Axis Mutul Fund Jaish Gupta

8/12/2019 Axis Mutul Fund Jaish Gupta

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ANALASIS OF

AXIS MUTUAL FUND

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ACKNOWLEDGEMENT

The present work is an effort to throw some light on Axis Mutual Fund . The work

would not have been possible to come to the present shape without the able guidance,

supervision and help to me by number of people.

With deep sense of gratitude I acknowledge the encouragement and guidance received

by my organizational guide (--nam !uid--" and other staff members.

I convey my heartful affection to all those people who helped and supported me

during the course, for completion of my ro!ect "eport.

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DECLARATION

I hereby declare that the pro!ect work entitled AXIS Mutual

Fund# is an authentic work carried out by me at $A%a&na sin!'

under worthy and esteemed guidance of, $anaging %irector $riyush &upta

This work has not been submitted to any other university for

'ward of any $(' rogramme or any other programme.

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INT ODUCTION

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INT ODUCTION

'+I $utual -und, the largest private sector $utual -und company in India with an

asset base of "s # , // crores, will be the leading -und $anager for &overnment of

India0s newly created ational Investment -und2 I-3.

'nnouncing this '+I 'sset $anagement 4ompany $anaging %irector and 4hief

56ecutive 7fficer24573 8 9 inha told newsmen here this evening that besides the

'+I $utual -und, the other two leading financial institutions which were shortlisted

for the massive !ob were tate (ank of India2 (I3 and the :ife Insurance

4orporation2:I43 of India.

;e said the new fund had been created by the 4entre with a view to investing the

entire disinvestment fund into the I- corpus and reinvest them in health, education

and other social causes through a calculated manner.

ince the scheme was still in its preliminary stage, the government was yet to create a

separate corpus for the fund, which was announced only last month.

"eferring to the corporate plan of '+I $utual -und whose ownership had recently

changed hands following the purchase of its # per cent stake each by the country0s

four leading banks and financial institutions like (I, (ank of (aroda2(7(3, un!ab

ational (ank2 (3 and the :I4 last month with a total capital infusion of "s 1#)preferred relationship> with the '+I $- subsidiary. ;e,

however, mentioned that no stake sale is on the cards.B

;e said, >We intended to raise G1 / million, but are now hopeful of mobilizing G1H/

million or so.B The funds so raised will be allocated to promising companies operating

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in what are typically called emergingB businesses, such as, biotechnology,

knowledge process outsourcing and te6tiles.

' battery of high@power public sector fund managers could take the field in the

proposed ew ension ystem 2 3, with the ension -und "egulatory and

%evelopment 'uthority 2 -"%'3 taking a positive view on all the tate@owned

entities that have till date e6pressed interest in handling pension accumulations.

'mong the 8s that have approached the interim -"%' to e6press their intent of

seeking a ension -und $anager 2 -$3 licence are (I, :I4, and un!ab ational

(ank.

'+I $utual -und has also e6pressed its intent to participate as a fund manager in

the , though till recently it had not formally approached the regulator.

8nder the -"%' (ill, the regulator would be mandated to licence >at least one>

public sector fund manager under the .

;owever, the authority is of the opinion that all the 8 entities that have sought to

play a role have more than ade=uate credentials to handle the pension contributions.

>5ven for 8s there would be no limit. Why will I restrict the number of 8 fund

mangers The reach, the manpower, the financial strength of the public sector entitiesthat have approached us is hard to match,> %. warup, 4hairman of the interim

-"%', told (usiness :ine.

The -"%'0s open mind on the number of 8 fund mangers could go a long way in

allaying the lingering concerns of the :eft parties that have e6pressed their fears over

pension accumulations being handed over to private fund managers. The choice of

opting for private or public sector fund managers would be left to the individual

subscribers. J

The &overnment recently decided to incorporate an amendment to the -"%' (ill to

include a clause that >at least one of the pension fund managers shall be a

&overnment company or a wholly@owned &overnment company or &overnment

companies.>

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The decision was conveyed to the :eft parties at a meeting to iron out differences

over the pension reforms.

5arlier, a arliamentary tanding 4ommittee had asked the &overnment to

incorporate a specific clause that would make it mandatory to have at least one 8

fund manager in the .

The 4ommittee had said that the presence of a 8 entity would be >in the interest of

the subscribers.>

Though it had appeared that political consensus had been reached on the -"%' (ill,

it now seems that certain issues remain to be ironed out before the (ill gets

arliament0s nod.

(esides fears over private fund managers handling pension contributions, the :eft

parties have also said that there might be a need to ensure minimum guaranteed

returns to subscribers to ensure income security in old age.

'+I $utual -und has announced a ta6@free dividend of / per cent under its '+I

%ynamic 5=uity -und, for which the record date is %ecember #?. '+I $utual -und

has announced a ta6@free dividend of / per cent 2"s per unit on a face value of "s

1/3 in its open@end e=uity -und @ '+I %ynamic 5=uity -und.

This is the second dividend declared by the scheme during this calendar year. The last

dividend declared by the scheme was # per cent in -ebruary, #/1*. With this

dividend pay out, the scheme has distributed a total dividend of ? per cent 2"s ?. /

per unit on face value of "s 1/3 during calendar year #/1*.

'll unit holders registered under the dividend option of '+I %ynamic 5=uity -und

as on %ecember #?, #/1* will be eligible for this dividend. 'lso investors who !oin

the dividend option of the scheme on or before the record date will be eligible for the

dividend.

'+I %ynamic 5=uity -und was launched in eptember #//< as an open@ended

e=uity scheme. The ob!ective of the scheme is to generate capital appreciation by

primarily investing in e=uityKe=uity related instruments. 's a defensive strategy

arising out of market conditions, the scheme may also invest in debtKmoney market

instruments. J

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'+I %ynamic 5=uity -und is positioned as an aggressively managed e=uity fund

primarily focussed on mid capK small cap companies. ' number of investment

opportunities have been identified which will generate handsome returns for the unit

holders going forward.

The fund continues to be bullish on the Indian e=uity markets over a #@) year horizon

on the back of strong &% growth momentum and the resultant corporate earningsgrowth numbers. 7ver the last one yearL '+I %ynamic 5=uity -und has yielded

*H.E< per cent as against )).#H per cent given by its benchmark M 4 +@ ifty, as

on %ecember , #/1*.

5arlier, only insurance companies were floating unit@linked plans. ow, mutual funds,

too, have these. Is the line between units and mutual funds blurring (efore

answering this =uestion, one should ask oneself if unit@linked plans offered by

insurance companies are the same as investing in similar plans of mutual funds. $ost

people believe unit@linked plans offered by insurance companies are superior products

compared with $-s. This is because insurance companies have positioned this

product as a savings product, which offers the benefit of insurance as well as market@

related returns. (efore we get into the nitty@gritty of the issue, let us first understand

what the differences between insurance and mutual funds are.

-irst, insurance is a transfer techni=ue whereby the insured 2investor3 transfers his riskof financial loss to another party, the insurance company or insurer. The insurance

company, in turn, makes good the losses arising due to an uncertain event and

distributes the costs of insuring these loses among all of its policyholders. Therefore,

the primary aim of insurance products is to help in risk management, in the handling

of an uncertain event. Therefore, people who put money in insurance companies for

the purpose of earning good returns are going against the fundamental purpose for

which insurance companies came into e6istence i.e., risk management.

$-s, on the other hand, refer to a process of pooling of investments that are invested

in the capital market by professional fund managers, to generate market@related

returns for investors. In light of the above, any product which is predominantly

investment@oriented should be a mutual fund product, as these funds are better

e=uipped and have the skill to manage such products.

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The core activity of a mutual fund is to invest money on behalf of its investors and

generate market@related returns. The term Ninsurance coverC that is provided by some

mutual funds is purely a value@added service to investors. It is pertinent to note that

mutual funds are not e=uipped to provide insurance cover, as it is not their core

businessL they buy the insurance cover for their unit@holders from an insurance

company. This is unlike insurance companies, who invest the money themselves,

rather than asking an asset management company to do so.

In our country, insurance products had always been sold with a savings element in

them. 7ver the past few years, 8:I s of insurance products have become popular

owing to the boom in the e=uity market. ;owever, the first unit@linked insurance

product i.e., '+I 8:I , was launched by a mutual fund in 1E?1. 'lthough the first

8:I was launched by a mutual fund, it has not been possible for mutual funds to

compete in this market, due to the absence of a level playing field. The limits on

e6penses, the rules and regulations, the level of transparency, all are skewed in favour

of insurance companies, making it difficult for mutual funds to compete.

It is immaterial who launches 8:I products, but what are re=uired are uniform rules

and regulations. In the absence of these, insurance companies will continue to poach

in a territory alien to them. 'nd, perhaps, get away, as the mutual funds may not raise

a hue and cry, as their sponsors may also have an insurance company in their stable.

In fact, insurance companies should concentrate more on Nrisk management productsC,

which is their core competence, and leave the floor open to mutual fund houses to

manage investment products. There is a lot of scope for launch of such products and it

is ironical that not many insurance companies are focussing on term assurance

products and other risk products without any savings element, which is their core

competence.

7n the other hand, with e=uity schemes of mutual funds also ta6 e6empt D almost on

par with insurance productsDmutual funds should launch more 8:I s, with the

insurance companies providing term assurance cover. Investors will be very much

benefited, as they get lower e6pense ratios, professional fund management, better

transparency and also insurance cover provided by insurance companies. It will be a

win@win situation for all the players. D The writer is vice-

president, AXIS Asset

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I($ is eyeing a stake in '+I Fenture, a 1// per cent subsidiary of '+I 'sset

$anagement 4o.

While highly placed sources at '+I $utual -und ruled out a strategic deal in the

immediate future, they referred to a number of top international outfits that have

shown interest in the venture fund0s recent initiatives.

9.5.4. "a!akumar, $anaging %irector, '+I Fenture, told (usiness :ine that I($ is

indeed interested in striking a >preferred relationship> with the '+I $- subsidiary.

;e, however, mentioned that no stake sale is on the cards. J

'+I Fenture0s latest efforts at mobilising commitments are now e6pected to cross its

targets, it is pointed out. >We intended to raise G1 / million, but are now hopeful of

mobilising G1H/ million or so,> said "a!akumar.

The funds so raised will be allocated to promising companies operating in what are

typically called >emerging> businesses, said %. .". $urthy, 56ecutive %irector,

'+I $-, adding that these may include biotechnology, knowledge process

outsourcing and te6tiles.

'n earlier fund, $urthy further informed has seen significant growth 24'&"3 of

about *< per cent, marked by ma!or returns in one or two cases. >These have been

multi@baggers,> he remarked.

>' $utual -und is an ideal investment vehicle where a number of investors come

together to pool their money with common investment goal. 5ach $utual -und with

different type of schemes is managed by respective 'sset $anagement 4ompany

2'$43. 'n investor can invest his money in one or more schemes of $utual -und

according to his choice and becomes the unit holder of the scheme. The invested

money in a particular scheme of a $utual -und is then invested by fund manager in

different types of suitable stock and securities, bonds and money market instruments.

5ach $utual -und is managed by =ualified professional man, who use this money to

create a portfolio which includes stock and shares, bonds, gilt, money@market

instruments or combination of all. Thus $utual -und will diversify your portfolio

over a variety of investment vehicles. $utual -und offers an investor to invest even a

small amount of money.

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>$utual -unds schemes are managed by respective 'sset $anagement 4ompanies

sponsored by financial institutions, banks, private companies or international firms.

The biggest Indian '$4 is '+I while 'lliance, -ranklin Templeton etc are

international '$40s.

>$utual -unds offers several benefits to an investor such as potential return, li=uidity,

transparency, income growth, good post ta6 return and reasonable safety. There arenumber of options available for an investor offered by a mutual fund.

ourceO Website of >eastindiavyapaar.com>

Mutual Funds - Investment Objectives and Valuation Policies

W'at a& Mutual Funds)

' $utual fund is an organization that invests in a diversified portfolio of financial

securities on behalf of a pool of subscribers to its schemes. These securities can be in

the form of e=uity, debt instruments, money market instruments etc., or a mi6 of these

securities, depending on the scheme ob!ectives.

W'* is it su+' a !,,d id a t, in st in Mutual Funds)

Di &si.i+ati,n / $utual -unds invest their corpus in diversified portfolioCs which

reduces the risk contained in the investment. This also means that you can invest a

small sum of "s. ///K@ and still be a part of a portfolio where the market value of

single scrip might be much more than the total investment.

s a&+'/ These mutual funds perform an e6tensive research of the company before

making an investment decision giving you the benefit of e6pert advice.

Li0uidit*/ These funds are e6tremely li=uid, some of them even have features like

across@the@counter redemption. This feature is especially useful at times when the

market is rising or falling.

1&,. ssi,nall* Mana! d/ These funds are managed by professionals who have the

re=uired e6pertise in buying and selling stocks. 's a result they make better decisions

on entering and e6iting a particular stock, which is very crucial for the overall

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performance of a portfolio. $oreover, mutual fund investment also rids the investor

of maintaining records, eliminates hassles with the broker for payment, delivery and

other arduous back office tasks.

Sa in!s ,n t&ansa+ti,n +,sts/ 's purchases and sales are done in bigger =uantities,

the funds also get the advantages of lesser brokerage and other reduced transaction

costs.

Tax Ad anta! s/ In India these funds become even more attractive because of the

ta6 advantages, like inde6ation benefits , long term capital gains ta6 , ta6 free

dividends and much more.

Investment Objective (Regulation: 43)

The moneys collected under any scheme of a mutual fund shall be invested only in

transferable securities in the money market or in the capital market or in privately

placed debentures or securitised debts.

rovided that moneys collected under any money market scheme of a mutual fund

shall be invested only in money market instruments in accordance with directions

issued by the "eserve (ank of IndiaL

rovided further that in case of securitised debts such fund may invest in asset backedsecurities and mortgaged backed securities.

Investment, & Borrowing, Restriction (Regulation: !

1. 'ny investments to be made under regulation *) shall be invested sub!ect to

the investment restriction specified in the eventh chedule.

1. '3 The mutual fund having an aggregate of securities which are worth "s.1/

crores or more, as on the latest balance sheet date, shall sub!ect to such

instructions as may be issued from time to time by the (oard settle their

transactions entered on or after Aanuary 1 , 1EEH only through dematerialised

securities.

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#. The mutual fund shall not borrow e6cept to meet temporary li=uidity needs of

the mutual funds for the purpose of repurchase, redemption of units or

payment of interest or dividend to the unit holders.

rovided that the mutual fund shall not borrow more than #/P of the net asset of the

scheme and the duration of such a borrowing shall not e6ceed a period of si6

months.

). The mutual fund shall not advance any loans for any purpose.

*. The mutual fund may lend securities in accordance with the tock :ending

cheme of the (oard.

O%ti,n T&adin! ( !ulati,n/ 23"

The funds of a scheme shall not in any manner be used in option trading or in short

selling or carry forward transactions.

rovided that mutual funds shall enter into derivatives transactions in a recognised

stock e6change for the purpose of hedging and portfolio balancing, in accordance

with the guidelines issued by the (oard.

Und &4&itin! ,. S +u&iti s ( !ulati,n/ 25"

$utual funds may enter into underwriting agreement after obtaining a certificate of

registration in terms of the ecurities and 56change (oard of India 28nderwriters3

"ules and ecurities and 56change (oard of India 28nderwriters3 "egulations, 1EE)

authorising it to carry on activities as underwriters.

1. Ex%lanati,n/ -or the purpose of these regulations, the underwriting

obligation will be deemed as if investments are made in such securities.

#. The capital ade=uacy norms for the purpose of underwriting shall be the net

asset of the scheme.

rovided that the underwriting obligation of a mutual fund shall not at any time

e6ceed the total net asset value of the scheme.

M t',d ,. aluati,n ,. in stm nts ( !ulati,n/ 26"

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5very mutual fund shall compute and carry out valuation of its investments in its

portfolio and publish the same in accordance with the valuation norms specified in

5ighth chedule.

C,m%utati,n ,. N t Ass t 7alu ( !ulati,n/ 28"

1. 5very mutual fund shall compute the et 'sset Falue of each scheme by

dividing the net assets of the scheme by the number of units outstanding on the

valuation date.

#. The et 'sset Falue of the scheme shall be calculated and published at least

in two daily newspapers at intervals of not e6ceeding one weekO

rovided that the et 'sset Falue of any scheme for special target segment or any

monthly income scheme which are not mandatorily re=uired to be listed in any stock

e6change under "egulation )#, may publish the et 'sset Falue at monthly or

=uarterly intervals as may be permitted by the (oard.

1&i+in! ,. Units ( !ulati,n/ 29"

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

such units may at any time be repurchased by the mutual fund shall be made available

to the investors.

#. The mutual fund, in case of open ended scheme, shall at least once a week

publish in a daily newspaper of all India circulation, the sale and repurchase price of

units.

). While determining the prices of the units, the mutual fund shall ensure that the

repurchase price is not lower than E)P of the et 'sset Falue and the sale price is

not higher than 1/?P of the et 'sset Falue.

rovided that the repurchase price of the units of a close ended scheme shall not be

lower than E P of the et 'sset FalueO

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rovided further that the difference between the repurchase price and the sale price of

the unit shall not e6ceed ?P calculated on the sale price.

*. The price of units shall be determined with reference to the last determined

et 'sset Falue as mentioned in sub@regulation 2)3 unless,

a. the scheme announces the et 'sset Falue on a daily basisL and

b. the sale price is determined with or without a fi6ed premium added to the

future net asset value which is declared in advance.

Mutual Funds - S+,% .,& G&,4t' and D l,%m nt in India

$utual -und Industry in its true spirit rooted in a free market and oriented towards

competitive functioning with the dedicated goal of service to the investors can be said

to have settled in India only in 1EE). ;owever the industry took its roots much earlier

with the setting up of the 8nit Trust In India 2'+I 3 in 1E


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7ne of the factors holding the market down now may be the feeling that '+I may

download shares to meet redemptions once it accepts 'F@based listing ne6t month.

(ut we are not going to sell to meet fund demands,B he said.

The '+I chief, however, threatened to sell unattractive shares to their competitors at

attractive prices.

'+I will offer its stake in companies yielding nothing, to their rivals if these

companies themselves did not buy back the shares, he said, adding that we are

concerned only with investorsC interests.B

%amodaran assured the "I investors in the &ulf that 8 @


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1EH? and 1EE) during which period H funds were established 2< by banks and one

each by :I4 and &I43. The total assets under management had grown to "s.


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There are )* private $utual -unds in the fray and they have seized about # P of the

market share in the brief period of ? years, mobilising above "s.# /// 4rores from

the public

S+,% .,& D l,%m nt ,. Mutual Fund :usin ss in India

' $utual -und 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. India has a burgeoning population of middle class now estimated

around )// million. ' typical Indian middle class family can have li=uid savings

ranging from "s.# to "s.1/ :acs today. Investments in (anks are li=uid and safe, but

with the falling rate of interest offered by (anks on %eposits, it is no longer attractive.

't best a part can be saved in bank deposits, but what is the other sources of

investment for the common man $utual -und is the ready answer. Fiewed in this

sense globally India is one of the best markets for $utual -und (usiness, so also for

Insurance business. This is the reason that foreign companies compete with one

another in setting up insurance and mutual fund business units in India. The sheer

magnitude of the population of educated white collar employees provides unlimited

scope for development of $utual -und (usiness in India.

The alternative to mutual fund is direct investment by the investor in e=uities and

bonds or corporate deposits. 'll investments whether in shares, debentures or depositsinvolve riskO share value may go down depending upon the performance of the

company, the industry, state of capital markets and the economyL generally, however,

longer the term, lesser the riskL companies may default in payment of interestK

principal on their debenturesKbondsKdepositsL the rate of interest on an investment may

fall short of the rate of inflation reducing the purchasing power. While risk cannot be

eliminated, skillful management can minimise risk. $utual -unds help to reduce risk

through diversification and professional management. The e6perience and e6pertise of

$utual -und managers in selecting fundamentally sound securities and timing their

purchases and sales, help them to build a diversified portfolio that minimises risk and

ma6imises returns.

T e !dvantages o" Investing in a Mutual Fund

The advantages of investing in a $utual -und areO

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B< 1&,. ssi,nal Mana! m nt

The investor avails of the services of e6perienced 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 ob!ectives of the scheme.

#. Di &si.i+ati,n

$utual -unds 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. Qou achieve

this diversification through a $utual -und with far less money than you can

do on your own.

;< C,n ni nt Administ&ati,n

Investing in a $utual -und reduces paperwork and helps you avoid many

problems such as bad deliveries, delayed payments and unnecessary follow up

with brokers and companies. $utual -unds save your time and make investing

easy and convenient.

2< tu&n 1,t ntial

7ver a medium to long@term, $utual -unds have the potential to provide a

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

3< L,4 C,sts

$utual -unds are a relatively less e6pensive 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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?. T&ans%a& n+*

Qou get regular information on the value of your investment in addition to

disclosure on the specific investments made by your scheme, the proportion

invested in each class of assets and the fund manager0s investment strategy and

outlook.

H. Fl xi@ilit*Through features such as regular investment plans, regular withdrawal plans

and dividend reinvestment plans, you can systematically invest or withdraw

funds according to your needs and convenience.

9< C',i+ ,. S+' m s

$utual -unds offer a family of schemes to suit your varying needs over a

lifetime.

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B=< W ll !ulat d

'll $utual -unds are registered with 5(I and they function within the

provisions of strict regulations designed to protect the interests of investors.

The operations of $utual -unds are regularly monitored by 5(I.

In the following chapters we propose to discuss all relevant information about

$utual -unds in India, the regulatory and legal structure governing them that

a common investor ought to know. The literature is mostly drawn from the

website of 5(, but suitably tabulated to provide ready information.

The origin of mutual fund industry in India is with the introduction of the

concept of mutual fund by '+I in the year 1E


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:&i . ist,&*

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:&i . ist,&*/

Fi&st 1'as - B952-86

8nit Trust of India 2'+I 3 was established on 1E==5 (Ent&* ,. 1&i at S +t,& Funds"

With the entry of private sector funds in 1EE), a new era started in the Indian mutual

fund industry, giving the Indian investors a wider choice of fund families. 'lso, 1EE)

was the year in which the first $utual -und "egulations came into being, under

which all mutual funds, e6cept '+I were to be registered and governed. The

erstwhile 9othari ioneer 2now merged with -ranklin Templeton3 was the first private

sector mutual fund registered in Auly 1EE).

The 1EE) 5(I 2$utual -und3 "egulations were substituted by a morecomprehensive and revised $utual -und "egulations in 1EE


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assets of "s. 1,#1,H/ crores. The 8nit Trust of India with "s.**, *1 crores of assets

under management was way ahead of other mutual funds.

F,u&t' 1'as - sin+ F @&ua&* >==5

This phase had bitter e6perience for '+I . It was bifurcated into two separate

entities. 7ne is the pecified 8ndertaking of the 8nit Trust of India with '8$ of

"s.#E,H) crores 2as on Aanuary #//


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F atu& s/

8ni=ue -eatures of '+I their Impact on its -unctioning R56tract from the "eport of

>4orporate ositioning> 4ommitteeS

In the initial stages, '+I had been performing a hybrid role of both a financial

institution and a mutual fund. ;owever, over the last few years, its role as a financial

institution has significantly diminished and it has positioned itself purely as the largest

mutual fund in the country. There is also a significant trend emerging which suggests

that financial institutions will gradually wither away or merge into universal banks. In

this scenario, commercial banks and mutual funds will emerge as the primary

institutions for the mobilisation of household savings. This reinforces the need for

'+I to evolve as a pure mutual fund. 't the same time, consideration has to be

given to the fact that '+I has promoted and holds controlling interest in a number of

institutions outside the pure mutual fund industry.

's noted earlier, '+I 0s management structure is at variance with the structure

prescribed for mutual funds under 5(I regulations. These regulations provide for

four separate entities, namely a ponsor, an Independent Trustee, an 'sset

$anagement 4ompany and the -und. It is necessary that '+I as the largest player in

the $utual -und industry should, as recommended by the Faghul 4ommittee, lend

itself to 5(I0s regulatory !urisdication and conform to the form of structure

prescribed in 5(I regulations. 's stated earlier, out of ?) domestic schemes,


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There is therefore need for an independent Trustee and an independent '$4, as

provided under 5(I regulations with wider powers of control and direction.

'+I has no identified ponsor but the institutions, which contributed to the initial

capital of "s. crores and, crores in 1EEE, may be considered as ponsoring

Institutions. 5(I regulations impose certain responsibilities and obligations on

sponsors and it would be difficult to discharge these responsibilities and obligationswhen there are a large number of sponsors. It is therefore necessary that the ponsor

should be a separate company. It is suggested that this company can be formed with

the initial shareholders being the ponsoring Institutions who will convert the whole

or part of their present holdings in the initial capital of "s. crores and the additional

contribution of "s.** . / crores made in Aune 1EEE into the capital of the ponsoring

4ompany. This conversion can be made at the 'F of the units when 8 @


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T' ,@ +ti s ,. Ass,+iati,n ,. Mutual Funds in India

The 'ssociation of $utual -unds of India works with )/ registered '$4s of the

country. It has certain defined ob!ectives which !u6taposes the guidelines of its (oard

of %irectors. The ob!ectives are as followsO

This mutual fund association of India maintains a high professional and ethical

standards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of

conduct which is followed by members and related people engaged in the

activities of mutual fund and asset management. The agencies who are by any

means connected or involved in the field of capital markets and financial

services also involved in this code of conduct of the association.

'$-I interacts with 5(I and works according to 5(Is guidelines in the

mutual fund industry.

'ssociation of $utual -und of India do represent the &overnment of India, the

"eserve (ank of India and other related bodies on matters relating to the $utual

-und Industry.

It develops a team of well =ualified and trained 'gent distributors. It

implements a programme of training and certification for all intermediaries and

other engaged in the mutual fund industry.

'$-I undertakes all India awarness programme for investors inorder to

promote proper understanding of the concept and working of mutual funds.

't last but not the least association of mutual fund of India also disseminate

informations on $utual -und Industry and undertakes studies and research

either directly or in association with other bodies.

T' s%,ns,& &s ,. Ass,+iati,n ,. Mutual Funds in India

:an S%,ns,& d

(I -und $anagement :td.

(7( 'sset $anagement 4o. :td.

4anbank Investment $anagement ervices :td.

'+I 'sset $anagement 4ompany vt. :td.

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Instituti,ns

&I4 'sset $anagement 4o. :td.

Aeevan (ima ahayog 'sset $anagement 4o. :td.

1&i at S +t,&

Indian/ @

(ench$ark 'sset $anagement 4o. vt. :td.

4holamandalam 'sset $anagement 4o. :td.

4redit 4apital 'sset $anagement 4o. :td.

5scorts 'sset $anagement :td.

A$ -inancial $utual -und

9otak $ahindra 'sset $anagement 4o. :td.

"eliance 4apital 'sset $anagement :td.

ahara 'sset $anagement 4o. vt. :td

undaram 'sset $anagement 4ompany :td.

Tata 'sset $anagement rivate :td.

1& d,minantl* India ,int 7 ntu& s/-

(irla un :ife 'sset $anagement 4o. :td. % $errill :ynch -und $anagers :imited

;%-4 'sset $anagement 4ompany :td.

1& d,minantl* F,& i!n ,int 7 ntu& s/-

'( '$"7 'sset $anagement 2I3 :td.

'lliance 4apital 'sset $anagement 2India3 vt. :td.

%eutsche 'sset $anagement 2India3 vt. :td.

-idelity -und $anagement rivate :imited

-ranklin Templeton 'sset $gmt. 2India3 vt. :td.

; (4 'sset $anagement 2India3 rivate :td.

I & Investment $anagement 2India3 vt. :td.

$organ tanley Investment $anagement vt. :td.

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rincipal 'sset $anagement 4o. vt. :td.

rudential I4I4I 'sset $anagement 4o. :td.

tandard 4hartered 'sset $gmt 4o. vt. :td

'+I $utual -und ties up with %ena (ank for distributing its $- schemes

'+I $utual -und 2'+I $-3 and %ena (ank today announced a strategic

tie@up for distribution of '+I $- schemes. 8nder the agreement, %ena (ank will

offer the entire bou=uet of '+I $-0s schemes across the bank0s selected branches

S %t m@ & B> >=B2/ '+I $utual -und 2'+I $-3 and %ena (ank today

announced a strategic tie@up for distribution of '+I $- schemes. 8nder the

agreement, %ena (ank will offer the entire bou=uet of '+I $-0s schemes across the

bank0s selected branches.

resently '+I $- 2with assets under management of over "s.# /// crore3 reachesout to its investors through its wide distribution network comprising < -inancial

4enters 28-4s3, #?1 4hief "epresentative offices, H 4hief 'gents, over 1E///

'$-I certified -inancial 'dvisors and through tie@ups with several (anks and

%epartment of ost.

With today0s tie@up, '+I $- is further enhancing its distribution capabilities. '+I

$- will now also be offering its schemes initially through H/ branches of %ena (ank

including *1 -in$art branches across India .

'nnouncing the '+I $-0s tie@up with %ena (ank, %r " ; atil , 4hairman, '+I

'$4 said, >This initiative reflects '+I $-0s strategy to rapidly e6pand in the retail

market and value@add its access network to complement the $utual -und0s growth

strategy in the Indian mutual fund sector. With this tie@up millions of customers of

%ena (ank will get an opportunity to invest in various schemes of '+I $- closer to

their doorstep at the branches where they do their banking transactions.>

>%ena (ank has got a dominant presence in &u!arat and $aharashtra which happen to

be important retail markets for '+I $-.> he added

7n the occasion, hri $ F air , 4hairman and $anaging %irector, %ena (ank said,

The signing of our 'greement today is a very happy occasion for both %ena (ank

and '+I $utual -und. It is a significant milestone for the (ank and it is the first tie

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up the (ank has made to offer various $utual -und products to its customers. The

(ank will endeavour to cross sell its products also with this tie up.

hri $ F air said, >In a rapidly changing scenario, the lender @ borrower

relationship which (anks traditionally had with customers is giving way to a different

kind of business relationship and the (anks are now offering a variety of financial

services to the customers to meet their changing aspirations. The tie up between %ena(ank and '+I $- is a step towards converting the bank branch into a financial

supermarket which caters to all the financial needs of the customer by providing

banking, insurance, as well as investment services at one stop.>

>There is immense potential for marketing of mutual funds and the tie up

would help to tap this potential. Today0s agreement brings together two strong and

vibrant brands in a strategic alliance, which will combine the strengths of both

organisations for mutual benefit. We are looking at the tie up as an opportunity to

bring more customers into our fold and to e6pand our horizons.> he added

A@,ut AXIS MF

'+I $utual -und was carved out of 8nit Trust of India as a 5(I registered mutual

fund by repealing the 8nit Trust of India 'ct 21E


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$oving proactively with the times and in its efforts for greater customer

convenience, %ena (ank has introduced many technology@based products like $ulti@

4ity 4he=ue facility, 'ny (ranch (anking, $obile (anking etc. The (ank has also

opened *1 %ena -in$arts, which are e6clusive one@stop shops for all retail loan

products of the (ank, across the country. The signing of the 'greement with '+I

'$4 will enable the (ank to market all mutual fund products of '+I $- through

its branches, in addition to its core banking activities and insurance services. The(ank has a network of over 11// branches and satellite offices across the country and

the total volume of business of the (ank is nearly "s.)#/// crore at present

D .initi,n ,. Im%,&tant T &msHC,n+ %ts in Mutual Fund Indust&*

(efore proceeding to consider the salient provisions of 5(I regulations governing

mutual funds, it is necessary to get familiar with the basic terms and phraseology used

in $utual -und literature.

N t Ass t 7alu (#NA7#"/ The performance of a particular scheme of a mutual fund

is denoted by et 'sset Falue 2 'F3. $utual funds invest the money collected from

the investors in securities markets. In simple words, et 'sset Falue is the market

value of the securities held by the scheme. ince market value of securities changes

every day, 'F of a scheme also varies on day to day basis. The 'F per unit is the

market value of securities of a scheme divided by the total number of units of the

scheme on any particular date. -or e6ample, if the market value of securities of a

mutual fund scheme is "s #// lakhs and the mutual fund has issued 1/ lakhs units of

"s. 1/ each to the investors, then the 'F per unit of the fund is "s.#/. 'F is

re=uired to be disclosed by the mutual funds on a regular basis @ daily or weekly @

depending on the type of scheme.

ale riceO Is the price you pay when you invest in a scheme. 'lso called 7ffer rice.

It may include a sales load.

"epurchase riceO Is the price at which a close@ended scheme repurchases its units

and it may include a back@end load. This is also called (id rice.

"edemption riceO Is the price at which open@ended schemes repurchase their units

and close@ended schemes redeem their units on maturity. uch prices are 'F

related.

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ales :oadO Is a charge collected by a scheme when it sells the units. 'lso called,

0-ront@end0 load. chemes that do not charge a load are called 0 o :oad0 schemes.

"epurchase or 0(ack@end0 :oadO Is a charge collected by a scheme when it buys back

the units from the unit@holders.

What are the different types of mutual fund schemes

chemes according to $aturity eriodOO

' mutual fund scheme can be classified into open@ended scheme or close@ended

scheme depending on its maturity period.

7pen@ended -undK chemeO 'n open@ended fund or scheme is one that is available for

subscription and repurchase on a continuous basis. These schemes do not have a fi6ed

maturity period. Investors can conveniently buy and sell units at et 'sset Falue

2 'F3 related prices which are declared on a daily basis. The key feature of open@end

schemes is li=uidity.

4"I I:0s composite performance ranking 24 "3 measures the performance for each

of the open@ended scheme of $utual -und. There are four parameters considered to

measure the performance of a mutual fund such as "isk@ad!usted returns of the

scheme0s 'F, %iversification of ortfolio, :i=uidity and 'sset ize.

4lose@ended -undK chemeO ' close@ended fund or scheme has a stipulated maturity

period e.g. @? years. The fund is open for subscription only during a specified period

at the time of launch of the scheme. Investors can invest in the scheme at the time of

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

the stock e6changes where the units are listed. In order to provide an e6it route to the

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

mutual fund through periodic repurchase at 'F related prices. 5(I "egulations

stipulate that at least one of the two e6it routes is provided to the investor i.e. either

repurchase facility or through listing on stock e6changes. These mutual funds

schemes disclose 'F generally on weekly basis.

chemes according to Investment 7b!ectiveO ' scheme can also be classified as

growth scheme, income scheme, or balanced scheme considering its investment

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ob!ective. uch schemes may be open@ended or close@ended schemes as described

earlier. uch schemes may be classified mainly as followsO

&rowth K 5=uity 7riented chemeO The aim of growth funds is to provide capital

appreciation over the medium to long@ term. uch schemes normally invest a ma!or

part of their corpus in e=uities. uch funds have comparatively high risks. These

schemes provide different options to the investors like dividend option, capitalappreciation, etc. and the investors may choose an option depending on their

preferences. The investors must indicate the option in the application form. The

mutual funds also allow the investors to change the options at a later date. &rowth

schemes are good for investors having a long@term outlook seeking appreciation over

a period of time.

Income K %ebt 7riented chemeO The aim of income funds is to provide regular and

steady income to investors. uch schemes generally invest in fi6ed income securities

such as bonds, corporate debentures, &overnment securities and money market

instruments. uch funds are less risky compared to e=uity schemes. These funds are

not affected because of fluctuations in e=uity markets. ;owever, opportunities of

capital appreciation are also limited in such funds. The 'Fs of such funds are

affected because of change in interest rates in the country. If the interest rates fall,

'Fs of such funds are likely to increase in the short run and vice versa. ;owever,

long term investors may not bother about these fluctuations.

(alanced -undO The aim of balanced funds is to provide both growth and regular

income as such schemes invest both in e=uities and fi6ed income securities in the

proportion indicated in their offer documents. These are appropriate for investors

looking for moderate growth. They generally invest */@


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are appropriate for corporate and individual investors as a means to park their surplus

funds for short periods.

&ilt -undO These funds invest e6clusively in government securities. &overnment

securities have no default risk. 'Fs of these schemes also fluctuate due to change in

interest rates and other economic factors as is the case with income or debt oriented

schemes.

Inde6 -undsO Inde6 -unds replicate the portfolio of a particular inde6 such as the ( 5

ensitive inde6, M 5 / inde6 2 ifty3, etc These schemes invest in the securities

in the same weightage comprising of an inde6. 'Fs of such schemes would rise or

fall in accordance with the rise or fall in the inde6, though not e6actly by the same

percentage due to some factors known as >tracking error> in technical terms.

ecessary disclosures in this regard are made in the offer document of the mutual

fund scheme.

There are also e6change traded inde6 funds launched by the mutual funds which are

traded on the stock e6changes.

What are sector specific fundsKschemes @ These are the fundsKschemes which invest

in the securities of only those sectors or industries as specified in the offer documents.

e.g. harmaceuticals, oftware, -ast $oving 4onsumer &oods 2-$4&3, etroleum

stocks, etc. The returns in these funds are dependent on the performance of the

respective sectorsKindustries. While these funds may give higher returns, they are

more risky compared to diversified funds. Investors need to keep a watch on the

performance of those sectorsKindustries and must e6it at an appropriate time. They

may also seek advice of an e6pert.

What are Ta6 aving chemes @ These schemes offer ta6 rebates to the investors

under specific provisions of the Income Ta6 'ct, 1E


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will be payable. This charge is used by the mutual fund for marketing and distribution

e6penses. uppose the 'F per unit is "s.1/. If the entry as well as e6it load charged

is 1P, then the investors who buy would be re=uired to pay "s.1/.1/ and those who

offer their units for repurchase to the mutual fund will get only "s.E.E/ per unit. The

investors should take the loads into consideration while making investment as these

affect their yieldsKreturns. ;owever, the investors should also consider the

performance track record and service standards of the mutual fund which are moreimportant. 5fficient funds may give higher returns in spite of loads.

' no@load fund is one that does not charge for entry or e6it. It means the investors can

enter the fundKscheme at 'F and no additional charges are payable on purchase or

sale of units.

4an a mutual fund impose fresh load or increase the load beyond the level mentioned

in the offer documents

utual funds cannot increase the load beyond the level mentioned in the offer

document. 'ny change in the load will be applicable only to prospective investments

and not to the original investments. In case of imposition of fresh loads or increase in

e6isting loads, the mutual funds are re=uired to amend their offer documents so that

the new investors are aware of loads at the time of investments.

What is a sales or repurchaseKredemption price

The price or 'F a unitholder is charged while investing in an open@ended scheme is

called sales price. It may include sales load, if applicable.

"epurchase or redemption price is the price or 'F at which an open@ended scheme

purchases or redeems its units from the unitholders. It may include e6it load, if

applicable.

What is an assured return scheme

'ssured return schemes are those schemes that assure a specific return to the

unitholders irrespective of performance of the scheme. ' scheme cannot promise

returns unless such returns are fully guaranteed by the sponsor or '$4 and this is

re=uired to be disclosed in the offer document.

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Investors should carefully read the offer document whether return is assured for the

entire period of the scheme or only for a certain period. ome schemes assure returns

one year at a time and they review and change it at the beginning of the ne6t year.

4an a mutual fund change the asset allocation while deploying funds of investors

4onsidering the market trends, any prudent fund managers can change the asset

allocation i.e. he can invest higher or lower percentage of the fund in e=uity or debtinstruments compared to what is disclosed in the offer document. It can be done on a

short term basis on defensive considerations i.e. to protect the 'F. ;ence the fund

managers are allowed certain fle6ibility in altering the asset allocation considering the

interest of the investors. In case the mutual fund wants to change the asset allocation

on a permanent basis, they are re=uired to inform the unitholders and giving them

option to e6it the scheme at prevailing 'F without any load.

;ow to invest in a scheme of a mutual fund

$utual funds normally come out with an advertisement in newspapers publishing the

date of launch of the new schemes. Investors can also contact the agents and

distributors of mutual funds who are spread all over the country for necessary

information and application forms. -orms can be deposited with mutual funds through

the agents and distributors who provide such services. ow a days, the post offices

and banks also distribute the units of mutual funds. ;owever, the investors may please note that the mutual funds schemes being marketed by banks and post offices

should not be taken as their own schemes and no assurance of returns is given by

them. The only role of banks and post offices is to help in distribution of mutual funds

schemes to the investors.

Investors should not be carried away by commissionKgifts given by agentsKdistributors

for investing in a particular scheme. 7n the other hand they must consider the track

record of the mutual fund and should take ob!ective decisions.

4an non@resident Indians 2 "Is3 invest in mutual funds

Qes, non@resident Indians can also invest in mutual funds. ecessary details in this

respect are given in the offer documents of the schemes.

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;ow much should one invest in debt or e=uity oriented schemes

'n investor should take into account his risk taking capacity, age factor, financial

position, etc. 's already mentioned, the schemes invest in different type of securities

as disclosed in the offer documents and offer different returns and risks. Investors

may also consult financial e6perts before taking decisions. 'gents and distributors

may also help in this regard.

;ow to fill up the application form of a mutual fund scheme

'n investor must mention clearly his name, address, number of units applied for and

such other information as re=uired in the application form. ;e must give his bank

account number so as to avoid any fraudulent encashment of any che=ueKdraft issued

by the mutual fund at a later date for the purpose of dividend or repurchase. 'ny

changes in the address, bank account number, etc at a later date should be informed to

the mutual fund immediately.

What should an investor look into an offer document

'n abridged offer document, which contains very useful information, is re=uired to be

given to the prospective investor by the mutual fund. The application form forsubscription to a scheme is an integral part of the offer document. 5(I has

prescribed minimum disclosures in the offer document. 'n investor, before investing

in a scheme, should carefully read the offer document. %ue care must be given to

portions relating to main features of the scheme, risk factors, initial issue e6penses

and recurring e6penses to be charged to the scheme, entry or e6it loads, sponsor0s

track record, educational =ualification and work e6perience of key personnel

including fund managers, performance of other schemes launched by the mutual fund

in the past, pending litigations and penalties imposed, etc.

When will the investor get certificate or statement of account after investing in a

mutual fund

$utual funds are re=uired to despatch certificates or statements of accounts within si6

weeks from the date of closure of the initial subscription of the scheme. In case of

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close@ended schemes, the investors would get either a demat account statement or unit

certificates as these are traded in the stock e6changes. In case of open@ended schemes,

a statement of account is issued by the mutual fund within )/ days from the date of

closure of initial public offer of the scheme. The procedure of repurchase is

mentioned in the offer document.

;ow long will it take for transfer of units after purchase from stock markets in case ofclose@ended schemes

'ccording to 5(I "egulations, transfer of units is re=uired to be done within thirty

days from the date of lodgment of certificates with the mutual fund.

's a unit@holder, how much time will it take to receive dividendsKrepurchase

proceeds' mutual fund is re=uired to despatch to the unit@holders the dividend warrants within

)/ days of the declaration of the dividend and the redemption or repurchase proceeds

within 1/ working days from the date of redemption or repurchase re=uest made by

the unitholder.

In case of failures to despatch the redemptionKrepurchase proceeds within the

stipulated time period, 'sset $anagement 4ompany is liable to pay interest as

specified by 5(I from time to time 21 P at present3.

4an a mutual fund change the nature of the scheme from the one specified in the offer

document

Qes. ;owever, no change in the nature or terms of the scheme, known as fundamental

attributes of the scheme e.g. structure, investment pattern, etc. can be carried out

unless a written communication is sent to each unit@holder and an advertisement is

given in one 5nglish daily having nationwide circulation and in a newspaper

published in the language of the region where the head office of the mutual fund is

situated. The unit@holders have the right to e6it the scheme at the prevailing 'F

without any e6it load if they do not want to continue with the scheme. The mutual

funds are also re=uired to follow similar procedure while converting the scheme form

close@ended to open@ended scheme and in case of change in sponsor.

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;ow will an investor come to know about the changes, if any, which may occur in the

mutual fund

There may be changes from time to time in a mutual fund. The mutual funds are

re=uired to inform any material changes to their unit@holders. 'part from it, many

mutual funds send =uarterly newsletters to their investors.

't present, offer documents are re=uired to be revised and updated at least once in

two years. In the meantime, new investors are informed about the material changes by

way of addendum to the offer document till the time offer document is revised and

reprinted.

It is for consideration whether '+I should be wholly owned and managed by the

&overnment through participation in the ponsoring 4ompany. 'lthough '+I is notdirectly owned by the &overnment, the ma!ority of the ponsoring Institutions who

contributed to the capital and the additional contribution and who elect the trustees are

institutions which are owned or controlled by the &overnment. The 4hairman of the

(oard of Trustees is also appointed by the &overnment. There is therefore a public

perception of a &overnment umbrella which gives a measure of safety, security and

implied guarantee to the unit@holders which is largely responsible for '+I 0s success

as a savings institution.

't the same time, this perception imposes an implied responsibility on the

&overnment for a possible bail@out of '+I in the event of its failure to meet specific

or implied commitments. &overnment did this by contributing to the 8 cheme to

the e6tent of "s.),)// crores following the recommendations of the %eepak arekh

4ommittee and there is a public perception that &overnment will need to do likewise

to ensure that '+I will meet its commitments to 8 @


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&overnment and '+I so long as &overnment continues to e6ercise powers such as

the power to appoint the 4hairman of the (oard of Trustees under the '+I 'ct.

't the same time, it is necessary to recognise that if the perceived link with the

&overnment is suddenly removed, @ and certainly if it is removed before 8 @


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'+I @(anking ector -undO The fund will invest in the stocks of the companies K

institutions engaged in the banking and financial services activities.

'+I 8 -undO The fund will invest in the stocks of companies where the tate K

4entral &overnment of India owns the ma!ority of the holding or management control

is vested with tateK4entral &overnment of India.

alient -eatures of the '+I @ Thematic -und

The scheme is open to resident individuals, institutions as well as to "Is and

-IIs.

-ace value of units is "s.1/K@

$inimum amount of investment under each thematic fund is "s. ///K@ and

thereafter subse=uent minimum investment under a folio is "s.1///K@ per

thematic fund.

ale of units under each fund will be at face value during the initial offer

period. 7n re@opening of the scheme, ale of units will be at 1/#P of 'F.

"epurchase will be at 'F.

The primary ob!ective of the scheme is capital appreciation. ;owever the

scheme may also distribute income to the unitholders. 8nitholders will have

an option to reinvest income distribution, if any, at e6@dividend 'F. The benchmark of '+I @:arge 4ap -und is ( 5 ense6, '+I @$id 4ap -und is

4 + $idcap #// Inde6, '+I @(asic Industries -und is ( 5 1// Inde6,

'+I @ 'uto ector -und is ( 5 ense6, '+I (anking ector -und is ( 5

(' 95+ and '+I @ 8 -und is ( 5 8 Inde6. 'utomatic Trigger

7ption and witchover facility from one fund to another are available.

The -und $anagers of the si6 thematic funds are O

'+I @ :arge 4ap -und @ hri $anish 9umar

'+I @$id 4ap -und @ hri Finay 9ulkarni

'+I @(anking ector -und @ hri an!ay %ongre

'+I @(asic Industries -und @ hri an!ay inha

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'+I @ 'uto ector -und @ hri an!ay inha

'+I @ 8 -und @ hri an!ay inha

W'* s',uld ,n in st in Mutual Funds t'&,u!' AXIS :an )

W m t *,u& n ds/ We believe that every one has specific needs and priorities.

Qour needs could vary from buying a house, getting your daughter married to

providing for your childCs education. Qou might even want to travel the world. 'll

your needs are very important for us. We can help to fulfill your needs to reality by

helping you select schemes, which would be consonance with your needs.

W 4,& t,4a&ds @uildin! an In stm nt Cultu& J/ It would be our constant

endeavor to inculcate saving and organized investing habits in you. We will help you

plan your investments and build a healthy mutual fund portfolio, which would be an

optimal solution for your needs. 4ultivating an investment culture will not only help

you but also your family.

W 4ill % *,u u%dat d/ ' newsletter, which will keep you informed of the latest

happenings in the stock markets, economy and important events, apart from giving

you the 'F and other relevant information about your schemes will be sent youevery month. :atest 'F of the schemes can also be found out from our various

branches.

W +an @ *,u& On St,% Finan+ial S,luti,nJ/ 'part from subscribing to $utual

fund schemes through us, you can also take advantage of our banking services and a

whole range of financial products. :ike @ 'T$ card , credit card, personal loan

products, depository services, loan against unitsKshares etc. and see your financial

needs satisfied under one roof.

Wit' AXIS :an - $utual -und services, you can consult with your own Investment

'dvisor and invest in a $utual -und cheme that is right for you. ' great

opportunity, to get organized and make your investment more in line with your real

needs.

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is Fa+t,&s/ 'll the investments in the securities market are sub!ect to market risks

and the 'F of schemesKplans may go up or down depending upon the factors and

forces affecting securities market. ast performance is not necessarily indicative of

the future.

lease read the offer document before investing

T*% s

Wide variety of $utual -und chemes e6ist to cater to the needs such as financial

position, risk tolerance and return e6pectations etc. The table below gives an overview

into the e6isting types of schemes in the Industry.

T 1ES OF MUTUAL FUND SC EMES

:* St&u+tu& o 7pen @ 5nded chemes

o 4lose @ 5nded chemes

o Interval chemes

:* In stm nt O@ +ti

o &rowth chemes

o Income chemes

o (alanced chemes

o $oney $arket chemes

Ot' & S+' m s

o Ta6 aving chemes

o pecial chemes

Inde6 chemes

ector pecfic chemes

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SCO1E OF T E

STUD

*


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SCO1E OF T E STUD

'+I 4risis M 'fter ;ow the 4risis 7riginated

What was the 4risis that 7vertook '+I during 1EEE to #//#

$r.Qogi 'ggarwal, columnist of >[email protected]> further points out in his

illuminating articles published online@

>The figure of "s .H1 for the net asset value 2 'F3 of 8nit@imprudent> manner to help various

controversial and powerful companies in stock e6change dealings that cost the '+I

several thousands of crores and severely eroded investor wealth. What they reveal is

not !ust incompetence but a flouting of all prudential norms to favour certain

individuals and companies.

>While the Tarapore 4ommittee saw no reason to believe in any >breach of

confidentiality> leading to the large scale redemptions in 8nit@


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>The Tarapore 4ommittee commented, >The pricing mechanism was clearly faulty

and had all the ingredients of a ponzi scheme under which new entrants and those

continuing in the scheme had to bear the burden of redemption at relatively high

prices.> The government run financial sector had clearly failed in its responsibilities

by trying to meet up to unrealistic e6pectations which it had created in the middle

class constituency.

>'t the same time the government0s constant instructions to the '+I to prop up or

help this or that business house led to bad investment decisions to the detriment of

unitholders. It is noteworthy that matters seem to have worsened from mid@1EEH

onwards, when the present government took office and when ubramanayam was

appointed chairman. Inter scheme transfers between different '+I funds were one

reason for the drain on 8nit@These transfers were used to prop up other '+I schemes at the cost of the 8nit@What is perhaps most scandalous is the manner in which '+I was used to prop up

share prices of certain companies in a dubious manner. The top management

consistently ignored the advice of its e=uity research cell. The Tarapore 4ommittee

*H


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found that in all 1E cases it picked for e6amination there were signs of >imprudence>.

These companies included such as ;imachal -uturistic, % oftware, entamedia

&raphics, Ispat Industries, Aindal Fi!ayanagar, 5ssar 7il and 5ssar teel, and "eliance

and "eliance etro.

>' ma!ority of these deals were through private placement and off@market deals

making them less transparent and the value of these deals in the three years to Aune#//1 was around "s 1H,/// crore. The committee noted, >there are a number of cases

where the chairman0s powers have been e6ceeded,> and >investments have been made

in one company of a group while there was default in another company of the group.>

>-urther, the '+I invested around "s #, // in the e=uity of thinly traded or unlisted

companies from which it will be very difficult for the '+I to e6it. $any of these

investments 2it0s perhaps more accurate to call them >gifts>3 were made at the behest

of the political masters though the 4ommittee does not go into this. In one famous

case '+I was used to bail out brokers involved inthe 4alcutta tock 56change crisis

of $arch #//1 by purchasing

B


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The ponsor should be a ponsoring 4ompany in which */P of the share capital

should be held by the institutions which hold the initial capital of '+I of "s. crores

and which have made in 1EEE, the additional contribution of "s.** . crores pursuant

to the %eepak arekh 4ommittee recommendations.2the ponsoring Institutions3.


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To reduce the size of this gap, the following steps should be taken

The portfolios of these schemes should be recast as soon as it is practically

possible, to ensure that the portfolio consists only of &overnment securities and

debt instruments and all investments in e=uity are disposed off.

In respect of schemes where only one year0s return is assured, the returns assured

should be strictly in line with the earning capacity of the schemes.

The Income Ta6 'ct should be amended to provide that dividends received on

assured return schemes floated before 1st Aune 1EEE would not be entitled to

e6emption of ta6 under ection 1/2))3 and correspondingly, no ta6 would be

levied on the fund under ection 11 " on dividends distributed to unitholders.

The %evelopment "eserve -und should be transferred to the '$4 free ofconsideration after valuing the investments of the fund at their fair market value.

sub@number omitted

The prospective trategic artner should be invited to =uote the value at which

'+I 0s infrastructure and organisation should be converted into the '$4. If this

value e6ceeds the value of the assets of the schemes, the e6cess should be credited

to the various schemes in an appropriate manner. If however the value falls short

of the value of the assets of the schemes, the shortfall, if not met by the holders of

initial capital of '+I andKor &overnment, will need a reduction of the benefits

under the assured return schemes in an appropriate manner.

The '+I 'ct should be repealed and replaced by a new enactment. In enacting

this 'ct, it should be ensured that the &overnment is totally distanced from '+I

and transaction costs 2e.g. stamp duties, ta6es etc.3 are minimised, if not

eliminated and the wnership of the assets vests in the '$4 at the lowest possible

cost.

If the '+I 'ct were not to be repealed but merely amended, there is a danger

that the &overnment may be left with residual responsibilities under the 'ct,

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funds, balanced funds and monthly income plans are under@performing. We are,

however, yet to see the kind of restructuring necessary to make them more suitable to

an investor0s portfolio.

-or instance, indices such as ( 5@1// and ( 5@#// have consistently outperformed

the ense6 and the ifty by about four percentage points per annum over the past

three years. There is, however, no attempt to introduce inde6 funds at least on ( 5@1//.

The introduction of a ( 5@1// Inde6 fund would at least provide investors with the

option to switch from under@performing ense6 and ifty funds. There is no talk of

such an inde6 fund now. (ut there may be when the market is in a bearish phase and

investors0 risk aversion has increased. It may not make sense then, though.

'nother case is $onthly Income lans. They have been perennial under@performers.$onthly Income lans have, on average, recorded returns of E per cent over the past

1# months. This is below the 1/ per cent returns for 4risil $I (lended Inde6. The

actual under@performance is higher as the 4risil Inde6 is based on ifty returns.

If you replace ifty returns with average performance of diversified e=uity funds, the

e6tent of under@performance would increase substantially. ;as anything ever been

done to address this issue

4ommunication relating to the performing class D diversified e=uity funds D too is

highly simplistic. The answers to =uestions on what is behind performance D stock

selection or higher risk taken by the fund D are unavailable. ' dispassionate en=uiry

into e=uity fund performance may be beyond fund@houses. They could, however,

indicate to investors how much additional risk is taken by the fund@houses, such as

that increased investments in mid@cap and small@cap stocks contributed to

performance.

-und of funds is a practically stillborn concept. There is also no attempt to improve

the efficiency of balanced funds or market them better. (alanced funds and -und of

-unds should occupy pride of place in a retail investor0s portfolio. (ut that is not the

case.

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In+ nti st&u+tu& O This is how it looks when you take a snapshot of the mutual

fund industry now. (ut it could change for the better. 'fter all, the mutual fund

industry even now controls less than # per cent of household assets. The incentive

structure for managers could militate against such developments.

$utual funds take home a flat fee based on volume of assets under management and

not on performance. If size of assets increases because of performance, then indirectlyfees will also rise. ;owever, if assets desert after performance, the loss to fund

managers is heavy. There is nothing in the incentive structure to drive a fund manager

to do the best for retail investors.

There is definitely a case for working out a fee structure that pays fund managers a

flat fee plus additional compensation for performance over a three or five@year period.

$any talented fund managers have already left for the harsh performance@based but

lucrative world of private e=uity investing. It may not take much to retain or regain

talented fund managers. $aybe even a mere ten per cent of e6cess gains over a

benchmark would be enough.

Without sharing at least a small part of the gains, mutual fund investors can neither

hope for better research nor can they hope to retain the best performing managers. 's

talent flees, in !ust 1/ years, investors will be forced to seek the safe havens of low@

cost inde6 funds. erforming diversified e=uity funds or balanced funds would become a thing of the past. 5nthusiasm of fund@houses would then be sustained only

until product launches and only until that product category registers returns. 's

seasons change, the focus of marketing initiatives will change. Inefficient products

will continue to languish as they do now.

The mutual fund industry has been on a good run and, at least as of now, can boast of

e6tremely talented people in its ranks. The status "uo is, however, not the recipe for

continuing the good show. 5(I, '$-I, fund@houses and investors need to usher in

changes that help the Indian mutual fund industry achieve a uni=ue position in the

world of investing.

The &overnment in order to protect the interests of #/@million@odd investors of 8nit

Trust of India 2'+I 3 announced a structural reform package, covering a "s 1*,


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To start with, '+I would be split into two entities @ @ '+I @I and '+I @II. '+I @I

would cover the 8 @


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>The decision to spilt the fund into two entities forms the cru6 of the structural reform

package for '+I . The ob!ective is to have a working, healthy mutual fund run by a

professionally@managed team,> the -inance ecretary, %r . arayan, said.

'ccording to him, the &overnment has now moved two steps forward after the

decision taken by the 445' last year to provide full assistance to the 8 @ said %r arayan.

'+I @I would effectively cease to e6ist once all investors move out of the 8 @


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'":I'$5 T has given its nod for the bifurcation of 8nit Trust of India into two

companies @'+I @I and '+I @II @ with the "a!ya abha on Tuesday giving its assent

on /).1#.#//# to the '+I 2Transfer of 8ndertakings3 (ill, #//# by a voice vote. The

(ill has already been passed by the :ok abha.

'ddressing the "a!ya abha, the -inance $inister, $r Aaswant ingh, assured that the

&overnment would meet its commitments to the investors.

The -inance $inister said that '+I @I will not float any new scheme and all e6isting

commitments would be met by the &overnment, while '+I @II would be started as a

5(I regulated, asset managed and market competing scheme.

;e assured the ;ouse that there would be no retrenchment of '+I employees. >'ll

of them would be put on the '+I @II attendance register with an option that they

could take si6 months to decide if they wanted to take voluntary retirement.>

'+I $utual -und has come into e6istence with effect from 1st -ebruary #//


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their autonomy, powers and capacity to enforce regulation and their coordination to

make regulations effective. elf@regulation as well as prudential issues are also

discussed under this section. The third section outlines the legal issues concerning the

securities market. The fourth section deals with crosscutting themes relating to the

regulated market, namely, market infrastructure, and issues relating to primary market

and transparency. The challenges facing the mutual fund industry are discussed in the

fifth section. The discussion in this chapter provides some e6amples of current practices, recognizing that these practices will and should change as the markets

change and as technology and improved coordination among regulators make other

strategies available.

>< !ulat,&* Issu s

#$% The Regulator

The regulatory responsibility of the securities market is vested in the 5(I, the "(I,

and two government departments@@%epartment of 4ompany 'ffairs and %epartment

of 5conomic 'ffairs. Investigative agencies such as 5conomic 7ffences Wing of the

government and consumer grievance redressal forums also play a role. The 5(I,

established under the 5(I 'ct, is the ape6 regulatory body for the securities market.

(esides regulation, the 5(I0s mandate includes responsibilities for ensuring investor

protection and promoting orderly growth of the securities market. The "(I, on theother hand, is responsible for regulation of a certain well@defined segment of the

securities market. 's the manager of public debt, the "(I is responsible for primary

issues of &overnment ecurities. The "(I0s mandate also includes the regulation of

all contracts in government securities, gold related securities, money market securities

and in securities derived from these securities. To foster consistency of the regulatory

processes, the 5(I is mandated to regulate the trading of these securities on

recognized stock e6changes in line with the guidelines issued by "(I. 'lthough there

is a clear division of regulatory responsibilities between "(I and 5(I, and efforts

have been made to make the regulatory process consistent, the distribution of

regulatory responsibilities among a number of institutions can potentially create

confusion among the regulated as to which body is responsible for a particular area of

regulation.

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To ensure operational independence and accountability in the e6ercise of functions

and powers by the regulators, 5(I and "(I have been constituted as autonomous

bodies and are established under separate acts of the arliament. (oth regulators are

accountable to the arliament through 4entral &overnment and the regulations framed

by them are re=uired to be laid before arliament by the 4entral &overnment. ? There

is also a system of independent !udicial review of the decisions of 5(I and "(I.

'lthough the 5(I and the "(I are operationally independent, the government canissue directions to both in policy matters.

#$# n'orcement o' Securities Regulation

The 5(I has powers to carry out routine inspections of market intermediaries to

ensure compliance with prescribed standards. It also has investigation powers similar

to that of a civil court in terms of summoning persons and obtaining information

relevant to its en=uiry. 'ction is taken on the basis of investigation. The enforcement

powers of 5(I include issuance of directions, imposition of monetary penalties,

cancellation of registration and even prosecution of market intermediaries. To ensure

effective and credible use of enforcement powers, the 5(I has adopted measures

such as development of a stock watch system, uniform price bands and establishment

of a $arket urveillance %ivision. H

While 5(I has powers of direct surveillance of the stock e6changes, members ofstock e6changes and other market intermediaries registered with it, 5(I has no

powers over listed companies. -urther, the present penalty levels in many cases are

not high enough to effectively deter market players from regulatory violations. In

particular, the amount of monetary penalty for non@compliance with respect to

disclosure, information re=uirements, insider trading and market manipulation is very

inade=uate. To cite an e6ample, a ma6imum monetary penalty of only "s.1, ///K@ can

be imposed in case of failure to comply with the provisions of listing agreement.

imilarly, under the 5(I 'ct the penalty for insider trading and non@disclosure of

ac=uisition of shares and takeovers is only "s. lakh. The &roup believes that there is

a need to allow 5(I enhanced authority U and powers to impose penalty

commensurate with the gravity of the violation 2i.e., disgorgement powers3. E

'n additional problem relates to delays in taking action against those who commit

frauds. ' number of companies, which had collected funds in the past through public


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issues, cannot even be traced. To take action against such companies and bring their

%irectors to book, a number of initiatives have been taken including the establishment

of 4entral 4oordination and $onitoring 4ommittee 244$43, with ecretary, %4'

and 4hairman, 5(I as its co@chairmen. ;owever, only limited success has been

achieved. 4learly, the enforcement procedures are cumbersome, time@consuming and

involve too many agencies. There is a need to streamline the procedures to =uickly

detect frauds and take appropriate remedial measures.

In addition to the problem stated above, the slow response in case of frauds results

from long delays arising from the obligation to follow due process. 's a regulatory

body has to be accountable for its action, by implication, it gives the alleged

institution an opportunity to show cause why action should not be taken. There is a

need to streamline the procedures relating to due process. 'lso, dealing with cases of

suspected fraud often re=uires freezing the situation, while the legal process is being

pursued. This happens in India, but the decision to freeze the situation often takes

time.

#$3 %oo&e'ation in Regulation

Farious segments of the domestic financial market are getting increasingly integrated.

There have also been progressive linkages between the domestic and international

capital markets. 's a result, the regulatory interventions or their absence in onemarket tend to have repercussions in other markets that are more serious and more

widespread than in

the past. -urther, with the emergence of more and more financial supermarkets and

growing comple6ity of financial transactions, there are increasing instances of the

same market intermediary coming under the purview of multiple regulatory bodies.

These factors have raised the potential for regulatory gaps as well as overlaps, therebyunderlining the need for greater cooperation among various regulators.

4urrently, coordination among domestic regulators is occurring through the ;igh

:evel &roup on 4apital $arkets 2;:&4$3 comprising the "(I, 5(I, the I"%' and

-inance $inistry. The ;:&4$ has set up two tanding 4ommitteesO one for

regulatory coordination and the other for coordination in matters relating to the

development of debt markets. The 4ommittee meets periodically to e6change


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information and views. (esides, to address specific issues such as %v system or

asset securitization, the "(I and 5(I have been coordinating through the institution

of working groups. The &roup observes that there is scope to further strengthen the

coordination efforts. There may be merit in formalizing the ;:&4$ by giving it a

legal status. (esides, the ;:&4$ needs to meet more fre=uently and its functioning

needs to be made more transparent. 'lso, a system needs to be devised to allow

designated functionaries 2not necessarily only at the top level3 to share specifiedmarket information on a routine and automatic basis.

's regards coordination with regulators in other countries, the "(I has put in place a

system of e6change of need@based information in respect of international operations.

;owever, the powers of 5(I to assist foreign regulators or to enter into $78s or

other cooperation arrangements are not e6plicitly provided by legislation, although

5(I has signed a $o8 with the ecurities 56change 4ommission of the 8 '.

;ence, the &roup is of view that necessary legislative changes need to be made to

enhance 5(I0s scope in this regard.

#$ Sel'-Regulation

Axis Mutul Fund Jaish Gupta

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