Firoz Project

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A

PROJECT WORK

On

Comparative Analysis of Mutual Fund

at

Jm Financial Asset Company Limited

Submitted to

CALIBRE INSTITUTE OF MANAGEMENT AND TECHNOLOGY

Authorized By

SIKKIM MANIPAL UNIVERSITY

In partial fulfillment of the

Requirement of the award of the degree of

Master of Business Administration

Submitted by

Firoz Shams

(Roll No. 521028030)

M.B.A 4th SEM


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DECLARATION

The summer project on COMPARATIVE ANALYSIS OF MUTUAL FUNDS from JM

Financial Mutual Fund is the original work done by me. This is the property of the institute

and use of this report without prior permission of the institute will be considered illegal and

actionable.

Firoz Shams

MBA 4th Sem.


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SMU

Sikkim Manipal University

Directorate of Distance EducationBonafide Certificate

Certified that this project report titled Comparative analysis of Mutual Fund is the

bonafide work of Firoz Shams who carried out the project work under my supervision.

Signature Signature

Mr. Rajkumar Gupta Mr. Rishi Goyal

Director Faculty Guide

Calibre IT & Management Institute

J-20 Jawahar nagar, Main road

Opp. Distt, Centre

Kota


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PREFACE

Mutual funds have been around for a long time, dating back to the early 19th century. The first modern

Americanmutual fundopened in 1924, yet it was only in the 1990's that mutual fundsbecame mainstream

investments, as the number of households owning them nearly tripled during that decade. With recent surveys

showing that over 88% of all investors participate in mutual funds, you're probably already familiar with these

investments, or perhaps even own some. In any case, it's important that you know exactly how these

investments work and how you can use them to your advantage.

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

and 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 pass 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 alwaysbeen a dominant player on the bourses as well as the debt markets, the new generations 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 Rs.100bn per annum over five-year period spanning 1993-98 doubled to Rs.210bn

in 1998-99. In the current year mobilization till now have exceeded Rs.300bn. Total

collection for the current financial year ending March 2000 is expected to reach Rs.450bn.

What is particularly noteworthy is that bulk of the mobilization has been by the private sector

mutual funds rather than public sector
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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 investorssavings 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 total assets under management of the mutual fund industry increased by 7.1% from Rs

258031 crore as on April end to Rs 276342 crore as on May end. Growth Funds managing

corpus of Rs 93748 crore as on May end witnessed a downfall of 3.98% compared to

previous month. The total assets under management of Balanced Fund also saw a decrease of

7% from Rs 7829 crore as on April end to Rs 7279 crore as on May end. Income funds

reported marginal reduction in assets by Rs 110 crore with total assets under management at

Rs 57436 crore as on May end.

ACKNOWLEDGEMENT


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Enumerating and enlisting all the individuals whose contributions went into the making of

the project is a very difficult task

I offer my great sense of gratitude and thanks to Nimesh Kampani, who gave me a chance towork under him. I am obliged to him for encouraging me and for providing me valuable

knowledge.

I am highly indebted to Mr Vikas Agarwal Central manager for giving his valuable

time and advice regarding this project.

I am extremely grateful to Raj Kumar Gupta, Director Calibre It & Mgmt. for providing

me an opportunity to undergo this project.

Last but not the least I am very obliged to the management and member JM Financial

Mutual Fund, Delhi who cooperated with me, devoting their valuable time for working and

preparing this project report.

Finally I express my sincere thanks to all those who directly or indirectly helped me in the

success of this project.

Firoz Shams

TABLE OF CONTENTS


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Topic : Comperative Analysis of Mutual Funds

Page No.

1. Executive Summary

2. Project Profile

3. Company Profile 25 222222 2 27

About JM Financial Mutual Fund 2 32

History and Back ground 38

Vision

Founders and Promoters 62

Managerial Hierarchy and Products

Marketing Policies

HR Policies

6. Introduction to Capital Market

Capital Market And Introduction

Mutual Fund (Introduction)

History And Evolution of Mutual Fund

Benefits of Mutual Fund

Fund Structure

Types of Schemes

Asset allocation and Portfolio

Benefits of mutual fund

Why in JM Financial

7. Feedback

Competitors

Limitation


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8. Bibliography

9. Conclusion & Suggestions

EXECUTIVE SUMMARY


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JM Financial Mutual Fund is one of the leading Brokerage House recently started its IPO and

Mutual Fund department . Mutual Fund is one of the best investment alternative avilable in

the the market and make safer than other investment options.

The mutual fund 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

generations 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 bank.

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 Rs.100bn per annum over five-year period spanning 1993-98 doubled to Rs.210bn

in 1998-99. In the current year mobilization till now have exceeded Rs.300bn. Total

collection for the current financial year ending March 2000 is expected to reach Rs.450bn.

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 ofRs.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.

JM Financial Mutual Funds provides professional portfolio management which helps the

investor to invest wisely. JM Financial Mutual Funds is the Member of NSE, BSE, F&O,

NCDEX, MCX. Company offer large avenues of Investment Solutions, catering to all classes

of Investors.

Company have the most advanced, hi-tech in house R&D wing equipped with some of the

best people, process and technology resources providing complete research solutions on

Equity, Commodities, IPOs and Mutual Funds. SMC is contributing one of the highest

average daily turnovers in NSE, F&O, BSE, NCDEX &MCX.


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SMC Trading Platform offers online equity & derivative trading facilities for investors who

are looking for the ease and convenience and hassle free trading experience. Company

provides ODIN Application, which is a high -end, integrated trading application for fast,

efficient and reliable execution of trades. Investor can now trade in the NSE and BSE

simultaneously from any destination at your convenience. Investor can access a multitude of

resources like live quotes, charts, research, advice, and online assistance helps you to take

informed decisions. Investor can also trade through our branch network by registering with

us as our client. Investor can also trade through company on phone by calling companys

designated representatives in the branches where investors are registered as a client.

JM Financial Mutual Funds is a member of two major national level commodity exchanges,

i.e. National Commodity and Derivative Exchange and Multi Commodity Exchange and

offers you trading platform of NCDEX; MCX & NMCE. You can get Real-Time streaming

quotes, place orders and watch the confirmation, all on a single screen. We use technology

using ODIN application to provide you with live Trading Terminals. In this segment, we

have spread our wings globally by acquiring Membership of Dubai Gold and Commodities

Exchange. We provide trading platform to trade in DGCX and also clear trades of trading

members being a clearing member.

. We are one of the leading DP and enjoy the trust of more than 75,000 investors. We offer a

quick, secure and hassle free alternative to holding the securities and commodities in physical

form. We are one of the few Depository Participants offering depository facilities for

commodities. We are empanelled with both NCDEX, MCEX. &NMC.

JM Financial Mutual Funds is a member of three major national level commodity exchanges,

i.e. National Commodity and Derivative Exchange (NCDEX), Multi Commodity Exchange

(MCX) and Nation Multi Commodity Exchange (NMCE). Investor can get Real-Time

streaming quotes, place orders and watch the confirmation, all on a single screen. Company

uses technology using ODIN application to provide you with live Trading Terminals.


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PROJECT PROFILE

OBJECTIVE


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Mutual fund and asset allocation is very vast topic and as well as interesting also. Mutual

Fund is one of the best investment alternatives with minimum risk and fair returns among

different investment alternative available in the financial risk and asset allocation is one of

the financial technique for designing the portfolio of the customer according to their profile

and risk appetite. Following are the main objective of the project.

To know about the mutual fund industry in India

Evolution of mutual fund industry and its global scenario and market trend of

mutual fund.

To know about the mutual fund and its type.

To understand the valuation method of the mutual fund and its pricing

To know about the Asset Management Company and its functioning.

Income and expenses of the mutual funds.

Regulatory frame work of the Mutual Fund

SEBI guidelines for the Mutual Fund and provisions.

To understand different method of measuring risk and return involved in mutual

fund.

Asset allocation and different theories of asset allocation and its application.

To understand the different strategies followed by the portfolio manager for

allocating the securities.

Comparison between Mutual Fund and other investment alternatives.

To know about the risk and return grid of Mutual Fund.

Benefits of the mutual fund

To know about the myths about the mutual fund

INTRODUCTION


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2.1 PURPOSE OF THE REPORT

Sales/Marketing & Analysis of Mutual Funds Offered by Investment & Services

division of JM Financial Asset Management Pvt. Ltd.

I am working as a Relationship Manager - Sales with JM Financial Asset

Management Pvt. Limited for their Investment & Services arm. I have advised

people on various Investments Schemes. Along with that I have also analyzed their

perception about the products and how a customer behaves with respect to different

schemes available in the market.

JM Financial Asset Management Pvt. Ltd. Is the Asset Management Company

(AMC) which operates all its functions related to Mutual Fund as financial managers

to JM Financial Ltd. JM Financial Asset Management Pvt. Ltd. launches its own

funds and control the ongoing fund schemes.

This project involves study of various schemes of mutual funds offered by different

companies like JM Financial Mutual Fund, UTI Mutual Fund, HDFC Mutual Fund,

Franklin Templeton Mutual Fund, and JM Financial Mutual Fund and simultaneously

counseling the investors about the best financial and investment options available and

to make them aware about the risk and return parameters of those investment

instruments.

So followings are the objectives of this project.

1. Detailed Study of Various Schemes :

There are various companies offering mutual fund schemes. Detailed study of various

schemes under different categories offered by companies has been done by studying

their fact-sheets and relevant materials and with the support of financial analysts of

JM Financial Mutual Fund. One scheme offered by one Asset Management Company


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is different from other scheme offered by other Asset Management Company. So

unique features related to individual schemes are to be studied and following factors

have been used when analyzing the risks and returns of each scheme:

Net Asset Value

Past Performance

P/E Ratio

Standard Deviation

Beta Variable

Sharpe Ratio

Alpha Value

Equity and Debt Market scenario.

3. Customer Perception of Schemes with Regard to Risks and Returns:

Every Customer based on his profile behaves in a different manner when investing in

any mutual fund scheme. For Example, an aggressive customer who can play with 50

% of his investment would like to know the past returns with other schemes of that

Asset management Company (AMC) and sector allocation of that scheme while a

conservative customer would like to know that whether his money will be safe or

there are risks involved. So aggressive customer would focus more on high returns

despite losses while conservative customer would care about safety of his principal

amount and he will be satisfied with low returns but no losses.

So Customer perceptions of each customer have been found out considering the risk

taking ability of the customer. This involved making of portfolio for the potential

investors and findings of different factors a customer perceives in a particular scheme

and what the main factors he ponders upon before investing are.

4. Comparison With Other Schemes


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After studying and analyzing the risks and returns of each scheme, these schemes are

compared against each other and based on various factors like returns and risk( in

terms of standard deviation and beta), past performance, charges and nature of fund, I

have compared those schemes of different AMCs. It has helped me in getting to know

the best scheme available in the market in each category and then advising the best

schemes to the customer.

Secondary Objectives :

1. To learn about the organization culture and have practical experience :

During our training period I have become familiar with various day-to-day

operations of the company. As building good relationship with the customer is

a key to our job, by understanding the bank operations I can assist the

customer with his queries whereby gaining his trust and getting an opportunity

to sell our product.

2. To develop marketing skills by selling various financial instruments :

As Financial Counselors, I had been given my monthly targets and I had tried

try to achieve them. This has helped me to understand the intricacies of

marketing and sales.

3. To spread the Financial Awareness Among the Customers:

An informed customer makes better purchase decisions. So by increasing the

awareness level of the customer, I have aided the company by providing them

with an informed customer base, which has been more receptive to the

investment services.

2.2 Value addition To The Company :

1. Feedback from Customers : By determining about the customer perception,

I have helped the bank to get feedback and reviews from the customers about


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its products and services and it has given the company a chance to build on its

strengths and eliminate weaknesses.

2. Competitive Advantage: - In the project, comparative studies has been done

with regard to different schemes offered by companies in the same category

such as open ended fund or index based fund and through this, Company has

been able to judge its products in relation to other products offered in the

market. This has helped the company to come up with new or better products.

3. Financially Informed Customers : I have developed a financially sound

customer base, which would help the company in the long run.

4. Increasing The Sales Of Company : Working as Relationship Manager, I

have supplemented the existing sales channel and worked along with

experienced Financial Counselors who form the first level of contact with the

customers. Financial Counselors have in recent times, emerged as the

strongest sales channel generating volume sales for JM.

I am working under Investment and Services channel of JM Fianacial Asset

Management Pvt. Ltd (JM Financial Mutual Fund). Investment and services

channel deals with selling various types of mutual fund schemes.

3. MAIN TEXT

3.1 JM Financial Mutual Fund (Investment & Services Arm):

JM Financial Mutual Fund is one of India 's first private sector mutual

funds-an integral part of the first wave that commenced operations in 1993-94.

JM Financial Mutual Fund is a part of JM Financial Group, which has a rich

heritage, built over 5 decade. JM Financial Asset Management Pvt. Ltd. is one

of the many successful companies that have emerged out of JM Group's

strong foundation in financial services.

JM Financial Group's origins can be traced back to the 1950s when the

Kampani family began to get involved in India's then nascent capital markets.


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J.M. Financial & Investment Consultancy Services was founded on

September 15, 1973. Under the leadership of Chairman Nimesh N. Kampani,

the JM Financial Group has played a stellar and multi-faceted role in the

development of India's capital markets. Apart from helping companies raise

finance, the Group has also been instrumental in educating a burgeoning and

prospering middle class about the advantages of investing in blue chip

companies.

JM Financial Asset Management Private Limited, the Asset

Management Company of JM Financial Mutual Fund is sponsored by J.M.

Financial and Investment Consultancy Services Pvt. Ltd., and co-

sponsored by JM Financial Ltd. JM Financial Asset Management Private

Limited started operations in December 1994 with a simultaneous launch of

three funds-JM Liquid Fund (now JM Income Fund), JM Equity Fund and JM

balanced Fund. Today, JM Financial Mutual Fund offers a bouquet of funds

that caters to the diverse needs of both its institutional and individual

investors.
http://www.jmfinancial.in/http://www.jmfinancial.in/


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THE GROUP

JM Financial Mutual Fund

o Member : NSE (cash & derivative segment)

o Member :BSE (Equity & Derivative segment)

JM Financial Broking House.

o Member : BSE(cash & derivative segment)

o Member : NSE(equity 7 derivative segment)


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About Group

One of the top brokerage houses of India.

A one stop shop for diversified financial services customized for our vast clientele.

Headquartered in Mumbai

Offices at New Delhi & Kolkata and a mammoth network of

franchisees across India.

Milestones

Acquired membership of DSE in 2006.

Became member of NSE in 2006.

Became member of BSE & depository participant with CDSL in 2006

Mission

To give value added and quality services to the investors and enable them to

maximize their returns on investment.

To give risk management back up to clients through the expertise of our technical

analysts.

To work together with customers, combining our skills, technologies and experience,

thereby giving entirely new dimensions to online brokerage services.

Infrastructure

Head office at Bandra, Mumbai.

Offices at Noida, Mumbai & Rajasthan and presence at more than 50 locations across

India.

A conglomerate consisting of many franchisees and sub-brokers

Networking and Technology


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Manned by skillful Technicians & hardware professionals

Significant number of trading terminals in the Head Office.

Wired to Perfection

VPN with state of the art networking facilities

More than 250 VSATs/Leaselines

1400 trading terminals of NSE, BSE, MCX

21 Online Depository Branches

41 Offline Branches connected through Back Office Software


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JM Financial is an Endeavour to change the way India trades in financial markets and avails

of various financial services. JM Financial Mutual Fund ensures maximum security with a

unique security token to keep your online account safe. It is driven by ethical and dynamic

process for wealth creation. Based on this, the company started its Endeavour in the financial

market.

JM Financial Mutual Fund Limited provides integrated financial solutions to its corporate,

retail and wealth management clients. Today, we provide various financial services which

include Investment Banking, Corporate Finance, Portfolio Management Services, Equity &

Commodity Broking, Insurance and Mutual Funds. Plus, theres a lot more to come your

way.


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JM Financial Mutual Fund is proud of being a truly professional financial service provider

managed by a highly skilled team, who have proven track record in their respective domains.

JM Financial Mutual Fund operations are managed by more than 1500 highly skilled

professionals who subscribe to ADAG philosophy and are spread across its country wide

branches.

Today, we have a growing network of more than 100 branches and more than 350 business

partners spread across more than 250 cities/towns in India.

Unlike a traditional broking firm, JM Financial Mutual Fund works on the philosophy of

partnering for wealth creation. We not only execute trades for our clients but also provide

them critical and timely investment advice. The growing list of financial institutions withwhich JM Financial Mutual Fund is empanelled as an approved broker is a reflection of the

high level service standard maintained by the company.

BACKGROUND AND HISTORY

Mr. Nimesh Kampani (Founder) was a true leader - practical and realist and yet, talked the

language of a visionary and an idealist. For it was his vision to start integrated financial

services driven by the relationship of trust and confidence. From here JM Financial Mutual

Fund started its operations.

To realize its vision, the JM Financial Mutual Fund has taken one step ahead. Today, JM

Financial Mutual Fund provides various financial services which include broking (stocks &

commodities), depository participant services, portfolio management services, advisory on

mutual fund investments and many more.


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Unlike a traditional broking firm, JM Financial Mutual Fund works on the philosophy of

being Financial Care Partner. We not only execute the trades for our clients but also

provide them critical and timely investment advice. The growing list of financial institutions

with which JM Financial Mutual Fund is empanelled as an approved broker is a reflection of

the high level service standard maintained by the company.

JM Financial Mutual Fund is proud of being a truly professional financial service provider

managed by a highly skilled team, who have proven track record in their respective domains.

Through its regional, zonal and branch offices, JM Financial Mutual Fund has the widest

reach and is available to you across the length and breadth of the country.

VISION

Vision

To be a global major in providing complete investment solutions, with relentless focus on

investor care, through superior efficiency and complete transparency.

To build a global enterprise for all our stakeholders, and

A great future for our country,

To give millions of young Indians the power to shape their destiny,

The means to realize their full potential.


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PROMOTERS AND FOUNDERS

Mr. Nimesh Kampani is the Chairman and Managing Director of JM Financial Mutual Fund.

He is an embodiment of professional excellence. They are the visionaries who planted the

sampling of the giant tree called JM Financial Mutual Fund. With rock solid reserve and firm

commitment, they have shaped their vision to reality. They have a rich experience in the

capital market. His exceptional leadership skills and outstanding commitment has made JM

Financial Mutual Fund as one of the leading investment solutions and services provider. Both

of them are professionals to the core. Their specialization in risk management and

surveillance and their disciplined style of working is an inspiration to the workforce of JM


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Financial Mutual Fund. Their experience of the securities as well as the commodity market

and their leadership qualities has made JM Financial Mutual Fund a force to reckon with.

Following chart shows the brief introduction of JM Financial Asset Management Pvt. Ltd.

Name of the Mutual Fund JM Financial Mutual Fund

Date of setup of Mutual Fund 15-Sep-94

Name(s) of Sponsor J.M. Financial & Investment Consultancy Services

Private Ltd

Co-Sponsor JM Financial Limited

Name of Trustee Company JM Financial Trustee Company Private Limited

Name of Trustees Mr. Anant V Setalvad - Director

Mr. Darius E. Udwadia - Director

Mr. Jalaj A. Dani - Director


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Mr. Nimesh N. Kampani - Chairman

Mr. Sharad M. Kulkarni - Director

Mr. Shivji K. Vikamsey - Director

Name of the Asset Management Co. JM Financial Asset Management Private Limited

Date of Incorporation of AMC9-Jun-94

Name(s) of Director Dr. Ajay S Mookerjee

Dr. R. Srinivasan

Dr. Vijay Kelkar Chairman

Mr. Darius D. Pandole

Mr. J K Modi

Mr. Nityanath P. Ghanekar (MD & CEO)

Mr. Rajendra P. Chitale

Mr. Vishal Kampani

Name of Head of Operations Mr. Rakesh Kumar Jain

Name of Sales Head Mr. Bhanu Katoch

Name of Chief Invest. Officer Mr. Sandip Sabharwal (CIO Equity)

Name(s) of Fund Manager Mr. Asit Bhandarkar

Mr. Biren Mehta

Mr. Sandeep Neema

Ms. Shalini Tibrewala

Name of Compliance Officer Ms. Diana D'sa

Name of Investor Service Officer Mr. Harish Kukreja

Address of AMC 5 th. Floor, 'A' Wing, Laxmi Towers, Bandra Kurla

Complex, Mumbai 400 051

Telephone Number 022-39877777


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Fax Number 22881154 / 26528377 /78

Website www.JMFinancialmf.com

Email [email protected]

Name(s) of AuditorsC.C. Choksi & Co Chartered Accts. (For AMC)

Haribhakti & Company(Internal Auditors for JM

Financial MF)

N.M.Raiji & Company Chartered Accts.(for JM

Financial MF)

Name(s) of Custodian HDFC Bank Limited

Name(s) of Registrar and Transfer Agent Karvy Computershare Private Ltd.

MANAGERIAL HIERARCHY
http://www.jmfinancialmf.com/mailto:[email protected]://www.jmfinancialmf.com/mailto:[email protected]


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Promoters & Founders

Director Director

Vice President

Assistant Vice President

Manager

Accounts

Senior Manager

Direct Channel

Manager

Co- ordinator

Manager

Franchise

ManagerSub Broker

Senior Executive

Senior Executive

Senior Executive



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Companys Approach

Value for Investor's Trust: We value the trust reposed in us by our clients and are

committed to uphold it at all cost.

Integrity and Honesty: We at JM Financial Mutual Fund are men of integrity and

believe in transparency and discipline.

Personalized Attention: Our most valued asset is our relationship with the clients,

which we have built by giving personalized attention to all our clients.


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Network Which Works: We have a vast network extending to 130+cities but we

ensure that it WORKS for the investors in terms of accessibility, convenience and

hassle free trading experience.

Research Based Advisory Services: We offer proactive and timely world-class

research based advice and guidance to our clients so that they can take informed

decisions.

Specialized Services

Investor care is of paramount importance at JM Financial Mutual Fund.

We offer large avenues of investment solutions for all classes of investors under one

roof.

Our experience is one of our prized possession. We have an experience of more than

15 years wherein we have grown phenomenally.

Mammoth network of offices and our nation wide presence, ensures personal touch

and easy accessibility to investors across the country.

One of the most competitive brokerage structure.

Hassle free trading experience.

Timely advice along with research support to the clients through SMS and E-Mails on

Equities, Derivatives, Commodities, IPOs and Mutual Funds.

Product and services

Equity Trading.

Derivative Trading.

Commodities Trading.

Commodities Trading in International Markets through DGCX.

Mutual Fund & IPO Distribution.


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Depository Services for Shares & Commodities.

Real time Internet Trading.

Research support to the clients through SMS

Clearing Services for Trading Members in NSE F&O and NMCE

Equity & Derivative Trading

JM Financial Mutual Fund Trading Platform offers online equity & derivative trading

facilities for investors who are looking for the ease and convenience and hassle free trading

experience. We provide ODIN Application, which is a high -end, integrated trading

application for fast, efficient and reliable execution of trades. You can now trade in the NSE

and BSE simultaneously from any destination at your convenience. You can access a

multitude of resources like live quotes, charts, research, advice, and online assistance helps

you to take informed decisions. You can also trade through our branch network by

registering with us as our client. You can also trade through us on phone by calling our

designated representatives in the branches where you are registered as a client.

Clearing Services

Being a clearing member in NSE (derivative) segment we are clearing massive volumes of

trades of our trading members in this segment.

Commodity Trading

JM Financial Mutual Fund is a member of two major national level commodity exchanges,

i.e. National Commodity and Derivative Exchange and Multi Commodity Exchange and

offers you trading platform of NCDEX , MCX &NMCE. You can get Real-Time streaming

quotes, place orders and watch the confirmation, all on a single screen. We use technology

using ODIN application to provide you with live Trading Terminals. In this segment, we

have spread our wings globally by acquiring Membership of Dubai Gold and Commodities

Exchange. We provide trading platform to trade in NMCE and also clear trades of trading

members being a clearing member.


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Distribution of Mutual Funds & IPOs

JM Financial Mutual Fund offers distribution and collection services of various schemes of

all Major Fund houses and IPOs through its mammoth network of branches across India .

We are registered with AMFI as an approved distributor of Mutual Funds. We assure you a

hassle free and pleasant transaction experience when you invest in mutual funds and IPOs

through us. We are registered with all major Fund Houses including Fidelity, Franklyn

Templeton etc. We have a distinction of being leading distributors of IPOs.Shortly we will be

providing the facility of online investment in Mutual Funds and IPOs

Online back office support

To provide robust back office support backed by excellent accounting standards to ourbranches we have ensured connectivity through FTP and Dotnet based Application. To

ensure easy accessibility to back office accounting reports to our clients, we have offered

facilities to view various user-friendly, easily comprehendible back office reports using the

linkMy SMC Account.

JM Financial MF Depository

We are ISO 9001:2000 certified DP for shares and commodities. We are one of the leading

DP and enjoy the trust of more than 75,000 investors. We offer a quick, secure and hasslefree alternative to holding the securities and commodities in physical form. We are one of the

few Depository Participants offering depository facilities for commodities. We are

empanelled with both NCDEX, MCX &NMCE..

JM Fnancial Research Based Advisory Services

Our massive R&D facility caters to the need of Investors, who are continuously in need of

opportunities for striking rich rewards on their investment. We have one of the most

advanced, hitech in-house R&D wing with some of the best people, process and technologyresources providing complete research solutions on Equity, Commodities, IPOs and Mutual

Funds. We offer proactive and timely world class research based advice and guidance to our

clients so that they can take informed decisions. Click on Research to unveil the treasure.

JM Financial Investor Awareness Forum
http://59.144.163.142/onlineasp/smconline.aspxhttp://59.144.163.142/onlineasp/smconline.aspxhttp://www.contentlinks.asiancerc.com/smc/fundamental/research.asphttp://59.144.163.142/onlineasp/smconline.aspxhttp://www.contentlinks.asiancerc.com/smc/fundamental/research.asp


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Our dedicated team of professionals is conducting investor meet/seminars across India . We

believe that a well-informed investor is an empowered investor. We also seek your feedback

on our services in these Investor meets.

MARKETING POLICY

[a] Basis of preparation

The financial statements have been prepared to comply with the mandatory Accounting

Standards issued by the Institute of Chartered Accountants of India (`ICAI') and the relevant

provisions of the Companies Act, 1956 (the `Act'). The financial statements have been

prepared under the historical cost convention on accrual basis. The accounting policies have

been consistently applied by the Company unless otherwise stated.

[b] Fixed assets

Fixed assets are stated at cost less accumulated depreciation and impairment losses. Cost

comprises the purchase price and any attributable cost of bringing the asset to its working

condition for its intended use.

[c] Intangibles

Patents, Trademarks and Designs

Costs relating to patents, trademarks and designs, which are acquired, are capitalized and

amortized on a straight-line basis over a period of 5 years.

Computer software

Pursuant to adoption of Accounting Standard 26 - Intangible Assets, issued by the ICAI,

software which is not an integral part of the related hardware, is classified as an intangible

asset and is being amortised over a period of 6 years, being the estimated useful life.

Non-compete

Costs relating to payment of non compete compensation is capitalised and amortised on a

straight-line basis over the life of non-compete agreement.


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[d] Depreciation

Depreciation is provided on straight-line method at the rates and in the manner prescribed in

Schedule XIV of the Act.

Premium paid on perpetual leasehold land is charged to revenue on termination/renewal of

lease agreements.

[e] Leases

Operating lease payments are recognized as an expense in the Profit and Loss account on a

straight-line basis over the lease term.

[f] Investments

Investments that are readily realisable and intended to be held for not more than a year are

classified as current investments. All other investments are classified as long-term

investments. Current investments are carried at lower of cost and fair value determined on an

individual investment basis. Long-term investments are carried at cost. However, provision

for diminution in value is made to recognise a decline other than temporary in the value of

the investments.

Profit/loss on sale of investments is computed with reference to their average cost.

[g] Inventories

Inventories are valued as follows:

Raw materials, stores and spares and packing materials

Lower of cost and net realizable value. However, materials and other items held for use in the

production of inventories are not written down below cost

if the finished products in which they will be incorporated are expected to be sold at or above

cost. Cost is determined on a weighted average basis.

Finished goods


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Lower of cost and net realizable value. Cost includes direct materials and labour and a

proportion of manufacturing overheads based on normal operating capacity. Cost of finished

goods includes excise duty.

Work-in-process

At cost upto estimated stage of process. Cost includes direct materials and labour and a

proportion of manufacturing overheads based on normal operating capacity.

Net realizable value is the estimated selling price in the ordinary course of business, less

estimated costs of completion and the estimated costs necessary to make the sale.

Where duty paid/indigenous materials are consumed, prior to duty-free import of materials

under the Advance License Scheme, in manufacture of products for export, the estimated

excess cost of such materials over that of duty free materials is carried forward in the cost of

raw materials and charged to revenue on consumption of such duty-free materials.

[h] Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to

the Company and the revenue can be reliably measured.

Sale of Goods:

Revenue from sale of goods is recognised when the significant risks and rewards of

ownership of the goods are transferred to the customer and is stated net of trade discounts,

excise duty, sales returns and sales tax.

Royalties, Technical Know-how and Licensing income:


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Revenue is recognised on an accrual basis in accordance with the terms of the relevant

agreement.

Interest:

Revenue is recognised on a time proportion basis taking into account the amount outstanding

and the rate applicable.

Dividends:

Revenue is recognized when the right to receive the income is established.

[i] Research and development costs

Revenue expenditure incurred on research and development is charged to revenue in the year

it is incurred. Capital expenditure is included in the respective heads under fixed assets.

[j] Expenditure on regulatory approvals

Expenditure incurred for obtaining regulatory approvals and registration of products for

overseas markets and products acquisition is charged to revenue.

[k] Employee stock option plan

The accounting value of stock options representing the excess of the market price over the

exercise price of the shares granted under "Employees Stock Option Scheme" of the

Company is amortized on straight-line basis over the vesting period as "Deferred employees

compensation" in accordance with the SEBI (Employee Stock Option Scheme and Employee

Stock Purchase Scheme) Guidelines, 1999.

(i) Initial Recognition

Foreign currency transactions are recorded in the reporting currency, by applying to the

foreign currency amount the exchange rate between the reporting currency and the foreign

currency at the date of the transaction.

(ii) Conversion


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Foreign currency monetary items are reported using the closing rate. Non-monetary items

which are carried in terms of historical cost denominated in a foreign currency are reported

using the exchange rate at the date of the transaction; and investments in foreign companies

are recorded at the exchange rates prevailing on the date of making the investments.

(iii) Exchange Differences

Exchange differences arising on the settlement of monetary items or on reporting company's

monetary items at rates different from those at which they were initially recorded during the

year, or reported in previous financial statements, are recognized as income or as expenses in

the year in which they arise, except for loans denominated in foreign currencies utilized for

acquisition of fixed assets where the exchange gains/losses are adjusted to the cost of suchassets.

(iv) Forward Exchange Contracts not intended for trading or speculation purposes

The premium or discount arising at the inception of forward exchange contracts is amortized

as expense or income over the life of the contract. Exchange differences on such contracts are

recognized in the profit and loss in the year in which the exchange rates change. Any profit

or loss arising on cancellation or renewal of forward exchange contract is recognized as

income or as expense for the year.

Representative offices

In translating the financial statements of representative offices for incorporation in financial

statements, the monetary assets and liabilities are translated at the closing rate; non monetary

assets and liabilities are translated at exchange rates prevailing at the dates of the transactions

and income and expense items are converted at the respective monthly average rate.

[m] Retirement benefits

Contributions in respect of provided fund, superannuation and gratuity are made to Trust set

up by the Company for the purpose and charged to profit and loss account.


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Provisions for liabilities in respect of gratuity pension and leave encashment benefits are

made based on actuarial valuation made by an independent actuary as at the balance sheet

date.

[n] Income taxes

Tax expenses comprise both current and deferred taxes.

The provision for current income tax is the aggregate of the balance provision for tax for

three months ended March 31, 2004 and the estimated provision based on the taxable profit

of remaining nine months up to December 31, 2004, the actual tax liability, for which, will be

determined on the basis of the results for the period April 1, 2004 to March 31, 2005.

Deferred income taxes reflects the impact of current year timing differences between taxable

income and accounting income for the year and reversal of timing differences of earlier

years. Deferred tax is measured based on the tax rates and the tax laws enacted or

substantively enacted at the balance sheet date. Deferred tax assets are recognized only to the

extent that there is reasonable certainty that sufficient future taxable income will be available

against which such deferred tax assets can be realized.

[o] Export benefits/incentives

Export entitlements under the Duty Entitlement Pass Book ("DEPB") Scheme are recognized

in the profit and loss account when the right to receive credit as per the terms of the scheme

is established in respect of the exports made.

Obligation/entitlements on account of Advance License Scheme for import of raw materials

are accounted for on purchase of raw materials and/or export sales.

[p] Contingent liabilities

Depending on facts of each case and after due evaluation of relevant legal aspects, claims

against the Company not acknowledged as debts are disclosed as contingent liabilities. In

respect of statutory matters, contingent liabilities are disclosed only for those demand(s) that

are contested by the Company.


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[q] Use of estimates

In preparing Company's financial statements in conformity with accounting principles

generally accepted in India, management is required to make estimates and assumptions that

affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities

at the date of the financial statements and the reported amounts of revenues and expenses

during the reporting period; actual results could differ from those estimates.

[r] Earnings per share

Basic earnings per share are calculated by dividing the net profit or loss for the period

attributable to equity shareholders by the weighted average number of equity shares

outstanding during the period. The weighted average numbers of equity shares outstanding

during the period are adjusted for events of bonus issue.

For the purpose of calculating diluted earnings per share, the net profit or loss for the period

attributable to equity shareholders and the weighted average number of shares outstanding

during the period are adjusted for the effects of all dilutive potential equity shares.


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HR POLICY

In my book, we have no greater asset than the quality of our intellectual capital, and no

greater priority than the growth and retention of our vast pool of talent Mr.Nemash

Kampani

At JM financial Mr. Nemash Kampani Group, we recognise the critical role that our people

play in the success and growth of each of our businesses. It is the skill and initiative of our

workforce that sets us apart from our peers in todays knowledge-driven economy. It is their

commitment and dedication that lends us the competitive edge, and helps us stay ahead of the

curve.

Our strong team of professionals is among the youngest in the country, and consists of some

of the most dynamic, motivated and qualified individuals to be found anywhere in the world.

First-rate management graduates, highly trained engineers, top-notch financial analysts and

razor sharp accountantswe have on our rolls some of the brightest minds in the business.

Mission

Our transparent HR policies and robust processes are driven by a single overarching

objective: To attract, nurture, grow and retain the best leadership talent in every sector and

industry is which we operate.

Our aim is to create a team of world beaters that is:

Committed to excellence in quality,

Focused on creation and enhancement of stakeholder value

Responsive to evolving business needs and challenges

Dedicated to uphold the core values of the Group

Promise


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In order to achieve our objective, we offer our people...

Growth opportunities to expand leadership capabilities

True meritocracy and freedom to choose career paths

Opportunities to develop and hone leadership and functional capabilities

An entrepreneurial environment where people can pursue their dreams

Competitive compensation

In addition, we follow a well-defined Rewards & Recognitions programme that periodically

identifies exceptional individual and team achievers among the various business functions

and verticals in the Group.

Expectations

At JM Financial Mr.Nemash Kampani Group, we encourage our colleagues to take

leadership, at all levels of the organisation, and participate in accelerating growth of our

businesses to build a formidable enterprise.

Leaders in JM Financial Mr.Nemash Kampani Group are expected to

Always keep the customers needs in mind and constantly innovate

Execute flawlessly and with speed

Sustain and strengthen the groups spirit of entrepreneurshiptaking ownership and

accountability for their actions

Leverage synergies to learn and build on the diverse experiences and skill sets of our

various businesses and team.


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Introduction To Capital Market

Primary Market

Secondary Market

Functions Of Secondary Market

Role Of Secondary Market

Relationship Between The Primary And Secondary Market

Functions Of Stock Exchange

CAPITAL MARKET

Introduction

The market for long-term securities like bonds, equity stocks and preferred stocks is divided

into primary market and secondary market. The primary market deals with the new issues of


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securities. Outstanding securities are traded in the secondary market, which is commonly

known as stock market or stock exchange. In the secondary market, the investors can sell and

buy securities. Stock markets predominantly deal in the equity shares. Debt instruments like

bonds and debentures are also traded in the stock market. Well-regulated and active stock

market promotes capital formation. Growth of the primary market depends on the secondary

market. The health of the economy is reflected by the growth of the stock market.

Companies raise funds to finance their projects through various methods. The promoters can

bring their own money or borrow from the financial institutions or mobilize capital by

issuing securities. The funds may be raised through issue of fresh shares at par or premium,

preference shares, debentures or global depository receipts. The main objectives of a capital

issue are given below:

To promote a new company

To expand an existing company

To diversify the production

To meet the regular working capital requirements

To capitalize the reverses

Securities markets provide a channel for allocation of savings to those who have a productive

need for them. As a result, the savers and investors are not constrained by their individual

abilities, but by the economys abilities to invest and save respectively, which inevitably

enhances savings and investment in the economy.

DEPENDENCE ON SECURITIES MARKET

Three main sets of entities depend on securities market. While the corporates and

governments raise resources from the securities market to meet their obligations, the

households invest their savings in the securities.


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Corporate Sector

The 1990s witnessed emergence of the securities market as a major source of finance for

trade and industry. A growing number of companies are accessing the securities market

rather than depending on loans from FIs/banks. The corporate sector is increasingly

depending on external sources for meeting its funding requirements. There appears to be

growing preference for direct financing (equity and debt) to indirect financing (bank loan)

within the external sources. According to CMIE data, the share of capital market based

instruments in resources raised externally increased to 53% in 1993-94, but declined

thereafter to 33% by 1999-00 and further to 21% in 2001-02. In the sector-wise shareholding

pattern of companies listed on NSE, it is observed that on an average the promoters hold

more than 55% of total shares. Though the non-promoter holding is about 44%, Indian

public held only 17% and the public float (holding by FIIs, MFs, Indian public) is at best

25%. There is not much difference in the shareholding pattern of companies in different

sectors. Strangely, 63% of shares in companies in media and entertainment sector are held by

private corporate bodies though the requirement of public offer was relaxed to 10% for them.

The promoter holding is not strikingly high in respect of companies in the IT and telecom

sectors where similar relaxation was granted.

Governments

Along with increase in fiscal deficits of the governments, the dependence on market

borrowings to finance fiscal deficits has increased over the years. During the year 1990-91,

the state governments and the central government financed nearly 14% and 18% respectively

of their fiscal deficit by market borrowing. In percentage terms, dependence of the state

governments on market borrowing did not increase much during the decade 1991-2001. In

case of central government, it increased to 77.6% by 2002-03.

Households

According to RBI data, household sector accounted for 82.4% of gross domestic savings

during 2001-02. They invested 38% of financial savings in deposits, 33% in


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insurance/provident funds, 11% on small savings, and 8% in securities, including

government securities and units of mutual funds during 2001- 02. Thus the fixed income

bearing instruments are the most preferred assets of the household sector. Their share in total

financial savings of the household sector witnessed an increasing trend in the recent past and

is estimated at 82.4% in 2001- 02. In contrast, the share of financial savings of the household

sector in securities (shares, debentures, public sector bonds and units of UTI and other

mutual funds and government securities) is estimated to have gone down from 22.9% in

1991-92 to 4.3% in 2000-01, which increased to 8% in 2001-02. Though there was a major

shift in the saving pattern of the household sector from physical assets to financial assets and

within financial assets, from bank deposits to securities, the trend got reversed in the recent

past due to high real interest rates, prolonged subdued conditions in the secondary market,

lack of confidence by the issuers in the success of issue process as well as of investors in the

credibility of the issuers and the systems and poor performance of mutual funds. The

portfolio of household sector remains heavily weighted in favour of physical assets and fixed

income bearing instruments.

Investor Population

The Society for Capital Market Research and Development carries out periodical surveys of

household investors to estimate the number of investors. Their first survey carried out in

1990 placed the total number of share owners at 90-100 lakh. Their second survey estimated

the number of share owners at around 140-150 lakh as of mid-1993. Their latest survey

estimates the number of shareowners at around 2 crore at 1997 end, after which it remained

stagnant up to the end of 1990s. The bulk of increase in number of investors took place

during 1991-94 and tapered off thereafter. 49% of the share owners at the end of 2000 had,

for the first time, entered the market before the end of 1990, 44% entered during 1991-94,

6.3% during 1995-96 and 0.8% since 1997. The survey attributes such tapering off to

persistent depression in the share market and investors bad experience with many

unscrupulous company promoters and managements.


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Distribution of Investors

The Society for Capital Market Research & Development estimates that 15% of urban

households and only 0.5-1.0% of semi-urban and rural households own shares. It is estimated

that 4% of all households own shares.

Distribution of Beneficial Accounts with NSDL

S. No.States / Union

Territories

Beneficial Accounts

Number % to total

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

Andhra Pradesh

Bihar

Chandigarh

Delhi

Goa

Gujarat

Himachal Pradesh

Jammu & Kashmir

Karnataka

Kerala

Madhya Pradesh

Maharashtra

Orissa

Pondicherry

Punjab

Rajasthan

194405

27340

7891

323693

11374

536720

3706

7320

195159

79793

911997

14701

2481

52434

72316

230407

6.08

0.85

0.25

10.12

0.36

16.78

0.12

0.23

6.10

2.40

28.52

0.46

0.08

1.64

2.26

7.20


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17.

18.

19.

20.

Tamil Nadu

Uttar Pradesh

West Bengal

Other

188835

214432

54802

3197964

5.90

6.71

1.71

100%

An indirect, but very authentic source of information about distribution of investors is the

data base of beneficial accounts with the depositories. By February 2003, there were 3

million beneficial accounts with the National Securities Depository Limited (NSDL). The

state-wise distribution of beneficial accounts with NSDL expected Maharashtra and Gujarat

account for nearly 45% of total beneficial accounts.


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3.2 Mutual Funds

3.2.1 History:

In the Beginning :

Mutual funds have been on the financial landscape for longer than most investors

realize. In fact, the industry traces its roots back to 19th century Europe, in particular,

Great Britain. The Foreign and Colonial Government Trust, formed in London in


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1868, resembled a mutual fund. It promised the investor of modest means the same

advantages as the large capitalist by spreading the investment over a number of

different stocks. Most of these early British investment companies and their

American counterparts resembled todays closed-end funds. They sold a fixed

number of shares whose price was determined by supply and demand. Until the

1920s, however, most middle-income Americans put their money in banks or bought

individual shares of stock in a specific company. Investing in capital markets was still

largely limited to the wealthiest investors.

The Arrival of the Modern Fund :

The creation of the Massachusetts Investors' Trust in Boston, Massachusetts, heralded

the arrival of the modern mutual fund in 1924. The fund went public in 1928,

eventually spawning the mutual fund firm known today as MFS Investment

Management. State Street Investors' Trust was the custodian of the Massachusetts

Investors' Trust. Later, State Street Investors started its own fund in 1924 with

Richard Paine, Richard Saltonstall and Paul Cabot at the helm. Saltonstall was also

affiliated with Scudder, Stevens and Clark, an outfit that would launch the first no-

load fund in 1928. A momentous year in the history of the mutual fund, 1928 also

saw the launch of the Wellington Fund, which was the first mutual fund to include

stocks and bonds, as opposed to direct merchant bank style of investments in business

and trade.

Mutual Funds Take Root and Grow :

Mutual funds began to grow in popularity in the 1940s and 1950s. In 1940, there were

fewer than 80 funds with total assets of $500 million. Twenty years later, there were

160 funds and $17 billion in assets. The first international stock mutual fund was

introduced in 1940; today there are scores of international and global stock and bond

funds. The complexion and size of the mutual fund industry dramatically changed as

new products and services were added. For example, before the 1970s, most mutual
http://www.investopedia.com/terms/n/no-loadfund.asphttp://www.investopedia.com/terms/n/no-loadfund.asphttp://www.investopedia.com/terms/n/no-loadfund.asphttp://www.investopedia.com/terms/n/no-loadfund.asp


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funds were stock funds, with a few balanced funds that included bonds in their

portfolios. In 1972, there were 46 bond and income funds; 20 years later, there were

1,629.

The Industry Today :

The mutual fund industry has enjoyed substantial growth by avoiding the bumps in

the road that have occurred in other financial services sectors. The principles that

exemplify the industrys longstanding commitment to shareholdersensuring strong

regulation, educating investors, and promoting opportunities for long-term investing

have guided the industry for the past 65 years, and will continue to do so in the

future.

History of the Indian Mutual Fund Industry

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at

the initiative of the Government of India and Reserve Bank the. The history of mutual funds

in India can be broadly divided into four distinct phases.

First Phase 1964-87 :

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


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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.

GROWTH IN ASSETS UNDER MANAGEMENT


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Note: Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of

the Unit Trust of India effective from February 2003. The Assets under management of the

Specified Undertaking of the Unit Trust of India has therefore been excluded from the total

assets of the industry as a whole from February 2003 onwards.

Role of SEBI in mutual funds industry :

The end of millennium marks 36 years of existence of mutual funds in this country. The ride

through these 36 years is not been smooth. Investor opinion is still divided. While some are

for mutual funds others are against it. UTI commenced its operations from July 1964 . UTI

was established in the year 1963 by an Act of Parliament.Initially, it was the only entity

offering Mutual Funds in India.

The year 1987 marked the entry of the Public Sector Mutual Funds. In the year 1992, SEBI

Act was passed with the objective of developing and regulating securities market besides

protection of investors interest. A comprehensive set of regulations for all Mutual Funds


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operating in India was introduced with SEBI(Mutual Fund) Regulations, 1996. These

regulations set uniform standards for all Mutual Funds.

A new phase in the Mutual Fund indutry began in 1993 when the Govt permitted entry of

private sector funds.

The impetus for establishing a formal institution came from the desire to increase the

propensity of the middle and lower groups to save and to invest. UTI came into existence

during a period marked by great political and economic uncertainty in India. With war on the

borders and economic turmoil that depressed the financial market, entrepreneurs were

hesitant to enter capital market. The already existing companies found it difficult to raise

fresh capital, as investors did not respond adequately to new issues. Earnest efforts wererequired to canalize savings of the community into productive uses in order to speed up the

process of industrial growth.

The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would be

"open to any person or institution to purchase the units offered by the trust. However, this

institution as we see it, is intended to cater to the needs of individual investors, and even

among them as far as possible, to those whose means are small."

His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill the

twin objectives of mobilizing retail savings and investing those savings in the capital market

and passing on the benefits so accrued to the small investors.

UTI commenced its operations from July 1964 "with a view to encouraging savings and

investment and participation in the income, profits and gains accruing to the Corporation

from the acquisition, holding, management and disposal of securities." Different provisions

of the UTI Act laid down the structure of management, scope of business, powers and

functions of the Trust as well as accounting, disclosures and regulatory requirements for the

Trust.

One thing is certain the fund industry is here to stay. The industry was one-entity show till

1986 when the UTI monopoly was broken when SBI and Canbank mutual fund entered the


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arena. This was followed by the entry of others like BOI, LIC, GIC, etc. sponsored by public

sector banks. Starting with an asset base of Rs0.25bn in 1964 the industry has grown at a

compounded average growth rate of 26.34% to its current size of Rs1130bn.

The period 1986-1993 can be termed as the period of public sector mutual funds (PMFs).

From one player in 1985 the number increased to 8 in 1993. The party did not last long.

When the private sector made its debut in 1993-94, the stock market was booming.

The opening up of the asset management business to private sector in 1993 saw international

players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and Capital

International along with the host of domestic players join the party. But for the equity funds,

the period of 1994-96 was one of the worst in the history of Indian Mutual Funds.

1999-2000 Year of the funds :

Mutual funds have been around for a long period of time to be precise for 36 yrs but the year

1999 saw immense future potential and developments in this sector. This year signaled the

year of resurgence of mutual funds and the regaining of investor confidence in these MFs.

This time around all the participants are involved in the revival of the funds ----- the AMCs,

the unit holders, the other related parties. However the sole factor that gave lifr to the revival

of the funds was the Union Budget. The budget brought about a large number of changes in

one stroke. An insight of the Union Budget on mutual funds taxation benefits is provided

later.

It provided centrestage to the mutual funds, made them more attractive and provides

acceptability among the investors. The Union Budget exempted mutual fund dividend given

out by equity-oriented schemes from tax, both at the hands of the investor as well as the

mutual fund. No longer were the mutual funds interested in selling the concept of mutual

funds they wanted to talk business which would mean to increase asset base, and to get asset

base and investor base they had to be fully armed with a whole lot of schemes for every

investor .So new schemes for new IPOs were inevitable. The quest to attract investors

extended beyond just new schemes. The funds started to regulate themselves and were all out


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on winning the trust and confidence of the investors under the aegis of the Association of

Mutual Funds of India (AMFI).

One cam say that the industry is moving from infancy to adolescence, the industry is

maturing and the investors and funds are frankly and openly discussing difficulties

opportunities and compulsions.

3.2.2 What is a Mutual Fund?

Savings form an important part of the economy of any nation. With savings invested in

various options available to the people, the money acts as the driver for growth of the

country. Indian financial scene too presents multiple avenues to the investors. Though

certainly not the best or deepest of markets in the world, it has ignited the growth rate in

mutual fund industry to provide reasonable options for an ordinary man to invest his savings.

So let us first answer what are Mutual Funds:

A Mutual Fund is a company or trust that collects a large pool of money from a number of

investors. The money thus collected is invested in various forms in capital market

instruments.

According to The U. S. Securities and Exchange Commission :

A mutual fund is a company that brings together money from many people and invests it

in stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the

fund owns are known as its portfolio. Each investor in the fund owns shares, which represent

a part of these holdings

Investment goals vary from person to person. While somebody wants security, others might

give more weight age to returns alone. Somebody else might want to plan for his childs

education while somebody might be saving for the proverbial rainy day or even life after

retirement. With objectives defying any range, it is obvious that the products required will

vary as well.


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So a mutual fund is body corporate that pools the savings of a number of investors and

invests the same in variety if different financial instruments, or securities. The income earned

through these investments and the capital appreciation realized by the scheme is shared by

the unit holders in proportion to the number of units owned by them. Mutual funds can be

thus considered as financial intermediaries in the investment business who collect funds from

the public and invest on behalf of the investors. The losses and gains accrue to the investors

only. The Investment Objectives outlined by a mutual fund in its prospectus are binding in

the Mutual Fund scheme. The investment objective specifies the class of securities a Mutual

Fund can invest in. Mutual Funds invest in various asset classes like equity, bonds,

debentures, commercial paper and government securities. An Asset Management Company

(AMC) is a highly regulated organization that pools money from investors and invests the

same in a portfolio. They charge a small management fee, which is normally 1.5* percent of

total funds managed.

*Source: www.mutualfundsindia.com

Pool their

money

Invests in a number ofstocks/bonds

Profit/loss from individualinvestment

Profit/loss from portfolio

ofinvestment


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3.2.3 Benefits of Mutual Funds:

There are numerous benefits of investing in mutual funds and one of the key reasons

for its phenomenal success in the developed markets like US and UK is the range of benefits

they offer, which are unmatched by most other investment avenues. We have explained the

key benefits in this section. The benefits have been broadly split into universal benefits,

applicable to all schemes and benefits applicable specifically to open-ended schemes

1. Affordability:

A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon

the investment objective of the scheme. An investor can buy in to a portfolio of

equities, which would otherwise be extremely expensive. Each unit holder thus gets

an exposure to such portfolios with an investment as modest as Rs.500/-. This amount

today would get you less than quarter of an Infosys share! Thus it would be

affordable for an investor to build a portfolio of investments through a mutual fund

rather than investing directly in the stock market.

2. Diversification:

It is the nuclear weapon in your arsenal for your fight against Risk. It simply means

that you must spread your investment across different securities (stocks, bonds,

money market instruments, real estate, fixed deposits etc.) and different sectors (auto,

textile, information technology etc.). This kind of a diversification may add to the


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stability of your returns, for example during one period of time equities might under

perform but bonds and money market instruments might do well enough to offset the

effect of a slump in the equity markets. Similarly the information technology sector

might be faring poorly but the auto and textile sectors might do well and may protect

your principal investment as well as help you meet your return objectives.

3. Variety:

Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two

ways: first, it offers different types of schemes to investors with different needs and

risk appetites; secondly, it offers an opportunity to an investor to invest sums across a

variety of schemes, both debt and equity. For example, an investor can invest hismoney in a Growth Fund (equity scheme) and Income Fund (debt scheme) depending

on his risk appetite and thus create a balanced portfolio easily or simply just buy a

Balanced Scheme.

4. Professional Management:

Qualified investment professionals who seek to maximize returns and minimize risk

monitor investor's money. When you buy in to a mutual fund, you are handing your

money to an investment professional that has experience in making investment

decisions. It is the Fund Manager's job to (a) find the best securities for the fund,

given the fund's stated investment objectives; and (b) keep track of investments and

changes in market conditions and adjust the mix of the portfolio, as and when

required.

5. Tax Benefits:

Mutual fund also provides the advantages of saving tax under section 80C.But there is

a condition that there is a lock-in period of 3 years in this case.


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6. Regulations:

Securities Exchange Board of India (SEBI), the mutual funds regulator has clearly

defined rules, which govern mutual funds. These rules relate to the formation,

administration and management of mutual funds and also prescribe disclosure and

accounting requirements. Such a high level of regulation seeks to protect the interest

of investors.

Along with these benefits, mutual fund also has following advantages:

1. Liquidity: In open-ended mutual funds, you can redeem all or part of your units any

time you wish. Some schemes do have a lock-in period where an investor cannot

return the units until the completion of such a lock-in period.

2. Convenience: An investor can purchase or sell fund units directly from a fund,

through a broker or a financial planner. The investor may opt for a Systematic

Investment Plan (SIP) or a Systematic Withdrawal Advantage Plan (SWAP). In

addition to this an investor receives account statements and portfolios of the schemes.

3. Flexibility: Mutual Funds offering multiple schemes allow investors to switch easily

between various schemes. This flexibility gives the investor a convenient way tochange the mix of his portfolio over time.

4. Transparency: Open-ended mutual funds disclose their Net Asset Value (NAV)

daily and the entire portfolio monthly. This level of transparency, where the investor

himself sees the underlying assets bought with his money, is unmatched by any other

financial instrument. Thus the investor is in the know of the quality of the portfolio

and can invest further or redeem depending on the kind of the portfolio that has been

constructed by the investment manager.


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Regulatory Aspects Schemes of a 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 investments proposed to be made by the scheme in the listed securities of

the group companies of the sponsor 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 (1);

(ii) If the moneys received from the applicants for units are in excess of

subscription as referred to in clause (b) of sub-regulation (1).

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.

Rules Regarding Advertisement :

The offer document and advertisement materials shall not be misleading or contain

any statement or opinion, which are incorrect or false.


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Investment Objectives And Valuation Policies :

The price at which the units may be subscribed or sold and the price at which such

units may at any time be repurchased by the mutual fund shall be made available to

the investors.

General Obligations :

Every asset management company for each scheme shall keep and maintain proper

books of accounts, records and documents, for each scheme so as to explain its

transactions and to disclose at any point of time the financial position of each schemeand in particular give a true and fair view of the state of affairs of the fund and

intimate to the Board the place where such books of accounts, records and documents

are maintained.

The financial year for all the schemes shall end as of March 31 of each year. Every

mutual fund or the asset management company shall prepare in respect of each

financial year an annual report and annual statement of accounts of the schemes and

the fund as specified in Eleventh Schedule.

Every mutual fund shall have the annual statement of accounts audited by an auditor

who is not in any way associated with the auditor of the asset management company.

Procedure For Action In Case Of Default :

On and from the date of the suspension of the certificate or the approval, as the case

may be, the mutual fund, trustees or asset management company, shall cease to carry

on any activity as a mutual fund, trustee or asset management company, during the

period of suspension, and shall be subject to the directions of the Board with regard to

any records, documents, or securities that may be in its custody or control, relating to

its activities as mutual fund, trustees or asset management company.


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Restrictions On Investments :

A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments

issued by a single issuer, which are rated not below investment grade by a credit

rating agency authorized to carry out such activity under the Act. Such investment

limit may be extended to 20% of the NAV of the scheme with the prior approval of

the Board of Trustees and the Board of asset management company.

A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt

instruments issued by a single issuer and the total investment in such instruments

shall not exceed 25% of the NAV of the scheme. All such investments shall be made

with the prior approval of the Board of Trustees and the Board of asset managementcompany.

No mutual fund under all its schemes should own more than ten per cent of any

company's paid up capital carrying voting rights.

Such transfers are done at the prevailing market price for quoted instruments on spot

basis. The securities so transferred shall be in conformity with the investment

objective of the scheme to which such transfer has been made.

A scheme may invest in another scheme under the same asset management company

or any other mutual fund without charging any fees, provided that aggregate

interscheme investment made by all schemes under the same management or in

schemes under the management of any other asset management company shall not

exceed 5% of the net asset value of the mutual fund.

The initial issue expenses in respect of any scheme may not exceed six per cent of the

funds raised under that scheme.

Every mutual fund sha

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