Shirish Project

8/14/2019 Shirish Project

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A

Project Report

On

‘ COMPARISON ON MUTUAL FUND SCHEMES’

Undertaken at:

Principal PNB Asset Management Company Pvt.

ltd.

At Ahmedabad Branch

Submitted by:

PUROHIT SHIRISH R.

06MBA46

Guided by:

MR. NIRAV MAJMUDAR

MBA PROGRAME

(2006-08)

SHRIMAD RAJCHANDRA INSTITUTE OF

MANAGEMENT AND COMPUTER APPLICATION

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DECLARATION

I here by declare that the summer project report titled

“ Comparison On Mutual Fund Schemes” is an original

piece of work done by me for the fulfillment of the award of degree of

Master of Business Administration. Whatever information has been

taken from any sources had been duly acknowledge.

I further declare that the secondary data and information

received from online during survey has not been shared with any one

and is used for academic purpose only.

Purohit Shirish R.

(06MBA46)

ACKNOWLEDGEMENT

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Learning is a delightful experience and in the ocean of knowledge

you can acquire limitless understanding through your craving for it.

And in my craving to know more, it has been memorizing extravagance

of memorable experience. At this enlightening moment of completion

of my project, I feel obliged to record my heartfelt and deep gratitude

to those who have helped me.

I feel immense pleasure to thank Dr. Bankim Patel,

Director, Shrimad Rajchandra Institute of Management &

Computer application (SRIMCA), Gopal Vidhyanagar for

making available all facilities in fulfilling the requirements

for the research work and being there for me as and when

required.

I feel immense pleasure in expressing my deep sense of

gratitude to my project guide from the Institute, Mr. Nirav Majmudar,

(Internal Mentor) Shrimad Rajchandra Institute of Management &

Computer Application, Gopal Vidhyanagar, for his valuable guidance

throughout preparation of this report .

I wish to convey my special thanks to Mr. Nitin Zanje as Sales

Manager, Mr. Mohit as assistance sales manager and also thanks to Mr.

Ketan Shah as Sales Executive, At the same time, I am very much

thankful to all staff members of Principal PNB Asset Management

Company Pvt. Ltd., at Ahmedabad for their kind co-operation who has

been a constant source of inspiration and encouragement to me.

I would like to record my special thanks to my parents, friends,

and colleagues help me directly or indirectly in preparation of project

work. I am sincerely thankful to all the faculty member of MBA

department who directly or indirectly supported me during the project.

I am also thankful to all the non-teaching staff of SRIMCA for their kind

support.

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Shirish R.Purohit

(06MBA46)

EXECUTIVE SUMMARY

As a partial fulfillment of MBA program all students are required

to undergo training for 2 months. With respect to this I have prepared a

project report on “Comparison on Mutual Fund Schemes”.

During the last three to four years Mutual Fund industry is booming

in India, which created some eagerness for my summer training. Thus

I decided to work on the Mutual Fund Industry. This would provide

me an opportunity to understand the Mutual Fund industry in better

way. Finally I got consent from Principal PNB Asset Management

Company Pvt. Ltd., Ahmedabad to conduct my project.

Through the discussion with the project mentor and literature review I came toknow that in India there is very less awareness about the Mutual Fund, and the figure of awareness level in India is approximately 4 to 5%. The major portion of people’s savingsis not invested into the Mutual Fund, because of lack of awareness.

The project is based under the assumption that, as Mutual Fund being a newinvestment avenue in the market people likes to get some information about Mutual Fundand also about the products. I want to measure the performance of different mutual fundschemes of different AMCs.

In the duration of 8 weeks I study various mutual fund schemes like, Large capfund Tax saving fund, Child benefit fund, Balance fund growth fund etc. I also studied

performance of different AMCs in particular scheme of mutual fund. In order to comparethe performance of AMCs in particular scheme, I collected daily Net Asset Values of AMCs for the period of 2000 to 2007. Then I compare the performance using Sharpe’sPerformance index model. Then I also compare Sharpe index value with CNXMidcap200.

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I compared different AMCs performance in Balance scheme, Saving Scheme,Equity Scheme & Growth scheme by using Sharpe’s model and calculated return and risk of schemes to compare actual return with index return, thereby to measure the

performance of scheme of different AMCs.

In equity scheme 2003 and 2005 ICICI AMC, 2004 Tata AMC, 2006 and 2007Principal AMC out performs index. In Balance scheme 2002 to 2005 HDFC AMC, 2006Principal AMC and 2007 Tata AMC out performs index. In saving scheme 2000 to 2002Sundarm AMC, 2003 to 2007 Principal AMC out perform index.

Apart from report I made more than 25 clients, they invested more than 2.5 lacs in

Principal Mutual fund schemes. I had done marketing of different Principal schemes at Nationalized Banks. Altogether it was a great learning experience for me throughoutthese 8 weeks of training.

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TABLE OF CONTENTS

CH. NO. TOPIC PAGE NO.

1 INTRODUCTION 1

1.1 Company profile 1

1.2 About Mutual Fund Industry 11

2 Research Methodology 54

3 Data Analysis and Interpretation 56

4 key finding 645 Conclusion 66

6 Recommendation 67

7 Bibliography 68

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CHAPTER 1

INTRODUCTION

1.1) COMPANY PROFILE

Principal PNB Asset Management Company Private Limited is theinvestment manger for Principal Mutual Fund. Principal PNB Asset

Management Company Private Limited is the joint venture between

Principal Financial Group (U.S.A.), Punjab National Bank and Vijaya

Bank.

In this Joint Venture Principal has 65% holding, Punjab National

Bank has 30% holding and Vijaya Bank has 5% holdings. PPAMC has$2600 Million assets under management and serves more than 555000

customers.

ABOUT PRINCIPAL MUTUAL FUNDS

Principal Financial Services Inc., USA, and a member of Principal

Financial Group Inc. USA sponsor Principal Mutual Fund. PrincipalFinancial Group entered Indian mutual fund market in September 2000

through a 50:50 joint venture with IDBI. In October 2000, IDBI Principal

Mutual Fund pioneered an Asset Allocation Program, which it

christened Future Goals — India's first life stage investment plan. In

June 2003, Principal Financial Group bought out Ibis’s 50 per cent stake

in the joint venture.

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PRINCIPAL PNB ASSET MANAGEMENT COMPANY PRIVATE

LIMITED

Principal PNB Asset Management Company Private Limited is the

investment manager for Principal Mutual Fund. It was the first private

sector company to tie-up with the Department of Postal Services to sell

mutual funds through the postal network. In June 2003, Principal PNB

Asset Management Company Private Limited acquired the right to

manage the schemes of SUN F&C Mutual Fund. In May 2004, Punjab

National Bank and Vijaya Bank bought 30% and 5 % respectively in

Principal Asset Management.

SPONSOR

Principal Financial Services Inc., USA (A member of the

Principal Financial Group Inc., USA)

The Principal Financial Group

Principal financial group was established in the year 1879 in

U.S.A. The Principal Financial Group (The Principal) is a leader inoffering businesses, individuals and institutional clients a wide range of

financial products and services, including retirement and investment

services, life and health insurance and mortgage banking through its

diverse family of financial services companies. More employees choose

the Principal Financial Group for their 401(k) plans than any other

bank, mutual fund or insurance company in the United State. A

Member of the FORTUNE 500, the Principal Financial Group has $135

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billion in assets under management and serves some 14.8 million

customers worldwide from office in 12 countries throughout Asia,

Australia, Europe, Latin America and United States.

The Principal Financial Group, Inc. is traded on the New York

Stock Exchange under the ticker symbol PFG. More employees choose

the Principal Financial Group for their 401(k) plans than they do from

any other bank, mutual fund or insurance company in the United

States.

AMC AND TRUSTEE

Principal PNB Asset Management Company Private Limited

(PPAMC), a company incorporated on October 17, 1994, is the

Investment Manager to Principal Mutual Fund.

PPAMC was originally incorporated as a wholly owned subsidiary

of Industrial Development Bank of India (IDBI). Principal Financial

Services Inc. USA, acquired 50% stake in the paid up equity capital of

IDBI Investment Management Company Ltd., on March 31, 2000,

through its subsidiary Principal Financial Group (Mauritius) Limited

(PFGML). Subsequently, the name of the Company was changed to

IDBI-PRINCIPAL Asset Management Company Limited. On June 23,

2003, PFGML acquired 100% stake in the paid up equity capital of IDBI-

PRINCIPAL Asset Management Company Limited. Subsequently the

name of the company was changed to Principal Asset Management

Company Private Limited, to reflect the change in ownership. On May

05, 2004, Punjab National Bank and Vijaya Bank became equity

shareholders of the Asset Management Company and post this,

Principal Financial Group (Mauritius) Limited, Punjab National Bank and

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Vijaya Bank hold 65%, 30% and 5% respectively of the paid up equity

capital of the Asset Management Company. To reflect the change in

the controlling interest, the name of the Company with effect from January 24, 2005 has been changed to Principal PNB Asset

Management Company Private Limited.

Directors of the Asset Management Company are:

Mr. M.M. Chitale

Chairman

Mr. Rajan Ghotgalkar

Managing Director

Mr. Rustam J. Gagrat

Advocate and Solicitor

Mr.Ashok Vij

Chartered Accountant

Mr. Arun Kaul

General Manager - Punjab National Bank

Mr.J. C. Tupling

Chief Operating Officer, Principal International (Asia) Ltd - Asia

PRINCIPAL TRUSTEE COMPANY PRIVATE LTD.

Principal Trustee Company Private Limited (formerly IDBI-

PRINCIPAL Trustee Company Limited), a company incorporated under

the Companies Act, 1956 is the Trustee to the Fund with effect from

October 18, 2002. Prior to October 18, 2002 Board of Trustees

discharged the Trusteeship function of the fund.

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On June 23, 2003, Principal Financial Services Inc. USA acquired

100% stake in IDBI-PRINCIPAL Trustee Company Limited, through its

wholly owned subsidiary Principal Financial Group (Mauritius) Limited.Name of the Trustee Company was changed to Principal Trustee

Company Private Limited, to reflect the change in ownership. On

April 30, 2004, Punjab National Bank and Vijaya Bank became equity

shareholders of the Trustee Company and post this, Principal

Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya

Bank hold 65%, 30% and 5% respectively of the paid up equity capital

of the Trustee Company.

Directors of the trustee company are:

Mr. B. G. Deshmukh

Former Cabinet Secretary, Government of India.

Mr. H.M.Singh

Former Secretary, Government of India

Mr. V.S. Mathur

Independent Director

Mr. Pramod Lele

Independent Director

Mr. Norman Sorensen

President, Principal Financial Inc., USA

Mr. Harwant Singh

General Manager - Punjab National Bank

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Key Personnel

Rajan Ghotgalkar

Managing Director

Rajan Ghotgalkar is Country Head -INDIA at Principal International and

Managing Director of Principal PNB Asset Management Company (in

association with Vijaya Bank.) He has overall responsibility of all the

Principal International business units in India. Mr. Ghotgalkar also

serves as a Director on the Board’s of PNB Principal Insurance AdvisoryCompany Private Limited, PNB Principal Financial Planners Co. Pvt. Ltd

and Principal Global service private ltd.

Rajan Krishnan

Business Head-Asset Management

Mr. Rajan Krishnan is the Business Head - Asset Management at

Principal PNB Asset Management Company Pvt. Ltd.

Rajat Jain

Chief Investment Officer

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Rajat Jain is the Chief Investment Officer of Principal PNB Asset

Management Company Private Limited.

CUSTODIAN

CITIBANK NARamnord house, 77 Dr. Annie Besant Road, Worli, Mumbai 400018

SEBI Registration No. IN/CUS/004

REGISTRAR AND TRANSFER AGENT

KARVY COMPUTERSHARE PRIVATE LIMITED

21, Avenue 4, Banjara Hills, Street No. 1, Hyderabad 500034

SEBI Registration No. INR00000021

STATUTORY AUDITORS OF PRINCIPAL MUTUAL FUND

HARIBHAKTI AND CO.

Chartered Accountants

STATUTORY AUDITORS OF ASSET MANAGEMENT COMPANY

Deloitte Haskins and Sells

Chartered Accountant

STATUTORY AUDITORS OF TRUSTEE COMPANY

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HARIBHAKTI AND CO.

Chartered Accountants

PRODUCT DETAIL

EQUITY FUNDS

Principal Index Fund Open-ended Index Fund

Principal Growth Fund Open-ended Equity Fund

Principal Tax Savings Fund Open-ended Equity-linked Savings Fund

Principal Global Opportunities Fund An open ended Growth

Scheme

Principal Resurgent India Equity Fund Open end Equity Scheme

Principal Personal Tax Saver Fund Open end Equity Linked Saving

Scheme. Open ended ELSS under Section 80 C(2) of the Income Tax

Act, 1961

Principal Dividend Yield Fund An open ended Equity Fund

Principal Focused Advantage Fund Open Ended Equity Fund

Principal Junior Cap Fund Open ended Equity Fund

Principal Large Cap Fund Open ended Equity Fund

Infrastructure & Services Ind Fund An Open Ended Equity Scheme

Long Term Equity Fund-3 yr Plan-SI 3-year close-ended equityscheme

DEBT FUNDS

Principal Floating Rate Fund An open-ended income fund consisting

of two funds - Fixed Maturity Plan and Short Maturity Plan

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Government Securities Fund A 100% debt oriented fund investing

primarily in government securities.

Cash Management Fund A 100% debt-based mutual fund targetedat investors with a short-term investment horizon

Principal Income Fund Open-ended Income Fund

Principal Short Term Income Fund Open-ended Income Fund

Principal Monthly Income Plan Open-ended Income Plan with no

assured monthly returns

Principal Monthly Income Plan - MIP Plus An open ended fund.

Monthly income is not assured and is subject to the availability of distributable surplus

Principal PNB Debt Fund Open-ended Debt Scheme

Principal Money Value Bond Fund Open end Income Scheme

Principal PNB FMP 460 Days-Series I A closed-ended Debt Scheme

offering Fixed Maturity Plan

Principal FMP 385 Days-Series I A closed-ended Debt Scheme

offering Fixed Maturity PlanFixed Duration Fund 3 Year Plan Series I A Closed Ended Income

Scheme offering Fixed Maturity Plan

Principal FMP 385 Days-Series II A closed-ended Debt Scheme


Principal FMP 91 Days-Series IV A closed-ended Debt Scheme


Principal PNB FMP 460 Days-Series II A closed-ended Debt Scheme


Principal FMP 91 Days-Series V A closed-ended Debt Scheme


FMP 385 Days-Series III A closed-ended Debt Scheme offering Fixed

Maturity Plan

Principal FMP 91 Days-Series VI A closed-ended Debt Scheme


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FMP 540 Days Series I A closed-ended Debt Scheme offering Fixed

Maturity Plan

Principal FMP 91 Days-Series VII A closed-ended Debt Schemeoffering Fixed Maturity Plan

Principal FMP 91 Days-Series VIII A closed-ended Debt Scheme


Principal PNB

FMP 460 Days-Series III A closed-ended Debt Scheme offering Fixed

Maturity Plan

Principal PNB FMP 385 days Series IV A closed-ended DebtScheme offering Fixed Maturity Plan

Principal FMP 91 Days-Series IX A closed-ended Debt Scheme


SPECIALTY FUNDS

Principal Trust Benefit Fund Open-ended Income FundPrincipal Child Benefit Fund Open-ended Balanced Fund

BALANCED FUNDS

Principal Balanced Fund Open-ended Balanced Fund

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1.2) HISTORY OF THE INDIAN MUTUAL FUNDINDUSTRY

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

of the concept of mutual fund by UTI in the year 1963. Though the

growth was slow, but it accelerated from the year 1987 when non-UTI

players entered the industry.

In the past decade, Indian mutual fund industry had seen a

dramatic improvement, both qualities wise as well as quantity wise.

Before, the monopoly of the market had seen an ending phase; the

Assets Under Management (AUM) was Rs. 67bn. The private sector

entry to the fund family raised the AUM to Rs. 470 bn in March 1993and till April 2004; it reached the height of 1,540 bn.

Putting the AUM of the Indian Mutual Funds Industry into

comparison, the total of it is less than the deposits of SBI alone,

constitute less than 11% of the total deposits held by the Indian

banking industry.

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The main reason of its poor growth is that the mutual fund

industry in India is new in the country. Large sections of Indian

investors are yet to be intellectuated with the concept. Hence, it is theprime responsibility of all mutual fund companies, to market the

product correctly abreast of selling.

The mutual fund industry can be broadly put into four phases

according to the development of the sector. Each phase is briefly

described as under.

• First Phase – 1964-87

An Act of Parliament established Unit Trust of India (UTI) on

1963. It was set up by the Reserve Bank of India and functioned under

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

Bank of India (IDBI) took over the regulatory and administrative control

in place of RBI. The first scheme launched by UTI was Unit Scheme

1964. At the end of 1988 UTI had Rs.6700 crores of assets under

management.

• Second Phase – 1987-1993 (Entry Of Public Sector Funds)

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

set up by public sector banks and Life Insurance Corporation of India

(LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund

was the first non- UTI Mutual Fund established in June 1987 followed by

Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund

(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90),

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Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund

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

• Third Phase – 1993-2003 (Entry Of Private Sector Funds)

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

in the Indian mutual fund industry, giving the Indian investors a wider

choice of fund families. Also, 1993 was the year in which the first

Mutual Fund Regulations came into being, under which all mutual

funds, except UTI were to be registered and governed. The erstwhile

Kothari Pioneer (now merged with Franklin Templeton) was the first

private sector mutual fund registered in July 1993.

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

more comprehensive and revised Mutual Fund Regulations in 1996.

The industry now functions under the SEBI (Mutual Fund) Regulations

1996.

The number of mutual fund houses went on increasing, with

many foreign mutual funds setting up funds in India and also the

industry has witnessed several mergers and acquisitions. As at the end

of January 2003, there were 33 mutual funds with total assets of Rs.

1,21805 crores. The Unit Trust of India with Rs.44541 crores of assets

under management was way ahead of other mutual funds.

• Fourth Phase – Since February 2003

In February 2003, following the repeal of the Unit Trust of India

Act 1963 UTI was bifurcated into two separate entities. One is the

Specified Undertaking of the Unit Trust of India with assets under

management of Rs.29,835 crores as at the end of January 2003,

representing broadly, the assets of US 64 scheme, assured return and

certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed

19



by Government of India and does not come under the purview of the

Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB,

BOB and LIC. It is registered with SEBI and functions under the Mutual

Fund Regulations. With the bifurcation of the erstwhile UTI which had

in March 2000 more than Rs.76,000 crores of assets under

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

to the SEBI Mutual Fund Regulations, and with recent mergers taking

place among different private sector funds, the mutual fund industry

has entered its current phase of consolidation and growth. As at the

end of September 2004, there were 29 funds, which manage assets of

Rs.153108 crores under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

Note:Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified

20



Undertaking of the Unit Trust of India effective from February 2003.

The Assets under management of the Specified Undertaking of the Unit

Trust of India has therefore been excluded from the total assets of theindustry as a whole from February 2003 onwards.

INTRODUCTION TO MUTUAL FUND

• WHAT IS A MUTUAL FUND?

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• ORGANIZATION STRUCTURE OF MUTUAL FUND

INDUSTRY

Mutual fund is set up in the form of a trust, which has sponsor, trustees,

asset management company (AMC) and a custodian. The trust is established

by a sponsor or more than one sponsor who is like a promoter of a company.

UnitHolders

SEBI

SponsorsTrustee AMC

TransferAgentMutual Fund

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The AMC, approved by SEBI, manages the funds by making investments in

various types of securities. The custodian, who is registered with SEBI, holds

the securities of various schemes of the fund in its custody. The trustees arevested with the general power of superintendence and direction over AMC.

They monitor the performance and compliance of SEBI Regulations by the

mutual fund.

• ORGANISATION OF A MUTUAL FUND

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Sponsor

AssetMgmt.

CompanyCustodian

Trustee

Company

Scheme

SchemeScheme

PortfolioCos.

PortfolioCos.

PortfolioCos

MutualFund



MUTUAL FUND

The Mutual Fund Regulations lay down several criteria that needto be fulfilled in order to be granted registration as a mutual fund must

be registered with SEBI and must be constituted in the form of a trust

in accordance with the provisions of the Indian Trusts Act, 1882. The

instrument of trust must be in the form of a deed between the sponsor

and the trustees of mutual fund duly registered under the provision of

the Indian Registration Act,1908.

SPONSOR

The sponsor is required, under the provisions of the Mutual Fund

Regulations, to have a sound track record, a reputation of fairness and

integrity in all his business transactions Additionally, the sponsor

should contribute at least 40% to the net worth of the an AMC shall be

deemed to be a sponsor and will be required to fulfill the eligibility

criteria specified in the Mutual Fund Regulations. The sponsor or any of

its directors or the principal officer employed by the mutual fund

should not be guilty of fraud, not be convicted of an offence involving

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

offence.

TRUSTEES

The mutual fund is required to have an independent Board of

Trustees, i.e. two thirds of the trustees should be independent persons

who are not associated with the sponsors in any manner whatsoever.

An AMC or any of its officers or employees are not eligible to act as a

trustee of any mutual fund. In case a company is appointed as trustee,then its directors can act as trustees of any other trust provided that

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the object of such other trust is not in conflict with the object of the

mutual fund. Additionally, no person who is appointed as a trustee of

a mutual fund can be appointed as a trustee of any other mutual fundunless he is an independent trustee and prior approval of the mutual

fund of which he is a trustee has been obtained for such an

appointment. The trustees are responsible for-inter alia- ensuring that

the AMC has all its systems in place, all key personnel, auditors,

registrars etc. have been appointed prior to the launch of any scheme.

It is also the responsibility of the trustees to ensure that the AMC does

not act in a manner that is favorable to i9ts associates such that it hasa detrimental impact on the unit holders, or that the management of

one scheme by the AMC does not compromise the management of

another scheme.

The trustees are also required to ensure that an AMC has been

diligent in empanelling and monitoring any securities transactions with

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

broker. The Mutual Fund Regulations further mandates that thetrustees should prevent any conflicts of interests between the AMC and

the unit holders in terms of deployment of net worth. The trustees are

also responsible for ensuring that there is no change carried out in the

fundamental attributes of any scheme or the trust or fees and

expenses payable or any other change that would modify the scheme

and affect the interest of unit holders, unless each unit holder is

provided with written communication thereof.

In addition, the unit holders must be given the option to exit at

the prevailing Net Asset Value (“NAV”) without any exit load. They are

obli9ged to perform a quarterly review of all transactions carried out

between the mutual funds, AMC and its associates. As far as

professional indemnity cover for the trustees or the AMC is concerned,

industry practice in India reveals that the insurance policy is taken out

by an Indian insurance company (as is required by the Insurance Act,

1938) while the risk is subsequently ceded to an overseas re-insurer

26



who underwrites the primary policy issued by the Indian insurance

company.

ASSET MANAGEMENT COMPANY

The sponsor or the trustees are required to appoint an AMC

to manage the assets of the mutual fund. Under the Mutual Fund

Regulations, the applicant must satisfy certain eligibility criteria in

order to qualify to register with SEBI as an AMC

• The sponsor must have at least 40% stake in the AMC;

• The directors of the AMC should be persons having adequate

professional experience in finance and financial services related

field and not found guilty of moral turpitude or convicted of any

economic offence or violation of any securities laws;

• The AMC should have and must at all times maintain, a minimum

net worth of Rs.100 million;

• The board of directors of such AMC has at least 50% directors,

who are not associate of , or associated i9n any manner with, the

sponsor or any of its subsidiaries or the trustees;

The Chairman of the AMC is not a trustee of any mutual fund In

addition to the above eligibility criteria and other on going

compliance requirements laid down in the Mutual Fund Regulations,

the AMC is required to observe the following restrictions in its

normal course of business:

• Any director of the AMC cannot hold office of a director in another

AMC unless such person is an independent director and the approval

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

obtained;

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• The AMC shall not act as a trustee of any mutual fund;

• The AMC cannot undertaken any other business activities except

activities in the nature of portfolio management and advisory

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

capital funds, and management. Of insurance funds, financial

consultancy an d exchange of research on commercial basis if any

of such activities are not in conflict with the activities of the mutual

fund;

• However, the AMC may, Itself or through its subsidiaries, undertake

such activities if it satisfies the board that the key personnel of the

asset management company, the systems, back office, bank and

securities accounts are segregated activity wise and there exist

systems to prohibit access to inside information of various activities.

• The AMC shall not invest in any of its schemes unless full disclosure

of its intention to invest has been made in the offer. However, an

AMC shall not be entitled to charge any fees on its investment in

that scheme.

CUSTODIAN

The mutu8al fund is required, under the Mutual Fund Regulations, to

appoint a custodian to carry out the custodial services for the schemes

of the fund. Only institutions with substantial organizational strength,

service capability in terms of computerization, and other infrastructure

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

totally declined from the AMC and must be registered with SEBI. Under

the Securities and Exchange Board of India (Custodian of Securities)

28



Guidelines, 1996,any person proposing to carry on the business as a

custodian of securities must register with the SEBI and is required to

fulfill specified eligibility criteria. Additionally, a custodian in which thesponsor or its associates holds 50% or more of the voting rights of the

share capital of the custodian or where 50% or more of the directors of

the custodian represent he interest of the sponsor or its associates

cannot act as custodian for a mutual fund constituted by the same

sponsor or any of its associate or subsidiary company.

SCHEMES

Under the Mutual Fund Regulations, a mutual fund is allowed to

float different schemes. Each scheme has to be approved by the

trustees and the offer document is required to be filed with the SEBI.

The offer document should contain disclosures which are adequate

enough to enable the investors to make informed investment decision,including the disclosure on maximum investments proposed to be

made by the scheme in the listed securities of the group companies of

the sponsor . If the SEBI does not comment on the contents of the

offering documents within 21 days from the date of filing, the AMC

would be free to issue the offer documents to public.

There is obligation on the AMC and the trustee to ensure that thestatements made in the offer documents are true and correct. The AMC

is also required to provide an option to the unit-holder to nominate a

person in whom the units held by him shall vest in the event of his

death. SEBI has also prescribed an advertising code that has to be

observed while launching a new scheme.

Close-ended schemes are required to be listed on a recognizedstock exchange within six months from the closure of the subscription.

29



However, this requirement is not mandatory if the scheme provides for

periodic repurchase facility to all the unit-holders or monthly income or

caters to special classes of persons, if the details of such repurchasefacility are clearly disclosed in the offer document or if the scheme

opens for repurchase within a period of six months from the closure of

subscription. The units of close-ended scheme may be converted into

open-ended scheme if the offer document of such scheme discloses

the option and the period of such conversion or if the unit-holders are

provided with an option and the period of such conversion or if the

unit-holders are provided with an option to redeem their units in full. Aclose-ended scheme is required to be fully redeemed at the end of the

maturity period. However, a close-ended scheme may be allowed to be

rolled over if the purpose, period and other terms of the roll over and

all other material details of the scheme including the likely composition

of assets immediately before the roll over, net assets and NAV of the

scheme, are disclosed to the unit-holders and a copy of the same4 has

been filed with SEBI. Additionally, such a roll over would be permittedonly in case of those unit-holders who have expressed their consent in

writing and the unit-holders who do not opt for the roll over or have not

given written consent shall be allowed to redeem their holdings in full

at NAV based price.

INVESTMENT CRITERIA

The Mutual Fund Regulations lay down certain investment criteria

that the mutual funds need to observe. The money 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 securities debts. However, in the case of

securities debts such fund may invest in asset-backed securities and

mortgaged backed securities. Furthermore, the mutual fund having

30



aggregates of securities which are worth Rs.100 million or more shall

be required to settle their transactions through dematerialized

securities. In addition to the above, mutual fund are not permitted toborrow money from the market except to meet temporary liquidity

needs of the mutual funds for the purpose of repurchase, redemption

of units or payment of interest or dividend to the unit holders. Even

such borrowing cannot exceed 20% of the net asset of a scheme and

the duration of such a borrowing cannot exceed a period of six months.

Similarly, a mutual fund is not permitted to advance any loans for any

purpose.

A mutual fund is permitted to lend securities in accordance with

the stock lending scheme of SEBI. The funds of a scheme are

prohibited from being used in option trading or in short selling or carry

forward transactions. However, SEBI has permitted mutual fund to

enter into derivative transactions on a recognized stock exchange for

the purpose of hedging and portfolio balancing and such investmentsin derivative instruments have to be made in accordance with

SEBI guidelines issued in this regard.

Limitation of Fees and Expenses

The mutual Fund Regulations lay down certain restrictions on the fees

that can be charged by the AMC and also caps the express that can be

loaded on to the Fund. The AMC can charge the mutual fund with

investment and advisory fees subject to the following restrictions:

• One and a quarter of one per cent of the weekly average net assets

outstanding in each accounting year for the scheme concerned, as long

as the net assets do not exceed Rs.1 billion, and

31



• One per cent of the excess amount over Rs.1 billion, where net assets

so calculated exceeds RS.1 billion.

For schemes launched on a load basis, the AMC can collect an

additional management fee not exceeding 1% of the weekly average

net assets outstanding in each financial year. In addition to the

aforesaid fees, the AMC may charge the mutual fund with the initial

expenses including agents’ commission, if any, brokerage and

transaction cost, fees and expenses of trustees, audit fees , custodian

fees etc. The Mutual Fund Regulations also lay down a cap on the initialexpense and the ongoing expense that can be borne by a scheme. In

respect of a scheme, initial expenses, they cannot exceed 6% of the

initial resources raised under that scheme and any excess over the 6%

initial issue expense shall be borne by the AMC. Ongoing expenses

(excluding issue or redemption expenses) including the investment

management and advisory fee cannot exceed the following limits:

1. The first Rs.100 cores of the average weekly net assets – 2.5%

2. On the next Rs.300 cores of the average weekly net assets –

2.25%

3. On the next Rs.300 cores of the average weekly net assets –

2.0%

4. On the balance on the assets – 1.75%

In addition to the above provisions, the Mutual Fund Regulations

lay down several compliance /filing requirements pertaining to

reporting to the SEBI , guidelines for calculation of Net Assets Value,

disclosure requirements, accounting norms, etc.

32



MUTUAL FUND OPRTATION FLOW CHART

A Mutual Fund is a trust that pools the saving of number of

investors who shares a common financial goal. The money thus

collected is the invested in capital market instrument such as shares,

33



debentures. The income earned through these investments and the

capital appreciation realized is shares by its unit holders in proportion

to the number of units owned by them. Thus a mutual fund is themost 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.

HOW DOES MUTUAL FUND WORK ?HOW DOES MUTUAL FUND WORK ?

34



TYPE OF MUTUAL FUNDS

35



Type of Funds, as per structure ….

Open-ended Daily sale/purchase,

No fixed maturity,

Fund is “secondary market”

Closed-ended Sale during IPO,

Fixed Maturity,SE is secondary market.

Interval Periodic sale/purchase,

No fixed maturity,

SE is secondary market.

Schemes can be classified as Closed-ended or Open-ended

depending upon whether they give the investor the option to redeem

at any time (open-ended) or whether the investor has to wait till

maturity of the scheme.

Open-ended Fund/ Scheme

An open-ended fund or scheme is one that is available for

subscription and repurchase on a continuous basis. These schemes do

not have a fixed maturity period. Investors can conveniently buy and

sell units at Net Asset Value (NAV) related prices which are declared on

a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund/ Scheme

36



A close-ended fund or scheme has a stipulated maturity period

e.g. 5-7 years. The fund is open for subscription only during a specified

period at the time of launch of the scheme. Investors can invest in thescheme at the time of the initial public issue and thereafter they can

buy or sell the units of the scheme on the stock exchanges where the

units are listed. In order to provide an exit route to the investors, some

close-ended funds give an option of selling back the units to the

mutual fund through periodic repurchase at NAV related prices. SEBI

Regulations stipulate that at least one of the two exit routes is

provided to the investor i.e. either repurchase facility or through listingon stock exchanges. These mutual funds schemes disclose NAV

generally on weekly basis.

Interval Fund/ Scheme

These schemes combine the features of open-ended and closed-

ended schemes. They may be traded on the stock exchange or may be

open for sale or redemption during pre-determined intervals at NAVbased prices.

Type of Funds, as per investment objective….

37



Equity schemes are hence not suitable for investors seeking

regular income or needing to use their investments in the short-term.

They are ideal for investors who have a long-term investment horizon. The NAV prices of equity fund fluctuates with market value of the

underlying stock which are influenced by external factors such as

social, political as well as economic.

39



General Purpose+

The investment objectives of general-purpose equity schemes donot restrict them to invest in specific industries or sectors. They thus

have a diversified portfolio of companies across a large spectrum of

industries. While they are exposed to equity price risks, diversified

general-purpose equity funds seek to reduce the sector or stock

specific risks through diversification. They mainly have market risk

exposure.

Sector Specific

These schemes restrict their investing to one or more pre-

defined sectors, e.g. technology sector. Since they depend upon the

performance of select sectors only, these schemes are inherently more

risky than general-purpose schemes. They are suited for informed

investors who wish to take a view and risk on the concerned sector.

Special Schemes

Index schemes

The primary purpose of an Index is to serve as a measure of the

performance of the market as a whole, or a specific sector of themarket. An Index also serves as a relevant benchmark to evaluate

the performance of mutual funds. Some investors are interested in

investing in the market in general rather than investing in any

specific fund. Such investors are happy to receive the returns

posted by the markets. As it is not practical to invest in each and

every stock in the market in proportion to its size, these investors

are comfortable investing in a fund that they believe is a good

representative of the entire market. Index Funds are launched and

40



managed for such investors. An example to such a fund is the HDFC

Index Fund.

Tax saving schemes

Investors (individuals and Hindu Undivided Families (“HUFs”)) are

being encouraged to invest in equity markets through Equity Linked

Savings Scheme (“ELSS”) by offering them a tax rebate. Units

purchased cannot be assigned / transferred/ pledged / redeemed /

switched – out until completion of 3 years from the date of

allotment of the respective Units.

The Scheme is subject to Securities & Exchange Board of India

(Mutual Funds) Regulations, 1996 and the notifications issued by the

Ministry of Finance (Department of Economic Affairs), Government

of India regarding ELSS.

Subject to such conditions and limitations, as prescribed underSection 88 of the Income-tax Act, 1961, subscriptions to the Units

not exceeding Rs.10, 000 would be eligible to a deduction, from

income tax, of an amount equal to 20% of the amount subscribed.

HDFC Tax Plan 2000 is such a fund.

Real Estate Funds

Specialized real estate funds would invest in real estates

directly, or may fund real estate developers or lend to them directly

or buy shares of housing finance companies or may even buy their

securitized assets.

41



Debt Oriented Scheme

These schemes, also commonly called Income Schemes, invest in

debt securities such as corporate bonds, debentures and government

securities. The prices of these schemes tend to be more stable

compared with equity schemes and most of the returns to the

investors are generated through dividends or steady capital

appreciation. These schemes are ideal for conservative investors or

42



those not in a position to take higher equity risks, such as retired

individuals. However, as compared to the money market schemes they

do have a higher price fluctuation risk and compared to a Gilt fundthey have a higher credit risk.

Income Schemes

These schemes invest in money markets, bonds and debentures

of corporate with medium and long-term maturities. These schemes

primarily target current income instead of capital appreciation. They

therefore distribute a substantial part of their distributable surplus tothe investor by way of dividend distribution. Such schemes usually

declare quarterly dividends and are suitable for conservative investors

who have medium to long term investment horizon and are looking for

regular income through dividend or steady capital appreciation..

Liquid Income Schemes

Similar to the Income scheme but with a shorter maturity than

Income schemes. An example of this scheme is the HDFC Liquid Fund

Money Market Schemes

These schemes invest in short term instruments such as

commercial paper (“CP”), certificates of deposit (“CD”), treasury bills

(“T-Bill”) and overnight money (“Call”). The schemes are the least

volatile of all the types of schemes because of their investments in

money market instrument with short-term maturities. These schemes

have become popular with institutional investors and high net worth

individuals having short-term surplus funds.

Gilt Funds

43



This scheme primarily invests in Government Debt. Hence the

investor usually does not have to worry about credit risk since

Government Debt is generally credit risk free.

Hybrid Schemes

These schemes are commonly known as balanced schemes.

These schemes invest in both equities as well as debt. By investing in a

mix of this nature, balanced schemes seek to attain the objective of

income and moderate capital appreciation and are ideal for investors

with a conservative, long-term orientation.

Fund of Funds (FoF) schemes

A scheme that invests primarily in other schemes of the same

mutual fund or other mutual funds is known as a FoF scheme. A FoF

scheme enables the investors to achieve greater diversification

through one scheme. It spreads risks across a greater universe.

Load or no-load Fund

A Load Fund is one that charges a percentage of NAV for entry or

exit. That is, each time one buys or sells units in the fund, a charge will

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

distribution expenses. Suppose the NAV per unit is Rs.10. If the entry

as well as exit load charged is 1%, then the investors who buy would

be required to pay Rs.10.10 and those who offer their units for

repurchase to the mutual fund will get only Rs.9.90 per unit. The

investors should take the loads into consideration while making

investment as these affect their yields/returns. However, the investors

should also consider the performance track record and service

standards of the mutual fund, which are more important. Efficient

funds may give higher returns in spite of loads.

44



Mutual funds cannot increase the load beyond the level

mentioned in the offer document. Any change in the load will be

applicable only to prospective investments and not to the originalinvestments. In case of imposition of fresh loads or increase in existing

loads, the mutual funds are required to amend their offer documents

so that the new investors are aware of loads at the time of

investments.

RIGHTS AND SERVICES OF UNIT HOLDERS:

Unit holders may have access to Certain Services, Such As

Automatic Reinvestment Of Dividends And Systematic Withdrawal And

Systematic investment plans, inter scheme transfers. This section of

the prospectus will describe these services and how you can take

advantage of them.

After reviewing a few prospectuses, you’ll become accustomed to

the language and be able to reduce the time it takes to find the

information you need to make a sound investment decision.

You can receive prospectuses free from mutual fund companies, their

investor service centers or registrars. Do not hesitate to ask questions

on points that you do not understand.

ADVANTAGES OF MUTUAL FUNDS

Affordability

A mutual fund invests in a portfolio of assets, i.e. bonds, shares,

etc. depending upon the investment objective of the scheme. An

investor can buy in to a portfolio of equities, which would otherwise be

extremely expensive. Each unit holder thus gets an exposure to such

portfolios with an investment as modest as Rs.500/-. This amount

today would get you less than quarter of an Infosys share! Thus it

45



would be affordable for an investor to build a portfolio of investments

through a mutual fund rather than investing directly in the stock

market.

Professional Management:

Qualified investment professionals who seek to maximize returns

and minimize risk monitor investor's money. When you buy in to a

mutual fund, you are handing your money to an investment

professional who has experience in making investment decisions. It is

the Fund Manager's job to (a) find the best securities for the fund,

given the fund's stated investment objectives; and (b) keep track of

investments and changes in market conditions and adjust the mix of

the portfolio, as and when required.

Transparency

Open-ended mutual funds disclose their Net Asset Value (“NAV”)

daily and the entire portfolio monthly. This level of transparency, where

the investor himself sees the underlying assets bought with his money,

is unmatched by any other financial instrument. Thus the investor is in

the know of the quality of the portfolio and can invest further or

redeem depending on the kind of the portfolio that has been

constructed by the investment manager.

Diversification

The nuclear weapon in your arsenal for your fight against risk. It

simply means that you must spread your investment across different

securities (stocks, bonds, money market instruments, real estate, fixed

deposits etc.) and different sectors (auto, textile, information

technology etc.). This kind of a diversification may add to the stability

of your returns, for example during one period of time equities mightunder perform but bonds and money market instruments might do well

46



enough to offset the effect of a slump in the equity markets. Similarly

the information technology sector might be faring poorly but the auto

and textile sectors might do well and may protect your principalinvestment as well as help you meet your return objectives.

Spreading Risk:

An investor with a limited amount of fund might be able to invest

in only one or two stocks / bonds, thus increasing his or her risk.

However, a mutual fund will spread its risk by investing a number of

sound stocks or bonds. A fund normally invests in companies across a

wide range of industries, so the risk is diversified at the same time

taking advantage of the position it holds. Also in cases of liquidity crisis

where stocks are sold at a distress, mutual funds have the advantage

of the redemption option at the NAVs.

Liquidity:

You are free to take your money out of open-ended mutual funds

whenever you want, no questions asked. Most open-ended funds mail

your redemption proceeds, which are linked to the fund's prevailing

NAV (net asset value), within three to five working days of your putting

in your request

Variety

Mutual funds offer a tremendous variety of schemes. This variety

is beneficial in two ways: first, it offers different types of schemes to

investors with different needs and risk appetites; secondly, it offers an

opportunity to an investor to invest sums across a variety of schemes,

both debt and equity. For example, an investor can invest his money in

a Growth Fund (equity scheme) and Income Fund (debt scheme)

depending on his risk appetite and thus create a balanced portfolioeasily or simply just buy a Balanced Scheme

47



Flexibility

Mutual Funds offering multiple schemes allow investors to switch

easily between various schemes. This flexibility gives the investor a

convenient way to change the mix of his portfolio over time.

Convenience

An investor can purchase or sell fund units directly from a fund,

through a broker or a financial planner. The investor may opt for a

Systematic Investment Plan (“SIP”) or a Systematic WithdrawalAdvantage Plan (“SWAP”). In addition to this an investor receives

account statements and portfolios of the schemes

Tax Benefits

Any income distributed after March 31, 2002 will be subject to

tax in the assessment of all Unit holders. However, as a measure of

concession to Unit holders of open-ended equity-oriented funds,

income distributions for the year ending March 31, 2003, will be taxed

at a concessional rate of 10.5%.

In case of Individuals and Hindu Undivided Families a deduction

upto Rs. 9,000 from the Total Income will be admissible in respect of

income from investments specified in Section 80L, including income

from Units of the Mutual Fund. Units of the schemes are not subject toWealth-Tax and Gift-Tax.

Regulations :

Securities Exchange Board of India (“SEBI”), the mutual funds

regulator has clearly defined rules, which govern mutual funds. These

rules relate to the formation, administration and management of

mutual funds and also prescribe disclosure and accounting

48



requirements. Such a high level of regulation seeks to protect the

interest of investors.

DISADVANTAGES OF MUTUAL FUNDS

Some of the Disadvantages of investing in Mutual Funds are given

below:

Risks Involved

Changing market conditions can create fluctuations in thevalue of a Mutual Fund investment.

There are fees & expenses associated with investing in Mutual

Funds that do not usually occur when purchasing individual

securities directly.

As with any type of investment, there are drawbacks

associated with Mutual Funds.

No Guarantees

The value of your Mutual Fund investment, unlike a bank

deposit, could fall & be worth less than the principle initially

invested. And, while a money market fund seeks a stable share

price, its yield fluctuates, unlike a certificate of deposit. In

addition, Mutual Funds are not insured or guaranteed by an

agency of the U.S. government. Bond funds, unlike purchasing a

bond directly, will not re-pay the principle at a set point in time.

Potential Loss

Unlike a bank deposit, the investment in a Mutual Fund

could fall in value, as the fund is nothing but a portfolio of

different securities. Apart from a few assured returns schemes,

the fund does not guarantee any minimum percentage of return.

49



These expenses are typically expressed as the expense

ratio - the percent of fund assets spent (annually) on day-to-day

operations. Expense ratios can vary widely among funds.Expense ratios for Mutual Funds commonly range from 0.2% to

2.0%, depending on the fund. Consult the fund's prospectus to

determine the expense ratio for a specific fund.

ASSOCIATION OF MUTUAL FUND IN INDIA

(AMFI)

With the increase in mutual fund players in India, a need for mutual

fund association in India was generated to function as a non-profit

organization. Association of Mutual Funds in India (AMFI) was

incorporated on 22nd August, 1995.

AMFI is an apex body of all Asset Management Companies (AMC)

which has been registered with SEBI. Till date all the AMCs are that

have launched mutual fund schemes are its members. It functions

under the supervision and guidelines of its Board of Directors.

Association of Mutual Funds India has brought down the Indian

Mutual Fund Industry to a professional and healthy market with ethical

lines enhancing and maintaining standards. It follows the principle of

both protecting and promoting the interests of mutual funds as well as

their unit holders.

The objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 38 registered AMCs

of the country. It has certain defined objectives which juxtaposes the

guidelines of its Board of Directors. The objectives are as follows:

51



• 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.

• AMFI interacts with SEBI and works according to SEBIs guidelines

in the mutual fund industry.

• Association of Mutual Fund of India do represent the Government

of India, the Reserve Bank of India and other related bodies on

matters relating to the Mutual Fund Industry.

• It develops a team of well qualified and trained Agentdistributors. It implements a programme of training and

certification for all intermediaries and other engaged in the

mutual fund industry.

• AMFI undertakes all India awarness programme for investors in

order to promote proper understanding of the concept and

working of mutual funds.

• At last but not the least association of mutual fund of India also

disseminate information’s on Mutual Fund Industry and

undertakes studies and research either directly or in association

with other bodies.

SEBI Regulations Regarding Mutual Fund

The SEBI regulations for the establishment and issue by mutual fundsare s follows;

52



Mutual Funds shall be established in the form of trusts under the

Indian Trust Act and managed separately formed assetManagement Company.

Money Market mutual Fund would be regulated by the RBI and

Other Mutual Funds Would be regulated by SEBI.

Fifty percent (50%) members of the board of AMC must be

independent directors and must have no connection with

sponsoring organization.

The directors should have at least 10 years experience in the

field of Portfolio management, Financial Administration.

The AMC should have minimum Net Worth of RS 10 crores

An AMC can not act as the AMC for another Mutual Fund

AMCS are also allowed to do other fund based businesses such as

providing investment management services to offshore funds,

other mutual funds, venture capital funds, and insurance

companies.

The minimum amount to be raised with each Closed-End scheme

should be Rs. 20 crores and for the Open-Ended scheme Rs 50

crores.

Each Scheme of the Mutual Fund is registered with SEBI before it

is floated in the market.Closed end schemes should not be kept open for subscription for

more than 45 days. For open ended schemes, the first 45 days

should be considered for determining the target figure.

The initial issue expenses should not exceed 6% of the funds

raised under each scheme.

For each scheme there should be a separate and responsible

Fund Manager.

53



All Mutual Funds mu8st distribute a minimum of 90% of their

profits in any given year.

Frequently used term in mutual fund

Net Asset Value (NAV)

NAV of unit for the scheme is calculated by dividing the market

value of the assets of the scheme by no of unit outstanding for that

scheme. The formula for the calculation of NAV is given below:

NAV = Net Assets of the Scheme / Number of Outstanding Unit.

Where,

Net assets of the scheme = Market Value of the Scheme +

Receivables + Other Accrued Income + Other Assets – Accrued

Expenses – Other Payables – Other liabilities

Number of outstanding unit = Outstanding unit on valuation date.

Entry Load

Entry load are the charges levied by the mutual fund scheme to

meet their routine expenses of the scheme and initial expenses and

distribution expenses of the mutual fund. Generally entry load is taken

on the open ended scheme of the mutual fund where any one can

withdraw their money at any time. One some one invests in the open

54



ended scheme the entry load is added to its current NAV. Generally

entry load of the mutual fund is varies between 1.5% to 3%.

Exit Load

Exit load are the charges levied by the mutual fund when some

one redeemed the fund from the mutual fund. This load is levied to

maintain the investor to remain invested in the mutual fund for the

longer term. The exit load is generally taken on the closed endedscheme of mutual fund.

PLAYERS IN INDIAN MUTUAL FUND INDUSTRY

As on Jun, 2007

Mutual Fund Name No.

Scheme

Assets Under

ManagementABN Amro Mutual Fund 156 6874.43AIG Global Investment

Group Mutual Fund

4 1100.69

Benchmark Mutual Fund 9 7200Birla Mutual Fund 225 19525

BOB Mutual Fund 22 97Canbank Mutual Fund 46 2796DBS Chola Mutual Fund 70 3018Deutsche Mutual Fund 130 6910DSP Merrill Lynch Fund 129 12753Escorts Mutual Fund 24 136Fidelity Mutual Fund 27 8593Franklin Templeton

Investments

196 26469

HDFC Mutual Fund 212 35630

HSBC Mutual Fund 133 14314ICICI Prudential Mutual Fund 270 43614

55



ING Mutual Fund 157 5346 JM Financial Mutual Fund 128 3758 JP Morgan Mutual Fund 3 825

Kotak Mahindra Mutual Fund 144 16722LIC Mutual Fund 81 9222Lotus India Mutual Fund 108 4165Morgan Stanley Mutual Fund 1 3291Principal Mutual Fund 129 11551Quantum Mutual Fund 5 69Reliance Mutual Fund 236 59857Sahara Mutual Fund 29 187SBI Mutual Fund 178 20273Standard Chartered Mutual

Fund

203 12946

Sundaram Mutual Fund 147 9400 Tata Mutual Fund 265 14837 Taurus Mutual Fund 14 308UTI Mutual Fund 216 39032

56

Asset Under Management

59144

50703

40070

36147262762371919661

1672316170

14586

11551

86070

Reliance

ICICI

UTI

HDFC

Franklin

Birla

SBI

Kotak

Satandard Charted

HSBC

Principal Pnb

Others



Bank V/S Mutual Fund

PARTICULARS BANKS MUTUAL FUNDS

Returns Low Better

Administrative exp. High LowRisk Low Moderate to HighInvestment options Less MoreNetwork High penetration Low but improvingLiquidity At a cost BetterQuality of assets Not transparent Transparent

Interest calculation Minimum balance

between 10th.

& 30th. Of every

month

Everyday

Guarantee Maximum Rs.1 lakh on

deposits

None

FEASTA 2007

Feasta 2007 is the sales promotion program of Principal Mutual

Fund for the PSU Banks

In Feasta 2007 PPMF has included Four Product

Principal Large Cap Fund

57



The Investment Objective of the scheme would be to provide

capital appreciation and /or dividend distribution by predominantly

investing in companies having a large market capitalization. PrincipalLarge cap fund that seeks to invest in fundamentally strong companies

with Large Market Capitalization.

What is the investment strategy of the fund?

The fund will predominantly invest in stocks having a market

capitalization equal to or greater than Rs.3500 Crores, representing thetruly large cap stocks. A small part of the Portfolio Could be invested in

stocks having a lower market capitalization but not lower than Rs.2000

Crores.

Large Caps are an ideal investment choice on account

of the following characteristics

• Access to raise resources: Copanies with largecapitalization have strong Balance Sheets along with the ability to

raise/borrow large capital

• Economies of scale: These companies benefit from

cost efficiency due to their economies of scale and hence competitive

pricing leads to both higher top line & Geographic Locations.

58



• Risk Taking Ability: On the operational side, they

have access to sophisticated information systems and use superior risk

management systems.• Preference given by Institutional Investors:

Large Cap companies are the preferred stocks for long-term

investments for large institutional investors like insurance companies,

Provident funds, Foreign Institutional Investors (FIIs), etc.

Principal Tax Savings Fund

To build a high quality growth-oriented portfolio and provide

long-term capital gains to the investor. The fund aims at providing

returns through capital appreciation.

This fund is suitable for investors who are interested in long-term

growth through investments in fundamentally strong companies with

large market capitalization. It is appropriate for investors seeking

equity returns but with the stability that comes through investing in

companies having the propensity to deliver higher returns with limited

volatility irrespective of market cycles.

Investment Objective

59



The Investment Objective of the scheme would be to provide

capital appreciation and /or dividend distribution by predominantly

investing in companies having a large market capitalization.

Investment Strategy

The fund will predominantly invest in stocks having a market

capitalization equal to or greater than Rs.3500 crore (to be reviewed

periodically in line with the market levels), representing the truly large

cap stocks. A small part of the portfolio could be invested in stockshaving a lower market capitalization but not lower than Rs.2000 crores.

Plans for Investment

The Scheme will offer Growth Option and Dividend Option.

Dividend Option will have the facility of Pay-out and Re-investment.

Dividend Frequency

Dividend will be declared based on the distributable surplus as

decided by the Trustees.

Minimum Application Amount

Minimum application amount will be Rs. 5000 for Dividend Optionand Growth Option and any amount thereafter under each option.

Subsequent investment amount shall be Rs 500 and any amount

thereafter under each option.

Load Structure

60



Entry Load – For applications below Rs. 3 crore – 2.25%. For

applications of Rs.3 crore and above - Nil

Exit Load – For applications below Rs.3 crore – Nil.For applications of Rs.3 crore upto Rs.5 crore – 0.50% if redeemed

within 3 months. For applications of Rs.5 crore and above - Nil

Principal Child Benefit Fund

The investment objective of the fund is to generate regular returns

and/or capital appreciation/accretion with the aim of giving lump-sumcapital growth at the end of the chosen target period or otherwise to

the beneficiary. It is balance fund scheme. Principal launch this scheme

as fix.

Principal Global Opportunity Fund

The objective of the scheme is to build a high quality

international equity portfolio out of the permissible investments as

defined and permitted under the regulations from time to time and

provide returns and/or capital appreciation along with regular liquidity

to the investors.

CHAPTER 2

RESEARCH METHODOLOGY

Objective

61



To understand the various schemes of Mutual Fund.

To compare the various schemes.

Research Design:

Descriptive Research Design

Data Collection Method

Secondary Data Collection

• Population- Mutual Fund Schemes

•Sample frame – 157 schemes

•Sample Size

4 Schemes (Principal Large Cap Fund, Principal Global

Opportunity Fund, Principal Tax Saving Funds, Principal

Child Benefit Fund)

• Sampling Technique

Judgmental sampling

Data collection sources

–Web site

Data analysis Package - MS office

62



LIMITATION

The project is based on the Beta calculation, but the dates of the

index and NAV does not match to get reliable calculated Beta.

The performance of the various schemes is based on comparison

between their respective return and Index return, here the index

considered is CNX Midcap 200, but there can be difference

between various Indexes.

63



CHAPTER – 3

DATA ANALYSIS AND INTREPRETATION

Sharpe’s Performance Index

Sharpe’s performance index gives a single value to be used for

the performance common ranking of various funds. Sharpe’s

performance index measures the risk premium of funds relative to the

total amount of risk in the funds. This risk premium is the difference

between the portfolio average rates of return the risk-less rate of

return. The standard deviation of the portfolio indicates the risk the

index assigns the highest values to assets that have best risk adjusted

average rate of return

St =Rp-Rf

σ Ρ

St = Sharpe’s Performance Index

Rp = Portfolio average Return

Rf = Risk free rate of interest (R f = 7.46% per annum T-Bills rate)

σ Ρ = Standard deviation of Portfolio return

Sharpe Index = Portfolio average return- Risk free rate of interest Standard deviation of the portfolio return

64



(%)

Balance scheme

HDFC MUTUAL FUND

YEARGrowth FUND Children's Gift Fund

InvtChildren's Gift SavingsGrowth

RETURN Risk RETURN Risk RETURN Risk

2002 0.090509 0.01898 0.057478 0.006154 0.05784 0.0014012003 0.262408 0.008532 0.173788 0.00738 0.076135 0.002815

2004 0.085842 0.011752 -0.05858 0.01883 -0.07839 0.016597

2005 0.155096 0.007502 0.11508 0.006696 0.04945 0.002456

2006 0.116953 0.010646 0.040907 0.011808 0.005122 0.003052

2007 0.093405 0.007903 0.075771 0.008838 0.026301 0.002

The above table shows the unsystematic risk and return of the HDFC

AMC in the balance scheme.

PRINCIPAL PNB CHILD BENEFIT FUND ICICI Prud Child Care-StudyCBP FGP

YEAR RETURN Risk RETURN Risk YEAR RETURN Risk 2002 0.055561 0.006936 0.000555 0.006925 2002 0.04612 0.0024772003 0.164744 0.007097 0.001648 0.007095 2003 0.081076 0.0043922004 0.059164 0.009686 0.000594 0.009676 2004 0.022919 0.0024862005 0.110658 0.006593 0.001106 0.006593 2005 0.056181 0.0021912006 0.136264 0.010908 0.00136 0.010916 2006 0.051171 0.0042352007 0.129972 0.007355 0.001299 0.007353 2007 0.054176 0.002296

The above table shows the unsystematic risk and return of the PrincipalAMC & ICICI AMC in the Balance Scheme.

YEAR

Tata Balanced Fund- Growth

SBI MagnumBalanced Fund -Growth

Reliance RegularSavings Fund-HYBRID PLAN-Growth Option

Birla Sun Life 95Fund-PlanB Growth

RETURN S.D. RETURN S.D. RETURN S.D. RETURN Risk

2006 0.118855

0.012202

0.118461 0.01137 0.05155

20.003283

0.102571

0.010313

2007 0.153097 0.00854 0.07897

20.008373 0.0902 0.00798

50.123818

0.007874

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2007 2.379476 0.132496 7.528484 -9.96886

9.191686

6.250699

0.522155 1.953663

The above table shows the Sharpe's Performance Index of various

Balanced Fund Schemes from the year 2002 to 2007. In the above

table underline figures shows the higher performance than index and

bold figures shows the highest performance than others.

Intrepretation:

The above tables shows the From the above calculation we cansay that in the Balance fund scheme in the year 2002 to 2005 HDFCAMC, 2006 Principal AMC, 2007 TATA AMC out perform index - whichmeans that this Mutual Fund scheme is able to give more return thanthe benchmark Index used for comparison.

Equity Scheme

YEAR

ICICI Prud GrowthPlan-Growth

Tata Pure Equity-Growth

Sahara GrowthFund-Growth

KotakMahindra_kotak30-Growth

RETURN S.D RETURN S.D. RETURN S.D. RETURN S.D.

2000 -0.19239

0.02562

72001

0.034854

0.022143

2002 0.050970.012374

0.024252

0.011809

20030.267753

0.013894

0.015821

0.013372

0.296822

0.077845

20040.453359 0.67122

0.363171

0.015749

0.071997

0.026195

0.081328 0.013728

20050.160965

0.010786

0.146423

0.015544

0.133071

0.034479

0.111458 0.008363

20060.144751

0.016406

0.143661 0.01718

0.154877

0.015646

0.099448 0.012709

20070.081956

0.012768

0.075755

0.013841

0.084821

0.011147

0.077839 0.011268

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2007 0.576084 0.083448 0.916928 0.287451 0.837421 1.25861 4.85086

Intrepretation:

From the above calculations in the Equity Scheme in the year2003 and 2005 ICICI AMC, 2004 TATA AMC and 2006 and 2007Principal AMC out perform index. In the above table underline figuresshow the higher performance than index and bold figures show thehighest performance than others.

Saving Scheme

YEAR

Sundarm MBNPPribas Tax Saver-Growth

ICICI Prud. TaxPlan-Growth

Principal PNB Mutual Fund

Personal Tax Tax Saver

RETURNAVERAGE RETURN S.D RETURN S.D. RETURN S.D

2000 -0.08296 0.0164880.027898 0.02105 -0.86672 0.072512

20010.064269

0.010775

0.027187 0.017875 -0.04827 0.013107 -0.08482 0.01866

20020.319983

0.012145 -0.05629 0.01381

0.058602 0.011515 0.110554 0.032006

2003 0.001373 0.013603 -0.36793 0.013405 0.2621 0.0136850.268944

0.011314

2004 0.04554 0.020746 -0.12459 0.0179620.081003

0.016102

0.119888 0.016343

2005 0.114349 0.018322 -0.20926 0.010954 -0.04397 0.0261410.149033

0.009917

2006 0.115571 0.026447 -0.08568 0.0178250.094685 0.018658

0.145256

0.016506

2007 0.060783 0.011532 -0.030020.009519

0.194465 0.01183 0.105982 0.012451

The above table shows the unsystematic risk and return of the

Sundaram BNP AMC, ICICI AMC and Principal AMC in the tax saving

scheme.

YEARBirla Sun Life Relief 96 Franklin TempletonMutual Fund-

GrowthKotak Tax Saverscheme-Growth Reliance Taxsaver-Growth

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AVERAGE S.D

AVERAGE S.D. RETURN S.D. RETURN S.D

200020012002200320042005

2006 -0.012340.027462 0.096578

0.014963

0.120865 1.61349 0.10498

0.017206

20070.328896

0.043324 0.103634

0.011877

0.140113

0.011121

0.049149

0.011359

The above table shows the unsystematic risk and return of the Birla

Sun Life AMC, Franklin Temp. AMC, Kotak AMC and Reliance AMC in thetax saving scheme.

Intrepretation:

From the above calculation in the saving scheme in the year

2000 to 2002 Sundarm AMC and 2003 to 2007 Principal AMC outperform index. In t he above table underline figures show the higher

Sharpe's Performance Index in Tax Saver scheme

YEAR

Sundarm ICICI Principal Birla

Sun Franklin Kotak Reliance

Personal Tax

Saver2000 -9.55604 -2.21862 -12.9816

2001 -0.95879 -2.65248 -9.37438 -8.54341

2002 20.20369

-9.47791 -1.38932 1.123352

2003 -5.38315 -33.0119 13.70113 17.1773

2004 -1.40075 -11.0893 0.397652 2.77109

5

2005 2.169468 -25.9142 -4.53579 7.50559

6

2006 1.549174 -8.99192 1.076482 4.280625 -3.16583 1.468843 0.028674 1.765663

2007 -1.19814 -10.9905

10.13229 2.52044 5.869633 2.44454

85.890933 -2.2406

70



performance than index and bold figures show the highestperformance than others.

Growth scheme

Returns*(%) as on April 04,2007

Period PGOFMSCI World

IndexMSCI-EM Index S&P Nifty

1 year 14.48 13.41 19.68 6.332year 17.51 15.56 34.63 34.43

Since incep. 14.36 13.4 29.5 28.26

Intrepretation:

The PGOF is providing less risk it is give nominal returns

to the investors. Because in India only Principal AMC provide

this type of fund in the Mutual fund industry

CHAPTER -4

FINDINGS

By comparing risk and return of fund schemes with index return

and return I found that,

• Balance Scheme:

In the year 2002 to 2005 HDFC AMC having highest rank with

highest return than other AMCs, 2006 Principal AMC highest rank with

highest return but HDFC AMC having low risk than other AMCs, 2007

71



TATA AMC having highest rank but Principal AMC having highest return

and low risk then other AMCs.

• Equity Scheme:

Growth fund that years 2000 to 2002 ICICI growth fund is

available only and but it give negative return. In year 2003 and 2005

ICICI Growth fund having high rank. In the 2004 Tata Equity fund

having highest rank than other but ICICI growth give high return than

other and Kotak Mahindra kotak30 having low unsystematic risk in this

type of fund. In the year 2006 Principal large cap fund with high return

than other AMC but Kotak 30 having low unsystematic risk than other.

In the year 2007 again Principal Large cap fund having high rank with

high return but Sahara growth fund having low unsystematic risk than

other AMCs.

• Saving Scheme:

In the saving scheme mean that tax saving scheme in the year

2002 that is Sunarm tax saving having highest rank with high return

but low unsystematic risk was available in the principal personal taxsaving fund. In the year 2003 principal tax saver having high rank with

high return and low unsystematic risk. In the year 2004 principal

personal tax saver having high rank with low unsystematic risk and

high return is available in the principal tax saving fund. In the year

2005 Principal tax saver having high rank with high return and low

unsystematic risk. In the year 2006 Principal tax saver having high rank

with high return and Frankline Templeton mutual fund having lowunsystematic risk. The year 2007 principal personal tax saver having

72



high rank with high return and Kotak tax saver having low

unsystematic risk than other AMCs.

• Growth scheme:

In the Principal Global Opportunity fund providing less risk with it

give nominal returns to the investors. In India this time only one AMC

providing this type of scheme. Because of in this scheme they are •The

objective of the scheme is to build a high quality international equity

portfolio out of the permissible investments as defined and permitted

under the regulations from time to time and provide returns and/or

capital appreciation along with regular liquidity to the investors.

Selecting a particular scheme largely depends on the needs of

the client; no scheme is the best for all.

CONCLUSION

The determination of the best scheme out of the 4 does not have

a yes-no answer. It depends on the objective of the investor along with

the risk return appetite. Thus we cannot make inter scheme

comparison. Rather we would have to make comparison of various

companies providing the same scheme, which is mentioned below:

In the Balance fund schemes the years from 2000 to 2005 HDFC

AMC is well performing (good return) among other in the same scheme,

after that Principal Child benefit scheme is performing good in year

73



2006, now in current year 2007 TATA AMC has given good performance

under this Balanced Fund scheme.

In the Equity Scheme year 2003 ICICI AMC performed well among

this scheme, in 2004 TATA AMC is performing well than any other

scheme but 2006 to 2007 the Principal AMC gives better.

In the Tax Saving scheme the years 2000 to 2002 Sundarm BNP

AMC well performing [good Return] among this scheme but from the

year 2003 to 2007 Principal AMC having well Position in the among this

scheme.

Particularly in Principal Global Opportunity fund providing less

risk with it gives nominal returns to the investors. Across India Principal

PNB is the only AMC providing this scheme. The objective of the

scheme is to build a high quality international equity portfolio out of

the permissible investments as defined and permitted under the

regulations from time to time and provide returns and/or capitalappreciation along with regular liquidity to the investors .

CHAPTER - 5

Recommendation

• Selecting a particular scheme largely depends on the needs of

the client; no scheme is the best for all.

• Investor must see the objective of the fund

• Investor should measure the performance of a fund.

•

A good historical record could be a better horse to be on thannew funds.

74



• The prospective investor should scrutinize the expense ratio of

the fund and compare it with others.

• A prudent investor must keep his eyes on the stock market

index, interest rate and the inflation rate.

• MFs cannot simply attract savings by mere small investors who

have become very discerning in selecting mutual funds.

Bibliography

• http://www.principalindia.com/presentation/view/fund s.aspx

• http://www.amfiindia.com/navhistoryreport.asp

• www.hdfcfund.com/fundschool/sebi1Show.jsp

• www.sbimf.com/portal/static/inv-faq1.html

• Punithvanthy Pandian, “Security Analysis And Portfolio

Management”,

3 rd Edition, Vikas Publishing House Pvt. Ltd.

75

http://www.principalindia.com/presentation/view/funds.aspx

http://www.amfiindia.com/navhistoryreport.asp

http://www.hdfcfund.com/fundschool/sebi1Show.jsp

http://www.sbimf.com/portal/static/inv-faq1.html

http://www.principalindia.com/presentation/view/funds.aspx

http://www.amfiindia.com/navhistoryreport.asp

http://www.hdfcfund.com/fundschool/sebi1Show.jsp

http://www.sbimf.com/portal/static/inv-faq1.html

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