INDUSTRY

PROFILE

The Indian Mutual Fund has passed through three phases. The first phase was between 1964 and 1987 & the only player was the Unit Trust of India, which had a total asset of Rs. 6,700 crores at the end of 1988. The second phase is between 1987 and 1993 during which period 8 Funds were established (6 by banks and one each by LIC and GIC). The total AUM had grown to 61,028 crores at the end of 1994 and the number of schemes was 167. The third phase began with the entry of private and foreign sectors in the Mutual Fund industry in 1993. Kothari Pioneer Mutual Fund was the first Fund to be established by the Private sectoring association with foreign fund. As at the end of financial year 2000(31st march) 32 Funds were functioning with Rs. 1, 13,005 crores as total assets under management. As on august end 2000, there were 33 Funds with 391 schemes and assets under management with Rs 1,02,849 crores. The securities and Exchange Board of India (SEBI) came out with comprehensive regulation in 1993 which defined the structure of Mutual Fund and Asset Management Companies for the first time. Several private sectors Mutual Funds were launched in 1993 and 1994. The share of the private players has risen rapidly since then.Currently there are 41 Mutual Fund organizations in India managing 1,02,000 crores. By December 2004, Indian mutual fund industry reached Rs 1, 50,537 crore. The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010, mutual fund assets will be double. Among the many developments in the financial sector, the growth in mutual fund investments is justifiably characterized as one of the most significant. Since 1999, the assets under management of mutual funds have increased from 1,07,946 crores to 4,17,300 in 2008-09.

CH : 1 COMPANY PROFILE & INTRODUCTION

1.1 PROFILE OF JHAVERI SECURITIES PVT. LTD.

NAME: ADDRESS OF ADMINISTRATIVE OFFICE: PHONE NO.: FAX NO.: YEAR OF ESTABLISHMENT: NAME AND DESIGNATION OF THE PERSON IN CHARGE FORM OF BUSINESS: HEAD OF DEPOSTIORY OPERATIOS: MEMBERSHIP: JHAVERI SECURITIES PVT. LTD. 190, MADHAV DARSHAN, WAGHAWADI ROAD, BHAVNAGAR 364001 0278-3001616, 3001716 0278-3001617 1997

Mr.ASHESHBHAI TRIVEDI PRIVATE LIMITED HIRENBHAI H. MEHTA NSE BSE NSDL NCDEX MCX etc Jsplbvn@gmail.com Jhaveritrade.com

E-MAIL ID: WEBSITE:

1.2 INTRODUCTION
JHAVERI SECURITIES PVT. LTD. Is located in the 190, MADHAV DARSHAN, WAGHAWADI ROAD, BHAVNAGAR 364001 JHAVERI SECURITIES PVT. LTD. Is Gujarats leading broking house with a strong and stable position in the financial markets having experience in the financial services, capital markets, mutual funds distributions and have varied skill set to support and develop the business. Looking into business opportunity the company is developing in a very aggressive business strategies, goal plan, mission, philosophy etc. JHAVERI SECURITIES PVT. LTD. Also provide financial services to customers like demat account services, mutual funds, ITO, K NSE, BSE, Derivatives etc.

1.3 HISTORY OF JHAVERI SECURITIES PVT. LTD.

JHAVERI SECURITIES PVT. LTD. Is promoted by M.D. KAMLESHBHAI JHAVERI at Baroda. The company is managed by professional and grows remarkable being the last 10 years. At present there are more than 500 trading terminal mark across the state. The company has also acquired the membership of NSE, NSDL (National Securities Depository Limited) BSE (Bombay Stock Exchange MCX, MCDEX (National Commodity Exchange), F & O. In April 1989 JHAVERI SECURTIES PVT. LTD. Commenced mutual fund and IPO (Initial Public Offer) distribution business. In January 1992 incorporation of JHAVERI SECURITIES PVT. LTD. Now, Jhaveri should be recognized as a market leader and Gujarats leading broking hoarse with a strong and stable position in the financial markets. In February 2008 JHAVERI SECURITIES PVT. LTD. Crossed the 250 mark in terms of business associates providing quality customer services.

1.4 SERVICES OF JHAVERI SECURITIES PVT LTD

JHAVERI SECURITIES PVT LTD was established in 1989 with a vision jto render financial services and guidance to the rational inventors ensuring their wealth optimization, future prosperity and social worthiness Jhaveri believes in complete freedom in doing ones own work and focusing more on end results. JHAVERI SECURITIES PVT. LTD. Provides following products and services to their customers,

PRODUCTS
1. Equity Broking. 2. Derivative Trading 3. Commodities 4. E-Trading 5. Depository Services 6. IPO (Initial Public Offers) 7. Mutual Funds

SERVICES
1. Daily Telephonic Tops 2. Sms/E-Mail Updates 3. Online Market Suggestions Chats etc 4. Daily Deliveries Strategy 5. Weekly Recommendations 6. Research Reports 7. Wealth Creation Seminars 8. Digital Contract Notes

1) EQUITY BROKING:- Right information at the right tome is the first step
towards taking right decision Jhaveris team of dealers assists the client by efficiently handling his calls and providing him with market related news and company specific research views so that the client is able to take a well informed investment decision.

2) DERIVATIVE TRADING AND DAILY STRATEGY:-

A derivative

includes a security derived from the underlying instrument like stocks, bonds, commodities etc and are increasingly used to manage risk. Some derivatives used in risk management are forwards, future, swaps and options which are used for heading, further derivatives are off balance sheet transactions and they cannot be put on the balance unless the un-dealing assets are bought and paid for. For instance if an investor buts as option to purchase shares the balance sheet is unaffected until and unless the shares are bought and paid for, 6

a) Financial derivatives b) Credit derivatives

3) COMMODITIES:- The commodity exchange is public market forum and

anyone can play in these vital commodity markets nowadays investors looking for a fast paced dynamic market with excellent liquidity can now trade in commodity future market. JHAVERI SECURITIES PVT LTD is registered Training-Cum-Clearing members of NCDEX/MCX. In the commodity exchange two types of dealing is done, cash market for cash dealing and future markets for dealing in future settlement period of 2 or 3 months. Customers can also do business in international market and other benefits that customers gets 1. Easy account opening process 2. Live quotes 3. Online outstanding positions etc

4) E-TRADING:-

With Jhaveri Online Trading Account, customer can buy

and sell shares in an instant . Anytime and anywhere at their convenience.

Silent Feature Of Online Trading

Access to three markets namely BSE (CASH) NSE (CASH) NSE (F & O)

Online intraday tops. Demat account status available online. Access to account status online. Funds transfer facility. Competitive brokerage rates.

5) DEPOSITORY SERVICES:- An efficient way of guarding all your shares

and other eligible securities by holding then in the electronic forms, 7

Jhaveri is a depository participant with the NSDL (National Securities Depository Limited) NSDL keeps a complete record of your account in a central data base in addition to a similar record with your D.P. Jhaveris auto pay in facilities is useful to solve lot of problems customer can transact from anywhere reduces our auction cost maintenance and soon.

The best advantage is full proof secure system. Jhaveri is a depository participant with the NSDL and also provides depository services to their clients. Jhaveris demat teams ensure smooth efficient transfer of shares. Jhaveri also provide IPO forms to the customer and back office access online for convenience of our clients. Jhaveri also provides facility to views demat status, transactions and demat bills online for both individual and family wise. Hassle free trading without writing the delivery instruction slips. Jhaveri also provide auto paying and auto payout facility. No A/C opening charges. Document charges 100/Annual maintenance charges 250/- or 350/- for no auto pay in customers, Re-materialization 50/-m, Inter depository 30/-, Market trade 25/-, off market with JPL 25/-, off market with other 30/-

6) MUTUAL FUND :- Mutual funds chits are investment vehicle that provide
a means of participation in the stock market for people who have neither the time nor the money nor perhaps the expertise to undertake direct investment in equities successfully. The advantage is that the investor in a mutual funds is taking much less of a risk than a direct equity investors it provides specialist investment exports which should ensure greater success than the in-expertise or inexperience investors can achieve on his own and it reduces the administrative burden of investment.

Jhaveri mutual funds team is in close contact with various fund houses AMCs (Assets Management Company) and interactive session are held with fund manager and also provides regular updates on new products and new scheme. Tax benefits U/S 80C. Open ended scheme. Close ended scheme. Diversified portfolio scheme. Income funds. Government securities funds. Systematic investment plan(SIP).

7) ONLINE MARKETING SUGGESTION/CHART :-

Javiers highly

qualify team will update you with latest national, international market news, fundamental company results in past as well as present and many more news about the financial market, suggestions, charts etc.

8) IPO (Initial Public Offering) :- Old companies can offer their shares to
the investors in the primary market. This of tapping the saving is called an IPO or initial public offering SEBI regulation the way in which companies can make this offering companies can make an IPO if they meet SEBI guidance in this regard, the size of the initial issue, the exchange on which it can be listed the merchant bankers responsibilities the nature and contact of the disclosures in the prospectus, procedures for all these are laid down by SEBI and have to be strictly complied with. Some of the IPOs have been available for subscription online were bids are made in real time and the information is made available on an instantaneous basis on the screen it is possible to subscribe for IPO shares in demat from through DPs.

CH: 2 INDUSTRY INTRODUCTION

10

2.1 MUTUAL FUND INDUSTRY IN INDIA (HISTORY)

A mutual fund is a trust that pools the savings of a number of investors with common financial goals. The collected money is invested in various instruments like debentures, shares, etc. The income generated from these instruments and the capital appreciation is shared by the investors in proportion to the number of units ownedbythem. The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases:

Phase 1. Establishment and Growth of Unit Trust of India - 196487

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

Phase II. Entry of Public Sector Funds - 1987-1993

11

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

Phase

III.

Emergence

of

Private

Sector

Funds

1993-96

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds .

Phase IV. Growth and SEBI Regulation - 1996-2004

12

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview oftheaMutualqFundqRegulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. Presently Unit Trust of India operates under the name of UTI Mutual Fund . However, UTI Mutual Fund is still the largest player in the industry.

Phase

V.

Growth

and

Consolidation

2004

Onwards

The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. As at the end of September 2004, there were 29 funds which manage assets of Rs.153108 crores under 421 schemes. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players. (Chart-1)

13

2.1 MUTUAL FUND

A mutual fund is a professionally-managed investment that offers diversity, liquidity and convenience. Each mutual fund is made up of individual stocks, bonds, or money market securities. Because a mutual fund pools the money of many individuals, it has the buying power to invest in hundreds of different securities at once. In exchange for your money invested in a mutual fund, the fund gives you units in the fund that represent your participation in the fund. A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds 14

with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns. (Chart-2)

Mutual Fund Operation Flow Chart

2.2 TYPES OF MUTUAL FUND SCHEMES

BY STRUCTURE
Open-Ended Schemes Close-Ended Schemes Interval Schemes

BY NATURE
Equity Funds Debt Funds Balanced Funds

BY INVESTMENT OBJECTIVE
Growth Schemes Income Schemes Balanced Schemes 15

 Money Market Schemes

OTHER SCHEMES
Tax saving Schemes Index Schemes Sector Specific Schemes

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a collection of many stocks, an investors can go for picking a mutual 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.

2.3 OVERVIEW OF EXISTING SCHEMES EXISTED IN MUTUAL FUND CATEGORY:

BY STRUCTURE 1. Open - Ended Schemes:

An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

2. Close - Ended Schemes:

These schemes have a pre-specified maturity period. One can invest directly in the scheme at the time of the initial issue. Depending on the structure of the scheme there are two exit options available to an investor after the initial offer period 16

closes. Investors can transact (buy or sell) the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchanges could vary from the net asset value (NAV) of the scheme on account of demand and supply situation, expectations of unit holder and other market factors. Alternatively some close-ended schemes provide an additional option of selling the units directly to the Mutual Fund through periodic repurchase at the schemes NAV. However one cannot buy units and can only sell units during the liquidity window. SEBI Regulations ensure that at least one of the two exit routes is provided to the investor.

3. Interval Schemes:
Interval Schemes are that scheme, which combines the features of openended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

BY NATURE 1. Equity fund:

These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund managers outlook on different stocks. Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.

2. 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 debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors.

3. Balanced funds:
17

As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment 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 inreturns.

BY INVESTMENT OBJECTIVE: 1.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 invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.

2. 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 in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.

3.

Balanced Schemes:
Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).

4. 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 18

instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

OTHER SCHEMES 1. 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 Equity Linked Savings Scheme (ELSS) are eligible for rebate.

2. 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 those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.

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 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 and must exit at an appropriate time.

19

2.4 REGULATORY AUTHORITIES

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. According to SEBI Regulations, two thirds of the directors of Trustee Company Orboardofrusteesmustbeindependent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry. 20

AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.

2.5 REASON BEHIND INVEST IN (Pros & cons)

MUTUAL FUNDS

For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.

ADVANTAGES OF INVESTING MUTUAL FUNDS: 1. Growth and Inflation Hedge-

Traditional savings instruments

cannot keep pace with inflation and the rising cost of living. They give only 3.5% in savings accounts. You can use a mixture of mutual funds to achieve a better return than what you can get in a savings account. 21

2. Professional Management -

The basic advantage of funds is

that, they are professionally managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments.

3. Diversification - Purchasing units

in a mutual fund instead of buying

individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others.

4. Economies of Scale -

Mutual fund buy and sell large amounts of

securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors.

5. Liquidity - Just like an individual stock, mutual fund also allows investors to
liquidate their holdings as and when they want.

6. Simplicity -

Investments in mutual fund is considered to be easy,

compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans.

7. Affordability - A mutual fund invests in a portfolio of assets, i.e. bonds,

shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. Thus it would be affordable for an investor to build a portfolio of investments through a mutual fund rather than investing directly in the stock market.

8. Regulations-

Securities Exchange Board of India (SEBI), the mutual

funds regulator has clearly defined rules, which govern mutual funds. These rules 22

relate to the formation, administration and management of mutual funds and also prescribe disclosure and accounting requirements. Such a high level of regulation seeks to protect the interest of investors.

9. Flexibility-

Mutual Funds offering multiple schemes allow investors to

switch easily between various schemes. This flexibility gives the investor a convenient way to change the mix of his portfolio over time.

10. Transparency-

Open-ended mutual funds disclose their Net Asset

Value (NAV) daily and the entire portfolio monthly. This level of transparency, where the investor himself sees the underlying assets bought with his money, is unmatched by any other financial instrument. Thus the investor is in the know of the quality of the portfolio and can invest further or redeem depending on the kind of the portfolio that has been constructed by the investment manager.

2.6 DISADVANTAGES OF INVESTING MUTUAL FUNDS: 1. Improper Management-

Some funds doesnt perform in neither

the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the socalled professionals are any better than mutual fund or investor him self, for picking up stocks.

2. Costs The biggest source of AMC income, is generally from the entry &
exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.

3. Dilution-

Because funds have small holdings across different companies,

high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 23

4. Taxes -

when making decisions about your money, fund managers don't

consider your personal tax situation. For example, when a fund manager sells a security, a capital-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.

2.7 SELECTING THE RIGHT MUTUAL FUND

There are over 750 different mutual funds in India today and about 35 different companies that run these funds. So, how will you choose which fund to invest in? Firstly , know your own needs. Are you investing to fulfill a shortterm or a long-term goal? Or, are you investing just because you heard in your office that you should invest in a certain fund? Not all mutual funds serve the same purpose, so you should know why you are investing. If you want capital appreciation for your son's education 20 years from now, you should not invest in a bond fund. However, if you want to save and protect your capital for funding your son's education in 2 years time, then you should consider a conservative fund like a bond or money market fund, which will also give you some income. Secondly, this brings us to time horizon. What period are you ready to invest in the market for? Equity funds should be held for at least 3-5 years because equities are long-term investment vehicles. Debt or money market funds, however, can be invested in for shorter periods of time. Thirdly, how comfortable are you with the promoter of the fund? Many new companies are starting fund houses. Many of them will not be as 24

successful as the ones that already have a successful track record that they have built over the past 5-10 years. So, invest in mutual funds that have been launched by companies that have a track record and are not new into the Indian market. Finally, many investors look at past performance and assume that the fund will continue to return the same in the future. This is not always true. Any fund can do well over a short-term because luck and other factors can come into play. So, do not choose a fund to invest in just because it has done well in the recent past. You should be interested in the long term performance of the fund. Invest in funds that have done well across market cycles and investment cycles.

2.8 DEVELOPMENTS IN MUTUAL FUND FLOW

Investor demand for mutual funds as measured by net new cash flowthe dollar value of new fund sales less redemptions combined with net exchanges declined further in 2011. Overall, the industry had a net cash outflow of $297 billion. Investors pulled $525 billion from money market funds, particularly institutional funds. Investors, however, added $228 billion, on net, to long-term funds. The $297 billion total net outflow in 2011 was the largest on record in dollar terms. As a percentage of the average market value of assets, it amounted to 2.7 percent. On this basis, the outflow was about the same as the $23 billion outflow in 1989, which measured 2.8 percent of average assets.

Conditions in financial markets continued to improve in 2011. The Federal Reserve closed several special credit and liquidity programs that had been instituted during the financial crisis in 2008. U.S. stock prices, as measured by the Wilshire 5000 Total Market Index, rose over 15 percent, putting the index almost back to its August 2009 level. Credit spreads on corporate bondsthe difference in yields between investment-grade corporate bonds and Treasury securitiesremained fairly stable over the year, hovering around 200 basis points. Nevertheless, the pace 25

of economic activity was fairly modest during 2011held down by persistently high unemployment, modest income growth, lower housing wealth, and tight credit conditions for households. Consequently, the Federal Reserve kept the federal funds rate in a target range of 0 percent to 0.25 percent. Abroad, many developed European countries experienced slower economic growth and weaker stock prices than that of the United States in 2011. Emerging markets experienced gains in stock prices that were about on par with the United States.

Net Flows to Mutual Funds Billions of dollars, 19972011

26

2.9 Mutual Fund Assets by Tax Status

Mutual funds generally distribute all earnings-capital gains and ordinary dividends- each year to shareholders, and are taxed only on amounts retained. Fund investors are ultimately responsible for paying tax on a funds earnings, whether they receive the distributions in cash or reinvest them in additional fund shares. Investors often attempt to lessen the impact of taxes on their investments by investing in taxexempt funds and tax-deferred retirement accounts and variable annuities. As of year-end 2011, 7 percent of all mutual fund assets were held in tax-exempt funds, and 48 percent were invested in tax-deferred accounts held by household.

55 Percent of Mutual Fund Assets Were Held in Tax-Deferred Accounts and Tax-Exempt Funds
Percent, year-end 2011

27

2.10 MUTUAL FUND CAPITAL GAIN DISTRIBUTIONS

Capital gain distributions represent a funds net gains, if any, from the sale of securities held in its portfolio. When gains from these sales exceed losses, they are distributed to fund shareholders. Mutual funds distributed $133 billion in capital gains to shareholders in 2011 . Sixty-eight percent of these distributions were paid to taxdeferred household accounts, and another 26 percent were paid to taxable household accounts. Stock, bond, and hybrid funds can distribute capital gains, but stock funds typically account for the bulk of the distributions. In 2011, 30 percent of stock fund share classes made a capital gain distribution, and half of these share classes distributed at least 4 percent of their assets as capital gains.

28

CAPITAL GAIN DISTRIBUTIONS* Billions of dollars, 20012011

2.11 MUTUAL FUND DIVIDEND DISTRIBUTIONS

Dividend distributions represent incomeprimarily from the interest and dividends earned by the securities in a funds portfolioafter expenses are paid by the fund. Mutual funds distributed $275 billion in dividends to fund shareholders in 2011. Mutual fund dividends declined in 2011. Largely in response to the drop in shortterm interest rates and a decrease in dividend payments by domestic corporations. Bond and money market funds accounted for 65 percent of all dividend distributions in 2011. Forty-seven percent of all dividend distributions were paid to tax-exempt fund shareholders and tax-deferred household accounts. Another 40 percent were paid to taxable household accounts.
DIVIDEND DISTRIBUTIONS Billions of dollars, 20012011

29

2.12 Funds of Funds

Funds of funds are mutual funds that primarily hold and invest in shares of other mutual funds. The most popular type of these funds is hybrid fundsover 80 percent of funds of funds total net assets are in hybrid funds of funds. Hybrid funds of funds invest their net cash in underlying stock, bond, and hybrid mutual funds. Assets of funds of funds have grown rapidly over the past decade. By the end of 2009, the number of funds of funds had grown to 865, and total assets were $489 billion. Two-thirds of the increase in assets of funds of funds in the past 10 years is attributable to increasing investor interest in lifestyle and lifecycle funds. The growing popularity of these funds, especially for retirement investing, likely reflects the automatic rebalancing features of these products. Lifestyle funds, also known as risk-based funds, maintain a predetermined risk level, and lifecycle funds, also known as target date funds, allow a predetermined reallocation of risk 30

over time. Since year-end 1999, funds of funds received a total of $488 billion in net new cash, of which 69 percent was from lifestyle and lifecycle funds.

Total Net Assets and Net Flows to Funds of Funds

20012011

Number of funds Year-end 2001 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 215 213 268 301 375 475 603 720 865 932 964

Assets Net new cash flow Billions of dollars, year- Billions of dollars, end annual 57 63 69 123 200 306 470 637 489 673 928 10 9 12 30 51 79 101 126 62 69 134

2.13 Index Mutual Funds

Index funds continued to remain popular with investors. Of households that owned mutual funds, 31 percent owned at least one index mutual fund in 2011. As of year-end 2011, 365 index funds managed total net assets of $1 trillion. Similar to funds of funds, demand for index funds remained strong in 2011 with investors adding $58 billion in net new cash flow to these funds. About 40 percent of the new money that flowed to index funds was invested in funds indexed to bond indexes, while one-third was directed toward funds indexed to global and international stock indexes and one-quarter went to funds indexed to domestic stock indexes. Demand for global and international equity index funds picked up in 2011, with these funds experiencing an aggregate inflow of $19 billion.
Net Flows to Index Funds
Billions of dollars, 19972011

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Equity index funds accounted for the bulk of index mutual fund assets at yearend 2011. Eighty-one percent of index mutual fund assets were invested in index funds that track either the S&P 500 or other domestic and international stock indexes. Funds indexed to the S&P 500 managed 37 percent of all assets invested in index mutual funds. The share of assets invested in equity index funds relative to all equity mutual funds assets moved up to 14.5 percent in 2011.

37 Percent of Index Fund Assets Were Invested in S&P 500 Index Funds
Percent, year-end 2010

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Equity Index Funds Share Continued to Rise

Percentage of equity mutual fund total net assets, 19972011

2.14 Institutional Money Market Funds

Institutional money market fundsused by businesses, pension funds, state and local governments, and other large-account investorshad outflows of $399 billion in 2011, following outflows of $230 billion during the previous year. Outflows from institutional money market funds likely reflected the low interest rate environment and the continued unwinding of the flight to quality by these investors in 2007 and 2008. The tumult in financial markets around the world that started in August 2008 and continued through early 2010 led many institutional investors to seek the liquidity and safety of money market funds that invest primarily in U.S. government securities. These funds, which can invest in U.S. Treasury debt solely or a 33

combination of U.S. Treasury debt and obligations of U.S. government agencies, received $881 billion in net new cash flow from institutional investors in 2007 and 2009. As financial markets stabilized in 2010 and 2011, institutional investors shifted away from U.S. government money market funds, withdrawing $537 billion, on net, from these funds over the past two years. Nevertheless, U.S. government money market funds comprised nearly 39 percent of institutional taxable money market assets at year-end 2011, up from only 24 percent at year-end 2007, prior to the start of the financial crisis.

Total Net Assets and Net Flows to Taxable U.S. Government and Non-Government Institutional Money Market Funds
Billions of dollars, 20022011

U.S. government

Non-government

Total net assets Net new cash flow Total net assets Net new cash flow Year-end Annual Year-end Annual 2002 2003 2004 2005 2006 2007 2008 $296 301 272 256 276 289 578 $73 -0.4 -32 -20 17 9 281 34 $787 818 733 675 745 901 1,106 $255 20 -95 -64 33 130 169

2009 2010 2011

1,204 903 677

600 -310 -227

1,076 1,181 1,058

-75 108 -132

U.S. non financial businesses continued to reduce their holdings of money market funds in 2011. During the financial crisis, corporate treasurers made extensive use of institutional money market funds; at year-end 2009, 36 percent of their short-term assets were in money market funds. By year-end 2011, non financial businesses held 25 percent of their short-term assets in money market funds, back to approximately the same proportion measured at year-end 2007, prior to the start of the financial crisis. Money Market Funds Managed 25 Percent of U.S. Businesses Short-Term Assets* in 2011 Percent, year-end, 19972011

U.S. non financial businesses short-term assets consist of foreign deposits, checkable deposits, time and savings deposits, money market funds, repurchase agreements, a Third, deteriorating corporate credit quality in generaland more specifically, the default of Lehman Brothers on its debt, which resulted in the breaking of the dollar NAV by Reserve Primary Fund (an institutional money market fund)influenced the type of money market funds toward which institutional investors gravitated. Primary Funds losses in September 2008 led investors in other non-government (prime) money market funds to question whether their funds might also have difficulty maintaining a $1 NAV. This concernin addition to broader concerns about the stability of U.S. and European financial institutions, the creditworthiness of their debt, and the willingness and wherewithal of the United States and foreign governments to support those institutionsled investors to seek out the liquidity and safety of money market funds that invest primarily in U.S. 35

government securities. These funds, which can invest in U.S. Treasury debt solely or a combination of U.S. Treasury debt and obligations of U.S. government agencies, received a record $594 billion in net new cash flow in 2008. Eighty-two percent of this new cash was invested after August 2008. As of year-end 2008, U.S. government money market funds accounted for 52 percent of total assets of taxable institutional money market funds, up from 34 percent at year-end 2007.

2.15 MUTUAL FUNDS, GETTING MORE INVESTOR FRIENDLY

In March, the Securities and Exchange Board of India (Sebi) announced a series of steps to make mutual funds more investor friendly. One of the changes made was cutting down the new fund offer (NFO) period. NFOs launched by mutual fund houses for open- and close-ended schemes will be available for initial subscription for 15 days starting July 1 as against currently allowed 30 and 45 days period, respectively. The first impact is already being seen. Fund houses have launched their schemes before the due date so that the NFO can be kept open for the presently 36

allowed time span. There are some other impacts, which will be seen once the change becomes effective. The number of new offers hitting the market are quite high as asset management companies (AMCs) are trying to launch new schemes before July 1. The important point is that these funds will be open after July 1 also. Investors shouldn't be rushing into investing in these funds because of the sudden surge in choices available. Investors should decide, based on their need as to why they need to add a particular new fund to their portfolio.

The benefits to investors

Earlier, the distributor would receive 2.25% entry load every time you would invest in mutual find. With every investment made by you, the distributor would get richer. However, with the new rule, the payment of the commission would be mutually decided by the investor and the distributor. Further, this would also lead to the distributors giving proper and unbiased advice to you, as his motive is no longer which fund is providing higher commission, but the kind of service he is providing the investor. Further, when you invest through the distributor, you can pay the distributor by way of cheque for his services. 37

Further as per the circular, the distributor has to now disclose a chart, or table, stating what commission is earned from what AMC for investments into specific mutual fund schemes. SEBI has been taking various steps to empower the investors in mutual funds by way of more transparency in the loads borne by the investor so that the investor can take informed investment decisions. SEBI recently came out with another major change in the mutual fund industry by launching a platform to enable buying and redeeming of MF units on the exchange. Investors can now buy or redeem the open ended mutual fund on NSE through a broker or an online trading account just like one buy and sell stocks. Investors can also opt for physical delivery of units and need not have a separate demat account. Further, the investor can opt for the online platform offered by the NSE and BSE or the offline way i.e. through distributors or directly through MF houses. For the investors who do not aspire to transact in mutual funds through this system has the facility of holding units in the physical form and transact as they have been doing till date.

2.16 FUTURE OF MUTUAL FUNDS IN INDIA

By December 2011 Indian mutual fund industry reached Rs 1,50,537 crore. The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2011, mutual fund assets will be double.

Some facts for the growth of mutual funds in India

100% growth in the last 6 years 38

Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide.

Our saving rate is over 23%, highest in the world. Only canalizing these savings in mutual funds sector is required. We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion. Mutual fund can penetrate rural regions like the Indian insurance industry with simple and limited products. SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Introduction of Financial Planners who can provide need based advice

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CH : 3 RESEARCH METHODOLO GY

3.1 INTRODUCTION OF REARCH

Rearch is done in to gain some knowledge so as to it may aid in understanding the information gathered on a specific topic. It is a scientific and systematic way of understanding information on specific and particular subjects. It is a scientific investigation to understand the cause and effect as well as the reasons through investigation. It is a academic activity. And it is to 40

 Be used in technical sense. Today completion and market both have expanded. The company every now Research has been done to and then can not afford to undertake research activities as research involves huge cost. The company undertake research activities when it perceives that something is going wrong there is lack of information to solve a particular problem

DEFINITION:
Research is a scientific and systematic search for pertinent information on a specific topic. Research is an art of scientific investigation. Research methodology is a way to systematically solve the research problem. It is a science of studying how research is done scientifically.

3.2 TYPES OF RESEARCH: Descriptive vs. Analytical

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Descriptive research includes surveys and fact-finding enquiries of different kinds.The main purpose of descriptive research is description of the state of affairs as it exists at present. In analytical research, on the other hand, the researcher has to use facts or information already available, & analyze these to make a critical evaluation of the material.

Applied vs. FundamentalApplied research aims at finding a solution for an immediate problem facing an industry/organization, whereas fundamental research is mainly concerned with generalizations & with the formulation of a theory.

Quantitative vs. QualitativeQuantitative research is based on the measurement of quantity or amount. It is applicable to phenomena that can be expressed in terms of quantity. Uanlitative research, on the other hand, is concerned with quanlitative phenomena, i.e., phenomena relating to or involving quality or kind.

Conceptual vs. empiricalConceptual research is that related to some abstract idea or theory. On the

other hand, empirical research relies on experience or observation alone, often without due regard for system & theory.

3.2 REARCH PROCESS 1) Formulating the research problem:There are two types of research problem those, which relate to states of nature and those, which relate to relationships between 42

variables.Essentially two steps are involved in formulating the research problem, viz., understanding the problem thoroughly, & rephrasing the same into meaningful terms from an analytical point of view.

2)

Preparing the research design:The research having been formulated in clear-cut terms, the researcher will be required to prepare a research design, i.e., he will have to state the conceptual structure within which research would be conducted.

3)

Collecting the data:There are several ways of collecting the appropriate data which differ considerably in context of money costs, time and other researchers at the disposal of the researcher.There are two ways of collecting the data i.e., primary & secondary. Primary data can be collected either through experiment or through survey. Whereas secondary data is collected from books, journals, internet, etc.

4) Execution of the project:Execution of the project is a very important step in the research process. The researcher should see that the project is executed in a systematic manner & in time.

5)

Analysis of data:After the data have been collected the researcher turns to the task of analyzing them. Thus researcher should classify the raw data into some purposeful & usable categories.

6)

Generalizations and interpretation:43

As a matter of fact, the real value of research lies in its ability to arrive at certain generalizations. The researcher might seek to explain his findings on the basis of some theory. It is known as interpretation. The process of interpretation may quite often trigger off new questions which in turn may lead to further researches.

7)

Preparation of the report:Finally the researcher has to prepare the report of what has been done by him. Writing the report must be done with great care keeping in view the following: The layout of the report should be as follows: i) The preliminary pages :- Includes title, acknowledgement, a table of contents, list of tables & charts, etc. ii) The main text :- includes introduction, summary of findings, main report & conclusion . iii) At the end of the report :- appendices should be enlisted along with bibliography.

3.3 RESEARCH OBJECTIVE

To give a brief idea about the benefits available from Mutual Fund investment. To discuss about the market trends of Mutual Fund investment. Explore the recent developments in the mutual funds in India. 44

To give an idea about the regulations of mutual funds To give a brief idea about Mutual Fund investment. To know the preference of investors. To analyse the effect of growth of mutual funds on the economy/investors. To know the reasons for growth of mutual funds.

LIMITATIONS OF THE STUDY:

The time constraint was one of the major problems. The study is limited to the different schemes available under the mutual funds selected. The lack of information sources for the analysis part.

NEED & SCOPE FOR THE STUDY:

The main purpose of doing this project was to know about mutual fund and its functioning. This helps to know in details about mutual fund industry right from its inception stage, growth and future prospects. It also helps in understanding the types of mutual funds. My study depends upon developmet of mutual funds in past five years. Ultimately the need was was to understand the benefits of mutual funds to investors which leads to its growing preference. In my project the scope is limited to trends of mutual fund industry.

RESEARCH PROBLEM
The research problem of the study is the GROWING PREFERENCE OF MUTUAL FUNDS AMONG INVESTORS.

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RESEARCH DESIGN
A research design is the arrangement of conditions for collection & analysis of data in manner that aims to combine relevance to the research purpose with economy in procedure. Thus, it is the conceptual structure within which research is conducted. The design: 1.) Research problem- Growing preference of mutual funds among the investors. 2.) Reason for doing the study- To know the growth rate of investment in mutual funds & the reasons for growth. 3.) Type of data- The data collected is the secondary data . It is the data relating to past records of mutual fund performance in India. 4.) Source of data- Websites, books, journals, magazines. 5.) Data analysis- The data so collected is the past data of performance of mutual funds. It will be analyzed by use of pie charts & bar charts.

DATA COLLECTION
To achieve the objective of studying the stock market data has to be collected. Research carried for a study can have two types of data: 1. Primary 2. Secondary

PRIMARY:
Primary data can be collected either through experiment or through survey. The tools for collection of primary data are: i) Observation ii) Personal interview iii) Telephone interview IV) Questionnaires v) Schedules

46

SECONDARY:
The information collected through this method is known as the second hand data. This type of collection of data is known as library method. The tools for collection of secondary data are: i) ii) iii) iv) websites books journals Magazines.

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Ch:4 DATA ANALYSIS & INTERPRETATION

48

SOURCE: RBI HANDBOOK 2011. Pg. No. 186 YEAR KOTAK MAHINDRA 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 854.9 943.7 1914.7 1066.1 2432 1238 3128 929.9 4607.9 3716.8 2122.4 4657.7 -54.9 3334.7 7140.4 15789.1 7440.1 11358.3 HDFC ICIC PRUDENT IAL 1404.8 200.6 4385 170.3 5634.6 13785 12137.6 -4715.3 10371.5 BIRLA SUN LIFE 608.3 976.2 31085.1 1115.3 2067.2 4202.7 12831.1 6643.8 12492.3 -17.4 89.4 2772.4 2387.5 1379 2290.3 5613.9 -2871.5 128 TATA RELIANC E 710.5 1305.2 3967.9 1849.7 15033.9 22581 40187.4 -8863.2 1429

The chart states that Reliance mutual fund is leading in years of 2008-09 & 2009-10. In 2004-05 & 2005-06 ICICI Prudential is leading followed by Tata mutual fund in 2006-07. All mutual funds have shown a mix trend. But one thing common is that in year 2006-07 all the mutual funds are showing a decreasing trend. 49

50

SOURCE: RBI HANDBOOK 2011. Pg. No. 186 YEAT 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 UTI -7284 -9434 1050 -2467 3424 7326 10678 -3659 15653 BANK SPONSERD 863 1033 4526 706 5365 3033 7786 4489 9855 FISPONSERD 406 861 787 -3384 2112 4226 2178 5954 4871 PRIVATE SECTOR 16134 12122 41510 7933 41581 79477 128032 -31425 48166

51

The chart shows that there is an increasing trend in resources mobilized by the mutual funds. However, the year 2009-10 shows that there is a slight fall in resources mobilized

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CH : 5 FINDINGS, SUGGESTIONS & CONCLUSION

53

FINDINGS
From the research done in this report, it is found that mutual funds offer various kinds of funds to suit the needs of the investor. From the reforms introduced in the year 2009, the dealing in mutual funds has become more user friendly as the mutual funds will be listed and so the investors will get a better & an easy platform for buying & selling of funds. The SEBI in year 2010 also introduced another reform abolishing the entry load. The reforms so introduced are making the investment in mutual funds more attractive. Thus increasing the popularity of mutual funds. The analysis of past data of last five years has also shown that there is an overall increase in investment in mutual funds. The topper of the charts is Reliance mutual fund followed by ICICI Prudential. The investors get tax benefits by investing in mutual fund. The investors can now deal in mutual fund without any intermediaries.

SUGGESTIONS
54

The investors invest more in mutual fund because they reduce the risk through diversification. The investors should invest more in debt oriented funds offered by mutual funds as the analysis has shown that debt oriented funds have shown a growing trend as compared to equity oriented funds. The Investors should Invest more in mutual fund because the return on mutual fund is fixed than any other investment proposal The investor should invest more in mutual fund because they can start investing by even small amount. The investors should invest in mutual fund because muyual provides systematic investment plan that is SIP & SWP both which is better for investors point of view.

CONCLUSION
Thus, from the above research it can be concluded that : Mutual funds have come up as a very easy and versatile source of investment. Due to the reforms introduced in past years the mutual funds have become more attractive as an investment option. There has been a growing trend in mutual funds which is seen from the past records. People awareness for mutual funds is increasing. By investing it is concluded that the preference of investing in mutual fund 55

more than other type of instruments. By searching also that more &more number of people are wiling to invest in mutual fund.

BIBLIOGRAPHY
Reference books:
Quantitative techniques, New Delhi, Vikas Publishing

Kothari, C.R.,

House Pvt. Ltd., 1978.

Websites:
www.moneycontrol.com www.traderji.com www.amfiindia.com www.rbi.org.in www.mutualfundsindia.com www.sebi.com

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