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    CHAPTER-I

    INTRODUCTION

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    MUTUAL FUNDS

    The mutual fund is structured around a fairly simple concept, the mitigation of risk

    through the spreading of investments across multiple entities, which is achieved by the

    pooling of a number of small investments into a large bucket. Yet, it has been the subject of

    perhaps the most elaborate and prolonged regulatory effort in the history of the country.

    The mutual fund industry has grown to gigantic proportions in countries like the US, in

    !ndia it is still in the phase of infancy.

    The origin of the !ndian mutual fund industry can be traced back to 1"#$ when the

    !ndian %overnment, with a view to augment small savings within the country and to

    channeli&e these savings to the capital markets, set up the Unit Trust of !ndia 'UT!(. The

    UT! was setup under a specific statute, the Unit Trust of !ndia ct, 1"#). The Unit Trust of

    !ndia launched its first open*ended e+uity scheme called Unit #$ in the year 1"#$, which

    turned out to be one of the most popular mutual fund schemes in the country. !n 1"-, the

    government permitted other public sector banks and insurance companies to promote

    mutual fund schemes. ursuant to this rela/ation, si/ public sector banks and two insurance

    companies viz. 0ife !nsurance orporation of !ndia and %eneral !nsurance orporation of

    !ndia launched mutual fund schemes in the country.

    Securities 2/change 3oard of !ndia, better known as S23!, formulated the 4utual

    5und '6egulation( 1""), which for the first time established a comprehensive regulatory

    framework for the mutual fund industry. This proved to be a boon for the mutual fund

    industry and since then several mutual funds have been set up by the private sector as well

    as the joint sector. 7othari ioneer 4utual fund became the first from the private sector to

    establish a mutual fund in association with a foreign fund. Since then several private sector

    companies have established their own funds in the country, making mutual fund industry

    one of the most followed sector by critics and investors alike. The share of private sector

    mutual funds too has gone up rapidly.

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    !n the period between 1"#) and 1", when the UT! was the sole player in the

    industry, the assets under management grew to about 6s.#- billion. !n the second phase

    between 1"*1""$, when public sector banks and insurance companies were allowed to

    launch mutual fund schemes, the total assets in the mutual fund industry grew to about 6s.

    #19 billion with the total number of schemes increasing to 1#- by the end of 1""$. The

    third phase of the mutual fund industry, which commenced in 1""$, witnessed e/ponential

    growth of the industry, with the advent of private players therein. s on 4ay )1, 899$, the

    total assets under management stood at 6s. 1:$9 billion and the total number of schemes

    stood at )"".

    ;uring the last three and a half decades, UT! has been a dominant player in the

    mutual fund industry. The total assets under the management of the UT! as on September

    )9, 8998 were to the tune of 6s. $$8 billion, which amount to almost $1< of the total

    assets under management in the domestic mutual fund industry. UT! has witnessed some

    erosion of assets pursuant to the last year=s crisis arising on account of its Unit #$ scheme,

    the scheme with largest amount of assets under management. This was the first scheme

    launched by the UT! with a significant e+uity e/posure and the returns of which was not

    linked to the market. This resulted in a payment crisis when the stock markets crashed

    during the last two years, which resulted in some degree of loss of investors= confidence in

    UT! leading to erosion of its assets under management. This period also gave opportunity

    to the private players to demonstrate better returns thereby capturing a significant market

    share.

    >hatever may have happened to mutual funds in the past and whatever one is

    seeing now, mutual funds are here to stay as long as they can deliver the aspirations of their

    investors. ?ne must not forget that !ndia is a large nation with a population of more than 1

    billion people and the potential continues to be huge. @owever, to be fair mutual fund

    managers should also strive to improve their performance and not blame the vagaries of the

    market all the times.

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    History of the Indian Mutua Fund Industry

    The mutual fund industry in !ndia started in 1"#) with the formation of Unit Trust of !ndia,

    at the initiative of the %overnment of !ndia and 6eserve 3ank the. The history of mutual

    funds in !ndia can be broadly divided into four distinct phases

    First Phase ! "#$%-&'

    Unit Trust of !ndia 'UT!( was established on 1"#) by an ct of arliament. !t was set up by

    the 6eserve 3ank of !ndia and functioned under the 6egulatory and administrative control

    of the 6eserve 3ank of !ndia. !n 1"- UT! was de*linked from the 63! and the !ndustrial

    ;evelopment 3ank of !ndia '!;3!( took over the regulatory and administrative control in

    place of 63!. The first scheme launched by UT! was Unit Scheme 1"#$. t the end of 1"

    UT! had 6s.#,-99 crores of assets under management.

    Se(ond Phase ! "#&'-"##) *Entry of Pu+i( Se(tor Funds,

    !n the year 1"- marked the entry of non* UT!, public sector mutual funds set up by public

    sector banks and 0ife !nsurance orporation of !ndia '0!( and %eneral !nsurance

    orporation of !ndia '%!(. S3! 4utual 5und was the first non* UT! 4utual 5und

    established in Aune 1"- followed by anbank 4utual 5und ';ec -(, unjab Bational

    3ank 4utual 5und 'ug "(, !ndian 3ank 4utual 5und 'Bov "(, 3ank of !ndia 'Aun "9(,

    3ank of 3aroda 4utual 5und '?ct "8(. 0! established its mutual fund in Aune 1"" while

    %! had set up its mutual fund in ;ecember 1""9.

    t the end of 1""), the mutual fund industry had assets under management of

    6s.$-,99$ crores.

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    Third Phase ! "##)-..) *Entry of Pri/ate Se(tor Funds,

    >ith the entry of private sector funds in 1""), a new era started in the !ndian

    mutual fund industry, giving the !ndian investors a wider choice of fund families. lso,

    1"") was the year in which the first 4utual 5und 6egulations came into being, under

    which all mutual funds, e/cept UT! were to be registered and governed. The erstwhile

    7othari ioneer 'now merged with 5ranklin Templeton( was the first private sector mutual

    fund registered in Auly 1"").

    The 1"") S23! '4utual 5und( 6egulations were substituted by a more

    comprehensive and revised 4utual 5und 6egulations in 1""#. The industry now functions

    under the S23! '4utual 5und( 6egulations 1""#.

    The number of mutual fund houses went on increasing, with many foreign mutual

    funds setting up funds in !ndia and also the industry has witnessed several mergers and

    ac+uisitions. s at the end of Aanuary 899), there were )) mutual funds with total assets of

    6s. 1,81,9: crores. The Unit Trust of !ndia with 6s.$$,:$1 crores of assets under

    management was way ahead of other mutual funds.

    Fourth Phase ! sin(e Fe+ruary ..)

    !n 5ebruary 899), following the repeal of the Unit Trust of !ndia ct 1"#) UT! was

    bifurcated into two separate entities. ?ne is the Specified Undertaking of the Unit Trust of

    !ndia with assets under management of 6s.8",): crores as at the end of Aanuary 899),

    representing broadly, the assets of US #$ scheme, assured return and certain other schemes.

    The Specified Undertaking of Unit Trust of !ndia, functioning under an administrator and

    under the rules framed by %overnment of !ndia and does not come under the purview of the4utual 5und 6egulations.

    The second is the UT! 4utual 5und 0td, sponsored by S3!, B3, 3?3 and 0!. !t

    is registered with S23! and functions under the 4utual 5und 6egulations. >ith the

    bifurcation of the erstwhile UT! which had in 4arch 8999 more than 6s.-#,999 crores of

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    assets under management and with the setting up of a UT! 4utual 5und, conforming to the

    S23! 4utual 5und 6egulations, and with recent mergers taking place among different

    private sector funds, the mutual fund industry has entered its current phase of consolidation

    and growth. s at the end of ?ctober )1, 899), there were )1 funds, which manage assets

    of 6s.18#-8# crores under )# schemes.

    The graph indicates the growth of assets over the years.

    0RO1TH IN ASSETS UNDER MANA0EMENT

    0o+a S(enario of Mutua Funds

    The money market mutual 5und segment has a total corpus of C1.$ million in theU.S. against a corpus of C199 million in !ndia. ?ut of the top 19 4utual 5unds world wide,

    are bank sponsored. ?nly 5idelity D capital are non*bank 4utual 5unds in this group. !n

    U.S. the total number of schemes is higher than that of the listed companies while in !ndia

    we have just 8-- Schemes.

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    !nternationally, 4utual 5unds are allowed to go short. !n !ndia fund managers do

    not have such leeway. !n about ".- million households will manage their assets online. 3y

    the year 899$, such a facility is not available in !ndia. ?nline trading is a great idea to

    reduce management e/penses from the current 8< of total assets to about 9.-:< of the

    total assets. round -8< of the core customer base of 4utual 5unds in the top :9 broking

    firms in the U.S. is e/pected to trade online.

    The !ndian 4utual 5und !ndustry is dominated by the UT!, which has a total corpus

    of 6s.-99 billion, collected from over 899 million investors. The 8ndlargest category of

    4utual 5unds is the ones floated by the nationali&ed banks. an bank asset management

    floated by anara 3ank D S.3.!. 5und 4anagement floated by S.3.!. are the largest of

    these. The aggregate corpus of the funds managed by this category of sset 4anagement

    ompanies is around 6s.1:9 billion among the private players the largest are E2ira

    Ca3ita Asset Mana4e5ent Co53any6D rudential !!! sset 4anagement ompany.

    The aggregate corpus of the asset managed by this category of sset 4anagement

    companies is about 6s.#9billion.

    FUND 2ASICS

    4utual 5und is a trust that pools the savings of a number of investors who share a

    common financial goal. The money thus collected is invested by the fund manager in

    different types of securities depending upon the objective of the scheme. These could range

    from shares to debentures to money market instruments. The income earned through these

    investments and the capital appreciation reali&ed by the scheme is shared by its unit holders

    in proportion to the number of units owned by them. Thus a 4utual 5und 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. The small savings of

    all the investors are put together to increase the buying power and hire a professional

    manager to invest and monitor the money. nybody with an investible surplus of as little as

    a few thousand rupees can invest in 4utual 5unds. 2ach 4utual 5und scheme has a

    defined investment objective and strategy.

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    Stru(ture of a

    Mutua Fund

    mutual

    fund is set up in

    the form of a

    trust, which has

    Sponsor, Trustees,sset

    4anagement

    ompany *AMC,and a ustodian. The trust is established by a sponsor or more than one

    sponsor who is like a promoter of a company. The trustees of the mutual fund hold its

    property for the benefit of the unit*holders. The 4, approved by S23!, manages the

    funds by making investments in various types of securities. The custodian, who is

    registered with S23!, holds the securities of various schemes of the fund in its custody. The

    trustees are vested with the general power of superintendence and direction over 4.

    They monitor the performance and compliance of S23! 6egulations by the mutual fund.

    typical mutual fund structure in !ndia can be graphically represented as follows

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    S3onsor

    The sponsor is re+uired, under the provisions of the 4utual 5und 6egulations, to

    have a sound track record, a reputation of fairness and integrity in all his business

    transactions. dditionally, the sponsor should contribute at least $9< to the net worth of

    the 4. @owever, if any person holds $9< or more of the net worth of an 4 shall be

    deemed to be a sponsor and will be re+uired to fulfill the eligibility criteria specified in the

    4utual 5und 6egulations. The sponsor or any of its directors or the principal officer

    employed by the mutual fund should not be guilty of fraud, not be convicted of an offence

    involving moral turpitude or should have not been found guilty of any economic offence.

    Trustees

    The mutual fund is re+uired to have an independent 3oard of Trustees, i.e. two

    thirds of the trustees should be independent persons who are not associated with the

    sponsors in any manner whatsoever. n 4 or any of its officers or employees are not

    eligible to act as a trustee of any mutual fund. !n case a company is appointed as a trustee,

    then its directors can act as trustees of any other trust provided that the object of such other

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    trust is not in conflict with the object of the mutual fund. dditionally, no person who is

    appointed as a trustee of a mutual fund can be appointed as a trustee of any other mutual

    fund unless he is an independent trustee and prior approval of the mutual fund of which he

    is a trustee has been obtained for such an appointment.

    The trustees are responsible for F inter alia *ensuring that the 4 has all its

    systems in place, all key personnel, auditors, registrars etc. have been appointed prior to the

    launch of any scheme. !t is also the responsibility of the trustees to ensure that the 4

    does not act in a manner that is favorable to its associates such that it has a detrimental

    impact on the unit holders, or that the management of one scheme by the 4 does not

    compromise the management of another scheme. The trustees are also re+uired to ensure

    that an 4 has been diligent in empanelling and monitoring any securities transactions

    with brokers, so as to avoid any undue concentration of business with any broker.

    The 4utual 5und 6egulations further mandates that the trustees should prevent any

    conflicts of interest between the 4 and the unit holders in terms of deployment of net

    worth.

    Asset Mana4e5ent Co53any

    The sponsor or the trustees are re+uired to appoint an 4 to manage the assets of

    the mutual fund. Under the 4utual 5und 6egulations, the applicant must satisfy certain

    eligibility criteria in order to +ualify to register with S23! as an 4

    The sponsor must have at least $9< stake in the 4

    The directors of the 4 should be persons having ade+uate professional

    e/perience in finance and financial services related field and not found guilty of

    moral turpitude or convicted of any economic offence or violation of any securities

    laws

    The 4 should have and must at all times maintain, a minimum net worth of 6s.

    19 rores

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    The board of directors of such 4 has at least :9< directors, who are not

    associates of or associated in any manner with, the sponsor or any of its subsidiaries

    or the trustees

    The hairman of the 4 is not a trustee of any mutual fund.

    !n addition to the above eligibility criteria and other on going compliance re+uirements laid

    down in the 4utual 5und 6egulations, the 4 is re+uired to observe the following

    restrictions in its normal course of business. ny director of the 4 cannot hold office of

    a director in another 4 unless such person is an independent director and the approval

    of the board of the 4 of which such person is a director, has been obtainedG the 4

    shall not act as a trustee of any mutual fundG the 4 cannot undertake any other business

    activities e/cept activities in the nature of portfolio management services, management and

    advisory services to offshore funds, pension funds, provident funds, venture capital funds,

    management of insurance funds, financial consultancy and e/change of research on

    commercial basis if any of such activities are not in conflict with the activities of the

    mutual fund.

    Custodian

    The mutual fund is re+uired, under the 4utual 5und 6egulations, to appoint a

    custodian to carry out the custodial services for the schemes of the fund. ?nly institutions

    with substantial organi&ational strength, service capability in terms of computeri&ation, and

    other infrastructure facilities are approved to act as custodians. The custodian must be

    totally de*linked from the 4 and must be registered with S23!. Under the Securities

    and 2/change 3oard of !ndia 'ustodian of Securities( %uidelines, 1""#, any person

    proposing to carry on the business as a custodian of securities must register with the S23!

    and is re+uired to fulfill specified eligibility criteria. dditionally, a custodian in which the

    sponsor or its associates holds :9< or more of the voting rights of the share capital of the

    custodian or where :9< or more of the directors of the custodian represent the interest of

    the sponsor or its associates cannot act as custodian for a mutual fund constituted by the

    same sponsor or any of its associate or subsidiary company.

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    Asso(iation of Mutua Funds in India *AMFI,

    ssociation of 4utual 5unds in !ndia '45!( is an ape/ body of asset management

    companies of the 4utual 5und registered in !ndia. !t was incorporated on the ugust 88nd

    1"": as a non*profit making organi&ation. !t is dedicated to developing the !ndian 4utual

    5und industry on professional, healthy D ethical lines D to enhance and maintain standards

    in all areas with a view to protecting D promoting the interests of 4utual 5unds D their

    unit holders

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    O27ECTI8ES

    To recommend D implement healthy business practices, ethical code of conduct,

    standard principles D practices to be followed by the members of the company Dothers engaged in the activities of 4utual 5unds D sset 4anagement including

    agencies connected or involved in the field of capital 4arkets D financial Services.

    To promote high standards of commercial honor D encourage D promote among

    members D others the observance of securities laws including regulations D

    directives issued by Securities D 2/change 3oard of !ndia 'S23!( D function in

    the best of interest of the investing public.

    To help in setting up professional standards for providing efficient services D

    establishing standard practices for 4utual 5und D sset 4anagement activities.

    To bring about better co*ordination in the field of 4utual 5unds D sset

    4anagement !ndustry.

    To promote D develop sound, progressive D dynamic principles, practices D

    conventions in the activities of 4utual 5und D sset 4anagement.

    To study various investment alternatives and in particular investors preference

    towards mutual funds.

    To study the preference of investors in today=s scenario 'less risk and more return(.

    To assess the risk of investors with reference to diversifiable risk D non*

    diversifiable risk.

    To study market potentiality of mutual fund among investors.

    To study whether the investors are considering 3irla Sun 0ife a better option or

    not.

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    ROLE OF MUTUAL FUNDS

    Mutua Funds 9 Finan(ia Mar:et

    !n the process of development !ndian mutual funds have emerged as strong

    financial intermediaries D are playing a very important role in bringing stability to the

    financial system D efficiency to resource allocation. 4utual 5unds have opened new vistas

    to investors D imparted a much*needed li+uidity to the system. !n the process they have

    challenged the hitherto role of commercial banks in the financial market D national

    economy.

    Mutua Fund 9 Ca3ita Mar:et

    The active involvement of 4utual 5unds in promoting economic development can

    be seen not only in terms of their participation in the savings market but also in their

    dominant presence in the money D capital market. developed financial market is critical

    to overall economic development, D 4utual 5unds play an active role in promoting a

    healthy capital market. The asset holding pattern of mutual funds in the US indicates the

    dominant role of 4utual 5unds in the capital market D money market. 4ore over they

    have also rendered critical support to securities mortgage loans D municipal bond market

    in the US. !n the US, 4utual 5unds provide very active support to the secondary market

    in terms of purchase of securities.

    !nvestor=s preferences pattern in !ndia has undergone a tremendous change during

    recent times, along with the changes in the share of financial assets in the total annual

    savings. !ndian investors have moved towards more li+uid D growth oriented trade able

    instruments like=s sharesHdebentures D units of 4utual 5unds. The shift is asset holding

    pattern of investors has been significantly influenced by the Ie+uity= D Iunit= culture while

    the holders of company shares D debentures are concentrated in the urban areas,

    smallHmedium investors in the semi*urban D rural areas are tending towards 4utual 5unds.

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    4utual 5unds in !ndia have certainly created awareness among investors about e+uity

    oriented investments D its benefits.

    Ty3es of Mutua Fund S(he5es

    There are a wide variety of 4utual 5und schemes that cater to investors need,

    whatever your age, financial position, risk tolerance and return e/pectations. >hether as

    the foundation of your investment program or as a supplement, 4utual 5und schemes can

    help you meet your financial goals.

    2y Stru(ture ! S(he5es (an +e (assified into ) ty3es

    O3en-Ended S(he5es

    These do not have a fi/ed maturity. !nvestors deal directly with the 4utual 5und for

    their investments and redemptions. The key feature is li+uidity. They can conveniently buy

    and sell their units at Bet sset Jalue 'KBJK( related prices.

    Cose-Ended S(he5es

    Schemes that have a stipulated maturity period 'ranging from 8 to 1: years( are

    called close*ended schemes. !nvestors can invest directly in the scheme at the time of the

    initial issue and thereafter they can buy or sell the units of the scheme on the stock

    e/changes where they are listed. The market price at the stock e/change could vary from

    the schemeLs BJ on account of demand and supply situation, unit holdersL e/pectations

    and other market factors. ?ne of the characteristics of the close*ended schemes is that they

    are generally traded at a discount to BJG but closer to maturity, the discount narrows.

    Some close*ended schemes give them an additional option of selling their units

    directly to the 4utual 5und through periodic repurchase at BJ related prices. S23!

    6egulations ensure that at least one of the two e/it routes is provided to the investor.

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    !nterval Schemes!nterval Schemes

    These combine the features of open*ended and close* ended schemes. They may be

    traded on the stock e/change or may be open for sale or redemption during pre*determined

    intervals at BJ related prices.

    2y In/est5ent O+;e(ti/e

    0rouity S(he5es

    im to provide capital appreciation over the medium to long term. These schemes

    normally invest a majority of their funds in e+uities and are willing to bear short* term

    decline in value for possible future appreciation. These schemes are not for investors

    seeking regular income or needing their money back in the short*term.

    In(o5e S(he5es

    im to provide regular and steady income to investors. These schemes generally

    invest in fi/ed income securities such as bonds and corporate debentures. apital

    appreciation in such schemes may be limited.

    2aan(ed S(he5es

    im to provide both growth and income by periodically distributing a part of the

    income and capital gains they earn. They invest in both shares and fi/ed income securities

    in the proportion indicated in their offer documents. !n a rising stock market, the BJ of

    these schemes may not normally keep pace, or fall e+ually when the market falls.

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    Money Mar:et S(he5es

    im to provide easy li+uidity, 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. 6eturns on these schemes may

    fluctuate, depending upon the interest rates prevailing in the market.

    Ta? Sa/in4 S(he5es

    These schemes offer ta/ rebates to the investors under ta/ laws as prescribed from

    time to time. This is made possible because the %overnment offers ta/ incentives for

    investment in specified avenues. 5or e/ample, 2+uity 0inked Savings Schemes '20SS( and

    ension Schemes. 6ecent amendments to the !ncome Ta/ ct provide further opportunities

    to investors to save capital gains by investing in 4utual 5unds. The details of such ta/

    savings are provided in the relevant offer documents.

    S3e(ia S(he5es

    This category includes inde/ schemes that attempt to replicate the performance of a

    particular inde/, such as the 3S2 Sense/ or the BS2 :9, or industry specific schemes

    'which invest in specific industries( or Sectoral schemes 'which invest e/clusively in

    segments such as LL %roup shares or initial public offerings(. !nde/ fund schemes are ideal

    for investors who are satisfied with a return appro/imately e+ual to that of an inde/.

    Sectoral fund schemes are ideal for investors who have already decided to invest in a

    particular sector or segment. 7eeping in mind that any one scheme may not meet all the

    investors= re+uirements for all time

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    Ad/anta4es of Mutua Fund

    Professiona Mana4e5ent

    !nvestors avail the services of e/perienced and skilled professionals who are backed

    by a dedicated investment research team, which analyses the performance and prospects of

    companies and selects suitable investments to achieve the objectives of the scheme.

    Di/ersifi(ation

    4utual 5unds invest in a number of companies across a broad cross*section of

    industries and sectors. This diversification reduces the risk because seldom do all stocks

    declare at the same time and in the same proportion. !nvestors achieve this diversification

    through a 4utual 5und with far less money than they can do on their own.

    Con/enient Ad5inistration

    !nvesting in a 4utual 5und reduces paperwork and helps to avoid many problems

    such as bad deliveries, delayed payments and unnecessary follow up with brokers and

    companies. 4utual 5unds saves time and make investing easy and convenient.

    Return Potentia

    ?ver a medium to long*term, 4utual 5unds have the potential to provide a higher

    return as they invest in a diversified basket of selected securities.

    Lo< Costs

    4utual 5unds are a relatively less e/pensive way to invest compared to directly

    investing in the capital markets because the benefits of scale in brokerage, custodial and

    other fees translate into lower costs for investors.

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    Li>uidity

    !n open*ended schemes, !nvestors can get their money back promptly at net asset

    value related prices from the 4utual 5und itself. >ith close*ended schemes, they can sell

    their units on a stock e/change at the prevailing market price or avail of the facility of

    direct repurchase at BJ related prices which some close*ended and interval schemes offer

    periodically.

    Trans3aren(y

    !nvestors get regular information on the value of their investment in addition to

    disclosure on the specific investments made by the scheme, the proportion invested in each

    class of assets and the fund managerLs investment strategy and outlook.

    Fe?i+iity

    Through features such as regular investment plans, regular withdrawal plans and

    dividend reinvestment plans, !nvestors can systematically invest or withdraw funds

    according to their needs and convenience.

    Choi(e of S(he5es

    4utual 5unds offer a family of schemes to suit the varying needs over a lifetime of

    their !nvestors.

    Disad/anta4es of Mutua Fund In/est5ent

    No Contro o/er (osts

    n investor in a mutual fund has no control over the overall cost of investing. @e

    pays investment management fees as long as he remains with the fund, albeit in return for

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    the professional management and research. 5ees are usually payable as a percentage of the

    value of his investments, whether the fund value is rising or declining.

    No Taior-5ade Portfoios

    !nvestors who invest on their own can build their own portfolios of shares, bonds

    and other securities. !nvesting through funds means he delegates this decision to the fund

    managers. The very high net worth individuals or large corporate investors may find this to

    be a constraint in achieving their objectives.

    Mana4in4 a 3ortfoio of funds

    vailability of a large number of funds can actually mean too much choice for the

    investor. @e may again need advice on how to select a fund to achieve his objective, +uite

    similar to the situation when has to select individual shares or bonds to invest in.

    RIS@S OF IN8ESTIN0 IN MUTUAL FUNDS

    Mar:et = Interest Ris:

    Jolatility of prices leading to EfloatingM returns

    0argely mitigated with a holding period of over # months

    Credit Ris:

    otential default of bonds on the portfolio

    E>uity Ris:

    ossibility of the fund manager not able to meet redemptions

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    PLAERS IN MUTUAL FUND INDUSTR

    B42 ?5 T@2 5UB; B?. ?5 S@242S SS2T UB;26

    4B%242BT

    '6s. 6?62(

    00!B2 4UTU0 5UB; )# ))9".9)

    32B@ 467 4UTU0 5UB; 1 #.1

    3!60 4UTU0 5UB; ): $$)#.-"

    3?3 4UTU0 5UB; )1

    B 3B7 4UTU0 5UB; 1$ #"8.9$

    @?0 4UTU0 5UB; 8: 18.#-

    ;S40 4UTU0 5UB; 1) 81:$.#-

    ;UB;22 4UTU0 5UB; 1" 89.-8

    2S?6TS 4UTU0 5UB; 1) )."1

    5!6ST !B;! 4UTU0 5UB; : 9.-

    56B70!B T2420T!?B 4UTU0 5UB; 8: )"1".:8%! 4UTU0 5UB; 1) ))).8"

    @;5 4UTU0 5UB; 88 $-9-.)8

    !;3!*6!B!0 4UTU0 5UB; )) 1)$#.#1

    !0 D 5S 4UTU0 5UB; 1 :)-.-8

    !B% 4UTU0 5UB; 1: )"#.)1

    A5 4UTU0 5UB; ) 891.

    A4 4UTU0 5UB; 81 11"".8

    7?T7 4UTU0 5UB; )9 1"9-.):

    4?6%B STB02Y 4UTU0 5UB; 1 -").-

    !?B226 !T! 4UTU0 5UB; #8 ):1-.--

    B3 4UTU0 5UB; 1$".-#

    6U !!! 4UTU0 5UB; :8 -99#.-8620!B2 !T0 4UTU0 5UB; 1: 8"1).8:

    S3! 4UTU0 5UB; $8 )81:.$9

    STB;6; @6T262; 4UTU0 5UB; )9 )8"$.#)

    SUB 5D 4UTU0 5UB; 8# $1).11

    SUB;64 4UTU0 5UB; 11 -98.8:

    TT 4UTU0 5UB; 89 ")

    TU6US 4UTU0 5UB; 11 :".-#

    81

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    NEED AND IMPORTANCE OF STUD

    small investor is the one who is able to correctly plan D decide in which

    profitable D safe instrument to invest. To lock up one=s hard earned money in a savings

    bank=s account is not enough to counter the monster of inflation. Using simple concepts of

    diversification, power of compound interest, stable returns D limited e/posure to e+uity

    investment, one can ma/imi&e his returns on investments D multiply one=s savings.

    !nvestment is a serious proposition one has to look into various factors before

    deciding on the instruments in which to invest. To save is not enough. ?ne must invest

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    wisely D get ma/imum returns. ?ne must plan investment in such a way that his

    investment objectives are satisfied. sound investment is one which gives the investor

    reasonable returns with a proper profitable management

    This report gives the details about various investment objectives desired by an

    investor, details about the concept D working of mutual fund. This report also covers the

    different players in 4utual 5unds and different avenues of investment D in detail about

    E3!60 SUB 0!52 4UTU0 5UB;SM.

    RESEARCH METHODOLO0

    Sour(es of data (oe(tion

    Two sources of collecting data has been employed i.e. primary data and secondary data

    Pri5ary data

    8)

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    +uestionnaire is used as a tool for the systematic collection of relevant

    information. well +uestionnaire consisting of simple +uestions has been prepared D

    directed to the respondents. 'Nuestionnaire is attached at the end of the projects(

    The +uestionnaire prepared consists of closed*ended +uestions which includes

    4ultiple choice

    6ating scale

    The +uestionnaire also consists of open*ended +uestions.

    The first section of +uestionnaire is prepared mainly for collecting the personal information

    about the respondents.

    The second section contains multiple choice +uestions. !t is prepared to collect the

    information about customer perception.

    The close* ended +uestions are very easy to answer from the +uestionnaire responded by

    the respondents.

    Se(ondary Data

    Secondary data is collected from the company=s websites, fact sheet etc.

    Sa53in4 Pro(edure

    Sample si&eO 899

    E?3orati/e a33roa(hBThis approach is one of the most popular approaches these days. !n

    this approach, a problem is described by the researcher using +uestionnaire or schedule.

    This approach enables a researcher to e/plore new areas of investigation.

    8$

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    Resear(h instru5entB Nuestionnaire

    >hich is used to collect the primary data by personnel interview.

    S(o3e Of Mutua Funds

    !t has grown enormously over the years. !n the first age of mutual funds, when the

    investment management companies started to offer mutual funds, choices were few. 2ven

    though people invested their money in mutual funds as these funds offered them diversified

    investment option for the first time. 3y investing in these funds they were able to diversify

    their investment in common stocks, preferred stocks, bonds and other financial securities.

    8:

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    t the same time they also enjoyed the advantage of li+uidity. >ith 4utual 5unds, they got

    the scope of easy access to their invested funds on re+uirement.

    3ut, in today=s world, Scope of 4utual 5unds has become so wide, that people sometimes

    take long time to decide the mutual fund type, they are going to invest in. Several

    !nvestment 4anagement ompanies have emerged over the years who offer various types

    of 4utual 5unds, each type carrying uni+ue characteristics and different beneficial features.

    LIMITATIONS OF THE STUD

    4uch interaction has not been possible with the customer due to

    1. !ndifference or uninterested of the customers to interact with me

    8. ;ifferent perceptions about the investment options

    ). The non*availability of time to them

    4any investors think mutual funds and shares are the one and same

    8#

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    !n survey, most of the respondents were male who could not take the

    perceptions of the female investors.

    8-

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    CHAPTER-IIICHAPTER-III

    COMPAN PROFILECOMPAN PROFILE

    22IRLAIRLASSUNLIFEUNLIFEMMUTUALUTUALFFUNDUND

    3irla Sunlife 4utual 5und is a joint venture between Sun 0ife ssurance ompany,

    the anada*based financial service organi&ation and the !ndian industrial house of ditya

    8

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    3irla, this 4 was launched in the mid*"9=s. 3oth the partners are well known in all

    areas that they operate in. >hile ditya 3irla is a household name in !ndia and has

    renowned brands in businesses spread across industries as wide ranging as luminium

    '@indalco(, Te/tiles '%rasim(, 5ertili&ers '!ndo*%ulf(, 5inance '3irla %lobal 5inance 0td.(

    and 6ayon '!ndia 6ayon(, Sun 0ife is a leading financial service organi&ation in Borth

    merica. Sun 0ife provides services related to risk management, money management and

    wealth management across globe. @aving established itself at Toronto in 1-1, it has now

    spread its wings across sia acific, U.S.. and U.7. !t also has a significant presence

    through 45S !nvestment 4anagement in U.S. and Spectrum United 4utual 5unds in

    anada.

    The major strengths of the group are its e/pertise drawn from managing assets over

    the globe, a big agent network and an ability to cater to the need of people. ;rawing on the

    e/pertise of a worldwide staff of over 19,999 people and a network of more than #:,999

    agents and distributors, Sun 0ife is committed to providing not just products and services,

    but solutions for clients financial and risk management needs.

    3irla Sun 0ife 4utual 5und follows a conservative long*term approach to

    investment, which is based on identifying companies that have good credit*worthiness and

    are fundamentally strong. !t places a lot of emphasis on +uality of management and risk

    control. This is done through e/tensive analysis that includes factory visits and field

    research. !t has one of the largest team of research analysts in the industry. The company is

    one of !ndiaLs leading private mutual funds with a large customer base.

    3irla 4utual 5und has been constituted as a trust under the provisions of the !ndian

    Trusts ct, 18 and registered with S23!. The objective of 4utual 5und is to offer to the

    public and other eligible investors units in one or more schemes in the 4utual 5und for

    making group or collective investments primary in !ndian Securities in accordance with

    and as permitted under the directions and guidelines issued from time to time by S23!.

    8"

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    The Sponsors of 3irla 4utual 5und are 3irla %lobal 5inance 0td. and Sun 0ife

    '!ndia( 4 !nvestments !nc., which is wholly owned subsidiary of Sun 0ife 5inancial

    Services ompany of anada. 3irla Sun 0ife Trustee ompany rivate 0td. '3S0T( is a

    company incorporated with limited liability under the ompanies ct, 1":#. 3irla Sun 0ife

    sset 4anagement ompany 0td. '3S04( is the investment manager of 3irla 4utual

    5und.

    8ision

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

    preferred employer in the industry and to be a catalyst for growth and e/cellence of the

    asset management business in !ndia.

    Mission

    To consistently pursue investorLs wealth optimi&ation by

    chieving superior and consistent investment results

    reating a conductive environment to hone and retain talent

    roviding customer delight

    !nstitutionali&ing system*approach in all aspects of functioning

    Upholding highest standards of ethical values at all times

    S(he5es Offered +y 2ira Sunife Mutua Fund

    E>uity S(he5es

    !nvestments in e+uities are made with a long*term objective in mind. 2mpirical

    studies have indicated that despite the short*term volatility that is characteristic of e+uities,

    )9

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    over the longer term, e+uities have generated superior returns. This makes e+uities the best

    instruments for long*term growth of capital. !nvesting in a diversified e+uity portfolio can

    help minimi&e risk as the portfolio gets e/posure across various sectors, while enabling

    investors to capitali&e on the fundamental upsides presented by these sectors. The various

    2+uity schemes are

    3irla dvantage 5und

    3irla ;ividend Yield lus

    3irla 4idcap 5und

    3irla !ndia ?pportunities 5und

    3irla 4B 5und

    3irla 2+uity 5und

    3irla !nde/ 5und

    De+t S(he5es

    3irla !ncome lus

    3irla %ilt lus

    3irla 3ond lus

    3irla ash lus

    3irla 4!

    3irla 4!*!!

    3irla 5loating 6ate 5und

    3irla 3ond !nde/ 5und

    Other S(he5es

    3irla sset llocation 5und

    3irla 3alance

    )1

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    Offshore S(he5es

    !ndia dvantage 5und

    2/cel !ndia 5und

    In/est5ent Pans Offered

    0RO1 *0ain Re4uary On 1ithdraithdrawal lan '6>( * is the best alternative for investors

    who need regular income. %6?> is available in two optionsO

    Fi?ed 1ithdrahere investors specify amounts they wish to withdraw from

    their investment on a monthlyH+uarterly basis.

    A33re(iation 1ithdrahere they can withdraw "9< of their appreciated

    amount on a monthlyH+uarterly basis.

    REAP *Re4uar E?tra Ad/anta4e Pan,

    The 62 formerly known as Systematic !nvestment lan 'S!( * lets investorsinvest small amounts of money on a monthly basis and gives them the option of increasing

    these amounts as their investment capacity increases.

    STEER *Syste5ati( Transfer to Earn E>uity Returns,

    >hile investing in a debt, fund normally assures of fairly consistent returns,

    e+uities have the potential to create wealth. 3ut the unpredictability in e+uity funds can be

    +uite a deterrent when !nvestors make a choice. To combine the best of both worlds 3irla

    presents ST226 formerly known as Systematic Transfer lan 'ST(.

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    Uni>ue Features of 2ira

    2ira 2ond E?(han4e

    3irla 3ond 2/change is a uni+ue facility introduced by 3irla Sun 0ife 4 0td. to

    help retail investors replace their e/isting portfolio of debt securities with a diversified debt

    fund in order to optimi&e returns and improve li+uidity.

    Readi(he>ues

    product add*on available for 6esident !ndian investors in the growth plans of the

    debt schemes, i.e. 3irla !ncome lus, 3irla ash lus, 3irla 3ond lus, 3irla 4! and 3irla

    %ilt lus. 6eadiche+ues are pre*issued undated repurchase che+ues drawn in favour of the

    first applicant. Under normal circumstances, when investor wishes to redeem, he needs to

    fill up a repurchase re+uest and submit it to the !nvestor Service entre. Bormally the

    repurchase warrant is delivered to the investor on the third working day from the date of

    submitting the redemption re+uest. >ith 6eadiche+ues, all the investor needs to do is to

    re+uest for preissued warrants in advance and deposit them as and when needed. Thus, the

    hassles of filling in a redemption re+uest, submitting at an !nvestor Service entre and then

    waiting for the redemption warrant to reach him are done away with this product add*on.

    SCHEMES OF 2IRLA SUN LIFE

    S(he5eB 2ira Ad/anta4e Fund

    ))

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    Type ?pen ended growth scheme

    !nvestment pattern -9< in e+uity D )9< in ;ebt

    5und ?bjective 0ong term growth of capital

    !nvestment hori&on 4in of one year

    S(he5eB 2ira Di/idend ied 3us

    Type ?pen ended %rowth Scheme

    !nvestment pattern 199< in e+uity

    5und objective apital growth D income

    !nvestment hori&on 4in of one year

    S(he5eB 2ira E>uity 3an

    Type ?pen ended e+uity linked savings schemes

    !nvestment 9< in e+uity D 89< in short term, money market D li+uid

    instruments

    5und objective 0ong term growth of capital along with income ta/ relief for

    investment

    !nvestment hori&on 4inimum of )years

    S(he5eB 2ira Inde? Fund

    Type ?pen ended inde/ 0inked Scheme

    !nvestment pattern 199< in Securities

    5und ?bjective %enerate 6eturns

    !nvestment @ori&on 4in of one Year

    S(he5eB 2ira India o33ortunities Fund

    Type ?pen ended growth scheme

    !nvestment pattern -9*199< in e+uity, )9< in cash D money market instruments

    5und objective 0ong term growth of capital

    !nvestment hori&on 4inimum of one year

    S(he5eB 2ira Mid Ca3 Fund

    Type ?pen ended growth scheme

    !nvestment pattern #:*199< in e+uity related companies with market capitali&ation

    of 6s.1:9 crores to 6s.1,:99 crores

    ):< in e+uity related companies with a market capitali&ation.

    5und ?bjective 0ong term growth of capital

    !nvestment hori&on 4inimum of 1 year

    )$

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    S(he5eB 2ira MNC Fund *MNC,

    Type ?pen ended growth scheme

    !nvestment pattern Upto 199< in e+uity of 89< in debit

    5und objective 0ong term growth of capital by marking !nvestments in securityof 4B=s.

    !nvestment hori&on 4inimum of one year

    S(he5eB 2ira 2aan(e Fund

    Type ?pen ended balanced scheme

    !nvestment pattern :9 to -:< in e+uity 8:*:9< in debt

    5und object To balance income re+uirements with long term growth of capital

    !nvestment hori&on 4inimum of one year

    S(he5eB 2ira Asset Ao(ation Fund

    Type ?pen ended fund of funds

    !nvestment pattern ggressive plan -9*9< in e+uity 89*8:< indebt

    4oderate plan $9*#9< in e+uity $9*#9< indebt

    onservative plan 89*8:< in e+uity -:*9< indebt

    5und objective !ncome D capital pplication with diversification in e+uity D

    debt schemes in line with risk profile of investor

    !nvestment hori&on 4inimum of one year

    S(he5eB 2ira 0it Pus

    Type ?pen ended governments securities schemes

    !nvestment pattern 199< in securities permitted by 63!

    5und objective To generate in income D capital appreciation through

    investments in government securities.

    !nvestment hori&on 0east # months to 1 year

    S(he5eB 2ira Dyna5i( 2ond Fund

    Type ?pen ended income scheme

    !nvestment pattern :9*#:< in %overnment securities, 8:*):< in corporate bonds,

    9*8:< in cash li+uid instruments.

    5und objective To generate optimal returns with high li+uidity

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    !nvestment hori&on 4inimum of one year

    S(he5eB 2ira In(o5e Pus

    Type ?pen ended income scheme

    !nvestment pattern 199< in debt D money market5und objective To generate consistent income

    !nvestment hori&on 4inimum of 1 year

    CHAPTER-III CHAPTER-III

    RE8IE1 OF LITERATURE RE8IE1 OF LITERATURE

    )#

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    DEFNITION OF MUTUAL FUNDS

    DEFNITIONB

    mutual fund, also referred to as an open*end fund, is an investment company that

    spreads its money across a diversified portfolio of securities ** including stocks, bonds, or

    money market instruments.

    Shareholders who invest in a fund each own a representative portion of those

    investments, less any e/penses charged by the fund.

    4utual fund investors make money either by receiving dividends and interest from

    their investments, or by the rise in value of the securities. ;ividends, interest and profits

    from the sale of any securities 'capital gains( are passed on to the shareholders in the form

    of distributions. nd shareholders generally are allowed to sell 'redeem( their shares at any

    time for the closing market price of the fund on that day.

    4utual funds have been around for a long time, dating back to the early 1"th

    century. The first modern merican mutual fund opened in 1"8$, yet it was only in the

    )-

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    1""9=s that mutual funds became mainstream investments, as the number of households

    owning them nearly tripled during that decade. >ith recent surveys showing that over