GP - Mutual Fund

8/6/2019 GP - Mutual Fund

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AComparative Study

ON

MUTUAL FUND COMPANIES IN INDIA AND ANALYSISOF INVESTMENT BEHAVIOR OF CONSUMERS

BYPANKAJ PATEL

CHANDRAKANT GOHEL

GRAND PROJECT REPORT SUBMITTED

To

Dr Chinnam Reddy( Director MBA)

UNDER THE GUIDANCE OFProf. Pratima Prakash

On

15th

February 2006

AsPartial Fulfillment of the requirement for the

MBA

S.K.PATEL INSTITUTE OF MANAGEMENT AND COMPUTERSTUDIES


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Acknowledgment

We are indebted to Prof. Chinnam Reddy, Director of S.K.P.I.M.C.S., for providing an

opportunity of preparing A Comparative Study on Mutual Fund Companies in India

and Analysis of Investment Behavior of Consumers. and allowing us to use the

resources of the institution during this project.

We are extremely thankful to our Project Guide Prof. Pratima Prakash for her precious

guidance regarding the preparation format of the project report. Her guidance has proved

to be very useful and without which the preparation of this report might not had been

possible.

We are also thankful to the other faculty members of the S.K.P.I.M.C.S. for extending

their valuable support for this project.

Finally we would also like to thank our family members, who are always a source for

inspiration for us, for showing their understanding, patience and for all their possible help

for the preparation of this project.

PANKAJ PATELCHANDRAKANT GOHEL


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Preface

India is one of the fastest growing economies in the world due to which the income level

of people in India is increasing and along with it the savings and investments are also

growing. Due to liberalization and deregulation which was announced in New Industrial

Policy 1991, has dismantled barriers in the financial market, allowed the entry of new

players and created environment for efficient allocation of resources. One of the

important industries in emerging financial market is the mutual fund industry.

The mutual fund industry has played a significant role in the development of capital

market, growth of corporate sectors and financial intermediation. As mutual fund

industry in India is relatively new, the level of awareness among the people is less but

with the increase in level of awareness the mutual fund industry is also growing. The

government has also announced the regulatory measures for the growth of mutual fund

industry and protection of investors in mutual funds. Here we have attempted to study

mutual fund industry in India, comparison of mutual fund companies and schemes

offered by them and investment behavior of consumers.


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EXECUTIVE SUMMARY

The Indian mutual fund industry came into existence with the establishment of Unit Trust

of India in 1964. Unit Trust of India was not efficient enough to expand the mutual fund

market. In late 1980s nationalized bank sponsored mutual funds came into existence

which helped mutual fund industry to expand its market.

The private sector mutual fund entered the industry during early 1990s with greater

variety of products and better services. They introduced different kinds of products

satisfying the needs of the different classes of investors.

The major limitation of mutual fund industry in India is the lack of awareness among the

investors. Most of the investors are not at all aware about what is mutual fund? How it

functions? How money collected from investors are invested, etc against which in

America more than eighty million people or one half of the households invest in mutual

funds. That means that, in the United States alone, trillions of dollars are invested in

mutual funds.

Mutual fund industry depends on gaining the trust of investors. Once the investors trust is

gained it is easy to convince them to invest in mutual funds. The investors are attracted

based on the performance of the mutual funds rather than winning the trust of investors.

The performance of mutual funds is variable, sometimes it may go up and sometimes it

may come down. It is also not sure that the past performance will be repeated in the

current period. Still the investors are attracted based on the past performance of mutual

funds. The Indian mutual fund industry should come out of this limitation. They should

try to attract the investors by gaining their trust rather than showing the past performance

of mutual funds.


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Most of the investors are not aware about the professional fund managers of the mutual

funds. They invest in the mutual funds based of the returns which mutual fund yields.

The investors are not aware that the fund managers of mutual funds do systematic

analysis of the companies in which they are going to invest; they give suggestions to the

companies which are not performing well. Therefore the mutual fund industry should try

to promote about their professional fund managers, which would help the industry to

attract the investors and expand its market.

The mutual fund industry in India is still in the developing stage. Many of the mutual

fund companies are presently functioning in the urban area, but in country like India

where the substantial part of total population lives in the rural area, also the mutual fund

companies needs to expand their business in the unexplored rural areas which will lead to

the substantial increase in the total amount which is invested in mutual funds.

The basic functioning of mutual fund depends on the equity and debt market. The

portfolio of different mutual funds companies constitutes of the investments in any of

these markets depending upon the type and scheme of mutual fund.

Whenever any of the above mentioned market goes down the respective fund is affected.

For example if the market has gone down by 30% but the mutual funds NAV has gone

down only by 10% than the investor should understand that the fund manager of such

scheme is really efficient. But rather than having such a long view the investors thought

is limited to short run and they think that the scheme in which they have invested is not

good and they withdraw their money by incurring losses which is one of the major

limitation of the investors investing in mutual funds, which the mutual fund company

must try to overcome by increasing the awareness regarding the basic functioning of

mutual funds and making the customers aware regarding the difference between the

absolute and relative returns.


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Table of Contents

Sr.

No.

CONTENTS Page

No.

1 Research Proposal 1-2

2 Mutual Funds: An Overview 5-34

2.1 Introduction 52.2 History of Mutual Funds in India 7

2.3 The Definition 10

2.4 Concept 11

2.5 Structure of Indian Mutual Fund Industry 12

2.6 Recent Trends in Mutual Fund industry 14

2.7 Market Trends 15

2.8 Bank V/S Mutual Funds 17

2.9 Global Scenario 18

2.10 Types of Mutual Funds 21

2.11 Merits of Mutual Fund Investments 24

2.12 Demerits of Mutual Fund Investments 262.13 How to overcome demerits of Mutual Funds? 28

2.14 Net Asset Value (NAV) 29

2.15 Regulatory Aspects 31

3 Comparison and Analysis of Mutual Fund Companies 35-63

3.1 Comparison of top ten Equity Schemes 35

3.2 Comparison of top ten Debt Schemes 36

3.3 Analysis of top three Open Ended Equity Schemes 37

3.4 Analysis of top three Close Ended Equity Schemes 45

3.5 Analysis of top three Open Ended Debt Schemes 51

3.6 Analysis of top three Close Ended Debt Schemes 594 Survey Findings and Analysis 64-72

5 Analysis of porters Five force model and SWOT

Analysis

6 Future Scenario 73

7 Conclusion 74-77

Glossary


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Annexure

Bibliography

RESEARCH PROPOSAL

Title of the study:

A Comparative Study of Mutual Fund Companies in India and Analysis of Investment

Behavior of Consumers.


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Research Objectives:

- To study mutual fund industry and understand its functioning.

- To study the legal structure of mutual fund industry.

- To understand the distribution channels and marketing of mutual funds.

- To study the management of mutual funds.

- To analyze and compare the performance of various mutual funds companies.

- To study the problem and prospects of mutual fund industry.

- To know the awareness level regarding mutual funds.

- To know investment behavior of people in mutual funds.

Research Type:

Descriptive research.

It will be a descriptive study and will aim at finding out the above objectives.

Sample Size:

100.

Random Sampling.

Sample Size Determination:

A reason for sampling is to infer something about population. Sampling distribution is theprobability distribution of a specified sample statistics. For all possible random sample ofa given size n drawn from population N.

In this case the calculation for the sample size can be as follows:

n = Z2 2

e2

Here Z = value determined from Z table for a confidence level

2 = Variance


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e2 = Error specification

In the research it was decided to have a confidence level of 97.5% thus from the Z-table

its value was noted down which is 1.96.

Variance, which is square of Standard Deviation for 5 options, is 2.24.

Standard error was kept +0.293 lakhs.

Putting these in the formula we get,

n = (1.96)2(2.24)

(0.293)2

n = 3.8416 * 2.24 = 100.29.0858

Thus sample size required for survey is 100.

Research Methodology:

a.) Primary Source:

Questionnaire.

b.) Secondary Sources:

- Books.

- Websites.

- Magazines.

- Newspapers.

Mutual Funds: An overview

Introduction


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

common financial goal. The money thus collected is invested by the fund manager in

different types of securities depending upon the objective of the scheme. These could

range from shares to debentures to money market instruments. The income earned

through these investments and the capital appreciations realized by the scheme are shared

by its unit holders in proportion to the number of units owned by them (pro rata). Thus a

Mutual Fund is the most suitable investment for the common man as it offers an

opportunity to invest in a diversified, professionally managed portfolio at a relatively low

cost. Anybody with an investible 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.

A mutual fund is the ideal investment vehicle for todays complex and modern financial

scenario. Markets for equity shares, bonds and other fixed income instruments, real

estate, derivatives and other assets have become mature and information driven. Price

changes in these assets are driven by global events occurring in faraway places. A typical

individual is unlikely to have the knowledge, skills, inclination and time to keep track of

events, understand their implications and act speedily. An individual also finds it difficult

to keep track of ownership of his assets, investments, brokerage dues and bank

transactions etc.

A mutual fund is the answer to all these situations. It appoints professionally qualified

and experienced staff that manages each of these functions on a full time basis. The large

pool of money collected in the fund allows it to hire such staff at a very low cost to each

investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas -

research, investments and transaction processing. While the concept of individuals

coming together to invest money collectively is not new, the mutual fund in its present

form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the

Second World War. Globally, there are thousands of firms offering tens of thousands of

mutual funds with different investment objectives. Today, mutual funds collectively

manage almost as much as or more money as compared to banks.


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A draft offer document is to be prepared at the time of launching the fund. Typically, it

pre specifies the investment objectives of the fund, the risk associated, the costs involved

in the process and the broad rules for entry into and exit from the fund and other areas of

operation. In India, as in most countries, these sponsors need approval from a regulator,

SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the

sponsor and its financial strength in granting approval to the fund for commencing

operations.

A sponsor then hires an asset management company to invest the funds according to the

investment objective. It also hires another entity to be the custodian of the assets of the

fund and perhaps a third one to handle registry work for the unit holders (subscribers) of

the fund.

In the Indian context, the sponsors promote the Asset Management Company also, in

which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the

Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the

Birla Sun Life Asset Management Company Ltd., which has floated different mutual

funds schemes and also acts as an asset manager for the funds collected under the

schemes.

History of Mutual Funds in India

The end of millennium marks 36 years of existence of mutual funds in this country. The

ride through these 36 years is not been smooth. Investor opinion is still divided. While

some are for mutual funds others are against it.


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UTI commenced its operations from July 1964 .The impetus for establishing a formal

institution came from the desire to increase the propensity of the middle and lower groups

to save and to invest. UTI came into existence during a period marked by great political

and economic uncertainty in India. With war on the borders and economic turmoil that

depressed the financial market, entrepreneurs were hesitant to enter capital market.

The already existing companies found it difficult to raise fresh capital, as investors did

not respond adequately to new issues. Earnest efforts were required to canalize savings of

the community into productive uses in order to speed up the process of industrial growth.

The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would

be "open to any person or institution to purchase the units offered by the trust. However,

this institution as we see it, is intended to cater to the needs of individual investors, and

even among them as far as possible, to those whose means are small."

His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill

the twin objectives of mobilizing retail savings and investing those savings in the capital

market and passing on the benefits so accrued to the small investors.

UTI commenced its operations from July 1964 "with a view to encouraging savings and

investment and participation in the income, profits and gains accruing to the

Corporation from the acquisition, holding, management and disposal of securities."

Different provisions of the UTI Act laid down the structure of management, scope of

business, powers and functions of the Trust as well as accounting, disclosures and

regulatory requirements for the Trust.

One thing is certain the fund industry is here to stay. The industry was one-entity show

till 1986 when the UTI monopoly was broken when SBI and Canbank mutual fund

entered the arena. This was followed by the entry of others like BOI, LIC, GIC, etc.

sponsored by public sector banks. Starting with an asset base of Rs0.25bn in 1964 the

industry has grown at a compounded average growth rate of 26.34% to its current size of

Rs1130bn.


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The period 1986-1993 can be termed as the period of public sector mutual funds (PMFs).

From one player in 1985 the number increased to 8 in 1993. The party did not last long.

When the private sector made its debut in 1993-94, the stock market was booming.

The openings up of the asset management business to private sector in 1993 saw

international players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros

and Capital International along with the host of domestic players join the party. But for

the equity funds, the period of 1994-96 was one of the worst in the history of Indian

Mutual Funds.

1999-2000 Year of the funds

Mutual funds have been around for a long period of time to be precise for 36 yrs but the

year 1999 saw immense future potential and developments in this sector. This year

signaled the year of resurgence of mutual funds and the regaining of investor confidence

in these MFs. This time around all the participants are involved in the revival of the

funds ----- the AMCs, the unit holders, the other related parties. However the sole factor

that gave life to the revival of the funds was the Union Budget. The budget brought about

a large number of changes in one stroke. An insight of the Union Budget on mutual funds

taxation benefits is provided later.

It provided centre stage to the mutual funds, made them more attractive and provides

acceptability among the investors. The Union Budget exempted mutual fund dividend

given out by equity-oriented schemes from tax, both at the hands of the investor as well

as the mutual fund. No longer were the mutual funds interested in selling the concept of

mutual funds they wanted to talk business which would mean to increase asset base, and

to get asset base and investor base they had to be fully armed with a whole lot of schemes

for every investor .So new schemes for new IPOs were inevitable. The quest to attract

investors extended beyond just new schemes. The funds started to regulate themselves

and were all out on winning the trust and confidence of the investors under the aegis of

the Association of Mutual Funds of India (AMFI)


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One can say that the industry is moving from infancy to adolescence, the industry is

maturing and the investors and funds are frankly and openly discussing difficulties

opportunities and compulsions.

The Definition

A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of

a mutual fund as a company that brings together a group of people and invests their


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money in stocks, bonds, and other securities. Each investor owns shares, which represent

a portion of the holdings of the fund.

You can make money from a mutual fund in three ways:

1) Income is earned from dividends on stocks and interest on bonds. A fund pays out

nearly all income it receives over the year to fund owners in the form of a distribution.

2) If the fund sells securities that have increased in price, the fund has a capital gain.

Most funds also pass on these gains to investors in a distribution.

3) If fund holdings increase in price but are not sold by the fund manager, the fund's

shares increase in price. You can then sell your mutual fund shares for a profit. Fundswill also usually give you a choice either to receive a check for distributions or to reinvest

the earnings and get more shares.

CONCEPT

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

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


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

these investments and the capital appreciations realized are shared by its unit holders in

proportion to the number of units owned by them. Thus a Mutual Fund is the most

suitable investment for the common man as it offers an opportunity to invest in a

diversified, professionally managed basket of securities at a relatively low cost. The flow

chart below describes broadly the working of a mutual fund:

Mutual Fund Operation Flow Chart

ORGANISATION OF A MUTUAL FUND

Structure of the Indian mutual fund industry

The Indian mutual fund industry is dominated by the Unit Trust of India which has a total

corpus of Rs700bn collected from more than 20 million investors. The UTI has many


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funds/schemes in all categories ie equity, balanced, income etc with some being open-

ended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US

64, which is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. UTI

was floated by financial institutions and is governed by a special act of Parliament. Most

of its investors believe that the UTI is government owned and controlled, which, while

legally incorrect, is true for all practical purposes.

The second largest categories of mutual funds are the ones floated by nationalized banks.

Canbank Asset Management floated by Canara Bank and SBI Funds Management floated

by the State Bank of India are the largest of these. GIC AMC floated by General

Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of

the other prominent ones. The aggregate corpus of funds managed by this category ofAMCs is about Rs150bn.

The third largest categories of mutual funds are the ones floated by the private sector and

by foreign asset management companies. The largest of these are Prudential ICICI AMC

and Birla Sun Life AMC. The aggregate corpus of assets managed by this category of

AMCs is in excess of Rs250bn

Some of the AMCs operating currently are:

Name of the AMC Nature of ownership

Alliance Capital Asset Management (I) Private Limited Private foreign

Birla Sun Life Asset Management Company Limited Private Indian

Bank of Baroda Asset Management Company Limited Banks

Bank of India Asset Management Company Limited Banks

Canbank Investment Management Services Limited Banks

Cholamandalam Cazenove Asset Management Company Limited Private foreign

Dundee Asset Management Company Limited Private foreign

DSP Merrill Lynch Asset Management Company Limited Private foreign

Escorts Asset Management Limited Private Indian

First India Asset Management Limited Private Indian

GIC Asset Management Company Limited Institutions

IDBI Investment Management Company Limited Institutions


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Indfund Management Limited Banks

ING Investment Asset Management Company Private Limited Private foreign

J M Capital Management Limited Private Indian

Jardine Fleming (I) Asset Management Limited Private foreign

Kotak Mahindra Asset Management Company Limited Private Indian

Kothari Pioneer Asset Management Company Limited Private Indian

Jeevan Bima Sahayog Asset Management Company Limited Institutions

Morgan Stanley Asset Management Company Private Limited Private foreign

Punjab National Bank Asset Management Company Limited Banks

Reliance Capital Asset Management Company Limited Private Indian

State Bank of India Funds Management Limited Banks

Shriram Asset Management Company Limited Private Indian

Sun F and C Asset Management (I) Private Limited Private foreign

Sundaram Newton Asset Management Company Limited Private foreign

Tata Asset Management Company Limited Private Indian

Credit Capital Asset Management Company Limited Private Indian

Templeton Asset Management (India) Private Limited Private foreign

Unit Trust of India Institutions

Zurich Asset Management Company (I) Limited Private foreign

Recent trends in mutual fund industry

The most important trend in the mutual fund industry is the aggressive expansion of the

foreign owned mutual fund companies and the decline of the companies floated by

nationalized banks and smaller private sector players.

Many nationalized banks got into the mutual fund business in the early nineties and got

off to a good start due to the stock market boom prevailing then. These banks did not

really understand the mutual fund business and they just viewed it as another kind of

banking activity. Few hired specialized staff and generally chose to transfer staff from the

parent organizations. The performance of most of the schemes floated by these funds was

not good. Some schemes had offered guaranteed returns and their parent organizations

had to bail out these AMCs by paying large amounts of money as the difference between


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the guaranteed and actual returns. The service levels were also very bad. Most of these

AMCs have not been able to retain staff, float new schemes etc. and it is doubtful

whether, barring a few exceptions, they have serious plans of continuing the activity in a

major way.

The experience of some of the AMCs floated by private sector Indian companies was also

very similar. They quickly realized that the AMC business is a business, which makes

money in the long term and requires deep-pocketed support in the intermediate years.

Some have sold out to foreign owned companies, some have merged with others and

there is general restructuring going on.

The foreign owned companies have deep pockets and have come in here with the

expectation of a long haul. They can be credited with introducing many new practices

such as new product innovation, sharp improvement in service standards and disclosure,

usage of technology, broker education and support etc. In fact, they have forced the

industry to upgrade itself and service levels of organizations like UTI have improved

dramatically in the last few years in response to the competition provided by these.

Market Trends

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

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

share, UTI still remains a formidable force to reckon with.

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

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

merging with others. Product innovation is now pass with the game shifting to

performance delivery in fund management as well as service. Those directly associated

with the fund management industry like distributors, registrars and transfer agents, and

even the regulators have become more mature and responsible.


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

always been a dominant player on the bourses as well as the debt markets, the new

generation of private funds which have gained substantial mass are now seen flexing their

muscles. Fund managers, by their selection criteria for stocks have forced corporate

governance on the industry. By rewarding honest and transparent management with

higher valuations, a system of risk-reward has been created where the corporate sector is

more transparent then before.

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

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

averaged at less than Rs100bn per annum over five-year period spanning 1993-98

doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceededRs300bn. Total collection for the current financial year ending March 2000 is expected to

reach Rs450bn.

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

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

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

inflow of Rs.604.40 crore in the case of public sector funds.

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

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

become obvious. The coming few years will show that the traditional saving avenues are

losing out in the current scenario. Many investors are realizing that investments in

savings accounts are as good as locking up their deposits in a closet. The fund

mobilization trend by mutual funds in the current year indicates that money is going to

mutual funds in a big way. The collection in the first half of the financial year 1999-2000

matches the whole of 1998-99.

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

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

assets are not even 10% of the bank deposits, but this trend is beginning to change.


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Recent figures indicate that in the first quarter of the current fiscal year mutual fund

assets went up by 115% whereas bank deposits rose by only 17%. This is forcing a large

number of banks to adopt the concept of narrow banking wherein the deposits are kept in

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

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

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

banks do business in the future.

Banks v/s Mutual Funds

BANKS MUTUAL FUNDS

Returns Low Better

Administrative exp. High Low

Risk Low Moderate

Investment options Less More

Network High penetration Low but improving

Liquidity At a cost Better

Quality of assets Not transparent Transparent

Interest calculation Minimum balance between 10th. & 30th. Of every month Everyday

Guarantee Maximum Rs.1 lakh on deposits None


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Global Scenario

Some basic facts-

The money market mutual fund segment has a total corpus of $ 1.48 trillion in the

U.S. against a corpus of $ 100 million in India.

Out of the top 10 mutual funds worldwide, eight are bank- sponsored. Only

Fidelity and Capital are non-bank mutual funds in this group.

In the U.S. the total number of schemes is higher than that of the listed companies

while in India we have just 277 schemes

Internationally, mutual funds are allowed to go short. In India fund managers do

not have such leeway.

On- line trading is a great idea to reduce management expenses from the current 2

% of total assets to about 0.75 % of the total assets.


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Internationally, online investing continues its meteoric rise. Many have debated about

the success of e- commerce and its breakthroughs, but it is true that this aspect of

technology could and will change the way financial sectors function. However, mutual

funds cannot be left far behind. They have realized the potential of the Internet and are

equipping themselves to perform better.

In fact in advanced countries like the U.S.A, mutual funds buy- sell transactions have

already begun on the net, while in India the Net is used as a source of Information.

Such changes could facilitate easy access, lower intermediation costs and better services

for all. A research agency that specializes in internet technology estimates that over the

next four years Mutual Fund Assets traded online will grow ten folds from $ 128 billion

to $ 1,227 billion; whereas equity assets traded on-line will increase during the period

from $ 246 billion to $ 1,561 billion. This will increase the share of mutual funds from

34% to 40% during the period.

Such increases in volumes are expected to bring about large changes in the way Mutual

Funds conduct their business.

Here are some of the basic changes that have taken place since the advent of the Net.

Lower Costs:

Mutual funds could bring down their administrative costs to 0.75% if trading is done

online. As per SEBI regulations, bond funds can charge a maximum of 2.25% and

equity funds can charge 2.5% as administrative fees. Therefore if the administrative

costs are low, the benefits are passed down and hence Mutual Funds are able to attract

mire investors and increase their asset base.

Better advice:

Mutual funds could provide better advice to their investors through the Net rather

than through the traditional investment routes where there is an additional channel to


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deal with the Brokers. Direct dealing with the fund could help the investor with their

financial planning.

In India, brokers could get more Net savvy than investors and could help the

investors with the knowledge through get from the Net.

New investors would prefer online :

Mutual funds can target investors who are young individuals and who are Net savvy,

since servicing them would be easier on the Net.

India has around 1.6 million net users who are prime target for these funds and

this could just be the beginning. The Internet users are going to increasesdramatically and mutual funds are going to be the best beneficiary. With smaller

administrative costs more funds would be mobilized .A fund manager must be

ready to tackle the volatility and will have to maintain sufficient amount of

investments which are high liquidity and low yielding investments to honor

redemption.

Net based advertisements:

There will be more sites involved in ads and promotion of mutual funds. In the U.S. sites

like AOL offer detailed research and financial details about the functioning of different

funds and their performance statistics. A is witnessing a genesis in this area . There are

many sites such as indiainfoline.com and indiafn.com that are doing something similar

and providing advice to investors regarding their investments.

In the U.S. most mutual funds concentrate only on financial funds like equity and debt.

Some like real estate funds and commodity funds also take an exposure to physical

assets. The latter type of funds are preferred by corporate who want to hedge their

exposure to the commodities they deal with.

For instance, a cable manufacturer who needs 100 tons of Copper in the month of January

could buy an equivalent amount of copper by investing in a copper fund. For Example,


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Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed percentage of

its corpus in Gold, Silver, Swiss francs, specific stocks on various bourses around the

world, short term and long-term U.S. treasuries etc.

In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real

estate funds (investing in real estate and other related assets as well.).In India, the Canada

based Dundee mutual fund is planning to launch a gold and a real estate fund before the

year-end.

In developed countries like the U.S.A there are funds to satisfy everybodys requirement,

but in India only the tip of the iceberg has been explored. In the near future India too will

concentrate on financial as well as physical funds.

Types of Mutual Funds

Mutual fund schemes may be classified on the basis of its structure and its investment

objective.

By Structure:

Open-ended Funds

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

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

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

Closed-ended Funds

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15

years. The fund is open for subscription only during a specified period. Investors can

invest in the scheme at the time of the initial public issue and thereafter they can buy or

sell the units of the scheme on the stock exchanges where they are listed. In order to


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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.

Interval Funds

Interval funds combine the features of open-ended and close-ended schemes. They are

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

By Investment Objective:

Growth Funds

The aim of growth funds is to provide capital appreciation over the medium to long-

term. Such schemes normally invest a majority of their corpus in equities. It has been

proven that returns from stocks, have outperformed most other kind of investments held

over the long term. Growth schemes are ideal for investors having a long-term outlook

seeking growth over a period of time.

Income Funds

The aim of income funds is to provide regular and steady income to investors. Such

schemes generally invest in fixed income securities such as bonds, corporate debentures

and Government securities. Income Funds are ideal for capital stability and regular

income.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income. Such schemes

periodically distribute a part of their earning and invest both in equities and fixed incomesecurities in the proportion indicated in their offer documents. In a rising stock market,

the NAV of these schemes may not normally keep pace, or fall equally when the market

falls. These are ideal for investors looking for a combination of income and moderate

growth.


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Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of capital and

moderate income. These schemes generally invest in safer short-term instruments such as

treasury bills, certificates of deposit, commercial paper and inter-bank call money.Returns on these schemes may fluctuate depending upon the interest rates prevailing in

the market. These are ideal for Corporate and individual investors as a means to park

their surplus funds for short periods.

Load Funds

A Load Fund is one that charges a commission for entry or exit. That is, each time you

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

range from 1% to 2%. It could be worth paying the load, if the fund has a good

performance history.

No-Load Funds

A No-Load Fund is one that does not charge a commission for entry or exit. That is, no

commission is payable on purchase or sale of units in the fund. The advantage of a no

load fund is that the entire corpus is put to work.

Other Schemes:

Tax Saving Schemes

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

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

avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension

Schemes are allowed as deduction under Income Tax Act, 1961.

Special Schemes

Industry Specific Schemes


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

The investment of these funds is limited to specific industries like InfoTech, FMCG,

Pharmaceuticals etc.

Index Schemes

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

Sensex or the NSE 50.

Sectoral Schemes

Sectoral Funds are those, which invest exclusively in a specified industry or a group of

industries or various segments such as 'A' Group shares or initial public offerings.

Merits of Mutual Fund investment

Professional Management

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

dedicated investment research team that analyses the performance and prospects of

companies and selects suitable investments to achieve the objectives of the scheme.

Diversification

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

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

the same time and in the same proportion. You achieve this diversification through a

Mutual Fund with far less money than you can do on your own.

Convenient Administration


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Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such

as bad deliveries, delayed payments and follow up with brokers and companies. Mutual

Funds save your time and make investing easy and convenient.

Return Potential

Over a medium to long-term, Mutual Funds have the potential to provide a higher return

as they invest in a diversified basket of selected securities.

Low Costs

Mutual Funds are a relatively less expensive way to invest compared to directly investing

in the capital markets because the benefits of scale in brokerage, custodial and other fees

translate into lower costs for investors.

Liquidity

In open-end schemes, the investor gets the money back promptly at net asset value

related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a

stock exchange at the prevailing market price or the investor can avail of the facility of

direct repurchase at NAV related prices by the Mutual Fund.

Transparency

One can get regular information on the value of his investment in addition to disclosure

on the specific investments made by his scheme, the proportion invested in each class of

assets and the fund manager's investment strategy and outlook.

Flexibility

Through features such as regular investment plans, regular withdrawal plans and dividend

reinvestment plans, you can systematically invest or withdraw funds according to your

needs and convenience.

Affordability

Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual

fund because of its large corpus allows even a small investor to take the benefit of its


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investment strategy. Mutual Funds offer a family of schemes to suit your varying needs

over a lifetime.

Well Regulated

All Mutual Funds are registered with SEBI and they function within the provisions of

strict regulations designed to protect the interests of investors. The operations of Mutual

Funds are regularly monitored by SEBI.

Demerits of Mutual Fund investment:

Professional Management

Many investors debate over whether or not the so-calledprofessionals are any better than

you or I at picking stocks. Management is by no means infallible, and, even if the fundloses money, the manager still takes his/her cut.

Dilution

It's possible to have too much diversification. Because funds have small holdings in so

many different companies, high returns from a few investments often don't make much

difference on the overall return. Dilution is also the result of a successful fund getting too

big. When money pours into funds that have had strong success, the manager often hastrouble finding a good investment for all the new money.

Entry and exit costs

Mutual funds are a victim of their own success. When a large body like a fund invests in

shares, the concentrated buying or selling often results in adverse price movements ie at


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the time of buying, the fund ends up paying a higher price and while selling it realizes a

lower price. This problem is especially severe in emerging markets like India, where,

excluding a few stocks, even the stocks in the Sensex are not liquid, let alone stocks in

the NSE 50 or the CRISIL 500. So, there is simply no way that a fund can beat the

Sensex or any other index, if it blindly invests in the same stocks as those in the Sensex

and in the same proportion. For obvious reasons, this problem is even more severe for

funds investing in small capitalization stocks. However, given the large size of the debt

market, excluding UTI, most debt funds do not face this problem.

Wait time before investment

It takes time for a mutual fund to invest money. Unfortunately, most mutual funds

receive money when markets are in a boom phase and investors are willing to try out

mutual funds. Since it is difficult to invest all funds in one day, there is some money

waiting to be invested. Further, there may be a time lag before investment opportunities

are identified. This ensures that the fund underperforms the index. For open-ended funds,

there is the added problem of perpetually keeping some money in liquid assets to meet

redemptions. The problem of impracticability of quick investments is likely to be reduced

to some extent with the introduction of index futures.

Fund management costs

The costs of the fund management process are deducted from the fund. This includes

marketing and initial costs deducted at the time of entry itself, called "load". Then there is

the annual asset management fee and expenses, together called the expense ratio.

Usually, the former is not counted while measuring performance, while the latter is. A

standard 2% expense ratio means that, everything else being equal, the fund manager

underperforms the benchmark index by an equal amount.

Cost of churn

The portfolio of a fund does not remain constant. The extent to which the portfolio

changes is a function of the style of the individual fund manager i.e. whether he is a buy

and hold type of manager or one who aggressively churns the fund. It is also dependent


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on the volatility of the fund size i.e. whether the fund constantly receives fresh

subscriptions and redemptions. Such portfolio changes have associated costs of

brokerage, custody fees, registration fees etc. which lowers the portfolio return

commensurately.

Change of index composition

World over, the indices keep changing to reflect changing market conditions. There is an

inherent survivorship bias in this process, with the bad stocks weeded out and replaced by

emerging blue chips. This is a severe problem in India with the Sensex having been

changed twice in the last 5 years, with each change being quite substantial. Another

reason for change index composition is Mergers & Acquisitions. The weightages of the

shares of a particular company in the index changes if it acquires a large company not a

part of the index.

How to overcome demerits of the mutual funds?

Tendency to take conformist decisions

From the above points, it is quite clear that the only way a fund can beat the index is

through investment of some part of its portfolio in some shares where it gets excellent

returns, much more than the index. This will pull up the overall average return. In order

to obtain such exceptional returns, the fund manager has to take a strong view and invest

in some uncommon or unfancied investment options. Most people are unwilling to do

that. They follow the principle "No fund manager ever got fired for investing in

Hindustan Lever" i.e. if something goes wrong with an unusual investment, the fund

manager will be questioned but if anything goes wrong with the blue chip, then you can

always blame it on the "environment" or "uncontrollable factors" knowing fully well that

there are many other fund managers who have made the same decision. Unfortunately, if

the fund manager does the same thing as several others of his class, chances are that he

will produce average results. This does not mean that if a fund manager takes "active"

views and invests in heavily researched "uncommon" ideas, the fund will necessarily

outperform the index. If the idea does not work, it will result in poor fund performance.


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But if no such view is taken, there is absolutely no chance that the fund will outperform

the index.

Net Asset Value (NAV)

The net asset value of the fund is the cumulative market value of the assets fund net of its

liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the

assets in the fund, this is the amount that the shareholders would collectively own. This

gives rise to the concept of net asset value per unit, which is the value, represented by the

ownership of one unit in the fund. It is calculated simply by dividing the net asset value

of the fund by the number of units. However, most people refer loosely to the NAV per

unit as NAV, ignoring the "per unit". We also abide by the same convention.

Calculation of NAV

The most important part of the calculation is the valuation of the assets owned by the

fund. Once it is calculated, the NAV is simply the net value of assets divided by the

number of units outstanding. The detailed methodology for the calculation of the asset

value is given below.

Asset value is equal to

Sum of market value of shares/debentures


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+ Liquid assets/cash held, if any

+ Dividends/interest accrued

Amount due on unpaid assets

Expenses accrued but not paid

Details on the above items

For liquid shares/debentures, valuation is done on the basis of the last or closing market

price on the principal exchange where the security is traded.

For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be

estimated. For shares, this could be the book value per share or an estimated market price

if suitable benchmarks are available. For debentures and bonds, value is estimated on the

basis of yields of comparable liquid securities after adjusting for illiquidity. The value of

fixed interest bearing securities moves in a direction opposite to interest rate changes

Valuation of debentures and bonds is a big problem since most of them are unlisted and

thinly traded. This gives considerable leeway to the AMCs on valuation and some of the

AMCs are believed to take advantage of this and adopt flexible valuation policies

depending on the situation.

Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with

every passing day, interest is said to be accrued, at the daily interest rate, which is

calculated by dividing the periodic interest payment with the number of days in each

period. Thus, accrued interest on a particular day is equal to the daily interest rate

multiplied by the number of days since the last interest payment date.

Usually, dividends are proposed at the time of the Annual General meeting and become

due on the record date. There is a gap between the dates on which it becomes due and the

actual payment date. In the intermediate period, it is deemed to be "accrued".

Expenses including management fees, custody charges etc. are calculated on a daily

basis.


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Regulatory Aspects

Schemes of a Mutual Fund

The asset management company shall launch no scheme unless the trustees

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

Board.

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

fees.

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

enable the investors to make 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 A close-ended scheme

shall be fully redeemed at the end of the maturity period. "Unless a majority of

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

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

application money to the applicants,-


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(i) If the mutual fund fails to receive the minimum

subscription amount referred to in clause (a) of sub-

regulation (1);

(ii) If the moneys received from the applicants for units are

in excess of subscription as referred to in clause (b) of sub-

regulation (1).

The asset management company shall issue to the applicant whose application has

been accepted, unit certificates or a statement of accounts specifying the number

of units allotted to the applicant as soon as possible but not later than six weeks

from the date of closure of the initial subscription list and or from the date of

receipt of the request from the unit holders in any open ended scheme.

Rules Regarding Advertisement:

The offer document and advertisement materials shall not be misleading or

contain any statement or opinion, which are incorrect or false.

Investment Objectives and Valuation Policies:

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

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

to the investors.

General Obligations:

Every asset management company for each scheme shall keep and maintain

proper books of accounts, records and documents, for each scheme so as toexplain its transactions and to disclose at any point of time the financial position

of each scheme and in particular give a true and fair view of the state of affairs of

the fund and intimate to the Board the place where such books of accounts,

records and documents are maintained.


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

Every mutual fund or the asset management company shall prepare in respect of

each financial year an annual report and annual statement of accounts of the

schemes and the fund as specified in Eleventh Schedule.

Every mutual fund shall have the annual statement of accounts audited by an

auditor who is not in any way associated with the auditor of the asset management

company.

Procedure for Action In Case Of Default:

On and from the date of the suspension of the certificate or the approval, as the

case may be, the mutual fund, trustees or asset management company, shall cease

to carry on any activity as a mutual fund, trustee or asset management company,

during the period of suspension, and shall be subject to the directions of the Board

with regard to any records, documents, or securities that may be in its custody or

control, relating to its activities as mutual fund, trustees or asset management

company.

Restrictions on Investments:

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

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

by a credit rating agency authorized to carry out such activity under the Act. Such

investment limit may be extended to 20% of the NAV of the scheme with the

prior approval of the Board of Trustees and the Board of asset Management

Company.

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

instruments issued by a single issuer and the total investment in such instruments

shall not exceed 25% of the NAV of the scheme. All such investments shall be

made with the prior approval of the Board of Trustees and the Board of asset

Management Company.


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

company's paid up capital carrying voting rights.

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

spot basis. The securities so transferred shall be in conformity with the investment

objective of the scheme to which such transfer has been made.

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

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

aggregate interscheme investment made by all schemes under the same

management or in schemes under the management of any other asset management

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

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

the funds raised under that scheme.

Every mutual fund shall buy and sell securities on the basis of deliveries and shall

in all cases of purchases, take delivery of relative securities and in all cases of

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

has to make short sale or carry forward transaction or engage in badla finance.

Every mutual fund shall, get the securities purchased or transferred in the name of

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

intended to be of long-term nature.

Pending deployment of funds of a scheme in securities in terms of investment

objectives of the scheme a mutual fund can invest the funds of the scheme in short

term deposits of scheduled commercial banks.

No mutual fund scheme shall make any investment in;

i. Any unlisted security of an associate or group company of

the sponsor; or

ii. Any security issued by way of private placement by an

associate or group company of the sponsor; or

The listed securities of group companies of the

sponsor which is in excess of 30% of the net assets

[of all the schemes of a mutual fund]


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

equity shares or equity related instruments of any company. Provided that, the

limit of 10 per cent shall not be applicable for investments in index fund or sector

or industry specific scheme.

A mutual fund scheme shall not invest more than 5% of its NAV in the equity

shares or equity related investments in case of open-ended scheme and 10% of its

NAV in case of close-ended scheme.

Comparison and Analysis of Mutual Fund companies

Comparison of top ten Equity schemes

Open Ended - Equity: Diversified - Since Launch Return

Fund NAV (Date) Returns(%)

Return as

on

Magnum Emerging Businesses 25.21 (10-Feb) 93.57 2/10/2006

Tata Equity Opportunities 46.95 (10-Feb) 89.19 2/10/2006

Prudential ICICI Emerging STAR 22.28 (10-Feb) 80.96 2/10/2006

Kotak Opportunities 23.05 (10-Feb) 76.94 2/10/2006

Sundaram India Leadership 24.62 (10-Feb) 72.68 2/10/2006

Chola Midcap Fund 22.85 (10-Feb) 70.23 2/10/2006

HSBC Equity 54.42 (10-Feb) 70.02 2/10/2006

Magnum Midcap 16.97 (10-Feb) 69.70 2/10/2006

ABN AMRO Equity 21.38 (10-Feb) 69.60 2/10/2006

Prudential ICICI Discovery

22.49 (10-Feb) 69.60 2/10/2006

Closed Ended - Equity: Tax Planning - Since Launch Return

Fund NAV (Date) Returns(%)

Return as

on

UTI MEPUS 34.30 (10-Feb) 62.00 2/10/2006


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Birla Taxplan '98 163.03 (10-Feb) 42.56 2/10/2006

Franklin India Taxshield '98 94.32 (10-Feb) 32.99 2/10/2006



Sundaram Taxsaver '98 56.71 (10-Feb) 24.67 2/10/2006

Franklin India Taxshield '96 80.01 (10-Feb) 23.45 2/10/2006Sundaram Taxsaver '97 29.80 (10-Feb) 23.36 2/10/2006

BoB ELSS '97 39.15 (8-Feb) 18.37 2/8/2006

Morgan Stanley Growth 42.57 (10-Feb) 15.44 2/10/2006

Comparison of top ten Debt schemes

Open Ended - Gilt: Medium & Long-term - Since Launch Return

Fund NAV (Date)

Returns

(%)

Return as

on

Templeton India GSF Composite 23.12 (10-Feb) 13.44 2/10/2006

DSPML GSF Longer Duration 22.24 (10-Feb) 13.32 2/10/2006

Birla Gilt Plus Regular 21.78 (10-Feb) 13.07 2/10/2006

Tata GSF 22.16 (10-Feb) 12.96 2/10/2006

JM G-Sec PF Plan 21.24 (10-Feb) 12.55 2/10/2006

Kotak Gilt Investment Regular 22.55 (10-Feb) 12.05 2/10/2006

Prudential ICICI Gilt Investment 20.84 (10-Feb) 11.93 2/10/2006

JM G-Sec Regular Plan 20.39 (10-Feb) 11.83 2/10/2006

Birla Gilt Plus PF 19.68 (10-Feb) 11.27 2/10/2006

Templeton IGSF Long-term 15.60 (10-Feb) 11.21 2/10/2006

Closed Ended - Debt: Speciality - Since Launch Return

Fund NAV (Date)

Return

(%)

Return as

on

Birla FMP Annual Series3 10.83 (10-Feb) 6.80 2/10/2006

Birla FTP Series A 10.64 (8-Feb) 6.32 2/8/2006

ING Vysya Fixed Maturity Series 2 10.63 (10-Feb) 6.17 2/10/2006

Magnum Debt Series 15 Months-1 10.65 (8-Feb) 6.12 2/8/2006


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Asset Allocation

As on 31/01/06 % Net Assets

Equity 91.41

Debt 0.00

Others 8.59

Sector Weightings As on 31/01/06

% Net

Assets

Services 13.88Basic/Engineering 12.33Textiles 10.79Diversified 9.02Chemicals 7.60Construction 7.31FMCG 6.36Technology 5.42

Financial Services 5.30Automobile 5.15Health Care 4.38Metals & Metal Products 3.89


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Tata Equity Opportunities-G

Current Stats & Profile

Latest NAV 46.9483 (10/02/06)

52-Week High 46.9483 (10/02/06)

52-Week Low 27.5115 (29/03/05)Fund Category Equity: Diversified

Type Open End

Launch Date March 2003

Risk Grade Not Rated

Return Grade Not Rated

Net Assets (Cr) 375.04 (31/01/06)

Benchmark Sensex

Trailing Returns

As on 10 Feb 2006 Fund Category

Year to Date 11.52 8.85

1-Month 7.59 6.183-Month 26.42 22.43

1-Year 63.71 56.51

3-Year -- 62.37

5-Year -- 29.90

Return Since Launch 89.19 --

Returns upto 1 year are absolute and over1 year are annualised.

Relative Performance (Fund Vs Category Average)

Asset Allocation


Equity 98.85


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Latest NAV 22.28 (10/02/06)

52-Week High 22.28 (10/02/06)

52-Week Low 11.35 (29/03/05)

Fund Category Equity: Diversified

Type Open End

Launch Date October 2004Risk Grade Not Rated


Net Assets (Cr) 462.21 (31/01/06)

Benchmark Nifty Junior



1-Month 5.69 6.18

3-Month 26.88 22.43

1-Year 86.13 56.51

3-Year -- 62.375-Year -- 29.90




Asset Allocation As on 31/01/06 % Net Assets

Equity 89.69

Debt 8.73

Others 1.58

Sector Weightings As on 31/01/06 % Net AssetsTechnology 13.15Metals & Metal Products 10.46FMCG 9.37Textiles 9.00Basic/Engineering 8.49Construction 7.56


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Automobile 6.63Financial Services 4.94Diversified 3.81Services 3.21Consumer Durable 2.18

Chemicals 2.11Health Care 1.40

Analysis of top three Closed Ended Equity Schemes

UTI MEPUS


Latest NAV 34.3 (10/02/06)

52-Week High 34.3 (10/02/06)

52-Week Low 20.62 (20/04/05)

Fund CategoryEquity: TaxPlanning

Type Close End


Risk Grade Not RatedReturn Grade Not Rated

Net Assets (Cr) 1,213.41(31/01/06)

Benchmark Sensex

Trailing Returns



1-Month 8.13 6.09

3-Month 24.73 22.68

1-Year 57.41 51.34

3-Year -- 54.12

5-Year -- 27.01

Return Since Launch 62.00 --Returns upto 1 year are absolute and over1 year are annualised.



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Asset Allocation


Equity 95.21

Debt 0.00Others 4.79

Sector Weightings

As on 31/01/06 % Net AssetsConstruction 18.01Financial Services 17.71Technology 13.48Health Care 10.43FMCG 9.89Diversified 6.01Automobile 5.54Chemicals 4.74Basic/Engineering 4.38Energy 4.26Services 0.74


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Birla Taxplan '98


Latest NAV 163.03 (10/02/06)52-Week High 163.08 (27/01/06)

52-Week Low 99.63 (11/02/05)


Type Close End


Risk Grade Below Average

Return Grade High

Net Assets (Cr) 6.78 (31/01/06)

Benchmark Sensex

Trailing Returns

As on 10 Feb 2006 Fund CategoryYear to Date 5.95 8.52

1-Month 3.67 6.09

3-Month 19.93 22.68

1-Year 64.15 51.34

3-Year 74.67 54.12

5-Year 39.59 27.01




Asset Allocation



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Equity 93.13

Debt 0.00

Others 6.87

Sector Weightings

As on 31/01/06 % Net AssetsTechnology 21.38FMCG 13.26Diversified 10.57

Financial Services 10.56Health Care 9.50Services 8.88Basic/Engineering 6.08Automobile 4.28


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Franklin India Taxshield '98



52-Week Low 61.01 (19/04/05)


Type Close End


Risk Grade Above Average

Return Grade Average

Net Assets (Cr) 1.36 (31/01/06)

Benchmark S&P CNX 500

Trailing Returns


1-Month 8.07 6.09

3-Month 23.25 22.68

1-Year 47.67 51.34

3-Year 51.55 54.12

5-Year 25.24 27.01




Asset Allocation


Equity 89.32

Debt 0.00

Others 10.68


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Sector Weightings

As on 30/09/05 % Net AssetsTechnology 13.23Diversified 12.85Financial Services 11.70FMCG 10.23Health Care 9.90Metals & Metal Products 7.50Energy 6.67Chemicals 5.34Automobile 4.82Basic/Engineering 2.83Services 2.21Construction 1.75

Analysis of top three Open Ended Debt Scheme

Templeton IGSF Composite-G


Latest NAV 23.1181 (10/02/06)

52-Week High 23.223 (23/01/06)

52-Week Low 22.2757 (01/03/05)

Fund Category Gilt: Medium &

Trailing Returns


Year to Date -0.15 -0.08

1-Month -0.34 -0.27

3-Month 0.58 0.69


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Long-term

Type Open End

Launch Date June 1999

Risk Grade Above Average

Return Grade Above Average

Net Assets (Cr) 308.05 (31/01/06)Benchmark I-Sec Com Index

1-Year 3.29 3.62

3-Year 6.09 5.26

5-Year 12.39 10.61


Returns upto 1 year are absolute and over

1 year are annualised.


Asset Allocation

As on31/01/06 % Net AssetsEquity 0.00

Debt 76.09

Others 23.91

Credit Rating Breakup

Rating As on 31/01/06 % Net AssetsGOI Securities 63.87Cash & Money Market 23.91Treasury Bills 12.21


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DSPML GSF Longer Duration-G


Latest NAV 22.2365 (10/02/06)

52-Week High 22.2687 (23/01/06)

52-Week Low 21.138 (01/03/05)

Fund CategoryGilt: Medium &Long-term

Type Open End

Launch Date September 1999

Risk Grade Above AverageReturn Grade Above Average

Net Assets (Cr) 36.23 (31/01/06)

Benchmark I-Sec Li-BEX

Trailing Returns


Year to Date 0.23 -0.08

1-Month -0.01 -0.27

3-Month 1.37 0.69

1-Year 4.82 3.62

3-Year 6.51 5.26

5-Year 12.55 10.61

Return Since Launch 13.32 --Returns upto 1 year are absolute and over1 year are annualised.



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Asset Allocation


Equity 0.00

Debt 28.14Others 71.86


Rating As on 31/01/06 % Net Assets

Cash & Money Market70.6

5

GOI Securities 14.52

Treasury Bills13.6

2Net Receivables 1.22


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Birla Gilt Plus Regular-G


Latest NAV 21.7818 (10/02/06)

52-Week High 21.9142 (23/01/06)

52-Week Low 20.7296 (02/05/05)Fund Category

Gilt: Medium &Long-term

Type Open End

Launch Date October 1999

Risk Grade High

Return Grade Above Average

Net Assets (Cr) 136.40 (31/01/06)

Benchmark I-Sec Com Index

Trailing Returns


Year to Date -0.34 -0.08

1-Month -0.54 -0.273-Month 0.54 0.69

1-Year 3.91 3.62

3-Year 6.01 5.26

5-Year 12.28 10.61





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Asset Allocation


Equity 0.00

Debt 70.61

Others 29.39


Rating As on 31/01/06 % Net AssetsGOI Securities 63.57Cash & Money Market 29.39Treasury Bills 7.04


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Analysis of top three Closed Ended Debt Schemes

Birla FMP Annual Series-G



52-Week Low 10.1486 (11/02/05)

Fund Category Debt: Speciality

Type Close End

Launch Date November 2004



Net Assets (Cr) 95.69 (31/01/06)

Benchmark Crisil Liquid

Trailing Returns


1-Month 0.52 0.23

3-Month 2.23 0.96

1-Year 6.78 4.38

3-Year -- --

5-Year -- --





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Asset Allocation


Equity 0.00

Debt 99.45

Others 0.55



P1+59.6

6

AAA20.9

2

AA

18.8

7Cash & Money Market 0.55


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Birla FTP Series A-G


Latest NAV 10.6351 (08/02/06)

52-Week High 10.6351 (08/02/06)

52-Week Low 10.0113 (16/02/05)


Type Close End

Launch Date February 2005



Net Assets (Cr) 860.24 (31/01/06)

Benchmark Crisil Comp BFI

Trailing Returns



1-Month 0.57 0.23

3-Month 1.51 0.96

1-Year -- 4.38

3-Year -- --

5-Year -- --





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Asset Allocation


Equity 0.00

Debt 99.00

Others 1.00



AAA77.2

0P1+

21.10

Cash & Money Market 1.00AA+ 0.69


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ING Vysya FM Series 2-G


Latest NAV 10.6291 (10/02/06)

52-Week High 10.6291 (10/02/06)

52-Week Low 10.0195 (14/02/05)


Type Close End

Launch Date February 2005



Net Assets (Cr) 86.29 (31/01/06)

Benchmark Crisil Liquid

Trailing Returns



1-Month 0.48 0.23

3-Month 1.44 0.96

1-Year -- 4.38

3-Year -- --

5-Year -- --





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Asset Allocation

As on 30/09/05 % Net AssetsEquity 0.00

Debt 98.96

Others 1.04



AAA 98.75

Net Receivables 0.93Cash & Money Market 0.32


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PORTER FIVE FORCES MODELS


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Threat from new entrants

With the opening up of the MF sector there has been invasion from many foreign playersand even national players. Still now more and more new player are coming into thissector and trying to make a market share for them. So, there is a constant threat from newplayers who are coming up with innovative schemes and trying to bite the market shareof the existing players.

SubstituteProducts

RivalryamongCompeting

Sellers

Suppliers

Potential NewEntrants

Buyers

Competitive pressure coming from the market attemptsof outsiders to win buyers over to their products

Competitive pressure coming from the threat ofentry of new rivals

SupplierSe

ller

collaboration

&

bargainin

g

Se

llerBuy

er

collaboration

&

bargaining


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Threat from existing players

The competition is heating up. With this all the existing competitor want to increase theirinvestor base and are willing to capture more and more market share. Even these players

are coming up with more and more customized schemes to suit specific investors. Now asa result there is consolidation among the existing players.

Threat of substitutes

The substitutes of mutual fund are Bank deposit, Post office, Saving schemes, Securities,Bonds etc. So there is a considerable threat from these substitutes. The main threat is thatof regarding the return that these substitutes offer vis--vis that of the mutual fund.

Bargaining power of customers

The customers of mutual fund are individual investors and corporate investor. Thebargaining power of these customers is very high because they influence the working ofmutual funds. In order to exert pressure on the mutual funds the investors always demandfor some new customized schemes.

Bargaining power of suppliers

The supplier of the mutual fund is the sponsor. The sponsor can also exert considerableamount of power to the mutual funds. They can either raise their investment limit ofreduce it.

SWOT ANALYSIS

SWOT Analysis of any industry means analsing that industrys strength, weakness andopportunities and threats of that industry.

STRENGTH


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Professional Management :- Mutual fund provides the services ofexperienced and skilled professionals backed by a dedicated investment researchteam that analysis the performance and prospects of companies and select suitableinvestments to achieve the objectives of the scheme.

Diversification :- Mutual fund invest in a number of companies across a broadcross sector of industry and sectors. It reduces the risk

Convenient administration :- Investing in a mutual fund reduce paperworkand helps you to avoid many problems such as bad delivery, delayed paymentsand follow up with brokers and companies. Mutual fund save time and manyinvesting easy and convenient.

Return potential :- Over medium to long term mutual fund have the potential to

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

Low costs :- Mutual fund are relatively less expensive way to invest comparedto directly investing in the capital market because the benefits of scale inbrokerage, custodian and other fees translate into lower costs for investor.

Liquidity :- In open ended mutual fund you can take your money back whenyou want. So there is good liquidity facility.

Transparency :- Regular information the valued your investment in addition to

disclosure on the specific investment made by your scheme.

WEAKNESS

Lesser return compared to equity :- When compared with equity the returnearned on mutual fund s are less. This is because of the various changes that themutual funds have to deduct.

Conservative approach :- Mutual fund manager are more conservative in theirapproach rather then being practical. Whenever they take any decision oninvestment they follow the conservative approach. Many a time due to this, it

becomes difficult for them to capitalize on certain occasions.

Lack of proper marketing :- The marketing efforts carried out by variousplayers in the mutual fund industry are often very poor. Still there is not muchpeople aware of what exactly is a mutual fund.


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OPPORTUNITIES

Governed policy and tax concessions :- Mutual funds take the benefits ofvarious government policy and come out with new schemes. Moreover certainschemes can be formulated taking in considered the new tax policies.

Changes in capital market :- With the changes in the capital market now themutual fund can try to increase the popularity of the equity linked schemes withthe successful results of many of the blue chip firms ,the stock market has startedrejuvenating again. So stock market can be a good option this year.

New technology:- Mutual fund can take benefits of new technology intransactions. Already they have started making the use of internet in fillingapplication forms and sending the NAV results directly on mobile phones.

THREATS

Arrival of more and more private and foreign players in the market will intensifycompetition and will reduce the margin for existing players. This will result in reduceddividends for the investors. The low entry barrier existing in the industry will lead tomore and more players to enter into the market. The failure of some these players maylead to loss of credibility among the creditors. The introduction of bonds and debenturesand assured returns might cause investors to quit the mutual fund and invest in the capitalmarket.

Survey Findings and Analysis

1. How many members are there in your family?


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Businessman Professional Salaried Retired Others

48 7 36 9 0

Occupation

48%

7%

36%

9% 0% Businessman

Professional

Salaried

Retired

Others

Out of the sample size of 100, 48% were businessmen, 7% were professionals, 36% were

salaried and 9% were retired.

3. What proportion of total income do you save? (In %)

Ans. () below 10 () 11-30 () 31-50 () above 50


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below 10 11 to 30 31 to 50 above 50

31 43 17 9

Savings

31%

43%

17%

9%

below 10

11 to 30

31 to 50

above 50

Out of the sample size of 100, 31% of the people saved income below 10% of their total

income, 43% of the people saved income between11% to 31% of their total income, 17%

of the people saved income between 31% to 50% of their total income and 9% of the

people saved income above 50% of their total income.

4. Where do you most prefer to invest your money?

Ans. a. () Government securities

b. () Fixed Deposits

c. () Mutual Funds

d. () Equity Market


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Financial Consultant

23%

77%

Yes

No

Out of the sample size of 100, 23% of respondents were having financial consultants and

77% of respondents were not having access to any financial consultant.

6. Are your aware about the functioning of the mutual fund?

Ans. () Yes () No

Yes No

14 86


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Awareness about mutual fund functioning

14%

86%

Yes

No

Out of the sample size of 100, only 14% of the respondents were aware about the

functioning of the mutual funds while 86% of the respondents were not aware about the

functioning of the mutual funds.

7. Which companies do you prefer for investing in mutual fund?

Ans.

Out of the respondents surveyed the customers who preferred to invest in mutual

funds invested in Tata M.F, HDFC M.F, ICICI M.F, Franklin M.F, Reliance M.F,

DSP M.F and SBI M.F.

8. What level of risk you are willing to take for investing in above mentioned mutual

funds?

Ans. () Low risk () Medium risk () High risk

Low

risk

Medium

risk

High

risk


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24 56 20

Willingness to take risk

24%

56%

20%

Low risk

Medium risk

High risk

Out of 100 respondents, 24% of the respondents preferred to invest in mutual funds with

low risk even if the returns were low, 56% preferred to invest in mutual funds with

medium risk and medium return while 20% of them preferred to invest in mutual funds

with high returns even if the risk was high.

9. What proportion of total savings do you invest in mutual funds? (In %)

Ans. () nil () below 10 () 11-30 () 31-50 () above 50

nil below 10 11 to 30 31 to 50 above 50

79 16 5 0 0


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investments in mutual funds

79%

16%

5% 0%

0%nil

below 10

11 to 30

31 to 50

above 50

Out of 100 respondents, 79% of the respondents didnt at all invested in mutual funds

out of their savings, 16% of the respondents invested up to 10% of their total savings in

mutual funds while the rest 5% of the respondents invested between 11-30% of their total

savings in mutual funds.

10. Which type of mutual fund would you prefer to invest?

Ans. () Equity () Balanced () Debt () not prefer

Equity Balanced Debt not prefer

37 21 0 42


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Type of mutual fund for investing

37%

21%0%

42%Equity

Balanced

Debt

not prefer

Out of the 100 respondents, 37% of the respondents preferred to invest in equity scheme

of mutual funds, 21% of the respondents preferred to invest in balanced scheme of

mutual funds ,42% of the respondents did not preferred to invest in mutual funds and no

one preferred to invest in debt mutual funds.

Future Scenario

The asset base will continue to grow at an annual rate of about 30 to 35 % over the next

few years as investors shift their assets from banks and other traditional avenues. Some

of the older public and private sector players will either close shop or be taken over.

Out of ten public sector players five will sell out, close down or merge with stronger

players in three to four years. In the private sector this trend has already started with two

mergers and one takeover. Here too some of them will down their shutters in the near

future to come.


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But this does not mean there is no room for other players. The market will witness a

flurry of new players entering the arena. There will be a large number of offers from

various asset management companies in the time to come. Some big names like Fidelity,

Principal, Old Mutual etc. are loo

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GP - Mutual Fund