A

On
MUTUAL FUND ANALYSIS

AT

UNDER THE GUIDANCE OF

Mr. VIVEK SHARMA Relationship manager (Dehradun)

SUBMITTED TO:
Dr. ASHISH AGGARWAL(Director) IIMT PROFESSIONAL COLLEGE Meerut

SUBMITTED BY:
Piyush Gupta PGDM (IIIrd) SEM Roll no. = M10007

INDEX
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1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Declaration Acknowledgement Certificate Preface Objectives Introduction Of Mutual Fund History & Profile of Mutual Fund. History & Evolution Historical Development Introduction of ICICI Prudential Mutual Fund Board Members Board Commitees Research Methodology Analysis & Interpretation Findings Limitations Recommendation/Suggestions Conclusion Annexure Questionnaire Case Studies Bibliography

PREFACE
The world today has come closer and in the wake of globalization and liberalization of the economic policy there is steep demand of a through understanding of the various facts of management. Learning is continuous process and upgrading existing level of learning is a very important thing for the learner. Both theoretical and practical aspect of learning should receive utmost attention without acquiring practical knowledge we can hardly succeed. Studying PGDM course from IIMT, under AICTE provided me the opportunity to have the theoretical knowledge and develop managerial skill.

OBJECTIVE OF THE STUDY

To find out the awareness of Mutual fund among customers. To study the performance in context of investors expectations. TO study the current scenario of mutual funds. To find out the problems of investors To study the awareness knowledge and perception regarding mutual fund at dehradun. To know people behavior regarding risk factor involved in mutual fund. To analyze the concept and parameters of mutual fund.

MUTUAL FUNDS
.Mutual funds are popular among all income levels. With a mutual fund, we get a diversified basket of stocks managed by a professional
Barbara Stanny, author of Prince Charming Isnt Coming: How Women Get Smart About Money

A mutual fund is a company that brings together money from many people and invests it in stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the fund owns are known as its portfolio. Each investor in the fund owns shares, which represent a part of these holdings..
-The U.S. Securities and Exchange Commission

1. THEORETICAL BACKGROUND 2.
1. INTRODUCTION HISTORY OF 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 1964-87

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 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 6

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 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 7

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 October 31, 2003, there were 31 funds, which manage assets of Rs.126726 crores under 386 schemes.

1. CONCEPT OF MUTUAL FUND

A mutual fund is an investment vehicle which allows investors with similar (one could say mutual) investment objectives, to pool their resources and thereby achieve economies of scale and diversification in their investing. Economies of Scale means lower costs on a per unit basis by doing things "in bulk" which spreads fixed costs over greater volume. A mutual fund achieves lower per unit costs for professional money management and for transaction charges, than small investors could achieve on their own. This can increase return to the investor. Diversification is just another way of saying "Dont put all your eggs in one basket." A mutual fund allows its investors to a small percentage of many different investments. So in a well-diversified mutual fund no one particular investment dominates its performance. Poor results from some investments are likely to be offset by good results from other investments. Therefore, the unit value of a mutual fund will not fluctuate as sharply as the value of any one of its investments. This can reduce risk to the investor. A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc.

A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks. Despite these advantages mutual funds do not guarantee do not return, nor do they eliminate risk to investors. The return and risk of a mutual fund depend primarily on the type of securities instruments in which it invests, and secondarily on how well it is managed by the company offering it. Typically a mutual fund scheme is initiated by a sponsor who recognizes and markets the fund. It pre specifies the investment objective of the fund and the risks associated with the costs involved in the process and broad rules for entry into and exit from the fund and other areas of operation. In India as in most nations the sponsors need approval from the regulator viz. SEBI. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to the custodian of the assets of the funds and perhaps a third one to handle registry work. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes. In nutshell, 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 9

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

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the

organizational set up of a mutual fund:

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1.3. ADVANTAGES OF MUTUAL FUNDS

Mutual funds provide following benefit to investors Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

Diversification
Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this

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diversification through a Mutual Fund with far less money than you can do on your own.

Convenient Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

Low Costs
Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.

Transparency
you get regular information on the value of your investment in addition to 1

disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

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.

Choice of Schemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

Well Regulated
All of Mutual Funds are regularly monitored by Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations SEBI.

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1.4. CLASSIFICATION OF MUTUAL FUNDS

There are varied ways in which funds can be classified. From the investors perspective funds are usually classified in terms:

Constitution Structure Close ended Open ended

Collection entry or exit charges from investors Load funds No-Load funds

Under each broad classification, there are several types of funds, depending on the basis of the nature of their portfolio. Even fund has unique risk-profiles that are determined by its portfolio.

I. Open ended and close ended funds

Open-ended Funds
An open-end fund is one that has units available for sale and repurchase at all the times at a price based on the NAV per unit. Such funds are open for subscription the whole year. Capitalization/corpus is continuously changing. Fund size and the total investment amount goes up if more new subscription comes in from new investors than redemption by exiting investors, the fund shrinks when redemption of units exceeds fresh subscription. Theres no fixed maturity. 1 4

Shares or units of such funds are normally not traded on the stock exchange but are repurchased by the fund at announced rates. They provide better liquidity even though not listed as investors can any time approach mutual funds for sale of such units.

Dividend reinvestment option is also available in case of such funds. Since there is always a possibility of withdrawals, management of such funds becomes more tedious as managers have to work from crises to crises. Crises may be two fronts:

1.

Unexpected withdrawals require funds to maintain a high level of cash available every time implying thereby idle cash.

2.

By virtue of this situation such funds may fail to grab favorable opportunities. Further to match quick cash payments, funds cannot have matching realization from their portfolio due to intricacies of the stock market.

Close-ended Funds
Close end funds can be subscribed to, only during the initial public offer. Thereafter the units of such funds can be bought and sold on the stock exchange on which they are listed through a broker. Such funds have a stipulated maturity period. The duration of such funds is generally 2 to 15 years.

The funds units may be traded at the discount or premium to NAV based on the investors perception about the funds future performance and other market factors affecting the demand for a supply of the funds units. An important point to note here is 1 5

that the number of outstanding units of such fund doesnt vary on account of trading in the funds units at the stock exchange. From management point of view, managing close ended schemes is comparatively easy since fund managers can evolve and adopt long term investment strategies depending on the life of the scheme.

II. Load Funds Vs No Load funds

Load Funds

Marketing of new mutual fund scheme involves initial expenses. Charges made to the investor to cover distribution/sales/marketing expenses are often called loads. These expenses may be recovered from the investors in different ways at different times.

Typically entry and exit loads range from 1% to 2%. Three usual ways in which funds sales expenses may be recovered from the investor are:

1.

At the time of entry into the fund, by deducting a specific amount from his initial expenses. The load charges to the investor at the time of his entry into the scheme are called a front-end or entry load.

2.

By charging the fund/scheme with a fixed amount each year, during the stated number of years. The load amount charged to the scheme over a period of time is called deferred load 1

3.

At the time of investors exit from the scheme, by deducting a specified amount from the redemption precedes payable to the investor. The load that the investors pay at the time of his exit is called a back-end or exit load

Some funds may also charge different amounts of load to the investor depending upon how many years the investors has stayed with the fund, the longer the investor stays with the fund less the amount of exit load, he is charged. This is called as contingent deferred sales charge. The schemes NAV would reflect the net amount after the deferred load.

Loads are charged not only by an open-ended fund but even a close-ended fund can charge a load to cover the initial issue expense.

No-Load Funds
Funds that make no such charges or loads for sales expenses are called as no load funds.

1.5. TYPES OF FUNDS

Funds are generally distinguished from each other by their investment objectives and types of securities they invest in. Currently, mutual funds in India are allowed to invest either in equity or debt or a combination of these two. While moves are on to float funds that invest in gold or real estate etc, as of date, mutual funds are not permitted to currently hold physical assets. Thus, a fund can invest in shares or debt instruments of a gold mining company, but cannot buy gold itself.

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By Objective Here the funds are classified on the basis of the investment objective where objective reflects the purpose for which the investor is investing his money. By law each mutual fund must declare an investment objective which tells an investor what the fund concentrates on and allows the investor to integrate a particular fund with his or her own needs. The main objective of any investor is to generate returns on his investments but investors have different needs depending upon which the returns and the portfolio for any investor varies. Investors can have one particular objective or can have a mix of various objectives. On the basis of objective and asset allocation mutual funds can be categorized as follows.

Equity Fund These are funds which invest in equity shares of companies. Equities, as an asset class, have historically delivered higher returns compared to debt funds over a long term. Equity funds, by their very nature, tend to be volatile, that is, in the short term their value can go up or down. Therefore, they are not meant for those investors who need a regular and stable stream of easily predictable income.

Broad-based, diversified equity funds vary their investments across companies and sectors to give a return comparable to the market indices. For instance, if the BSE sensex appreciates 50 per cent in a one-year, then a broad-based fund would try to give returns of about 40-60 per cent. Aggressive growth funds take sector bets, that is, they invest more in particular sectors like InfoTech and pharma. Here, the fund managers believe that companies in a particular sector will outperform the general market. Sector funds invest their money exclusively in companies belonging to one sector. Here the investor 1 8

risks his entire investments on the fortunes of that sector. If the sector does well, he will get above market returns, but if his bet goes wrong, then the entire capital could get eroded. Hence, fund managers recommend that sector funds should form only a very small part of your overall equity investment portfolio.

I. Equity Diversified Funds Diversification - Mutual Funds reduces the risk by investing in all the sectors. Instead
of putting all your money in one sector or company it's better to invest in various good performing sectors as you reduces the risk of getting involved in a particular sector/company which may perform or may not.

Who should invest - This is an ideal category for those who want to participate in
stock market & knows the risk involved in stock market but have few rupees to invest in bluechip stocks.

How they performed - Though the short term out look is volatile in long-term equity
diversified funds have outperformed other categories & stock markets will lesser amount of risk than stock markets. The average returns of equity diversified funds are 102%

Category Rating ****

Performance as on May 31, 2005 Absolute Simple Annualized Scheme Name NAV 6 Months 1 Year 3 Years Tata Pure Equity Fund - Growth 20.03 1.23 95.50 23.24 Franklin India Prima Fund - Growth 68.17 4.93 82.50 32.84 Reliance Growth 11.39 5.04 11.43 47.83 Average 37.33 63.14 34.64 S&P Nifty 1704.45 25.59 68.35 15.55 Since Inception 27.82 20.04 24.99 24.28 1 -

II. Index Funds Follow the index - These are the index-based funds, which move with the likes of
Sensex & Nifty. These fund charges NIL or very low entry/exit loads.

Who should invest - As you have seen in last few months Nifty & Sensex have
almost come down 500points from their tops, it is a good time to invest in Index funds with the principal of "Investing at the lower levels".

How they performed - Though the short term out look is volatile in long-term
Sensex & Nifty could do well with improving economic conditions. It has been seen that these Index funds have outperformed the indices making them more attractive. Category Rating - ***
Scheme Name HDFC Index - Sensex Plus SENSEX Pru ICICI Exchange Traded Average S&P Nifty BSE Sensex NAV 56.60 54.55 1704.45 5414.44 Absolute 3 Months (3.50) (4.06) (5.19) (5.76) (4.03) Simple Annualized 1 Year 3 Years Since Inception 74.82 44.45 73.77 70.70 16.62 27.80 68.35 15.55 72.21 16.27 -

III. Sector Fund

Sector - Sector Schemes follow particular sector.

Who should invest - You have to be selective while investing in these funds, as you
need to select particular sector, which will perform better in the future. Investing in these funds carries some amount of risk but also give you more returns.

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How they performed - Sector funds have given average returns of 73% for 1 year
period. Auto, Steel, Cement have done well the year '03 & the trend will continue in year '04 but IT, FMCG sectors are experiencing downward trend due to $ depreciation, price war in FMCG respectively. Though short-term trend for pharma sector looks down in long term we look forward to lot more action in the sector, as there exists a long-term, strong fundamental story backed by immense growth potential for the Indian pharmaceutical companies. Category rating - **
Performance as on March 25, 2005 Absolute Simple Annualized NAV 3 Months 1 Year 3 Years 27.82 1.20 135.99 83.23 18.37 3.77 120.55 76.94 15.82 (9.24) 111.78 32.15 (7.98) 72.60 23.57 1704.45 (5.76) 68.35 15.55 5414.44 (4.03) 72.21 16.27

Scheme Name Alliance Basic Industries UTI Growth Sector Petro SBI Magnum Sector Pharma Average S&P Nifty BSE Sensex

Since Inception 42.48 82.88 15.58 16.36 -

IV. Equity Linked Tax Savings Schemes (ELSS) Enjoy tax benefits - These schemes are becoming more popular as traditional ways of
tax saving becoming less interesting with declining interest rates.

Who should invest - Equity Linked Savings Schemes (ELSS) is an ideal way to save
on tax as well as staying invested in equity mutual funds.

How they performed - In last 1 year these funds have given above average returns to
keep you more & more interested in saving tax as well as counting returns on your investment. The average returns for this category are 98%

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Scheme Name Birla Equity Magnum Tax Gain 93 Tata Tax Saving Average S&P Nifty BSE Sensex

Performance as on March 25, 2005 Absolute Simple Annualized NAV 3 Months 1 Year 3 Years Since Inception 26.90 (6.11) 137.32 53.56 46.87 23.03 (3.43) 136.95 26.61 16.66 23.35 (2.73) 133.08 50.26 60.09 (5.48) 98.30 37.17 51.73 1704.45 (5.76) 68.35 15.55 5414.44 (4.03) 72.21 16.27 -

Debt funds
Debt funds are particularly attractive to investors who would otherwise invest in banks or company fixed deposits. But the deposits are subject to tax deduction at source, whereas the dividends received from debt funds are totally tax free in the hands of investors. There are various types of debt funds designed for parking your short-term surpluses to medium term savings. Money market funds or liquid or cash funds are designed as an alternative to your savings bank account. They offer you 1.5 to 2 per cent higher returns on an average than your savings bank account which typically yields 4.50 per cent per annum. Some funds even offer a cheque writing facility on your investments in such funds which can be used to issue cheques to others. Income funds are aimed at slightly longer-term investments, say about six months to one year. These are low risk funds which offer you a steady return better than that of a bank fixed deposit.

Gilt funds or government securities funds are aimed at long-term investments. These funds invest in debt instruments that carry no risk of non-payment of interest as the Reserve Bank of India manages the payment of interest and principal on these

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instruments. However, their prices tend to vary quite a bit so there is a possibility of loss of principal invested on this count if used as a short-term investment opportunity.

I. Debt Funds Banking on Debt Markets - Debt funds invest in the government securities,
Corporate Bonds, Treasury Bills, etc.

Who should invest - The conservative investors like to go for capital safety. How they performed - From Last 12 months in the declining interest rate scenario
debt funds remained flat. In 3 years debt funds have given average returns of 12%. As equity market is looking volatile its better to invest part of your money in these funds.

Performance as on March 25, 2005 Absolute Simple Annualized Scheme Name NAV 6 Months 1 Year 3 Years Since Inception Deutsche Premier Bond Institutional 11.17 3.31 13.65 9.93 Sundaram Select Debt - D A P 12.11 2.83 12.17 13.43 HSBC Institutional Income Invest 11.39 3.04 11.88 10.61 Average 2.33 9.07 13.98 10.79 S&P Nifty 1704.45 25.59 68.35 15.55 NSE G Sec Composite Index 247.17 2.64 12.61 16.80 -

Category rating - ***

II. Gilt Funds Government Sec. - Gilt funds invest in government securities. Who should invest - The investors who like to avail the benefits of capital safety with
government security. 2 3

How they performed - From Last 6-12 months Gilt funds have given average
returns. As equity market is looking volatile its better to invest part of your money in these funds as they provide adequate security to your investments. The average returns for 1-year period are 10.41% compare to the NSE G Sec Composite Index has given 12.60% returns.
Performance as on March 25, 2005 Absolute Simple Annualized Scheme Name NAV 6 Months 1 Year 3 Years Since Inception FT India Gilt Investment Plan - Growth 14.88 5.63 19.64 21.22 Chola Gilt Investment - Growth 17.96 6.58 16.98 19.83 19.93 Tata Gilt Securities Fund - Growth 22.25 3.33 15.46 25.46 26.36 Average 2.56 10.41 16.19 9.58 Crisil Composite Bond Fund Index 1203.29 2.23 9.03 NSE G Sec Composite Index 247.17 2.64 12.61 16.80 -

Category rating - ***

III. MIP Monthly Income - These schemes gives you monthly income. Who should invest - Those who seek monthly income. In the current scenario where
debt market is very volatile it's better to invest in hybrid funds like MIP with suitable time horizon for capital appreciation.

How they performed - In Last 6-12 months MIP's have given descent returns
compare to debt funds. The average returns of MIP's stands at 15.68%, which looks good, compared to income funds.
Performance as on March 25, 2005 Absolute Simple Annualized NAV 6 Months 1 Year 3 Years Since Inception 19.98 8.48 20.64 17.03 21.22 15.77 7.90 19.20 16.13 16.54 13.65 7.40 15.22 12.12 6.19 15.68 14.76 7.31

Scheme Name Alliance MIP FT India MIP - Plan A SBI Magnum MIP Average

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S&P Nifty Crisil MIP Blended Index

1704.45 1255.07

25.59 6.15

68.35 17.34

15.55 -

Category rating - ****

IV. STP Short-term Plans - These schemes provides short-term saving option with more
liquidity than FD's to park your investments.

Who should invest - Those who seeking for income in short-term investments of 610 months with more liquidity than Bank fixed deposit.

How they performed - While savings accounts would give you 3.5% per anum, bank
FD's annually return up to 6.5%, Liquid funds would typically give you more than 5% and short-term plans 6 to 6.5% per anum. In Last 6-12 months STP's have given descent returns.

Scheme Name First India Short Term Reliance Short Term Deutsche Short Maturity Average Crisil Composite Bond Index CRISIL short-term Bond Index

Performance as on March 25, 2005 Absolute Simple Annualized NAV 6 Months 1 Year 3 Years Since Inception 11.15 2.77 7.90 7.50 10.89 2.81 7.30 7.02 10.76 2.64 7.03 6.47 2.41 6.33 9.27 6.42 1203.29 2.23 9.03 1138.91 2.19 5.68 -

Balance Funds
Balanced funds invest in a combination of debt and equity to balance the risks of investing in equity. Balanced funds are theoretically designed to hedge the risk of loss on 2 5

equity investments by the income generated by debt instruments. The ideal mix of debt to equity investments in a balanced fund is 50:50. But as funds which invest a majority of their money in equity are exempt from paying tax on their income up to the year 2002, in India most funds have a debt to equity ratio of 49:51. A ratio higher than 51 for equity investments could actually work against the very purpose of balanced schemes.

Balanced fund - Balanced funds gives you the stability with the potential to grow with
the equity help of equity investments. These funds invest in both Equity & Debt markets.

Who should invest - The balanced funds are for those, who want to enjoy the
appreciation effects of equity market but at the same time like to play safe with less volatile debt market. In this volatile market it is good to invest in balanced funds as they carries less risk compare to equity funds.

How they performed - In the last 12 months balanced funds have given descent
returns with the up trend in the equity markets. Balanced funds average returns are 60% for 1-year period.
Returns as on March 25, 2005 Absolute Simple Annualized NAV 3 Months 1 Year 3 Years Since Incep. 44.09 (1.63) 81.68 51.24 46.59 12.88 2.07 80.44 21.88 23.21 8.39 (1.06) 77.54 16.83 (3.75) (2.05) 60.54 27.54 18.15 1704.45 (5.76) 68.35 15.55 1409.12 (1.07) 45.22 -

Scheme Name HDFC Prudence SBI Magnum Balanced Franklin India Vista Average S&P Nifty Crisil Balanced Index

Category rating - ***

1.6. MUTUAL FUNDS RANKED FROM LEAST TO MOST RISKY

6 Money Market Mutual Fund Government or Agency Bond Fund 2

Income Fund Balanced Fund Index Fund Growth Fund Aggressive Growth Funds International / Global Fund Specialty / Sector Fund

1.7. TAX STATUS

Dividend paid by mutual funds is fully tax-exempt at the hands of the investor, although, funds have to pay a 12.81 per cent dividend distribution tax. On redemption of any units held for more than a year, your realization will attract long-term capital gains tax of 20 per cent plus surcharge after indexing for inflation, or at a flat rate of 10 per cent. If redeemed before a year it will be termed as short term capital gain and taxed along with your other income. However, you can save tax by investing in Equity-Linked Savings Scheme (ELSS) under Section 88 of the Income Tax Act, 1961, according to which 20 per cent of the amount invested in ELSS can be deducted from your tax liability subject to a maximum investment of Rs 10,000 per year

1.8. FREQUENTLY USED TERMS IN THE MUTUAL FUND INDUSTRY Net Asset Value (NAV): Net Asset Value is the market value of the assets of the
scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.

Calculation of NAV
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The most important part of the calculation is the valuation of the assets owned by the fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the asset value is given below. Asset value is equal to Sum of market value of shares/debentures + Liquid assets/cash held, if any + Dividends/interest accrued Amount due on unpaid assets Expenses accrued but not paid

Sale Price: Is the price you pay when you invest in a scheme. Also called Offer
Price. It may include a sales load.

Repurchase Price: Is the price at which a close-ended scheme repurchases its

units and it may include a back-end load. This is also called Bid Price.

Redemption Price: Is the price at which open-ended schemes repurchase their

units and close-ended schemes redeem their units on maturity. Such prices are NAV related.

Sales Load: Is a charge collected by a scheme when it sells the units. Also called,
Front-end load. Schemes that do not charge a load are called No Load schemes.

Repurchase or Back-end Load: Is a charge collected by a scheme when it

buys back the units from the unit-holders

1.9. RISK ASSOCITED WITH MUTUAL FUNDS

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Mutual funds and securities investment are subject to various risks and there is no assurance that a scheme objective will be achieved. These risks should be properly understood by investors so that they can understand how much risky their investment avenue is. Equity and fixed income bearing securities have different risks associated with them. Various risks associated with mutual funds can be described as below. Risk associated to fixed income bearing securities Interest rate risk - As with all the securities, changes in interest rates may affect the schemes Net Asset Value as the prices of the securities generally increase as interest rates decline and generally decrease as interest rates rise. Prices of long-term securities generally fluctuate more in response to interest rates changes then do short term securities. Indian Debt markets can be volatile leading to the possibility of price movements p or down in the fixed income securities and thereby to the possible movements in the NAV.

Liquidity or marketable risk - This refers to the ease with which an security can
be sold at near to its valuation yield to maturity. The primary measure of liquidity risk is the spread between the bid price and the offer price quoted by the dealer. Liquidity risk is inherent to the Indian Debt market.

Credit risk - Credit risk or default risk refers to the risk that an issuer of fixed income
security may default (i.e., will be unable to make timely principal and interest payments on the security). Because of those risk corporate debentures are sold at a yield above those offered on Government securities, which are sovereign obligations and free of credit risk. Normally the value of fixed income security will fluctuate depending upon the

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perceived level of credit risks well as the actual event of default. The greater the credit risk the greater the yield require for someone to be compensated for increased risk.

Market risk The NAV of the scheme investing in equity will fluctuate as the daily
prices of the individual securities in which they invest fluctuate and the units when redeemed may be worth more or less than the original cost.

Timing the market It is difficult to identify which is the right time to invest and
which is the right time to take out the money. There may be situations where stocks may not be rightly timed according to the market leading to loss in the value of scheme.

Liquidity - Investment made in unlisted equities or equity related securities might only
be realizable upon the listing of the securities. Settlement problems could cause the scheme to miss certain investment opportunities

1.10. OPTIONS AVAILABLE TO INVESTORS

Each plan of every mutual fund has three options Growth, Dividend and dividend reinvestment. Separate NAV are calculated for each scheme.

Dividend Option
Under the dividend plan dividend are usually declared on quarterly or annual basis. Mutual fund reserves the right to change the frequency of dividend declared.

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Dividend reinvestment option

Instead of remittances of units through payouts, Units holder may choose to invest the entire dividend in additional units of the scheme at NAV related prices of the next working day after the record date. No sales or entry load is levied on dividend reinvest.

Growth Option
Under this plan returns accrue to the investor in the form of capital appreciation as reflected in the NAV. The scheme will not declare the dividend under the Growth plan and investors who opt for this plan will not receive any income from the scheme. Instead of income earned on their units will remain invested within the scheme and will be reflected in the NAV.

1.11. NEW DEVELOPMENTS

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I. Systematic Switching Plan

The unit holder may set up a Systematic Switching plan on a monthly, quarterly, semiannual or annual basis to exchange a fixed number of units and/or amount in one scheme to another scheme within the Fund Family or one plan/option to another. The redemption or investment will be at the applicable NAV for the respective schemes as specified in the offer document

II. Systematic Investment Plan

Systematic Investment Plan is available for planned and regular investments, Under this plan unit holders can benefit by investing specified rupee amounts periodically for a continuous period. This concept is called Rupee Cost Averaging. This program allows Unit holders to save a fixed amount of rupees every month/ quarter by purchasing additional units of the Scheme(s). Rupee cost averaging does not guarantee a profit or protect against a loss. Rupee cost averaging can smooth out the markets ups and downs and reduce the risk of investing in volatile markets For as little as Rs. 250* each month for 12 months or Rs. 500 every month for 6 months, you can purchase mutual fund units and avoid larger minimum investment amounts of over Rs. 1,000. Fixed amounts can be invested in Mutual Funds each month using funds drawn automatically from your savings account regularly. Investing in Systematic Investment Plan (SIP) offer the benefit of "Rupee-cost averaging", i.e., by purchasing Mutual Fund units over a period of time, you

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automatically buy more units when prices are low and fewer units when prices are high, resulting in lower "per unit acquiring cost" as a result of averaging.

III. Systematic Withdrawal Plan

Systematic Withdrawal Plan (SWP) lets you automatically redeem a prearranged amount of your mutual fund holdings each month. SWPs are an ideal way to supplement your monthly cash flow, meet minimum withdrawal requirements, or move assets between the funds. SWP is a no-charge service. When you set up your SWP, cash proceeds from each redemption (minimum balance maintained @ 25% of the holding at any given point of time) are given to you in the form of post-dated cheques (six monthly cheques at par, which enables you to get the funds lodged).

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2. OBSERVATIONS
2.1 How does changes in NAV benefit investors?
Suppose the IPO price of a scheme was Rs. 10 and today its NAV is Rs. 15.35. The increment of Rs. 5.35 is the total return on the scheme, which has been generated due to some factors. These factors can be explained as below. Trading Gains- These are the gains generated from buying and selling of securities. Any security bought at a lower price and sold at a higher price leads to trading gains. Mark on market- Mark on market is also called unbooked gains. Because these are gains that could have been generated if securities would have been sold instead of being retained in the portfolio. Accrued interest- It is the amount accrued as interest by keeping the securities in the portfolio. The ratio of these three components keeps varying. Increment of NAV consists primarily of accrued interest .The proportion of these factors moves in the following manner. Accrued interest 75% Mark on market 20% Trading gains 5%

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This is the proportion in which returns are generated. But fund managers capability lies in generating trading gains because interest can be generated by anyone by keeping same securities in his portfolio. It is only due to the expertise of fund managers in generating trading gains that people invest through mutual funds.

2.2 NAV calculation for different options

Growth- For growth option NAV will be calculated in the same manner as discussed above Dividend and Dividend reinvested For dividend option the dividend declared per unit will be deducted from the NAV under growth scheme to arrive at the NAV for dividend option. Similarly for dividend reinvestment option the NAV will remain the same. The only difference is that Investors under dividend reinvestment option will have more units that with dividend option for the same amount of money invested.

3. INVESTMENT MANAGEMENT
After learning the concept of mutual funds and various schemes of mutual funds available for investment it is required to effectively manage the portfolio of an investor which depends upon the objective of investor. The most important objective of any investor is to generate returns. Requirement for return for every investor varies which depends upon many factors and these factors determine the category to which an investor belongs. Depending upon the category to which an investors belongs portfolio of any customer is managed. Investors can be categorized on the basis of certain factors which can be described as below.

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1. On the basis of Risk and Return

Low Risk Bearing Capacity Medium Risk Bearing Capacity High Risk Bearing Capacity Risk and return goes hand to hand. Higher return means higher risk. Low risk means moderate return.

2. On the basis of Age of Investor:

Young Age (20-35 years) Middle Age (35-50 years) Old Age (50 and above)

3. On the basis of Liquidity required by Investor:

Less Liquidity Medium Liquidity More Liquidity

4. On the basis of tenure of investment:

Short Term Medium Term Long Term

5. Investment can also be made to

Park the Idle Funds Make a full time investment Avail tax benefits Meet requirement for Contingencies

On the basis of the advisory paradigm (deciding factors) mentioned above, various categories of investor can be made which is deciding factor as to where an investor with a particular requirement must invest.

Generally investors are categorized on the basis of Risk and return Age Liquidity Required

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For other factors the portfolio of the customer is adjusted accordingly depending upon the category of the customer. Following are the various profile of investors based on the advisory paradigm followed by investment avenues where they can park their money:

The Ground rules of Mutual Fund Investing:

Moses gave to his followers 10 commandments that were to be followed till eternity. The world of investments too has several ground rules meant for investors who are novices in their own right and wish to enter the myriad world of investments. These come in handy for there is every possibility of losing what one has if due care is not taken.

1. Assess yourself: Self-assessment of ones needs; expectations and risk profile is of prime importance failing which; one will make more mistakes in putting money in right places than otherwise. One should identify the degree of risk bearing capacity one has and also clearly state the expectations from the investments. Irrational expectations will only bring pain. 2. Try to understand where the money is going: It is important to identify the nature of investment and to know if one is compatible with the investment. One can lose substantially if one picks the wrong kind of mutual fund. In order to avoid any confusion it is better to go through the literature such as offer document and fact sheets that mutual fund companies provide on their funds. 3. Don't rush in picking funds, think first: one first has to decide what he wants the money for and it is this investment goal that should be the guiding light 3 7

for all investments done. It is thus important to know the risks associated with the fund and align it with the quantum of risk one is willing to take. One should take a look at the portfolio of the funds for the purpose. Excessive exposure to any specific sector should be avoided, as it will only add to the risk of the entire portfolio. Mutual funds invest with a certain ideology such as the "Value Principle" or "Growth Philosophy". Both have their share of critics but both philosophies work for investors of different kinds. Identifying the proposed investment philosophy of the fund will give an insight into the kind of risks that it shall be taking in future. 4. Invest. Dont speculate: A common investor is limited in the degree of risk that he is willing to take. It is thus of key importance that there is thought given to the process of investment and to the time horizon of the intended investment. One should abstain from speculating which in other words would mean getting out of one fund and investing in another with the intention of making quick money. One would do well to remember that nobody can perfectly time the market so staying invested is the best option unless there are compelling reasons to exit. 5. Dont put all the eggs in one basket: This old age adage is of utmost importance. No matter what the risk profile of a person is, it is always advisable to diversify the risks associated. So putting ones money in different asset classes is generally the best option as it averages the risks in each category. Thus, even investors of equity should be judicious and invest some portion of the investment in debt. Diversification even in any particular asset class (such as equity, debt) is good. Not all fund managers have the same acumen of fund management and with

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identification of the best man being a tough task; it is good to place money in the hands of several fund managers. This might reduce the maximum return possible, but will also reduce the risks. 6. Be regular: Investing should be a habit and not an exercise undertaken at ones wishes, if one has to really benefit from them. As we said earlier, since it is extremely difficult to know when to enter or exit the market, it is important to beat the market by being systematic. The basic philosophy of Rupee cost averaging would suggest that if one invests regularly through the ups and downs of the market, he would stand a better chance of generating more returns than the market for the entire duration. The SIPs (Systematic Investment Plans) offered by all funds helps in being systematic. All that one needs to do is to give post-dated cheques to the fund and thereafter one will not be harried later. The Automatic investment Plans offered by some funds goes a step further, as the amount can be directly/electronically transferred from the account of the investor.

7. Do your homework:
It is important for all investors to research the avenues available to them irrespective of the investor category they belong to. This is important because an informed investor is in a better decision to make right decisions. Having identified the risks associated with the investment is important and so one should try to know all aspects associated with it. Asking the intermediaries is one of the ways to take care of the problem. 3 9

8. Find the right funds Finding funds that do not charge many fees is of importance, as the fee charged ultimately goes from the pocket of the investor. This is even more important for debt funds as the returns from these funds are not much. Funds that charge more will reduce the yield to the investor. Finding the right funds is important and one should also use these funds for tax efficiency. Investors of equity should keep in mind that all dividends are currently tax-free in India and so their tax liabilities can be reduced if the dividend payout option is used. Investors of debt will be charged a tax on dividend distribution and so can easily avoid the payout options.

1. Keep track of your investments Finding the right fund is important but even more important is to keep track of the way they are performing in the market. If the market is beginning to enter a bearish phase, then investors of equity too will benefit by switching to debt funds as the losses can be minimized. One can always switch back to equity if the equity market starts to show some buoyancy. 2. Know when to sell your mutual funds: Knowing when to exit a fund too is of utmost importance. One should book profits immediately when enough has been earned i.e. the initial expectation from the fund has been met with. Other factors like non-performance, hike in fee charged and change in any basic attribute of the fund etc. are some of the reasons for to exit. Investments in mutual funds too are not risk-free and so investments warrant some caution and careful attention of the investor. Investing in mutual funds can be a dicey 4 0

business for people who do not remember to follow these rules diligently, as people are likely to commit mistakes by being ignorant or adventurous enough to take risks more than what they can absorb. This is the reason why people would do well to remember these rules before they set out to invest their hard-earned money.

Performance Measures of Mutual Funds:

Mutual Fund industry today, with about 34 players and more than five hundred schemes, is one of the most preferred investment avenues in India. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too. Though past performance alone can not be indicative of future performance, it is, frankly, the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different mutual funds. Worldwide, good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs.

Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because 4 1

different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as variability or fluctuations in the returns generated by it. The higher the fluctuations in the returns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securities, present in the market, called market risk or systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called unsystematic risk.

The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis--vis market. The more responsive the NAV of a mutual fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a mutual fund with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk can not. By using the risk return relationship, we try to assess the competitive strength of the mutual funds vis--vis one another in a better way. In order to determine the risk-adjusted returns of investment portfolios, several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class. The most important and widely used measures of performance are:

The Treynor Measure The Sharpe Measure 4 2

 Jenson Model Fama Model

The Treynor Measure

Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as: Treynor's Index (Ti) = (Ri - Rf)/Bi. Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the fund. All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance.

The Sharpe Measure

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

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

Where, Si is standard deviation of the fund.

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

Comparison of Sharpe and Treynor

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

Jenson Model
Jenson's model proposes another risk adjusted performance measure. This measure was developed by Michael Jenson and is sometimes referred to as the Differential Return Method. This measure involves evaluation of the returns that the fund has generated vs. 4 4

the returns actually expected out of the fund given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required return of a fund at a given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf) Where, Rm is average market return during the given period. After calculating it, alpha can be obtained by subtracting required return from the actual return of the fund. Higher alpha represents superior performance of the fund and vice versa. Limitation of this model is that it considers only systematic risk not the entire risk associated with the fund and an ordinary investor can not mitigate unsystematic risk, as his knowledge of market is primitive.

Fama Model
The Eugene Fama model is an extension of Jenson model. This model compares the performance, measured in terms of returns, of a fund with the required return commensurate with the total risk associated with it. The difference between these two is taken as a measure of the performance of the fund and is called net selectivity. The net selectivity represents the stock selection skill of the fund manager, as it is the excess return over and above the return required to compensate for the total risk taken by the fund manager. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him. Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)

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Where, Sm is standard deviation of market returns. The net selectivity is then calculated by subtracting this required return from the actual return of the fund. Among the above performance measures, two models namely, Treynor measure and Jenson model use systematic risk based on the premise that the unsystematic risk is diversifiable. These models are suitable for large investors like institutional investors with high risk taking capacities as they do not face paucity of funds and can invest in a number of options to dilute some risks. For them, a portfolio can be spread across a number of stocks and sectors. However, Sharpe measure and Fama model that consider the entire risk associated with fund are suitable for small investors, as the ordinary investor lacks the necessary skill and resources to diversify. Moreover, the selection of the fund on the basis of superior stock selection ability of the fund manager will also help in safeguarding the money invested to a great extent. The investment in funds that have generated big returns at higher levels of risks leaves the money all the more prone to risks of all kinds that may exceed the individual investors' risk appetite.

Risk management and the mutual funds:

The basic objective of a mutual fund is to provide a diversified portfolio so as to reduce the risk in investments at a lower cost. The mutual fund industry worldwide is based on this premise. Investors who take up mutual fund route for investments believe that their risk is minimized at lower costs, and they get an optimum portfolio of securities that match their risk appetite. They are ignorant about the diverse techniques and hedging products that can be used for minimizing the market volatility and hence take the help of 4 6

the fund managers. It is very daunting to note that the drop in the NAV of some of the schemes is higher than the erosion of value in some of the ICE stocks. The recent survey conducted by PricewaterhouseCoopers (PWC) on risk management by mutual funds has posted interesting as well as worrying results. According to the survey, as many as 50 percent of the respondent mutual funds are not managing risk properly. If this is not all, 50 percent of the respondents did not even have documented risk procedures or dedicated risk managers. The respondents included among others, some of the heavyweights of the Indian MF industry viz. Templeton, Alliance, Prudential and IDBI Principal MF.

Worrisome news it is, for the investor who still believes MFs are a route to manage ones money in a better and safe manner. The recent wild movements in the NAVs of several equity funds have belied all expectation of a diversified portfolio from the fund managers when the basic tenet behind portfolio management is risk management. Mr. Shyam Bhat, Fund Manager-Tata asset Management Ltd. said Indian Mutual fund industry is not using statistical techniques of risk management but is using diversification effectively within the market limitations. As far as use of derivatives is concerned, they are not presently used because of the low volumes, low liquidity and absence of sufficient hedging products in the market .

Aggression has been the key word followed by the AMCs when it comes to taking positions in stocks. With investment in volatile ICE sectors being the driver of growth last season, almost everybody had taken big exposures to them. Birla MF maintained its exposures in Infosys to almost 25 percent in all of its equity schemes throughout last

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year. The same is true of ING Savings Trust that has Rs. 60 crores invested in Wipro and Infosys out of the total fund size of 135 crores in its growth fund. The result of these exposures is that the fund witnessed a movement of almost 9 percent in a single day on budget when the market saw an appreciation of around 4.36 percent. In their quest for growth, many funds have seen very volatile movements in NAVs. The investor confidence may not be lost but such volatility sure dents it. The point is not whether AMCs should be chastised or not but just to question the practices as the fate of many investors is linked to it. An ordinary investor considers mutual funds as the experts in investment decisions and so naturally expects the decision of investing in mutual funds to bear fruit. However, AMCs often leave a lot to be desired as they falter on important fronts like NAV and portfolio disclosure besides posting high fluctuations and poor returns.

The Beta of some of the favorite stocks is shown below. The Table contains the Beta of some of the ICE scrips that constitute the top 10 holdings across various equity funds.

DSQ Software Ltd. Satyam Computer Services Ltd. SSI Ltd. Wipro Ltd. Himachal Futuristic Communications Ltd. Global Tele-Systems Ltd.

2.09 2.00 1.98 1.87 1.82 1.81

Taurus Libra Leap (5.68%), DSP ML Tech. (6.06%) ING Growth Port (11.2%), Alliance Equity Fund (9.7%), Chola freedom Tech (11.51%) IL&FS eCom (9.63%), LIC Dhansamridhi (9.18%) ING Growth (23.8%), Magnum Sector Fund -Infotech (15%), Alliance Alliance New Millennium (10%) UTI Sector- Services (9.48%), Taurus Discovery Stock (10.45%) UTI US 92 (7.02%), ING Growth Portfolio (3.8%) 4

Zee Telefilms Ltd. Infosys Technologies Ltd.

1.70 1.54

UTI Sector- Services (7.21%), ING Growth Portfolio (10.06%), ING Growth Portfolio (20.5%), Alliance New Millennium (11.5%)

As can be seen, some of the stocks are too volatile and can cause wild movements in the NAVs of funds that have taken exposures in them. The standard deviation of the returns in some of these funds points to it. While Alliance Equity Fund has a Standard Deviation of 2.53, Birla Advantage has its Standard Deviation at 2.57. ING Growth has a standard deviation of 3.3, which is relatively high due to its exposure to two volatile ICE scrips. Birla Advantage has reduced its exposures to Infosys drastically in the last two months and taken steps to contain volatility. Similar steps are being planned by SBI Mutual Fund that is recasting its equity portfolio to reduce risks as they can scare investors. It is unfortunate that the fund managers are not taking due care for minimizing the risk and are in a race to post higher and higher returns during the phase of bull-run. They should understand that the investors forget the high returns posted in any specific period very soon but they take hell lot of time to forget the burns they get during periods of losses. Hence for maintaining the confidence of the retail investors it is very important to control wild fluctuations in the NAVs. The basic technique of portfolio management thrusts on diversification, which preaches inclusion of negative beta, stocks in the portfolio so as to minimize the impact of fluctuation in the market. Diversification always has a cost and investors are willing to pay for it if it is properly done. The fund manager should disclose what they are doing at the hedging front. They should come up and tell their investors as to what they do at times of high fluctuations. Normally it has been seen that they outperform the broad market indices during the bull-runs and under-perform the 4 9

indices during the bear-phases. The industry needs to revise their attitude and try to streamline their actions with their objectives. Some mutual fund houses are quite disciplined but every body should embrace the same spirit. There are some infrastructural problems but fund managers need to be more vigilant on the market movements. Mr. Bhupinder Sethi, Fund Manager - Dundee Mutual Fund said We are actively monitoring the market movements and taking calls accordingly. Though we are presently not using derivatives for hedging of risk because of lack of depth in the market for the product, but we go into cash when we see the expectations of huge corrections coming in.

Poor performance, poor servicing to clients and failure of third party service providers, are the three major risk factors identified in the survey by PWC. These are also going to be crucial in a rapidly growing competitive scenario. Under this setting, it is not just growth that should be the focus area but also better management of all risks and hence, AMCs would do well to keep the investor and his interest in mind before taking any decision.

When to say goodbye to your Mutual Fund:

While there are many investment consultants, some by profession, some self-professed, who suggest on when to invest in a particular avenue, there is a certain paucity of people who talk of when to exit. People looking to invest get in many options and mutual funds happen to be one such preferred destination for people who want more returns than their fixed deposits would earn them. Its also a preferred option for the people who are circumspect about investing into stocks directly and believe that mutual funds can manage risks and funds better than they could. 5 0

The recent crash will have several lessons for the investor but will not drive them away from the mutual funds in the wake of falling returns because they still are among the best investment avenues available to them. The primary of the lessons learnt is, not to chase returns. One of the biggest flaws in the process of investing is to chase the performance of funds alone. While they do give an indication to how well a fund can perform, they remain just indicative, for all good reasons. Take for example, the case of several equity funds that were riding sky-high between October 99 and March 2000. Alliance Equity Fund posted absolute returns of 168 percent between October 1, 99 and March 7, 2000. Birla Advantage posted 125 gains and ING Growth Fund posted mind-boggling returns of 193 percent during the same period. The recommendation by the consultants still remained "buy". However, investors who chased the returns of these schemes have learnt the bitter and eternal truth that "what goes up must come down", the hard way. These funds have posted negative returns of 64 percent, 61 percent and 82 percent respectively since peaking on the same day, March 7, 2000. And so, while chasing hot funds might be a good idea in a market that has started to rise, it certainly is a sure recipe to doom in a peaking market. The only people to have gained from investing in these schemes were the ones who exited while it was still profitable.

The others did not know when to exit and so we are just trying to put forward some situations when the investor should consider withdrawing their investments from the funds.

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Fund is not performing:

This reason for selling, although valid in certain conditions, is where most investors make a mistake. When calculating performance one shouldnt look at too short a period and make a mistake by comparing apples to oranges. It is important to base the decision on relative performance and not absolute performance. When one fund is down 5% while other funds or the market in general are up 10%, it is very tempting to switch over to what is "hot." Chasing Performance is the best way to shoot oneself in the foot as we just discussed above.

When studying relative performance, one should look at his fund and compare it to its peers. However, comparisons should be drawn between parallels and so equity funds can not and should not be compared with debt funds. When choosing a benchmark, one must select funds in the same category. If ones fund was down 2% and the average equity fund was down 4%, then there is no good enough reason to sell it. One should compare the returns posted by his fund with that of the peers across various horizons such as 1year, 3-year and above. A short-term view can often lead to committing hara-kiri, as it doesnt present the full picture. If it has underperformed the average of its peers in all cases, then it sure is one of the better reasons to exit from the fund.

A change in life stage: Investments are done with a certain objective in mind and life stages are often a determining factor of what a person needs. A young man can afford to take more risks than a person nearing his retirement can. In such cases, it pays to withdraw money from 5 2

the equity investments made earlier and put them in safer, more conservative debt funds that offer stable returns without compromising on risk. So a change in life stages would be one such reason to consider switching into a fund that matches with ones needs. As one nears retirement, one might want to consider more conservative funds. If one gets married, one might need to compromise ones risk tolerance and desired returns with that of the spouse. This could trigger off the need to exit.

A major change in any basic attribute of the fund:

When the fund changes any basic attribute as mentioned by it in its offer documents, the investors have a choice of getting out of it. Even SEBI has provided for an exit route being made available to the investors. Changes like a change in Asset Management Company or in investment style of fund or change of structure say from closed-end to open-end etc. are good enough reasons for an investor to consider switching or exiting from it as they are certainly likely to affect the fund in a major way.

Fund doesnt comply with its objective:

One of the important parameters in the selection of the fund is alignment of the risk profiles of the investor and fund. The objective of the fund says a lot about how the fund plans to invest. If the objective is not being complied with, it is one of the exit points worth considering. For example, the three funds discussed above, Alliance Equity, Birla Advantage and ING Growth all claim to be diversified equity funds yet they had huge exposures to select ICE sector scrips that not only added volatility than is expected out of diversified funds but also in a way, went against their stated objective. 5 3

The Fund's Expense Ratio Rises:

A small rise in an expense ratio is not a big deal, however a significant rise can result in substantial reduction of yields and so it would be better to exit the fund. In the case of bond funds or money market funds, it is highly unlikely that the fund can increase its returns enough to justify an increase in the fund's expenses.

The Fund Manager Has Changed:

A simple change of fund managers, in itself, is not enough reason to sell a fund on a short-term basis. If it is a passively managed fund (index fund), then one has little to no reason to worry. However, if it is an actively managed fund, then has to keep the eyes open on the new manager. Observing the styles, stock picking and risks undertaken by the new manager is important for it discloses a lot about how the fund might fare in the future. If satisfied, one will have no reason to complain later but the process needs time and so an investor has to observe the fund manager for some time before one takes a decision.

Enough has been earned:

However, nothing is as important as to rein the horses in time. The primary principle

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behind safety of investment is to take risks that can be tolerated. The principle also is specific on the expectations that the investor must have from any investment. Just as it is important to set realistic targets that one hopes to achieve from the investment, it is also important to exit when target as expected has been achieved irrespective of the fact that it might be generating better returns in a short-term. Waiting longer might not prove beneficial, as one need not be lucky all the time. Equity investments are volatile and it doesnt take long for the moods in the markets to swing either way. So, it would only be wise to move out when the going is still good. Otherwise, the investors sanguine of generating even higher returns than what the fund generated in its peak days would be cursing themselves for not exiting.

Current Market Scenario:

The first quarter of FY 2005-06 will go down in history as a record-breaking quarter as the markets kept on breaking the records day after day and for the first time in history the Sensex crossed the 7K mark. FIIs have been pouring money into the markets like never before. The MFs though could not beat the markets but overall it gave much higher returns than the dismal returns it gave in the previous quarter. Just to put some figures for the readers, this time the broad based indices Nifty and Sensex gave 11.38% & 12.73% returns for the quarter respectively. While the equity diversified schemes could manage to give only 9.1% return on an average for the quarter.

In the previous quarter Nifty was 2.16% down and Sensex was down by 1.67%. The diversified equity schemes on an average could manage only 0.85% returns. Considering

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this show we can say they gave a stellar performance this time. Like the last quarter this time too the FMCG sector stole the show among the sectoral schemes. While the FMCG schemes gave returns close to 17%, BSE FMCG gave a return of 25.08%. This again proved that the markets had left behind the schemes across the board.

Among the other sectors, IT schemes generated a return of 11.07% and Pharma schemes gave 11.6% returns to their investors'. Among the other categories balanced group gave return of 6.48% for the quarter. These schemes gave a return of 0.77% in last quarter. MIPs gave a return of 9.81% on an annualized basis for the quarter and this group of schemes was at 3.15% in last quarter. Income schemes also showed improvement but the jump was not that huge. Like last quarter this quarter also had many IPOs and most of them were in the midcap segment.

The AUM of the industry also rose by 10% over the quarter and stood at Rs. Rs.165332.345 crores at June end. This was a huge jump considering the fact that the AUM had fallen in last

Experts are even more bullish on the market, with good monsoons and good corporate earnings, people are expecting that the bull run will go on and so it will time for reaping the benefits for the investors' who have kept the faith.

The schemes were analyzed on 1 year and 3-year period based on various parameters to judge the best scheme after being categorized under different categories based on their

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investment style and stated objective. The performance analysis and suitability for investment was judged on he basis of attributes like the fund size, average maturity, liquidity, portfolio turnover and portfolio diversification judged on the basis of companies and across sectors apart from risk and return parameters. Risk adjusted return was calculated on the basis of an internally developed model called Investor Expectation Ratio (IER) which counts the performance of the scheme on the basis of the return posted by the fund house benchmarked against the general expectation of the investors. The expected return was calculated as the average return posted by the peer group, which was finalized on the basis of investment style. The second parameter, which was a deviation from classical measure of calculating risk, was the downside deviation of the return posted by the scheme from the peer group return. In nutshell IER denoted the premium that the scheme had provided over the risk assumed by the scheme.

Equity Schemes:
Aggressive Equity funds: In the one-year time frame 44 schemes were analyses in this category this time and four managed the MFR 1 positions. Like the last two times SBI Magnum Global Fund 94 remained unaltered at the top. Among the four, Alliance Buy India Fund moved to the MFR1 spot this time from MFR 2 replacing UTI Dynamic Equity Fund, which moved to MFR 2. The other two at MFR 1 were SBI Magnum Sector Umbrella - Contra and Sundaram Select Midcap.

SBI Magnum Global Fund 94 didn't deviate much from its winning strategy, and as per last time kept its highest exposure in electrical and electronic equipment sector. Havells

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India Limited in this electronics sector had taken up 4% of its net assets. Computers and software sector followed the electronics sector. United Phosphorus was its top holding over the quarter and it generated a return of 12.51%. Its corpus had doubled over the quarter and at June end stood at Rs. 265.73 crores. But very surprisingly, the fund manager had been reducing the equity exposure over the quarter.

Another scheme from the SBI stable, SBI Magnum sector Umbrella - Contra had again this time changed its sector allocation from housing to auto and anciliiary sector. It had almost 15% exposure to this sector. Electrical and Electronics sector followed this sector. It's NAV appreciated by 13.13% over the quarter and the fund size inflated from Rs. 205.8 crore to Rs. 349.04 crore. Over the quarter its highest exposure remained in Zee Telefilms Ltd. Sundaram Select Midcap like last quarter had retained its highest exposure in engineering and industrial machinery sector followed by the auto and anciliiary sector. Over the quarter its highest exposure was in Lakshmi Machine Works Ltd. this scheme had a growth of 26% in its corpus and its NAV appreciated by 10% over the quarter.

Lastly looking at the new entrant Alliance Buy India Fund, this scheme is basically a sectoral scheme and caters to the FMCG sector and due to this reason it gave a high return of 25% to its investors. Pantloon India Retail had highest exposure over the quarter and similarly textile sector also had the highest exposure. This scheme though had a minor increase in the fund size.

In three year 22 schemes were analyses and two schemes got to top here and both were

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new in some way as Franklin India Prima Fund, which was at the top last time also had change in category from defensive to aggressive. The other one, which came to top, was SBI Magnum Sector Umbrella - Contra, which came up from MFR3 spot to the top. These two replaced Alliance Basic Industries and HDFC Capital Builder to MFR2 spot from the top spot, which they attained last time. Franklin India Prima Fund, a midcap scheme, had highest exposure in Indian Rayon & Industries Ltd. Like last quarter it had highest exposure in Auto and Anciliiary sector. This scheme had a rise of 22% in its corpus and provided investors with 10% absolute return over the quarter. Defensive Equity Funds:

In one year, in this group 34 schemes came into scrutiny this time and all the three last timers retained their positions. Reliance Growth, Alliance Equity and Pru ICICI Dynamic Plan kept the ranks assigned by ICRA/ICRA Online are based on an objective analysis of information obtained from the entities concerned as also other sources considered reliable by ICRA/ICRA Online. However, the ranks must be construed solely as statements of opinion and ICRA/ICRA Online shall not be liable for any losses incurred by any user from any use of the ranks. Also, the ranks are neither a certificate of any statutory compliance nor any guarantee on the future performance of the ranked entities/schemes.

An entity wishing to use the ICRA Online Mutual Funds Rankings for any publicity or in its prospectus / offer document / promotional literature / advertisement or wishing to

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re-disseminate these rankings may do so only after obtaining the written permission of ICRA / ICRA Online.

Templeton MF - Top rung companies in the sector offer good growth potential:
International
Global markets weathered the impact of Hurricane Katrina and record oil prices, helped by increased flows and expectations that the US Federal Reserve might curtail its interest rate increases. Helped by gains across the world, the MSCI World Index added 1.91%. Mixed economic data and speculation about Federal Reserve's future rate increases, resulted in the US dollar declining against major currencies. The disruption caused by Katrina exacerbated the already weak sentiment towards the dollar due to a recent spate of lower-than-expected economic numbers. The Federal Reserve's Major Currencies Dollar Index declined by 1.10%. Japanese markets continued their upward march helped by increase in approval ratings for Prime Minister Koizumi before the upcoming elections. The rise has come despite concerns for exports due to mixed US economic data and numbers showing that industrial production in Japan declined in July. The Nikkei 225 average added 1.29% for the week. South Korean markets bounced back during the week helped by economic news in the form of increased exports, improved business sentiment and low inflation. The Kospi rose by 2.69% during the week, while the MSCI Asia Pacific Index moved up by 1.03%.

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European markets moved up led by energy stocks, which could benefit from further rise in oil prices due to disruption of supplies in the Gulf of Mexico. On the economic front, the ECB cut its forecast for growth in the region and kept interest rates unchanged, while Germany reported an unexpected drop in retail sales in July. Novartis offered to buy the 58% of shares it does not already own in Chiron, while ABN Amro announced what is thought to be one of the biggest-ever outsourcing deals. Old Mutual, the South African financial services group, made a long-awaited bid for Sweden's Skandia. The FTSE Eurotop 100 was up by 1.73%. US markets withstood the shocks from the hurricane and global oil prices declined after the US government indicated that they would tap into the Strategic Petroleum Reserve. Manufacturing data was weaker than expected and factory orders fell, but the jobs report for August indicated continued strength. The non-farm payrolls increased by a seasonally adjusted 169,000 in August, while the unemployment rate fell to 4.9%. The Dow Jones and S&P 500 rose by 0.48% and 1.07% during the week respectively, while Nasdaq rose by 0.96%.

Domestic markets bounced back during the week helped by increased buying by both domestic and foreign institutions. After opening on a weak note on Monday, major indices rallied sharply on Tuesday and the momentum was maintained for the remainder of the week. The auto sector was in the limelight after the Finance Minister hinted that the government would be revisiting the tax structure for smaller cars. The government also announced that the Cabinet Committee on Economic Affairs (CCEA) has approved the sale of 8% government equity in Maruti Udyog Ltd to public sector banks and financial institutions. At present, the government holds a stake of 18.28% in the

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company. Cement companies attracted buying on news of increased dispatches and ONGC announced a major gas discovery in the Krishna-Godavari basin. As per the latest reports, rains in August were 21% below normal but rainfall as a whole in the first three months of the season starting June was 94% of the long-period average, indicating near normal performance. The BSE Sensex added 2.86% for the week, while the Nifty moved up by 2.49%. On the other hand, CNX Midcap rose 2.9%. FII inflows were to the tune of $218.6 million in the first four trading days. The consolidation being witnessed in the global generics industry in recent times (Teva & Sandoz), appears to have had an impact on domestic pharmaceutical companies. The sector has been rife with M&A speculation with reports indicating that Ranbaxy & Wockhardt are targeting Alpharma, while Sandoz was in talks with Cipla (denied by the latter). Lupin and Torrent have reportedly put in bids for Polish drug major - Jelfa. Indian companies are looking at acquisitions in Europe given the fragmented market and acquisitions would provide scale, access to existing dossiers, drug master files, and USFDA approved facilities.

We had always maintained that the larger companies in the technology sector are better positioned to take advantage of the global outsourcing trend due to their management & process strength, brand equity and scale of operations. And the fact that global companies have been setting up Indian operations was an indication of the growing stature of the domestic sector. All these factors were reflected in the recent ABN Amro deal, which saw the Dutch financial services group announce one of the biggest outsourcing deals in Europe, giving the Indian IT sector (TCS, Infosys & Patni) lucrative contracts in a five6 2

year programmer. We believe that this deal could be a turning point for the domestic sector, and indicates that Europe is becoming an important growth driver for the sector and larger size deals will start coming to Indian companies going forward.

Overall, we continue to believe that the top rung companies in the sector offer good growth potential over the medium to long term, even though margins are likely to come down due to the dynamics in the sector.

Debt Markets India

Domestic markets rallied during the week helped by easy liquidity and a drop in US Treasury yields. The wholesale price index fell in the week ending August 20th, mainly due to a fall in some food and chemical product prices. The annual rate of inflation, stood at 3.08% as against previous week's 3.13%. The less widely tracked consumer price index (CPI) rose in July to 4.06% from 3.32% in June due to a rise in food prices. The yield on the 10-year benchmark, 7.38% 2015, eased to 7%. The spreads between 1 and 30-year gilts contracted to 181 bps and the yield on benchmark 7.5% 2034 for long-dated gilts closed at 7.48%. The yield on the 5-year AAA rated corporate debenture benchmark fell to 7.10 % and the corporate spread over gilts remained 50 bps. Liquidity remained easy despite the auctions and the increase in the notified amounts for the 91-day T-bill issuances, due to coupon and interest payments. The amount placed under RBI's reverse repots averaged at Rs.26, 709 crores and 6 3

the call rates closed at 4.8-5% on Friday. The government announced the sale (reissue) of 5.69% GOI 2018 for a notified amount of Rs.5,000 crores and the sale of a new 30-year Government Stock for a notified amount of Rs.3,000 crore, on September 8th. The latter would be through a yield based auction using uniform price method. The fiscal deficit for the month of July rose sharply to Rs.22,963 crores and on a year-on-year basis, the cumulative deficit grew by around 53.74% as of July end. The fiscal deficit for the Apr-Jul 05 period touched Rs.77,480 crores, which is around 51.3% of budget estimates. The revenue deficit for the same period was Rs.68, 929 crores which is 18.7% higher compared to last year and amounts to around 72.3% of the target for FY 06. The rupee bounced back during the week on portfolio inflows and weakness in the US dollar overseas. While concerns remained over the impact of rising oil prices on trade deficit, pressure on the currency due to month-end dollar demand eased in the new month. The rupee closed at 43.8650/8750 per dollar. The forex reserves rose by $623 million, to close at $143.841 billion as on August 26th.

Mixed economic data, oil prices and impact of Hurricane Katrina are making the probability of an inverted yield curve in US, where yields eased considerably during the week. Back home, the quantum of hike in oil prices will be keenly observed next week. The deterioration in fiscal conditions as per the July numbers has been largely due to the discontinuation of the debt swap, which has resulted in non-debt capital receipts

6 4

declining. Government's finances could be impacted as - oil companies might not be able to provide dividend payouts as their profits decline, the employment guarantee bill and the suspension of PSU divestment. Hence, we believe that along with high oil prices/inflation, the state of public finances will also be a key factor in the debt markets going ahead.

INTRODUCTION TO ICICI PRUDENTIAL MUTUAL FUND

ICICI Prudential Mutual Fund offers a wide range of retail and corporate investment solutions across different asset classes like Equity, Fixed Income, Real Estate and Gold. It has been voted as the Most Trusted Mutual Fund Brand in by Brand Equity (in their 2009 Most Trusted Brand Survey (Conducted by The Economic Times Intelligence Group and The Nielsen Company).Year after year, the Fund has been consistently 6 5

winning many awards in the industry at the Fund House and Scheme Levels, the most recent ones being:

India Debt Fund House for 2009 by Morningstar The CNBC TV18 - CRISIL Mutual Fund of the Year Award 2009 in the Category Debt Mutual Fund House of the Year

The organization today is an ideal mix of investment expertise, resource bandwidth & process orientation and endeavours is to bridge the gap between savings & investments, to help create long term wealth and value for investors through innovation, consistency and sustained risk adjusted performance.

ICICI mutual fund:

Equity Funds Balanced/hybrid Funds Fixed income Funds Advisory series(FOF) Exchange Traded Funds

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 Equity Funds:
ICICI Prudential Focused Bluechip Equity Fund
Diversification is needed to reduce risk, but too much diversification can result in diminishing returns. Therefore, it makes sense to strike a balance between minimum risk and maximum returns, which is what a focused fund does. By investing in the largest

6 7

companies because of an outlook that they will be the most stable through any situation, it strives to grow your wealth in the long run.

ICICI Prudential Focused Bluechip Equity Fund, an open-ended equity scheme, aims to maximize long-term total returns, from a focused and optimally diversified portfolio that is invested in equity and equity related securities of about 20 companies belonging to the large cap domain. This strategy has the potential to generate positive returns from being overweight on certain high conviction stock picks.

Investment Philosophy
This fund invests in about 20 equity and equity related securities, and seeks to generate long term capital appreciation. The portfolio is mandated to select stocks from among the Top 200 stocks in terms of market capitalization on the NSE. This fund adopts a bottomup approach to Stock Selection and the fund manager has the flexibility to choose between stocks across all themes, sectors and investment styles.

Investor Profile
This fund is ideal for

Investors looking at the comfort of investments in large-cap companies. Investors seeking the benefits of concentrated bets on the stock ideas by way of potentially higher returns.

Key Benefits

Higher Liquidity due to broader investor participation Relatively lower volatility compared to mid and small cap stocks Large caps generally recover faster than small and mid cap stocks Benefit of optimal diversification strategy targeted at long term capital appreciation. 6

 Balanced/Hybrid Mutual Fund:

Hybrid Schemes or balanced schemes bridge the gap between equity and debt schemes. This category is characterized by a portfolio that is made up of a mix of equity stocks and bonds and will suit investors looking for debt plus returns with higher levels of risk than fixed income schemes. ICICI Prudential Balanced Fund: Medium term investment of funds is a portfolio of equity (minimum 65%) and debt aiming for capital appreciation. ICICI Prudential Child Care Plan(Study): For your child between 13 17 years and on the threshold of higher studies. ICICI Prudential Child Care Plan(Gift): For your child between 1 - 13 years and seeking to save over a long term horizon. ICICI Prudential Blended Plan A: Opportunity to enhance returns from a blend of equity & equity arbitrage (at least 65%) and low volatility returns from short term debt.

Fixed Income Funds: Fixed Income Schemes primarily invests in bonds and other debt instruments, and will suit investors who want to optimize current income assuming low to moderate levels of risk. ICICI Prudential Liquid Plan: Very short term parking of idle surplus cash that offers steady returns potential and high liquidity with zero mark to market risk. ICICI Prudential Flexible Income Plan: Short term parking option, seeking liquidity and returns on short term surpluses.

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ICICI Prudential Ultra Short Term Plan:Medium term investment seeking returns linked to fixed income markets, without taking significant price risk.

ICICI Prudential Floating Rate Plan:Short term deployment of surplus funds with potential of earning accrual returns from a fund with allocation to good credits.

Advisory Series(FOF): Advisory Series is an open ended asset allocation fund, in the nature of a Fund of Funds. Its five investment plans have been specifically designed to suit the varying needs of different investor categories based on their risk profiles, return expectations and investment goals. By investing in the specified Plans under the Fund, an investor can balance investments across a mix of three asset classes viz., Equity, Debt and Gold and take advantage of the benefits of diversification. ICICI Prudential Advisor Aggressive:For aggressive investors willing to take risk in terms of sectoral concentration as well as in the types of securities that one holds. ICICI Prudential Advisor Cautious:For investors willing to accept a small amount of risk yet looking for a modest rate of returns. ICICI Prudential Advisor Moderate:For investors willing to take risk as a natural part of investment when seeking higher returns on investment. ICICI Prudential Advisor Very Aggressive:For very aggressive investors seeking higher returns and having appetite for higher investment risks and market fluctuations. Exchange Traded Funds: Exchange Traded Funds (ETFs) are instruments that track an index, a commodity or a basket of assets as closely as possible, but trade like shares on an exchange. They are backed by physical holdings of the commodity, and invest in stocks of companies, precious metals or currencies. ETFs give you the flexibility to buy and sell units throughout the day, on an exchange. 7 0

ICICI Prudential SPICE Fund:Securities comprising the SENSEX upto 100% & Upto 10% in Money market instruments , convertible bond. ICICI Prudential Gold Exchange Traded Fund:ICICI Prudential Gold Exchange Traded Fund, an open-ended exchange traded fund, aims to provide investment returns.

BOARD MEMBERS

Board Members Mr. N. Vaghul, Chairman Mr. Uday M. Chitale Mr. Sridar Iyengar Mr. Lakshmi N. Mittal Mr. Anupam Puri
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Mr. Vinod Rai Mr. Somesh R. Sathe Mr. M.K. Sharma Mr. P.M. Sinha Prof. Marti G. Subrahmanyam Mr. T.S.Vijayan Mr. V. Prem Watsa Mr. K.V. Kamath, Managing Director & CEO Ms. Lalita D. Gupte, Joint Managing Director Ms. Kalpana Morparia, Deputy Managing Director Ms. Chanda Kochhar, Executive Director Dr. Nachiket Mor, Executive Director

BOARD COMMITIES

Agriculture & Small Enterprises Business Committee Mr. N. Vaghul Mr. Somesh R. Sathe Mr. P. M. Sinha Mr. M. K. Sharma Audit Committee Mr. Uday M. Chitale Mr. Somesh R. Sathe Mr. M. K. Sharma
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Board Governance & Remuneration Committee Mr. N. Vaghul Mr. Anupam Puri Mr. M.K. Sharma Mr. P.M. Sinha Prof. Marti G. Subrahmanyam Business Strategy Committee Mr. N. Vaghul Mr. Anupam Puri Mr. M. K. Sharma Mr. P. M. Sinha Mr. K. V. Kamath Credit Committee Mr. N. Vaghul Mr. Somesh R. Sathe Mr. M.K. Sharma Mr. K. V. Kamath Fraud Monitoring Committee Mr. Uday M. Chitale Mr. M.K. Sharma Mr. K.V. Kamath Ms. Kalpana Morparia Ms. Chanda D. Kochhar Risk Committee Mr. N. Vaghul Prof. Marti G. Subrahmanyam Mr. Uday M. Chitale Mr. V. Prem Watsa Mr. K. V. Kamath Share Transfer & Shareholders'/ Investors' Grievance Committee Mr. Uday M. Chitale Mr. Somesh R. Sathe Ms. Kalpana Morparia Ms. Chanda D. Kochhar
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Committee of Directors Mr. K. V. Kamath Ms. Lalita D. Gupte Ms. Kalpana Morparia Ms. Chanda D. Kochhar Dr. Nachiket Mor Asset-Liability Management Committee Ms. Lalita D. Gupte Ms. Kalpana Morparia Ms. Chanda D. Kochhar Dr. Nachiket Mor

RESEARCH METHODOLOGY
Research refers to search for knowledge. One can also define research as a scientific and systematic search for pertinent information on a specific topic. It is an art of scientific investigation. Research Methodology:It is the way to systematically solve a problem. The methodology adopted in this study is explained below: Research Design

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A. Problem Defining: In a competitive situation with multiple mutual funds operating in Indian market, it is necessary to know about the performance of different mutual funds as the performance of mutual fund decides about the future of Mutual Fund Company. In this study my focus is upon performance of investors regarding ICICI Prudential Mutual Fund . This is my problem to be studied for research. B. Literature Survey: I have used newspapers, magazines related to business & finance & apart from websites. C. Type of research: The research is qualitative & descriptive in nature. Qualitative research is that talk about the quality of the subject to be researched and Descriptive research is one that describes things as exists in present. D. Data collection Design: I. Sources of data = Primary Sources I have used questionnaire as primary source for collecting data for my study. Secondary sources I had collected my secondary data from websites & journals.

II. Sampling =

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It represents whole population. It is the processes of choosing a sample from whole population .I have choose a sample of high class & middle class people who have invested in mutual funds as a sample. III. Tools = I have used some charts (Pie chart, column chart, cylinder chart, cone chart). IV. Sampling Size = It represents that how many candidates youve chosen to be filled up your questionnaire or candidates upon whom you can study. I had chosen sample of 100 candidates. V. Sampling Techniques = Deliberate & Convenience Sampling. VI. Data Interpretation = Data interpretation is that in which we analysis the whole collected data & tries to give it in simple words to be understandable.

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ANALYSIS AND INTERPRETATION

1. Do you invest your money? .

YES NO

100 0

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120 100 80 60 40 20 0
YES NO

100

Interpretation:All the candidates who are asked to fill the questionnaire have invested in mutual fund. 2. Where do you invest your money? Options a) b) c) d) Banks Shares Mutual funds All of those 62 10 24 04 No. Of Users % of Uses 62% 10% 24% 04%

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The above data & graphical representation shows that a major percentage is 62% of people invest in Banks.

3.

Why do they invest? Reasons No. Of Users 34 10 36 20 % of Users 34% 10% 36% 20%

e) f) g) h)

Returns Safety Tax Saving Future requirement

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The main reason of investment is tax saving 36% of people agreed with this.

4.With which company do you have invested in mutual funds?

HDFC ICICI Reliance SBI LIC Kotak Mahindra Others

45 25 10 7 7 0 9 8

Interpretation: Out of 100 candidates up to 45have invested in mutual fund with HDFC & 25 have invested with ICICI and rest have small share.

5.What is your income? (Yearly based)

1 lakh 2-4 lakh 4-5 lakh More than 5

0 10 20 70

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Interpretation: Up to 70 investors have income more than 5 lakh. 20 have between 4-5 lakh.10 investors have income between 2-4 lakh & there is no investor who have income up to 1akh.

6.From where you come to know about this companys mutual fund schemes?

Family & relatives Friends & peers Company employee Others

35 40 15 10

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Interpretation: Many investors (up to 40) have been come to know about the company to be invested by their friends & peers.35 have been known by their family & relatives .15have been come to know by company employees & 10 by others. This means many have come to know by their friends & peers.

7.What is the time duration of your investment?

0-1 year 1-2 year 2-4year more than 4

15 35 30 20

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Interpretation: 15 investors have time of investment less than one year. 20 have time duration of their investment between of 1-2 year. 30 have between 2-4 year & 35 have more than 4 years. So, we can say that 35 investors have more experience than others.

8.Are you satisfied by service of the companys employees / peoples behavior?

Highly satisfied Satisfied Neutral Dissatisfied Highly Dissatisfied

15 35 30 15 5

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Interpretation: Out of 100 investors 15 are highly satisfied. 35 are satisfied. 30 are neutral towards employee behavior of a company. 15 are dissatisfied. 5 are highly dissatisfied. We say that many people are satisfied by employee behavior.

9.What you feel about the company norms, documentation & formalities?

Highly Satisfied Satisfied Neutral Dissatisfied Highly dissatisfied

15 25 40 15 5

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5% 15%

15%

Highly Satisfied Satisfied Neutral 25% Dissatisfied

40%

Highly Dissatisfied

Interpretation: 15% investors are highly satisfied by companys documentation policy (filling up the forms etc.). 25% are satisfied, 40% never cares about it or are moderate towards it , 15% are dissatisfied by it & 5% are highly dissatisfied.

10.Would you like to exchange your investment with one another?

Yes No

15 85

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Interpretation: 15 investors said that they would like to change their investment with each another between HDFC & ICICI. But 85 investors say that they are ok with their companies and they wouldnt like to exchange their investment.

Findings :
- In my research I have founded following things:-

Investors have more faith in Banks. The main reason for investing is Tax Saving.

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 As the age increases investors are much satisfied, see more risk & become more risk adverse. Old people &Widows prefer lower risk. Investors are not highly satisfied by company rules & employee behavior. Investors think that HDFC provides better returns than ICICI and other Mutual Fund Firms. People prefer to invest their money for a longer period i.e 2-4 years. Customers are Neutral with the company norms and documentation but they are satisfied with the behavior of the companies employees.

LIMITATIONS OF THE STUDY

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1. The major limitation of the study was to get appointments from corporate and bank executives. It took weeks to get appointments. Most of them refuse to give appointments for such study purposes. 2. The sample size was more and wide distributed. So there was some difficulty in data collection. 3. Sometimes some samples were not in favor of revealing their investment pattern as they considered it to be very confidential. It was difficult to get the exact answer from various customers.

Recommendations/Suggestions:

In my study I have found some limitations. For that I can suggest both companies following suggestions or areas of improvement:-

ICICI bank should try to provide better returns to its investors. It should try to invest in better securities for better profits. It should try to satisfy their customer by better customer service or by improving customer relationship management. Company should try to make people initiative towards risk. 8 9

 Investors should be made fully aware of the concept of mutual fund & all the terms and conditions and this is the duty of the employees working in the company. It should more emphasize in advertising, as it is the most Powerful tool to position ant brand in the mindsets of customers.

Conclusion: To conclude we can say that mutual fund is a very much profitable tool for investment because of its low cost of acquiring fund, tax benefit, and diversification of profits & reduction of risk. Many investors who have invested in mutual fund have invested with HDFC and them also thinks that it provides better returns than ICICI .There is also an affect of age on mutual fund investors like; old people & widows want regular returns than capital appreciation. Companies can adopt new techniques to attract more & more investors. In my study I was suppose to do comparative analyses the mutual fund of HDFC &ICICI and I had found that people consider HDFC better than ICICI. But ICICI have also respondents and it can increase its investors by improving itself in some terms.

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 To conclude we can say mutual fund is a best investment vehicle for old & widow, as well as to those who want regular returns on their investment. Mutual fund is also better and preferable for those who want their capital appreciation. Company are doing considerable achievements in mutual fund industry. There are also so many competitors involved those affects company.

Annexure
INVESTMENT MANAGEMENT CASE STUDIES HIGH NETWORTH INDIVIDUALS
CASE 1: MR. A

Profile of the Investor: MR. A HNI is a aggressive player in market with direct
investment in equities as well as through mutual fund route. He demands higher return on his investment so he is ready to take higher risk. He already had diversified his investment so he is not averse of loosing some of his capital for better returns.

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Recommendations:
1) As Mr. A was overweight on equity side both directly as well as through mutual fund route, He was advised MIP plans so as to provide him a cushion. As MIP plans generally go for 80% debt and 20% equity they provide good monthly returns along with safety of capital.

2) On 21/ 04/04 MR. A was advised investment in cash plus which was shifted to MIP II plan of Birla Mutual fund. The reason being that the IPO of MIP II which was coming on 29/04/04. In order to ensure that his money does not remain Idle for 10 days he was advised investment in cash plus so that he can easily shift to MIP II plan without any load and some return for 9 days.

3) In order to provide a good opportunity in equity funds he was advised investment in Birla Dividend Yield Plus (which invest in high dividend yield companies). He was advised to enter into BDYP at this point of time because some good dividends were expected to be declared by the companies in the month of June which could have further enriched his returns.

CASE II: Mr. B

Profile of the Investor: MR. B a HNI is also a aggressive player in market. HE likes
to play directly both in equity as well as Debt market. Though he is overweight on equity he is not convinced with the idea of MIP as he believes that he himself can manage his 9 2

portfolio the way it is managed I MIPs. He has already parked his investments in safer avenues so he wants to play in equity market. At this point of time he required money to construct his house and for his sons marriage.

Recommendations:
1) We can see in the portfolio he has been given recommendation in liquid funds. As he requires money to construct his house and for sons marriage, invest in liquid funds is a wise decision because liquid funds provide the opportunity to earn moderate returns of around 4- 4.5% a better return than savings and current account with maintaining liquidity and safety.

2) In order to avail Tax benefit he had invested in various avenues. HE was also advised investment in equity Plan which would not only provide him tax benefit but also high returns with long term growth of capital.

3) He was also advised Reliance power sector fund as at that point of time Govt. was bringing certain reforms in power sector. So this investment would fetch him a good returns.

CORPARATES

CASE III: Company X.

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Profile of the Company: X Ltd. A photocopier company has collection on daily

basis throughout India. They want to park their money in an investment option which can bring them some returns along with maintaining liquidity. They have a resolution form their board that they cannot park their money whole money in one single investment avenue.

Recommendations:
1) They have been advised investment in various liquid schemes of mutual funds. As all the liquid schemes provide more or less the same return schemes have been chosen on the basis of consistency of return and their expense ratio.

2) It has been advised dividend Reinvestment option in order to save short term capital gins tax.

CASE IV: Company Y. Profile of the Company: Y Ltd. wants to park their money in an investment option
which can bring them some returns along with maintaining liquidity. They want to continuously churn their portfolio. They also demand a avenue where they can get better returns then savings and current account.

Recommendations:
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1) They have been advised investment in various liquid schemes of mutual funds. As all the liquid schemes provide more or less the same return schemes have been chosen on the basis of consistency of return and their expense ratio.

2) It has been advised dividend Reinvestment option in order to save short term capital gins tax.

RETAILERS
CASE V: Mr. P

Profile of the Company: Mr. P is a NRI. He is a aggressive equity player in market.

He likes to invest small amounts in full range of diversified equities. He has a long term horizon. He is bullish about Indian Equity market he wanted to enter through mutual funds route.

Recommendations:
1) He has been advised various sector funds as well other equity schemes running successfully in the market which associate high risks along with providing handsome returns.

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2) As he is overweight with equity market he has been advised to take exposure in MIP plan so Franklin Templeton so that he can get some good returns along with maintaining safety of his capital.

CASE VI: Mrs. Q

Profile of the Company: Mrs. Q is an old lady, a widow. She has a capital of around 15- 20 lakhs. She wants to keep invested for long term and earn regular return on her investments along with maintaining safety of capital.

Recommendations:
3) They have been advised investment in various liquid schemes of mutual funds. As all the liquid schemes provide more or less the same return schemes have been chosen on the basis of consistency of return and their expense ratio. 4) It has been advised dividend Reinvestment option in order to save short term capital gins tax.

The most important objective of any investor is to generate return. Needs of return for every investor varies depending upon various factors such as: a) Risk profile of investor, period of investment etc. b) Time horizon be it short, medium or long term. c) Growth of capital as well as regular income. 9 6

d) Parking of idle funds and /or full time investment. e) Taxation benefits. f) Contingencies. One of the needs to invest in mutual fund is for the provident fund investors, who are required to generate around 9.5% return on their provident fund investments. Provident fund interest Provident funds are required to invest their money in securities issued by government or in the mutual funds with the portfolio containing government securities only. So the investors who are required to generate provident fund return can also invest in mutual funds.

Questionnaire
Name Age & Sex Address Q1 Do you invest your money? a. Yes b. No Q2.Where do you invest your money? a) Banks b) Shares c) Mutual Funds d) All of these

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Q3. If you want to invest in Mutual Fund then which type of fund will you prefer? a) ELSS b) Guilt Fund c) MIP d) Balanced Fund Q4. You invest your money for a) Returns b) Tax Saving c) Safety d) Future Requirement

Q4. Are you satisfied with services of ICICI? a) Not satisfied b) Satisfied c) Fully Satisfied Q5. How much you can invest in a month. a) Less than 500 b) 500-1000 c) 1000-2000 d) More than 2000 Q6. According to you which investment is better. a) Fixed Deposits b) Shares c) Mutual Funds 9 8

d) All of these Q7. With which company do you have invested in mutual funds? HDFC Reliance SBI Others Q8. . What is your income? (Yearly based) 1 lakh 4-5 lakh 2 - 4lakh more than 5 ICICI LIC Kotak Mahindra

Q9. From where you come to know about this companys mutual fund schemes? Family members & relatives Friends & peers Companyemplooyes Others Q10. What is the time duration of your investment? 0-1 year 2-4year 1-2 year more than 4 .

Q11. Are you satisfied by service of the companys employees / peoples behavior? Highly satisfied Satisfied Neutral 9 9

Dissatisfied Highly dissatisfied

Q12. What you feel about the company norms, documentation & formalities? Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied Q13. Would you like to exchange your investment with one another YES NO

BIBLIOGRAPHY
BOOKS:1. Consumers Behavior 2. Marketing Mgt. 3. Business Research Methodology 4. Marketing Mgt. 5. Marketing Research - By Schiffman - By Philip Kotler - By C.R. Kothari -By U.S. Ramaswamy -By Boyd, Westfall

Web Sites:WWW.Google.com 1 00

WWW.ICICI.com

Other Sources:Catalogues Magazines & Journals.

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