A PROJECT REPORT ON

MERITS AND DEMERITS OF MUTUAL FUND

TRAINING UNDERTAKEN AT

SUBMITTED FOR THE PARTIAL FULFILLMENT OF TWO YEARS FULL TIME COURSE MASTERS IN BUSINESS ADMINISTRATION
Batch(2010-2012)
Submitted By: -

Aman Gupta MBA SEM-III(2010-2012 )

Faculty of Management Studies Maharishi Arvind Institute of Engineering & Technology, Jaipur Affiliated to Rajasthan Technical University, Kota

-1-

PREFACE A professional course like business management demands in depth theoretical knowledge and practical exposure to its realistic application. For the same purpose, the course designs one and a half month summer training. The course aims to groom the students professionally and offer him/her a chance to work in corporate world, so as to have an opportunity to gain experience on practical aspects and supplement his/her theoretical knowledge. Mutual Funds being the ideal investments vehicle in todays complex and modern financial scenario. Mutual Funds are emerging as the most attractive investment avenue as the investments across is globally facing a southern trend and volatility prevails in all the global markets. I was fortunate enough to closely watch and learn the working of a mutual fund, during my Project Training at one of the Indian pioneers in Mutual Funds- SBI MUTUAL FUND The project assigned was MERITS AND DEMERITS OF MUTUAL FUND The relevance of mutual funds increases as the international financial situations going in tailspins day by day and India now is by real means being attached to global swings of Fed rate cuts, Sub Prime crises, crude oil prices etc.

-2-

ACKNOWLEDGMENT The project would not be complete without a mention of those, who have spared their valuable time and shared their rich experience, in making this project happen. I owe indebtedness to Mr. Sameer saxena, Branch Manager, Jaipur for sbi mutual fund AMC, for granting me an opportunity to work with the esteemed organization. He has been benevolent enough to lend his help and spare his valuable time throughout the project. I am thankful for his continuous motivation and encouragement. I extend my heartfelt thanks to Mr.Praveen saini, & Mrs.Alka jain for their incessant guidance and support all through the project. I also feel privileged to place on record the excellent financial and marketing tactics, which I had learnt from them during the project. I express my deep gratitude to all the staff members at SBI MUTUAL FUND AMC, JAIPUR; who gave me a full-fledged support to complete my project on time.

(Aman Gupta)

-3-

DECLERATION

I hereby declare that this Project Report entitled Mutual Funds: MERITS AND DEMERITS OF MUTUAL FUND submitted in the partial fulfillment of the requirement of Master of Business Administration (M.B.A) of S.I.M.C.S, Jaipur . It is based on primary & secondary data found by me in various institutes, books, magazines and websites & collected by me in under guidance of PRAVEEN SIR .

DATE: 15.07.2011 Aman Gupta M.B.A

-4-

EXECUTIVE SUMMARY Todays mutual fund industry is characterized by cut throat competition, so it is very important for a company, which offers a basket of offerings, to design clear cut strategies. The project that I had worked upon in my training provided a lot of scope to learn, right from the basics, about the investment opportunities available in mutual funds in India, various factors involved in selecting an investment option. It further included a market research where I interacted with different people, to gain more knowledge about the different investment opportunities in India. The research work contains a comprehensive study of the Mutual Funds in India and how it emerged as one of the most rapidly growing investment avenue. The project also involves some practical learning of working in the bank as well. It involves interaction with the customers that walk in to the bank to understand their needs to invest in which fund and market, and to draw out the information which is necessary. I tried to introduce different marketing strategies and put up new ideas to attract more customers that helped SBI MUTUAL FUND the sales process and to generate leads. Finally, it included a market research using questionnaires to find out awareness of mutual funds among people as compared to other investment avenues. I also need to find out the various investment avenues of people.

-5-

CONTENTS

1. Introduction to the industry 2. Mutual fund as an investment avenue 3. Introduction to the Organization 4. History of Indian mutual fund 5. Concept of mutual fund 6. Three tier structure of mutual fund 7. Types of mutual fund schemes 8. Various investment options available for investors 9. Benefits of mutual fund 10. Disadvantages of mutual funds 11. Factors to be considered before selecting mutual fund 12. Systematic Investment Plan 11.1 Merits of SIP 11.2 Dmerits of SIP 13. Research Methodology 13.1. 13.2. 13.3. 13.4. 13.5. 13.6. 13.7. 13.8. 13.9. Title of the Study Duration of the Project Objective of the Study Research Strategy Type of Research Data Types Sources of Data Sample Size for Study Scope of the Study

14. Limitations of the Study 15. Facts and Findings 16. Analysis and Interpretation 17. SWOT Analysis 18. Conclusion 19. Recommendations and Suggestions 20. Bibliography -6-

MUTUAL FUNDS AS AN INVESTMENT AVENUE A Mutual Fund is a company that invests in a diversified portfolio of securities. People who buy shares of a Mutual Fund are its owners or shareholders. Their investments provide the money for a Mutual Fund to buy securities such as stocks and bonds. A Mutual Fund can make money from its securities in two ways: a security can pay dividends or interest to the fund or a security can rise in value. A fund can also lose money and drop in value.

The money thus collected is then invested by the fund manager in different types of securities. These could range from shares to debentures to money market instruments, depending upon the scheme's stated objectives. The income earned through these investments and the capital appreciations realized by the schemes are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

The growth of Mutual funds in any economy is an indicator of the development of financial sector and the extent to which investors have faith in the regulatory environment.

-7-

INTRODUCTION TO THE ORGANIZATION

SBI mutual fund was setup on June 29th, 1987 and incorporated on February 7th, 1992. It is a result of joint venture between State Bank of India and Societe Generale Asset Management of France. This is a bank sponsored mutual fund and has a base of 3.5 million investors (approx). Over the years it has carved a niche for itself through prudent investment decisions and consistent wealth creation for its customers. They offer Mutual Fund products in Equity Funds, Index Funds, Balanced Funds, Debt Funds, etc. The assets under management are Rs 33,727.90 crores as of June, 30, 2010. InvestmentYogi analyses the best performing SBI mutual fund in the Balanced Fund, Equity Fund and Equity Linked Savings Scheme (ELSS) categories.

SBI Mutual Fund operates under State Bank of India and Socit Gnrale Asset Management of France and has asset management experience of more than 25 years. SBI Mutual Fund offers different kinds of products like growth based products, income based products and balanced funds. The SBI Mutual Fund operates under State Bank of India and Socit Gnrale Asset Management of France. With over twenty years of experience in asset management, the company has grown immensely since its establishment. SBI Mutual Funds offer innovative mutual fund products to its wide pool of customers and its products are available across India. It has a wide portfolio of products that meet the requirements of different types of investors. The SBI Mutual Fund is headed by Mr Syed Shahabuddin, Managing Director of the company.

-8-

Contact details of SBI Mutual Fund are as follows:

Corporate Office : 191, Maker Tower 'E', Cuffe Parade, Mumbai - 400 005. Email : partnerforlife@sbimf.com SBI Mutual Funds Investor's Service Center are located at Ahmedabad, Bangalore, Bhillai, Bhubaneshwar, Bhopal, Chandigarh, Chennai, Coimbatore, Cochin, Goa, Guwahati, Hyderabad, Indore, Jaipur, Kanpur, Kolkata, Lucknow, Ludhiana, Mumbai, New Delhih, Patna, Pune, Ranchi, Siliguri, Vadodara, and Vijaywada. SBI Mutual Fund Mutual Fund Setup Date Incorporation Date Sponsor Trustee Chairman CEO / MD CIO Compliance Officer Investor Service Officer Assets Managed Other Details Auditors Custodians Registrars Address Telephone Nos. Fax Nos. E-mail SBI Mutual Fund Jun-29-1987 Feb-07-1992 State Bank of India SBI Mutual Fund Trustee Company Private Limited Mr. Pratip Chaudhri Mr. Deepak Kumar Chatterjee Mr. Navneet Munot Ms. Vinaya Datar Mr. C A Santosh Rs. 47874.46 crore (Jun-30-2011)

Haribhakti & Co / M/S. Chandabhoy & Jassoobhoy Bank of Nova Scotia / Citi Bank / HDFC Bank / Stock Holding Corporation of India Computer Age Management Services Pvt. Ltd, Computronics Financial Services (I) Ltd, Datamatics Financial Software Services Ltd 191 Maker Tower E, Cuffe Parade, Mumbai - 400005. 022 - 22180221-27 022 22189663 partnerforlife@sbimf.com

-9-

Products and services offered by the SBI Mutual Fund are as follows Equity / Growth based products- The equity based funds offered by SBI Mutual Fund, are as follows . Magnum COMMA Fund

Magnum Equity Fund Magnum Global Fund Magnum Index Fund Magnum MidCap Fund Magnum Multicap Fund Magnum Multiplier Plus 1993 Magnum Sector Funds Umbrella MSFU - FMCG Fund MSFU - Emerging Businesses Fund MSFU - IT Fund MSFU - Pharma Fund MSFU - Contra Fund SBI Arbitrage Opportunities Fund SBI Blue chip Fund SBI Infrastructure Fund - Series I SBI Magnum Taxgain Scheme 1993 SBI ONE India Fund SBI TAX ADVANTAGE FUND - SERIES I

Debt / Income based products-The debt based funds that are in operation now, are as follows

Magnum Children's Benefit Plan Magnum Gilt Fund Magnum Gilt Fund (Long Term) Magnum Gilt Fund (Short Term) Magnum Income Fund Magnum Income Plus Fund Magnum Income Plus Fund (Saving Plan) Magnum Income Plus Fund (Investment Plan) Magnum Insta Cash Fund Magnum InstaCash Fund -Liquid Floater Plan Magnum Institutional Income Fund Magnum Monthly Income Plan Magnum Monthly Income Plan Floater Magnum NRI Investment Fund SBI Capital Protection Oriented Fund - Series I SBI Debt Fund Series SDFS 15 Months Fund - 10 -

SDFS 90 Days Fund SDFS 13 Months Fund SDFS 18 Months Fund SDFS 24 Months Fund SDFS 60 Days Fund SDFS 180 Days Fund SBI Premier Liquid Fund SBI Short Horizon Fund SBI Short Horizon Fund - Liquid Plus Fund SBI Short Horizon Fund - Short Term Fund

Balanced funds - The balanced funds that are in operation now, are as follows

Magnum Balanced Fund Magnum NRI Investment Fund - FlexiAsset Plan

- 11 -

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

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. The history of mutual funds in India can be broadly divided into four distinct phases

First Phase 1964-1987 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. 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 June 1987 followed by Canbank 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 set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.

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 - 12 -

governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.

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 January 2003, 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 to the SEBI Mutual Fund 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.

- 13 -

CONCEPT OF MUTUAL FUND

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

- 14 -

ORGANISATION OF A MUTUAL FUND

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

THREE-TIER STRUCTURE OF MUTUAL FUNDS

The structure of Mutual Funds in India is governed by the SEBI (Mutual Fund) Regulations, 1996 (hereinafter referred to as SEBI Regulations). These regulations make it mandatory for Mutual Funds to have a Three-tier Structure of Sponsor Trustee- Asset Management Company (AMC).

Sponsor The sponsor is the promoter of the mutual fund. The sponsor establishes the mutual fund and registers same with SEBI. It appoints the trustees, Custodians and the AMC with prior approval of SEBI, and in accordance with SEBI Regulations. Sponsor is required to contribute at least 40% of the capital of the AMC. - 15 -

Trustees The Mutual Fund, which is a trust, is managed by a Trust Company or a Board of Trustees. Board of trustees and trust companies are governed by the provisions of the Indian Trust Act. The appointment of all the trustees has to be done with the prior approval of SEBI. There must be at least 4 members in the board of Trustees and at least 213 of the members of the board of trustees must be independent. One of the major tasks of the Trustees is to appoint AMC, in consultation with the Sponsor and SEBI regulations.

Asset Management Company (AMC) Asset Management Company, registered with SEBI, can be appointed as investment managers of mutual funds. AMC must have a minimum net worth of 10 crore at all times. An AMC cannot be an AMC or Trustee of another Mutual Fund. AMC appoints the Fund Managers in consultation with trustees.

- 16 -

TYPES OF MUTUAL FUND SCHEMES

Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. Since the needs and aspirations of different individuals vary from person to person, there are absolutely different kinds of mutual funds for investment. There could be various categories of mutual funds in India. The governing body for these funds being the Securities Exchange Board of India (SEBI). All varieties of mutual funds are governed by it in an allpervasive manner.

Schemes can be differentiated by two broad parameters:

(a) Their constitution or structure. (b) Their stated investment objective.

Differentiation on the basis of structure of schemes Schemes are classified as Close-ended or Open-ended depending upon whether they give the investor the option to redeem at any time (open-ended) or whether the investor has to wait till maturity of the scheme.

Open-Ended-Schemes The units offered by these schemes are available for sale and repurchase on any business day at NAV based prices. Hence, the unit capital of the schemes keeps changing each day. Such schemes thus offer very high liquidity to investors and are becoming increasingly popular in India. Please note that an open-ended fund is not obliged to keep selling/issuing new units at all times, and may stop issuing further subscription to new investors. On the other hand, an open-ended fund rarely denies to its investor the facility to redeem existing units. - 17 -

Close-Ended-Schemes The unit capital of a close-ended product is fixed as it makes a one-time sale of fixed number of units. These schemes are launched with an initial public offer (IPO) with a stated maturity period after which the units are fully redeemed at NAV linked prices. In the interim, investors can buy or sell units on the stock exchanges where they are generally listed. Unlike open-ended schemes, the unit capital in Close-ended schemes usually remains unchanged. After an initial closed period, the scheme may offer direct compared to open-ended schemes and hence trade at a discount to the NAV. This discount tends towards the NAV closer to the maturity date of the scheme. Interval-Schemes These schemes combine the features of Open-ended and Close-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV based prices.

Differentiation on the basis of investment objectives Schemes can be classified by way of their stated investment objective such as Growth Fund, Balanced Fund, Income Fund etc.

Equity/Growth Schemes These schemes, also commonly called Growth Schemes, seek to invest a majority of their funds in equities and a small portion in money market instruments. Such schemes have the potential to deliver superior returns over the long term. However, because they invest in equities, these schemes are exposed to fluctuations in value especially in the short term.

Equity schemes are hence not suitable for investors seeking regular income or needing to use their investments in the short-term. They are ideal for investors who have a long-term investment horizon. The NAV prices of equity fund fluctuates with market value of the underlying stock which are influenced by external factors such as social, political as well as economic. HDFC Equity Fund and HDFC Top200 Fund are examples of equity schemes. - 18 -

Income/Debt-Schemes These schemes invest in money markets, bonds and debentures of corporate companies with medium and long-term maturities. These schemes primarily target current income instead of capital appreciation. Hence, a substantial part of the distributable surplus is given back to the investor by way of dividend distribution. These schemes usually declare quarterly dividends and are suitable for conservative investors who have medium to long term investment horizon and are looking for regular income through dividend or steady capital appreciation.

- 19 -

These schemes, also commonly known as Income Schemes, invest in debt securities such as corporate bonds, debentures and government securities. The prices of these schemes tend to be more stable compared with equity schemes and most of the returns to the investors are generated through dividends or steady capital appreciation. These schemes are ideal for conservative investors or those who are not in a position to take higher equity risks. However, as compared to the money market schemes they do have a higher price fluctuation risk and compared to a Gilt fund they have a higher credit risk. HDFC Income Fund is an example of bond schemes.

Money-Market-Schemes These schemes invest in short term instruments such as commercial paper ("CP"), certificates of deposit ("CD"), treasury bills ("T-Bill") and overnight money ("Call"). The schemes are the least volatile of all the types of schemes because of their investments in money market instrument with short-term maturities. These schemes have become popular with institutional investors and high net-worth individuals having short-term surplus funds.

Hybrid/Balanced Schemes These schemes are also commonly called balanced schemes. These invest in both equities as well as debt. By investing in a mix of this nature, balanced schemes seek to attain the objective of income and moderate capital appreciation. Such schemes are ideal for investors with a conservative, long-term orientation. HDFC Prudence Fund and HDFC Balance Fund are perfect examples of such hybrid schemes.

- 20 -

Other Schemes:

Tax-Saving-Schemes Investors (individuals and Hindu Undivided Families ("HUFs")) are being encouraged to invest in equity markets through Equity Linked Savings Scheme ("ELSS") by offering them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched - out until completion of 3 years from the date of allotment of the respective Units. The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS. Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act, 1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from income tax, of an amount equal to 20% of the amount subscribed. Special Schemes: Sector-Specific-Equity-Schemes

- 21 -

These schemes restrict their investing to one or more pre-defined sectors, e.g. technology sector. They depend upon the performance of these select sectors only and are hence inherently more risky than general purpose equity schemes. These schemes are ideally suited for informed investors who wish to take a risk on the concerned sector.

Index-Schemes

An Index is too used as a measure of the performance of the market as a whole, or a specific sector of the market. It also serves as a relevant benchmark to evaluate the performance of mutual funds. Some investors are interested in investing in the market in general rather than investing in any specific fund. Such investors are happy to receive the returns posted by the markets. As it is not practical to invest in each and every stock in the market in proportion to its size, these investors are comfortable investing in a fund that they believe is a good representative of the entire market. Index Funds are launched and managed for such investors.

VARIOUS INVESTMENT OPTIONS AVAILABLE TO THE INVESTORS AND THEIR RESPECTIVE DISADVANTAGES

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. The possible avenues for investment can be divided into following categories:

EQUITIES: Options available are secondary market (buying or selling shares in the stock exchanges) or the primary market (IPOs). These are generally classified as high risk high return asset.

- 22 -

FIXED INCOME INSTRUMENTS: This product class includes options such as Fixed Deposits, Debentures, Bonds, Preference shares etc. These investments are relatively safer but limited upside on returns.

FOREIGN CURRENCY INVESTMENTS: Wherever allowed by the govt. regulations, investors particularly in developing countries will prefer to keep their assets in foreign currency. Hard currencies like US Dollars or pound or Euro are relatively stable. The risk of currency depreciation in case of economic /political turmoil is high.

COMMODITIES: Investing in commodities on a large scale is typically done traders or speculators who generally are skilled. Normally in commodities high risk investors would invest for high returns in a short period. A proxy for this is the way retail households stock up commodities in anticipation of price increase, such as stocking sugar or wheat requirements for the full year.

ART/ANTIQUES: Art has proved to be an important investment avenue, particularly for the rich and wealthy. However, one has to be an expert in evaluating the value of art. Investment in paintings is illiquid and has a long gestation period, entails high risk but high rewards too.

PROPERTY: This offers a limited option to investors as in India most people buy a house to live in. only the very rich buy property as an investment. Real estate is very illiquid investment option.

BULLION MARKET (GOLD): This is one avenue which has been a major area for investing in the Indian society. The importance of gold and silver has been prevalent through historic time. The importance of this market is due to the liquidity it provides.

- 23 -

BANKS: Considered as the safest of all options, banks have been the roots of the financial systems in India. Promoted as the means to social development, banks in India have indeed played an important role in the rural upliftment. For an ordinary person though, they have acted as the safest investment avenue wherein a person deposits money and earns interest on it. The two main modes of investment in banks, Savings accounts and fixed deposits have been effectively used by one and all. However, today the interest rate structure in the country is headed southwards, keeping in line with global trends. With the banks offering 9 percent in their fixed deposits for one year, the yields have come down substantially in recent times. Add to this, the inflationary pressures in economy and people have a position where the savings are not earning. The inflation is creeping up, to almost 8 percent at times, and this means that the value of money saved goes down instead of going up. This effectively mars any chance of gaining from the investments in banks.

POST OFFICE SCHEMES: Just like banks, post offices in India have a wide network. Spread across the nation, they offer financial assistance as well as serving the basic requirements of communication. Among all saving options, Post office schemes have been offering the highest rates. Added to it is the fact that the investments are safe with the department being a Government of India entity. So the two basic features, those of return safety and quantum of returns were being handsomely taken care of. Though certainly not the most efficient systems in terms of service standards and liquidity, these have still managed to attract the attention of small, retail investors. However, with the government announcing its intention of reducing the interest rates in small savings options, this avenue is expected to lose some of the investors.

- 24 -

PUBLIC PROVIDENT FUNDS: Public Provident Funds act as options to save for the post retirement period for most people and have been considered good option largely due to the fact that returns were higher than most other options and also helped people gain from tax benefits under various sections. This option too is likely to lose some of its sheen on account of reduction in the rates offered. The options discussed above are essentially for the risk-averse, people who think of safety and then quantum of return, in that order. For the brave, it is dabbling in the stock market. Stock markets provide an option to invest in a high risk, high return game. While the potential return is much more than 10-11 percent any of the options discussed above can generally generate, the risk is undoubtedly of the highest order. But then, the general principle of encountering greater risks and uncertainty when one seeks higher returns holds true. However, as enticing as it might appear, people generally are clueless as to how the stock market functions and in the process can endanger the hard-earned money. For those who are not adept at understanding the stock market, the task of generating superior returns at similar levels of risk is arduous to say the least. This is where Mutual Funds come into picture. Mutual Funds are essentially investment vehicles where people with similar investment objective come together to pool their money.

- 25 -

Advantages and Disadvantages of mutual funds Advantages of Mutual Funds

1. Professional Investment Management. By pooling the funds of thousands of investors, mutual funds provide full-time, high-level professional management that few individual investors can afford to obtain independently. Such management is vital to achieving results in today's complex markets. Your fund managers' interests are tied to yours, because their compensation is based not on sales commissions, but on how well the fund performs. These managers have instantaneous access to crucial market information and are able to execute trades on the largest and most cost-effective scale. In short, managing investments is a full-time job for professionals. 2. Diversification. Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund shareowners can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities. 3. Low Cost. If you tried to create your own diversified portfolio of 50 stocks, you'd need at least $100,000 and you'd pay thousands of dollars in commissions to assemble your portfolio. A mutual fund lets you participate in a diversified portfolio for as little as $1,000, and sometimes less. And if you buy a no-load fund, you pay no sales charges to own them. 4. Convenience and Flexibility. You own just one security rather than many, yet enjoy the benefits of a diversified portfolio and a wide range of services. Fund managers decide what securities to trade, clip the bond coupons, collect the interest payments and see that your dividends on portfolio securities are received and your rights exercised. It's easy to purchase and redeem mutual fund shares, either directly online or with a phone call. 5. Quick, Personalized Service. Most funds now offer extensive websites with a host of shareholder services for immediate access to information about your fund account. Or a phone call puts you in touch with a trained investment specialist at a mutual fund company who can provide information you can use to make your own investment choices, assist you with buying and selling your fund shares, and answer questions about your account status. 6. Ease of Investing You may open or add to your account and conduct transactions or business with the fund by mail, telephone or bank wire. You can even arrange for automatic monthly investments by authorizing electronic fund transfers from your checking account in any amount and on a date you choose. Also, many of the companies featured at this site allow account transactions online. 7. Total Liquidity, Easy Withdrawal You can easily redeem your shares anytime you need cash by letter, telephone, bank wire or

- 26 -

check, depending on the fund. Your proceeds are usually available within a day or two. 8. Life Cycle Planning With no-load mutual funds, you can link your investment plans to future individual and family needs -- and make changes as your life cycles change. You can invest in growth funds for future college tuition needs, then move to income funds for retirement, and adjust your investments as your needs change throughout your life. With no-load funds, there are no commissions to pay when you change your investments. 9. Market Cycle Planning For investors who understand how to actively manage their portfolio, mutual fund investments can be moved as market conditions change. You can place your funds in equities when the market is on the upswing and move into money market funds on the downswing or take any number of steps to ensure that your investments are meeting your needs in changing market climates. A word of caution: since it is impossible to predict what the market will do at any point in time, staying on course with a long-term, diversified investment view is recommended for most investors. 10. Investor Information Shareholders receive regular reports from the funds, including details of transactions on a yearto-date basis. The current net asset value of your shares (the price at which you may purchase or redeem them) appears in the mutual fund price listings of daily newspapers. You can also obtain pricing and performance results for the all mutual funds at this site, or it can be obtained by phone from the fund. 11. Periodic Withdrawals If you want steady monthly income, many funds allow you to arrange for monthly fixed checks to be sent to you, first by distributing some or all of the income and then, if necessary, by dipping into your principal. 12. Dividend Options You can receive all dividend payments in cash. Or you can have them reinvested in the fund free of charge, in which case the dividends are automatically compounded. This can make a significant contribution to your long-term investment results. With some funds you can elect to have your dividends from income paid in cash and your capital gains distributions reinvested. 13. Automatic Direct Deposit You can usually arrange to have regular, third-party payments -- such as Social Security or pension checks -- deposited directly into your fund account. This puts your money to work immediately, without waiting to clear your checking account, and it saves you from worrying about checks being lost in the mail. 14. Recordkeeping Service With your own portfolio of stocks and bonds, you would have to do your own recordkeeping of purchases, sales, dividends, interest, short-term and long-term gains and losses. Mutual funds provide confirmation of your transactions and necessary tax forms to help you keep track of your investments and tax reporting.

- 27 -

15. Safekeeping When you own shares in a mutual fund, you own securities in many companies without having to worry about keeping stock certificates in safe deposit boxes or sending them by registered mail. You don't even have to worry about handling the mutual fund stock certificates; the fund maintains your account on its books and sends you periodic statements keeping track of all your transactions. 16. Retirement and College Plans Mutual funds are well suited to Individual Retirement Accounts and most funds offer IRAapproved prototype and master plans for individual retirement accounts (IRAs) and Keogh, 403(b), SEP-IRA and 401(k) retirement plans. Funds also make it easy to invest -- for college, children or other long-term goals. Many offer special investment products or programs tailored specifically for investments for children and college. 17. Online Services The internet provides a fast, convenient way for investors to access financial information. A host of services are available to the online investor including direct access to no-load companies. 18. Sweep Accounts With many funds, if you choose not to reinvest your stock or bond fund dividends, you can arrange to have them swept into your money market fund automatically. You get all the advantages of both accounts with no extra effort. 19. Asset Management Accounts These master accounts, available from many of the larger fund groups, enable you to manage all your financial service needs under a single umbrella from unlimited check writing and automatic bill paying to discount brokerage and credit card accounts. 20. Margin Some mutual fund shares are marginable. You may buy them on margin or use them as collateral to borrow money from your bank or broker. Call your fund company for details. 4 Disadvantages of Mutual Funds: 1. Professional Management.

Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. We'll talk about this in detail in a later section. 2. Costs. Mutual funds don't exist solely to make your life easier - all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject. 3. Dilution.

- 28 -

It's possible to have too much diversification. Because funds have small holdings in so many 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. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 4. Taxes. 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-gains 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.

FACTORS TO BE CONSIDERED BEFORE SELECTING A MUTUAL FUND

1. Making Risk- adjusted returns comparison. By doing this the investor will know whether the returns generated by the scheme have been adequately compensated for the extra risk undertaken by the scheme. 2. The investor depending upon his risk appetite and preferences should subclassify the schemes on the basis of the characteristics of the schemes, which may be defensive or aggressive in nature. 3. Portfolio concentration is also an important factor to be considered. It is always advisable to choose a scheme, which has a well-diversified portfolio rather than a concentrated portfolio, as it carries lesser risk. 4. Liquidity of the portfolio is also one of the critical parameters. 5. The corpus size of the scheme is also of importance. A large corpus size firstly denotes investors confidence in the scheme and its fund manger abilities over the years and, secondly it allows the fund manager to diversify the portfolio, which reduces the overall market risk.

- 29 -

6. Other factors like turnover rates, low expense ratio, load structure etc of the schemes etc should also be considered before finally zeroing down on a scheme of your choice. 7. The rankings undertaken by ICRA are an initiative to inform the investorswho does not have the time or the expertise to undertake the analysis on their own- about the relative performance of the schemes. It considers all important parameters to arrive at a comprehensive rank with a view to help investors decide the scheme which may suit their investment profile. 8. Although much neglected, the due diligence in selection of the right mutual fund scheme is of utmost importance as an investor cannot move in and out of a particular scheme on a regular basis, because of the high costs involved, and investments made into a particular scheme should be looked on a longterm basis as a wealth creation tool.

5 EASY STEPS TO INVEST IN MUTUAL FUNDS

- 30 -

Where to look for if you want to begin savings in Mutual Funds

Mutual funds are much like any other product, in that there are manufacturers who provide the product and there are dealers who sell them. Large banks to organized brokerage houses to Individual Financial agents get empanelled with Mutual Funds to provide advice and assistance to customers who want to buy units. Mutual funds units can now also be bought over the Internet. Contacting an Investment advisor in a bank or a brokerage house or an Independent Financial Advisor is the first step to gathering information.

1.

Evaluation: choosing the right mutual fund for you Each Mutual fund offers a variety of schemes to suit differing needs of investors. The Bank/ Brokerage house/ Individual Financial Advisor help you make the choice based on your needs. As an investor one may: a) For the short term or long term want to invest. b) Want regular income or growth. c) Want to target lower risk or higher returns. d) Be convinced of a particular sector and want to invest in it. Remember, just like a salesman in a gift shop, your investment advisor can help you the most if he knows what you are looking for.

2.

Purchase After you have decided to save, you may have to decide among the various investment and withdrawal options that any fund offers to its investors. Most of these schemes also offer various options to customize your operation of the fund to your needs:

- 31 -

Systematic Investment Plan (SIP): Allows you to save a part of your income regularly. It is also used to reduce risk when investing in schemes targeting aggressive growth.

Systematic Withdrawal Plan (SWP): Allows you to withdraw a part of your investment regularly. Used when you want to withdraw your investment for a specific regular payment, like insurance premium payments of

monthly/quarterly frequency.

Automatic debit: Saves the hassle of writing a cheque when making an investment. Your account is debited automatically for the amount invested.

Automatic credit: The reverse of Automatic Debit. It saves the hassle of enchasing a cheque when withdrawing an investment. Your account is credited automatically with the amount withdrawn.

Dividend plan: Allows you to get Tax-free dividends from your investment. (As per current Tax laws).

Growth plan: Allows the income generated from investment to be ploughed back into the scheme. Used by investor targeting growth in their investment.

Some funds carry an entry load, which is a percentage fee deducted from the amount invested before investment. Thus a 2.5% entry load will mean that if you invest Rs. 1 lakh in a Rs. 10 per unit IPO, instead of getting 10,000 units, you will be allotted 9,750 units. Check for presence of such loads and other conditions before investing. After deciding the choice of mutual fund, investment and withdrawal, you are ready to begin your savings. You need to now fill up an application form and attach a cheque of the value of your investment or mention your account number to have it automatically debited from your account.

- 32 -

3.

Post Purchase Monitoring Once you have invested in an ongoing fund, expect a period of two to three days before you receive an account statement on the address mentioned by you in your application form. Your account statement indicates your current holding in the scheme that you have invested. Please ensure that all your details have been correctly captured in account statement. Please point out any discrepancies to your nearest CAMS investor Service Centre or the Mutual Fund office. You can request an account statement any time by calling up your nearest CAMS/ Mutual fund offices usually mentioned on the back of the account statement. The transaction slip at the end of the account statement can be used for additional purchases, redemptions or to intimate the mutual fund on any change in bank mandates/address. The NAVs of all the open-ended schemes are published at the fund's website, financial newspapers and AMFI (Association of Mutual Funds) web-site www.amfiindia.com.

4.

Exit While you should periodically monitor the performance of your investments, we recommend you do not get swayed by short term considerations in deciding your exit. If you have invested in a long term fund, you can spare yourself undue worries by not monitoring the NAV every day or week. Checking the performance once in a while along with your advisor should be fine. Most mutual funds will provide you with a toll free number that works from 9 am to 5 am and a website. For specific assistance you can also use your financial advisors help.

5.

Redemption/ Withdrawal

Just submit your completed transaction within the transacted time for the scheme that you are invested in and deposit the same at the nearest CAMS Investor Service Centre or the office of the fund. You can either get a direct credit to your bank account or you can generally collect the cheque at the CAMS Investor Service Centre/ AMC offices. If you fail to do so then the cheque is couriered to the address mentioned in your account statement. - 33 -

Most funds take 1-3 days to credit your account with your redemption proceeds. In case an exit load is applicable to your withdrawal and you have redeemed a fixed amount, an additional number of units equivalent to the exit load amount will be liquidated from your investment. You can check this amount with the mentioned exit load when you get the account statement using a simple calculator.

SOME OF THE MUTUAL FUND PLANS OFFERED BY SBI

SBI Magnum Balanced fund: The objective of the scheme is to provide its investors growth through capital appreciation and provide periodic income through declaration of dividends. This scheme was launched on October, 9th 1995. The top sector allocations are BFSI, Energy, Engineering. This fund has given 18.24% returns from its inception date. The fund managers are Mr. Dharmendra Grover and Mr. Sankar V. B. Chebiyyam.

The annualized returns for this fund seem to be volatile. Returns had drop to 9.16% for the last three years due to the recession but its commendable.

- 34 -

When the markets recovered in the last one year the fund delivered 20.08% returns. This seems attractive for investments in balanced fund category.

Best performing Equity Funds are: SBI Magnum Global Fund 94: The objective of the scheme is to provide growth opportunities through investment in equities. This scheme was launched on September, 30th 1994. The benchmark index is BSE 100. The top sector allocations are Engineering, Information Technology and Automobiles. This fund has given 14.50% returns from its inception date. The fund manager is Mr. R. Srinivasan.

SBI Magnum Contra Fund: The objective of the scheme is to invest in under value stocks which are currently out of favor but have potential to grow in the long term. This scheme was launched on July, 5th 1999. The benchmark index is BSE 100. The top sector allocations are BFSI, Energy. This fund has given 14.48% returns from its inception date. The fund manager is Mr. Pankaj Gupta.

The annualized return for SBI Magnum Global Fund 94 is volatile. During the recession (in last 3 years) returns of this fund dropped drastically to 5.21%. Now, when the markets have been recovering the fund has managed to recover quickly and its giving 40.96% returns. On the other hand, the SBI Mangum Contra Fund had delivered 9.78% during recession which is 4.57% higher returns while comparing with SBI Magnum Global Fund 94. But, when the markets were recovering there was only nominal increase in returns of SBI Mangum Contra Fund by comparing to other fund.

In the long term, the annualized 5 year return is 2.61% higher for SBI Magnum Contra fund while comparing with SBI Magnum Global Fund 94.

Best performing Tax Saving Schemes are: SBI MAGNUM TAXGAIN SCHEME: The objective of the scheme is to invest in a portfolio of equities and offering tax benefits to investors. This scheme - 35 -

was launched on March, 31st 1993. The benchmark index is BSE 100. The top sector allocations are Engineering, BFSI, Oil and Gas. This fund has given 19.40% returns from its inception date. This is an open ended scheme. The fund manager is Mr. Jayesh Shroff.

SBI Tax Advantage Fund - Series 1: The objective of the scheme is to generate capital appreciation in the long term by investing in large cap, mid cap and small cap companies. Also, offering income tax benefit to its investors. This scheme was launched on March, 3rd 2008. The benchmark index is BSE 100. The top sector allocations are Engineering, BFSI, Information Technology. This fund has given 8.95% returns from its inception date. This is a close ended scheme. The fund manager is Mr. Dharmendra Grover

Five main indicators of investment risk that apply to the analysis of stocks, bonds and mutual fund portfolios:
There are five main indicators of investment risk that apply to the analysis of stocks, bonds and mutual fund portfolios. They are alpha, beta, r-squared, standard deviation and the Sharpe ratio. These statistical measures are historical predictors of investment risk/volatility and are all major components of modern portfolio theory (MPT). The MPT is a standard financial and academic methodology used for assessing the performance of equity, fixed-income and mutual fund investments by comparing them to market benchmarks. All of these risk measurements are intended to help investors determine the riskreward parameters of their investments. In this article, we'll give a brief explanation of each of these commonly used indicators. 1. Alpha Alpha is a measure of an investment's performance on a risk-adjusted basis. It takes the volatility (price risk) of a security or fund portfolio and compares its risk-adjusted performance to a benchmark index. The excess return of the investment relative to the return of the benchmark index is its "alpha". Simply stated, alpha is often considered to represent the value that a portfolio manager adds or subtracts from a fund portfolio's return. A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%. For investors, the more positive an alpha is, the better it is. (To learn more, see Adding Alpha Without Adding Risk.) 2. Beta Beta, also known as the "beta coefficient," is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is calculated using regression analysis, and you can think of it as the tendency of an investment's return to respond to swings in the market. By definition, the market has a beta of 1.0. Individual security and portfolio values are measured according to how they deviate from the market. A beta of 1.0 indicates that the investment's price will move in lock-step with the market. A beta of less than 1.0 indicates that the investment will be less volatile than the market, and, correspondingly, a beta of more than 1.0 indicates that the investment's price will be more volatile than the market. For example, if a fund portfolio's beta is 1.2, it's theoretically 20% more volatile than the market.

- 36 -

Conservative investors looking to preserve capital should focus on securities and fund portfolios with low betas, whereas those investors willing to take on more risk in search of higher returns should look for high beta investments. (Keep reading about beta in Beta: Know the Risk.) 3. R-Squared R-Squared is a statistical measure that represents the percentage of a fund portfolio's or security's movements that can be explained by movements in a benchmark index. For fixedincome securities and their corresponding mutual funds, the benchmark is the U.S. Treasury Bill and, likewise with equities and equity funds, the benchmark is the S&P 500 Index. R-squared values range from 0 to 100. According to Morningstar, a mutual fund with an Rsquared value between 85 and 100 has a performance record that is closely correlated to the index. A fund rated 70 or less would not perform like the index. Mutual fund investors should avoid actively managed funds with high R-squared ratios, which are generally criticized by analysts as being "closet" index funds. In these cases, why pay the higher fees for so-called professional management when you can get the same or better results from an index fund? (To learn more, read Understanding Volatility Measurements, The Lowdown On Index Funds and Benchmark Your Returns With Indexes.) 4. Standard Deviation Standard deviation measures the dispersion of data from its mean. In plain English, the more that data is spread apart, the higher the difference is from the norm. In finance, standard deviation is applied to the annual rate of return of an investment to measure its volatility (risk). A volatile stock would have a high standard deviation. With mutual funds, the standard deviation tells us how much the return on a fund is deviating from the expected returns based on its historical performance. 5. Sharpe Ratio Developed by Nobel laureate economist William Sharpe, this ratio measures risk-adjusted performance. It is calculated by subtracting the risk-free rate of return (U.S. Treasury Bond) from the rate of return for an investment and dividing the result by the investment's standard deviation of its return. The Sharpe ratio tells investors whether an investment's returns are due to smart investment decisions or the result of excess risk. This measurement is very useful because although one portfolio or security can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater an investment's Sharpe ratio, the better its risk-adjusted performance. (Keep reading about this subject in Understanding The Sharpe Ratio and The Sharpe Ratio Can Oversimplify Risk.) Conclusion Many investors tend to focus exclusively on investment return, with little concern for investment risk. The five risk measures we have just discussed can provide some balance to the risk-return equation. The good news for investors is that these indicators are calculated for them and are available on several financial websites, as well as being incorporated into many investment research reports. As useful as these measurements are, keep in mind that when considering a stock, bond, or mutual fund investment, volatility risk is just one of the factors you should be considering that can affect the quality of an investment.

- 37 -

Systematic Investment Plan What is an SIP? SIP, also known as Regular Savings Plan (RSP) in some countries, allows you to invest a fixed amount at pre defined frequencies in mutual funds. A bank / post office recurring deposit is the only other investment option that is similar to SIP. There are basically two options that an investor could take when they are making investments, one would be to invest lump sum into mutual funds and the other would be to invest using an SIP. The following are some of the benefits associated with investing in an SIP:

SIP is actually a Systematic Investment Plan of investing in Mutual Fund. It is specially designed for those who aim to build wealth over a long period and want a better future for him and their dependants. The investment in a Mutual fund can be done in two ways. First way is one time payment i.e. making payment to a fund at once and gets the units of the fund as per the Net Asset Value (NAV) of the fund on that day. A person wishes to invest in a fund Rs. 24,000/- . On the day of Investment, the NAV of the fund was Rs. 10/-. He gets 2400 units @ Rs. 10/- per unit. The other way of investment is making payment to the fund periodically, which is termed as Mutual Fund SIP. When you commit to invest a fixed amount monthly in a fund, it is called as Systematic Investment. It is actually beneficial for those investors who wish to invest a large amount in a fund and wishes to create a large chunk of wealth for long term but due to financial constraints are able to do so. The SIP provides them a way to invest in the fund of their choice in installments. Eg. A person wishes to invest Rs. 24000/- in a fund but due to other obligations, it is not possible for him to invest such an amount in a fund. He takes the SIP route and contributes to the fund Rs. 2000/- monthly for a year. At the end of the year, hell have invested Rs. 24,000/- in the fund. When the NAV is high, he will get the fewer units and when the NAV is low, hell get the more units. So, hell get the benefit of averaging through the SIP route. The NAV in the first month was Rs. 10/-, hell get 200 units in the first month The NAV in the second month was Rs. 9.50/-, hell get 210.52 units in second month The NAV for the following month was Rs. 10, hell get 200 units in the next month So, at the end of the year he may get more units as compared to the units hell get through single investment.

- 38 -

Systematic investment plans are a systematic and disciplined approach to investment and wealth creation. Instead of making a large investment at one time, in SIP you can invest small sums at regular intervals thus creating a habit of regular savings. If you are a big spender and find your expenditures are more than your earnings then go for SIP mutual funds. This will force you to spend at least some part of your earnings every month. Mutual funds are a very safe way of investing money and SIP mutual funds are even better. These are perfect solutions to most of us who cannot afford to make a large investment at one go. This is a good way to save for your child's education, marriage or comfortable retirement for you and your spouse. The lowest start up investment amount is 500 rupees per month which is affordable by most people. State Bank of India is one of the most trusted public sector banks in India. If you are a beginner in investment then SBI SIP plans may be good option for you. Here are some SBI SIP mutual funds available. Magnum Equity Fund - Minimum application of thousand rupees is needed and SIP is Rs. 500/month for 12 months. Magnum Tax Gain - Minimum application amount is Rs 500 and minimum SIP amount is Rs.500/month for12 months Magnum Index Fund - Minimum SIP amount is Rs.500/month for12 months Magnum Sector Funds Umbrella - Minimum investment amount is Rs. 2000 per sector and minimum SIP amount is Rs.500/month for12 months Magnum Global Fund - Minimum SIP amount is Rs.500/month for12 months Magnum Midcap Fund - Minimum SIP amount is Rs.500/month for12 months Magnum Mutlicap Fund - Minimum SIP amount is Rs.500/month for12 months Blue Chip Fund - Minimum investment - Rs. 5000 and in multiples of Rs. 1000

SBI mutual funds, has launched equity-based Micro Systematic Investment Plan (Micro SIP) aimed at getting in low income households in rural and semi-urban areas to benefit from the long-term investment in Equity as an asset class. This plan will be called SBI Chota SIP. For monthly investment as low as Rs. 100, investors from low-income group as well as investors who intend to invest small portion of their savings would now be able to participate in capital markets and be a part of India growth story. Micro SIP facility will be available in respect of four equity diversified schemes of SBI Mutual fund with effect from April 15, 2009. They are Magnum Balanced Fund, Magnum Multiplier Plus Scheme 93, Magnum Sector Funds Umbrella-Contra fund, and SBI Blue Chip fund. The minimum investment amount will be Rs.100 and multiples of Rs.50/- thereof. The minimum redemption amount will be Rs.500/-. Minimum tenure of SIP will be 5 years.

- 39 -

Systematic Investment Plan is the best option for retail investors to invest in Mutual Funds. SBI Mutual Fund is one of the best performing mutual fund company in India. The investors feel more comfortable in SBI SIP plan. You can make a SIP plans comparison and find the best SBI SIP fund. There are many reasons for the investors feeling that SBI SIP fund is the best systematic investment plan in india. Most of the schemes under SBI Systematic investment plan has been generating returns more consistently. If you check the returns for most of the SIP plans, they are generating consistent returns for the past 6 months, 1 year and 3 years. This would prove that the SBI schemes are performing well than the funds launched by the other companies. Some of the best performing SBI SIP schemes are:

SBI Magnum Sector Funds Umbrella - Contra Fund SBI Magnum Sector Funds Umbrella - Emerging Fund SBI Magnum Sector Funds Umbrella - IT Fund SBI Magnum Midcap Fund SBI Magnum Taxgain Scheme 93

The minimum amount that has to be paid every month is Rs 500. Recently SBI has launched another fund "SBI Chotta SIP Scheme" in which the minimum investment amount is Rs 100. This scheme was introduced to encourage more retail participation. The low income people will be more benefited from this scheme as this type of investment is similar to investing in a recurring deposit and they can get the benefits of the stock markets. SBI Chota SIP: Recently SBI has launched micro systematic investment plan called "SBI Chota SIP", where you can make a minimum payment of Rs 100 every month. This helps the low income people in the rural areas to invest their money in the equity. There is also SIP auto debit facility for this plan. If you have opted for this option, then your monthly installment will be withdrawn automatically from your bank savings account each month. You can get the sip application form from the various SBI Mutual fund offices available all over India or in the designated state bank of india branches. You have to fill the form and submit a PAN Card copy along with the application form. If you apply for a sip auto debit facility, you should also fill a authorization form for the banks. Once the application form is processed, you will get a statement indicating the number of units allotted for you and also the price at which it is allotted. This statement you will get every month when the monthly payments are sent from the bank and credited to the fund account. The price at which the new units are allotted will change depending on the latest NAV.

- 40 -

The following are some of the benefits associated with investing in an SIP: 1) SIP enforces investing discipline

Many people have burnt their fingers and in some case even their hands by investing at will and on rumours. SIPs take away the risk from both investing at will and on rumors. As SIPs require you to invest periodically and continuously and over time, SIPs make periodic investing more of a habit. By regularly investing you tend to be more focused on achieving your financial goals. This brings in investing discipline. 2) No need to time the markets

Everyone in the market wants to buy low and sell high. This is known as timing the market. But, the only catch is we dont know when to buy and when to sell. Timing the market is risky and time consuming process as i) One has to do research to identify which stocks are undervalued and invest in them. Even after investing in the stock, one is not guaranteed of the returns.

ii)

Table 1: An example of a funds NAV movement Price (Rs / Unit) January 10.00 February 11.40 March 9.00 April 10.30 May 9.50 June 8.90 July 10.80 August 11.90 September 8.50 October 9.80 November 11.70 December 8.30 Source: iFAST Compilations Table 1 shows an example of a funds NAV movement. If you believed in timing the market, then in September you would have bought each unit for Rs.8.5 and in November you would have sold at Rs. 11.70. This sounds easy in hindsight but the bigger issue would be, when you bought into the stock in September: a) b) You are not sure when will it go up You are not sure when to sell it

- 41 -

With SIP, the need to time the markets is taken away due to the concept of Rupee Cost Averaging. 3) Rupee Cost Averaging (RCA)

Rupee Cost Averaging (usually known as Dollar Cost Averaging) is an investment strategy widely used by investors all over the world. This calls for you to invest a fixed amount of money regularly (on a monthly, quarterly or yearly basis) in a disciplined manner. The main benefit of Rupee Cost Averaging is that it takes the guesswork out of investing and thereby the need to time the markets. A lot of stress is avoided as you do not have to decide whether the fund is expensive or not and whether the market condition is suitable to invest. Table 2 shows an example of how more units are acquired when prices are low and vice versa assuming that you invest Rs. 1000 every month. Table 2: Units acquired every month for Rs.1000 invested through SIP Price (Rs / Units Unit) Acquired January 10.00 100.00 February 11.40 87.72 March 9.00 111.11 April 10.30 97.09 May 9.50 105.26 June 8.90 112.36 July 10.80 92.59 August 11.90 84.03 September 8.50 117.65 October 9.80 102.04 November 11.70 85.47 December 8.30 120.48 Total 1215.8 Source: iFAST Compilations Since the amount is fixed, the number of units that you can subscribe to in a particular fund varies. If the price of the fund increases, you would naturally be able to subscribe to a lesser number of units. You would buy more units during market slumps and fewer units during market up-turns. Table 2 shows an example of RCA. If you had Rs.12,000 to invest, you could choose to invest all of your money (lump sum) or invest Rs. 1,000 every month (SIP). If you chose to invest a lump sum of Rs.12,000 in January, you would have 1,200 units. The cost per unit is Rs. 10. On the other hand, if you invest through an SIP, you would have 1,215.8 units by the end of December. The cost per unit is Rs.9.87, and hence, the potential loss is lessened. From the above example, the return when investing a lump sum is -17%, the return of the SIP is -15.9%. One might contend that the period we illustrated in the examples looked like a good period to do Rupee Cost Averaging. However, how about during other time periods? Would it still make sense to do Rupee Cost Averaging? - 42 Monthly Investment Amount (Rs.) 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 12,000

Rupee Cost Averaging Works When Markets Are Moving Nowhere! Let us look at another example of how a better return can be achieved by using the Rupee Cost Averaging strategy, under different market scenarios. From the three scenarios shown in Chart 1, the total investment amount for each of the scenarios is Rs.12,000, for both investment strategies. From the table, we found that the Rupee Cost Averaging strategy gave a better return in scenarios 2 and 3. This is especially noticeable in scenario 2, where there is a 4.8% gain by using Rupee Cost Averaging, while there is no capital gain from using lump sum investing. This is because there were a larger number of units subscribed from July to November (compared to the lump sum subscription price).

Chart 1: Three different market scenarios

Hence, the average cost of units is less than Rs.10 (unit price at the beginning). Generally, if the market is going down during the period one is invested; better performance will be achieved using the Rupee Cost Averaging strategy, versus the lump sum investing method. In fact, since no one can know exactly what will happen next, you may still earn a good return in scenario 1 going through a sustained uptrend for a prolonged period of time. There are three major benefits of using Rupee Cost Averaging. First, it helps decrease your loss if the unit price drops below your initial price, as the average unit cost is lowered by using Rupee Cost Averaging. Second, there is no need to do market timing. Third, the initial investment outlay is lower compared with lump sum investing. The Rupee Cost Averaging strategy is useful for investors who have a long investment time horizon (10 years or more).

- 43 -

Table 3: Returns of different markets scenario Final Value Profit/Loss Rupee Lump Rupee Lump Cost Sum Cost Sum Avera Investi Averagin Investing ging ng g Scen Rs. Rs. ario 1 18,421 24,000 53.5% 100.0% Scen Rs.12, Rs. ario 2 571 12,000 4.8% 0.0% Scen Rs. Rs. ario 3 6,641 6,000 -44.7% -50.0%

Source: iFast compilations 4) No entry or exit loads

Certain fund houses have schemes that waive off entry and exit loads, if invested through SIPs. Please note though, that the decision to waive off entry and exit loads is that of the mutual fund house and may be limited to certain schemes only. Waiving off loads for SIPs is not an industry practice. 5) Very low monthly investments

Most SIP schemes require you to put in very low amounts. The amounts can be as low as Rs. 500 to Rs. 1000 per month and some schemes have even lowered the bar by requiring you to pay Rs. 100 only per month. This way, you can do regular investments and never feel a pinch in your pocket. 6) Taxes

SIPs are taxed for capital gains on first in first out basis. Consider the values in table 1; suppose you sold 300 units in February of the next year. Short term capital gains will be only levied on the number of units bought in February, March and April and not on the units bought in January. Gains from the units bought in January will be considered for long term capital gains and not for short term capital gains.

Other Benefits of SIP 1. SIP can be started with a minimum investment of Rs. 500/- per month or Rs. 1000/- per month. 2. It is good and effective way of creating wealth for long term. 3. ECS facility is available in case of Investment through SIP. 4. A small withdrawal from the account doesnt affect the bank balance of an - 44 -

individual as compared to a hefty withdrawal. 5. It can be for a year, two years, three years etc. if a person at any point of time couldnt be able to continue its SIP, he may give instructions atleast 25 days before to the fund house. His SIP be discontinued. 6. All type of funds except Liquid funds, cash funds and other funds who invest in very short fixed return investments offers the facility of SIP. 7. Capital gains, if applicable, are taxed on a first-in first-out basis. 8. As the investment made through SIP are not at one time. Some units bought at high price and some at low price, so chances of making gain through SIP is higher than the one time investment. In short, SIP is a simple and effective way to create wealth but to create such wealth, one should think about the investment in SIP for a period of atleast for time frame of three years because it pays to invest in a longer run.

Some of the points you might want to think through before starting an SIP:

1) Decide on the monthly investment amount that you can sustain over the investment period. For example, it can be Rs.1000, Rs. 2,000, Rs. 5,000 or any amount that you are comfortable with. 2) Select the funds in which you want to invest through SIP, but make sure that the portfolio is diversified. For example, you can invest Rs.500 in 10 mutual funds or Rs.1000 in 5 funds if you had chosen Rs. 5000 as the sustainable monthly investments in the previous point. 3) Understand the entry and exit loads applicable for SIPs. Some schemes have no entry / exit loads for SIPs over certain period. So, if you withdraw funds within the specified period, you might be charged the entry and exit loads. Or some funds require you to keep the funds with the mutual fund for a certain period and in case you withdraw within the period, the mutual fund house may charge you only exit loads.

Risk Factors: Mutual Funds and Securities Investments are subject to market risks and there is no assurance or guarantee that the scheme's objectives will be achieved. As with any other investment in securities, the NAV of the Magnums/Units issued under the scheme(s) may go up or down depending upon the various factors and forces affecting the securities market. Past performance of the Sponsor/AMC/Mutual Fund/Scheme(s) and their affiliates do not indicate the future performance of the Scheme(s) of the Mutual Fund. Statutory details: SBI Mutual Fund has been set up as a trust under the Indian Trusts Act, 1882. State Bank of India ('SBI'), the sponsor is not responsible or liable for any loss resulting from the operation of the schemes beyond the initial contribution made by it of an amount of Rs. 5 lakhs towards setting up of the mutual fund. Asset - 45 -

Management Company: SBI Funds Management Private Limited (A joint venture between SBI and AMUNDI) -191, Maker Tower 'E', 19th Floor, Cuffe Parade, Mumbai 400 005. Trustee Company: SBI Mutual Fund Trustee Company Pvt. Ltd. Please read the Scheme Information Document carefully before investing.

RESEARCH METHODOLOGY

A Market Research was performed to find out the actuality from the investors about what they think about the various Investment Options. It was done to find out the investment patterns and behavior of the people i.e. how much they invest, what are the reasons behind their investments, and where they invest.

Thus a questionnaire was devised to fetch the above mentioned information from the investors. Most of the questions in the questionnaires were objective in nature which helped the people to fill it with utmost ease. The sample size for the research was 150, which included all the classes of people aged 18 and above. The questionnaire devised for the market research is attached to the report as Annexure I.

Each question of the questionnaire is discussed on a separate page and the results are explained with the help of graphs.

TITLE OF THE STUDY COMPARATIVE ANALYSIS OF VARIOUS INVESTMENT AVENUES FOR INVESTORS AND CONDUCTING MARKET RESEARCH

The project involved extensive studying and understanding various investment opportunities available for investors of jaipur. It also involved studying the various factors that should be kept in mind before selecting a suitable avenue from the available avenues in the financial sector. - 46 -

DURATION OF THE PROJECT 45 days i.e. from 15th may to 30th June 2011

OBJECTIVE OF THE STUDY To find out penetration of mutual funds and their popularity among different investment options To look the future prospects of mutual funds To increase the customer base regarding SBI Mutual Fund To create awareness among the investors for this investment vehicle, which is still at inception stage in Jaipur.

RESEARCH STRATEGY

Market survey & Action Research

Market Survey would be the strategy followed in the initial stage of the project to gain the information about the market place and to gather data about the present share of SBI Mutual Fund in each Sample Market.

Action Research in which the researcher is working to bring about changes in the situation rather than just observing the static situation will be the best method to achieve the objectives of the project. Action research with its change oriented approach will make it possible to carry the research and also to measure its impact.

- 47 -

TYPES OF RESEARCH

Research Methods:

Observation and Interviews.

Observation method will be used to calculate the market share of SBI MUTUAL FUND in the Mutual Fund Industry and to find out penetration of mutual funds and their popularity among different investment options.

Interviews of the investors will help in collecting qualitative information that will reflect the problems in the market and the ideas and suggestions for better execution in the market. In

DATA TYPES

The project seeks to generate both Qualitative and Quantitative data

SOURCES OF DATA

Primary sources: Observations Interviews o Personal o Telephonic Questionnaires

Secondary Sources: Library - 48 -

Journals Financial Data References and Bibliography SAMPLE SIZE FOR STUDY

The sample size used for study was equal to 150.

SCOPE OF THE STUDY

Marketing research is used to find out potential market for the product. Marketing research is used to identify the market share of the product and the company. Marketing research finds out the competitors strength and weakness in marketing and current position of the product.

The study aimed at capturing the insights into the psyche of the investors of Jaipur as particularly with regards to their investments in mutual funds and other similar investment avenues. This helps to determine firms strategies to acquaint of investor behavior as well as their needs and wants and to tap them effectively.

LIMITATIONS TO THE STUDY

The study performed from the historical data and the market research had some limitations. These limitations are discussed below: Mutual funds have small holdings in so many different companies. So, high returns from a few investments often dont make much difference on the overall return.

- 49 -

 Taxes: Funds manager, generally, dont consider 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. While comparing the different Mutual Funds, the historic data that was collected was of previous five years, which was not sufficient for the comparison. The time constraint was a problem. In the Market Research, the small sample size was another limitation, but this was again due to the time constraint. Moreover, the sample was collected only from a particular region of the country. The results are based on the direct findings from the questionnaires, but at times there are chances that people do not disclose everything just for a research. This could be another limitation to the project. Confinement being in Jaipur city leads to only urban exposure as the mutual fund industry is not spread in semi-urban or rural areas.

FACTS AND FINDINGS

- 50 -

What do you normally associate the word risk with? Frequenc y Percent Vali DANGER d OPPORTUNI TY THRILL UNCERTAIN TY Total Mis System sing Total 17 53 10 72 152 1 153 11.1 34.6 6.5 47.1 99.3 .7 100.0 Valid Percent 11.2 34.9 6.6 47.4 100.0 Cumulative Percent 11.2 46.1 52.6 100.0

Analysis From the above data it is clear that 47.1 percent of the sample population feels that the risk associated with investing money is uncertainty. People are not certain what returns they will get after investing a certain amount of money. From the above graph it is clear that the mean of the population is more tilted towards uncertainty with a standard deviation of 1.126.

- 51 -

What factor do you consider while investing? Frequenc y Percent Valid Safety of principal Low risk High Risk Maturity Period Returns Total Missing System Total 73 41 20 16 2 152 1 153 47.7 26.8 13.1 10.5 1.3 99.3 .7 100.0 Valid Percent 48.0 27.0 13.2 10.5 1.3 100.0 Cumulative Percent 48.0 75.0 88.2 98.7 100.0

Analysis The above data clearly depicts that more than 47 percent of the people feel that the safety of principal is a major factor while they are investing their money. They do not - 52 -

want their hard earned invested money to be drained out. Such an outcome shows that the sample population is very conservative when investment is concerned. 26 percent of the people also considers low risk as an important factor for investing money. It also implies that the investors ar happy with low returns provided their principal money is saved.

What percentage of income do you invest? Frequenc y Percent Valid 0-10% 10-20% 20-40% 40 & above 52 66 27 7 34.0 43.1 17.6 4.6 Valid Percent 34.2 43.4 17.8 4.6 Cumulative Percent 34.2 77.6 95.4 100.0

- 53 -

Total Missing System Total

152 1 153

99.3 .7 100.0

100.0

Analysis A bulk of the population invests 0-20% of their income which is around 77 %. In a recent market research project it has been found out that a person invests 22.8 % of their income. So our research also has been close in line with this figure.

Analysis A bulk of the population approximately 45 % invests money on the presumption that his/her investment will turn out to be a very good investment. He/she is very positive on his/her investment and the investor is confident that his investment will bring out his/her expected desired results.

- 54 -

with whom do you invest your savings and take advice? Frequenc y Percent Valid ACCOUNTANT ESTATE PLANNER INSURNCE AGENT STOCK BROKER NONE Total Missi System ng Total 24 23 33 26 46 152 1 153 15.7 15.0 21.6 17.0 30.1 99.3 .7 100.0 Valid Percent 15.8 15.1 21.7 17.1 30.3 100.0 Cumulative Percent 15.8 30.9 52.6 69.7 100.0

Analysis A majority of the sample population do not take the help of any financial advior when it comes to investing their hard earned money. A quite a few number of investors invests through their insurance agent. It shows that most of the people wants to get insured and they are very particular about it. So they do not want to go wrong and as a result invests their money through an insurance agent. - 55 -

Analysis It is close to 55 % of the sample population which believes that exposing 20 % of their income is worth the risk provided they could enjoy better returns. This question is also in line with the question to what percent of the income an investor is willing to invest. It seems that the population do not want to expose a major corpus of their investments to risk based returns. It is proved because some investors even do not want to expose any portion of their money to risks when they hear that their investments are subject to risks.

- 56 -

if you had made an investment decision without consulting or discussing with anybody how would you feel ? Frequenc y Percent Valid very unsure not very confident some what confident very confident Total Missing System Total 29 71 35 17 152 1 153 19.0 46.4 22.9 11.1 99.3 .7 100.0 Valid Percent 19.1 46.7 23.0 11.2 100.0 Cumulative Percent 19.1 65.8 88.8 100.0

Analysis - 57 -

Almost 46.4 % of the investors feel that their money is not safe without consulting with anyone. So they do need a financial advisor who can guide them during their investments.

after you have made your investment how do you usually feel ? Frequen cy Percent V very worried ali Worried d some what worried Neutral some what satisfied Satisfied very satisfied Total Mi System ss in g Total Analysis - 58 13 24 23 28 35 20 9 152 1 8.5 15.7 15.0 18.3 22.9 13.1 5.9 99.3 .7 Valid Percent 8.6 15.8 15.1 18.4 23.0 13.2 5.9 100.0 Cumulative Percent 8.6 24.3 39.5 57.9 80.9 94.1 100.0

153

100.0

22.9 % of the investors are somewhat satisfied after they had made their investment. This question is in line to with what comes to your mind first when you have made your investment? In the beginning the majority of the investors feel that their invested money will bring out the desired results but after investments they are not fully satisfied. It show that majority of the sample population is not fully satisfied to what they are getting in return.

Analysis People expect their investments to grow above 15 % but at the same time they do not want to expose their money to risks. So it shows that not only safety of principal and low risk are the criterias that investors look upon. They also want higher returns with the minimum of risk taken.

- 59 -

rank the following investment avenues ? Frequenc y Percent Valid saving account bank fixed deposit public provident fund equity share market mutual fund govt. bonds & securities Total Missing System Total 49 19 46 16 6 11 147 6 153 32.0 12.4 30.1 10.5 3.9 7.2 96.1 3.9 100.0 Valid Percent 33.3 12.9 31.3 10.9 4.1 7.5 100.0 Cumulative Percent 33.3 46.3 77.6 88.4 92.5 100.0

Analysis Almost 75 % of the population invests their money through savings account, public provident fund and bank fixed deposits. Mutual fund investments are the lowest may

- 60 -

be because people are not aware about it. It proves that the investors are not aware because they expect higher returns with the minimum of risk taken.

if you invest in a mutual fund , which one of following mutual fund company would you prefer? Frequenc y Percent Valid icici pru mf hdfc mf dsp mf uti mf franklin templeton mf reliance mf Total Missing System Total 43 60 19 18 4 3 147 6 153 28.1 39.2 12.4 11.8 2.6 2.0 96.1 3.9 100.0 Valid Percent 29.3 40.8 12.9 12.2 2.7 2.0 100.0 Cumulative Percent 29.3 70.1 83.0 95.2 98.0 100.0

- 61 -

SWOT ANALYSIS

Strengths: The strengths of the mutual fund industry lie in the professional management of assets under management. Another strength is the relative less risky investments as the portfolio of the fund is quite huge and thus diversified. It is a safe haven for all the conservative investors who want to participate in the market but also want a cushion as a back-up plan.

Weaknesses:

- 62 -

 The weaknesses lie in the high entry and exit load of almost all mutual funds including SBIMF. Erosion of investors capital base in equity based funds is a hurdle in the growth and popularity of MFs.

Oppurtunities: Opportunities lie in successful introduction of regulatory norms in the mutual fund industry. Attracting more investors would be possible if charges are alleviated to a certain extent.

Threats: Threat lies to SBI MF in other more competitive MFs like Reliance Mutual Fund and ICICI Mutual Funds. Other more attractive investment options such as futures and forwards, with a higher upside participation in market are a threat to this industry and also SBI MF. Structured products like Blended debt-Plus hybrid series, introduced by various investment banks, having features of both equity and debt are an added threat. The relative poor performance of the stock market also acts as a hindrance to prospective investors in Mutual Funds of ICICI PRU.

- 63 -

CONCLUSION

The project that I undertook in my SIP provided me a good experience of Investment Avenues like Mutual Funds, Insurance, Fixed Deposits and related activities. It was a good experience for me as it helped me enhance my knowledge as well as gave a good industry exposure for the period which would definitely prove to be very useful at the time of placements. The complete project helped me gain knowledge and at the same time it was very beneficial for the company.

The study performed using the historical data will help the company in two ways. Firstly, it would let the company know which of the funds under the given category works well and which does not. It can design certain strategies for the funds which are still underperforming and are in their nascent stages. Secondly, it would help the organization, the financial consultants and the marketing team to provide a strategy for the investors who can now easily decide where to invest and where not to.

The Market Research performed gave an insight of the actual investors, their investment behavior and their investment trends which would again help the company to make correct strategies to attract more customers and provide them with what they are comfortable with.

Summing up, I am thankful to the Company and the Project that gave me an opportunity where I could learn new things, enhance my knowledge, gain some industry exposure and at the same time, do something that could be beneficial for the company and the investors. - 64 -

RECOMMENDATIONS AND SUGGESTIONS

Suggestions included:

To regulate entry and exit loads effectively as it creates a lot of confusion during actual settlement of costs and bills. To better operations management so as to reduce the time lag and improve customer feedback. To improve market penetration by targeting not only metros but mini-metros and smaller towns more effectively. To come up with more innovative schemes and products so as to expand over the largest customer base as possible.

- 65 -

BIBLIOGRAPHY

Consulting various reference points on the aforementioned topics became pertinent. A list of such references is provided as follows: References:

direct interaction with bank customers brochures of product offerings of SBI MUTUL FUND. factsheets of SBIMF and other AMCs company database for the list of investors various investment journals C.R.Kothari; Research Methodology www.SBIMF.com www.amfiindia.com www.mutualfundsindia.com www.valueresearchonline.com

- 66 -