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A

PROJECTREPORT

On

MUTUAL FUNDANALYSIS & TRENDS

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APROJECT REPORTOn

MUTUAL FUND ANALYSIS & TRENDSAt

SHAREKHAN LTD.

Submitted By:

VIJAYANT KUMAR SINHAPGDBA IIIrd SEM.

A report submitted in the partial fulfillment ofThe requirements of

POST GRADUATE DEPLOMA IN BUSINESS ADMINISTRATIONConducted By

GRADUATE SCHOOL OF BUSINESS AND ADMINISTRATION

UNDER GUIDE BY:Internal Guide:Mr. T.N. Shrivastava(Placement Head,GSBA)

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External Guide:Mr. Vishal Bansal(Assitant Manager, Share Khan, NIODA)

ACKNOWLEDGMENT

I would like to express my sincere gratitude to Mr. Muneet Rastogi(Branch Manager, SHAREKHAN, NOIDA) for giving me theopportunity to work under his guidance.

I would also like to thank my External guide Mr. Vishal Bansal

(Assistant Manager, SHAREKHAN, NOIDA) for giving me thisopportunity to work upon this project.

I sincerely thank my Internal guide Mr.T.N. Shrivastava (PlacementHead,GSBA ) , for guiding me throughout the project and helping meby furnishing the required information as and when I needed.

I would like to extend my deepest thanks to Prof. P.L. Maggu(Executive Director,GSBA) and the entire faculty member for the co-

operation extended by them.

I would also like to express my profound gratitude to all others whohave been instrumental in the preparation of the project report.

Above all I would like to thank God for giving me the strength.

(VIJAYANT KUMAR SINHA)

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CONTENTS

EXECUTIVE SUMMARY.................................................................................................7SYNOPSIS.........................................................................................................................8

COMPANY PROFILE......................................................................................................10

Introduction...............................................................................................................10

Services provided by the SHAREKHAN :-- ............................................................11

Equities and Derivatives ..........................................................................................12

Sharekhan equity analysis .......................................................................................12

MUTUAL FUND..............................................................................................................13Introduction...............................................................................................................13

Organisation of a Mutual Fund.................................................................................14

Sponsor......................................................................................................................14

Mutual Fund as Trusts...............................................................................................14Asset Management Company(AMC)........................................................................15

History.......................................................................................................................15

MUTUAL FUNDS IN INDIA..........................................................................................16.......................................................................................................................................16

First Phase - 1964-87................................................................................................16Second Phase - 1987-1993 (Entry of Public Sector Funds)......................................17Third Phase - 1993-2003 (Entry of Private Sector Funds) .......................................17

Fourth Phase - since February 2003..........................................................................17

Advantages of Mutual Funds....................................................................................19

Objectives..................................................................................................................20MORE ABOUT MUTUAL FUNDS.................................................................................21

What is the Regulatory Body for Mutual Funds?.....................................................21

What are the benefits of investing in Mutual Funds?...............................................21What is NAV?...........................................................................................................22

What is Entry/Exit Load?..........................................................................................22

Are there any risks involved in investing in Mutual Funds?....................................22TYPES OF MUTUAL FUNDS........................................................................................23

Schemes By Structure...................................................................................................24

Schemes by investment Objective................................................................................24Other Objective.............................................................................................................24

Schemes By Structure In Detail....................................................................................24

Schemes according to Investment Objective In Detail.................................................24

Other Schemes In Detail...............................................................................................26

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TAX BENEFITS...............................................................................................................27

To The Mutual Fund......................................................................................................28Tax Implications To Investors.......................................................................................28

RISK FACTORS...............................................................................................................29

STATUTORY DETAILS...................................................................................................29DIFFERENT INVESTMENT PLANS THAT MUTUAL FUND OFFERS............... .....30

Growth Plan and Dividend Plan....................................................................................30

Dividend Reinvestment Plan.........................................................................................30

RIGHTS AVAILABLE TO A MUTUAL FUND HOLDER IN INDIA...........................31FUND OFFER DOCUMENT...........................................................................................31

ACTIVE FUND MANAGEMENT..................................................................................32

PASSIVE FUND MANAGEMENT.................................................................................32EXCHANGE TRADE FUND (ETF)................................................................................33

Latest Development In ETF (TOI Aug 12, 2006).........................................................34

SHARE KHAN MUTUAL FUNDS.................................................................................35Investment Philosophy..................................................................................................35

ASSOCIATION OF MUTUAL FUND IN INDIA (AMFI).............................................36

The AMFI Code Of Ethics............................................................................................36

AMFI Mutual Fund.......................................................................................................37Professional Selling Practice.........................................................................................38

Enforcement..................................................................................................................40

Definitions.....................................................................................................................41SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)(MUTUAL FUNDS)

REGULATIONS, 1996.....................................................................................................44

Procedure for Registering a Mutual Fund with SEBI.......................................................................................................................................46

Terms & Conditions for Registration (Regulation: 10).................................................47

Constitution of the Mutual Fund (Regulation: 14)........................................................48

Contents of trust deed (Regulation: 15)........................................................................48SEBI Guidelines (2001-02) Relating to Mutual Funds.................................................48

Investing in Mutual Funds............................................................................................49

INVESTORS BEHAVIOUR...........................................................................................50STRUCTURE OF THE INDIAN MUTUAL FUND INDUSTRY..................................54

Some of the AMCs operating currently are..................................................................55

RECENT TRENDS IN THE INDIAN MUTUAL FUND INDUSTRY...........................56Causal Factors For The Trend.......................................................................................56

Growth of Business Of UTI..........................................................................................61

Mutual fund flows -- Private sector funds in focus.......................................................62Shifting asset base ........................................................................................................63

Big share in inflows .....................................................................................................64Healthy competition .....................................................................................................65

Beating the broader indices ..........................................................................................67Top performing funds ...................................................................................................67

Sector funds, a mixed bag ............................................................................................69

Focus on select sectors .................................................................................................69The laggards .................................................................................................................70

Sector funds lose steam ................................................................................................71

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Mid-cap focus pays off .................................................................................................71

Tax-saving funds race ahead ........................................................................................72Broader indices, tough to beat ......................................................................................72

Large-cap focus drags performance .............................................................................72

PROBLEMS......................................................................................................................74MEASURES TO OVERCOME THESE PROBLEMS....................................................74

LIST OF FIGURES

Figure 1: GROWTH IN ASSETS UNDER MANAGEMENT........................................18Figure 2: Indian Mutual Fund Industry Organization.......................................................58

Figure 3: Asset under Management .................................................................................59Figure 4: Number of Schemes..........................................................................................59Figure 5: Asset Under Management..................................................................................60

BIBLIOGRAPHY

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EXECUTIVE SUMMARY

Mutual fund industry has emerged as the most dynamic segment ofthe Indian financial system. Thanks to the rigorous policy initiatives ofthe government. Till 1987 the UTI was the only mutual fund. Theindustry has witnessed an unprecedented level of growth with theentry of mutual funds sponsored by nationalized banks andinsurance companies. The objective of this project is to explain thedata interpretation and Analysis of Mutual funds industry.

Description of the Project:

Take a comprehensive look at the overall performance of the MFindustry in India:

The origin and development of Mutual Funds. Regulatory Environment of Mutual Funds. Mutual fund Industry Its size and growth Investment pattern of Mutual Funds, includes:

1. Comparison of Returns2. Investors Behavior

3. Pattern of investments

Evaluation of performance of Mutual Funds includes:

1. Performance of Private sector Funds2. Performance of Public sector Funds

3. Performance of UTI Funds

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4. Problems the industry is facing and measures to overcome

these problems

SYNOPSIS

TITLE: MUTUAL FUND ANALYSIS AND TRENDS

Objective of Project:

To make analysis of. Mutual funds and their performance To make a comparative analysis of public sector & private

sector. To serve Retail investors concern about the risk factor. To explain the Scope and methodology of mutual funds. Find out the growing investment opportunity for the investor in

mutual funds.Scope:

This project will provide me the better platform to understandthe history, growth & various other aspects of mutual fund. Itwill also help me to under stand the behavior of Indian investorregarding different investment tools. The study alsoencompasses the trend mutual fund industry has beenfollowing and to find out how good and safe are these as aninvestment option.

Research Methodology:

The research methodology has been conclusive in nature. The

information has been gathered from various useful and relevantweb sites,books, newspaper and magazine.

Report Submitted:

Branch Office:SHARE KHAN LTD.

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P-12a, 3rd floor,BHS Libery,Sector-18,NOIDA (U.P.)

Head Office:-SHARE KHAN LTD.A-206, Phoenix House,2nd floor, Senapati Bapat Marg,Lower Parel. MUMBAI-400013

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COMPANY PROFILEIntroduction

Share khan is one of the leading retail brokerage firms in the country. It is theretail broking arm of the Mumbai-based SSKI (Shripal Shivlal Kantilal Ishwarlal)Group, which has over eight decades of experience in the stock broking business.Share khan offers its customers a wide range of equity related services includingtrade execution on BSE, NSE, Derivatives, depository services, onlinetrading, mutual fund, investment advice etc.

The firm's online trading and investment sitewww.Sharekhan.comwaslaunched on Feb 8, 2000. The site gives access to superior content andtransaction facility to retail customers across the country. Known for its jargon-free, investor friendly language and high quality research, the site has a registeredbase of over one-lakh customers. The number of trading members currently

stands at over 8000. While online trading currently accounts for just over 1 percent of the daily trading in stocks in India, Share khan alone accounts for22 percent of the volumes traded online .

The content-rich and research oriented portal has stood out among itscontemporaries because of its steadfast dedication to offering customers best-of-breed technology and superior market information. The objective has been to letcustomers make informed decisionsand tosimplify the process of investingin stocks.

On April 17, 2002 Share khan launched Speed Trade, a net-based executable

application that emulates the broker terminals along with host of other informationrelevant to the Day Traders. This was for the first time that a net-based tradingstation of this caliber was offered to the traders. In the last six months SpeedTrade has become a de facto standard for the Day Trading community over thenet.

Share khans ground network includes over 350 centers in 150 cities in

India, of which 130 are fully-owned twigs.

Share khan is lead by a highly regarded management team that has investedcorers of rupees into a world class Infrastructure that provides our clients withreal-time service & 24/7 accesses to all information and products. Our flagshipShare khan Professional Network offers real-time prices, detailed data and news,intelligent analytics, and electronic trading capabilities, right at your fingertips.This powerful technology complemented by our knowledgeable and customerfocused Relationship Managers. We are creating a world of Smart Investor.

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Share khan offers a full range of financial services and products ranging fromEquities to Derivatives enhance your wealth and hence, achieve your financialgoals

Share khan has always believed in investing in technology to build its business.

The company has used some of the best-known names in the IT industry, like SunMicrosystems, Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette,Verisign Financial Technologies India Ltd, Spider Software Pvt. Ltd. to build itstrading engine and content. The Morakhia family holds a majority stake in thecompany. HSBC, Intel & Carlyle are the other investors.

With a legacy of more than 80 years in the stock markets, the SSKI groupventured into institutional broking and corporate finance 18 years ago. PresentlySSKI is one of the leading players in institutional broking and corporate financeactivities. SSKI holds a sizable portion of the market in each of these segments.SSKI's institutional broking arm accounts for 7% of the market for Foreign

Institutional portfolio investment and 5% of all Domestic Institutional portfolioinvestment in the country. It has 60 institutional clients spread over India, FarEast, UK and US. Foreign Institutional Investors generate about 65% of theorganization's revenue, with a daily turnover of over US$ 2 million. The CorporateFinance section has a list of very prestigious clients and has many 'firsts' to itscredit, in terms of the size of deal, sector tapped etc. The group has placed overUS$ 1 billion in private equity deals. Some of the clients include BPL CellularHolding, Gujarat Pipavav, Essar, Hutchison, Planetasia, and Shopper's Stop.

Services provided by the SHAREKHAN :--

Equities & Derivatives: -Comprehensive services for independentinvestors,active traders & Non-Resident Indians.

Sharekhan equity analysis: -Premium research on 401+ companiesupdated daily.

Depository Services: -Value added services for seamless delivery.

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Equities and Derivatives

Our Retail Equity Business caters to the needs of individual Indian and Non-Resident Indian (NRI) investors. Share khan offers broker assisted tradeexecution, automated online investing and access to all IPO's.

Through various types of brokerage accounts, India bulls offers the purchaseand sale of securities which includes Equity, Derivatives and CommoditiesInstruments listed on National Stock Exchange of India Ltd (NSEIL), The StockExchange, Mumbai (BSE) and NCDEX.

Choose the service options that fit you best.

Share khan Classic account - Comprehensive services includingresearch and investing guidance for independent investors.

Share khan Fast trade Share khan is dedicated to empower Active

Traders through personal service and advanced trading technology. Share khan Speed trade plus - With an extensive range of investment

products, you will discover an unwavering commitment to helping youinvest in India.

Sharekhan equity analysis

Building and maintaining your ideal portfolio demands objective, dependableinformation. Share khan Equity Analysis helps satisfy that need by rating stocksbased on carefully selected, fact-based measures. And because we're notfocused on investment banking, we don't have the same conflicts of interest as

traditional brokerage firms. This objectivity is only one important difference in ourratings

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MUTUAL FUND

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

share a common financial goal. The money thus collected is invested by the fundmanager in different types of securities depending upon the objective of thescheme. These could range from shares to debentures to money marketinstruments. The income earned through these investments and the capitalappreciations realized by the scheme are shared by its unit holders in proportionto the number of units owned by them. Thus a Mutual Fund is the most suitableinvestment for the common man as it offers an opportunity to invest in adiversified, professionally managed portfolio at a relatively low cost. The smallsavings of all the investors are put together to increase the buying power and hirea professional manager to invest and monitor the money. Anybody with an invest-able surplus of as little as a few thousand rupees can invest in Mutual Funds.

Each Mutual Fund scheme has a defined investment objective and strategy.

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Organisation of a Mutual Fund

There are many entities involved and the diagram below illustrates theorganisational set up of a mutual fund:

Three Key players namely Sponsor, AMC, and Mutual Fund Trust are involved insetting up a Mutual Fund.

Sponsor

Sponser is any person who acting alone or with another body corporateestablishes a mutual fund. The sponsor of a fund is akin to the promoter of acompany as he gets the fund registered with SEBI.

Mutual Fund as Trusts

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A Mutual Fund in India is constituted in the form of a public Trust created underthe Indian Trusts Act, 1882. The sponsor forms the trust and registers it with SEBI.The fund sponsor acts as the settler of the Trust, contributing to its initial capitaland appoints a trustee to hold the assets of the trust for the benefit of the unit-holders, who are the beneficiaries of the Trust. The fund then invites investors tocontribute their money in the common pool, by subscribing to units issued byvarious schemes established by the Trust as evidence of their beneficial interestin the fund.

Asset Management Company(AMC)

An AMC is a firm that invests the pooled funds of retail investors in securities inline with the stated investment objectives. For a fee, the investment companyprovides more diversification, liquidity, and professional management service thanis normally available to individual investors.

Custodian

A custodian handles the investment back office of a mutual fund. Its responsibility

includes receipt and delivery of securities, collection of income, distribution of incomeand segregation of asset between schems. The sponsor of a mutual fund can not act as a

custodian to the fund.

History

In 1774 a Dutch merchant invited subscriptions from investors to set up aninvestment trust by the name of Eendragt Maakt Magt (Unity Creates Strength),

with the objective of providing diversification at low cost to the investors. Itssuccess caught on, and more investment trust were launched with verbose andquirky names that, when translated, read, Profitable and Prudent or smallMatters Grow By Consent. The foreign and Colonial Government Trust, formed inLondon in 1868, promised the investor of modest means the same advantage asthe large capitalist.by spreading the investment over a number of stocks.

Mutual funds are not an American invention. The first was started in theNetherlands in 1822, and the second in Scotland in the 1880's.Originally called investment trusts, the first American one was the New York StockTrust, established in 1889. Most that followed were begun in Boston in the early

1920's, including the State Street Fund, Massachusetts Investor's Trust (nowcalled MFS), Fidelity, Scudder, Pioneer, and the Putnum Fund. The WellingtonFund, the first balanced fund that included both stocks and bonds, was founded in1928, and today is part of the giant Vanguard Funds Group.

In the 1960's there was a phenomenal rise in aggressive growth funds (with veryhigh risk). Sometimes called "go-go" or "hot-shot" funds, they received the

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majority of the billions of dollars flowing into mutual funds at that time. In 1968 and1969, over 100 of these new aggressive growth funds were established.

A severe bear market began in the autumn of 1969. People became disillusionedwith stocks and mutual funds. "The market's toast. it'll never get back to where itwas!" was echoed by panicked investors.Unemployment grew, inflation went crazy, and investors pulled billions back out ofthe funds. They should have hung in there! Many funds have risen 9,000% sincethen.

The 1970's saw a new kind of fund innovation: funds with no sales commissioncalled "no load" funds. The largest and most successful no load family of funds isthe Vanguard Funds, created by John Bogle in 1977.

At the end of the 1920's there were only 10 mutual funds. At the end of the 1960'sthere were 244. Today there are more than 6,500 unique funds and eventhousands more that differ only by their share class (how they are sold, and howtheir expenses are charged).

Before we continue with all you need to know about mutual funds, here issomething that merits your attention. Since 1940, no mutual fund has gonebankrupt. You sure can't say that about banks and savings and loans!

The mutual fund industry in India started in 1963 with the formation of Unit Trust ofIndia, at the initiative of the Government of India and Reserve Bank the. Thehistory of mutual funds in India can be broadly divided into four distinct phases:

MUTUAL FUNDS IN INDIA

First Phase - 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It wasset up by the Reserve Bank of India and functioned under the Regulatory andadministrative control of the Reserve Bank of India. In 1978 UTI was de-linkedfrom the RBI and the Industrial Development Bank of India (IDBI) took over theregulatory 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 ofassets under management.

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

1987 marked the entry of non- UTI, public sector mutual funds set up by publicsector banks and Life Insurance Corporation of India (LIC) and General InsuranceCorporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund

established in June 1987 followed by Canbank Mutual Fund (Dec 87), PunjabNational Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank ofIndia (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutualfund in June 1989 while GIC had set up its mutual fund in December,1990.At the end of 1993, the mutual fund industry had assets under management ofRs.47,004 crores.

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

With the entry of private sector funds in 1993, a new era started in the Indianmutual 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 intobeing, under which all mutual funds, except UTI were to be registered andgoverned. 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 morecomprehensive and revised Mutual Fund Regulations in 1996. The industry nowfunctions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on increasing, with many foreign mutualfunds setting up funds in India and also the industry has witnessed severalmergers and acquisitions. As at the end of January 2003, there were 33 mutualfunds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with

Rs.44,541 crores of assets under management was way ahead of other mutualfunds.

Fourth Phase - since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI wasbifurcated into two separate entities. One is the Specified Undertaking of the UnitTrust of India with assets under management of Rs.29,835 crores as at the end ofJanuary 2003, representing broadly, the assets of US 64 scheme, assured returnand certain other schemes. The Specified Undertaking of Unit Trust of India,

functioning under an administrator and under the rules framed by Government ofIndia 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. Itis registered with SEBI and functions under the Mutual Fund Regulations. Withthe bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000crores 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 takingplace among different private sector funds, the mutual fund industry has entered

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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 421schemes. At present there are over 1000 schemes floated by these 29 funds.

Figure 1: GROWTH IN ASSETS UNDER MANAGEMENT

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The Indian Timeline

YEAR EVENT

1963 UTI is Indias first mutual fund

1964 UTI launches US-64

1971 UTIs ULIP(Unit Linked Insurance Plan) is second scheme tobe launched

1986 UTI Mastershare, Indias first true mutual fund schemelaunched

1987 PSU banks and insurers allowd to float mutual funds:StateBank OF India (SBI) first off the blocks

1992 The Harshad Mehta-fulled Bbull market arouses middle-class intrest in shares and mutual fund

1993 Private sector and foreign players allowd;Kothari Pioneerfirst private fund house to start operations;SEBI set up toregulate

1994 Morgan Stanley is the first foreign player

1996 SEBIs mutual fund rules and regulations,come into force

1998 UTI Master Index Fund is the countrys first index fund

1999The take over of 20th Century AMC by Zurich Mutual Fund isthe first acquisition in mutual fund industry

2000 The industrys asset under management crosses Rs 100,000crore

2001 US-64 scam leads to UTI overhaul

2002 UTI bifurcated,comes under SEBI perview;

2003 AMFI certification made compulsory for new agents

Advantages of Mutual Funds

The advantages of investing in a Mutual Fund are:

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Professional Management Diversification Convenient Administration Return Potential Low Costs

Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated

Objectives1. To define and maintain high professional and ethical standards in all areas ofoperation of mutual fund industry

2. To recommend and promote best business practices and code of conduct to befollowed by members and others engaged in the activities of mutual fund andasset management including agencies connected or involved in the field of capitalmarkets and financial services.

3. To interact with the Securities and Exchange Board of India (SEBI) and toreport to SEBI on all matters concerning the mutual fund industry.

4. To report to the Government, Reserve Bank of India and other bodies on allmatters relating to the Mutual Fund Industry.

5. To develop a cadre of well trained Agent distributors and to implement aprogrammer of training and certification for all intermediaries and other engagedin the industry.

6. To undertake nation wide investor awareness program so as to promote properunderstanding of the concept and working of mutual funds.

7. To disseminate information on Mutual Fund Industry and to undertake studies andresearch directly and/or in association with other bodies.

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MORE ABOUT MUTUAL FUNDS

What is the Regulatory Body for Mutual Funds?

Securities Exchange Board of India (SEBI) is the regulatory body for allthe mutual funds. All the mutual funds must get registered with SEBI.

What are the benefits of investing in Mutual Funds?

There are several benefits from investing in a Mutual Fund:Small investments: Mutual funds help you to reap the benefit ofreturns by a portfolio spread across a wide spectrum of companieswith small investments.

Professional Fund Management: Professionals havingconsiderable expertise, experience and resources manage the pool ofmoney collected by a mutual fund. They thoroughly analyse themarkets and economy to pick good investment opportunities.

Spreading Risk: An investor with limited funds might be able toinvest in only one or two stocks/bonds, thus increasing his or herrisk. However, a mutual fund will spread its risk by investing anumber of sound stocks or bonds. A fund normally invests incompanies across a wide range of industries, so the risk is diversified.

Transparency: Mutual Funds regularly provide investors withinformation on the value of their investments. Mutual Funds alsoprovide complete portfolio disclosure of the investments made byvarious schemes and also the proportion invested in each asset type.

Choice: The large amount of Mutual Funds offer the investor a wide varietyto choose from. An investor can pick up a scheme depending upon his risk/return profile.

Regulations: All the mutual funds are registered with SEBI and they

function within the provisions of strict regulation designed to protect theinterestsof the investor.

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What is NAV?NAV or Net Asset Value of the fund is the cumulative market value of theassets of the fund net of its liabilities. NAV per unit is simply the net valueof assets divided by the number of units outstanding. Buying and sellinginto funds is done on the basis of NAV-related prices.

The NAV of a mutual fund are required to be published in newspapers. TheNAV of an open end scheme should be disclosed on a daily basis and theNAV of a close end scheme should be disclosed at least on a weekly basis.

What is Entry/Exit Load?A Load is a charge, which the mutual fund may collect on entry and/or exitfrom a fund. A load is levied to cover the up-front cost incurred by themutual fund for selling the fund. It also covers one time processing costs.

Some funds do not charge any entry or exit load. These funds are

referred to as No Load Fund. Funds usually charge an entry load rangingbetween1.00% and 2.00%.

Exit loads vary between 0.25% and 2.00%.For e.g. Let us assume aninvestor invests Rs. 10,000/- and the current NAV is Rs.13/-. If the entryload levied is 1.00%, the price at which the investorinvests is Rs.13.13 perunit. The investor receives 10000/13.13 = 761.6146 units. (Note that unitsare allotted to an investor based on the amount invested and not on thebasis of no. of units purchased).

Let us now assume that the same investor decides to redeem his 761.6146

units. Let us also assume that the NAV is Rs 15/- and the exit load is0.50%. Therefore the redemption price per unit works out to Rs. 14.925.The investor therefore receives 761.6146 x 14.925 = Rs.11367.10.

Are there any risks involved in investing in Mutual Funds?Mutual Funds do not provide assured returns. Their returns are linked totheir performance. They invest in shares, debentures, bonds etc. All theseinvestments involve an element of risk. The unit value may vary dependingupon the performance of the company and if a company defaults inpayment of interest/principal on their debentures/bonds the performance of

the fund may get affected. Besides incase there is a sudden downturn in anindustry or the government comes up with new a regulation which affects aparticular industry or company the fund can again be adversely affected. Allthese factors influence the performance of Mutual Funds. Some of the Riskto which Mutual Funds are exposed to is given below:

Market riskIf the overall stock or bond markets fall on account of overall

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economic factors, the value of stock or bond holdings in the fund'sportfolio can drop, thereby impacting the fund performance.

Non-market riskBad news about an individual company can pull down its stock price, whichcan negatively affect fund holdings. This risk can be reduced by having adiversified portfolio that consists of a wide variety of stocks drawn fromdifferent industries.

Interest rate riskBond prices and interest rates move in opposite directions. Wheninterest rates rise, bond prices fall and this decline in underlyingsecurities affects the fund negatively.

Credit riskBonds are debt obligations. So when the funds invest in corporatebonds, they run the risk of the corporate defaulting on their interest andprincipal payment obligations and when that risk crystallizes, it leads to afall in the value of the bond causing the NAV of the fund to take a beating.

TYPES OF MUTUAL FUNDS

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Schemes By Structure

Open-ended Fund/ Scheme Close-ended Fund/ Scheme

Schemes by investment Objective

Growth / Equity Oriented Scheme Income / Debt Oriented Scheme Balanced Scheme Money Market or Liquid Fund Scheme

Other Objective

Gilt Fund Index Funds Load AND no-load Fund Tax Saving Schemes

Schemes By Structure In Detail

A mutual fund scheme can be classified into open-ended scheme or close-endedscheme depending on its maturity period

a. Open-ended Fund/ SchemeAn open-ended fund or scheme is one that is available for subscriptionand repurchase on a continuous basis. These schemes do not have afixed maturity period. Investors can conveniently buy and sell units at NetAsset Value (NAV) related prices which are declared on a daily basis. Thekey feature of open-end schemes is liquidity.

b. Close-ended Fund/ SchemeA close-ended fund or scheme has a stipulated maturity period e.g. 5-7years. The fund is open for subscription only during a specified period atthe time of launch of the scheme. Investors can invest in the scheme atthe time of the initial public issue and thereafter they can buy or sell theunits of the scheme on the stock exchanges where the units are listed. Inorder 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 periodicrepurchase at NAV related prices. SEBI Regulations stipulate that at leastone of the two exit routes is provided to the investor i.e. either repurchasefacility or through listing on stock exchanges. These mutual fundsschemes disclose NAV generally on weekly basis.

Schemes according to Investment Objective In Detail

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A scheme can also be classified as growth scheme, income scheme, or balancedscheme considering its investment objective. Such schemes may be open-endedor close-ended schemes as described earlier. Such schemes may be classifiedmainly as follows:

a. Growth / Equity Oriented SchemeThe aim of growth funds is to provide capital appreciation over themedium to long- term. Such schemes normally invest a major part of theircorpus in equities. Such funds have comparatively high risks. Theseschemes provide different options to the investors like dividend option,capital appreciation, etc. and the investors may choose an optiondepending on their preferences. The investors must indicate the option inthe application form. The mutual funds also allow the investors to changethe options at a later date. Growth schemes are good for investors havinga long-term outlook seeking appreciation over a period of time.

b. Income / Debt Oriented SchemeThe aim of income funds is to provide regular and steady income toinvestors. Such schemes generally invest in fixed income securities suchas bonds, corporate debentures, Government securities and moneymarket instruments. Such funds are less risky compared to equityschemes. These funds are not affected because of fluctuations in equitymarkets. However, opportunities of capital appreciation are also limited insuch funds. The NAVs of such funds are affected because of change ininterest rates in the country. If the interest rates fall, NAVs of such fundsare likely to increase in the short run and vice versa. However, long terminvestors may not bother about these fluctuations.

c. Balanced SchemeThe aim of balanced funds is to provide both growth and regular incomeas such schemes invest both in equities and fixed income securities in theproportion indicated in their offer documents. These are appropriate forinvestors looking for moderate growth. They generally invest 40-60% inequity and debt instruments. These funds are also affected because offluctuations in share prices in the stock markets. However, NAVs of suchfunds are likely to be less volatile compared to pure equity funds.

d. Money Market or Liquid Fund SchemesThese funds are also income funds and their aim is to provide easy

liquidity, preservation of capital and moderate income. These schemesinvest exclusively in safer short-term instruments such as treasury bills,certificates of deposit, commercial paper and inter-bank call money,government securities, etc. Returns on these schemes fluctuate much lesscompared to other funds. These funds are appropriate for corporate andindividual investors as a means to park their surplus funds for shortperiods.

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Other Schemes In Detail

a. Gilt FundsThese funds invest exclusively in government securities. Governmentsecurities have no default risk. NAVs of these schemes also fluctuate due

to change in interest rates and other economic factors as is the case withincome or debt oriented schemes.

b. Index FundsIndex Funds replicate the portfolio of a particular index such as the BSESensitive index, S&P NSE 50 index (Nifty), etc These schemes invest inthe securities in the same weightage comprising of an index. NAVs ofsuch schemes would rise or fall in accordance with the rise or fall in theindex, though not exactly by the same percentage due to some factorsknown as "tracking error" in technical terms. Necessary disclosures in thisregard are made in the offer document of the mutual fund scheme.There are also exchange traded index funds launched by the mutual fundswhich are traded on the stock exchanges.

c. Load And No-load FundA 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 bepayable. This charge is used by the mutual fund for marketing anddistribution expenses. Suppose the NAV per unit is Rs.10. If the entry aswell as exit load charged is 1%, then the investors who buy would berequired to pay Rs.10.10 and those who offer their units for repurchase tothe mutual fund will get only Rs.9.90 per unit. The investors should takethe loads into consideration while making investment as these affect theiryields/returns. However, the investors should also consider theperformance track record and service standards of the mutual fund whichare more important. Efficient funds may give higher returns in spite ofloads.

A no-load fund is one that does not charge for entry or exit. It means theinvestors can enter the fund/scheme at NAV and no additional chargesare payable on purchase or sale of units.

d. Tax Saving SchemesThese schemes offer tax rebates to the investors under specific provisionsof the Income Tax Act, 1961 as the Government offers tax incentives forinvestment in specified avenues. e.g. Equity Linked Savings Schemes(ELSS). Pension schemes launched by the mutual funds also offer taxbenefits. These schemes are growth oriented and invest pre-dominantly inequities. Their growth opportunities and risks associated are like anyequity-oriented scheme.

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TAX BENEFITS

As per the taxation laws in force as at the date of updating this document, the taxbenefits that are available to the investors investing in the Units of the Scheme(s)are stated herein below.

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The tax benefits described in this Document are as available under the presenttaxation laws and are available subject to relevant conditions. The informationgiven is included only for general purpose and is based on advice received by theAMC regarding the law and practice currently in force in India and theInvestors/Investors should be aware that the relevant fiscal rules or theirinterpretation may change. As is the case with any investment, there can be noguarantee that the tax position or the proposed tax position prevailing at the timeof an investment in the Scheme will endure indefinitely. In view of the individualnature of tax consequences, each Investor is advised to consult his/ her ownprofessional tax advisor.

To The Mutual Fund

The entire income of the Mutual Fund will be exempt from Income Tax inaccordance with the provisions of Section 10(23D) of the Income Tax Act, 1961.

The Mutual Fund will receive all income without any deduction of tax at sourceunder the provisions of Section 196(iv), of the Act. However, on incomedistribution, if any, made by the Mutual Fund, income-tax will be payable underSection 115R of the Act, at 12.5% (plus surcharge as applicable from time to time)on the dividends declared under the schemes on or after April 1, 2003

However, these provisions will not be applicable to any income distributed by anopen-ended equity oriented fund (where more than 50 percent of total proceeds ofthe mutual fund are invested in equity shares of domestic companies as defined inSection 115T of the Act) for a period of one year commencing from April 1, 2003.

Tax Implications To Investors

The following summary outlines the tax implications applicable to residentInvestors of the Schemes and is based on relevant provisions under the Act,1961, Wealth-tax Act, 1957 and Gift Tax Act, 1958 (collectively called 'the relevantprovisions'), consequent upon the amendments enacted by the Finance Act 2003:

Income other than Capital GainsAs per the provisions of Section 10(35) of the Act, income received inrespect of units of a mutual fund specified under Section 10(23D) of the Actis exempt from income tax in the hands of the recipient Investors.

Tax Deduction at SourceIn view of the exemption of income in the hands of the Investors, noincome tax is deductible at source, on income distribution by the MutualFund, under the provisions of sections 194K of the Act.

Capital Gains

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As per section 2(42A) of the act, units of the scheme held as a capitalasset, for a period of more than 12 months immediately preceding the dateof transfer, will be treated as a long-term capital asset for the computationof capital gains; in all other cases, it would be treated as a short-termcapital asset.Also, sub-section (7) of section 94 of the act provides that loss, if any,arising from the sale/transfer of units (including redemption) purchased upto 3 months prior to the record

RISK FACTORS

Mutual Funds and securities investments are subject to market risks and therecan be no assurance or guarantee that the Schemes objectives will be achieved.As with any investment in securities, the Net Asset Value of Units issued underthe Schemes may go up or down depending on the various factors and forcesaffecting the capital market. Past performance of the Sponsors/ AMC/ Mutual

Fund/ Schemes and its affiliates do not indicate the future performance of theSchemes of the Mutual Fund. The Sponsors are not responsible or liable for anyloss or shortfall resulting from the operations of the Schemes beyond theircontribution of Rs.10,000/- each made by them towards setting of the MutualFund The Names of the Schemes do not in any manner indicate either the qualityof the Schemes or their future prospects and returns. Investors in the Schemesare not being offered any guarantee / assured returns. Please read the OfferDocuments carefully before investing.

STATUTORY DETAILSIn terms of The Unit Trust of India (Transfer of Undertaking and Repeal) Act 2002(Act), the assets and liabilities of the erstwhile Unit Trust of India have beenbifurcated into two parts the specified undertaking and the specified company.The Administrator of the Specified Undertaking of The Unit Trust of Indiacomprises of US 64 and the assured return schemes (most of which have sincebeen converted into tax free bonds, the present investment is guaranteed by theGovt. of India) . The Specified Company has been set up as a mutual fund viz.UTI MF, comprising of all net asset value based schemes. UTI MF has beenstructured in accordance with SEBI (Mutual Funds) Regulations, 1996 The mutual

fund was registered with SEBI on January 14, 2003 under Registration CodeMF/048/03/01.

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DIFFERENT INVESTMENT PLANS THATMUTUAL FUND OFFERS

The term investment plans generally refers to the services that the funds provide

to investors offering different ways to invest or reinvest. The different investmentplans are an important consideration in the investment decision, because theydetermine the flexibility available to the investor. Some of the investment plansoffered by mutual funds in India are:

Growth Plan and Dividend Plan

A growth plan is a plan under a scheme wherein the returns frominvestments are reinvested and very few income distributions, if any, aremade. The investor thus only realizes capital appreciation on theinvestment. Under the dividend plan, income is distributed from time to

time. This plan is ideal to those investors requiring regular income.

Dividend Reinvestment Plan

Dividend plans of schemes carry an additional option for reinvestment ofincome distribution. This is referred to as the dividend reinvestment plan.Under this plan, dividends declared by a fund are reinvested in the schemeon behalf of the investor, thus increasing the number of units held by theinvestors.

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RIGHTS AVAILABLE TO A MUTUAL FUNDHOLDER IN INDIA

As per SEBI Regulations on Mutual Funds, an investor is entitled to:

1. Receive Unit certificates or statements of accounts confirming your titlewithin 6 weeks from the date your request for a unit certificate is receivedby the Mutual Fund.

2. Receive information about the investment policies, investment objectives,financial position and general affairs of the scheme.

3. Receive dividend within 42 days of their declaration and receive theredemption or repurchase proceeds within 10 days from the date ofredemption or repurchase.

4. The trustees shall be bound to make such disclosures to the unit holdersas are essential in order to keep them informed about any information,

which may have an adverse bearing on their investments.5. 75% of the unit holders with the prior approval of SEBI can terminate theAMC of the fund.

6. 75% of the unit holders can pass a resolution to wind-up the scheme.7. An investor can send complaints to SEBI, who will take up the matter with

the concerned Mutual Funds and follow up with them till they are resolved.

FUND OFFER DOCUMENT

A Fund Offer document is a document that offers you all the information youcould possibly need about a particular scheme and the fund launching thatscheme. That way, before you put in your money, you're well aware of therisks etc involved. This has to be designed in accordance with the guidelinesstipulated by SEBI and the prospectus must disclose details about:

Invest ment objectives

Risk factors and special considerations

Summary of expenses

Constitution of the fund

Guidelines on how to invest

Organization and capital structure

Tax provisions related to transactions Financial information

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ACTIVE FUND MANAGEMENT

When investment decisions of the fund are at the discretion of a fund

manager(s) and he or she decides which company, instrument or class ofassets the fund should invest in based on research, analysis, market newsetc. such a fund is called as an actively managed fund. The fund buys andsells securities actively based on changed perceptions of investment fromtime to time. Based on the classifications of shares with differentcharacteristics, active investment managers construct different portfolio.Two basic investment styles prevalent among the mutual funds are GrowthInvesting and Value Investing:

Growth Investing Style

The primary objective of equity investment is to obtain capital appreciation. Agrowth manager looks for companies that are expected to give aboveaverage earnings growth, where the manager feels that the earningprospects and therefore the stock prices in future will be even higher.Identifying such growth sectors is the challenge before the growthinvestment manager.

Value investment Style

A Value Manager looks to buy companies that they believe are currentlyundervalued in the market, but whose worth they estimate will be recognizedin the market valuations eventually.

PASSIVE FUND MANAGEMENT

When an investor invests in an actively managed mutual fund, he or sheleaves the decision of investing to the fund manager. The fund manager is

the decision- maker as to which company or instrument to invest in.Sometimes such decisions may be right, rewarding the investor handsomely.However, chances are that the decisions might go wrong or may not be rightall the time which can lead to substantial losses for the investor. There aremutual funds that offer Index funds whose objective is to equal the returngiven by a select market index. Such funds follow a passive investment style.They do not analyse companies, markets, economic factors and then narrowdown on stocks to invest in. Instead they prefer to invest in a portfolio of

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stocks that reflect a market index, such as the Nifty index. The returnsgenerated by the index are the returns given by the fund. No attempt is madeto try and beat the index. Research has shown that most fund managers areunable to constantly beat the market index year after year. Also it is notpossible to identify which fund will beat the market index.

Therefore, there is an element of going wrong in selecting a fund to invest in.This has lead to a huge interest in passively managed funds such as IndexFunds where the choice of investments is not left to the discretion of the fundmanager. Index Funds hold a diversified basket of securities whichrepresents the index while at the same time since there is not much activeturnover of the portfolio the cost of managing the fund also remains low.

This gives a dual advantage to the investor of having a diversified portfoliowhile at the same time having low expenses in fund. There are variouspassively managed funds in India today some of them are:

Principal Index Fund, an index fund scheme on S&P CNX Niftylaunched by Principal Mutual Fund in July 1999.

UTI Nifty Fund launched by Unit Trust of India in March 2000.Franklin India Index Fund launched by Franklin Templeton

Mutual Fund in June 2000.

Franklin India Index Tax Fund launched by Franklin TempletonMutual Fund in February 2001.

Magnum Index Fund launched by SBI Mutual Fund in December2001.

IL&FS Index Fund launched by IL&FS Mutual Fund in February

2002. Prudential ICICI Index Fund launched by Prudential ICICIMutual Fund in February 2002.

HDFC Index Fund-Nifty Plan launched by HDFC Mutual Fund in July2002.

Birla Index Fund launched by Birla Sun Life Mutual Fund inSeptember 2002.

LIC Index Fund-Nifty Plan launched by LIC Mutual Fund in November2002.

Tata Index Fund launched by Tata TD Waterhouse Mutual Fund inFebruary 2003.

ING Vysya Nifty Plus Fund launched by ING Vysya Mutual Fund in

January 2004. Canindex Fund launched by Canbank Mutual Fund in September

2004

EXCHANGE TRADE FUND (ETF)

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Think of an exchange-traded fund as a mutual fund that trades like a stock.Just like an index fund, an ETF represents a basket of stocks that reflect anindex such as the Nifty. An ETF, however, isn't a mutual fund; it trades justlike any other company on a stock exchange. Unlike a mutual fund that hasits net-asset value (NAV) calculated at the end of each trading day, an ETF'sprice changes throughout the day, fluctuating with supply and demand. It isimportant to remember that while ETFs attempt to replicate the return onindexes, there is no guarantee that they will do so exactly.

By owning an ETF, you get the diversification of an index fund plus theflexibility of a stock. Because, ETFs trade like stocks, you can short sellthem, buy them on margin and purchase as little as one share. Anotheradvantage is that the expense ratios of most ETFs are lower than that of theaverage mutual fund. When buying and selling ETFs, you pay your brokerthe same commission that you'd pay on any regular trade. There are variousETFs available in India, such as:

NIFTY BeES:An Exchange Traded Fund launched by Benchmark Mutual Fund inJanuary 2002.

Junior BeES:An Exchange Traded Fund on CNX Nifty Junior, launched by BenchmarkMutual Fund in February 2003.

SUNDER:An Exchange Traded Fund launched by UTI in July 2003.

Liquid BeES:An Exchange Traded Fund launched by Benchmark Mutual Fund in July2003.

Bank BeES:An Exchange Traded Fund (ETF) launched by Benchmark Mutual Fund inMay 2004.

Latest Development In ETF (TOI Aug 12, 2006)

An amendment to the SEBI Mutual Fund regulation has hiked the annual fees,that asset managers pay SEBI, by at least four times. A separate circular has

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put different standards for funds that invest in securities as opposed to ETFs,abroad.

The circular listing guidelines for mutual fund investing abroad says that a fundhas to have experience of at least 10 years as on December 31, 2006 to beeligible to invest in Exchange Traded Funds (ETFs) which requires a relatively

passive investment strategy. The mutual fund or its sponsors have to beexperienced in foreign securities and they have to disclose the nature ofexperience in the offer document. The trustees of the fund have to certify theexperience.

However the eligibility criteria does not apply to funds investing in ADRs andGDRs, equity or debt of foreign companies

Intention to invest on foreign securities / ETFs shall be disclosed in the offerdocument of the schemes. The attendant risk factor and returns ensuing fromsuch investment shall be explained.

SEBI has decided to hike its annual fees (called service fees until now) from Rs 25000

to 0.3% of the money collected in new fund offers or a minimum of Rs 1 lakh. If thefund collects, say Rs 1000 crore from investors in offer, it will have to pay a total of Rs

30 lakh to SEBI.

SHARE KHAN MUTUAL FUNDS

Investment Philosophy

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SHARE KHAN Mutual Funds investment philosophy is to deliver consistent andstable returns in the medium to long term with a fairly lower volatility of fundreturns compared to the broad market. It believes in having a balanced andwell-diversified portfolio for all the funds and a rigorous in-house researchbased approach to all its investments. It is committed to adopt and maintaingood fund management practices and a process based investmentmanagement.

SHARE KHAN Mutual Fund follows an investment approach of giving as equalan importance to asset allocation and sectoral allocation, as is given to securityselection while managing any fund. It combines top-down and bottom-upapproaches to enable the portfolios/funds to adapt to different market conditionsso as to prevent missing an investment opportunity.

In terms of its funds performance, SHARE KHAN Mutual Fund aims to

consistently remain in the top quartile vis--vis the funds in the peer group.

ASSOCIATION OF MUTUAL FUND IN INDIA

(AMFI)

The AMFI Code Of Ethics

One of the objects of the Association of Mutual Funds in India (AMFI) is topromote the investors interest by defining and maintaining high ethical andprofessional standards in the mutual fund industry. In pursuance of this objective,

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AMFI had constituted a Committee under the Chairmanship of Shri A. P. Pradhanwith Shri S. V. Joshi, Shri C. G. Parekh and Shri M. Laxman Kumar as members.This Committee, working in close co-operation with Price WaterhouseLLP underthe FIRE Project of USAID, has drafted the Code, which has been approved andrecommended by the Board of AMFI for implementation by its members. I takeopportunity to thank all of them for their efforts.

The AMFI Code of Ethics, The ACE for short, sets out the standards ofgood practices to be followed by the Asset Management Companies in theiroperations and in their dealings with investors, intermediaries and the public.SEBI (Mutual Funds) Regulation 1996 requires all Asset Management Companiesand Trustees to abide by the Code of conduct as specified in the Fifth Schedule tothe Regulation. The AMFI Code has been drawn up to supplement that schedule,to encourage standards higher than those prescribed by the Regulations for thebenefit of investors in the mutual fund industry.

This is the first edition of the Code and it may be supplemented further as may be

necessary. I hope members of AMFI would implement the code and ensure thattheir employees are made fully aware of the Code.

Registered Office:1218, B- Wing, Dalamal Tower,Free Press Journal Marg, Nariman Point,Mumbai 400 021. Tel : 5632 4524 / 5632 4525 Fax : 2283 1163.

AMFI Mutual Fund

Integrity

Members and their key personnel, in the conduct of their business shallobserve high standards of integrity and fairness in all dealings withinvestors, issuers, market intermediaries, other members and regulatoryand other government authorities.

Mutual Fund Schemes shall be organized, operated, managed and theirportfolios of securities selected, in the interest of all classes of unit holdersand not in the interest of_ sponsors_ directors of Members_ members of

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Board of Trustees or directors of the Trustee company_ brokers and othermarket intermediaries_ associates of the Members_ a special classselected from out of unitholders.

Due Diligence

Members in the conduct of their Asset Management business shall at alltimes_ render high standards of service._ exercise due diligence_ exerciseindependent professional judgment.

Members shall have and employ effectively adequate resources andprocedures which are needed for the conduct of Asset Managementactivities.

Disclosures

Members shall ensure timely dissemination to all unitholders of adequate,

accurate, and explicit information presented in a simple language about theinvestment objectives, investment policies, financial position and generalaffairs of the scheme.

Members shall disclose to unitholders investment pattern, portfolio details,ratios of expenses to net assets and total income and portfolio turnoverwherever applicable in respect of schemes on annual basis.

Members shall in respect of transactions of purchase and sale of securitiesentered into with any of their associates or any significant unitholder.submit to the Board of Trustees details of such transactions, justifying itsfairness to the scheme._ disclose to the unitholders details of thetransaction in brief through annual and half yearly reports.

All transactions of purchase and sale of securities by key personnel who aredirectly involved in investment operations shall be disclosed to the complianceofficer of the member at least on half yearly basis and subsequently reported to the

Board of Trustees if found having conflict of interest with the transactions of the

fund.

Professional Selling Practice

Members shall not use any unethical means to sell, market or induce anyinvestor to buy their products and schemes

Members shall not make any exaggerated statement regardingperformance of any product or scheme.

Members shall endeavor to ensure that at all times investors are providedwith true and adequate information without any misleading or exaggeratedclaims to investors about their capability to render certain services or theirachievements in regard to services rendered to other clients, investors aremade aware of attendant risks in members schemes before anyinvestment decision is made by the investors, copies of prospectus,

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memoranda and related literature is made available to investors onrequest, adequate steps are taken for fair allotment of mutual fund unitsand refund of application moneys without delay and within the prescribedtime limits and, complaints from investors are fairly and expeditiously dealtwith.

Members in all their communications to investors and selling agents shallnot present a mutual fund scheme as if it were a new share issue notcreate unrealistic expectations not guarantee returns except as stated inthe Offer Document of the scheme approved by SEBI, and in such case,the Members shall ensure that adequate resources will be made availableand maintained to meet the guaranteed returns. convey in clear terms themarket risk and the investment risks of any scheme being offered by theMembers. not induce investors by offering benefits which are extraneous tothe scheme. not misrepresent either by stating information in a mannercalculated to mislead or by omitting to state information which is material tomaking an informed investment decision.

Investment Practice

Members shall manage all the schemes in accordance with thefundamental investment objectives and investment policies stated in theoffer documents and take investment decisions solely in the interest of theunitholders.

Members shall not knowingly buy or sell securities for any of their schemesfrom or to any director, officer, or employee of the member any trustee orany director, officer, or employee of the Trustee Company.

Operations

Members shall avoid conflicts of interest in managing the affairs of theschemes and shall keep the interest of all unitholders paramount in allmatters relating to the scheme.

Members or any of their directors, officers or employees shall not indulge infront running (buying or selling of any securities ahead of transaction of thefund, with access to information regarding the transaction which is notpublic and which is material to making an investment decision, so as toderive unfair advantage).

Members or any of their directors, officers or employees shall not indulge in

self dealing (using their position to engage in transactions with the fund bywhich they benefit unfairly at the expense of the fund and the unitholders).

Members shall not engage in any act, practice or course of business inconnection with the purchase or sale, directly or indirectly, of any securityheld or to be acquired by any scheme managed by the Members, and inpurchase, sale and redemption of units of schemes managed by theMembers, which is fraudulent, deceptive or manipulative.

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Members shall not, in respect of any securities, be party to creating a falsemarket, price rigging or manipulation passing of price sensitive informationto brokers, Members of stock exchanges and other players in the capitalmarkets or take action which is unethical or unfair to investors.

Employees, officers and directors of the Members shall not work as agents/

brokers for selling of the schemes of the Members, except in their capacityas employees of the Member or the Trustee Company.

Members shall not make any change in the fundamental attributes of ascheme, without the prior approval of unitholders except when suchchange is consequent on changes in the regulations.

Members shall avoid excessive concentration of business with any brokingfirm, and excessive holding of units in a scheme by few persons or entities.

Reporting Practice

Members shall follow comparable and standardized valuation policies in

accordance with the SEBI Mutual Fund Regulations. Members shall follow uniform performance reporting on the basis of total

return.

Members shall ensure scheme wise segregation of cash and securitiesaccounts.

Unfair Competition

Members shall not make any statement or become privy to any act,practice or competition, which is likely to be harmful to the interests of otherMembers or is likely to place other Members in a disadvantageous position

in relation to a market player or investors, while competing for funds.

Observance Of Statutes, Rules And Regulations

Members shall abide by the letter and spirit of the provisions of theStatutes, Rules and Regulations which may be applicable and relevant tothe activities carried on by the Members.

Enforcement

Members shall:

widely disseminate the AMFI Code to all persons and entities covered by it

make observance of the Code a condition of employment

make violation of the provisions of the code, a ground for revocation ofcontractual arrangement without redress and a cause for disciplinary action

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require that each officer and employee of the Member sign a statement thathe/she has received and read a copy of the Code

establish internal controls and compliance mechanisms, includingassigning supervisory responsibility

designate one person with primary responsibility for excercising

compliance with power to fully investigate all possible violations and reportto competent authority

file regular reports to the Trustees on a half yearly and annual basisregarding observance of the Code and special reports as circumstancesrequire

maintain records of all activities and transactions for at least three years,which records shall be subject to review by the Trustees

dedicate adequate resources to carrying out the provisions of the Code

Definitions

When used in this code, unless the context otherwise requires(a) AMFI

AMFI means the Association of Mutual Funds in India(b) Associate

Associate means and includes an associate as defined in regulation 2(c)of SEBI (Mutual Fund) Regulations 1996.

(c) Fundamental investment policiesThe fundamental investment policies of a scheme managed by a membermeans the investment objectives, policies, and terms of the scheme, thatare considered fundamental attributes of the scheme and on the basis ofwhich unitholders have invested in the scheme.

(d) MemberA member means the member of the Association of Mutual Funds inIndia.

(e) SEBISEBI means Securities and Exchange Board of India.

(f) Significant Unit holderA Significant Unit holder means any entity holding 5% or more of the totalcorpus of any scheme managed by the member and includes all entitiesdirectly or indirectly controlled by such a unit holder.

(g) Trustee

A trustee means a member of the Board of Trustees or a director of theTrustee Company.

(h) Trustee CompanyA Trustee Company is a company incorporated as a Trustee Companyand setup for the purpose of managing a mutual fund.

ACCOUNT STATEMENT:

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A document issued by the mutual fund, giving details of transactions and holdingsof an investor.

ADJUSTED NAV (TOTAL RETURN)

The net asset value of a unit assuming reinvestment of distributions made to theinvestors in any form.

ADVISOR

Your financial consultant who gives professional advice on the fund's investmentsand who supervise the management of its assets.

AGE OF FUNDThe time elapsed since the launch of the fund.

ANNUAL RETURN

The percentage of change in net asset value over a year's time, assumingreinvestment of distribution such as dividend payment and bonuses.

ARBITRAGE

The practice of buying and selling an interlisted stock on different exchanges inorder to profit from minute differences in price between the two markets.

BALANCE SHEET

A financial statement showing the nature and amount of a company's assets,liabilities and shareholders' equity.

BALANCED FUND

A mutual fund that maintains a balanced portfolio, generally 40% bonds and 60%equity.

BALANCE MATURITY TENURE OF A SCHEME

In the case of close-ended schemes, the balance period till the redemption of thescheme.

BLUE CHIP

A share in a large, safe, prestigious company, of the highest class among stock

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market investments. A blue-chip company would be called thus by being well-known, having a large paid-up capital, a good track record of dividend paymentsand skilled management.

CAPITAL MARKET

The market where capital funds, debt (bonds) and equity ( stocks) are traded.

INTERNATIONAL FUNDS / EMERGING MARKET FUNDS

Funds investing in assets or bonds/shares of companies from emergingeconomies. These are not permissible in India due to regulations against investingabroad. Most of the schemes of Foreign Institutional Investors (FII's) investing inIndia are funds of this type.

MUTUAL FUND

An investment that pools shareholders money and invests it toward a specifiedgoal. The funds are invested by a professional investment manager usually calledthe AMC ( Asset Management Company).

MUTUAL FUND REGULATIONS

Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 asamended up to date and such other Regulations, as may be in force from time totime, to regulate the activities of the Mutual Fund.

PORTFOLIO

The list of securities owned by the mutual fund. This list may be long, for example,Fidelity Magellan, with over 2000 stocks, or relatively short, for example, Sequoia,with only 16 stocks.

PRIMARY MARKET(NEW ISSUE MARKET)

The market on which newly issued securities are sold, including governmentsecurity auctions and underwriting purchases of blocks of new issues, which are

then resold.

SECONDARY MARKET

The market where the securities are traded i.e. purchased or sold after they havebeen initially offered to the public through a public offer in the primary market.

SECURITY

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Generally, an instrument evidencing debt of or equity in a common enterprise inwhich a person invests on the expectation of financial gain. The term includesnotes, stocks, bonds, debentures or other forms of negotiable and non-negotiableevidences of indebtedness or ownership.

SECURITIES AND EXCHANGE BOARD OFINDIA (SEBI)(MUTUAL FUNDS)

REGULATIONS, 1996

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The fast growing industry is regulated by the Securities and Exchange Board ofIndia (SEBI) since inception of SEBI as a statutory body. SEBI initially formulated"SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS)REGULATIONS, 1993" Providing detailed procedure for establishment,

registration, constitution, management of Trustees, Asset Management Company,about schemes/products to be designed, about investment of funds collected,general obligation of MFs, about Inspection, audit etc. Based on experiencegained and feedback received from the market SEBI revised the guidelines of1993 and issued fresh Guidelines in 1996 titled "SECURITIES AND EXCHANGEBOARD OF INDIA (MUTUAL FUNDS) REGULATIONS, 1996". The saidregulation as amended from time to time is in force even today. The salientfeatures of these Regulatory measures are discussed in subsequent articles.

The SEBI Mutual Fund Regulations contain ten chapters and twelve schedules.Chapters containing material subjects relating to regulation and conduct of

business by Mutual Funds (i.e. chapters II to VII are discussed in the subsequentpages. Chapter I relates to definition of legal terms and other preliminary matters.Chapter VIII relates to powers of SEBI for inspection and audit of Mutual Funds,while Chapter IX deals with "Offences & Penalties"(Procedure for Action In Caseof Default). Chapter X deals with Miscellaneous Issues like "Saving" & "Repeal"clauses etc. You may visit SEBI website and access the original Regulations incase of need. The Table of Contents of the Regulations are given here under:

Chapter I: Preliminary

Chapter II: Registration of Mutual FundChapter III: Constitution and Management of Mutual Fundand Operation of Trustees, EtcChapter IV: Constitution and Management of AssetManagement Company and CustodianChapter V: Schemes of Mutual FundChapter VI: Investment Objectives and Valuation PoliciesChapter VII: General Obligations

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Chapter VIII: Inspection and AuditChapter IX: Procedure for Action In Case of DefaultChapter X: MiscellaneousSchedule I: FormsForm A - Application for the Grant of Registration of Mutual

FundForm B - Certificate of RegistrationForm C - Trusteeship of The Mutual FundForm D - Asset Management CompanySchedule II: FeesSchedule III: Contents of The Trust DeedSchedule IV: Contents of The Investment AgreementSchedule V: Code of ConductSchedule VI: Advertisement CodeSchedule VII: Restrictions on InvestmentsSchedule VIII: Investment Valuation Norms

Schedule IX: Accounting Policies and StandardsSchedule X: Initial Issue ExpensesSchedule XI: Annual ReportSchedule XII: Half Yearly Financial Results

Procedure for Registering a Mutual Fund with SEBI

(Chapter: 2 of SEBI Regulations 1996)An applicant proposing to sponsor a mutual fund in India must submit anapplication in Form A along with a fee of Rs.25,000. The application is examinedand once the sponsor satisfies the prescribed eligibility criteria the registration

certificate is issued subject to the payment of registration fees of Rs.25.00 lacks.

Eligibility Criteria for Registration (Regulation: 7)For the purpose of grant of a certificate of registration, the applicant has to fulfillthe following, namely:-

a. The sponsor should have a sound track record and general reputation offairness and integrity in all his business transactions;Explanation: For the purposes of this clause "sound track record" shallmean the sponsor should,-

i. be carrying on business in financial services for a period of not less

than five years; andii. The net-worth is positive in all the immediately preceding five years;and

iii. The net-worth in the immediately preceding year is more than thecapital contribution of the sponsor in the asset managementcompany; and

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iv. The sponsor has profits after providing for depreciation, interest andtax in three out of the immediately preceding five years, includingthe fifth year.(The applicant is a fit and proper person]

b. In the case of an existing mutual fund, such fund is in the form of a trustand the Board has approved the trust deed;

c. The sponsor has contributed or contributes at least 40% to the net worth ofthe asset management company;Provided that any person who holds 40% or more of the net worth of anasset management company shall be deemed to be a sponsor and will berequired to fulfill the eligibility criteria specified in these regulations;

d. The sponsor or any of its directors or the principal officer to be employedby the mutual fund should not have been guilty of fraud or has not beenconvicted of an offense involving moral turpitude or has not been foundguilty of any economic offence;

e. Appointment of trustees to act as trustees for the mutual fund inaccordance with the provisions of the regulations;

f. Appointment of asset Management Company to manage the mutual fund

and operate the scheme of such funds in accordance with the provisions ofthese regulations;

g. Appointment of a custodian in order to keep custody of the securities and

carry out the custodian activities as may be authorized by the trustees.

Terms & Conditions for Registration (Regulation: 10)

The registration granted to a mutual fund under regulation 9, shall be subject tothe following terms and conditions: -

a. The trustees, the sponsor, the asset management company and thecustodian shall comply with the provisions of these regulations;

b. The mutual fund shall forthwith inform the Board, if any information orparticulars previously submitted to the Board was misleading or false in anymaterial respect;

c. The mutual fund shall forthwith inform the Board, of any material change inthe information or particulars previously furnished, which have a bearing onthe registration granted by it;

d. Payment of fees as specified in the regulations and the Second Schedule.(Rs.25 Lacks)

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Constitution of the Mutual Fund (Regulation: 14)

A mutual fund shall be constituted in the form of a trust and the instrument of trustshall be in the form of a deed, duly registered under the provisions of the IndianRegistration Act, 1908 (16 of 1908) executed by the sponsor in favors of thetrustees named in such an instrument.

Contents of trust deed (Regulation: 15)

1. The trust deed shall contain such clauses as are mentioned in the ThirdSchedule and such other clauses, which are necessary for safeguardingthe interests of the unit holders.

2. No trust deed shall contain a clause, which has the effect of-i. Limiting or extinguishing the obligations and liabilities of the trust in

relation to any mutual fund or the unit holders; or

ii. Indemnifying the trustees or the asset management company forloss or damage caused to the unit holders by their acts ofnegligence or acts of commissions or omissions.

Qualification prescribed for selection of persons as Trustees, Duties/obligations ofTrustees and Code of Conduct prescribed are discussed in the next article

SEBI Guidelines (2001-02) Relating to Mutual Funds

A common format is prescribed for all mutual fund schemes to disclose theirentire portfolios on half-yearly basis so that the investors can get a meaningfulinformation on the deployment of funds. Mutual Fund are also required to disclosethe investments in various types of instruments and percentage of investments ineach scrip to the total NAV, illiquid and non-performing assets, investments inderivatives and in ADRs and GDRs.

To enable the investors to make informed investments decisions, mutual fundshave been directed to fully revise and update offer document and memorandum atleast once in two years.

Mutual Fund are also required to:

a. bring uniformaty in disclosures of various categories ofadvertisements , with a view to ensuring consistency andcomparability across schemes of various mutual funds.

b. Reduce initial offer period from a maximum of 45 days to 30 days.

c. Dispatch statements of account once the minimum subscriptionamount specified in the offer document is received even before theclosure of the issue.

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d. Invest in mortgaged back securities of investment grade given bycredit rating agency.

e. Identify and make provisions for the non-performing assets (NPAs)according to criteria for classification of NPAs and treatment ofincome accrued on NPAs in half-yearly portfolio reports.

f. Disclose information in a revised format on Unit Capital, reserves,performance in terms of half-year period, annualized yields over thelast 1,3,5 years in addition to percentage of management fees,percentage of recurring expenses to net assets, investments madein associate companies, payment made to associate companies fortheir services, and details of holdings, since their operation.

g. Declare their NAVs and sale/repurchase prices of all schemesupdated daily on regular basis on the AMFI website by 8:00 pm anddeclare NAVs of their close-ended schemes on every Wednesday.

The format for un-audited half-yearly results for the mutual funds has beenrevised by SEBI. These results are to be published before the expiry of one monthfrom the close of each half - year as against two months period provided earlier.These results shall also be put in their websites by mutual funds.

All the schemes by mutual funds shall be launched within six months from thedate of the letter containing observations from SEBI on the scheme offerdocument. Otherwise, a fresh offer document along with filling fees shall be filed

with SEBI.

Mutual funds are required to disclose large unit-holdings in the scheme, whichare over 25% of the NAY.

Investing in Mutual Funds

Mutual funds normally come out with an advertisement in newspapers publishingthe date of launch of the new schemes. Investors can also contact the agents and

distributors of mutual funds who are spread all over the country for necessaryinformation and application forms. Forms can be deposited with mutual fundsthrough the agents and distributors who provide such services. Now a day, thepost offices and banks also distribute the units of mutual funds. However, theinvestors may please note that the mutual funds schemes being marketed bybanks and post offices should not be taken as their own schemes and they giveno assurance of returns. The only role of banks and post offices is to help indistribution of mutual funds schemes to the investors.

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INVESTORS BEHAVIOUR

An abridged offer document, which contains very useful information, is required tobe given to the prospective investor by the mutual fund. The application form forsubscription to a scheme is an integral part of the offer document. SEBI hasprescribed minimum disclosures in the offer document. An investor, beforeinvesting in a scheme, should carefully read the offer document. Due care mustbe given to portions relating to main features of the scheme, risk factors, initialissue expenses and recurring expenses to be charged to the scheme, entry or exitloads, sponsors track record, educational qualification and work experience ofkey personnel including fund managers, performance of other schemes launchedby the mutual fund in the past, pending litigations and penalties imposed, etc.

INVESTORS OFTEN MAKE BAD INVESTMENT DECISIONS. AND

WHAT'S THEIR BIGGEST MISTAKE? NOT USING THE SERVICESOF A PROFESSIONAL FINANCIAL ADVISER

The second half of the 1990s saw the rise of the self-directed invest