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Project submitted in partial fulfillment for the award of the
Degree of
Submitted by
(Affiliated to Osmania University)
Ramanthapur, Hyderabad.
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I hereby declare that this Project Report titled A Study on
ICICI Vs SBI Mutual Funds submitted by me to the
Department of Business Management, is a bonafide wor
undertaen by me and it is not submitted to any other
!ni"ersity or Institution for the award of any degree or
diploma#certificate or published any time before$

Name: V.MADHAVI signature of the

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Investors have always been the value appreciation. In this era of high stock
market volatility, people are unable to read in search of new investment options,
which can give more rate of interest or seek for the market properly. So a mutual
fund is an option to invest in stock market. People are interested in government
securities, company bonds and money market instruments, which are less volatile
and give constant returns. eing a na!ve in instrument arena he can"t directly invest
in these areas. So mutual funds. It is also aimed to measure the performance of
various e#uity schemes for the current yearprovide an option.
$s a whole, mutual funds cater to the most of financial needs of the investors
basing on his risk taking ability. %his pro&ect mainly attempts to understand mutual
funds, its advantages and disadvantages.
%o understand the 'utual (unds, Schemes offered by )ousing *evelopment (inance
+orporation $dvantages and *isadvantages of 'utual (unds.
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It gives me immense pleasure in adding a few heartfelt words for the
people who were part of this pro&ect in numerous ways 4 people who gave
unending support right from the stage the pro&ect idea was generated.
(irstly I would like to e5press my gratitude to our beloved principal Dr.
Sistala Subramanya, for generously granting me permission to use the
re#uired resources of the college, which were inevitable for my pro&ects.
0ith deep sense of gratitude I acknowledge Mrs. M. Swathy Reddy )ead of
the *epartment and guide.
I would like to thank Mrs.MEENAKSHI faculty member of '..$.,
*epartment of usiness $dministration, under whose valuable guidance and
painstaking supervision, I able to successfully complete my pro&ect.
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Flow charts of Mutual Funds
Merits of Mutual Funds
Types of Mutual Funds
Organization setup of utual
"nterpretation #is$ #eturn
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Investors have always been in search of new investment options, which can give more
rate of interest or seek for the value appreciation. In this era of high stock market
volatility, people are unable to read the market properly. So a mutual fund is an option
to invest in stock market. People are interested in government securities, company
bonds and money market instruments, which are less volatile and give constant returns.
eing a na!ve in instrument arena he can"t directly invest in these areas. So mutual
funds provide an option.
$s you probably know, mutual funds have become e5tremely popular over the last 2B
years. 0hat was once &ust another obscure financial instrument is now a part of our
daily lives. 'ore than @B million people, or one half of the households in $merica,
invest in mutual funds. %hat means that, in the 8nited States alone, trillions Cyes, with a
D%DE of dollars are invested in mutual funds.
'utual funds become popular in India only in the early nineties during the ull 7un in
the stock market but even today they are number of comparison to their popularity in
current market where recourses mobiliFed by them have often overtaken the bank
$s a whole, mutual funds cater to the most of financial needs of the investors basing on
his risk taking ability. %his pro&ect mainly attempts to understand mutual funds, its
advantages and disadvantages. It is also aimed to measure the performance of various
e#uity schemes for the current year.
$ study is also conducted to understand the different investment options people know in
respect to mutual funds.
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%o understand the '8%8$1 (8.*S.
Schemes offered by I.*8S72I$1 +72*I% $.* I.:2S%'2.%
+/7P/7$%I/. /( I.*I$ :GS $.- /( I.*I$
Study $dvantages and *isadvantages of '8%8$1 (8.*S.
%o understand the risk taking ability of different investors
1.3. SCOPE:
8nderstand the benefits of investing in mutual (unds over other forms of
Portfolio of 'utual (unds
%o understand the risk taking ability of different investors according to their age,
salary, and dependents
'ethodology is the way in which we find out the information. It describes how the
pro&ect is done. %he methodology includes the methods, procedures and techni#ues used
to collect and analyFe informa
S2+/.*$7; S/87+2
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. P81IS)2* *$%$
. $..8$172P/7
S2+/.*$7; S/87+2
)ave collected information from different websites like company sites
I+I+I vGs SI mutual fund and stock e5change.

7eturns are calculated using =month period C981 1
>*2+ ,1stE the .$: on 981 1
taken as beginning and .$: /. *2+ ,1
is taken as .S2 for calculated of returns.
6 months holding period Return -1
Information relating to the internal aspects regarding various items is not
Study is limited to I+I+I vGs SI schemes.
'ost of the information is from secondary data.
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$ mutual fund is a special type of company that pools the money of many
investors who share common investment ob&ective or financial goal. 'utual funds raise
the money by selling shares of the fund to the public .%he money thus collected is then
invested in capital market instruments such as shares CstocksE, debentures CboundsE and
other money market securities or some combination of these investments.
'utual fund acts as an intermediary between the investors and capital market.
Such a kind of investment is ideal for small investors who want to invest in stock
market but can"t invest in most of the scrip"s because of limited amount of capital at
their disposal.
'utual funds is also suitable for those investors who do not have sufficient
knowledge of capital market and by investing through a mutual fund it can make use of
knowledge of specialiFed people which the mutual funds employs.
2very mutual funds has a sponsor who establishes the fund and can be
considered as similar to a promoter of company
%he combined holdings the mutual fund owns are known as its portfolio. %he
investment manager would invest the money collected from the investors in to assets
CsecuritiesE that are definedGpermitted by stated ob&ective of scheme.
(or e5ample an e#uity fund would be invested in e#uity and e#uity related
instrument and debt fund would be invested in debentures, bonds, gilts etc. %hose
securities are professionally managed on behalf of the shareholder or unit holder.
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The flow chart below describes broadly the working of a mutual fund:

%hus a 'utual (und 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.
%he mutual fund industry in India started in 1A=, with the foundation of 8nit %rust of
India, at the initiative of the 7eserve ank and the 3overnment of India. %he ob&ective
then was to attract the small investors and introduce them to market investments. Since
then, the history of mutual funds in India can be broadly divided into three distinct
Phase 1-1964-87 (Unit Trust of India)
In 1A=,, 8%I was established by an $ct of Parliament and given a monopoly.
/perationally, 8%I was set up by the 7eserve ank of India, but was later de>linked
from the 7I. %he first and still one of the largest schemes, launched by 8%I was 8nit
Scheme1A=6. /ver the years, 8S>=6 attracted, and probably still has, the largest number
of investors in any single investment scheme. It was also at least partially the first open>
end scheme in the country, now moving towards becoming fully open>end.
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1ater in 1A?As and @Bs, 8%I started innovating and offering different schemes to
suit the needs of different classes of investors. 8nit 1inked Insurance Plan C81IPE was
launched in 1A?1. Si5 new schemes were introduced between 1A@1 and 1A@6. *uring
1A@6>@?, new schemes like +hildren"s 3ift 3rowth (und C1A@=E and 'aster share
C1A@?E were launched. 'aster share could be termed as the first diversified e#uity
investment scheme in India. %he first Indian offshore fund, India (und, was launched in
$ugust 1A@=. *uring 1AABs, 8%I catered to the demand for income>oriented schemes by
launching 'onthly Income Schemes, a somewhat unusual mutual fund product offering,
Hassured returnsI.
%he mutual fund industry in India not only started with 8%I, but also still counts
8%I as its largest player with the largest corpus of investible funds among all mutual
funds currently operating in India. 8ntil 1A@Bs, 8%I"s operations in the stock market
often determined the direction of market movements. .ow, many Indian investors have
taken to direct investing on the stock markets. (oreign and other institutional players
have been brought in. So direct influence of 8%I on the markets may be less than
before, though it remains the largest player in the fund industry. In absolute terms, the
investible fund corpus of even 8%I was still relatively small at about 7s.=BB crore"s in
Phase 2-1987-93 (Entry of Public Sector Funds)
1A@? marked the entry of non Public Sector mutual funds, bringing in
competition. 0ith the opening up of the economy, many public sector banks sector
banks and financial institutions were allowed to establish mutual funds. %he State ank
of India established the first non>8%I mutual fund> SI 'utual (und in .ovember
11A@?. %his was followed by +an bank 'utual (und Claunched in *ecember, 1A@?E,
1I+ 'utual (und C1A@AE, and Indian ank 'utual (und C1AABE followed by ank of
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India 'utual (und, 3I+ 'utual (und and P. 'utual (und. %hese funds helped
enlarge the investor community and the investible funds.
Phase 3-1993-99 (Emergence of Private Funds)
$ new era in the mutual fund industry began with the permission granted for the
entry of private sector funds in 1AA,, giving the Indian investors a broader choice of
Jfund families" and increasing competition for the e5isting public sector funds. Kuite
significantly, foreign fund management companies were also allowed to operate mutual
funds, most of them coming into India through their &oint ventures with Indian
promoters. %hese private funds have brought in with them the latest product
innovations, investment in management techni#ues and investor servicing technology
that make the Indian mutual fund industry today a vibrant and growing financial
*uring the year 1AA,>A6, five private sector mutual funds launched their
schemes followed by si5 others in 1AA6>A<. Initially, the mobiliFation of funds by the
private mutual funds was slow, but this segment of the fund industry now has been
witnessing much greater investor confidence in them. /ne influencing factor has been
the development of a S2I driven regulatory framework for mutual funds. ut another
important factor has been the steadily improving performance of several funds
themselves. Investors in India now clearly see the benefits of investing through mutual
funds and have started becoming selective.
Phase 4 -1996 (SEBI Regulation for Mutual Funds)
%he entire mutual fund industry in India, despite initial hiccups, has since scaled
new heights in terms of mobiliFation of funds and number of players. *eregulation and
liberaliFation of the Indian economy hasL Introduced competition and provided impetus
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to the growth of the industry. (inally, most investors small or large have started shifting
towards mutual funds as opposed to banks or direct market investments.
'ore investor friendly regulatory measures have been taken both by S2I to
protect the investor and by the 3overnment to enhance investors" returns through ta5
benefits. $ comprehensive set of regulations for all mutual funds operating in India was
introduced with S2I C'utual (undE 7egulations, 1AA=. %hese regulations set uniform
standards for all funds and will eventually be applied in full to 8nit %rust of India as
well, even though 8%I is governed by its own 8%I $ct. In fact, 8%I has been
voluntarily adopting S2I guidelines for most of its schemes. Similarly, the 1AAA 8nion
3overnment udget took big step in e5empting all mutual fund dividends from income
ta5 in the hands of investors. oth the 1AA= regulations and the 1AAA udget must be
considered of historic importance, given their far>reaching impact on the fund industry
and investors, 1AAA marks the beginning of a new phase in the history of the mutual
fund industry in India, a phase of significant growth in terms of both amounts mobiliFed
from investors and assets under management.
;ou can earn money from your investment in three waysM
Dividend Payments:
$ fund may earn income in the form of dividends and interest on the securities
in its portfolio. %he fund then pays its shareholders nearly all of the income Cminus
disclosed e5pensesE it has earned in the form of dividends. %he incomes earned through
these investments are shared by its unit holders Cshare holdersE in proportion to the
number of units owned by them. ;ou can receive earnings as cash, or you can reinvest
them into the fund. *ividends from a mutual fund are your percentage of earnings from
the company who distributed the stock to shareholders.
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Capital Gains Distributions:
%he price of the securities a fund owns may increase. 0hen a fund sells a
security that has increased in price, the fund has a capital gain. $t the end of the year,
most funds distribute these capital gains Cminus any capital lossesE to investors.
$nother source of potential income in mutual funds is capital gains when a security in
a fund is sold, any gain Cor lossE on it must be distributed to shareholders. ;ou can
receive your capital gains as cash, or you can have them reinvested. %he ta5ation rules
that apply to dividends also apply to capital gains.
(or most mutual funds, shareholders are free to sell their shares at any time,
although the price of a share in a mutual fund will fluctuate daily, depending upon the
performance of the securities held by the fund. 2ach investor holds a pro rata share of
the portfolio i.e. entitled to any profits when the securities are sold, but sub&ect to any
losses in value as well
Increased NAV:
If the market value of a fundNs portfolio increases after deduction of e5penses
and liabilities, then the value C.$:E of the fund and its shares increases. %he higher
.$: reflects the higher value of your investment. 0ith respect to dividend payments
and capital gains distributions, funds usually will give you a choiceM %he fund can send
you a check or other form of payment, or you can have your dividends or distributions
rein"ested in the fund to buy more shares Coften without paying an additional sales
Investors may also benefit from share price increases. %his is the rise in value
of a share of your fund. If the price of one share increases by one dollar, you have made
a gain of one>dollar times the number of shares you own. %his type of gain is called
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paper profit because you do not receive it until you sell shares. $ll of these sources of
gain make up the total return of a mutual fund
If mutual funds are emerging as the favorite investment vehicle, it is because of
the many advantages they have over other forms and avenues of investing, particularly
for the investor who has limited sources available in terms of capital and ability to carry
out detailed research and market monitoring.
%here are numerous benefits of investing in mutual funds and one of the key
reasons for its phenomenal success in the developed markets like 8S and 8- is the
range of benefits they offer, which are unmatched by most other investment avenues.
0e have e5plained the key benefits in this section. %he benefits have been broadly split
into universal benefits, applicable to all schemes and benefits applicable specifically to
open>ended schemes.

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Professional management
%a5 enefits
7eductionG*iversification of 7isk
+onvenience and fle5ibility
7eduction of transaction costs
Portfolio diversification
Portfolio diversification:
%he nuclear weapon in your arsenal for your fight against 7isk. It simply means
that you must spread your investment across different securities Cstocks, bonds, money
market instruments, real estate, fi5ed deposits etc.E and different sectors Cauto, te5tile,
information technology etc.E. %his kind of a diversification may add to the stability of
your returns, for e5ample during one period of time e#uities might under perform but
bonds and money market instruments might do well enough to offset the effect of a
slump in the e#uity markets. Similarly the information technology sector might be
faring poorly but the auto and te5tile sectors might do well and may protect your
principal investment as well as help you meet your return ob&ectives.
'utual funds normally invest in a well>diversified portfolio or securities. 2ach
investor in a fund is a part owner of all of the fund"s assets. %his enables him to hold a
diversified investment portfolio even with a small amount of investment that would
otherwise re#uire big capital.
Professional management:
Kualified investment professionals who seek to ma5imiFe returns and minimiFe
risk monitor investorNs money. 0hen you buy in to a mutual fund, you are handing your
money to an investment professional that has e5perience in making investment
decisions. It is the (und 'anagerNs &ob to CaE find the best securities for the fund, given
the fundNs stated investment ob&ectivesO and CbE keep track of investments and changes
in market conditions and ad&ust the mi5 of the portfolio, as and when re#uired.
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$ mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending
upon the investment ob&ective of the scheme. $n investor can buy in to a portfolio of
e#uities, which would otherwise be e5tremely e5pensive. 2ach unit holder thus gets an
e5posure to such portfolios with an investment as modest as 7s.<BBG>. %his amount
today would get you less than #uarter of an Infosys shareL %hus it would be affordable
for an investor to build a portfolio of investments through a mutual fund rather than
investing directly in the stock market.
'utual funds offer a tremendous variety of schemes. %his variety is beneficial in two
waysM first, it offers different types of schemes to investors with different needs and risk
appetitesO secondly, it offers an opportunity to an investor to invest sums across a
variety of schemes, both debt and e#uity. (or e5ample, an investor can invest his money
in a 3rowth (und Ce#uity schemeE and Income (und Cdebt schemeE depending on his
risk appetite and thus create a balanced portfolio easily or simply &ust buy a alanced
Tax Benefits:
$ny income distributed after 'arch ,1, 2BB2 will be sub&ect to ta5 in the
assessment of all 8nit holders. )owever, as a measure of concession to 8nit holders of
open>ended e#uity>oriented funds, income distributions for the year ending 'arch ,1,
2BB,, will be ta5ed at a concessional rate of 1B.<P.
In case of Individuals and )indu 8ndivided (amilies a deduction up to 7s.
A,BBB from the %otal Income will be admissible in respect of income from investments
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specified in Section @B1, including income from 8nits of the 'utual (und. 8nits of the
schemes are not sub&ect to 0ealth>%a5 and 3ift>%a5.
Securities 25change oard of India CHS2IIE, the mutual funds regulator has
clearly defined rules, which govern mutual funds. %hese rules relate to the formation,
administration and management of mutual funds and also prescribe disclosure and
accounting re#uirements. Such a high level of regulation seeks to protect the interest of
7eductionG*iversification of 7iskM
$n investor in a mutual fund ac#uires a diversified portfolio, no matter how
small his investment. *iversification reduces the risk of loss, as compared to investing
directly in one or two shares or debentures or other instruments. 0hen an investor
invests directly, all the risk of potential loss is his own. $ fund investor also reduces his
risk in another way. 0hile investing in the pool of funds with other investors, any loss
on one or two securities is also shared with other investors. %his reduction is one of the
most important benefits of a collective investment vehicle like the mutual fund.
Reduction of transaction costs:
0hat is true of risk is also true of the transaction costs. $ direct investor bears
all the costs of investing such as brokerage or custody of security. 0hen going through
a fund, he has the benefit of economies of scaleO the funds pay lesser costs because of
larger volumes, a benefit passed on to its investors.
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Benefits of Open-ended Schemes:
/pen>ended mutual funds disclose their .et $sset :alue CH.$:IE daily and the
entire portfolio monthly. %his level of transparency, where the investor himself sees the
underlying assets bought with his money, is unmatched by any other financial
instrument. %hus the investor is in the know of the #uality of the portfolio and can
invest further or redeem depending on the kind of the portfolio that has been constructed
by the investment manager.
/ften, investors hold shares or bonds they cannot directly, easily and #uickly
sell. Investment in a mutual fund, on the other hand, is more li#uid. $n investor can
li#uidate the investment, by selling of the units to the fund if open>end,
Some schemes do have a lock>in period where an investor cannot return the
units until the completion of such a lock>in period.
In case of closed>end scheme the investor can sell them in the market at the end of a
period specified by the mutual fund or the stock market.
$n investor can purchase or sell fund units directly from a fund, through a
broker or a financial planner. %he investor may opt for a Systematic Investment Plan
CHSIPIE or a Systematic 0ithdrawal $dvantage Plan CHS0$PIE. In addition to this an
investor receives account statements and portfolios of the schemes
'utual (unds offering multiple schemes allow investors to switch easily
between various schemes. %his fle5ibility gives the investor a convenient way to change
the mi5 of his portfolio over time
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0hile the benefits of investing through mutual funds far outweigh the
disadvantages, an investor and his advisor will do well to be aware of few shortcomings
of using the mutual funds as investment vehicles.
No control over costs:
$n investor in a mutual fund has any control over the overall cost of investing.
)e pays investment management fees as long as he remains with the fund, albeit, in
return for the professional management and research. (ees are usually payable as a
percentage of the value of his investments, whether the fund value is rising or declining.
$ mutual fund investor also pays fund distribution costs, which he would not incur in
direct investing. )owever, this shortcoming only means that there is cost to obtain the
benefits of mutual fund services. )owever, this cost is often less than the cost of direct
investing by the investors.
No Tailor-made Portfolios:
Investors who invest on their own can build their own portfolios of shares, bonds and
other securities. Investing through funds means he delegates this decision to the fund
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.o control over costs
.o %ailor >made portfolios
'anaging a portfolio of funds
managers. %he very high>net>worth individuals or large corporate investors may find
this to be a constraint by offering families of schemes>a large number of different
schemes within the same fund. $n investor can choose from different investment plans
and construct a portfolio of his choice.
Managing a Portfolio of Funds:
$vailability of a large number of funds can actually mea too much choice for the
investor. )e may again need advice on how to select a fund to achieve his ob&ectives,
#uite similar to the situation when he has to select individual shares or bonds to invest
+1$SI(I+$%I/. /( '8%8$1 (8.*SM
%here are many types of mutual funds available to the investor. )owever these
different types of funds can be grouped into certain classifications for better
understanding. (rom the investors" perspective, we would follow three basic
(irstly, funds are usually classified in terms of their constitution>as closed-
ended or open-end. %he distinction depends upon whether they give the investor the
option to redeem and buy units at any time form the fund itself Copen endE or whether
the investors have to await a given maturity before they can redeem their units to the
fund Cclosed endE.
(unds can also be grouped in terms of whether they collect from investors any
charges at the time of entry or e5it or both, thus reducing the investible amount or the
redemption proceeds. (unds that make these charges are classified as load funds, and
funds that do not make any of these charges are termed no-load funds.
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(inally, funds can also be classified as being tax-exempt or non-tax-exempt,
depending on whether they invest in securities that give ta5>e5empt returns or not.
+urrently in India, this classification may be somewhat less important, given the recent
ta5 e5emptions to investors receiving any dividends from all mutual funds.
8nder each broad classification, we may then distinguish between several types
of funds on the basis of the nature of their portfolios, meaning whether they invest in
e#uities or fi5ed income securities or some combination of both. 2very type of fund has
a uni#ue risk>profile that is determined by its portfolio, for which reason funds are often
separated into more or less risk bearing. 0e first look at the fund classification and then
understand the various types of funds under them.
/pen>end 9:s +losed>end (undsM
$n open>end fund is one that has units available for sale and repurchase at all times. $n
investor can buy or redeem units form the fund itself at a price based on the .$: per
unit. .$: per unit is obtained by dividing the amount of the market value of the fund"s
assets Cplus accrued income minus the fund"s liabilitiesE by the number of units
outstanding. %he number of unit"s outstanding hogs up or down every time the fund
issues new units or repurchases e5isting units. In other words, the Junit capital" of an
open>end mutual fund is not fi5ed but variable. %he fund siFe and its total investment
amount go up if more new subscription come in from new investors than redemptions
by e5isting investorsO the fund shrinks when redemptions of units e5ceed fresh
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3enerally, when a fund invests in ta5>e5empt securities it is called a ta5>e5empt
fund. In the 8.S.$. for e5ample, municipalO bonds pay interest that is ta5>free, while
interest on corporate and other bonds is ta5able. In India, after the 1AAA 8nion
3overnment udget, all of the dividend income received from any of the mutual funds
is ta5>free in the hands of the investor. )owever, funds other than 2#uity funds have to
pay a distribution ta5, before distributing income to investors. In other words, e#uity
mutual fund schemes are ta5>e5empt investment avenues, while other funds are ta5able
for distributable income. 0hile Indian mutual funds currently offer ta5>free income, any
capital gains arising out of sale of fund units are ta5able. $ll these ta5 considerations are
important in the decision on where to invest as the ta5>e5emptions or concessions alter
the returns obtained from these investments. )ence, classification of mutual funds from
the ta5ability perspective has great significance for investors.
$ll mutual funds would be either closed>end or open>end, and either load or no>
load. %hese classifications are general. (or e5ample all open>end funds operate the same
wayM or in case of a load fund a deduction is made from investors" subscription or
redemption and only the net amount used to determine his number of shares purchased
or sold.
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A. Broad Fund Types by Nature of Investments
'utual funds may invest in e#uities, bonds or other fi5ed income securities, or
short>term money market securities. So we have 2#uity, ond and 'oney 'arket
(unds. $ll of them invest in financial assets. ut there are funds that invest in physical
assets. (or e5ample, we may have 3old or other Precious 'etals (unds, or 7eal 2state
B. Broad Fund Types by Investment Objective
Investors and hence the mutual funds pursue different ob&ectives while
investing. %hus, 3rowth (unds invest for medium to long term capital appreciation.
Income (unds invest to generate regular income, and less for capital appreciation. :alue
funds invest in e#uities that are considered under>valued today, whose value will be
unlocked in the future.
C. Board Fund Types by Risk Profile
%he nature of a fund"s portfolio and its investment ob&ective imply different
levels of risk undertaken. (unds are therefore often grouped in order of risk. %hus,
2#uity funds have a greater risk of capital loss than a *ebt (und that seeks to protect the
capital while looking for income. 'oney 'arket funds are e5posed to less risk than
even the ond (unds, since they invest in short>term fi5ed income securities, as
compared to longer>term portfolios of ond (unds.
(und managers often try to alter the risk profile of funds by suitably changing
the investment ob&ective. (or e5ample, a fund house may structure an H2#uity Income
(undI investing in shares that do not fluctuate much in value and offer steady
dividends>say power sector companies, or a 7eal 2state Income (und that invests only
in income>producing assets.
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A. Broad Fund Types by Nature of Investments
a. Money Market Funds:
/ften considered to be at the lowest rung in the order of risk level, money
market funds invest in securities of a short>term nature, which generally means
securities of less than one>year maturity.
%he typical, short>term, interest>bearing instruments these funds invest in
include %reasury ills issued by governments, +ertificates of *eposit issued by banks
and +ommercial Paper issued by companies. In India, 'oney 'arket 'utual (unds
also invest in the inter>bank call money market. %he ma&or strengths of money market
funds are the li#uidity and safety of principal that the investors can normally e5pect
from short>term investments.
b. Gilt funds:
3ilts are government securities with medium to long>term, maturities, typically
of owner one year. In India, we have now seen the emergence of 3overnment Securities
or 3ilt (unds that invest in government paper called dated securities. Since the issuer is
the 3overnment"s of IndiaGStates, these funds have little risk of default and hence offer
better protection of principal. )owever, investors have to recogniFe the potential
changes in values of debt securities held by the funds that are caused by changes in the
market price of debt securities #uoted on the stock e5changes. *ebt securities prices fall
when interest rate levels increase.
2. Broad Fund Types by Investment Objective
a. Debt Funds (or income Funds)
.e5t in the order of risk level, we have the general category *ebt funds. *ebt
funds invest in debt instruments issued not only by governments, but also by private
2A | P a g e
companies, banks and financial institutions and other entities such as infrastructure
companiesGutilities. y investing in debt, these funds target low risk and stable income
for the investor as their key ob&ectives. )owever, as compared to the money market
funds, they do have a higher price fluctuation risk, since they invest in longer>term
securities. Similarly as compared to the money market funds, they do have a higher
price fluctuation risk, since they invest in longer>term securities. Similarly, $s
compared to 3ilt funds, general debt funds do have a higher risk of default by their
*ebt funds are largely considered as Income funds as they do not target capital
appreciation, look for high current income, and therefore distribute a substantial part of
their surplus to investors. Income funds that target returns substantially above market
levels can face more risks. 0hile we have earlier described the 2#uity Income (unds,
the income (unds fall largely in the category of *ebt (unds as they invest primarily in
fi5ed income generating debt instruments. $gain, different investment ob&ectives set by
the fund managers would result in different risk profiles.
1. Diversified Debt funds
$ debt fund that invests in all available types of debt securities, issued by entities across
all industries and sectors is a properly diversified debt fund. 0hile debt funds offer high
income and less risk than e#uity funds, investors need to recogniFe that debt securities
are sub&ect to risk of default by the issuer on payment of interest or principal.
$ diversified debt fund has the benefit of risk reduction through diversification
and sharing of any default>related loosed by a large number of investors. )ence a
diversified debt fund is less risky than a narrow>focus fund that invests in debt securities
of a particular sector or industry.
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2. Focused Debt Funds
Some debt funds have a narrower focus, with less diversification in this
investment. 25ample includes sector, specialiFed and offshore debt funds. %hese funds
are similar to the funds described later in the e#uity category e5cept that debt funds
have a substantial part of their portfolio invested in debt instruments and are therefore
more income oriented and inherently less risky than e#uity funds. )owever, the Indian
financial markets have demonstrated that debt funds should not be automatically
considered to be less risky than e#uity funds, as there have been relatively large defaults
by issuers of debt and many funds have non>performing assets in their debt portfolios. It
should also be recogniFed that market values or debt securities will also fluctuate more
as Indian debt markets witness more trading and interest relate volatility in the future.
%he central point to note is that all these narrow>focus funds have greater risk than
diversified debt funds.
/ther e5amples of focused funds include those that invest only in corporate
debentures and bonds or only in ta5>free infrastructure or municipal bonds. 0hile these
funds are entirely conceivable now they may take some time to appear as a real choice
for the Indian investor. /ne category of specialiFed funds that invests in the housing
sector, but offers greater security and safety than other debt instruments, is the mortgage
backed bond funds that invest in special securities created after securitiFation of loan
receivables of housing finance companies.
3. High Yield Debt Funds
8sually, *ebt (unds control the borrower default risk by investing in securities
issued by borrowers who are rated by credit rating agencies are considered to be of
investment grade. %here are, however, )igh ;ield *ebt (unds that seek to obtain higher
interest returns by investing in debt instruments that are considered below investment
,1 | P a g e
grade. +learly, these funds are e5posed to higher risk. In 8.S.$. funds that invest in
debt. Instruments that are not backed by tangible assets and rated below investment
grade are &unk ond (unds. %hese funds tend to be more volatile than other debt funds,
although they may earn higher returns as a result of the higher risks taken.
4. Assured Return Funds-an Indian Variant
(undamentally, mutual funds hold assets in trust for investors. $ll returns and risks are
for account of the investor. %he role of the fund manager is to provide the professional
management service and to ensure the highest possible return consistent with the
investment ob&ective of the fund. %he fund manager or the trustees or the sponsors do
not give any guarantee on the minimum return to the investors. )owever, in India,
historically, 8%I and other funds have offered assured return schemes to investors. %he
most popular variant of such schemes is the 'onthly Income Plans of 8%I. 7eturns are
indicted in advance for all of the future years of these closed>end schemes. If there is a
shortfall, it is borne by the sponsors. $ssured return or guaranteed monthly income
plans are essentially debtGincome funds. $ssured return debt funds certainly reduce the
risk level considerably, as compared to all other debt or e#uity funds, but only to the
e5tent that the guarantor has the re#uired financial strength. )ence, the market regulator
S2I permits only those funds whose sponsors have ade#uate net>worth to offer
assurance of returns. If offered, e5plicit guarantee is re#uired from a guarantor whose
name has to be specified in advance in the offer document of the scheme.
0hile $ssured 7eturn (unds may certainly be considered to be the lowest risk
type within the debt funds category, they are still not entirely risk>free, as investors have
to normally lock in their funds for the term of the scheme or at least a specified period
such as three years. *uring this period, changes in the financial markets may result in
the investor losing the opportunity to obtain higher returns later in other debt or e#uity
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funds. esides, the investor does carry some credit risk on the guarantor who must
remain solvent enough to honor his guarantee during the lock in period.
5. Fixed Term Plan Series-Another Indian Variant
$ mutual fund scheme would normally be either open>end or closed>end.
)owever, in India, mutual funds have evolved an innovative middle option between the
two, in response to investor needs.
If a scheme is open>end, the fund issued new units and redeems them at any
time. %he fund does not have a stated maturity or fi5ed term of investment as such.
(i5ed term plan series offers a combination of both these features to investors, as a
series of plans are offered and units are issued at fre#uent intervals for short plan
durations. (i5ed %erm Plans are essentially closed>end in nature, in the mutual fund
$'+ issues a fi5ed number of units for each series only once and closes the issue after
an initial offering period, like a closed end scheme offering. )owever, a closed>end
scheme would normally make a one>time initial offering of units for a fi5ed duration
generally e5ceeding one year. Investors have to hold the units until the end of the stated
duration, or sell them on a stock e5change if listed. (i5ed term plans are closed>end but
usually for shorter term>less than a year. eing of short duration. %hey are not listed on
a stock e5change. /f course, like any close>end fund, each plan series can be wound up
earlier, under certain regulatory conditions.
It is also important to bear in mind that the actual structure of the umbrella
scheme under which a fi5ed term plan series is offered can be either closed>end or open
end. Some funds in India us
%he scheme under which such fi5ed term plan series are offered is likely to be
income scheme, since the ob&ective is clearly for the $'+ to attempt to reward to
investors with an e5pected return within a short period. 'utual fund $'+s in India
usually offering such plans do not guarantee any returns, but the product has clearly
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been designed to attracted a closed end structure, while others the pen end structure, to
offer %erm plans, In any case you can think of fi5ed term plans as a series of closed>end
plans within a scheme. 1ike the closed end funds, fi5ed term plans also make only a
one>time offering of units, but such offer are made in a series of plans under one scheme
prospectus or offer document. .o separate offer document is issued each time a new
series is launched. %he short term investor who would otherwise place the money as
fi5ed term bank deposits or inter>corporate deposits.
3. Board Fund Types by Risk Profile
a. Equity Funds
$s investors move from *ebt (und category to 2#uity (unds, they face
increased risk level. )owever, there is a large variety of e#uity funds and all of them are
not e#ually risk>prone. Investors and their advisors need to sort out and select the right
e#uity fund that suits their risk appetite. In the following section, we have presented the
2#uity fund types, going from the highest risk level to the lowest level within this
efore we look at the e#uity fund types in terms of risk level, we must
understand where the returns of e#uity funds come from and how they are different
from debt funds. 2#uity funds invest a ma&or portion of their corpus in e#uity shares
issued by companies, ac#uired directly in initial public offerings or through the
secondary market. 2#uity funds would be e5posed to the e#uity price fluctuation risk at
the market level, at the industry or sector level and the company>specific level e#uity
funds" .$: factors, political and social as well as economic. %he issuers of e#uity
shares offer no guaranteed repayment as in case of debt, instruments. )ence, e#uity
funds are generally considered at the higher end of the risk spectrum among all funds
available in the market. /n the other hand, unlike debt instruments that offer fi5ed
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amount=s of repayment, e#uities can appreciate in value line with the issuer"s earnings
potential, and so offer the greatest potential for growth in capital.
2#uity funds adopt different investment strategies resulting in different levels of
risk. )ence, they are generally separated into different types in terms of their investment
styles. elow we discuss some of the ma&or types of e#uity funds, arranged in order of
higher to lower risk level.
1. Aggressive Growth Funds
%here are many types of stocksGshares available in the marketO lue +hips that
are recogniFed market leaders, less researched stocks that are considered to have future
growth potential, and even some speculative stocks of somewhat unknown or unproven
issuers. (und managers seek out and invest in different types of stocks in line with their
own perception of potential returns and appetite for risk. $s the name suggests,
aggressive growth funds target ma5imum capital appreciation, invest in less researched
or speculative shares and may adopt speculative investment strategies to attain their
ob&ective of high returns for the investor. +onse#uently, they tend to be more volatile
and riskier than other funds.
2. Growth Funds
3rowth funds invest in companies whose earnings are e5pected to rise at an
above average rate. %hese companies may be operating in sectors like technology
considered to have growth funds is capital appreciation over a three to five year span.
3rowth funds are therefore less volatile than funds that target aggressive growth.
3. Specialty funds
%hese funds have a narrow portfolio orientation and invest in only companies that
meet pre>defined criteria. (or e5ample, at the height of the South $frican apartheid
regime, many funds in the 8.S. offered plans that promised not to invest in South
$frican companies. Some funds may build portfolios that will e5clude tobacco
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companies. (unds that invest in particular regions such as the 'iddle 2ast to the
$S2$. countries are also an e5ample of specialty funds. 0ithin the specialty funds
category, some funds may be broad>based in terms of the types of investments in the
portfolio. )owever, most specialty funds tend to be concentrated funds, since
diversification is limited to one type of investment. +learly, concentrated specialty
funds tend to be more volatile than diversified funds.
Sector Funds
Sector funds" portfolios consist of investments in only one industry or sector of the
market such as Information %echnology, Pharmaceuticals or (ast 'oving +onsumer
3oods that have recently been launched in India. Since sector funds do not diversify
into multiple sectors, they carry higher level of sector and company specific risk than
diversified e#uity funds.
Offshore Funds
%hese funds invest in e#uity shares in one or more foreign countries thereby
achieving diversification across the country"s borders. )owever they also have
additionalO risks such as the foreign e5change rate risk>and their performance depends
on the economic conditions of the countries they invest in. /ffshore 2#uity funds may
invest in a single country or many countries.
Small-cap Equity funds
%hese funds invest in shares of companies with relatively lower market
capitaliFation than that of big, blue chip companies. %hey may thus be more volatile
than other funds, as smaller companies" shares are not very li#uid in the markets. 0e
can think of these funds as a segment of specialty funds. In terms of risk characteristics,
small company funds may be aggressive>growth or &ust growth type. In terms of
investment style, some of these funds may also be Hvalue investorsI.
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Option Income funds
%hese funds do not yet e5ist in India, but /ption Income (unds write options on a
significant part of their portfolio. 0hile options are viewed as risky instruments, they
may actually help to control volatility, if properly use. +onservative option funds invest
in large, dividend paying companies, and then sell options against their stock options.
%his ensures a stable income stream in the form of premium income through selling
options and dividends. .ow that options on individual shares have become available in
India, such funds may be introduced.
4. Diversified Equity Funds
$ fund that seeks to invest only in e#uities, e5cept for a very small portion in li#uid
money market securities, but is not focused on any one or few sectors or shares, may be
termed a diversified e#uity fund. 0hile e5posed to all e#uity price risks, diversified
e#uity funds seek to reduce the sector or stock specific risks through diversification.
%hey have mainly market risk e5posure. Such general purpose but diversified funds are
clearly at the lower risk level than growth funds.
Equity linked savings schemes: an Indian Variant

In India, the investors have been given ta5 concessions to encourage them to invest
e#uity markets through these special schemes. Investment in these schemes entitles the
investor to claim an income ta5 rebate, but usually has a lock in period before the end of
which funds cannot be withdrawn. %hese funds are sub&ect to the general S2I
investment guidelines for all e#uity funds, and would being the diversified e#uity fund
to invest in, investors should clearly look for where the fund management company
proposes to invest and accordingly &udge the level of risk involved
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e. Equity index fund
$n inde5 fund tracks the performance of a specific stock market inde5. %he
ob&ective is to match the performance of the stock market by tracking the inde5 that
represents the overall market. %he fund invests in shares that constitutes the inde5 and
in the same proportion as inde5. Since they generally invest in a diversified market
inde5 portfolio, these funds only take the overall market risk, while reducing the sector
and stock specific risks through diversification.
f. Value fund
:alue fund tries to seek out fundamentally sound companies whose shares are
currently under>priced in the market. :alue funds will add only those shares to their
portfolios that are selling at low price earnings ratios, low market to book value ratios
and undervalued by other yardsticks.
:alue funds have the e#uity market fluctuation risks, but often stand at the lower end of
risk spectrum in comparison with the growth fund. :alue stocks come from cyclic
industries. %he only e5ample of the value fund in India is %empleton fund, which has in
its portfolio shares of cement, aluminum and cyclic industries. %hese are generally for
long>term investments.
Balanced fund
$ balanced fund is fund that comprises of both debt instruments and e#uity
shares. %heir assets are generally held in e#ual proportions by investing in a mi5 of this
nature, balanced fund seek to attain the ob&ectives of income, moderate capital
appreciation and preservation of capital, and are ideal for investors with a conservative
and long>term orientation.
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'utual funds have a uni#ue structure not shared with other entities such as
companies or firms. It is important for employees and agents to be aware of the special
nature of this structure, because it determines the rights and responsibilities of the funds
constituents viF. sponsors, trustees, custodians, transfer agents and of course, the fund
and the asset management company. %he legal structure also drives the
interrelationships between these two constituents.
1ike other countries, India has a legal framework within which mutual funds
must be constituted. 8nlike in the 8-, where two distinct Jtrust" and Jcorporate"
structures are followed with separate regulations, in India, open and close>end funds
operate under the same regulatory structure, and are constituted along one uni#ue
structure>as unit trust. $ mutual fund in India is allowed to issue open>end and closed>
end schemes under a common legal structure. %herefore, a mutual fund may have
several different schemes under it i.e. under one unit trust, at any point of time.
%he structure, which is re#uired to be followed by mutual funds in India, is laid
down under S2I regulations, 1AA=.
,A | P a g e
There are many entities involved and the diagram below illustrates the organizatio
nal set up of a mutual fund:
HSP/.S/7I is defined under S2I SP/.S/7 regulations as any person who,
acting alone or in combination with another body corporate, establishes a mutual fund.
%he sponsor of a fund is akin to the promoter of a company he gets the fund registered
with S2I. %he sponsor will form a %rust and appoint a board of trustees. %he sponsor,
either directly or acting through the trustees, will also appoint a custodian to hold the
fund assets. $ll these appointments are made in accordance with S2I 7egulations.
$s per the e5isting S2I 7egulations, for a person to #ualify as a sponsor, he
must contribute at least 6BP of the net worth of the $'+, meet the eligibility criteria
prescribed under the Securities and 25change oard of India C'utual (undsE
7egulations, 1AA= and posses a sound financial track record over five years prior to
6B | P a g e
$ mutual fund in India is constituted in the form of a public trust created under
the Indian %rusts $ct, 1@@2 by sponsor. %he trust deed is registered under the Indian
7egistration $ct, 1AB@ .%he fund sponsor acts as the settler of the trust, contributing to
its initial capital and appoints a trustee to hold the assets of the trust for the benefits of
the unit holders, who are the beneficiaries of the trust. %he fund then invites investors to
contribute their money in the common pool, by subscribing to the HunitsI issued by
various schemes established by the trust, units being the beneficial interest in the fund.
It should be understood that a mutual fund is &ust Ha pass>throughI vehicle.
8nder the Indian trusts act, the trust or the fund has no independent legal capacity itself,
rather it is the trustee or trustees who have the legal capacity and therefore all acts in
relation to the trust are taken on it"s behalf by the trustees. %he trustees hold the unit>
holders" money in fiduciary capacity i.e. the money belongs to the units holders and is
entrusted to the fund for the purpose of investment. In legal parlance, the investors or
the unit holders are the beneficial owners of the investments held by the trust, even as
these investments are held the name of the trustees on a day>to>day basis. eing Public
%rusts, mutual funds can invite any number of investors as beneficial owners in their
investment schemes.
61 | P a g e
%rustee is usually a company Ccorporate bodyE or a oard of %rustees Cbody of
individualsE. %he trust and the mutual fund may be managed by a board of trustees, a
body of individuals, or a trust company>, a corporate body. 'ost of the funds in India
are managed by board of trustees. 0hile the board of the trustees is governed by the
provisions of the Indian %rusts $ct, where the trustee is a corporate body, it would also
re#uired to comply with the provisions of the companies act, 1A<=. %he main
responsibility of the board or the trustee company, as an independent body is to
safeguard the interest of the unit holders and. %he trustees do not directly manage the
portfolio of the securities. (or this specialist function, appoint an asset management
company and ensure that the $'+ functions in the interest of investors and in
accordance with the Securities and 25change oard of India C'utual (undsE
7egulations, 1AA=, the provisions of the %rust *eed and the /ffer *ocuments of the
respective Schemes.
%he trust is created through a document called the %rust deed that is e5ecuted by
the (und Sponsor in favor of the trustees. %he trust deed is re#uired to be stamped as
registered under the provision of Indian 7egistration $ct and registered with S2I. %he
trustees being the primary guardians of the unit holders" funds and assets, a trustee has
to be a person of high repute and integrity. S2I has laid down a set of conditions to be
fulfilled by the individuals being proposed as trustees of mutual funds> both
independent and non>independent.
$t least 2G,rd directors of the %rustee are independent directors who are not
associated with the Sponsor in any manner.

62 | P a g e
%he trustees appoint the $'+ with the prior approval of S2I.
%hey also approve each of the schemes floated by the $'+.
%hey have the right to re#uest any necessary information from the $'+
concerning the operations of various schemes managed by the $'+ as often as
re#uired, to ensure that the $'+ is in compliance with the %rust *eed and the
%hen trustees may take remedial action if they believe that the conduct of the
fund"s business is not in accordance with S2I 7egulations. In certain specific
events, the %rustees have the right to dismiss the $'+, with the approval of
S2I and in accordance with the regulations.
%he trustees have the right to ensure that, based on their #uarterly review of the
'ac"s net>worthO any shortfall in the net>worth is made up by the $'+.
%he trustees must enter into an investment management agreement with the
$'+. %his agreement must be in accordance with the (ourth Schedule of
S2I C'(E 7egulations, 1AA=.
%hey must ensure that the fund"s transactions are in accordance with the
%he trustees are responsible for ensuring that the $'+ has proper systems and
procedures in place and has appointed key personnel including fund managers
and compliance officer, besides other constituents such as the auditors and
%he trustees must ensure that the $'+ is managing schemes independent of
other activities and that the interests of unit>holders of one scheme are not
6, | P a g e
compromised with those of other schemesGactivities. (or e5ample, the trustees
must ensure that $'+ has not given any undue advantage to any associates.
%he trustees must furnish to S2I on a half>yearly basis, a report on the fund"s activities
and a certificate stating that the $'+ has been managing the schemes independently of
the other activities.
%he role of an $'+ is to act as the investment manager of the trust. %he
trustees, authoriFed by the trust deed, appoint the $'+. %he $'+ so appointed is
re#uired to be approved by the S2I. /nce approved, the $'+ functions under the
supervision of its own board of directors, and also under the direction of the trustees and
S2I. %he trustees are empowered to terminate the appointment of the $'+ by
ma&ority and appoint a new $'+ with prior approval of S2I and unit holders. %he
$'+ then in the name of the trust float different investment schemes and manage them.
+hapter I: of the S2I C'(E 7egulations, 1AA= describes the issues relevant to
appointment, eligibility criteria, and restrictions of business activities and obligations of
the $'+. %hese have summariFed in J'utual (unds in India" by sadhak.
%he $'+ of a mutual fund must have a net worth of at least of 1B crores at all
times. $t least <BP of the directors of the $'+ are independent directors who are not
associated with the Sponsor in any manner *irectors of $'+, both independent and
non>independent, should have ade#uate knowledge and professional e5perience in
financial services and should be individuals of high moral standing, a condition also
applicable to other key personnel of the $'+. %he $'+ cannot act as a trustee of any
other mutual fund. esides its role as the fund manager, it may undertake specified
activities such as advisory services and financial consulting, provided these activities
are run independently of another and the $'+"s resources are properly segregated by
66 | P a g e
activity. %he $'+ must always act in the interest of the unit>holders and report to the
trustees with respect to its activities.
Obligations of AMC and its Directors
%he $'+ and the directors must ensure that
Investments of funds in accordance with S2I 7egulations and the %rust *eed.
%hey take the responsibility for the acts of its employees and other whose
services it has procured.
%hey are answerable to the trustees and submit #uarterly reports to them on
$'+ activities and compliance with S2I 7egulations
%hey do not undertake any other activity, which conflicts with managing of the
%hey will float schemes only after the approval of the trustees and S2I.
%hey file the details of securities transactions by $'+ directors with the trustees
on a #uarterly basis. $s in the case of trustees, they may report only those
transactions, which e5ceed the value of 7s.1lakh.
2ach day"s .$: is updated on $'(I"s website by @.BB P.' of the relevant day.
Registrar and Transfer Agent:
%he $'+ if so authoriFed by the %rust *eed appoints the 7egistrar and %ransfer
$gent to the 'utual (und. %he 7egistrar processes the application formO redemption
re#uests and dispatches account statements to the unit holders. %he 7egistrar and
%ransfer agent also handles communications with investors and updates investor
6< | P a g e
Rights of a Mutual Fund Unit holder:
$ unit holder in a 'utual (und scheme governed by the S2I C'utual (undsE
7egulations, is entitled to
1. 7eceive unit certificates or statements of accounts confirming the title within = weeks
from the date of closure of the subscription or within = weeks from the date of re#uest
for a unit certificate is received by the 'utual (und
2. 7eceive information about the investment policies, investment ob&ectives, financial
position and general affairs of the scheme
3. 7eceive dividend within 62 days of their declaration and receive the redemption or
repurchase proceeds within 1B days from the date of redemption or repurchase
4. :ote in accordance with the 7egulations toM >
a. $pprove or disapprove any change in the fundamental investment policies of the
scheme, which are likely to modify the scheme or affect the interest of the unit
holder. %he dissenting unit holder has a right to redeem the investment.
b. +hange the $sset 'anagement +ompany
c. 0ind up the schemes.
5. Inspect the documents of the 'utual (unds specified in the schemeNs offer document.
6= | P a g e
(rom the comparative analysis, it can be known that each investment option has
its own strengths and weakness depending on the safety and the returns. /ptions like
bank deposits offer safety and li#uidity, but at the cost of return, 'utual funds seek to
combine the advantages of investing in each of these alternatives while dispensing with
the shortcomings. +learly, it is in the investor"s interest to focus his investment on
mutual funds.
)owever, a note of caution is in order. 0hile the mutual funds are one of the
best options for the individual small investor, there are many mutual funds already
available for the investor to choose from. It must be realiFed that the performance of
different funds varies from time to time. $lso, the Indian mutual fund sector has been in
an evolving phase over the past five years during which time several investors have
encountered some poorly performing funds, while others have been fortunate to be with
good performers.
esides, evaluation of fund performance in meaningful when a fund has access
to an array of investment products in the market. +urrently in India, there are limited
investment opportunities available to mutual funds, and their track record must be
studied in this conte5t. %herefore, the Indian investors have moved over to mutual funds
in a gradual process. ut, there is little doubt that mutual funds will increasingly over to
mutual funds in a gradual process. ut, there is little doubt that mutual funds will
increasingly attract the small investors as compared to other intermediaries such as
insurance companies.
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'utual (unds in India have not been properly understood by a common man.
People know more it as the 8%I schemes, which were very famous, and the only 'utual
funds available. People came to know about other 'utual (unds when can banks started
a mutual fund scheme, which was a flop show, as it was a total disaster, and many
people have lost their savings. So if we ask a common man he says that mutual funds
mean which invests in 2#uity markets. ut he isn"t aware of the different investment
areas if mutual funds people are not properly educated. 2ven basing on the risk, return
calculations this may not look attractive for common man since the returns from many
schemes have been negative eroding the net>worth of the capital invested by an
individual. %he returns are also not guaranteed which is playing a ma&or role as
hindrance in attraction. %he portfolios maintained by fund managers are also not
providing ade#uate returns re#uired by the people. People who are generally interested
in regular incomes feel that mutual funds haven"t performed very well.
%he private companies of which some are of foreign origin are also not believed
by people, as they fear of taking the whole amount to other countries. asing on the
total survey it was found that mutual funds have not been properly accepted by people
due to less knowledge of different schemes.
So how can smart investing in mutual funds give good returnsQ
1. Diversify with Funds: 'utual (unds invest in e#uity markets, debt markets,
call money markets, 3overnment if India securities. So better to start with an Inde5 fund
investing in S2 ,B Inde5 or .I(%;. $fter some time, an individual can construct a
portfolio of different schemes such as e#uity and debt.
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2. Invest in your understanding: It is a suggestion, which can help an
individual to invest only that schemes in which he has some knowledge. .ever get
fancy with sectorial schemes, which haven"t performed well in the market.
3. Beat the market: %he dividend ta5 can be avoided by opting for growth
option, under which an individual is liable to pay only capital gains ta5 of 1BP. $
person interested in regular income can go for systematic withdrawal plan where the
amount withdrawn at different intervals are termed as capital gains and ta5ed only at
4. Kick the Index hugging fund: %his is the strategy, which says that a fund,
which is always, a mirror image of Inde5, will lose its value if the inde5 changes. So it
is better to invest in schemes, which are full diversified between the sectors.
5. Set targets: In this strategy it is always better to sell of your units in '7
before the maturity of your need, if you are investing in e#uity markets. (or e5ample, if
you plan to invest for 1B years for yours child education sell the units held in e#uity
schemes and invest in money market schemes to reap good benefits.
'utual fund is the best investment tool for the retail investor as it offers the twin
benefits of good returns and safety as compared with other avenues such as bank
deposits or stock investing. )aving looked at the various types of mutual funds, one has
to now go about selecting a fund suiting your re#uirements. +hoose the wrong fund and
you would have been better off keeping money in a bank fi5ed deposit. -eep in mind
the points listed below and you could at least marginalise your investment risk.
6A | P a g e
Past performance
0hile past performance is not an indicator of the future it does throw some light
on the investment philosophies of the fund, how it has performed in the past and the
kind of returns it is offering to the investor over a period of time. $lso check out the
two>year and one>year returns for consistency. )ow did these funds perform in the bull
and bear markets of the immediate pastQ %racking the performance in the bear market is
particularly important because the true test of a portfolio is often revealed in how little it
falls in a bad market.
Know your fund manager
%he success of a fund to a great e5tent depends on the fund manager. %he same
fund managers manage most successful funds. $sk before investing, has the fund
manager or strategy changed recentlyQ (or instance, the portfolio manager who
generated the fund"s successful performance may no longer be managing the fund.
Does it suit your risk profile?
+ertain sector>specific schemes come with a high>risk high>return tag. Such
plans are suspect to crashes in case the industry loses the market men"s fancy. If the
investor is totally risk averse he can opt for pure debt schemes with little or no risk.
'ost prefer the balanced schemes, which invest in the e#uity and debt markets. 3rowth
and pure e#uity plans give greater returns than pure debt plans but their risk is higher.
Read the prospectus
%he prospectus says a lot about the fund. $ reading of the fund"s prospectus is a
must to learn about its investment strategy and the risk that it will e5pose you to. (unds
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with higher rates of return may take risks that are beyond your comfort level and are
inconsistent with your financial goals. ut remember that all funds carry some level of
risk. 9ust because a fund invests in government or corporate bonds does not mean it
does not have significant risk. %hinking about your long>term investment strategies and
tolerance for risk can help you decide what type of fund is best suited for you.
How will the fund affect the diversification of your portfolio?
0hen choosing a mutual fund, you should consider how your interest in that
fund affects the overall diversification of your investment portfolio. 'aintaining a
diversified and balanced portfolio is the key to maintaining an acceptable level of risk.
What it costs you?
$ fund with high costs must perform better than a low>cost fund to generate the
same returns for you. 2ven small differences in fees can translate into large differences
in returns over time.
(inally, don"t pick a fund simply because it has shown a spurt in value in the
current rally. (erret out information of a fund for at least three years. %he one thing to
remember while investing in e#uity funds is that it makes no sense to get in and out of a
fund with each turn of the market. 1ike stocks, the right e#uity mutual fund will pay off
big >> if you have the patience. Similarly, it makes little sense to hold on to a fund that
lags behind the total market year after year.
The Bogle Approach
$fter an advisor chooses a Jmodel portfolio" suitable for the investor, he will
arrive at the decision on the amounts to be invested in the basic categories of 2#uity.
*ebt, balanced and 'oney 'arket (unds. %he ne5t step is to decide which specific
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fundsGschemes should be selected for inclusion in the model portfolio. /ne practical and
sound approach to fund selection has been worked out from e5perience by 9ohn
+.ogle, the e5>chairman of the :anguard 3roup of (unds in 8S$. %he fund
employees, investors and their advisors are encouraged to read the recommended
reading material in depth from the book ogle on 'utual (unds. )ere we summariFe
the ogle advice, for the benefit of the Indian fund distributors and investment advisors.
Tax Implications of Dividend Income
Equity Schemes
2#uity Schemes are schemes, which have less than <B per cent investments in
2#uity shares of domestic companies. $s far as 2#uity Schemes are concerned no
*istribution %a5 is payable on dividend. In the hands of the investors, dividend is ta5>
Other Schemes
(or schemes other than e#uity, in the hands of the investors, dividend is ta5>free.
)owever, *istribution %a5 on dividend R 12.@1 per cent to be paid by 'utual (unds.
Tax Implications of Capital Gains
%he difference between the sale consideration Cselling priceE and the cost of
ac#uisition Cpurchase priceE of the asset is called capital gain. If the investor sells his
units and earns capital gains he is liable to pay capital gains ta5. +apital gains are to
typesO Short Term and Long Term Capital Gains
Short Term Capital Gains
%he holding period of the 'utual (und units is less than or e#ual to 12 months from the
date of allotment of units then short term capital gains is applicable.
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Tax and TDS Rate (excluding surcharge)
Resident Indians and Domestic Companies
%he 3ain will be added to the total income of the Investor and ta5ed at the marginal rate
of ta5. .o %*S. NRIsM ,B percent %*S from the gain.
Long Term Capital Gains
%he holding period of 'utual (und units is more than 12 months from the date of
allotment of units. /n 1ong %erm capital gains Inde5ation benefit is applicable.
Tax and TDS Rate (excluding surcharge)
Resident Indians and Domestic Companies
%he 3ain will be ta5ed
$E $t 2B per cent with inde5ation benefit or
E $t 1B per cent without inde5ation benefit, whichever is lowerQ .o %*S.
NRIsM 2B per cent %*S from the 3ain
Resident IndiansM If the 3ain e5ceeds 7s @.< lakhs, surcharge is payable by investors
R 1B per cent.
Domestic CompaniesM Payable by the investor R 2.< per cent.
NRIsM If the 3ain from the (und e5ceeds 7s @.< lakhs, surcharge is deducted at source
R 2.< per cent.
IndexationInde5ation means that the purchase price is marked up by an inflation inde5
resulting in lower capital gains and hence lower ta5.
Inflation inde5 for the year of transfer
Inflation inde5 S >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Inflation inde5 for the year of ac#uisition
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)aving understood the basics of mutual funds the ne5t step is to build a
successful investment portfolio. efore you can begin to build a portfolio, one should
understand some other elements of mutual fund investing and how they can affect the
potential value of your investments over the years. %he first thing that has to be kept in
mind is that when you invest in mutual funds, there is no guarantee that you will end up
with more money when you withdraw your investment than what you started out with.
%hat is the potential of loss is always there. %he loss of value in your investment is what
is considered risk in investing.
2ven so, the opportunity for investment growth that is possible through investments in
mutual funds far e5ceeds that concern for most investors. )ere"s why at the cornerstone
of investing is the basic principal that the greater the risk you take, the greater the
potential reward. /r stated in another way, you get what you pay for and you get paid a
higher return only when youNre willing to accept more volatility.
7isk then, refers to the volatility >> the up and down activity in the markets and
individual issues that occurs constantly over time. %his volatility can be caused by a
number of factors >> interest rate changes, inflation or general economic conditions. It is
this variability, uncertainty and potential for loss, that causes investors to worry. 0e all
fear the possibility that a stock we invest in will fall substantially. ut it is this very
volatility that is the e5act reason that you can e5pect to earn a higher long>term return
from these investments than from a savings account.
*ifferent types of mutual funds have different levels of volatility or potential price
change, and those with the greater chance of losing value are also the funds that can
produce the greater returns for you over time. So risk has two sidesM it causes the value
of your investments to fluctuate, but it is precisely the reason you can e5pect to earn
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high returns. ;ou might find it helpful to remember that all financial investments will
fluctuate. %here are very few perfectly safe havens and those simply donNt pay enough to
beat inflation over the long run.
%)2 7IS->72%87. %7$*2>/((
%he most important relationship to understand is the risk>return trade>off. )igher
the risk greater the returnsGloss and lower the risk lesser the returnsGloss. )ence it is unto
you, the investor to decide how much risk you are willing to take. In order to do this you
<< | P a g e
must first be aware of the different types of risks involved with your investment.
Market Risk
Sometimes prices and yields of all securities rise and fall. road outside
influences affecting the market in general lead to this. %his is true, may it be big
corporations or smaller mid>siFed companies. %his is known as 'arket 7isk. $
Systematic Investment Plan CHSIPIE that works on the concept of 7upee +ost $veraging
CH7+$IE might help mitigate this risk.
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Credit Risk
%he debt servicing ability Cmay it be interest payments or repayment of
principalE of a company through its cash flows determines the +redit 7isk faced by you.
%his credit risk is measured by independent rating agencies like +7ISI1 who rate
companies and their paper. $ J$$$" rating is considered the safest whereas a J*" rating
is considered poor credit #uality. $ well>diversified portfolio might help mitigate this
Inflation Risk
%hings you hear people talk aboutM
H7s. 1BB today is worth more than 7s. 1BB tomorrow.I
H7emember the time when a bus ride costed <B paiseQI
H'ehanga -a 9amana )ai.I
%he root cause, Inflation. Inflation is the loss of purchasing power over time. $
lot of times people make conservative investment decisions to protect their capital but
end up with a sum of money that can buy less than what the principal could at the time
of the investment. %his happens when inflation grows faster than the return on your
investment. $ well>diversified portfolio with some investment in e#uities might help
mitigate this risk.
Interest Rate Risk
In a free market economy interest rates are difficult if not impossible to predict.
+hanges in interest rates affect the prices of bonds as well as e#uities. If interest rates
rise the prices of bonds fall and vice versa. 2#uity might be negatively affected as well
in a rising interest rate environment. $ well>diversified portfolio might help mitigate
this risk.
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Political/Government Policy Risk
+hanges in government policy and political decision can change the investment
environment. %hey can create a favorable environment for investment or vice versa.
Liquidity Risk
1i#uidity risk arises when it becomes difficult to sell the securities that one has
purchased. 1i#uidity 7isk can be partly mitigated by diversification, staggering of
maturities as well as internal risk controls that lean towards purchase of li#uid
securities. ;ou have been reading about diversification above, but what is itQ
%he nuclear weapon in your arsenal for your fight against risk. It simply means
that you must spread your investment across different securities Cstocks, bonds, money
market instruments, real estate, fi5ed deposits etc.E and different sectors Cauto, te5tile,
information technology etc.E. %his kind of a diversification may add to the stability of
your returns, for e5ample during one period of time e#uities might under perform but
bonds and money market instruments might do well enough to offset the effect of a
slump in the e#uity markets. Similarly the information technology sector might be
faring poorly but the auto and te5tile sectors might do well and may protect you
principal investment as well as help you meet your return ob&ectives.
$SS/SI$%I/. /( '8%8$1 (8.*S I. I.*I$
The Association of Mutual Funds in India C$'(IE is dedicated to developing the
Indian 'utual (und Industry on professional, healthy and ethical lines and to enhance
and maintain standards in all areas with a view to protecting and promoting the interests
of mutual funds and their unit holders.
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1. It would be accurate to say that without intermediaries, the mutual fund industry.
0ould not have achieved the depth and breadth of coverage amongst investors
that it en&oys today. Intermediaries have played a pivotal and valuable role in
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populariFing the concept of mutual funds across India. %hey make the forms
available to clients, e5plain the schemes and provide administrative and
paperwork support to investors, making it easy and convenient for the clients to
2. Intermediation itself has undergone a change over the past few decades. 0hile
individual agents provided the foundation for growth in the early years,
institutional agents, distribution companies and national brokers soon started to
play an active role in promoting mutual funds. 7ecently, banks, finance
companies, secondary. 'arket brokers and even post offices have also begun to
market mutual funds to their e5isting and potential client bases.
,. It is, thus clear that all types of intermediaries are re#uired for the growth of the
industry, and their well>being, #uality orientation and ways of doing business
will have a significant impact on how the mutual fund industry in India evolves
in the future.
1. Investors can purchase and sell mutual fund units through various types of
intermediaries T individual agents, distribution companies, nationalGregional brokers,
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banks, post offices etc. as well as directly from $sset 'anagement +ompanies
C$'+"sE, including the 8nit %rust of India
2. Investors of 'utual (unds can be broadly classified into , categoriesM
i. %hose who want product information, advice on financial planning and
investment strategies.
ii. %hose who re#uire only a basic level of service and e5ecution support i.e.
delivering and collecting application forms and che#ues, and other basic
paperwork and post sale activities.
iii. %hose who prefer to do it all themselves, including choice of investments as well
as the processGpaperwork related to investments.
3. %o cater to different types of investors, the 'utual (und industry comprising of
$'+s and intermediaries at present offers the following two levels of servicesM
a. Value added services: -
%his includes product information and advice on financial planning and
investment strategies. %he advice encompasses analyFing an investor"s financial goals
depending upon the segment of investor, assessing hisGher resources, determining
hisGher risk bearing capacityGpreference and then using this information to recommend
an asset allocationGspecific investmentGs that are in tandem with the investor"s needs.
Investors may also receive information on ta5ation, estate planning and portfolio
rebalancing to remain aware about the changesGdevelopments in market conditions and
ad&ust the portfolios from time to time according to their needs. In such advisory
services, the emphasis is on building an ongoing relationship with the investorGs. In
India, given that mutual funds are relatively new, there is a low level of awareness
amongst investors about the working and benefits of 'utual (unds. $lso, very few
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investors take an organiFed approach to financial planning. %herefore, it is clear that the
vast ma&ority of investors would benefit significantly from the value>added services
enumerated above.
b. Basic services: -
%his includes providing the basic information on schemes launched to investors,
assisting them in filling application forms, submission of application forms along with
che#ues at the respective officeGs, delivering redemption proceeds and answering
scheme related #ueries investorGs may have. 0hat investors receive here is convenience
and access to mutual funds through agents and employees of brokers who visit them and
facilitate the paperwork related to investment. %hese services are also given through the
branches and front office staff of $'+s and intermediaries. %hese are transaction>
oriented service where investors make the investment decisions themselves, and rely on
the $'+ and intermediary mostly for e5ecution and logistics support.
1. %ake necessary steps to ensure that the clients" interest is protected.
2. $dhere to S2I 'utual (und 7egulations and guidelines related to selling,
distribution and advertising practices. e fully conversant with the key provisions of the
offer document as well as the operational re#uirements of various schemes.
3. Provide full and latest information of schemes to investors in the form of offer
documents, performance reports, fact sheets, portfolio disclosures and brochures, and
recommend schemes appropriate for the client"s situation and needs.
4. )ighlight risk factors of each scheme, avoid misrepresentation and e5aggeration, and
urge investors to go through offer documentsGkey information memorandum before
deciding to make investments.
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5. *isclose all material information related to the schemesGplans while canvassing for
6. $bstain from indicating or assuring returns in any type of scheme, unless the offer
document is e5plicit in this regard.
7. 'aintain necessary infrastructure to support the $'+s in maintaining high service
standards to investors, and ensure that critical operations such as forwarding forms and
che#ues to $'+sGregistrars and dispatch of statement of account and redemption
che#ues to investors are done within the time frame prescribed in the offer document
and S2I 'utual (und 7egulations.
8. $void colluding with clients in faulty business practices such as bouncing che#ues,
wrong claiming of dividendGredemption che#ues, etc.
9. $void commission driven malpractices such asM
aE 7ecommending inappropriate products solely because the intermediary is getting
higher commissions there from.
bE 2ncouraging over transacting and churning of mutual fund investments to earn
higher commissions, even if they mean higher transaction costs and ta5 for
10. $void making negative statements about any $'+ or scheme and ensure that
comparisons if any are made with similar and comparable products.
11. 2nsure that all investor related statutory communications Csuch as changes in
fundamental attributes, e5itGentry load, e5it options, and other material aspectsE are sent
to investors reliably and on time.
12. 'aintain confidentiality of all investor deals and transactions.
13. 0hen marketing various schemes, remember that a client"s interest and suitability to
their financial needs is paramount, and that e5tra commission or incentive earned should
never form the basis for recommending a scheme to the client.
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14. Intermediaries will not rebate commission back to investors and avoid attracting
clients through temptation of rebateGgifts etc.
15. $ focus on financial planning and advisory services ensures correct selling, and also
reduces the trend towards investors asking for pass back of commission.
16. $ll employees engaged in sales and marketing should obtain $'(I certification.
2mployees in other functional areas should also be encouraged to obtain the same
certification. Se#uence of steps in the 2vent of reach of $bove H+ode of +onductI y
the Intermediary If any breach of the above +ode of +onduct for intermediary is
reported to $'(I by either an investor or an $'+ in writing, then $'(I will initiate
the following stepsM
0rite to the intermediary Cenclosing copies of the complaint and other
documentary evidenceE and ask for an e5planation within a time limit of ,
In case an e5planation is not received within the time limit, or the e5planation is
not satisfactory, $'(I will issue a warning letter indicating that any subse#uent
violation will result in cancellation of $'(I 7egistration.
=6 | P a g e
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1.1 'embers and their key personnel, in the conduct of their business shall observe high
standards of integrity and fairness in all dealings with investors, issuers, market
intermediaries, other members and regulatory and other government authorities.
1.2 'utual (und Schemes shall be organiFed, operated, managed and their portfolios of
securities selected, in the interest of all classes of unit holders and not in the interest of
*irectors of 'embers
'embers of oard of %rustees or directors of the %rustee company
rokers and other market intermediaries
$ssociates of the 'embers
a special class selected from out of unit holders
2.1 'embers in the conduct of their $sset 'anagement business shall at all times
7ender high standards of service.
25ercise due diligence.
25ercise independent professional &udgment.
2.2 'embers shall have and employ effectively ade#uate resources and procedures,
which are needed for the conduct of $sset 'anagement activities.
3.1 'embers shall ensure timely dissemination to all unit holders of ade#uate, accurate,
and e5plicit information presented in a simple language about the investment ob&ectives,
investment policies, financial position and general affairs of the scheme.
3.2 'embers shall disclose to unit holders investment pattern, portfolio details, ratios of
e5penses to net assets and total income and portfolio turnover wherever applicable in
respect of schemes on annual basis.
3.3 'embers shall in respect of transactions of purchase and sale of securities entered
into with any of their associates or any significant unit holder.
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Submit to the oard of %rustees details of such transactions, &ustifying its
fairness to the scheme.
*isclose to the unit holders details of the transaction in brief through annual
and half yearly reports.
3.4 $ll transactions of purchase and sale of securities by key personnel who are directly
involved in investment operations shall be disclosed to the compliance officer of the
member at least on half yearly basis and subse#uently reported to the oard of %rustees
if found having conflict of interest with the transactions of the fund.
4.1 'embers shall not use any unethical means to sell market or induce any investor to
buy their products and schemes
4.2 'embers shall not make any e5aggerated statement regarding performance of any
product or scheme.
4.3 'embers shall endeavor to ensure that at all times
Investors are provided with true and ade#uate information without any
misleading or e5aggerated claims to investors about their capability to render
certain services or their achievements in regard to services rendered to other
Investors are made aware of attendant risks in members" schemes before any
investment decision is made by the investors,
+opies of prospectus, memoranda and related literature is made available to
investors on re#uest,
$de#uate steps are taken for fair allotment of mutual fund units and refund of
application moneys without delay and within the prescribed time limits and,
+omplaints from investors are fairly and e5peditiously dealt with.
4.4 'embers in all their communications to investors and selling agents shall
.ot present a mutual fund scheme as if it were a new share issue
.ot create unrealistic e5pectations
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.ot misrepresent either by stating information in a manner calculated to
mislead or by omitting to state information which is material to making an
informed investment decision.
5.1 'embers shall manage all the schemes in accordance with the fundamental
investment ob&ectives and investment policies stated in the offer documents and take
investment decisions solely in the interest of the unit holders.
5.2 'embers shall not knowingly buy or sell securities for any of their schemes from or
$ny director, officer, or employee of the member
$ny trustee or any director, officer, or employee of the %rustee +ompany
6.1 'embers shall avoid conflicts of interest in managing the affairs of the schemes and
shall keep the interest of all unit holders paramount in all matters relating to the scheme.
6.2 'embers or any of their directors, officers or employees shall not indulge in front
running Cbuying or selling of any securities ahead of transaction of the fund, with access
to information regarding the transaction which is not public and which is material to
making an investment decision, so as to derive unfair advantageE.
6.3 'embers or any of their directors, officers or employees shall not indulge in self
dealing Cusing their position to engage in transactions with the fund by which they
benefit unfairly at the e5pense of the fund and the unit holdersE.
6.4 'embers shall not engage in any act, practice or course of business in connection
with the purchase or sale, directly or indirectly, of any security held or to be ac#uired by
any scheme managed by the 'embers, and in purchase, sale and redemption of units of
schemes managed by the 'embers, which is fraudulent, deceptive or manipulative.
6.5 'embers shall not, in respect of any securities, be party to>
+reating a false market,
Price rigging or manipulation
Passing of price sensitive information to brokers, 'embers of stock e5changes
and other players in the capital markets or take action, which is unethical or
unfair to investors.
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6.6 2mployees, officers and directors of the 'embers shall not work as agentsG brokers
for selling of the schemes of the 'embers, e5cept in their capacity as employees of the
'ember or the %rustee +ompany.
6.7 'embers shall not make any change in the fundamental attributes of a scheme,
without the prior approval of unit holders e5cept when such change is conse#uent on
changes in the regulations.
6.8 'embers shall avoid e5cessive concentration of business with any broking firm, and
e5cessive holding of units in a scheme by few persons or entities.
7.1 'embers shall follow comparable and standardiFed valuation policies in accordance
with the S2I 'utual (und 7egulations.
7.2 'embers shall follow uniform performance reporting on the basis of total return.
7.3 'embers shall ensure scheme wise segregation of cash and securities accounts.
'embers shall not make any statement or become privy to any act, practice or
competition, which is likely to be harmful to the interests of other 'embers or is likely
to place other 'embers in a disadvantageous position in relation to a market player or
investors, while competing for investible funds.
'embers shall abide by the letter and spirit of the provisions of the Statutes,
7ules and 7egulations, which may be applicable and relevant to the activities carried on
by the 'embers.
Members shall:
0idely disseminate the $'(I +ode to all persons and entities covered by it.
'ake observance of the +ode a condition of employment.
'ake violation of the provisions of the code, a ground for revocation of
contractual arrangement without redress and a cause for disciplinary action.
7e#uire that each officer and employee of the 'ember sign a statement that heG
she has received and read a copy of the +ode.
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2stablish internal controls and compliance mechanisms, including assigning
supervisory responsibility.
*esignate one person with primary responsibility for e5ercising compliance
with power to fully investigate all possible violations and report to competent
(ile regular reports to the %rustees on a half yearly and annual basis regarding
observance of the +ode and special reports as circumstances re#uire.
'aintain records of all activities and transactions for at least three years, which
records shall be sub&ect to review by the %rustees.
*edicate ade#uate resources to carrying out the provisions of the +ode
0hen used in this code, unless the conte5t otherwise re#uires
$'(I H$'(II means the $ssociation of 'utual (unds in India
aE $ssociate H$ssociateI means and includes an Jassociate" as defined in regulation
2CcE of S2I C'utual (undE 7egulations 1AA=.
bE (undamental investment policies the Hfundamental investment policiesI of a
scheme managed by a member means the investment ob&ectives, policies, and
terms of the scheme, that are considered fundamental attributes of the scheme
and on the basis of which unit holders have invested in the scheme.
cE 'ember $ HmemberI means the member of the $ssociation of 'utual (unds in
dE S2I HS2II means Securities and 25change oard of India.
eE Significant 8nit holder $ HSignificant 8nit holderI means any entity holding
<P or more of the total corpus of any scheme managed by the member and
includes all entities directly or indirectly controlled by such a unit holder.
fE %rustee $ HtrusteeI means a member of the oard of %rustees or a director of
the %rustee +ompany.
?B | P a g e
?1 | P a g e
"n the suer of 1&&&' when e-coerce was (ust a)out starting in "ndia' *aeer
+ehlaut and his close ""T ,elhi friend #a(i- #attan got together and )ought a defunct
securities copany with a .*/ e)ership and started offering )ro$erage ser-ices
fro a -ery odest !00 s0ft office1 2 Few onths later' their friend *aura)h Mittal
also (oined the1 3y ,ece)er 1&&&' the copany e)ar$ed on its (ourney to )uild
one of the first online platfors in "ndia for offering internet )ro$erage ser-ices1 "n
4anuary 2000' the 3 founders incorporated "ndia)ulls Financial *er-ices and ade it
as the flagship copany1
"n the id 2000' "ndia)ulls Financial *er-ices recei-ed -enture capital funding fro
Mr 51.1 Mittal 6 Mr 7arish Fa)iani1 "nlate 2000' "ndia)ulls *ecurities' a su)sidiary of
"ndia)ulls Financial *er-ices started offering online )ro$erage ser-ices and
siultaneously opened physical offices across "ndia1 3y 2003' "ndia)ulls securities
had esta)lished a strong pan "ndia presence and client )ase through its offices and
on the internet1
"n *epte)er 2008' "ndia)ulls Financial *er-ices went pu)lic with an "9O at #s 1& a
share1 "n late 2008' "ndia)ulls Financial *er-ices started its financing )usiness with
consuer loans1 "n March 200!' "ndia)ulls 9roperties 9ri-ate 5td' a su)sidiary of
"ndia)ulls Financial *er-ices' participated in go-ernent auction of 4upiter Mills' a
defunct 11 acre te:tile ill owned )y .T; in 5ower 9arel' Mu)ai1 "ndia)ulls
9roperties pri-ate 5td won the ill in auction and that purchase started "ndia)ulls real
estate )usiness1 2 few onths later' "ndia)ulls #eal /state copany p-t ltd )ought
/lphinstone ill in 5ower 9arel' another te:tile ill auctioned )y .T;1
<ith real estate )usiness gaining size' "ndia)ulls Financial *er-ices 5td deerged the
real estate )usiness under "ndia)ulls #eal /state and each shareholder of "ndia)ulls
Financial *er-ices recei-ed additional share of "ndia)ulls #eal /state through the
deerger1 *u)se0uently' "ndia)ulls Financial *er-ices 5td also deerged "ndia)ulls
*ecurities 5td and each shareholder of "ndia)ulls Financial *er-ices also recei-ed a
share of "ndia)ulls *ecurities1
"n year 2007' "ndia)ulls #eal /state incorporated a 100= su)sidiary' "ndia)ulls 9ower
5td' to )uild power plants and started wor$ on )uilding .ashi$ 6 2rawati theral
power plants1 "ndia)ulls 9ower went pu)lic in*epte)er 200&1
Today' "ndia)ulls +roup has a networth of #s 1%'000 crore 6 has a strong presence
in iportant sectors li$e financial ser-ices' power 6 real estate through independently
listed copanies and "ndia)ulls +roup continues its (ourney of )uilding )usinesses
with strong cash flows1
*aeer +ehlaut has )een the chairan of "ndia)ulls +roup since inception1 7e is also the chairan of
a(or "ndia)ulls copanies> "ndia)ulls 9ower' "ndia)ulls Financial *er-ices 6 "ndia)ulls #eal /state1
?nder his leadership' "ndia)ulls +roup has grown in scale and size to a )usiness house with strong
)usinesses in -arious sectors1
Mr +ehlaut started "ndia)ulls +roup after wor$ing )riefly with 7alli)urton )efore returning to "ndia1 Mr
+ehlaut recei-ed a 31Tech degree in Mechanical /ngineering fro "ndian "nstitute of Technology' ,elhi1
Indiabulls Group
Mr #a(i- #attan - @ice ;hairan
Mr *aura)h Mittal - 9rooter ,irector
Mr 2sho$ Aac$er B +roup 2d-isor
Mr +ur)ans *ingh B +roup ,irector
Mr 2(it Mittal B +roup ,irector
Mr *an(ay ;handel B +roup ,irector
Mr Te(inderpal *ingh Miglani B ;"O 6 7ead 7#
Mr 2sho$ *hara B ;FO
Mr *a$et 3ahuguna B ;5O C;hief 5egal OfficerD
Indiabulls Financial Serices !i"i#ed
Mr +agan 3anga - ;/O
Mr 2shwini Auar 7ooda - ,M,
Indiabulls Real Es#a#e !i"i#ed
Mr @ipul 3ansal - ;/O
Mr .arendra +ehlaut - 4oint M,
Indiabulls Po$er !i"i#ed
Mr #an(it +upta - ;/O
Mr Murali *u)raanian B ;OO
Indiabulls Securi#ies !i"i#ed
Mr ,i-yesh *hah - ;/O
Mr @i(ay 3a))ar B ,M,
?2 | P a g e
;onstantly e:ploring new frontiers in technological inno-ation' "ndia)ulls 9ower is ipleenting cutting
edge +"* technology for e-acuation of power at its .ashi$ Theral 9ower plant' which would ensure
sealess operation )esides significant econoy in land use1
"ndia)ulls #ealtech 5td1 - a su)sidiary of "ndia)ulls 9ower 5td1 is de-eloping a 13!0 M< power pro(ect at
*innar' .asi$ district' Maharashtra1 For e-acuation of power fro the pro(ect' the copany has chosen to
adopt cutting edge +"* technology for its 800 $@ switchyard1 +"* technology is ultra low aintenance
which would ensure that the plant is a)le to e-acuate power continuously to the grid with alost no failure'
)esides resulting in land sa-ing of appro: %0 2cres1
*ulphur 7e:afluoride C*F6D gas insulated etal clad switchgear is called as +as "nsulated su)station
C+"*D1 "n such su)station' the -arious e0uipents li$e circuit )rea$ers' 3us)ars' "solators' ;Ts' 9Ts'
earthing switches etc1 are housed in the separate etal clad odule filled with *F6 gas1 The *F6 gas
pro-ides the phase to ground insulation1 2s the dielectric strength of gas is higher than air' the clearance
re0uired is saller1 7ence the o-erall size of each e0uipent and coplete su)-station is reduced1 The
-arious odules are factory asse)led and are filled with *F6 gas1 Thereafter they are ta$en on site for
final asse)lyE such su) stations are copact and can )e installed at any floor of the ultistory )uilding or
in the underground su)station1
2s the units are factory asse)led' the installation tie is su)stantially reduced1 *uch installation are
preferred in cosopolitan cities' industrial township' where land is -ery costly and higher cost of *F6
insulated switchgear is (ustified )y sa-ing due to reduction in floor area re0uireent1 *F6 insulated
switchgear is also preferred in hea-ily polluted area where dust' cheical fues and salt layers can cause
fre0uent flasho-ers in con-entional outdoor su)station1
Adan#a+es o, GIS
Ma:iu safety
F 9artitioning of functional copartents
F ;opletely protected encapsulation against access to hazardous part
F 7igh @oltage parts totally independent to en-ironental influences
F .o effect on dielectric strength )y site altitude
Miniu space re0uired
F Miniu switchgear diensions due to *F6 insulation
F *a-ings in )uilding areas up to 70= in coparison with con-entional switchgear
F Ma:iu a-aila)ility for the operator
F 7igh degree of relia)ility
F Ma:iu syste ser-ice life as independent of the en-ironent
F Miniu aintenance re0uireent eans e:tree sa-ings in operating costs
F 5onger life tie than other switchgear types leads to potential sa-ings in new in-estents
F 3uilding area and -olue sa-ings reduce the general in-estent and operating costs
,esign fle:i)ility
F Fle:i)ility towards orientation of the e0uipents1

?, | P a g e
This first of its $ind o)ile trading application for 3lac$)erry *artphone users
TodayGs custoers are always on the go' and are loo$ing for new ways to le-erage technology in order to
achie-e their financial goals1 They are )ecoing ore and ore o)ile especially with the growing
popularity of sartphones and the ipending arri-al of 3+ ser-ices across all a(or teleco ser-ice
"ndia)ulls *ecurities has always )een at the forefront in introducing newer trading features that help our
custoers in getting a ore e-ol-ed trading e:perience1 To pro-ide our custoers with greater o)ility
and fle:i)ility' "ndia)ulls *ecurities has launched an all new o)ile trading applicationE HMo)ile 9ower
"ndia)ulls CM9"3DG for 3lac$3erryI *artphone users1 This first of its $ind application will allow "ndia)ulls
*ecurities custoers to con-eniently )uy or sell stoc$s through their 3lac$3erry *artphone' with a few
siple clic$s1
The JM9"3K application contains all the features of a noral trading platfor that traders would e:pect'
including ar$et rates' order )oo$' order entry screen' order odificationLdeletion' and account reports'
)ut designed for a 3lac$3erryL*artphone' which can pro-ide custoers with access to their online
account fro anywhere while on the o-e1 "ndia)ulls *ecurities has ta$en special care to ensure secure
transactions on the trading platfor with 12% )it encrypted counications certified )y @eri*ign1 2long
with their usernae and password' users will also )e re0uired to pro-ide a second le-el transaction
password using a secure ", to$en1 "ndia)ulls *ecurities is constantly introducing technology that
re-olutionizes the way people trade online and this application specially designed for 3lac$3erry sart
phone users proises a secure' efficient and user-friendly trading e:perience anywhere on the go1K
?6 | P a g e
?< | P a g e
S#ra#e+- and Focus
Consolidation - aim to be among top 3 players in existing businesses within
next 3 years
No new products > focus on gaining siFe and scale in e5isting core areas
No capital market fund raising - all businesses are well funded to achieve
growth and size
Focus on Execution and on ground results translating into profits
Goal- (; 2B1,G16>target of 8S U 1.< billion in cash generation
from the 3 companies (Finance, Real Estate and ower!

India bulls Financial Serices is an integrated financial ser-ices powerhouse pro-iding 7oe 5oans'
5oans 2gainst 9roperty' ;oercial -ehicle 5oans and ;oercial credit to prie corporate1 The
copany )oasts a net worth of a)out ?*, 1 )illion with an asset )oo$ of o-er #s1 17'000 ;r and has
cuulati-ely dis)ursed o-er #s1 80'000 ;r to date1 2ongst its financial ser-ices and )an$ing peers'
"ndia)ulls Financial *er-ices 5td1 ran$s aongst the top few copanies )oth in ters of net worth and
capital ade0uacy1 The copanyGs strength has )een ac$nowledged and underlined )y rating agencies that
ha-e consistently accorded high ratings to it1 "ndia)ulls Financial *er-ices 5td is rated H522G )y ";#2 Can
associate of MoodyGs "n-estors *er-iceD and H22MG )y ;2#/ #atings1 The copany has also seen a
healthy growth in ters of reach and is today present in o-er &0 cities and towns' which it ser-ices through
180 )ranches1
?= | P a g e

Indiabulls Real Es#a#e is one of "ndiaNs largest listed de-elopers currently de-eloping !7 illion s0uare
feet of residential and coercial real estate1 "3#/5 has an additional land )an$ in e:cess of 3'0!0 acres1
"3#/5Ns strategy is to )e a focused regional player1 More than &0= of "3#/5Ns portfolio )y -alue is in the
three a(or ar$ets of Mu)ai' .;# and ;hennai1 "3#/5Ns has ac0uired land in e:cess of #s1 3'000
crores through go-ernent land auctions alone o-er the past fi-e years1 "3#/5 has deli-ered a record 313
illion *F de-eloped space -alued in e:cess of #s1 7'000 crores Cwithin 8 years of inceptionD1 This would
)e fastest and largest deli-ery in -alue ters )y any "ndian real estate de-eloper in the sae tie period1
"3#/5Ns flagship 7 illion *F high-end residential and coercial de-elopent in ;entral Mu)ai has
won awards for the )est office property and has leading international and "ndian firs as tenants1
?? | P a g e
Indiabulls power (IBP!) Fo"us on Deli#er$ and
Indiabulls Po$er is de-eloping o-er 6'600 M< of power generating capacity across "ndia1 /:ecution on
!'800 M< of coal )ased theral power at .ashi$ and 2ra-ati in Maharashtra aounting to a capital
e:penditure of #s1 2%'000 crores is already in full swing with land' water' coal and en-ironental
clearances in place1 <or$ is )eing e:ecuted )y leading "ndian and international suppliers and contractors
such as 37/5' 56T' 233' 2re-a' +aon' +,;' Airlos$ar and *hapoor(i 9allon(i1
"eveloping #,$%% &' across (ndia
Execution -
)* *+,- billion capex over next $ years for #,$%% &', hase l (.,/%% &'0 -
construction in full swing (1$,%%% wor2ers on site!
For both Phases {entire 5,4 !"# $
land, 'aler, 3oal and Environment clearances in place
No External %isk&No 'ualit( %isk
4s wor2 given to reputed contractors5suppliers, (67' is largest private sector
client of 68E9
4nnual run-rate .% billion units of electricity generation to be achieved by
&arch -3 and $% billion units of annual run-rate to be achieved by &ar
Indiabulls Securi#ies is one of "ndiaNs leading capital ar$ets copany pro-iding securities
)ro$ing and ad-isory ser-ices1 "*5 also pro-ides depository ser-ices' e0uity research ser-ices
and "9O distri)ution to its clients and offers coodities trading through a separate copany1
These ser-ices are pro-ided )oth through on-line and off-line distri)ution channels1 "*5 is a
pioneer of on-line securities trading in "ndia1 "*5Ns in-house trading platfor is one of the fastest
and ost efficient trading platfors in the country1
;urrency deri-ati-es are deri-ati-es )ased on e:change rates )etween two currencies and
pro-ide an opportunity
?@ | P a g e
To in-est in a new class of products for all resident "ndians 1The currency deri-ati-es ar$et
pro-ides the ad-antages
Of lower cost and higher transparency 1"t allows traders to trade in a new asset class totally
unrelated to e0uities so
2s to di-ersify their in-estents1Margin re0uireents instead of the full traded -alue and higher
ultiplier a$e currency deri-ati-es an attracti-e opportunity fro trading1 "ndia)ulls securities
liited offers a fully autoated trading syste to in-est in the currency deri-ati-e segeent on
.2T"O.25 *TO;A /O;72.+/C.*/D
+/''/*I%I2S $72 $SI+$11;%)2 P7/*8+%S /(%)2 P7I'$7; S2+%/7 /( $. 2+/./';,
+/.+27.2* 0I%) $37I+81%872 $.* 2V%7$+%I/. /( 7$0 '$%27I$1S S8+) $S '2%$1S,
2.273; C+78*2 /I1, .$%87$1 3$SE, 2%+. I.*I$811S +/''/*I%I2S 1I'I%2* WI+1X
IS $ 723IS%272* %7$*I.3>+8'>+12$7I.3 '2'27 /( %)2 '81%I +/''/*I%; 2V+)$.32
/( I.*I$ 1I'I%2* W'+VE $.* .$%I/.$1 +/''/*I%; $.* *27I:$%I:2S 2V+)$.32 1I'I%2*
C.+*2VE. %)2S2 %0/ +/''/*I%; 2V+)$.32S )$:2 S)/0. $ P)2./'2.$1 37/0%) I.
%7$*I.3 :/18'2S. I+1 /((27S $ +12$71; *I((272.%I$%2* P7/*8+% 0I%)
$ S%7/.3 (/+8S /. 72S2$7+) $.* IS %)2 7I3)% P$7%.27 I( ;/8 $72 -22. /. %$PPI.3
/PP/7%8.I%I2S 2I.3 P72S2.%2* ; %)2 .$S+2.% +/''/*I%I2S (8%872S '$7-2%.
P 212+%7/.I+ %7$*I.3 +$P$I1I%I2S 0I%) '81%IP12 2V+)$.32S.
P SI.312 S+722. $++2SS (/7 +/''/*I%I2S $.* 2K8I%I2S %)7/83) P/027 I.*I$811S.
P %7$*2 I. $37/ $.* ./.$37/ P7/*8+%S.
P 72$1>%I'2 P7I+2S, *2%$I12* *$%$ 4 .20S $.* I.%211I32.% $.$1;%I+S.
P %I'21; *21I:27; /( +/.%7$+%S $.* I11I.3.
P SP2+I$1IY2* 72S2$7+) S27:I+2S.
P *2*I+$%2* 721$%I/.S)IP '$.$327.

6 Months Holding Period Return
Cate*or+: ICICI
?A | P a g e
Open End

1UL-31st DEC-31

6 Months Holding Period
Return ()
I+I+I *ividend fund
,-./0 ,,.01 ,.,2 33.1
I+I+I 2#uity arbitrage
fund *ividend
,3.44 ,1.-1 -./5 2.0/
I+I+I alanced fund
,0.35 ,0.56 -.0, 2./
I+I+I anking *ebt fund
,-.-23 ,-.-/5 -.-3/ -./2
I+I+I %a5 plan *ividend
,2.11 3-.-5 3.24 1,.2
@B | P a g e



@1 | P a g e





@2 | P a g e
*38E&E 3-st :)9;
"E3E&6ER "t

<4?t-- <4?t
- ER(7"

(3(3( "(?("E<"
F)<" >R7'=8 -/,+/ .%,+3 .,@+ 33,#
(3(3( EA)(=;
F)<" >R7'=8 -#,- -#,+B %,#B /,+
(3(3( 6494<3E"
F)<" >R7'=8 $B,3B ##,/- /,33 3%,3
(3(3( 64<C(<>
F)<" >R7'=8 -.,.%3 -.,#B3 %,3B +,.
(3(3( =4D 94<
>R7'=8 F)<" -3+,$. -#B,%/ .-,+# 3-,/
Cate*or+: S%I

inde: fund
ta:es gains
*3" Ta:
*3" +old
*3" 9su
@, | P a g e
6 Months Holding
Period Return ()
SI 'agnuam inde5 fund
33.63, 34.6,1 3.663 30.,
SI 'agnuam ta5es gains
13./5 10.2/ /.30 30
SI %a5 advantage fund
,-.44 ,3.44 3 12.6
SI 3old fund *ividend
,-.0, ,-.05 -.-2 ,.1
SI Psu fund *ividend
2.6, 5.35 -.12 6.1
6 Months
Return ()
SI 'agnuam inde5 fund
//.24 4-.462 4.5/2 30.,1
SI 'agnuam ta5es gains
fund growth
46.,/ 00.6 2.20 30
SI %a5 advantage growth
,-.44 ,3.44 3.-- 12.6
SI 3old growth fund
,-.0, ,-.00 -.-4 6
inde: fund
ta:es gains
fund growth
*3" Ta:
growth fund
*3" +old
growth fund
*3" 9su
growth fund

@6 | P a g e
";";" ,i-idend yield Fund-+rowth
331! I
";";" /0uity ar)itrage Fund-+rowth
716 I(
";";" 3alanced Fund-+rowth
3013 III
";";" 3an$ing de)t Fund - +rowth
612 (
";";" Ta: plan +rowth
3117 II
";";" ,i-idend yield Fund-,i-idend
213 ""
";";" /0uity ar)itrage Fund-,i-idend 7168 """
";";" 3alanced F?., ,"@",/., 718 "@
";";" 3an$ing de)t F?., ,"@",/., 0187 @
";";" Ta: 952. ,"@",/., 3117 "
%he above table, defect the variations of returns of various funds schemes offered by
I+I+I following period 981; ,1
to *2+2'27 ,1
into consideration.and
according to their returns are given to the respective funds
ased on their .$:"s the = months )olding Period 7eturn is calculated.
%he )olding Period is calculated by the formula

+ D
Holding Period Return ----------------- - 1 (where, D
t -

/ut of the total all funds, SI 2#uity 3rowth (und earns the highest return i.e., .,?.A
%he followed by the I+I+I $7I%7$32 *I:I*2.* (8.* i.e., ?.=6
@< | P a g e
*3" Magnua inde:Fund-+rowth
26113 II
*3" Magnua ta:esFund- +rowth
26 III
*3" T2O 2d-antage Fund-+rowth
371& I
*3" Fund gold-+rowth
& (
*3" 9su fund Fund +rowth &13!
*3" Magnua inde: Fund- ,i-idend
2611 II
*3" Magnua ta:es gains- ,i-idend
26 III
*3" Ta: ad-antage Fund-,i-idend
371& I
*3" +old Fund-,i-idend
13 I(
*3" 9*? Fund-,i-idend
&13 (
%he above %able defect the variation of returns of various funds scheme offered by SI
following period 981; ,1
>to>*2+2'27 ,1
and according to their returns are
given to the respective funds
ased on their .$:"S the = months )olding period 7eturn is calculated
%he )olding period is calculated by the formula
)/1*I.3 P27I/*72%87.S >1 Cwhere *tS.$:t>.$:t>1E
%otal out of funds earn highest fund SI %$V (8.* i.e, ,?.A
@= | P a g e

$s a whole, mutual funds cater to the most of financial needs of the investors basing on
his risk taking ability. It is suitable to people from all backgrounds and all age groups.
%he units of Schemes can be purchased byM
1. SI %$V $*:$.%$32 (8.* 37/0%) )I32S% 72%87.S i.e., ,?.A
2. SI %$V $*:$.%$32 (8.* *I:I*2.* )I32S% 72%87.S i.e., ,?.A
,. I+I+I *I:I*2.* ;2I1* (8.* 37/0%) )I32S% i.e., ,,.<
6. I+I+I %$V P1$. *I:I*2.* )I32S% i.e., ,1.?
<. SI $.* I+I+I 2S% P27(/7'2.+2 /( SI
1. 2ducate investors about 'utual (unds.
2. (acilities to be created to install terminals through out $.P
,. 'ore $dvertise and 'arketing must be done by all (inancial +ompanies.

@? | P a g e

It can be concluded that mutual funds are better investments option. Investing in
portfolio of mutual funds can minimiFe risk. %hough the public is interested in better
investment opportunities, they are not aware of the process involved in investing in
mutual funds. %his has to be overcome. It can also be said that it is suitable to people
from all backgrounds and all age groups.
0ith an increase I income levels in both urban and rural areas, growing
influence of media and its impact on consumption pattern of Indians, the sector holds a
lot of promise.
$s a whole, mutual funds cater to the most of financial needs of the investor basing on
)igh risk and high returns

@@ | P a g e

9ohn +. ogle Hcommon sense on mutual fundsM new imperatives for the
intelligent investorsI
). Sadhak H mutual funds in IndiaM marketing strategies and investment practicesI
+)$.3.2 $.* 0.12:2112. Hmarket timing and mutual fund investment
performanceI. C9anuary 1A@6E
Shanky.) Han update on mutual fundsM better grades.IC.ovember 1A@2E
:2I%.% $.* 9.+)2.2;. H$72 '8%8$1 (8.*S '$7-2%
%I'27SQIC./:2'27 1A@2E
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