A PROJECT REPORT

ON

Current Issues Related To Mutual Funds

In The Partial Fulfillment Of

Masters of Business Administration (MBA)

2008-2010

UNDER SUPERVISION OF: SUBMITEDBY:

Prof R.P Sharma Sonam vijay

Academic Director MBA-II SEM

Arya College of management education ACE &IT

ARYA COLLEGE OF ENGINEERING AND IT

KUKAS, JAIPUR (RAJASTHAN)

ACKNOWLEDGEMENT

1

Right from the genesis of the idea to work or the subject to its completion stage has incurred both intellectual and moral depths. Therefore I would like to express omy sincere gratitude’s those who helped me in bringing out this project report in time.

We express our profound gratitude towards. Mr. R.P. SHARMA for providing the necessary knowledge of the subject and guidance in preparing this report.

I am deeply thankful to Mrs. KIRTI KALRA for their cooperation and encouraging attitude this project would not have been success.

I am also grateful to all other staff members and people who helped us in preparing this project report directly or indirectly.

SONAM VIJAYM.B.A. PART I

2ND SEM

PREFACE

2

India is one of the fastest growing economies in the world due to which the income level of

people in India is increasing and along with it the savings and investments are also

growing. Due to liberalization and deregulation which was announced in New Industrial

Policy 1991, has dismantled barriers in the financial market, allowed the entry of new

players and created environment for efficient allocation of resources. One of the important

industries in emerging financial market is the mutual fund industry.

The mutual fund industry has played a significant role in the development of capital

market, growth of corporate sectors and financial intermediation. As mutual fund industry

in India is relatively new, the level of awareness among the people is less but with the

increase in level of awareness the mutual fund industry is also growing. The government

has also announced the regulatory measures for the growth of mutual fund industry and

protection of investors in mutual funds. Here we have attempted to study mutual fund

industry in India, comparison of mutual fund companies and schemes offered by them and

investment behavior of consumers.

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INDEX

S.R.NO. CONTENTS PAGE NO.

1 INTRODUCTION 1

2 CONCEPT OF MUTUAL FUNDS 1

3 WHAT IS MUTUAL FUNDS 2

4 HISTORY OF MUTUAL FUNDS 3

5 MUTUAL FUNDS PILLARS 8

6 CLASSIFICATION OF MUTUAL FUNDS 9

7 DIFFERENT PLANS THAT MUTUAL FUND OFFER

14

8 INFORMATION OF MUTUAL FUND SCHEME 16

9 RISK INVOLVE IN MUTUAL FUNDS AND ITS TYPES

19

10 RECENT TRENDS IN MUTUAL FUND INDUSTRY

21

11 MARKET TRENDS 21

12 HOW TO READ A MUTUAL FUND TABLE 23

13 WHO ARE THE ISSUERS OF MUTUAL FUND IN INDIA

24

14 TOP 10 MUTUAL FUNDS COMPANIES 26

15 COMPARISION OF TWO GROWTH SCHEMES 28

16 BUILDING A FUND PORTFOLIO 30

4

17 REGULATION AND GUIDELINES FOR MUTUAL FUNDS

32

18 INESTORS RIGHTS 34

19 HOW FUNDS ARE RATED 35

20 SECTORAL PICKS OF FUND MANAGER 36

21 POINT OF PURCHASE 37

22 HOW TO PURCHASE MUTUAL FUND ONLINE 38

23 CHECKING THE MUTUAL FUND STATEMENT BEFORE INVESTING

38

24 FUTURE SCENARIO 40

25 CONCLUSION 41

26 BIBLIOGRAPHY 42

5

6

INTRODUCTION

Money is merely a piece of paper until you realise the importance of saving and making it grow spirally. There is plethora of investment avenues available at present, but what suits your objective is the one you should opt for. On a broader picture, a common man can think of two options, either invest in shares offering glamorous returns with an associated unknown risk or invest in the regular income debt options offering lesser but safer returns.

Now the question arises: Is there a way in middle so that you get good returns like equity and safety of investment like fixed income options. Yes, a Mutual fund is what you should look for.

Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.

CONCEPT OF MUTUAL FUNDS

Mutual funds are slowly and steadily emerging as an effective vehicle for a lay as well as a sophisticated investor.  It is amazing to see the way more and more investors are including equity funds in their portfolio.

The good thing about Mutual Funds investing is that the risk can be minimized by adopting a proper strategy to invest as well as by building a portfolio of quality equity funds.

It is a misconception that you need large sums of money to start investing in mutual funds. You don’t need large sums of money to begin your investments. Your investment can begin with as little as Rs. 500. The key, however, is that to make this humble beginning into something meaningful, one need to invest on a regular basis. That’s why; a Systematic Investment Plan (SIP) can be the perfect option for a beginner. Once you enroll for SIP, it is important to continue with that for years and even increase the amount as and when you are able to do so.

While one of the major advantages of investing in mutual funds is the variety of funds that are available to investors, it can be quite a daunting task for a new investor to select the right ones.

There are many sources like individual and corporate advisors, banks and web sites that can help you invest in mutual funds.  To find out a mutual fund advisor in your area, you can visit the website of Association of Mutual funds in India (AMFI) www.amfiindia.com and access information about advisors in your area. If you are investor waiting to invest in equity or mutual funds, the sooner you begin investing the better it would be for the future of your money.

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WHAT IS MUTUAL FUND?

A Mutual fund is a common pool of money in to which investors with common investment objective place their contributions that are to be invested in accordance with the stated investment objective of the scheme. The investment manager would invest the money collected from the investor in to assets that are defined/ permitted by the stated objective of the scheme. For example, an equity fund would invest equity and equity related instruments and a debt fund would invest in bonds, debentures, gilts etc .

8

HISTORY OF MUTUAL FUNDS

Historians are uncertain of the origins of investment funds. There are some indications that the idea of pooling assets for investment purposes began in the Netherlands in the late 18th or early 19th century. 

In India

0

1000

2000

3000

4000

5000

6000

7000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

July 91Dr. Manmohan Singh liberalizes capital market by abolishing Controller of Capital Issues

April 92Peak driven bull market

d

May 92Market crashes after the Scam and 15 days broker’s Strike.

Sep 94FII driven peak

Bear Hug

1987-88Public Sector Mutual Funds

1992-93First

Private Sector

1994-95Private SectorBirla / Alliance

1993-94Morgan Stanley

First to launchOpen-ended funds

During the Bear PhaseFirst open-ended Debt fund launched

History of mutual funds in India

IPO Market Equity Fixed Deposits Mutual Funds ?Phases in the market

1999Tax Breaks

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases.

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FIRST PHASE – 1964-87

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

SECOND PHASE – 1987-1993 (Entry of Public Sector Funds)

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

THIRD PHASE – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.

FOURTH PHASE – 2003

10

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth.

However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a significant growth in mobilisation of funds from investors and assets under management which is supported by the following data:

GROSS FUND MOBILISATION (RS. CRORES)

FROM TO UTIPUBLIC

SECTOR

PRIVATE

SECTORTOTAL

01-April-

98

31-

March-99

11,67

91,732 7,966 21,377

01-April-

99

31-

March-00

13,53

64,039 42,173 59,748

01-April-

00

31-

March-01

12,41

36,192 74,352 92,957

01-April-

01

31-

March-024,643 13,613 1,46,267 1,64,523

01-April-

0231-Jan-03 5,505 22,923 2,20,551 2,48,979

01-Feb.-

03

31-

March-03* 7,259* 58,435 65,694

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01-April-

03

31-

March-04- 68,558 5,21,632 5,90,190

01-April-

04

31-

March-05- 1,03,246 7,36,416 8,39,662

01-April-

05

31-

March-06- 1,83,446 9,14,712

10,98,15

8

ASSETS UNDER MANAGEMENT (RS. CRORES)

AS ON UTIPUBLIC

SECTOR

PRIVATE

SECTOR

TOTA

L

31-

March-99

53,32

08,292 6,860 68,472

FIFTH PHASE . GROWTH AND CONSOLIDATION - 2004 Onwards

The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutal fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.

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13

MUTUAL FUND PILLAR’S

All funds have four main constituents— sponsors, trustees, asset management companies (AMCs) and custodians. Apart from these, the registrar and transfer agents also play important roles. While all mutual funds follow rigorous disclosure and accountability rules in accordance with the Securities and Exchange Board of India’s (Mutual Funds) Regulations, 1996, here is what you should know about the role of each constituent.

Sponsor: The sponsor takes the initiative to launch and set up a mutual fund. It can be a registered company, scheduled bank or a financial institution. For instance, Prudential Plc and ICICI Bank are the sponsors for the Prudential ICICI mutual fund. A sponsor must satisfy certain conditions, including having the requisite capital, a good track record (at least five years’ operation in financial services), default-free dealings and a reputation for fairness. The sponsor appoints trustees, the AMC and the custodian in accordance with the Sebi regulations. Once the AMC is formed, the sponsor is just a stakeholder.

Trustee: The trustees have a fiduciary responsibility towards unitholders to protect their interests. They float

and market the schemes and secure necessary approvals. They check that the AMC’s investments are within the defined limits, that the fund’s assets are protected, and ensure that the unitholders get their due returns. The new fund offerings have also to be approved by the trustees before being floated.

Asset management company: The AMC is the face of the company and manages your money. Appointed by trustees to manage the schemes and the corpus, the AMC functions under the supervision of its own board of directors and on the instructions of the trustees and SEBI. An AMC takes investment decisions, compensates investors through dividends, maintains proper accounting and information for pricing of units, calculates the NAV, and provides information on listed schemes and secondary market unit transactions.

Custodian: Often, an independent organisation, such as a bank, takes the custody of securities and other assets of a mutual fund. The custodian is appointed by the trustees for safekeeping the physical securities. The dematerialised securities holdings are held in a depository through a depository participant. The custodian and depositories work under the instructions of the AMC and the direction of the trustees. The registrar and transfer agents are responsible for issuing and redeeming units of the mutual fund and providing other related services, such as preparing the transfer documents and updating the investor records.

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CLASSIFICATION OF MUTUAL FUNDS

15

MUTUAL FUNDS

MATURITY INVESTMENT OTHER FUNDS/ SCHEMES

Schemes according to Maturity:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its period.

Open ended scheme

Investors under this scheme are free to join the fund or withdraw from the fund at any time after an initial lock-in period. Such funds announce sale and repurchase prices from time to time. In an open-ended scheme, investors can resell units in the fund to the issuing mutual fund at the net asset value (NAV) of the units. This is because open-ended schemes are permitted to buy/sell their own units. For e.g. Alliance Capital 1995 Fund

Close-ended scheme

Unlike the open-ended schemes, close-ended schemes do not issue units for repurchase redemption on a periodic basis. Its units can be redeemed only on termination of the scheme, or through dealings in the secondary market. In such schemes, the period of the scheme is specified at the outset. They have a definite target amount for the funds and cannot sell more after initial offering. For eg. UTI Mastergain 1986.

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MATURITY

OPEN ENDED

CLOSED ENDED

Scheme according to investment:

Growth/ Equity funds:

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

Investment objective: Capital appreciation of equity shares

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GROWTH/EQUITY

INCOME/DEBT

MONEY MARKET OR

LIQUID FUND

GILT FUND

INVESTMENT

For eg. Morgan Stanley Growth Fund

Income/ Debt oriented funds:

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. There are 2 aspects of income funds viz. low investment risk with constant income and high investment risk generating high income. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the Country. If interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Investment objective: Providing safety of investments and regular income

For eg. Templeton Income Fund

Balanced funds:

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However NAVs of such funds are likely to be less volatile compared to pure equity funds.

Investment objective: Modest risk of investment and reasonable rate of return Investment avenue: Judicious mix of equity shares, preference shares as well as bonds, debentures and other debt related instruments.

For eg. GIC Balanced Fund

Money Market or Liquid Fund:

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors, as a means to park their surplus funds for short periods.

Investment objective: To take advantage of the volatility in interest rates in the money market Investment Avenue: Certificate of deposits (CDs), call money market, commercial papers. Investors can participate indirectly in the money market through MMMFs.

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For eg. IDBI-PRINCIPAL Money Market Fund 1997

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds:

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

Investment Objective: To increase the value of the portfolio in line with the benchmark index

For eg. BSE Sensex, SP CNX 50

Other funds/scheme:

Tax Saving funds:

Tax-saving funds offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

These funds offer tax rebates to the investors under specific, provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest predominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.

Index funds:

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Index funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.

Sector Specific funds:

These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.

Performance funds:

Performance funds were set up in the USA in 1960s to seek large profits from investment in high-flying common stocks. The investment is made in buying equity sharshares of small unseasoned companies with relatively high price- earnings ratio and highhigher price volatility.

DIFFERENT PLANS THAT MUTUAL FUND OFFER

Mutual Funds in order to cater to a range of investors, have various investment plans. Some of the important investment plans include:

Growth Plan

A growth plan is a plan under a scheme wherein the returns from investments are reinvested and very few income distributions, if any, are made. The investor thus only realizes capital appreciation on the investment. This plan appeals to investors in the high income bracket. Under the dividend plan, income is distributed from time to time. This plan is ideal to those investors requiring regular income.

Income Plan

Under the Income Plan, the investor realises income in the form of dividend. However his NAV will fall to the extent of the dividend.

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Dividend Re-investment Plan

Here the dividend accrued on mutual funds is automatically re-invested in purchasing additional units in open-ended funds. In most cases mutual funds offer the investor an option of collecting dividends or re-investing the same.

Dividend plans of schemes carry an additional option for reinvestment of income distribution. This is referred to as the dividend reinvestment plan. Under this plan, dividends declared by a fund are reinvested on behalf of the investor, thus increasing the number of units held by the investors.

Systematic Investment Plan (SIP)

A Systematic Investment Plan is not a type of mutual fund. It is a method of investing in a mutual fund.

That means that, every month, you commit to investing, say, Rs 1,000 in your fund. At the end of a year, you would have invested Rs 12,000 in your fund.

Let's say the NAV on the day you invest in the first month is Rs 20; you will get 50 units.

The next month, the NAV is Rs 25. You will get 40 units.

The following month, the NAV is Rs 18. You will get 55.56 units.

So, after three months, you would have 145.56 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.

Systematic Withdrawal Plan

As opposed to the Systematic Investment Plan, the Systematic Withdrawal Plan allows the investor the facility to withdraw a pre-determined amount/units from his fund at a pre-determined interval. The investor’s units will be redeemed at the existing NAV as on that day.

Retirement Pension Plan

Some schemes are linked with retirement pension. Individuals participate in these plans for themselves, and corporates for their employees.

Insurance Plan

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Some schemes launched by UTI and LIC offer insurance cover to investors.

401(k) plan

A popular contribution program in the USA, available through many employers. Within these tax-sheltered plans, participants often can choose mutual funds as one or more of the investment choices. This plan (or even a variant) is yet to be introduced in India.

INFORMATION OF MUTUAL FUNDS SCHEMES

Load or no-load Fund

A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs. 10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs. 10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads.

A No-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.

Assured return scheme

Assured return schemes are those schemes that assure a specific return to the unit holders irrespective of performance of the scheme. A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document. Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.

Offer document

An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI. Has prescribed minimum disclosures in the offer document An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor's track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the

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past, pending litigations and penalties imposed, etc

 Net Asset Value (NAV)

One of the most common terms you come across while investing in mutual funds is its NAV or the net asset value. It is essential to know the NAV when you buy the units of a mutual fund or when you plan to sell them. NAV is defined as a fund's market value per share. Simply put, the NAV of a fund is its price per unit. If the NAV of a fund is Rs 100, it means that you can buy one unit of the fund at Rs 100. If you are investing Rs 1,000 in this fund, you will get 10 units.

Calculating the NAVThe NAV of a fund is calculated on a daily basis. It is derived by dividing the total current market value of all the securities in the fund's portfolio (minus the liabilities) by the number of outstanding fund shares. It is calculated based on the closing market prices of the securities in the fund's portfolio.

The NAVs of funds change daily and are calculated by the respective fund houses. Some fund houses get the NAVs calculated or their investments valued through independent entities like banks. They are required to adhere to specific regulations and guidelines laid down by the market regulator, the Securities and Exchange Board of India (SEBI), while valuing their investments.

FORMULAE FOR CALCULATING NAV

NAV = ASSETS – LIABILITIES

NUMBER OF UNITS OUTSTANDING

How it worksA fund's buy and sell orders are processed at the NAV of the trading date. If you buy anMF scheme before 3 p.m. on a business day, that is the day the markets are open, you get it at the NAV of that day. If you buy it after 3 p.m., you will get it at the NAV of the next business day. Suppose it is Monday and the NAV of a fund is Rs 60. If you buy this fund at 2.30 p.m. on Monday, you will get it at an NAV of Rs 60. But if you buy it at 3.30 p.m., you get it at the NAV of the next day, which is calculated at the end of the day on Monday.

NAV and loads

The NAV of a fund is also affected by loads. It is reduced by the entry load when you are buying a fund and exit load (if applicable) when you are redeeming the fund, that is, selling the units of the fund. Consider a fund with an NAV of Rs 100, which charges an entry load of

23

2.25%.

If you pay Rs 1,000 to buy 10 units, you will get 9.775 units as only Rs 977.50 is invested. The rest of the money, that is Rs 22.50, is deducted as entry load. Now consider a situation when you own 10 units at Rs 100 per unit. You want to redeem the fund and the exit load is 1%. In this case, the NAV will be Rs 99, so instead of getting back Rs 1,000, you will only get Rs 990. Here, Rs 10 is deducted as exit load. Exit loads are not charged every time. These are usually levied if you redeem the units within a short period of investing, which is six months to a year.

The formula used to calculate the repurchase price for a scheme with an exit load is:Repurchase price = NAV x (1 - Exit load)

Sale price

Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.Repurchase Price Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related.

Redemption Price

Is the price at which close-ended schemes redeem their units on maturity. Such prices are NAV related.Sales Load Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.Repurchase or ‘Back-end’LoadIs a charge collected by a scheme when it buys back the units from the unitholders.

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RISK INVOLVE IN MUTUAL FUNDS

Risk is an inherent aspect of every form of investment. For mutual fund investments, risks would include variability, or period-by-period fluctuations in total return. The value of the scheme's investments may be affected by factors affecting capital markets such as price and volume volatility in the stock markets, interest rates, currency exchange rates, foreign investment, changes in government policy, political, economic or other developments.

TYPE OF RISK

Market Risk:

At times the prices or yields of all the securities in a particular market rise or fall due to broad

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MARKT RISK

LIQUIDITY RISK

CREDIT RISK

INTEREST RATE RISK

INVESTMENT RISK

outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to "market risk.”

Liquidity Risk:

Thinly traded securities carry the danger of not being easily saleable at or near their real values. The fund manager may therefore be unable to quickly sell an illiquid bond and this might affect the price of the fund unfavorably. Liquidity risk is characteristic of the Indian fixed income market.

Credit Risk:

In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?

Interest Rate Risk:

Changing interest rates affect both equities and bonds in many ways. Bond prices are influenced by movements in the interest rates in the financial system. Generally, when interest rates rise, prices of the securities fall and when interest rates drop, the prices increase. Interest rate movements in the Indian debt markets can be volatile leading to the possibility of large price movements up or down in debt and money market securities and thereby to possibly large movements in the NAV.

Investment Risks:

In the sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities.

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Recent trends in mutual fund industry

The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players.

Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way.

The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on.

The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these.

Market Trends

A lone UTI with just one scheme in 1964 now competes with as many as 400 odd products and

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34 players in the market. In spite of the stiff competition and losing market share, UTI still remains a formidable force to reckon with.

Last six years have been the most turbulent as well as exiting ones for the industry. New players have come in, while others have decided to close shop by either selling off or merging with others. Product innovation is now passé with the game shifting to performance delivery in fund management as well as service. Those directly associated with the fund management industry like distributors, registrars and transfer agents, and even the regulators have become more mature and responsible.

The industry is also having a profound impact on financial markets. While UTI has always been a dominant player on the bourses as well as the debt markets, the new generation of private funds which have gained substantial mass are now seen flexing their muscles. Fund managers, by their selection criteria for stocks have forced corporate governance on the industry. By rewarding honest and transparent management with higher valuations, a system of risk-reward has been created where the corporate sector is more transparent then before.

Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded Rs300bn. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn.

What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40 crore in the case of public sector funds.

Mutual funds are now also competing with commercial banks in the race for retail investor’s savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99.

India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual

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Funds are going to change the way banks do business in the future.

HOW TO READ A MUTUAL FUND TABLE

Columns 1 & 2: 52-Week High and Low - These show the highest and lowest prices the mutual fund has experienced over the previous 52 weeks (one year). This typically does not include the previous day's price.

Column 3: Fund Name - This column lists the name of the mutual fund. The company that manages the fund is written above in bold type.

Column 4: Fund Specifics - Different letters and symbols have various meanings. For example, "N" means no load, "F" is front end load, and "B" means the fund has both front and back-end fees. For other symbols see the legend in the newspaper in which you found the table.

Column 5: Price Change -This states the change in the price of the mutual fund from the previous day's trading.

Column 6: % Change - This states the percentage change in the price of the mutual fund from the previous day's trading.

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Column 7: Week High - This is the highest price the fund traded at during the past week.

Column 8: Week Low - This is the lowest price the fund traded at during the past week.

Column 9: Close - The last price at which the fund was traded is shown in this column.

Column 10: Week's Price Change - This represents the change in the price of the mutual fund from the previous week.

Column 11: Week's % Change - This shows the percentage change in the price of the mutual fund from the previous week.

WHO ARE THE ISSUERS OF MUTUAL FUND IN INDIA

Alliance Capital Mutual Fund

Birla Mutual Fund

Cholamandalam Mutual Fund

DSP Merrill Lynch Mutual Fund

Fidelity Equity Fund

Franklin Templeton Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

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IDBI Principal

IL & FS Mutual Fund

ING Savings Trust

JM Mutual Fund

Prudential ICICI Mutual Fund

Reliance Capital

SBI Mutual

Sundaram Mutual Fund

Tata Mutual

Unit Trust Of India

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TOP 10 MUTUAL FUNDS COMPANIES

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COMPARISON OF TWO GROWTH SCHEMES:

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SCHEME 1. RELIANCE GROWTH FUND

SCHEME 2. HDFC GROWTH SCHEME.

RELIANCE GROWTH FUND HDFC GROWTH SCHEMEINVESTMENT OBJECTIVETO GENERATE LONG TERM GROWTH OF CAPITAL BY INVESTMENT IN EQUITY AND EQUITY RELATED SECURITIES THROUGH A RESEARCH BASED INVESTMENT APPROACHASSET ALOCATION:TYPE OF INSTUMENT

% ALLOTED

RISK

EQUITY & ITS RELATED INSTRUMENTS

65-100 HIGH

DEBT & MONEY MARKET INSTRUMENTS

UPTO 35 MEDIUM

APPLICATION AMOUNT/NO OF UNITS

RESIDENTS IN INDIA

Rs.5000

NON-RESIDENTS Rs.5000

RECURRING EXPENSE

% OF WEEKLY AVG NET ASSETS

FIRST Rs.100 CRORESNEXT Rs.300 CRORESNEXT RS. 300 CRORESBALANCE

2.50

2.25

2.001.75

PROVIDED THAT SUCH RECURRING

TO GENERATE LONG TERM CAPITAL APPRECIATION FROM A PORTFOLIO THAT IS INVESTED PREDOMINANTLY IN EQUITY AND EQUITY RELATED INSTRUMENTS.

ASSET ALOCATION:TYPE OF INSTUMENT

% ALLOTED

RISK

EQUITY & ITS RELATED INSTRUMENTS

80-100 HIGH

DEBT & MONEY MARKET INSTRUMENTS

0-20 LOW

APPLICATION AMOUNT/NO OF UNITSPURCHASE ADD-

PRICEREPURCHASE

NEW INVESTORS

Rs.5000 MULT OF 100

Rs.500/ MIN 50 UNITS

EXISTING Rs.1000 DO DO

RECURRING EXPENSE

% OF WEEKLY AVG NET ASSETS

FIRST Rs.100 CRORESNEXT Rs.300 CRORESNEXT RS. 300 CRORESBALANCE

2.50

2.25

2.001.75

PROVIDED THAT SUCH RECURRING EXPENSE SHALL BE LESSER BY ATLEAST 0.25% OF THE DAILY AVG NET ASSETS OUTSTANDING IN EACH FINANCIAL YEAR IN RESPECT OF A SCHEME INVESTING IN BONDS

LOAD STRUCTUREENTRY LOAD

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EXPENSE SHALL BE LESSER BY ATLEAST 0.25% OF THE DAILY AVG NET ASSETS OUTSTANDING IN EACH FINANCIAL YEAR IN RESPECT OF A SCHEME INVESTING IN BONDS.

LOAD STRUCTUREENTRY LOADFOR SUBSCRIPTION BELOW Rs.2 CRORE

2.25%

FOR Rs.2 CRORE & BELOW 5 CRORE

1.25%

FOR Rs.5 CRORE & ABOVE

NIL

EXIT LOAD: NOT AVAILABLE

RISK:NOT PREDETERMINED, BUT SUBJECT TO MARKET FLUCTUATIONS.

PERIOD SCHEME RETURN %

BENCHMARK RETURN %

LAST 1 YEAR

14.11 11.70

LAST 3 YEAR

51.81 30.91

LAST 5 YEAR

60.72 30.81

RETURNSSINCE INCEPTION

32.79 12.88

IN RESPECT OF EACH

PURCHASE/ SWITCH-IN UNITS

OF LESS THAN Rs.5 CRORE IN

VALUE, AN ENTRY LOAD OF

2.25% IS PAYABLE

FOR SWITCH-IN OF UNITS

EQUAL TO OR GREATER THAN

Rs.5 CRORE NO ENTRY LOAD IS

APPLICABLE.

RISK:NOT PREDETERMINED, BUT SUBJECT TO MARKET FLUCTUATIONS.

PERIOD SCHEME RETURN %

BENCHMARK RETURN %

LAST 1 YEAR

10.83 15.61

LAST 3 YEAR

36.29 33.29

LAST 5 YEAR

39.81 30.33

RETURNSSINCE INCEPTION

26.01 16.91

ANALYSIS AND COMPARISON OF BOTH THE SCHEMES:

1. The application amount per unit of reliance scheme is more compared to that of HDFC so an average income customer want to invest first time in growth scheme of mutual fund should better go for HDFC than for RELIANCE.

2. However as far as allocation of proporation of assets is concerened the risk is greater in HDFC funds as compared RELIANCE because of greater holding in equity than debts.

3. The actual expence of RELIANCE growthscheme for the year previous financial year2008-09 was 1.84% of the average asset while that HDFC was 2.32%. This means that HDFC’S customer return after deducting its expenses seems to be very low. Moreover an attractive lower percent of expense percentage shows the competitiveness of

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the concerned fund manager of the scheme.

4. The performance of HDFC shows a greater amount of high and low signifying greater percentage of deviation. On the other hand the performance of RELIANCE though is stable has shown a lesser decrement in the previous years.

CONCLUSION

Thus though the minimum application amount of RELIANCE is higher than HDFC, with respect to risk, performance, expense, and overall market analysis ( RELIANCE scheme are don’t exceptionally well) we can say investing in RELIANCE growth fud is more better in comparision with HDFC growth fund.

BUILDING A FUND PORTFOLIO

Buying funds randomly does not a portfolio make. You must have a strategy that determines which funds to buy and how much to invest in each. Here are five questions to help you decide whether a particular fund should be in your portfolio. Turn overleaf to understand your fund’s investment style. 

Factor Questions to ask yourself Funds to invest in

Tenure

How long do I want to stay invested?Your financial goals have different maturity tenures. Invest in funds that give best results in the time horizon of each goal

• Short-term: Debt�• Medium-term: �

Balanced, FMPs• Long-term: Equity

Asset Allocation

How do I want to split my investment?Funds invest in different avenues. Choose the ones that invest in asset classes which suit your desired asset allocation

• Heavy on equity: �Diversified, ELSS, mid-cap, sectoral

• Heavy on debt: Debt, �FMPs• Mix of both: Balanced, MIPs

Risk Profile How much risk can I take?Everyone has a different risk appetite. The funds in your portfolio must match it. Also, factor in goal-related risks while picking funds

• Low risk: Debt, MIPs, arbitrage

• Moderate risk: �Balanced, index, diversified

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• High risk: Mid-cap, �small-cap, sectoral

Taxability

What tax breaks do I want?The tax on income from funds depends on the kind of fund and investment tenure. Choose ones that are the most tax-efficient

• Low tax: Debt for over �1 year

• No tax: Equity, equity-�oriented balanced for over 1 year

• Both investment- and �incometax-exempt: ELSS

Liquidity

Would I need money at a short notice?Your monthly surplus has two parts: ready-to-use cash and investible money. Choose funds that meet your cash-flow needs

• If money required at �short notice: Liquid funds

• If money not required �immediately: Equity funds

REGULATION & GUIDELINES FOR MUTUAL FUNDS

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations.

The first step involve approval and eligibility of each of the constituents of the mutual fund viz. sponsors, trustees, asset management company (AMC) and custodian. For this purpose the interested parties would be required to submit necessary information only in on prescribed formats.

The second stage will involve formal authorization of the mutual funds for business. For this purpose the sponsor or the AMC would required to apply to SEBI in an application form for the authorization along with an application fee.

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According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry.

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

SEBI regulations cleary state that all funds and schemes operational under them would be bound by their regulations. SEBI has recently given following guidelines regarding various mutual funds scheme.

GENERAL GUIDELINES:

(1) Money market mutual funds would be regulated by the RBI while other mutual funds would be regulated by the Securities and Exchange board of India.

(2) Mutual fund shall be established in the of Trusts under The Indian Trust Act and be authorized for business by the SEBI.

(3) Mutual funds shall be operated only by separately established Asset Management Companies (AMCs).

(4) At least 50% of the Board of AMC must be independent directors who have no connections with the sponsoring organization. The directors must have professional experience of atleast 10 years in the relevant fields such as portfolio management, financial administration etc.

(5) The AMC should have minimum net worth of Rs.5 crores at all times.

(6) The SEBI is given the power to withdraw the authorization given to any AMC if it is found to be not serving the best interest of investors as well as the capital market. It is not applicable to bank sponsored AMCs.

GUIDELINES REGARDING VARIOUS SCHEMES OF MUTUAL FUND:

The asset management company shall launch no scheme unless the trustees approve such scheme and a copy of the offer document has been filed with the Board.

Every mutual fund shall along with the offer document of each scheme pay filing fees.

The offer document shall contain disclosures which are adequate in order to enable the investors to make informed investment decision including the disclosure on maximum

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investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor. 

No one shall issue any form of application for units of a mutual fund unless the form is accompanied by the memorandum containing such information as may be specified by the Board.

Every close ended scheme shall be listed in a recognized stock exchange within six months from the closure of the subscription

The asset management company may at its option repurchase or reissue the repurchased units of a close ended scheme.

A close-ended scheme shall be fully redeemed at the end of the maturity period. "Unless a majority of the unit holders otherwise decide for its rollover by passing a resolution".

The mutual fund and asset management company shall be liable to refund the application money to the applicants,-

(i) If the mutual fund fails to receive the minimum subscription amount referred to in clause (a) of sub-regulation

(ii) If the moneys received from the applicants for units are in excess of subscription as referred to in clause (b) of sub-regulation

The asset management company shall issue to the applicant whose application has been accepted, unit certificates or a statement of accounts specifying the number of units allotted to the applicant as soon as possible but not later than six weeks from the date of closure of the initial subscription list and or from the date of receipt of the request from the unit holders in any open ended scheme. 

INVESTORS RIGHTS

The SEBI (MF) Regulations, 1993 contains specific provisions with regard to investor servicing. Certain rights have been guaranteed to the investors as per the above regulations. They are follows:

Unit Certificates

An investor has a right to receive his unit certificates on allotment within a period of 10 weeks from the date of closure of subscription lists in the case of close scheme and 6 weeks from the date of closure of the initial offer in the case of an open ended scheme.

Transfer of Units

An investor is entitled to get the unit certificates transferred within a period of 30 days from the date of lodgment of the certificates along with the relevant transfer forms.

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Refund of Application Money

If a mutual fund is not able to collect the statutory minimum amount (closed ended funds-Rs.20 crores, open ended funds-Rs.50 crores or 60% of the targeted amounts whichever is higher) it has to return the application money as refund within a period of 6 weeks from the date of closure of subscription list. If the refund is delayed beyond this period, each applicant is entitled to get the refund with interest at the rate of 15% p.a for the period of delay.

Audited annual report

Every mutual fund is under an obligation to its investors to publish the audited annual report and unaudited half yearly report through prominent newspaper in respect of each of its schemes within 6 months and 3 months respectively of the date of closure of accounts.

Net Asset value

Again, every investor has the right to receive information about the NAV at intervals not exceeding 3 months in the case in the case of open ended scheme and one month in the case of close ended funds. It must also be published atleast in two daily newspapers.

HOW FUNDS ARE RATED

The older a fund scheme, the better it is to know how it has done over the years and in different market conditions. So the first step in ranking mutual funds was to decide which ones to include.

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SECTORAL PICKS OF FUND MANAGER

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Banking and Financial Services, Oil and Gas, Engineering, Pharmaceutical and IT sector are the top 5 sectors where approx 55.7% of total net assets of the various fund houses are invested

The Fund manager has taken minimum exposure in Services, Real Estate and Consumer Durable sector this quarter

Reliance, HDFC and UTI have taken the maximum exposure in Banking & Financial Services totalling to approx Rs 6,416 cr and top 3 contributors to the oil&gas sector are Reliance, SBI and UTI totaling Rs 4,521 cr

POINT OF PURCHASE

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Before buying a mutual fund, it is important to know the types of funds available in the market, their investment objectives and whether they match your financial goals. The investors' objectives further depend on their risk profiles, based on which they can be categorised as aggressive, moderate and conservative. This is also the critereon used by AMCs to classify the funds, making it easy for a buyer to identify them. For instance, if you are looking for a shortterm fund for wealth creation, then you should pick a sector fund, which offers high risk, but also high returns. However, if you want regular payouts, go for an income fund, which offers capital preservation.

Like any other financial product, funds too are sold through intermediaries like a financial adviser or by the fund house itself. The intermediary's level of involvement varies depending on the role that he plays. So you can pick up funds based on the advice of your financial planner or as per your own research if you buy it directly from the fund house.

The various contact points for funds have unique problems associated with each, rendering them vulnerable to a certain degree of mis-selling or uninformed purchase. However, ignorance is no excuse to blame the intermediary for misselling. To address such complaints, the fund industry offers options that can help one from being sold a lemon. These provide control at your end to aid in the selection and picking of funds of your choice.

Whichever point of sale you opt for, remember that intermediaries, except when you directly buy from an AMC, earn a commission on every sale that they conduct. So if someone is pushing a particular fund type or scheme, understand that they would also be looking at their gains from the sale. Also check with the intermediaries who insist on churning your fund portfolio too frequently. This is because they would be earning a commission on each transaction. On the other hand, you might not gain significantly as you would have moved from one diversified equity fund to another with a similar performance.

The AMCs come up with different types of fund schemes and it is important for investors to buy those that match their investment goals. There is money to be made in mutual fund investments provided you play your cards right and zero in on the right source for buying the funds. Don't let the intermediary push you into buying a fund, make an informed choice and buy a fund that suits your financial needs, not your intermediary's.

How to purchase Mutual Funds Online?

1. Select “Easy Usec” while logging in. Once logged in, visit the Mutual Fund section. 2. Check your “Buying Power” before placing any purchase order. In case of shortage of funds,

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WHERE TO BUY A MUTUAL FUND

Asset Management Company

Most cost-effective. Suitable if you like to control what you buy.

Trading Account

Similar to demat account used to trade in stocks. Used to trade in mutual funds and offered by banks and online trading portals.

Financial Planners

They do a needs analysis before short-listing a fund. Suitable for those looking at advice on what to buy.

Some double up as distributors. Make sure you are aware of the commissions they earn.

Banks

One-stop shop. Serves well if you have a bank account.

Brokers and financial product distributors

They sell funds based on new offerings or depending on the market situation.

Big source for mis-selling but also the most active, vibrant point.

you need to transfer funds from your Bank Account using “Funds Transfer” option. 3. Click on the "Place Order” link. This will take you to all the schemes of the fund. The details of the scheme are indicated against each scheme. 4. Select PURCHASE in the drop down menu and then click on “Place Order” to place your purchase order. You can also select the option for dividend reinvestment through the purchase order screen. 5. Click on “Proceed for Confirmation” and on confirming all the details, click on “Final Confirmation” 6. Modify or Cancel option would be available to you till the final confirmation of the order is placed by you. Once you click on Final Confirmation you cannot modify or cancel the order placed by you.

CHECK THE MUTUAL FUND STATEMENT BEFORE INVESTING

When you invest in a mutual fund, the fund house sends you a statement detailing the investment in the scheme of your choice. This statement is similar to the one given by your bank and provides information about the transactions conducted by you within a defined period.

The fund house may send it to you on a monthly, quarterly or yearly basis. You can also access it online, though the fund houses have to compulsorily send a physical statement at least once a year to its unit holders.

This document indicates the changes in the account whenever there is a redemption, additional investment or dividend declaration. This makes the account statement important for tracking your investments.

Here are some of the important details in the statement that the investors should be aware of and need to check periodically to ensure a smooth interaction with the fund house:

Investors' personal details: The name, address and contact numbers of the investor or joint investors, if any, are mentioned in this section. You must ensure that the personal details mentioned in the account statement are correct, and if there is any discrepancy, you should inform your broker or fund house immediately.

Adviser's name: This indicates the source through which you have invested. So if you have invested through an agent, his name and code will appear on the statement. However, if you have invested directly, these parts should be blank in your account statement.

Bank details: The name of your bank and account number should be mentioned. Make sure that these details are written correctly, otherwise you might face unnecessary problems at the time of

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redeeming your mutual fund units. In case you need to change your bank mandate, fill out the slip provided at the bottom of the account statement and submit it to your fund house or agent.

Folio and account numbers: Each time an investor puts in money in a mutual fund scheme, the fund house gives him an account number similar to the one provided by a bank. The investor could also invest in a number of schemes, such as a debt fund, an equity fund or a tax plan, with the same fund house. In this case, the fund house offers the investor a single folio number, which consolidates his accounts under a single umbrella. This makes it easier to track all the investments with a particular fund house.

Current cost and value: The current cost indicates the amount invested in the scheme, while the current value is the latest market value of the investments (as on the date that the statement is generated). The price of a single unit is also given for that date. The net asset value (NAV) is calculated taking into account the entry or the exit load.

PAN details: It is mandatory for you to provide your Permanent Account Number (PAN) irrespective of the amount that you have invested. Check that the PAN mentioned in the account statement is correct.

Transactions summary: This section mentions the types of transactions that you have opted for, which might include purchase, the systematic investment plan (SIP) or the systematic withdrawal plan (SWP). The other transactions like dividend payout or reinvestment are also mentioned along with the percentage or rupees per unit at which the dividend is reinvested or paid out.

FUTURE SCENARIO

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The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investor’s shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over.

Out of ten public sector players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come.

But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind.

The mutual fund industry is awaiting the introduction of derivatives in India as this would enable it to hedge its risk and this in turn would be reflected in it’s Net Asset Value (NAV).

SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.

CONCLUSION

Basic Understanding

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A mutual fund brings together a group of people and invests their money in stocks, bonds and other securities.

The advantages of mutual fund are professional management, diversification, economies of scale, simplicity and liquidity.

The disadvantages of mutual fund are high cost, over diversification, possible tax consequences and the inability of management to guarantee a superior return.

There are many types of mutual funds. You can classify funds based on asset class, investing strategy, region, etc.

Mutual funds have lots of cost. Cost can be broken down into ongoing fees (represented by the expense ratio) and

transaction fees (loads). The biggest problems with mutual funds are their cost and fees. Mutual funds are easy to buy and sell. You can either buy them directly from the fund

company or through a third party. Mutual funds ads can be very deceiving.

BIBLIOGRAPHY

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Websites:

www.mutualfundsindia.com

www.amfiindia.com

www.sebi.com

www.indiainfoline.com

www.valueresearchonline.com

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