CHAPTER-1

INTRODUCTIONINTRODUCTION TO MUTUAL FUNDS:

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 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.

A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI) that pools up the money from individual/corporate investors and invests the same on behalf of the investors/unit holders, in equity shares, Government securities, Bonds, Call Money Markets etc, and distributes the profits. In the other words, a Mutual Fund allows investors to indirectly take a position in a basket of assets.

Mutual Fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread among a wide cross-section of industries and sectors thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at same time. Investors of mutual funds are known as unit holders.

The investors in proportion to their investments share the profits of losses. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A Mutual Fund is required to be registered with Securities Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.

NEED OF THE STUDY

The projects idea is to project Mutual Fund as a better avenue for investment on a long-term or short-term basis.

Mutual Fund is a productive package for a lay-investor with limited finances, this project creates an awareness that the Mutual Fund is a worthy investment practice. Mutual Fund is a globally proven instrument. Mutual Funds are Unit Trust as it is called in some parts of the world has a long and successful history, of late Mutual Funds have become a hot favorite of millions of people all over the world. The driving force of Mutual Funds is the safety of the principal guaranteed, plus the added advantage of capital appreciation together with the income earned in the form of interest or dividend. The various schemes of Mutual Funds provide the investor with a wide range of investment options according to his risk bearing capacities and interest besides, they also give handy return to the investor. Mutual Funds offers an investor to invest even a small amount of money, each Mutual Fund has a defined investment objective and strategy. Mutual Funds schemes are managed by respective asset managed companies sponsored by financial institutions, banks, private companies or international firms. A Mutual Fund is the ideal investment vehicle for todays complex and modern financial scenario. The study is basically made to analyze the various open-ended equity schemes of different Asset Management Companies to highlight the diversity of investment that Mutual Fund offer. Thus, through the study one would understand how a common man could fruitfully convert a pittance into great penny by wisely investing into the right scheme according to his risk taking abilities.

OBJECTIVES OF THE STUDY 1. To project Mutual Fund as the productive avenue for investing activities.

2. To show the wide range of investment options available in Mutual Funds by explaining its various schemes.

3. To help an investor make a right choice of investment, while considering the inherent risk factors.

4. To understand the recent trends in Mutual Funds world.

SCOPE OF THE STUDY

The study has been limited to analyse open ended schemes of different asset management companies namely SBI magnum,UTI, HDFC,Mutual funds each .

scheme is analysed according to its performance against the other, based on returns.RESEARCH METHODOLOGYThe methodology involves randomly selecting open-ended equity schemes of different fund houses of the country. The data collected for this project is basically from two sources, they are 1. Primary sources: Interview with a fund manager 2 Secondary sources: The monthly fact sheets of different fund houses and research reports from banks..Collection of data from Internet and books

ANALYTICAL TOOLS: The impression created by a picture has much greater impact then detailed explanation. Statistical data can be effectively presented in the form of diagram and graphs. The diagram used as follows:-Pie chart:

The pie charts are used to represent a component on a Percentage basis.each part of a component is shown as the percentage of whole component. Pie charts are used to represent the percentage share of equity, Debt & money market components of balanced growth

Bar diagram: The bar diagram are used specifically for categorical data series. They consist of the group of equidistant rectangles, one for each group or category of data in which the values of magnitudes are represented by length or height of rectangles. LIMITATIONS OF THE STUDY

1. The study is limited only to the analysis of different schemes and its suitability to different investors according to their risk-taking ability.

2. The study is based on secondary data available from monthly fact sheets, websites and other books as primary data was not accessible.

The study is limited by the detailed study of various schemes of three AMCs.

CHAPTER-2 REVIEW OF LITERATURE MUTUALFUNDS

DEFINITION & SETUP OF MUTUAL FUND

In Mutual Fund Book, published by Investment company of U.S.., A Mutual Fund is a financial service organization that receives money from shareholders, invest it, earns returns on it, attempts to make it grows and aggress to pay the share holders cash on demand for the current value of his investment. The investment managers of the funds manage these savings in such a way that the risk is minimized and steady return is ensured.Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 define Mutual Fund as , a fund established in the form of a trust to raise money through the sale of units to the public or a section of the public under one or more schemes for investing in securities, including, money market instrumentCharacteristics of Mutual Funds

A mutual fund actually belongs to the investors who have pooled their funds. The ownership of the mutual fund is in the hands of the investors.

A mutual fund is managed by investment professionals and others services providers, who earn a fee their services, from the fund.

The pool of the funds is invested in a portfolio of marketable inve4stments. The value of the portfolio is updated every day.

The investors share in the fund is denominated by units. The value of the units changes with the change in the portfolios value, everyday. The value of one unit of the investment is called as the NET Asset Value or NAV

The investment portfolio of the mutual fund is created accordingly to the stated investment objectives of the funds.

ORGANISATION OF A MUTUAL FUND:

There are many entities involved and the diagram below illustrates the organizational set up of a Mutual Fund: Mutual Fund Structure SPONSOR:

Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. the Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund.TRUST: The trust deed provisions The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 of the India Trusts Act, 1882 by the sponsor. The trust deed is registered under the Indian Registration Act, 1908.

TRUSTEE:

Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the offer Documents of the respective Schemes. At least 2/3 rd directors of the Trustee are independent directors who are not associated with the sponsor in any manner.

ASSET MANAGEMENT COMPANY (AMC):

The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crore at all times.

REGISTRAR & TRANSFER AGENT:

The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.

Mutual Funds diversify their risk by holding a portfolio of instead of only one asset. This is because by holding all your money in just one asset, the entire fortunes of your portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced.Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced. A very important risk involved in Mutual Fund investments is the market risk. When the market is in doldrums, most of the equity funds will also experience a downturn. However, the company specific risks are largely eliminated due to professional fund management

TYPES OF MUTUAL FUNDS

TYPES OF MUTUAL FUNDS

Operational Investment Objective Asset class

Closed endedGrowthEquity

Open endedIncomeBond

BalancedTaxableTax E

Money Market

(High Liquidity: