Mutual Fund the Project

8/8/2019 Mutual Fund the Project

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MUTUAL FUNDS

INTRODUCTION

Mutual funds have been a significant source of investment in bothgovernment and corporate securities. It has been for decades the monopoly of the state with UTI being the key player, with invested funds exceeding Rs.300bn. (US$ 10 bn.). The state-owned insurance companies also hold a portfolioof stocks. Presently, numerous mutual funds exist, including private andforeign companies. Banks--- mainly state-owned too have established MutualFunds (MFs). Foreign participation in mutual funds and asset management companies is permitted on a case by case basis.

UTI, the largest mutual fund in the country was set up by thegovernment in 1964, to encourage small investors in the equity market. UTIhas an extensive marketing network of over 35, 000 agents spread over thecountry. The UTI scrips have performed relatively well in the market, ascompared to the Sensex trend. However, the same cannot be said of all mutualfunds.

All MFs are allowed to apply for firm allotment in public issues. SEBIregulates the functioning of mutual funds, and it requires that all MFs should

be established as trusts under the Indian Trusts Act. The actual fundmanagement activity shall be conducted from a separate asset management company (AMC). The minimum net worth of an AMC or its affiliate must be Rs.50 million to act as a manager in any other fund. MFs can be penalized fordefaults including non-registration and failure to observe rules set by theirAMCs. MFs dealing exclusively with money market instruments have to beregistered with RBI. All other schemes floated by MFs are required to beregistered with SEBI.

In 1995, the RBI permitted private sector institutions to set up MoneyMarket Mutual Funds (MMMFs). They can invest in treasury bills, call andnotice money, commercial paper, commercial bills accepted/co-accepted bybanks, certificates of deposit and dated government securities havingunexpired maturity upto one year.



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MEA NING OF M UTUAL FUNDS

A mutual fund is a company that invests in a diversified portfolio of securities. It 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 incapital market instruments such as shares, debentures and other securities.People who buy shares of a mutual fund are its owners or shareholders. Amutual fund can make money from its securities in two ways: a security canpay dividends or interest to the fund or a security can rise in value. A fund canalso lose money and drop in value. Thus a Mutual Fund is the most suitableinvestment for the common man as it offers an opportunity to invest in adiversified, professionally managed basket of securities at a relatively lowcost.

A Pooling Concept Portfolio of Stocks Portfolio of Bonds Portfolio of

Other Investment Instruments All Mutual Funds aim at achieving one or more

of the following:



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o Providing steady flow of income

o Providing high capital appreciation

o Providing capital appreciation with income

o Providing income or capital appreciation with tax benefits.



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ORIGIN/ HISTORY OF M UTUAL FUNDS

The mutual fund industry in India started in 1963 with the formationof Unit Trust of India, at the initiative of the Government of India and

Reserve Bank. The history of mutual funds in India can be broadly dividedinto four distinct phases:

1. FIRST PHASE² 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned underthe Regulatory and administrative control of the Reserve Bank of India. In1978 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.

2. SECOND PHASE 1987-1993

1987 marked the entry of non- UTI, public sector mutual funds set upby public sector banks and (LIC) and General Insurance Corporation of India(GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June1987 followed by Canada Mutual Fund 87, Punjab National Bank Mutual Fund

89, Indian Bank Mutual Fund 89, Bank of India 90, Bank of Baroda MutualFund 92. LIC established its mutual fund in 1989 while GIC had set up itsmutual fund in 1990. At the end of 1993, mutual fund industry had assetsunder management of Rs.47, 004 crores.

3. THIRD PHASE ² 1993-2003

In 1993 was the year in which the first Mutual Fund regulationscame into being, under which all mutual funds, except UTI were to beregistered and governed. The erstwhile Kothari Pioneer (now merged with

Franklin Templeton) was the first private sector mutual fund registered.The number of mutual fund houses went on increasing, with many foreignmutual funds setting up funds in India and also the industry has witnessedseveral mergers and acquisitions. As at the end of January 2003, there were33 mutual funds with total assets of Rs. 1, 21,805 crores.



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4. FOURTH PHASE ² Since 2003

In February 2003, following the repeal of the Unit Trust of Act 1963UTI was bifurcated into two separate entities. One is the SpecifiedUndertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, theassets of US 64 scheme, assured return and certain other schemes. TheSpecified Undertaking of Unit Trust of India, functioning under anadministrator and under the rules framed by Government of India and doesnot come under the purview of the Mutual Fund Regulations.

The major players in the Indian Mutual Fund Industry are: GROWTH IN ASSETS UNDER MANAGEMENT



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A DV A NT A GE S OF INV E STING IN M UTUAL FUNDS

Mutual funds make saving and investing simple, accessible, andaffordable. The advantages of mutual funds include professional management,

diversification, variety, liquidity, affordability, convenience, and ease of recordkeepingas well as strict government regulation and full disclosure.

The advantages of investing in a Mutual Fund are:

Diversification

The best mutual funds design their portfolios so individual investmentswill react differently to the same economic conditions. For example, economicconditions like a rise in interest rates may cause certain securities in a

diversified portfolio to decrease in value. Other securities in the portfolio willrespond to the same economic conditions by increasing in value. When aportfolio is balanced in this way, the value of the overall portfolio shouldgradually increase over time, even if some securities lose value.

Professional Management

Most mutual funds pay topflight professionals to manage theirinvestments. These managers decide what securities the fund will buy andsell.

Regulatory oversight

Mutual funds are subject to many government regulations that protect investors from fraud.

L iquidity

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

Convenience

You can usually buy mutual fund shares by mail, phone, or over theInternet.



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L ow cost:

Mutual fund expenses are often no more than 1.5 percent of yourinvestment. Expenses for Index Funds are less than that, because index fundsare not actively managed. Instead, they automatically buy stock in companiesthat are listed on a specific index.

Tax Benefits

Dividends given by equity oriented mutual funds are tax-free in thehands of the investor. In case of Debt funds, the funds pay dividenddistribution tax.

Variety

Within the broad categories of stock, bond, and money market funds,you can choose among a variety of investment approaches. Today, there areabout 8,200 mutual funds available in the U.S., with goals and styles to fit most objectives and circumstances.

Protecting Investors

Not only are mutual funds subject to compliance with their self-

imposed restrictions and limitations, they are also highly regulated by thefederal government through the U.S.Securities and Exchange Commission (SEC). As part of this government

regulation, all funds must meet certain operating standards, observe strict antifraud rules, and disclose complete information to current and potentialinvestors. These laws are strictly enforced and designed to protect investorsfrom fraud and abuse.

But these laws obviously cannot help you pick the fund that is right foryou or prevent a fund from losing money. You can still lose money byinvesting in a mutual fund. A mutual fund is not guaranteed or insured by theFDIC or SIPC, even if fund shares are purchased through a bank.

SafetyMutual Fund industry is part of a well-regulated investment

environment where the interests of the investors are protected by the



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regulator. All funds are registered with SEBI and complete transparency isforced.

DISA DV A NT A GE S OF INV E STING IN M UTUAL FUNDS

Mutual funds have their disadvantages and may not be for everyone:

No Guarantees

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

Investors encounter fewer risks when they invest in mutual funds than

when they buy and sell stocks on their own. However, anyone who investsthrough a mutual fund runs the risk of losing money.

Fees and commissions

All funds charge administrative fees to cover their day-to-day expenses.Some funds also charge sales commissions or "loads" to compensate brokers,financial consultants, or financial planners. Even if you don't use a broker orother financial adviser, you will pay a sales commission if you buy shares in aLoad Fund.

Taxes

During a typical year, most actively managed mutual funds sellanywhere from 20 to 70 percent of the securities in their portfolios. If yourfund makes a profit on its sales, you will pay taxes on the income you receive,even if you reinvest the money you made.

Management risk

When you invest in a mutual fund, you depend on the fund's manager tomake the right decisions regarding the fund's portfolio. If the manager doesnot perform as well as you had hoped, you might not make as much money onyour investment as you expected. Of course, if you invest in Index Funds, youforego management risk, because these funds do not employ managers.



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Difficulty in Selecting a Suitable Fund Scheme

Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from

financial planners in order to invest in the right fund to achieve theirobjectives.

ORGA NISA TION OF M UTUAL FUNDS

A mutual fund is usually either a corporation or a business trust (which is like a corporation). Like any corporation, a mutual fund is owned byits shareholders. Virtually all mutual funds are externally managed; they donot have employees of their own. Instead, their operations are conducted by

affiliated organizations and independent contractors.

The illustration below shows the business structure of a typical mutual fund.



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TYPE S OF M UTUAL FUNDS

General Classification of Mutual Funds

Open-end Funds | Closed-end Funds

y Open-end Funds

Funds that can sell and purchase units at any point in time are classified as

Open-end Funds. The fund size (corpus) of an open-end fund keeps

changing because of continuous selling (to investors) and repurchases

(from the investors) by the fund. An open-end fund is not required to keep

selling new units to the investors at all times but is required to always

repurchase, when an investor wants to sell his units. The NAV of an open-

end fund is calculated every day.

y Closed-end Funds

Funds that can sell a fixed number of units only during the New Fund Offer

(NFO) period are known as Closed-end Funds. The corpus of a Closed-end

Fund remains unchanged at all times. After the closure of the offer, buying

and redemption of units by the investors directly from the Funds is not

allowed.

1. INTERVAL FUNDS - Tax-exempt Funds | Non-Tax-exempt Funds

y Tax-exempt Funds

Funds that invest in securities free from tax are known as Tax-exempt

Funds. All open-end equity oriented funds are exempt from distribution tax

(tax for distributing income to investors). Long term capital gains and

dividend income in the hands of investors are tax-free.

y Non-Tax-exempt Funds

Funds that invest in taxable securities are known as Non-Tax-exempt

Funds. In India, all funds, except open-end equity oriented funds are liable

to pay tax on distribution income. Profits arising out of sale of units by an

investor within 12 months of purchase are categorized as short-term

capital gains, which are taxable. Sale of units of an equity oriented fund is



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subject to Securities Transaction Tax (STT). STT is deducted from the

redemption proceeds to an investor.

OTHER TYPES OF MUTAUL FUNDS1. Large Cap Funds

Large cap funds are those mutual funds, which seek capital

appreciation by investing primarily in stocks of large blue chip companies

with above-average prospects for earnings growth. Generally, companies

with a market capitalisation in excess of Rs 1000 crores are known large

cap companies. Investing in large caps is a lower risk-lower return

proposition because such companies are usually widely researched andinformation is widely available.

2. Mid Cap Funds

Mid cap funds are those mutual funds, which invest in small /

medium sized companies. Generally, companies with a market

capitalization of up to Rs 500 crores are classified as small. Those

companies that have a market capitalization between Rs 500 crores and Rs1,000 crores are classified as medium sized.

Mid cap companies are looked upon as wealth creators and have

the potential to join the league of large cap companies. Such companies are

nimble, flexible and can adapt to the changes faster. One of the challenges

that fund managers of mid cap funds face is to identifying such companies.

But mid cap funds are very volatile and tend to fall like a pack of cards in

bad times.

3. Equity Funds

Equity funds are considered to be the more risky funds as compared to

other fund types, but they also provide higher returns than other funds. It



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is advisable that an investor looking to invest in an equity fund should

invest for long term i.e. for 3 years or more. There are different types of

equity funds each falling into different risk bracket.

4. Money Market / Liquid Funds

Money market invests in short-term interest bearing debt

instruments. These securities are highly liquid and provide safety of

investment, thus making money market the safest investment option when

compared with other mutual fund types. Even money markets are exposed

to the interest rate risk. The typical investment options for liquid funds

include Treasury Bills (by governments), Commercial papers (by

companies) and Certificates of Deposit (by banks).

5. H ybrid Funds

As the name suggests, hybrid funds are those funds whose portfolio

includes a blend of equities, debts and money market securities. Hybrid

funds have an equal proportion of debt and equity in their portfolio.

6. Debt / Income Funds

Funds that invest in medium to long-term debt instruments issued by

private companies, banks, financial institutions, governments and other

entities belonging to various sectors (like infrastructure companies etc.)

are known as Income Funds. Debt funds are low risk profile funds that seek

to generate fixed current income (and not capital appreciation) to

investors. In order to ensure regular income to investors, debt funds

distribute large fraction of their surplus to investors. Although debt

securities are generally less risky than equities, they are subject to credit risk by the issuer at the time of interest or principal payment. To minimize

the risk of default, debt funds usually invest in securities from issuers who

are rated by credit rating agencies and are considered to be of "Investment

Grade". Debt funds that target high returns are more risky.



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. Gilt Funds

Also known as Government Securities in India, Gilt Funds invest in

government papers (named dated securities) having medium to long term

maturity period. Issued by the Government of India, these investmentshave little credit risk (risk of default) and provide safety of principal to the

investors. However, like all debt funds, gilt funds too are exposed to

interest rate risk. Interest rates and prices of debt securities are inversely

related and any change in the interest rates results in a change in the NAV

of debt/gilt funds in an opposite direction.

8. Commodity Funds

Those funds that focus on investing in different commodities (likemetals, food grains, crude oil etc.) or commodity companies or commodity

futures contracts are termed as Commodity Funds. A commodity fund that

invests in a single commodity or a group of commodities is a specialized

commodity fund and a commodity fund that invests in all available

commodities is a diversified commodity fund and bears less risk than a

specialized commodity fund. "Precious Metals Fund" and Gold Funds are

common examples of commodity funds.

9. R eal Estate Funds

Funds that invest directly in real estate or lend to real estate developers

or invest in shares/securitized assets of housing finance companies, are

known as Specialized Real Estate Funds. The objective of these funds may

be to generate regular income for investors or capital appreciation.

10. Exchange Traded Funds (ETF)

Exchange Traded Funds provide investors with combined benefits of a

closed-end and an open-end mutual fund. ETFs follow stock market indices

and are traded on stock exchanges like a single stock at index linked prices.

The biggest advantage offered by these funds is that they offer

diversification, flexibility of holding a single share (tradable at index linked



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prices) at the same time. Recently introduced in India, these funds are

quite popular abroad.

11. Fund of Funds

Mutual funds that do not invest in financial or physical assets, but doinvest in other mutual fund schemes offered by different AMCs, are known

as Fund of Funds. Fund of Funds maintain a portfolio comprising of units of

other mutual fund schemes, just like conventional mutual funds maintain a

portfolio comprising of equity/debt/money market instruments or non

financial assets. Fund of Funds provide investors with an added advantage

of diversifying into different mutual fund schemes with even a small

amount of investment, which further helps in diversification of risks.

12. Growth Funds

Growth funds are those mutual funds that aim to achieve capital

appreciation by investing in growth stocks. They focus on those companies,

which are experiencing significant earnings or revenue growth, rather than

companies that pay out dividends. In general, growth funds are more

volatile than other types of funds. Only aggressive investors, or those with

enough time to make up for short-term market losses, should buy these

funds.

13. No- Load Mutual Funds

Mutual funds can be classified into two types - Load mutual funds

and No-Load mutual funds.

y Load funds

Load funds are those funds that charge commission at the time of

purchase or redemption. They can be further subdivided into

Front-end load funds

Front-end loads are fees or expenses recovered by mutual funds

against compensation paid to brokers, their distribution and marketing



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costs. These expenses are generally called as sales loads. Front-end load

funds charge commission at the time of purchase.

Back-end load funds.

Back-end load funds charge commission at the time of redemption.

y No-load funds

No- Load funds are those funds that can be purchased without

commission. The following are some of its advantages:

When compared, no-load funds underperform load funds with

respect to performance calculation.

Finally, when a load fund is held over a long time period, the effect of the load, if paid up front, is not diminished, as in a no-load fund, it

would have been compounding over the whole time period.

14. Value funds

Value funds are those mutual funds that tend to focus on safety

rather than growth, and often choose investments providing dividends as

well as capital appreciation.

15. International Mutual funds

International mutual funds are those funds that invest in non-

domestic securities markets throughout the world. Investing in

international markets provides greater portfolio diversification and let you

capitalize on some of the world's best opportunities. If investments are

chosen carefully, international mutual fund may be profitable when some

markets are rising and others are declining.

16. R egional Mutual funds

Regional mutual fund is a mutual fund that confines itself to

investments in securities from a specified geographical area, usually, the



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fund's local region. A regional mutual fund generally looks to own a

diversified portfolio of companies based in and operating out of its

specified geographical area. The objective is to take advantage of regional

growth potential before the national investment community does.

17. Sector Mutual funds

Sector mutual funds are those mutual funds that restrict their

investments to a particular segment or sector of the economy. Also known

as thematic funds, these funds concentrate on one industry such as

infrastructure, banking, technology, energy, real estate, power heath care,

pharmaceuticals etc. These funds tend to be more volatile than funds

holding a diversified portfolio of securities in many industries. Suchconcentrated portfolios can produce tremendous gains or losses,

depending on whether the chosen sector is in or out of favour. Sectoral

mutual funds come in the high risk high reward category and are not

suitable for investors having low risk appetite.



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M UTUAL FUND GUIDEL INE S

Mutual funds cannot invest more than 10 per cent of the total net assets of a scheme in the short-term deposits of a single bank, the Securities and

Exchange Board of India. Announcing guidelines for parking of funds in short-term deposits of

scheduled commercial banks (SCBs) by mutual funds, the regulator saidthat investment cap would also take into account the deposit schemes of the bank's subsidiaries.

The SEBI has also defined 'short term' for funds' investment purposes as aperiod not exceeding 91 days.

Besides, the parking of funds in short-term deposits of all SCBs has beencapped at 15 per cent of the net asset value (NAV) of a scheme, which can

be raised to 20 per cent with prior approval of the trustees. The parking of funds in short-term deposits of associate and sponsor SCBs

together should not exceed 20 per cent of total deployment by the MF inshort-term deposits, it added.

The SEBI said that these guidelines are aimed at ensuring that fundscollected in a scheme are invested as per the investment objective stated inthe offer document of an MF scheme.

The new guidelines would be applicable to all fresh investments whether ina new scheme or an existing one. In cases of an existing scheme, where the

scheme has already parked funds in short-term deposits, the asset management company has been given three-months time to conform withthe new guidelines.

The SEBI has also asked the trustees of a fund to ensure that no funds areparked by a scheme in short term deposit of a bank, which has invested inthat particular scheme.

The SEBI guidelines say that asset management companies (AMCs) shallnot be permitted to charge any investment and advisory fees for parking of funds in short-term deposits of banks in case of liquid and debt-oriented

schemes. It has also asked the trustees to disclose details of all such funds parked in

short-term deposits in half-yearly portfolio statements under a separateheading and has said that AMCs should also certify the same in its bi-monthly compliance test report.

All the short-term deposits by mutual funds should be held in the name of the scheme concerned only, it added.



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PR E SE NT PLA Y E RS OF M UTUAL FUND CO M PA NIE S IN

INDIA

The concept of mutual funds in India dates back to the year 1963. Theera between 1963 and 1987 marked the existence of only one mutual fundcompany in India with Rs. 67bn assets under management (AUM), by the endof its monopoly era, the Unit Trust of India (UTI). By the end of the 80sdecade, few other mutual fund companies in India took their position inmutual fund market.

The new entries of mutual fund companies in India were SBI MutualFund, Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund.

The succeeding decade showed a new horizon in Indian mutual fundindustry. By the end of 1993, the total AUM of the industry was Rs. 470.04 bn.The private sector funds started penetrating the fund families. In the sameyear the first Mutual Fund Regulations came into existence with re-registeringall mutual funds except UTI. The regulations were further given a revisedshape in 1996.

Kothari Pioneer was the first private sector mutual fund company in

India which has now merged with Franklin Templeton. Just after ten yearswith private sector players penetration, the total assets rose up to Rs.1218.05 bn. Today there are 33 mutual fund companies in India.

MAJOR MUTUAL FUND COMPANIES IN INDIA

ABN AMRO MUTUAL FUND

ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO

Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. DeutscheBank is the custodian of ABN AMRO Mutual Fund.

BIRL A SUN L IFE MUTUAL FUND

Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group



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and Sun Life Financial. Sun Life Financial is a global organisation evolved in1871 and is being represented in Canada, the US, the Philippines, Japan,Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows aconservative long-term approach to investment. Recently it crossed AUM of

Rs. 10,000 crores.

BANK OF BARODA MUTUAL FUND (BOB MUTUAL FUND)

Bank of Baroda Mutual Fund or BOB Mutual Fund was setup onOctober 30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and wasincorporated on November 5, 1992. Deutsche Bank AG is the custodian.

HDFC MUTUAL FUND

HDFC Mutual Fund was setup on June 30, 2000 with two sponsorersnamely Housing Development Finance Corporation Limited and Standard LifeInvestments Limited.

HSBC MUTUAL FUND

HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities

and Capital Markets (India) Private Limited as the sponsor. Board of Trustees,HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund.

ING VYSYA MUTUAL FUND

ING Vysya Mutual Fund was setup on February 11, 1999 with thesame named Trustee Company. It is a joint venture of Vysya and ING. TheAMC, ING Investment Management (India) Pvt. Ltd. was incorporated on April6, 1998.

PRUDENTIAL ICICI MUTUAL FUND

The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. PrudentialICICI Mutual Fund was setup on 13th of October, 1993 with two sponsorers,Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI



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Trust Ltd. and the AMC is Prudential ICICI Asset Management CompanyLimited incorporated on 22nd of June, 1993.

SAHARA MUTUAL FUND

Sahara Mutual Fund was set up on July 18, 1996 with Sahara IndiaFinancial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMCof Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8crores.

STATE BANK OF INDIA MUTUAL FUND

State Bank of India Mutual Fund is the first Bank sponsored Mutual

Fund to launch offshore fund, the India Magnum Fund with a corpus of Rs. 225cr. approximately. Today it is the largest Bank sponsored Mutual Fund inIndia. They have already launched 35 Schemes out of which 15 have alreadyyielded handsome returns to investors. State Bank of India Mutual Fund hasmore than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8Lakhs spread over 18 schemes.

TATA MUTUAL FUND

Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882.The sponsorers for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limitedand its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited'sis one of the fastest in the country with more than Rs. 7,703 crores (as onApril 30, 2005) of AUM.

KOTAK MAHINDRA MUTUAL FUND

Kotak Mahindra Asset Management Company (KMAMC) is asubsidiary of KMBL. It is presently having more than 1, 99,818 investors in itsvarious schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk -return profiles. It was the first company to launch dedicated gilt schemeinvesting only in government securities.



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UNIT TRUST OF INDIA MUTUAL FUND

UTI Asset Management Company Private Limited, established in Jan14, 2003, manages the UTI Mutual Fund with the support of UTI Trustee

Company Private Limited. UTI Asset Management Company presentlymanages a corpus of over Rs.20000 Crores. The sponsorers of UTI MutualFund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of UTIMutual Fund are Liquid Funds, Income Funds, Asset Management Funds,Index Funds, Equity Funds and Balance Funds.

REL IANCE MUTUAL FUND

Reliance Mutual Fund (RMF) was established as trust under Indian

Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and RelianceCapital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995as Reliance Capital Mutual Fund which was changed on March 11, 2004.Reliance Mutual Fund was formed for launching of various schemes underwhich units are issued to the Public with a view to contribute to the capitalmarket and to provide investors the opportunities to make investments indiversified securities.

STANDARD CHARTERED MUTUAL FUND

Standard Chartered Mutual Fund was set up on March 13, 2000sponsored by Standard Chartered Bank. The Trustee is Standard CharteredTrustee Company Pvt. Ltd. Standard Chartered Asset Management CompanyPvt. Ltd. is the AMC which was incorporated with SEBI on December 20, 1999.

FRANKL IN TEMPL ETON INDIA MUTUAL FUND The group, Franklin Templeton Investments is a California (USA) based

company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell theMutual Fund through their financial advisor or through mail or through theirwebsite. They have Open end Diversified Equity schemes, Open end SectorEquity schemes, Open end Hybrid schemes, Open end Tax Saving schemes,Open end Income and Liquid schemes, Closed end Income schemes and Openend Fund of Funds schemes to offer.



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MORGAN STANL EY MUTUAL FUND INDIA

Morgan Stanley is a worldwide financial services company and it isleading in the market in securities, investment management and credit

services. Morgan Stanley Investment Management (MISM) was established inthe year 1975. It provides customized asset management services andproducts to governments, corporations, pension funds and non-profit organisations. Its services are also extended to high net worth individuals andretail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan StanleyMutual Fund (MSMF). This is the first close end diversified equity schemeserving the needs of Indian retail investors focusing on a long-term capitalappreciation.

ESCORTS MUTUAL FUND

Escorts Mutual Fund was setup on April 15, 1996 with Escorts FinanceLimited as its sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC was incorporated on December 1, 1995 with the nameEscorts Asset Management Limited.

ALL IANCE CAPITAL MUTUAL FUND

Alliance Capital Mutual Fund was setup on December 30, 1994 withAlliance Capital Management Corp. of Delaware (USA) as sponsorer. TheTrustee is ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital Asset Management India (Pvt) Ltd. with the corporate office in Mumbai.

BENCHMARK MUTUAL FUND

Benchmark Mutual Fund was setup on June 12, 2001 with NicheFinancial Services Pvt. Ltd. as the sponsorer and Benchmark Trustee Company

Pvt. Ltd. as the Trustee Company. Incorporated on October 16, 2000 andheadquartered in Mumbai, Benchmark Asset Management Company Pvt. Ltd.is the AMC.

CANBANK MUTUAL FUND

Canbank Mutual Fund was setup on December 19, 1987 with Canara



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Bank acting as the sponsor. Canbank Investment Management Services Ltd.incorporated on March 2, 1993 is the AMC. The Corporate Office of the AMC isin Mumbai.

CHOL A MUTUAL FUND

Chola Mutual Fund under the sponsorship of CholamandalamInvestment & Finance Company Ltd. was setup on January 3, 1997.Cholamandalam Trustee Co. Ltd. is the Trustee Company and AMC isCholamandalam AMC Limited.

L IC MUTUAL FUND

Life Insurance Corporation of India set up LIC Mutual Fund on 19thJune 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LICMutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business on 29th April1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima SahayogAsset Management Company Ltd as the Investment Managers for LIC MutualFund.

GIC MUTUAL FUND

GIC Mutual Fund, sponsored by General Insurance Corporation of India(GIC), a Government of India undertaking and the four Public Sector GeneralInsurance Companies, viz. National Insurance Co. Ltd (NIC), The New IndiaAssurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and UnitedIndia Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance withthe provisions of the Indian Trusts Act, 1882.



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M UTUAL FUNDS INDUSTRY IN INDIA

The concept of mutual funds in India dates back to the year 1963. Theera between 1963 and 1987 marked the existence of only one mutual fund

company in India with Rs. 67bn assets under management (AUM), by the endof its monopoly era, the Unit Trust of India (UTI). By the end of the 80sdecade, few other mutual fund companies in India took their position inmutual fund market.

The new entries of mutual fund companies in India were SBI MutualFund, Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund.

The succeeding decade showed a new horizon in Indian mutual fundindustry. By the end of 1993, the total AUM of the industry was Rs. 470.04 bn.The private sector funds started penetrating the fund families. In the sameyear the first Mutual Fund Regulations came into existence with re-registeringall mutual funds except UTI. The regulations were further given a revisedshape in 1996.

Kothari Pioneer was the first private sector mutual fund company inIndia which has now merged with Franklin Templeton. Just after ten yearswith private sector players penetration, the total assets rose up to Rs.1218.05 bn. Today there are 33 mutual fund companies in India.



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M UTUAL FUNDS INDUSTRY IN U.S MA RK E T

Mutual funds really captured the public's attention in the 1980s and'90s when mutual fund investment hit record highs and investors sawincredible returns. However, the idea of pooling assets for investment purposes has been around for a long time

The Arrival of t he Modern Fund

The creation of the Massachusetts Investors' Trust in Boston,Massachusetts, heralded the arrival of the modern mutual fund in 1924. Thefund went public in 1928, eventually spawning the mutual fund firm knowntoday as MFS Investment Management. State Street Investors' Trust was

the custodian of the Massachusetts Investors' Trust. Later, State Street Investors started its own fund in 1924 with Richard Paine, Richard Saltonstalland Paul Cabot at the helm. Saltonstall was also affiliated with Scudder,Stevens and Clark, an outfit that would launch the first no-load fund in 1928. Amomentous year in the history of the mutual fund, 1928 also saw the launchof the Wellington Fund, which was the first mutual fund to include stocks andbonds, as opposed to direct merchant bank style of investments in businessand trade.

Regulation and Expansion

By 1929, there were 19 open-ended mutual funds competing withnearly 700 closed-end funds. With the stock market crash of 1929, thedynamic began to change as highly-leveraged closed-end funds were wipedout and small open-end funds managed to survive.

Government regulators also began to take notice of the fledglingmutual fund industry. The creation of the Securities and ExchangeCommission (SEC), the passage of the Securities Act of 1933 and theenactment of the Securities Exchange Act of 1934 put in place safeguards toprotect investors: mutual funds were required to register with the SEC and toprovide disclosure in the form of a prospectus. The Investment Company Act of 1940 put in place additional regulations that required more disclosures andsought to minimize conflicts of interest.



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The mutual fund industry continued to expand. At the beginning of the1950s, the number of open-end funds topped 100. In 1954, the financialmarkets overcame their 1929 peak, and the mutual fund industry began togrow in earnest, adding some 50 new funds over the course of the decade. The

1960s saw the rise of aggressive growth funds, with more than 100 new fundsestablished and billions of dollars in new asset inflows.

Hundreds of new funds were launched throughout the 1960s until thebear market of 1969 cooled the public appetite for mutual funds. Moneyflowed out of mutual funds as quickly as investors could redeem their shares,but the industry's growth later resumed.

In 1971, William Fouse and John McQuown of Wells Fargo Bank established the first index fund, a concept that John Bogle would use as a

foundation on which to build The Vanguard Group, a mutual fund powerhouserenowned for low-cost index funds. The 1970s also saw the rise of the no-loadfund. This new way of doing business had an enormous impact on the waymutual funds were sold and would make a major contribution to theindustry's success.

With the 1980s and '90s came bull market mania and previouslyobscure fund managers became superstars; Max Heine, Michael Price andPeter Lynch, the mutual fund industry's top gunslingers, became household

names and money poured into the retail investment industry at a stunningpace. More recently, the burst of the tech bubble and a spate of scandalsinvolving big names in the industry took much of the shine off of theindustry's reputation. Shady dealings at major fund companies demonstratedthat mutual funds aren't always benign investments managed by folks whohave their shareholders' best interests in mind.

Despite the 2003 mutual fund scandals and the global financial crisisof 2008-2009, the story of the mutual fund is far from over. In fact, the

industry is still growing. In the U.S. alone there are more than 10,000 mutualfunds, and if one accounts for all share classes of similar funds, fund holdingsare measured in the trillions of dollars. Despite the launch of separateaccounts, exchange-traded funds and other competing products, the mutualfund industry remains healthy and fund ownership continues to grow.



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FUTUR E OF M UTUAL FUNDS IN INDIA

By December 2004, Indian mutual fund industry reached Rs 1, 50,537

crores. It is estimated that by 2010 March-end, the total assets of all scheduledcommercial banks should be Rs 40, 90,000 crores.

The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%.According to the current growth rate, by year 2010, mutual fund assets will bedouble.

Let us discuss with the following table:

Aggregate deposits of Scheduled Com Banks in India (Rs. Crores)

Month/Year Mar-98 Mar-00 Mar-01 Mar-02 Mar-03Mar-

04Sep-04 4-Dec

Deposits 605410 851593 989141 1131188 1280853 - 1567251 1622579

Change in %over last yr

15 14 13 12 - 18 3

Source RBI

Mutual Fund AUMs Growt h

Month/Year Mar-98 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Sep-04 4-Dec

MF AUM's 68984 93717 83131 94017 75306 137626 151141 149300

Change in %over last yr

26 13 12 25 45 9 1

Source - AMFI

Some facts for the growth of mutual funds in India

y 100% growth in the last 6 years.



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y Number of foreign AMC's are in a que to enter the Indian markets likeFidelity Investments, US based, with over US$1trillion assets undermanagement worldwide.

y Our saving rate is over 23%, highest in the world. Only channelizing

these savings in mutual funds sector is required.

y We have approximately 29 mutual funds which is much less than UShaving more than 800. There is a big scope for expansion.

y 'B' and 'C' class cities are growing rapidly. Today most of the mutualfunds are concentrating on the 'A' class cities. Soon they will find scopein the growing cities. Some Future Facts

y Mutual fund can penetrate rural like the Indian insurance industry withsimple and limited products.

y SEBI allowing the MF's to launch commodity mutual funds.

y Emphasis on better corporate governance.

y Trying to curb the late trading practices.

y Introduction of Financial Planners who can provide need based advice.



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CONCL USION

Thus, a mutual fund is just the connecting bridge or a financialintermediary that allows a group of investors to pool their money together

with a predetermined investment objective. The mutual fund will have a fundmanager who is responsible for investing the gathered money into specificsecurities (stocks or bonds). When you invest in a mutual fund, you are buyingunits or portions of the mutual fund and thus on investing becomes ashareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investmentsas compare to others they are very cost efficient and also easy to invest in,thus by pooling money together in a mutual fund, investors can purchasestocks or bonds with much lower trading costs than if they tried to do it on

their own. But the biggest advantage to mutual funds is diversification, byminimizing risk & maximizing returns 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 lowcost.



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BIBL IOGR A PHY

The information was taken from the following sources:

WEB SITES

o http://www.rbi.gov.ino INVESTOPEDIA.Com

BOOKSo Mutual Funds in India Marketing Strategies and Investment

Practices By H.Sadhak: Second Edition / Response Bookso Investment Analysis and Portfolio Management Second Edition

by Prasanna Chandra CFM-TMH Professional Series in Finance

Mutual Fund the Project

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