PERFORMANCE EVALUATION OF MUTUAL FUNDS IN INDIA Submitted in partial fulfillment of t e re!

uirement of Au"ilium #olle$e %Autonomou&' for t e a(ard of t e

MASTER DE)REE In COMMERCE Submitted *+ ),SO-MI.A %RE), NO, ECO/0120'

Under t e $uidan#e of Dr, N, FAT3IMA T3A*ASSUM, M,Com,4 M,P il,4 M*A,4 P ,D,4 ASSISTANT PROFESSOR

DEPARTMENT OF COMMERCE AU5ILIUM COLLE)E4 %Autonomou&' %Re6A##redited b+ NAAC (it A )rade (it a C)PA of 2,7/out of 7' Vellore 8 92:009 :0// 8 :0/:

DEPARTMENT OF COMMERCE AU5ILIUM COLLE)E4 %Autonomou&' %Re6A##redited b+ NAAC (it A )rade (it a C)PA of 2,7/out of 7' Vellore 8 92:009 :0// 8 :0/: CERTIFICATE This is to certify that project report entitled PERFORMANCE EVALUATION OF PU*LIC AND PRIVATE SECTOR MUTUAL FUNDS IN INDIA; being submitted to Auxilium college (Autonomous), Vellore by ),SO-MI.A4 Re$, No, ECO/0120 carried out in partial fulfillment of for the award of the Master s !egree in "ommerce is a bonafide record of wor# carried out by her, under guidance and super$ision% M&, N,FAT3IMA T3A*ASSUM, M,Com4 M,P il,4 M*A,4 &'"T()'), Auxilium "ollege, Vellore * +,-..+ /ubmitted for the Vi$a0Voce 'xamination

E"aminer&< 1% -%

DECLARATION
2 hereby declare that the project wor# entitled =PERFORMANCE EVALUATION OF MUTUAL FUNDS IN INDIA ; carried out in partial fulfillment of the Master of "ommerce degree course of Auxilium "ollege (Autonoums) is my original wor#%

3lace4 Vellore 5%/67M28A !ate4 March -.1-

AC>NO-LED)EMENT
2 than# 5od, the Almighty who is the author of all inspiration% 2 extend my sincere than#s to Au"ilium Colle$e for gi$ing me an opportunity to underta#e this project for the Master !egree in "ommerce% 2 would li#e to than# our respected principal Re?, Sr, Dr, EU)INI FAT3IMA MAR., L, M,A,4 P ,D,4 L,S,)% for gi$ing us the inspiration and moral support to complete our project wor#% 2 express my deep sense of gratitude to Mr&, Au"ilia Ro@ario M,#om,4 M,p il,4 P ,D,4 3ead in # ar$e4 Department of Commer#e %& ift II'4 for moti$ating and inspiring me to complete this project wor#% 2 express my sincere gratitude to my respectable guide Profe&&or4 Au"ilium Colle$e, Dr,

N,Fat ima T aba&&um M,Com,4 M,P il,4 M*A,4 P ,D,4 A&&i&tant 2 express my sincere gratitude to our respectable professors in the !epartment of "ommerce, Auxilium "ollege% 2 express my faithful gratitude to my lo$ing parent& and my belo$ed brot erA&, for their help and support with which 2 could purse my research without any difficulty% 2 would also li#e to than# my friend& for their help, moral support and moti$ation% 9inally, 2 wish to express my than#s to the entire end0users who extended their #ind help and co0operation in completing my project wor# successfully%
),SO-MI.A

CONTENTS C3APTER NO 2 PARTICULARS 2:T)6!(T26: 1%1 ;istory of mutual fund 1%- Ad$antages of mutual funds 1%,!isad$antages of mutual funds 1%< 6bjecti$es 1%= )esearch Methodology 1%+ /cope of the study 1%> &imitations of the study 1%? "hapterisation )'V2'7 69 &2T')AT()' @A/2" "6:"'3T/ A:! T')M2:6&652'/ ,%1 @asic Terminlogies ,%- Types of mutual funds schemes ,%, steps to choose right mutual funds schemes ,%< 3rocedure for registering mutual funds schemes ,%= Meaning of AM92 ,%+ Top 1. mutual funds in the year < = -.11 3')96)MA:"' 'VA&(AT26: 69 M(T(A& 9(:!/ /";'M'/ 92:!2:5/ A:! "6:"&(/26:/ @2@&265)A3;8 A33':!'A PA)E NO

22 222

C3APTER6I INTRODUCTION
Mutual fund is an in$estment $ehicle that pools together funds from in$estors to purchase stoc#s, bonds or other securities% An in$estor can participate in the mutual fund by buying the units of the fund% 'ach unit is bac#ed by a di$ersified pool of assets, where the funds ha$e been in$ested% A mutual fund is the ideal in$estment $ehicle for today s complex and modern financial scenario%

/,/, 3ISTRO. OF MUTUAL FUND

7orldwide, Mutual 9und or (nit Trust as it is referred to in some parts of the world, has a long and successful history% The popularity of Mutual 9unds has increased manifold in de$eloped financial mar#ets, li#e the (nited /tates% As at the end of March -..?, in the (/ alone there were ?,.+< mutual funds with total assets of about (/B 11%>,< trillion ()s%<>. la#e cores)% 2n 2ndia, the mutual fund industry started with the setting up of the erstwhile (nit Trust of 2ndia in 1C+,% 3ublic sector ban#s and financial institutions were allowed to establish mutual funds in 1C?>% /ince 1CC,, pri$ate sector and foreign institutions were permitted to set up mutual funds% 2n 9ebruary -..,, following the repeal of the (nit Trust of 2ndia Act 1C+, the erstwhile (T2 was bifurcated into two separate entities $iD%,the /pecified (nderta#ing of the (nit Trust of 2ndia, representing broadly, the assets of

(/ +< scheme, schemes with assured returns and certain other schemes and (T2 Mutual 9und conforming to /'@2 Mutual 9und )egulations%

/,:, ADVANTA)ES OF MUTUAL FUNDS

Profe&&ional Mana$ement< 3rofessional money managers research, select, and monitor the performance of the securities the fund purchases% Di?er&ifi#ation< !i$ersification is an in$esting strategy that can be neatly summed up as E!onFt put all your eggs in one bas#et%E /preading your in$estments across a wide range of companies and industry sectors can help lower your ris# if a company or sector fails% /ome in$estors find it easier to achie$e di$ersification through ownership of mutual funds rather than through ownership of indi$idual stoc#s or bonds% Affordabilit+< /ome mutual funds accommodate in$estors who donFt ha$e a lot of money to in$est by setting relati$ely low pound amounts for initial purchases, subseGuent monthly purchases, or both% Li!uidit+< Mutual fund in$estors can readily redeem their shares plus any fees and charges assessed on redemption at any time%

/,2, DISADVANTA)ES OF MUTUAL FUNDS Co&t& de&pite Ne$ati?e Return&< 2n$estors must pay sales charges, annual fees, and other expenses regardless of how the fund performs% And, depending on the timing of their in$estment, in$estors may also ha$e to pay taxes on any capital gains distribution they recei$e 0 e$en if the fund went on to perform poorly after they bought shares% La#B of Control< 2n$estors typically cannot ascertain the exact ma#e0up of a fundFs portfolio at any gi$en time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades% Pri#e Un#ertaint+< 7ith an indi$idual stoc#, you can obtain real0time (or close to real0time) pricing information with relati$e ease by chec#ing financial websites or by calling your bro#er% 8ou can also monitor how a stoc#Fs price changes from hour to hour 0 or e$en second to second% @y contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fundFs net asset $alue, which the fund might not calculate until many hours after youF$e placed your order%

/,7, NEED FOR T3E STUD.

The ris# return trade0off indicates that if in$estor is willing to ta#e higher ris# then correspondingly he can expect higher returns and $ice $ersa if he pertains to lower ris# instruments, which would be satisfied by lower returns% 9or example, if an in$estors opt for 9!, which pro$ide moderate return with minimal ris#% @ut as he mo$es ahead to in$est in capital protected funds and the profit0bonds that gi$e out more return which is slightly higher as compared to the ban# deposits but the ris# in$ol$ed also increases in the same proportion% T h e m a i n p u r p o s e o f d o i n g t h i s p r o j e c t i s t o # n o w a b o u t m u t u a l f u n d a n d i t s functioning% This helps to #now in details about mutual fund industry right from its inception stage, growth and future prospects% 2t also helps in understanding different schemes of mutual funds% This project also would help in understanding the benefits of mutual funds to in$estors%

/,C, O*DECTIVES OF T3E STUD.

1% To study the history of the mutual fund% -% %To #nows the basic concepts and terminologies of the mutual funds in public limited companies and pri$ate limited companies% ,% To analyDe performance and growth of selected mutual funds schemes with their :AV and their returns% <% To identify the return $ariance%

=% To pro$ide findings and suggestions based on the analysis%

/,9, MET3ODOLO). PERIOD OF STUD.

The period of the study is only for a period of , months%ie, /eptember, 6ctober and :o$ember -.11%

DATA COLLECTION
The study is based on the secondary data collected from the newspaper and websites% /econdary data refers to the information or facts already collected% /uch data are collected with there objecti$e of understanding the past status of any $ariable% The secondary data is obtained from the newspaper , !eccan chronicleH and the websites of mutual funds india%com, amfi%com, and money control%com% The following Mutual 9unds schemes are ta#en for the analysis 1% @irla /un &ife 'Guity 9und (5) scheme -% 9ran#lin Templeton 2ndia 9lexi 9und (!) scheme ,% ;!9" 2ndex 9und :ifty 3lan (5) scheme <% 2"2"2 3rudential 2nfrastructure 9und )etail 3lan (!) scheme =% )eliance 'Guity 6pportunities 9und *)etail 3lan (!) scheme +% (T2 @an#ing /ector 9und (5) scheme

TOOLS AND TEC3NIEUES

9or the purpose of the analysis, the appropriate statistical and financial tools, i%e%, A$erage, /tandard de$iation, co$ariance, $ariance, )0/Guare, @eta, Alpha are employed to study the performance e$aluation of mutual funds in public limited company and pri$ate limited company%These tols are computed with M/ 'A"'& -..>%

/,F, SCOPE AND LIMITATIONS OF T3E STUD.

1% The study is conducted for the period of , months% -% This study is based on past data% ,% 6nly selected mutual fund schemes (growth plan and di$idend plan) in public limited companies and pri$ate limited company are ta#en for this study% /,1, C3APTERISATION C3APTER6I deals with 2ntroduction, ;istory, 6bjecti$es, Methodology, /cope and &imitation of the study% C3APTER6II traces the re$iew of pre$ious studies% C3APTER6III co$ers the basic concepts and terminologies% C3APTER6IV analyses the 3erformance of selected mutual fund schemes C3APTER6V offers summary of findings ,suggestions and "onclusion

C3APTER6II
REVIE- OF LITERATURE A, 3i&tori#al performan#e e?aluation of mutual fund& /, Nan#+ %/G1C' has stated that study of the past performance is helpful in forecasting% /tudy of the past performance un$eils some or all factors that influence the le$el of financial returns% The study of these factors may help in impro$ing the ability and accuracy of forecasting future returns% This study is li#ely to be useful for in$estors and portfolio managers% *, Performan#e in term& of rate of return< :, A##ordin$ to )upta LC %/G1/' presented a detailed and well0based estimate of E3ortfolioE rate of return on eGuities% This pioneering study in the 2ndian context has been a major contribution in this field and is regarded as the benchmar# on the rate of return on eGuities for the specified time% ;e laid the basis of rate of return concept in performance e$aluation%

2,,Dain %/G1:' e$aluated performance of unit trust of 2ndia ((T2) during 1C+<0+= to 1C>C0?., including the profitability aspects of unit scheme 1C+<, unit scheme 1C>1 and unit scheme 1C>+% ;e concluded that its real rate of return ha$e been low indicating o$erall poor, performance of (T2 /chemes% There has been so significant increase in the profitability o$er the years% <% Arnaud %/G1C' has suggested that there are three basic measurements of the performance of in$estment trust company at three basic le$els in terms of capital changes% As per the first approach, mar#et $alue of in$estments is to be monitored duly adjusted for liabilities% 2n the second approach :AV per unit is measured and it is considered as more acceptable measure of mutual fund performance% Third le$el of measurement is to follow share price mo$ements%

C, )rinblatt and S eridan %/G1G' e$aluated performance in terms of gross returns of mutual funds% They constructed eight portfolio benchmar# based on firmsiDe, di$idend yield and past returns% 6ne month T0@ills were used as ris#0free return% The period of study was !ecember ,1, 1C>< to !ecember ,1, 1C?<% The findings re$ealed that abnormal performance of the funds based on gross returns is in$ersely related to the siDe% They pointed out that superior performance may exist for funds with smallest siDe of net assets $alue% @ut due to high expenses, the in$estors are unable to ta#e ad$antage of their superior performance% C,PERFORMANCE IN TERMS OF *ENC3MAR> COMPARISON

9,3a&lem %/G11' e$aluated fund performance by comparing the fund return with the return on mar#et portfolio with the comparable ris#% The fundFs systemic ris#, beta co0efficient is used to compare portfolio ris# relati$e to the mar#et ris#% F@etaF is a measure of ris# of the fundFs portfolio relati$e to the ris# of the mar#et portfolio% F,3ud&on %/GGF' F7here$er performance e$aluation is implemented, there will always be two #ey ingredients (a) a measure of return and (b) a measure of ris#, o$er a gi$en time horiDon% 3roper e$aluation and comparison is possible only if the reporting standard is of high Guality and there are well based standards for calculating :AVs% D, Performan#e in term& of ri&B6adHu&ted rate of return 1,Tre+nor %/G9C' and S arpe %/G99' ha$e pro$ided the conceptual framewor# of relati$e measure of performance of eGuity mutual funds while Treynor used systematic ris#% /harpe used total ris# to e$aluate the mutual fund portfolio performance higher $alue of TreynorFs index indicates better performance of portfolio and $ice $ersa% The TreynorFs measure of portfolio performance is relati$e measure that ran#s the funds in terms of ris# and return% G,3enriB&&on %/G17' e$aluated performance in terms of mar#et timing abilities with sample of 11+ open ended in$estment schemes during the period, 9ebruary 1C+?, Iune 1C?.% The empirical results obtained indicated unsatisfactory timing s#ills of the fund managers% Arnand (1C?=) had suggested that absolute return generated by the fund is one measure of

performance% The Guestion before fund managers is whether the find can perform better by selecting and holding different set of stoc#s or not% This can be judged by comparing the fund performance with some benchmar# portfolio or index portfolio

/0,3olt au&en %/GG:' ha$e de$eloped a model based on +. financial ratios that predicts return o$er 1- months period% The strategy used in the study is to go long position in the companies predicted to ha$e positi$e excess return and go short position in companies predicted to ha$e negati$e return% The study was found particularly useful predictor of stoc# prices and can be useful in fundamental analysis while ta#ing eGuity in$estment decisions //,*arua and Uerma %/GG/' 3ro$ided empirical e$idence of eGuity mutual fund performance in 2ndia% They studied the in$estment performance of 2ndiaFs first > year close0end eGuity mutual fund, Mastershare% They concluded that the fund performance satisfactory for large in$estor in term of rate of return% /:,Vaid %/GG7' loo#ed at the performance in terms of the ability of the mutual fund to attract more in$estors and higher fund mobiliDation% 2t shows the popularity of the mutual fund as it is percei$ed to pay super$isor returns to the in$estors% /he concludes that e$en for eGuity 0 6riented funds, in$estment is more in fixed income securities rather than in eGuities, which is a distortion%

/2,SarBar and Ma@umdar %/GGC' e$aluated financial performance of fi$e close ended growth funds for the period 9ebruary 1CC1 to August 1CC,% "oncluded that the performance was below a$erage in terms of alpha $alues all negati$e and statistically not significant and fund possessed high ris#% :o reference was pro$ided about the timing parameters in their study% /7,)upta and Se $al %/GGF' e$aluated mutual fund performance o$er a four year period, 1CC-0C+% The sample consisted of ?. mutual fund schemes% They concluded that mutual fund industry performed well during the period of study% The performance was e$aluated in terms of benchmar# comparison, performance from one period to the next and their ris# return characteristics% 1=% Mi& ra %:00/' e$aluated performance o$er a period, April 1CC- to !ecember 1CC+% The sample siDe was -< public sector sponsored mutual funds% The performance was e$aluated in terms of rate of return, Treynor, /harpe and IensenFs measure of performance% The study also addressed betaFs instability issues% The study concluded dismal performance of 3/( mutual funds in 2ndia, in general, during the period 1CC-0C+%

C3APTER6III *ASIC CONCEPTS AND TERMNOLO)ES

Mutual fund is a trust that pools money from a group of in$estors (sharing common financial goals) and in$est the money thus collected into asset classes that match the stated in$estment objecti$es of the scheme% /ince the stated in$estment objecti$es of a mutual fund scheme generally form the basis for an in$estorFs decision to contribute money to the pool, a mutual fund can not de$iate from its stated objecti$es at any point of time% '$ery Mutual 9und is managed by a fund manager, who using his in$estment management s#ills and necessary research wor#s ensures much better return than what an in$estor can manage on his own% The capital appreciation and other incomes earned from these in$estments are passed on to the in$estors (also #nown as unit holders) in proportion of the number of units they own%

/,/, *a&i# Terminolo$ie&

NAV ASSETS VALUE :et Asset Value is the mar#et $alue of the assets of the scheme minus its liabilities% The per unit :AV is the net asset $alue of the scheme di$ided by the number of units outstanding on the $aluation date% SALES PRICE 2t is the price you pay when you in$est in a scheme also called 6ffer 3rice% 2t may include a sales load%

REPURC3ASE PRICE 2s the price at which units under open0ended schemes are repurchased by the Mutual 9und% /uch prices are :AV related% REDEMPTION PRICE 2s the price at which close0ended schemes redeem their units on maturity% /uch prices are :AV related% SALES LOAD 2s a charge collected by a scheme when it sells the units% Also called, J9ront0end load% /chemes that do not charge a load are called J:o &oad schemes% REPURC3ASE OR *AC>6END LOAD 2t is a charge collected by a scheme when it buys bac# the units from the unit holders ENTR. LOAD 'ntry load is the initial charges collected by Mutual 9und "ompany, those are not refundable% E5IT LOAD 'xit load is the charge which is le$ied by AM" in case of the in$estor exit from the scheme% 2t can $ery from time to time%

Ri&B AdHu&ted Mea&ure&< STANDARD DEVIATION /tandard de$iation is used to measure the $ariation in indi$idual from the a$erage expected return o$er a certain period% /tandard de$iation is used in the concept of ris# of portfolio of in$estments% /! is the de$iation of the reading from the mean of the reading, higher /! indicates higher $olatility and higher $olatility and higher ris# of the schemes% S3ARPE RATIO /harpe index measures ris# premium of a portfolio, relati$e to the total amount of ris# in the portfolio% /harpe index summariDes the ris# and return of a portfolio in a single measure that categoriDes the performance of 9unds on the ris#0adjusted basis% *ETA @eta measures the systematic ris# and shows how prices of securities respond to the mar#et forces% @eta is used in the capital asset pricing model ("A3M) a model that calculates the expected return of an asset based on its beta and expected mar#et returns% /ystematic ris# is measured in term of beta which indicates the sensiti$ity of a schemes return in relation to mar#et return%
ALP3A

The siDe of the alpha exhibits the stoc# s unsystematic returns and its a$erage return independence of mar#et return if the fund produces the expected return at the le$el of ris# assumed, the fund would ha$e an alpha

eGual to Dero% A positi$e alpha indicates that the manager produced return greater than expected for the ris# ta#en% Alpha is calculate comparing the fund s actual performance with the ris#0adjusted expected return%
R6SEUARED<

)0/Guared is a statistical term saying how good one term is at predicting another% 2f )0/Guared is 1%. then gi$en the $alue of one term, you can perfectly predict the $alue of another term% 2f )0/Guared is .%., then #nowing one term doesnFt not help you #now the other term at all% More generally, a higher $alue of )0/Guared means that you can better predict one term from another%
RETURN ON ASSETS<

An indicator of how profitable a company is relati$e to its total assets% )6A gi$es an idea as to how efficient management is at using its assets to generate earnings% "alculated by di$iding a companyFs annual earnings by its total assets, )6A is displayed as a percentage% /ometimes this is referred to as Ereturn on in$estmentE%

The formula for return on assets is4

:ote4 /ome in$estors add interest expense bac# into net income when performing this calculation because theyFd li#e to use operating returns before cost of borrowing%

AUM< The mar#et $alue of assets that an in$estment company manages on behalf of in$estors% Assets under capital appreciationKlosses and (A(M) is loo#ed at as a measure of new money inflowKoutflow% success against the competition and consists of growthKdecline due to both

2,:, T.PES OF MUTUAL FUND SC3EMES There are a wide $ariety of Mutual 9und schemes that cater to your needs, whate$er your age, financial position, ris# tolerance and return expectations% *+ Stru#ture * 6pen 'nded /chemes * "lose 'nded /chemes * 2nter$al /chemes In?e&tment ObHe#ti?e& * 5rowth /chemes * 2ncome /chemes * @alance /chemes * Money Mar#et /chemes Ot er S# eme& * Tax /a$ing /chemes Spe#ial S# eme&

* 2ndex /chemes L /ector /pecific *+ Stru#ture Open-Ended Schemes These do not ha$e a fixed maturity% The #ey feature is liGuidity% The in$estor can con$eniently buy and sell the units at :et Asset Value(:AV) related prices, at any point of time% Close-Ended Schemes /chemes that ha$e a stipulated maturity period (ranging from - to 1= years) are called close ended schemes% The in$estor can in$est in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stoc# exchanges where they are listed% The mar#et price at the stoc# exchange could $ary from the scheme s :AV on account of demand and supply situation, unit holders expectations and other mar#et factors% Interval Schemes These combine the features of open0ended and close0ended schemes% They may be traded on the stoc# exchange or may be open for sale or redemption during predetermined inter$als at :AV related prices% *+ in?e&tment obHe#ti?e

)ro(t &# eme& The growth schemes aim to pro$ide capital appreciation o$er the medium to long term% These schemes normally in$est a majority of their funds in eGuities and are willing to bear short term decline in $alue for possible future appreciation% These schemes are not for in$estors see#ing regular income or needing their money bac# in the short term% Ideal for 2n$estors in their prime earning years% 2n$estors see#ing growth o$er the long term%

In#ome &# eme& 2ncome schemes aim to pro$ide regular and steady income to in$estors% These schemes generally in$est in fixed income securities such as bonds and corporate debentures% "apital appreciation in such schemes may be limited% Ideal for< )etired people and others with a need for capital stability and regular income% 2n$estors who need some income to supplement their earnings% Balanced Schemes These schemes aim to pro$ide both growth and income by periodically distributing a part of the income and capital gains they earn% They in$est in both shares and fixed income securities in the proportion indicated in their

offer documents% 2n a rising stoc# mar#et, the :AV of these schemes may not normally #eep pace or fall eGually when the mar#et falls% Ideal for< 2n$estors loo#ing for a combination of income and moderate growth% Mone+ marBetILi!uid &# eme& &iGuid schemes pro$ide easy liGuidity, preser$ation of capital and moderate income% These schemes generally in$est in safer, short term instruments such as treasury bills, certificates of deposit, commercial paper and interban# call money% )eturns on these schemes may fluctuate, depending upon the interest rates pre$ailing in the mar#et% Ideal for< "orporates and indi$idual in$estors as a means to par# their surplus funds for short periods or awaiting a more fa$ourable in$estment alternati$e%

Ot er &# eme& Ta" &a?in$ &# eme&%E!uit+ LinBed Sa?in$ S# eme& ELSS' These schemes offer tax incenti$es to the in$estors under tax laws as prescribed from time to time and promote long term in$estments in eGuities through Mutual 9unds% Ideal for< 2n$estors see#ing tax incenti$es%

Spe#ial S# eme& This category includes index schemes that attempt to replicate the performance of a particular index such as the @/' /ensex, the :/' =. (:29T8) or sector specific schemes which in$est in specific sectors such as Technology, 2nfrastructure, @an#ing, 3harma etc% @esides, there are also schemes which in$est exclusi$ely in certain segments of the capital mar#et, such as &arge "aps, Mid "aps, /mall "aps, Micro "aps, FAF group shares, shares issued through 2nitial 3ublic 6fferings (236s), etc% 2ndex fund schemes are ideal for in$estors who are satisfied with a return approximately eGual to that of an index% /ectoral fund schemes are ideal for in$estors who ha$e already decided to in$est in a particular sector or segment%

2,2, STEPS TO C3OOSE RI)3T MUTUAL FUNDS<

The following are the steps to select a mutual fund

Step One 6 Identif+ +our in?e&tment need&< 8our financial goals will $ary, based on your age, lifestyle, financial independence, family commitments, le$el of income and expenses among many other factors% Therefore, the first step is to assess your needs% @egin by as#ing yourself these Guestions4

 . What are my investment objectives and needs? Howmuch risk am i willing to take? 7hat Armey cash flow reGuirementsM Step T(o6 C oo&e t e ri$ t Mutual Fund, 6nce you ha$e a clear strategy in mind, you now ha$e to choose which Mutual 9und and scheme you want to in$est in% The offer document of the scheme tells you its objecti$es and pro$ides supplementary details li#e the trac# record of other schemes managed the same 9und Manager% /ome factors to e$aluate before choosing a particular Mutual 9und are4 The trac# record of performance o$er the last few years in relation to the appropriate yardstic# and similar funds in the same category% ;ow well the Mutual 9und is organised to pro$ide efficient, prompt and personaliDed ser$ice% !egree of transparency as reflected in freGuency and Guality of theircommunications% Step t ree6Sele#t t e ideal mi" of S# eme&, 2n$esting in just one Mutual 9und scheme may not meet all your in$estment needs% 8ou may consider in$esting in a combination of schemes to achie$e your specific goals%The following charts could pro$e useful in selecting a combination of schemes that satisfy your needs% Step Four6In?e&t re$ularl+

9or most of us, the approach that wor#s best is to in$est a fixed amount at specific inter$als, say e$ery month% @y in$esting a fixed sum each month, you get fewer units when the price is high and more units when the price is low, thus bringing down your a$erage cost per unit% This is called rupee cost a$eraging and is a disciplined in$estment strategy followed by in$estors all o$er the world% 7ith many open0ended schemes offering systematic in$estment plans, this regular in$esting habit is made easy for you% Step Fi?e 6>eep +our ta"e& in mind As per the current tax laws, !i$idendK2ncome !istribution made by mutual funds is exempt from 2ncome Tax in the hands of in$estor% ;owe$er, in case of debt schemes !i$idendK 2ncome !istribution is subject to !i$idend !istribution Tax% 9urther, there are other benefits a$ailable for in$estment in Mutual 9unds under the pro$isions of the pre$ailing tax laws%8ou may therefore consult your tax ad$isor or "hartered Accountant for specific ad$ice to achie$e maximum tax efficiency by in$esting in mutual funds% Step Si" 6 Start earl+ 2t is desirable to start in$esting early and stic# to a regular in$estment plan% 2f you start now, you will ma#e more than if you wait and in$est later% The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return Step Se?en 6T e final &tep All you need to do now is to get in touch with a Mutual 9und or your ad$isor and start in$esting% )eap the rewards in the years to come% Mutual

9unds are suitable for e$ery #ind of in$estorwhether starting a career or retiring, conser$ati$e or ris# ta#ing, growth oriented or income see#ing%

2,7, PROCEDURE FOR RE)ISTERIN) FOR MUTUAL FUNDS IN SE*I<

An applicant proposing to sponsor a mutual fund in 2ndia must apply in 9orm A with a fee of )s%-=,...% The application is examined and once the sponsor satisfies certain conditions such as being in the financial ser$ices business and possessing positi$e net worth for the last fi$e years, ha$ing net profit in three out of the last fi$e years and possessing the general reputation of fairness and integrity in all business transactions, it is reGuired to complete the remaining formalities for setting up a mutual fund% These include inter alia, executing the trust deed and in$estment management agreement, setting up a trustee companyKboard of trustees comprising two0 thirds independent trustees, incorporating the asset management company (AM"), contributing to at least <.N of the net worth of the AM" and appointing a custodian% (pon satisfying these conditions, the registration certificate is issued subject to the payment of registration fees of )s%-=%.. lacs 9or details, see the /'@2 (Mutual 9unds) )egulations, 1CC+%

Ne( SE*I )uideline& for Mutual Fund& <

T e Se#uritie& and E"# an$e *oard of India %SE*I' a& brou$ t in &(eepin$ # an$e& for t e mutual fund indu&tr+, T e impa#t of ( i# (ill be felt on t e in?e&tor in more (a+& t an one, 1) 9irst, for :ew 9und 6ffers (:96s)4 They will onl+ be open for /C da+&% ('&// funds though will continue to stay open for up to C. days) 2t will sa$e in$estors from a prolonged :96 period and being harangued by ad$isors and ad$ertisements% The moti$ation behind the rule seems to be simple * if you can in$est anytime, why #eep :96 period longM -) :96s #an onl+ be in?e&ted at t e #lo&e of t e NFO period % 'arlier, Mutual funds would #eep an :96 open for ,. days, and the minute they recei$ed their first cheGue, the money would be directly in$ested in the mar#etO creating a s#ewed accounting for those that entered later since they get a fixed :96 price% The mar#et regulator has corrected this by extending Application /upported by @loc#ed Amount (A/@A) to mutual funds% This will become effecti$e starting Iuly 1st this year% @y t e AS*A pro#e&& %Appli#ation Supported b+ *lo#Bed Amount' one can continue to earn interest in the ban# account until the :96 closes (remember there is usually no rejection or o$ersubscriptionH in a mutual fund :96) which means that the cheGue goes for clearing after the :96 has closed irrespecti$e of when it was sent% The fund manager will be able to in$est once the :96 closes% ,) Di?idend& #an no( onl+ be paid out of a#tuall+ reali@ed $ain&, 2mpact4 it will reduce both the Guantum of di$idends announced, and the

measures used by M9s to garner in$estor money using di$idend as a carrot to entice new in$estors% <) 'Guity Mutual funds ha$e been as#ed to play a more a#ti?e role in #orporate $o?ernan#e of the companies they in$est in% This will help mutual funds become more acti$e and not just that, they must re$eal, in their annual reports from next year, what they did in each $oteH% /'@2 has now made it mandatory for funds to disclose whether they $oted for or against mo$es (suggested by companies in which they ha$e in$ested) such as mergers, demergers, corporate go$ernance issues, appointment and remo$al of directors% M9s ha$e to disclose it on their website as well as annual reports% =) 'Guity 9unds were allowed to charge 1N more as management fees if the funds were no0loadHO but since /'@2 has banned entry loads, t i& e"tra /J a& al&o been remo?ed, +) /'@2 has also as#ed Mutual 9unds to re?eal all #ommi&&ion paid to itA& &pon&or or a&&o#iate #ompanie&4 emplo+ee& and t eir relati?e&, >) Re$ardin$ t e Fund6of6Fund %FOF' * The mar#et regulator has stated that information documents that Asset Management "ompanies (AM"s) ha$e been entering into re$enue sharing arrangements with offshore funds in respect of in$estments made on behalf of 9und of 9und schemes create conflict of interest% ;enceforth, AM"s shall not enter into any re$enue sharing arrangement with the underlying funds in any manner and shall not recei$e any re$enue by whate$er meansKhead from the underlying fund%

These guidelines set by the /'@2 will lead to greater transparency for the common in$estor% /'@2 formulates policies and regulates the mutual funds to protect the interest of the in$estors% 7ith these guidelines falling in place it would create better trust and transparency and an in$estable en$ironment that would attract in$estors with greater faith and confidence%

2,C, AMFI<
7ith the increase in mutual fund players in 2ndia, a need for mutual fund association in 2ndia was generated to function as a non0profit organisation% Association of Mutual 9unds in 2ndia (AM92) was incorporated on --nd August, 1CC=% AM92 is an apex body of all Asset Management "ompanies (AM") which has been registered with /'@2% Till date all the AM"s are that ha$e launched mutual fund schemes are its members% 2t functions under the super$ision and guidelines of its @oard of!irectors% Association of Mutual 9unds 2ndia has brought down the 2ndian Mutual 9und 2ndustry to a professional and healthy mar#et with ethical lines enhancing and maintaining standards% 2t follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders%

T e

obHe#ti?e&

of

A&&o#iation

of

Mutual

Fund&

in

India

The Association of Mutual 9unds of 2ndia wor#s with ,. registered AM"s

of the country% 2t has certain defined objecti$es which juxtaposes the guidelines of its @oard of !irectors% The objecti$es are as follows4

This mutual fund association of 2ndia maintains a high professional and ethical standards in all areas of operation of the industry%

2t also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the acti$ities of mutual fund and asset management% The agencies who are by any means connected or in$ol$ed in the field of capital mar#ets and financial ser$ices also in$ol$ed in this code of conduct of the association% AM92 interacts with /'@2 and wor#s according to /'@2s guidelines in the mutual fund industry% Association of Mutual 9und of 2ndia do represent the 5o$ernment of 2ndia, the )eser$e @an# of 2ndia and other related bodies on matters relating to the Mutual 9und 2ndustry% 2t de$elops a team of well Gualified and trained Agent distributors% 2t implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry% AM92 underta#es all 2ndia awarness programme for in$estors inorder to promote proper understanding of the concept and wor#ing of mutual funds% At last but not the least association of mutual fund of 2ndia also disseminate informations on Mutual 9und 2ndustry and underta#es studies and research either directly or in association with other bodies%

2,9, TOP /0 MUTUAL FUNDS IN T3E .EAR :0//

/,DSP*R Top /00 E!uit+

!/3@) Top 1.. 'Guity )eg is an open ended large cap eGuity fund bench0mar#ed against @/' 1.. running for > years now% 2t has returned a staggering ,=N since launch, that is no small feat for a fund whose net assets ha$e now swelled to )s -,>>,K0 crores% 7ith a low ris# ta#ing capacity and a abo$e a$erage return, this fund should be on the top of your shopping cart in -.11%

)eturns in N !/3@) Top 1.. 'Gt /ince )eg 9und "ategory

= yr , yrs 1 yr &aunch ,=%11 -1%CC ,%>? 1>%-, 0 0 1+%,? 1?%.%.C

:, DSP*R *alan#ed !/3@) @alanced is a hybrid eGuity oriented mutual fund that is bench mar#ed against ")2/2& @alanced% 7ith a trac# record of 11 years and a below a$erage ris# profile, the returns ha$e been abo$e a$erage * around

1?N% The corpus of around )s >C.K0 crores ma#es it easy for the fund manager to manage the fund% As of writing, the portfolio allocation between eGuity and debt stood at >=N and -=N approx%

)eturns in N !/3@) @alanced/ince &aunch = yr , yrs 1 yr 9und 1?%.+ 1?%=> =%-- 1+%11 "ategory 0 1<%-? -%.- 1+%<C

2, FranBlin India *lue# ip

9ran#lin 2ndia @luechip fund is a $eteran of a fund * it s running for some 1> years now% @ench mar#ed against the /ensex, the returns ha$e been high, around -+%=N since launch% 7ith a low ris# profile and a steep orientation towards large cap stoc#s, this fund is a great gem to ha$e% 2t s long term outloo# on stoc#s and ability to gi$e returns to in$estors without ta#ing unnecessary ris#s ma#es it a top contender in your portfolio for -.11%

)eturns in N 9ran#lin 2ndia /ince @luechip &aunch

= yr , yrs 1 yr

9und "ategory 7, *irla Sun Life Frontline E!uit+

-+%+< 0

1C%-< <%?C 1C%?> 0 1=%,C 1<%,1%1=

@ench mar#ed against the @/' -.. this C year old fund has come in the lime light since -..+% @irla /un &ife 9rontline 'Guity has an allocation to both large caps and mid caps * in fact, its allocation to mid caps has risen of late * currently mid caps account for -.N of the portfolio while the rest is held by large caps% 7ith a below a$erage ris# profile and a great fund manager at the helm of affairs, @irla /un &ife 9rontline 'Guity should feature as a must ha$e open ended di$ersified eGuity fund in your portfolio for -.11%

@irla /un &ife 9rontline 'Guity 9und "ategory

)eturns in N /ince

= yr , yrs 1 yr &aunch ,.%++ -1%>C ,%?, 1<%++ 0 0 1=%,C 1,%1, -%,1

C, 3DFC Top :00

This 1< year old fund needs no introduction% (p against @/' -.., it has deli$ered -+N returns since launch and has always maintained a low ris# profile% This should form the core part of your portfolio * nearly ?.N of its holdings are held in large cap and the rest in mid and small caps% A long term trac# record and process oriented management ma#es it one of the best eGuity di$ersified mutual funds for e$ery portfolio in -.11%

)eturns in N ;!9" Top -.. /ince &aunch = yr , yrs 1 yr 9und -=%?C --%.+ ?%=, -.%?+ "ategory 0 1=%,C 0-%,1 1,%1,

9, 3DFC Pruden#e ;!9" 3rudence has been in existence since 1CC< and with an annual returns of around --N, it has exhibited prudence in deli$ering returns for in$estors% 2t did falter in -..> and -..? but has come bac# strongly to show it can be relied upon% :early =.N of its portfolio is in large caps while the rest is in small and mid caps% As of writing, it has maintained a >=N allocation to eGuity and -=N in debt% A great choice in the hybrid category for year -.11% )eturns in N ;!9" 3rudence/ince &aunch = yr , yrs 1 yr 9und -1%CC -.%-, C%-1 --%>C "ategory 0 1,%>< 1%-> 1,%.>

F, 3DFC Ta" Sa?er Another one from the ;!9" stable, this '&// ('Guity &in#ed /a$ing /cheme) fund has returned a staggering ,=N since its launch 1= years ago% @ench mar#ed against /P3 ":A =.., it has deli$ered high returns with a moderate ris# profile% As of writing it has maintained +.N allocation to large cap stoc#s and the rest to mid and small cap% :early C.N of its holding is in eGuity% )eturns in N ;!9" Taxsa$er/ince &aunch = yr , yrs 1 yr 9und ,<%= 1+%?< =%,= -1%,C "ategory 0 1,%<-0-%>=1<%=,

1, Canara Robe#o E!uit+ Ta" Sa?er

This 1> year old '&// ('Guity &in#ed /a$ings /cheme) mutual fund has deli$ered returns of 1+N year on year% 2t s bench mar#ed against @/' 1.. and nearly +.N of its holding is in large cap stoc#s and the rest in mid cap and small cap% A small net asset of )s -,. crores ma#es it easier for the fund manager to manage this fund well% 7ith a mantra of long term in$estment strategy and well di$ersified portfolio, its hard to a$oid this fund this year% )eturns in N "anara )obeco 'Guity Tax /ince = yr , yrs 1 yr

/a$er 9und "ategory G, Canara Robe#o In#ome

&aunch 1+%-0

-1%<< +%=1 -1%1= 0 1,%<1<%=, -%>=

&i#e /ahara 2ncome (:o% 1. down below), "anara )obeco 2ncome is bench mar#ed against ")2/2& "omp @92 and is C years old% Majority of its holdings are in debentures, 562 securities and commercial paper% "ertificate of deposits and treasury bills also feature in the portfolio% The a$erage credit rating of AAA ma#es it a safe par#ing a$enue for in$estors% 7ith a return of ?%?N in the debt category, "anara )obeco 2ncome ma#es for a great asset in your -.11 portfolio%

)eturns in N "anara )obeco /ince 2ncome 9und "ategory &aunch ?%?C 0

= yr , yrs 1 yr 1.%1+1,%,><%C? +%,- +%,= <%><

/0, Sa ara In#ome

As the name goes, the intent of this open ended fund is to generate regular income through in$estments in debt instruments * most of its in$estments

are in certificate of deposits and commercial paper% The a$erage credit rating of holdings is AAA which ma#es it a safe mutual fund * hence the ris# profile of the fund is $ery $ery low% The returns ha$e been abo$e a$erage when compared to the benchmar# ")2/2& "omp @92% Around for some C years now, /ahara 2ncome is a must ha$e debt oriented mutual fund in your portfolio in -.11% )eturns in N /ahara 2ncome /ince &aunch = yr , yrs 1 yr 9und >%.C ?%+, C%?+ =%<+ "ategory 0 +%,- +%,= <%><