )utual ;und '3'=>:=/' > '3'::J/>J >'@/ ING V+s+a )utual ;und =>CE3J/3 '>'J>>/>3 :@E'CC/@' '>33E3/E'

'C/ H) ;inancial )utual ;und :=3@:/E > :@C==C/E >

'E/ H)or$an )utual ;und N.A N.A N.A N.A

'/ ota5 )ahindra )utual ;und '3CE=3C/= C:E'>/EE '3:C:E:/:3 C:CE=/>=

'J/ LI! )utual ;und '33:CE:/3: > ''JJ@J>/3: >

3>/ Lotus India )utual ;und C=E'/3 > @@C@/@ >

3'/ )or$an Stanle+ )utual ;und :''E@/ > :>C/JC >

33/ RIN!IAL )utual ;und '>::3@/E@ > '>@3EE/3C >

3:/ rudential I!I!I )utual ;und :=E=@E3/E' =>>/'= :=JC@J3/E@ =>3/JC

3=/ Muantum )utual ;und @J>C/>E > @@>/=E >

3@/ Reliance )utual ;und :J>'JJ=/>C > :JJ:E>=/@C >

3C/ Sahara )utual ;und '>E/3' > ''>3/3J >

3E/ S*I )utual ;und 'E@@3>E/E' > 'EJ@:>@/EC >

3/ Standard !hartered )utual ;und '3E=@C/== 3:E:/= ':::3=C/> 'JE'/:

3J/ Sundaram *N ari#as )utual ;und E'>=='/>E > CJJ@@/E3 >

:>/ Tata )utual ;und ':>>'3'/3= > '3J3'@>/' >

:'/ Taurus )utual ;und 3C>J:/CE > 3CJ@'/@' >

:3/ UTI )utual ;und :E@:@>E/@= > :EC:@>/=3 >

9+!%d T#t!" 782*8,.34 ,2752.3 725245.82 ,22*78.44


R#"e #$ +e)u"!t#+y B#die/

T0e A//#i!ti#% #$ Mutu!" Fu%d/ i% I%di! ?AMFI@ is dedicated to de-elopin$

the Indian )utual ;und Industr+ on pro&essional6 health+ and ethical lines and to

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enhance and maintain standards in all areas ,ith a -ie, to protectin$ and

promotin$ the interests o& mutual &unds and their unit holders/

Obeti-e

To de&ine and maintain hi$h pro&essional and ethical standards in all areas o& operation o&

mutual &und industr+/

To recommend and promote #est #usiness practices and code o& conduct to #e

&ollo,ed #+ mem#ers and others en$a$ed in the acti-ities o& mutual &und and

asset mana$ement includin$ a$encies connected or in-ol-ed in the &ield o& capital

mar5ets and &inancial ser-ices/

To interact ,ith the Securities and %7chan$e *oard o& India 1S%*I2 and to

represent to S%*I on all matters concernin$ the mutual &und industr+/

To represent to the Go-ernment6 Reser-e *an5 o& India and other #odies on all

matters relatin$ to the )utual ;und Industr+/

To de-elop a cadre o& ,ell trained A$ent distri#utors and to implement a

pro$ramme o& trainin$ and certi&ication &or all intermediaries and other en$a$ed

in the industr+/

To underta5e nation ,ide in-estor a,areness pro$ramme so as to promote proper

understandin$ o& the concept and ,or5in$ o& mutual &unds/

To disseminate in&ormation on )utual ;und Industr+ and to underta5e studies and

research directl+ and.or in association ,ith other #odies/

SECURITIES AND ECAN9E BOARD OF INDIA ?SEBI@ In the +ear 'JJ36

Securities and e7chan$e *oard o& India 1S%*I2 Act ,as passed/ The o#jecti-es o& S%*I

are 9 to protect the interest o& in-estors in securities and to promote the de-elopment o&

and to re$ulate the securities mar5et/

As &ar as mutual &unds are concerned6 S%*I &ormulates policies and re$ulates the mutual

&unds to protect the interest o& the in-estors/ S%*I noti&ied re$ulations &or the mutual

&unds in 'JJ:/ Therea&ter6 mutual &unds sponsored #+ pri-ate sector entities ,ere allo,ed

to enter the capital mar5et/ The re$ulations ,ere &ull+ re-ised in 'JJC and ha-e #een

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amended therea&ter &rom time to time/ S%*I has also issued $uidelines to the mutual

&unds &rom time to time to protect the interests o& in-estors/

All mutual &unds ,hether promoted #+ pu#lic sector or pri-ate sector entities

includin$ those promoted #+ &orei$n entities are $o-erned #+ the same set o&

Re$ulations/ There is no distinction in re$ulator+ re(uirements &or these mutual

&unds and all are su#ject to monitorin$ and inspections #+ S%*I/ The ris5s

associated ,ith the schemes launched #+ the mutual &unds sponsored #+ these

entities are o& similar t+pe/

B+#!d 9uide"i%e/ I//ued by SEBI $#+ Mutu!" Fu%d/ i% I%di!

S%*I has the &ollo,in$ #road $uidelines pertainin$ to mutual &unds0

)utual &unds should #e &ormed as a Trust under Indian Trust Act and should #e

operated #+ Asset )ana$ement !ompanies 1A)!s2/

)utual &unds need to set up a *oard o& Trustees and Trustee !ompanies/ The+

should also ha-e their *oard o& Directors/

The net ,orth o& the A)!s should #e at least Rs/@ crore/

A)!s and Trustees o& a ); should #e t,o separate and distinct le$al entities/

The A)! or an+ o& its companies cannot act as mana$ers &or an+ other &und/

A)!s ha-e to $et the appro-al o& S%*I &or its Articles and )emorandum o&

Association/

All )utual &und schemes should #e re$istered ,ith S%*I/

)utual &unds should distri#ute minimum o& J>? o& their pro&its amon$ the

in-estors/

A#+di%) t# SEBI ?Seu+itie/ !%d E>0!%)e B#!+d #$ I%di!@G &ollo,in$ in&ormation

is a-aila#le ,ith re$ard to mutual &unds0

I%t+#duti#%

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Di&&erent in-estment a-enues are a-aila#le to in-estors/ )utual &unds also o&&er $ood

in-estment opportunities to the in-estors/ Li5e all in-estments6 the+ also carr+ certain

ris5s/ The in-estors should compare the ris5s and e7pected +ields a&ter adjustment o& ta7

on -arious instruments ,hile ta5in$ in-estment decisions/ The in-estors ma+ see5 ad-ice

&rom e7perts and consultants includin$ a$ents and distri#utors o& mutual &unds schemes

,hile ma5in$ in-estment decisions/

ith an o#jecti-e to ma5e the in-estors a,are o& &unctionin$ o& mutual &unds6 an attempt

has #een made to pro-ide in&ormation in (uestion8ans,er &ormat ,hich ma+ help the

in-estors in ta5in$ in-estment decisions/

:0!t i/ t0e 0i/t#+y #$ Mutu!" Fu%d/ i% I%di! !%d +#"e #$ SEBI i% mutu!" $u%d/

i%du/t+yH

Unit Trust o& India ,as the &irst mutual &und set up in India in the +ear 'JC:/ In earl+

'JJ>s6 Go-ernment allo,ed pu#lic sector #an5s and institutions to set up mutual &unds/

In the +ear 'JJ36 Securities and e7chan$e *oard o& India 1S%*I2 Act ,as passed/ The

o#jecti-es o& S%*I are 9 to protect the interest o& in-estors in securities and to promote

the de-elopment o& and to re$ulate the securities mar5et/

As &ar as mutual &unds are concerned6 S%*I &ormulates policies and re$ulates the mutual

&unds to protect the interest o& the in-estors/ S%*I noti&ied re$ulations &or the mutual

&unds in 'JJ:/ Therea&ter6 mutual &unds sponsored #+ pri-ate sector entities ,ere allo,ed

to enter the capital mar5et/ The re$ulations ,ere &ull+ re-ised in 'JJC and ha-e #een

amended therea&ter &rom time to time/ S%*I has also issued $uidelines to the mutual

&unds &rom time to time to protect the interests o& in-estors/

All mutual &unds ,hether promoted #+ pu#lic sector or pri-ate sector entities includin$

those promoted #+ &orei$n entities are $o-erned #+ the same set o& Re$ulations/ There is

no distinction in re$ulator+ re(uirements &or these mutual &unds and all are su#ject to

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monitorin$ and inspections #+ S%*I/ The ris5s associated ,ith the schemes launched #+

the mutual &unds sponsored #+ these entities are o& similar t+pe/

#( i/ ! mutu!" $u%d /et u6H

A mutual &und is set up in the &orm o& a trust6 ,hich has sponsor6 trustees6 asset

)ana$ement !ompan+ 1A)!2 and custodian/ The trust is esta#lished #+ a sponsor or

more than one sponsor ,ho is li5e promoter o& a compan+/ The trustees o& the mutual

&und hold its propert+ &or the #ene&it o& the unit holders/ Asset )ana$ement !ompan+

1A)!2 appro-ed #+ S%*I mana$es the &unds #+ ma5in$ in-estments in -arious t+pes o&

securities/ !ustodian6 ,ho is re$istered ,ith S%*I6 holds the securities o& -arious

schemes o& the &und in its custod+/ The trustees are -ested ,ith the $eneral po,er o&

superintendence and direction o-er A)!/ The+ monitor the per&ormance and compliance

o& S%*I Re$ulations #+ the mutual &und/

S%*I Re$ulations re(uire that at least t,o thirds o& the directors o& trustee compan+ or

#oard o& trustees must #e independent i/e/ the+ should not #e associated ,ith the

sponsors/ Also6 @>? o& the directors o& A)! must #e independent/ All mutual &unds are

re(uired to #e re$istered ,ith S%*I #e&ore the+ launch an+ scheme/

:0!t i/ Net A//et V!"ue ?NAV@ #$ ! /0emeH

The per&ormance o& a particular scheme o& a mutual &und is denoted #+ Net Asset Value

1NAV2/

)utual &unds in-est the mone+ collected &rom the in-estors in securities mar5ets/ In

simple ,ords6 Net Asset Value is the mar5et -alue o& the securities held #+ the scheme/

Since mar5et -alue o& securities chan$es e-er+ da+6 NAV o& a scheme also -aries on da+

to da+ #asis/ The NAV per unit is the mar5et -alue o& securities o& a scheme di-ided #+

the total num#er o& units o& the scheme on an+ particular date/ ;or e7ample6 i& the mar5et

-alue o& securities o& a mutual &und scheme is Rs 3>> la5hs and the mutual &und has

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17/84

issued '> la5hs units o& Rs/ '> each to the in-estors6 then the NAV per unit o& the &und is

Rs/3>/ NAV is re(uired to #e disclosed #+ the mutual &unds on a re$ular #asis 8 dail+ or

,ee5l+ 8 dependin$ on the t+pe o& scheme/

:0!t !+e t0e di$$e+e%t ty6e/ #$ mutu!" $u%d /0eme/H

S0eme/ !#+di%) t# M!tu+ity Pe+i#d

A mutual &und scheme can #e classi&ied into open8ended scheme or close8ended scheme

dependin$ on its maturit+ period/

O6e%;e%ded Fu%d S0eme

An open8ended &und or scheme is one that is a-aila#le &or su#scription and repurchase on

a continuous #asis/ These schemes do not ha-e a &i7ed maturit+ period/ In-estors can

con-enientl+ #u+ and sell units at Net Asset Value 1NAV2 related prices ,hich are

declared on a dail+ #asis/ The 5e+ &eature o& open8end schemes is li(uidit+/

C"#/e;e%ded Fu%d S0eme

A close8ended &und or scheme has a stipulated maturit+ period e/$/ @8E +ears/ The &und is

open &or su#scription onl+ durin$ a speci&ied period at the time o& launch o& the scheme/

In-estors can in-est in the scheme at the time o& the initial pu#lic issue and therea&ter

the+ can #u+ or sell the units o& the scheme on the stoc5 e7chan$es ,here the units are

listed/ In order to pro-ide an e7it route to the in-estors6 some close8ended &unds $i-e an

option o& sellin$ #ac5 the units to the mutual &und throu$h periodic repurchase at NAV

related prices/ S%*I Re$ulations stipulate that at least one o& the t,o e7it routes is

pro-ided to the in-estor i/e/ either repurchase &acilit+ or throu$h listin$ on stoc5

e7chan$es/ These mutual &unds schemes disclose NAV $enerall+ on ,ee5l+ #asis/

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18/84

S0eme/ !#+di%) t# I%-e/tme%t Obeti-e

A scheme can also #e classi&ied as $ro,th scheme6 income scheme6 or #alanced scheme

considerin$ its in-estment o#jecti-e/ Such schemes ma+ #e open8ended or close8ended

schemes as descri#ed earlier/ Such schemes ma+ #e classi&ied mainl+ as &ollo,s0

9+#(t0 E=uity O+ie%ted S0eme

The aim o& $ro,th &unds is to pro-ide capital appreciation o-er the medium to lon$8

term/ Such schemes normall+ in-est a major part o& their corpus in e(uities/ Such &unds

ha-e comparati-el+ hi$h ris5s/ These schemes pro-ide di&&erent options to the in-estorsli5e di-idend option6 capital appreciation6 etc/ and the in-estors ma+ choose an option

dependin$ on their pre&erences/ The in-estors must indicate the option in the application

&orm/ The mutual &unds also allo, the in-estors to chan$e the options at a later date/

Gro,th schemes are $ood &or in-estors ha-in$ a lon$8term outloo5 see5in$ appreciation

o-er a period o& time/

I%#me Debt O+ie%ted S0eme

The aim o& income &unds is to pro-ide re$ular and stead+ income to in-estors/ Such

schemes $enerall+ in-est in &i7ed income securities such as #onds6 corporate de#entures6

Go-ernment securities and mone+ mar5et instruments/ Such &unds are less ris5+

compared to e(uit+ schemes/ These &unds are not a&&ected #ecause o& &luctuations in

e(uit+ mar5ets/ 4o,e-er6 opportunities o& capital appreciation are also limited in such

&unds/ The NAVs o& such &unds are a&&ected #ecause o& chan$e in interest rates in the

countr+/ I& the interest rates &all6 NAVs o& such &unds are li5el+ to increase in the short run

and -ice -ersa/ 4o,e-er6 lon$ term in-estors ma+ not #other a#out these &luctuations/

B!"!%ed Fu%d

The aim o& #alanced &unds is to pro-ide #oth $ro,th and re$ular income as such schemes

in-est #oth in e(uities and &i7ed income securities in the proportion indicated in their

'


19/84

o&&er documents/ These are appropriate &or in-estors loo5in$ &or moderate $ro,th/ The+

$enerall+ in-est =>8C>? in e(uit+ and de#t instruments/ These &unds are also a&&ected

#ecause o& &luctuations in share prices in the stoc5 mar5ets/ 4o,e-er6 NAVs o& such

&unds are li5el+ to #e less -olatile compared to pure e(uit+ &unds/

M#%ey M!+'et #+ Li=uid Fu%d

These &unds are also income &unds and their aim is to pro-ide eas+ li(uidit+6 preser-ation

o& capital and moderate income/ These schemes in-est e7clusi-el+ in sa&er short8term

instruments such as treasur+ #ills6 certi&icates o& deposit6 commercial paper and inter8

#an5 call mone+6 $o-ernment securities6 etc/ Returns on these schemes &luctuate much

less compared to other &unds/ These &unds are appropriate &or corporate and indi-idual

in-estors as a means to par5 their surplus &unds &or short periods/

9i"t Fu%d

These &unds in-est e7clusi-el+ in $o-ernment securities/ Go-ernment securities ha-e no

de&ault ris5/ NAVs o& these schemes also &luctuate due to chan$e in interest rates and

other economic &actors as is the case ,ith income or de#t oriented schemes/

I%de> Fu%d/

Inde7 ;unds replicate the port&olio o& a particular inde7 such as the *S% Sensiti-e inde76

S NS% @> inde7 1Ni&t+26 etc These schemes in-est in the securities in the same

,ei$hta$e comprisin$ o& an inde7/ NAVs o& such schemes ,ould rise or &all in

accordance ,ith the rise or &all in the inde76 thou$h not e7actl+ #+ the same percenta$e

due to some &actors 5no,n as trac5in$ error in technical terms/ Necessar+ disclosures

in this re$ard are made in the o&&er document o& the mutual &und scheme/

There are also e7chan$e traded inde7 &unds launched #+ the mutual &unds ,hich are

traded on the stoc5 e7chan$es/

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20/84

:0!t !+e /et#+ /6ei$i $u%d//0eme/H

These are the &unds.schemes ,hich in-est in the securities o& onl+ those sectors or

industries as speci&ied in the o&&er documents/ e/$/ harmaceuticals6 So&t,are6 ;ast

)o-in$ !onsumer Goods 1;)!G26 etroleum stoc5s6 etc/ The returns in these &unds are

dependent on the per&ormance o& the respecti-e sectors.industries/ hile these &unds ma+

$i-e hi$her returns6 the+ are more ris5+ compared to di-ersi&ied &unds/ In-estors need to

5eep a ,atch on the per&ormance o& those sectors.industries and must e7it at an

appropriate time/ The+ ma+ also see5 ad-ice o& an e7pert/

:0!t i/ T!> S!-i%) S0eme/H

These schemes o&&er ta7 re#ates to the in-estors under speci&ic pro-isions o& the Income

Ta7 Act6 'JC' as the Go-ernment o&&ers ta7 incenti-es &or in-estment in speci&ied

a-enues/ e/$/ %(uit+ Lin5ed Sa-in$s Schemes 1%LSS2/ ension schemes launched #+ the

mutual &unds also o&&er ta7 #ene&its/ These schemes are $ro,th oriented and in-est pre8

dominantl+ in e(uities/ Their $ro,th opportunities and ris5s associated are li5e an+

e(uit+8oriented scheme/

:0!t i/ ! Fu%d #$ Fu%d/ ?F#F@ /0emeH

A scheme that in-ests primaril+ in other schemes o& the same mutual &und or other

mutual &unds is 5no,n as a ;o; scheme/ An ;o; scheme ena#les the in-estors to achie-e

$reater di-ersi&ication throu$h one scheme/ It spreads ris5s across a $reater uni-erse/

:0!t i/ ! L#!d #+ %#;"#!d Fu%dH

A Load ;und is one that char$es a percenta$e o& NAV &or entr+ or e7it/ That is6 each time

one #u+s or sells units in the &und6 a char$e ,ill #e pa+a#le/ This char$e is used #+ the

mutual &und &or mar5etin$ and distri#ution e7penses/ Suppose the NAV per unit is Rs/'>/

I& the entr+ as ,ell as e7it load char$ed is '?6 then the in-estors ,ho #u+ ,ould #e

re(uired to pa+ Rs/'>/'> and those ,ho o&&er their units &or repurchase to the mutual &und

,ill $et onl+ Rs/J/J> per unit/ The in-estors should ta5e the loads into consideration

3>


21/84

,hile ma5in$ in-estment as these a&&ect their +ields.returns/ 4o,e-er6 the in-estors

should also consider the per&ormance trac5 record and ser-ice standards o& the mutual

&und ,hich are more important/ %&&icient &unds ma+ $i-e hi$her returns in spite o& loads/

A no8load &und is one that does not char$e &or entr+ or e7it/ It means the in-estors can

enter the &und.scheme at NAV and no additional char$es are pa+a#le on purchase or sale

o& units/

C!% ! mutu!" $u%d im6#/e $+e/0 "#!d #+ i%+e!/e t0e "#!d bey#%d t0e "e-e"

me%ti#%ed i% t0e #$$e+ d#ume%t/H

)utual &unds cannot increase the load #e+ond the le-el mentioned in the o&&er document/

An+ chan$e in the load ,ill #e applica#le onl+ to prospecti-e in-estments and not to the

ori$inal in-estments/ In case o& imposition o& &resh loads or increase in e7istin$ loads6 the

mutual &unds are re(uired to amend their o&&er documents so that the ne, in-estors are

a,are o& loads at the time o& in-estments/

:0!t i/ ! /!"e #+ +e6u+0!/e+edem6ti#% 6+ieH

The price or NAV a unit holder is char$ed ,hile in-estin$ in an open8ended scheme is

called sales price/ It ma+ include sales load6 i& applica#le/

Repurchase or redemption price is the price or NAV at ,hich an open8ended scheme

purchases or redeems its units &rom the unit holders/ It ma+ include e7it load6 i&

applica#le/

:0!t i/ !% !//u+ed +etu+% /0emeH

Assured return schemes are those schemes that assure a speci&ic return to the unitholdersirrespecti-e o& per&ormance o& the scheme/

A scheme cannot promise returns unless such returns are &ull+ $uaranteed #+ the sponsor

or A)! and this is re(uired to #e disclosed in the o&&er document/

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22/84

In-estors should care&ull+ read the o&&er document ,hether return is assured &or the entire

period o& the scheme or onl+ &or a certain period/ Some schemes assure returns one +ear

at a time and the+ re-ie, and chan$e it at the #e$innin$ o& the ne7t +ear/

C!% ! mutu!" $u%d 0!%)e t0e !//et !""#!ti#% (0i"e de6"#yi%) $u%d/ #$ i%-e/t#+/H

!onsiderin$ the mar5et trends6 an+ prudent &und mana$ers can chan$e the asset

allocation i/e/ he can in-est hi$her or lo,er percenta$e o& the &und in e(uit+ or de#t

instruments compared to ,hat is disclosed in the o&&er document/ It can #e done on a

short term #asis on de&ensi-e considerations i/e/ to protect the NAV/ 4ence the &und

mana$ers are allo,ed certain &le7i#ilit+ in alterin$ the asset allocation considerin$ the

interest o& the in-estors/ In case the mutual &und ,ants to chan$e the asset allocation on a

permanent #asis6 the+ are re(uired to in&orm the unitholders and $i-in$ them option to

e7it the scheme at pre-ailin$ NAV ,ithout an+ load/

#( t# i%-e/t i% ! /0eme #$ ! mutu!" $u%dH

)utual &unds normall+ come out ,ith an ad-ertisement in ne,spapers pu#lishin$ the

date o& launch o& the ne, schemes/ In-estors can also contact the a$ents and distri#utors

o& mutual &unds ,ho are spread all o-er the countr+ &or necessar+ in&ormation and

application &orms/ ;orms can #e deposited ,ith mutual &unds throu$h the a$ents and

distri#utors ,ho pro-ide such ser-ices/ No, a da+s6 the post o&&ices and #an5s also

distri#ute the units o& mutual &unds/ 4o,e-er6 the in-estors ma+ please note that the

mutual &unds schemes #ein$ mar5eted #+ #an5s and post o&&ices should not #e ta5en as

their o,n schemes and no assurance o& returns is $i-en #+ them/ The onl+ role o& #an5s

and post o&&ices is to help in distri#ution o& mutual &unds schemes to the in-estors/

In-estors should not #e carried a,a+ #+ commission.$i&ts $i-en #+ a$ents.distri#utors &or

in-estin$ in a particular scheme/ On the other hand the+ must consider the trac5 record o&

the mutual &und and should ta5e o#jecti-e decisions/

C!% %#%;+e/ide%t I%di!%/ ?NRI/@ i%-e/t i% mutu!" $u%d/H

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23/84

Yes6 non8resident Indians can also in-est in mutual &unds/ Necessar+ details in this

respect are $i-en in the o&&er documents o& the schemes/

#( mu0 /0#u"d #%e i%-e/t i% debt #+ e=uity #+ie%ted /0eme/H

An in-estor should ta5e into account his ris5 ta5in$ capacit+6 a$e &actor6 &inancial

position6 etc/ As alread+ mentioned6 the schemes in-est in di&&erent t+pe o& securities as

disclosed in the o&&er documents and o&&er di&&erent returns and ris5s/ In-estors ma+ also

consult &inancial e7perts #e&ore ta5in$ decisions/ A$ents and distri#utors ma+ also help in

this re$ard/

#( t# $i"" u6 t0e !66"i!ti#% $#+m #$ ! mutu!" $u%d /0emeH

An in-estor must mention clearl+ his name6 address6 num#er o& units applied &or and such

other in&ormation as re(uired in the application &orm/ 4e must $i-e his #an5 account

num#er so as to a-oid an+ &raudulent encashment o& an+ che(ue.dra&t issued #+ the

mutual &und at a later date &or the purpose o& di-idend or repurchase/ An+ chan$es in the

address6 #an5 account num#er6 etc at a later date should #e in&ormed to the mutual &und

immediatel+/

:0!t /0#u"d !% i%-e/t#+ "##' i%t# !% #$$e+ d#ume%tH

An a#rid$ed o&&er document6 ,hich contains -er+ use&ul in&ormation6 is re(uired to #e

$i-en to the prospecti-e in-estor #+ the mutual &und/ The application &orm &or

su#scription to a scheme is an inte$ral part o& the o&&er document/ S%*I has prescri#ed

minimum disclosures in the o&&er document/ An in-estor6 #e&ore in-estin$ in a scheme6

should care&ull+ read the o&&er document/ Due care must #e $i-en to portions relatin$ to

main &eatures o& the scheme6 ris5 &actors6 initial issue e7penses and recurrin$ e7penses to

#e char$ed to the scheme6 entr+ or e7it loads6 sponsorBs trac5 record6 educational

(uali&ication and ,or5 e7perience o& 5e+ personnel includin$ &und mana$ers6

per&ormance o& other schemes launched #+ the mutual &und in the past6 pendin$

liti$ations and penalties imposed6 etc/

3:


24/84


25/84

,ritten communication is sent to each unit holder and an ad-ertisement is $i-en in one

%n$lish dail+ ha-in$ nation,ide circulation and in a ne,spaper pu#lished in the lan$ua$e

o& the re$ion ,here the head o&&ice o& the mutual &und is situated/ The unit holders ha-e

the ri$ht to e7it the scheme at the pre-ailin$ NAV ,ithout an+ e7it load i& the+ do not

,ant to continue ,ith the scheme/ The mutual &unds are also re(uired to &ollo, similar

procedure ,hile con-ertin$ the scheme &orm close8ended to open8ended scheme and in

case o& chan$e in sponsor/

#( (i"" !% i%-e/t#+ #me t# '%#( !b#ut t0e 0!%)e/G i$ !%yG (0i0 m!y #u+ i%

t0e mutu!" $u%dH

There ma+ #e chan$es &rom time to time in a mutual &und/ The mutual &unds are re(uired

to in&orm an+ material chan$es to their unit holders/ Apart &rom it6 man+ mutual &unds

send (uarterl+ ne,sletters to their in-estors/

At present6 o&&er documents are re(uired to #e re-ised and updated at least once in t,o

+ears/ In the meantime6 ne, in-estors are in&ormed a#out the material chan$es #+ ,a+ o&

addendum to the o&&er document till the time o&&er document is re-ised and reprinted/

#( t# '%#( t0e 6e+$#+m!%e #$ ! mutu!" $u%d /0emeH

The per&ormance o& a scheme is re&lected in its net asset -alue 1NAV2 ,hich is disclosed

on dail+ #asis in case o& open8ended schemes and on ,ee5l+ #asis in case o& close8ended

schemes/ The NAVs o& mutual &unds are re(uired to #e pu#lished in ne,spapers/ The

NAVs are also a-aila#le on the ,e# sites o& mutual &unds/ All mutual &unds are also

re(uired to put their NAVs on the ,e# site o& Association o& )utual ;unds in India

1A);I2 ,,,/am&iindia/com and thus the in-estors can access NAVs o& all mutual &unds

at one place

The mutual &unds are also re(uired to pu#lish their per&ormance in the &orm o& hal&8+earl+

results ,hich also include their returns.+ields o-er a period o& time i/e/ last si7 months6 '

+ear6 : +ears6 @ +ears and since inception o& schemes/ In-estors can also loo5 into other

3@


26/84


27/84

Some o& the mutual &unds send ne,sletters to the unit holders on (uarterl+ #asis ,hich

also contain port&olios o& the schemes/

I/ t0e+e !%y di$$e+e%e bet(ee% i%-e/ti%) i% ! mutu!" $u%d !%d i% !% i%iti!" 6ub"i

#$$e+i%) ?IPO@ #$ ! #m6!%yH

Yes6 there is a di&&erence/ IOs o& companies ma+ open at lo,er or hi$her price than the

issue price dependin$ on mar5et sentiment and perception o& in-estors/ 4o,e-er6 in the

case o& mutual &unds6 the par -alue o& the units ma+ not rise or &all immediatel+ a&ter

allotment/ A mutual &und scheme ta5es some time to ma5e in-estment in securities/ NAV

o& the scheme depends on the -alue o& securities in ,hich the &unds ha-e #een deplo+ed/

I$ /0eme/ i% t0e /!me !te)#+y #$ di$$e+e%t mutu!" $u%d/ !+e !-!i"!b"eG /0#u"d #%e

0##/e ! /0eme (it0 "#(e+ NAVH

Some o& the in-estors ha-e the tendenc+ to pre&er a scheme that is a-aila#le at lo,er

NAV compared to the one a-aila#le at hi$her NAV/ Sometimes6 the+ pre&er a ne, scheme

,hich is issuin$ units at Rs/ '> ,hereas the e7istin$ schemes in the same cate$or+ are

a-aila#le at much hi$her NAVs/ In-estors ma+ please note that in case o& mutual &unds

schemes6 lo,er or hi$her NAVs o& similar t+pe schemes o& di&&erent mutual &unds ha-e

no rele-ance/ On the other hand6 in-estors should choose a scheme #ased on its merit

considerin$ per&ormance trac5 record o& the mutual &und6 ser-ice standards6 pro&essional

mana$ement6 etc/ This is e7plained in an e7ample $i-en #elo,/

Suppose scheme A is a-aila#le at a NAV o& Rs/'@ and another scheme * at Rs/J>/ *oth

schemes are di-ersi&ied e(uit+ oriented schemes/ In-estor has put Rs/ J6>>> in each o& the

t,o schemes/ 4e ,ould $et C>> units 1J>>>.'@2 in scheme A and '>> units 1J>>>.J>2 in

scheme */ Assumin$ that the mar5ets $o up #+ '> per cent and #oth the schemes per&orm

e(uall+ $ood and it is re&lected in their NAVs/ NAV o& scheme A ,ould $o up to Rs/

'C/@> and that o& scheme * to Rs/ JJ/ Thus6 the mar5et -alue o& in-estments ,ould #e

Rs/ J6J>> 1C>> 'C/@>2 in scheme A and it ,ould #e the same amount o& Rs/ JJ>> in

scheme * 1'>>JJ2/ The in-estor ,ould $et the same return o& '>? on his in-estment in

each o& the schemes/ Thus6 lo,er or hi$her NAV o& the schemes and allotment o& hi$her

3E


28/84

or lo,er num#er o& units ,ithin the amount an in-estor is ,illin$ to in-est6 should not #e

the &actors &or ma5in$ in-estment decision/ Li5e,ise6 i& a ne, e(uit+ oriented scheme is

#ein$ o&&ered at Rs/'> and an e7istin$ scheme is a-aila#le &or Rs/ J>6 should not #e a

&actor &or decision ma5in$ #+ the in-estor/ Similar is the case ,ith income or de#t8

oriented schemes/

On the other hand6 it is li5el+ that the #etter mana$ed scheme ,ith hi$her NAV ma+ $i-e

hi$her returns compared to a scheme ,hich is a-aila#le at lo,er NAV #ut is not mana$ed

e&&icientl+/ Similar is the case o& &all in NAVs/ %&&icientl+ mana$ed scheme at hi$her

NAV ma+ not &all as much as ine&&icientl+ mana$ed scheme ,ith lo,er NAV/ There&ore6

the in-estor should $i-e more ,ei$ht a$e to the pro&essional mana$ement o& a scheme

instead o& lo,er NAV o& an+ scheme/ 4e ma+ $et much hi$her num#er o& units at lo,er NAV6 #ut the scheme ma+ not $i-e hi$her returns i& it is not mana$ed e&&icientl+/

A+e t0e #m6!%ie/ 0!-i%) %!me/ "i'e mutu!" be%e$it t0e /!me !/ mutu!" $u%d/

/0eme/H

In-estors should not assume some companies ha-in$ the name mutual #ene&it as

mutual &unds/ These companies do not come under the pur-ie, o& S%*I/ On the other

hand6 mutual &unds can mo#ili


29/84

Almost all the mutual &unds ha-e their o,n ,e# sites/ In-estors can also access the

NAVs6 hal&8+earl+ results and port&olios o& all mutual &unds at the ,e# site o& Association

o& mutual &unds in India 1A);I2 ,,,/am&iindia/com/ A);I has also pu#lished use&ul

literature &or the in-estors/

In-estors can lo$ on to the ,e# site o& S%*I ,,,/se#i/$o-/in and $o to )utual ;unds

section &or in&ormation on S%*I re$ulations and $uidelines6 data on mutual &unds6 dra&t

o&&er documents &iled #+ mutual &unds6 addresses o& mutual &unds6 etc/ Also6 in the annual

reports o& S%*I a-aila#le on the ,e# site6 a lot o& in&ormation on mutual &unds is $i-en/

There are a num#er o& other ,e# sites ,hich $i-e a lot o& in&ormation o& -arious schemes

o& mutual &unds includin$ +ields o-er a period o& time/ )an+ ne,spapers also pu#lish

use&ul in&ormation on mutual &unds on dail+ and ,ee5l+ #asis/ In-estors ma+ approach

their a$ents and distri#utors to $uide them in this re$ard/

C!% !% i%-e/t#+ !66#i%t ! %#mi%ee $#+ 0i/ i%-e/tme%t i% u%it/ #$ ! mutu!" $u%dH

Yes/ The nomination can #e made #+ indi-iduals appl+in$ &or . holdin$ units on their o,n

#ehal& sin$l+ or jointl+/ Non8indi-iduals includin$ societ+6 trust6 #od+ corporate6

partnership &irm6 arta o& 4indu Undi-ided ;amil+6 holder o& o,er o& Attorne+ cannot

nominate/

I$ mutu!" $u%d /0eme i/ (#u%d u6G (0!t 0!66e%/ t# m#%ey i%-e/tedH

In case o& ,indin$ up o& a scheme6 the mutual &unds pa+ a sum #ased on pre-ailin$ NAV

a&ter adjustment o& e7penses/ Unitholders are entitled to recei-e a report on ,indin$ up

&rom the mutual &unds ,hich $i-es all necessar+ details/

#( !% t0e i%-e/t#+/ +ed+e// t0ei+ #m6"!i%t/H

In-estors ,ould &ind the name o& contact person in the o&&er document o& the mutual &und

scheme that the+ ma+ approach in case o& an+ (uer+6 complaints or $rie-ances/ Trustees

o& a mutual &und monitor the acti-ities o& the mutual &und/ The names o& the directors o&

asset )ana$ement !ompan+ and trustees are also $i-en in the o&&er documents/ In-estors

3J


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should approach the concerned )utual ;und . In-estor Ser-ice !entre o& the )utual

;und ,ith their complaints6

:0!t i/ t0e 6+#edu+e $#+ +e)i/te+i%) ! mutu!" $u%d (it0 SEBIH

An applicant proposin$ to sponsor a mutual &und in India must su#mit an application in

;orm A alon$ ,ith a &ee o& Rs/3@6 >>>/ The application is e7amined and once the sponsor

satis&ies certain conditions such as #ein$ in the &inancial ser-ices #usiness and possessin$

positi-e net ,orth &or the last &i-e +ears6 ha-in$ net pro&it in three out o& the last &i-e

+ears and possessin$ the $eneral reputation o& &airness and inte$rit+ in all #usiness

transactions6 it is re(uired to complete the remainin$ &ormalities &or settin$ up a mutual

&und/ These include inter alia6 e7ecutin$ the trust deed and in-estment mana$ement

a$reement6 settin$ up a trustee compan+.#oard o& trustees comprisin$ t,o8 thirds

independent trustees6 incorporatin$ the asset mana$ement compan+ 1A)!26 contri#utin$

to at least =>? o& the net ,orth o& the A)! and appointin$ a custodian/ Upon satis&+in$

these conditions6 the re$istration certi&icate is issued su#ject to the pa+ment o&

re$istration &ees o& Rs/3@/>> lacs ;or details6 see the S%*I 1)utual ;unds2 Re$ulations6

'JJC/

Re-ie( #$ Lite+!tu+e

Studies underta5en #+ -arious scholars and researchers re-eals that mutual &unds is a

trust that pools the sa-in$s ,hich are &urther in-ested into capital mar5et instruments

such as shares6 de#entures and other securities and since most o& the capital mar5et

instruments6 not all 6 ha-e an element o& ris5 so it -er+ di&&icult to e-aluate the

per&ormance o& -arious schemes /Various research papers ha-e #een ,ritten ,hile

considerin$ the per&ormance e-aluation criteria into mind ,hich ha-e #een discussed in

the comin$ para$raphs

:>


31/84

A#+di%) t# Bi!% R#y & S!i'!t S#-!% Deb* ,hen the #eta o& the &und is conditioned

to la$$ed economic in&ormation -aria#les 1interest rates6 di-idend +ields6 term structure

+ield spread and a dumm+ &or April8e&&ect26 the &und per&ormance does not chan$e

apprecia#l+/ 4o,e-er6 ,hen &und alpha is also controlled &or these in&ormation -aria#les

the &und per&ormance on an a-era$e #ecomes si$ni&icantl+ ne$ati-e/ Thus6 sho,in$ that

on an a-era$e the Indian mutual &und mana$ers onl+ capture the opportunities &rom the

a-aila#le economic in&ormation6 the+ do not contri#ute an+thin$ #e+ond it/ The+ ha-e

also e7amined the e-idence o& persistence in the per&ormance o& the Indian mutual &unds/

Their approach to measure per&ormance persistence is #ased on cross8sectional

re$ressions o& &uture e7cess returns on a measure o& past &und per&ormance/ *oth

unconditional and conditional measures o& per&ormance ,ere used as measure o& past

&und per&ormance/ Accordin$ to the &indin$s o& their stud+ it ,as #ein$ e-idenced that

conditional measures o& past &und per&ormance predict the &uture &und returns

si$ni&icantl+/ Also6 the+ &ound that #et,een the t,o di&&erent conditional measures o& past

per&ormance6 time8-ar+in$ conditional alpha is &ound to #e a #etter measure in indicatin$

persistence in per&ormance o& Indian mutual &unds/

One o& the most important de-elopments in the &ield o& &inance durin$ last &ort+ +ears is

the mutual &und per&ormance e-aluation techni(ue/ The traditional techni(ues use the

unconditional moments o& the returns/ Such techni(ues cannot capture the time8-ar+in$

element o& e7pected return

Bi!% R#y & S!i'!t S#-!% Deb, ha-e e7amined the e&&ect o& incorporatin$ la$$ed

in&ormation -aria#les1T8#ill +ield6 di-idend +ields6 term structure +ield spread and a

dumm+ &or April8e&&ect2 into the e-aluation o& mutual &und mana$ersF per&ormance usin$

conditional per&ormance e-aluation techni(ue desi$ned #+ ;erson and Schadt 1JC2 /

' “Conditional Alpha and Performance Persistence for Indian Mutual Funds:Empirical Evidence” - ICFAI Journal of Applied Finance, pp !"-#$, Januar%&""#3 'he Conditional Performance of Indian Mutual Funds: An Empirical (tud%-)or*in+ Paper, ec &""!

:'


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The &indin$s o& the research su$$ests that the use o& conditionin$ la$$ed in&ormation

-aria#les impro-es the per&ormance o& the mutual &und schemes6 causin$ the alphas to

shi&t to,ards the ri$ht and reducin$ the num#er o& ne$ati-e timin$ coe&&icients/ The+

ha-e also studied the impact o& the tech rall+1 )ajor e-ent in the histor+ o& Indian capital

mar5et &rom 'JJJ to 3>>'2 in the conditional models #+ introducin$ a dumm+ -aria#le

indicatin$ the period o& rall+ in tech stoc5s/ ;inall+6 the+ &ound mana$ersF per&ormance as

,ell as timin$ s5ill ,orsens ,ith the inclusion o& this dumm+/

assi-e in-estment mana$ement has #ecome an important component o& the in-estment

mana$ement industr+/ The responsi#ilit+ o& the inde7 &und mana$ers is to deli-er ris5 and

return same as the underl+in$ inde7/ )an+ &actors impact in-estment per&ormance/ Some

o& these &actors lie outside the sphere o& in&luence o& the &und mana$er/ ;or a

comprehensi-e assessment o& &und per&ormance and &ollo, up6 it has #ecome necessar+

to identi&+ the causes and attri#ute components o& &und per&ormance to these causes/

Attri#ution anal+sis pla+s a crucial role in identi&+in$ &actors controlla#le #+ the &und

mana$er and in computin$ the part o& &und per&ormance arisin$ out o& mana$in$ these

&actors/ hile si$ni&icant attention has #een paid to per&ormance attri#ution in e(uit+ and

income &unds6 research relatin$ to the same in the inde7 &und domain is scarce/

Accordin$ to 9. Set0u & R!0!%! B!id $i%di%)/ si$ni&icant contri#ution to inde7 &und

trac5in$ error ma+ arise &rom &actors that are not under inde7 &und mana$erFs control and

also trac5in$ error is not neutral to some o& the &actors/

B!%i'!%t! Mi/0+! & M!0mud R!0m!%1 ha-e de-eloped measures o& e-aluatin$

port&olio8per&ormance #ased on L) 1Lo,er8artial8)oment2/ Accordin$ to them6 the

three traditional measures #+ Tre+nor6 Sharpe6 and Hensen are #ased on the )ean8

Variance 1)8V2 rule are -alid onl+ ,hen the distri#ution o& asset returns is characteri


33/84

,hich return is #elo, a pre8speci&ied tar$et rate6 li5e ris58&ree rate6 and capturin$ the

e7tent to ,hich it is #elo,/ The+ ha-e also pro-ided a ne, ,a+ to e-aluate the

per&ormance o& a port&olio6 ,hich is similar to the )3 P)odi$liani8)odi$lianiQ approach6

#ut di&&ers &rom it in an important ,a+/

Despite o& lot o& research #ein$ done on the mutual &unds6 there has not #een an+ &i7ed

criteria &or e-aluatin$ the per&ormance o& the mutual &unds 6 there is still lot o& research

that needs to #e done 5eepin$ in -ie, chan$in$ in-estment pattern o& the in-estors

6increasin$ mar5et ris5 and -arious other &actors lin5ed ,ith the mutual &und industr+/

@Accordin$ to Dhirendra Gar$8 Impact on )utual ;unds Industr+ ,ith respect

to Union *ud$et 3>>C8>E are0

Key A%%#u%eme%t/

!eilin$ on a$$re$ate in-estments #+ mutual &unds in o-erseas instruments to #e

raised &rom ' #illion to 3 #illion ,ith remo-al o& re(uirement o& '>?

reciprocal shareholdin$/

Limited num#er o& (uali&ied Indian mutual &unds to #e allo,ed to in-est6

cumulati-el+ up to ' #illion6 in o-erseas e7chan$e traded &unds/

An in-estor protection &und to #e setup under the ae$is o& S%*I/

R*IBs anon+mous electronic order matchin$ tradin$ module 1NDS8O)2 on its

Ne$otiated Dealin$ S+stem to #e e7tended to (uali&ied mutual &unds6 pro-ident

&unds and pension &unds/

Steps to #e ta5en to create a sin$le6 uni&ied6 e7chan$e8traded mar5et &or corporate

#onds

Increase o& 3@ per cent6 across the #oard6 on all rates o& STT/

In-estments in &i7ed deposits in scheduled #an5s &or a term o& not less than &i-e

+ears included in section >! o& the Income ta7 Act/

Limit o& Rs/'>6 >>> in respect o& contri#ution to certain pension &unds remo-ed in

section >!!! su#ject to o-erall ceilin$ o& Rs/'>>6 >>>

@ ,,,/-alueresearchonline/com6 3>>E

::


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De&inition o& open8ended e(uit+8oriented schemes o& mutual &unds in the Income

ta7 Act ali$ned ,ith the de&inition adopted #+ S%*I/

Open8ended e(uit+8oriented schemes and close8ended e(uit+ oriented schemes to

#e treated on par &or e7emption &rom di-idend distri#ution ta7/

A#+di%) t# D0i+e%d+! 9!+)G Im6"i!ti#%/ F#+ Mutu!" Fu%d I%du/t+y !+e

The Union *ud$et >C mo-ed on predicta#le and there ,ere some sops &or the mutual

&und industr+ as ,ell/ The di-idends &rom ); unitsB continue to #e ta78&ree &or its

in-estors/ De#t8oriented )utual ;unds schemes continue to pa+ distri#ution ta7

amountin$ to '3/@ percent on the di-idends declared6 ,hile e(uit+8oriented mutual &unds

schemes ,ill not #e re(uired to pa+ distri#ution ta7/ Lon$8term capital $ains ta7 on

e(uit+ &unds remains nil ,hile &or de#t &unds it ,ould #e ta7ed at the pre-ailin$ rates8

'>? ,ithout inde7ation or 3>? ,ith inde7ation/ The limit on ;II in-estment in corporate

de#t ,ould #e raised &rom >/@#n to '/@#n6 ,hich is e7pected to encoura$e the

in-estments in de#t mar5et/ Open8ended e(uit+8oriented schemes and close8ended e(uit+

oriented schemes ,ould no, #e treated on par &or e7emption &rom di-idend distri#ution

ta7/

The ceilin$ on a$$re$ate in-estment #+ mutual &unds in o-erseas instruments ,ould #e

raised &rom '#illion to 3#illion and the re(uirement o& '>? reciprocal share holdin$

,ould #e remo-ed and a limited num#er o& (uali&ied Indian mutual &unds to in-est6

cumulati-el+ up to ' #illion6 in o-erseas e7chan$e traded &unds ,ould #e allo,ed/

)utual ;und in-estment a#road is currentl+ restricted in companies that ha-e a holdin$

o& at least '>? in a listed Indian compan+/ This ,ill ena#le Indian in-estors to in-est in

$lo#al e(uit+ mar5ets ,ith a ,ider choice o& stoc5s to permit $reater di-ersi&ication and

the con-enience o& dealin$ ,ith an Indian mutual &und/

4o,e-er6 no,6 in-estors ,ould ha-e to #ear the #runt o& increased rate o& securities

transaction ta7/ The In-estments in &i7ed deposits in scheduled #an5s &or a term o& not

less than &i-e +ears has #een included in section >! o& the Income ta7 Act6 there#+

:=


35/84


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&or in-estors o& di&&erent 5inds/ Identi&+in$ the proposed in-estment philosoph+ o&

the &und ,ill $i-e an insi$ht into the 5ind o& ris5s that it shall #e ta5in$ in &uture/

=/ I%-e/t. D#%Jt /6eu"!te A common in-estor is limited in the de$ree o& ris5 that

he is ,illin$ to ta5e/ It is thus o& 5e+ importance that there is thou$ht $i-en to the

process o& in-estment and to the time hori


37/84

in-estment lans o&&ered #+ some &unds $oes a step &urther6 as the amount can #e

directl+.electronicall+ trans&erred &rom the account o& the in-estor/

E/ D# y#u+ 0#me(#+'

It is important &or all in-estors to research the a-enues a-aila#le to them

irrespecti-e o& the in-estor cate$or+ the+ #elon$ to/ This is important #ecause an

in&ormed in-estor is in a #etter decision to ma5e ri$ht decisions/ 4a-in$ identi&ied

the ris5s associated ,ith the in-estment is important and so one should tr+ to

5no, all aspects associated ,ith it/ As5in$ the intermediaries is one o& the ,a+s

to ta5e care o& the pro#lem/

/ Fi%d t0e +i)0t $u%d/

;indin$ &unds that do not char$e man+ &ees is o& importance6 as the &ee char$ed

ultimatel+ $oes &rom the poc5et o& the in-estor/ This is e-en more important &or

de#t &unds as the returns &rom these &unds are not much/ ;unds that char$e more

,ill reduce the +ield to the in-estor/ ;indin$ the ri$ht &unds is important and one

should also use these &unds &or ta7 e&&icienc+/ In-estors o& e(uit+ should 5eep in

mind that all di-idends are currentl+ ta78&ree in India and so their ta7 lia#ilities

can #e reduced i& the di-idend pa+out option is used/ In-estors o& de#t ,ill #e

char$ed a ta7 on di-idend distri#ution and so can easil+ a-oid the pa+out options/

:E


38/84

J/ Kee6 t+!' #$ y#u+ i%-e/tme%t/

;indin$ the ri$ht &und is important #ut e-en more important is to 5eep trac5 o& the

,a+ the+ are per&ormin$ in the mar5et/ I& the mar5et is #e$innin$ to enter a #earish phase6 then in-estors o& e(uit+ too ,ill #ene&it #+ s,itchin$ to de#t &unds

as the losses can #e minimi


39/84


40/84

T0e T+ey%#+ Me!/u+e

De-eloped #+ Hac5 Tre+nor6 this per&ormance measure e-aluates &unds on the #asis o&

Tre+norFs Inde7/ This Inde7 is a ratio o& return $enerated #+ the &und o-er and a#o-e ris5

&ree rate o& return 1$enerall+ ta5en to #e the return on securities #ac5ed #+ the

$o-ernment6 as there is no credit ris5 associated26 durin$ a $i-en period and s+stematic

ris5 associated ,ith it 1#eta2/ S+m#olicall+6 it can #e represented as0

Tre+norFs Inde7 ?Ti@ ?Ri ; R$@Bi.

here6 Ri represents return on &und6 R$ is ris5 &ree rate o& return and Bi is #eta o& the

&und/

All ris58a-erse in-estors ,ould li5e to ma7imi


41/84

C#m6!+i/#% #$ S0!+6e !%d T+ey%#+

Sharpe and Tre+nor measures are similar in a ,a+6 since the+ #oth di-ide the ris5

premium #+ a numerical ris5 measure/ The total ris5 is appropriate ,hen ,e are

e-aluatin$ the ris5 return relationship &or ,ell8di-ersi&ied port&olios/ On the other hand6

the s+stematic ris5 is the rele-ant measure o& ris5 ,hen ,e are e-aluatin$ less than &ull+

di-ersi&ied port&olios or indi-idual stoc5s/ ;or a ,ell8di-ersi&ied port&olio the total ris5 is

e(ual to s+stematic ris5/ Ran5in$s #ased on total ris5 1Sharpe measure2 and s+stematic

ris5 1Tre+nor measure2 should #e identical &or a ,ell8di-ersi&ied port&olio6 as the total

ris5 is reduced to s+stematic ris5/ There&ore6 a poorl+ di-ersi&ied &und that ran5s hi$her

on Tre+nor measure6 compared ,ith another &und that is hi$hl+ di-ersi&ied6 ,ill ran5

lo,er on Sharpe )easure/

e%/#% M#de"

HensonFs model proposes another ris5 adjusted per&ormance measure/ This measure ,as

de-eloped #+ )ichael Henson and is sometimes re&erred to as the Di&&erential Return

)ethod/ This measure in-ol-es e-aluation o& the returns that the &und has $enerated -s/

the returns actuall+ e7pected out o& the &und $i-en the le-el o& its s+stematic ris5/ The

surplus #et,een the t,o returns is called Alpha6 ,hich measures the per&ormance o& a&und compared ,ith the actual returns o-er the period/ Re(uired return o& a &und at a

$i-en le-el o& ris5 1Bi2 can #e calculated as0

Ri R$ Bi ?Rm ; R$@

here6 Rm is a-era$e mar5et return durin$ the $i-en period/ A&ter calculatin$ it6 alpha

can #e o#tained #+ su#tractin$ re(uired return &rom the actual return o& the &und/

4i$her alpha represents superior per&ormance o& the &und and -ice -ersa/ Limitation o&

this model is that it considers onl+ s+stematic ris5 not the entire ris5 associated ,ith the

&und and an ordinar+ in-estor can not miti$ate uns+stematic ris56 as his 5no,led$e o&

mar5et is primiti-e/

F!m! M#de"

='


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The %u$ene ;ama model is an e7tension o& Henson model/ This model compares the

per&ormance6 measured in terms o& returns6 o& a &und ,ith the re(uired return

commensurate ,ith the total ris5 associated ,ith it/ The di&&erence #et,een these t,o is

ta5en as a measure o& the per&ormance o& the &und and is called net selecti-it+/

The net selecti-it+ represents the stoc5 selection s5ill o& the &und mana$er6 as it is the

e7cess return o-er and a#o-e the return re(uired to compensate &or the total ris5 ta5en #+

the &und mana$er/ 4i$her -alue o& ,hich indicates that &und mana$er has earned returns

,ell a#o-e the return commensurate ,ith the le-el o& ris5 ta5en #+ him/

Re(uired return can #e calculated as0 Ri R$ SiSm?Rm ; R$@

here6 Sm is standard de-iation o& mar5et returns/ The net selecti-it+ is then calculated

#+ su#tractin$ this re(uired return &rom the actual return o& the &und/

Amon$ the a#o-e per&ormance measures6 t,o models namel+6 Tre+nor measure and

Henson model use s+stematic ris5 #ased on the premise that the uns+stematic ris5 is

di-ersi&ia#le/ These models are suita#le &or lar$e in-estors li5e institutional in-estors

,ith hi$h ris5 ta5in$ capacities as the+ do not &ace paucit+ o& &unds and can in-est in a

num#er o& options to dilute some ris5s/ ;or them6 a port&olio can #e spread across a

num#er o& stoc5s and sectors/ 4o,e-er6 Sharpe measure and ;ama model that consider

the entire ris5 associated ,ith &und are suita#le &or small in-estors6 as the ordinar+

in-estor lac5s the necessar+ s5ill and resources to di-ersi&ied/ )oreo-er6 the selection o&

the &und on the #asis o& superior stoc5 selection a#ilit+ o& the &und mana$er ,ill also help

in sa&e$uardin$ the mone+ in-ested to a $reat e7tent/ The in-estment in &unds that ha-e

$enerated #i$ returns at hi$her le-els o& ris5s lea-es the mone+ all the more prone to ris5s

o& all 5inds that ma+ e7ceed the indi-idual in-estorsF ris5 appetite/

A#+di%) t# "utualfu!dsi!dia Resear-h Team G b!/i/ 6e+t!i%i%) t# B#%d Fu%d/

!+e

=3


43/84

The recent upsur$e in de#t mar5et has seen the per&ormance o& #ond &unds $o up

su#stantiall+/ These &unds hold major in-estments in #onds o& di&&erent cate$ories and so

the do,n,ard chan$e in +ield has seen the returns &rom these &unds soar hi$h/ 4o,e-er6

despite the positi-e outcome6 not man+ people 5no, the mechanism and conse(uentl+

are not a,are o& their pros and cons/ e ha-e just tried to e7plain ,hat are #ond &unds

and the &actors that a&&ect them/

:0!t i/ ! b#%d $u%dH

De#t &unds #+ nature6 #ond &unds li5e all mutual &unds6 are in-estment -ehicles/ The+ are

meant especiall+ &or in-estors ,ith relati-el+ less appetite &or ris5 and ha-in$ an

intention to earn returns hi$her than ,hat are possi#le to earn &rom other a-enues li5e

;i7ed Deposits that are considered as sa&e/ So6 sa&et+ and return #oth are o& e(ual concern

&or those in-estin$ in *ond ;unds/ )ost #ond &unds pa+ income re$ularl+ and their

NAVs tend to &luctuate less than an e(uit+ &und/

=:


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:0e+e d# t0ey i%-e/tH

In order to success&ull+ achie-e the $oals o& the &und6 the+ in-est in a multiplicit+ o& de#t

instruments such as !orporate pares6 papers issued #+ GOI etc/ ,ith di&&erent maturities

and (ualities/ In order to #alance the li(uidit+ needs o& in-estors ,ho mi$ht ,ant to

redeem their &unds an+ time6 the+ also ha-e e7posure to mone+ mar5et instruments and

call papers/ Generall+6 mutual &unds in-est in #onds issued #+ di&&erent issuers such as

$o-ernment6 corporate houses etc/ *onds can #e classi&ied on the #asis o& their issuer as0

'/ 9#-e+%me%t B#%d/

The Go-ernment Treasur+ and its a$encies issue these #onds/ Treasur+ #onds are

considered the hi$hest (ualit+ o& all #onds #ecause the credit o& the $o-ernment

#ac5s them and so the pa+ment upon maturit+ is more or less $uaranteed/ In

e7chan$e &or this -er+ hi$h mar$in o& credit sa&et+6 the+ ha-e the lo,est +ields/

3/ C#+6#+!te B#%d/

These are issued #+ -arious companies to &inance their operations6 e7pansion

acti-ities etc/ !redit ratin$ a$encies such as !RISIL6 !AR%6 I!RA rate these

instruments in India on the #asis o& their de$ree o& sa&et+6 ,hich is de&ined as their

a#ilit+ to pa+ the amount on maturit+/ The ris58return trade o&& is ,itnessed here

as ,ell6 &or companies ,ith $ood ratin$ o&&er less +ield/

:/ Mu%ii6!" b#%d/

These #onds are issued #+ $o-ernments and municipalities/ !onsidered as reasona#l+

sa&e6 these #onds pro-ide -ar+in$ returns dependin$ upon their maturities/

==


45/84

:0!t !$$et/ t0e yie"d #$ ! B#%d Fu%dH

The returns &rom a #ond &und are essentiall+ the ,ei$hted a-era$e o& the returns on each

o& its in-estment/ So i& a &und has in-ested in #onds o& di&&erent maturities and +ields6 the

+ield &rom the &und ,ill #e the ,ei$hted a-era$e o& the +ields on di&&erent securities6

,ei$hted #+ the proportion o& in-ested sum/ The (ualit+ o& papers and a-era$e duration

o& the port&olio are some o& the &actors that determine the returns one can earn &rom the

&und/ 4o,e-er6 the prices and +ields o& #onds can &luctuate li5e other in-estments and so

there is some ris5 inherent e-en in #ond &unds and the+ are not a#solutel+ ris58&ree as

the+ are o&ten made out to #e/

:0!t !+e t0e +i/'/ !//#i!tedH

*ond &unds in-est in #onds and li5e an+ in-estment are a&&ected #+ some ris5s/ There are

se-eral ris5s associated ,ith #onds and so the+ also a&&ect the &unds that in-est in #onds/

The+ are0

I%te+e/t;+!te +i/'

Unli5e stoc5 mar5et ,here an up,ard mo-ement o& mar5et leads to up,ard mo-ement in

stoc5 prices6 it is a &all in the mar5et +ield that pushes up the prices o& de#t securities/

This happens #ecause there e7ists an in-erse relationship #et,een the +ield and the price

o& a #ond/ So6 i& there is an up,ard mo-ement o& interest rates a&ter one has in-ested in a

#ond &und6 the prices o& #onds ,ill $o do,n leadin$ to a correspondin$ &all in the NAVs

o& the #ond &unds/ Let us ta5e an e7ample0

Suppose a person #u+s a #ond &or Rs/ '>> ,ith a coupon rate o& '> percent/ In other

terms the person should $et Rs/ ''> at the end o& the +ear/ I& the R*I announces a hi5e in

the #an5 rate and the mar5et +ield &or the duration o& the #ond increased6 sa+ to ''

percent6 the prices o& the #ond ,ill &all around to Rs/ J>/J' in order to adjust to the

mar5et +ield/ This is termed as interest rate ris5 in &inancial jar$on and is precisel+ ,hat

happened in 3>>> ,hen R*I had hi5ed the interest rates/

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An in-estor stands to #ene&it in the opposite scenario6 ,hen the interest rates are cut as

then the prices $o up leadin$ to #etter returns &rom the &und/ I& the interest rate in the

a#o-e e7ample &alls to J percent6 a person still $ets Rs/ '> in interest #ut in order to ali$n

the amount recei-ed to the pre-ailin$ mar5et +ield6 the price o& the #ond adjusts to Rs/

'''/''/ In this case6 the in-estor is #etter o& #+ sellin$ it at Rs/ '''/'' than holdin$ it to

its maturit+6 as then he ,ill onl+ $et Rs/ ''>/

This ris5 is also dependent upon the maturit+ and duration o& the #ond and $enerall+6 the

lon$er a &undFs duration or a-era$e maturit+6 the hi$her its interest8rate ris56 or the more

sensiti-e the NAV o& the &und ,ill #e to chan$es in interest rates/ One can reduce the

interest rate ris5 #+ choosin$ a #ond &und ,ith a shorter duration or a-era$e maturit+/

C+edit +i/'

Hust li5e shares ,here the per&ormance o& the compan+ has some #earin$ on the stoc5

prices6 credi#ilit+ o& the issuer is o& importance in de#t instruments/ The ris5 o& the issuer

not #ein$ a#le to ma5e pa+ments on his lia#ilities 1de#t instrument2 is termed as de&ault

ris5 or credit ris5/ This is o& special concern to the in-estor i& the &und is in-estin$ into

jun5 #onds or lo,er (ualit+ #onds/ *ond &unds o&&er pro&essional mana$ement and a

ran$e o& (ualit+ ratin$s to help lo,er this ris5 and so in-estors stand to #ene&it #+ thee7pertise o& &und to pic5 $ood papers onl+/

De"!y Ri/'

!ash &lo,s are estimated on the #asis o& the pattern o& income distri#ution/ ;or e7ample6

a #ond can pa+ interest hal& +earl+6 on &i7ed dates and so i& there is an+ dela+ in recei-in$

pa+ments &rom the issuer6 there is #ound to #e a mismatch #et,een the cash &lo,s/ This

can #e termed as the dela+ ris5/ )utual &unds too can miss out on the interest due on an

in-estment and ha-e to sho, it as accrued #ut not recei-ed/ This also a&&ects the time

-alue o& the mone+ due/ A continuation o& this trend ma+ lead to a re8ratin$ o& the paper

and add to the non8per&ormin$ assets o& the &und/

B!"!%i%) Ri/' -/. Re(!+d

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As ,ith an+ in-estment in an+ cate$or+6 there is al,a+s a trade8o&& #et,een the ris5s

ta5en and returns $enerated/ The $reater the ris5 o& a #ond &und 1dependent on the (ualit+

and duration o& papers26 the hi$her is the potential re,ard6 or return/ ith a #ond &und6

the ris5 that prices ma+ &luctuate and the -alue o& +our in-estment ma+ increase or

decrease is not eliminated and so one must choose &unds #ased on his ris5 tolerance/

ED#%Jt/ $#+ mutu!" $u%d i%-e/t#+/

D#%Jt /e"et me+e"y #% +etu+%/ b!/i/

;unds are not to #e selected onl+ on the #asis o& returns/ I& it ,ere so6 ,h+ ,ould one

in-est in the de#t &unds or li(uid &unds ,hen returns $enerated #+ the e(uit+ 8di-ersi&ied

&unds are superior to these &unds There&ore6 the ris5 adjusted return should #e

considered/ An in-estor see5in$ hi$h returns has to #e in the cate$or+ o& hi$h ris5 ta5in$

in-estors/ !ontraril+6 an in-estor un,illin$ to ta5e ris5 has to remain satiated onl+ #+

minimum return/ ;urther6 in-estors should consider rollin$ returns #ecause this ,ould

di-ul$e the consistenc+ o& the &undBs per&ormance/ These returns re&lect the per&ormance

o& the &und o-er a period unli5e trailin$ returns6 ,hich re&lects point8to8point returns/

E ar-+5no,led$ecentre

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D#%Jt !//ume MF IPO/ !/ "#( #/t e%t+y #6ti#%

!ontrar+ to the perception6 IOs are not the lo, cost entr+ option/ )ost o& the IOs are

issued at Rs/'>/ This does not mean that NAVs are under-alued and ,ill de&initel+ >= and pro&it a&ter ta7 o& Rs/ '6:J' crores in the nine months ended

Decem#er :'6 3>>= 1Rs/ '6C:E crores in &iscal 3>>=2/ I!I!I *an5 has a net,or5 o& a#out

@>@ #ranches and e7tension counters and a#out '6@> AT)s/ I!I!I *an5 o&&ers a ,ide

ran$e o& #an5in$ products and &inancial ser-ices to corporate and retail customers

throu$h a -ariet+ o& deli-er+ channels and throu$h its specialised su#sidiaries and

a&&iliates in the areas o& in-estment #an5in$6 li&e and non8li&e insurance6 -enture capital

and asset mana$ement/

I!I!I Securities Limited 1i8S%!2 is a ,holl+ o,ned in-estment8#an5in$ su#sidiar+ o&

I!I!I Limited 1I!I!I2/ I!I!I is the onl+ non8Hapanese Asian &inancial institution to #e

listed on the Ne, Yor5 Stoc5 %7chan$e 1NYS% s+m#ols0 I!6 I!/D2/ I!I!I Securities

,as &ormed on ;e#ruar+ 33nd 'JJ:6 ,hen I!I!IFs )erchant *an5in$ Di-ision ,as spun

o&& into a ne, compan+ I!I!I Securities toda+ is IndiaFs leadin$ In-estment *an5 and

one o& the most si$ni&icant pla+ers in the Indian capital mar5ets/ I!I!I Securities

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49/84

Research Reports 6 !ompendia6 Updates6 I8*%K and So-erei$n *ond Inde76 ha-e

#ecome industr+ standards6 sou$ht a&ter #+ &inance6 #usiness and reputed pu#lications

ali5e/

I%-e/tme%t/ T0+#u)0 ICICI B!%'

)utual ;unds pool mone+ o& -arious in-estors to purchase a ,ide -ariet+ o& securities

,hile pursuin$ a speci&ic $oal/ Selection o& Securities &or the purpose is done #+

specialists &rom the &ield/ Returns $enerated are distri#uted to the In-estors/

)utual ;und !ompanies o&&er -arious schemes/ In-estors can choose an+ particular

;und.Scheme or mi7 o& ;unds.Schemes dependin$ upon their perception to,ards ris5/

In-estment is done on the #asis o& pre-ailin$ Net Asset Values o& -arious schemes/

CLASSIFICATION OF MUTUAL FUNDS

There are -aried ,a+s in ,hich &unds can #e classi&ied/ ;rom the in-estors perspecti-e

&unds are usuall+ classi&ied in terms0

!onstitution Structure !ollection entr+ or e7it

char$es &rom in-estors

!lose 9 ended Load &undsOpen 9 ended No8Load &unds

Under each #road classi&ication6 there are se-eral t+pes o& &unds6 dependin$ on the #asis

o& the nature o& their port&olio/ %-en &und has uni(ue ris58pro&iles that are determined #+

its port&olio/

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I/ O6e% e%ded !%d "#/e e%ded $u%d/

Open8ended ;unds

An open8end &und is one that has units a-aila#le &or sale and repurchase at all the times at

a price #ased on the NAV per unit/ Such &unds are open &or su#scription the ,hole +ear/

!apitali


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AU) Rs/8 'C':@3/@3 cr

No/ o& In-estors 9 /J= la5hs

TATA Mutu!" Fu%d

At Tata Asset mana$ement6 $lo#ali


52/84

TATA Asset mana$ement ltd one o& the &astest o& countr+ ,ith more than Rs '':3: crore

as on :'st march 3>>/

DFC B!%' Mutu!" $u%d

4D;! #an5 mutual &ud ,as set up on june :> 3>>> ,ith t,o sponsor namel+ housin$

de-elopment &inance corporation ltd and standard li&e in-estment ltd/

4D;! asset )ana$ement !ompan+ is the &irst A)! in India to ha-e #een assi$ned the

!RISIL &und house le-el 'Bratin$/ This is the hi$hest &und $o-ernance and process

(ualit+ ratin$ &or t,o +ear succession o-er the past t,o +ears 4D;! has o,n num#er o&

a,ards and accolades &or his per&ormance/

As on :'st Han/ 3>>

AU) Rs/ 8 =:EC3/E>

No/ o& In-estors 9 36:J6J:@

No 4D;! ); o&&ices8 =>

Location reach 9 ':: cities

Re"i!%e Mutu!" $u%d

Reliance mutual &und 6 a part o& the reliance Anil Dhiru

a comparative analysis of mutual funds in private sector bank & public sector bank (1)

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