CHAPTER-1

INTRODUCTION
 SYSTEMATIC OPERATING EFFICIENCY

INTRODUCTION:

The market condition that exists when participants can execute

transactions and receive services at a price that equates fairly to the
actual costs required to provide them. An operationally-efficient
market allows investors to make transactions that move the market
further toward the overall goal of prudent capital allocation, without
being chiseled down by excessive frictional costs, which would
reduce the risk/reward profile of the transaction.

Also known as an "internally efficient market".

Consider the hypothetical example where all brokers charged a

minimum commission of rs.100 per trade. If you were a huge mutual
fund trading 20,000 share blocks at a time, this fee may not limit your
ability to be operationally efficient in your trading. But if you were a
small investor looking to trade 10 or 20 shares, this fee would keep
you from trading almost entirely, making the market (as you saw it)
extremely inefficient.

In the case of trading costs, the advent of electronic trade and

increased competition have pushed fees low enough to be fair to
investors while still allowing brokers to earn a profit.

In other areas of the market, certain structural or regulatory changes

can serve to make participation more operationally efficient. In 2000,
the Commodity Futures Trading Commission (CFTC) passed a
resolution allowing money market funds to be considered eligible
margin requirements, where before only cash was eligible. This minor
change reduced unnecessary costs of trading in and out of money
market funds, making the futures markets much more operational
efficient.
Efficiency:

The "efficiency" or "inefficiency" of a mutual fund portfolio, or the

extent to which market impact costs and other expenses detract from
its overall performance, may be estimated by comparing the fund's
performance with some appropriate market index over some long
period of time. For mutual funds invested in common stocks, the most
commonly used index is the Standard & Poor's 500.1 For mutual
funds invested in bonds, appropriate bond indices are used.

The performance of an index is generally accepted as equivalent to

the performance a layman could achieve by selecting securities of the
type in the index at random and never managing his portfolio
thereafter.

The extent to which the burdens of market impact costs and other
expenses offset the benefits of professional management in a mutual
fund portfolio, then, can be effectively estimated, over time, by the
degree to which the mutual fund underperforms the market index for
the class of securities in which it invests.

BACKGROUND OF THE PROBLEM:

Beyond the normal utility maximizing agents, the efficient-market

hypothesis requires that agents have rational expectations; that on
average the population is correct (even if no one person is) and
whenever new relevant information appears, the agents update their
expectations appropriately.

Note that it is not required that the agents be

rational. EMH allows that when faced with new information, some
investors may overreact and some may underreact. All that is
required by the EMH is that investors' reactions be random and follow
a normal distribution pattern so that the net effect on market prices
cannot be reliably exploited to make an abnormal profit, especially
when considering transaction costs (including commissions and
spreads). Thus, any one person can be wrong about the market—
indeed, everyone can be—but the market as a whole is always right.
There are three common forms in which the efficient-market
hypothesis is commonly stated—weak-form efficiency, semi-
strong-form efficiency and strong-form efficiency, each of which
has different implications for how markets work.

NEED FOR THE STUDY:

The main purpose of doing this project was to know about mutual
fund and its performance measuring. This helps to know in details
about mutual fund industry right from its inception stage, growth and
future prospects.
It also helps in understanding different schemes of operating
efficiency mutual funds. Because my study depends upon prominent
funds in India and their schemes like equity, income, balance as well
as the returns associated with those schemes.
The project study was done to ascertain the asset allocation, entry
load, exit load, associated with the mutual funds. Ultimately this
would help in understanding the benefits of mutual funds to investors
in operating efficiency.

PROBLEM OF THE STUDY:

 • Variation in funds performance due to its change in
management/objective.
• The funds performance can slip in comparision to similar funds
• There may be increase in various cost associated with funds
• Beta a technical measure of the risk associated may be surge
• The funds rating may go down in various lists published by the
independent rating agencies.
• It can merge into another fund or could b acquired by another
fund house.

OBJECTIVE OF THE STUDY:

• To give a brief idea about the benefits available from Mutual Fund
investment

• To give an idea of the types of schemes available.

• To discuss about the market trends of Mutual Fund investment.

• To study some of the mutual fund schemes and analyse them

• Observe the fund management process of mutual funds

• Explore the recent developments in the mutual funds in India

• To give an idea about the regulations of mutual funds

 CHAPTER- 2

INDUSTRY PROFILE

INDUSTRY PROFILE:
FINANCIAL:

ECS Financial Services (India) Pvt. Ltd. is the Premier Financial

Advisory Services providers started in the year 1996 with the aim of
providing support to Individuals in creating wealth through Efficient
service with Careful suggestions and leading the Investors for Safe
investments.

ECS is promoted by Mr. E. Chandrasekaran a professional with 23

years of experience in Financial Services Sector and also known for
his integrity and services by the investors. Over the years Mr. E.
Chandrasekaran has developed a strong reputation for navigating its
investors through all the Ups & Downs in the market.

Financial Planning: We offer comprehensive financial planning

services that help to meet your life goals. We do this by helping you
assess your goals, plan for them and finally implement them.

HUMAN RESOURCES:

Ecs Team: ECS has a vast network of 21 branches all over South
India and Kolkata. Our team of over 110 plus well-trained, qualified &
motivated professionals includes financial analyst, Insurance &
Investment Experts.

Aim: The main aim of ECS is to Serve our clients plan and organize
their financial affairs to achieve their long & short -term financial,
Personal goals and guiding investing simpler, more understandable
and profitable for the investors. It is our continuous endeavor to be
trustworthy advisor to our clients.
Software: In our efforts to improve the technology, we have
developed our own Software successfully and continuously focusing
to enhance the same with innovative techniques.

MARKETING:

Service:

Portfolio Management: ECS helps in creating portfolio

for its clients in framing an ideal investment strategy.
 Tax planning: By planning your taxes we help you reach
your personal goals by identifying how to increase your
income by saving taxes and by helping you investing tax
saving instruments to fit your personal portfolio and
situation.

Retirement planning: Planning your income for

retirement is one of the most important financial decisions
you will ever make. You have to plan your finances so
that you may maintain the same standard of living when
you are no longer working. In order to ensure that you
enjoy your retirement without financial hardships we urge
you to make your own pension plans like PPF with our
help.

Financial Planning: We offer comprehensive financial

planning services that help to meet your life goals. We do
this by helping you assess your goals, plan for them and
finally implement them.

Value Added Services:

 We keep you updated on the latest opportunities in
the world of investment.

 Our advice is all “Need Based” we give you

customized advice only after understanding your
financial goals risk tolerance and other priorities in
life.

 Our professional Research Team will help you with

advice i.e. thoroughly based on the analysis of
market dynamics government policies & close
monitoring of global developments.

We have a vast network of Branches all over south India, Helping you
to get service at your doorsteps
ORGANISED STRUCTURE:

The detailed organizational structure of functional area of research –

FINANCE. ECS has a vast network of 21 branches all over South
India and Kolkata. Our team of over 110 plus well-trained, qualified &
motivated professionals includes financial analyst, Insurance &
Investment Experts.

Ecs branches are located in places where

retail investors can come in touch with investment opportunities in an
atmosphere of convenience & comfort. Each branch comprises of
trained and qualified investment advisor to take care of the needs of
the customer.

PRODUCTS :

ECS Financial Services (India) Pvt. Ltd. brings a comprehensive

range of products and services under one roof.

1. Mutual Fund: With Mutual Fund emerging as a distinct asset

class ECS has made a strategic choice to leverage the power
 of latest technology to provide a cutting edge to its service. We
deal with the schemes of all top reputed asset management
companies.
2. Insurance: we provide insurance packages of reputed
institutions like LIC, ICICI PRU life, HDFC SLI insurance etc
covering life, medical, general etc.

3. Bonds & Debentures: ECS deals with government of India

relief bonds, Infrastructure bonds, capital gain bonds and bonds
from central & state government institutions.
4. Small Saving schemes: Fixed returns with govt. guarantee.
ECS provides a wide opportunity in opting the best scheme for
investors
5. Tax saving schemes: ECS makes people to be best in their
tax planning by guiding good tax saving Schemes.
6. Initial public offerings: Investing in IPO is a wealth to the
investors. ECS enable the investors to opt for right IPO’s and
does all kinds of services related to the same
7. Company fixed deposits: We offer selected FD Schemes of
reputed companies, which have a better return than bank
deposits with minimum, lock in period.

8. PAN: ECS has been authorized as PSA (Pan Service Agent). It

enables the investors to utilize the pan services that are being
offered.

9. Trading (Selling / Buying): ECS has a separate wing that is

engaged in a buying/Selling of shares, Opening of d’mat
account & other related services.
 CHAPTER-3

RESEARCH

METHODOLOGY

RETAIL DESCRIPTION OF THE FUNCTIONAL AREA:

METHODOLOGY:

Methodology can be considered as the backbone of any project

work.” Methodology refers to the scientific methods used in the
project for the purpose of investigation and research

INTRODUCTION:

Any organization whether big or small, private or public need different

types of information are to known its popularity. I have gathered
secondary data and primary data and collected information from the
combination of these two data:

(1)PRIMARY DATA:

Primary data is the new or fresh data collected from the respodant
through structured scheduled questionnaire

(2)SECONDARY DATA:

I will collect secondary data from the internet portals (and all other
similar portals related to broking industry) Newspapers (The
Economic Times, Business Standard, The business line etc….
Magazines( Business world, Business Today etc….) Journals etc…( I
have mentioned tentative references)

(3) SAMPLE SIZE:

I have taken sample size of 50 respondents,because the population

is too large so it is difficult to survey.

PRIMARY DATA:

DATA ANALYSIS:

SECONDARY DATA:

MUTUAL FUND EFFICIENCY AND PERFORMANCE:

The primary purpose for which mutual funds are acquired and held is
for their expected good performance. Mutual funds are said to have
"professional" managements which, presumably, provide the potential
for investment results better than those that the layman might achieve
by selecting his own individual securities and subsequently managing
his portfolio himself.

Mutual funds, however, are saddled with two burdens which offset
some, all, or more than, the performance benefits derived from the
"professionalism" of their managements. The lesser of these two
burdens is routinely measured in a mutual fund's "expense ratio"
which includes its management fees, administration and operational
expenses, and 12b-1 marketing fees.

ALLOCATIONAL EFFICIENCY :

A characteristic of an efficient market in which capital is allocated in a

way that benefits all participants. Allocational efficiency occurs when
organizations in the public and private sectors can obtain funding for
the projects that will be the most profitable, thereby promoting
economic growth.

In order to be allocationally efficient, a market must

meet the prerequisites of being both informationally efficient (where
much is known by all), and transactionally or operationally efficient
(where transaction costs are reasonable and fair). If all conditions are
met, capital flows will direct themselves to the places where they will
be the most effective, providing an optimal risk/reward scenario for
investors

PERFORMANCE MEASURES OF MUTUAL FUNDS:

Mutual Fund industry today, with about 34 players and more than five
hundred schemes, is one of the most preferred investment avenues
in India. However, with a plethora of schemes to choose from, the
retail investor faces problems in selecting funds. Factors such as
investment strategy and management style are qualitative, but the
funds record is an important indicator too. Though past performance
alone can not be indicative of future performance, it is, frankly, the
only quantitative way to judge how good a fund is at present.
Therefore, there is a need to correctly assess the past performance
of different mutual funds.

Worldwide, good mutual fund companies over are known by their

AMCs and this fame is directly linked to their superior stock selection
skills. For mutual funds to grow, AMCs must be held accountable for
their selection of stocks. In other words, there must be some
performance indicator that will reveal the quality of stock selection of
various AMCs.

Return alone should not be considered as the basis of measurement

of the performance of a mutual fund scheme, it should also include
the risk taken by the fund manager because different funds will have
different levels of risk attached to them. Risk associated with a fund,
in a general, can be defined as variability or fluctuations in the returns
generated by it. The higher the fluctuations in the returns of a fund
during a given period, higher will be the risk associated with it. These
fluctuations in the returns generated by a fund are resultant of two
guiding forces. First, general market fluctuations, which affect all the
securities present in the market, called market risk or systematic risk
and second, fluctuations due to specific securities present in the
portfolio of the fund, called unsystematic risk. The Total Risk of a
given fund is sum of these two and is measured in terms of standard
deviation of returns of the fund. Systematic risk, on the other hand, is
measured in terms of Beta, which represents fluctuations in the NAV
of the fund vis-�-vis market. The more responsive the NAV of a
mutual fund is to the changes in the market; higher will be its beta.
Beta is calculated by relating the returns on a mutual fund with the
returns in the market. While unsystematic risk can be diversified
through investments in a number of instruments, systematic risk can
not. By using the risk return relationship, we try to assess the
competitive strength of the mutual funds vis-�-vis one another in a
better way.

In order to determine the risk-adjusted returns of investment

portfolios, several eminent authors have worked since 1960s to
develop composite performance indices to evaluate a portfolio by
comparing alternative portfolios within a particular risk class. The
most important and widely used measures of performance are:
� The Treynor Measure

� The Sharpe Measure

� Jenson Model

� Fama Model

The Treynor Measure

Developed by Jack Treynor, this performance measure evaluates

funds on the basis of Treynor's Index. This Index is a ratio of return
generated by the fund over and above risk free rate of return
(generally taken to be the return on securities backed by the
government, as there is no credit risk associated), during a given
period and systematic risk associated with it (beta). Symbolically, it
can be represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where, Ri represents return on fund, Rf is risk free rate of return and

Bi is beta of the fund.

The Sharpe Measure

In this model, performance of a fund is evaluated on the basis of

Sharpe Ratio, which is a ratio of returns generated by the fund over
and above risk free rate of return and the total risk associated with it.
According to Sharpe, it is the total risk of the fund that the investors
are concerned about. So, the model evaluates funds on the basis of
reward per unit of total risk. Symbolically, it can be written as:

Sharpe Index (Si) = (Ri - Rf)/Si

Where, Si is standard deviation of the fund.

While a high and positive Sharpe Ratio shows a superior risk-
adjusted performance of a fund, a low and negative Sharpe Ratio is
an indication of unfavorable performance

Comparison of Sharpe and Treynor

Sharpe and Treynor measures are similar in a way, since they both
divide the risk premium by a numerical risk measure. The total risk is
appropriate when we are evaluating the risk return relationship for
well-diversified portfolios. On the other hand, the systematic risk is
the relevant measure of risk when we are evaluating less than fully
diversified portfolios or individual stocks. For a well-diversified
portfolio the total risk is equal to systematic risk. Rankings based on
total risk (Sharpe measure) and systematic risk (Treynor measure)
should be identical for a well-diversified portfolio, as the total risk is
reduced to systematic risk. Therefore, a poorly diversified fund that
ranks higheron Treynor measure, compared with another fund that is
highly diversified, will rank lower on Sharpe Measure.

Jenson Model

Jenson's model proposes another risk adjusted performance

measure. This measure was developed by Michael Jenson and is
sometimes referred to as the Differential Return Method. This
measure involves evaluation of the returns that the fund has
generated vs. the returns actually expected out of the fund given the
level of its systematic risk. The surplus between the two returns is
called Alpha, which measures the performance of a fund compared
with the actual returns over the period. Required return of a fund at a
given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf)

Where, Rm is average market return during the given period. After

calculating it, alpha can be obtained by subtracting required return
from the actual return of the fund.

Higher alpha represents superior performance of the fund and vice

versa. Limitation of this model is that it considers only systematic risk
not the entire risk associated with the fund and an ordinary investor
can not mitigate unsystematic risk, as his knowledge of market is
primitive.

Fama Model

The Eugene Fama model is an extension of Jenson model. This

model compares the performance, measured in terms of returns, of a
fund with the required return commensurate with the total risk
associated with it. The difference between these two is taken as a
measure of the performance of the fund and is called net selectivity.

The net selectivity represents the stock selection skill of the fund
manager, as it is the excess return over and above the return
required to compensate for the total risk taken by the fund manager.
Higher value of which indicates that fund manager has earned returns
well above the return commensurate with the level of risk taken by
him.

Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)

Where, Sm is standard deviation of market returns. The net

selectivity is then calculated by subtracting this required return from
the actual return of the fund.

The Mutual Fund Performance Jinx:

There are purported to be over 10,000 mutual funds available to the

public for purchase. There are also many hundreds of sponsors, each
with a stable of these funds. Each of a sponsor's funds pursues a
different investment strategy.

At any point in time, and over varying periods of time, merely

by the laws of random chance, it is inevitable that some funds will
have delivered higher returns than others. Those funds which have
delivered the highest returns are given the greatest visibility by the
many mutual fund rating services; and they are also the specific
funds that their sponsors most heavily merchandise. As a result,
massive amounts of money pour into them.

Measurements of Value Added and Efficiency Shortfalls:

It goes without saying that, by employing the services of a mutual

fund, an investor hopes to achieve a level of performance superior to
what he would achieve by selecting securities at random and then
never managing his list. To the extent that a mutual fund provides an
"above-the-market" level of performance, its professional
management is said to "add value."4 To the extent that a mutual fund
fails to provide such performance, it may be said to suffer an
"efficiency shortfall."

Unlike its other expenses, a mutual fund's

market impact costs cannot be measured with precision, and so they
are not reported in the institution's prospectus or sales literature.
Their magnitude can, however, be inferred collectively for mutual
funds in general from tabulations such as the following

Average Annual Total Return

(for periods ending December 31, 1997)

Series 1 Year 3 Years 5 Years 10 Years

Standard
& Poor's 33.35%/yr. 31.13%/yr. 20.25%/yr. 18.04%/yr.
500 Index

Domestic 24.30%/yr. 24.78%/yr. 16.69%/yr. 15.78%/yr.

Stock
 Funds

Average
Annual 9.05%/yr. 6.35%/yr. 3.56%/yr. 2.26%/yr.
Shortfall

Source: Morningstar (2,726 mutual funds with collective assets

of $1.5 trillion)

Either of two conclusions may be drawn from the above data:

1. If, as many scholars contend, the markets are "efficient"5 and

professionals cannot add value by actively managing a mutual fund
portfolio, then, the figures in the above table labeled "Average Annual
Shortfall" represent the sum of the mutual fund industry's reported
expenses and market impact costs.6

2. If, however, as most mutual fund managers contend, the markets

are not efficient, and so professionals can make enlightened
purchase and sale decisions by identifying and exploiting underpriced
and overpriced securities, then, the shortfall figures in the above table
understate the magnitude of the mutual fund industry's reported
expenses and market impact costs by whatever value these
professional managers add.

The fact that the shortfall figures have been rising over the past ten
years (as is also revealed in the above table) indicates that the
mutual fund industry's market impact problems are becoming
increasingly severe. This is not surprising, given the rapid growth in
the size of mutual funds and an increase in the rates of their portfolio
turnover (now estimated to average nearly 100% per year).

In any event, it appears that the combination of reported expenses

and market impact costs, on average, now consumes the mutual fund
investor's capital at a rate of no less than 6% per year (and perhaps
by as much as 9% per year). Given that the stock market has
averaged an annual return of 31% per year over the past three years,
even after the 6% "haircut," mutual fund investors have netted nearly
25% per year. The 6% sacrificed, then, may not have seemed all that
burdensome to most mutual fund shareholders. If, and when, the
stock market again generates only the 10% returns it has averaged
over the past two-hundred years (or generates negative returns, as it
has in many years in the past), a 6% (or 9%) built-in performance
shortfall may prove more discomforting.7

NET ASSET VALUE:

Net asset value (NAV) is a term used to describe the value of an

entity's assets less the value of its liabilities. The term is most
commonly used in relation to open-ended or mutual funds because
shares of such funds registered with the U.S. Securities and
Exchange Commission are redeemed at their net asset value.
However, the term may also be used as a synonym for book value or
the equity value of a business. Net asset value may represent the
value of the total equity, or it may be divided by the number of shares
outstanding held by investors and, thereby, represent the net asset
value per share.

Net asset values and other accounting and recordkeeping activities

are the result of the process of Fund Accounting, sometimes called
securities accounting, investment accounting and/or portfolio
accounting. Fund Accounting systems are sophisticated
computerized systems used to account for investor capital flows in
and out of a fund, purchases and sales of inoperating expenses of
the fund. The fund's investments and other assets are valued on a
regular basis such as daily, weekly or monthly, depending on the fund
and associated regulatory or sponsor requirements. There is no
universal method or basis of valuing assets and liabilities for the
purposes of calculating net asset value used throughout the world,
and the criteria used for the valuation will depend upon the
circumstances, the purposes of the valuation and any regulatory
and/or accounting principles that may apply. For example, for US
registered open-ended funds, investments are commonly valued
each day the New York Stock Exchange is open, using closing prices
(meant to represent fair value) typically 4:00 PM Eastern Time. For
US registered money market funds, investments are often carried or
valued at 'amortized cost' as opposed to market value for expedience
and other purposes, provided various requirements are continually
met.

TYPES OF MUTUAL FUNDS:

Mutual funds can be classified based on the structure and investment

objective. By Structure

CLOSED-END FUND :

A closed-end fund looks much like a stock of a publically traded

company: it's traded on some stock exchange, you buy or sell shares
in the fund through a broker just like a stock (including paying a
commission), the price fluctuates in response to the fund's
performance and (very important) what people are willing to pay for it.
Also like a publically traded company, only a fixed number of shares
are available.

These funds have a stipulated maturity period generally ranging 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.

The market price of closed-end funds is determined by supply and

demand and not by net-asset value (NAV), as is the case in open-end
funds. Usually closed mutual funds trade at discounts to their
underlying asset value.

OPEN-END FUND

An open-end fund is the most common variety of mutual fund. Both

existing and new investors may add any amount of money they want
to the fund. In other words, there is no limit to the number of shares in
the fund. Investors buy and sell shares usually by dealing directly with
the fund company, not with any exchange. The price fluctuates in
response to the value of the investments made by the fund, but the
fund company values the shares on its own; investor sentiment about
the fund is not considered.
Open-end funds keep some portion of their assets in short-term and
money market securities to provide available funds for redemptions.
A large portion of most open mutual funds is invested in highly liquid
securities, which enables the fund to raise money by selling securities
at prices very close to those used for valuations.

BY INVESTMENT OBJECTIVE :

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.
Capital appreciation in such funds may be limited, though risks are
typically lower than that in a growth fund.

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. This proportion affects
the risks and the returns associated with the balanced fund - in case
equities are allocated a higher proportion, investors would be
exposed to risks similar to that of the equity market.

Balanced funds with equal allocation to equities and fixed income

securities 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 Linked 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 specified sector

such as FMCG, Information Technology, Pharmaceuticals, etc. These
schemes carry higher risk as compared to general equity schemes as
the portfolio is less diversified, i.e. restricted to specific sector/
industry

DIFFERENT PLANS THAT MUTUAL FUNDS OFFER:

To cater to different investment needs, Mutual Funds offer various
investment options. Some of the important investment options
include:

GROWTH OPTION :

Dividend is not paid-out under a Growth Option and the investor

realises only the capital appreciation on the investment (by an
increase in NAV).

DIVIDEND PAYOUT OPTION :

Dividends are paid-out to investors under the Dividend Payout

Option. However, the NAV of the mutual fund scheme falls to the
extent of the dividend payout.

DIVIDEND RE-INVESTMENT OPTION :

Here the dividend accrued on mutual funds is automatically re-

invested in purchasing additional units in open-ended funds. In most
cases mutual funds offer the investor an option of collecting dividends
or re-investing the same.

RETIREMENT PENSION OPTION :

Some schemes are linked with retirement pension. Individuals

participate in these options for themselves, and corporates participate
for their employees.

INSURANCE OPTION :

Certain Mutual Funds offer schemes that provide insurance cover to

investors as an added benefit.

SYSTEMATIC INVESTMENT PLAN (SIP) :

Here the investor is given the option of preparing a pre-determined
number of post-dated cheques in favour of the fund. The investor is
allotted units on a predetermined date specified in the offer document
at the applicable NAV.

SYSTEMATIC WITHDRAWAL PLAN (SWP) :

As opposed to the Systematic Investment Plan, the Systematic

Withdrawal Plan allows the investor the facility to withdraw a pre-
determined amount / units from his fund at a pre-determined interval.
The investor's units will be redeemed at the applicable NAV as on
that day.

ARE RETURNS FROM MUTUAL FUNDS GUARANTEED?

Generally, Mutual Funds do not offer guaranteed returns to investors.

Although, SEBI regulations allow Mutual Funds to offer guaranteed
returns subject to the Fund meeting certain conditions, most Funds
do not offer such guarantees. In case of a guaranteed return scheme,
the sponsor or the AMC, guarantees a minimum level of return and
makes good the difference if the actual returns are less than the
guaranteed minimum. The name of the guarantor and the manner in
which the guarantee shall be met must be disclosed in the offer
document by the Mutual Fund. Investments in mutual funds are not
guaranteed by the Government of India, the Reserve Bank of India or
any other government body.