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!

" #!
1. Concept and Role of Mutual Funds
2. Fund Structure and
3. Legal and Regulatory
3. Constituents

" #!
4. Offer Document
5. Fund Distribution and Sales Practice
6. Investor Plan and Services
7. Measuring and Evaluating Mutual Fund Performance

8. Helping Investors Understand Risk in Fund Investing

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 $) #

$%# 
&'# (

 '(# * ##)%%#*&(# ##)#+
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 ,) #( # -

: It is a pool of money, collected from investors, and is invested

according to certain investment objectives

:
e owners
ip of t
e fund is t
us joint or mutual, t
e fund belongs

to all investors.

:  mutual funds business is to invest t
e funds t
us collected,

according to t
e t
e wis
es of t
e investors w
o created t
e pool

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 '# #%)  %#(#%(& # -
:
e owners
ip is in t
e
ands of t
e investors w
o
ave pooled in
t
eir funds so it is joint or mutual.
: It is managed by a team of investment professionals and ot
er service
providers.
:
e pool of funds is invested in a portfolio of marketable investments.
:
e investors s
are is denominated by µunits¶ w
ose value is called as
Net sset Value (NV) w
ic
c
anges everyday.
:
e investment portfolio is created according to t
e stated investment
objectives of t
e fund.
: Mutual Funds are also known as Financial Intermediaries
: In India, Mutual Funds are constituted as RUS S.

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 . # (&# (#.(#(-

: Portfolio diversification
: Professional Management
: Reduction in Risk
: Reduction in ransaction costs
: Liquidity
: Convenience and Flexibility
: Safety ± Well regulated by SEBI

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 ,) # #)( . # (&.(#
#))# (-

: No control over t
e costs. Regulators limit t
e expenses of

Mutual Funds. Fees are paid as percentage of t
e value of
investment.

: No tailor made portfolios.

: Managing a portfolio of funds. ( Investor
as to
old a

portfolio for funds for different objectives ).

:One fund can
ave sc
emes of similar objectives so,

selection becomes difficult.

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 /.#&# (

P
ase 1 ± ( 1964 ± 1987)- Growt
of U I

: U I sole player in t
e industry, created by an %#&"  '#0123
:
e first product launc
ed by U I was Unit Sc
eme 1964
: U I creates products suc
as ULIP (1971), MIP's, C
ildren Plans(1986) ,Offs
ore
Funds etc.
: 
/4/ 15 (#|.(&/6#
.(#'#%)' +
: INDI Fund ± 1st Indian offs
ore fund launc
ed in ugust 1986.

P
ase 2 ± ( 1987 ± 1993)- Entry of Public Sector Funds

: In 1987 Public Sector Banks and FI's got permission to set up MF.
: 7'# &8 (#)&(#!
'# &0(#.'*15
:
is was followed by Canbank MF, LIC MF, Indian Bank MF, BOI MF, GIC and PNB
MF
: In 1993, Mutual Fund Industry was open to private players.
: SEBI got its regulatory powers in 1992

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 /.#&# (

: P
ase 3 ± ( 1993-1996) ± Emergence of Private Funds

: In 1993, Mutual Fund Industry was open to private players.
: SEBI's first set of regulations for t
e industry formulated in 1993
: Significant innovations, mostly initiated by private players
P
ase 4 ± ( 1996-1999) ± Growt
and SEBI Regulation
: Implementation of new SEBI regulations led to rapid growt

: Bank mutual funds were recast as per SEBI guidelines
: U I came under voluntary SEBI supervision.
: Dividends made tax free in 1999.
: Mutual funds assets in mid-2002 were app. 1,00,000 crore
: During t
is p
ase, bot
SEBI and MFI launc
ed investor awareness programmes.

 (*() *9###: 9# (89&


)
.(#(;<=

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 /.#&# (

P
ase 5 ± (1999-2004) ± Emergence of a large and uniform

industry
± U I ct Repealed in February 2003.
:  *
&> +0>0%
: Rapid growt
, significant increase in corpus of private players
: ax break offered created arbitrage opportunities
: Bond funds and liquid funds registered
ig
est growt

P
ase 6 ± From 2004 onwards : Consolidation and Growt

: Mergers and cquisitions witnessed
: lliance MF acquired by Birla Sunlife
: Sun F&C by Principal PNB Mutual fund.

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 /'%&   &'(#

: U I ct repealed in 2003.

: U I now does not
ave a special status. (now under SEBI)

: Size of industry was 0>0 crore in >.

: Merger and cquisitions
appening.

: Fidelity, Largest MF
as entered India.

: t t
e end of Marc
2006, t
ere were 29 Funds.

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 Mutual Fund Classifications

,) # !&(-
: In an open ended fund, investors can buy and sell units of t
e
fund, at NV related prices, at any time, directly from t
e fund.
: Open ended sc
eme are offered for sale at a pre- specified
price, say Rs. 10, in t
e initial offer period. fter a pre-specified
period say 30 days, t
e fund is declared open for furt
er sales and
repurc
ases
: Investors receive account statements of t
eir
oldings,
:
e number of outstanding units goes up and down
:
e unit capital is not fixed but variable.
:t
e corpus of an Open-ended sc
eme c
anges everyday

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 ,) # %(!&(-

:  closed -end fund is open for sale to investors for a specified

period, after w
ic
furt
er sales are closed.
: ny furt
er transactions
appen in t
e secondary market (stock
exc
ange) w
ere closed-end funds are listed.

:
e price at w
ic
t
e units are sold or redeemed depends on

t
e market prices, w
ic
are fundamentally linked to t
e NV.

:
e number of units of closed ended funds remains unc
anged.

:
e unit capital is fixed because of one time sale.

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    (
: Load is t
e one time fee payable by t
e investor to allow t
e fund to
meet initial issue expenses including brokers/agents¶/distributors¶
commissions, advertising and marketing expenses.

: Funds t
at c
arge front end( entry) load, back end (exit), or deferred
loads are called LOD funds.

: IF t
e investors¶ objective is to get t
e benefit of compounding
is

initial investment by reinvesting and
olding
is investment for a very
long term, t
en , a no front load fund is preferable.

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/ '#(+
/ '#(
: W
en a fund invests in tax exempt securities, it is called a tax
exempt fund.
: In India any income received by mutual fund is tax free.
: fter 1999 budget, all dividend income received from MF is
tax free in
ands of t
e investor. But all funds ot
er t
an
open ended equity funds
ave to pay a dividend distribution
tax.
: So in India, open end equity oriented mutual fund sc
emes
are tax exempt investment avenue, w
ile ot
er funds are
taxable for distributable income.
: fter 2005 budget, repurc
ase transaction for equity oriented
sc
emes are subject to Securities ransaction ax.

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 

    

/6#
|*# 
 9#

/6#
(  %' 
 9#

 ( ( # (
%#( <
(

7  %( 6(

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 ,) # 6#
&(-
Predominantly invest in equity s
ares of t
e company.
$)%(6#
&(+
: ggressive Growt
Funds ( argets maximum capital appreciation.)
: Growt
Funds (Capital appreciation over 3 to 5 years at above average
rate.)
: Speciality Funds
* Sector Funds (Bank, Power, P
arma, I , elecom)
* Foreign Securities Fund ( investment in s
ares of different
countries to make it more diversified)
* Mid cap or Small cap Equity funds
* Option Income Funds (Do not yet exist in India)
: Diversified Equity Funds (Do not focus on any one or few sectors or
s
ares)
: Equity Index Funds (
ese funds take only t
e overall market risk)
: Value Funds (Invests in t
e companies w
ose s
ares are under-priced)
: Equity Income or Dividend yield funds (Invests in t
e s
ares of
t
e companies wit

ig
dividend yield.)

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 ,) # 6?
 9#&(-
:
ese debt funds invest only in instruments wit

maturities (( #) 
 .
: Lowest in t
e order of risk level.
:
e investment portfolio is very liquid and enables
investors to
old t
eir investments for very s
ort
orizons
of a day or more.

W
at are Gilt Funds?

: It invests only in securities t
at are issued by t
e Government and
t
erefore do not carry any credit risk
: <.'#  (  %  (  # (%#( (+
: It invests in medium to long-term government papers.
: Ideal for institutional investors w
o
ave to invest in Govt. Securities
: Enables retail Participation

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 / /6#
9 .%)'
: 3 year lock in period
: Minimum investment of 90% in equity markets at all times
: So ELSS investment automatically leads to investment in equity
s
ares.
: Open or closed ended.
: Eligible under Section 80 C up to Rs.1 lak
allowed
: Dividends are tax free.
: Benefit of Long term Capital gain taxation.

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'" (

: F Ps are closed ended in nature.

: MC issues a fixed number of units for eac
series
only once, and closes t
e issue after an initial
offering period.
: Fixed erm plan are usually for s
orter term ± less
t
an a year.
:
ey are not listed on a stock exc
ange.
: F P series are likely to be an Income sc
eme.
: Good alternate of Bank deposits/ corporate deposits.

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 $''#
(
: It will invest directly in commodities or t
roug

s
ares of t
e commodity companies or t
roug

commodity futures contract.
: Most common example of suc
fund is precious-
metal fund.
: Gold funds invest in Gold, Gold futures or s
ares
of gold mines.

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 / %) 
 (
: It combines t
e best features of open end
and closed structure.
: It tracks a market index and trades like a
stock on t
e stock market.
: E Fs are not t
e index funds
Real Estate Funds
It can :
: Invest in real estate
: Fund real estate developers
: Buy s
ares of
ousing finance companies
: Buy securitized assets.

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 48 &(&&##'(&#)(9&-
È
 

    

         

 
 
        
 



 
    
       

 

† In US, a MF is constituted as an investment company and an
investor buys t
e s
are of t
e fund.
Important points
† In US, all mutual funds are open ended.

† In US, funds are also classified as ax Exempt and Non ax

Exempt Funds

† In India, classified as Open ± Closed ended, Load and No Load

Funds.

† Mutual Fund is NO a company, it can be called as a portfolio of

stocks, bonds and ot
er securities or it can be called as pool of
funds used to purc
ase securities on be
alf of investors or a
collective investment

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'# #"#(#''*
: n Open Ended Fund offers repurc
ase facility unconditionally at
all times (But It is not obliged to keep selling new units at all times).
:  Gilt Fund is a special type of Fund t
at invests in Dated
Securities only.
: Units from an Open ended fund are boug
t t
roug
gencies
appointed by MC ( Distributors, Banks, Post offices, brokers etc.)
:
e Unit Capital of a closed Ended Fund is fixed. lso t
e number
of units are also fixed.
: Eac
unit
older of a mutual Fund is  #8 of t
e asset of t
at
Mutual fund (
e is not a creditor, not a debtor and not a trustee of
t
at mutual fund).
: Units from an Open Ended fund are boug
t from t
e Fund Itself (
not from t
e MFI, stock exc
ange, distributors or t
e banks).
:
e assured return sc
emes of t
e U I
ave gradually been wound
up.

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 @(#(&.(
-1
 mutual fund investor
(a) Has a say in deciding t
e individual securities to be included in t
e portfolio
(b) Can ask t
e fund manager to construct a tailor-made portfolio for
im
(c) Can never c
ange t
e investment manager of t
e sc
eme
(d) Delegates t
e decision of portfolio construction to t
e fund manager.
-2
W
ic
of t
e following was t
e first sc
eme launc
ed by U I Mutual Fund?
(a) US 64 (b) C
ildren Growt
Plan (c)Master s
are (d) None of t
e above.
-3
W
ic
of t
e following fund targets capital appreciation over 3 to 5 year period at above
average rate?
(a) ggressive growt
fund (b) Growt
fund (c) Sector fund
(d) None of t
e above.

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 -4
@(#(&.(
GIC launc
ed t
e mutual fund product in p
ase
(a) I (b) II (c) III (d) IV.
-5
Gold funds can invest in
(a) Gold (b) Gold futures (c) S
ares of gold mines (d) ll of t
e above.
-6
W
ic
of t
e following is not c
arged by t
e no-load funds?
(a) Marketing expenses (b) Management and advisory c
arges
(c) Ongoing expenses (d) Bot
(b) and (c) above.
-7
W
ic
one of t
e following funds does not qualify as a speciality fund?
(a)P
arma Fund (b)Balanced Fund (c) Small-Cap Fund (d) Emerging Markets Fund
nswers:
-1 : (d), -2 : (d), -3 : (b), -4 : (b), -5 : (d), -6 : (a), -7 : (b)

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 $) #

à
  



  


 '(# * ##)%%#*&(# ##)#+
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 Structural Framework of Mutual Funds

Sponsor

rustee MC

Responsible for investors

money (Primary Guardian)

Fund Management Marketing & Distribution

Banks Registrar & CustodianË

ËCustodians are appointed by rustees

 ,) #(#) #
(#%#& -

:      


  


  à
   

+

: It is mandatory to
ave a t
ree tier structure of

Sponsor- rustee-sset Management Company.

:
e Sponsor is t
e promoter and
e appoints t
e

rustees w
o are responsible to t
e investors of
t
e fund.

: MC is t
e business face of t
e mutual fund as it

manages all t
e affairs of t
e fund

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 ,)% *#)(-,) #(#)(-

:
e sponsor establis
es t
e mutual fund and registers

t
e same wit
SEBI
: Sponsor appoints t
e rustees, t
e MC and custodians
wit
prior approval of SEBI and in accordance wit
SEBI
Regulations
: Sponsor must
ave a 5-year track record of business
interest in t
e financial markets
: Sponsor must
ave been profit making in at least 3 of
t
e above 5 years.
: Sponsor must contribute at least 40% of t
e net wort
of
t
e MC
: Sponsor could be a bank (SBI, PNB, ICICI, HDFC) a financial
institution (Fidelity, Franklin empleton) or a Corporate (Reliance,
Birla, ata etc.)

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 48 # (#%#-

: In India Mutual fund is t
e form of a Public rust created

under t
e  #(#%#+
:
e fund sponsor acts as t
e Settler of trust, contributes
t
e initial capital and appoints t
e trustees to
old t
e
trust for t
e benefit of t
e unit
olders.
: Mutual fund is just a : ((!#)).)%=
: In India, Mutual funds are organized as trusts.
e trust
is eit
er managed by a Board of rustees, or by a trustee
company.
:
)#(#()#)#)('
 
&% 
%  %#
+ 
*(##)(
:  ((0#).(#( #)*&% 
8(&.(#'#(+

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 |

 :
ere must be at least A members in t
e Board of
rustees and at least ?3 of t
e members of t
e board
of trustees must be #.

: rustee of one mutual fund can not be a trustee of

anot
er mutual fund.

: rustees are t
e ' 
  ( of t
e unit-

olders¶ funds and assets.

:
e 3(%) of t
e SEBI regulations specifies

t
e content of t
e trust deed.

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 ,) # #))#(&#)
(#(-
: rustees appoint t
e MC, in consultation wit
t
e sponsor
and according to SEBI Regulations
: ll Mutual Fund Sc
emes floated by t
e MC
ave to be
approved by t
e rustees
: rustees can seek remedial actions from MC, and in
cases dismiss t
e MC
,) # #)* #(&#)
(#(-
: rustees must ensure due diligence on t
e part of MC in
t
e appointment of constituents and business associates
: rustees must furnis
to t
e SEBI, on
alf yearly basis a
report on t
e activities of t
e MC
: rustees must ensure compliance wit
SEBI regulations
: SEBI Regulations require t
at t
e meeting of t
e trustees s
ould be
eld
at least %.
#8'#)(.

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  #
6'#(&#)$-
: Only SEBI registered MC can be appointed as investment
managers of mutual funds
: $'(#) . '''#8#)&(+$+0 # 
#'(
: n MC cannot be an MC or rustee, of anot
er Mutual
Fund
: MC¶ s cannot indulge in any ot
er business, ot
er t
an
t
at of asset management
: t least
alf of t
e members of t
e Board of an MC,
ave
to be independent
:
e 4t
Sc
edule of SEBI regulations spells out rig
ts and
obligations of bot
trustees and MCs
:
) '#*#8#)
(#( #)$(
98 (:.(#'#  '#'#=+

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 ,) #(#)$ &(#(&%#(-

:
e sponsors, or t
e trustees, if aut
orized by t
e

trust deed appoint t
e MC.

:
e MC is usually a private limited co., in w
ic

t
e sponsors and t
eir associates or JV partners
,are s
are
olders

:
e MC
as to be a SEBI registered entity, wit
a

minimum net wort
of Rs. 10 Cr.

:
e trustees sign an investment management

agreement wit
t
e MC, w
ic
spells out t
e
functions of t
e MC

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 |

 ,) ##)(#  
 (&#(-

ey are responsible for (( ' units of
t
e Mutual Fund.
eir ot
er services include:
: Process investor applications
: Record details of Investors
: Send information to Investors
: Process dividend payout
: Incorporate c
anges in investor information
: eeping Investor information up to date
:Example arvy and CMS

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 ,) #(#)&( (#*# #(-

: Selling agents bring investors funds for a commission

: Distributors appoint agents and ot
er mec
anisms to

mobilize funds from investors

: Banks and post offices also act as distributors

:
e commission received by t
e distributors is split into

initial (Upfront) commission w
ic
is paid on mobilization of
funds and trail commission w
ic
is paid depending on t
e
time t
e investor stays wit
t
e fund

: Sponsor or an associate can also act as a distributor for t
e MC.

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 ,) # #)&%#(&#)%(# (-

: Responsible for t
e securities
eld in t
e mutual fund¶s

portfolio and is required to be registered wit
SEBI

: Custodian is appointed by t
e Board of rustees

: eep an investment record of t
e mutual fund

: Collect dividends and investment payments due on t
e

mutual funds investment

:
)%(#  ((% #*#)( '##

:
)%(# (#)  &#)&(  ((#(&
.(#(

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 |

  ('(&( 
9.(

: Merger of MC to become a single entity

( Example : HB Mutual and aurus Mutual )

: MC takeover by sponsors ( Example : I C

readneedle and 20t
century taken over by
Zuric
) ( I I by Franklin empleton) (lliance by
Birla)

: Sc
eme takeover (pple¶s sc
eme taken over by

Birla MC ) and ( Zuric
¶s Sc
eme akeover by
HDFC Mutual Fund)

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     %    q

    V

          # q



 


 





 
 
 
   
    !"
 #
       
$% 
      
$% 
#      

|
 |

 Important Points
: In US, t
e regulatory body is known as
Securities Exc
ange Commission.
:
e sponsor may be compared to promoter of
a company
: Issuing units and redeeming units is t
e role of
ransfer gent
:
e appointment of MC can be terminated by
Majority of directors of trustees.
: '  (((*&&
# (&#)&(;#&8#)/7+

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 |

 '# #"#(

:  sponsor of a mutual fund can act as t
e distributor

of t
e Mutual fund.
: Sponsor can contribute to t
e initial corpus of t
e
trust.
: Sponsor contributes to t
e capital of t
e MC.
: Sponsor can invest in
is own fund¶s sc
emes.
: Sponsor can not act as rustee of Mutual fund.
: Sponsor can not act as Custodian of t
e Mutual Fund

|
 |

 @(#(&.(
-1

e appointments of fund distributors are made by
(a)
e ransfer gents (b)
e Fund Sponsor (c)
e rustees (d)
e MC
-2
In India, a mutual fund
as to be structured:
(a) s a trust (b) s an investment company
(c) Eit
er as a trust or as a company at t
e c
oice of t
e sponsor
(d) None of t
e above
-3
W
ic
of t
e following is true wit
respect to t
e merger of two MCs?
(a)
e Companies ct apply to t
e mergers of t
e two MCs
(b) For suc
mergers t
e approval of respective Hig
Court is also needed
(c) Merger of HB and aurus is t
e example of t
e merger of two MCs
(d) ll of t
e above.

|
 |

 uestions for Revision
-4
W
ic
of t
e following entities is responsible for issuing and redeeming units?
(a) Custodian (b)Bankers (c) Registrar (d) Distributors.
-5

e acquisition of Zuric
by HDFC is t
e example of
(a) Sc
eme takeover (b) MC takeover by a new sponsor
(c) Merger of two MCs (d) None of t
e above.

nswers:
-1 : (d), -2 : (a), -3 : (d), -4 : (c), -5 : (a)

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 |


!

   #
 '89

 '(# * ##)%%#*&(# ##)#+
|
 |

  #%(&# 
: SEBI ( Establis
ed in 11*
 %#&"  '#)
: Mutual Funds are regulated by SEBI (Mutual Funds) Regulations, 1996
: SEBI regulates all funds, except offs
ore funds i.e. t
ose sc
emes offered in a
foreign country
: 7 9!(('# &(8 B#
 #*
/7 7
: Subsequently it
as been clarified t
at all MFs being primarily capital market players,
come under t
e regulatory umbrella of SEBI.
: RBI regulates t
e money and government securities market w
ere t
e mutual funds
invest but t
e not t
e MMMF.
: 6&(8)%).(#'
' 9#(#'#( 8.*

/7 + 
 9## ( 8 #*
/7
: If a bank-sponsored mutual fund offers a guarantees, it requires RBI permission
: ll sc
emes of U I are now under U IMF, are managed by a U I MC and under
purview of t
e SEBI
: /7 #() (# (0$(# (0# (0#%9/ %) (
() *9(+7##(# #7 9 %%' (+

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 |

 ,) #(#)&(#
& %'# &
 #(-
:
e finance ministry is t
e supervisor of bot
t
e RBI and SEBI
: ggrieved parties can make appeals to t
e MoF on t
e SEBI rulings
relating to mutual funds
: MCs
as to file its annual statements wit
Registrar of Companies
( RoC)

,) # (& #
 C #( ;(-

† Stock exc
anges are Self-Regulatory Organizations

† SROs are t
e second-tier in t
e regulatory structure
† SROs get t
eir powers from t
e apex regulating agency and
act on t
eir instructions
† SROs cannot do legislation of t
eir own
† SROs regulate only t
eir own members in limited manner
† SROs facilitate decentralization in t
e regulatory structure.

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 |

 ,) # #)*B%#.(&-
MFI is an industry association, incorporated in 1995, is not an
SRO, so it can just issue guidelines to members. It cannot
enforce regulations.
*B%#.(
: o promote t
e interests of mutual funds and unit
olders.
: o set et
ical, commercial and professional standards in t
e
industry.
: o increase public awareness of t
e mutual fund industry.
: o develop a cadre of well trained distributors
MFI is governed by a board of directors elected from mutual
funds and is
eaded by a full time c
airman.

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 ,) # #))#(&#).(#((%#&
(.%(#  (#) ##)
%  %#&'(-


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) (# ))# (# % '#  #  &  
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# # )# ).    & #  
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|
 |

 )#(&#).(#
+&#)( 
%) #)& '#  ##*#(&#)(%)'0#)#
)() .#*#&#)) ##+
)
 () . )##
%) ( #8#)# 
 0*&(%)%) (&&%#+
9. Unit
olders
ave t
e rig
t to inspect certain documents
10. Unit
olders
ave t
e rig
t to receive t
e complete statement of t
e sc
eme
portfolio before t
e expiry of one mont
from t
e close of eac

alf year.
,) # #)'# #(#.(#()#-
:Investors cannot sue t
e trust as t
ey are not distinct from
t
e trust
: Investors cannot lodge complaints against t
e trustees (wit
t
e
Registrar of Public rusts) or t
e MC (wit
t
e CLB).
: Investors can lodge complaints wit
SEBI for non-compliance.
: Investors cannot be compensated if t
e performance of t
e fund is
below expectations.
:
ere are no legal remedies for to a prospective investor. Only
after
is investment in t
e sc
eme
e becomes eligible for t
e earlier
mentioned rig
ts.

|
 |

 Important Points
: SEBI entertains t
e complaints against MF and intervenes wit
fund managements
to
elp t
e investor.
: SEBI requires t
at sponsors of a new sc
eme s
ould appoint a compliance officer
w
o must issue a Due Diligence Certificate to t
e effect t
at all regulations
ave
been complied wit
by t
e fund and sponsors.
:
e fund investors are neit
er s
are
olders nor depositors in t
e MC
: Unit
olders
ave rig
t to timely service, rig
t to information, rig
t to approve
c
anges in fundamental attributes, rig
t to wind up a sc
eme, rig
t to terminate t
e
MC.
: 3rd Sc
edule of SEBI (MF) regulations 1996 specifies t
e contents of t
e rust
Deed.
:
e body to w
ic
investors may address t
eir complaints is SEBI.
: Investors money is not protected by t
e Companies ct.
uestions for Revision
-1. Bank owned mutual funds are regulated by:
(a) RBI and SEBI (b) Respective parent banks (c) RBI (d) SEBI
-2. If an investor failed to claim t
e redemption proceeds after 3 years of due date
e
as
t
e rig
t to receive an amount equal to
(a) Zero (b) Face value of t
e unit (c) Due date NV plus interest @15% p.a.
(d) NV at t
e end of t
ree years after t
e due date
nswers: -1 : (d), -2 : (d)
|
 |


"

&&
|%'#

 '(# * ##)%%#*&(# ##)#+
|
 |


e Offer Document
Offer Document is t
e most important source of information about a mutual
fund sc
eme for investors
: OD is t
e  #%'# and describes t
e product
: n * ('' 
 version of t
e OD is ey Information
Memorandum (IM)
: Investors are required to read and understand t
e OD
: .(#((#)&'(# ##) ##)
) . #)|+
%(( .  *#.(#(&# #)|D
:
e cover page of OD contains details of sc
eme being offered, t
e name
of t
e sponsor, trustee, MC etc.
: Mandatory disclaimer clause of SEBI s
ould also be on t
e cover page of
t
e OD
:
e format and contents of t
e OD must be as per SEBI guidelines
:
e OD is issued by t
e MC on be
alf of t
e trustees
:
)$(((*&#)&' ##)|

|
 |


e Content
Broadly t
e OD issued by MFs in India are required by
SEBI to include t
e following:
: Details of t
e sponsor and t
e MC
: Description of t
e sc
eme and t
e investment
objectives/strategy
: erms of t
e issue
: Historical statistics
: Investor¶s rig
t and services.

|
 |


)&&|%'#

: $(!&((( | ##)#'&#)"

: Open-ended funds
ave to update OD and IM at least once in  years
: Copy of all t
e c
anges in t
e OD is to be filed wit
SEBI
: rustees approve t
e contents of t
e OD and IM
: D(%'(
'  .  *8#).
 % #&'
: SEBI does not approve or certify t
e contents of t
e OD
: Investor¶s rig
ts are stated in t
e OD
:
e OD contains detailed info, w
ile IM is t
e summary document
: & 
&' #(%% ##).(#0#8*&*#)| 
D+++# (&  #0&#)(%)'(  ((#(%)'
: #)|'(#%#  %%#&% #(*
 %' %
&&%0 $'

±
e due diligence certificate states t
at:
: Information in t
e OD is according to SEBI formats
: Information is verified and is true and a fair representation of facts
: ll constituents of t
e fund are SEBI registered

|
 |

 :
e following information would be available in t
e OD:
± Category of Investors eligible to apply, viz. Individual, HUF, FI, rust, Society,
Corporate, ssociation of Persons, NRI, PIO, OCB etc
± &' # (#(%)'( & % ('' 
#*.&3

 (
± &' ## ( %#(8#) ((% #%' (#*.&
 (#3
 (
± If any expense incurred in a past sc
eme is
ig
er t
an w
at was stated in OD,
explanations s
ould be given
± Investor¶s rig
ts are stated in t
e OD
± 3 year track record of investor¶s complaints and redressal s
ould be
disclosed
± ny pending cases or penalties against sponsor or MC
±
e borrowing restrictions on t
e mutual fund s
ould be disclosed,
including t
e purpose and limit of borrowings and t
e borrowing at t
e
end of last fiscal year
± % (&   #(%)'0 '&  #0#)#8#)
 (#&' %& ((#(%)'(

|
 |

 ±
e name and addresses of trustee and MC directors will be found in
IM, but t
e details of t
eir role, responsibilities and duties will be found
in OD
:
)(&' # *##)'# &(0#)&' %
#)|+%' ( # &' %&#)'# &(
(&|
:
e OD and IM will not contain names of securities in w
ic
t
e fund plans
to invest, only broad asset allocation will be given.

Fundamental attributes
: Fundamental attributes of a sc
eme are its basic features. For
eg. open or close ended, lock-in period, fund objectives, asset
allocation, loads and c
arges etc.
: For any c
ange in fundamental attributes, SEBI and rustee
approval is required.
: Investor approval is not needed. However, eac
investor must
be informed t
roug
a communication and given t
e option to
exit wit
out exit load.

|
 |

 ,) # #)'  #
(%((#*' #)
%.  #" &#)|-

: Name of t
e mutual fund.

: Name of t
e sc
eme.
: ype of sc
eme ( growt
, income, balanced etc.)
: Major Objective
: Name of t
e MC.
: Classes of units offered for sale.
: Price of units plus applicable load.
: Name of t
e guarantor in case of assured return sc
emes.
: Opening , closing and earliest closing date of offer.
: Mandatory statements.
: | #&#(*% #(+

|
 |

 ,) # #)(#  (9& %#(-

: Mutual fund and securities are subject to market risk and t
ere is
no assurance t
at t
e objective will be ac
ieved

: NV of units issued under t
e sc
eme can go up or down

depending on factors and forces affecting capital markets.

: Past performance of t
e sponsor/MC/ Mutual fund does not

indicate t
e future performance of t
e sc
eme.

:
e name of t
e sc
eme does not in any manner indicate any

eit
er t
e quality of t
e sc
eme or t
e future performance of t
e
sc
eme

|
 |

 ,) # (%)'(%&%(9(-

: Risk arising from investment objective, investment strategy and

asset allocation of t
e sc
eme

: Risk arising from non ±diversification , if any

: If a sc
eme offers assured returns, t
e sc
eme must state t
at

t
e assurance is on t
e basis of t
e guarantees provided by t
e
sponsor/MC

: If t
e MC
as no previous experience in managing a mutual

fund, a disclosure to t
e at effect s
ould be made

|
 |

 mportant Points regarding OD and IM

: In US, t
e OD is known as prospectus

:
e first time investor s
ould read detailed offer document, once
e
as
gained familiarity wit
t
e MC,
e can just refer to IM
:
e OD do not contain t
e address of t
e rustees of MF
:
e offer document is issued by t
e MC / rustees
: OD is a legal document.
: OD issued for launc
ing of a new sc
emes is valid for a period of six
mont
s and if t
e sc
eme is not launc
ed wit
in t
is period a fres
OD is
required to be filed.
: OD contains t
e accounting policies to be followed. Suc
policies s
ould be
in accordance wit
t
e SEBI regulations.
: OD must disclose t
e names and background of fund managers, key
personnel, investor relation officer, MC and its directors, custodian,
registrar, transfer agent and t
e statutory auditor.

|
 |

 Important Points
: IM is available at various distribution points suc
as
banks, distributors and brokers
: MC must confirm t
at a due diligence certificate signed
by Compliance officer / CEO / MD
as been submitted to
SEBI.
: If a sc
eme¶s name implies t
at it will invest primarily in a
particular type of security or in certain industry, t
en it will
invest at least 65% of t
e value of its assets in t
e
indicated type of security/ industry.
: OD must contain brief description of investors¶ complaint

istory for t
e last 3 Fiscal years of existing sc
emes.

|
 |

 @(#(&.(
-1 W
ic
of t
e following is t
e operating document for a mutual fund?
(a) Offer document (b) IM (c) rust deed (d) None of t
e above.
-2
e OD may not disclose t
e names and background of
(a) Fund manager (b) ey personnel (c) Investor relation officer
(d) Statutory auditor (e) None of t
e above.
-3 Offer Document issued for t
e launc
of t
e new sc
eme is valid for a period of
(a) 1 mont
(b) 3 mont
s (c) 6 mont
s (d) 1 year.
-4 W
ic
of t
e following is not t
e sc
eme specific risk factor?
(a) Risk arising from t
e sc
emes objective
(b) Risk arising from t
e non-diversification
(c) No previous experience in managing a fund
(d) Movement in NV because of t
e market movements.

|
 |

 @(#(&.(
-5 W
ic
of t
e following document is attac
ed wit
t
e application form?
(a) Offer document (b) Prospectus (c) Offer for sale document (d) IM.
-6 SEBI directs t
at certain information must appear on t
e cover page of t
e offer
document of any sc
eme.
is includes t
e following except
(a)  statement to t
e effect t
at t
e document contains information t
at a prospective
investor s
ould know before investing
(b)  description of t
e investment policies for t
e sc
eme on offer
(c) Opening, closing and earliest closing date for t
e offer
(d) ype of sc
eme and price of units on offer
-7 Only one of t
e following statements is correct as regards t
e required frequency of
updating t
e contents of t
e Offer Document of an existing mutual fund sc
eme.
W
ic
one?
(a) Once issued, t
e Offer Document of an existing sc
eme cannot be updated
(b)
e Offer Document must be updated w
enever t
ere is a material c
ange in its
contents
(c)
e Offer Document must be updated on a
alf-yearly basis
(d)
e Offer Document must be updated on a yearly basis.
nswers:
-1 : (a), -2 : (e), -3 : (c), -4 : (d), -5 : (d), -6 : (b), -7 : (b)

|
 |

 $) #>

Fund distribution and Sales Practices

 '(# * ##)%%#*&(# ##)#+
|
 |

 ,) # #)% #(&.(#(*#*

#(-
: Resident Individuals
: Indian Companies
: Indian trusts and c
aritable institutions
: Banks
: NBFC¶s
: Insurance companies
: Provident funds
: Non-resident Indians / PIO
: OCB¶s
: SEBI registered FII¶s

|
 |

 '# ##
: Distributor s
ould look up t
e offer document to see w
ic
category
of investors are allowed to invest in any particular sc
eme of t
e
fund, as it is possible t
at some categories are not allowed to invest
in some sc
emes.
: For example, c
aritable trusts are not allowed to invest in some
category of sc
emes in some funds. So in t
is case distributor
s
ould refer offer document.
: ny investor w
o becomes a foreign citizen after investing in a fund,

as to compulsorily redeem t
e units after obtaining foreign
citizens
ip
: FIIs can invest in Mutual Funds t
roug
t
eir Non Resident Rupee
ccount
: RBI
as granted a blanket permission to NRI, OCB and FIIs; every
investment does not require RBI approval.

|
 |

 Distribution C
annels
: Individual gents-  person
as to sign an agreement wit
a fund on non
judicial stamp paper. He
as to be MFI certified also to sell Mutual Fund
products.
: Only exemption is distributors above 50 years of age and wit
at least 5
years of experience as on Sep 30, 2003. Suc
exempted distributors were
required to complete MFI¶s refres
er course by Sep 30, 2004.
: Distribution Companies
: Banks and NBFCs
: Post Offices
: Direct Marketing
± CURREN LY 49,837 are MFI certified and 30,028
ave taken
t
e RN numbers ( as on 31/3/2005)

|
 |

 ,) # #)%''*(# %#%(
&'# & #(-

V

 


 




 

 



 






 
 














 

 





 


 







 







 


 










 













 









 





















 




|
 |

 W
at is SEBI¶s advertising code?
T
e d iv id end s d ec a red or a id s
a e entioned in s nit
a ong it
t
e a c e v a e o ea c
nit a nd t
e rev a i ing A a t t
e
ti e o d ec a ra tion o t
e d iv id end
n co o nd ed a nn a is ed ie d c a n e a d v ertis ed i t
e
s c
e e
a s een in e is ta nc e or ore t
a n ea r
A er or a nc e c a c a tions s
a e a s ed on on A a nd t
e
a o ts to t
e nit
o d ers
v


 

 
 









 
 





 






 

(A h
h

h 
h
h
h




 



A


h


h




h




 

h
 




h



h








 


  

h





 h

h



 


|
 |

 W
at is t
e MFI Code of Et
ics?

: Management of t
e fund oug
t to be in t
e interest of unit
olders

: Hig
standards of service are expected from t
e fund.
: dequate disclosures by t
e funds oug
t to be made to t
e unit

olders and trustees.
: Funds are urged to adopt t
e use of professional selling practices.
: Management of funds collected
as to be in accordance wit
stated
investment objective
: Funds s
ould avoid conflicts of interest in dealings by directors,
officers and employees.
: Funds
ave to refrain from unet
ical market practices.

|
 |

 W
at is t
e commission structure for mutual fund
agents?

:
e commission consists of two components

Initial ( Upfront )commission - Paid as a fixed percentage of
amount mobilised by agents
rail commission - it is paid periodically on t
e funds t
at
remain invested in t
e sc
eme. rail is an effective way to
restrict t
e practice of rebating, and link commissions

: 

 






 




 




 


|
 |

 Loads
:  (%) #.(#8)#).(#*
('(#(+#(
' 
(#'##) (( ##(  (#*#&#(
: Load c
arged on sale of units is entry load. It increases t
e price above t
e NV for
new investor.
: Load c
arged on redemption is exit load. It reduces price.
:  ''/#
 / # ( 7%. (For Open ended Funds)
:
e &&% between t
e repurc
ase price and t
e sale price is not permitted to
exceed 7% of t
e sale price.
: Max. Entry or Exit load for closed ended funds is 5%
: CDSC is Contingent Deferred Sales C
arges.
: $|$(  # #) #. (8#))+#(((&.(#(8)
(#
(#)&+
: Load is an amount w
ic
is recovered from t
e investor.
:  (8)%)#)# (( (( #%) ##)
.(#(+

|
 |

 uestions for Revision
-1 W
ic
one of t
e following statements is correct?
(a) n individual agent can distribute/sell only one mutual fund's products
(b) ny category of distributors/agents can distribute as many of t
e mutual funds'
products as allowed by t
e concerned MCs
(c) Banks are not allowed to sell mutual fund products, except t
eir own funds'
(d)  distribution company can distribute/sell only one mutual fund's products
-2 W
ic
of t
e following can invest in Indian Mutual fund?
(a) SEBI (b) RBI (c) Foreign Banks (d) MFI.
-3 W
ic
of t
e following categories of distributors will be exempt from passing t
e
MFI Mutual Fund est?
(a) ll t
e existing agents of U I mutual fund and ot
er funds
(b) New applicants for distributors
ip, if t
e MC approves t
eir applications
(c) Employees of banks w
o distribute t
e funds
(d) None of t
e above.
nswers: -1 : (b), -2 : (c), -3 : (d)

|
 |

 $) #5

Investor Plans and Services

 '(# * ##)%%#*&(# ##)#+
|
 |

 SIP and VP
: SIP is investing a fixed sum periodically in a disciplined manner for long
term. It gives benefit of Rupee Cost averaging ( Discussed in later
alf of
presentation).
: VP is modified version of SIP. It is Voluntary ccumulation Plan. It allows
t
e investor flexibility wit
respect to t
e amount and frequency of
investment.
: In VP, investor
as to impose voluntary self discipline.

Ot
er Investment Services

† elep
one / Internet ransactions.
† C
eque writing ± usually for liquid funds.
† Periodic statements and ax Information
†  (  (##( |/
</*#* 9(% .
 (##()*
#)+
† Nomination and ransfer by unit
olders.
† NRI investors
ave to make payments from t
eir FCNR bank account or t
eir
NRE ccount.
† FIIs can make payments from t
eir Non-Resident Rupee ccount

|
 |

 Investment Plans
: Broadly 2 options- Growt
option and Dividend Option
: utomatic Reinvestment Plans (RP) ± Reinvestment of amount of
dividend made by fund in t
e same fund and receive additional units.
It gives Benefit of Power of Compounding.
: Systematic Investment Plans(SIP) ± For regular investment
: Systematic Wit
drawal Plan (SWP) ± For regular income (SWP is
not similar to MIP as SWP allow investor to get back t
e principal
amount)
: Systematic ransfer Plan (S P) ± ransfer on a periodic basis a
specified amount from one sc
eme to anot
er wit
in t
e same fund
family.

|
 |

 @(#(&.(
-1 Investor 
as opted for a systematic transfer plan.
is means
(a)
e investor is allowed to transfer on a periodic basis a specified amount from
one sc
eme to anot
er sc
eme wit
in t
e fund family
(b)  specified amount is automatically transferred from
is bank account to
is
fund account
(c)
e investor can wit
draw specified amounts at periodic intervals from t
e plan
(d)
e investor can invest any amount in t
e sc
eme at periodic intervals
-2 W
ic
of t
e following is not true wit
respect to t
e SWP?
(a) ll allows t
e investor to make systematic wit
drawals on a regular intervals
(b) Here t
e amount wit
drawn is treated as t
e redemption of units
(c) SWP is same as t
e Mont
ly Income Plan
(d) None of t
e above.
-3 W
ic
of t
e following is not true wit
respect to t
e voluntary accumulation
plan?
(a) It give t
e flexibility to t
e investor regarding t
e amount to be invested
(b) It give t
e flexibility to t
e investor regarding t
e frequency of investment
(c) VP follower is obliged to keep investing
(d) None of t
e above.
|
|

nswer: -1 : (a), -2 : (c), -3 : (d)
 $) #1

Measuring nd Evaluating Mutual

Fund Performance

 '(# * ##)%%#*&(# ##)#+
|
 |

 "&' % ('#
: C
ange in NV= ( NV at end ± NV at beg.)Ë100
NV at t
e beginning
: otal Return = ( C
ange in NV+ Dividend) Ë100
NV at beg.
: Return on investment or otal Return wit
dividend reinvested at NV.
: Portfolio urnover Rate ± It measures t
e amount of buying and selling of securities
done by t
e fund. It is lesser of assets purc
ased or sold divided by t
e fund¶s net
assets.
:  100% turnover implies t
at t
e manager replaced
is entire portfolio during t
e
period in question
: 200% means portfolio c
anged in 6 mont
s
:  liquid fund
as t
e
ig
est portfolio turnover.
: Rule of 72 is a t
umb rule used in finding doubling period. If Rate = 12%, t
en money will
double in 72/12 = 6 years.

|
 |

 Numerical
: Purc
ase price Rs. 22 per Unit
: NV at year end Rs. 23 per Unit
: Interim Div. Rs. 3
: Ex.-Div. NV Rs. 21
: otal Return=?

: ssume investment of Rs. 10000

: Step 1: Initial Units allotted =10000/22=454.55
: Step 2: otal Div.=454.55Ë3=1363.65
: Step 3: dditional Units=1363.65/21=64.94
: Step 4: otal Units=454.55+64.94=519.49
: Step 5:Wit
dral mt. =519.49Ë23=11947.17
: Gain =11947.17-10000=1947.17
: Gain of 1947.17 on t
e investment of Rs. 10000
: So t
at on t
e investment of Rs. 100 gain is 19.47
: ns:19.47%

|
 |

 Ot
er performance measures
:
e expense ratio ( Ratio of total expenses to average net assets of t
e fund)-
Funds wit
small corpus size will
ave a
ig
er expense ratio affecting investor
returns. It is indicator of t
e Fund¶s Efficiency and Cost Effectiveness.
:
e income ratio ( It is t
e net investment income divided by its net assets for
t
e period) ± useful for debt fund
: (C ' &(  (
#'   %  %).#)
*B%#.( &%(' 8#)'#)(+
:  &(*&#&'%'(&(% 8#)8 ( #(
(&'  '#(9(+
: Cas

oldings

|
 |

 Important Points
:
e returns s
ould be computed on an annualized average
compound rate of return from cumulative figure.

: If t
e fund performance data relates to a period of less t
an one

year, it s
ould not be annualized, except for liquid mutual funds
w
ic

ave a s
ort investment
orizon.

78(*
# 
†  mutual fund can borrow for a maximum of 20% of net assets.

† For Maximum period of 6 mont
s.

† Purpose s
ould be to meet liquidity requirements for paying

dividend or meeting redemptions.

† It is not a permanent source of funds for t
e sc
eme.

|
 |

 Benc
marking
: Benc
marking s
ould be selected by reference to ±
e asset class it
invests in and t
e fund¶s stated investment objective.

: 39(&*%)' 9( (  #.#' 9# ( 8)0

 #.##)'# &(0  #.##)%'  *
& % %#(+

: For debt funds, t
e benc
mark s
ould
ave t
e same portfolio composition
and t
e same maturity profile

: Main benc
mark for debt funds is I-sec

:
 %9/ % *& 

: SEBI requires MF to specify Benc
mark for eac
sc
eme in OD & IM

|
 |

 Criteria for peer group comparisons
:
e investment objective and risk profiles of t
e two funds s
ould be t
e
same.( Debt wit
debt and equity wit
equity)

: Portfolio composition of two funds is similar. ( Gilt cannot be compared wit

riskier corporate debt)

: Fund size s
ould be comparable.( same size)

: Expense Ratios is also important factor

: Funds s
ould be compared over t
e same periods only

Benc
marking Debt and MM Funds

† I-SEC: Its I-bex index is often used to track Govt. securities performance.
† CRISIL: Has 8 debt indices
† NSE: Has designed Govt. security index and -bill index.
† Besides NSE, JP Morgan
as also developed a -bill index.

|
 |

 %(&# %9# "&' %

: Mutual Funds nnual & periodic Reports.

: Mutual Funds website.
: MFI website
: Financial News Papers.
: Fund racking gencies ± $%,  ( %)
: Newsletters
: Offer Document of t
e Fund
: nalytical rticles
:
)$# #%
$.  #(#)
"&' %  9(#)%)'*
"&' %+
@!n open-end fund was purc
ased w
en its NV was Rs.22. 18 mont
s later,
its NV was Rs.24.
e annualized percent NV c
ange is:
(a) 5.56% (b) 9.09% (c) 6.06% (d) Insufficient data
-2 
ig
portfolio turnover rate for a fund could mean
(a)
at t
e fund is very active in its dealing on t
e market
(b) 
ig
level of transaction costs
(c)  greater risk-prone portfolio management strategy
(d) ll of t
e above
nswers: -1 : (c), -2 : (d)
|
 |

 $) #3

Helping Investors understand Risks in

Fund Investing

 '(# * ##)%%#*&(# ##)#+
|
 |

 Jacob¶s recommendations of portfolios based
on risk level of different funds
: Low Risk ( conservative) portfolio :
± 50% Gov. sec. fund + 50% Money market fund.
: Moderate Risk ( cautiously aggressive) portfolio:
± 40% growt
and income fund+ 30% govt. bond fund + 20%
Growt
fund + 10% index funds
: Hig
Risk( ggressive) portfolio :
± 25% aggressive growt
fund+ 25% international funds +
25% sector funds +15%
ig
yield bond funds+ 10% gold
funds

|
 |

 Evaluating t
e Risks of a Mutual Fund
: ,) #((9-
± Risk means t
e possibility of financial loss.
± ³Risk´ is t
us equated wit
 ##
&/ (
: /6#
"%(9
± Company Specific
± Sector Specific
± Market Level

Volatility of an Equity mutual fund comes from:

† ind of stocks in t
e portfolio ( growt
/value/big/small)
†
e number of stocks ( Degree of diversification. Smaller portfolios
are more volatile t
an large PFs)
† Fund manager¶s success at market timings.
† #(#&'*&.(#(#)(%)'+
†
e Risk tolerance of an investor is dependent on
is age,
is
income and
is job security.
† Risk olerance is independent of t
e Stock Market Movements.

|
 |

 Evaluating t
e Risks of a Mutual Fund
: (9 ((
± #  |. # ± SD measures t
e fluctuations of a fund`s returns around
a mean level. SD gives an idea of
ow volatile t
e earnings are. SD measures
total risk.
± Disadvantage of SD is t
at it is based on Past Returns.
± 7# $&&%#± Beta relates a fund's return wit
a market index and
measures t
e sensitivity of t
e fund's returns to c
ange in market index.  beta
of 1 means t
e fund moves wit
market.  beta of less t
an one means t
e fund
will less volatile t
an t
e market.
± Beta is based on past returns.
: /  9( '*98 (:!6 =
± How muc
of a fund's fluctuations is attributable to movements in t
e overall
market from 0 to 100 percent.
± n index fund will
ave ExMarks of nearly 100%. Non Diversified funds will
ave
lower ExMarks.
± Ex Marks of an equity fund measures its Performance
: Standard Deviation is t
e best measure of risk.
: Beta of an equity fund measures its RIS.

|
 |

 Evaluating t
e Risks of a Mutual Fund

: )

± Risk adjusted performance calculation is called lp
a.

± lp
a of a fund compares t
e fund's actual results wit
w
at would
ave
been expected given t
e fund`s beta and t
e market index performance.

Risk djusted performance

S
arpe ratio and reynor Ratio

† Risk premium= Funds return ± Risk free rate of return
† S
arpe Ratio = Risk premium/SD
† reynor Ratio = Risk Premium/Beta
† Bot
t
e ratios measures t
e adequacy of returns against t
e risk
assumed.

|
 |

 '# #"#(
Important Points
: Money Market Funds are low risk fund.
: Sectoral Fund are
ig
risk fund.
: Risk is equated wit
Volatility of Earnings.
: Diversification reduces Company specific risk but it does not reduce Market
Risk.
: S
ort erm investment in Equity market is most risky.
: BES FUND WILL HVE HIGHER EX MRS, LOWER BE  ND
HIGHER GROSS DIVIDEND YIELD

uestions for Revision

-1
e S
arpe¶s ratio divides risk premium by
(a) lp
a (b) Beta (c) R squared (d) Standard deviation.
-2 Diversification can not reduce
(a) Company specific risk (b) Sector specific risk
(c) Market risk (d) None of t
e above.
nswer: -1 : (d), -2: (c)

|
 |

 

|
!

" #!3
9. ccounting, Valuation and
axation
10. Investment
Management

" #!A
11. Helping investors wit
Financial
12.Planning
Recommending Financial Planning Strategies to
Investors
13. Selecting t
e Rig
t Investment products for
Investors
14. Recommending Model Portfolios and Selecting t
e Rig
t
Fund
15. Business Et
ics in Mutual
Fund

|
 |

 $) #2

ccounting Valuation and axation

 '(# * ##)%%#*&(# ##)#+
|
 |

 W
at are net assets of a mutual fund ?

e net assets represent t
e market value of assets w
ic
belong to t
e
investors, on a given date.

Net assets are calculated as:

Market value of investments
Plus(+): Current assets and ot
er assets
Plus(+): ccrued income
Less(-): Current liabilities and ot
er liabilities
Less(-): ccrued expenses
Net ssets/ otal no. of Units Issued = NV per unit.
 fund¶s NV is affected by four sets of factors
† Purc
ase and sale of investment securities
† Valuation of all investment securities
eld
† Ot
er assets and liabilities
† Units sold and redeemed.

|
 |

 How frequently is t
e NV calculated ?

: ll mutual funds
ave to disclose t
eir NVs daily, by posting it on

t
e MFI web site by 8.00 p.m.

: Open ±ended funds
ave to compute and disclose NVs

everyday; closed end funds can compute NVs every week, but
disclosures
ave to be made everyday.

: Closed end sc
emes not mandatorily listed on t
e stock exc
ange

can publis
NV according to t
e periodicity of 1 mont
or 3
mont
s, as permitted by SEBI.

|
 |

 W
at are t
e initial issue expenses ?
Expenses t
at are incurred in t
e launc
of t
e fund are called as initial issue
expenses.
š
e costs of registration and fund formation
š Legal and advisory expenses
š Costs of launc
ing t
e sc
eme
š dvertisement and promotion expenses
š Distribution costs
š Commissions to selling agents
SEBI imposes a ceiling of 6% on t
ese expenses.

Can t
e Fund be launc
ed wit
out bearing any initial issue expenses ?
šYes

š Suc
funds are called as no load funds

šMCs can c
arge an investment management fee, w
ic
is 1%
ig
er t
an
t
e statutory limit, in t
is case.

|
 |

  #(#%) (# ((/ ((

: 6% IIE will be permitted for closed ended sc
emes only and t
ey will not
c
arge any Entry load
: IN CES, IIE s
all be amortized on a weekly basis over t
e period of sc
eme
: If an investor exiting t
e sc
eme before amortization is completed, MC
s
all redeem t
e units only after recovering t
e balance amortization
: Unamortised portion of initial issue expenses s
all be included for NV
calculation, considered as ot
er asset
: IN OES, t
e sales, marketing and ot
er expenses of sales s
ould be met
from t
e entry load and not IIE.

|
 |

 W
at are t
e expenses incurred by a mutual fund?

: Investment management fees to t
e MC

: Custodian¶s fees
: rustee fees
: Registrar and transfer agent fees
: Marketing and distribution expenses
: Operating expenses
: udit fees
: Legal expenses
: Cost of mandatory advertisements & communications to investors

|
 |

 Can t
e MC c
arge all t
e expenses t
at it incurs, to
t
e income of t
e fund ?
: No.
ere are two levels of restrictions
: t t
e first level only certain kinds of expenses, t
at are identified as

aving been incurred for t
e conduct of t
e business of t
e fund,
can be c
arged to t
e fund.
:
e second level of regulation refers to t
e limit on t
e total
expenses, t
at can be c
arged to t
e fund

     uity ebt
or net assets up to s. Cr . .
or t
e next s Cr. of net assets .
or t
e next s Cr. f net assets .
or t
e remaining net assets . .

|
 |

 W
at are t
e investment management and advisory
fees c
arged by t
e MC ?

e fees are regulated by SEBI as follows:
: For t
e first Rs.100 Cr. Of net assets: 1.25%
: For t
e net assets exceeding Rs. 100 Crore: 1.00%
: If t
e MC does not c
arge any of t
e initial issue expenses to t
e
fund, it can c
arge t
e sc
eme a management fee, t
at is 1%
ig
er
t
an t
e above rates
MC c
arges are subject to t
e overall ceiling for expenses discussed
in t
e previous slide.


oad oload
For first Rs.100 Cr. of net assets 1.25% 2.25%
bove 100 crore 1.00% 2%

|
 |

 / ((#) #% #*%) ##)
%)'
: Penalties and fines for infraction of law
: Interest on delayed payment
: Legal, marketing, publication and ot
er general
expenses not attributable to any sc
eme
: Expenses on general administration corporate
advertising and infrastructure costs
: Depreciation on fixed assets

|
 |

 ax provision for Equity Mutual Fund

Equity >65%

Dividends Capital Gains

Wit
in 12 m fter 12 m

Investors DD S
ort erms Long erms

ax Free NIL 10% ax Free

|
 |

 ax provision for Debt Mutual Funds

Debt Mutual Fund

Dividend Capital Gain

Wit
in 12 m fter 12 m

Investor DD
S
ort term Long term

ax free Paid by t
e Fund s per slab wo options

10%
20% after
indexation

|
 |

 ax Implication in Mutual Funds
: Income earned by any mutual fund registered wit
SEBI is
exempt from tax.( It is a trust) Under section 10(23 D)
:
e dividends are tax free in t
e
ands of unit
olders but
it is liable to dividend distribution tax in case of closed
ended fund and debt funds( equity <50%)

: under section 54 of Income ax ct, L CG are exempt from tax if invested

in specified bonds (54EC) issued by NBRD, NHI, REC or specified
equity (54ED) wit
in 6 mont
s of transfer of units
: t
e bonds must be
eld for minimum 3 years and no loan be taken against
t
ese bonds and t
e equity must be
eld for minimum 1 year
:
e sale and purc
ase of units in equity oriented sc
eme of MF is subject to
S at t
e prescribed rate

|
 |

 Numerical
: n investor purc
ased units in an approved debt
Mutual Fund on Jan. 1, 1998 for Rs.500000/-. He sold
t
e units on December 1, 2001 for Rs. 750000/-.
Calculate t
e capital gain taxes paid by
im. ( Ignore
indexation).

: nswer :
± Long term capital gain = 250000/

± So ax on L CG = 2500000Ë 10% = Rs. 25000/-

|
 |

 Ot
er points
: Section 80 C ± Individual and HUF are entitled to deduction up to Rs.1 lak

in respect of payment out of taxable income towards certain instruments
w
ic
includes ELSS of Mutual funds.

: Dividend Stripping ± Section 94(7) ± s per t
e finance ct 2001, If investor
buy units wit
in 3 mont
s prior to record date of dividend and sells t
ose
units wit
in 3 mont
s of record date, t
en t
e loss if any, s
all be ignored.

: Units are not considered under wealt
tax

: Section 195 ± 20% DS for L CG and 30% DS on S CG if unit
older is a

NRI.

: 48% DS if unit
older is foreign company.

|
 |

 Valuation of Equity Securities
: Closing price on valuation date
: Selected stock exc
ange
: Use of alternate stock exc
ange quote
: On t
e basis of earliest previous quote (not more t
an
30 days prior to valuation date).
: If trading is suspended up to 30 days, last quoted
price; if it is suspended for more t
an 30 days,
MC/ rustee decide valuation norms and document
suc
norms.

|
 |


inly traded Equity Securities
: Equity and equity related security
: Rs. 5 lak
or less OR less t
an 50000 s
ares in a mont

: For unlisted: MC need to make its own judgement and guideline - w
ic

need to be documented
: ggregate of illiquid securities - non traded, t
inly traded, and unlisted
equity s
ares s
ould not exceed 15% of t
e total assets of open-end
sc
eme and 20% of a closed-end sc
eme. ny assets in excess of above
limits will be valued zero.
: If no rade done during t
e past t
irty days t
en
as to be treated as non
traded security and t
e Valuation is done on basis of ³Good Fait
´.

|
 |

 Valuation of Debt Securities

Non Performing ssets (NP)

n asset s
all be classified as an NP, if t
e interest
and/or principal amount
ave not been received or

ave remained outstanding for 6 #, from t
e
day suc
income/instalment
as fallen due.
Suc
assets will be classified as NPs, soon after t
e
lapse of a quarter from t
e date on w
ic
payments
were due.

|
 |

 Valuation of Debt Security
:  Debt Security is treated as traded if traded any day during t
e
previous 15 days prior to t
e date of valuation
:  Debt Security if not traded in last 15 days is called Not raded
Security

Valuation of a
inly raded Security (<182 Days)

For example, if a security was issued at Rs. 90 and redeemable at
Rs. 100, after 364 days, t
e accrued interest for eac
day is
= 10/364
= 0.02747

e value of t
e security is increased by 2.747 paise every day, so
t
at t
e security is wort
Rs. 100 on t
e date of maturity.
If it
as to be valued 200 days after issuance, its value is
90+(0.02747Ë200) = 95.494

|
 |

 '# #"#(
: Investors¶ subscriptions are accounted for by t
e fund not as
liabilities or deposits but as Unit Capital.
: Unit Capital is found in t
e Liability side of sc
eme¶s balance s
eet.
: Investment made by Mutual fund on be
alf of investors are
accounted as ssets.
: Liabilities in Balance s
eet of mutual fund are strictly s
ort term in
nature.
:
e Day on w
ic
NV is calculated is known as Valuation Date.

uestions for Revision

-1n equity fund
as weekly average net assets of Rs. 1400.00 crore outstanding in
t
e year.
e maximum ongoing expenses (excluding issue/redemption expenses)
t
at may be c
arged to t
e fund amount to:
(a) Rs. 26.75 crore (b) Rs. 35.00 crore (c) Rs. 19.75 crore (d) Rs. 27.5 crore
-2 Generally t
e income earned by t
e mutual fund registered wit
SEBI is exempt
from tax under section
(a) 80 (C) (b)10(35) (c) 10 (23D) (d) 115 (R).

|
 |

 @(#&.(

-3  fund's portfolio includes an equity security w
ic
is listed at t
e NSE. Its last quoted
closing prices were: Rs. 27 on July 10, Rs. 35 on July 13 and Rs. 28 on July 16. On July
28, using SEBI norms, t
e fund s
ould value t
is security at:
(a) 35 (b) 28 (c) 30 (d) 31.50.

-4  mutual fund
olds a debenture redeemable after two years and wit
next quarterly
interest receivable on 31/12/2001.
e debenture issuing company failed to pay t
e
interest on t
at date. Is t
is debenture a Non Performing sset? If yes, from w
at date?
(a) Yes, it would be considered an NP from 1/4/2002, if interest is not received for t
e
quarter ending 30/3/2002 as well
(b) No, it is not an NP, as t
e principal amount is not yet due
(c) No, it would not be considered an NP until bot
principal and interest amounts become
overdue
(d) Yes, it would be considered an NP from 1/1/2002.

-5 W
ic
of t
e following is t
e most liquid type of s
ares?

(a) Large cap s
ares (b) Mid cap s
ares
(c) Small cap s
ares (d) ll of t
e above.
nswer: -1 : (d), -2 : (c), -3 : (b), -4 : (a), -5 : (a)

|
 |


#

.(#'#  '#

 '(# * ##)%%#*&(# ##)#+
|
 |



(&6#
(#'#(

: Ordinary s
ares : Ordinary s
are
olders are t
e

owners of t
e company.
: Preference s
ares: Entitle t
e
olders to dividends at a
fixed rate subject to availability of P
: Equity Warrants: Option on stock. Long-term rig
ts
t
at offer t
e
olders rig
t to purc
ase s
ares of a
company at a fixed price
: Convertible Debentures: Converts into a specified
number of equity s
ares at t
e end of specified period.
Since September 2005 mutual funds are allowed to trade
in derivatives.

|
 |

 ,) #  !%  (' % () (-

e size of a company in t
e equity markets is determined by

market capitalization= (no. of s
ares issued ± market
price/s
are)

Ô
      
›
    
   ›
    
 

  
  
 

    

  
 
  

  


   
       
  

|
 |

 "%/  # "?/

:
e P/E ratio :
: = Market Price Per S
are / Earnings Per S
are
: Indicates t
e price t
e market is willing to pay per rupee of
company¶s potential earnings
: Hig
er P/E ratio indicates growt
stock; value stocks generally
ave
lower P/E ratio

: P/E ratio reflects over valuation and under valuation.

|
 |

 ,) #(.
-

: Dividend paid is usually a percentage of face value of t
e s
are

: Dividend Yield = (Dividend paid/Market Price) Ë100

W
at is t
e relations
ip between dividend yield?

: Bot
t
e measures are sensitive to market price per s
are

: If market prices are
ig
er, P/E multiple will be
ig
er, but dividend
yield will be lower and vice versa

|
 |

 Classifications of Stocks
: h     Cyclical stocks are t
ose w
ose performance is
closely linked to macro economic factors; e.g. cement stocks w
ic
are
linked to infrastructure development in t
e country. 




!  
 
 "
: Growt
Stocks ± Stocks
aving potential for
ig
er earnings.
ey tend
to reinvest t
e earnings and usually
ave Hig
PE ratio and low
Dividend yields.
: Value stocks ± Companies in mature industries and are expected to
yield low growt
in earnings. Good assets value. Currently under valued
but can yield superior returns later.

|
 |

 ,) #(%#.6#
&'  '#
:  %#. & '   (9( # . *## &' % #)    
:  '   #( # 9 # (%&% ##*#(  (%# (#%9(+
: %#. & '   *.(0 #) # )( *#
# *
)# (#%9 # #) )#
#'0 %  # ( # # ( &' % & )( #&+

,) #( ((.6#
&'  '#-

: Fund manager believes, t
at
olding a well diversified portfolio is

t
e cost efficient way to better returns,
e would tend to mimic t
e
market index.
: It requires limited researc
and monitoring costs and is t
erefore
c
eaper. (
e Expenses are low)
: Fund manager may c
oose to mimic a index, or a subset of t
e
index or c
oose a basket of s
ares from multiple indices.
:  passive fund manager
as to rebalance
is portfolio every time
c
anges are made in t
e index.

|
 |

 Fund Management Styles

ctive Passive

Index Funds

Diversified Non diversified

Sector Funds

Growt
Value

Growing Under-priced
companies companies

|
 |

 W
at is t
e types of equity researc
done in MF?

Fundamental analysis ± Future earnings and risk profile

considered (w
et
er to buy or not) Fundamental nalysis is t
e
analysis of t
e profit potential of a company, based on numbers relating to
its products, sales, costs, profits and management of t
e company.

ec
nical analysis ± Study of
istoric data on t
e company¶s

s
are price movements and volume (W
en to buy and sell)
ec
nical nalysis is t
e analysis of t
e market prices and trading volumes
data to identify clues to market assessment of a stock.

|
 |

 (#'#( |*# 9#

: Certificate of Deposit ± Issued by commercial banks and maturity of 91 days

to 1 year.
: Commercial Paper ± Issued by corporate bodies and maturity varies
between 3 mont
s to 1 year
: Corporate Debentures ± Secured by t
e p
ysical assets
: Floating Rate Bonds
: Govt. Securities.
: reasury Bills ± Issued t
roug
RBI by GOI. enure is 91 days and 364
days.
: Bonds

|
 |

 Important points on Debt Portfolio Management

: Investments only in Market raded Instruments (Not in loans as done by

banks)
: Debt instruments may be secured (debentures) or may be unsecured (FI
bonds)
: Instruments wit
maturity less t
an a year called Money Market Securities.
: Instruments wit
maturity above 1 year are called debt securities.
: Zero Coupon Bonds (discounted securities) do not pay regular interest at
intervals but are boug
t discount to t
eir face value and redeemed at face
value.

|
 |

 Important
: Debt instruments are issued by government, corporate or
banks
: Debt instruments
ave fixed interest, floating interest or zero
interest or coupon i.e. on a discounted basis
: Debt markets are w
olesale markets and investors are large
institutional investors, suc
as banks, insurance companies,
mutual funds and corporate due to large ticket sizes
: More t
an 90% of trading in debt markets is in government
securities

|
 |

 $#E 
'# #

: Nominal rate of interest is t
e rate t
at is paid to us by t
e

borrower
:
e real rate is t
e nominal rate less t
e rate of inflation.

: Yield is t
e term used to signify t
e actual rate earned on an

investment.
: Current yield = [Coupon/market price] Ë 100

|
 |

 '# ##(
± Principal or Par or Face Value ± t
e amount representing t
e principal
borrowed and t
e rate of interest is calculated on t
is sum.
is is t
e
amount payable on redemption
± Coupon ± t
e interest paid periodically to t
e investor
± Maturity ± t
e date on w
ic
t
e bond is redeemed. erm to maturity or
tenor is t
e period remaining for t
e bond to mature
± Put option ± refers to t
e option given to t
e investor to sell (redeem) t
e
bond before maturity; investor may exercise t
e option w
en interest
rates go up, above coupon in t
e market
± Call option ± refers to t
e option to t
e borrower to buyback
(repurc
ase) before maturity; issuer may exercise t
e option w
en
interest rates fall below t
e coupon rate

|
 |

 Measure of Bond Yields
: Yield to Maturity( Y M) ± It is also known as bond¶s Internal Rate
of Return (IRR). It is annual rate of return an investor would realize
if
e boug
t a bond at a particular price, received all t
e coupon
payments, reinvested t
e coupon at same Y M and received t
e
principal at maturity.

:
ere is inverse relations
ip between price and Y M of a bond.

: Yield Curve ± Grap
s
owing yields for bonds of various

maturities, using a benc
mark group of bonds. lso known as
SIR ( term structure of interest rates).
e curve is usually
upward sloping because longer maturities generally offer
ig
er
yields and vice versa. Bond price movements

Interest
Price

|
 |

 (9(.(#7(
: Interest Rate Risk
: Reinvestment Risk
: Call Risk (
e issuer may call back)
: Default Risk
: Inflation Risk
: Liquidity Risk
E (
† Yield Spread = Yield of a particular bond ± Yield of benc
mark
security (risk free)
† It is t
e risk premium paid by t
e bond to induce investor
† 

 
# 


 



 "

†    
#

 "
   

† erm to Maturity ± It is period until t
e bonds maturity

|
 |

 Duration
: It is a more accurate measure of t
e portfolio maturity profile.
: It measure t
e percentage c
ange in bond¶s price wit
a c
ange in
yield
: 
$ 
 
#
%
"&

" 
: Bonds wit
longer maturities
ave longer durations.
: 


    
 "
  




 
""
  








,) #(#) #()*#8#)% #)
&
#)*-
† Price and Yield are inversely related.
† C
anges in interest rate impact bond values in t
e opposite
direction.
† Yield also gets increased by downgrading of credit rating of t
e
bond.

|
 |

 ,) # #). (#
(&& %'(%#(
.  *#)  9#-

÷
 ÷  
 
 

÷  
$  (!  *
 (
%  

+
 (! 

   )
    %
' (÷
)
$  (!  *
 (
      


+
 (!#
%  ' (÷
)
   )
    $  (!  *

 ( ' (÷
)
 
)
 $  (!  *
 (
!"# ,& -   

+
 (÷  

' (

+
 (
$  %&
  $  (÷  

$  (
! 
 )   .  ' ( $ (+ ) 
% !$  ÷  
  (

+

 * )  *   . 
' %$   ' ( $ 

|
 |

 Restrictions
: Mutual funds can invest only in marketable securities
: ll investments are on delivery basis, no trading.
:  MF under all its sc
emes cannot
old more t
an 10% of t
e paid up capital of a
company.
:  MF sc
eme can invest max. 10% of its NV in a single company.( Exception ±
Index and Sectoral funds)
: Debt funds - single issuer not more t
an 15% of NV for t
e µinvestment grade¶
instrument, can be relaxed to 20% wit
approval of trustees and MC
: Investment in t
e unrated instruments of a single issuer is restricted to 10% of NV
and total for all issuers can not exceed 25% of NV.
: MF Can invest in DR / GDRs upto a max. limit of 10% of N or $ 50 million,
w
ic
ever is lower.
:  ''.(#'#(#() ((F&&$(
(%)'(
:  ''.(#'#(#() ((>F&(%)'(+

|
 |

 #%)'
 (&
: Suc
transfers
appen on a delivery basis, at market prices.
: Suc
transfers s
ould not result in significantly altering t
e investment
objectives of t
e sc
eme involved.
: Suc
transfer s
ould not be of illiquid securities, as defined in t
e valuation
norms.
: One sc
eme can invest in anot
er sc
eme, up to 5% of net assets, No fee
is payable on t
ese investments.

.(#'#($' 

†  mutual fund sc
eme cannot invest in unlisted securities of t
e
sponsor or an associate or group company of t
e sponsor.
†  mutual fund sc
eme cannot invest in privately placed securities of t
e
sponsor or its associates.
† Investment by a sc
eme in listed securities of t
e sponsor or associate
companies cannot exceed 25% of t
e net assets of t
e sc
eme

|
 |

 8".((.(#'#"%

: Minimum Number of Investors per sc
eme

: Purpose of MF is s
aring t
e risks wit
a large number of investors.
: SEBI requires eac
sc
eme to
ave a minimum number of investors. So now eac

sc
eme and individual plan under t
e sc
eme s
ould
ave a minimum number of 20
investors ND no single investor s
ould account for more t
an 25% of t
e corpus of
suc
sc
eme.
: OES are allowed t
ree mont
s or upto end of t
e succeeding calendar quarter from
t
e close of NFO to ensure compliance wit
t
is requirement

&(%)'
†  FoF invests in t
e sc
emes of ot
er MF.
†  FoF sc
eme cannot invest in anot
er FoF sc
eme.
†  FoF is not allowed to invest its assets ot
er t
an in sc
emes of
MF, except to t
e extent of its liquidity requirements.
†  normal MF sc
eme cannot invest in any FoF sc
eme.
† Maximum Expense ratio of FoF is capped 0.75%

|
 |

 '# ##(
: Yield and price move in opposite direction
: Certificate of Deposits are issued by BNS
: Commercial Paper are issued by Corporate.
: Corporate Debentures are issued by Manufacturing Companies.
: Cas
of a mutual fund is to be
eld wit
sc
eduled banks and not in any ot
er bank.
uestions for Revision
-1 W
en similar maturity bonds are yielding 11% t
e bond wit
9% coupon will be
traded at
(a) t par (b) Below par (c) bove par (d) Insufficient information.

-2 Calculate t
e current yield for t
e following security: 11.5% GOI Series 2010 - Face
Value Rs.1000 Current price Rs.1010
(a) 11.5% (b) 11.6% (c) 12.5% (d) 11.4%

-3 W
ic
of t
e following instruments
ave t
e maturity exceeding one year
(a) reasury bills (b) Certificate of deposits
(c) Commercial paper (d) Gilt securities.

|
 |

 @(#(&.(

-4 Duration of a portfolio is calculated to measure portfolio's sensitivity to c
anges in

t
e:
(a) Interest rates (b) Stock market indexes
(c) Inflation rates (d) None of t
e above.

-5 Generally t
e cyclical stocks
ave

(a) Hig
er P/E and lower dividend payout
(b) Hig
er P/E and
ig
er dividend payout
(c) Lower P/E and lower dividend payout
(d) Lower P/E and
ig
er dividend payout.
nswers: -1 : (b), -2 : (d), -3 : (d), -4 : (a), -5 : (d)

|
 |

 $) #

Helping Investors wit
financial

planning

 '(# * ##)%%#*&(# ##)#+
|
 |

 |&# *B%#.&"

: It is identifying all t
e financial needs of an individual

± ranslating needs to monetarily measurable goals
± Planning financial investments t
at will allow individual
to provide for and satisfy
is future financial needs and
ac
ieve
is life¶s goals.

e objective is to ensure t
at rig
t amount of money is
available in t
e rig
t
ands at t
e rig
t point in future to
ac
ieve an individual¶s financial goals.

|
 |

  % " 
:  person w
o uses t
e financial planning process to
elp anot
er person
determine
ow to meet
is or
er life goals.

: Possesses detailed knowledge of wide range of products and financial

planning tools and
elp clients in c
oosing t
e best products.

: He looks at all of client¶s needs including budgeting and saving, taxes,

investments, insurance and retirement planning.

Benefits of Financial Planning

† Financial Plans are tax efficient.
† It provides direction and meaning to financial decisions.
† It allows one to understand
ow eac
financial decision one makes affects
ot
er areas of one¶s finances.
Benefits to Financial Planner
† bility to establis
long term relations
ips ( Multiple products to one client)
† Financial Planner s
ould ideally link
is rewards and fees to t
e clients
financial success and ac
ievement of t
e financial goals.
† bility to build a profitable business ( NO rebating)

|
 |

 @ #(& < % " 
: Building trust wit
t
e client
: Good knowledge of Financial products
: Familiarity wit
taxation and estate planning issues
: Understanding of stages of client¶s life and wealt
cycle and asset allocation
: Independent judgement and balanced t
inking
: Organized way of working
: Regular contact wit
clients
: Clear Focus on Overall Financial Planning of client rat
er t
an on individual
transactions.
:
e basis of genuine advice s
ould be Financial planning to suit t
e investor¶s
advice.
#(# % " 
† Establis
and define client-Planner Relations
ip
† Gat
er client data, Define client Goal
† nalyze and evaluate clients financial Status
† Develop and present financial planning recommendations
† Implement t
e financial planning recommendation
† Monitor t
e financial planning recommendations

|
 |

 '# #((*#(&.(#(#)& % 
  %(-

: S
ould set measurable financial goals.

: S
ould understand t
e impact of financial decisions on t
eir cas
flows and

t
eir income.

: S
ould be willing to revise and re-balance t
eir portfolios wit
c
anging

market conditions, performance and t
eir c
anging needs and c
anges in

lifestyle or circumstances( in
eritance, marriage, birt
,
ouse purc
ase or

c
ange of job status)

: Investors benefit immensely by starting early and being systematic and

disciplined in t
eir approac
.

|
 |

 
'# ##(& %  

:
e planner can look at all t
e clients need including budgeting, saving,
taxes, investments, insurance and retirement planning.

:  financial planner can link
is own rewards and fees to t
e client¶s financial
success and t
e ac
ievement of t
eir financial goals

: MU UL FUND IS HE MOS IMPOR N OOL FOR FINNCIL

PLNNING.( CORE PRODUC )

: Financial is not only investing. It comes before investing.

: It is relevant for all category of clients.

: It is not as same as retirement planning.

: It is not only ax Planning.

: Financial planning is important at younger stage of life.

|
 |

 '# ##( % " 

:
e basis of genuine investment advice s
ould be

financial planning to suit t
e investor¶s situation. It s
ould
not be current market condition.
: Financial Planning allows a person to ac
ieve financial
goals t
roug
proper management of finances.
: Financial planners and t
eir clients s
ould focus on
allocating funds to different asset classes.
: Financial planning is relevant not only to HNIs
: Financial planning works better for younger/ middle aged
client.

|
 |

 # (&&$
%
: C
ild
ood Stage
: Young Unmarried Stage
: Young Married Stage
: Young Married wit
C
ildren Stage
: Married wit
Older C
ildren Stage
: Pre-retirement Stage
: Retirement Stage

|
 |

 , #)%
%&.(#( 

'# #
#   % ( .(#'#&%(

ccumulation stage Investing for long term identified Growt
options and long term
financial goals products.Hig
risk appetite
ransition Stage Near term needs for funds as Liquid and medium term investments.
pre-specified needs draw closer Lower risk appetite

Reaping Stage Hig
er liquidity requirements Liquid and medium term investments.
Preference for income and debt products

Inter Generational Long term investment of in
eritance Low liquidity needs.

transfer bility to take risk and invest for t
e long term

Sudden wealt
surge Medium to long term Wealt
preservation.

Preference for low risk products

|
 |

 ffluent investors ± t
e ric
investors are of 2 types:

Wealt
creators ±
ose w
o prefer growt
and are willing to take
t
e risk of equity investments. For suc
investors 70% to 80%
allocation to diversified equity and sector funds is advisable.

Wealt
preservers ±
ose w
o prefer capital safety and are risk
averse; t
ey prefer debt investments. For suc
investors a
conservative portfolio wit
a 70% to 80% exposure to income, gilt
and liquid funds would be appropriate.

|
 |

 @(#(&
.(
-1
e stage at w
ic
t
e goals and purpose towards w
ic
t
e clients
ave been
investing
ave arrived, is known as
(a) ccumulation (b) ransition (c) Reaping (d) ransfer.
-2 s a good financial planner, you s
ould avoid applying t
e normal Life Cycle Model
to your client w
o is
(a)  25-year-old unemployed person (b)  60-year-old person w
o
as just retired
(c)  Well-known 32 years old cricketer (d)  35-year-old unmarried person.
-3  salaried executive in late fifties w
o is planning to retire at 60 years of age,
is
wealt
cycle stage is
(a) ccumulation (b) ransition (c) Reaping (d) ransfer.
-4 For older investors w
o want to transfer t
eir wealt

(a) No financial planning is required
(b)
e rig
t investment strategy depends upon w
o t
e beneficiaries are
(c)
e rig
t investment strategy depends upon t
e state of t
e stock market
(d) ll t
e funds can be invested in aggressive equity funds.

|
 |

 @(#(&.(

-5 
ig
amount of equity investment is suggested to t
e investor if
e is in

(a) ccumulation p
ase (b) ransition p
ase
(c) Distribution p
ase (d) Investment
as no suc
relation wit
any p
ase of life.
nswers:
-1 : (c), -2 : (c), -3 : (b), -4 : (b), -5 : (a)

|
 |

 $) #

Recommending Financial Planning

Strategies to Investors

 '(# * ##)%%#*&(# ##)#+
|
 |

 : ''h(!(''')*)
: Harness t
e Power of Compounding ± 1% interest per mont
is better t
an
12% yearly return.
: Buy and
old is most common strategy BU most common mistake. Ideally
it s
ould be, track your investments, discard t
e non performers and keep
t
e good performers.
: Rupee cost averaging
: Value veraging.
: Jacob¶s Rebalancing Strategy ( Combination of RC and Value averaging
strategies- Using a aggressive growt
fund and liquid fund of t
e same
family.) ( putting regularly money in liquid fund and set a target value for t
e
equity fund)

|
 |

 : Buy and
old strategy may not be a beneficial strategy because investors
may not weed out poor performing companies and invest in better
performing companies
: Rupee Cost veraging (RC) is a tec
nique t
at involves:
± Fixed amount invested at regular intervals
± W
en NV is down, more units are boug
t and w
en price is
ig
, fewer
units are boug
t
± Over a period of time, t
e average purc
ase price of t
e investor¶s

oldings will be lower
± Investors use t
e SIP or IP to implement RC
: Disadvantage: RC does not tell w
en to sell or switc
from one sc
eme to
anot
er.

|
 |

 $(#.  $

 &
'#.(# &#( $' #. 4
#) (  ( *)# &#( (

  + + + 0+

  +> + + 0>+
3  A+> 5+ >+ 30>2>+
A  +5> >+ 33>+ 30131+>2
>  +> 1>+A A3+> A0>+A2
2  1+ + >A+23 A05A+2
5  +> 5+2> 2>1+ >023+2
  5+2> 3+5 51+ 20A3+A
1  + 3+2A 13+23 501>+15
  1+> + 0+5A 103>+2
  + 3+33 01>+5 30A+1
  >+ 22+25 02+5A 50A2+
. $(# ?2G +33

|
 |

 : Value veraging (V) involves:
±  fixed amount is targeted as desired portfolio value at regular intervals
± If market
as moved up, t
e units are sold and t
e target value is restored
± If market moves down, additional units are boug
t at t
e lower prices
± Over a period of time, t
e average purc
ase price of t
e investor¶s
olding will
be lower t
an if one tries to guess t
e market
ig
s and lows
: V is superior to RC because it enables t
e investor to book profits and rebalance
t
e portfolio
: Investors can use t
e systematic wit
drawal and automatic wit
drawal plan to
implement value averaging
: Investors can also use an equity and a money market mutual fund to implement
value averaging.

|
 |

 Value veraging

#  $' #.&
#) (  (  &4 #(#.(# #(
  + + + +
  +> 0>+ 2+ 2+
3 3 A+> 0+ >+>3 +>3
A A +5> 0A53+2 1+1 3A+A3
> > +> 30>5A+A5 3>+52 A52+1
2 2 1+ A0>+5 1+A 222+25
5 5 +> >0222+25 >2+2 3+>3
  5+2> 203+ + 0A>+5>
1 1 + 10+2 3+ 0+53
  1+> 10A2+3 >+3> 0+
  + 015+15 2A+A 12+25
  >+ 305>+ 2+25 +

|
 |

 'D
%%#(& % " 
: W
en to invest ± w
en t
ey
ave money to invest
: W
en to cas
out
± W
en t
e goals
ave arrived and clients need t
e money for t
e
purpose for w
ic
t
ey
ave invested
± IF t
e overall market appears overvalued in terms of
fundamentals and
istoric valuations
: Start planning and investing regularly
: Have realistic expectations
: Invest Regularly
:
e Strategy advisable for an investor to maximise investment return
in long run is Switc
from poor performers to Good performers.

|
 |

 ((#% #

: sset allocation refers to deciding t
e composition of t
e portfolio in terms of

debt, equity and money market segments
: sset allocation differs from investor to investor and depends upon t
eir
situation, t
eir financial goals and risk appetite
:
e asset allocation for an investor depends upon
is life and wealt
cycle
stage
:  model portfolio creates and ideal approac
for an investor¶ situation and is
a sensible way to invest.

|
 |

 ((#% #

: .(#(% ) .  %)(H

±   ((# % #
±  * ((# % #
:   ((# % #' (
± ' # #)( ' #*#8. (%'#(&#)#&
++*(%
± !*  %#)#& (%' 
± "% .8 ##  % #
± &. &6#
%'#% ((0.(#*9(&#(
:  * ((# % #' (
± 8#)#&&#(#08#)#*9#)'
± &6#
' 9# % #(0#(#())#6#
#) 
*#+

|
 |

 sset llocation ±
e Strategic ool

: llocation of money between equity, debt and money market

instruments.
: Depends upon situations, financial goals and risk appetite.
: Benjamin Gra
am advocates 50/50 split between equities and bond .
But Bogle suggests different combinations.
: Bogle gives a nice rule of t
umb for asset allocation : Debt portion for
an investors portfolio s
ould be equal to
is age.
: Example:  30 year old investor will make 70/30 asset allocation.

|
 |

 ,) #(7;((# #% ((# % #-
: .(#(#)(#*#) (H

- 50% equity : 50% debt

: E.(#(#)(#*#) (H

- 60% equity : 40% debt

: .(#(#) %%' #) (H

- 70% equity : 30% debt

: E.(#(#) %%' #) (H

- 80% equity : 20% debt

|
 |

 @(#(&.(
-1  criticism of rupee-cost averaging is
(a) Investment is for t
e same amount at regular intervals
(b) Over a period of time, t
e average purc
ase price will work out
ig
er t
an if one
tries to guess t
e market
ig
s and lows
(c) It does not inform an investor w
en to buy, sell or switc
from one sc
eme to
anot
er
(d) Rupee cost averaging
as no serious s
ortcomings.
-2 s per Bogle¶s strategic allocation t
e portfolio for t
e older investor in accumulation
p
ase s
ould be
(a) 50% equity; 50% debt (b) 60% equity; 40% debt
(c) 70% equity; 30% debt (d) 80% equity; 20% debt.
-3 Fixed ratio of asset allocation means
(a) It is a relatively aggressive approac
for managing investments
(b) Investing t
e same amount every mont

(c) Not doing any re-balancing
(d) Balance is maintained by liquidating a part of t
e position in t
e asset class wit


ig
er return and reinvesting in t
e ot
er asset wit
lower return
-4 sset allocation for any investor generally depends on
(a) ge (b) Financial status (c) Investment objective (d) ll of t
e above.
nswers: -1 : (c), -2 : (c), -3 : (d), -4 : (d)

|
 |

 $) #

Selecting t
e rig
t Investment

Products for Investors

 '(# * ##)%%#*&(# ##)#+
|
 |

 : P
ysical ssets include gold and real estate and traditionally very popular
± Gold is not subject to value erosion on account of rupee depreciation
± Gold is perceived as a protection/
edge against inflation
± Gold-linked unit sc
emes from mutual funds in India are under way
± Real estate requires a
ig
capital investment and may not be easy to liquidate
at t
e appropriate price
± Some fund
ouses are preparing to launc
Real estate mutual funds in t
e near
future
: Financial assets include equity, debt and money-market instruments
± Equity, debt and money market instruments are direct investments wit
t
e
borrower/ issuer of securities
± Mutual funds represent an indirect investment t
roug
an intermediary.
: Products by issuer:
: 
"
± Offer
ig
liquidity and perceived safety
± Low or negligible returns after factoring inflation and tax

|
 |

 : h"

: /6#

± Issued publicly and listed
± Issued privately and unlisted
± Investors may acquire s
ares eit
er at t
e time of IPO or secondary (stock)
market
± Equity offers
ig
growt
potential and liquidity
±
e c
allenge is to identify t
e rig
t s
ares t
at are likely to appreciate
± Requires capital to build a diversified portfolio.
±
)(#&() ( ##%9/ %) ((4)6#
 (
% 
#  
#(
() (+
: |*#
± Debentures issue a fixed rate of interest
± Debentures are secured by t
e assets of t
e borrower
± Debentures are provided rating by credit-rating agencies
± Bonds are also generally provided rating by independent agencies if t
e maturity
exceeds 18 mont
s
± Creditwort
iness of borrower and risk of default
ave to be analysed before
investing in t
ese bonds and debentures
± Company fixed deposits carry a
ig
er interest rate and are unsecured
±
ese would also
ave tax implications.
±
e Rate of interest paid by a company on debentures issued by it depends on
t
e Company¶s Credit rating.
±
e most important factor to look for w
en investing in a corporate fixed deposit
is t
e Credit Rating of t
e deposit.

|
 |

 : )



: "*%".#
± >!
 %#
± (9!&.'#* #
± #. ( 4 (
± 
 %%#'####

± &&(# !&#(#&F+ + %#*##(+50 '
(+> *&%#(%#$
± ##8#) 8>F&A#)
 *  %#)5#)
 
± (#%#8#) 8 %(6#
+
:   D( 9 (" #
± Introduced as post office sc
eme to tap savings in rural India
± Very popular wit
urban investors also
± Current yield is 8% over 6 years, fully taxable
± IVP permits cas
investment and protection of identity
± Easily transferable and liquid.

|
 |

 : RBI Relief Bonds
± Issued by RBI on be
alf of t
e Government of India
± >!
 .(#'#%#8#)F#(#&&
± Interest is currently taxable (used to be tax-free earlier)
± Free of risk of default

: Government Securities
± Long-term government paper
± Risk-free government obligation
± Low-return and define t
e benc
mark rate of return on t
e yield curve
± Specially appointed Primary dealers deal in G-Secs
± Generally
ig
ticket investments
± Best accessible to small investors t
roug
mutual funds.

|
 |

 : (


± Viewed more for investment and tax purposes t
an a ve
icle for risk protection
± Premium qualify for deduction under section 80C
± Important to assess need for life insurance wit
respect to earning potential
±  Wit
out Profits policy offers t
e Sum ssured in t
e event of deat
only
±  Wit
Profit policy pays not only t
e Sum ssured but also bonus declared from time to
time
± In case a policy is discontinued during its tenure, t
e policy¶s surrender value is paid w
ic

is a proportionate value based on premiums paid so far
:  µconvergence¶ of insurance and mutual funds is t
e development of Unit-Linked Insurance
products ± w
ic
offers investors c
oice of asset allocation between debt and equity.
:
)'# ( %%' 

(##)'& %
)((98
(#)  /|+

|
 |

 :  comparison of investment products can be done on risk, return, volatility and
liquidity
: Mutual funds combine t
e advantages of all investment ve
icles w
ile doing
away wit
t
eir s
ortcomings
:
e returns in a mutual fund are adjusted for market movements.

:  0. .(#((#%# %%((#
 9#

(#'#(+
:
)*(# . # &.(#'#<()  (#& #+
:
)*(#( . # &.(#'# (# #(4)"%) (
"%+E) .#.(#) '#+
:
) . # &* 9(#((6#
0))%.( &#
 
8#
%+
( . # (8E &#
I+

|
 |

 '# ##(

: Mutual Funds are more recommended option for individual investors t
an
direct equity.
: Direct Investment in stock market can be a better option t
an investing in
Mutual Funds if t
e investor
as large capital, knowledge and resources for
researc
.

uestions for Revision

-1 RBI relief bonds
ave t
e maturity of
(a) 3 years (b) 5 years (c) 7 years (d) 10 years
-2 W
ic
of t
e following is not t
e advantage of bank fixed deposits?
(a) Safety (b) Liquidity (c) Lower entry price (d) Hig
yield
nswers:
-1 : (b), -2 : (d)

|
 |

 $) #A

Recommending Model Portfolios and

selecting t
e rig
t Fund

 '(# * ##)%%#*&(# ##)#+
|
 |


)(#(. '#&& .(#
J %*;(#" ' |. #&
: Develop long term goals.

: Determine asset allocation.

: Determine sector distribution.

: Select specific fund managers and t
eir sc
emes.

|. "#&(#)'(#/&&%#.8
(#.(##))

# (+

|
 |

 J %*;(#&(%''&
.(#( %%##)&%
%(# (H
: E' &(( (H
± 50% in aggressive equity funds.
± 25% in
ig
yield bond funds, growt
and income funds.
± 25% in conservative money market funds.
E%8#)%'( %)H
± 10% in money market funds.
± 30% in aggressive equity funds.
± 25% in
ig
yield bond funds and long term growt
funds.
± 35% in municipal bond funds.

|
 |

 $#H
: %(%'H
± 30% in s
ort term municipal funds
± 35% in long term municipal funds
± 25% in moderately aggressive equity
± 10% emerging growt
equity

: %#
#%H
± 35% in conservative equity funds for capital preservation / income
± 25% in moderately aggressive equity for modest capital growt

± 40% in money market funds

|
 |

 ,) #(#)%''#&&.(#( %%' #
) (-

: |.(&/6#
H%# *  %&(

± 65 ± 80%
: %' #&(H
± 15 ± 30%
: 6&( * 9(#(H
± 5%

,) #(#)%''#&&.(#((#*#
) (-
† |.(&/6#
 *  %&(H
š 15 ± 30%
† %'&(H
š 65 ± 80%

† $ ()&(H
š 5%

|
 |

 : Investors in t
e Inter-Generational ransfer P
ase:

±
e recommended investment strategy will depend upon t
e

beneficiaries

: Investors in t
e sudden wealt
stage :

± ake into account t
e effect of taxes,

± eep t
e money in safe liquid investments and take t
e time to decide
w
at to do wit
t
e money.

|
 |

 %##))#6#
&(

: Look at Fund size

: Look at fund age
: Look at Portfolio¶s managers experience
: Look at cost of investing
: Portfolio c
aracteristics like Cas
position, portfolio concentration, market
capitalisation of t
e fund, portfolio turnover, portfolio statistics.

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 |

 Most important points
:
)6#
(& .(# '##))
 9#(+
: #( 
(  ##&|*#(+
: 
.(#0&8#) 8 #)% #0()* .(#
.(#/6#
<8#)(+
: .
4)#&.(#'# #
(&6#
&((
.(&.(#( %%' #) (+
:
)
 (#) (& .(#;(8 #)%
%(8)#) % 
< (   %)+
: ))#&.(#'#%'&((6*
.(#(
(#*#) (+
: #.(#(()#.(#(%#(8)%)* (9&% # 
(+

|
 |

 Very Important Points on Equity Funds portfolio
C
aracteristics.
: n Equity Fund can be said to be concentrated w
en op 10

oldings account for more t
an 50% of net assets invested.

:
e size of t
e market cap of fund¶s equity
oldings is inversely

proportional to t
e level of risk assumed by t
e fund. ( Large Market
Cap
ave low risk).

:  steady
oldings of investments in an equity fund¶s portfolio

indicates bot
Long erm orientation and Lower ransaction Costs.

: Before investing in equity fund one s
ould look at ExMark, Beta,

Yield, ge and size of t
e fund, Portfolio turnover rate.

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 |

 Debt Funds ± Important points
: Debt Sc
emes are popular because t
e returns are more predictable. Equity returns
are volatile and very less predictable.
: If an investor needs income,
e s
ould select a fund wit

ig
current yield.
: Y M ( Yield to maturity) of debt fund¶s portfolio gives an indication of otal Return (
Not current income).
: Longer t
e average duration of debt fund portfolio, greater t
e interest rate risk.
: Long term Debt funds carry
ig
interest rate risk.
:
e differentiating factor among debt funds of comparable maturity and quality is
Costs.
: Running a Money Market Mutual Fund requires more of rading Skills.

:
e investors s
ould invest in Debt Fund wit
a Hig
er Rated Portfolio and Lower
Expense Ratio.

: n Ideal money market MF
as lower expense Ratio.

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 |

 7  %&

Balance fund is rarely a 50/50 fund!

Equity oriented Balanced funds (up to 65% in equity)

Income oriented Balanced fund (up to 65% in debt)

uestion for Revision

-1  retired person s
ould generally invest in
(a) Equity funds (b) Index funds (c) Income funds (d) Liquid funds.
-2 W
ic
one of t
e following statements is NO a c
aracteristic of a balanced
fund?
(a)
e fund targets investors w
o wis
to invest t
eir temporary surpluses
(b)
e fund
as lower potential risk as compared to pure growt
funds
(c)
e fund's objectives are to generate bot
income and long term capital
appreciation
(d)
e portfolio consists of bot
bonds and equity s
ares.

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 |

 @(#(&.(

-3 n ideal money market fund s
ould
ave

(a) Hig
returns (b) Hig
risk (c) Long term objectives (d) Lower expense ratio.
-4 W
ic
of t
e following is true about Jacob's Model Portfolio for investors in
distribution p
ase?
(a) Investment in diversified equity s
ould be around 15% -30%
(b) Investment in income and gilt funds s
ould be around 15% -30%
(c) Investment in liquid funds s
ould be around 15% -30 %
(d) None of t
e above.
nswers:
-1 : (c), -2 : (a), -3 : (d), -4 : (a)

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 |

 $) #
>

Business Et
ics in Mutual Fund

 '(# * ##)%%#*&(# ##)#+
|
 |

 7(((
: Business Et
ics means rules/#)%(
of acceptable and good conduct.
: Business must be conducted in a disciplined, organized and fair manner.
: Et
ical practice means practice in t
e interest of unit
olders of t
e sc
eme.
:  consumer w
o feels c
eated will never return to buy t
e product again.
: BE ensures t
at t
e customer remains a long term buyer.

7(((/#)%(&# 7(((
† MF is also a business w
ere investors buy investment products
† MF and sales persons are required to adopt et
ical, fair and
good business practices and apply t
em to all t
ose involved in
selling/ servicing activities.
†  salesperson is expected to know t
e product t
oroug
ly and
describe it accurately.

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 |

 *B%#.(&7(((
/#)%(
: Simply being
onest, open and transparent wit
your potential clients.

: Rules are needed to ensure t
at you deal wit
t
e clients fairly and
transparently.

: o protect t
e clients from being c
eated or exploited.

: o ensure a level playing field among all categories of business

participants.

: o ensure fairness in dealing wit
investor.

reas particularly monitored by SEBI

† Fund structure and Governance

† Exercise of Voting Rig
ts by Funds

† Fund Operations.

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 |

  #
6'#( "%&
%
: Separation of Functions ± No one constituent is in control of t
e investors
assets.( rust, MC, Custodian, Registrar)

: Independence of Organisations ± rust independent of MC,

: Independence of Personnel - rustees can not serve as Director of MC

t
ey supervise or even any ot
er MC. Independent rustees and BOD
members also.
/ '(& #)%  %#%(
† Insider rading ± Buying or selling securities on t
e basis of privileged
information available to t
e funds by persons w
o are seen as insiders to t
e
company.
† Preferential reatment to Selected investors ± Cut off time
as been introduced
now to prevent late trading abuses.
† Personal trading by fund managers and employees
† Front Running ± Fund manager buying or selling securities a
ead of doing t
e
same transaction for t
e fund.
† Some MF ban personal trading by t
eir fund managers.

|
 |

  #("( 
 

: MC s
ould file wit
trustees a quarterly statement of dealings in securities

by t
e key personnel of t
e MC.

:
e director of MC
as be file details of transaction in MF, w
ere t
ey

exceed t
e value of Rs.1 lak
.

: In case of rustees, t
ey may report only t
ose transaction w
ic
exceed
t
e value of Rs.1 lak

: rustees
ave to certify t
at t
e personnel of MC don¶t indulge in front
running or self dealing.

|
 |

 #) #(

: Mandatory for t
e MC to appoint a compliance officer to monitor and

ensure implementation of all laws / regulations.

: ll distributors and agents follow t
e code of conduct laid down in t
e 5t

sc
edule of SEBI MF regulations 1996.

:  more detailed code called <(MFI Guidelines and Norms for
Intermediaries)
as been put into place by MFI for all distributors and
agents.

: SEBI
as issued detailed guidelines t
at are mandatory for MCs to follow
w
ile advertising t
eir mutual fund products.
e basic guidelines are
covered in t
e 2#) sc
edule of t
e SEBI regulations.

|
 |

 uestions for Revision
-1 o sell mutual funds all distributors as required to be registered wit

(a) MFI (b) SEBI (c) Registrar (d) ll trustees.
-2 ll distributors and agents follow t
e code of conduct laid down in t
e
(a) 3rd Sc
edule of SEBI (b) 4t
Sc
edule of SEBI
(c) 5t
Sc
edule of SEBI (d) 6t
Sc
edule of SEBI.
-3 W
at is insider trading?
(a) Buying and selling securities a
ead of doing t
e same transaction for t
e fund.
(b) Buying and selling securities on t
e basis of privileged information available to t
e
fund by persons w
o are insiders to t
e company.
(c) Bot
of t
e above
(d) None of t
e above.
nswers:
-1 : (a), -1 : (c), -1 : (b)

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 |


) 9(

#()*#" ((#) '
|##
# ##'# #)6(#(+
(8
#)(8)%)
 
%&#+
K7(#&%9K

|
 |