Table of Content

Chapter 1:- Conceptual Overview

Chapter 2:- Research Methodology

Objective of Study

Scope and Rationale of Study Methodology Limitation of StudyChapter 3:- Theoretical Background

Chapter 4:- Case Study

Introduction of Company profile and Product

About the work in company done by students

Chapter 5:- Data Analysis Chapter 6:- FindingsBibliography

Annexure CHAPTER - 1Chapter 1:- Conceptual Overview

The most important factor shaping in today's global economy is the process of globalization. Indian companies are moving in search of low-cast markets, technology is driving growth in production and competition is becoming more intense. A second factor is the fastest growth in private capital flows, mainly short-term flows by banks and financial institutions, portfolio flows by mutual funds and pension funds and foreign direct investment into India. A third factor is the increasing share of India and other emerging market economies in world trade.

The outburst in communication technology has led to greater integration of Indian financial markets across the world. The impact of these changes could be felt from the extremely buoyant activity in Indian stock markets. A number of foreign financial service providers have entered into the Indian financial market like Morgan Stanley, Templeton, and Goldman Sachs. Currently FII investment is at $ 6.5 Billion compared to $ 2 Billion in 2001. The stock market is booming with Sensex hovering around 15000-16000 and has touched 21000 levels. SEBI has put in place appropriate guidelines and controls to regulate the markets in tune with the changing environment and attendant risks. All this is happening because of large amounts of investment in the country. India is developing with a much respected growth rate of average 8% from last few years. Let us have a look on Indias GDP growth in last decade.

INDIAS ANNUAL GDP GROWTH ADJUSTED BY INFLATION

Source:-India central statistical organization

A mutual fund is a form of collective investment that pools money from investors and invests the money in stocks, bonds, short-term money-market instruments, and/or other securities. The portfolio manager trades the fund's underlying securities, realizing a gain or loss, and collects the dividend or interest income. The investment proceeds are then passed on to the individual investors.

The rationale behind a mutual fund is that there are large numbers of investors who lack the time and or the skills to manage their money. Hence professional fund managers, acting on behalf of the Mutual Fund, manage the investments (investor's money) for their benefit in return for a management fee. The organization that manages the investment is called the Asset Management Company (AMC). 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.

There are certain criteria on the basis of which the performance of a mutual fund can be assessed such as NAV, portfolio turnover, risk and return ,various expense ratios like Sharpe ratio, Beta Ratio, etc. This project work also aims to give an insight on the futuristic outlook of the Mutual Funds in India. New Funds are coming in the market such as Gold Funds, Real Estate Funds etc. The various new trends in the field are explored to understand diversified growth and opportunities that are prevalent and that could be the probable future of Mutual Funds.INTRODUCTION TO FINANCIAL MARKET

Finance means funds of monetary resources required by individuals, business-houses and government for their varied needs. The financial system refers to the system of borrowing and lending of funds to all individuals, institutions, companies and of the governments.

Financial system includes many institutions and the mechanism which affects the generation of savings, mobilization of savings and effective distribution of savings. Thus Indian financial system performs a crucial role known as capital formation. It is for this reason that the financial system is sometimes called the financial market. The purpose of financial market is to mobilize savings effectively and allocate the same efficiently among the investors.

Economic growth and development of any country depends upon well-knit financial systems. Financial system comprises, a set of sub systems of financial institutions financial markets, financial instruments and services which help in the formation of capital. It provides a mechanism by which savings are transformed into investments. Thus financial system can be said to play a significant role in the economic growth of a country by mobilizing the surplus funds and utilizing then effectively for productive purposes.

The financial sector is in a process of rapid transformation. Reforms are continuing as part of the overall structural reforms aimed at improving the productivity and efficiency of the economy. The role of an integrated financial infrastructure is to stimulate and sustain economic growth.

The US$ 28 billion Indian financial sector has grown at around 15 per cent and has displayed stability for the last several years, even when other markets in the Asian region were facing a crisis. This stability was ensured through the resilience that has been built into the system over time. The financial sector has kept pace with the growing needs of corporate and other borrowers. Banks, capital market participants and insurers have developed a wide range of products and services to suit varied customer requirements. The Reserve Bank of India (RBI) has successfully introduced a regime where interest rates are more in line with market forces.

Financial institutions have combated the reduction in interest rates and pressure on their margins by constantly innovating and targeting attractive consumer segments. Banks and trade financiers have also played an important role in promoting foreign trade of the country. The participation of major instruments available in the market is as follows

Source: - Securities and Exchange Board of India, Reserve Bank of India

The chart showing conservative nature of people of India in investment pattern.42% people still invest their money in the form of bank deposits. But now scenario is changing, investment is not a thing of concern of rich people. Common men of India are started searching various options of investment. Mutual fund is one of them. Now lets see what mutual funds are.

DEFINITION OF MUTUAL FUND

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with an inventible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy.

A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc. Lets see how mutual funds basically work.

CONCEPT OF MUTUAL FUND:

The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:

STRUCTURE OF MUTUAL FUND IN INDIA:

Mutual funds in India act as a Unit Trust. The structure is required to be followed by mutual funds in India as per SEBI Regulations, 1996.

It is constituted in the form of a Public Trust created under the Indian trust act, 1882.

The Trustees hold the unit holders money in a fiduciary capacity i.e. the money belong to the unit holders and is entrusted to the fund for the purpose of investment.

The Trustees do not manage the portfolio of securities directly, for this specialist function they appoint the Asset Management Company.

The trust is executed through a document called a trust deed that is executed by the fund sponsor in favors of the trustees.

The Trust deed is required to be stamped as registered under the provisions of the Indian Registration Act and registered with SEBI.

The role of the Asset Management Company is to act as the investment manager of the Trust and must have a net worth of at least Rs. 10 crores.

SPONSORS:

Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund.

TRUST:

The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.

TRUSTEE:

Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner.

A diagram showing structure of mutual funds in India

ASSET MANAGEMENT COMPONY:

The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a networth of at least 10 crore at all times.

REGISTRAR AND TRANSFER AGENT:The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.

CUSTADION:

The bank or trust company that maintains a mutual funds assets, including its portfolio of securities or some record of them Provides safe keeping of securities but has no role in portfolio management.

DISTRIBUTORS AND AGENTS:

Sell units on behalf of funds and are generally appointed by the AMC.

CORPUS:

The total amount of money invested in a scheme by all the investors.

ROLE OF MUTUAL FUNDS IN FINANCIAL MARKET

Mutual funds have opened new vistas to investors and imparted much needed liquidity to the system. In this process they have challenged the hitherto dominant role of the commercial banks in the financial market and national economy.

(A) MUTUAL FUNDS AND HOUSEHOLD SAVINGSIn India there has been a steady increase in the share of mutual funds in house holds savings (financial assets) since 1988-89, i.e. after the entry of public sector mutual funds. The most significant growth during 1980-81 to 1992-93 was in respect of UTI. It increased from 0.3% of the total household savings in 1980-81 to 7.0% in 1992-93. However the percentage share of bank deposits declined from 45.8% in 1980-81 to 40.2% in 1994-95.

(B) MUTUAL FUNDS AND CAPITAL MARKET

According to Center for Monitoring Indian Economy (CMIE), Mutual funds cornered 12%, of the total market capitalization, the share of the UTI, being 9.4% of the total market capitalization of India stock market in 1994. Out of the total investment of Rs.71, 828.62 crores, 51% was invested in equities while about 21% was invested in debt instruments like debenture / Bonds. This indicates that mutual funds have strongly supported the equity market, While non-UTI mutual funds have tended more towards equities and debentures, UTI due to its special structure, has rendered better support to government securities market.

(C) MUTUAL FUNDS AND CORPORATE FINANCEAccording to the flow of funds statistics published by the RBI, the share of the banking sector in filling the resource gap of the corporate sector has declined from 54.42% in 1988-89 to 2.3% in 1991-92; while of the other financial sector (including mutual funds) has increased from 39.9% to 102.58%. RBI has noted that The rapid growth of mutual funds and increase in term lending by other financial institutions appear to have contributed to this trend.

TYPES OF MUTUAL FUNDS:

Mutual fund schemes may be classified on the basis of its structure and its investment objective.

1. ON THE BASIS OF STRUCTURE:

A.OPEN ENDED FUNDSAn open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. These do not have a fixed maturity period. Investors can buy or sell units at NAV-related prices from and to the mutual fund on any business day. Most people prefer open-ended mutual funds because they offer liquidity. Such funds can issue and redeem units any time during the life of a scheme. Hence, unit capital of open ended funds can fluctuate on a daily basis.E.g.: SBI-MULTICAP, SBI-MAGNUM-INDEX FUND, FRANKLIN INDIA BLUECHIP FUND, TEMPLETON INDIA GROWTH FUND

B.CLOSED ENDED FUNDSA closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices.

E.g.: TATA EQUITY MGT FUND, SUNDRAAM-SELECT FOCUS

C.INTERVAL FUNDS

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

E.g.: RELIANCE-EQUITY, UTI HEDGE FUND

2. ON THE BASIS OF INVESTMENT OBJECTIVES:

EQUITY SCHEME: STOCK HEAVY

Equity schemes are those that invest predominantly in equity shares of companies. An equity scheme seeks to provide returns by way of capital appreciation. As a class of assets, equities are subject to greater fluctuations. Hence, the NAVs of these schemes will also fluctuate frequently. Equity schemes are more volatile, but offer better returns. They are good for long-term investors who do not need to make a killing in the next few years. Over the past few years it has been seen that over a long term period equity schemes tend to give returns between 15-25% per annum. Equity schemes can be further classified as:

DIVERSIFIED EQUITY SCHEME:

The aim of diversified equity funds is to provide the investor with capital appreciation over a medium to long period (generally 2 5 years). The fund invests in equity shares of companies from a diverse array of industries and balances (or tries to) the portfolio so as to prevent any adverse impact on returns due to a downturn in one or two sectors. Over the years these schemes have given returns between 15-25% annually. E.g.: ICICI INDEX FUND

GROWTH FUNDSThe aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term.

E.g.: TATA GROWTH FUND, TEMPLETON INDIA GROWTH FUND

INCOME FUNDS/DEBT SCHEME

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities.

E.g.: TEMPLETON INDIA INCOME FUND, SBI-MAGNAM MIP FLOATER.

BALANCED FUNDS

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

E.g.: SBI MAGNAM BALA FUND, SUNDARAM BALA FUND

MONEY MARKET FUNDSThe aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market.

Eg: TEMPLETON INDIA MONEY MRKT A/c

LOAD FUNDS

A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%.

NO-LOAD FUNDS

A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund.

OTHER SCHEME:

Income schemes:

Besides investing in Government of India securities and money market instruments, they are slightly more overweighed on corporate India. Approximately 50-60% of the portfolio would consist of fixed income instruments issued by corporate India. They therefore provide a higher return typically between 11-12% per annum. Ideally suited for investors looking beyond a period of 1 year.

E.g.: SBI-MAGNAM INCOME FUND

GILT SCHEME

Gilt schemes invest in government bonds, money market securities or some combination of these. They tend to give a higher return than a liquid scheme at the same time retaining the qualities of a liquid fund. They are slightly volatile because 95% of the traded volume of fixed income instruments in India comprises of gilts and therefore pricing of such schemes is done daily Gilt schemes generally give a return of 8.5-10% per annum.

Eg: SBI-MAGNAM GILT FUND, TATA GILT SECURITIES FUND

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

Eg: TATA TAX SAVING FUND, SBI TAX SAVER

SPECIAL SCHEME

INDUSTRY SPECIFIC SCHEMESIndustry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc.

INDEX SCHEMES/ FOLLOW THE MARKETIndex Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. Index funds are schemes that try to invest in those equity shares which make up a particular index. A bull market could get you as high as 40% returns over a period of one year. In a bad year (current year) it could erode your principal by as much as 30%.

SECTORAL SCHEMES

Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings. These are schemes whose objective is to invest only in the equity of those companies existing in a specific sector, as laid down in the funds offer document. Sectoral Funds tend to have a very high risk-reward ratio and investors should be careful of putting all their eggs in one basket. Investors generally see such schemes to benefit them in the short term, usually one year. Returns could be as high as 50% in a good year provided the investor chooses the right sector.

E.g.: SBI-MAGNAM SECTOR FUNDS: CONTRA, FMGC, IT FUNDS

DIAGRAM SHOWING TYPES OF MUTUAL FUNDS

ADVANTAGES AND DISADVANTAGES OF MUTUAL FUNDS:

A. ADVANTAGES

1. Diversification: economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value.2. Professional Management: Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell.

3. Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud.

4. Liquidity: It's easy to get your money out of a mutual fund. Write a check, make a call, and you've got the cash.

5. Convenience: You can usually buy mutual fund shares by mail, phone, or over the Internet.

6. Low cost: Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index Transparency, Flexibility, Choice of schemes, Tax benefits, well regulated

B. DISADVANTAGES

1. No Guarantees: No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio.

2. Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners.

3. Taxes: If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made.

4. Management risk: When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio.

SPONCER OF MUTUAL FUND-(COMPANY, BANK)

BORD OF TRUSTEE

POLICY MAKING BODY FOR FUND RAISING

ASSET MANAGEMENT COMPANY

ACTUAL IMPLIMENTATION OF THE POLICY AND INVESTMENT OPERATIONS

ACTING AS REGISTRAR, TRANSFER AGENT AND RELATED SERVICE FOR MUTUAL FUND

CUSTODIAN

INVESTOR