performance analysis of mutual fund industry – indian context

7/31/2019 PERFORMANCE ANALYSIS OF MUTUAL FUND INDUSTRY INDIAN CONTEXT

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CHAPTER-1

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INTRODUCTION

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INTRODUCTION:

The project basically carried out to give good guidelines for investor. And also to educate the

investors about mutual funds.

The project idea is to project mutual funds as the better avenue for investment. Mutual fund isproductive package for a lay-investor with limited finances. Mutual fund is a very old practice in

U.S., and it has made a recent entry into India. Common man in India still finds Bank as a safe

door for investment. This shows that mutual funds have not gained a strong foot-hold in his life.

The project creates an awareness that the mutual fund is worthy investment practice. The various

schemes of mutual funds provide the investor with a wide range of investment options according

to his risk-bearing capacities and interest. Besides, they also give a handy return to the investor.

The project analyses various schemes of mutual fund by taking different mutual fund schemes

from different AMCS. The future challenges for mutual funds in India are also considered.

INVESTMENT CHOICE:

Investment experts recommend equities for the long term (in the short run the price movements

can lead to serious losses), debt for the medium term and bank deposits for the short term.

APPROPRIATE MIX FOR THE VARIOUS INVESTMENTS/ ASSET ALLOCATION PLAN:

All investments can be broadly categorized into Equity, Debt and Cash/ Bank Deposits. These

categories, in financial parlance are termed as Asset classes. Making an Asset Allocation plan.

Therefore categories and just the individual investments those are within each category.

Reasons for which investments are made:

For security and liquidity

For income

For growth and capital appreciation

Proportions of these investments will depend upon individual goals, time horizons available to

meet those goals, ones risk-profile (i.e., reactions to down turn in the stock/ bond market)

An example of Asset Allocation Plan:

1. An Aggressive growth portfolio

2. A moderate portfolio

3. A conservative portfolio

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An Aggressive growth portfolio suggests 70% of portfolio in stocks or equity funds, 20% in

bonds or debt funds and 10% in short-term money market instruments or liquid funds. This

portfolio is meant for capital appreciation.

1. A moderate portfolio seeks to balance growth and stability. It recommends around 50% of the

portfolio in stocks or equity funds, 30% in bonds or debt funds and 20% in short-term

instruments or liquid funds. This portfolio would seek to provide regular income with

moderate protection against inflation.

2. A conservative portfolio suggest s 20% in stocks or equity funds, 40% in bonds or debt funds

and 40% in bank deposits or liquid funds and is ideal for investment strategy aiming to keep

savings secure.

Many of us do not have the time, the inclination or the to make and manage investments in the

complex equity or debt market directly. And thats where Mutual Fund Manager can be of great

proffessional help.

OBJECTIVES:

1. To project mutual funds as the productive avenue to invest in contrast to the laxity of bank

investing.

2. To show the wide range of investment options available in MFs by explaining various

schemes offered by different AMCs.

3. To help an investor to make a right choice of investment, while considering the inherent risk

factors.

4. To understand the recent trends in the MF world.

5. To understand the risk and return of the various schemes.

6. To find out the various problems faced by Indian mutual funds and possible solutions.

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PURSPOSE OF THE STUDY:

The study basically made to educate the investors about Mutual Funds. Analyze the various

schemes to highlight the risk and return of diversity of investment that mutual funds offer. Thus

through the study one would understand how a common man could fruitfully convert a pittance

into great penny by wisely investing into the right scheme according to his risk- taking abilities.

DATA COLLECTION METHODS:

SCOPE OF THE STUDY:

The study is limited to the analysis made for three major types of schemes offered by four AMCs

namely Birla Sun life Asset Management Co. Ltd. Can bank Investment Management Services,DSP Merrill Lynch Investment Managers Ltd. and Templeton Asset Management (India) Pvt. Ltd.

Each scheme is calculated their risk and return using different performance measurement theories.

The reasons for such performance are immediately analyzed in the commentary. Pie charts are

used to reflect the portfolio risk and return.

LIMITATIONS OF THE STUDY:

1. The study is conducted in short period, due to which the study may not be detailed in all

aspects.

2. The study is limited only to the analysis of different schemes and its suitability to different

investors according to their risk-taking ability.

3. The study is based on secondary data available from monthly fact sheets, web sites, offer

documents, magazines and newspapers etc. as primary data was not accessible.

4. The study is limited by the detailed study of various schemes.

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CHATPER-2

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REVIEW OF LITERATURE

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INTRODUCTION TO MUTUAL FUNDS

CONCEPT

A Mutual Fund is a trust that pools the savings of a number of investors who share a

common financial goal. The money thus collected is then invested in capital market instruments

such as shares, debentures and other securities. The income earned through these investments and

the capital appreciation realized 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:

Mutual Fund Operation Flow Chart

BENEFITS OF MUTUAL FUND INVESTMENT

Professional Management:

Mutual Funds provide the services of experienced and skilled professionals, backed by a

dedicated investment research team that analyses the performance and prospects of companies and

selects suitable investments to achieve the objectives of the scheme.

Diversification:

Mutual Funds invest in a number of companies across a broad cross-section of industries

and sectors. This diversification reduces the risk because seldom do all stocks decline at the same

time and in the same proportion. You achieve this diversification through a Mutual Fund with far

less money than you can do on your own.

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TYPES OF MUTUAL FUNDS

By Structure:

Openended funds:

An open end fund is one that is available for subscription all through the year. These do

not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value

(NAV) related prices. The key feature of open-end schemes is liquidity.

Closed-ended funds:

A closed end funds has a stipulated maturity period which generally raging from 3 to 15

years. The funds are 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

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OperationalInvestment Objective Asset class Territory

Closed ended

Open ended

Growth(CapitalAppreciation)

Income

(Dividend /Interest)

Balanced

Growth +income

Money Market

Tax Free

International

/foreign

Specialized

Hybrid

(Share +Bonds

Index

Money Market

Fund ofFunds

Equity

Bond

Tax ExemptTaxable

Sector

Domestic

International

Single CountryFund

Regional Fund(eg.S.E. Asia)

International

Fund

Globel Fund

TYPES OF MUTUALFUNDS


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scheme on the stock exchanges where they are listed. In order to provide an exist route to the

investors, some close ended funds give an option of selling back the units to the Mutual fund

through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of

the two exit routes is provided to the investor.

Interval Funds:

Interval funds combine the features of open-ended schemes. They are open for sale or

redemption during pre-determined intervals at NAV related prices.

By Investment Objective:

Growth Funds:

The 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.

Growth schemes are ideal for investors having a long-term outlook seeking growth over a period

of time.

Income Funds:

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. Income Funds are ideal for capital stability and regular income.

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.

Money Market Funds:

The aim of money 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 rate prevailing in the market. These are ideal for

Corporate and individual investors as a means to park their surplus funds for short periods.

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Load Funds:

A Load Funds is one that charge a commission for entry of exit. That is, each time you

buy or sell units in the fund, a commission will be payable. Typically entry exit loads range from

1% to 2%. It could be corpus is put to work.

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. The advantage of a no load is that

the entire corpus is put to work.

Other Schemes:

Tax Saving Schemes:

These schemes offer tax rebates to the investor under specific provisions of the Indian

Income Tax laws as the Government offers tax incentives for investment in specified avenues.

Investments in Equity Linked Saving Schemes (ELSS) and Pension Schemes are allowed as

deduction u/s 88 of the Income Tax Act. The Act also provide opportunities to investors to save

capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the capital assets has

been sold to April 1, 2000 and the amount is invested before September 30, 2000.

Special Schemes

Industry Specific Schemes:

Industry Specific Schemes invest in the industries specified in the offer document. The

investment or these funds is limited to specific like InfoTech, FMCG, and Pharmaceuticals etc.

Index Schemes:

Index Funds attempt to replicate the performance of a particular index such as the BSE

Sensex or the NSE

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.

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HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of

India, at the initiative of the Government of India and Reserve Bank the. The history of mutual

funds in India can be broadly divided into four distinct phases

First Phase 1964-87(UTI MONOPOLY)

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the

Reserve Bank of India and functioned under the Regulatory and administrative control of the

Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development

Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first

scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of

assets under management.

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

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector

banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India

(GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed

by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank

Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC

established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management of Rs.47,004crores.

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

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund

industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in

which the first Mutual Fund Regulations came into being, under which all mutual funds, except

UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with

Franklin Templeton) was the first private sector mutual fund registered in July 1993.

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The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive

and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI

(Mutual Fund) Regulations 1996.

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

setting up funds in India and also the industry has witnessed several mergers and acquisitions. As

at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores.

The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of

other mutual funds.

Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was

bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India

with assets under management of Rs.29,835 crores as at the end of January 2003, representing

broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified

Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed

by Government of India and does not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is

registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of

the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under

management and with the setting up of a UTI Mutual Fund, conforming to the SEBI

Mutual Fund Regulations, and with recent mergers taking place among different private

sector funds, the mutual fund industry has entered its current phase of consolidation and growth.

As at the end of June 30, 2003, there were 31 funds, which manage assets of Rs.104762 crores

under 376 schemes.

The graph indicates the growth of assets over the years.

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Note: While UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of

the Unit Trust of India effective from February 2003. The Assets under management of the

Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets

of the industry as a whole from February

TREND IN MUTUAL FUNDS INDUSTRY

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The Indian Mutual fund industry, despite all that has been said about it is still in a nascent

stage and has extremely bright future ahead. The industry is still one-tenth size of the banking

deposits in the country.

The private sector mutual fund industry in its resent avatar is barely 7 years old. The

total asset under management over the past 4 to 5 tears has almost remained stagnant around the

Rs 100, 000 crore mark.

This has put a question mark in front of the claims that mutual funds are growing part of

the financial savings and planning industry in India. It holds scope for growth. In India this

industry began with the setting up of the Unit Trust Of India (UTI) in 1964 by the government of

India in order to mobiles small saving. During the past 37 years, UTI has grown to be a dominant

player in the industry with assets with over Rs 76,547 crore as of March2000. However, trouble

hit UTI has lost its dominant position in the industry and the asset under management has slipped

drastically to Rs 46,396 crore.

Private sector mutual funds, which were permitted along with foreign partners in 1993,

now enjoy a dominant position in the country. Kothari Pioneer Mutual fund was the first fund to

be established in the private sector with foreign fund. The private sector now controls around RS

45,818 crore assets under management, almost half the size of the industry.

The mutual fund industry has become a fastest growing sector in the countrys capital and

financial market with an average compounded growth rate of 20 percent over the past five years.

This is despite increasing competition with more than 30 asset management companies for

investors money. As on June 2002, the industry has Rs 100,703 crore asset under management

spread across 36 funds with more than 390 schemes.

Substantial development have made; spurred on by changes and amendments in regulation

as the mutual fund regulation that established a comprehensive legal framework for the mutual

fund industry to develop coherently. The securities and Exchange Board Of India (SEBI) came

out with comprehensive regulation in 1993 which defined the structure of the mutual fund and

asset management Companies for the first time.

The industry is in the process of evolving into a bigger and better investment medium for

all market segment, Say Kavita Hurry, CEO ING Investment Management, further, currently,

ING Investments manages around Rs.364 crore as on June 2002.

Drastic Transformation:

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The industry is undergoing a transformation and is witnessing large number of mergers,

acquisitions and takeovers in the schemes and asset management companies. Mutual fund

products are competing with the banks deposits, Reserves Banks of India (RBI) bonds, pension

funds and post offices schemes that provide not only guaranteed return but also tax-free returns.

However, mutual funds are unable to provide assured return since they are investing in financial

markets and returns from them are, by definition, uncertain. These transformation benefiting the

investor friendly open-ended schemes, increasing the range of funds to choose from, enhanced

transparency and improvement regulation.

New challenges and growth areas:

However, an important step towards maturating of the industry will be develop third party

distribution channel and expand distribution outside of the major cities. The challenges for the

private fund players manager will be to break the big city limit and begin to sell and educate the

rest of the market and to diversify sales, says Moodys Investors services and ICRA report on the

industry.

Further the report notes, asset management companies must attract more retail investors.

A strong retail back-bone will create better standards, greater competition and more liquidity, in

addition to maintain and improving best practices and better company governances.

The industry needs go deeper into the existing markets and wider into the new markets

and provides newer financial products to grow. Adds Nikhil Kattau, chief executive officer, Sun

F&C. Sun F&C currently manages around Rs.427 crore.

Another fundamental turning point in the growth of the mutual fund market is the opening

of the market to the foreign investments. Now there is an industry wide limit for investing in

overseas securities $500 million offering Indian Mutual funds and Indian investor the possibility

to invest in the non-Indian security mutual funds is a fundamental step towards modernization and

evolution of the market, notes Moddys ICRA report.

Stable and long-term fiscal incentives designed to capture long-term retail and private

pension savings will be of utmost importance for the industry. Here, governments fiscal policy

and have the capital market regulators for the industrys continued growth will play an essential

role.

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In a supportive environment, investors would be reassured of a stable industry, private

fund managers will be motivated and encouraged to develop new products and foreign managers

will be attracted to the dynamic market.

In an economy growing at 6 percent per annum, any fall in any segment by more than 30

percent obviously indicates that something serious is happening and concerned people need to

take remedial steps. In the relative absence of UTI from the scne, till it fate decided by its

masters in North Block, the onus of building investor confidences falls on the shoulders of the

private sector mutual funds. With maturing financial markets and increasing marketing there are

reasons for more than moderate optimisms.

Market Trends:

A lone UTI with just one scheme in 1964 now competes with as many as 400 odd

products and 34 players in the market. In spite of the stiff competition and losing market share,

UTI still remains a formidable force to reckon with.

Last six years have been the most turbulent as well as exiting ones for the industry. New

players have come in, while others have decided to close shop by either selling off or merging

with others. Product innovation is now pass with the game shifting to performance delivery in

fund management as well as service. Those directly associated with the fund management

industry like distributors, registrars and transfer agents, and even the regulators have become

more mature and responsible.

The industry is also having a profound impact on financial markets. While UTI has always

been a dominant player on the bourses as well as the debt markets, the new generation of private

funds which have gained substantial mass are now seen flexing their muscles. Fund managers, by

their selection criteria for stocks have forced corporate governance on the industry. By rewarding

honest and transparent management with higher valuations, a system of risk-reward has been

created where the corporate sector is more transparent then before.

Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG

and technology sector. Funds performances are improving. Funds collection, which averaged at

less than Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in

1998-99. In the current year mobilization till now have exceeded Rs300bn. Total collection for

the current financial year ending March 2000 is expected to reach Rs450bn.

What is particularly noteworthy is that bulk of the mobilization has been by the private

sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow

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of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40

crore in the case of public sector funds.

Mutual funds are now also competing with commercial banks in the race for retail

investors savings and corporate float money. The power shift towards mutual funds has become

obvious. The coming few years will show that the traditional saving avenues are losing out in the

current scenario. Many investors are realizing that investments in savings accounts are as good as

locking up their deposits in a closet. The fund mobilization trend by mutual funds in the current

year indicates that money is going to mutual funds in a big way. The collection in the first half of

the financial year 1999-2000 matches the whole of 1998-99.

India is at the first stage of a revolution that has already peaked in the U.S. The U.S.

boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are

not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate

that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas

bank deposits rose by only 17%. (Source: Thinktank, the Financial Express September, 99) This is

forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are

kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies

that banks cannot be ignored and they will not close down completely. Their role as

intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks

do business in the future.

Banks v/s Mutual Funds

BANKS MUTUAL FUNDS

Returns Low Better

Administrative exp. High Low

Risk Low High

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STRUCTURE OF MUTUAL FUNDS

The formation and operations of mutual funds in India is solely guided by SEBI (Mutual

Fund) Regulations, 1993, which came into force on 20 January 1993. The regulations have since

been replaced by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996,

through a notification on 9 December 1996 (Appendix 2).

Figure gives an idea of the structure of Indian mutual funds. A mutual fund comprises four

separate entities, namely sponsor, mutual fund trust, AMC and custodian. They are of course

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SponsorCompany

Establishes MFas a TrustRegisters MF withSEBI

Managed by aBoard of Trustees Mutual Fund

Hold Unit holdersFund in MFEnsure Complianceto SEBI Enter intoAgreement withAMC

AssetManagement

Company

Registrars andTransfer Agents

Custodian

Bankers

Float, MF FundsManagers Fundas Per SEBIguidelines &

AMC Agreement

Provides NecessaryCustodian Services

Provide BankingServices

Provide RegistrarsServices and act as aTransfers Agents

Appointed byBoard ofTrustees

AppointedbyTrustees

Appointed byAMC

AppointedbyAMC


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assisted by other independent administrative entities like banks, registrars and transfer agents. We

may discuss in brief the formation of different entities, their functions and obligations.

The sponsor for a mutual fund can by any person who, acting alone or in combination with

another body corporate establishes the mutual fund and gets it registered with SEBI. The sponsor

is required to contribute at least 40 per cent of the minimum net worth (Rs 10 crore) of the asset

management company. The sponsor must have a sound track record and general reputation of

fairness and integrity in all his business transactions.

As per SEBI Regulation, 1996, a mutual fund is to be formed by the sponsor and

registered with SEBI. A mutual fund shall be constituted in the form of a trust and the instrument

of trust shall be in the form of a deed, duly registered under the provisions of the Indian

Registration Act, 1908, executed by the sponsor in favors of trustees named in such an instrument.

The board of trustees manages the mutual fund and the sponsor executes the trust deeds in

favors of the trustees. The mutual fund raises money through sale of units under one or more

schemes for investing in securities in accordance with SEBI guidelines. It is the job of the mutual

fund trustees to see that the schemes floated and managed by the AMC appointed by the trustees,

are in accordance with the trust deeds and SEBI guidelines. It is also the responsibilities of the

trustees to control the capital property of mutual funds schemes.

The trustees have the right to obtain relevant information from the AMC, as well as a

quarterly report on its activities. They can also dismiss the AMC under specific condition as per

SEBI regulations.

At least half the trustees should be independent persons. The AMC or its employees

cannot act as a trustee. 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 permission is

obtained from the mutual fund in which he is a trustee. The trustees are required to submit half-

yearly reports to SEBI on the activities of the mutual fund. The trustees appoint a custodian and

supervise their activities. The trustees can be removed only with prior approval of SEBI.

As per SEBI guidelines, an asset management company is appointed by the trustees to

float the schemes for the mutual fund and manage the funds raised by selling units under a

scheme. The AMC must act as per SEBI guidelines, trust deeds and management agreement

between trustee & the AMC.

List of AMCs

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Benchmark Mutual FundBirla, Sun Life Mutual Fund BOB Mutual Fund, BOI Mutual Fund, Can

bank Mutual Fund, Chola Mutual Fund, Deutsche Mutual Fund, DSP Merrill Lynch Mutual Fund,

GIC Mutual Fund, HDFC Mutual Fund, HSBC Mutual Fund, ING Savings Trust Mutual Fund, JP

Morgan Mutual Fund,Alliance Capital, Mutual Fund,

JM Mutual Fund, Kotak Mahindra Mutual Fund, LIC Mutual Fund, Morgan Stanley

Mutual Fund, PNB Mutual Fund, Principal Mutual Fund, Prudential ICICI Mutual Fund,

Reliance Capital Mutual Fund, SBI Mutual Fund, Standard Chartered Mutual Fund, Sundaram

Mutual Fund, Tata Mutual Fund, Taurus Mutual Fund, Franklin Templeton Mutual Fund, Unit

Trust of India, UTI Mutual Fund, , Alliance Capital Mutual Fund.

SEBI GUIDELINES (BRIEFLY)

Schemes of a Mutual Fund:

The asset Management Company shall launch no scheme unless the trustees

approve such scheme and a copy of the offer document has been filed with the Board.

Every mutual fund shall along with the offer document of each scheme pay filing

fees.

The offer document shall contain disclosures which are adequate in order to enable

the investors to make the investment decision including the disclosure on maximum investments

proposed to be made by the scheme in the listed securities of the groups companies of the sponsorA close-ended scheme shall be fully redeemed at the end of the maturity period. unless a

majority of the unit holders otherwise decide for its rollover by passing a resolution.

The mutual fund and asset management company shall be liable to refund the

application money to the applicants;-

1. If the mutual fund fails to receive the minimum subscription amount referred to in

clause (a) of sub-regulation (1);

2. If the moneys received from the applicants for units are in exceeded subscription

as referred to in clause (b) of sub-regulation (1)

The asset management company shall issue to the applicant whose (uncompleted)

Rules Regarding Advertisement:

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23/79

The offer document and advertisement materials shall not be misleading or contain

any statement or opinion, which are incorrect or false.

Investment Objectives and Valuation Policies:

The price at which the units may be subscribed or sold and the price at which such

units any time be repurchased by the mutual fund shall be made available to the investors.

General Obligations:

Every asset management company for each scheme shall keep and maintain proper

books of accounts, records and documents, for each scheme so as to explain its transactions and to

disclose at any point of time the financial position of each scheme and in give a true and fair view

of the state of affairs of the fund and intimate to the Board the place where such books of account,

records and document are maintained.

The financial year for all the schemes shall end as of March 31 of each year. Every

mutual or the asset Management Company shall prepare in respect of each financial year an

annual report and annual statement of accounts of the schemes and the fund as specified in

Eleventh schedule.

Every mutual fund shall have the annual statement of accounts guided by an auditor who

is not any way associated with the auditor of the asset management company.

Proactive For Action in Case Of Default:

On and from the date of the suspension of the certificate or the approval as the case may

be the mutual fund, trustees or asset management company, shall cease to carry on any activity as

mutual fund, trustees or asset management company, during the period of suspension, and shall be

subject to the directions of the Board with regard to any records, documents, or securities that

may be in its custody of control, telling to its activities as mutual fund, trust asset management

company.

Restrictions On Investments:

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A mutual fund scheme shall not invest more than 15% of its NAV In debt

instruments issued by a single issuer, which are rated not below investment grade by a credit

rating agency authorized to of the scheme with the prior approval of the Board of Trustees and the

Board of asset management company y.

A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt

instruments issued by a single issuer and the total investments in such not exceed 25% of the

NAV of the Board of asset Management Company.

No mutual fund under all its schemes should own more than ten per cent of any

companys. paid up capital carrying voting rights,

Such transfers are done at the prevailing market price for quoted Instruments on

spot basis, The securities so transferred Shall be in conformity with the investment objective of

the scheme to which such transfer has been made.

A scheme may invest in another scheme under the same asset management

company or any other mutual fund without charging any fees , provided that aggregate

interschmes investment made by all schemes under the same management of any other asset

management company shall not exceed 5% of the net asset value of the mutual fund .

The initial issue expansion in respect of any scheme may not exceed six per cent of

the funds raised under that scheme.

Every management company shall buy and sell securities on the basis of deliveries and

shall in all cases of purchases, take delivery of relative securities and in all cases of sales, deliver

the securities and shall in no case put itself in a position whereby it

Has to make short sale or carry forward transaction or engage in bad finance.

Every management company shall, get the securities purchased or transferred in

the name of the mutual fund on account of the concerned scheme, wherever investments are

intended to be of long-term nature.

Pending deployment of funds of a scheme in securities in terms of investmentobjective is of the scheme a mutual fund can invest the funds, of the scheme in short term

deposits of scheduled commercial banks.

No mutual fund scheme shall make any investment in;

I. Any unattested security of an associate or group company of the sponsor or

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II. Any security issued by way of private placement by an associate or group company of

the sponsor; or

The listed securities of group companies of the sponsor which is in

Excess of 30% of the net assets [of all the schemes of a mutual fund]

No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity

shares or equity related instruments of any company. Provided that, the limit of 10 per cent shall

not be applicable for investments in index fund or sector industry specific scheme.

INVESTORS RIGHTS AND OBLIGATIONS

Investors Rights:

The offer document of a scheme lays down the investors rights. Investors are the owners

of the schemes assets, and it is therefore imperative that they are aware of their rights with

respect to the schemes assets, its management, recourse to the trustees, the AMC and other

constituents. The important rights of the unit-holders are outlined below:

Unit-holders have a proportionate right in beneficial ownership of the schemes

assets otherwise held in trust for them by the Trustees of the fund. They also have the

proportionate right to any dividend or income declared under the scheme.

Unit-holders have the right to obtain from the trustees any information that may

have an adverse bearing on their investments.

Unit-holders are entitled to receive dividend warrants within 42 days of the date of

dividend declaration.

The appointment of an AMC of a fund can be terminated by 75% of the unit-

holders of the scheme present and voting at a special meeting that can be called for the purposewith the prior approval of SEBI.

Unit-holders have the right to inspect major documents of the fund i.e. material

contracts (the trust deed, the investment management agreement, the custodian services agreement

and the registrar and transfer agency agreement), memorandum and articles of association of the

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AMC, recent audited financial statements, the texts of SEBI (MF) Regulations, Indian Trusts Act

and the offer document of the scheme.

Investors have the right to approve any changes in the fundamental attributes of a

closed-end scheme (type of scheme, investment objective and terms of issue), provided the

consent of 75% of unit-holders has been obtained. In case of open-end schemes they have the

right to be adequately informed of such changes, so they can exercise the option redeeming their

holdings in the fund.

Each unit-holder has the right to receive a copy of the annual financial statements,

and periodic statements regarding his transactions (purchase, redemption, transfer), distributions

and reinvestments.

Legal Limitations to Investors Rights

Investors need to note that while they enjoy several rights as outlined above, they are also

subject to certain limitations in their capacity as unit-holders. Unit-holders are not distinct from

the trust and therefore cannot sue the trust i.e. they do not have legal recourse to the trust as, under

Indian law, the Trust is not a district or separate legal entity. However, an investor can initiate

legal proceedings against the trustees who are the protectors of the investors interests, if they feel

aggrieved by any action of the trustees that is seen not to be in their interest.

Also, the fundamental concept of a mutual fund is that the investors invest as their ownrisk and cannot force the AMC to assure a specified level of return. In other countries, mutual

funds, do not offer assured return schemes, as any profits or losses on fund investments in any

case belong to the investors. In India, in the initial stages of development of the fund industry,

some of the fund sponsors have, however, offered such assured returns to investors. But, the

investors need to understand that except in certain circumstances thesponsors of a mutual fund do

not have any legal obligation to meet the shortfall in case the assured return is not achieved.

Since assured return schemes do exist in India, an exception has been made by SEBI in

case of schemes where such assurance is provided in the offer document, with a guarantee from

the sponsor to meet any shortfall. Only if the offer document has specifically provided such

guarantee by a named sponsor, the investors will have the right to sue the sponsors to make good

any shortfall in promised returns.

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Aprospective investordoes not enjoy any standing or rights with respect to the fund, the

AMC or any other constituent. It is only after he has invested in a scheme that he becomes entitled

to the rights discussed earlier. The courts have also upheld this view in relevant cases in India. In

case a unit-holder is aggrieved by any actions of the Fund or AMC, the appropriate form for him

to approach is SEBI as mentioned below.

Investors Obligations

It is the investors duty to carefully study the offer document before investing in units of a

scheme. He must appreciate the fundamental attributes of the scheme, the risk factors, his rights

and the funds and the sponsors track record. Failure to effectively study the offer document does

not entitle him later to have recourse to the fund, the trustees or the AMC.

The investor must also monitor his investment in a scheme by carefully studying

the schemes financial statements, its portfolio composition and research reports published by

mutual fund tracking agencies. He can certainly exercise in a reasonable way his right to ask the

trustees for information that he requires. But, the monitoring is entirely the investors own

responsibility.

Investor Complaints Redressal Mechanism

SEBI does entertain receipt of complaints against mutual funds and intervenes

with fund managements to help the investor resolve his complaints. Another manner in which

SEBI helps the investors in a new scheme is by requiring the sponsors of a new scheme to appoint

a Compliance Offer who must issue a Due Diligence Certificate to the effect that all relevant

SEBI and other regulations have been compiled with by the fund managers and sponsors.

In rare cases involving frauds by the Directors of an Asset Management Company,

investors may have the recourse to the regulators under the Companies Act such as the

Department of Company Affairs or even the Company law Board. These regulators have helped

with the cases of investors who did not receive the refunds of company deposits. However, the

fund investors are neither shareholder in the AMC nor depositors, hence, their investments cannot

be protected by any of these Companies Act regulators. Investors can at best remove the AMCs

prosecuted. But, clearly, such recourse would be very rate. In any case, SEBI and all other

regulators take great care to ensure that only persons of integrity serve as AMC Directors or Fund

Trustees, and only companies with track record in investment management are given recognition

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to manage funds. That is why Mutual Funds are probably the most highly regulated intermediary

in financial markets, and a prime purpose of a regulating agency like the SEBI is Investor

Protection.

Accounting and Valuation:

The Importance of Accounting Knowledge

The balance sheet of a mutual fund is different from the normal balance sheet of a bank or

a company. All of the fund's assets belong to the investors and are held in fiduciary capacity for

them. Mutual fund employees and mutual fund agents need to be aware of the special

requirements concerning accounting for the fund's assets, liabilities and transactions with

investors and other outside constituents such as banks, securities custodians and registrars. This

knowledge will help them better understand their responsibilities and their place in the

organization, by getting an overview of the functioning of the fund, and to explain the

performance of mutual funds to investors.

Mutual funds in India are required to follow the accounting policies laid down in SEBI

(Mutual Fund) Regulations, 1996 and the amendments in 1998. This section of the workbook

summarizes the important Regulations, and periodical budgets.

Net Asset Value (NAV)

A mutual fund is a common investment vehicle where the assets of the fund belong

directly to the investors. The fund does not account for investors' subscriptions as liabilities or

deposits but as Unit Capital. On the other hand, the investments made on behalf of the investors

are reflected on the assets side and are the main constituent of the balance sheet. There are,

however, liabilities of a strictly short-term nature that may be part of the balance sheet. The fund's

Net Assets are therefore defined as the assets minus the liabilities. As there are many investors in

a fund, it is common practice for mutual funds to compute the share of each investor on the basis

of the value of Net Assets Per Share/Unit, commonly known as the Net Asset Value (NAV).

The following are the regulatory requirements and accounting definitions lay down by

SEBI.

NAV = Net Assets of the scheme / Number of Units Outstanding, i.e.

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A. Initial expenses of launching schemes (not to exceed 6% of initial resources raised

under the scheme); and

B. Recurring expenses including:

i. marketing and selling expenses including agents' commission

ii. Brokerage and transaction costs

iii. Registrar services for transfer of units sold or redeemed

v. fees and expenses of trustees

v. audit fees

vi. Custodian fees

vii. Costs related to investor communication

viii. Costs of fund transfers from location to location

ix. Costs of providing account statements and dividend / redemption cheques and warrants

x. insurance premium paid by the fund

xi. Winding up costs for terminating a fund or a scheme

xii. Other costs as approved by SEBI

The total expenses charged by the AMC to a scheme, excluding issue or redemption

expenses but including investment management and advisory fees, are subject to the following

limits:

on the first Rs. 100 crores of average weekly net assets-2.5% on the next Rs. 300 crores of average weekly net assets- 2.25%

on the next Rs. 300 crores of average weekly net assets -2.0%

on the balance of average weekly net assets-1.75%

For bond funds, the above percentages are required to be lower by 0.25%

\Initial Issue Expenses:

When a scheme is first launched, the AMC will incur significant expenses, whose

benefit will accrue over many years. All expenses cannot, therefore, be charged to a scheme in the

first year itself. SEBI permits "amortization" of initial expenses as follows:

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For a closed-end scheme floated on a 'load' basis, the initial issue expenses shall be

amortized on a weekly basis over the period of scheme. For example, a 5 year (i.e. 260 week)

closed-end scheme with initial issue expenses of Rs. 5 lakhs must charge Rs.1923 (5 lakhs / 260

weeks) every week to the fund. It cannot charge the entire amount of Rs. 5 lakhs at the time of

issue.

For an open-end scheme floated on a 'load' basis, initial issue expenses may be

amortised over a period not exceeding five years. For example, if an open-end scheme has initial

issue expenses of Rs. 10 lakhs, it need not charge this entire amount to the fund in the year of

issue. Instead, it may charge Rs. 2 lakhs (10 lakhs / 5 years) per year to the fund, thereby

spreading the charge of initial issue expenses over a maximum of 5 years. Issue expenses incurred

during the life of an open-end scheme cannot be amortised.

Unamortized portion of initial issue expenses shall be included for NAV

calculation, considered as "other asset". The investment advisory fee cannot be claimed on this

asset. Hence, they have to be excluded while determining the chargeable investment

management / advisory fees. While calculating the maximum amount of chargeable expenses, the

unamortized portion of the initial issue expenses will not be included as part of the average

weekly net assets figure.

Accounting Policies: Investments are required to be marked to market using market prices. Any

unrealized appreciation cannot be distributed, and provision must be made for the same.

Dividend received by the fund on a share should be recognized, not on the date of

declaration, but on the date the share is quoted on ex-dividend basis. For example, if a fund owns

shares on which dividend is declared on April 5, and the shares are quoted on ex-dividend basis

on April 20, the dividend income will be included by the fund for distribution/NAV computation

only April 20.

In determining gain or loss on sale of investments, the average cost method must

be followed to determine the cost of purchase. This will be applied by security.

Purchase / sale of investments should be recognized on the trade date and not

settlement date

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Bonus / rights shares should be recognized only when the original shares are

traded on the stock exchange on an ex-bonus /ex-rights basis

Income receivable on investments, which is accrued, but not received for 12

months beyond due date, should be provided for, and no further accrual should be made for such

investment

An investment shall be regarded as non-performing if it has provided no returns

through dividend/interest for more than 2years at the end of the accounting year

Investments owned by mutual funds are marked to market. Therefore, the value of

investments appreciates or depreciates based on market fluctuations, which is reflected in the

balance sheet. However, this change in value constitutes unrealized gain/loss. When any

investments are actually sold, the proportion of the unrealized gain / loss that pertains to such

investments becomes realized gain/loss. Therefore, at any given time, the NAV includes realised

and unrealised gain/loss on investments. While SEBI prohibits the distribution of unrealised

appreciation on investments, realised gain in available for distribution.

An open-end scheme sells and repurchases units on the basis of NAV. SEBI

therefore prescribes the use of an equalization account, to ensure that creation / redemption of

units does not change the percentage of income distributed. This involves the following steps:

- Computation of distributable reserves:

- Income+Realised Gain on Investments- Expenses-Unrealised Losses (unrealised

gains are excluded)

- If distributable reserves are positive, the following percentage is computed:

Distributable Reserve / Units Outstanding

- The above percentage is multiplied with the number of new units sold, and the

equalisation account is credited by this amount, if units are sold above par; if the units are sold

below par, the equalisation account is debited by this amount. The same percentage is multiplies

with the number of units repurchased, and the equalisation account is debited by this amount if the

units are repurchased above par; if the units are repurchased below par, the equalisation account is

credited.

-The net balance in the equalisation account is transferred to the profit and loss

account. It is only an adjustment to the distributable surplus and does not affect the net income for

the period.

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VALUATION

Mutual funds value their investments on a 'mark-to-market' basis with reference to the

date on which they are valued i.e., the valuation date.

Valuation of Traded Securities:

Where a security is traded on a stock exchange, it is valued at the last quoted

closing price on the stock exchange where it is "principally traded".

If a security is not traded on any stock exchange on a particular valuation day, the

value at which it was traded on the selected/other stock exchange on the earliest previous day may

be used, provided such date is not more than 60 days prior to the valuation date.

Valuation of traded securities, once the market price is obtained as above, is quite

simple. The fund will multiply its current holding in number of shares or bonds by the applicable

market price to get the "mark to market" value.

Valuation of Non-traded Securities:

When a security is not traded on any stock exchange for 60 days prior to the

valuation date, it must be treated as a 'non-traded' scrip.

Non-traded securities shall be valued 'in good faith' by the AMC on the basis of

appropriate valuation methods, which shall be periodically reviewed by the trustees and reported

by the auditors as fair and reasonable. The following principles are to be applied for the valuationof non-traded securities:

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Equity instruments: are to be valued on the basis of capitalisation of earnings

solely or in combination with its balance sheet

Net Asset Value. For this purpose, capitalisation rate will be determined by

reference to the price or earning rations of comparable traded securities with an appropriate

discount for lower liquidity to be used.

Debit instruments: are to be valued on a yield to maturity basis, the capitalisation

factor being determined for comparable traded securities with an appropriate discount for lower

liquidity.

Call money, bills purchased under rediscounting and short term deposits with

banksare to be valued at cost + accrual: other money market instruments at yield at which they

are currently traded; non-traded instruments (not traded for 7 days) will be valued at cost plus

interest accrued till the beginning of the valuation day plus the difference between redemption

value and cost, spread uniformly over the remaining maturity of the instruments

Government Securities are to be valued at yield to maturity based on prevailing

market rate

Convertible debentures and bonds: non-convertible component is to be valued

as a debt instrument, and convertible as any equity instrument. If after conversion, the resultantequity instrument would be traded pari passu with an existing instrument which is traded, the

value of the latter instrument can be adopted after an appropriate discount for the non-tradability

of the instrument.

Instruments bought on 'repo' basis must be valued at the resale price minus

interest up to the date of resale.

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Valuation Models

Where the securities are traded and their prices are quoted on the markets, they are

valued by "mark to market" method using the market prices. However, untraded securities do posea problem. While the above Regulations give the principles of valuation for untraded securities,

agencies such as I-Sec and Crisil have developed valuation models which have been implemented

at some of the mutual funds with operations in the country. However, these models have yet to

gain complete acceptance by the funds, and have thus far been used by them as tools to

supplement valuations based on internal methods approved by their Boards and reviewed by their

Trustees. Hence these models have not been disscussed separately.

RISK INVOLVED IN MUTUAL FUNDS INDUSTRY

Mutual funds are not free from risk. It is so because basically the mutual funds also invest

their funds in stock markets on shares, which are volatile in nature and are not risk free, the

following risk are inherent in their dealing.

INHERENT RISK FACTORS:

1) Market Risks:

In general there are certain risks associated with the every kind of investment on shares.

They are called market risks. These market risks can be reduced, but cannot be completely

eliminated even by a good investment. The prices of shares are subjected to wide price

fluctuations depending upon market conditions over which nobody has a control. Moreover,

every economy has to pas through a cycle-Boom, Recession, Slump and Recovery. The phase of

the business cycle affects the market conditions toa large extent.

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2) Scheme Risks

There are certain risks inherent in the scheme itself. It all depends upon the nature of the

scheme. For instance, in a pure growth scheme, risks are greater.

3) Investment Risks

Whether the mutual fund makes money in shares or loses depends upon the investment

expertise of the Asset Management Company. If the investment advice goes wrong, the fund has

to suffer a lot. The investment expertises of various funds are different and it is reflected on the

returns, which they offer to investors.

4) Business Risks

The corpus of a mutual fund might have been invested in a companys shares. If the

business of that company suffers any set back, it cannot declare any dividend. It may even go to

the extent of winding up its business. Though the mutual fund can withstand such a risk, its

income paying capacity is affected.

5) Political Risks

Successive Governments bring with them fancy new economic ideologies and policies. It

is often said that many economic decisions are politically motivated. Changes in Government

bring in the risk of uncertainty which every player in the financial service industry has to face. So

mutual funds are no exception to it.

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CHAPTER-3

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COMPANY PROFILE

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Bajaj Capital is one of Indias leading Financial Services companies offering Free Advice on

Investments, Insurance, Tax Saving, Retirement Planning, Financial Planning, Childrens

Future Planning and other services. They also have a wide range of products and services

for Corporates, High Net worth Individuals, and NRIs all under one roof.

At Bajaj Capital, they believe in dreaming big. Dreams inspire us to excel. They ignite hope andkindle in us the passion to stretch our limits. We also believe that nothing can or should stop usfrom realising our dreams and financial constraints should be the last thing to stop anyone.

Four decades of excellence

Forover four decades, they have been helping people realise their aspirations by helping themmake their wealth grow, and plan their financial lives.

Today, they are a one of the largest financial planning and investment advisory companies inIndia, with a strong presence all over the country. They take pride in serving our customers bothindividual and institutional and are known for our strong professionalism and work ethics.

Wide range of services

They offer a comprehensive range of services including financial planning and investment advice,and the entire gamut of financial instruments and investment products of almost all majorcompanies, both public and private. In addition, they also provide investment assistance byhelping you complete all the formalities, and help you keep regular track of your investments.

These services and products are delivered through our network of 109 Bajaj Capital InvestmentCenters located all over the country.

They are also a SEBI-approved Category I Merchant Banker. They raise resources for over1,000 top institutions and corporate houses every year, and offerspecialised services to Non-

Resident Indian (NRIs) and High Net worth Clients.

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The History of Bajaj Capital

Bajaj Capital has contributed to the growth of the Indian Capital Market at every step.In 1965, they were the first to innovate the Companies Fixed Deposit. Today, we are playing anactive role in the growth of the Indian Mutual Fund industry.

They are also working closely with private insurance companies to deepen India's insurancemarket.

Here is a brief gist of our journey through the years.

1964Bajaj Capital sets up its first Investment Centre in New Delhi to guide individual investors onwhere, when and how to invest.

India's first Mutual Fund, Unit Trust of India (UTI) is incorporated in the same year.

1965

Bajaj Capital is incorporated as a Company. In the same year, the company introduces aninnovative financial instrument the Company Fixed Deposit. EIL Ltd. (Oberoi Hotels, thenknown as Associated Hotels of India Ltd.) becomes the first company to raise resources throughCompany Fixed Deposits.

1966

Bajaj Capital expands its product range to include all UTI schemes and Government savingschemes in addition to Company Fixed Deposits.

1969

Bajaj Capital manages its first Equity issue (through an associate company) of Grauer & WellsIndia Ltd.; right from drafting the prospectus to marketing the issue.

1975

Bajaj Capital starts offering 'need-based' investment advice to investors, which would later be

known as 'Financial Planning' in the investment world.

1981

SAIL becomes the first government company to accept deposits, followed by IOC, BHEL, BPCL,HPCL and others; thus opening the floodgates for growth of retail investment market in India.

Bajaj Capital plays an active role in all the schemes as 'Principal Brokers'

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1986

Public Sector Undertakings (PSUs) begin making public issues of bonds MTNL, NHPC, IRFCoffer a series of Bond Issues. Bajaj Capital is among the top ranks of resource mobilisers.

1987

SBI leads the launch of Public Sector Mutual Funds in India. Bajaj Capital plays a significant rolein fund mobilisation for all these players.

1991

SBI issues India Development Bonds for NRIs. Bajaj Capital becomes the top mobiliser withcollections of over US $20 million.

1993

The first private sector Mutual Fund Kothari Pioneer is launched, followed by Birla andAlliance in the following years. Bajaj Capital plays an active role and is ranked among the topmobilisers for all these schemes.

1995

IDBI and ICICI begin issuing their series of Bonds for retail investors. Bajaj Capital is the co-manager in all these offerings and consistently ranks among the top five mobilisers on an all-Indiabasis.

1997

Private sector players lead the revival of Mutual Funds in India through Open-ended Debtschemes. Bajaj Capital consolidates its position as India's largest retail distributor of Mutual

Funds.

1999

Bajaj Capital begins marketing Life and General Insurance products of LIC and GIC (throughassociate firms) in anticipation of opening up of the Insurance Sector. Bajaj Capital achieves themilestone of becoming the top 'Pension Scheme' seller in India and launches marketing of GIC'sHealth Insurance schemes.

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2000

Bajaj Capital implements its vision of being a 'One-stop Financial Supermarket.' The Companyoffers all kinds of financial products, including the entire range of investment and insuranceproducts through its Investment Centers. Bajaj Capital offers 'full-service merchant banking'including structuring, management and marketing of Capital issues. Bajaj Capital reinvents

'Financial Planning' in its international sense and upgrades its entire team of Investment Expertsinto Financial Planners.

2002

The Company focuses on creating investor awareness for Financial Planning and need-basedinvesting. To achieve this goal, the companyintroduced the International College of FinancialPlanning. The graduates of this institute become Certified Financial Planners (CFPs), a covetedprofessional qualification.

2004

Bajaj Capital obtains the All India Insurance Broking Licence. Simultaneously, a series of wealthcreation seminars are launched all over the country, making Bajaj Capital a household name.

2005

Bajaj Capital launches 360 Financial Planning, a software-based programme aimed atencouraging scientific and holistic investing.

List of Network Branches:

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CHAPTER-4

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DATA ANALYSIS AND

INTERPRETATION

SELECTED AMC S -BRIEF INTRODUCTION

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Reliance Mutual Fund

Reliance Mutual Fund (RMF) has been established as a trust under the Indian Trusts Act,

1882 with Reliance Capital Limited (RCL), as the Settlor/Sponsor and Reliance Capital Trustee

Co. Limited (RCTCL), as the Trustee.

RMF has been registered with the Securities & Exchange Board of India (SEBI) vide registration

number MF/022/95/1 dated June 30, 1995. The name of Reliance Capital Mutual Fund has been

changed to Reliance Mutual Fund effective 11th. March 2004 vide SEBI's letter no.

IMD/PSP/4958/2004 date 11th. March 2004. Reliance Mutual Fund was formed to launch various

schemes under which units are issued to the Public with a view to contribute to the capital market

and to provide investors the opportunities to make investments in diversified securities.

The main objectives of the Trust are:

To carry on the activity of a Mutual Fund as may be permitted at law and formulate and

devise various collective Schemes of savings and investments for people in India and

abroad and also ensure liquidity of investments for the Unit holders;

To deploy Funds thus raised so as to help the Unit holders earn reasonable returns on theirsavings and

To take such steps as may be necessary from time to time to realise the effects

Key Personnel

Mr. Kanadoshi (Chairman),

Mr. Amitabh jhunjhunwala (MD)

Ms sulsjja motwani (Joint M.D).

UTI MUTUAL FUND.

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UTI Mutual Fund is managed by UTI Asset Management Company Private Limited

(Estb: Jan 14, 2003) who has been appointed by the UTI Trustee Company Private Limited for

managing the schemes of UTI Mutual Fund and the schemes transferred / migrated from UTI

Mutual Fund.

The UTI Asset Management Company has its registered office at : UTI Tower, Gn Block,

Bandra - Kurla Complex, Bandra (East), Mumbai - 400 051 will provide professionally managed

back office support for all business services of UTI Mutual Fund (excluding fund management) in

accordance with the provisions of the Investment Management Agreement, the Trust Deed, the

SEBI (Mutual Funds) Regulations and the objectives of the schemes. State-of-the-art systems and

communications are in place to ensure a seamless flow across the various activities undertaken by

UTI AMC.

UTI AMC is a registered portfolio manager under the SEBI (Portfolio Managers)

Regulations, 1993 on February 3 2004, for undertaking portfolio management services and also

acts as the manager and marketer to offshore funds through its 100 % subsidiary, UTI

International Limited, registered in Guernsey, Channel Islands.

UTI Mutual Fund has come into existence with effect from 1st February 2003. UTI Asset

Management Company presently manages a corpus of over Rs.20000 Crore.

UTI Mutual Fund has a track record of managing a variety of schemes catering to the

needs of every class of citizenry. It has a nationwide network consisting 56 UTI Financial

Centres (UFCs) and representative offices in Dubai and London. With a view to reach to

common investors at district level, 11 satellite offices have also been opened in select towns and

districts. It has a well-qualified, professional fund management team, who has been highly

empowered to manage funds with greater efficiency and accountability in the sole interest of unit

holders. The fund managers are also ably supported with a strong in-house equity research

department. To ensure better management of funds, a risk management department is also in

operation.

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It has reset and upgraded transparency standards for the mutual funds industry. All the

branches, UFCs and registrar offices are connected on a robust IT network to ensure cost-effective

quick and efficient service. All these have evolved UTI Mutual Fund to position as a dynamic,

responsive, restructured, efficient, and transparent and SEBI compliant entity

Key Personnel

Mr. U.K Sinha (Chairman& M.D),

Mr. D.S R Murthy (Executive Director),

Mr. Intaiyazul Rahaman (Chief Finance Officer).

HDFC ASSET MANAGEMENTCOMPANYPVT. LTD

HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies

Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company

for the HDFC Mutual Fund by SEBI on June 30, 2000.

The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh

Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020.

In terms of the Investment Management Agreement, the Trustee has appointed the AMC

to manage the Mutual Fund.

As per the terms of the Investment Management Agreement, the AMC will conduct the

operations of the Mutual Fund and manage assets of the schemes, including the schemes launched

from time to time

Key Personnel

Mr. Deepak parekh (Chairman),

Mr. N.Keith Steoch ( C E O)

Mr. Mar Connolly (Executive Director).

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TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD.

Templeton Asset Management Company, a company incorporated under the Companies

Act, 1956, is a part of the Franklin Templeton Group. The sponsor of the Fund Templeton

International Inc., is a wholly owned subsidiary of Templeton Worldwide Inc., which in turn is a

wholly owned subsidiary of Franklin Resources Inc. The Franklin Templeton Group is one of the

world s largest Investment Management Companies. It has over 50 years of experience in

International Investment Management with 34 offices in over 23 countries, which service over 10

million unit holders. Templeton started operations in Mumbai, India in January 1996.Templeton

in India has 8 different funds. Templeton has eleven offices including Mumbai, Delhi, Calcutta,

Pune, Chennai, Bangalore, Cochin and Hyderabad.

Key Personnel

Ravi Malhotra (Chairman),

Deepak Satwaleka (MD - Asia),

B. Swaminathan (Director & CO).

SBI MUTUAL FUND.

SBI Mutual Fund draws strength from India's premier and largest bank; the State Bank of

India. Set up on July 1, 1955, the State Bank of India is the largest banking operation in the

country.

Through years of commitment to service and national development, SBI has grown into an

instrument of social change. Today, it has 9,039 branches in India (excluding 4599 branches of

banking subsidiaries) and 54 offices in 28 countries spread over all time zones.

SBI entered into a Memorandum of Understanding with Socit Gnrale Asset

Management (SGAM), which offers retail investors, corporate clients and institutional investors a

wide range of investment products. SGAM is a dominant player in Global Mutual Fund arena

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with presence in over 20 countries spanning Europe, United Sates, and Asia, managing over 250

billion Euros in assets

Key PersonnelMr Deepak Chawla (M.D),

Mr. Didier Turpin (C.E.O),

Mr. Ganti N. Murthy ( Fund Manager).

PARTICULARS OF AMCS:

PARTICULARS RELIANCE UTI HDFC SBI F&T

No. of schemes 31 15 13 25 56

No. of schemes including options 59 59 27 56 95

Equity Schemes 20 15 10 16 33

Debt Schemes 06 26 07 08 13

Short term debt Schemes 07 02 03 05 11

Equity & Debt 02 04 02 03 07

Gilt Fund 09 02 06 04 10

PORTFOLIO MEASUREMENT METHODS:We are interested in discovering if the management of a mutual fund is performing well;

that is, has management done better through its selective bying and selling of securities than

would have been achieved through merely buying the market picking a large number of

securities randomly and holding them throughout the period?

The most popular ways of measuring managements performance are

1. Sharpes Performance Measure

2. Treynors Performance Measure

3. Jensens Performance Measure

Sharpes Performance Measure (Sharpe ratio or Reawrd to variability ratio)

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William Sharpe has attempted to get a summary measure of portfolio performance. His

measure properly adjusts performance for risk. The Sharpe Index is given by:

Si = ri r*

i

where Si = Sharpe Index

ri = average return on protfolio t

r* = riskless rate of interest

i = standard deviation (risk) of the returns of portfolio

While a high and positive Sharpe ratio shows a superiors risk adjusted performance of a fund. A

low and negative Sharpe ratio is an indication of unfavorable performance.

Assumption: Sharpe assumes that the portfolio under the consideration is whole or

substantially the whole of investors total portfolio. This mean, if any unsystematic risk is left,

this cannot be eliminated

Treynor performance measure (Jack Treynor):

This ratio also called Treynor ratio-reward to volatility ratio.

It is concerned with systematic risk () . It is relationship between reward of risk

premium to the volatility of return as measured by the portfolio risk.

Risk premium r p rf

TP = =

Portfolio persons with disability

All risk averse investors would like to maximize this value while a high and positive trainers

index shows a superior risk adjusted performance of a fund, a low and negative trainers index is

indication of unfavorable performance.

Assumption: Portfolio is itself only as part of the total investments portfolio. So,

eliminate any unsystematic risk as his portfolio is well diversified.

Jensens Performance Measure(Michael):

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It refers the actual return earned in portfolio and return expected out of portfolio given its

level of risk.

CAPM is used to calculate the expected return. The difference between the expected

return and act retain can be said the return earned out of the mandatory of systematic risk.

This excess return referes the managers pridictive ability and managerial skills.

CAPM

rp = rf + (rm rf)

Differential return is calculated as follows:

p = rp - rp

p =positive > Superior returns

p=Negative > Unskilled management (worse portfolio)

p = 0 > Neutral performance

Higher alpha represents superior performance of a fund and vice versa.

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RELIANCE UTI FT SBI HDFC

CALCULATION

RESULT CALCULATION

RESULT CALCULATION

RESULT CALCULATION

RESULT CALCULATION

RESULT

SHARPEINDEX

(0.78-0.05)/

4.0860.1786

(0.081-0.

performance analysis of mutual fund industry – indian context

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