INTRODUCTION

“INVESTMENT IS A SCIENCE, NOT AN ART”

Investment planning is an alien concept for the Indian populace. For a country,
which till now was worried about making ends, meet this emerging trend is
definitely a new experience. But, the truth is that if only they would have been
introduced to the Art of Managing Money, life could have been so much
easier. Most of us spend more than half of our lives working and saving
because money is important, in fact crucial. However, most of us do not spend
any time for planning to make that hard-earned money work more effectively
for us.

This report is intended to understand about “The Available Investment

Instrument” that are available for the investor for investing Purpose. The aim
of doing this report is that, this report gives us deep information of Investment
Instrument, Need Behind Investment, Types of risk in Investments, How to go
for Investment. And also tells us about the Golden rules of stock investing.

INVESTMENT
Savings form an important part of the economy of any nation. With the savings
invested in various options available to the people, the money acts as the driver
for growth of the country. Indian financial scene too presents a plethora of
avenues to the investors. Though certainly not the best or deepest of markets in
the world, it has reasonable options for an ordinary man to invest his savings.

1
 An investment can be described as perfect if it satisfies all the needs of all
investors. So, the starting point in searching for the perfect investment would
be to examine investor needs. If all those needs are met by the investment, then
that investment can be termed the perfect investment.

Most investors and advisors spend a great deal of time understanding the
merits of the thousands of investments available in India. Little time, however,
is spent understanding the needs of the investor and ensuring that the most
appropriate investments are selected for him.

• The Need Behind Investments

 Why should one invest?

 When to invest?
 How much money is needed to invest?
 When can we invest?

 Why should one invest?

Savings form an important part of the economy of any nation. With the savings
invested in various options available to the people, the money acts as the driver
for growth of economy. Indian financial scene, too presents a plethora of

2
avenues to the investors. Though certainly not the best or deepest of markets in
the world, it has reasonable options for an ordinary man to invest his savings.

When we talk about the investment many questions come to our mind that
when, how much, how long and in which option we should invest. Really,
investing decisions are not a child’s play that we can make very easily. For it
we should have the good knowledge of the market conditions, available
investment options in the market Either small or big investor, every body
wants to grow his/her portfolio as quick as possible and in the safest way
because many times our own future or our children’s future depends on the
outcomes of these investments.

 When to Invest?
‘The sooner the better’. By investing into the market right away allows
investments more time to grow, whereby the concept of compounding interest
swells income by accumulating earnings and dividends. Considering the
unpredictability of the markets, research and history indicates these three
golden rules for all investors

1. Invest early

2. Invest regularly

3. Invest for long term and not short term.

3
Trust in the power of compounding is growth via reinvestment of returns
earned on savings. Compounding has a snowballing effect because one earns
income not only on the original investment but also on the reinvestment of
returns accumulated over the years. The power of compounding is one of the
most compelling reasons for investing as soon as possible. The earlier one
starts investing and continues to do so consistently the more money will be
made. The longer the money remains invested and the higher the interest rates,
the faster the money will grow. There is always a first time for everything so
also for investing. To invest, one needs capital free of any obligation. If he is
not in the habit of saving sufficient amount every month, then he is not ready
for investing.

 How much money is needed to invest?

In finance, an investment strategy is a set of rules, behaviors or procedures,
designed to guide an investor's selection of an investment portfolio. Usually
the strategy will be designed around the investor's risk-return tradeoff: some
investors will prefer to maximize expected returns by investing in risky assets,
others will prefer to minimize risk, but most will select a strategy somewhere
in between.

Passive strategies are often used to minimize transaction costs, and active
strategies such as market timing are an attempt to maximize returns.

One of the better-known investment strategies is buy and hold. Buy and hold is
a long term investment strategy, based on the concept that in the long run

4
equity markets give a good rate of return despite periods of volatility or
decline. A purely passive variant of this

Strategy is indexing where an investor buys a small proportion of all the shares
in a market index such as the S&P 500, or more likely, in a mutual fund called
an index fund.

The Ideal Investment strategy should be a customized one for each investor
depending on his risk-return profile, his satisfaction level, his income, and his
expectations. Accurate planning gives accurate results. And for that there must
be an efficient and trustworthy roadmap to achieve the ultimate goal of wealth
maximization. As long as the investment strategy matches the needs of
investor according to the priority assigned to them, he should be happy.

 Where we can invest?

An investor can invest in the various assets but broadly these assets can be
divided in the following two types:-

Physical assets like Real Estate, Gold/Jewellery, and Commodities etc.

Financial assets such as Fixed Deposits with banks, small saving instruments
with Post Offices, Insurance/Provident/Pension fund etc. or Securities market
related instruments like shares, bonds, debentures and derivatives etc.

Broadly, Savings bank account, Money market/liquid funds and Fixed

Deposits with banks may be considered as short-term financial investment

5
options and Post Office Savings Schemes, Public Provident Fund, Company
Fixed Deposits, Bonds and Debentures, Mutual Funds etc are considered as
long term investment options. We will discuss each and every investment
option in detail.

 Short term investment options

Savings Bank Account is often the first banking product people use, which
offers low interest (4%-5% p.a.), making them only marginally better than
fixed deposits.

Money Market or Liquid Funds are a specialized form of mutual funds that
invest in extremely short-term fixed income instruments and thereby provide
easy liquidity. Unlike most mutual funds, money market funds are primarily
oriented towards protecting your capital and then, aim to maximize returns.
Money market funds usually yield better returns than savings accounts, but
lower than bank fixed deposits.

 Treasury Bills
Fixed Deposits with Banks are also referred to as term deposits and minimum
investment period for bank FDs is 30 days. Fixed Deposits with banks are for
investors with low risk appetite, and may be considered for 6-12 months
investment period as normally interest on less than 6 months bank FDs is
likely to be lower than money market fund returns.

6
The unpredictability of the equity market and the gradual drying up of
investment avenues that offer assured returns nudge conservative investors
towards the tried and tested fixed deposits.

But fixed deposits are not risk-free. The FD programmers of companies can be
classified on the basis of their risk profile. On the one hand, there are
companies such as Sundaram Finance and HDFC that offer lower returns but
are well known for their repayment track record and, hence, are safer. On the
other hand, there are lower-rated companies such as SPIC, Ducal Fuel
Systems, Tricky Distilleries and India Cements, that recently opened their
deposit windows.

The recent flood of companies coming into the FD market and the fluid
interest rate environment has made choosing the right candidates difficult.
Also, this decision is subjective and depends on the risk tolerance levels of the
investor, the expected returns and the amount of funds on hand.

As with stocks and bonds, the theory of diversification holds for FDs too. A
well-diversified portfolio containing deposits in high return-high risk and low
return-low risk will best mix returns with risk.

Term Deposits help you make the most of your money. A Term Deposit is a
financial instrument on offer, which earns you a higher return on your savings
than an ordinary savings account. This is how it works:

• A fixed amount for a specified period and at a fixed rate of interest is

kept with the bank. You have an option to select the period of the

7
 deposit. The rate of interest is then applied, based on applicable interest
rates of the bank at the time of account opening.
• You can opt for either a Simple Fixed Deposit or a Reinvestment
Deposit based on your needs.
• A Term Deposit is perfect for Institutions, Associations, Trusts,
Partnerships, Proprietorships, Societies and Private / Public Ltd.
Companies. It is also ideal for Individuals (sole / joint) who are Self-
employed, Executives, Salaried Professionals, Businessman, Minors and
Housewives.

 TYPES OF TERM DEPOSIT

Simple Fixed Deposits:

They earn you simple interest on your deposit, payable on a quarterly /

monthly basis. The interest earned would be credited to your Savings Account
with Bank or paid out through a pay order prepared by the Bank in your name.

Reinvestment Deposit:

The advantage of a Reinvestment Deposit is that interest is calculated on a

compound interest basis. This form of interest is calculated first on the initial
deposit itself and then, on the deposit amount plus the interest earned. With the
compounding done on a quarterly basis, you have the advantage of earning
much more interest on your deposit. This deposit is your best option when you
do not need interest on a regular basis.

Period Options

8
Various period options are available for you to invest with us.

Interest Payment
Interest for Simple Fixed deposit is paid out every quarter. It could also be
paid monthly. In the case of monthly payment of interest, since the interest
payment is being made to you before the end of the quarter and on a monthly
basis, the interest calculation is made on a discounted basis

On Maturity of a Deposit

It is advantageous to leave instructions with the bank on what to do with the

proceeds of your deposit at the end of the maturity period. You can leave
instructions for action to be taken on the principle amount and the interest
amount. The instruction can be for renewal, crediting to your savings account
in the bank or preparing a pay order in your name.

Automatic Renewal Facility

The bank has an Automatic Renewal Facility through which you can leave
instructions for the deposit and the interest to be renewed for a similar period.
This facility ensures that your funds continue to earn the high interest and
hence do not lie idle.

Minors
Opening deposits in the name of minors is a great way of saving in the name of
your children.

Nomination Facility

9
The nomination facility must be used actively in Term Deposits. It is of benefit
to you as a customer.

Pre Closure
In case you wish to withdraw your deposit, pre closure facility is provided by
the Bank.

 Why invest in fixed-income?

Fixed-income instruments in India typically include company bonds, fixed

deposits and government schemes.

Low risk tolerance

One of the key benefits of fixed-income instruments is low risk i.e. the relative
safety of principal and a predictable rate of return (yield). If your risk tolerance
level is low, fixed-income investments might suit your investment needs
better. Use our Risk Analyses to evaluate your risk tolerance level. Our Asset
Allocator will suggest what portion of your investments should be in fixed-
income securities based on your risk tolerance and risk capacity levels.

Need for returns in the short-term

Investment in equity shares is recommended only for that portion of your

wealth for which you are unlikely to have a need in the short-term, at least
five-years (to understand why read Investing in Equities).

10
Consequently, the money that you are likely to need in the short-term (for
capital or other expenses), should be invested in fixed-income instruments.

Predictable versus Uncertain Returns

Returns from fixed-income instruments are predictable i.e. they offer a fixed
rate of return. In comparison, returns from shares are uncertain. If you need a
certain predictable stream of income, fixed-income instruments are
recommended.

Evaluate options to match your needs

Before you decide to invest in fixed-income instruments, evaluate your needs
from three key perspectives - risk returns and liquidity. Match the investment
options with your financial needs.

11
 SCOPE OF STUDY
The choice of the best investment options will depend on personal
circumstances as well as general market conditions. For example, a good
investment for a long-term retirement plan may not be a good investment for
higher education expenses. In most cases, the right investment is a balance of
three things: Liquidity, Safety and Return.

The investment process outlines the steps in creating a portfolio, and

emphasizes the sequence of actions involved from understanding the investors
risk preferences to asset allocation and selection to performance evaluation. By
emphasizing the sequence, it provides for an orderly way in which an investor
can create his or her own portfolio or a portfolio for someone else.

The investment process provides a structure that allows investors to see the

source of different investment strategies and philosophies. By so doing, it

allows investors to take the hundreds of strategies that they see described in

the common press and in investment newsletters and to trace them to their

common roots. In this project I had studied why one go for the investment

and Mutual Fund the company helps me out in knowing, what is Mutual

Fund, about investment strategies, and the working regarding Mutual

Fund.

12
 Focus of the

study

Investment Planning involves identifying your financial goals throughout your

life, and prioritizing them. Investment Planning is important because it helps in
deriving the maximum benefit from the investments.

Investment Planning also helps to decide upon the right investment strategy.
Besides individual requirement, investment strategy would also depend upon
age, personal circumstances and risk appetite. These aspects are typically taken
care of during investment planning.

In this project I had also studied about the Investment Instrument, Need
Behind Investment, Types of risk investing in Mutual Fund How to go for
Investment of the company.

13
 MUTUAL FUND
“ONE SHOULD NOT KEEP HIS/HER ALL EGGS IN ONE
BASKET.”

The mutual fund industry started in India in a small way with the UTI Act
creating what was effectively a small savings division within the RBI. Over a
period of 25 years this grew fairly successfully and gave investors a good
return, and therefore in 1989, as the next logical step, public sector banks and
financial institutions were allowed to float mutual funds and their success
emboldened the government to allow the private sector to foray into this area.
The initial years of the industry also saw the emerging years of the Indian
equity market, when a number of mistakes were made and hence the mutual
fund schemes, which invested in lesser-known stocks and at very high levels,
became loss leaders for retail investors. From those days to today the retail
investor, for whom the mutual fund is actually intended, has not yet returned to
the industry in a big way. But to be fair, the industry too has focused on
brining in the large investor, so that it can create a significant base corpus,
which can make the retail investor feel more secure.

The MF industry in India is governed by the SEBI, which lay norms for MF
and it’s Asset Managing Companies (AMCs). A Mutual Fund is allowed to
issue open-ended and closed-ended schemes under a common legal structure.
Respective Asset Management Companies (AMC) manages mutual fund
schemes. Different business groups/ financial institutions/ banks have

14
sponsored these AMCs, either alone or in collaboration with reputed
international firms. Several international funds like Alliance and Templeton
are also operating independently in India. Many more international Mutual
Fund giants are expected to come into Indian markets in the near future.

The flow chart below describes broadly the working of a mutual fund:

Mutual Fund Operation Flow Chart

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the
organizational set up of a mutual fund:

15
Mutual funds

Mutual fund is vehicle that facilitates a number of investors to pool their

money and have it jointly managed by a professional money manager

SEBI
The regulation of mutual funds operating in India falls under the preview of
authority of the “Securities and Exchange Board of India” (SEBI). Any
person proposing to setup a mutual fund in India is required under the SEBI
(Mutual Funds) Regulations, 1996to be registered with the SEBI.

Sponsor
The sponsor should contribute at least 40% to the net worth of the AMC.
However, if any person holds 40% or more of the net worth of an AMC shall
be deemed to be a sponsor and will be required to fulfill the eligibility criteria
in the Mutual Fund Regulations. The sponsor or any of its directors or the

16
principal officer employed by the mutual fund should not be guilty of fraud or
guilty of any economic offence.

Trustees
The mutual fund is required to have an independent Board of Trustees, i.e. two
third of the trustees should be independent persons who are not associated with
the sponsors in any manner. An AMC or any of its officers or employees is not
eligible to act as a trustee of any mutual fund. The trustees are responsible for -
inter alia –ensuring that the AMC has all its systems in place, all key
personnel, auditors, registrar etc. have been appointed prior to the launch of
any scheme.

Asset Management Company

The sponsors or the trustees are required to appoint an AMC to manage the
assets of the mutual fund. Under the mutual fund regulations, the applicant
must satisfy certain eligibility criteria in order to qualify to register with SEBI
as an AMC.
1. The sponsor must have at least 40% stake in the AMC.
2. The chairman of the AMC is not a trustee of any mutual fund.
3. The AMC should have and must at all times maintain a minimum net worth
of C
100 million.
4. The director of the AMC should be a person having adequate professional
Experience.
5. The board of directors of such AMC has at least 50% directors who are not

17
 Associate of or associated in any manner with the sponsor or any of its
subsidiaries or the trustees.

The Transfer Agents

The transfer agent is contracted by the AMC and is responsible for maintaining
the
Register of investors / unit holders and every day settlements of purchases and
Redemption of units. The role of a transfer agent is to collect data from
distributors
Relating to daily purchases and redemption of units.

Custodian
The mutual fund is required, under the Mutual Fund Regulations, to appoint
custodian to carry out the custodial services for the schemes of the fund. Only
institutions with substantial organizational strength, service capability in terms
of computerization and other infrastructure facilities are approved to act as
custodians. The custodian must be totally delinked from the AMC and must be
registered with SEBI.
CHARACTERISTICS OF MUTUAL FUNDS

•The ownership is in the hands of the investors who have pooled in their funds.
•It is managed by a team of investment professionals and other service
providers.
•The pool of funds is invested in a portfolio of marketable investments.
•The investors share is denominated by ‘units’ whose value is called as Net
Asset
18
 Value (NAV) which changes every day.
•The investment portfolio is created according to the stated investment
objectives
Of the fund

The flow chart below describes broadly the working of

a mutual fund:

19
 HISTORY OF MUTUAL FUND

The mutual fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the Government of India and Reserve Bank.
The history of mutual funds in India can be broadly divided into four distinct
phases: -

First Phase – 1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set
up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-
linked from the RBI and the Industrial Development Bank of India (IDBI) took
over the regulatory and administrative control in place of RBI. The first
scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had
Rs.6,700 crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by
public sector banks and Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI
Mutual Fund established in June1987 followed by Can bank Mutual Fund
(Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual
Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92).
LIC established its mutual fund in June 1989 while GIC had setup its mutual
fund in December 1990. At the end of 1993, the mutual fund industry had
assets under management of Rs.47, 004 crores.

20
Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund
families. Also, 1993 was the year in which the first Mutual Fund Regulations
came into being, under which all mutual funds, except UTI were to be
registered and governed. The erstwhile Kothari Pioneer (now merged with
Franklin Templeton) was the first private sector mutual fund registered in July
1993.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI
was bifurcated into two separate entities. One is the Specified Undertaking of
the Unit Trust of India with assets under management of Rs.29, 835 crores as
at the end of January2003, representing broadly, the assets of US 64 scheme,
assured return and certain other schemes. The Specified Undertaking of Unit
Trust of India, functioning under an administrator and under the rules framed
by Government of India and does not come under the purview of the Mutual
Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund
Regulations. With the bifurcation of the erstwhile UTI which had in March
2000 more than Rs.76, 000 crores of assets under management and with the
setting up of a UTI Mutual Fund, conforming tithe SEBI Mutual Fund

21
Regulations, and with recent mergers taking place among different private
sector funds, the mutual fund industry has entered its current phase of
consolidation and growth. As at the end of September, 2004, there were 29
funds, which manage assets of Rs.153108 crores under 421 schemes.

GROWTH OF MUTUAL FUND INDUSTRY IN INDIA

While the Indian mutual fund industry has grown in size by about 320% from
March, 1993 (Rs. 470 billion) to December, 2004 (Rs. 1505 billion) in terms

22
of AUM, the AUM of the sector excluding UTI has grown over 8 times from
Rs. 152 billion in March 1999 to $148 billion as at March 2008.

Though India is a minor player in the global mutual fund industry, its AUM as
a proportion of the global AUM has steadily increased and has doubled over
its levels in 1999. The growth rate of Indian mutual fund industry has been
increasing for the last few years. It was approximately 0.12% in the year of
1999 and it is noticed 0.25% in 2004 inters of AUM as percentage of global
AUM.

Some facts for the growth of mutual funds in India

•100% growth in the last 6 years.
•Number of foreign AMC’s is in the queue to enter the Indian markets.
•Our saving rate is over 23%, highest in the world. Only channelizing these
savings in mutual funds sector is required.
•We have approximately 29 mutual funds which are much less than US having
more than 800. There is a big scope for expansion.
•Mutual fund can penetrate rural like the Indian insurance industry with simple
and limited products.
•SEBI allowing the MF's to launch commodity mutual funds.
•Emphasis on better corporate governance.
•Trying to curb the late trading practices.
•Introduction of Financial Planners who can provide need based advice.

Recent trends in mutual fund industry:

23
The most important trend in the mutual fund industry is the aggressive
expansion of the foreign owned mutual fund companies and the decline of the
companies floated by the nationalized banks and smaller private sector players.
Many nationalized banks got into the mutual fund business in the early nineties
and got off to a start due to the stock market boom were prevailing. These
banks did not really understand the mutual fund business and they just viewed
it as another kind of banking activity. Few hired specialized staff and generally
chose to transfer staff from the parent organizations. The performance of most
of the schemes floated by these funds was not good. Some schemes had
offered guaranteed returns and their parent organizations had to bail out these
AMCs by paying large amounts of money as a difference between the
guaranteed and actual returns. The service levels were also very bad. Most of
these AMCs have-not been able to retain staff float new schemes etc.

IMPACT OF TECHNOLOGY
Mutual fund, during the last one decade brought out several innovations in
their products and is offering value added services to their investors. Some of
the value-added services that are being offered are:

•Electronic fund transfer facility.

•Investment and re-purchase facility through internet.
•Added features like accident insurance cover, mediclaim etc.
•Holding the investment in electronic form, doing away with the traditional
form of unit certificates.
•Cheque writing facilities.
•Systematic withdrawal and deposit facility

24
ONLINE MUTUAL FUND TRADING
The innovation the industry saw was in the field of distribution to make it
more easily accessible to an ever increasing number of investors across the
country. For the first time in India the mutual fund start using the automated
trading, clearing and settlement system of stock exchanges for sale and
repurchase of open-ended de-materialized mutual fund units.
Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP)
were options introduced which have come in very handy for the investor to
maximize their returns from their investments. SIP ensures that there is a
regular investment that the investor makes on specified dates making his
purchases to spread out reducing the effect of the short term volatility of
markets. SWP was designed to ensure that investors who wanted a regular
income or cash flow from their investments were able to do so with a pre-
defined automated form. Today the SW facility has come in handy for the
investors to reduce their taxes.

Mutual funds are classified in the following manner:

 On the basis of Objective

 Equity Funds/ Growth Funds
Funds that invest in equity shares are called equity funds. They carry the
principal objective of capital appreciation of the investment over the medium
to long-term. They are best suited for investors who are seeking capital

25
appreciation. There are different types of equity funds such as Diversified
funds, Sector specific funds and Index based funds.

 Diversified funds

These funds invest in companies spread across sectors. These funds are
generally meant for risk-averse investors who want a diversified portfolio
across sectors.

 Sector funds
These funds invest primarily in equity shares of companies in a particular
business sector or industry. These funds are targeted at investors who are
bullish or fancy the prospects of a particular sector.

 Index funds
These funds invest in the same pattern as popular market indices like S&P
CNX Nifty or CNX Midcap 200. The money collected from the investors is
invested only in the stocks,

Which represent the index? For e.g. a Nifty index fund will invest only in the
Nifty 50 stocks. The objective of such funds is not to beat the market but to
give a return equivalent to the market returns.

 Tax Saving Funds

These funds offer tax benefits to investors under the Income Tax Act.
Opportunities provided under this scheme are in the form of tax rebates under
the Income Tax act.

 Debt/Income Funds

26
These funds invest predominantly in high-rated fixed-income-bearing
instruments like bonds, debentures, government securities, commercial paper
and other money market instruments. They are best suited for the medium to
long-term investors who are averse to risk and seek capital preservation. They
provide a regular income to the investor.

 Liquid Funds/Money Market Funds

These funds invest in highly liquid money market instruments. The period of
investment could be as short as a day. They provide easy liquidity. They have
emerged as an alternative for savings and short term fixed deposit accounts
with comparatively higher returns. These funds are ideal for corporate,
institutional investors and business houses that invest their funds for very short
periods.

 Gilt Funds
These funds invest in Central and State Government securities. Since they are
Government backed bonds they give a secured return and also ensure safety of
the principal amount. They are best suited for the medium to long-term
investors who are averse to risk.

 Balanced Funds
These funds invest both in equity shares and fixed-income-bearing instruments
(debt) in some proportion. They provide a steady return and reduce the
volatility of the fund while providing some upside for capital appreciation.
They are ideal for medium to long-term Investors who are willing to take
moderate risks.

27
  On the basis of Flexibility
 Open-ended Funds
These funds do not have a fixed date of redemption. Generally they are open
for subscription and redemption throughout the year. Their prices are linked to
the daily net asset value (NAV). From the investors' perspective, they are
much more liquid than closed-ended funds.

 Close-ended Funds
These funds are open initially for entry during the Initial Public Offering (IPO)
and thereafter closed for entry as well as exit. These funds have a fixed date of
redemption. One of the characteristics of the close-ended schemes is that they
are generally traded at a discount to NAV; but the discount narrows as
maturity nears. These funds are open for subscription only once and can be
redeemed only on the fixed date of redemption. The units of these funds are
listed on stock exchanges (with certain exceptions), are tradable and the
subscribers to the fund would be able to exit from the fund at any time through
the secondary market.

Strategies for Existing Investors

1. An existing investor might be tempted to think that the best course of

action would be to try and anticipate the market movements and move his
investments accordingly. It is a proven fact that even experts find it difficult to

28
achieve this. Therefore, the best way is market timing and adopts a disciplined
approach to equity investing.

2. For those who invest through a well-defined financial plan, the best way to
handle volatility is to stay away from it altogether. In other words, the best
option for such investors would be to ignore short-term volatility. The main
advantage of remaining invested is that one minimizes one’s chances of
missing out on the sudden rallies in the market.

3. In a frequently volatile market, it helps to diversify. Diversification not

only reduces risk but also helps in optimizing returns on a risk-adjusted
basis. For those investing in equity directly, mutual funds can help achieve the
level of diversification not possible to achieve through direct investment in
equities alone.

4. As financial planning and financial advice become critical in all households,

the role of a good financial planner becomes critical in investor’s success. In
India, the Financial Planning Standards Board, FPSB, is doing path breaking
work in educating, standardizing and raising the quality of the profession .The
SEBI Chairman recently mentioned that bringing intermediaries under
supervision was a near term goal of the regulator.

4. However, as in most consumer industries, caveat emptor, or the “LET THE

BUYER BEWARE” principle works in financial planning and advice as well.
Good and qualified financial planners give you advice regarding investments,
insurance, taxes, wills and trusts, and mortgages — advice tailored to your
needs to help you achieve your financial goals. If you choose your planner

29
well, he or she will become an important part of your life, and you should be
together for a lifetime. After all, financial planning is a lifetime activity!

Generally the most common frauds that investors encounter are the followings
those can be checked out by adopted following tips:-

 Never write a cheque made payable to your planner, always make

cheques account payee only. No legitimate planner would ever allow a

client to write a check for investments or insurance payable to him
personally or to his firm. This is one of the most common forms of fraud
that investors face. Also, cross all cheques as account payee, write your
name and the purpose of the investment on the reverse of the cheque,
mention your cheque number and bank details in the application form.

 Never allow your planner to list himself as a joint owner or

beneficiary on your accounts. The only place your advisor's name
should appear on documents is as the broker /distributor /agent of
record, with their code. Be careful that it’s not appearing as a joint
holder or a nominee.
 Never lend money to your planner. A Code of Ethics governs the
Financial Planner. Like a Medical Practitioner, he/she must maintain
confidentiality and not use your financial information in any form other
than what is beneficial to you. If you’re financial planner asks for short-
term loans, its time to sack him/her.
 Never sign a blank form or contract. If you don’t have the time, ask
the planner to come some other time, rather than risk losing your
principal investment by signing a blank form. Cross out all empty

30
 sections, especially the ones that contain details of joint holders and
nominees.
 Never let your planner sign your name to any document. This is a
fraud, which could land you in trouble with the law of the land.
Furthermore, you cannot control where else the planner maybe forging
your signatures. Think of all implications before you try to take short
cuts like these.
 Never let your planner uses his address on account statements
instead of yours. You should receive periodic statements directly from
the mutual fund, brokerage firm, or insurance company. Never allow
your planner to have such documents go to his office instead of to you.
 Periodically check your account balance directly with the mutual
fund, brokerage firm, or insurance company .All funds are mandated
under law to send at least one statement per annum to every investor.

These are the common precautions that will safeguard you against potential
fraud. They sound common sensual, but you would be surprised at how many
investors, both individuals and institutional fall prey to these every year...

Strategies for New Investors

 For new investor it is very important that he should have rich knowledge

of the investment option in which he is going to invest and compare it

with the others.
 He should know the risk involved in it and his level of bearing the same.

31
 Initially he should go for the small investment because to know the trends

of market and it will be the best strategy for him to have a diversified
portfolio.
 It is important for a new investor to understand that market volatility

(Especially in Stock Market) is quite normal. However, volatility is an

unpleasant realty of the marketplace that deters most investors from
investing in the stock market.
 One such strategy is to invest on a regular basis. Like in case of Mutual

Funds, it provides SIP. The idea behind this strategy is that by investing the
same amount each month over a period of time, you do not have to worry
about right time or the wrong time to invest. Besides, this cuts down on the
risk that you normally face when you end up investing a lump sum amount
at market highs, as it is very difficult to predict the movement of the market
in the short-term.
 Another recommended strategy is to diversify. In other words, by
diversifying within an asset class, you become less vulnerable to volatility
in a particular sector or a segment. The best way to achieve this is by
investing through mutual funds. In this regard it is also said that “ONE
SHOULD NOT KEEP HIS/HER ALL EGGS IN ONE BASKET.”
 It is also important to have a long-term investment. Remember the longer

your time horizon, the less your risk. Therefore, if you do not need the
money, you can wait to grow your investment because in case of any loss it
will take time to recover.

32
ADVANTAGES OF MUTUAL FUNDS
The advantages of mutual funds are given below: -
1. Portfolio Diversification
Mutual funds invest in a number of companies. This diversification reduces
the risk because it happens very rarely that all the stocks decline at the same
time and in the same proportion. So this is the main advantage of mutual
funds.

2. Professional Management
Mutual funds provide the services of experienced and skilled professionals,
assisted by investment research team that analysis the performance and
prospects of companies and select the suitable investments to achieve the
objectives of the scheme.

3. Low Costs
Mutual funds are a relatively less expensive way to invest as compare to
directly investing in a capital markets because of less amount of brokerage
and other fees.

4. Liquidity

33
This is the main advantage of mutual fund that is whenever an investor needs
money he can easily get redemption, which is not possible in most of other
options of investment. In open-ended schemes of mutual fund, the investor
gets the money back at net asset value and on the other hand in close-ended
schemes the units can be sold in a stock exchange at a prevailing market
price.

5. Transparency
In mutual fund, investors get full information of the value of their investment,
the proportion of money invested in each class of assets and the fund
manager’s investment strategy.

6. Flexibility
Flexibility is also the main advantage of mutual fund. Through this investors
can systematically invest or withdraw funds according to their needs and
convenience like regular investment plans, regular withdrawal plans, and
dividend reinvestment plans etc.

7. Convenient Administration
Investing in a mutual fund reduces paperwork and helps investors to avoid
many problems like bad deliveries, delayed payments and follow up with
brokers and companies. Mutual funds save time and make investing easy.

34
8. Affordability
Investors individually may lack sufficient funds to invest in high-grade
stocks. A mutual fund because of its large corpus allows even a small investor
to take the benefit of its investment strategy.

9. Well Regulated
All mutual funds are registered with SEBI and they function within the
provisions of strict regulations designed to protect the interest of investors.
The operations of mutual funds are regularly monitored by SEBI.

DISADVANTAGES OF MUTUAL FUNDS

Mutual funds have their following drawbacks:
1. No Guarantees
No investment is risk free. If the entire stock market declines in value, the
value of mutual fund shares will go down as well, no matter how balanced the
portfolio. Investors encounter fewer risks when they invest in mutual funds
than when they buy and sell stocks on their own. However, anyone who
invests through mutual fund runs the risk of losing the money.

2. Fees and Commissions

All funds charge administrative fees to cover their day to day expenses. Some
funds also charge sales commissions or loads to compensate brokers, financial
consultants, or financial planners. Even if you don’t use a broker or other
financial advisor, you will pay a sales commission if you buy shares in a Load
Fund.

35
3. Taxes
During a typical year, most actively managed mutual funds sell anywhere
from 20 to70 percent of the securities in their portfolios. If your fund makes a
profit on its sales, you will pay taxes on the income you receive; even you
reinvest the money you made.

4. Management Risk
When you invest in mutual fund, you depend on fund manager to make the
right decisions regarding the fund’s portfolio. If the manager does not perform
as well as you had hoped, you might not make as much money on your
investment as you expected. Of course, if you invest in index funds, you
forego management risk because these funds do not employ managers.

REGISTRATION OF MUTUAL FUND:

Application for registration
1. An application for registration of a mutual fund shall be made to the Board
in Form A by the sponsor.

Application fee to accompany the application

2. Every application for registration under regulation 3 shall be accompanied
by
Nonrefundable application fee as specified in the Second Schedule.

Application to conform to the requirements

36
3. An application which is not complete in all respects shall be liable to be
rejected: Provided that, before rejecting any such application, the applicant
shall be given an opportunity to complete such formalities within such time as
may be specified by the Board.

Furnishing information
4. The Board may require the sponsor to furnish such further information or
clarification as may be required by it.

Eligibility criteria
5. For the purpose of grant of a certificate of registration, the applicant has to
fulfill the following, namely:—
(a) The sponsor should have a sound track record and general reputation of
fairness and integrity in all his business transactions. Explanation: For the
purposes of this clause “sound track record” shall mean the sponsor should,—
(i) Be carrying on business in financial services for a period of not less than
five Years; and
(ii) The net worth is positive in all the immediately preceding five years;
and
(iii) The net worth in the immediately preceding year is more than the
capital
Contribution of the sponsor in the asset management company; and

(iv) The sponsor has profits after providing for depreciation, interest and tax in
three out of the immediately preceding five years, including the fifth year;

37
(b) In the case of an existing mutual fund, such fund is in the form of a trust
and the trust deed has been approved by the Board;

(c) The sponsor has contributed or contributes at least 40% to the net worth of
the asset management company:

Provided that any person who holds 40% or more of the net worth of an asset
Management Company shall be deemed to be a sponsor and will be required to
fulfill the eligibility criteria specified in these regulations;
(d) The sponsor or any of its directors or the principal officer to be employed
by the Mutual fund should not have been guilty of fraud or has not been
convicted of an Offence involving moral turpitude or has not been found guilty
of any economic
Offence;

(e) Appointment of trustees to act as trustees for the mutual fund in accordance
with the provisions of the regulations;

(f) Appointment of asset Management Company to manage the mutual fund

and operate the scheme of such funds in accordance with the provisions of
these regulations;
(g) Appointment of a custodian in order to keep custody of the securities10 or
gold and gold related instruments and carry out the custodian activities as may
be authorized by the trustees.

Consideration of application

38
6. The Board may on receipt of all information decide the application.

Grant of Certificate of Registration

7. The Board may register the mutual fund and grant a certificate in Form B on
the
Applicant paying the registration fee as specified in Second Schedule.

Terms and conditions of registration

8. The registration granted to a mutual fund under regulation 9, shall be subject
to the following terms and conditions:
(a) The trustees, the sponsor, the asset management company and the
custodian shall comply with the provisions of these regulations;
(b) The mutual fund shall forthwith inform the Board, if any information or
particulars previously submitted to the Board was misleading or false in any
material respect;
(c) The mutual fund shall forthwith inform the Board, of any material change
in the
Information or particulars previously furnished, which have a bearing on the
registration granted by it;
(d) Payment of fees as specified in the regulations and the Second Schedule.

Rejection of application
9. Where the sponsor does not satisfy the eligibility criteria mentioned in
regulation 7, the Board may reject the application and inform the applicant of
the same.
Payment of annual service fee:

39
10. A mutual fund shall pay before the 15th April each year a service fee as
specified in the Second Schedule for every financial year from the year
following the year of registration:
Provided that the Board may, on being satisfied with the reasons for the delay
permit the mutual fund to pay the service fee at any time before the expiry of
two months from the commencement of the financial year to which such fee
relates.

Failure to pay annual service fee

11. The Board may not permit a mutual fund that has not paid service fee to
launch any scheme

40
OBJECTIVES:

 To understand the basics of Mutual Funds and also what is their current
popularity in terms of how do investors rate them against other
investment instruments.

 To analyze the importance of mutual funds in today scenario.

 To know the customers awareness about Ulips and Mutual Fund.

 To compare the investment in ULIPS plan with the Mutual fund.

 To study the degree of risk involved in both.

 To analyze the future prospective of these investment option.

41
OTHER INVESTMENT
STRATEGIES
 Long term investment options
Post Office Savings: Post Office Monthly Income Scheme is a low risk saving
instrument, which can be availed through any post office. It provides an
interest rate of 8% per annum, which is paid monthly. Minimum amount,
which can be invested, is Rs. 1,000/- and additional investment in multiples of
1,000/-. Maximum amount is Rs. 3, 00,000/- (if Single) or Rs. 6, 00,000/- (if
held jointly) during a year. It has a maturity period of 6 years. A bonus of 10%
is paid at the time of maturity. Premature withdrawal is permitted if deposit is
more than one year old. A deduction of 5% is levied from the principal amount
if withdrawn prematurely; the 10% bonus is also denied.

Public Provident Fund: A long term savings instrument with a maturity of 15

years and interest payable at 8% per annum compounded annually. A PPF
account can be opened through a nationalized bank at anytime during the year
and is open all through the year for depositing money. Tax benefits can be
availed for the amount invested and interest accrued is tax-free. A withdrawal
is permissible every year from the seventh financial year of the date of opening
of the account and the amount of withdrawal will be limited to 50% of the
balance at credit at the end of the 4th year immediately preceding the year in
which the amount is withdrawn or at the end of the preceding year whichever

42
is lower the amount of loan if any. PPF is a very attractive fixed income
investment option for small investors primarily because of –

 An 11% post-tax return - effective pre-tax rate of 15.7% assuming a

30% tax rate.
 A tax-rebate - deduction of 20% of the amount invested from your tax
liability for the year, subject to a maximum Rs 60,000 for a tax rebate.
 Low risk - risk attached is Government risk.

Company Fixed Deposits: These are short-term (six months) to medium-term

(three to five years) borrowings by companies at a fixed rate of interest which
is payable monthly, quarterly, semi- annually or annually. They can also be
cumulative fixed deposits where the entire principal along with the interest is
paid at the end of the loan period. The rate of interest varies between 6-9% per
annum for company FDs. The interest received is after deduction of taxes.

 Gold is one of the options to invest money over a long period of time. Gold
has been valued since prehistoric times and is the investment option that
has been seen as the ultimate form of safe haven investment and the only
true form of wealth. Gold has been popular in India because it acted as a
good hedge against inflation. There is so much uncertainty in the world in
terms of economic growth and geopolitics, it is no surprise that many
investors, big and small have chosen to hedge their investments through
gold. Gold is an important and popular investment for many reasons:

43
 Gold remains as an integral part of social and religious customs, besides
being the basic form of saving.
 Gold is indestructible which does not tarnish and is also not corroded by
acid-except by a mixture of nitric and hydrochloric acids.
 Gold is a currency that has no borders and does not need to be honored by
any governmental obligations.
 Gold is readily available in a standardized form.
Life insurance is one of the most popular savings/ investment vehicles in
India. Ironically it is probably the least understood too. An insurance policy
offers much more than just tax planning and investment returns. It offers you
the ability to plan for unforeseen events that could affect your family's
financial problem adversely.

Roles of Life Insurance Risks and uncertainties are part of life's great
adventure -- accident, illness, theft, natural disaster - they're all built into the
working of the Universe, waiting to happen.

 Life insurance as "Investment"

Insurance is an attractive option for investment. While most people recognize
the risk hedging and tax saving potential of insurance, many are not aware of
its advantages as an investment option as well. Insurance products yield more
compared to regular investment options, and this is besides the added
incentives (read bonuses) offered by insurers.

In fact, the premium we pay for an insurance policy is an investment against

risk. Thus, before comparing with other schemes, we must accept that a part of

44
the total amount invested in life insurance goes towards providing for the risk
cover, while the rest is used for savings.

Now, let us compare insurance as an investment options. If you invest Rs

10,000 in PPF, your money grows to Rs 10,950 at 9.5 per cent interest over a
year. But in this case, the access to your funds will be limited. One can
withdraw 50 per cent of the initial deposit only after 6 years.

The same amount of Rs 10,000 can give you an insurance cover of up to

approximately Rs 5-12 lakh (depending upon the plan, age and medical
condition of the life insured, etc) and this amount can become immediately
available to the nominee of the policyholder on death.

Thus insurance is a unique investment avenue that delivers sound returns in

addition to protection.

 Life insurance as "Risk cover"

Insurance is about risk cover and protection - financial protection, to be more
precise - to help outlast life's unpredictable losses. Designed to safeguard
against losses suffered on account of any unforeseen event, insurance provides
us with that unique sense of security that no other form of investment provides.
By buying life insurance, we buy peace of mind and are prepared to face any
financial demand that would hit the family in case of an untimely demise.

Insurance also provides a safeguard in the case of accidents or a drop in

income after retirement. An accident or disability can be devastating, and an
insurance policy can lend timely support to the family in such times. It also
comes as a great help when you retire, in case no untoward incident happens
during the term of the policy.
45
With the entry of private sector players in insurance, you have a wide range of
products and services to choose from. Further, many of these can be further
customized to fit individual/group specific needs. Considering the amount you
have to pay now, it's worth buying some extra sleep.

 Life insurance as "Tax planning"

Insurance serves as an excellent tax saving mechanism too. The Government
of India has offered tax incentives to life insurance products in order to
facilitate the flow of funds into productive assets. Under Section 80C of
Income Tax Act 1961, an individual is entitled to a rebate of 20 per cent on the
annual premium payable on his/her life and life of his/her children or adult
children. The rebate is deductible from tax payable by the individual or a
Hindu Undivided Family. This rebate is can be availed up to a maximum of Rs
12,000 on payment of yearly premium of Rs 60,000. By paying Rs 60,000 a
year, you can buy anything upwards of Rs 10 lakh in sum assured. (Depending
upon the age of the insured and term of the policy) This means that you get an
Rs 12,000 tax benefit.

Non Life Insurance Your valuable possessions in life - your home, business,
and vehicle are exposed to various hazards. Also, emergency medical expenses
can put you under serious financial stress. Traveling too involves risks such as
accident, loss of baggage and passport and medical expenses.

 Asset Insurance

46
Your assets are your possessions, which you have earned. You can protect
these with insurance depending upon which asset you want to protect.

 Health Insurance
Now you can protect yourself from costly medical bills in case of any
emergency. Health plans covers you and your family against expensive
medical care.

 Travel Insurance
While traveling alone or with friends and families, for business or for pleasure,
you are exposed to many travel related risks such as delay or loss in baggage,
loss of passport or medical bills in a foreign country. Get yourself protected
from all these risks by selecting an insurance product which caters to your
needs.

Shares: A unit of ownership interest in a corporation or financial asset. While

owning shares in a business does not mean that the shareholder has direct
control over the business's day-to-day operations, being a shareholder does
entitle the possessor to an equal distribution in any profits, if any are declared
in the form of dividends

 Equity Shares: An equity share, commonly referred to as ordinary share,

represents the form of fractional ownership in a business venture. For
example, in a company the total equity capital of Rs 2,00,00,000 is divided
47
into 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is called a
Share. Thus, the company then is said to have, 20, 00,000 equity shares of
Rs 10 each. The holders of such shares are members of the company and
have voting rights.

 Preference shares: Owners of these kinds of shares are entitled to a

fixed dividend or dividend calculated at a fixed rate to be paid regularly
before dividend can be paid in respect of equity share.

The equity shareholders in payment of surplus. But in the event of

liquidation, their claims rank below the claims of the company’s
creditors, bondholders/debenture holders.

 Cumulative Preference Shares: A type of preference shares on which

dividend accumulates if remained unpaid. All arrears of preference
dividend have to be paid out before paying dividend on equity shares.

 Cumulative Convertible Preference Shares: A type of preference

shares where the dividend payable on the same accumulates, if not paid.
After a specified date, these shares will be converted into equity capital of
the company.

48
49
 COMPANY PROFILE
Reliance Capital Limited (RCL) was incorporated in year 1986 at
Ahmadabad in Gujarat as Reliance Capital & Finance Trust Limited. The
name RCL came into effect from January 5, 1995. In 2002, RCL shifted its
registered office to Jamnagar in Gujarat before it finally moved to Mumbai in
Maharashtra, in 2006.

In 2006, Reliance Capital Ventures Limited merged with RCL and with this
merger the shareholder base of RCL rose from 0.15 million shareholders to 1.3
million.

RCL entered the Capital Market with a maiden public issue in 1990 and in
subsequent years further tapped the capital market through rights issue and
public issues. The equity shares were initially listed on the Ahmadabad Stock
Exchange and The Stock Exchange Mumbai. Presently the shares are listed on
The Stock Exchange Mumbai and the National Stock Exchange of India.

RCL in the initial years engaged itself in steady annuity yielding businesses
such as leasing, bill discounting, and inter-corporate deposits. Later, in 1993
diversified its business in the areas of portfolio investment, lending against
securities, custodial services, money market operations, project finance
advisory services, and investment banking.

RCL was accredited a Category 1 Merchant banker by the Securities Exchange

Board of India (SEBI). It had lead managed/co-managed 15 issues of an
aggregate value of Rs. 400 crores and had underwritten 33 issues for an

50
aggregate value of Rs. 550 crores. All these companies were listed on various
exchanges.

RCL obtained its registration as a Non-banking Finance Company (NBFC) in

December 1998. In view of the regulatory requirements RCL surrendered its
Merchant Banking License.

RCL has since diversified its activities in the areas of asset management and
mutual fund; life and general insurance; consumer finance and industrial
finance; stock broking; depository services; private equity and proprietary
investments; exchanges, asset reconstruction; distribution of financial products
and other activities in financial services. (RCL) is a Non-Banking Financial
Company (NBFC) registered with the Reserve Bank of India under section 45-
IA of the Reserve Bank of India Act, 1934. As a public limited company in
1986 and is now listed on the Bombay Stock Exchange and the National Stock
Exchange (India).

RCL has a net worth of over Rs '3,300 crores and over 165,000' shareholders.
On conversion of outstanding equity instruments, the net worth of the
company will increase to about Rs 4,100 crores.

It is headed by Anil Ambani and is a part of the Reliance ADA Group.

Reliance Capital ranks among the top 3 private sector financial services and
banking companies, in terms of net worth.

Reliance Mutual Fund is India's no.1 Mutual Fund. Reliance Life

Insurance is one of India's fastest growing life insurance company and among
the top 4 private sector insurers. Reliance General Insurance is one of India's
51
fastest growing general insurance company and among the top 3 private sector
insurers. Reliance Money is the largest brokerage and distributor of financial
products in India with over 2.7 million customers and has the largest
distribution network. Reliance Consumer finance has a loan book of over Rs.
8,900 crores at the end of December 2008.

Reliance Capital has a net worth of Rs. 7,250 crores (US$ 1.5 billion) and total
assets of Rs. 22,340 crores (US$ 4.6 billion) as of December 31, 2008.

Reliance Capital is a constituent of S&P CNX Nifty and MSCI India and also
features in the Forbes list of World’s largest 2000 public companies.

This company profile offers a comprehensive analysis of the organization, its

business segments, and competitors. It analyzes the business and marketing
strategies adopted by the company, to gain a competitive edge in the industry.
The profile also evaluates the strengths of the company and the opportunities
present in the market.

This profile is of immense help to management consultants, analysts, market

research organizations and corporate advisors. The objective and scope of
various sections of our company profile has been discussed below.

Vision Statement
To be a globally respected wealth creator with an emphasis on customer care and a
culture of good corporate governance.

Mission Statement

52
To create and nurture a world-class, high performance environment aimed at
delighting our customers.

The Management Team

Board of Directors

Mr. Soumen Ghosh

Mr. Kanu Doshi

Mr. Manu Chadha

Mr. Sushil Tripathi

Management Team

CEO
Mr. Sundeep Sikka

Head Equity Investments

Mr. Sunil B. Singhania

Head Fixed Income

Mr. Amitabh Mohanty

Equity Fund Managers

53
Mr. Shailesh Raj Bhan Mr. Ashwani Kumar

Mr. Krishan Daga Mr. Shiv Chanani

Mr. Omprakash S. Kuckian Mr. Govind Agrawal

Debt Fund Managers

Mr. Amit Tripathi Ms. Anju Chhajer

Mr. Prashant Pimple

Commodities

Fund Manager Mr. Hiren Chandaria

Head Of Departments

Infrastructure & Admin Mr. Pradeep Andrade

Finance and Accounts Mr. Milind Gandhi

Human Resource Development Mr. Rajesh Derhgawen

Information Technology Mr. Vinay Nigudkar

R&T Operations & Investor Relations Mr. Bhalchandra Joshi

Operations & Settlement Ms. Geeta Chandran

Head - Sales & Distribution, Mr. Himanshu Vyapak

54
 Product Management, Customer
Service

Legal, Secretarial & Compliance Mr. Muneesh Sud

Zonal Heads

Northern Zone Head Mr. Gurbir Chopra

Western Zone Head Mr. Aashwin Dugal

Southern Zone Head Mr. Gopal Khaitan

Eastern Zone Head Mr. Vikas Rathie

Our Corporate Governance Policy:

Reliance Capital Asset Management Ltd. has a vision of being a leading player
in the Mutual Fund business and has achieved significant success and visibility
in the market.
However, an imperative part of growth and visibility is adherence to Good
Conduct in the marketplace. At Reliance Capital Asset Management Ltd., the
implementation and observance of ethical processes and policies has helped us
in standing up to the scrutiny of our domestic and international investors.

Management:
The management at Reliance Capital Asset Management Ltd. is committed to
good Corporate Governance, which includes transparency and timely

55
dissemination of information to its investors and unit holders. The Board of
Directors of RCAM is a professional body, including well-experienced and
knowledgeable Independent Members. Regular Audit Committee meetings are
conducted to review the operations and performance of the company.
Employees:
Reliance Capital Asset Management Ltd. has at present, a code of conduct for
all its officers. It has a clearly defined prohibition on insider trading policy and
regulations. The management believes in the principles of propriety and
utmost care is taken while handling public money, making proper and
adequate disclosures.

All personnel at Reliance Capital Asset Management Ltd are made aware of
their rights, obligations and duties as part of the Dealing Policy laid down in
terms of SEBI guidelines. They are taken through a well-designed HR
program, conducted to impart work ethics, the Code of Conduct, information
security, Internet and e-mail usage and a host of other issues.

One of the core objectives of Reliance Capital Asset Management Ltd. is to

identify issues considered sensitive by global corporate standards, and
implement policies/guidelines in conformity with the best practices as an
ongoing process.

Reliance Capital Asset Management Ltd. gives top priority to compliance in

true letter and spirit, fully understanding its fiduciary responsibilities.

Company Summary

56
This section presents the key facts & figures, business description, products &
services offered and corporate timeline of the company.

Company Analysis

It involves analysis of the company at three levels ' segments, organizational

structure and ownership composition. Both business and geographic segments
are analyzed along with their recent financial performance. It further discusses
the major subsidiaries of the company and the recent merger & acquisitions.

Business Developments

This section examines the significant developments that have taken place in
the company. It is a form of news analysis where the most critical company
news is discussed.

Discussion of Business Strategies

This section talks about the current and future strategies of the company. All
business, marketing, financial and organizational strategies are discussed here.

SWOT

Our SWOT Analysis is a valuable step in assessing your company's strengths,

weaknesses, opportunities, and threats. It offers powerful insight into the
critical issues affecting a business.

Financial Performance

57
It discusses the most recent financials of the company and also compares the
historical sales & income figures with the current and projected figures. The
objective is to evaluate the financial health of the company. The analyst
opinion and stock performance help us in evaluating the performance of the
company from an investor's viewpoint.

Competition Synopsis

This section compares the company with its peer group. The comparable
analysis and stock movement are aimed at giving an overview of the
competitive landscape in the industry and the company's positioning in its peer
group.

Our terms and conditions

1. CONDITIONS OF SALE
These terms and conditions disclose the basis on which Ubiquick SAS (UB)
provides its online products and services to you, through the Platform
Reportlinker.com. You must read these terms and conditions before using the
online products and services. By clicking the Agreement checkbox you accept
and are bound by these terms and conditions. This agreement will continue for
the term that UB provides the online products and services to you, other than
for certain obligations outlined below which survive beyond the term of this
agreement. UB may change these terms and conditions from time to time.
These changes will be effective upon the next renewal period. Your continued
use of the secure platform ("Platform") and/or the online products and services

58
following such renewal will represent an agreement by you to be bound by the
terms and conditions as amended.

2. DISCLAIMER
Reportlinker.com is a search engine that provides an easy access to market
reports and statistics published by public sources. UB will use all reasonable
commercial care and attention to maintain valid links to all documents indexed
in its search engine in the manner described in the Website
(www.reportlinker.com) (“Website”). However, UB cannot guarantee that all
links to public document remain valid at all time, as UB does not hold the
information itself on its server. You acknowledge that the links provided to
you through the search engine might be from time to time irrelevant or broken.

3. AUTHORISED USER
You acknowledge that you are entering into these terms and conditions. You
represent and warrant that you are authorized to use the Platform and the
online products and services and that you have capacity to be bound by these
terms and conditions. If you are entering into these terms and conditions on
behalf of your employer you represent and warrant to us that you are duly
authorized and have the power and authority to bind your employer. You agree
to keep your username and the password that you use to log into the Platform
confidential.

4. ONLINE PRODUCTS AND SERVICES

The online products and services provided by UB are as outlined on the
Website and the Platform at the date of purchase. As part of UB's continual
59
development program, the online products and services may change from time
to time. UB reserves the right to change these online products and services
from time to time. These changes will be effective immediately upon
notification on the Platform.

5. SERVICE AVAILABILITY AND SECURITY

All UB servers are managed in a secure mission critical environment.
However, from time to time, delays or interruptions may occur in UB
providing the online products and services to you. You acknowledge that UB
will not be responsible for any such delay or interruptions and that UB will not
have any liability to you for any failure or delay in delivering the online
products or services to you.

6. SUBSCRIPTIONS, FEES AND PAYMENT

Reportlinker.com is provided on the basis of a monthly subscription which
commences on the day you make your first subscription payment and
continues until you elect not to renew your subscription at its next renewal
date. All payments are made to UB on behalf of Reportlinker.com. You
authorize UB to process payments to that credit card for all subscription
charges including renewals, unless you cancel your subscription with effect
from the next renewal date. You can stop your subscription at any time in "My
Account" section (http://www.reportlinker.com/myprofile).

7. NO REFUND
UB reserves the right to terminate your subscription at any time for non-
payment of any subscription invoice or for breach of any of these terms and
60
conditions. If your subscription is terminated or you choose to stop using your
subscription, the following will apply: if payment for the entire subscription
period has been received in full, UB will be under no obligation to refund any
part, or all, of the fees paid for the subscription; and if payment for the entire
subscription period has not been received in full, you remain liable and
responsible to pay your then current subscription in full.

8. YOUR INFORMATION
All personal information submitted by you through the use of the online
products and services is maintained on secure servers. UB and its suppliers
will take all reasonable steps to maintain the confidentiality of and restrict
access to this information and will not disclose any of this information to
anyone unless required to do so by law. Unfortunately, no data transmission
over the Internet can be guaranteed as totally secure. Whilst UB strives to
protect such information, UB does not warrant and cannot ensure the security
of any information that you transmit to UB and any information which you
transmit to us is transmitted at your own risk.

9. NO WARRANTY
UB excludes any and all express or implied warranties, guarantees or
representations regarding the accuracy, reliability, timeliness, fitness for
purpose or otherwise of any information linked to through its search engine.

10. LIMITATION OF LIABILITY

UB will not be liable to you for any loss or damage, however caused
(including through negligence), which you may directly or indirectly suffer in
61
 connection with your use of the Platform or of the UB online products and
services nor does UB accept any responsibility for any such loss arising out of
your use of or reliance on information contained on or accessed through the
Platform or through the online products and services.

Awards and Achievements

Reliance Mutual Fund

• Reliance Mutual Fund is one of India’s leading Mutual Funds, with

Average Assets Under Management (AAUM) of Rs. 1,07,749 Crores
(AAUM as of September 2010 ) (source: www.amfiindia.com) and an
investor count of over 72 Lakh folios.
• *(Over 72 lakh investor folios is calculated on the basis of live folios as on
September, 2010 and includes investors across all the schemes of Reliance
Mutual Fund and Presence in over 400 locations includes the Designated
Investor Service Centers (DISCs) of RCAM and Registrar & Transfer
Agents , Offices and Resident Representatives of RCAM as on December
31, 2009)
• Reliance Mutual Fund has over 14 years of extensive market experience,
35 schemes (as on January 31, 2010) combined with a strong performance
track record.

Reliance Capital Asset Management Limited

62
 • Reliance Capital Asset Management Limited has won the prestigious
US based, 2010 CIO 100 award. The 2010 CIO 100 Awards is presented
by the CIO magazine & honors 100 companies worldwide that are creating
new business value by innovating with technology.
• Vinay Nigudkar, CTO, Reliance Capital Asset Management Limited
has been awarded this honor for implementation of the CRMnext System
that integrates sales force automation, lead management, customer service
and other sales and analysis applications.
• What makes this award more special is that Reliance Capital Asset
Management Limited is the only Indian Company to receive 2010 CIO 100
award.

CRISIL Fund House Level 1

“CRISIL Fund House Level 1” rating denotes that RCAM has been judged by
CRISIL Limited (Rating Agency) to possess HIGHEST LEVEL OF PROCESS
QUALITY AND RISK MANAGEMENT CAPABILITY IN FUND
MANAGEMENT PRACTICES.

• CNBC TV18 - CRISIL Mutual Fund of the Year Award for

2009:
• Reliance Mutual Fund has won the ‘CNBC TV18 - CRISIL Mutual

63
 Fund of the Year’ Award in the Category – Mutual Fund House of the
Year (Awarded by CRISIL Fund Services, CRISIL Limited). In total 37
fund houses were considered as the award universe. Fund Houses winning
at least one award for their schemes in the category level awards for 2009
were eligible to be in contention for the award. The award is based on
consistency of fund house’s performance across various scheme categories
in the four quarterly CRISIL Composite Performance Rankings (CPRs)
released during the calendar year 2009. The individual CRISIL CPR ranks
for their schemes were aggregated on a weighted average basis to arrive at
the final ranks for fund houses. The mutual fund house with the highest
final score is the “Mutual Fund House of the Year”. The award has been
granted for the year 2009 and will be in vogue till the announcement of the
award for the next year in the same category.

• Asia Manager for the year 2009 :

•

Reliance Capital Asset Management Limited has been awarded “Asset

Manager for the year 2009” i.e. from July 2008 to July 2009 at Asia Risk
Awards 2009 by Incisive Media Publishing Limited. The participation was
open for all the Asset Managers across Asia Pacific. Twelve Asset
Managers participated for the award exercise. The Asia Risk Annual

64
 Award is renowned for recognizing and rewarding institutions for the best
risk management practices adopted by them. The judging panel comprise
of the editorial team of Incisive Media Publishing Limited. The panel
identifies asset managers that have demonstrated a responsible approach to
risk management over the year and/or launched innovative products. Key
factors determining the awards include significant improvements in
internal risk management practices, risk systems, corporate governance
and utilization of derivatives in a prudent and responsible manner. Past
Performance may or may not be sustained in future.

Sponsor :
Reliance Capital Limited.

Trustee :
Reliance Capital Trustee Company Limited.

Investment Manager :
Reliance Capital Asset Management Limited (Registered Office of Trustee &
Investment Manager: “Reliance House” Nr. Mardia Plaza, Off. C.G. Road,
Ahmedabad 380 006). The Sponsor, the Trustee and the Investment Manager are
incorporated under the Companies Act 1956. The Sponsor is not responsible or
liable for any loss resulting from the operation of the Scheme beyond their initial
contribution of Rs.1 lakh towards the setting up of the Mutual Fund and such
other accretions and additions to the corpus.

65
Statutory Details :
Reliance Mutual Fund has been constituted as a trust in accordance with the
provisions of the Indian Trusts Act, 1882.

Risk Factors :
Mutual Funds and securities investments are subject to market risks and
there is no assurance or guarantee that the objectives of the Scheme will be
achieved. As with any investment in securities, the NAV of the Units issued
under the Scheme can go up or down depending on the factors and forces
affecting the capital markets. The names of the Schemes do not in any
manner indicate either the quality of the Scheme; its future prospects or
returns. Past performance of the Sponsor/AMC/Mutual Fund is not indicative of
the future performance of the Scheme. The NAV of the Scheme may be affected,
interlaid, by changes in the market conditions, interest rates, trading volumes,
settlement periods and transfer procedures. For details of scheme features apart
from those mentioned above and for Scheme specific risk factors, please refer to
the Scheme Information Document which is available at all the DISC /
Distributors / www.reliancemutual.com. Please read the Scheme Information.

Our Service Providers

66
Registrar to the schemes of Reliance Capital Asset Management :
Karvy Computershare Pvt. Ltd

Custodians to the schemes of Reliance Capital Asset Management

Deutsche Bank AG
Bankers to the Schemes of Reliance Capital Asset Management

• ABN Amro Bank

• Axis Bank
• Citibank N. A.
• Deutsche Bank AG
• Development Bank of Singapore - only for online investors
• HDFC Bank Limited
• HSBC Bank
• ICICI Bank Limited
• IDBI Bank
• Ing Vysya Bank
• Kotak Mahindra Bank
• State Bank of India
• Standard Chartered Bank

• Reliance Mutual Fund offers the following schemes:

Reliance Quant Plus Fund

67
Reliance NRI Equity Fund
Reliance Tax Saver (ELSS) Fund
Reliance Regular Savings Fund
Reliance Equity Fund
Reliance Equity Advantage Fund
Reliance Long Term Equity Fund
Reliance Medium Term Fund
Reliance Short Term Fund
Reliance Monthly Income Plan
Reliance Floating Rate Fund
Reliance Dynamic Bond Fund
Reliance Money Manager Fund
Reliance Liquidity Fund
Reliance Regular Savings Fund
Reliance Natural Resources Fund
Reliance Infrastructure Fund
Reliance Media & Entertainment Fund
Reliance Banking Fund
Reliance Banking Exchange Traded Fund
Reliance Gold Exchange Traded Fund

Reliance Equity Advantage Fund

68
Objective : Reliance Equity Advantage Fund seeks to provide capital appreciation
and long-term growth through investment in equity, equity related instruments and
debt and money market securities.

Structure : Open ended scheme.

Inception Date : July 10, 2007

Plans and Options under the Plan :

Institutional and Retail Plans with Growth and Dividend Options.

Face Value (Rs/Unit): Rs 10

Minimum Investment :
Institutional- Rs 50000000, Regular- Rs 5000.

Entry Load : Nil

Exit Load : Nil

Latest NAV

Scheme Name NAV (Net Repurcha Sale Date

Asset se Price Price
Value)

Reliance Equity Advantage

26-Aug-
Fund-Institutional Plan Growth 12.9474 12.8179 12.9474
2010
Plan Growth Option

Reliance Equity Advantage

08-Dec-
Fund-Retail Plan Growth Plan 13.4857 13.3508 13.4857
2010
Growth Option

Reliance Equity Advantage

08-Dec-
Fund-Institutional Plan Dividend 13.7205 13.5833 13.7205
2010
Option

69
Reliance Equity Advantage
08-Dec-
Fund-Retail Plan Dividend 13.4857 13.3508 13.4857
2010
Option

Reliance Equity Advantage

08-Dec-
Fund-Retail Plan Growth Plan 13.4857 13.3508 13.4857
2010
Bonus Option

Reliance Equity Advantage

08-Dec-
Fund-Institutional Plan Growth 13.7205 13.5833 13.7205
2010
Plan Bonus Option

70
 Reliance Banking Fund

Objective : Reliance Banking Fund aims to generate continuous returns by actively

investing in equity / equity related or fixed income securities of banks.

Structure : Open-ended Income Scheme

Inception Date : May 22, 2003

Plans and Options under the Plan :

Growth, Bonus, Dividend.

Face Value (Rs/Unit): Rs. 10

Minimum Investment :
Rs.5000

Entry Load : For Subscription below Rs. 2 crores - 2.25%. For subscription of Rs.
2 crores & above and below Rs. 5 crores - 1.25%. For Subscription of Rs 5 crores &
above - Nil

Exit Load : Nil

Latest NAV

Scheme Name NAV (Net Repurcha Sale Date

Asset se Price Price
Value)

Reliance Banking Fund-Dividend 08-Dec-

43.2009 42.7689 43.2009
Plan-Dividend Option 2010

Reliance Banking Fund-Growth 08-Dec-

108.2767 107.1939 108.2767
Plan-Bonus Option 2010

Reliance Banking Fund-Growth 08-Dec-

108.2735 107.1908 108.2735
Plan-Growth Option 2010

71
 Reliance Diversified Power Sector Fund

Objective : Reliance Diversified Power Sector Fund aims to generate continuous

returns by actively investing in equity / equity related or fixed income securities of
Power and other associated companies.

Structure : Open-ended Power Sector Scheme

Inception Date : April 15, 2004

Plans and Options under the Plan :

Growth, Bonus, Dividend.

Face Value (Rs/Unit): Rs. 10

Minimum Investment :
Rs.5000.

Entry Load : For Subscriptions Below Rs. 2 crores - 2.25%. For Subscriptions of
Rs. 2 crores and above and below Rs. 5 crores - 1.25%. For Subscriptions of Rs. 5
crores and above - Nil

Exit Load : Nil

Latest NAV

Scheme Name NAV (Net Repurcha Sale Date

Asset se Price Price
Value)

Reliance Diversified Power

08-Dec-
Sector Fund-Dividend Plan- 47.7639 47.2863 47.7639
2010
Dividend

Reliance Diversified Power 08-Dec-

80.9122 80.1031 80.9122
Sector Fund-Growth-Bonus 2010

Reliance Diversified Power 80.9122 80.1031 80.9122 08-Dec-

72
Sector Fund-Growth-Growth 2010

Reliance Equity Fund

Objective : Reliance Equity Fund seeks to generate capital appreciation & provide
long-term growth opportunities by investing in a portfolio constituted of equity &
equity related securities of top 100 companies by market capitalization & of
companies which are available in the derivatives segment from time to time and the
secondary objective is to generate consistent returns by investing in debt and money
market securities.

Structure : Open-ended Diversified Equity Scheme

Inception Date : May 07, 2006

Plans and Options under the Plan :

Dividend, Growth.

Face Value (Rs/Unit): Rs. 10

Minimum Investment :
Rs.5000.

Entry Load : For Subscription below Rs. 2 crore - 2.25%. For subscription of Rs. 2
crores & above and below Rs 5 crore - 1.25%. For Subscription of Rs. 5 crore &
above - Nil

Exit Load : Nil.

Latest NAV

Scheme Name NAV (Net Repurcha Sale Date

Asset se Price Price
Value)

Reliance Equity Fund-Dividend 08-Dec-

14.8640 14.7154 14.8640
Plan-Dividend Option 2010

Reliance Equity Fund-Growth 14.8640 14.7154 14.8640 08-Dec-

73
Plan-Bonus Option 2010

Reliance Equity Fund-Growth 08-Dec-

14.8640 14.7154 14.8640
Plan-Growth Option 2010

Reliance Growth Fund

Objective : Reliance Growth Fund aims to achieve long-term growth of capital by

investment in equity and equity related securities through a research based
investment approach.

Structure : Open-ended Equity Growth Scheme

Inception Date : October 07, 1995

Plans and Options under the Plan :

Dividend, Growth, Bonus.

Face Value (Rs/Unit): Rs. 10

Minimum Investment :
Rs. 5000

Entry Load : For Subscription below Rs. 2 crores : 2.25%. For subscription of Rs.
2 crs & above and below Rs 5 crores:1.25%. For Subscription of Rs 5 crores &
above - Nil

Exit Load : Nil.

Latest NAV

Scheme Name NAV (Net Repurcha Sale Date

Asset se Price Price
Value)

Reliance Growth Fund-Dividend 08-Dec-

59.7447 59.1473 59.7447
Plan-(D) 2010

74
Reliance Growth Fund-Growth 08-Dec-
80.8426 80.0342 80.8426
Plan-Bonus Option 2010

Reliance Growth Fund-Growth 08-Dec-

487.3803 482.5065 487.3803
Plan-Growth Option 2010

Reliance Vision Fund

Objective : Reliance Vision Fund aims to achieve long-term growth of capital by

investment in equity and equity related securities through a research based
investment approach.

Structure : Open-ended Equity Growth Scheme

Inception Date : October 07, 1995

Plans and Options under the Plan :

Dividend, Growth, Bonus.

Face Value (Rs/Unit): Rs. 10

Minimum Investment :
Rs.5000.

Entry Load : For Subscription below Rs. 2 crores : 2.25%. For subscription of Rs.
2 crs & above and below Rs 5 crores:1.25%. For Subscription of Rs 5 crores &
above - Nil

Exit Load : Nil.

Latest NAV

Scheme Name NAV (Net Repurcha Sale Date

Asset se Price Price
Value)

75
Reliance Vision Fund-DIVIDEND 08-Dec-
46.3025 45.8395 46.3025
PLAN-D 2010

Reliance Vision Fund-GROWTH 08-Dec-

47.6789 47.2021 47.6789
PLAN-Bonus Option 2010

Reliance Vision Fund-GROWTH 08-Dec-

283.8577 281.0191 283.8577
PLAN-Growth Option 2010

Reliance Regular Savings Fund

Objective : Reliance Regular Savings Fund provides the choice of investing in

Debt, Equity or Hybrid options with a pertinent investment objective and pattern for
each option.

Structure : Open-ended Income Scheme

Inception Date : June 10, 2005

Plans and Options under the Plan :

Debt Plan, Equity Plan, Hybrid Plan.

Face Value (Rs/Unit): Rs. 10

Minimum Investment :
Rs.5 crores.

Entry Load : Equity Plan: For subscription below Rs.2 crore: 2.25%. For
subscription of Rs.2 crore & above and below Rs.5 crore: 1.25%. For subscription
of Rs.5 crore & above: Nil.

Hybrid Plan: For subscription below Rs.2 crore: 1.00%. For subscription of Rs.2
crore & above and below Rs.5 crore: 0.50%. For subscription of Rs.5 crore &
above: Nil

Debt Plan: Nil.

76
Exit Load : Nil.

Latest NAV

Scheme Name NAV (Net Repurcha Sale Date

Asset se Price Price
Value)

Reliance Regular Savings Fund- 20-May-

12.7630 12.7630 12.7630
DEBT OPTION -Growth Option 2010

Reliance Regular Savings Fund-

08-Dec-
EQUITY OPTION-Growth 32.3298 32.0065 32.3298
2010
Option

Reliance Regular Savings Fund-

20-May-
BALANCED OPTION-Growth 20.1526 19.9511 20.1526
2010
Option

77
 Reliance Pharma Fund

Objective : Reliance Pharma Fund aims to generate consistent returns by investing

in equity / equity related or fixed income securities of Pharma and other associated
companies

Structure : Open-ended Pharma Sector Scheme

Inception Date : May 26, 2004

Plans and Options under the Plan :

Growth, Bonus, Dividend.

Face Value (Rs/Unit): Rs. 10

Minimum Investment :
78
Rs.5000.

Entry Load : For Subscriptions Below Rs. 2 crores - 2.25%. For Subscriptions of
Rs. 2 crores and above and below Rs. 5 crores - 1.25%. For Subscriptions of Rs. 5
crores and above - Nil

Exit Load : Nil.

Latest NAV

Scheme Name NAV (Net Repurcha Sale Date

Asset se Price Price
Value)

Reliance Pharma Fund- 08-Dec-

41.8995 41.4805 41.8995
Dividend-Dividend 2010

Reliance Pharma Fund-Growth 08-Dec-

56.1757 55.6139 56.1757
Plan-Bonus 2010

Reliance Pharma Fund-Growth 08-Dec-

56.1757 55.6139 56.1757
Plan-Growth 2010

ULIP-Unit Linked insurance Plan

Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to

mutual funds in terms of their structure and functioning. As is the case with
mutual funds, investors in ULIPs are allotted units by the insurance company
and a net asset value (NAV) is declared for the same on a daily basis.

79
Similarly ULIP investors have the option of investing across various schemes
similar to the ones found in the mutual funds domain, i.e. diversified equity
funds, balanced funds and debt funds to name a few. Generally speaking,
ULIPs can be termed as mutual fund schemes with an insurance component.
However it should not be construed that barring the insurance element there is
nothing differentiating mutual funds from ULIPs.

It provides for life insurance where the policy value at any time varies
according to the value of the underlying assets at the time. ULIP is life
insurance solution that provides for the benefits of protection and flexibility in
investment. The investment is denoted as units and is represented by the value
that it has attained called as Net Asset Value (NAV).

ULIP came into play in the 1960s and is popular in many countries in the
world. The reason that is attributed to the wide spread popularity of ULIP is
because of the transparency and the flexibility which it offers.

As times progressed the plans were also successfully mapped along with life
insurance need to retirement planning. In today’s times, ULIP provides
solutions for insurance planning, financial needs, financial planning for
children’s future and retirement planning. These are provided by the insurance
companies or even banks. Investments made in ULIP has tax exemption under
section 80C of the Indian Income Tax Act, 1961 and also returns will be
covered under section 10(10D).

80
 Most insurers offer a wide range of funds to suit one’s investment objectives,
risk profile and time horizons. Different funds have different risk profiles. The
potential for returns also varies from fund to fund. The following are some of
the common types of funds available along with an indication of their risk
characteristics.

General Description Nature of Investments Risk Category

Equity Funds Primarily invested in company Medium to High
stocks with the general aim of
capital appreciation
Income, Fixed Interest Invested in corporate bonds, Medium
and Bond Funds government securities and other
fixed income instruments
Cash Funds Sometimes known as Money Low
Market Funds — invested in cash,
bank deposits and money market
instruments
Balanced Funds Combining equity investment with Medium
fixed interest instruments

ULIP provides multiple benefits to the consumer. The benefits include:

• Life protection

81
• Investment and Savings
• Flexibility
• Adjustable Life Cover
• Investment Options
• Transparency
• Options to take additional cover against
• Death due to accident
• Disability
• Critical Illness
• Surgeries
• Liquidity
• Tax planning

Market linked insurance plans invest the premium in to the equity, debt and
cash markets by the way of allocating units, which like any other mutual fund
have a NAV and the customer is free to switch between one fund class to
another depending on the risk factor he wishes to be in. ULIPs offer a better
return than the traditional endowment plans and offer a great deal of flexibility
along with great returns making them the finest product offering.

Charges

82
ULIPs offered by different insurers have varying charge structures. Broadly,
the different types of fees and charges are given below. However it may be
noted that insurers have the right to revise fees and charges over a period of
time.

1 Premium Allocation Charge

This is a percentage of the premium appropriated towards charges before

allocating the units under the policy. This charge normally includes initial and
renewal expenses apart from commission expenses.

2 Mortality Charges

These are charges to provide for the cost of insurance coverage under the
plan. Mortality charges depend on number of factors such as age, amount of
coverage, state of health etc

3 Fund Management Fees

These are fees levied for management of the fund(s) and are deducted before
arriving at the Net Asset Value (NAV).

4 Policy/ Administration Charges

These are the fees for administration of the plan and levied by cancellation of
units. This could be flat throughout the policy term or vary at a pre-determined
rate.

5 Surrender Charges

A surrender charge may be deducted for premature partial or full encashment

of units wherever applicable, as mentioned in the policy conditions.
83
6 Fund Switching Charge

Generally a limited number of fund switches may be allowed each year

without charge, with subsequent switches, subject to a charge.

7 Service Tax Deductions

Before allotment of the units the applicable service tax is deducted from the
risk portion of the premium.

Investors may note that the portion of the premium after deducting for all
charges and premium for risk cover is utilized for purchasing units.

Important Issues for Investors

 Verification Before signing in the proposal

One has to verify the approved sales brochure for

• All the charges deductible under the policy

• Payment on premature surrender

• Features and benefits

• Limitations and exclusions

• Lapsation and its consequences

• Other disclosures

84
 • Illustration projecting benefits payable in two scenarios of 6% and 10%
returns as prescribed by the life insurance council.

 Premium Used to Purchase Units

The full amount of premium paid is not allocated to purchase units. Insurers
allot units on the portion of the premium remaining after providing for various
charges, fees and deductions. However the quantum of premium used to
purchase units varies from product to product.

The total monetary value of the units allocated is invariably less than the
amount of premium paid because the charges are first deducted from the
premium collected and the remaining amount is used for allocating units.
Bajaj Allianz Life Insurance have developed a number of ULIP products
which range from single premium to a regular premium option along with
investment funds ranging from index funds to mid-cap funds and debt market
linked funds.

 Refund of premiums if not satisfied with the policy, after

purchasing it

The policyholder can seek refund of premiums if he disagrees with the terms
and conditions of the policy, within 15 days of receipt of the policy document
(Free Look period). The policyholder shall be refunded the fund value
including charges levied through cancellation of units subject to deduction of
expenses towards medical examination, stamp duty and proportionate risk
premium for the period of cover.

85
  To invest additional contribution above the regular premium

One can invest additional contribution over and above the regular premiums as
per their choice subject to the feature being available in the product. This
facility is known as “TOP UP” facility.

 Switching the investment fund after taking a ULIP policy

“SWITCH” option provides for shifting the investments in a policy from one
fund to another provided the feature is available in the product. While a
specified number of switches are generally effected free of cost, a fee is
charged for switches made beyond the specified number.

 Partial encashment/withdrawal

Products may have the “Partial Withdrawal” option which facilitates

withdrawal of a portion of the investment in the policy. This is done through
cancellation of a part of units.

86
  Discontinuation of payment of premium

a) Discontinuance within three years of commencement – If all the

premiums have not been paid for at least three consecutive years from
inception, the insurance cover shall cease immediately. Insurers may
give an opportunity for revival within the period allowed; if the policy is
not revived within that period, surrender value shall be paid at the end of
third policy anniversary or at the end of the period allowed for revival,
whichever is later.

b) Discontinuance after three years of commencement -- At the end of the

period allowed for revival, the contract shall be terminated by paying the
surrender value. The insurer may offer to continue the insurance cover, if so
opted for by the policy holder, levying appropriate charges until the fund value
is not less than one full year’s premium. When the fund value reaches an
amount equivalent to one full year’s premium, the contract shall be terminated
by paying the fund value.

COMPARISON BETWEEN ULIPS AND MUTUAL FUNDS:

1. A Mutual Fund is meant only for investment whereas an Insurance

Cover takes care of uncertainties of the future. Considering all the above
factors, the best investment varies from individual to individual. A good
equity mutual fund and a low-cost term insurance
are best investmentoption for every investor.

2. Mode of investment/ investment amounts

87
 Mutual fund investors have the option of either making lump sum
investments or investing using the systematic investment plan (SIP) route
which entails commitments over longer time horizons. The minimum
investment amounts are laid out by the fund house.
ULIP investors also have the choice of investing in a lump sum (single
premium) or using the conventional route, i.e. making premium payments
on an annual, half-yearly, quarterly or monthly basis. In ULIPs,
determining the premium paid is often the starting point for the investment
activity.

3. Expenses
In mutual fund investments, expenses charged for various activities like
fund management, sales and marketing, administration among others are
subject to pre-determined upper limits as prescribed by the Securities and
Exchange Board of India.
For example equity-oriented funds can charge their investors a maximum of
2.5% per annum on a recurring basis for all their expenses; any expense
above the prescribed limit is borne by the fund house and not the investors.
Similarly funds also charge their investors entry and exit loads (in most
cases, either is applicable). Entry loads are charged at the timing of making
an investment while the exit load is charged at the time of sale.
Insurance companies have a free hand in levying expenses on their ULIP
products with no upper limits being prescribed by the regulator, i.e. the
Insurance Regulatory and Development Authority. This explains the
complex and at times 'unwieldy' expense structures on ULIP offerings.

88
 4. Tax benefits and Portfolio Disclosure –

Investments made in ULIPs are instruments of saving income tax,

whereas in mutual funds, investment in only equity-linked tax savings
scheme qualifies for tax benefits. Also, mutual fund houses are required
to declare their portfolios. No such statutory requirement is there for ULIPs.

The Investors for Mutual Fund

Mutual Funds are becoming a very popular form of investment characterized

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 Funds are suitable for the investors who call for:

• Expertise Supervision: Making investments is not a full time

assignment of investors. So many investors hardly have a professional
attitude towards their investment. This investment is suitable for those
investors. When investors buy mutual fund scheme, an essential benefit
89
 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 decisions.

• Regular Income or Ease of Liquidity- 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 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.

• Risk reluctancy- Mutual funds are relatively safer and stable, the
reason being it provides Diversification which is the idea of putting not
putting all the eggs into 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

90
 participate in a large basket of shares of many different companies.
Majority of people consider diversification as the major strength of
mutual funds.
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 reduce 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

• Safety of Investments-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 heatedly to safeguard investors interests
• Tax Shelter: Depending on the scheme of mutual funds, tax shelter is
also available. As per the Union Budget-2003, income earned through
dividends from mutual funds is 100% tax-free at the hands of the
investors.

• Minimize Operating Costs: Mutual funds having large invisible funds

at their disposal avail economies of scale. The brokerage fee or trading
commission may be reduced substantially. The reduced operating cost
visibly increases the income available for investors. Investing in
securities through mutual funds has many advantages like – option to

91
 reinvest dividends, strong possibility of capital appreciation, regular
returns, etc

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

extent to which they are able to mobilize additional savings and
channeling to more productive sectors of the economy.

RESEARCH
METHODOLOGY
Type of research : DESCRIPTIVE RESEARCH, COMPARISON
OF
92
 MUTUAL FUND & ULIP.

Sample size : 30

Sources of data

Primary data : Survey method, Personal Interview

Secondary data : Newspapers, Internet

Draft Questionnaire – To fulfill the objectives of the market study, we

designed a draft questionnaire with a sample size of 30.

Pilot Survey – A Pilot Survey was done with a draft questionnaire having 10
questions in addition to personal information. The objective for conducting the
pilot survey was to identify the acceptability level of our draft questionnaire.

Observations of the Pilot Survey-

We observed that people are reluctant in disclosing their exact investment and
life insurance portfolio.

Moreover, it was observed that there is a great degree of biasness as far as life
insurance is concerned. Most of the people who responded to the pilot survey
indicated their life-insurance subscription as an investment. While majority of
them take life insurance for tax-benefits, there are very few who subscribe to
life-insurance schemes for life-cover for which it is intended.

93
Majority of the respondents were found to be unaware of the exact returns they
received from the individual investments in the past five years.

Respondents were reluctant in disclosing some of their personal details like

mobile number, address, office, pay package. Respondents indicated that they
do not want any unsolicited calls from the telecallers.

Changes inculcated in the final Questionnaire –

The final questionnaire was prepared in accordance with the findings of the
pilot survey. Some columns were removed from the personal details field.

The “Organization Name” Field was also removed as it was found irrelevant to
the study. Moreover, we make changes in the “Annual Income and
Occupation” field from the Personal details and instead of asking the exact
figure, we placed some ranges. Some other minor changes were done in the
draft questionnaire so as to make it small, attractive and acceptable.

DATA COLLECTION
94
PRIMARY DATA:

The Primary Data that I collected were the first hand information, which I
received through questionnaires with the respondent. This data gave the most
vital information for making my analysis of the Investment Strategy of the
Investor.

SECONDARY DATA:

Secondary Data involved in my research were the information that I collected

through the Reliance Mutual Fund, and intranet service.

Ideally, there should be an oriented investment strategy for an investor

depending upon his age, profession, and number of dependents, risk profile
and his expectations. We have identified six areas that are of interest to every
investor across categories. The weight age given to these parameters by
different individuals may vary.

Investing is every body’s need. Everyone wants to invest their savings for
uncertain future ahead. These hard earn savings should be properly and
smartly invested so that the principal is safe, returns are maximized and
liquidity is available. Proper knowledge can help an investor to get maximum
possible returns while minimizing his risk.

95
 ANALYSIS & INTERPRETATION
Age Wise Investment Distribution

Interpretation

 20-35 Age groups is very AGGRESSIVE INVESTORS.

 35-40 Age Groups is MODERATE INVESTORS.

 50-65 and above 65 Age Group is CONSERVATIVE AND VERY

CONSERVATIVE INVESTORS.

96
Occupation Wise Investment Distribution

In My Sample Size

 52 % Respondent goes through Salaried as Occupation.

 30 % Respondent goes through Business as Occupation.
 17 % Respondent goes through Professionals Occupation.
 1 % Respondent goes through Retired.

97
Annual investment of the investors

70% 58%
60%
50% 40%
37% 33%
40% 26%23%
30% 17% 20%
20% 14% 16%
11%
10% 5% ULIPS
0% Mutual Fund
Both

INTERPRETATION

We can observe that investors having less investment annually prefer to invest
their money in ulip than mutual fund, those investors who invest more
annually prefer to invest in mutual fund over ulip.

98
Percentage of people who have invested in ULIPS, in Mutual fund and
both

INTERPRETATION

We can observe that the more percentage of investors that is 51% prefers to
invest their money in mutual fund compare to ulips.

99
Factors consider by investors before investing in ULIPS and Mutual fund

INTERPRETATION

We observe that the investors invest their money while considering some
factors also that is 39% investors considered safety as their prime concern.
42% of the investors considered return before investing, only 12% investors
considered maturity period and only 7% investors are aware to consider terms
and conditions before investing.

100
Information Sources helpful to the investor in making investment decision

INTERPRETATION

Investor uses the above sources for the information to make their investment
decisions. 66% of the investors use brokers as there source of information, 5%
investors get information from the journals, 21% investors get information
from their reference group, 5% investors get information from the television,
and only 3% investors get information from the newspapers.

101
Preference of investor regarding different types of funds

INTERPRETATION

We can observe that 21.5% of the investers invest their money in equity based
fund, 11.5% investors invest in debt based fund, 26.8% investors invest in
balanced fund, 30.6% investors invest in open ended funds and 9.6% invest in
close ended fund.

102
Preference of Mutual fund or ULIPs on the basis of following factors

INTERPRETATION

We can observe that investors prefer mutual fund over ulip considering the
factors like diversification, profession, low cost, liquidity, flexibility.

103
Investment in ULIPS and Mutual fund by risk profile

70% 61%
60% 53%
50%
40% 33%
30% 26% ULIPS
20% 12% 14%
10%
0%
Low risk Moderaterisk High risk

INTERPRETATION

We can observe that the investors who wants to take low risk prefer ulip over
mutual fund, but the investors who are ready to bear risk either moderate or
high prefer mutual fund over ulip.

104
Expected annual Return from both ULIPS and Mutual fund

INTERPRETATION

105
We observe that the investors who want high return will prefer mutual fund
over ulip.

Preferred tenure of investment for ULIPS and Mutual Fund

106
INTERPRETATION

Those investors who invest for short term and mid term period will prefer
mutual fund over ulip, while those who wants a long term investment will
prefer ulip over mutual fund.

Preferred investment option for investing their money in future

107
 FINDINGS
 Respondent goes through Salaried as Occupation. Respondent goes

through Business as Occupation. Respondent goes through Professionals

Occupation. Respondent goes through Retired 20-35 Age groups is very
aggressive investors.35-40 Age Groups is Moderate Investors.
 50-65 and above 65 Age Group is conservative and very conservative

investors 20-35 Age groups is mainly prefer to invest in equity and

mutual funds they have risk bearing capacity and expect greater returns
from their investments.
 People are aware regarding ulips & Mutual fund but, the awareness

regarding mutual fund is high comparative to ulips.

 People with high income group are more likely to invest their money
but, people who invest in both ulips and mutual fund mostly belongs to
the income group of more than 6 lacs.

108
 Broker and reference group plays an important role while making an
investment decision of an investor.
 Open ended funds & closed funds are more popular among investors.

 Insurance and tax rebate is the most important reason for investing in
ulips & people are investing in mutual fund for the appreciation of the
capital invested by them.
 Among the various advantages liquidity & flexibility plays the most
important role for the preference of mutual fund over ulips
 Low risk is taken in case of ulips & moderate risk in case of mutual
funds.
 The expected annual return is high for mutual fund comparative to ulips.
 The preferred tenure of investment is same for both ulips & mutual fund
 The recent controversy related to ulips will going to affect its future
demand &in future also more number of investors will like to invest
their money in mutual fund.
 So future is bright for mutual funds.

109
 CONCLUSION
Investing is every body’s need. Everyone wants to invest their savings for
uncertain future ahead. These hard earn savings should be properly and
smartly invested so that the principal is safe, returns are maximized and
liquidity is available. With the globalization of Indian financial market lot of
avenues of investment has opened up. With the increase in number of options
now available, complexity too has increased. Proper knowledge can help an
investor to get maximum possible returns while minimizing his risk.

FIVE STEP INVESTMENT PLAN

110
Investing is a science, not an art. We suggest a five-stage investment plan that
may be practiced by investors looking for multiplying their hard-earned
money.

• Need Analysis and Profiling

• Internalizing and Evaluating the Available Avenues
• Mapping and Matching the Profile
• Designing an Optimum Portfolio
• Continuous Monitoring and Portfolio Management

The first step is performing a Need Analysis check. The requirements and
expectations of the investor should be determined. The needs should be
separated from the desires. The facts that should be taken into account are their
age, their profession, the number of dependents, and their income. By doing
this check, the risk profile of the investor should me designed.

The next step would be internalizing the needs. Various investment avenues
should be analyzed. The risk-return profile of investment products is evaluated
in this step.

Every investment product varies according to its return potential and riskiness.
Investment products giving a high rate of return are generally risky and
volatile.

The products giving a lower rate of return usually are less risky. Therefore all
the available avenues should be evaluated.

111
The next step would be mapping the risk-return profile of the investor on to the
investment portfolio. The investment products are matched with the risk-return
profile of the investor. All the investment alternatives that offer expected rate
of return are selected for consideration.

Then an optimum portfolio is designed for the investor. The basket of

investment avenues selected in the previous step is given due weight age and
appropriate amount of money is invested in each of the investment avenue so
as to get maximum return with minimum possible risk.

Finally a continuous watch on the portfolio is extremely important.

Fundamental analysis of the investment products done in the previous stages
would only help in selecting the right product but the right time of entry or exit
from a particular stream is evaluated by doing a technical analysis. For this
professional Analyst is to be required.

RECOMENDATIONS
 Ideally, there should be an oriented investment strategy for an investor
depending upon his age, profession, and number of dependents, risk
profile and his expectations. We have identified six areas that are of
interest to every investor across categories. The weight age given to
these parameters by different individuals may vary.

112
 People in the age group 20-35 may opt for Equity funds or Exchange
traded funds of Mutual Fund when they are bullish for the stock market
and otherwise they can earn a handsome return from growth plans.
People in the age group 35-50 may go for balanced funds of ULIP plan
that gives a decent return. For others, debt funds and fixed deposits may
give a good return in addition to the benefits of traditional life insurance
plans, like tax benefits.

 Ideally, individuals should look at separating their insurance and

investment needs. One way of doing this is by buying a term a ULIP
insurance plan and devote the remaining ‘investible surplus’ in other
comparable avenues like mutual funds or even PPF/NSCs. Unit linked
insurance plans (ULIPs) with their mandate of investing up to 100% of
their

 The people do not want to take risk. The AMC should launch more
diversified funds so that the risk becomes minimize. This will lure more
and more people to invest in mutual funds and ulips.

 The expectation of the people from the mutual funds is high. So, the
portfolio of the fund should be prepared taking into consideration the
expectations of the people.

 Try to reduce fund charges, administration charges and other charges

which help to invest more funds in the security market and earn good
returns

113
 Different campaigns should be launched to educate people especially
regarding SIP.

 Companies should give regular dividends as it depicts profitability.

 Companies should give handsome brokerage to brokers so that they get

attracted towards distribution of the funds.

 ULIPs is good for those who prefer investment plus insurance.

LIMITATIONS
114
• Useful Financial insights are not easily available.
• Time was not sufficient to research on all the investment tools available.
• The survey sample was not very large for analysis and the major
population in the sample group was middle class group making deviation in
the results and the inaccuracy of the results because of respondents’
response.
• There was difficulty in getting data due to confidential nature of the
data.
• When making decisions about your money, fund managers don't
consider your personal tax situation. For example, when a fund manager
sells a security, a capital-gain tax is triggered, which affects how profitable
the individual is from the sale. It might have been more advantageous for
the individual to defer the capital gains liability.
• Because funds have small holdings across different companies, high
returns from a few investments often don't make much difference on the
overall return. Dilution is also the result of a successful fund getting too
big.

115
 BIBLOGRAPHY
BOOKS

• Bhalla .V.K, Investment Management , Investment planning.

• Khan, M.Y, financial services, Tata McGraw Hill , New Delhi.
• Machiraju, Working of Stock Exchange in India, New Age Publication.

JOURNALS

• NCFM, Security Market (Basic Module)

• Business world.
• Reliance fact sheet

INTERNET

• www.nseindia.com
• www.debtonnetindia.com.
• www.moneycontrol.com
• www.ril.com
• www.amfiindia.com
• www.reliancemutual.com

116
 APPENDICES
Questionnaire

Dear Respondent,

I am a student of Teerthanker Mahaveer Institute of Management &

Technology (Moradabad). I am doing my internship project from
RELIANCE MUTUAL FUND on Available investment instrument in India.
& comparison among them. I would be grateful and really appreciate if you
could kindly spare your valuable time to answer the following questions on
your investment policy.

Name-…………………………………………………Age……………

Sex- Male Female

Married- Yes No

Address-………………………………………………………………..

Phone-………………………………………………………………….

1- Occupation

Salaried Business

Retired Professionals (Specify)…………….

117
Any other (Please Specify)…………………..

2- Annual Package

Less than 5 5 - 10 lakhs

10-30 lakhs 30-60 Lakhs

More than 60

3- Education/Qualification

10+2 Graduate

Post Graduate Any other Please

Specify…………………..

4- How much amount you invest annually?

A) 10,000 -1 lakh
B) 1 lakh-5lakhs
C) 5-10 lakhs
D) 10-25 lakhs
E) More than 25 lakhs

5- In which Assets you invest your money?

A) Mutual Fund

118
 B) ULIPs
C) Both

6- What are the Factors consider by investors before investing in ULIPS

and Mutual fund?

A) Safety of Principle

B) High return

C) Maturity period

D) Terms and conditions

7- Which Information Sources are helpful to the investor in making

investment decision?

A) Journals
B) Reference groups

C) Television
D) Brokers
E) Newspapers

8- What are the investment Preference of investor regarding different

types of funds?

119
 A) Equity based fund
B) Debt based fund
C) Balanced fund
D) Open ended fund
E) Closed ended fund

9- Investors Preference of Mutual fund or ULIPs on the basis of following

factors.

A) Diversification
B) Profession
C) Low cost
D) Liquidity
E) Flexibility

10- Investors preference on the basis of risk profile?

A) Low Risk
B) Moderate Risk
C) High Risk

11-What is the expected rate of return of your Investment?

A) less than 10%

B) 10-15%

C) 15-20%

D) 20-25%

120
12- What is your investment horizon?

A) Short term
B) medium term
C) Long term

121