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AN INDEPTH ANALYSIS OF

MUTUAL FUND INDUSTRY

SUBMITTED TO: SUBMITTED BY:

PROF. GAGJIT SINGH ROOPESH SHARMA

EXECUTIVE PRESIDENT ROLL NO(2K-F-148)

PGD. 2000-2002

INSTITUTE OF MARKETING & MANAGEMEN


UNDERTAKING

I hereby declare that this project written by me in the second semester of

Post Graduate Diploma is the result of my own efforts and this project

has not been provided to any other Institute and the work done is original

and authentic.

ROOPESH KUMAR SHARMA Attested by-

Roll No. 2K-F-148


ACKNOWLEDGEMENT

I would like to thank all the people of Birla, Alliance and Pioneer ITI

Mutual Funds for providing me with valuable information about their

products and their kind support. A special thanks to Ms. Neena Madhura

for giving an opportunity to enhance our knowledge about Mutul Fund

Sector and also for her kind support for showing the right track.
OBJECTIVES

1. To study the growth and profitability of Mutual Fund sector for the

past 3 years.

2. To enhance out knowledge about the subject.

3. To have a vivid pictures of major players in Mutul Fund sectors in

India

4. How effectively they are reaching their customers.

5. To give comprehensive analysis of Mutul Fund sectors.

6. To study the consumer awareness regarding Mutul Fund.


EXECUTIVE SUMMERY OF THE

PROJECT

The project was done on Mutual funds in Birla Mutual Fund, Alliance

capital, and Pioneer ITI

The tern mutual fund itself gives its meaning. It means the fund,

which is collected and invested mutually or collectively. It acts as

investment conduit, which pools the savings of the community and

invests large funds in a fairly large and well-diversified portfolio of

sound investments. In India presently 36 mutual funds are working.

It includes public, private and foreign companies.

♦ Trusts

♦ Asset management company


♦ Custodian

♦ Sponsor

Mutual funds can be classified on the parameter of investment

objective in four main cetegories. These categories are

Equity funds

Debt/Income funds

Balanced funs

Liquid funds/ Money market funds

MUTUAL : AN INTRODUCTION

Mutual funds are financial intermediaries, which collect the savings of

investors and invest them in a large and well-diversified portfolio of

securities such as money market instruments, corporate and government

bonds and equity shares of joint stock companies. A mutual fund is a pool

of commingle funds invested by different investors, who have no contact


with each other. Mutual funds are conceived as institutions for providing

small investors with avenues of investments in the capital market. Since

small investors generally do not have adequate time, knowledge,

experience and resources for directly accessing the capital market, they

have to rely on an intermediary, which undertakes informed investment

decisions and provides consequential benefits of professional expertise.

The raison d’être of mutual funds is their ability to bring down the

transaction costs. The advantages for the investors are reduction in risk,

expert professional management, diversified portfolios, liquidity of

investment and tax benefits. By pooling their assets through mutual funds,

investors achieve economies of scale. The interests of the investors are

protected by the SEBI, which acts as a watchdog. Mutual funds are

governed by the SEBI (Mutual Funds) Regulations, 1993.

MUTUAL FUNDS FOR WHOM? These funds can survive and thrive

only if they can live upto the hopes and trusts of their individual members.

These hopes and trusts echo the peculiarities which support the emergence

and growth of such insrescue of such investors who come to the rescue of

such investors who face following constraints while making direct

investments:
(a) Limited resources in the hands of investors quite often take them away

from stock market transactions.

(b) Lack of funds forbids investors to have a balanced and diversified

portfolio.

(c) Lack of professional knowledge associated with investment business

unables investors to operate gainfully in the market. Small investors can

hardly afford to have ex-pensive investment consultations.

(d) To buy shares, investors have to engage share brokers who are the

members of stock exchange and have to pay their brokerage.

(e) They hardly have access to price sensitive information in time.

(f) It is difficult for them to know the development taking place in share

market and corporate sector.

(g) Firm allotments are not possible for small investors on when there is a

trend of over subscription to public issues.

WHY MUTUAL FUNDS? Mutual Funds are becoming a very popular

form of investment characterised by many advantages that they share with

other forms of investment characterised by many advantages that they


share with other forms of investments and what they possess uniquely

themselves. The primary objectives of an investment proposal would fit

into one or combination of the two broad categories, i.e., Income and

Capital gains. How mutual fund is expected to be over and above an

individual in achieving the two said objectives, is what attracts investors to

opt for mutual funds. Mutual fund route offers several important

advantages.

i. Diversification: A proven principle of sound investment is that of

diversification which is the idea of not putting all your eggs in one basket.

By investing in many companies the mutual funds can protect themselves

from unexpected drop in values of some shares. The small investors can

achieve wide diversification on his own because of many reasons, mainly

funds at his disposal. Mutual funds on the other hand, pool funds of lakhs

of investors and thus can participate in a large basket of shares of many

different companies. Majority of people consider diversification as the

major strength of mutual funds.

ii. Expertise Supervision: Making investments is not a full time

assignment of investors. So they hardly have a professional attitude


towards their investment. When investors buy mutual fund scheme, an

essential benefit one acquires is expert management of the money he puts

in the fund. The professional fund managers who supervise fund’s portfolio

take desirable decisions viz., what scrips are to be bought, what

investments are to be sold and more appropriate decision as to timings of

such buy and sell. They have extensive research facilities at their disposal,

can spend full time to investigate and can give the fund a constant

supervision. The performance of mutual fund schemes, of course, depends

on the quality of fund managers employed.

iii. Liquidity of Investment: A distinct advantage of a mutual fund over

other investments is that there is always a market for its unit/ shares.

Moreover, Securities and Exchange Board of India (SEBI) requires the

mutual funds in India have to ensure liquidity. Mutual funds units can

either be sold in the share market as SEBI has made it obligatory for

closed-ended schemes to list themselves on stock exchanges. For open-

ended schemes investors can always approach the fund for repurchase at

net asset value (NAV) of the scheme. Such repurchase price and NAV is

advertised in newspaper for the convenience of investors.


iv. Reduced risks: Risk in investment is as to recovery of the principal

amount and as to return on it. Mutual fund investments on both fronts

provide a comfortable situation for investors. The expert supervision,

diversification and liquidity of units ensured in mutual funds minimise the

risks. Investors are no longer expected to come to grief by falling prey to

misleading and motivating ‘headline’ leads and tips, if they invest in

mutual funds.

v. Safety of Investment: Besides depending on the expert supervision of

fund managers, the legislation in a country (like SEBI in India) also

provides for the safety of investments. Mutual funds have to broadly follow

the laid down provisions for their regulations, SEBI acts as a watchdog and

attempts whole heartedly to safeguard investors interests.

vi. Tax Shelter: Depending on the scheme of mutual funds, tax shelter is

also available. As per the union budget-99, income earned through

dividends from mutual funds is 100% tax-free.

vii. Minimise Operating Costs: Mutual funds having large investible

funds at their disposal avail economies of scale. The brokerage fee or


trading commission may be reduced substantially. The reduced operating

costs obviously increases the income available for investors.

Investing in securities through mutual funds has many advantages like –

option to reinvest dividends, strong possibility of capital appreciation,

regular returns, etc. Mutual funds are also relevant in national interest. The

test of their economic efficiency as financial intermediary lies in the extent

to which they are able to mobilise additional savings and channelising to

more productive sectors of the economy.

CLASSIFICATION OF MUTUAL FUND SCHEMES

Any mutual fund has an objective of earning income for the investors and/

or getting increased value of their investments. To achieve these objectives

mutual funds adopt different strategies and accordingly offer different

schemes of investments. On these basis the simplest way to categorise

schemes would be to group these into two broad classifications:


Operational Classification and Portfolio Classification.

Operational classification highlights the two main types of schemes, i.e.,

open-ended and close-ended which are offered by the mutual funds.

Portfolio classification projects the combination of investment instruments

and investment avenues available to mutual funds to manage their funds.

Any portfolio scheme can be either open ended or close ended.

A. Operational Classification

(a) Open Ended Schemes: As the name implies the size of the scheme

(Fund) is open – i.e., not specified or pre-determined. Entry to the fund is

always open to the investor who can subscribe at any time. Such fund

stands ready to buy or sell its securities at any time. It implies that the

capitalisation of the fund is constantly changing as investors sell or buy

their shares. Further, the shares or units are normally not traded on the

stock exchange but are repurchased by the fund at announced rates. Open-

ended schemes have comparatively better liquidity despite the fact that

these are not listed. The reason is that investor can any time approach

mutual fund for sale of such units. No intermediaries are required.

Moreover, the realizable amount is certain since repurchase is at a price


based on declared net asset value (NAV). No minute to minute fluctuations

in rates haunt the investors. The portfolio mix of such schemes has to be

investments, which are actively traded in the market. Otherwise, it will not

be possible to calculate NAV. This is the reason that generally open-ended

schemes are equity based. Moreover, desiring frequently traded securities,

open-ended schemes hardly have in their portfolio shares of comparatively

new and smaller companies since these are not generally traded. In such

funds, option to reinvest its dividend is also available. Since there is always

a possibility of withdrawals, the management of such funds becomes more

tedious as managers have to work from crisis to crisis. Crisis may be on

two fronts, one is, that unexpected withdrawals require funds to maintain a

high level of cash available every time implying thereby idle cash. Fund

managers have to face questions like ‘ what to sell’. He could very well

have to sell his most liquid assets. Second, by virtue of this situation such

funds may fail to grab favourable opportunities. Further, to match quick

cash payments, funds cannot have matching realisation from their portfolio

due to intricacies of the stock market. Thus, success of the open-ended

schemes to a great extent depends on the efficiency of the capital market.


(b) Close Ended Schemes: Such schemes have a definite period after

which their shares/ units are redeemed. Unlike open-ended funds, these

funds have fixed capitalisation, i.e., their corpus normally does not change

throughout its life period. Close ended fund units trade among the investors

in the secondary market since these are to be quoted on the stock

exchanges. Their price is determined on the basis of demand and supply in

the market. Their liquidity depends on the efficiency and understanding of

the engaged broker. Their price is free to deviate from NAV, i.e., there is

every possibility that the market price may be above or below its NAV. If

one takes into account the issue expenses, conceptually close ended fund

units cannot be traded at a premium or over NAV because the price of a

package of investments, i.e., cannot exceed the sum of the prices of the

investments constituting the package. Whatever premium exists that may

exist only on account of speculative activities. In India as per SEBI (MF)

Regulations every mutual fund is free to launch any or both types of

schemes.

A. Portfolio Classification of Funds:


Following are the portfolio classification of funds, which may be offered.

This classification may be on the basis of (a) Return, (b) Investment

Pattern, (c) Specialised sector of investment, (d) Leverage and (e) Others.

(a) Return based classification:

To meet the diversified needs of the investors, the mutual fund schemes are

made to enjoy a good return. Returns expected are in form of regular

dividends or capital appreciation or a combination of these two.

i. Income Funds: For investors who are more curious for returns, Income

funds are floated. Their objective is to maximise current income. Such

funds distribute periodically the income earned by them. These funds can

further be splitted up into categories: those that stress constant income at

relatively low risk and those that attempt to achieve maximum income

possible, even with the use of leverage. Obviously, the higher the expected

returns, the higher the potential risk of the investment.

ii. Growth Funds: Such funds aim to achieve increase in the value of the

underlying investments through capital appreciation. Such funds invest in

growth oriented securities which can appreciate through the expansion


production facilities in long run. An investor who selects such funds should

be able to assume a higher than normal degree of risk.

iii. Conservative Funds: The fund with a philosophy of “ all things to all”

issue offer document announcing objectives as: (i) To provide a reasonable

rate of return, (ii) To protect the value of investment and, (iii) To achieve

capital appreciation consistent with the fulfillment of the first two

objectives. Such funds which offer a blend of immediate average return and

reasonable capital appreciation are known as “ middle of the road” funds.

Such funds divide their portfolio in common stocks and bonds in a way to

achieve the desired objectives. Such funds have been most popular and

appeal to the investors who want both growth and income.

(b) Investment Based Classification:

Mutual funds may also be classified on the basis of securities in which they

invest. Basically, it is renaming the subcategories of return based

classification.

i. Equity Fund: Such funds, as the name implies, invest most of their

investible shares in equity shares of companies and undertake the risk

associated with the investment in equity shares. Such funds are clearly
expected to outdo other funds in rising market, because these have almost

all their capital in equity. Equity funds again can be of different categories

varying from those that invest exclusively in high quality ‘blue

chip’companies to those that invest solely in the new, unestablished

companies. The strength of these funds is the expected capital appreciation.

Naturally, they have a higher degree of risk.

ii. Bond Funds: such funds have their portfolio consisted of bonds,

debentures, etc. this type of fund is expected to be very secure with a

steady income and little or no chance of capital appreciation. Obviously

risk is low in such funds. In this category we may come across the funds

called ‘Liquid Funds’which specialise in investing short-term money

market instruments. The emphasis is on liquidity and is associated with

lower risks and low returns.

iii. Balanced Fund: The funds, which have in their portfolio a reasonable

mix of equity and bonds, are known as balanced funds. Such funds will put

more emphasis on equity share investments when the outlook is bright and

will tend to switch to debentures when the future is expected to be poor for

shares.
(c) Sector Based Funds:

There are number of funds that invest in a specified sector of economy.

While such funds do have the disadvantage of low diversification by

putting all their all eggs in one basket, the policy of specialising has the

advantage of developing in the fund managers an intensive knowledge of

the specific sector in which they are investing. Sector based funds are

aggressive growth funds which make investments on the basis of assessed

bright future for a particular sector. These funds are characterised by high

viability, hence more risky.


MUTUAL FUND CONSTITUENTS

All mutual funds comprise four constituents – Sponsors, Trustees, Asset

Management Company (AMC) and Custodians.

Sponsors: The sponsors initiate the idea to set up a mutual fund. It could

be a registered company, scheduled bank or financial institution. A sponsor

has to satisfy certain conditions, such as capital, record (at least five

years’operation in financial services), de-fault free dealings and general

reputation of fairness. The sponsors appoint the Trustee, AMC and

Custodian. Once the AMC is formed, the sponsor is just a stakeholder.

Trust/ Board of Trustees:


Trustees hold a fiduciary responsibility towards unitholders by protecting

their interests. Trustees float and market schemes, and secure necessary

approvals. They check if the AMC’s investments are within well-defined

limits, whether the fund’s assets are protected, and also ensure that

unitholders get their due returns. They also review any due diligence by the

AMC. For major decisions concerning the fund, they have to take the

unitholders’consent. They submit reports every six months to SEBI;

investors get an annual report. Trustees are paid annually out of the fund’s

assets – 0.5 percent of the weekly net asset value.

Fund Managers/ AMC: They are the ones who manage money of the

investors. An AMC takes decisions, compensates investors through

dividends, maintains proper accounting and information for pricing of

units, calculates the NAV, and provides information on listed schemes. It

also exercises due diligence on investments, and submits quarterly reports

to the trustees. A fund’s AMC can neither act for any other fund nor

undertake any business other than asset management. Its net worth should

not fall below Rs. 10 crore. And, its fee should not exceed 1.25 percent if

collections are below Rs. 100 crore and 1 percent if collections are above
Rs. 100 crore. SEBI can pull up an AMC if it deviates from its prescribed

role.

Custodian: Often an independent organisation, it takes custody of

securities and other assets of mutual fund. Its responsibilities include

receipt and delivery of securities, collecting income-distributing dividends,

safekeeping of the units and segregating assets and settlements between

schemes. Their charges range between 0.15-0.2 percent of the net value of

the holding. Custodians can service more than one fund.

SPONSOR REGISTRAR

MUTUAL FUND: RELATIONSHIP AMONGSTTHE ENTITIES


MAINTIAN
TRUSTEE RECORDS OF
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COMPANY AND SERVICES
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SEBI GUIDELINES
The SEBI issued a set of regulations and code of conduct of

20 January. 1993 for the smooth conduct and regulation of

Mutual fund. The silent features of these guidelines are a s

follows:

• Mutual Fund cannot deal in Option trading, short selling

or carrying forward transactions in securities.

• Mutual fund should be formed as trusts and managed by

AMC

• Restriction to ensure those investments under all

schemes do not exceed 15% of the funds in the shares

and debentures of a single company.

• SEBI will grant registration to only those Mutual Fund

which can prove an efficient and orderly conduct of

business.
• The Mutual fund should have a custodian, not associated

in any way with the AMC and registered with the board.

• The minimum amount to be raised with each closed

ended scheme should be Rs. 20 crore and for the open-

ended scheme Rs. 50 crore.

• The Mutual Fund are obliged to maintain books of

account.

• The minimum net worth of AMC is Rs. 5 crore of which

the minimum contribution of the sponsor should be 40%.

• The Mutual Fund should ensure adequate disclosures to

the investors

• SEBI can impose suspension of registration in case of

violation of the provision of the SEBI act 1992, to the

regulations.

• Restrictions to ensure the investments under an

individual scheme do not exceed 5% of the corpus of any


companies shares and investments under all schemes do

not exceed 10% of the funds in the shares, debentures

or securities of a single company.

STRUCTURE OF INDIAN MUTUAL FUND


INDUSTRY

The Indian Mutual Fund industry is dominated by the Unit Trust of India

which has a total corpus of 700 Billion collected from over 20 million

investors. The UTI has many funds/ schemes in all categories i.e. Equity,

balanced, income etc. With some being open ended and some being closed

ended. The Unit scheme 1964 commonly referred to as US 64, which is a

balanced fund, is the biggest scheme with a corpus of about 200 billion.

UTI was floated by financial institutions and is governed by a special act of

Parliament. Most of its investors believe that the UTI is government owned

and controlled, which, while legally incorrect, is true for all practical

purposes.
The second largest category of mutual funds are the ones floated by

nationalized banks. Canbank asset management floated by Canara Bank

and SBI Funds Management floated by State Bank of India are the largest

of these. GIC AMC floated by General Insurance Corporation and Jeevan

Bima Sahayog AMC floated by the LIC are some of the other prominent

ones. The aggregate corpus of the funds managed by this category of

AMC’s is around Rs. 150 billion.

The third largest category of mutual funds are the ones floated by the

private sector and by foreign asset management companies. The largest of

these are Birla Capital AMC and Prudential ICICI AMC . The aggregate

corpus of the assets managed by this category of AMC’s is about Rs. 60

billion.

Recent Trends in the Mutual Funds Industry


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

explosion of the foreign owned mutual funds companies and the decline of

the companies floated by nationalized banks and small private sector

players.

Many nationalized banks got into the mutual funds business in the early

nineties and got of to a good start due to the stock market boom prevailing

then. These banks did not really understand the mutual funds business and

they viewed it as another kind of banking activity. Few hired specialized

staff and generally chose to transfer staff from parent organisations. The

performance of most of the schemes floated by these organisations was not

good. Some schemes had offered guaranteed returns and there parent

organisations had to bail out these AMC’s by paying large amount of

money as the difference between the guaranteed and actual returns. The

service levels were also very bad. Most of these AMC’s have not been able

to retain staff, float new schemes etc. And it is doubtful whether, barring a

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

major way.
The experience of some of the AMC’s floated by the private sector Indian

companies was also very similar. They quickly realized that the AMC

business is a business, which makes money in the long term and requires

deep- pocketed support in the intermediate years. Some have sold out to

foreign owned companies, some have merged with others and there is a

general restructuring going on.

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

the expectations of a long haul. They can be credited with the introduction

of many new practices such as new product innovation, sharp improvement

in the service standards and disclosure, usage of technology , broker

education and support etc. In fact, they have forced the industry to upgrade

itself and service levels of organisations like UTI have improved

dramatically in the in the last few years in response to the competition

provided by these.

For instance, collection figures for April-February 1998-99 show that the

net outflow from UTI has been Rs. 20 billion, while private sector funds

have managed to collect RS. 10 billion.


Rs. Billion Private Public UTI Total

Mobilized 61 13 121 195

Repurchases 12 8 85 106

Redemption’s 39 6 56 101

Net 10 -2 -21 -12

Name of the AMC Nature of Ownership

Alliance Capital Private Foreign

Anagram Wellington Private Indian

Apple Private Indian

Birla Capital International Private Indian

Bank of Baroda Banks

Bank of India Banks

Canbank Investment Banks

Cholamandalam Cazenove Private Foreign

Dundee Private Foreign

DSP Merrill Lynch Private Foreign

Escorts Private Indian

First India Private Indian

GIC Institutions

IDBI Investment Institutions


Indfund Management Ltd. Banks

ING Investment Private Foreign

ITC Threadneedle Private Foreign

JM Capital Management Ltd. Private Indian

Jardine Fleming Private Foreign

Kotak Mahindra Private Indian

Kothari Pioneer Private Indian

Jeevan Bima Sahayog Institutions

Morgan Stanley Private Foreign

Punjab National Bank Banks

Reliance Capital Private Indian

State Bank of India Banks

Shriram Private Indian

Sun F&C Private Foreign

Sundaram Newton Private Foreign

Tata Private Indian

Credit Capital Private Indian

Templeton Private Foreign

UTI Institutions
MARKETING STRATEGIES ADOPTED BY THE

MUTUAL FUNDS
The present marketing strategies of mutual funds can be divided into two

main headings:

Ø Direct marketing

Ø Selling through intermediaries.

Ø Joint Calls

Direct Marketing:

This constitutes 20 percent of the total sales of mutual funds. Some of the

important tools used in this type of selling are:

Personal Selling: In this case the customer support officer of the fund at a

particular branch takes appointment from the potential prospect. Once the

appointment is fixed, the branch officer also called Business Development

Associate (BDA) in some funds then meets the prospect and gives him all

details about the various schemes being offered by his fund. The

conversion rate in this mode of selling is in between 30% - 40%.


Telemarketing: In this case the emphasis is to inform the people about the

fund. The names and phone numbers of the people are picked at random

from telephone directory. Sometimes people belonging to a particular

profession are also contacted through phone and are then informed about

the fund. Generally the conversion rate in this form of marketing is 15% -

20%.

Direct mail: This one of the most common method followed by all mutual

funds. Addresses of people are picked at random from telephone directory.

The customer support officer (CSO) then mails the literature of the

schemes offered by the fund. The follow up starts after 3 – 4 days of

mailing the literature. The CSO calls on the people to whom the literature

was mailed. Answers their queries and is generally successful in taking

appointments with those people. It is then the job of BDA to try his best to

convert that prospect into a customer.

Advertisements in newspapers and magazines: The funds regularly

advertise in business newspapers and magazines besides in leading national

dailies. The purpose to keep investors aware about the schemes offered by

the fund and the their performance in recent past.


Hoardings and Banners: In this case the hoardings and banners of the

fund are put at important locations of the city where the movement of the

people is very high. Generally such hoardings are put near UTI offices in

order to tap people who are at present investing in UTI schemes. The

hoarding and banner generally contains information either about one

particular scheme or brief information about all schemes of fund.

Selling through intermediaries:

Intermediaries contribute towards 80% of the total sales of mutual funds.

These are the people/ distributors who are in direct touch with the

investors. They perform an important role in attracting new customers.

Most of these intermediaries are also involved in selling shares and other

investment instruments. They do a commendable job in convincing

investors to invest in mutual funds. A lot depends on the after sale services

offered by the intermediary to the customer. Customers prefer to work with

those intermediaries who give them right information about the fund and

keep them abreast with the latest changes taking place in the market

especially if they have any bearing on the fund in which they have

invested.
Regular Meetings with distributors: Most of the funds conduct

monthly/bi-monthly meetings with their distributors. The objective is to

hear their complaints regarding service aspects from funds side and other

queries related to the market situation. Sometimes, special training

programmes are also conducted for the new agents/ distributors. Training

involves giving details about the products of the fund, their present

performance in the market, what the competitors are doing and what they

can do to increase the sales of the fund.

Joint Calls:

This is generally done when the prospect seems to be a high net worth

investor. The BDA and the agent (who is located close to the HNI’s

residence or area of operation) together visit the prospect and brief him

about the fund. The conversion rate is very high in this situation, generally,

around 60%. Both the fund and the agent provide even after sale services in

this particular case.

Meetings with HNI’s: This is a special feature of all the funds. Whenever

a top official visits a particular branch office, he devotes atleast one to two
hours in meting with the HNI’s of that particular area. This generally

develops a faith among the HNI’s towards the fund.

MARKETING OF FUNDS: CHALLENGES AND OPPORTUNITIES

When we consider marketing, we have to see the issues in totality, because

we cannot judge an elephant by its trunk or by its tail but we have to see it

in its totality. When we say marketing of mutual funds, it means, includes

and encompasses the following aspects:


Ø Assessing of investors needs and market research;

Ø Responding to investors needs;

Ø Product designing;

Ø Studying the macro environment;

Ø Timing of the launch of the product;

Ø Choosing the distribution network;

Ø Finalising strategies for publicity and advertisement;

Ø Preparing offer documents and other literature;

Ø Getting feedback about sales;

Ø Studying performance indicators about fund performance like NAV;

Ø Sending certificates in time and other after sales activities;

Ø Honouring the commitments made for redemptions and repurchase;

Ø Paying dividends and other entitlements;


Ø Creating positive image about the fund and changing the nature of the

market itself.

The above are the aspects of marketing of mutual funds, in totality. Even if

there is a single weak-link among the factors which are mentioned above,

no mutual fund can successfully market its funds.

Widening, Broadening and Deepening the Markets

There are certain issues that are directly linked with the marketing of

mutual funds, the first of which is widening, broadening and deepening of

the market for the mutual fund products. Consider the geographical spread

of the investors in the mutual fund industry. Almost 80% of the funds are

mobilised from less than 10 centres in the country. In fact there are only

around 35 centres in the country, which account for almost 95% of the

funds mobilised. Considering the vast nature of this country, the first

priority is that the geographic spread has to be widened and the market has

to be deepened. Secondly, the mutual funds must try to spread their wings

not only within the country, but also outside the country.

A. Markets in Rural and Semi-Urban Areas


There exists a large investor base in rural and semi-urban areas, having a

population of about one lakh, which normally has access to only post office

savings and bank deposits. This is the single largest untapped market for

mutual funds in India.

Rural marketing, unlike the marketing of mutual funds in the metros and

urban areas, would require a completely different strategy, and different

means of communication to the target customer. Typically, investors in the

rural and semi-urban areas are not well educated and are inadequately

exposed to the capital market mechanisms. Therefore, more emphasis has

to be given to the electronic media and other forms of publicity such as

wall paintings, hoardings, and educational films. It is also important to

utilise the services of local intermediaries like gram sevaks, postmasters,

school teachers, agricultural co-operative societies and rural banks. It

would therefore be more expensive to market mutual funds in such markets

than marketing in the cities.

The mutual fund industry can collectively undertake this job of creating

awareness among the rural population about the mutual funds as a new

form of savings , translate that awareness into increased fund mobilsation.


The retail distribution network, comprising of the district representatives

and the collection centres can be best utilised to create such awareness and

expand the market. Simplification of literature in regional languages, group

meetings in these semi-urban and rural areas, visits by mobile vans with

some audio visual aids and the like, should help develop these markets. In

other words, the untapped markets in the country should ideally be the first

thing that the mutual funds in India should endeavour to tap, not entirely

relying upon the investors in the 35 odd cities of the country. By

concentrating on these areas, the investor base will get more broad based.

Once the semi0urban population gets acquainted with the concept of

mutual funds, it will naturally give the much needed stability to the market.

B. Overseas Markets

The second aspect with respect to the widening and deepening the market

is expanding the overseas investor base. A target group with large

potential, which can be tapped is non-resident Indians. If offered after sales

services of international standard, reasonable return and easy access to

information, NRI’s are willing to invest in Indian mutual funds. The

expansion of the distribution network and quick dissemination of


information, coupled with prompt and timely service, efficient collection

and remittance mechanism, will play an important role in mobilising and

retaining these funds. NRI’s will also require a continuous presence in their

market, because that generates trust and confidence, which translates into

sustained mobilisation of funds.

PRODUCT INNOVATION AND VARIETY

A. Investor Preferences

The challenge for the mutual funds is in the tailoring the right products that

will help mobilising savings by targeting investors’ needs. It is necessary

that the common investor understands very clearly and loudly the salient

features of funds, and distinguishes one fund from the another. The funds

that are being launched today are more or less look-alikes, or plain vanilla

funds, and not necessarily designed to take into account the investors’

varying needs.

The Indian investor is essentially risk averse and is more passive than

active. He is not interested in frequently changing his portfolio, but is


satisfied with safety and reasonable returns. Importantly, he understands

more by emotions and sentiments rather than a quantitative comparison of

funds’ performance with respect to an index. Mere growth prospects, in an

uncertain market, are not attractive to him. He prefers one bird in the hand

to two in bush, and is happy if assured a rate of reasonable return that he

will get on his investment. The expectations of a typical investor, in order

of preference are the safety of funds, reasonable return and liquidity.

The investor is ready to invest his money over a long periods, provided

there is a purpose attached to it which is linked to his social needs and

therefore appeals to his sentiments and emotions. That purpose may be his

child’s education and career development, medical expenses, health care

after retirement, or the need for steady and sure income after retirement. In

a country where social security and social insurance are conspicuous more

by their absence, mutual funds can pool their resources together and try to

mobilise funds to meet some of the social needs of the society.

B. Product Innovations

With the debt market now getting developed, mutual funds are tapping the

investors who require steady income with safety, by floating funds that are
designed to primarily have debt instruments in their portfolio. The other

area where mutual funds are concentrating is the money market mutual

funds, sectoral funds, index funds, gilt funds besides equity funds.

The industry can also design separate funds to attract semi-urban and rural

investors, keeping their seasonal requirements in mind for harvest seasons,

festival seasons, sowing seasons, etc.

DISTRIBUTION NETWORK

Among the competitors to the mutual fund industry, Life Insurance

Corporation with its dedicated sales force is offering insurance products;

banks with their friendly neighbourhood presence offer the advantage of

extensive network; finance companies with their hefty upfront incentives

offer higher returns; shares – provided the market is moving favourably –

also attract direct investments from retail investors. It is against this

background that the merits and demerits of the alternative methods of

distribution have to be studied.

Retail through agents


The alternative distribution channels that are available are selling, or using

lead managers and brokers along with sub-brokers, for selling units. The

experience of UTI has been that, if necessary motivation and incentive is

provided to the retailer agents, they are likely to be more successful than

the lead managers. This is because, there is a sense of loyalty amongst

agents, in anticipation of getting continuous business throughout the year,

and the trust and credibility that has been generated or will be generated by

being loyal to one institution. Statistics reveal that the wastage ratio of

application forms in the lead manager concept, is much higher than in the

retail agency system. Savings in advertisement and publicity expenses is

also affected, as the target of communication is restricted to a few group of

individuals, since the agent will function as a facilitator, informer and

educator. The reduced cost benefit will ultimately accrue to the investor in

the form of higher returns.

In such a system, one achieves brand loyalty through continuous

interaction between agents and investors. Building a team of agents and

other distribution network such as distribution and collecting agents and

franchise offices, will provide the investor the opportunity of having

continuous interaction and contact with the mutual fund. Therefore, retail
distribution through the agents is a preferred alternative for distributing

mutual fund products.


ADVERTISING AND SALES PROMOTION

By their very nature, mutual funds require higher advertisement and sales

promotion expenses than any consumer product offering measurable

performance. Different kinds of advertising and sales promotion exercises

are required to serve the needs of different classes of investors. For

instance, an aggressive ‘push’marketing strategy is required for retail

markets, where investors are not adequately aware of the product and do

not have specialised skill in financial market, in contrast with

‘pull’marketing strategies for the wholesale market.

There are certain issues with reference to advertisement, publicity literature

and offer documents, which deserve attention. Most of the mutual fund

advertisements look similar, focussing on scheme features, returns and

incentives. An investor exposed to the increasing number of mutual fund


products finds that all the available brands are rather identical, and cannot

appreciate any distinction.

The present form of application, brochures and other literature is generally

lengthy, cumbersome and at times complicated leading to higher emphasis

on advertisement. One of the limiting factors is the regulatory framework

governing advertisements of mutual fund products. For instance, in the

offer documents, mutual funds are required to mention the fund objectives

in clear terms. Immediately thereafter, the first risk factor that has to be

mentioned is that there is no certainity whether the objectives of the fund

will be achieved or not. Some more relaxations in these may facilitate

bringing more novelty in advertisements, within a broad framework,

without luring investors through false promises, and will certainly improve

the situation.

Another hurdle is the statutory disclaimer required to be carried along with

every advertisement. Mutual funds have to provide risk factors.

Under the present mutual fund regulations, a prior approval by SEBI is a

must before a mutual fund can launch its fund. In the regulation itself, a

period of one month has been provided. But in a month’s time, perhaps the
situation may so change, that the timing of launch gets affected. The

requirement for getting approval, which normally takes about 2 months’

time, defeats the purpose for which the fund was designed also.

QUALITY OF SERVICE This industry primarily sells quality of services,

given that the performance cannot be promised. It is with this attribute

along with procedural simplicity, that the fund gradually builds its brand

and its class of loyal investors. The quality of services are broadly

categorised as:

Ø Timely services after the sale of the units; and

Ø Continuous reporting of investment performance.

Mutual fund managers must give due attention and evaluate their

performance on each front. They may also consider an option of

conducting a service audit for controlling and improving the quality of

service.

MARKET RESEARCH Investment in mutual fund is not a one-time

activity. It is a continuous activity. The same investor, if satisfied, will

come to the fund again and again. When the investor sends his application,
it is not only an application, but it also contains vital information. Most of

this information if tabulated and analysed, would provide important

insights into investor needs, preferences and behaviour and enables us to

target customers need more accurately, to achieve better penetration,

deeper loyalty and reduced costs. It is in this context that direct marketing

will assume increased importance. Knowing the customer thoroughly is of

utmost importance. Unlike the consumer goods industry, it is not possible

for mutual fund industry to test market and have pilot projects before

launch. At the same time, focusing and concentrating on a particular

geographic area where the fund has a strong presence and proven

marketing network, can help reduce network, can help reduce issue

expenses and ultimately translate into higher returns for the investor. Very

little research on investor preference is available, but the industry can

collectively have a data bank, and share the information for appropriate

use.

Market Segmentation Different segments of the market have different risk-

return criteria, on the basis of which they take investment decisions. Not

only that, in a particular segment also there could be different sub-segments

asking for yet different risk-return attributes, and differential preference for
various investment attributes of financial product. different investment

attributes an investor expects in a financial product are:

Ø Liquidity,

Ø Capital appreciation,

Ø Safety of principal,

Ø Tax treatment,

Ø Dividend or interest income,

Ø Regulatory restrictions,

Ø Time period for investment, etc.

On the basis of these attributes the mutual fund market may be broadly

segmented into five main segments as under.

1) Retail Segment

This segment characterizes large number of participants but low individual

volumes. It consists of individuals, Hindu Undivided Families, and firms. It

may be further sub-divided into:


i. Salaried class people;

ii. Retired people;

iii. Businessmen and firms having occasional surpluses;

iv. HUF’s for long term investment purpose.

These may be further classified on the basis of their income levels. It has

been observed that prospects in different classes of income levels have

different patterns of preferences of investment. Similarly, the investment

preferences for urban and rural prospects would differ and therefore the

strategies for tapping this segment would differ on the basis of differential

life style, value and ethics, social environment, media habits, and nature of

work. Broadly, this class requires security of the principal, liquidity, and

regular income more than capital appreciation. It lacks specialised

investment skills in financial markets and highly susceptible to mob

behaviour. The marketing strategy involving indirect selling through

agency network and creating awareness through appropriate media would

be more effective in this segment.

2) Institutional Segment
This segment characterises less number of participants, and large individual

volumes. It consists of banks, public sector units, financial institutions,

foreign institutional investors, insurance corporations, provident and

pension funds. This class normally looks for more specialised professional

investment skills of the fund managers and expects a structured product

than a ready-made product. The tax features and regulatory restrictions are

the vital considerations in their investment decisions. Each class of

participants, such as banks, provides a niche to the fund managers in this

segment. It requires more of a personalised and direct marketing to sustain

and increase volumes.

3) Trusts

This is a highly regulated, high volumes segment. It consists of various

types of trusts, namely, charitable trusts, religious trust, educational trust,

family trust, social trust, etc. each with different objectives. Its basic

investment need would be safety of the principal, regular income and hedge

against inflation rather than liquidity and capital appreciation. This class

offers vast potential to the fund managers, if the regulators relax guidelines

and allow the trusts to invest freely in mutual funds.


4) Non-Resident Indians

This segment consists of very risk sensitive participants, at times referred

as ‘fair weather friends.’ They need the highest cover against political and

exchange risk. They normally prefer easy exit with repatriation of income

and principal. They also hold a strategic importance as they bring in crucial

foreign exchange – a crucial input for developing country like ours.

Marketing to this segment requires special kind of products for groups of

foreign countries depending upon the provisions of tax treaties. The range

of suitable products are required to design to divert the funds flowing into

bank accounts.

5) Corporates

Generally, the investment need of this segment is to park their occasional

surplus funds that earn returns more than what they have to pay on account

of holding them. Alternatively, they also get surplus fund due to the

seasonality of the business, which typically become due for the payment

within a year or quarter or even a month. They need short term parking

place for their fund,. This segment offers a vast potential to specialised
money market managers. Given the relaxation in the regulatory guidelines,

fund managers are expected design products to this segment.

Thus, each segment and sub-segment have their own risk return

preferences forming niches in the market. Mutual funds managers have to

analyse in detail the intrinsic needs of the prospects and design a variety of

suitable products for them. Not only that, the products are also required to

be marketed through appropriately different marketing strategies.

AD’S THE WAY Increasing sales have given mutual fund promoters the

budget to spend more on advertising, which has further boosted sales

The Atheists are turning believers. Mutual funds, private sector ones in

particular, who had written off advertising as the “ultimate waste of

money” have nearly tripled their press media spend from Rs.12.20 crore in

the period January to April 1998 to Rs. 31.6 crore in January to April 1999,

according to data supplied by Prudential ICICI AMC (PIAMC) and

sourced from ORG-MARG.

What’s interesting is that in this period the share of the private sector

mutual funds in the category’s total media spending has surged from 20

percent to 52 percent. This can be attributed to private sector funds (given


the data available with the Association of Mutual Funds of India) seeing an

increase share of net inflows relative to the bank-sponsored counterparts in

the public sector.

For proof, take a look at some figures. PIAMC – which spent Rs. 3 crore

on advertising in the entire fiscal year 1998-99 has spent the same amount

during the first four months of the current fiscal itself. Kothari Pioneer

Mutual Fund which spent a negligible amount on advertising in 1997-98

and Rs.50 lakhs in 1998-99 has already spent Rs. 50 lakhs in the first

quarter.

Birla Mutual fund, which spent Rs. 1 crore on advertising in the year 1998-

99 plans to double that amount.

Clearly advertising types have something to cheer about. But what’s caused

this sudden attitudinal shift towards advertising? According to experts,

funds are being pushed into advertising more by intermediaries like banks

who are reluctant to sell a product whose name is unfamiliar to investor.

Besides, since more open-ended schemes are now available, some form of

ongoing support to keep sales booming has been deemed necessary by the

funds.
In the words of Mr. Rajiv Vij, vice president marketing, Templeton Asset

Management (India) Pvt. Ltd., “ The industry has discovered that

advertising in the changed climate today, when investors are most receptive

to mutual funds, can perk up sales by anywhere between 20-40

percent.”PIAMC managing director Ajay Srinivasan gives his rationale for

stepping up marketing spends: “we believe that the brand is an important

part of the consumer’s decision to invest in a category that is not yet clearly

understood by people.” According to the mutual fund marketers,

advertising helps bring recall when consumers are looking at investment

opportunities. Srinivasan says that tactical advertising has raised PIAMC’s

brand awareness from five percent in June 1993 to 34 percent now, as per a

recent IMRB survey.

Advertising backed by an integrated marketing and communication

campaign designed to attract investors with long term prospective has

helped the fund post a redemption-to-sales ratio of just about five percent

as compared to 20-30 percent for the industry on an average.

But what mode of advertising do these funds choose? “To sell the

category,” avers VIJ, “mass media is more effective because one needs to
target a large segment of the population.” Mutual Fund marketers feel that

since the category is ‘information – centric’, press is the best medium to get

across one’s message. Within the print media, most marketers feel that a

combination of leading mainline and financial newspapers complemented

by finance/ business magazines, with relevant thematic appeal and editorial

content are the perfect mix.

Direct mail is another medium, which some funds have successfully used.

But rather than sending out mailers to all and sundry, there is a need for

appropriate targeting.

Educational seminars are the final leg in the marketing and communication

process. In these, investors conditioned by advertising and hooked by an

interesting mailer can have lingering doubts clarified.

Attractive point of purchase (POP) material can also help.

Another very successful media niche, which has been exploited to the hilt

by funds, is intermediary magazines and newsletters. Besides the low costs

of advertising in these newsletters, these publications circulate to those

who are looking for investment opportunities and thus represent an

extremely lucrative target segment.


Advertising content by most of the funds too has undergone a marked

change from concept-selling ads dispelling myths, to selling specific

schemes that meet defined objectives/ goals.

But why is advertising suddenly working for mutual funds when it doesn’t

seem to have made a difference earlier? A sustained marketing strategy

instead of a few, scrappy ads is now seen to be the key to investor demand.

According to Birla Sun Life AMC chief market development officer

N.K.Sharma, advertising serves as a reminder complementing a sales push

by the distributor. “Since the distributor wasn’t ready in earlier years,

advertising then, didn’t work,”he says. Brand building, is a long-term

exercise. Just like mutual funds advocate that investors take a long-term

approach to investing, similarly funds need to take a long-term approach to

brand building.

Fund marketers and industry observers however, caution against the danger

of selling the product for the wrong reasons. Funds need to focus on

sustainable communication. They need to build brands that strike a chord

with investors by relating to their concerns rather than selling flavour-of-

the-month style. The winning formula as industry watchers put it is the


troika of performance, service and trust for meeting long term needs or

goals.

Inspired Marketing will help Mutual Funds walk away with the bank

Deposits

Bankers better watch out! The Indian mutual fund industry will soon start

relieving the banking system of its prized deposits.

Innovative distribution, marketing and aggressive concept selling will drive

savings into the lap of the Indian Mutual Fund industry in the next

millenium, fund managers predicted at the Second Economic Times

Roundtable on mutual funds held last week.

Fund chiefs predicted that ease of transactions, thanks to technology and

increased awareness, would lead to more investors putting their money into

mutual funds. The day was not far , they said , when small savings account

s too began moving into mutual funds.

Significantly, fund chiefs were unanimous that the credibility gap which

the industry suffered for the past few years did not exist any more. All the

fund chiefs were unanimous that performance, service and support were all
imperative for growth. “Performance, transparency and after sales service

and genuine retail investor interest as opposed to hot corporate money, an

important contributor to many mutual fund schemes, will drive the industry

growth. “ Performance, transparency, after sales customer service and

genuine retail investor interest are opposed to hot corporate money, an

important contributor to many mutual fund schemes, will drive the industry

growth, “ Tata Mutual Fund chief K.N. Atmaramani said. On the state of

market in general, fund chiefs attempted to allay fears that an overvalued

market may pose hurdles to stock picking.

According to them, while investors may feel that information technology,

pharmaceuticals and consumer goods stocks - or the BSE Sensex for that

matter – might have peaked, new opportunities are opening up in areas like

retail, healthcare and even in internet business.

Fund chiefs also made a case for the code to prevent mutual funds from

projecting short-term gains in an attempt to attract investors into their

schemes. They were of the view that, “ Mutual Funds have to agree to

present performances in an annualised fashion, over a longer period. The

industry as a whole should standardise its performance.”


HEAR WHAT THE CZARS TELL: DISTRIBUTE WELL & ALL’S

WELL 1. M.M. Kapur ( Executive Director, UTI)

“ The MF industry is gradually breaking the walls of the banking industry.

It is trying to make products like government securities available in the

retail market, via government securities or gilt funds. Even savings bank

accounts, where investors earns 3-4 percent, have been converted into a

retail product via money market MFs the best part is that even confidence

levels of investors in MFs has been gradually improving.”

2. Ajay Kaul ( President, Alliance Capital )


Not all funds in the bank time deposits or post office belong to individuals.

However , even if you assume that the in the next four-five years MFs can

tap 10 percent of these, the assets under management will double. Second,

MFs could be a good substitute for all other financial instruments available

in the market. Funds are quite safe because of the present regulations and

are transparent. If you consider all the features of competing instruments,

MF product would easily be a substitute for all this. When one combines all

these characteristics, one can definitely sell the product. What one requires

is Concept Selling.”

3. Ravi Malhotra ( Chief Investment Officer, Kothari Pioneer )

“ The professional distributors are keeping a check on the fund houses and

are setting client expectations at the right level. This augurs well for the

industry. Fund selling has improved considerably from earlier where

nobody could distinguish between an equity and fixed income fund.

Technology is going to make a big difference down the road both in

terms of servicing as well as a fundamental change in the business

model. There is a whole new distribution channel opened up over the last

two to three years where most international banks, private sector banks
have started distributing funds. That can give you an idea of what the

trends are and what the potentials.

The US mutual fund industry in 1997 was about $50 billion, we are talking

about $18-19 Billion in India. In 22 odd years in the U.S.A, the industry

has crossed $4 trillion and has overtaken banking assets.”

4. K.N.Atmaramani ( Managing Director, Tata Mutual Fund )

“There are three important points: (a) Performance Comparison, (b)

Internet marketing and (c) Gone are the days big names would sell.

Competition and competitive edge of getting closer to the investor and

attracting large volumes of retail investors will be the key determinants.”

5. Gul Teckchandani ( Chief Investment Officer, Sun F&C Mutual

Fund )

“ Service standards will become critical. Performance obviously is one of

the legs of the package. I don’t think people are willing to leave their

money where they can’t really take it out.”

6. Dileep Madgavkar ( Sr. VP Investments, Prudential ICICI )


“ While we have got increasing professionalism in distribution business,

we have to guard as the geographical reach increases against distributors

themselves in their enthusiasm to sell over-committing and over-

promising.”

7. Bharat Shah ( Chief Investment Officer, Birla Mutual Fund )

“ The question is who has the ability to provide competitive solutions to

fulfill the needs of the customer and the investor. In terms of range and

depth of solution providing capability and transparency and ability to

package products, funds are far superior than banks. The number of people

transacting has gone up five, six times .And even if people are pulling out

the money, it is not a bad thing because the investor tests the efficiency of

the system.

How do we incentivise and motivate the distribution channel to make it

more productive. The non traditional channels like e-commerce or internet

driven models will need to be tested for robustness.

Analytics of the customer is again very important and today we have some

idea. Using psychographics and data mining techniques to provide

customised and targeted solutions to customer needs.


How do we reach the more mofusssil areas? Costing for such an exercise

needs to be worked out as nobody is a good Samaritan to do it for you .

This is why fund delivery today is largely at the upper retail segment.

Handling thousands and thousands of customers: The cost of handling

these customers and providing services doesn’t warrants your trying to

address those needs . Hoe do we ensu1`re that we have the capability to

deal with them if it is proved worthwhile.”

BIRLA MUTUAL FUND

Birla Mutual Fund offers Investment Schemes, which aim to provide

superior returns. The funds offered are:

Birla Advantage Fund The Fund is a growth scheme and aims primarily at

capital appreciation. Given the expectation of substantial growth of the

Indian economy (and hence, for Indian capital markets as well), normally

at least 70% of the funds will be invested in equities or related instruments.

The balance would be invested in debt and money market instruments,

encompassing both short-term and long-term considerations. In a situation

of extreme volatility in equity markets, the equity allocation may be


reduced below 70%, in favour of debt instruments, money market

instruments or cash.

Short-term debt considerations for this open-end scheme include

maintaining an adequate float to meet anticipated levels of redemptions,

expenses, and other liquidity needs. A portion of funds may also be kept in

cash or cash equivalents.

Investments will be in listed securities from all Indian Stock Exchange

including the National Stock Exchange and the OTC Exchange of India.

Investments may also be made in unlisted transferable securities. The

securities would cover secondary market purchases, Initial Public Offers,

(IPOs), other public offers, placements, rights offers, negotiated deals, etc.

Investment policies of the Fund shall reflect restrictions for mutual fund

investments established by SEBI. In addition, certain investment

parameters (such as limits on portfolio exposure to sectors, industries,

business houses, etc.) may be adopted internally by BCIAMC, and

amended from time to time, to ensure appropriate diversification of the

Fund.

Birla Income Plus


The Scheme is an income scheme and aims primarily of the steady

generation of income. Considering this, normally about 70% of the funds

will be invested in fixed-income securities that encompass both short-term

and long-term considerations. In the current scenario such debt

instruments, rated investment grade by Credit rating agencies, are giving a

yield of about 18 percent per annum. Since long-term reasonable growth of

capital is also desired, the balance in excess of the fixed-income allocation

would be invested in equities or related instruments. In a situation of

extreme uncertainty in any of the markets, the respective fixed income or

equity allocations may be varied significantly.

Under normal circumstances, it is expected that investing in long-term debt

instruments of good quality will enable the Fund to earn competitively high

yields for a sustained period. Short-term debt considerations for this open-

end Scheme include maintaining an adequate float to meet anticipated

levels of redemptions, expenses, and other liquidity needs. A portion of

funds may also be kept in cash or cash equivalents.

Fixed-income investments may be in listed or unlisted instruments, as per

SEBI guidelines, investments will be in listed securities from any of the


Indian Stock Exchange including the National Stock Exchange and the

OTC Exchange of India. Investments may also be made in unlisted

transferable securities. The securities, both fixed-income and equities,

would cover secondary market purchases, Initial Public Offers (IPOs),

other public offers, placements, rights offers, negotiated deals, etc.

Investment policies of the Fund shall reflect restrictions for mutual fund

investments established by SEBI. In addition, certain investment

parameters (such as limits on portfolio exposure to sectors, industries,

business houses, etc.) may be adopted internally by BCIAMC, and

amended from time to time, to ensure appropriate diversification of the

portfolio.

Birla Cash Plus

The objective of the scheme is to provide reasonable returns, at a high level

of safety and liquidity through judicious investments in high-quality debt

and money market instruments.

The Scheme will invest the entire net assets in fixed income and money

market securities with flexibility to invest in the whole spectrum of debt

and money market instruments. Depending upon liquidity needs and other
considerations, the Scheme may also hold cash or cash equivalents

including call money.

The endeavour will be to optimise returns while providing liquidity and

safety.

The investments shall be made in various securities including treasury bills

and other Government securities, PSU bonds, listed, and unlisted corporate

papers including non-convertible debentures and bonds, commercial paper,

commercial bills arising out of genuine trade/ commercial transactions and

accepted/ co-accepted by banks, certificates of deposit and other such

instruments, permitted by SEBI from time to time.

India Advantage Fund

This is an Offshore India Fund. The Fund's principal investment objective

is to achieve long-term growth of capital through a diversified, research-

based approach to investment in Indian securities. The majority of the

Fund's assets will normally be invested in listed equities or equity-based

instruments. A smaller proportion will be invested in unlisted equities,

listed or unlisted debentures or bonds issued by private or public sector


corporations, and in inter-bank money market instruments, cash and cash

equivalents.

Birla Taxplan '98

An attractive equity linked saving scheme (ELSS) from Birla Mutual Fund.

Get a rebate u/s 88 of the Income Tax Act, 1961 @ 20% of any investment

upto Rs. 10,000/- Minimum amount Rs. 500/- and in multiple thereof. Also

available is full exemption from capital gain tax u/s 54 EA & EB of the

Income Tax Act. Now is the best time for the scheme since blue chip

equities are available at attractive valuations.

Birla Taxplan

Following the sterling performance of Birla Taxplan '98, Birla Mutual

Fund, has launched India's first open-end, equity linked (ELSS), tax saving

scheme, Birla Taxplan. This is the first scheme launched under revised

notification from the Central Board of Direct Taxes, which has permitted

the ELSS scheme to be launched as an open-end scheme. The scheme had

its Initial Public Offer on Saturday, the 13th February 1999 and has re-

opened for subscriptions from Monday, the 15th February 1999. The
minimum investment is Rs.500 and in multiples thereof without any limit

on maximum investment.

Birla Mutual Fund offers two types of plans:

Systematic Investment Plan

Systematic Investment Plan is a way to a good savings habit. Post-dated

cheques are invested in Birla Income Plus/Birla Advantage Fund on

monthly or quarterly basis. You can invest in monthly installment as per

your convenience, like in a recurring deposit scheme.

Regular Withdrawal Plan

It's an ideal way to get regular returns Post dated cheques are issued to the

Birla Income Plus (BIP) investors on monthly, bi-monthly or quarterly

basis. You can have the monthly withdrawals as per your requirements.

KOTHARI PIONEER MUTUAL FUND

KP Blue-chip

Fund Type: Steady Growth, Open-end fund

Options: Growth and Dividend Plans


Blue-chip Fund is a steady growth scheme that aims at providing growth of

capital through investments in large cap blue-chip shares.

Launched in December 93 as a 3-year closed end fund, Blue-chip Fund is

now continued as an open end fund from January 97,when a dividend of

20% was declared. Blue-chip Fund has recently declared a tax-free

dividend of 35% in July 99 in its dividend plan. Ever since its inception,

Blue-chip Fund has been ranked consistently among India’s top performing

fund.

Fund Suitability: For investors seeking steady growth in the medium to

long term through investments in shares of large well established blue-chip

companies. Ideal for a time horizon of 3 to 5 years.

K.P. Prima

Fund Type: Aggressive, open-end fund

Options: Growth and Dividend Plan

Prima Fund has the distinction of being India’s first truly authentic

open-end fund. Launched in October 1993, the fund seeks to provide

aggressive growth through investments in mid and small cap shares.


Fund Stability: For investors seeking aggressive growth through

investments in fast-growing medium and small sized companies

K.P.Income Builder

Fund Type: Fixed Income Tax Saving, Open-end, No entry load

Options: Growth & Dividend( Monthly, Quarterly, Half-Yearly, Annual)

Income Builder Account is a no-load open end income scheme, which

seeks to provide investors steady returns with relative safety.And now, you

can decide the frequency of your dividends. Choose from the Monthly,

Quarterly, Half-yearly and Annual options in Dividend Plan in IBA.The

minimum investment for the monthly and quarterly options in Dividend

Plan is Rs. 25,000 and for the half-yearly and annual options the minimum

is Rs. 5,000. Investors opting for the growth plan too can get a monthly

income by choosing the Systematic Withdrawal Plan with a minimum

investment of Rs. 25000 and a minimum monthly withdrawal of Rs. 500.

Fund Stability: For investors seeking liquidity, safety and regular income

through
a portfolio of debt and money market instruments. Ideal for a time horizon

of 6 months to 3 years.

K.P.Infotech

Fund Type: Open-end fund investing primarily in Infotech sector. Infotech

Fund is India's first fund dedicated to the fast growing information

technology sector. Launched in August 22, 1998 the fund has already given

a return of over 249.34 since inception. Infotech Fund has been ranked as

the best performing open end equity scheme in the country by

Micropal.The fund has also declared a 40% tax-free dividend (highest ever

by a mutual fund in India) in October 1999.

Fund Suitability: For investors seeking above normal capital appreciation

through investments in high quality, fast growing companies in the

Infotech sector.

SUN F&C MUTUAL FUND

SUN F&C Value Fund

Fund appreciated by 43.96% from 01/01/99 – 30/06/99

FUND MANAGER’S REVIEW


The quarter that went by proved a mixed bag for the markets. The quarter

started with the government falling and in turn pulling down the markets

15%. The healthy economic numbers, however, helped the markets recover

smartly and gain almost 30% in less than two months. However, the gains

were limited by the escalating tensions on the border that overshadowed

the fundamentals. Since then the markets have remained in a trading zone

and fluctuated with the news/rumours about the ongoing conflict on the

Kashmir front. We believe that the markets will remain range-bound till the

time the Indo-Pak stand off reaches some decisive conclusion.

Once again the results declared for the full year by the three sectors -

information technology (IT), pharmaceuticals and fast moving consumer

goods (FMCG) - where we remain over-weight, have been above

expectations. The IT sector has not participated in the recent rally despite

the excellent results. This is largely due to concerns that the industry is too

dependent on ‘Year 2000’ business. We believe this is unfounded and the

IT companies will continue to log a healthy growth during the next couple

of years. Thus we continue to remain overweight in this sector.


Due to above reason, Value Fund’s NAV lost 8.55% and under performed

the benchmark BSE SENSEX and BSE-200 by 19.27% and 16.33%

respectively, during the last quarter. However, for the calendar year to date,

the Fund has appreciated by 43.96% and has outperformed the BSE

SENSEX and BSE-200 by 8.66% and 13.73%, respectively

SUN F&C MONEY VALUE FUND

DEBT FUND: SUN F&C Money Value Fund

Returns in Bond Option: 13% per annum (from 10/01/99 – 30/06/99)

Fund Manager’s Review

Interest rates remained depressed throughout the quarter despite the

government repeatedly tapping the money markets to meet its huge

borrowing requirement. Some large corporate borrowers also tapped the

wholesale primary debt market. The major reason for the dip in interest

rates could be attributed to the sluggish credit off-take from the banking

system. The excess liquidity in the system and the low inflation rate of 3%

on the back of a good agricultural crop reduced the difference between the

interest rates on government and corporate debt securities. The foreign


exchange market was stable despite a steady depreciation in the rupee as a

fall-out of the border conflict at Kargil.

The fund continued its focus on safety and liquidity. The investment has

been done in high quality corporate debentures and institutional bonds. In

the last quarter, the fund has done well with 13.45% p.a. return in the Bond

Option and 8.71% p.a. return in the Liquid option.

Alliance Capital Asset Management (I)


Pvt. Ltd.

Brief Introduction
Alliance Capital Asset Management (India) Pvt. Ltd. (ACAM) is
an affiliate of Alliance Capital Management L.P., a leading global
investment adviser based in New York, USA. Since 1993, Alliance
Capital has maintained a presence in India when it was registered
as a Foreign Institutional Investor (FII). As an FII, Alliance Capital
launched an "off-shore" fund, the India Liberalization Fund in
December 1993. The Indian Asset Management Company, ACAM,
has launched ten open-ended schemes, each designed to meet a
specific investment objective. ACAM is headquartered in Mumbai
and has sales offices in New Delhi, Pune, Bangalore, Chennai,
Calcutta, Hyderabad and Ahmedabad. The company has built a
reputation as a professional asset manager, focussed on providing
investors superior investment performance and quality servicing.
Besides the offering and management of collective investment
schemes the Asset Management Company may undertake activities
in the nature of management and advisory services to offshore
funds, pension funds, provident funds, venture capital funds,
management of insurance funds and financial consultancy and
exchange of research on commercial basis.

No. of schemes 11

No. of schemes including options 32

• Equity Schemes 9

• Debt Schemes 15

• Short term debt Schemes 2

• Equity & Debt 2

• Gilt Fund 4
Dave William (Chairman), John D
Carifa (President), Karan Trehan, Ajay
Key Personnel Piramal, James J. Posch, Prakash Shah,
Vineet Udeshie, Sameer C. Arora
(CIO), Nikhil Johri (CEO)

Corpus under
2881.446 Crs. as on Sep 28 , 2001
management

Fund Managers Samir Arora, Vineet Udeshie .

Open Ended Schemes

Fund
30 91
Scheme Name Date 1 Year 3 Year Size FundSize Date
Days Days
( in Cr.)

10/12/ 270.324
Alliance 95- Dividend -5.91 -11.49 -24.35 28 9/28/01
01 5788

10/12/ 270.324
Alliance 95- Growth -5.89 -11.51 -27.99 22.78 9/28/01
01 5788

Alliance Basic Industries 10/12/ 21.4846


-3.03 -9.9 -6.23 NA 9/28/01
- Dividend 01 953

Alliance Basic Industries 10/12/ -3.15 -9.9 -6.23 NA 21.4846 9/28/01


- Growth 01 953

Alliance Buy India Fund 10/12/ 41.8512


-6.21 -5.23 -22.43 NA 9/28/01
- Dividend 01 53

Alliance Buy India Fund 10/12/ 41.8512


-6.21 -5.23 -22.56 NA 9/28/01
- Growth 01 53

Alliance Capital Tax 10/12/ 11.7230


-5.94 -12.97 -36.23 51.59 9/28/01
Relief 96 01 717

Alliance Cash Manager - 615.081


NA NA NA NA 9/28/01
Dividend 8644

Alliance Cash Manager - 10/12/ 615.081


0.61 1.95 8.62 9.23 9/28/01
Growth 01 8644

Alliance Equity Fund - 10/12/ 269.347


-9.46 -18.82 -41.03 36.16 9/28/01
Dividend 01 6143

Alliance Equity Fund - 10/12/ 269.347


-9.12 -18.5 -42.1 22.69 9/28/01
Growth 01 6143

Alliance Govt 10/12/0 0.12 1.96 14.72 NA 12.1769 9/28/01


Securities Fund LT - 1 68
Dividend

Alliance Govt Securities 10/12/ 12.1769


0.86 2.72 17.16 NA 9/28/01
Fund LT - Growth 01 68

Alliance Govt Securities 10/12/ 3.26572


0.72 2.74 11.76 NA 9/28/01
Fund STD - Dividend 01 05

Alliance Govt Securities 10/12/ 3.26572


0.96 2.99 13.44 NA 9/28/01
Fund STD - Growth 01 05

Alliance Income Fund - 10/12/ 932.102


-0.51 1.24 13.5 11.21 9/28/01
Dividend 01 1809

Alliance Income Fund - 10/12/ 932.102


0.17 1.99 15.66 12.81 9/28/01
Growth 01 1809

10/12/ 474.958
Alliance MIP - Growth -0.14 0.65 8.88 NA 9/28/01
01 832

10/12/ 474.958
Alliance MIP - Monthly -0.1 0.52 7.6 NA 9/28/01
01 832

10/12/ 474.958
Alliance MIP - Quarterly -0.79 0 7.21 NA 9/28/01
01 832
Alliance New Millennium 10/12/ 144.652
-16.82 -34.4 -64.3 NA 9/28/01
- Dividend 01 5089

Alliance New Millennium 10/12/ 144.652


-16.56 -34.24 -64.26 NA 9/28/01
- Growth 01 5089
Birla Sunlife Asset Management
Company Ltd.
Brief Introduction

A joint venture between Sun Life Assurance Company, the


Canada-based financial service organization and the Indian
industrial house of Aditya Birla, this AMC was launched in the
mid-90 s.
Both the partners are well known in all areas that they operate in.
While Aditya Birla is a household name in India and has renowned
brands in businesses spread across industries as wide ranging as
Aluminium (Hindalco), Textiles (Grasim), Fertilizers (Indo-Gulf),
Finance (Birla Global Finance Ltd.) and Rayon (India Rayon), Sun
Life is a leading financial service organization in North America.
Sun Life provides services related to risk management, money
management and wealth management across globe. Having
established itself at Toronto in 1871, it has now spread its wings
across Asia Pacific, U.S.A. and U.K. It also has a significant
presence through MFS Investment Management in U.S. and
Spectrum United Mutual Funds in Canada.
The major strengths of the group are its expertise drawn from
managing assets over the globe, a big agent network and an ability
to cater to the need of people. Drawing on the expertise of a
worldwide staff of over 10,000 people and a network of more than
65,000 agents and distributors, Sun Life is committed to providing
not just products and services, but solutions for clients financial
and risk management needs.

No. of schemes 11

No. of schemes including options 24

• Equity Schemes 8

• Debt Schemes 6

• Short term debt Schemes 2

• Equity & Debt 2


• Gilt Fund 6

K. M. Birla (Chairman), Jerey Beswick


(President & CEO), S K Mitra, Ashok
Goenka, Donald Stewart, Douglas
Key Personnel
Henck, S. S. Raman, S. Talwar, T.
Cashman, Vijay Singh, Bharat C Shah
(CIO), N K Sharma, Madhvan Menon

Corpus under
3621.46 Crs. as on Sep 28 , 2001
management

Fund Managers Bharat C. Shah .

Open Ended Schemes

Fund
30 91
Scheme Name Date 1 Year 3 Year Size FundSize Date
Days Days
( in Cr.)

Birla Advantage Fund - 10/12/ 293.387


-5.47 -9.29 -41.46 28.99 9/28/01
Dividend 01 3

Birla Advantage Fund - 10/12/ 293.387


-5.47 -9.29 -41.46 10.89 9/28/01
Growth 01 3

Birla Balance - Dividend 10/12/ -2.76 -4.79 -27.71 NA 287.039 9/28/01


01 7

10/12/ 287.039
Birla Balance - Growth -2.76 -4.79 -27.71 NA 9/28/01
01 7

Birla Cash Plus - 724.080


NA NA NA NA 9/28/01
Dividend 2

10/12/ 724.080
Birla Cash Plus - Growth 0.62 1.96 8.82 9.32 9/28/01
01 2

10/12/
Birla Equity Plan -4.73 -7.75 -41.47 NA 23.1731 9/28/01
01

Birla Gilt Plus Liquid - 10/12/


1.49 3.43 13.86 NA 24.742 9/28/01
Dividend 01

Birla Gilt Plus Liquid- 10/12/


1.95 3.87 15.84 NA 24.742 9/28/01
Growth 01

10/12/
Birla GPI Plan - Dividend 1.19 3.23 19.4 NA 21.4439 9/28/01
01

10/12/
Birla GPI Plan - Growth 1.59 3.5 22.13 NA 21.4439 9/28/01
01
10/12/
Birla GPLT - Dividend 0.65 2.54 21.04 NA 80.884 9/28/01
01

10/12/
Birla GPLT - Growth 1.14 2.99 23.86 NA 80.884 9/28/01
01

Birla Income Plus - 10/12/ 2007.41


-0.06 1.82 13.69 11.36 9/28/01
Dividend 01 96

Birla Income Plus 10/12/ 2007.41


0.33 2.22 15.63 12.96 9/28/01
-Growth 01 96

10/12/
Birla IT Fund - Dividend -4.28 -22.74 -59.2 NA 27.3045 9/28/01
01

10/12/
Birla IT Fund - Growth -4.2 -22.85 -59 NA 27.3045 9/28/01
01

Birla Maturity Plan - 10/12/


NA NA NA NA NA NA
Quarterly Option 1 01

10/12/
Birla MIP - Dividend 0.33 1.96 NA NA 66.7379 9/28/01
01
10/12/
Birla MIP - Growth 0.36 2.12 NA NA 66.7379 9/28/01
01

10/12/
Birla MIP - Payment 1 4.45 NA NA 66.7379 9/28/01
01

Birla MNC Fund - 10/12/


-4.49 -4.36 -15.95 NA 62.6876 9/28/01
Dividend 01

Birla MNC Fund - 10/12/


-4.41 -4.29 -16.11 NA 62.6876 9/28/01
Growth 01
Pioneer ITI Asset Management Company
Ltd.

Brief Introduction

Pioneer ITI is a joint venture between The Investment Trust of


India, and The Pioneer Group Inc, in Boston, USA. The Investment
Trust of India was established in 1946 and is one of India s premier
financial services organisations. Pioneer is one of America s oldest
mutual funds and helped found the modern mutual fund industry in
the United States in 1928. With over seven decades of investment
experience, Pioneer has helped millions of investors across the
globe pursue a lifetime of financial goals.
Pioneer today manages more than US$25 billion in assets for more
than one million individuals and institutions worldwide. Its
products include more than 20 mutual funds, a dozen variable
annuity investment portfolios and various institutional accounts.
Commitment of Pioneer to research, attention to detail and
consistent application of its `value` investing philosophy has made
Pioneer Fund rated as the top performing fund of America for all
time since its inception seventy one years ago.

No. of schemes 29

No. of schemes including options 51

• Equity Schemes 20

• Debt Schemes 21

• Short term debt Schemes 4

• Equity & Debt 5

• Money Market 1

Vivek Reddy (CEO), Jaskaran S. Teja


Key Personnel (Director), G. Chitamber (Director), J.
Jayaraman (Director).
Corpus under
2471.19 Crs. as on Sep 28 , 2001
management

K. N. Siva Subramanian, R Narayanan,


Fund Managers R Sukumar, Ravi Mehrotra, Suresh
Soni .

Open Ended Schemes

Fund
30 91
Scheme Name Date 1 Year 3 Year Size FundSize Date
Days Days
( in Cr.)

Pioneer ITI Balanced 10/12/


-3.16 -10.76 -12.53 NA 971.444 9/28/01
Fund 01

Pioneer ITI Bluechip - 10/12/


-6.5 -18.46 -25.9 26.04 205.46 9/28/01
Dividend 01

Pioneer ITI Bluechip - 10/12/


-6.48 -18.51 -20.35 22.69 205.46 9/28/01
Growth 01

Pioneer ITI Children 10/12/


1.4 3.05 17.36 13.55 1.14 3/21/01
Asset Education Plan 01
Pioneer ITI Children
10/12/
Asset Gift Plan - 1.4 3.05 17.36 13.55 1.14 3/21/01
01
Dividend

Pioneer ITI Children 10/12/


1.4 3.05 17.36 13.55 1.14 3/21/01
Asset Gift Plan - Growth 01

10/12/
Pioneer ITI FMCG Fund -2.89 -4 -9.69 NA 22.24 9/28/01
01

Pioneer ITI IBA - Half 10/12/ 1067.24


-0.36 1.55 15.61 12.05 9/28/01
Yearly Dividend 01 84

Pioneer ITI IBA - Monthly 10/12/ 1067.24


0.44 2.25 15.85 12.11 9/28/01
Dividend 01 84

Pioneer ITI IBA - 10/12/ 1067.24


0.02 2 15.71 NA 9/28/01
Quarterly Dividend 01 84

Pioneer ITI Income


10/12/ 1067.24
Builder Account - 0.72 2.67 15.33 11.45 9/28/01
01 84
Dividend

Pioneer ITI Income


10/12/ 1067.24
Builder Account - 0.69 2.63 18.02 13.54 9/28/01
01 84
Growth
Pioneer ITI Index Fund - 10/12/
-1.76 NA NA NA 2.3152 9/28/01
Nifty 01

Pioneer ITI Index Fund - 10/12/


-0.66 NA NA NA 2.4505 9/28/01
Sensex 01

Pioneer ITI Infotech 10/12/ 124.938


-20.51 -37.42 -64.78 56.01 9/28/01
Fund - Dividend 01 3

Pioneer ITI Infotech 10/12/ 124.938


-20.4 -37.35 -64.73 20.95 9/28/01
Fund - Growth 01 3

Pioneer ITI Internet 10/12/ 168.965


-12.38 -25.66 -45.32 NA 9/28/01
Opportunity Fund 01 9

Pioneer ITI MIP - 10/12/


-0.04 1.85 NA NA 66.2179 9/28/01
Quarterly Dividend 01

10/12/
Pioneer ITI MIP - Growth 0.18 2.05 NA NA 66.2179 9/28/01
01

Pioneer ITI MIP - 10/12/


0.14 1.89 NA NA 66.2179 9/28/01
Monthly Dividend 01
Pioneer ITI Money 10/12/
0 0 0 0 10.75 9/28/01
Market Fund 01

Pioneer ITI Pension Plan 10/12/


-2.75 -5.48 2.91 8.86 21.0941 9/28/01
- Dividend 01

Pioneer ITI Pension Plan 10/12/


-2.72 -5.24 3.14 8.83 21.0941 9/28/01
- Growth 01

10/12/
Pioneer ITI Pharma Fund -6.5 -4.05 -15.42 NA 41.7457 9/28/01
01

Pioneer ITI Prima Fund - 10/12/


-5.29 -14.27 -19.2 19.6 17.8034 9/28/01
Dividend 01

Pioneer ITI Prima Fund - 10/12/


-5.32 -14.28 -24.58 10.81 17.8034 9/28/01
Growth 01

Pioneer ITI Prima Plus - 10/12/


-7.12 -15.07 -7.89 27.85 87.2463 9/28/01
Dividend 01

Pioneer ITI Prima Plus - 10/12/


-7.17 -15.1 -16.77 22.63 87.2463 9/28/01
Growth 01

Pioneer ITI SIP - II - A 10/12/ 0.7 NA NA NA NA NA


STM (21/11/2001) 01

Pioneer ITI SIP - III - A 10/12/


0.8 NA NA NA NA NA
STM (27/11/2001) 01

Pioneer ITI SIP A (Long 10/12/


0.64 2.33 NA NA NA NA
Term) - Growth 01

Pioneer ITI SIP A (Short 4/17/0


NA NA NA NA NA NA
Term) - Dividend 1

Pioneer ITI SIP B 10/12/


0.73 2.33 NA NA NA NA
(Medium) - Growth 01

Pioneer ITI SIP B (Short 3/29/0


NA NA NA NA NA NA
Term) - Dividend 1

Pioneer ITI SIP C (Long 10/12/


0.64 2.33 NA NA NA NA
Term) - Growth 01

Pioneer ITI SIP D


NA NA NA NA NA NA
(Medium) - Dividend

Pioneer ITI SIP II A Short 10/12/


NA NA NA NA NA NA
Term Maturity (040102) 01
Pioneer ITI Taxshield - 10/12/
-5.72 -17.14 -26.82 NA 63.8248 9/28/01
Dividend 01

Pioneer ITI Taxshield - 10/12/


-5.69 -17.18 -28.98 NA 63.8248 9/28/01
Growth 01

Pioneer ITI TMA - 427.719


NA NA NA NA 9/28/01
Dividend 7

Pioneer ITI TMA - 10/12/ 427.719


0.62 2.05 9.33 9.3 9/28/01
Growth 01 7

Pioneer ITI Vista Fund - 10/12/


-3.46 -18.32 NA NA NA NA
Dividend 01

Pioneer ITI Vista Fund - 10/12/


-3.54 -18.7 NA NA NA NA
Growth 01
METHODOLOGY

Objective : To study the pattern of consumer behaviour within the available

investment options and to test awareness among the consumer about the

various mutual fund schemes.

LIST OF INFORMATION REQUIRED

Primary Data : Primary data are generated when a particular

problem and hand is investigated by the researcher employing mail

questionnaire, telephone survey, personal interviews, observations, and

experiments.

METHOD USED IN COLLECTION OF DATA


1. Personal Interview: In personal interview, the investigator

questions the respondents in a face-to-face meeting. Personal

interviews may be conducted on a door-to-door basis or in public

places such as shopping centres. The usual approach for the

interviewer is to identify himself to a potential respondent and

attempt to secure the respondent's co-operation in answering a list of

predetermined questions. These answers may be tape-recorded or

written down by the interviewer.

Advantages

a. It requires relatively shorter period of time to complete.

b. Researcher can procure many different types of information.

c. The amount of information procured on each aspects is larger.

d. The results can be projected to the relevant universe with a greater

degree of accuracy.

Disadvantages

a. The cost per completed interview is relatively higher as compared to

other methods.
b. The investigator may have to face relatively more difficulties in

administering the interview schedule.

c. The investigators themselves may involve in cheating which is very

difficult to detect.

2. TELEPHONE SURVEY

In telephone survey, prospective respondents are telephoned, usually at

homes, and asked to answer a series of questions over the telephone.

This form of the survey technique has become more popular in recent years

in advanced countries more people are having telephones at their houses.

Advantages

a. It can be conducted at a lower cost as compared with personal

interviews.

b. The interviews can be completed very quickly. Thus, speed is the

most significant advantage.


Disadvantages

a. The information on each aspect can be obtained to a limited extent.

b. Visual aids cannot be used.

c. It is difficult to keep respondents on the phone for any length of time

if the survey is not of keen interest to them.

TYPE OF SAMPLING USED

We used non-probability type of sampling.

In non-probability sampling, the chance of any particular unit in the

population being selected is unkown. Since randomness is not involved in

the selection process, an estimate of the sampling error cannot be made.

But this does not mean that the findings obtained from non-probability
sampling are of questionable value. If properly conducted their findings

can be as accurate as those obtained from probability sampling.

a. Convenience Sampling

As the name implies, a convenience sample is one chosen purely for

expedience (e.g., items are selected because they are easy or cheap to

find and measure.

While few analysts would find credibility in conclusions from such

extreme cases, the inappropriateness of using convenience sampling

to estimate universe values is not widely recognized. The major

problem with this (and other nonprobability method) is that one is

unable to draw objective inference about a rigorously defined

universe . In practice, it is often found that the response given by

"convenient" items in a universe differ significantly from the

responses given by universe items that are less accessible. As a

result, unless one is dealing with a known highly homogeneous

universe (virtually all items responding alike), convenience sampling

should not be used to estimate universe values.


b. Group Interview Sample

Several specialized forms of nonprobability sampling have achieved

wide usage. One is the group interview sample, which is used in

focus-group studies. A "group" is usually a quota sample of 5-10

consumers (possibly all product users, nonusers, and so on)

assembled for a one to two hour joint interview by a person specially

trained in group dynamics. Usually several such groups are

conducted.

Sample Size

The sample size taken in the research work is 60.


We went for convenience sampling method because of the

constraints like cost and time. As any other method used in sampling would

not give the true picture.

COST AND TIME ESTIAMTES

Cost per day Travel Cost Telephone Cost

Rs. 200 Rs.30 Rs. 2 per call

Telephonic Interview (30 2 x 200 = 400 - 30 x 2 + 50 x 2

interviews by 2 person)
= 60 + 100

Cost involved in Telephonic

interview = 400+ 160 = 560

Field Interview by 2 persons 2 x 200 = 400 2 x 30 = 60

Cost involved field interview

= 400 + 60 = 460

Total Cost is = Telephonic

cost + field interview cost =

560 + 460 = 1020


ANALYSIS:

On the basis of the study conducted by us we have come to the following


observation:
PERFORMANCE : It is generally believed that Mutual fund has performed
poorly but if one looks at Income funds ,they have come with reasonable
returns. It is only the performance of Equity funds, which has been poor .

This is because the fall in the value is maximum for longer dated
instruments (equity funds) and negligible for short dated instruments
( income funds ). Hence, the risk is higher in a fund that has an investment
portfolio with a higher average maturity. This can again be checked from
the investment portfolio, which is published by the funds. For example
,even if interest rates rise by 2-3%, the fall in NAV for most mutual funds
is unlikely to exceed 5%. Similarly, a portfolio with as high as 10% of poor
quality instruments will result in a fall in NAV by 10%. Regular interest
income will take care of the losses in a few months. Thus, there is unlikely
to be permanent erosion of capital in most reasonable circumstances.
Hence, debt or income funds have a much lower risk than equity funds,
which can have permanent erosion in value.

RISK - Again the general belief is that the risk involved is high in case of
mutual fund because of the recent experience " US 64 BONDS'"

In this case, the main problem was that for a period of 2-3 years, the UTI
distributed more dividends to the unit holders of US 64 than the return
earned from the investments in the scheme. This reduced the value of the
residual investments in the scheme. This problem was compounded by the
persistent fall in the prices of shares , especially the shares of companies in
basic commodity industries like cement, steel, manmade fibers etc. and
shares of public sector units. Throughout this period, when the NAV of US
64 was going down, UTI kept increasing the sale and repurchase prices of
US 64 units. The stock market collapse after the Pokhran II nuclear tests
was the last straw, which resulted in the erosion of the scheme's book
reserves and a wide difference between the actual NAV and the
sale/repurchase price.

When this became known, it set a panic amongst investors of US 64. Many
people felt that if there were large-scale redemptions, UTI would not be
able to meet them without support of outside bodies like the RBI. Further,
theoretically, if all investors wanted to redeem their US 64 units on the
same day, the US 64 simply did not have the money to meet the
redemptions on its own (due to the difference between NAV and the
repurchase price).

With such experience the people have become more cautious and banks
such as HDFC are taking greater precautions by coming up with more
lucrative and diversified schemes

BENEFITS -On the basis of our research we found that the various benefits
sought by investors in mutual fund are tax benefits, return potential
diversification convenience, liquidity and well regulated investment.

According to the banking official the tax benefit for investing in mutual
fund units offered are tax free dividend ,exemption from long term capital
gain and 20% rebate on contribution up to Rs 10,000 under section 88 .
INCOME FUND

From the table 1 in the annexure and the graph we observed that the over
all return of the debt funds are 10-14%. It is clearly visible from the graph
that the CORPORATE SECTOR is investing more in the income fund
because these funds
COMPOSITION OF ASSETS (INCOME FUND)

CASH &
OTHER
ASSETS
CORPORATE 4%
DEBT GILTS
38% 38%

PSU/PFI
BONDS
20%

are flexible, as corporate sector likes to invest more in those funds which
gives stable returns with less exit load as its only 0.5% of NAV if
redeemed within 3 months. Also it is safer to invest in income fund as it
involves low risk and the fund manager strives to earn steady returns in the
fixed income market by actively managing the funds portfolios on interest
rate movement and credit risks.

MONEY MARKETS

From the graph we can see that the corporate debt is as high as 55.7%. This
is because every corporate sector would like to have liquid funds as it is for
short-term period. Thus they invest in liquid funds as it can be transferred
into cash whenever they are in need for further growth of the organization.
The Fund Managers strive to provide optimum returns with prudent
exposure to money market instruments while maintaining focus on capital
preservation.

COMPOSITION OF ASSETS (LIQUID FUND)

MONEY
MARKET
PSU BOND 5%
32%
CORPORAT
E DEBT
OTHER 55%
ASSETS
8%
QUESTIONS ANALYSIS OF
QUESTIONNAIRE (INVESTOR)

4. MONTHLY INCOME INVESTOR POINT OF VIEW

We have seen that the people who


5.DO PEOPLE INVEST?
have their monthly income more than
50,000/ are more likely to invest in
mutual funds, as they are ready to
1. WHY PEOPLE INVEST
take risks.
7.FREQUENCY OF
Majority of people do not know what
INVESTMENT exactly is mutual fund. They are
confused with the stock market as
8.WHAT THEY LOOK
they think that investing in mutual
fund is same as investing in the stock
market.
9.AWARENESS OF VARIOUS
AMC BANKS People who invest believe that it is
safer to invest in mutual fund rather
than investing in the stock market
directly. Also it gives higher return
as compared to Fixed Deposit.
Moreover they also gets tax
redemption.

I People invest according to current 1


market situations and the Net Asset-
Value.
QUESTIONS INVESTOR POINT OF VIEW

People generally prefer open-ended


funds as there is less or no exit load.
It has more flexibility.

It depends on each and every


individual in which he wants to
invest depending upon his risk
10. TYPE OF FUND PREFFERED. credibility.

Types of risks involved are:

a. Fluctuation in the stock market.

11. IS IT SAFE TO INVEST? b. Unstable NAV

c. Poor track record of Mutual Fund


as a whole

d. Risk of loosing the money.


12. RISKS

PERCIEVED

13. SCHEMES AVAILABLE FOR

INVESTMENT
Analysis of revenue account of the respective various mutual funds taken for the
study:
FIGURES TAKEN IN CRORES

AMC Birla Sunlife Alliance Capital


Fund Type Equity
Birla Alliance
Adavantage Equity
Revenue A/c 31.March 01 31.March % 31.March 31.March %
00 CHANGE 01 00 CHAN

Income & Gains 0.744 10.161 -92.7% 27.03 78.7 -65


Expense & Loses 0.634 0.912 -30.5% 12.55 6.89 82
Net Income before -21.084 24.474 -186.1% -440.7 315.3 -239
unrealised
Apprcn/Deprcn

Net income -20.975 34.724 -160.4% -427.63 387 -210

All the equity funds were marked with high increase in unrealised deprication. There was si
equity
and Pioneer ITI Bluechip Expenses which was majorly contributed by the increase in Invest
expenses

Fund Type Debt


Birla Income Alliance Liquid Income
Plus
Revenue A/c 31.March 01 31.March % 31.March 31.March %
00 CHANGE 01 00 CHAN

Income & Gains 12.33 11.54 6.8% 109 76.64 42


Expense & Loses 1.6 1.5 6.7% 16.96 10.64 59
Net Income before 10.7 9.98 7.2% 92.09 65.7 40
unrealised
Apprcn/Deprcn

Net income 10.77 9.05 19.0% 98.37 68.1 44


Income funds saw a growth in their net profit in March 2001 vis a vis March 2000 between 20 - 45 percent with alliance liquid staying as
However Birla stayed as a leader in cost cutting wrt to other funds

Fund Type Balance


Birla Balance Alliance '95 Pioneer ITI BlueChip
Revenue A/c 31.March 31.March % CHANGE 31.March 31.March % 31.March 01 31.March %
01 00 01 00 CHANGE 00 CHAN
E

Income & Gains 0.963 2.4 -59.9% 65.2 114.1 -42.9% 25.3 65.35 -61.3
Expense & Loses 5.09 0.5 918.0% 11.3 8.16 38.5% 18.65 13.5 38.1
Net Income before -7.4 1.9 -489.5% -312 217.6 -243.4% -10.25 48.25 -121.2
unrealised
Apprcn/Deprcn

Net income -11.55 1.901 -707.6% -258.01 323.6 -179.7% -12.39 50.2 -124.7

All the Balance funds saw huge losses in their net profiatbility with pioneer ITI showing the least. There was a huge jump in the Birlas
expenses as it was incurred due to loss on sale of investments. Further the unrealised depriciation was high for every fund in March 20
which was primarily due to heavy downfall in stock market and sensex.
IMPACT ANALYSIS OF BUDGET 2001
Finance Minister continues with his pro-reforms march and

unveils his strategies for the next financial year. His

strategies have been quite supportive to the mutual fund

industry and most of the people in the industry are highly

impressed. The Indian mutual fund industry is in a nascent

stage and the size is around Rs. 1 lac crores. Despite very

good returns, the industry has been unable to compete with

the banking sectors due to infrastructural bottlenecks. In

the advanced countries the share of mutual funds has been

high as compared to the banking sector but the condition in

India is just reverse. The reasons are lack of reach of the

mutual fund services to the remote areas of the countries.

However, this budget is a step in the direction of bridging

this gap. The Finance Minister has been successful in

keeping the expectations low and the sops given by him

was more than expectation. The different sops given to the

industry are as follows:

• Interest rate on small savings slashed by 1.5 percent.


• Dividend distribution tax has been reduced from 20

percent to 10 percent.

• TDS on bank deposits applicable at Rs. 2500/- instead

of Rs. 10,000/- earlier.

• Deduction under Section 80 L of IT Act 1961 reduced

from Rs. 12000 to Rs. 9000.

• Pension Funds segment to be liberalised.

• Dividend stripping controlled.

• Rebate u/s 88 for income up-to Rs. 100,000 raised

from 20 percent to 30 percent.

• Excise and custom duty reduced.

• Limit on portfolio investments of FII increased to 49

percent.

• Dis-investment in VSNL, Air India and Maruti

announced.
• Capital Account convertibility pacified through sops to

ADR and GDR.

Interest rate reduction which was on cards, had finally been

announced. Though small investors may not like Post Office

interest rate cut, the mutual fund industry is definitely

going to be benefited. This will have a wide-ranging impact

on the industry as a whole. A cut in interest rate reduces

the market yield and hence increases the demand for long

term debt papers bearing high coupon rates. The supply

levels of these papers remain the same thus increasing

their prices in the secondary market. Benign interest rate

has improved the returns of the debt funds and a further

cut in the interest rate will increase the probability of

further improvement in the returns of these schemes. With

good returns, funds have also witnessed good mobilisation

and the further cut in the interest rate is going to

revolutionise mobilisation in the industry. Different fund

managers were increasing the average maturity / portfolio

duration of the schemes in expectation of lowering of


interest rates. Funds with high average portfolio maturity

will be gaining more than the schemes with low average

portfolio maturity as the prices of the securities are directly

linked to the term to maturity in case of interest rate

fluctuations. Mr. Akhilesh Gupta, Fund Manager for Debt

funds of Dundee Mutual Fund said " The reduction in

interest rate will have a direct impact on the performances

of the debt funds and the returns from these funds are

going to improve further". Secondly this reduction in the

interest rate on small savings will remove the lust of

investment in this segment and more and more funds will

be pumped into the mutual fund industry in expectation of

better returns. The return differential between debt

securities and debt mutual funds will provide the required

premium the investors are looking for and mobilisation will

come in huge amount. Mr. R. K. Gupta, CEO & Fund

Manager, Taurus Mutual Fund said, " The reduction in

interest rate on small savings will tempt the investors to put

money in other modes of investment like debt mutual


funds. The reduction will make investments in PPF and

NSC / NSS etc. unattractive and investors will be attracted

towards Open-ended Tax saving schemes for their tax

planning."

The reduction in dividend distribution tax will be an added

booster for the industry as the post tax returns from these

funds will go up by a huge margin. Dividends from open

ended debt funds were taxed at the rate of 20 percent and

a surcharge of 10 %. Now the rate has been reduced to 10

percent and the surcharge has been brought down to 2 %.

This has resulted in the dividend tax being reduced from 22

% to 10.2%. The returns in mutual funds will be high as

compared to other avenues in the market as interest on

securities or small savings are taxable, which reduces the

post tax return further. It is expected that savings will start

a flight from banks and other avenues to the debt mutual

fund segment. Further, bank deposits will attract TDS at a

level of RS. 2500/- p.a. and will again deter the investors

from maintaining high volumes of deposits with banks. Mr.


Sekhar Sathe, CEO, Kotak Mahindra Mutual Fund says, "The

attraction of bank deposits will be receive a setback and

investors would look for other investment avenues like

mutual funds, resulting in higher mobilisation".

Thirdly the reduction of limit for deduction under section

80L of the IT Act from Rs. 12,000 to Rs. 9000 will shun away

investors from investing in the debt securities directly. The

investors in the highest tax bracket will have to pay a tax at

the marginal rate of 30 percent on the interest earned on

investments in banks and other debt securities. They will

rather like to take mutual fund route for investments as

dividends are tax-free in the hands of the investors.

Moreover the post tax yield from these schemes will go up

as the dividend distribution tax from them have been

reduced from 20 percent to 10 percent.

The Finance minister has given indications for opening

pension funds also. A policy will be soon be framed in this

regard. This segment has a huge size and will lead to the
growth of the segment to a large extent. The growth in the

segment will held the industry to improve upon their

infrastructure to reach the far flung areas also which is

presently been ignored. The policy would tackle the issues

of allowing pension funds of large companies to be

managed by third party mutual funds. Commenting on this

issue, Mr. Ved Prakash Chaturvedi, CEO, Cholamandalam

Mutual Fund said, "A large part of the growing middle class

is not covered by any formal pension plan and some

specific proposals on pension and pension fund

management are expected soon. The opportunity for

lifecycle financial planning products from mutual funds

specially in the area of pension planning is huge."

The exchequer has been loosing a lot on account of

dividend stripping by investors to a large extent. Finance

minister has taken a corrective measure to safeguard the

interest of small and long-term investors from the dividend

strippers. The tax free nature of the dividend from mutual

funds have been intact but the short term capital loss
arising from the dividend announcement have been denied.

The investors will not be able to adjust the capital loss

arising against their capital gains if the investment is not

held for a minimum period of three months prior to the date

of dividend payment. This step will boost the sentiments of

small and long term investor and will remove the loop hole

in the legal structure and will create a more rational

investment climate.

The cut in excise and customs duty are another booster for

the corporate world. This pro-market move will reduce the

prices of the finished products and will surge the demand

for the product resulting in improved profitability of the

corporates. All these will have a soothing effect on the

overall market sentiments and will reflect in the stock

market prices. The buoyancy of stock market will lead to

improved performance in the equity related mutual funds

also and will improve the sentiments of the investors. The

equity funds will also gain indirectly due to reduced cost of

borrowings of companies, which again will be reflected in


the prices at the bourses. Even the limit on FII portfolio

investment has been hiked to 49 percent. Mr. Bhupinder

Sethi, Fund Manager, Dundee Mutual Fund was very bullish

on budget and said "The FII limit in the portfolio

investments has been increased to 49 percent. Investments

will be coming in good stocks and they will be undergoing a

re-rating. The market expectations from the budget were

low and the market got almost everything it was expecting

and became euphoric. The government appears to be more

committed than ever before. Definitely this is going to be

translated in the stock prices and enhance mutual fund

performance".

The government’s move to divest its stake in 27 public

sector companies is expected to stimulate the market. The

companies on the block include some of the prized

possessions of the government like VSNL, Maruti Udyog Ltd.

and Air India etc. The move is expected to release

substantial money into the hands of the government that

can be used towards developmental issues. This is good


enough news for the equity market and mutual fund

industry will gain in the event of a spurt in equities.

However, considering the fact that divestment of BALCO

has created such a furore, it is not going to be an easy job

to achieve the proposed divestment.

Capital Account Convertibility has been a commonly

discussed issue ever since the Tarapore committee gave its

report. The issue has however, failed to cut much ice with

the Government on account of various factors and so exact

modalities need to be ascertained this time round as well.

Still, the move is expected to bring in substantial money in

the market by aligning the prices of various companies

listed in India as well as outside. Wealth creation becomes a

possibility as the prices of various ADRs and GDRs is

generally more and providing an option to transact in them

will give an option to gain more for the funds. Mr. R. K.

Gupta said ‘ The arbitrage between the Indian market and

the ADR/ GDR market will come down and the prices of the

technology stocks will get a boost. Stocks like Infosys,


Satyam will go up. Since most of the equity stocks are

heavy weight in ICE, The performances are expected to

improve" However, this will at the same time bring in the

volatility of other markets into the Indian markets, enabling

capital flight in case of distress.

Overall, the industry is very enthused by the reforming and

positive budget announced by the Finance Minister. Mr. A.P.

Kurian, Chairman, AMFI termed the budget as "a very

positive and investor friendly. On the whole the budget is

reform oriented and is backed by a lot of action.". Mr.

Sekhar Sathe, CEO, Kotak Mahindra Mutual Fund finds the

budget "very superlative and full of structural reforms". Mr.

Hemant Rustagi, Head-Marketing and Business

Development, ING Savings Trust finds "the budget very

good and investor friendly and clearly sees the urgency of

the Finance Minister to implement the reforms announced."


Tax Laws governing investments in mutual funds

Under Income Tax Act, 1961

Tax Benefits

I) To Unit-holders (Resident)

Section 94(6) of the Income Tax Act, 1961

Section 94(6) of the Income Tax Act 1961 now provides

that any person who buys or acquires any securities or unit

within a period of three months prior to the record date and

such person sells or transfers such securities or unit within

a period of three months after such date and the dividend

or income on such securities or unit received or receivable

by such person is exempt, then, the loss, if any, arising to

him on account of such purchase and sale of securities or

unit, to the extent such loss does not exceed the amount of

dividend or income received or receivable on such


securities or unit, shall be ignored for the purposes of

computing his income chargeable to tax.

Section 10(33) of the Income Tax Act, 1961

The dividend received by the investors from the scheme will

be exempt from income tax for all categories of investors

under Section 10(33) of the Income Tax Act, 1961. The

scheme will pay a distribution tax currently @10% plus

surcharge if the portfolio holds less than 50 percent debt

securities on an average during the last one year period.

Section 88 of the Income Tax Act, 1961

Specified units of mutual fund schemes qualify for rebate

under Section 88 of the Income Tax Act, 1961, subscription

to the Units of the Scheme by Individuals and Hindu

Undivided Families, not exceeding Rupees ten thousand

would be eligible to a deduction, from income-tax, of an

amount equal to 20% of the amount so subscribed. In the

case of subscription by an individual, whose income is


derived from the exercise of his profession as an author,

playwright, artist, musician, actor or sportsman (including

an athlete), the deduction admissible would be at the rate

of 25%.

Tax Deducted at Source (TDS)

There will not be any Tax Deduction at Source on payment

to resident unit-holders towards redemption or dividends.

Capital Gains benefit under Section 112 of the

Income Tax Act, 1961

Long-term capital gains in respect of Units held for a period

of more than 12 months will be chargeable under Section

112 of the Income Tax Act, 1961, at a concessional rate of

tax @ 20% (excluding surcharge)

From the full value of consideration, the following amounts

would be deductible to arrive at the amount of capital

gains:
· Cost of acquisition as adjusted by Cost Inflation Index

notified by the Central Government and

· Expenditure incurred wholly and exclusively in connection

with such transfer

Investors can also opt to pay tax @10% (excluding

surcharge) on such Long Term Capital Gains, but without

the cost inflation indexation benefit.

Wealth Tax Benefits

Mutual Fund units are exempt from Wealth Tax.

To Non-Residents/OCBs

a) Capital Gains under Section 112 of the Income Tax Act,

1961

Long-term capital gains in respect of Units held for a period

of more than 12 months will be chargeable under Sec 112

of the Income Tax Act, 1961 at a concessional rate of tax of


20%. The capital gains would be calculated after indexation

of the cost of acquisition.

Investors can also opt to pay tax @10% (excluding

surcharge) on Long Term Capital Gains, but without the

cost inflation indexation benefit.

b) Tax Deduction at Source (TDS)

Redemptions/Exchanges/Switches by non-

residents/OCBs/FIIs will be subjected to tax deduction at

source at the rates in force and certificates for tax deducted

will be issued.

To Charitable Trusts

Investment in the units of the scheme is an eligible mode

of investment under Section 11(5) of the Income Tax Act

read with Income Tax Rule 17 C.

II. To the Fund


Open Ended Mutual Funds are exempt from income tax

under Section 10 [23D] of the Act.


LIMITATION

1. Non availability of past data, Balance Sheet and profit and loss

account.

2. Non-availability of Fund Manger to discuss on fund strategies and

growth projections due to geographical location.

3. General biased in the mind of investor about Mutul Fund.


CONCLUSION

The month of September witnessed domestic markets

surrounded by the uncertainty largely due to recession in the

global economy that is clearly evident by the 18% fall in the

Sensex. The investor sentiments were also affected amply due


to the probe into stock market scams and in related institutions.

The slow pace of divestment and uncertainty over the future

prospects of the domestic technology sector also swayed the

overall growth of economy. The US attacks further led to panic

selling in the markets. Despite this, the markets recovered

ground as domestic institutions as well as a few FIIs with a

long-term view on India, picked up stocks that were available at

attractive valuations. One positive outcome of these attacks is

that the Government seems to be shifting gears as far as the

second-generation economic reforms and the divestment

process is concerned. If implemented successfully, these

measures will go a long way in increasing the attractiveness of

India as an investment destination. The governments decision

to increase the 49% FII cap in Indian companies to the level of

sectoral foreign investment cap should help in mitigating any

negative impact of the readjustments to Morgan Stanley Capital

International (MSCI) indices due in November. We feel that in

the short term, sentiments rather than fundamentals will


primarily drive downward price movements especially if there

are any negative developments on the geo-political and

economic fronts due to U.S retaliation to the terrorist attacks.

Given that most of the negative news is already factored in, we

are hopeful that fundamentals will assert themselves in the

medium term. The debt markets witnessed an eventful quarter

which saw benchmark yields move quite sharply on account of

various events. However, we feel that given the comfortable

liquidity levels in the system, the bond markets should stabilize

at current levels barring any negative developments.

Our investment philosophy should be such that as to

make an optimal trade-off between safety, liquidity and

returns and we tend to manage our debt portfolios in a

conservative fashion.

We go beyond ratings by doing in-house research by

leveraging our strengths on the equity research side. We


also actively manage our portfolio maturities without

taking an extremely aggressive stance.

Given the positive sentiment in the markets, we should

• Increase our allocation to liquid bonds so that we

would be able to change the maturity profile in a few days

in case of a trend reversal.

• Actively managing our portfolio to enhance overall

return without taking undue risk.

The good performance of our debt schemes has been a

vindication of our belief that good returns can be achieved

even by taking a "conservative" stance. Being "cautious" is

essential for debt fund management given that the primary

concerns of debt fund investors are safety and liquidity.

While there are no major concerns for the bond markets,

we will still be somewhat cautious and avoid going

overboard inspite of the exuberance in the markets.


RECOMMENDATION

1. Tapping the up coming market - Semi Urban Market as there is a lot

of opportunity.

2. To create the awareness about the different product in Mutul Fund

and not about the generic product.

3. To provide some kind of curriculum at the school/college level to

create awareness regarding Mutul Fund.

GLOSSARY

ASK/OFFER PRICE:

The price at which a Mutual Funds shares can be

purchased. The asked or the offering price means the


current net asset value (NAV) per share plus sales charge,

if any. If a no load fund, the asked price is the same as the

NAV.

BALANCED FUND:

A Mutual Fund that maintains a balanced portfolio,

generally 60% bonds or preferred stocks and 40% common

stocks.

BID/SELL PRICE:

The price at which a Mutual Funds shares are redeemed

(bought back) by the fund. The bid or redemption price

means the current net asset value per share less any

redemption fee or back-end load.


BOND PRICE:

It is the present value of its future cash-flows.

CAPITAL MARKET:

It deals with transactions related to long-tern instruments

(with a period of maturity of above one year like corporate

debentures, government bonds, etc) and stock (equithy

and preference shares).

CONTINGENT DEFERRED SALES CHARGE (CDSC):

A fee (or back-end load) imposed by certain funds on

shares redeemed within a specific period following their

purchase. These charges are usually assessed on a sliding


scale, such as four percent to one percent of the amounts

redeemed, with the fee reduced each year the units are

held.

GOVERNMENT SECURITIES:

It encompasses all bonds and treasury bills issued by the

central government, state government, and other entities

like corporations, municipal authorities and companies

wholly owned by the government for the purpose of raising

funds from the public.

GROWTH FUND:

A mutual fund whose primary investment objective is long-

term growth of capital. It invests principally in common

stocks with significant growth potential.


INCOME FUND:

A mutual fund that primarily seeks current income rather

than growth of capital. It will tend to invest in stocks and

bonds that normally pay high dividends and interest.

INDEX FUND:

A mutual fund that seeks to mirror general stock-market

performance by matching its portfolio t a broad-based

index, most often the S&P CNX Nifty index.

INVESTMENT COMPANY:

A corporation, partnership or trust that invest the pooled

monies of many investors. It provides greater professional

management and diversification of investment than most

investors can obtain independently. Mutual funds, or


“open-end” investment companies, are the most popular

form of Investment Company.

LOAD:

A Sales charge or commission assessed by certain mutual

funds (“load funds”) to cover their selling costs. The

commission is generally stated as a portion of the fund’s

offering price, usually on a sliding from one to 8.5%.

MONEY MARKET:

It deals with all transactions is short-term instruments

9with a period of maturity of one year or less like treasury

bills, bills of exchange etc).


MONEY MARKET MUTUAL FUND:

A Mutual Fund that aims to pay money market interest

rates. This is accomplished by investing in sage, highly

liquid securities, including bank certificates of deposit,

commercial paper, government securities and repurchase

agreements. Money market funds make these high interest

securities available to the average seeking immediate and

high investment safety.

NET ASSET VALUE:

The current market worth of a mutual fund share.

Calculated daily taking the funds total assets securities,

cash and any accrued earnings deducting liabilities, and

dividing the remainder by the number of shares

outstanding. It is an indicator of the capital appreciation of

the funds under the scheme as on the date of the NAV


NAV = (M+O)-L

M= market value of securities or investment made

O= other assets

L= total liabilities

V= number of units outstanding

PORTFOLIO:

It refers to the group of assets that is owned by the

investor.

PROSPECTUS:
An official document that each investment company must publish,

describing the mutual fund and offering its shares for sale. It contains

information required by the Securities and exchange commission.

RECORD DATE:

The date the fund determines who its shareholders are; “shareholders of

record” who will receive the fund’s income divided and/or net capital gain

distribution. Frequently the business immediately prior to the Ex-Dividend

date.

REDEMPTION FEE:

A mutual fund that concentrates its investments within a

specific geographic area, usually the fund’s local region.

The objective is to take advantage growth potential before

the national investment community does.

REINVESTMENT DATE (PAYABLE DATE)

The date on which a share’s dividend and/ or capital gains will reinvested

(if requested) in additional fund shares


SHORT SELLING:

The sale of a security, which is not owned by the seller. The “short seller”

borrows stock delivery to the buyer, and must eventually purchase the

security for return to the lender.

SPREAD:

It is equal to Offer Price-Bid Price.

SYSTEMATIC WITHDRAWAL PALN:

Many mutual funds offer withdrawal programs whereby shareholders

receive payments from their investments. These payments are usually

drawn from fund’s dividend income gain distributions, if any, and from

principal only necessary.

YEILD:

It is the amount of interest paid on a bond dividend by the price, a measure

of income generated by the bond.

YIELD CURVE:
It is a graphic line chart that shows interest rates at a specific point for all

securities having equal risk but different maturity dates. For bonds it

typically compares the 2 or 5 year treasury with the 30 year.

YIELD TO MAUTRITY:

It is the interest rate that makes the present value of the

future coupon payments equal to the current bond price,

i.e. for a known price


QUESTIONNAIRE FOR THE INVESTOR

1. NAME : __________________________________

2. AGE: Less than 20 yrs 20yrs-30yrs

30yrs-40yrs 40yrs& above

3. SEX: Male Female

4. CITY: __________________________

5. PROFESSION : a) professional

b) business

c) retired

d) Housewife

e) service

f) Student

g) Others(specify) _____________
6. GROSS MONTHLY INCOME:

a) Less than Rs.5000 b) Rs5000-Rs10000

c) Rs10000-Rs.20000 d) Rs.20000-Rs.30000

e) Rs.30000& above

7. IN WHICH OF THE FOLLOWING INSTRUMENT DO YOU


INVEST ?

a) bank deposits b) mutual fund c) P.O deposits

d) shares e) don’t invest f) other(specify)


_______

IF OPTION IS 7(B), THEN

8. WHAT TYPE OF MUTUAL FUND DO YOU INVEST?

a) open end fund b) closed end fund c) don’t know

9. WHICH SEGMENT OF MUTUAL FUND DO YOU INVEST?

a) balance fund b) debt fund c) equity fund

10. IN WHICH OF THE MUTUAL FUND COMPANIES YOU


HAVE INVESTED?

a) alliance capatal b) SBI c) pioneer iti

d) Zurich India e) birla f) escorts


g) UTI

11. HOW MUCH DO YOU INVEST ON MONTHLY BASIS?

a) Less then Rs.1000

b) Rs.1000-Rs.5000

c) Rs.5000-RS.10000

d) Rs.10000& above

12. HOW DO YOU RATE THE FOLLOWING INSTRUMENT ON


THE PARAMETER OF LIQUIDITY ( 5 FOR THE MOST LIQUID & 1
FOR THE LEAST LIQUID)

a) Shares

b) PO savings

c) Property

d) Gold

e) Mutual Fund

f) Bonds/debentures

g) Bank FD

13.. HOW DO YOU RATE THE FOLLOWING INSTRUMENT ON


THE PARAMETER OF RETURN ( RATE FROM 1 TO 5 )

a) Shares
b) PO savings

c) Property

d) Gold

e) Mutual Fund

f) Bonds/debentures

g) Bank FD

14 HOW DO YOU RATE THE FOLLOWING INSTRUMENT ON


THE PARAMETER OF SAFETY ( 5 FOR THE MOST SAFE & 1 FOR
THE LEAST SAFE)

a) Shares

b) PO savings

c) Property

d) Gold

e) Mutual Fund

f) Bonds/debentures

g) Bank FD

15. RANK YOUR PREFERENCE ON THE SCALE OF 1 TO 5


FOR THE FOLLOWING TYPE OF OWNERSHIP OF FUND?
a) Private Foreign

b) Banks

c) Private Indian

d) institutions

BIBLIOGRAPHY

1. Annual Reports 1998-2001

2. Economic Times

3. Marketing Research - By Boyd

4. www.mutulfundindia.com
5. www.indiainfoline,com

6. www.alliancecapitalindia.com

7. various articles taken from Delhi stock exchange library.


Assets Under Management (AUM) as at the end of Dec-2005 (Rs in Lakhs)
Average AUM For The
AUM
Month
Mutual Fund Name Excluding Excluding
Fund Of Fund Of
Fund Of Fund Of
Funds Funds
Funds Funds
1. ABN AMRO Mutual Fund 241727.68 0 277985.48 0
2. Benchmark Mutual Fund 304174.02 0 0
3. Birla Sun Life Mutual Fund 1243890.94 2196.58 0
4. BOB Mutual Fund 16243.79 0 0
5. Canbank Mutual Fund 216338.82 0 225151.93 0
6. Chola Mutual Fund 154995.52 0 0 0
7. Deutsche Mutual Fund 233873.65 0 316996.46 0
8. DSP Merrill Lynch Mutual
864297.78 0 0
Fund
9. Escorts Mutual Fund 14717.03 0 0
10. Fidelity Mutual Fund 275679.07 0 271357.23 0
11. Franklin Templeton Mutual
1665617.22 39616.6 1692041.02 40108.35
Fund
12. HDFC Mutual Fund 1761336.42 0 1843873.59 0
13. HSBC Mutual Fund 644696.97 0 692378.81 0
14. ING Vysya Mutual Fund 283112.88 0 0
15. JM Financial Mutual Fund 413133.11 0 0
16. Kotak Mahindra Mutual
689349.49 50495.75 712888.75 51006.69
Fund
17. LIC Mutual Fund 563649.79 0 0
18. Morgan Stanley Mutual
228920.17 0 225743.88 0
Fund
19. PRINCIPAL Mutual Fund 698259.57 0 0
20. Prudential ICICI Mutual
2199244.97 4765.02 0
Fund
21. Reliance Mutual Fund 1523771.61 0 0
22. Sahara Mutual Fund 45930.97 0 52502.93 0
23. SBI Mutual Fund 1079705.41 0 1070299.13 0
24. Standard Chartered Mutual
825232.58 5289.45 0
Fund
25. Sundaram Mutual Fund 293322.92 0 302991.07 0
26. Tata Mutual Fund 899791.41 0 0
27. Taurus Mutual Fund 20373.53 0 19608.39 0
28. UTI Mutual Fund 2522824.38 0 2560004.5 0
Total 19924211.7 102363.4 10263823.17 91115.04

Fig – 3

Average returns over last One year

Table – 3

Net Purchase and Sale of Mutual Funds

Date Equity (Rs. Crore) Debt (Rs. Crore)


Gross Gross Net Gross Gross Net
Purchase Sales Purchase Purchase Sales Purchase
/Sales /Sales
25-Jan-794.89 1,025.72 -230.83 376.71 233.43 143.28
2006
24-Jan-527.39 584.70 -57.31 124.91 117.93 6.98
2006
23-Jan-398.31 450.32 -52.01 210.27 310.49 -100.22
2006
20-Jan-525.51 521.23 4.28 199.25 135.60 63.65
2006
19-Jan-531.24 483.57 47.67 235.03 245.64 -10.61
2006
18-Jan-395.11 657.64 -262.53 167.51 272.50 -104.99
2006
17-Jan-305.48 607.26 -301.78 307.96 499.02 -191.06
2006
16-Jan-313.69 530.06 -216.37 273.78 317.21 -43.43
2006
13-Jan-421.30 450.22 -28.92 267.83 294.47 -26.64
2006
12-Jan-923.55 602.47 321.08 755.64 238.92 516.72
2006
10-Jan-400.43 554.25 -153.82 240.25 243.40 -3.15
2006
09-Jan-345.14 655.33 -310.19 390.17 200.37 189.80
2006
06-Jan-434.99 449.60 -14.61 280.60 310.25 -29.65
2006
05-Jan-473.04 414.28 58.76 712.97 371.46 341.51
2006
04-Jan-515.07 621.52 -106.45 556.49 452.18 104.31
2006
03-Jan-394.62 467.80 -73.18 498.71 359.98 138.73
2006
02-Jan-240.34 462.97 -222.63 424.67 422.62 2.05
2006
TOTAL7,940.10 9,538.94 -1,598.84 6,022.75 5,025.47 997.28
Table – 4

Sales during the month of December, 2005

All Schemes Amount in Rs. Crores

Open End Close End Total

No. of No. of No. of


Amount Amount Amount
Schemes Schemes Schemes
Balanced 34 557 2 - 36 557
ELSS 23 155 11 - 34 155
Gilt 30 264 - - 30 264
Growth 177 5837 1 - 178 5837
Income 138 10091 50 3400 188 13491
Liquid/Money
43 76486 - - 43 76486
Market
Total 445 93390 64 3400 509 96790
Taxation Structure for Mutual Funds in India

Taxation structure of mutual funds is divided into two parts. One angle looks at
taxation from the point of view of the fund itself and the other looks at the
taxation aspect with respect to the fund investor.

From the view point of investors following provisions are available: -

1) Tax Deduction at Source - The important point to note about mutual funds, for
resident investors, is that for any income credited or paid by the fund no tax is
deducted at source. This provision applies both to dividend payouts made by
funds and to proceeds of redemption. Except for NRI’s, TDS is supposed to be
made whenever NRIs redeem their investment in a mutual fund scheme.

2) Wealth Tax - No wealth tax is leviable on mutual fund units. This benefit
comes to mutual funds by virtue of the fact that mutual fund units are not treated
as 'assets' under the Wealth Tax Act.

3) Capital Gains Tax - Capital gains tax needs to be paid on all mutual fund
units. The difference between the purchase and redemption price (in case of
open-end funds) is used to calculate capital gains. Time is also a factor for this
purpose. Units held for a period of less than one year are eligible for short term
capital gains while those held for a period of longer than one year are eligible for
long term capital gain.

Further, in the case of long term capital gain, the investor is given the option of
choosing between a) 20 per cent tax rate with indexation benefit and b) 10 per
cent tax rate without the benefit of indexation.
The latest budget has exempted capital gains from tax if the amount of gain is
invested in Initial Public offerings (IPO).

Capital loss – It can be set off against other capital gains. But losses on the
transfer of long-term capital assets can be set off only against gains from transfer
of long-term capital assets; the balance long-term capital loss can be carried
forward separately for eight assessment years to be set off only against LTCG.

4) Dividend tax free for investor - Section 10 is an all-encompassing section that


lists the kinds of income that are to be excluded from calculation of total income.

5) Dividend distribution tax - while the modification of Section 10(33) made


dividend tax free in the hands of all investors, another inclusion in the tax laws
levied tax on dividends distributed by mutual funds. The tax, called Dividend
Distribution Tax, is levied on all distributions of dividends made by mutual
funds. However, there is no DDT levied on equities.

Funds are required to pay a tax of 12.5 per cent (plus surcharge and education
cess) for dividends distributed to individuals and Hindu Undivided Families, and
20 per cent for dividends distributed to other persons. Dividends declared by
equity-oriented funds (MFs with more than 50 per cent of assets in equities) are
exempt from the dividend distribution tax (DDT).

Though investors are not liable to pay DDT but it indirectly affects the NAV of
the schemes.

Schemes with Section 88 benefit.

Mutual Fund schemes that carry the benefit of Section 88 can essentially be
spread across three categories - ELSS, Insurance Linked and Pension.

1) ELSS - Equity Linked Savings Schemes carry a tax rebate of 20 per cent of
amount invested. However, only a maximum of Rs 10,000 is eligible for rebate
in this category of schemes. These schemes come with a lock in period of 3
years. Further, appropriate legislation stipulates that atleast 80 per cent of the
total corpus of these funds shall be invested in equity and related instruments.
Currently, most mutual funds offer open-ended ELS schemes in which one can
invest throughout the year.

2) Insurance Linked Schemes - Apart from ELSS schemes, mutual fund schemes
with insurance benefits carry the benefit of Section 88. Such schemes piggy
backs an insurance benefit with a mutual fund.
3) Pension Plans - the mutual fund industry in India is constrained by law from
offering full fledged pension plans on the lines of the 401 K plans available in
the United States. So far, UTI and Kothari Pioneer Mutual Fund are the only two
mutual funds offering full-fledged Pension Plans with benefit under Section 88.
While UTI offers Retirement Benefit Plan, Kothari Pioneer Mutual Fund offers
KP Pension Plan.

Taxation Structure for Mutual Funds in US

The U.S. Securities and Exchange Commission (SEC) regulates funds according
to the provisions of the Investment Company Act of 1940.
When fund sponsors sell fund shares to the public they are subject to regulation
as broker-dealers under the Securities Exchange Act of 1934.

A mutual fund generally distributes all of its earnings each year and is taxed only
on amounts it retains. This specialized “pass-through” tax treatment of mutual
fund income and capital gains was established under the Revenue Act of 1936
.To qualify for this favorable tax treatment under the Code, mutual funds must
meet, among other conditions, various investment diversification standards and
pass a test regarding the source of their income.

Fund investors are liable for paying tax on a fund’s earnings, whether or not they
receive the distributions in cash or reinvest them in additional fund shares.

Types of Distributions

Mutual funds make two types of taxable distributions to shareholders:-

 ordinary dividends
 Capital gains.

Dividend distributions come primarily from the interest and dividends earned by
the securities in a fund’s portfolio, after expenses are paid by the fund. These
distributions must be reported as dividends on an investor’s tax return.
Capital gain distributions represent a fund’s net gains, if any, from the sale of
securities held in its portfolio for more than one year. When gains from these
sales exceed losses, they are distributed to shareholders.
To help mutual fund shareholders understand the impact that taxes can have on
the returns generated by their investments, the SEC adopted a rule that requires
mutual funds to disclose standardized after tax returns for one-, five-, and 10-
year periods.

After-tax returns, which accompany before-tax returns in fund prospectuses, are


presented in two ways:

 after taxes on fund distributions only (pre-liquidation); and


 after taxes on fund distributions and an assumed redemption of
fund shares (post-liquidation).

Chapter – 3

Data Analysis And Presentation


Comparative Similarities and Differences
Equity ownership in US has grown manifold over the past many decades and
now half of the US population invest in equities reason being there has been a
drastic transition from age-old pension schemes towards individual stock or stock
mutual funds. In America there is direct correlation between the age group and
equity owned by investors. For instance younger investor’s exposure in equity
market is very large on the contrary older investors avoid equity exposure.

But in India only 2% of the population invest in equity assets reason being like
other Asian countries, Indians also are not willing to experiment with new
investment avenues like insurance mutual funds, insurance, ETFs etc and prefer
only age-old instruments like PPF, Fixed Deposits etc.

In US there are around 600 organizations selling more than 8,000 mutual fund
schemes but in India there are only 40-60 organizations selling about only 800
schemes, which speak for its untapped potential.

Despite all differences there exists some similarities also, for instance both the
Indian and US investors have same set of financial goals depending on their age
group, i.e., younger investors wants to save to buy home or other large items,
savings for their retirement etc.

With the increase in life expectancy older investors are saving for their post
retirement life. But saving for retirement is by far the most frequently mentioned
primarily financial goal for equity holders.
Percentage of equity owners in each Age Group

Fig – 4
% of Equity owners in each Age Grp - US

% of Equity Owners
19% 15%
in eacg Age Group
Less than 35

35-49

33% 50-64

33%
More than 64

Source – Investment Institute of USA

Fig – 5
% of Equity owners in each Age Grp - India

8%

Less than 35
27%
35-49
More than 50
65%

Source – Primary Data

In India only young investors between the age group of 25-35 invest in
individual stock or stock mutual fund reason being people from 18-25 age group
either studying or earning very minimal which limits them from investment but
older investors avoid exposure to the equity market and invest in conventional
instruments like PPF,Fixed Deposits etc. whereas in US almost all age group
invest in equities.
Source of Information for Investors

Fig – 6
S ource of Information - U S

1%
22% Direct S ource
36% Financ ial Advisor
Internet
S ourc e Unknown
41%

Source – Investment Institute of USA


Fig – 7
Source of Information - India

2%

34% Friends & Family


Financial Advisor
50%
Internet
Others

14%

Source – Primary Data

In US investors follow their financial advisor’s recommendation but in India


people are more dependent on their friends & family for their investments and
then listen to their advisor.
As per the recent research done by ICI,it was found that both in US as well as in
India “Internet” as a medium of source of information is becoming very popular.
More and more investors surf the internet for their investment related queries.
Percentage of households owning Equities

Fig – 8
Mutual Fund ownership-US

11% 15%
Fiduciaries

Households

Financial
Organizations
74%

Source – Investment Institute of USA

In spite of the fact that India is an EMERGING country of this decade , only 2%
of the household own equity whereas in United States , household own the
maximum share of financial assets like IRA , individual stock or Exchange
Traded Funds , index funds etc.

Many fund managers argue that investors base has actually increased but
economists argue that it is not the retail investors who have started to participate
in mutual fund industry rather it is the corporate people who are using funds as a
strategic tool in their treasury operations.

Financial Goal of Investors


Fig – 9
Financial Goal Of Investors - US

10%
10%
Retirement
Education
House
20% 60%
Others

Source – Investment Institute of USA

Fig – 10
Financial Goal of Investors - India

4%

24% Retirement
Education
52%
House
Others
20%

Source – Primary Data

When it comes to financial goal of the investments both in US as well as in India


“Savings for Retirement” is the primary goal of investors.

The present study attempts to identify the growth prospects of Mutual fund
industry in India and what limits it from moving on an explosive expansion path
in this country.
Review of the Problem

Table – 5

Comparison of Schemes

Return
1-Yr Nifty Stnd Ex. Entry
Scheme Eq Debt since Risk Beta AUM
Return Returns Dev. Ratio Load
Inception

Franklin
India
Bluechip
Fund 95 5 30.79 58.98 33.4 Avrge 6.87 0.93 20246 1.93 2.25

Franklin
India
Prima
Fund 90 10 26.97 58.3 33.4 Avrge 7.69 0.78 24252 1.93 2.25

HDFC
Equity
Fund 80 20 25.6 73.79 33.4 Low 6.59 0.86 25088 2 2.25

HDFC Top B.
200 Fund 90 10 36.81 66.2 33.4 Avrge 7.11 0.92 10135 2.2 2.25

Principal
Growth
Fund 90 10 31.95 30.46 33.4 Avrge 6.54 0.84 3766 2.3 2.25

Sundaram
Growth B.
Fund 90 10 26.56 58.73 33.4 Avrge 6.6 0.87 1151 2.47 2.25

Abbreviations: -

Eq. = Equity
Avrge = Average
B.Avrge = Below Average
Stnd Dev. = Standard Deviation
AUM = Asset under Management
Ex. Ratio = Expense Ratio
Note – Above data is as on 31st January 2006.
Franklin India Bluechip Fund

Inception Date - Nov-30-1993

Investment Objective

This fund is a steady growth scheme that invests mainly in large cap blue-chip
shares. Launched in October 1993 as a 3-year closed end fund, this scheme was
converted into an open end fund from January 1997. Ever since its inception, this
fund has been ranked consistently among India’s top performing funds.

Asset Allocation

Sector % Net Assets

Diversified 18.83
Automobile 16.30
Technology 13.70
Financial Services 11.98
FMCG 6.95
Basic/Engineering 6.59
Energy 5.71
Metals & Metal Products 4.52
Services 3.28
Chemicals 2.13
Construction 1.47

Top 5 Portfolio holdings as on 28-Feb-06

Company in %

LARSEN & TOU 6.51


H C L TECH 6.43
GRASIM IND 5.63
TATA MOTORS 5.35
ITC 5.22
Franklin India Prima Fund

Inception Date Nov 30, 1993

Investment Objective

Providing exclusive access to the finest of India's smaller companies is Franklin


India Prima Fund, India's only fund with a clear focus on this dynamic segment
of the stock market.
Research has shown that dynamic and well-managed, small and medium sized
enterprises experience higher growth rates than their well established, larger
counterparts. If identified early, investments in such companies could give
substantial capital appreciation over time.
While there are thousands of listed smaller companies, not all of them
can experience the same level of growth and success. Primary investment
objective is to identify the winners amongst them which require time, effort and
research.
Asset Allocation

Sector %Net Assets

Health Care 12.14


Automobile 9.72
Diversified 9.60
Chemicals 8.60
Technology 7.59
Financial Services 7.18
FMCG 6.88
Services 6.47
Construction 6.18
Basic/Engineering 5.72
Textiles 1.67
Metals & Metal Products 0.35

Top 5 Portfolio holdings as on 28-Feb-06

Company in %
Other Current Assets 7.10
A.B Nuvo 6.11
Jaiprakash Ass. 5.97
Mphasis BFL 4.55
Goodlass 3.73
HDFC Equity Fund

Inception Date Jan 01, 1995

Investment Objective

HDFC Equity Fund is a pre-dominantly large cap equity fund. It has a decade-
long track record of impressive returns across market cycles. HDFC Equity Fund
pursues an aggressive investment style. It usually invests in about 25 stocks.
For investors with a high risk appetite, HDFC Equity Fund makes an ideal
investment option. The fund's ability to keep turbulence at bay despite managing
a concentrated portfolio is a major positive.
In order to provide long term capital appreciation, the Scheme will invest
predominantly in growth companies. Companies selected under this portfolio
would as far as practicable consist of medium to large sized companies. The aim
will be to build a portfolio, which represents a cross-section of the strong growth
companies in the prevailing market. In order to reduce the risk of volatility, the
Scheme will diversify across major industries and economic sectors.

Asset Allocation

Sector %Net Assets

Automobile 24.81
Technology 23.41
Basic/Engineering 15.35
Financial Services 8.60
Energy 8.59
Chemicals 5.35
FMCG 3.94
Services 2.84
Textiles 2.04
Metals & Metal Products 1.85

Top 5 Portfolio holdings as on 28-Feb-06


Company in %

Infosys Tech 8.78


SBI 7.92
Sstyam Computers 7.24
BHEL 7.05
ONGC 6.58
HDFC Top 200 Fund

Inception Date Oct 11, 1996

Investment Objective

The investment objective is to generate long term capital appreciation from a


portfolio of equity and equity linked instruments. The investment portfolio for
equity and equity linked instruments will be primarily drawn from the companies
in the BSE 200 Index. Further, the Scheme may also invest in listed companies
that would qualify to be in the top 200 by market capitalization on the BSE even
though they may not be listed on the BSE This includes participation in large
IPO where in the market capitalization of the company based on issue price
would make the company a part of the top 200 companies listed on the BSE
based on market capitalization.

Asset Allocation

Sector %Net Assets

Technology 23.17
FMCG 18.02
Automobile 13.96
Energy 13.50
Basic/Engineering 12.00
Financial Services 7.44
Chemicals 3.02
Services 3.02
Diversified 2.31
Health Care 0.95
Textiles 0.36
Top 5 Portfolio holdings as on 28-Feb-06

Company in %

ONGC 7.36
ITC 5.33
SBI 4.68
Infosys Technology 4.09
TCS 3.90

Principal Growth Fund

Inception Date Oct-25-2000

Investment Objective

The primary investment objective of the fund is to achieve long-term capital


appreciation. The aim will be to take concentrated positions in the select strong
stocks that are identified through the above valuation process. The fund will
primarily invest in equities and equity-related instruments. The strategy is to
maintain a diversified portfolio with an exposure to 25 to 30 select large-cap
stocks across. The strategy is to identify stocks, which can provide capital
appreciation in the long-term.

Asset Allocation

Recommendation

One of the major confusion that every investor face is whether to opt for
dividend option or growth option, therefore, our recommendation is in terms of
its effect on returns from the fund, the dividend re-investment option is no
different from the growth option, the dividend re-investment option is the
superior one for investors who want the tax efficiency of the dividend option and
are also willing to remain invested in equities through its ups and downs.

Equity funds usually offer three options for investors to choose from — the
Dividend Payout option, the Dividend Re-investment option and the Growth
option. A few funds have also started to offer a Bonus option. These options
differ only in their method of distribution of returns.
Investors cash in on the returns earned by the fund from time to time through the
dividend it declares, in growth option these returns are retained which is reflected
in the appreciated NAV.

The Dividend re-investment option allows the investors to plough back the
dividends declared by fund house into the scheme at the prevailing NAV.

This option is recommended for investors who are seeking tax efficiency and
willing to remain invested in the scheme and this option is preferred for its
liquidity.

For instance, suppose Investor-A invested Rs.1000 in a fund at an NAV of Rs.10


per unit, fetching him 100 units. Six months later, because of an appreciation in
the fund's portfolio, the value of the units has grown to Rs 1,200. In the Dividend
option, the fund may declare a dividend of Rs 2 per unit and pay out Rs 200. The
value of your residual holdings in the fund would be Rs 1000.

In the Growth Option, he would not receive any payout, but the value of his
holdings would be Rs 1,200 at the end of six months, as the value of the100 units
you hold would have grown from Rs 10 to Rs 12 per unit. In the Dividend Re-
investment option, the Rs 200 declared as dividends would be reinvested in the
fund at the prevailing ex-dividend NAV and he would be left with 120 units
worth Rs.10 each.

His investment value at Rs 1,200 would be the same as in the Growth option.
The Dividend option (whether Reinvestment or Payout) is the more tax- efficient
way of receiving your returns from an equity fund.

Table – 6

Comparison between Dividend and Growth Option

The Systematic Withdrawal Edge


Non-equity-oriented schemes Dividend Growth
a NAV per unit (Rs) 15.00 15.00
b Dividend per unit (Rs) 1.00 -
c Dividend distribution tax per unit (Rs) 0.14 -
d Post-dividend NAV (Rs) (a-b-c) 13.86 15.00
Source – Value Research Online
Table – 7

Recommendation for the Debt and Equity Mix

Debt Total
Equity MF Balanced MF MIPS Fixed Inc. Total Equity
MF Debt

Below 30 years 50% 30% 5% 5% 10% 70% 30%

30 - 45 years 40% 30% 15% 5% 10% 60% 40%

45 - 55 years 25% 25% 25% 5% 20% 45% 55%

Above 55 years 5% 10% 40% 5% 40% 15% 85%

Source – AMFI (Association of Mutual Funds In India)

Mutual fund is quite a new concept for many of the investors in India, therefore
before investing into any scheme every investor should try to find out the
following facts apart from the recommended mix of equity and debt as given in
Table – 7 : -

1) History of the scheme


2) Returns
3) Entry / Exit Load
4) Expense Ratio
5) Beta of the portfolio
6) Churning Ratio
7) Investment Objective and Style
Limitations

Although analysis of this project matches the macro and micro environment of
the mutual fund industry, but there are a few limitations in the study. Some of the
limitations are mentioned below:

 Our study is limited to the Delhi region, as it was assumed that


these samples represent the entire population in India.

 Because of time constraint, only limited information has been


obtained.

 Most of the respondents were not willing to disclose their personal


information regarding their investments pattern.

Appendix
Sample Composition for Primary Data

Fig – 11
Gender Distribution

48% Male
52% Female

Fig – 12

Occupation Structure

14% 18%
Students
16% Professional
Business
24% Self-employed
Retired

28%

Fig –13
Income Distribution

18%
25%

Less Than 2Lac


2Lac - 5Lac
5Lac - 10Lac
More than 10Lac
31%
26%

Fig – 14

Targeted Area

20%

South Delhi
50% North Delhi
East Delhi
30%
Mutual Funds are essentially investment vehicles where people with similar
investment objective come together to pool their money and then invest
accordingly. Each unit of any scheme represents the proportion of pool owned by
the unit holder (investor). Appreciation or reduction in value of investments is
reflected in net asset value (NAV) of the concerned scheme, which is declared by
the fund from time to time. Mutual fund schemes are managed by respective
Asset Management Companies (AMC). The benefits on offer are many with
good post-tax returns and reasonable safety being the hallmark that we normally
associate with them. Some of the other major benefits of investing in them are:

 Number of available options


 Diversification
 Professional Management
 Potential of Returns
 Liquidity
 Well Regulated
 Transparency
 Flexible, Affordable and a Low Cost affair

Different types of mutual fund schemes

By Structure

1) Open-ended schemes
2) Close-ended schemes
3) Interval schemes

By Investment Objective

1) Growth schemes
2) Income schemes
3) Balance schemes
4) Money Market schemes

Other types of schemes

1) Tax Saving schemes


2) Special schemes
3) Index schemes
4) Sector specific schemes

Open-end Funds

An Open-end Fund is one that is available for subscription all through the year.
These do not have a fixed maturity. Investors can conveniently buy and sell units
at Net Asset Value ("NAV") related prices

Close-ended Funds

A Close-ended Fund has a stipulated maturity period which generally ranges


from 3 to 15 years. The fund is open for subscription only during a specified
period. Investors can invest in the scheme at the time of the initial public issue
and thereafter they can buy or sell the units of the scheme on the Stock
Exchanges where they are listed

Growth Funds

The aim of growth funds is to provide capital appreciation over the medium to
long term. Such schemes normally invest a majority of their corpus in equities.
Growth schemes are ideal for investors who have a long term outlook and are
seeking growth over a period of time

Income Funds

The aim of Income Funds is to provide regular and steady income to investors.
Such schemes generally invest in fixed income securities such as bonds,
corporate debentures and Government securities. Income Funds are ideal for
capital stability and regular income

Balanced Funds

The aim of Balanced Funds is to provide both growth and regular income. Such
schemes periodically distribute a part of their earning and invest both in equities
and fixed income securities in the proportion indicated in their offer documents.
These are ideal for investors looking for a combination of income and moderate
growth

Money Market Funds


The aim of Money Market Funds is to provide easy liquidity, preservation of
capital and moderate income. These schemes generally invest in safer short-term
instruments such as Treasury Bills, Certificates of Deposit, Commercial Paper
and Inter-Bank Call Money. Returns on these schemes may fluctuate depending
upon the interest rates prevailing in the market. These are ideal for corporate and
individual investors as a means to park their surplus funds for short periods

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the
Indian Income Tax laws as the Government offers tax incentives for investment
in specified avenues. Investments made in Equity linknewed Savings Schemes
(ELSS) and Pension Schemes are allowed as deduction under Section 88 of the
Indian Income Tax Act, 1961

Index Schemes

Index Funds attempt to replicate the performance of a particular index such as the
BSE Sensex or the NSE S&P CNX 50.

Sectoral Schemes

Sectoral Funds are those which invest exclusively in a specified sector(s) such as
FMCG, Infotech, Pharmaceuticals, etc. These schemes carry higher risk as
compared to general equity schemes as the portfolio is less diversified, i.e.
restricted to sector(s) / industry (ies).
Questionnaire

Q.1 What is your age?


□ 18-25 □ 26-35
□ 36-45 □ More than 46Years

Q.2 What is your occupation?


□ Salaried □ Retired
□ Professional □ Self employed

Q.3 What is your salary range?


□ Less than 2 lakh □ 2 lakh – 5 lakh
□ 5 lakh – 10 lakh □ More than 10 lakh
Q.4 Do you invest in capital market?
□ Yes □ No

Q.5 If yes, do you invest in any of the followings:-


□ Fixed deposits □ Insurance
□Shares □
Mutual funds
Why_________________________________________________________________
__

Q.6 What is your expected rate of return for your ideal investment?
□ 5-10 % □ 11-14 %
□ 15-20 % □ 21-40 %

Q.7 What is the source of information for your investments?


□ Friends/Family □ Newspapers
□ Internet □ Recommended by your Bank

Q.8 In which type of Mutual fund do you typically invest in?


□ Equity □ Hybrid
□ Debt

Q.9 What is the principal reason behind making investments in the market?
□ Children education □ House
□ Retirement □ Recommended by your Bank

Q.10 What are the reasons for not investing in the Stock Market/Mutual Funds?
□ High risk □ Huge investment
□ No expertise

Q.11 Are you aware about what is a Mutual Fund?


□ Yes □ No

Personal Information:
Name: - ____________________________________________________
Address: - ____________________________________________________
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