A PROJECT REPORT ON CUSTOMER PERCEPTION ON PERFORMANCE OF MUTUAL FUND WITH SPECIAL REFRENCE TO RELIANCE MUTUAL FUNDS (In partial

fulfillment for the award of degree of) Master of Business Administration OF Rajasthan Technical University, Kota

Jitendra Virahya s

JVIRAHYAS@GMAIL.COM SUBODH INSTITUTE OF MANAGEMENT&CAREER STUDIES, JAIPUR (2009-2010) STUDENT DECLARATION I, xxxxx hereby that I have completed the project report entitled customer percep tion on performance of mutual fund with special reference to reliance mutual funds from R.M.F Jaipur. Submitted in partial fulfillment of the requirement for the degree of masters of business administrative of RTU, Kota is my original work and not submitted for the reward of any degree, diploma, fellowship or any other similar title and it will not be used e lsewhere. I further declare that the information presented in this project is true and ori ginal to the best of my knowledge. Date: xxxx Place: Jaipur (MBA IV Sem)

ACKNOWLEDGEMENT I am indeed very happy to acknowledge the numerous personalities involved in len ding their help to make my project a successful one. Firstly, I would like to thank Reliance Mutual Fund for providing me the opportu nity to work on this project. I would like to thank my corporate guide Mr. H. Shan and all other staff of Reli ance Money for helping me in learning the lessons of professional management. His able guid ance and valuable inputs have helped me a lot in successfully completing this project. I express my sincere gratitude to my institute guide Mr. Jitendra Virahyas who t ook a lot of personal interest in supervising this project and guiding me. She has been a gre at source of inspiration in the task of completion of this project work. Her profound advice, timely guidance has been of immense value to me. I express my thanks to all the members of Reliance Mutual Fund, who gave me full fledged support throughout my project. I express my gratitude to all those peopl e, who have directly or indirectly helped me in the completion of this project xxxx MBA IV Sem

PREFACE Recently from the past few years, the financial service sector industry has show n a rapid rising trend. With the advent and augmentation of several privately sponsored hi gher return financial products viz. unit linked life insurance, mutual funds, post office et c. Are turning the investors towards themselves than to the schemes of investing in security ma rkets. In the present economic scenario, the investor has wide options available that are safe and give reasonable return too. This has been major factor in popularity of mutual f unds, ULIPs, Securities, Post Office deposits, NSC etc. Reliance Mutual Fund is one of the largest market players in India s Mutual Fund I ndustry s. Right from its launch it has made an impression in market and become successful only in 10 Years. Indeed, Mutual Fund is growing and accepting in present scenario since people is realizing risk coverage but also as a potential investment opportunity. This project is an effort to study of the customer perception on performance of mutual fund with spe cial reference to reliance mutual funds like real state, equity, fixed deposit in the market as well as to study its financial performance in the financial market.

CONTENTS COVER PAGE STUDENT DECLARATION ACKNOWLEDGEMENT PREFACE Page No. 1. INDUSTRY PROFILE 1 2. INTRODUCTION TO THE ORGANIZATION 44 3. RESEARCH METHODOLOGY 68 3.1. TITLE OF THE STUDY 68 3.2. OBJECTIVES OF THE STUDY 68 3.3. TYPE OF RESEARCH 69 3.4. SAMPLE SIZE AND METHOD OF SELECTING SAMPLE 70 3.5. SCOPE OF STUDY 72 3.6. LIMITATION OF STUDY 73 4. FACTS AND FINDINGS 74 5. ANALYSIS AND INTERPRETATION 76 6. SWOT ANALYSIS 94 7. CONCLUSIONS 96 8. RECOMMENDATION AND SUGGESTIONS 97 9. APPENDIX 100 10. BIBLIOGRAPHY 105

CHAPTER 1 -INDUSTRY PROFILE 1.1 OVERVIEW OF MUTUAL FUND INDUSTRY 1.1.1 INTRODUCTION TO MUTUAL FUNDS Mutual fund is a trust that pools money from a group of investors (sharing commo n financial goals) and invest the money thus collected into asset classes that match the sta ted investment objectives of the scheme. Since the stated investment objectives of a mutual fund scheme generally form the basis for an investor's decision to contribute mo ney to the pool, a mutual fund can not deviate from its stated objectives at any point of t ime. Every Mutual Fund is managed by a fund manager, who using his investment managem ent skills and necessary research works ensures much better return than what an inve stor can manage on his own. The capital appreciation and other incomes earned from these investments are passed on to the investors (also known as unit holders) in propo rtion of the number of units they own. 1

When an investor subscribes for the units of a mutual fund, he becomes part owne r of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as mutual fun d shareholder or a unit holder. Any change in the value of the investments made in to capital market instruments (such as shares, debentures etc) is reflected in the Net Asse t Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Funds sche me's assets net of its liabilities. NAV of a scheme is calculated by dividing the mar ket value of scheme's assets by the total number of units issued to the investors. Structure of a Mutual Fund 2

TYPES OF MUTUAL FUNDS There are many types of mutual funds available to the investor. However, these d ifferent types of funds can be grouped into certain classifications for better understanding. 3

WORKING OF MUTUAL FUNDS 4

1.1.2 HISTORY OF INDIAN MUTUAL FUND The mutual fund industry in India started in 1963 with the formation of Unit Tru st of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases First Phase 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It wa s 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 Ind ustrial Development Bank of India (IDBI) took over the regulatory and administrative con trol 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 se ctor banks and Life Insurance Corporation of India (LIC) and General Insurance Corpor ation of India (GIC). SBI Mutual Fund was the first non-UTI Mutual Fund established in Ju ne 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. 5

At the end of 1993, the mutual fund industry had assets under management of Rs.4 7,004 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, 199 3 was the year in which the first Mutual Fund Regulations came into being, under which all mutu al funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (no w merged with Franklin Templeton) was the first private sector mutual fund registe red 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 SE BI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual fu nds setting up funds in India and also the industry has witnessed several mergers an d acquisitions. As at the end of January 2003, there were 33 mutual funds with tot al assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets und er 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 w as bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust o f India with assets under management of Rs.29,835 crores as at the end of January 2003, repre senting broadly, the assets of US 64 scheme, assured return and certain other schemes. T he 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 t he Mutual Fund Regulations. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is reg istered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private s

ector funds, the mutual fund industry has entered its current phase of consolidation a nd growth. 6

The graph indicates the growth of assets over the years. GROWTH IN ASSETS UNDER MANAGEMENT 1.1.3 CLASSIFICATION OF MUTUAL FUNDS Wide variety of Mutual Fund Schemes exists to cater to the needs such as financi al position, risk tolerance and return expectations etc. thus mutual funds has Vari ety of 7

flavors, Being a collection of many stocks, an investors can go for picking a mu tual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below. BY STRUCTURE Open-end fund: The term mutual fund is the common name for what is classified as an open-end investment company by the SEC. Being open-ended means that, at the end of every day, the fund issues new shares to investors and buys back shares from investors wishing to leave the fund. Mutual funds must be structured as corporations or trusts, such as business trus ts, and any corporation or trust will be classified by the SEC as an investment company if it issues securities and primarily invests in non-government securities. An investm ent company will be classified by the SEC as an open-end investment company if they do not issue undivided interests in specified securities (the defining characterist ic of unit investment trusts or UITs) and if they issue redeemable securities. Registered investment companies that are not UITs or open-end investment companies are clos edend funds. Neither UITs nor closed-end funds are mutual funds (as that term is u sed in the US). 8

 Close-ended Fund/ Scheme: A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. Th e fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public iss ue and thereafter they can buy or sell the units of the scheme on the stock exchanges w here the units are listed. In order to provide an exit route to the investors, some c lose-ended funds give an option of selling back the units to the mutual fund through period ic repurchase at NAV related prices. SEBI Regulations stipulate that at least one o f the two exit routes is provided to the investor i.e. either repurchase facility or t hrough listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be ope n for sale or redemption during pre-determined intervals at NAV related prices. 9

The risk return trade-off indicates that if investor is willing to take higher r isk then correspondingly he can expect higher returns and vise versa if he pertains to lo wer risk instruments, which would be satisfied by lower returns. For example, if an inves tors opt for bank FD, which provide moderate return with minimal risk. But as he moves ah ead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also incr eases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutua l funds provide professional management, diversification, convenience and liquidit y. That doesn t mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are al so invested in the stock markets which involves a higher risk but can expect higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivative s market which is considered very volatile. 10

BY NATURE Equity (Stock or Income) Funds: Funds that invest in stocks represent the largest category of mutual funds. Gene rally, the investment objective of this class of funds is long-term capital growth with some income. There are, however, many different types of equity funds because there a re many different types of equities. A great way to understand the universe of equi ty funds is to use a style box, an example of which is below. The idea is to classify funds based on both the size of the companies invested i n and the investment style of the manager. The term value refers to a style of investi ng that looks for high quality companies that are out of favor with the market. These co mpanies are characterized by low P/E and price-to-book ratios and high dividend yields. The opposite of value is growth, which refers to companies that have had (and are ex pected to continue to have) strong growth in earnings, sales and cash flow. A compromis e between value and growth is blend, which simply refers to companies that are nei ther value nor growth stocks and are classified as being somewhere in the middle. Debt funds: The objective of these Funds is to invest in debt papers. Government authorities , private companies, banks and financial institutions are some of the major issuers of deb t papers. By investing in debt instruments, these funds ensure low risk and provid e stable income to the investors. Debt funds are further classified as: Gilt Funds: 11

Invest their corpus in securities issued by Government, popularly known as Gover nment of India debt papers. These Funds carry zero Default risk but are associated wit h Interest Rate risk. These schemes are safer as they invest in papers backed by Government. Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. MIPs: Invests maximum of their total corpus in debt instruments while they take minimu m exposure in equities. It gets benefit of both equity and debt market. These sche me ranks slightly high on the risk-return matrix when compared with other debt schemes. Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily inve st in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs) . Some portion of the corpus is also invested in corporate debentures. Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Tre asury Bills, inter-bank call money market, CPs and CDs. These funds are meant for shor t-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considere d to be the safest amongst all categories of mutual funds. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest i n both equities and fixed income securities, which are in line with pre-defined investm ent objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. 12

Further the mutual funds can be broadly classified on the basis of investment parameter viz. Each category of funds is backed by an investment philosophy, which is pre-defin ed in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly. BY INVESTMENT OBJECTIVE Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally in vest a major part of their fund in equities and are willing to bear short-term declin e in value for possible future appreciation. Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest i n fixed income securities such as bonds and corporate debentures. Capital appreciation i n such schemes may be limited. Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distribut ing a part of the income and capital gains they earn. These schemes invest in both sha res and fixed income securities, in the proportion indicated in their offer document s (normally 50:50). Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments , such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. OTHER SCHEMES 13

 Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equi ty Linked Savings Scheme (ELSS) are eligible for rebate. Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only th ose stocks that constitute the index. The percentage of each stock to the total hold ing will be identical to the stocks index weight age. And hence, the returns from such schem es would be more or less equivalent to those of the Index. Sector Specific Schemes These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While the se funds may give higher returns, they are more risky compared to diversified funds . Investors need to keep a watch on the performance of those sectors/industries an d must exit at an appropriate time. 1.1.4 ADVANTAGES OF INVESTING IN MUTUAL FUNDS The advantages of investing in a Mutual Fund extending PMS to the small investors are as under: 14

. Professional ManagementThe investor avails of the services of experienced and skilled professionals who are backed by a dedicated investment research team, which analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. . DiversificationMutual 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 diversification through a Mutual Fund with far less money than you can do on you r own. . Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and unnecessary 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 broke rage, custodial and other fees translate into lower costs for investors. . LiquidityIn open-ended schemes, you can get your money back promptly at net asset value related prices from the Mutual Fund itself. With close-ended schemes, you can se ll your units on a stock exchange at the prevailing market price or avail of the fa cility of 15

direct repurchase at NAV related prices which some close-ended and interval schemes offer you periodically. . TransparencyYou get regular information on the value of your investment in addition to discl osure 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. . FlexibilityThrough 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. . Choice of SchemesMutual Funds offers a family of schemes to suit your varying needs over a lifeti me. . Well RegulatedAll Mutual Funds are registered with SEBI and they function within the provision s of strict regulations designed to protect the interests of investors. The operation s of Mutual Funds are regularly monitored by SEBI. 1.1.5 DISADVANTAGES IN INVESTING IN MUTUAL FUNDS Professional Management: Some funds doesn t perform in neither the market, as thei r management is not dynamic enough to explore the available opportunity in the mar ket, thus many investors debate over whether or not the so-called professionals are any be tter than mutual fund or investor himself, for picking up stocks. Costs: The biggest source of AMC income is generally from the entry & exit load which they charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. 16

Dilution: Because funds have small holdings across different companies, high ret urns from a few investments often don't make much difference on the overall return. Diluti on is also the result of a successful fund getting too big. When money pours into funds tha t have had strong success, the manager often has trouble finding a good investment for all the new money. Taxes: when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a cap ital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability. 1.2 MAJOR MUTUAL FUNDS COMPANIES IN INDIA The concept of mutual funds in India dates back to the year 1963. The era betwee n 1963 and 1987 marked the existence of only one mutual fund company in India with Rs. 67bn assets under management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end of the 80s decade, few other mutual fund companies in India to ok their position in mutual fund market. The new entries of mutual fund companies in India were SBI Mutual Fund, Can bank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund. 17

The succeeding decade showed a new horizon in Indian mutual fund industry. By th e end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector fun ds started penetrating the fund families. In the same year the first Mutual Fund Regulation s came into existence with re-registering all mutual funds except UTI. The regulations were further given a revised shape in 1996.Kothari Pioneer was the first private sector mutual fund company in India which has now merged with Franklin Templeton. Just after ten years with pr ivate sector player s penetration, the total assets rose up to Rs. 1218.05 bn. Today the re are 33 mutual fund companies in India. 1.2.1 ABN AMRO Mutual Fund ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) P vt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund. 1.2.2 Birla Sun Life Mutual Fund Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Li fe Financial. Sun Life Financial is a global organization evolved in 1871 and is being represe nted in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recent ly it crossed AUM of Rs. 10,000 crores. 1.2.3 HDFC Mutual Fund HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing Development Finance Corporation Limited and Standard Life Investments Limited. 1.2.4 HSBC Mutual Fund HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Mark ets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund. 18

1.2.5 ING Vysya Mutual Fund ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Managem ent (India) Pvt. Ltd. was incorporated on April 6, 1998. 1.2.6 Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsors, Prudential Plc. and ICICI Ltd. The Trustee Comp any formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Mana gement Company Limited incorporated on 22nd of June, 1993. 1.2.7 State Bank of India Mutual Fund State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launc h offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schem es out of which 15 have already yielded handsome returns to investors. State Bank of In dia Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes. 1.2.8 Tata Mutual Fund Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsors for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investm ent manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limit ed. Tata Asset Management Limited's is one of the fastest in the country with more t han Rs. 7,703 crores (as on April 30, 2005) of AUM. 1.2.9 Kotak Mahindra Mutual Fund Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently having more than 1, 99,818 investors in its various schemes. KMAMC sta rted its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk -return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities. 19

1.2.10 Unit Trust of India Mutual Fund UTI Asset Management Company Private Limited, established in Jan 14, 2003, manag es the UTI Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset Management Company presently manages a corpus of over Rs.20000 Crore. The sponso rs of UTI Mutual Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State B ank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of UTI M utual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Fund s and Balance Funds. 1.2.11 Reliance Mutual Fund Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 188 2. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limi ted is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund whic h was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of vari ous schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversi fied securities. 1.2.12 Standard Chartered Mutual Fund Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standar d Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Stan dard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated w ith SEBI on December 20, 1999. 1.2.13 Franklin Templeton India Mutual Fund The group, Franklin Templeton Investments is a California (USA) based company wi th a global AUM of US$ 409.2 bn (as of April 30, 2005). It is one of the largest fina ncial services groups in the world. Investors can buy or sell the Mutual Fund through their fin ancial advisor or mail or through their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, closed end Income schemes and Open end Fund of Funds schemes to offer. 1.2.14 Morgan Stanley Mutual Fund India 20

Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investment management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and nonprofit organizations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified equity scheme serving the needs of Indian retail investors focus ing on a long-term capital appreciation. 1.2.15 LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was con stituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. . Th e Company started its business on 29th April 1994. The Trustees of LIC Mutual Fund have ap pointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund. 1.3 MUTUAL FUNDS ? 1.1 WHY SHOULD INVESTORS INVEST IN MUTUAL FUNDS ? An investors avails of the services of experienced and skilled professionals who are backed by a dedicated investment research team that analyses the performance and prospe cts of companies and selects suitable investments to achieve the objectives of the sche me. . Mutual funds invest in a number of across a broad cross section of industries an d sectors. This diversification reduces the risk because seldom all the stock s decl ine at the same time and same proportion. 21

. Investing in mutual funds reduces paper work and helps an investor avoid many problems such as bad deliveries, delayed payment and unnecessary follow up with brokers and companies. Mutual funds save your time and make investing easy and convenient. . 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. . Mutual funds are relatively less expensive way to invest compared to directly investing in capital markets because the benefits of scale in brokerage, custodi al and other fees are translated into lower costs for investors. . In open ended schemes , investors can get their money back at net assets value related price .an investor can sell the units on a stock exchange at the prevail ing market price or avail of the fielding of direct repurchase at NAV related prices which some close ended and interval schemes offer an investor periodically. . Investors get regular information on the value of investment in disclosure on th e specific investments made by the investor s schemes. . Investors can invest or withdraw funds according to their needs and convenience. . All mutual funds are registered with SEBI and they function within the provision s of strict regulations designed to protect the interests of investors. EFFICIENCY OF MUTUAL FUNDS The efficiency of mutual funds should be judged by the following factors. The te st of efficiency or a good mutual fund shall compromise of evaluation of a mutual fund on: . Stability: -whether a mutual fund is stable or not so far as its schemes are concerned. . Liquidity: -whether the schemes offer liquidity by way of their listing on stock exchange. 22

. Growth: -whether the mutual funds offer increase in net asset value, consistent growth in dividend and capital appreciation. . Credibility: -previous track record of issuer. . Returns: -assured or otherwise. . Management approach: -risk maximization, bonus etc. taking, portfolio, diversification, return

1.2 HOW DO WE CHOOSE THE MUTUAL FUNDS . Draw down your investment objective. There are various schemes suitable for different needs. For example retirement plan, capital growth etc. Also get clear about your time frame for investment and returns. Equity funds are not advisable for s hort term because of their long term nature. You can consider money market and floati ng rate funds for short term gains. This equals asking - What kind of mutual fund i s right for me? . Once you have decided on a plan or a couple of them, collect as much information as possible on them from different sources offering them. Funds' prospectus and advisors may help you in this. . Pick out companies consistently performing above average. Mutual funds industry indices are helpful in comparing different funds as well as different plans offe red by them. Some of the industry standard fund indices are Nassau 100, Russel 2000, S&P fund index and DSI index with the latter rating the Socially Responsible Fun ds only. Also best mutual funds draw good results despite market volatility. . Get a clear picture of fees & associated cost, taxes (for non-tax free funds) fo r all your short listed funds and how they affect your returns. Best mutual funds have lower cost out go. . Best mutual funds maximize returns and minimize risks. A number called as Sharpe Ratio explains whether a fund is risk free based on its expected returns compare d against a risk free money market fund. 23

. Some funds have the advantage of low minimum initial investments. You can start investing even with $250 a month. This is advisable for building asset bases ove r a long period with small regular investments. 1.3 THINGS KEPT IN MIND BEFORE INVESTING PROSPECTUS By law, you should receive a prospectus from the fund company before you invest in it. Many investors ignore the prospectus, but this is a must read. The mutual fund's objectives are displayed in the prospectus. It tells you the goals of the fund and how it i ntends to achieve them. You will also find information about the fund's past performance a nd fees. Mutual Fund Families Mutual Fund Glossary Mutual Fund Fees The fees are displayed in the prospectus as well as on many mutual fund research sites. Try to buy funds with low expense ratios and certainly avoid 12b-fees. I have ye t to hear a valid argument on why you should ever buy a loaded fund. A loaded fund is a fund that carries front-end loads, back-end loads or deferred loads. These loads are basic ally sales charges. There are plenty of no-load funds to meet your objectives. GROWTH IN MUTUAL FUNDS SECTOR Mutual funds are shuddering at the prospect of an economic recovery. But they hav e enough time to consolidate their client base. The Smart Investor Team Normally a recovery means good news for all, consumers, manufacturers and servic e providers. But hold on. Mutual funds aren't very enthusiastic, though. Why? Beca use, the biggest investors in the domestic mutual fund industry today are large corporate and banks. These investors have put in more than 50 per cent of total assets of the industr y. And, a 24

recovery means that corporate may pull out their money to invest in their core a ctivities. Similarly, a revival in credit demand on the back of a recovery means that banks may need to pull out their investments from mutual funds to meet the demand. That's perhaps why mutual funds are pulling such long faces at the prospect of a recovery. What if the economy recovers and corporate go on a spending spree? Capacity expansions, merger and acquisition activity and better credit demand would requi re corporate and banks to encash their existing investments to plough back in their core business. Obviously, there is a strong possibility of large scale redemptions. While fund companies see this issue as a matter of concern, they are optimistic about guarding their current assets. Says Ved Prakash Chaturvedi, chief executive officer, Tata TDW Mutual Fu nd, "Despite an economic recovery, the fund industry should be able to retain and in fact, grow its assets." Is an economic recovery underway? The outlook on the economy is pretty much posi tive and economists are predicting a wide-ranging recovery led by an increase in dome stic consumer demand. According to the latest data released by the Central Statistical Organization (C SO), the Indian economy grew 4.3 per cent in 2008-09. With the manufacturing and services sectors growing at 6.0 per cent and 7.1 per cent respectively, the poor performance of t he agriculture sector dragged down the overall growth. Growth in the agricultural s ector declined 3.2 per cent last fiscal. The growth in manufacturing industry was led by buoyant exports and a boost to construction activity. This year, again, the manufacturing sector is expected to grow at a faster clip. The overall manufacturing outsourcing story should mean more business for Indian manufacturi ng companies too. Construction is again going to be a key driver. So sectors like steel and cement have already seen a quantum jump in demand and many loss-making companies such as Isp at, Essar, and the Jindal group have turned profitable. Similarly, many other sector s such as consumer durables and textiles are seeing demand-led growth. Many of these corpo rate 25

houses are thus focusing on the longer-term targets. Some sectors like steel are already talking of capacity expansion and green field projects. Others like cement have been seeing consolidation. However, as Sanjeev Bafna, senior vice-president. Corporate finance, Grasim Industries says "It will take 1-2 years for the Indian industry to start committing funds into expansions." But whenever it happens, will corporate queue up for redemptions? And secondly, will banks and financial institutions, which have invested their surplus funds in mut ual funds on the back of poor credit off take in the last couple of years, divert their money into lending? The latter, of course, is a definite possibility. Last year, lending behemoth ID BI was among the biggest investors in mutual funds. Others such as ICICI bank and HDFC also f igured in the list of biggest investors. While Reliance Industries was one of the largest investors in mutual funds, mutu al fund sources say that some of the other big investors are from the banking industry. For instance, both IDBI and SIDBI are said to have a considerable exposure in rollin g over surplus funds in mutual funds. Other big players in the sector include the Finol ex Group, ICICI Bank, Bank of India, Central bank and LIC Housing Finance. Clearly, a lot depends on the outlook for the economy. Any revival will result i n an increase in credit off take and thus, funds will have to be redirected from the market to industry. But the probability of that happening in the near-term is bleak: there is a huge amo unt of liquidity in the banking sector, and further rate cuts will only add to it. But corporate money pulling out may not be that big a threat. Here is why. Compa nies typically park their surplus cash in treasury instruments (liquid fund schemes). And, they deploy money considered surplus in a slightly longer horizon into medium term fu nds. Industry experts feel that the economic recovery will have no impact on the flow s into liquid funds. As a matter of fact, improved cash flow for corporate will only increases the po pularity of liquid funds. Even more, they say that today financially healthy corporate will find it less prudent to pull out money from investments like mutual funds to fund expansions because borrowed funds are so cheap.

Also, capital expenditure is never lumped together but is spread over a period o f time and 26

prudence requires a judicious mix of debt and equity depending on the project si ze, horizon of returns, gestation period etc. Hence there will not be any sudden withdrawal of funds from the market. Such expenditure is planned in advance and as result, a company cannot take the risk of a sudden withdrawal of its investment. Opportunity cost of money To get a feel of this, look at the opportunity cost of money. Currently, compani es have witnessed around a 500-600 basis points reduction in interest costs on long-term debt from about 16 per cent-plus in 1998-99 to about 10 per cent now, and even lesser for top rated corporate, which can raise money at around 5.5-6.0 per cent per annum. As a resu lt, it is much more attractive to fund investments by taking on additional debt while cont inuing to earning a higher return from deploying internal cash into market instruments suc h as mutual funds. Arbitrage between debt vs. funds But the main reason that the companies prefer raising debt is two-fold. Firstly, debt is available at historically low costs and secondly, tax considerations favor debt. These include a tax benefit on the interest costs, a dividend distribution tax on divi dend income and capital gains tax on long-term capital gains. As a result, while effective c ost of debt is less than 4 per cent, the effective tax-adjusted return on mutual fund investmen t is around 5-6 per cent. Grasim's Bafna says "the biggest factor that will determine an outflow of funds is the any change in the tax status of dividends and capital gains tax on long-term capital gains". Currently, dividends from mutual funds are tax-free in the hands of the investor s except for a dividend distribution tax of 12.81 per cent. Long-term capital gains are taxed at 10.25 per cent with indexation benefits, and at 20.5 per cent without indexation benefits. The banking sector, with the considerable amount of liquidity in the system, has also been a significant investor in mutual funds. For instance, as on March 31, 2003, HDFC had investments of around Rs 1500 crore in liquid funds. According to Mr. Ravi Kumar, Regional 27

Head -Global Markets, Stanchart Grindlays "The corporate sector accounts for a reasonable chunk of the investments in mutual funds. While there may be some wit hdrawal of funds, an increase in economic activity will also increase the surplus funds. Therefore, over a period of time, the cash surpluses will find their way back into the mark et" NEW FUND OFFER In the last one-year we have seen surge in the number of Equity IPOs & Mutual Fu nd NFOs launched. This is because there is a significant jump in profits of small & medi um sized companies & so many loss-making companies have been restructured and now making profits. These companies are looking for expansion & to support their future pla ns these companies are looking at IPO option. This has created good opportunity to invest in the new companies, which are growing at fast rate. New Mutual Fund schemes launched also got the more options to invest collected money in various old as well as new com panies. This year so many Mutual Fund NFOs have collected money in excess of Rs1000Cr & some of them had even crossed Rs2000Cr mark. Some of the existing schemes with highest AUMs are looking small if we look at these collections by MF NFOs. Collection of Mutual Fund NFOs launched in 2005 Scheme NFO Collection (Rs Cr) SBI Magnum Multi Cap Fund 2102 Franklin India Flexi Cap Fund 1950 Reliance Equity Opportunities Fund 1761 Fidelity Equity Fund 1495 Prudential ICICI Infrastructure Fund 1418 HDFC Premier Multi - Cap Fund 1328 Standard Chartered Classic Equity Fund 1043 28

Floating a NFO at the right time when markets are in correction phase & investin g the collected money on correction is proved as very successful strategy in the last one year. This is evident as newly launched Mutual Fund NFOs have outperformed various ind ices & able to generate good returns. The below table indicates good performance given by MF NFOs. Therefore It s a good idea to invest in NFO s which could create wealth for in vestors like you. Current Scenario of Mutual Fund India is at the first stage of a revolution that has already peaked in the U.S. the U.S. boasts if an asset base that are much higher than its deposits. In India, mutual fund a ssets are not even 10% of the bank deposits, but this trend is beginning to change. Recent fig ures indicate that in the first quarter of the current fiscal year mutual fund asset went up by 115% whereas bank deposit rose up only 17%. This is forcing a large number of banks t o adopt the concept of narrow banking wherein the deposits are kept in Gilts and some ot her assets. This improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not completely. Their role closes down as intermediaries c annot be ignored. It is just mutual Funds are going to change the way banks do business i n the future. COMPARISONS OF MUTUAL FUND WITH OTHER DEPOSITS BANKS V/S MUTUAL FUNDS Banks v/s Mutual Funds BANKS MUTUAL FUNDS Returns Low Better Administrative High Low exp. Risk Low Moderate 29

Investment Less options Network High Penetration Liquidity At a cost Quality of assets Not Transparent Interest Min. bal. between 10th & 30th of calculation every month Guarantee Max. Rs. 1Lakh on deposit SHARES V/S MUTUAL FUNDS More Low put improving Better Transparent Everyday None SHARES MUTUAL FUNDS Know-how is needed Superficial know. Is sufficient High cost involved Low Cost Time needed one can sleep over Professional Management. Insurance Vs Mutual Funds Both these instruments are designed to serve different purposes and are not comp arable. A unit-linked plan from an insurance company is an insurance policy designed to pa y a lump sum on maturity or on death if earlier. Premium paid under these plans is eligib le for tax deduction under Section 88 of the Income Tax Act. On the other hand, mutual fund s are investment avenues to participate in the growth of financial markets and do not provide any tax deduction (except ELSS and pension funds). For a unit-linked insurance plan, providing life cover is the most important fun ction; returns are just an added benefit, which gets magnified, given the tax rebates. Though u nit-linked plans offer transparency in returns in terms of net asset value and flexibility in investment options in debt, equity or mixes of both, these advantages remain secondary, whe reas for a mutual fund, the main objective is to provide returns. Moreover, unit-linked plans are not as liquid as mutual funds. There is a lock-i n of three years. Even if one redeems after three years, you would be at a loss because of higher 30

initial administrative charges. For example, the upfront charges for the first t wo premium amounts are as high as 20-27 per cent. Then there is an annual management fee of 0.8 1.25 per cent and a flat fee of Rs 15-20 per month. Finally, there is a deductio n for risk cover. This goes towards contribution to the sum assured or the life insurance c over, which is based on mortality rates as calculated by actuaries. Though mutual funds too have entry and exit loads (maximum 2 per cent) and expenses (maximum 2.5 per cent), these c osts are lower than unit-linked plans. 1.4 RISK INVOLVED IN MUTUAL FUNDS Mutual fund investments are subject to market risks. Please read the offer docum ent carefully before investing. There is no assurance or guarantee that all the obje ctives of the fund will be achieved. Past performance of the Sponsors/ Mutual fund/ Schemes/ A sset Management Company is not necessarily indicative of future results. The name of the fund/ scheme does not, in any manner, indicate either the quality of the fund, its fut ure prospects or returns". It may be there is greater amount of risk involved in the subject matter; even if the disc laimer statement(s) are not too lengthier. In fact, these disclaimers, directly or indi rectly, give a clear message that investors should be informed, take adequate care and beware o f the inherent risks before investing in the mutual fund. Now the issue is what those Risks are? Investor Psychology Risk: 31 interpreted that under

The investor psychology is such that most of the investors, be it Mutual Fund In vestors or Direct Capital Market Investors, behave like reactionaries. E.g. they enter t he market when the share prices starts rising and they get panicky & exit as soon as share prices starts falling. Therefore, whether it is shares of company or mutual fund unit i nvestors, investors resort to selling their investments when market starts looking down. B ecause of this, there will be more than normal demand on Mutual Fund manager to redeem the units. To honour the redemption demands of the exiting unit holders during the w orst market times, Mutual Funds are forced to sell more stocks at the prevailing low prices. As a result of this, along with the redeeming unit holders, all the other unit h olders who have invested in the fund suffer. This means, irrespective of one being a long-t erm buy and hold investor or not, he suffers because of investing in Mutual Fund. Cost Risks: Mutual Funds charge huge fees that they can get away with and that too in the mo st confusing manner possible. The fund managers never intend to make their costs cl ear to their clients. It would not be painful for the investors to pay for the expen ses and costs of the funds when they derive satisfactory returns. But, the irony is that inves tors have to pay for the sales charges, annual fees and many other expenses irrespective of h ow the fund has performed. Prediction Risks: Nobody can predict the capital market perfectly and can always find good investm ents. Similarly, the fund manager's predictions of future actions and outcomes are, of necessity, subject to error. Risk of Redemption Restrictions: Whether informed in writing or not, normally the liquidity of schemes investment s may be restricted by the trading volumes settlement period and transfer procedures. Management Change Risks: It is not uncommon for a Mutual Fund to have changes in its management. The chan ge in the funds management may affect the achievement of the objectives of the fund . The fund company may, for various reasons, replace a fund manager or may be the fund 32

manager himself may resign from his job for any reason. This change will be sign ificant since the fund manager controls the fund investments. . Judgment Risks: Investors may not know more than the fund manager about the investment strategy and whatever judgment the investor makes will not be fool proof. . Risks of Blind Diversification: It may happen that a fund is heavily committed to a particular area of the econo my at any given time. This is called blind diversification risk and any investor would like to invest in Mutual Fund that concentrate in asset classes that he himself has not invested at his own. . Risks of changes in the Regulatory Norms: Mutual Funds are constantly regulated by SEBI and investors are subject to risk of the changes in the norms for the Mutual Funds. Besides the above risks, Mutual Funds will also have the common risks that any investment has. In fact, risk is present in every decision made with regard to t he investments in capital markets. Following is the list of some common risks invol ved while investing in the capital markets and particularly in the mutual funds: . Country Risk: This risk arises from the possibility that political events such a s war, national elections etc. and financial problems such as rising inflation or natur al disasters such as an earthquake, a poor harvest etc. will weaken a country's economy and cause investments in that country to decline. . Credit Risk: This is a risk that arises from the possibility that a bond issuer will fail to repay interest and principal in a timely manner. This risk is also called as def ault risk. . Currency Risk: This risk arises from the possibility that returns could be reduc ed for Indians investing in foreign securities because of a rise in the value of the In dian rupee against dollar, euro or yen etc. This is also known as Exchange Rate Risk. 33

. Manager Risk : This risk arises from the possibility that an actively managed mu tual fund's investment adviser will fail to execute the fund's investment strategy effectively, resulting in the failure of the sated objectives. . Market Risk: This risk arises from the possibility that stock fund or bond fund prices overall will decline over short or even extended periods. Risk Hierarchy of Different Mutual Funds Thus, different mutual fund schemes are exposed to different levels of risk and investors should know the level of risks associated with these schemes before investing. T he graphical representation hereunder provides a clearer picture of the relationshi p between mutual funds and levels of risk associated with these funds: 1.5 SOME IMPORTANT ASPECTS OF MUTUAL FUND NET PRESENT VALUE Net Asset Value (NAV) is the actual value of one unit of a given scheme on any g iven business day. The NAV reflects the liquidation value of the fund's investments o n that 34

particular day after accounting for all expenses. It is calculated by deducting all liabilities (except unit capital) of the fund from the realizable value of all assets and di viding it by number of units outstanding. . 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 units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related. . Redemption Price: -Is the price at which 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 cal led, 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. 1.4 GLOBAL SCENARIO IN MUTUAL FUNDS Some basic facts:35

.The money market mutual fund segment has a total corpus of $ 1.48 trillion in t he U.S. against a corpus of $ 100 million in India. .Out of the top 10 mutual funds worldwide, eight are bank-sponsored. Only Fideli ty and Capital are non-bank mutual funds in this group. .In the U.S. the total number of schemes is higher than that of the listed compa nies while in India we have just 277 schemes .Internationally, mutual funds are allowed to go short. In India fund managers d o not have such leeway. .In the U.S. about 9.7 million households will manage their assets on-line by th e year 2003, such a facility is not yet of avail in India. .On-line trading is a great idea to reduce management expenses from the current 2 % of total assets to about 0.75 % of the total assets. .72% of the core customer base of mutual funds in the top 50-broking firms in th e U.S. is expected to trade on-line by 2003. (Source: The Financial Express September,) The money market mutual fund segment has a total corpus of $ 1.48 trillion in th e U.S. against a corpus of $ 100 million in India. Out of the top 10 mutual funds world wide, eight are bank- sponsored. Only Fidelity and Capital are non-bank mutual funds in this group. In the U.S. the total number of schemes is higher than that of the listed compan ies while in India we have just 277 schemes Internationally, mutual funds are allowed to go s hort. In India fund managers do not have such leeway. In the U.S. about 9.7 million house holds will manage their assets on-line by the year 2003, such a facility is not yet of avai l in India. On-line trading is a great idea to reduce management expenses from the current 2 % of total assets to about 0.75 % of the total assets. Internationally, on-line inves ting continues its meteoric rise. Many have debated about the success of e-commerce and its breakthroughs, but it is true that this aspect of technology could and will chan ge the way financial sectors function. However, mutual funds cannot be left far behind. The y have realized the potential of the Internet and are equipping themselves to perform b etter. In fact 36

in advanced countries like the U.S.A, mutual funds buy-sell transactions have al ready begun on the net, while in India the Net is used as a source of Information. Such changes could facilitate easy access, lower intermediation costs and better services for all. A research agency that specializes in internet technology estimates tha t over the next four years Mutual Fund Assets traded on- line will grow ten folds from $ 12 8 billion to $ 1,227 billion; whereas equity assets traded on-line will increase during the per iod from $ 246 billion to $ 1,561 billion. This will increase the share of mutual funds fro m 34% to 40% during the period. Such increases in volumes are expected to bring about large c hanges in the way Mutual Funds conduct their business. Here are some of the basic changes that have taken place since the advent of the Net Lower Costs: Distribution of funds will fall in the online trading regime by 200 3. Mutual funds could bring down their administrative costs to 0.75% if trading is done on -line. As per SEBI regulations, bond funds can charge a maximum of 2.25% and equity funds can charge 2.5% as administrative fees. Therefore if the administrative costs are lo w, the benefits are passed down and hence Mutual Funds are able to attract mire investo rs and increase their asset base. Better advice: Mutual funds could provide better advice to their investors throu gh the Net rather than through the traditional investment routes where there is an addition al channel to deal with the Brokers. Direct dealing with the fund could help the investor with their financial planning. In India, brokers could get more Net savvy than investors and could help the inv estors with the knowledge through get from the Net. New investors would prefer online: Mutual funds can target investors who are you ng individuals and who are Net savvy, since servicing them would be easier on the N et. India has around 1.6 million net users who are prime target for these funds and this could just be the beginning. The Internet users are going to increase dramatically and mutual funds are going to be the best beneficiary. With smaller administrative costs mo re funds would be mobilized .A fund manager must be ready to tackle the volatility and wi ll have to maintain sufficient amount of investments which are high liquidity and low yield ing

investments to honor redemption. 37

In the U.S. most mutual funds concentrate only on financial funds like equity an d debt. Some like real estate funds and commodity funds also take an exposure to physica l assets. The latter type of funds are preferred by corporate who want to hedge their expo sure to the commodities they deal with. In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real estate funds (investing in real estate and other related assets as well.).In Ind ia, the Canada based Dundee mutual fund is planning to launch gold and a real estate fund befor e the year-end. In developed countries like the U.S.A there are funds to satisfy everybody s requi rement, but in India only the tip of the iceberg has been explored. In the near future I ndia too will concentrate on financial as well as physical funds 1.5 ORGANIZATION OF A MUTUAL FUND 38

1.5.1 SEBI The Securities Exchange Board of India (SEBI) is the regulatory authority for al l the mutual funds sponsored by the public/private sector banks, financial institutions, priv ate sector companies, non-banking finance companies and foreign institutional investors. SE BI has laid down the rules and regulations regarding the obligations of the entities in volves in a mutual fund, its establishment and launch of different schemes, investments and valuation, financial reporting, conduct and operations of mutual funds. 1.5.2 SPONSOR Sponsor is the person who acting alone or in combination with another body corpo rate establishes a mutual fund. The sponsor establishes the mutual fund and registers the same with SEBI. Sponsor appoints the Trustees, custodians and the AMC with prior appr oval of SEBI and in accordance with SEBI Regulations. Sponsor must have a 5-year track r ecord of business interest in the financial markets. Sponsor must have been profit mak ing in at least 3 of the above 5 years. Sponsor must contribute at least 40% of the net wo rth of the Investment Managed and meet the eligibility criteria prescribed under the Securi ties and Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not resp onsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund. 39

1.5.3 TRUST The Mutual Fund is constituted as a trust in accordance with the provisions of t he Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian R egistration Act, 1908. 1.5.4 TRUSTEE Trustee is usually a company (corporate body) or a Board of Trustees (body of in dividuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia ensure that the AMC functions in the interest of investors and in acc ordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner. 1.5.5 ASSET MANAGEMENT COMPANY (AMC) The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund . The AMC is required to be approved by the Securities and Exchange Board of India (SE BI) to act as an asset management company of the Mutual Fund. At least 50% of the direc tors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crore at all times. 1.5.6 REGISTRAR AND TRANSFER AGENT The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer A gent to the Mutual Fund. The Registrar processes the application form, redemption reques ts and dispatches account statements to the unit holders. The Registrar and Transfer ag ent also handles communications with investors and updates investor records. 1.5.7 CUSTODIAN A custodian is an agent, bank, trust company, or other organization which holds and safeguards an individual's, mutual fund's, or investment company's assets for th em. CODE OF CONDUCT FOR INTERMEDIARIES OF MUTUAL FUNDS: . Take necessary steps to ensure that the clients 40 interest is protected.

. Adhere to SEBI Mutual Fund Regulations and guidelines related to selling, distribution and advertising practices. Be fully conversant with the key provisi ons of the offer document as well as the operational requirements of various schemes. . Provide full and latest information of schemes to investors in the form of offer documents, performance reports, fact sheets, portfolio disclosures and brochures , and recommend schemes appropriate for the client s situation and needs. . Highlight risk factors of each scheme, avoid misrepresentation and exaggeration, and urge investors to go through offer documents/key information memorandum before deciding to make investments. . Disclose all material information related to the schemes/plans while canvassing for business. . Abstain from indicating or assuring returns in any type of scheme, unless the of fer document is explicit in this regard. . Maintain necessary infrastructure to support the AMCs in maintaining high servic e standards to investors, and ensure that critical operations such as forwarding f orms and cheques to AMCs/registrars and dispatch of statement of account and redemption cheques to investors are done within the time frame prescribed in the offer document and SEBI Mutual Fund Regulations. . Avoid colluding with clients in faulty business practices such as bouncing chequ es, wrong claiming of dividend/redemption cheques, etc. . Avoid commission driven malpractices such as: o Recommending inappropriate products solely because the intermediary is getting higher commissions there from. o Encouraging over transacting and churning of mutual fund investments to earn higher commissions, even if they mean higher transaction costs and tax for investors. . Avoid making negative statements about any AMC or scheme and ensure that comparisons if any are made with similar and comparable products. 41

. Ensure that all investor related statutory communications (such as changes in fundamental attributes, exit/entry load, exit options, and other material aspect s) are sent to investors reliably and on time. 1.6 MUTUAL FUNDS AND BUDGET 2009-2010 1.6.1 FIXED INCOME MARKETS TO BENEFIT 42

MEASURES: . Revenue deficit target reduced to 1% in FY10 from 1.4% in FY09; fiscal deficit t arget reduced to 2.5% in FY10 from 3.1% in FY09 . Gross borrowings lower at Rs.1.45 trillion in FY10 from Rs.1.56 trillion in FY09 ; net borrowing also lower at Rs.1.01 trillion from Rs.1.11 trillion in FY09 . Measures announced to develop bond, currency and derivatives markets that will include launching exchange-traded currency and interest rate futures and develop ing a transparent credit derivatives market with appropriate safeguards. . Measures announced to enhance tradability of domestic convertible bonds by putti ng in place a mechanism that will enable investors to separate embedded equity opti ons from convertible bonds and trade them separately. . Measures announced to encourage development of a market-based system for classifying financial instruments based on their complexity and implicit risks. . Proposal announced to exempt from TDS, corporate debt instruments issued in demat form and listed on recognized stock exchanges. IMPACT: . Decision of expanding the corporate debt market will help in increased focus tow ards bond funds and in a scenario where interest rates are not expected to be adverse in the medium term, this would further assist in increasing the popularity of bond funds which have not been doing well in the last few years. . Development of the derivatives markets can in turn enhance the development of th e structured products market. 1.6.2 EASING IN INCOME TAX SLABS MEASURES: 43

Threshold limit of Income Tax exemption for individuals raised as follows Up to Rs.150,000 NIL Rs.150,001 to Rs.300,000 - 10% Rs.300,001 to Rs.500,000 - 20% Rs.500,001 and above - 30% IMPACT: This is expected to increase the disposable income in the hands of the individua ls to some extent which could translate into increased retail investments in mutual funds. 1.6.3 INCREASE IN SHORT TERM CAPITAL GAINS TAX MEASURES: Short Term Capital Gains Tax raised from 10% to 15% IMPACT: . Since long term capital gains tax has been left unchanged, this hike in short-te rm capital gains tax could encourage long-term investments which augur well to the development of the concept of "long terms" in the Indian Mutual Fund industry, w hich is conspicuous by its absence but which is coveted by the fund industry given th e greater flexibility that this provides in fund management. . At the same time since the short term capital gains tax is still lower than the income tax slabs of typical capital market investors, it is not expected to cause too m any investors to turn away from mutual funds. . The fact that the dividend distribution tax structure has not changed would mean that dividend reinvestment plans in liquid schemes will continue to be popular and al so the liquid plus category will continue to attract inflows as the tax rates there would continue to be lower than the liquid category. 1.7 MARKET TRENDS 44

Alone UTI with just one scheme in 1964 now competes with as many as 400 odd prod ucts and 34 players in the market. Now with increasing competition and losing market share, UTI no longer remains a formidable force to reckon with. Last six years have been the most turbulent as well as exiting ones for the indu stry. New players have come in, while others have decided to close shop by either selling off or merging with others. Product innovation is now passed with the game shifting to performance delivery in fund management as well as service. Those directly assoc iated with the fund management industry like distributors, registrars and transfer age nts, and even the regulator have become more mature and responsible. The industry is also having a profound impact on financial market. UTI has once been a dominant player on the bourses as well as the debt market, but now, new generati ons of private funds, has gained substantial mass, and are flexing their muscles. Fund managers by their selection criteria for stocks have forced corporate governance on the i ndustry. By rewarding honest and transparent management with higher valuations, a system of risk reward has been created where the corporate sector is more transparent than befo re. Funds have shifted their focus to the recession free sector like pharmaceutical, FMCG and technology sector, funds performances are improving. Funds collection, which ave raged at less than Rs 100 bn per annum over five-year period spanning 1993-1998 doubled t o Rs 210 bn in 1998-1999. In the financial year ending march2000 was mobilization was above Rs 300 bn. Total collections for the financial year march 2000 was around Rs 450 bn. What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs s aw a net inflow of Rs 7819.43 crores during the first nine months of the year as against a net inflow of Rs 604.40 crores in case of public sector funds. Mutual funds are now also competing with commercial banks in race for retail inv estor s savings and corporate float money. The power shift towards mutual funds has beco me obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in saving account are good as locking up their deposits in a closet. The fund mobilization trends by m utual funds

in the current year indicate that money is going to mutual funds in a big way. CHAPTER 2 -INTRODUCTION TO THE ORGANIZATION 45

Reliance Mutual Fund (RMF) has been established as a trust under the Indian Trus ts Act, 1882 with Reliance Capital Limited (RCL), as the Settlor/Sponsor. FOUNDER Dhirubhai H. Ambani Founder Chairman, Reliance Industries Limited, India December 28, 1932 - July 6, 2002 Major Group Companies: Reliance Industries Limited, India's largest private sect or company. Birthplace: Chorwad, village in Saurashtra (Gujarat), India Father's Name: Hirachand Govardhandas Ambani Mother's Name: Jamunaben Hirachand Ambani INTRODUCTION 46

About Reliance Capital Asset Management Ltd: Reliance Capital Asset Management Limited (RCAM), a company registered under the Companies Act, 1956 was appointed to act as the Investment Manager of Reliance M utual Fund. Reliance Capital Asset Management Limited is a wholly owned subsidiary of Relian ce Capital Limited, the sponsor. The entire paid-up capital (100%) of Reliance Capi tal Asset Management Limited is held by Reliance Capital Limited. Reliance Capital Asset Management Limited was approved as the Asset Management Company for the Mutual Fund by SEBI vide their letter no IIMARP/1264/95 dated June 30, 1995. The Mutual Fund has entered into an Investment Management Agreement (IMA) with RCAM dated May 12 , 1995 and was amended on August 12, 1997 in line with SEBI (Mutual Funds) Regulat ions, 1996. Pursuant to this IMA, RCAM is authorized to act as Investment Manager of R eliance Mutual Fund. The net worth of the Asset Management Company including preference shares as on March 31, 2005 is Rs.30.13 crores. RCAM has been registered as a portfolio manager vides SEBI Registration No. INP000000423 and renewed effective 1st August 2003. RCAM has commenced these activities. It has been ensured that key personnel of the AMC, the systems, back office, bank and securities accounts are segregated activity wise and there exists syste ms to prohibit access to inside information of various activities. As per SEBI Regulat ions, it will further ensure that AMC meets the capital adequacy requirements, if any, separat ely for each such activity. 47

RCAM has been appointed as the Investment Manager of "Reliance India Power Fund" , a Venture Capital Fund registered with SEBI vide Registration no.IN/VCF/05-06/062 dated June 16, 2005 but this activity is yet to commence. 2.1 INTRODUCTION -RELIANCE CAPITAL Reliance Capital has interests in asset management and mutual funds; life and ge neral insurance; private equity and proprietary investments; stock broking; depository services; distribution of financial products; consumer finance; and other activities in fi nancial services. Reliance Mutual Fund is India's biggest Mutual Fund. Reliance Life Insurance is one of India's fastest growing life insurance company and among the top four private se ctor insurers. Reliance General Insurance is one of India's fastest growing general i nsurance company and among the top 3three private sector insurers. Reliance Money is one of the leading retail brokerage houses and distributors of financial products in India with over 3 million customers. Reliance Consumer finance has a loan book of over Rs. 8,600 c rore at the end of March 2010. Reliance Capital has a net worth of Rs. 7,491 crore (US$ 1.5 billion) and total assets of Rs. 24,260 crore (US$ 4.8 billion) as of March 31, 2010 CORPORATE GOVERNANCE Reliance Capital Limited has maintained the highest standards of corporate gover nance principles and best practices by adopting the Reliance Anil Dhirubhai Ambani Grou p Corporate Governance Policies and Code of Conduct as followed by all constituents in the group. These Policies and Code prescribe a set of systems, processes and princip les conforming to the international standards and are reviewed periodically to ensur e their continuing relevance, effectiveness and responsiveness to the needs of local and global investors and all other stakeholders. Reliance Capital s philosophy on Corporate Governance envisages the attainment of the highest levels of transparency, accountability and equity, in all facets of its operations and in all interactions with its stakeholders, including shareholders, employees, th e government, 48

lenders and the society. The Company believes that all its operations and action s must serve the underlying goal of enhancing long-term shareholder value. In our commi tment to practice sound governance principles, we are guided by the following core princi ples: Transparency To maintain the highest standards of transparency in all aspects of our interact ions and dealings. Disclosures To undertake timely dissemination of all price sensitive information and matters of interest to our stakeholders. Empowerment and Accountability To demonstrate the highest levels of personal accountability and to ensure that employees consistently pursue excellence in everything they do. Compliances To comply with all the laws and regulations applicable to the company. Ethical conduct To conduct the affairs of the company in an ethical manner. 2.2 COMMITTES . Audit Committees: -The Audit Committee comprises of four non-executive Directors, viz, Shri Rajendra P. Chitale, Shri Amitabh Jhunjhunwala, Shri C. P. Jain and Shri P. N. Ghatalia. Shri Rajendra P. Chitale, an Independent non-executive Director, is the Chairman of the Committee. All the members of Audit Committee have good knowledge of finance, accounts and company law. The Chairman of the committee is an eminent chartered accountant and has accounting and related financial management expertise. The committee held four meetings during the year . The audit committee also advises the management on the areas where internal audi t can be improved. The minutes of the meetings of the audit committee are placed before the board. The Company Secretary, Shri V. R. Mohan acts as the Secretary to the Committee. . Shareholders / investors grievances committees: -The shareholders /investors grievances committee of the Board currently comprises Shri Amitabh Jhunjhunwala 49

and Shri Rajendra P. Chitale. The company has appointed M/s. Karvy Computershare Pvt. Ltd. to act as Registrar and Share Transfer Agent of the company. The committee also monitors redressal of investors grievances. Particulars of investors grievances received and redressed are furnished in the investor information section of this report. . Nomination / Remuneration Committees: -The Nomination / Remuneration Committee of the Company comprises of Shri Rajendra P. Chitale, Non-Executive Independent Director as Chairman, and Shri Amitabh Jhunjhunwala and Shri C. P. Jain, Non-Executive Directors, as its members. The Company Secretary of the Company is the Secretary of the Committee. The terms of reference of the Remuneration Committee, interalia, consist of reviewing the overall compensation policy and structure, service agreements and other employment conditions for the members of the board. . Risk Management Committees: -The Risk Management Committee would oversee the establishment and operation of the risk management system, including reviewi ng the adequacy of risk management practices for the material risks, such as credit , market, liquidity, legal compliance regulatory and operational risks, on a regul ar basis. Depending on the scale, nature and complexity of its business, the Board or the Risk Management Committee should establish a separate risk management function responsible for monitoring and managing the risks that the Financial Institution faces. The organisation and responsibilities of the risk management function should be documented. . Asset Liability Management Committees (ALCO):-The Company would constitute an ALCO Committee of the senior management executives of the company. The committee would manage the Asset Liability Gap and interest rate structures to address liquidity and interest rate risks. The ALCO would maintain records of all its meetings, in particular records of discussions on key deliberations and decisions taken. Company shall put in place necessary ALM strategy guidelines and charter of ALCO 50

indicating the requirements including roles and responsibilities. Various suppor t groups as may be necessary be formed to supplement the ALCO functions. . POLICIES o Code of Conduct o Code of Conduct For Directors And Senior Management o Guidelines for NBFCs o Policy on interest rates o Guidelines for demand/ call loan o Guidelines on corporate governance o Guidelines on exposure norms o Guidelines on fair practice o Guidelines on investment policy o Norms on Know Your Client (KYC) o Policy for purchasing and sale of non- performing financial assets 51

2.3 COMPANY SRTUCTURE

2.4 RISK MANAGEMENT Risk Management philosophy is to adopt an independent holistic approach to manag e uncertainties from all quarters that is enterprise-wide risk management . Three critical elements on which the enterprise risk management framework is bui ld; creating a clear direct line of sight from risk management to investor s value; im plementing a process to protect investor s value; and building the organizational capability to ensure strategic risk management. This ensures that risk management complements business objectives and strategies . The function assists in structuring technology, processes and assets in an advantage ous manner, and the architecture so formed, is capable of tackling disruptions in th e operational universe. It ensures that business development at all times is within parameters and regulations. 2.5 ABOUT RELIANCE MUTUAL FUND Reliance Mutual Fund (RMF) is one of India s leading Mutual Funds, with Average As sets Under Management (AAUM) of Rs. 88,388 Crs (AAUM for 30th Apr 09 ) and an investo r base of over 71.53 Lacs. Reliance Mutual Fund, a part of the Reliance -Anil Dhir ubhai Ambani Group, is one of the fastest growing mutual funds in the country. RMF off ers investors a well-rounded portfolio of products to meet varying investor requirem ents and has presence in 118 cities across the country. Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the paid-up capital of RCAM, the balance paid up capital being held by minority shareholders. Reliance Mutual Fund (RMF) has been establi shed as a trust under the Indian Trusts Act, 1882 with Reliance Capital Limited (RCL), a s the Settler/Sponsor and Reliance Capital Trustee Co. Limited (RCTCL), as the Trustee . RMF has been registered with the Securities & Exchange Board of India (SEBI) vid e registration number MF/022/95/1 dated June 30, 1995. The name of Reliance Capita l Mutual Fund has been changed to Reliance Mutual Fund effective 11th. March 2004 vide SEBI's letter no. IMD/PSP/4958/2004 date 11th. March 2004. Reliance Mutual Fund was formed to launch various schemes under which units are issued to the Public with a view to 53

contribute to the capital market and to provide investors the opportunities to m ake investments in diversified securities. The main objectives of the Trust are: . To carry on the activity of a Mutual Fund as may be permitted at law and formula te and devise various collective Schemes of savings and investments for people in India and abroad and also ensure liquidity of investments for the Unit holders. . To deploy Funds thus raised so as to help the Unit holders earn reasonable retur ns on their savings and . To take such steps as may be necessary from time to time to realize the effects without any limitation. VISION STATEMENT To be a globally respected wealth creator with an emphasis on customer care and a culture of good corporate governance MISSION STATEMENT To create and nurture a world-class, high performance environment aimed at delig hting our customers SPONSORS "Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the pa id-up capital of RCAM, the balance paid up capital being held by minority shareholders.", the sponsor. Reliance Mutual Fund (RMF) has been sponsored by Reliance Capital Ltd (RCL). The promoter of RCL is AAA Enterprises Private Limited. Reliance Capital Limited is a Non Banking Finance Company. Reliance Capital has interests in asset management and mutual funds, life and no n-life insurance, private equity and proprietary investments, stock broking and other a ctivities in the financial services sector. The net worth of RCL is Rs. 6086 crore as on Marc h 31, 2008. Given below is a summary of RCL s financials: 54

Reliance Capital Ltd. has contributed Rupees One Lac as the initial contribution to the corpus for the setting up of the Mutual Fund. Reliance Capital Ltd. is respo nsible for discharging its functions and responsibilities towards the Fund in accordanc e with the Securities and Exchange Board of India (SEBI) Regulations. The Sponsor is not responsible or liable for any loss resulting from the operati on of the Scheme beyond the contribution of an amount of Rupees one Lac made by them towards the initial corpus for setting up the Fund and such other accretions and additions to the corpus. CUSTODIAN Deutsche Bank, AG The Trustee has appointed Deutsche Bank, AG located at Kodak House, Ground Floor , 222 Dr. D.N.Road, Mumbai-400 001, as the Custodian of the securities that are bought and sold under the Scheme. A Custody Agreement has been entered with Deutsche Bank in accordance with SEBI Regulations. The Custodian is approved by SEBI under regist ration no. IN/CUS/003 to act as Custodian for the Fund. Deutsche Bank AG, the Custodian shall, inter alias: Provide post-trading and custodial services to the Mutual Fund. Keep Securities and other instruments belonging to the Scheme in safe custody. Ensure smooth inflow/outflow of securities and such other instruments as and whe n necessary, in the best interests of the unit holders. Ensure that the benefits due to the holdings of the Mutual Fund are recovered an d Be responsible for loss of or damage to the securities due to negligence on its part on the part of its approved agents. 55

REGISTRAR Reliance Capital Asset Management Limited has appointed M/s. Karvy Computershare Pvt. Limited to act as the Registrar and Transfer Agent to the Schemes of Relian ce Mutual Fund. M/s. Karvy Computer share Pvt. Limited (KCL) having their office at Karvy Plaza .21, Road No. 4, Street No.1, Adjacent to Rainbow Hospital, Banjara Hills, Hyderabad -500 034, is a Registrar and Transfer Agent registered with SEBI under registration n o. INR000000221. Reliance Capital Asset Management Ltd. and the Trustee have satisfied themselves , after undertaking appropriate due diligence measures, that they can provide the servic es required and have adequate facilities, including systems facilities and back up, to do so. The Trustee has also laid down broad parameters for supervision of the Registrar . As Registrar to the Schemes, KCL will accept and process investor's applications, h andle communications with investors, perform data entry services, dispatch Account Sta tements and also perform such other functions as agreed, on an ongoing basis. The Registrar is responsible for carrying out diligently the functions of a Regi strar and Transfer Agent and will be paid fees as set out in the agreement entered into wi th it and as per any modification made thereof from time to time. 2.6 COMPANY SCHEMES 2.6.1 EQUITY/GROWTH SCHEMES: The aim of growth funds is to provide capital appreciation over the medium to lo ng-term. Such schemes normally invest a major part of their corpus in equities. Such fund s have comparatively high risks. These schemes provide different options to the investo rs like dividend option, capital appreciation, etc. and the investors may choose an opti on depending on their preferences. The investors must indicate the option in the ap plication form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreci ation over a period of time. 56

Reliance Natural Resources Fund: (An Open Ended Equity Scheme) The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities b y investing in companies principally engaged in the discovery, development, production, or d istribution of natural resources and the secondary objective is to generate consistent retur ns by investing in debt and money market securities. Reliance Equity Fund: (An open-ended diversified Equity Scheme.) The primary investment objective of t he scheme is to seek to generate capital appreciation & provide long-term growth op portunities by investing in a portfolio constituted of equity & equity related securities of top 100 companies by market capitalization & of companies which are available in the der ivatives segment from time to time and the secondary objective is to generate consistent returns by investing in debt and money market securities. Reliance Tax Saver (ELSS) Fund: (An Open-ended Equity Linked Savings Scheme.) The primary objective of the schem e is to generate long-term capital appreciation from a portfolio that is invested predom inantly in equity and equity related instruments. Reliance Equity Opportunities Fund: (An Open-Ended Diversified Equity Scheme.) The primary investment objective of t he scheme is to seek to generate capital appreciation & provide long-term growth op portunities by investing in a portfolio constituted of equity securities & equity related se curities and the secondary objective is to generate consistent returns by investing in debt and m oney market securities. Reliance Vision Fund: (An Open-ended Equity Growth Scheme.) The primary investment objective of the Sc heme is to achieve long term growth of capital by investment in equity and equity rel ated securities through a research based investment approach. 57

Reliance Growth Fund: (An Open-ended Equity Growth Scheme.) The primary investment objective of the Sc heme is to achieve long term growth of capital by investment in equity and equity rel ated securities through a research based investment approach. Reliance NRI Equity Fund: (An open-ended Diversified Equity Scheme.) The Primary investment objective of t he scheme is to generate optimal returns by investing in equity or equity related i nstruments primarily drawn from the Companies in the BSE 200 Index. Reliance Regular Savings Fund: (An Open-ended Scheme.) Equity Option : The primary investment objective of this option is to seek capital appreciation and/or to generate consistent returns by activel y investing in Equity &Equity-related Securities. Balanced Option : The primary investment objective of this option is to generate consistent returns and appreciation of capital by investing in mix of securities comprising of equity, equity related instruments & fixed income instruments. Reliance Long Term Equity Fund: (An close-ended Diversified Equity Scheme.) The primary investment objective of the scheme is to seek to generate long term capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity & equity related securities and Derivatives and the secondary objective is to generate consistent returns by inv esting in debt and money market securities. Reliance Equity Advantage Fund: (An open-ended Diversified Equity Scheme.) The primary investment objective of t he scheme is to seek to generate capital appreciation & provide long-term growth op portunities by investing in a portfolio predominantly of equity & equity related instruments with investments generally in S & P CNX Nifty stocks and the secondary objective is t o generate consistent returns by investing in debt and money market securities 58

2.6.2 DEBT/INCOME SCHEMES The aim of income funds is to provide regular and steady income to investors. Su ch schemes generally invest in fixed income securities such as bonds, corporate deb entures, Government securities and money market instruments. Such funds are less risky co mpared to equity schemes. These funds are not affected because of fluctuations in equit y markets. However, opportunities of capital appreciation are also limited in such funds. T he NAVs of such funds are affected because of change in interest rates in the country. If t he interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. Reliance Monthly Income Plan: (An Open Ended Fund. Monthly Income is not assured & is subject to the availabil ity of distributable surplus ) The Primary investment objective of the Scheme is to gen erate regular income in order to make regular dividend payments to unit holders and th e secondary objective is growth of capital. Reliance Gilt Securities Fund - Short Term Gilt Plan & Long Term Gilt Plan: Open-ended Government Securities Scheme) the primary objective of the Scheme is to generate optimal credit risk-free returns by investing in a portfolio of securit ies issued and guaranteed by the central Government and State Government. Reliance Income Fund: (An Open-ended Income Scheme) The primary objective of the scheme is to generate optimal returns consistent with moderate levels of risk. This income may be comp lemented by capital appreciation of the portfolio. Accordingly, investments shall predomi nantly be made in Debt & Money market Instruments. Reliance Medium Term Fund: (An Open End Income Scheme with no assured returns.) The primary investment obje ctive of the Scheme is to generate regular income in order to make regular dividend pa yments to unit holders and the secondary objective is growth of capital. 59

Reliance Short Term Fund: (An Open End Income Scheme) The primary investment objective of the scheme is to generate stable returns for investors with a short investment horizon by investi ng in Fixed Income Securities of short term maturity. Reliance Liquid Fund: (Open-ended Liquid Scheme). The primary investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risk and high liquid ity. Accordingly, investments shall predominantly be made in Debt and Money Market Instruments. Reliance Floating Rate Fund: (An Open End Liquid Scheme) The primary objective of the scheme is to generate r egular income through investment in a portfolio comprising substantially of Floating Ra te Debt Securities (including floating rate securitized debt and Money Market Instrument s and Fixed Rate Debt Instruments swapped for floating rate returns). The scheme shall also invest in Fixed rate debt Securities (including fixed rate securitized debt, Money Market Instruments and Floating Rate Debt Instruments swapped for fixed returns Reliance NRI Income Fund : (An Open-ended Income scheme) The primary investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risks. This income m ay be complimented by capital appreciation of the portfolio. Accordingly, investments shall predominantly be made in debt Instruments. Reliance Liquidity Fund: (An Open -ended Liquid Scheme) The investment objective of the Scheme is to gene rate optimal returns consistent with moderate levels of risk and high liquidity. Acco rdingly, investments shall predominantly be made in Debt and Money Market Instruments. 60

Reliance Interval Fund: (A Debt Oriented Interval Scheme) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversi fied portfolio Reliance Liquid plus Fund: (An Open-ended Income Scheme.) The investment objective of the Scheme is to gene rate optimal returns consistent with moderate levels of risk and liquidity by investi ng in debt securities and money market securities. 2.6.3 SECTOR SPECIFIC SCHEMES These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these f unds may give higher returns, they are more risky compared to diversified funds. Investor s need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert. Sector Funds are specialty funds that invest in stocks falling into a certain se ctor of the economy. Here the portfolio is dispersed or spread across the stocks in that par ticular sector. This type of scheme is ideal for investors who have already made up thei r mind to confine risk and return to a particular sector. Reliance Banking Fund: Reliance Mutual Fund has an Open-Ended Banking Sector Scheme which has the prima ry investment objective to generate continuous returns by actively investing in equ ity / equity related or fixed income securities of banks. 61

Reliance Diversified Power Sector Fund: Reliance Diversified Power Sector Scheme is an Open-ended Power Sector Scheme. The primary investment objective of the Scheme is to seek to generate consistent returns by actively investing in equity / equity related or fixed income securities of P ower and other associated companies. Reliance Media & Entertainment Fund: Reliance Media & Entertainment Fund is an Open-ended Media & Entertainment secto r scheme. The primary investment objective of the Scheme is to generate consistent returns by investing in equity / equity related or fixed income securities of media & en tertainment and other associated companies. COMPANY SERVICE PROVIDERS: Registrar to the schemes of Reliance Capital Asset Management: Karvy Computer share Pvt. Ltd Custodians to the schemes of Reliance Capital Asset Management: Deutsche Bank AG 62

Bankers to the Schemes of Reliance Capital Asset Management: HDFC Bank Limited ABN Amro Bank ICICI Bank Limited Citibank N. A. Deutsche Bank AG Standard Chartered Bank UTI Bank IDBI Bank HSBC Bank Ing Vysya Bank Kotak Mahindra Bank Yes Bank American Express Bank - only for online investors 63

2.7 WHY RELIANCE MUTUAL FUND? . Reliance Mutual Fund, a part of the

Anil Dhirubhai Ambani Group(R-ADAG) is one of

the fastest growing mutual fund company in the country. . Reliance mutual fund offer investors a well rounded portfolio of products to meet varying investor requirements. . Reliance mutual fund has a presence over 80 cities across the country. . Reliance mutual fund investor base of over 2 million and manages assets over Rs.88388 crore as on 30 April 2009,(source:www.amfiindia.com) . A fund from Reliance mutual fund, an AMC with a established track record of cons istent return. . Investor friendly personal and technological support. . Strong and consistent fund management team. 64

2.8 RISK VS REWARD Having understood the basics of mutual funds the next step is to build a success ful investment portfolio. Before you can begin to build a portfolio, one should unde rstand some other elements of mutual fund investing and how they can affect the potential va lue of your investments over the years. The first thing that has to be kept in mind is that when you invest in mutual funds, there is no guarantee that you will end up with more mon ey when you withdraw your investment than what you started out with. That is the potenti al of loss is always there. The loss of value in your investment is what is considered risk in investing. Even so, the opportunity for investment growth that is possible through investme nts in mutual funds far exceeds that concern for most investors. Here s why. At the cornerstone of investing is the basic principal that the greater the risk you take, the greater the potential reward. Or stated in another way, you get what you pay for and you get paid a higher return only when you're willing to accept more volatility. Risk then, refers to the volatility --the up and down activity in the markets an d individual issues that occurs constantly over time. This volatility can be caused by a numb er of factors --interest rate changes, inflation or general economic conditions. It is this va riability, uncertainty and potential for loss, that causes investors to worry. We all fear the possibility that a stock we invest in will fall substantially. But it is this very volatilit y that is the exact reason that you can expect to earn a higher long-term return from these investme nts than from a savings account. Different types of mutual funds have different levels of volatility or potential price change, and those with the greater chance of losing value are also the funds that can pr oduce the greater returns for you over time. So risk has two sides: it causes the value of your investments to fluctuate, but it is precisely the reason you can expect to earn higher returns. You might find it helpful to remember that all financial investments will fluctu ate. There are very few perfectly safe havens and those simply don't pay enough to beat inflati on over the long run. 65

Types of risks: All investments involve some form of risk. Consider these common types of risk a nd evaluate them against potential rewards when you select an investment. Market Risk: At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstan ding, highly profitable company and a fledgling corporation may be affected. This chan ge in price is due to "market risk". Also known as systematic risk. Inflation Risk: Sometimes referred to as "loss of purchasing power." Whenever inflation rises fo rward faster than the earnings on your investment, you run the risk that you'll actual ly be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns. 66

Credit Risk: In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are pro mised, or repay your principal when the investment matures? Interest Rate Risk: Changing interest rates affect both equities and bonds in many ways. Investors a re reminded that "predicting" which way rates will go is rarely successful. A diver sified portfolio can help in offsetting these changes. Exchange risk: A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Changes in excha nge rates may, therefore, have a positive or negative impact on companies which in t urn would have an effect on the investment of the fund. Investment Risks: The sectoral fund schemes, investments will be predominantly in equities of sele ct companies in the particular sectors. Accordingly, the NAV of the schemes are lin ked to the equity performance of such companies and may be more volatile than a more divers ified portfolio of equities. Changes in the Government Policy: Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund Effect of loss of key professionals and inability to adapt business to the rapid technological change. An industries' key asset is often the personnel who run the business i.e. intell ectual properties of the key employees of the respective companies. Given the ever-chan ging complexion of few industries and the high obsolescence levels, availability of q ualified, trained and motivated personnel is very critical for the success of industries i n few sectors. 67

It is, therefore, necessary to attract key personnel and also to retain them to meet the changing environment and challenges the sector offers. Failure or inability to a ttract/retain such qualified key personnel may impact the prospects of the companies in the pa rticular sector in which the fund invests. 68

2.9 AWARDS AND ACHIEVEMENT . Reliance Mutual Fund (RMF) is one of India s leading Mutual Funds, with Assets Under Management (AUM) of Rs. 88,388 crore (AUM as on 30th Apr 2009) and an investor base of over 71.53 Lacs. . Investor base of over 3.38 million as on March 31, 2007 . Rapid growth in Assets Under Management (AUM), 87.7% growth in AUM year on year. AUM of over Rs.46,306 crore ($10.62 billion) as on March 30, 2007 from Rs. 24,669 crore ($5.53 billion) as on March 31, 2006. . Accelerated growth in investor base 66.89% growth in investor base year on year.

Over 3.38 million investors as on March 31, 2007 . Reliance Mutual Fund has over 10 years of extensive market experience, over 26 schemes combined with a strong performance track record. . Reliance Equity Fund NFO (6th Feb -7th March 2006), the largest ever collection of Rs.5,759 crore ($1.29 billion) in the history of the Indian Mutual Fund industry . . Footprint in over 100 cities in India . Wide network of 130 collection points . Wide portfolio of 26 well-rounded products to meet varying investor requirements . . Reliance Mutual Fund is amongst the few mutual funds in the industry to offer Subscription, Redemption and Switch through Online Transactions. . Lipper Fund Award India 2007 . Lipper Fund Award Gulf 2007 : . CNBC TV18 - CRISIL Mutual Fund of the Year Awards 2006 ICRA Mutual Funds Awards 2007 69

CHAPTER 3 -RESEARCH METHODOLOGY 3.1 TITLE OF THE STUDY To understand the perception and behavior of investors and potential investors t his study has been conducted. In addition, attitude of investors towards Reliance Mutual F und has also been considered. So, research has been carried on the title customer percept ion on performance of mutual fund with special refrence to reliance mutual funds . Need of the study The need of the study arises because of the reason that a trainee must understand the company, its achievements and tasks, products and services and al so to collect information about its competitors. But the major focus was on making a customer profile for Reliance Mutual Fund an d study the position of Reliance Mutual Fund in the market as well as among its competit ors. In addition, investors were to be made aware about various products and services of fered by Reliance Mutual Fund and checking the satisfaction level of present customers 3.2 OBJECTIVES OF THE STUDY Mutual fund industry today, with about 34 players and more than five hundred sch emes, is one of the most preferred investment avenues in India. However with a plethora o f schemes to choose from, the retail investors faces problem in selecting funds. Factors s uch as investment strategy and management style are qualitative, but the funds records are important indicator too. For any economy to grow it is necessary that savings of the masses are converted into investments. Mutual fund is one of the tools which allow amat eur person to invest because the funds are managed by experienced fund managers. It has bee n predicted that if the investment becomes 77% of income in various avenues then o nly we would be able to maintain our GDP growth rate of 8-10%. 70

Here the objective of our study is to compare various reliance mutual funds sche mes with the other AMC .To make the report more detailed the report also contains an exte nsive details on schemes from other fund houses like HDFC, Kotak, Birla,Tata, UTI,DWS ,etc. The present study has been undertaken with the object of examining, analyzing an d inferring the performance of the mutual funds, which addresses the following iss ues: . To understand what type of mutual fund is most preferred by the existing custome r because performance of these funds is the criteria for customer selection. . Which mutual fund is the best in its category? . To understand the best way to attract customer investing in mutual fund by understanding the factors responsible for making a mutual fund successful. . To find out the reasons behind not investing in mutual fund and to find out the most important attributes so as to keep the existing customer & to attract new custom ers. . To understand which factors govern their choice of investment? . To check the potentiality and scope of Reliance Mutual Fund? 3.3 TYPE OF RESEARCH . EXPLORATORY: Exploratory research is a type of research conducted because a problem has not been clearly defined. Exploratory research helps determine the best research design, data collection method and selection of subjects Exploratory research of ten relies on secondary research such as reviewing available literature and/or data, or qualitative approaches such as informal discussions with consumers, employees, management or competitors, and more formal approaches through in-depth interviews, focus groups, projective methods, case studies or pilot studies. . DESCRIPTIVE: Descriptive research, also known as statistical research, describes data and characteristics about the population or phenomenon being studied. Descriptive research answers the questions who, what, where, when and how... The description is used for frequencies, averages and other statistical calculations. 71

Types of Data: . PRIMARY: Primary data was obtained through questionnaires filled by people and through direct communication with respondents in the form of Interview. . SECONDARY: The secondary sources of data were taken from the various websites, books, journals reports, articles etc. This mainly provided informatio n about the mutual fund industry in India. 3.4 SAMPLE SIZE AND METHOD OF SELECTING SAMPLE Universe: - Jaipur Population: - Infinite SOURCES OF DATA: There are two main source of collecting data. One is primary and the other is se condary data. . PRIMARY DATA : Open ended interaction with clients. Discussions with managers ,heads. Also interacting with other intermediaries. . SECONDARY DATA: 72

The fact sheets of the Assets Managements Companies. The websites of the Assets Managements Companies. The total AUM and NAV were sourced from the website of the Association of Mutual Funds of India. Much information has been taken out by the magazines, books and mutual funds workbook. 3.4.1 SAMPLING PLAN: . Sample unit :-The sampling units are various areas of Jaipur which have been approached to collect data from different people . Sampling method:-Sampling method used in this research is simple random sampling which is also known as probability sampling. Under this sampling design every item of universe has an equal chance of inclusion in sample. It is say to a lottery method. . Sample size:-The size of the sample was restricted to 100, as to just get a quic k analysis 3.4.2 CONTACT METHOD Personal interview is used as a method of contacting people. It is a market research technique for Contact with individuals. Personal interviews es, at shopping malls, in a business office. , because it requires a staff of interviewers, but gathering information through face-to-face take place in a variety of settings-in Hom This type of research is relatively costly it provides the best opportunity to obtain

information through probing for clearer explanations. It is the best technique t o use early on in the research process when the researcher is not yet sure which questions need to be asked, because new and better questions can come out of the dialogue 3.4.3 DATA COLLECTION METHOD 73

Research Instrument used in this research was Questionnaire. A questionnaire is a formalized set of questions for eliciting information. It i s one of the most common instruments used for primary data collection. The questionnaire can be administered in various ways. It can be administered by means of a personal interviewer as well as by the telephone, Mail. Here, the questionnair e was administered by a personal interview. 3.4.4 TOOLS OF ANALYSIS For the proper analysis of data, Quantitative Technique such as percentage method was used. In addition, Microsoft excel was also used for preparing charts for deducing inferences. 3.5 SCOPE OF STUDY The project undertake aims at finding out the perception of people about investment pattern and to analyses how does a common person perceives Reliance Mutual Fund as an investment alternative. By finding the perception of people and the factors affecting these perceptions, the significance for the study is then to try and identify ways to attract the non investing community of the potential investors towards the different investment avenue. Significance of the Project Report: . It helps investors to invest its money in right avenue. . It helps to analysis the investors perception about Reliance Mutual Fund . . It provide guidance to investors investing in Reliance Mutual Fund. . By this project investors come to know about different beneficiary mutual fund. 74

. It help to analyze that in which age most of the investors invest their money for better returns in future. . It helps to publicize Reliance Mutual Fund Products and services. 3.6 LIMITATION OF STUDY As every aspect of life has its own limitations the same goes with researches. T he few limitations attached to this research are: . As time and tide waits for none so is the case with this research. A much more detailed analysis could be done had there been more time spent for data collection. Due to lack of Time data from the all the places could not be collec ted. . Management of all the activities from one place limited the research with in it self as appropriate data, which was required, was not available. . Giving Instruction through telecommunications has caused a communication gap due to which the cream of data has not been available. 75

CHAPTER 4 -FACTS AND FINDINGS FINDINGS The findings for the above research are as follows: . It was found that majority of the investors i.e.40% are from the age group of 25 40. This is the group of middle age people who deserve to invest for their futur e financial needs. . Out of 100 people being surveyed to know the awareness and perception among people about mutual funds, I found that 14% knew about mutual funds who mostly invest in these funds while 86% where not at all aware about the product and its investments . Some People were less interested in knowing about the product. . They have the impression that these funds are not safe, as the money is locked in for a particular period, which is known as the lock in period. . Mutual funds, in a country like India is in its growth stage and it would take s ome time to enter into the maturity stage. . People investing into mutual funds basically invest at the financial year-end. . They invest into these funds mostly for tax saving purposes other than investment or return purposes. 76

. Total number of 100 responses were more concerned about the secure future (59%) and capital gains(21%), and after that they considered tax benefits(14%) and regular return(6%) as their main investment objectives. . The company image acts as the determining factor for their investment with 44%.the second most important factor was fund performance (21%) and economic scenario (19%). . Total numbers of 100 responses were more concerned about the saving for the future was the foremost important criteria for investment in the minds of invest ors (51%), while 23%respondents said that they considered the returns before making investment decisions. . Out of 100 people 66% of investor preferred to have banks savings as one of the investment avenue. While 12% of the investor said that they would certainly like to have post office schemes as one of their preferred investment avenue. . My findings demonstrate that 41% of investors prefer to invest in growth schemes,18% of investor in ELSS schemes. 77

CHAPTER 5 -ANALYSIS AND INTERPRETATION Knowing the awareness and perception of the customers is very important in any i ndustry. This provides insight into the customer behavior and his expectation from the in dustry players. a proper understanding of the awareness and perception would definitely benefit the players. This survey attempt to know the mutual fund investor better. It exa mines some interesting choices of the retail investor including the reasons behind investin g in mutual funds and the risk tolerance levels of the investors. The investor knowledge abo ut the mutual funds and what according to him are the best mutual funds is also analyze d. This Jaipur city survey was conducted to know the retail investor awareness and perce ption about mutual funds. It is hoped that this survey in Jaipur city would go a long way in benefiting for reliance mutual fund. I. AN OVERVIEW: This section shows a simple overview of respondents like their age, gender, inco me profile, saving habits and qualification (a) Age-profile: Table No. I(a) showing age profile of respondents: S. No Age No .of respondents Percentage 1. 20-25 19 19% 2. 25-40 40 40% 3. 40-55 21 21% 78

4. 55-60 15 15% 5. 60-Above 5 5% Total 100 100% Age-profile 60-Above 20-25 INTERPRETATION: In this survey I found the maximum number of respondents belongs to the age grou p of 2540 years, followed by 40-55 years of age category. (b) Gender-wise: Table No. I(b) showing gender wise profile of respondents: 40-55 21% 55-60 15% 5% 25-40 40% 19% 20-25 25-40 40-55 55-60 60-Above S. No Gender No. of respondents Percentage 1. Male 92 92% 2. Female 8 8% Total 100 100% Gender-wise overview Male 92% Female 8% Male Female

INTERPRETATION: Table No.I(b) represents the gender ratio of the respondents in this survey.92%o f the covered respondents were male and remaining 8% were female (c)Income Profile: Table No. I(c) showing income wise profile of respondents: S. No Income No. of respondents Percentage 1. Less then Lakh 1.0 34 17% 2. 1.0-2.0 Lakh 38 38% 3. 2.0-3.0 Lakh 30 30% 4. 3.0-5.0 Lakh 6 6% 5. More then Lakh 5.0 4 4% 6. No response 5 5% Total 100 100% 38% 30% 6% 4% 5% 17% 0% 5% 10% 15% 20% 25% 30% 35% 40% Less then 1.0 Lakh 1.0-2.0 Lakh 2.0-3.0 Lakh 3.0-5.0 Lakh More then 5.0 Lakh No response Income Profile No. of respondents 80

INTERPRETATION: In this survey I found the break up of the respondents. Around 38%of the respond ents have an income between of Rs.1.0-2.0 Lakhs per annum and 30% of respondents in betwee n 2.0-3.0 Lakhs .it display the income profile of respondents. (d) Saving Habits: Table No. I(d) showing saving habits profile of respondents: S. No Savings No. of respondents Percentage 1. Up to Rs. 2000 31 31% 2. Rs.2001-5000 33 33% 3. Rs.5001-10000 16 16% 4. Rs.10001-20000 3 3% 5. Above Rs.20001 1 1% 6. No Response 16 16% Total 100 100% Rs.5001-10000 Rs. 2001-5000 16% aboveRs.20001 1% up to Rs.2000 31% up to Rs.2000 Rs. 2001-5000 Rs.5001-10000 Rs.10001-20000 aboveRs.20001 No response Saving Habits of respondents Rs.1000120000 No response 3% 16% 33% INTERPRETATION: In this survey around 33% of the respondents reported to have a saving in the ra nge of Rs.2001-5000 per month .only 1% of the respondents reported having in higher bra cket i.e more then 20001 per month. 81

(e)Qualification : Table No. I(e) showing Qualification profile of respondents: S.No Qualification No. of respondents Percentage 1. Undergraduates 6 6% 2. Graduates 39 39% 3. Postgraduates 40 40% 4. Others 1 1% 5. No response 14 14% Total 100 100% INTERPRETATION : 6% 39% 40% 1% 14% 0% 10% 20% 30% 40% No. of respondents Undergraduates Graduates Postgraduates Others No response The surveyed group are well educated group with 40%being post graduates and 39%b eing graduates. around 6% of the samples collected were undergraduates. II. KNOWLEDGE OF MUTUAL FUNDS: In the survey ,I attempted to understand from the investors their knowledge of M utual fund. (a)Knowledge of Mutual Fund: Table No. II(a) showing knowledge of mutual fund of respondents: 82

S.n No Knowledge of Mutual Funds No. of respondents Percentage 1. Very good 4 4 2. Good 9 9 3. Average 19 19 4. Poor 64 64 5. No response 4 4 Total 100 100% Knowledge of Mutual Fund Other 68% Good 9% Poor 64% Average 19% No response 4% Very good 4% Very good Good Average Poor No response INTERPRETATION : In this survey it was found that 64% of the respondents don t know or their knowled ge is very poor about Mutual funds. they ,while 4% respondents rated their understandi ng as very good about Mutual funds. it shows knowledge of Mutual funds are very low.. (b) Knowledge related to share market: Table No. II(b) showing knowledge related to share market of respondents: S. No Knowledge related to share market No. respondents of Percentage 1. Yes 32 32% 2. No 64 64% 83

No 64% Can't say 4% No 64% Can't say 4% 3. Can t say 4 4% Total 100 100% Knowledge related to share market: Yes 32% Yes No Can't say INTERPRETATION: It was found that 64% of the respondents don t know that the Mutual fund is relate d to share market. They also don t know that Mutual funds returns are affected by the fluctua tion in share market. (c) Preference of various mutual funds of different peoples: Table No. II(c) showing if in the near future if you ever plan to invest in your money in any of the mutual fund company, which would be your choice? Options Responses Responses in % ABN AMRO 17 17 HDFC 19 19 Reliance 11 11 ICICI 18 18 SBI 27 27 Any other 8 8 84

Preference of Various Mutual Funds 8% 17% 27% 19% 18% 11% ABN AMRO HDFC Reliance ICICI SBI Others INTERPRETATION: Total number of 100 responses were generated for this question and multiple resp onse were sought for the various investment objectives. the analysis brings out the f act that investor were more concerned about the SBI mutual fund (27%) and HDFC (19%) as m ain investment companies. III. INVESTMENT OBJECTIVE/DECISIONS: This section of survey was aimed at understanding the main reason behind the inv estment decision made by an individual. I tried to catch the factor that contributes to making of an investment portfolio off an individual. (a)Investment objective: S. No Investment objective No. of respondents Percentage 1. Capital Gain 21 21% 2. Generate Regular return 6 6% 3. Secure Future 59 59% 4. Tax benefits 14 14% Total 100 100% 85

Investment Objective of Investor capital gain tax benefits 14% 21% generate capital gain reguar return generate reguar return 6% secure future tax benefits secure future 59% INTERPRETATION : Total number of 100 responses were generated for this question and multiple resp onse were sought for the various investment objectives. the analysis brings out the f act that investor were more concerned about the secure future(59%) and capital gains(21%) , and after that they considered tax benefits(14%) and regular return(6%) as their mai n investment objectives. (b)Decision affecting Factors: S. No Decision affecting Factors No. of respondents Percentage 1. Economic scenario 19 19% 2. Company image 44 44% 3. Fund performance 21 21% 4. Fund manager image 2 2% 5. Tax incentive 14 14% Total 100 100% 86

19 44 21 2 14 0 10 20 30 40 50 No. of Respondents DECISION AFFECTING FACTORS Economic scenario Company image Fund performance Fund manager image Tax incentive 19 44 21 2 14 0 10 20 30 40 50 No. of Respondents DECISION AFFECTING FACTORS Economic scenario Company image Fund performance Fund manager image Tax incentive INTERPRETATION : There are certain overall factors that tend to affect the investment decision de cision of the investor, such as economic scenario. I tried to know the respondents opinion on these macro factors that further tend to affect their investment decisions. This survey showed that company image acts as the determining factor for their investment with 44%.the second most important factor was fund performance(21%) a nd economic scenario(19%). (c)Information sources regarding Mutual Funds: S. No Information sources No. of respondents Percentage 1. Print media 29 29% 2. Electronic media 21 21% 3. Friends/Relative 6 6% 4. Financial advisors 19 19% 5. Personal analysis 4 4%

6. Agents 21 21% Total 100 100% 87

Information sources regarding Mutual Funds 29% 21% 6% 19% 4% 21% Print media Electronic media Friends/Relative Financial advisors Personal analysis Agents Information sources regarding Mutual Funds 29% 21% 6% 19% 4% 21% Print media Electronic media Friends/Relative Financial advisors Personal analysis Agents INTERPRETATION: In this survey I asked from the respondents about the kind of media that affect their investment decision.29% of the respondents said that the print media is the majo r influencer in making their investment decisions, electronic media(21%) and agent s(21%) were the second major influencer in investment decision making. (d)Priority of reason for investment: S. No Priority for investment No. of respondents Percentage 1. Saving for future 51 51% 2. Tax incentive 14 14% 3. Returns 23 23% 4. Future outlook 7 7% 5. Brand value 2 2% 6. Risk factors 3 3% Total 100 100% 88

Priority of reason for investment Tax incentive 14% Returns 23% Saving for future 51% Brand value 2% Future outlook 7% Risk factors 3% Saving for future Tax incentive Returns Future outlook Brand value Risk factors Priority of reason for investment Tax incentive 14% Returns 23% Saving for future 51% Brand value 2% Future outlook 7% Risk factors 3% Saving for future Tax incentive Returns Future outlook Brand value Risk factors INTERPRETATION: In this survey I found that saving for the future was the foremost important cri teria for investment in the minds of investors (51%),while 23%respondents said that they c onsidered the returns before making investment decisions. (e) Preferred fund structure: Structure of the fund No of investors preferred ended fund 64 Open Close ended fund 24 Interval funds 12 Total 100 89

Noofinvestorspreferred 100 90 80 70 60 50 40 30 20 10 0 Open Close Interval Total ended ended fund Noof investorspreferred funds fund 64 24 12 100 INTERPRETATION: It is observed that 64 out of 100 that are 64% of investors are interested to in vest their money in open ended funds the reason can be attributed to its convenience to ent er and exit at any time. 24% investors preferred to invest in close ended funds because they are long term investors as well as they want some tax benefits. And the remaining 12 % investors replied that they don t mind to invest in any funds including interval f unds

IV. RISK-RETURN PROFILE: In my study I also tried to understand the risk and return matrix of an individu al investor. this was done in order to obtain information on the relationship between the kind of funds an individual investor opts to invest in and the relative expectation he has on the return front. (a)Investment Avenues: A x s T i iitl e S. No Investment Avenues No. of respondents Percentage 1. Post office schemes 12 12% 90

2. Insurance 4 4% 3. Banks 66 66% 4. Share market 3 3% 5. Mutual funds 7 7% 6. Govt. securities 8 8% Total 100 100% Investment Avenues Insurance Post office schemes 12% 4% Govt. securities 8% Mutual funds 7% Share market 3% Banks Post office schemes Insurance Banks Share market Mutual funds Govt. securities 66% INTERPRETATION: The risk return matrix of an individual is the key factor in framing his investm ent portfolio. I asked the respondents to select the investment avenues they would prefer to keep their investment portfolio. 66% of investor preferred to have banks savings as one of the investment avenue., while 12% of the investor said that they would certainly wou ld like to have post office schemes as one of their preferred investment avenue. (b)Return expectation from Mutual funds: S. No Return expectation from Mutual funds No. of respondents Percentage 1. 5%-10% 5 5% 2. 11%-15% 24 24% 3. 16%-20% 31 31% 4. More then 20% 16 16% 5. Can t say 24 24% Total 100 100% 91

Return expectation from Mutual funds 16%-20% 31% Other Can t say 24% 5%-10% 11%-15% 16%-20% More then 20% Can t say More then 20% 16% INTERPRETATION: In this survey when I came to return expected, I found that 31% of the investor are expecting a return in range of 16%-20%, while 24%of the investor are expecting 1 1%-15% rate of return but 24% of investor can t said about return expectation. (c) Investment pattern preferred in Mutual fund by investor: 40% 11%-15% 5%-10% 24% 5% S. No Investment pattern preferred in Mutual fund No. of respondents Percentage 1. Growth schemes 41 41% 2. Balanced schemes 11 11% 3. ELSS 18 18% 4. Sector specific schemes 6 6% 5. Liquid schemes 7 7% 6. Can t say 17 17% Total 100 100% 92

41% 11% 18% 6% 7% 17% 0% 10% 20% 30% 40% 50% No. of respondents Investment pattern preferred in Mutual fund by investor Growth schemes Balanced schemes ELSS Sector specific schemes Liquid schemes Can t say 41% 11% 18% 6% 7% 17% 0% 10% 20% 30% 40% 50% No. of respondents Investment pattern preferred in Mutual fund by investor Growth schemes Balanced schemes ELSS Sector specific schemes Liquid schemes Can t say INTERPRETATION: The type of schemes selected for investment depends largely on the risk return m atrix of an individual and the time horizon of his investment. My findings demonstrate that 41% of investors prefer to invest in growth schemes , 18% of investor in ELSS schemes. (d) Return in diversified schemes in Mutual fund: S. No Return diversified schemes Mutual fund in in No. of

respondents Percentage 1. Yes 23 23% 2. No 77 77% Total 100 100% 93

Return in diversified schemes in Mutual fund Yes 23% No 77% Yes No Return in diversified schemes in Mutual fund Yes 23% No 77% Yes No INTERPRETATION: In this survey I tried to know the knowledge of investors about the return on di versified schemes .I found that 77%of surveyed people don t know that the return on diversif ied mutual fund schemes is more then other schemes. so, it shows that vary lake of a wareness about mutual funds. (e) Sources of product information: S. No Sources of product information No. of respondents Percentage 1. Company brochures 39 39% 2. Company websites 3 3% 3. Investment advisor 14 14% 4. Newspaper 37 37% 5. Friends and 7 7% 94

relatives Total 100 100% 39% 3% 14% 37% 7% 0% 5% 10% 15% 20% 25% 30% 35% 40% No. of respondents Sources of product information Company brochures Company websites Investment advisor Newspaper Friends and relatives relatives Total 100 100% 39% 3% 14% 37% 7% 0% 5% 10% 15% 20% 25% 30% 35% 40% No. of respondents Sources of product information Company brochures Company websites Investment advisor Newspaper Friends and relatives INTERPRETATION: This chart represents the different sources of product information, through whic h investor generally tend to know regarding the mutual fund s new schemes and products.39% of the respondents said that they receive the product information from the company broc hures and 37% respondents said that they get it from newspaper. CHAPTER 6 -SWOT ANALYSIS SWOT ANALYSIS OF MUTUAL FUNDS STRENGTHS

. Large numbers of potential customers as base. . Government support by way of tax concessions for MF investors. . Sophisticated capital market. . Volatility of bank interest rate. . Vital source of capital information. 95

. Scope of accessing market information. . Offer liquidity to investors at ant time. . The size of the market is very large. WEAKNESS . Poor participation of retail investors. . There is very high degree of discomfort along with uncertainty. . Lack of focus. . Leadership vacuum. . Under performance. . Inability to scale up. . Unclear value proportion. . Overemphasis on funds under management. . Poor service conditions. . Distribution network is confined only to metro cities. . Increasing NPA in the portfolio. OPPORTUNITIES . Huge untapped market in semi urban and rural areas. . High level of savings habit among the people. . Liberalized business environment. . Using online mode of trading system. . Linkage of ATMs for cash withdrawal is ongoing. 96

. Consolidation in the industry is in progress. . Investment opportunities abound in the international market. . Failures of non bank financial company operations. THREATS . Increasing competition among the players. . High level of volatility in the stock market. . NAVs are highly sensitive to internal and market factors. . Possibility of more stringent regulations by SEBI,AMFI etc in future. CHAPTER 7 -CONCLUSIONS A mutual fund is the ideal investment vehicle for today s complex and modern finan cial scenario. Markets for equity shares, bonds and other fixes income instruments, r eal estate, derivatives and other assets have become mature and information driven. Today ea ch and every person is fully aware of every kind of investment proposal. Everybody want s to invest money, which entitled of low risk, high returns and easy redemption. In my opini on before investing in mutual funds, one should be fully aware of each and everything 97

The end of millennium marks 44 years of existence of mutual funds in this countr y. The ride through these 44 years is not been smooth .Investors opinion is still divided .w hile some are for the mutual funds others are against it. Mutual Funds (MF) have become one of the most attractive ways for the average pe rson to invest his money. It is said that Bank investment is the first priority of peopl e to invest their savings and the second place is for investment in Mutual Funds and other avenues . A Mutual Fund pools resources from thousands of investors and then diversifies its investment into many different holdings such as stocks, bonds, or Government sec urities in order to provide high relative safety and returns. . Also generate leads of the prospective investors in Mutual Funds for the Asset Management Company (AMC) There are many improvements pending in the field and it has to happen as soon as possible so as to call the MF industry as an Organized and well-developed sector . CHAPTER 8 -RECOMMENDATION AND SUGGESTIONS The key to the success of the Mutual fund industry is the perceived confidence o f the investors in the organization in total. And this is to take into account both th e historical quality of the product in terms of return as well as the way accounts are percei ved to be managed in terms of concern along with the technical ability for savings mobiliz ation and customer servicing. The major recommendations which are based on the observation s that were made while working with Reliance are as follows. 98

The marketing strategy which they follow should be segment wise. They should not waste their time on reaching students, who are unaware of investing and have insufficient cash supply. In times of growing macroeconomic concerns like inflation and the RBI measures t o curb it and to regulate the liquidity, one should be careful before investing in debt funds as their yield fluctuates in such situation. Buy that portfolio which is doing very well in the market because that fund has the chance of increment. It s good to pick funds which have the higher Beta and Sharpe ratio that justifies the additional risk taken by those funds in terms of better return. An investor with a long term investment horizon may select funds with value styl e of investing as they are expected to give good returns when market realizes the potential of their portfolios stocks. While investing in sect oral funds, the sector specific risk should be analysed along with the returns from the sector. The past return should be viewed to get the record performance of the funds. The expense ratio should be preferably low and should be checked and compared with returns. In India less than 5% of an individual savings is invested in mutual fund, there fore it is advisable to make more effort to communicate the benefits, investment pattern and reward associated to it. The advisors should be given proper training so that they can easily influence t he clients and also the motivation power should be given to them. Lock in period for the scheme should be minimized so that the investors can liquidate their money whenever they want. There should be no entry and exit load for the schemes. 8.1 FOR ENHANCING SALES ACTIVITIES 99

The first and foremost resource needed for enhancing he sales activities is the Human Power, that is, to recruit some business development executives to assist the sa les activities of particular franchisees. The recommendation should pass through pro per channel to the business associate. 8.2 FOR CUSTOMERS SATISFACTION When I had a chance to meet the existing customers, I came to know that they are not happy with the internet assistance provided by the Reliance mutual funds. 8.3 CREATING AWARENESS REGARDING BENEFITS OF INVESTMENTS The most vital problem spotted is of ignorance. Investors should be made aware o f the benefits. Nobody will invest until and unless he is fully convinced. Investors s hould be made to realize that ignorance is no longer bliss and what they are losing by not inv esting. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of th eir career would like to go for advisors due to lack of expertise and time. 8.4 PRODUCT SPECIALIZATION Reliance is having too many financial products right from mutual fund to General Insurance and not all the salespeople are familiar with each and every product so the work force should be segregated each group dealing in a specific product and the sales targ et should be given likewise. 8.5 SUGGESTION BOXES 100

There should be provision of complain suggestion boxes at each branch so that th e problems of customers can be dealt with. This can be an effective system for sho wing hospitality towards customers 8.6 CUSTOMER EDUCATION The customer should be educated about the stock market to overcome his fear of uncertainty in these markets and must be assured of expert advice in case of mar ket fluctuations. The customer should also be educated about the benefits of investm ent in stock markets over other investment schemes. CHAPTER 9 -APPENDIX 101

Average Assets Under Management as of March 2010. The Average Assets Under Management (AAUM) of Mutual Fund Industry has registere d a fall of 4.37 per cent for March 2010, after recording a rise of 2.64 per cent in February 2010.The fall during the month is seen as a result of banks and corporate pullin g out money to pay their respective advance taxes. According to the data, the AAUM of 38 fun d houses stood at Rs 7,47,524.58 crore in March 2010 compared with Rs 7,81,711.52 crore i n Feb 2010. Of the 38 mutual funds, 23 registered fall in the AAUM in March 2010 compa red with February 2010 while 14 mutual funds saw a rise in AAUM. There were only 2 fund h ouses which had seen an increase of above Rs 1000 crore in AAUM in March i.e. DSP Blac k Rock Mutual Fund and SBI Mutual Fund. DSP Black Rock Mutual Fund and SBI Mutual Fund saw a highest inflow of Rs 1,557.25 and Rs 1,344.81 crores respectively, wh ile on the other side, highest outflow were seen in HDFC Mutual Fund (Rs 6364.56 crores) fo llowed by Kotak Mutual Fund (Rs 5678.35 crores), Reliance Mutual Fund (Rs 5340.70 crore s) and LIC Mutual Fund (4158.37 crores). Among the top five fund houses based on AAUM, Reliance Mutual Fund and HDFC Mutu al Fund and Birla Sun Life Mutual Fund faced decline while the other two fund house s witnessed increase. Reliance Mutual Fund continues to dominate top fund house in AAUM in March with Rs 1,10,412.71 crores, though it had dipped 4.6 per cent (Rs 5340. 70 crores). UTI Mutual Fund and ICICI Prudential Mutual Fund have gained by 0.6 and 1.1 per cent 102

respectively. Being the new entrant to the market, Peerless Mutual Fund stood as the out performer with 149.9 per cent growth as against February 2010. Other top perform ers were Edelweiss Mutual Fund and DSP Blackrock Mutual Fund. QUESTIONNAIRE Dear Sir/Madam, I am currently engaged in a study on Customer Perception On Mutual Funds . In this connection I request you to read the following items carefully & answer them .The answers you give will be held confidential & used purely for academic purposes. Indicate your response by tick marking when applicable. 1.) Name: 2.) Sex:-.Male .Female 3.) Age:- .Below 30 . 31 40 years .41 50 years .above 50 years. Academic Qualification (Last Qualification): Q1. Do you know about the Mutual Funds? (a) Very good (b) Good (c)Average (d) Poor (e)No response Q2. What are your objective /motive behind investment? (a)Capital gain (b) Generate regular (c)Secure future (d) Tax benefits Q3. Where do you generally invest/save? (a)Post office schemes (b)Insurance (c)Banks (d)Share market 103

(e)Mutual funds (f)Govt. securities Q4. How do you prioritize the reason for investment? [Rank from 1-5, 1 being highest priority] Saving for future __________ Tax incentives __________ Returns __________ Future outlook __________ Brand value __________ Risk factor __________ Q5. How did you come to know about mutual fund? (a)Print media (b)Electronic media (c)Friend/relative (d)Financial advisor/C.A (c)Personal analysis (f)Agents Q6. What factors affect your decision for investment in Mutual Fund? (a)Economic scenario (b)Company image (c)Fund performance (d)Fund manager image (e)Tax incentive Q7. How much return you expect from Mutual Fund? (a)5%-10% (b)11% -15% (c)16%-20% (d)more than 20% (e)can t say Q8. What kind of investment pattern you prefer in Mutual Fund? (a)Growth schemes 104

(b)Balanced schemes (c)ELSS (d)Sector specific schemes (e)Income schemes (f)Liquid schemes Q9. What are the sources of information gathering for you regarding mutual fund? (a)Company brochures (b)Company websites (c)Investment advisor (d)Newspaper (e)Friends and relatives Q10. Are you aware that by investing in diversified investment avenues the avera ge rate of return would considerable go up? (a)Yes (b)No Q11. Do you know that mutual fund is related to share market? (a)Yes (b)No (c)Can t say Q12. For which company s mutual fund or Banks mutual fund you are interested (a) ABN AMRO (b) HDFC (c) Reliance mutual fund (d) SBI Mutual fund (e) ICICI (f) Others Q13. By structure in which type of schemes did you invested? (a) Open - Ended Schemes 105

(b) Close - Ended Schemes (e) Interval Schemes Thanks you very much for your kind co-operation & for taking time to complete th is questionnaire. CHAPTER 10 106 BIBLIOGRAPHY

BOOKS REFERRED

C R Kothari, Research Methodology ,1st edition, New Age International Publishers, ISBN: 978-81-224-1522-3 Malhotra, Naresh "Marketing Research and Applied Orientation" IV Ed., 2005, Pearson Agarwal, J.D. "Security Analysis & Portfolio Management: A Review, Finance India , Vol. II No. 1, March 1989. AMFI Mutual Fund Testing Programme for Distributors & Employees of Mutual Funds in India. Fact Sheets of various Mutual Funds Economic Times WEBSITES: www.mutualfundindia.com www.mutualfund.com www.moneycontrol.com www.saharaindiapariwar.net Jitendra 107

Virahya s JVIRAHYAS@GMAIL.COM 108