A Study of Concept on Wealth Management and various Mutual Funds offered by companies

For IDBI, Meerut

A Report on Project work In MASTER OF BUSINESS ADMINISTRATION (MBA) Amod Garg

(215112048)

DEPARTMENT OF MANAGEMENT STUDIES NATIONAL INSTITUTE OF TECHNOLOGY (DEEMED UNIVERSITY) TIRUCHIRAPPALLI-620015 Session: 2011-2013

CONTENTS
1. Introduction.... 6 1.1. Objectives.7 1.2. The Research Methodology......7 1.3. Common money mistakes an individual makes...8 1.4. Concept on Wealth Management.....9 1.4.1. Financial planning.....10 1.4.2. Investment management....15 1.4.3. Income tax planning..16 1.4.4. Estate management....18 2. IDBI: An Overview.......19 3. History of Indian Mutual Fund Industry...22 3.1. Concept of mutual funds.........24 3.2. Mutual fund investors and organisation of a mutual fund.............25 3.3. Structure of mutual fund industry...29 3.4. Investment classification.....31 4. Analysis of the survey.......48 5. Conclusions.......54 6. References.....55 7. Annexure : Survey........56

List of Figures
Figure No Figure Page No 48 48 49 50 51

Figure 1 Figure 2 Figure 3 Figure 4 Figure 5

Age Group Awareness of Mutual Funds Systematic Investment Plan Investment Options Liquid Funds

ACKNOWLEDGEMENT
I take this opportunity to thank IDBI, for giving me an opportunity to do summer Internship in their esteemed organization. It is indeed a moment of great pleasure to express my sense of profound gratitude and indebtedness to all the people who have been instrumental in making my training a rich experience. I got the opportunity of doing a challenging project at IDBI, Meerut. I would like to convey my sincere thanks to my project guide and mentor Mr. Asheet Anand (Branch Manager, IDBI) for extending their support and taking out time for me from their busy schedule. They have been instrumental in guiding me throughout the project with their suggestions, encouragement and inspiration. Last but not least, I would like to offer my special thanks to Mr. Pankaj Kumar Jha and all employees of IDBI for their kind help. It continues to my family members, Well-wishers and friends who have encouraged me to perceive the work sincerely and seriously. I am also thankful to my respondents who helped me to build up a fruitful database for my analysis.

EXECUTIVE SUMMARY
IDBI Bank Ltd. is a Universal Bank with its operations driven by a cutting edge core Banking IT platform. The Bank offers personalized banking and financial solutions to its clients in the retail and corporate banking arena through its large network of Branches and ATMs, spread across length and breadth of India. As on June 28, 2013, the Bank has a network of 1111 Branches and 1794 ATMs. The Bank's Balance sheet reached Rs.3,22,666 Crore while it earned a net profit of Rs. 1882 Crore. IDBI Bank is a pioneer Institution in Nation building. To cater to its ever-expanding needs, IDBI Bank has formed subsidiaries & joint ventures across diverse areas of Banking & Financial System. IDBI Asset Management Limited was incorporated on January 25, 2010 and is a subsidiary of IDBI Bank Ltd. IAML is the investment manager of schemes launched by IDBI Mutual Fund which comprises of three open-ended equity schemes, one closed ended growth scheme, six debt schemes, two schemes in the Gold category and eight Fixed Maturity Plans. It also invests the money into mutual funds of many companies life HDFC, Reliance, UTI, Kotak etc A survey was conducted to know how much a common man is aware of mutual funds and what its usual investment avenues are. People were educated on the advantages and disadvantages of mutual funds and its various types. A variety of instruments in mutual funds industry were promoted which are the substitutes of conventional fixed deposits and normal savings bank account. An analysis was done as to why people invest in gold, real estate, stocks etc. and its advantages and disadvantages. The survey was conducted on salaried employees, doctors and self-employed individuals of all age groups.

Chapter 1: INTRODUCTION
When somebody hears the term, Wealth Management, most of the people are put off as they simply do not have time to plan. They think of the process as complex, time consuming and show least interest in managing their own money. Any decision about money impacts ones overall finances. Any persons life can be categorized into three distinct phases: 1. Start-up Phase (Age 26 35 years) 2. Peak Earning Years (Age 36 55 years) 3. Cooling Off Period (Age 56 till health permits) In the start-up phase people generally come across some tasks like creating a budget, deciding on how much to spend on luxurious items and how to avoid spending money on unnecessary things. At the same time some people have responsibilities like spending money on siblings education and wedding and money for parents. Then this is the time when one usually gets married and starts a family. Towards the end of the start-up phase the expenses tend to be on the higher side due to birth of children and initial year expenses. Thus proper management is required to achieve the desired goals and create a solid base for the next phase of life. In the next phase a person normally creates wealth for the family. However, in this phase the high income can also entail very high lifestyle expenses, which if not managed properly can spell trouble. One needs to start cutting down unwanted expenses like international vacations, up gradation of car and other discretionary expenses. People need to evaluate alternate streams of income and try to increase the net worth of the family by investments and plan for retirement. The last phase is ideally the best phase of ones life. People tend to work fewer hours so that they have more time for family, friends and recreational activities. By this time, children are independent and one does not have any liability on their shoulders as such and this is the time when one can actually look at spend money on oneself. One has to start thinking about this phase and build a corpus not when one enters in this phase but much earlier in their earlier two phases of life.

1.1 Objectives
The purposes of the study for my summer internship project in wealth management in IDBI have been1. To study about the concept on wealth management and carry out financial planning for the clients. 2. Carried out a survey regarding the awareness of mutual funds and the various investing avenues preferred by people use to park their funds. 3. Creating an awareness about liquid funds among people and other substitutes of conventional investing financial instruments. 4. To increase and strengthen the customer base by targeting potential customers.

1.2 The Research

This report basically focuses on the concept on wealth management and various mutual fund products offered by the companies and their corresponding benefits. Normally the money management of an individual is done by identifying its short term and long term objectives, its current age, liabilities, its current income, inflation in the country and risk appetite of the person. IDBI which has a separate group, IDBI Asset Management Limited, not only offers schemes of mutual funds for the people for investing purpose but through this one can invest in the mutual funds offered by other companies also like HDFC, ICICI, UTI, Reliance, UTI, Birla Sun Life and the list goes on. A survey was designed to collect primary data as to how many people are aware of mutual funds and how many are actually investing. It also aimed at identifying the knowledge of common man about the various insurance products available within and outside IDBI. The survey was also fashioned in a way to find out the awareness of the liquid funds, which is a new category in mutual funds industry, and advise the people about the advantages of investing in these funds. The facts and findings of the survey is discussed later in the report. Data was collected from around 200 people of varied age groups from salaried employees to doctors and entrepreneurs. We will start by history of mutual funds, structure of mutual fund industry, various types of mutual funds schemes offered by companies, current scenario of mutual fund industry, and finally we will discuss the facts and findings of the survey.

1.2 Common Money Mistakes an Individual Makes

1. TOO MANY LOANS Most people have a home loan, property loan, car loan, education loan and in some cases loan for expensive equipment for doctors and industrialists. They end up paying substantial amount of their income towards EMIs. Besides EMIs insurance premiums and personal expenses eat into earnings quite quickly. There is often a whole lot of spending on interiors and acquisition of real estate. Since these are big ticket items, servicing debt and maintaining other expenses result in a liquidity crunch. Some people also take on loans because their accountants have advised them to do so from a tax planning perspective to harness the advantages of depreciation and interest deduction. However this can pose severe cash problems if liquidity and personal needs are not accounted carefully. 2. OVER CONCENTRATION IN REAL ESTATE Most people in modern times do like to invest in real estate (survey discussed later). One of the biggest reasons is that people have a lot of income in the form of cash that can be easily cushioned in real estate investments. Also they believe that not only is real estate insulated from market vagaries, but it gives stellar returns along with tax benefits. As a result, they borrow to invest in real estate and are leveraged. 3. INADEQUATE INSURANCE AGAINST RISKS OF DEATH, DISABILITY, PROFESSIONAL LIABILITY AND LOSS OF INCOME Most of the people despite paying high premiums, are under insures when it comes to life insurance in a big way. There is no assessment of the actual financial risk their family will face, in case of their premature death, and most liabilities are not covered. At the same time people have negligible or no professional liability cover, disability cover and no income protection cover. 4. INVESTMENTS CONSTRAINTS DONE IN AN AD-HOC FASHION, DUE TO TIME

An individuals portfolio should be consisting of equity related instruments, debt instruments, some percentage invested in gold and some cash at hand for emergencies. The percentage diversification depends on the persons age and how much risk he is ready to take. Most people end up having common three investments: real estate, PPF and insurance policies. 5. LACK OF A FINANCIAL PLAN Most of the people do not understand the concepts of financial goal setting, cash flow and debt management, insurance planning, asset allocation, maximization of post-tax income,

retirement and estate planning, for the simple reason that there is no formal education in personal finance or financial planning. 6. MYOPIC VIEW OF TAX PLANNING Some people believe that the objective of tax planning is to minimize taxes and often end doing things that are not in their best interest. They take several loans, buy real estate and life insurance in an unplanned fashion, and indulge in tricks to fool the taxmen such as showing limited income or a weak balance sheet with the objective of paying low or no income tax.

1.3 CONCEPT ON WEALTH MANAGEMENT

The term wealth management also nowadays have very importance. The term wealth management formed with two words wealth & management. Management is nothing but to forecast and plan, to organize, to command, to co-ordinate and to control. The meaning of wealth is Funds, Assets, investments and cash. Wealth Management is an all-inclusive set of strategies that aims to grow, manage, protect and distribute assets in a much planned systematic and integrated manner. Wealth management as an investment-advisory discipline incorporates financial planning, investment portfolio management and a number of aggregated financial services. High-net-worth individuals (HNWIs), small-business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment management. The starting point for the Wealth Management process begins with a financial plan. This includes: Cash flow Estate planning Retirement Planning Tax Planning Risk Management Investment Analysis

The financial planning process normally consists of a series of steps taken to help the client, accomplish their respective goals: Identify your objectives Write down the information pertinent to overall financial situation such as income, expenses, taxes, insurance coverage, retirement plans, investments, wills and trusts. Review the current financial situation based upon the above information
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Invest in mutual funds, real estate, gold and stocks depending upon your goals and long term and short term objectives. Carefully review your portfolio on a periodic basis and make appropriate changes.

Wealth Management is the integration of Financial Planning, Investment Management, Tax Planning, Estate Planning and Risk Management. The planning provides direction, meaning and context to the financial goals. With proper planning and solid investment management one can reach to desired financial goals.

1.3.1 FINANCIAL PLANNING

The principles of personal financial planning are really not too hard to understand and apply and consist of the following steps 10

1. 2. 3.

Creating a Personal Balance Sheet Creating your own Financial Planning Pyramid Budgeting and Prioritising

Personal Balance Sheet Robert Kiyosaki, the well-known and renowned author of the best-selling book Rich Dad Poor Dad, says that creating a personal balance sheet is the first and most basic step of Personal Financial Planning A Personal Balance Sheet is nothing but a way of calculating 1. Net Worth, and 2. Monthly cash-flow Net Worth The Net Worth is nothing but the Total Assets minus the Total Liabilities. Very simply, Assets are things that put money in the pocket, and Liabilities are things that take money out of the pocket. Logically it follows that the higher the net worth the more secure one is financially.

Cash Flow The monthly cash-flow is simply the Total Income minus the Total Expenses on a monthly basis. This also means that the higher the cash-flow, the more disposable income one will have to commit towards meeting the financial goals.

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The Financial Planning Pyramid The financial pyramid is the main part of the Financial Planning Process. The planning process always starts with a base plan which is a written Personal Financial Plan. The 5 main sections of the pyramid are outlined below: 1. 2. 3. 4. 5. Protection Regular Savings Growth and Diversification Speculation Wealth Distribution

The Financial Planning Pyramid The financial pyramid is the main part of the Financial Planning Process. The planning process always starts with a base plan which is a written Personal Financial Plan The 5 main sections of the pyramid are outlined below: 1. 2. 3. 4. 5. Protection Regular Savings Growth and Diversification Speculation Wealth Distribution

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As one can see from the picture above, the personal financial planning pyramid relies on having a solid foundation of protection on which the rest of the pyramid is set up. Income Protection Protection, or more appropriately Income Protection, revolves around the concept of replacing income in case of unplanned events happening. So income replacement is nothing but insurance or one can say that Insurance is nothing but income replacement. Medical Insurance Medical insurance is meant to take care of immediate medical expenses for any medical condition no matter how big or small. If one doesnt have medical insurance, one can end up spending a lot of money on expensive treatments. Critical Illness Insurance The next step after medical insurance is to take care of income replacement in case of major illnesses such as Heart Attacks, Cancer, Brain tumors, Multiple Sclerosis, etc. Generally, critical illness benefits in most policies pay out a lump sum when any of the qualifying illnesses occur within the term of the insurance policy. Disability Insurance As the name suggests, disability insurance replaces the income in case of disability resulting from any type of accident. Life Insurance Finally, Life insurance replaces income lost due to the death of the bread-winner. Wills Wills protect the income from falling into the wrong hands or not being distributed correctly in case of ones demise. Debt Reduction Debt reduction is the most basic, and most important component of the Financial Planning Pyramid. If one reduces the debts by planning the spending habits, one is in fact protecting the income from loss and making it available to achieve the financial goals. If the spending is out of control, one can start by taking stock where the money is being spent. Regular Savings The next step in the pyramid is putting money aside towards the planned commitments. Emergency Fund Emergencies can happen at any time. The only way to survive without problems is to be prepared. In financial terms it means that one needs to put aside at least six months of income for the rainy day, the day when one most need it in case of emergencies.
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Childrens Education planning Putting aside money for childs higher education fees is the best gift parents can give their children. Only proper planning can ensure that their future is secure. Retirement planning Financial independence during retirement is very important if one does not want to depend on someone else for their expense during the twilight years. Saving money now, to have a retirement income is the only way forward. Home ownership planning Buying own house to live in is every persons dream at some point during their life. Like other planned goals this goal can also be achieved by regular savings. Lifetime aspirations Life time aspirations like traveling across the world, buying the dream car, etc also need proper planning and regular savings. Growth and Diversification This phase of financial planning should only be started once the first two phases have been taken care of. Investing in stocks, bonds, mutual funds and ETFs require proper research and slightly higher understanding of how the markets and different asset classes work. Proper research and patience is the key to succeeding in this phase. This phase is designed to maximize the growth of disposable income through taking calculated risks. Speculation Speculation is not for the weak-hearted and generally also known as the wealth-accumulation phase of financial planning. Different ways of getting into the speculation phase of investing are by investing into high-risk asset classes such as Futures, Commodities, Forex and Real Estate. Distribution Distribution of the wealth built-up during the lifetime is the final stage of financial planning. This can be achieved through proper estate planning and succession planning. Budgeting and Prioritizing Regardless of the number of goals a person has, it is seldom possible to start trying to achieve all of them at the same time. Sometimes the monthly cash flow acts as a deterrence and sometimes the timing of each goal comes into play as most goals will need to be achieved at different times in a persons lifecycle.

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Budgeting Budgeting as the word implies revolves around setting realistic targets or limits on different categories of expenses that a person incurs in a month. But setting a budget is not as difficult as it sounds. Steps to set a Budget Firstly, start by itemizing all the expenses or rather outlays of money for a month or two. Maintain a Microsoft Excel file for this purpose. Try to establish an optimum amount for each expense based on past data that one would accumulate in the excel file. Set realistic expense targets for each month going forward. Review the expenses every week to see if one is on target. Make adjustments when necessary. Prioritizing This is the holy grail of personal finance. Nevertheless, it needs to be done. It is obvious that one cannot save for all goals completely starting today so everybody has to prioritize the goals.

1.3.2 INVESTMENT MANAGEMENT

Many financial advising firms provide clients with ongoing investment management services on a fee-only basis. They manage diversified portfolios that are designed to meet clients risk and return objectives. An appropriate portfolio is determined by a clients investment objectives, investment time horizon, liquidity needs and risk tolerance. A well-thought investment process is a critical element for success. The process involves: Diversification By holding assets with different characteristics, a diversified portfolio can be better positioned to weather market volatility. The more diversified the portfolio, the greater chance to control investment risk and achieve strong returns over time. Tactical Asset Allocation A dynamic investment strategy that actively adjusts the individual weightings of each asset class held in a portfolio. The goal of this moderately active strategy is to improve risk-adjusted returns by changing/adjusting the securities held in the diversified portfolio.

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Portfolio Rebalancing Rebalancing involves selling securities that have performed well and moving to securities that havent done well in other words, buy low and sell high. Proper monitor of portfolios and make quarterly rebalancing adjustments to keep the portfolio in line with its target asset allocation. Regularly rebalanced portfolios have lower risk and similar or slightly higher returns than portfolios that have never been rebalanced.

1.3.3 INCOME TAX PLANNING

Most of the salaried employees might have received a reminder from the HR for submission of proofs of tax saving investments. Broadly, there are three ways to pay optimal tax; Claiming tax free income, incidental actions that bring tax benefits and Investing/saving for tax benefits Claiming tax free income: One needs to submit documents to the HR. The tax outflow will automatically get managed. These are applicable for salary components that are tax free in nature. Here is the list of items:

In case one live in a rented apartment and want to make the HRA tax free: Submit 12 months rental receipt from owner For making medical allowance tax free one has need to submit medical bills for the year To make leave travel allowance (LTA) tax free one has to need to submit travel proofs For conveyance allowance to be made tax free one need not do anything. Incidental actions that bring tax benefits One needs to submit following documents under this category:

Interest payment on the home loan- this qualifies under section 24 Principal re-payment on the home loan- this qualifies under section 80C tax rebate Insurance premium receipts paid for the year- this qualifies for section 80C tax rebate Tuition fee receipt paid for the children if any- this qualifies for section 80C tax rebate Ones side contribution to employee provident fund (no proof to be submitted as the HR already has the records) this qualifies for section 80C tax rebate Mediclaim premium receipt- this qualifies for section 80D tax rebate Parents mediclaim premium receipt- this qualifies for section 80D tax rebate Education loan statement (mentioning the interest component)- this qualifies for section 80E tax rebate
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Investing/saving for tax benefits Here is where one need to plan and act for managing the tax outgo. Broadly here one deals with the provisions of Sec 80C/Sec 80 CCC, 80G and 80 CCG. Everybody is primarily expected to invest in any of the products listed in these sections and in return they get the benefit of paying lesser tax. But there is an upper limit to this. For both section 80C and section 80CCC the upper limit collectively is Rs 1,00,000. Section 80C/ 80CCC: If the total claimed under 80C from the items that are listed in the above incidental category amounts to Rs 1,00,000, then one need not do anything. If in case the total amount is total is less than Rs 1,00,000 then one can make some investments to claim tax benefits. The products that qualify for the same are as follows:

Public provident fund Bank fixed deposits (the 5 yr thing) Mutual fund-ELSS ULIPs National Savings Certificate (NSC) Pension Plan Only growth assets have the power to beat inflation in the long run. Equities, equity mutual funds, gold and real estate have the power to beat inflation in the long run. Though they are riskier by nature, in the long run it delivers the best value. Income assets like fixed deposits, bonds, traditional investment-cum insurance policies, etc gives returns less than inflation. Arranging the section 80C products as per the asset class: Income assets Public provident fund Bank fixed deposits (the 5 yr thing) National Savings Certificate (NSC) Growth assets ULIPs Pension Plan Mutual fund-ELSS Section 80G If one pays a donation to any recognized charity or relief fund, a part of the donation can be claimed as a tax rebate. One needs to submit the certificate of donation to HR.

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A few organizations like the Prime Ministers Disaster Fund enjoy 100% deduction which means the entire donation paid is deductible from the salary. However, most other donations including several religious organizations enjoy only a 50% deduction. If anybody pays Rs. 1,000 to such an organization, one can claim Rs. 500 as benefit. Section 80CCG This is the newly announced rebate from the government called Rajiv Gandhi Equity Savings Scheme (RGESS). Features are

One can invest a maximum of Rs 50,000 Tax rebate of 50% Only for individuals whose annual income is less than 10 lacs Investing in stocks for the first time Investing in BSE 100, CNX 100, PSUs, certain mutual funds and ETFs (list) Lock in of 3 year but can trade after 1 year

1.3.4 ESTATE PLANNING

Estate Planning is a process of accumulating and disposing of ones wealth, be it cash, shares or property in a systematic and pre-determined manner to a certain beneficiary/beneficiaries of ones choice. This process is carried out through the Trust route. The testator sets up a Trust, which is manned by trustees appointed by him/her. The idea is to appoint third party trustees, so that the asset transfer process is carried out in a neutral manner. This also helps in maintaining the confidentiality of the Will. The first step to estate planning is making a will. One has the option of transferring ones assets to its legal heirs either through will or estate planning. If an individual carries out succession planning through Trusts, in one's life time, then the possibility of loopholes is minimal. Moreover, an individual is perishable not the entire trust. There are evidences of deceit by individual lawyers at the time of the execution of Will. So setting up of a Trust will help especially those individuals who have a high net worth There are some independent firms that specialise in such services. Recently, banks have started offering Estate Planning services for their HNI and ultra-HNI clients. They mainly include individuals, who have bank balances of a few crores of rupees. Banks and firms help one in a range services. Apart from helping the customers write a Will, they help in registering and safekeeping the Will. Banks preserve the Will in physical form as well as in e-form. Banks also help in setting up of the Trust, its registration, documentation management and execution. Over and above, such banks take care of legal and regulatory requirements. Further, they also help in filing tax returns and settling liabilities of the Trust. Usually, these banks work in conjunction with lawyers to ensure a smooth process of Estate Planning.

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Chapter 2: IDBI- An Overview

IDBI Bank Ltd. is a Universal Bank with its operations driven by a cutting edge core Banking IT platform. The Bank offers personalized banking and financial solutions to its clients in the retail and corporate banking arena through its large network of Branches and ATMs, spread across length and breadth of India. As on June 28, 2013, the Bank has a network of 1111 Branches and 1794 ATMs. The Bank's balance sheet reached Rs.3,22,666 Crore while it earned a net profit of Rs. 1882 Crore. Banks Profile IDBI Bank Ltd. is today one of India's largest commercial Banks. For over 40 years, IDBI Bank has essayed a key nation-building role, first as the apex Development Financial Institution (DFI) (July 1, 1964 to September 30, 2004) in the realm of industry and thereafter as a full-service commercial Bank (October 1, 2004 onwards). As a DFI, the erstwhile IDBI stretched its canvas beyond mere project financing to cover an array of services that contributed towards balanced geographical spread of industries, development of identified backward areas, emergence of a new spirit of enterprise and evolution of a deep and vibrant capital market. On October 1, 2004, the erstwhile IDBI Bank converted into a Banking company (as Industrial Development Bank of India Limited) to undertake the entire gamut of Banking activities while continuing to play its secular DFI role. Post the mergers of the erstwhile IDBI Bank with its parent company (IDBI Ltd.) on April 2, 2005 (appointed date: October 1, 2004) and the subsequent merger of the erstwhile United Western Bank Ltd. with IDBI Bank on October 3, 2006, the tech-savvy, new generation Bank with majority Government shareholding today touches the lives of millions of Indians through an array of corporate, retail, SME and Agri products and services. Headquartered in Mumbai, IDBI Bank today rides on the back of a robust business strategy, a highly competent and dedicated workforce and a state-of-the-art information technology platform, to structure and deliver personalised and innovative Banking services and customised financial solutions to its clients across various delivery channels. As on March 31, 2013, IDBI Bank has a balance sheet of Rs. 2.91 lakh crore and business size (deposits plus advances) of Rs. 3.92 lakh crore. As a Universal Bank, IDBI Bank, besides its core banking and project finance domain, has an established presence in associated financial sector businesses like Capital Market, Investment Banking and Mutual Fund Business. Going forward, IDBI Bank is strongly committed to work towards emerging as the 'Bank of choice' and 'the most valued financial conglomerate', besides generating wealth and value to all its stakeholders.
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IDBI GROUP IDBI Bank is a pioneer Institution in Nation building. To cater to its ever-expanding needs, IDBI Bank has formed subsidiaries & joint ventures across diverse areas of Banking & Financial System. IDBI Capital Market Services Limited (ICMS) ICMS, a wholly owned subsidiary of IDBI Bank, started as a Broking and Distribution company in 1993. Currently its businesses include Merchant Banking, Stock Broking, Distribution of Financial Products, Corporate Advisory Services, Debt Arranging & Undertaking, Portfolio Management of Pension / PF Funds & Research services. IDBI Intech Limited(IIL) IIL was incorporated in March 2000, as a wholly owned subsidiary of IDBI Bank to undertake the IT related activities of the Bank. The major business activities of the company are Information Technology Services, Information Security Practices, National Contact Center and Outbound Sales Team. IDBI Asset Management Limited (IAML) IAML was incorporated on January 25, 2010 and is a subsidiary of IDBI Bank Ltd. IAML is the investment manager of schemes launched by IDBI Mutual Fund, which currently comprises of three open-ended equity schemes (IDBI Nifty Index Fund , IDBI Nifty Junior Index Fund and IDBI India Top 100 Equity Fund), one closed ended growth scheme (IDBI Rajiv Gandhi Equity Savings Scheme Series I Plan A), six debt schemes (IDBI Liquid Fund, IDBI Ultra Short Term Fund, IDBI Short Term Bond Fund, IDBI Monthly Income Plan, IDBI Dynamic Bond Fund and IDBI Gilt Fund) , two schemes in the Gold category (IDBI Gold Exchange Traded Fund and IDBI Gold Fund) and eight Fixed Maturity Plans. IDBI Trusteeship Services Ltd (ITSL) ITSL was incorporated on March 8, 2001 for carrying out trusteeship and other related business. Consequent to acquisition of additional 14.92% shares of ITSL on October 01, 2011, IDBI Banks shareholding in ITSL increased from 39.78% to 54.70% and it has became a subsidiary of IDBI Bank. The companys present operations include, acting as trustees to securitization transactions, acting as Bond/Debenture trustee, Security trusteeship assignments, Share pledge Trustee, Venture Capital Fund, Safe Keeping, Escrow Agency and other trusteeship services.

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IDBI Federal Life Insurance Company Limited (IDBI Federal) IDBI Federal is a Joint Venture Life Insurance Company of IDBI Bank Ltd., The Federal Bank Ltd. and Ageas Insurance International (Ageas). IDBI Federal commenced operations in March 2008. IDBI Bank holds 48% equity shares in IDBI Federal whereas Federal Bank Ltd. and Ageas hold 26% equity shares each. The Companys life insurance business comprises individual life and pension and group life, including nonparticipating, health and linked segments. IDBI Federal has Bancassurance partnership with IDBI Bank and the Federal Bank and also distributes its products through its own network. To further diversify its distribution base, it has set up an Alternate & Direct Distribution channel.

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Chapter 3: History of Indian Mutual Fund Industry

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.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 Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.

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Fourth Phase since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. The graph indicates the growth of assets over the years.

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3.1 Concept of 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 appreciation realised are shared by its unit holders in proportion to the number of units owned by them. A fund is a mutual as all of its returns, minus its expenses are shared by the funds investors. 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 type of professionally managed collective investment vehicle that pools money from many investors to purchase securities. While there is no legal definition of the term "mutual fund", it is most commonly applied only to those collective investment vehicles that are regulated and sold to the general public. They are sometimes referred to as "investment companies" or "registered investment companies." Most mutual funds are "openended," meaning investors can buy or sell shares of the fund at any time. Hedge funds are not considered a type of mutual fund. In the India, mutual funds must be registered with the Securities and Exchange Board of India, overseen by a board of directors (or board of trustees if organized as a trust rather than a corporation or partnership) and managed by a registered investment adviser. A mutual fund serves as a link between the investor and the securities market by mobilising savings from the investors and investing them in the securities market to generate returns. Thus a mutual fund is akin to portfolio management services (PMS). Although, both are conceptually same, they are different from each other. Portfolio Management Services are offered to high net worth individuals; taking into account their risk profile, their investments are managed separately. In case of mutual funds, savings of small investors are pooled under a scheme and returns are distributed in the same proportion in which the investments are made by the investors.

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Mutual funds have both advantages and disadvantages compared to direct investing in individual securities. Today they play an important role in household finances, most notably in retirement planning.

3.2 Mutual Fund Investors and Organisation of a Mutual Fund

Mutual funds in India are open to investment by: Residents including Resident Indian individuals, including high net worth individuals and retail or small investors. Indian companies Indian trusts/charitable/institutions Banks Non-banking finance companies Insurance companies Provident funds Non-resident, including non-resident Indians FIIs registered with SEBI. Foreign citizens are however not allowed to invest in mutual funds in India.

Three key players namely the sponsor, the mutual fund trust, and the asset management company (AMC) are involved in setting up a mutual fund. They are assisted by either independent administrative entities like banks, registrars, transfer agents and custodians (depository participants).

Sponsor Sponsor means any person who acting alone or with another body corporate establishes a mutual fund. The sponsor of a fund is similar to the promoter of a company as he gets the fund registered with the SEBI. SEBI has certain guidelines to fulfil before registering a fund. The sponsor forms a trust and appoints a board of trustees. He also appoints as AMC as fund managers. The sponsor acting directly or through the trustees, also appoints a custodian to hold the fund assets. The sponsor is required to contribute at least 40% of the minimum net worth of the asset management company.
25

A mutual fund can be sponsored by a bank, financial institutions, or companies whether foreign or Indian or a joint venture between foreign and Indian entities. Following is the list of average assets under management for the quarter of January March 2013 Average Assets under Management (AAUM) for the quarter of January - March 2013 (Rs in Lakhs) Average AUM Sr No Mutual Fund Name Excluding Fund of Funds - Domestic but Fund Of Funds including Fund of Domestic Funds Overseas 1211433.78 730311.98 7704643.21 372604.32 110398.31 885094.72 26612.79 1811417.61 3234232.57 25870.75 25541.25 4156426.37 479972.65 10172027.59 522976.63 8783507.47 624890.09 14135.92 0 9785.77 0 0 9310.53 0 0 0 0 0 133227.16 0 37553.75 0 13292.37 10115.39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Axis Mutual Fund Baroda Pioneer Mutual Fund Birla Sun Life Mutual Fund BNP Paribas Mutual Fund BOI AXA Mutual Fund Canara Robeco Mutual Fund Daiwa Mutual Fund Deutsche Mutual Fund DSP BlackRock Mutual Fund Edelweiss Mutual Fund Escorts Mutual Fund Franklin Templeton Mutual Fund Goldman Sachs Mutual Fund HDFC Mutual Fund HSBC Mutual Fund ICICI Prudential Mutual Fund IDBI Mutual Fund

26

18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41

IDFC Mutual Fund IIFL Mutual Fund Indiabulls Mutual Fund ING Mutual Fund JM Financial Mutual Fund JPMorgan Mutual Fund Kotak Mahindra Mutual Fund L&T Mutual Fund LIC NOMURA Mutual Fund Mirae Asset Mutual Fund Morgan Stanley Mutual Fund Motilal Oswal Mutual Fund Peerless Mutual Fund PineBridge Mutual Fund PPFAS Mutual Fund Pramerica Mutual Fund PRINCIPAL Mutual Fund Quantum Mutual Fund Reliance Mutual Fund Religare Invesco Mutual Fund Sahara Mutual Fund SBI Mutual Fund Sundaram Mutual Fund Tata Mutual Fund

3288599.23 20969.89 263905.08 99258.98 741147.09 1585570.15 3536135.09 1116937.85 718472.60 53989.69 266036.68 53853.30 487452.26 109905.16 N/A 259228.22 557346.12 27976.18 9458019.07 1420202.50 25383.24 5490544.40 1487126.93 1989709.46

18237.21 0 0 33242.52 0 0 58329.01 0.00 0 0 0 0 0 0 N/A 0 0 1277.76 227071.91 2747.09 0 85483.43 0 0

27

42 43 44

Taurus Mutual Fund Union KBC Mutual Fund UTI Mutual Fund

473149.50 311795.31 6945039.72 81665715.79

0 0 0 653809.82

Grand Total

Trustees The mutual fund can be managed by a board of trustees or a trust company. The board of trustees is governed by the Indian Trust Act whereas a trust company is governed by the Companies Act, 1956. The trustees act as a protector of unit holders' interests. They do not directly manage the portfolio of securities and appoint an AMC (with approval of SEBI) for fund management. If an AMC wishes to float additional or different schemes, it will need to be approved by the trustees. Trustees play a critical role in ensuring full compliance with SEBIs requirements. Asset Management Company: The AMC is appointed by trustees for managing fund schemes and corpus. An AMC functions under the supervision of its own board of directors and also under the directions of trustees and SEBI. The market regulator has mandated the limit of independent directors to ensure independence in AMC workings. The major obligations of AMC include: ensuring investments in accordance with the trust deed, providing information to unit holders on matters that substantially affect their interests, adhering to risk management guidelines as given by the Association of Mutual Funds in India and SEBI, timely disclosures to unit holders on sale and repurchase, NAV, portfolio details, etc. Custodian and depositories: The fund management includes buying and selling of securities in large volumes. Therefore, keeping a track of such transactions is a specialist function. The custodian is appointed by trustees for safekeeping of physical securities while dematerialised securities holdings are held in a depository through a depository participant. The custodian and depositories work under the instructions of the AMC, although under the overall direction of trustees. Registrar and transfer agents: These are responsible for issuing and redeeming units of the mutual fund as well as providing other related services, such as preparation of transfer documents and updating investor records. A fund can carry out these activities in-house or can outsource them. If it is done internally, the fund may charge the scheme for the service at a competitive market rate.
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3.3 Structure of Mutual Fund Industry

A mutual fund collects savings from small investors that are invested in capital market instruments such as government and corporate securities. The income earned through these investments in the form of interest & dividends along with capital gains realised are shared by unit holders in proportion to the units owned by them. Any appreciation or depreciation in value of investments is reflected in net asset value (NAV) of the concerned scheme.

Before we start discussing about the various types of mutual funds, let us discuss some frequently used terms in this industry Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. Sale Price Is the price one pays when one invest in a scheme. Also called Offer Price. It may include a sales load. Repurchase Price Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related. Redemption Price Is the price at which close-ended schemes redeem their units on maturity. Such prices are NAV related.

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Sales Load Is a charge collected by a scheme when it sells the units. Also called, Front-end load. Schemes that do not charge a load are called No Load schemes. Repurchase or Back-endLoad Is a charge collected by a scheme when it buys back the units from the unitholders. By Structure Open-ended Scheme

In case of open-ended schemes, the mutual fund continuously offers to sell and repurchase its units at NAV. Unlike close-ended schemes, open-ended schemes do not have to be listed on the stock exchanges and can also offer repurchase soon after allotment. Investors can enter and exit the scheme any time during the life of the fund. Open-ended schemes do not have a fixed corpus. The corpus of the fund increases or decreases, depending upon the purchase or redemption of units by the investor. There is no fixed redemption period in the open-ended schemes, which can be terminated whenever the need arises. The fund offers a redemption price at which the holder can sell its units to the fund and exit. Besides an investor can enter the fund again by buying units from the fund at its offer price. Such funds announce sale and repurchase prices from time to time. The key feature of open ended funds is liquidity. They increase the liquidity of the customer as the units can be continuously bought and sold. The investors can develop their income or saving plan due to free entry and exit frame of the funds. Close-ended Scheme

Close-ended schemes have a fixed corpus and a stipulated maturity period ranging from two to five years. Investors can invest in the scheme when it is launched. The scheme remains open for a period not exceeding 45 days. Investors in close ended schemes can buy units only from the market, once initial subscriptions are over and thereafter the units are listed on the stock exchanges where they can be bought or sold. The fund has no interaction with the investor till redemption except for paying dividend/bonus. In order to provide an alternative exit route to the investors, some close-ended schemes give an option of selling back the units to the mutual fund through periodic repurchase at NAVrelated prices. The NAV of close-ended schemes are disclosed generally on weekly basis. If an investor sells units directly to the fund, he cannot enter the fund again, as units bought back by the fund manager cannot be reissued. Close-ended schemes can be converted into open-ended one. Interval Scheme

Interval scheme combines the features of open-ended and close-ended schemes. They are open for sale or redemption during predetermined intervals at NAV related prices.
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Portfolio Classification Income Funds

The aim of income funds is to provide safety of investments and regular income to the investors. It emphasizes current income, either on a monthly or quarterly basis, as opposed to capital appreciation. Such funds hold a variety of government, municipal and corporate debt obligations, preferred stock, money market instruments, and dividend-paying stocks. The return as well as risk is lower in income funds as compared to growth funds. Growth Funds

A diversified portfolio of stocks that has capital appreciation as its primary goal, with little or no dividend payouts. Portfolio companies would mainly consist of companies with aboveaverage growth in earnings that reinvest their earnings into expansion, acquisitions, and/or research and development. Most growth funds offer higher potential capital appreciation but usually at above-average risk. Growth funds are more volatile than funds in the value and blend categories. The companies in a growth fund portfolio are in an expansion phase and they are not expected to pay dividends. Investing in growth funds requires a tolerance for risk and a holding period with a time horizon of five to 10 years. Balanced Funds

A fund that combines a stock component, a bond component and, sometimes, a money market component, in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity component) or conservative (higher fixed-income component) orientation. A balanced fund is geared toward investors who are looking for a mixture of safety, income and modest capital appreciation. The amounts that such a mutual fund invests into each asset class usually must remain within a set minimum and maximum. Although they are in the "asset allocation" family, balanced fund portfolios do not materially change their asset mix. This is unlike life-cycle, target-date and actively managed assetallocation funds, which make changes in response to an investor's changing risk-return appetite and age, or overall investment market conditions.

3.4 Investment Classification

The funds can also be classified on the basis of asset class (type of securities) in which they are invested.

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Equity Funds A mutual fund that invests principally in stocks is called an equity fund. It can be actively or passively (index fund) managed. They are also known as a "stock funds". Stock mutual funds are principally categorized according to company size, the investment style of the holdings in the portfolio and geography. The size of the fund is determined by company's market capitalization, while the investment style, reflected in the fund's stock holdings, is also used to categorize equity mutual funds. Stock funds are also categorized by whether they are domestic or international. These can be broad market, regional or single-country funds. There are so-called specialty stock funds that target business sectors such as Infrastructure, Banking, FMCG, Healthcare, real estate etc. Some of the popular equity fund categories are Diversified Special Sectoral Tax saving ELSS Index Funds-of funds Derivatives Arbitrage Funds

Debt Funds An investment pool, such as a mutual fund or exchange-traded fund, in which core holdings are fixed income investments are called debt funds. A debt fund may invest in short-term or long-term bonds, securitized products, money market instruments or floating rate debt. The fee ratios on debt funds are lower, on average, than equity funds because the overall management costs are lower. The main investing objectives of a debt fund will usually be preservation of capital and generation of income. Performance against a benchmark is considered to be a secondary consideration to absolute return when investing in a debt fund. Some of the popular debt fund categories are Money Market/Liquid Short term Bond Long term Bond Gilt Floating Rate Capital protection Schemes

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Hybrid Funds A category of mutual fund that is characterized by portfolio that is made up of a mix of stocks and bonds, which can vary proportionally over time or remain fixed are called hybrid funds. In the hybrid category, balanced funds tend to stick to a relatively fixed allocation of stocks and bonds. Actively managed asset allocation funds tend to have portfolios with a mix of stocks and bonds that responds to market conditions as perceived by the fund manager. Passively managed asset allocation, life-cycle and target-date funds generally have a stockbond mix that changes over a lifetime, moving progressively from aggressive to more conservative structures. Hybrid Funds may be further classified into three types: Equity-Oriented Funds These are defined as those schemes where the equity holding of the fund in domestic companies is around 65 70%. Some of the top mutual funds under this category are

ICICI Prudential Balanced Fund (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 66.54 N.A 30.5 N.A N.A 2.96 N.A

SBI Magnum Balanced Fund (G)

Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 69.26 0 21.55 N.A N.A 9.17 N.A

HDFC Balanced Fund (G)

Asset Breakup (May-31-2013) 33

Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 70.11 N.A 24.04 N.A N.A 5.85 N.A

Debt-Oriented Funds These are defined as those schemes where the investment in debt securities exceeds 65%. Some of the top mutual funds under this category are

HDFC Monthly Income Plan - Short Term Plan (G)

Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 18.55 N.A 67.19 N.A 10.89 3.37 N.A

Reliance Monthly Income Plan (G)

Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable % 19.38 N.A 78.1 N.A 0.79 1.73 N.A

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IDBI Monthly Income Plan (G)

Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 16.69 N.A 48.06 N.A N.A 35.26 N.A

Balanced Funds These are those funds where 50% is invested in equity instruments and 50% debt instruments. Some of the top mutual funds under this category are

Classification of Equity Funds Diversified Equity Funds These funds invest in equity shares and hold a diversified equity portfolio. These funds are characterised as high risk investments as their returns are linked to the performance of the stock market. They do not have any lock in period. They are further divided into three sub categoriesLarge-cap Funds A term used by the investment community to refer to companies with a market capitalization value of more than Rs 1000crores. Large cap is an abbreviation of the term "large market capitalization". Market capitalization is calculated by multiplying the number of a company's shares outstanding by its stock price per share. Some of the top mutual funds in this category are IDBI India Top 100 Equity Fund (G)

Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 96.23 N.A N.A N.A N.A 3.79 N.A

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BNP Paribas Equity Fund (G)

Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable % 91.95 N.A 0.07 N.A 9.3 N.A -1.29

ICICI Prudential Focused Bluechip Equity Fund (G)

Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 95.53 0.39 N.A N.A N.A 4.05 N.A

Mid-cap Funds - A company with a market capitalization between Rs 500crore and Rs 1000crore, which is calculated by multiplying the number of a company's shares outstanding by its stock price. Mid cap is an abbreviation for the term "middle capitalization". Small-cap Funds These funds invest in equity shares of small companies with a market capitalization of up to Rs 500crore. Some small and upcoming companies have the ability to grow faster than the large caps and have the potential high returns. But these companies need to be explored as the information available about them is limited compared to large caps. Some of the top performing small and mid-cap funds are Birla Sun Life Small and Midcap Fund (G)

Asset Breakup (May31-2013) Class % 36

Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable Payable

96.36 2.1 N.A N.A N.A` 1.71 / -0.17

DSP BlackRock Small and Mid Cap Fund (G)

Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 98.55 0.42 N.A N.A N.A 0.71 0.32

Reliance Small Cap Fund (G)

Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 93.62 3.83 N.A N.A 3.42 -0.87 N.A

Sectoral/Thematic Funds These funds restrict their investments to a particular segment or sector of the economy such as infrastructure, banking, technology, energy, real estate, power sector, health care, FMCG, Pharmaceutical etc. They are high risk, high returns investments and they generate high returns if the particular sector in which funds are invested perform well. Some of the top performing sectoral funds are

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Reliance Pharma Fund (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 97.61 N.A 0.02 N.A 2.67 -0.3 N.A

ICICI Prudential FMCG Fund (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 95.15 N.A N.A N.A N.A 4.86 N.A

Franklin Infotech Fund (G) Asset Breakup (May-312013)

Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable % 94.68 0.25 N.A N.A N.A 5.07 N.A

Index Funds An index fund is a mutual fund which invests in securities in the index on which it is based. It invests only in those shares which comprise the market index and in exactly the same proportion as the companies/weightage in the index so that the value of such index fund varies with the market index. Internationally index funds are very popular. The fund manager

38

has to merely track the index on which it is based. His portfolio will need an adjustment in case there is a revision in underlying assets. HDFC Index Fund - Nifty Plan
Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 98.96 N.A N.A N.A N.A 1.04 N.A

Reliance Index Fund - Nifty Plan (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 99.38 N.A N.A N.A 0.47 0.15 N.A

IDBI Nifty Index Fund (G)

Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 99.58 N.A N.A N.A N.A 0.43 N.A

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Tax Saving Schemes Tax-saving schemes are equity-oriented schemes designed on the basis of tax policy with special incentives to investors. Mutual funds have introduced a number of tax saving schemes. These are close-ended schemes and investments are made for ten years, although investors can avail of encashment facilities after three years. Examples of tax saving schemes are equity-linked savings scheme and pension schemes. Equity-linked Savings Scheme These are diversified schemes investing in shares of blue chip companies. Returns in these schemes are linked to returns of the stock market. In order to encourage investors to invest in stock market, the government has given benefits of tax concession through special schemes. Investments in these schemes entitle the investor to claim an income tax rebate, but these schemes have a lock in period of three years before the end of which funds cannot be withdrawn. Some of the top mutual funds in this category areTata Tax Saving Fund
Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 91.14 3.13 N.A N.A N.A 5.72 N.A

Franklin India Tax Shield (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 91.58 0 0.03 N.A N.A 8.4 N.A

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BNP Paribas Tax Advantage Plan (ELSS) (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 93.03 N.A 0.04 N.A 4.93 N.A 1.96

Pension Schemes These are balanced schemes which aim to provide regular income to individuals after their retirement. Pension plans of insurance companies are more popular as they cover the risk of life cover also. Derivatives Arbitrage Funds They are open ended equity schemes aimed to generate low volatility and better returns by investing in a mix of cash equities, equity derivatives, and debt markets. This fund seeks to buy stocks in the cash market and sell the corresponding stock futures to lock in the price difference between the two, i.e., arbitrage spread. Some of the funds in this category are HDFC Arbitrage Fund - Retail Plan (G)

Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 66.51 N.A 20.81 N.A N.A 12.68 N.A

SBI Arbitrage Opportunities Fund (G)

Asset Breakup (May-31-2013) Class

% 41

Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

72.63 N.A N.A N.A N.A 27.36 N.A

Kotak Equity Arbitrage Fund (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 67.24 -67.28 16.28 N.A 9.16 11.26 63.34

Classification of Debt Funds Money Market Mutual Funds/Liquid Funds They specialise in investing in short term money market instruments like treasury bills, commercial paper, certificate of deposit and other money market instruments. They do not carry either interest rate or entry or exit load. The objective of such funds is high liquidity with low rate of return. Some of the top performing mutual funds in this category areIDBI Liquid Fund (G)
Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% N.A N.A N.A N.A 98.85 1.18 N.A

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HDFC Cash Management Fund - Saving Plan (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% N.A N.A 29.31 N.A 68.78 1.91 N.A

ICICI Prudential Liquid Plan Regular Plan (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% N.A N.A 85.49 N.A N.A 14.52 N.A

Short term Bond Funds These are funds that seek to provide a high degree of liquidity, along with generation of reasonable returns, by investing in a portfolio consisting of short term debt and money market instruments which mainly comprise of corporate bonds. Some of the top performing mutual funds in this category areBirla Sun Life Short Term Fund (G)
Asset Breakup 2013) Class Equity Others / Unlisted Debt Mutual Funds (May-31% N.A N.A 74.1 N.A 43

Money Market Cash / Call Net Receivable / Payable

21.77 4.12 N.A

Reliance Short Term Fund (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% N.A N.A 83.24 N.A 15.39 1.37 N.A

IDBI Short Term Bond Fund (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% N.A N.A 83.24 N.A 15.39 1.37 N.A

Long term Bond Funds These funds invest in long term government dated securities and corporate bonds. The market price of underlying securities- government securities, bonds, debentures determine the net asset value (NAV) of these funds. These securities carry high interest rate risk. There is an inverse relationship between the interest rate risk and NAV of the bond funds. . Some of the top performing mutual funds in this category are-

44

IDFC Dynamic Bond Fund - Regular Plan B (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% N.A N.A 77.47 N.A 21.93 0.59 N.A

UTI Bond Fund (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% N.A N.A 41.41 N.A 53.91 4.68 N.A

IDBI Dynamic Bond Fund (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% N.A N.A 82.3 N.A N.A 17.68 N.A

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Gilt Fuinds Mutual funds which invest exclusively in government securities, both central and state governments are called gilt funds. These are safe as they do not carry credit of default risk. . Some of the top performing mutual funds in this category areReliance Gilt Securities Fund - Retail Plan (G)
Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% N.A N.A 89.47 N.A 13.39 -2.86 N.A

ICICI Prudential Gilt - Investment Plan (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% N.A N.A 97.21 N.A N.A 2.8 N.A

Floating Rate Funds These are non-traditional funds which invest in floating rate instruments. A floating rate instrument is one where the coupon rate is reset periodically to reflect the current interest assets. The coupon rate is linked to a benchmark rate which may be the overnight call money rate or Treasury bill rate. . Some of the mutual funds offered by companies in this category areL&T Floating Rate Fund (G)
Asset 2013) Breakup (May-31-

46

Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% N.A N.A 3.46 N.A 80.11 19.66 -3.23

JM Floater Short Term Fund (G)

Asset Breakup (May-312013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% N.A N.A N.A N.A N.A 100 N.A

Capital Protection Schemes Investing in equity markets is risky as there is a possibility of losing investments. Risk averse investors avoid investing in stocks and prefer low return assured schemes such as NSC, Post office monthly income schemes, provident funds and bank deposits etc. Capital Protection Schemes aim at protecting the initial capital investment of the investor and do not guarantee any assured returns. These schemes are close ended and rated by a credit rating agency. . Example of the top performing mutual fund in this category isSBI Capital Protection Oriented Fund - Series III
Asset Breakup (May-31-2013) Class Equity Others / Unlisted Debt Mutual Funds Money Market Cash / Call Net Receivable / Payable

% 11.67 N.A 81.71 N.A N.A 6.63 N.A 47

Chapter 4: ANALYSIS OF THE SURVEY

The survey was conducted among the people who are salaried employees, doctors and self-employed to get a holistic approach as to what they know about the mutual funds. The survey is also aimed at knowing the insurance awareness among the people and whether people have insurance cover for them and their family or not. Around 200 people were surveyed.

Figure 1

Awareness of Mutual Funds After analysing the primary data from the survey it is inferred that quite a large percentage of people are aware of the mutual fund industry. But still some percentage of society does not know about the know-how of mutual funds. All the mutual fund companies should take a lot of effort in imparting the advantages of investing in mutual funds. Companies should follow rigorous marketing strategies to create a sense of awareness about the following advantages of the mutual funds-

Figure 2

Risk Diversification Diversification reduces risk contained in a portfolio by spreading it. It is about not putting all the eggs in one basket. As mutual funds have huge corpuses to invest in, one can be part of a large and well-diversified portfolio with very little investment. Convenience With features like dematerialized account statements, easy subscription and redemption processes, availability of NAVs and performance details through journals, newspapers and updates and lot more; Mutual Funds are sure a convenient way of investing. Liquidity One of the greatest advantages of Mutual Fund investment is liquidity. Open-ended funds provide option to redeem on demand, which is extremely beneficial especially during rising or falling Markets.

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 Reduction in Costs Mutual funds have a pool of money that they have to invest. So they are often involved in buying and selling of large amounts of securities that will cost much lower than when one invest on its own Tax Advantages Investment in mutual funds also enjoys several tax advantages. Dividends from Mutual Funds are tax-free in the hands of the investor and also Capital Gain accrued from Mutual Fund investment for a period of over one year is treated as long term capital appreciation and is tax free. These are some of the many advantages which mutual funds offer and should be marketed heavily to attract a lot of investors. Systematic Investment Plan (SIP) On the analysis of the data obtained from survey it is found that a lot of people who are aware of mutual funds have started SIPs. But while doing the survey we came across several bunch of people who have not started any SIP rather they have invested in mutual funds as lump some money like a Fixed Deposit. Below is the concept of SIP and why it is advantageous-

A systematic investment plan (SIP) is an Figure 3 option where one invests a fixed amount in a mutual fund at regular intervals. It could be monthly or quarterly. The minimum investment amount in most mutual funds is Rs 1,000 per month. The money may be transferred through ECS with standing instructions also. Because it's systematic, a SIP helps one plan for the long-term goals along with the short-term ones. SIP ensures that cost averaging comes into play and allows one to benefit from volatility. For Eg When you buy more units at a lower price (when the market falls) and lesser number of units at a higher price (when the market goes up), you average out your investment costs. Suppose a monthly SIP is for Rs 10,000 and the fund's net asset value (NAV) is Rs 10. This will result in 1,000 units being credited to you. However, next month, on account of volatile market conditions, if the fund's NAV falls to Rs 5, you will get 2,000 units. This will lower your average purchase cost.
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This concept is called Rupee Cost Averaging SIP can be most effective when used in buying equity-based funds. The NAVs of these funds can vary widely. Through rupee cost averaging a SIP can make this volatility work for ones benefit. Preferred avenues for people to invest The following graph shows the preferred areas of investment of the people.

Figure 4

Gold Almost everybody invests in gold starting from middle class family to the rich class. People tend to buy more when the gold prices are down. Gold only beats inflation. It fares poorly when compared to real estate or shares when compared on the basis of real inflation adjusted returns. But as we have seen recently those gold prices also fluctuate and sometime back gold prices suffered steepest fall in 33 years. So it has become a bit risky nowadays to invest only in gold. Real Estate There are varied opinions when comes to investing in real estate. Some people in India are convinced that real estate is a great asset. Some believe that is not a guarantee of investment and it is hard to be diversified, and illiquidity hampers portfolio structuring. Consider investing in the best commercial real estate of Bombay -- Nariman Point -- in 1994. The price was Rs.35,000 per square foot. Today, almost 20 years later, the price is Rs.25,000 a square foot. Many real estate investments have done very well too and have outperformed equities. The only point here is one should not mindlessly assume that real estate is always a good investment. And lastly it requires huge capital in the very beginning.

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Stocks - Placing the personal finances in the stock market gives one the opportunity to grow finances over the long-term. Many well-established companies also pay dividends to investors, which increases the overall return on investment. But when investing in the stock market, the higher the return the greater the risk of losing money. Stock market volatility can lead to a substantial loss of investment. Investing in the stock market is not like playing the lottery. One needs to perform research and investment analysis to find potentially profitable stock. For many individuals, investing in the stock market is a time-consuming, complex task. Although many investors implement a long-term buy and hold strategy, it is important to know when to exit a stock position if it turns out to be a bad investment choice. Mutual Funds As we have discussed above that there are a lot of advantages in investing mutual funds, there are some disadvantages also in investing in these funds. Generally, most actively managed mutual funds have not beaten their benchmarks over the long-term. Some funds have hidden fees like management fees, custodial fees, and transfer fees which reduce total amount of return. Moreover, many mutual funds charge loads (sales charges) and 12-b1 fees, which also reduce the total amount of return. Mutual funds are subject to both marketrelated risks and asset-related risks, particularly in very concentrated portfolios, which are not as well diversified. If one buys or sell a mutual fund, the transaction will take place at the close of the market regardless of the time one has entered the order to buy or sell the mutual fund. These are some of the main disadvantages of investing in mutual funds which most of the people are not aware of. Fixed Deposits and Public Provident Funds Almost everyone participated in the survey has a fixed deposit or had done a fixed deposit in a bank or has a PPF account. These are the safest instrument available in Indian financial system. The only disadvantage of fixed deposit and PPF is the rate of return. Debt mutual funds are actually a substitute of fixed deposits and equally safe as described above, which most of the people are not aware of. Normally on a fixed deposit of one year, one gets a rate of return of around 8.5 8.75 % (though it keeps changing) and below are two debt mutual funds whose past rate of returns over a year are quite large. IDFC Dynamic Bond Fund - Regular Plan B (G) SBI Magnum Income Fund (G) So one can consider investing in these debt funds instead of going for a FD in future. Liquid Funds There is very less percentage of people who know about the liquid funds. These type of funds are being offered by most of the mutual
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13.0% 13.4%
Figure 5

fund companies. These are a perfect substitute of a savings bank account. Normally a savings bank account offers interest rate of about 3.5 4%. A Liquid fund normally offers rate of interest of around 8-9%, which is nearly double of what one gets in a savings account. Insurance awareness The statistics obtained about the insurance cover about the people showed that everybody has insurance cover for themselves and their families. LIC and other insurance providing companies have done a good job in creating the awareness about the need of insurance cover among general public. Although if the overall population of India is considered, still a lot of people have not taken any insurance cover. A product called Term Cover also needs to be marketed as it helps to cover the liabilities in case of any unfortunate death of the earning member of the family. An individual should have around 50lakhs to 1crore term cover. This can be obtained by paying annual instalments for a period of 30 years. It is almost similar to a car insurance.

RECOMMENDATIONS
1. One should invest in mutual funds as they offer a wide variety of options. An investor should assess its long term goals, present income, long term liabilities, short term liabilities, liquidity requirement, risk assessment and current expenses. After identifying all the above factors, then invest the money in a mutual fund of appropriate debt to equity ratio. Check the funds past performance and how the benchmark has performed and how much the fund has been affected by the market demand and supply before investing in it.

2. Start investing through Systematic Investment Plan (SIP) if one is new to investing in mutual funds. It lowers the risk of the investor as it brings the rupee cost averaging effect in buying the units. One can monitor a funds performance over a year or so and then can rebalance the portfolio in case the fund has not performed fairly well as compared to its benchmark.

3. Debt long term funds are a better option than fixed deposits and public provident funds as they offer higher rate of returns and they are equally safe as the former ones. Debt long term funds normally offer 8 10% of rate of interest over a year while a fixed deposit gives a rate of 8.5 8.75% and same with the case of public provident fund over the same duration.
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4. Surplus money which is lying in a savings bank account can be parked in a liquid fund which act as substitutes of the former and are offered by a lot of mutual fund companies. Money put in a savings bank account normally gives a rate of interest of around 3.5 4% that too quarterly or half yearly. In a liquid fund, one can get interest on a daily basis and there is no exit or entry load in it.

5. Quite a high percentage of people are insured under LIC and different insurance schemes offered by a lot of other private players. There is a need to market and create a sense of awareness of Term cover among the people as most of the people are not aware of the benefits of the scheme.

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Chapter 5: CONCLUSIONS
After the completion of my internship in IDBI, I came to know the concept of wealth management and what are the different factors on which it is dependent on. As my project mainly focused on mutual funds, I came to know about the history of mutual funds, how it started, what is the current scenario of the industry, various types of mutual funds, how the organisation of mutual fund industry is set up and what are the different advantages and disadvantages of investing in mutual funds.

While coming across various types of mutual funds, we found that equity related funds are riskier than the debt or the money market mutual funds. The level of riskiness depends upon the amount of exposure of equity stocks in a particular fund. I also came to know the various top funds performing in various categories.

The advantages of SIP were brought about and a lot of substitutes of various conventional investment instruments were also studied. The various other avenues at which people normally prefer to invest are touched upon and the risks involved in each are discussed. A survey was also conducted to study the investment awareness among the Indian society in which people from all backgrounds were involved.

Overall it was a very good experience learning all these things and creating awareness among people about the mutual funds and its advantages over other investment options.

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REFERENCES
Books: The Indian Financial System (second edition) by Bharati V. Pathak. Financial Planning by CNBC TV 18. Simplifying Financial Jargons TATA Mutual Funds.

Websites

www.ibdimutual.com www.moneycontrol..com www.mutualfundsindia.com www.bseindia.com www.sebi.gov.in

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Annexure: Survey
The questionnaire for the survey conducted was as follows:-

INVESTMENT AWARENESS PROGRAM

1. Which age group do you belong to? 30-35 35-40 } } } } 2. Are you aware of mutual funds? 20-30 } } 40 and above } }

Yes / No Yes / No Yes / No Yes / No Yes / No Yes / No Yes / No

3. Have you started any SIP (Systematic Investment Planning)? 4. Are you satisfied with the services? 5. Do you know about liquid funds? 6. Is your family well insured? 7. Are you aware of the various health insurance schemes? 8. Is your portfolio being managed properly? 9. Which among the following do you prefer to invest your funds into? Gold } } Fixed Deposits Real Estate } } Stocks Mutual Funds } } }Public Provident Fund } } }

} }

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