Project on Mutual Funds Market in India-2

7/31/2019 Project on Mutual Funds Market in India-2

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Acknowledgment

This project has been made possible through direct and

indirect support of many people from whom I wish to

express my gratitude.

I thank Guru Gobind Singh Indraprasth University for

giving me the opportunity to work on a valuable

project.

I owe my sincere and whole hearted thanks to Ms.

Ratika for constantly guiding me and handling various

types of hurdles with implicit patience throughout my

project

Thank youNeha sharma


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Overview of industry

Mutual Funds in IndiaMutual funds can be defined as themoney-managing systems that are

introduced to professionally invest

money collected from the public. The

Asset Management Companies (AMCs)

manage different types of mutual fundschemes. The AMCs are supported by

various financial institutions or

companies.

Investment in mutual funds in India

means pooling money in bonds,

short-term money market, financial

institutions, stocks and securities and

dishing out returns as dividends. The

aforementioned factors are the mainmanage the mutual funds. They are

also referred to as portfolio managers.

The mutual funds in India are


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regulated by the Securities Exchange

Board of India.

A Brief History Of The Mutual Fund

Mutual funds really captured the

public's attention in the 1980s and '90s

when mutual fund investment hit

record highs and investors saw

incredible returns. However, the idea of

pooling assets for investment purposes

has been around for a long time. Here

we look at the evolution of this

investment vehicle, from its beginnings

in the Netherlands in the 18th centuryto its present status as a growing,

international industry with fund


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holdings accounting for trillions of

dollars in the United States alone.

In the Beginning

Historians are uncertain of the origins

of investment funds; some cite the

closed-end investment companies

launched in the Netherlands in 1822 by

King William I as the first mutual funds,

while others point to a Dutch merchant

named Adriaan van Ketwich whose

investment trust created in 1774 mayhave given the king the idea. Ketwich

probably theorized that diversification


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would increase the appeal of

investments to smaller investors with

minimal capital. The name of Ketwich's

fund, Eendragt Maakt Magt, translates

to "unity creates strength". The next

wave of near-mutual funds included an

investment trust launched in

Switzerland in 1849, followed by similar

vehicles created in Scotland in the

1880s.

The idea of pooling resources and

spreading risk using closed-end

investments soon took root in Great

Britain and France, making its way to

the United States in the 1890s. The


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Boston Personal Property Trust, formed

in 1893, was the first closed-end fund in

the U.S.

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 knowntoday as MFS Investment Management.

State Street Investors' Trust was the

custodian of the Massachusetts

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


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with Richard Paine, Richard Saltonstall

and Paul Cabot at the helm.


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Chapter-1

Industry profile

Overview of industry

INDUSTRY PROFILE

BOMBAY STOCK EXCHANGES:

This stock exchange, Mumbai, popularly

known as BSE was established in 1875

as The Native share and stock brokers

association, as a voluntary non- profitmaking association. It has an evolved

over the years into its present status as


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the premiere stock exchange in the

country. It may be noted that the stock

exchanges the oldest one in Asia, even

older than the Tokyo Stock Exchange,

which was founded in 1878.

The exchange, while providing anefficient and transparent market for

trading in securities, upholds the

interests of the investors and ensures

redressed of their grievances, whetheragainst the companies or its own

member brokers. It also strives to

educate and enlighten the investors by

making available necessary informativeinputs and conducting investor

education programmes.


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A governing board comprising of 9

elected directors, 2 SEBI nominees, 7

public representatives and an executive

director is the apex body, which decides

the policies and regulates the affairs ofthe exchange.

The Executive director as the chief

executive officer is responsible for the

day today administration of the

exchange. The average daily turnover of

the exchange during the year 2000-

01(April-March) was Rs 3984.19 crores


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and average number of daily trades

5.69 Lakhs.

However the average daily turn over of

the exchange during the year 2001-02

has declined to Rs. 1244.10 crores and

number of average daily trades duringthe period to 5.17 Lakhs.

The average daily turn over of the

exchange during the year 2002-03 has

declined and number of average dailytrades during the period is also

decreased.

The Ban on all deferral products like

BLESS AND ALBM in the Indian capital

markets by SEBI with effect from July


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2,2001, abolition of account period

settlements, introduction of

compulsory rolling settlements in all

scripts traded on the exchanges with

effect from Dec 31,2001, etc., have

adversely impacted the liquidity and

consequently there is a considerable

decline in the daily turn over at the

exchange. The average daily turn over

of the exchange present scenario is

110363(laces) and number of average

daily trades 1057(laces).

BSE INDICES:


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In order to enable the market

participants, analysts etc., to track the

various ups and downs in the Indian

stock market, the Exchange has

introduced in 1986 an equity stock

index called BSE-SENSEX that

subsequently became the barometer of

the moments of the share prices in the

Indian Stock market. It is a Market

capitalization weighted index of 30

component stocks representing a

sample of large, well-established and

leading companies. The base year of

Sensex is 1978-79. The Sensex is widelyreported in both domestic and


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international markets through print as

well as electronic media.

Sensex is calculated using a market

capitalization weighted method. As per

this methodology, the level of the index

reflects the total market value of all 30-component stocks from different

industries related to particular base

period. The total market value of a

company is determined by multiplyingthe price of its stock by the number of

shares outstanding. Statisticians call an

index of a set of combined variables

(such as price and number of shares) acomposite Index. An Indexed number is

used to represent the results of this


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calculation in order to make the value

easier to work with and track over a

time. It is much easier to graph a chart

based on Indexed values than one

based on actual values world over

majority of the well-known Indices are

constructed using Market

capitalization weighted method.

In practice, the daily calculation ofSENSEX is done by dividing the

aggregate market value of the 30

companies in the Index by a number

called the Index Divisor. The Divisor is

the only link to the original base period

value of the SENSEX. The Divisor keeps


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the Index comparable over a period or

time and if the reference point for the

entire Index maintenance adjustments.

SENSEX is widely used to describe the

mood in the Indian Stock markets. Base

year average is changed as per the

formula new base year average = old

base year average*(new market

value/old market value).

NATIONAL STOCK EXCHANGE:

The NSE was incorporated in Now 1992with an equity capital of Rs 25 crores.

The International securities consultancy


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(ISC) of Hong Kong has helped in setting

up NSE. ISE has prepared the detailed

business plans and installation of

hardware and software systems. The

promotions for NSE were financial

institutions, insurances companies,

banks and SEBI capital market ltd,

Infrastructure leasing and financial

services ltd and stock holding

corporation ltd.

It has been set up to strengthen the

move towards professionalisation of

the capital market as well as provide

nation wide securities trading facilitiesto investors.NSE is not an exchange in

the traditional sense where brokers


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own and manage the exchange. A two

tier administrative set up involving a

company board and a governing aboard

of the exchange is envisaged.

NSE is a national market for shares PSU

bonds, debentures and governmentsecurities since infrastructure and

trading facilities are provided.

NSE-NIFTY:

The NSE on April 22, 1996 launched a

new equity Index. The NSE-50. The new

index, which replaces the existing NSE-

100 index, is expected to serve as an

appropriate Index for the new segment

of futures and options.


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Nifty means National Index for Fifty

Stocks.

The NSE-50 comprises 50 companies

that represent 20 broad Industry groups

with an aggregate market capitalization

of around Rs. 1,70,000 crs. Allcompanies included in the Index have a

market capitalization in excess of Rs

500 crs each and should have traded for

85% of trading days at an impact cost ofless than 1.5%.

The base period for the index is the

close of prices on Nov 3, 1995, which

makes one year of completion of

operation of NSEs capital market


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segment. The base value of the Index

has been set at 1000.

NSE-MIDCAP INDEX:

The NSE madcap Index or the Junior

Nifty comprises 50 stocks that

represents 21 aboard Industry groups

and will provide proper representation

of the madcap segment of the Indian

capital Market. All stocks in the index

should have market capitalization of

greater than Rs.200 crores and should

have traded 85% of the trading days at

an impact cost of less 2.5%.


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The base period for the index is Nov 4,

1996, which signifies two years for

completion of operations of the capital

market segment of the operations. The

base value of the Index has been set at

1000.

Average daily turn over of the present

scenario 258212 (Laces) and number of

averages daily trades 2160(Laces).

At present, there are 24 stock

exchanges recognized under the

securities contract (regulation) Act,

1956. They are


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NAMES OF THE STOCK EXCHANGS

Bombay stock exchange,

Ahmedabad share and stock brokers

association,

Calcutta stock exchange association Ltd,

Delhi stock exchange association Ltd,

Madras stock exchange association Ltd,

Indore stock brokers association Ltd,

Banglore stock exchange,

Hyderabad stock exchange,

Cochin stock exchange,

Pune stock exchange,


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U.P.stock exchange,

Ludhiana stock exchange,

Jaipur stock exchange Ltd,

Gauhati stock exchange Ltd,

Manglore stock exchange,

Maghad stock exchange Ltd, Patna,

Bhuvaneshwar stock exchange

association Ltd,

Over the counter exchange of India,

Bombay,

Saurastra kuth stock exchange Ltd,

Vsdodard stock exchange Ltd,

Coimbatore stock exchange Ltd,


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The Meerut stock exchange,

National stock exchange,

Integrated stock exchange

Regulation and Expansion

By 1929, there were 19 open-ended

mutual funds competing with nearly

700 closed-end funds. With the stock

market crash of 1929, the dynamicbegan to change as highly-leveraged

closed-end funds were wiped out and

small open-end funds managed to

survive.


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Government regulators also began to

take notice of the fledgling mutual fund

industry. The creation of the Securities

and Exchange Commission (SEC), the

passage of the Securities Act of 1933

and the enactment of the Securities

Exchange Act of 1934 put in place

safeguards to protect investors: mutual

funds were required to register with the

SEC and to provide disclosure in the

form of a prospectus. The Investment

Company Act of 1940 put in place

additional regulations that required

more disclosures and sought tominimize conflicts of interest. (For

further reading, see Policing The


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Securities Market: An Overview Of The

SEC.)

The mutual fund industry continued to

expand. At the beginning of the 1950s,

the number of open-end funds topped100. In 1954, the financial markets

overcame their 1929 peak, and the

mutual fund industry began to grow in

earnest, adding some 50 new fundsover the course of the decade.

Hundreds of new funds were launched

throughout the 1960s until the bear

market of 1969 cooled the public

appetite for mutual funds. Money


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flowed out of mutual funds as quickly

as investors could redeem their shares,

but the industry's growth later

resumed.

Recent Developments

In 1971, William Fouse and John Mc

Quown of Wells Fargo Bank established

the first index fund, a concept that John

Bogle would use as a foundation on

which to build The Vanguard Group, a

mutual fund powerhouse renowned for

low-cost index funds. The 1970s also

saw the rise of the no-load fund. This

new way of doing business had an


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enormous impact on the way mutual

funds were sold and would make a

major contribution to the industry's

success.

With the 1980s and '90s came bullmarket mania and previously obscure

fund managers became superstars; Max

Heine, Michael Price and Peter Lynch,

the mutual fund industry's topgunslingers, became household names

and money poured into the retail

investment industry at a stunning pace.

More recently, the burst of the tech

bubble and a spate of scandals

involving big names in the industry took


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much of the shine off of the industry's

reputation. Shady dealings at major

fund companies demonstrated that

mutual funds aren't always benign

investments managed by folks who

have their shareholders' best interests

in mind.


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Types of Mutual Funds

Mutual funds have different structureand aims, which in turn enable us to

classify them into various major

categories. These categories are:

Closed-end mutual funds

Open end fundsEquity mutual funds

Mid cap funds

Large cap funds

Growth funds

Balanced fundsExchange Traded Funds (ETFs)

Load mutual funds and No-Load

mutual funds

Value funds

International mutual fundsMoney market funds

Sector mutual funds


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Fund of funds (FoF)Index funds

Regional mutual funds

Benefits of Mutual Funds


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Mutual funds are preferred for their

cost-effectiveness and easy

investment process. By investing allthe money in a mutual fund, investors

can buy stocks or bonds at lower

trading charges. This is indeed one of

the main benefits, which is not

available otherwise. You don't need tosee which stock or bond would be

better to buy. Another advantage is

diversification. Diversification stands

for diffusing money across various

different categories of investments.There is every possibility that when

one investment is down, the other can

be up. In simple terms, this is helpful

in reducing risks.

Transparency, flexibility, professional

investment management, variety and

liquidity are some of the other


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benefits of the mutual funds, which

are not found in case of other

investments to such an extent.

Risk versus Reward

Volatility in the market activity can be

referred to as the risk in the mutual fund

investment. The sudden upward anddownward sentiments of the markets and

individual issues can beattributed to several

key factors. These factors comprise:


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InflationInterest rate changes

General economic scenario is the

cause of worry amongst the investors.

Most of the investors fear that the

value of the stock they have invested

will fall considerably. However, it is

here one can notice its reward angle.

It is this element of volatility that can

also bring them substantial long-term

return in comparison to a savings

account.

List of Mutual Fund Companies in

India


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Some of the popular firms that deal in

mutual funds in India are:

Reliance Mutual FundsHDFC

ABN Amro

AIG

Bank of Baroda

Canara BankBirla Sun Life

DSP Merrill Lynch

DBS Chola Mandalam AMC

Escorts Mutual

Deutsche BankING

HSBC

ICICI Prudential

LIC

JP MorganKotak Mahindra

Lotus India

JM Financial


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Morgan Stanley

State Bank of India (SBI)

Sahara Mutual FundsSundaram BNP Paribas

Taurus Mutual Funds

Tata

UTI

Standard CharteredBest Mutual Funds in India

Before knowing about the arguably

best mutual funds in India, it isimportant to know the factors that

actually decide their fate in the

market.

In order to get an actual ideal of thebest performing mutual funds in the

market, one needs to track its current

Net Asset Value or NAV. NAV stands for


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the latest market value of the holdings

of a fund that brings down the fund's

liabilities, which are generallyindicated in terms of per share

amount. On a daily basis, most of the

funds' NAV is decided. This is

determined after the trade closes on

certain financial exchanges. The netasset value of the mutual funds is

ascertained at the end of the trading

day.An increase in NAV signifies rise

in the holdings of the shareholder. The

Fund Firm will then do the transactionon the shares along with the sales

fees. While open-ended net asset

value of the mutual funds is issued

daily, the close-ended NAV of the

mutual fund is released on a weeklybasis.

You can calculate net asset value of


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the mutual fund easily. Track the

latest market value of the net assets of

the fund and then subtract that by thenumber of outstanding shares.

Top mutual funds in India

Here are some of the top mutual funds

in India that are listed below :

Reliance Mutual Fund

The DSP ML Tiger Fund

SBI Magnum Contra FundHDFC Equity Fund

Prudential ICICI Dynamic Fund

SBI Mutual Fund

Mutual fund share classes


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Morning Star is a generally acceptedauthority on divides most stocks intoclasses or types. The use eight typedesignations: Distressed, Hard Asset,Cyclical, Speculative Growth, AggressiveGrowth, Classic Growth, Slow Growth andHigh Yield. Each designation defines abroad category of investmentcharacteristics. Stocks are assigned to a

type based on objective financial criteriaand MorningStar's proprietary algorithm, sostocks of the same type have similareconomic fundamentals. Every stock hasindividual idiosyncrasies, but in general,when evaluating investments, many of the

same concerns and evaluation methods willapply across the stocks in one type. Byestablishing stock types one has an easyway to narrow down the stock universe tothose best filling specific investment needs.Stock Types also help you quickly

determine the diversification level ofportfolios. For instance, you might discoverthat most of your holdings are categorizedas Speculative Growth. If you want to lessen
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the portfolio's risk, you could invest in othertypes of stocks.

Morning Star's classes/types are:DistressedThese companies are having serious

operating problems. This could meandeclining cash flow, negative earnings,high debt, or some combination of these.

Such "turnaround" stocks tend to behighly risky but also harbor someintriguing investments.

Hard AssetThese companies' main businesses

revolve around the ownership or

exploitation of hard assets like realestate, metals, timber, etc. Suchcompanies typically sport a lowcorrelation with the overall stock marketand investors have traditionally lookedto them for inflation hedges.

CyclicalCyclical companies core businesses

can be expected to fluctuate in line withthe overall economy. In a booming


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economy such companies will lookexcellent; in a recession, their growthstalls, and they might even lose money.

Speculative GrowthDon't expect consistency from

speculative growth-companies. At besttheir profits are spotty. At worst theylose money. In fact, many companiesnever make it beyond speculative

growth, going instead to bankruptcycourt. That's why they're speculative.But current profitability isn't what makesspeculative-growth companiesinteresting. It's future profits. Hopefully,a speculative-growth company will

eventually blossom into a world-classcompany.

Aggressive GrowthAggressive-growth companies show

a bit more maturity than theirspeculative-growth counterparts: They

post rapid growth in profits, not just insales-a sign of more staying power. Atthis point, it's time to make some money.

Classic Growth


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These firms are in their prime andhave little left to prove. The best classicgrowers have blossomed into moneymachines, churning out steady growth,high returns on capital, positive freecash flows, and rising dividends. Thecatch is, their growth is nowhere nearthat of the aggressive-growth group.

Slow Growth and High Yield

The growth of these companies is afading memory. Having run out ofattractive investment opportunities, mostof them pay out the bulk of theirearnings in dividends expect - highpayout ratios - rather than plow the

profits back into their businessesMutual fund prospectusThe prospectus is a legal document

that includes information about themutual fund. In this document you willfind information about the terms of the

offer, the issuer, and its objectives. Inthe aftermath of the 1929 stock marketcrash the federal government in theSecurities Act of 1933 required security


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companies to publish a prospectus. Atfirst glance a prospectus may seemoverwhelming. The information in theprospectus is usually lengthy, packedwith tables and graphs, and written intechnical and legal language. Thisdocument is provided to help you makean informed investment decision beforeyou invest in a mutual fund.

To gain the essential information youneed, pay close attention the followingkey sections:

Investment ObjectiveA short statement of the fund's

investment objectives. Some fundsintend to achieve short-term growthwhile others might focus on long-termstability.

Investment StrategyExactly how the fund plans to

accomplish the objectives. This sectiondescribes the types of assets that thefund purchases.

Fees and Expenses
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Although mutual funds aim to makemoney for their investors, their ultimategoal, just like any other business, is tomake money for themselves. In order todo so, funds charge their shareholders avariety of fees and expenses, all of whichmust be documented in the prospectus.A table at the front of every prospectuscontains a breakdown of the different

fees and expenses, along with ahypothetical projection of how the feeswould impact a $10,000 investment overa 10-year period. This enables you tocompare fees and expenses acrossmutual funds.

Account InformationThis section contains very basic

information about how to buy and sellshares and other account-relatedinformation. In addition to telling youhow to get your money into the fund, the

prospectus will also tell you how to takeit out of the fund. The prospectus willinform you which redemption methodsare available to you.


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RisksThe level of risk that the fund takes

and the risks that are associated with thespecific investments made by the fundare one of the most important sections inthe prospectus.

PerformanceInformation about the fund's

performance over the last 10 years is

included. Investors should be aware thatpast performance is not necessarily anindicator of future results. As importantis how well the fund has traditionallyperformed compared to an index, suchas the S&P 500. A fund's performance is

also related to the fund's volatility,dividend payments, and turnover.

ManagementThe names the managers and some

additional information about theirexperience and qualifications is

reported. It can be helpful to knowwhether or not they have managed otherfunds in the past and their success or


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failure in order to get a sense of theirpast strategies and results.

Statement of Additional InformationMutual funds split their prospectuses

into two parts -- the "prospectus"(described above) and the Statement ofAdditional Information (SAI). In 1983, theSecurities and Exchange Commissionrequired mutual funds to supply much

more detailed information about thefund. These are included in the SAI. Forlegal purposes it is assumed that youhave read it. If you don't receive the SAIwith the prospectus, you should requestone. It provides great detail about the

fund's board of directors, any limitationson the fund's investments, and the feesand expenses that are mentioned in theprospectus

Mutual fund annual reportEvery year mutual funds send each

investor an Annual Report. The AnnualReport includes a list of the fund'sfinancial statements, a list of the fund'ssecurities, and explanations from the
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fund's management as to why the fundperformed as it did for the previous year.

Types of Mutual Funds

Mutual funds have different

structure and aims, which in turn

enable us to classify them into

various major categories. These

categories are:

Closed-end mutual funds

Open end funds

Equity mutual funds

Mid cap funds

Large cap funds


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Growth fundsBalanced funds

Exchange Traded Funds (ETFs)

Load mutual funds and No-

Load mutual

funds

Value funds

International mutual funds

Money market funds

Sector mutual funds

Fund of funds (FoF)

Index funds


Most funds have a particular

strategy they focus on, when


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investing. For instance, some invest

only in Blue Chip companies that

are more established and are

relatively low risk. On the other

hand, some focus on high-risk

startup companies that have the

potential for double and triple digit

growth. Finding a mutual fund that

fits your investment criteria and

style is important.

Types of mutual funds are:

Value stocks


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Stocks from firms with relative low

Price to Earning (P/E) Ratio, usually

pay good dividends. The investor is

looking for income rather than

capital gains.

Growth stockStocks from firms with higher low

Price to Earning (P/E) Ratio, usually

pay small dividends. The investor is

looking for capital gains ratherthan income.

Based on company size, large, mid,

and small cap

Stocks from firms with various

asset levels such as over $2 Billion


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for large; in between $2 and $1

Billion for mid and below $1 Billion

for small.

Income stock

The investor is looking for income

which usually come from dividendsor interest. These stocks are from

firms which pay relative high

dividends. This fund may include

bonds which pay high dividends.This fund is much like the value

stock fund, but accepts a little

more risk and is not limited to

stocks.

Index funds


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The securities in this fund are the

same as in an Index fund such as

the Dow Jones Average or

Standard and Poor's. The number

and ratios or securities are

maintained by the fund manager to

mimic the Index fund it is

following.

Enhanced index

This is an index fund which hasbeen modified by either adding

value or reducing volatility through

selective stock-picking.

Stock market sector


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The securities in this fund are

chosen from a particular marked

sector such as Aerospace, retail,

utilities, etc.

Defensive stock

The securities in this fund arechosen from a stock which usually

is not impacted by economic down

turns.

International

Stocks from international firms.

Real estate

Stocks from firms involved in real

estate such as builder, supplier,


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architects and engineers, financial

lenders, etc.

Socially responsible

This fund would invest according to

non-economic guidelines. Funds

may make investments based onsuch issues as environmental

responsibility, human rights, or

religious views. For example,

socially responsible funds may takea proactive stance by selectively

investing in environmentally-

friendly companies or firms with

good employee relations.

Therefore the fund would avoid

securities from firms who profit


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from alcohol, tobacco, gambling,

pornography etc.

Balanced funds

The investor may wish to balance

his risk between various sectors

such as asset size, income orgrowth. Therefore the fund is a

balance between various attributes

desired.

Tax efficient

Aims to minimize tax bills, such as

keeping turnover levels low or

shying away from companies thatprovide dividends, which are

regular payouts in cash or stock


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that are taxable in the year that

they are received. These funds still

shoot for solid returns; they just

want less of them showing up on

the tax returns.

ConvertibleThese are Bonds or Preferred stock

which may be converted into

common stock.

Junk bond

Bonds which pay higher that

market interest, but carry higher

risk for failure and are rated belowAAA.

Mutual funds of mutual funds


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This funds that specializes in

buying shares in other mutual

funds rather than individual

securities.

Closed end

This fund has a fixed number ofshares. The value of the shares

fluctuates with the market, but

fund manager has less influence

because the price of theunderlining owned securities has

greater influence.

Exchange traded funds (ETFs)

Baskets of securities (stocks or

bonds) that track highly recognized


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indexes. Similar to mutual funds,

except that they trade the same

way that a stock trades, on a stock

exchange

Closed-end funds

A closed-end mutual fund has a setnumber of shares issued to the

public through an initial public

offering.

Open-end funds

Open end funds are operated by a

mutual fund house which raises

money from shareholders andinvests in a group of assets


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Large cap funds

Large cap funds are those mutual

funds, which seek capital

appreciation by investing primarily

in stocks of large blue chip

companies

Mid-cap funds

Mid cap funds are those mutual

funds, which invest in small /

medium sized companies. As there

is no standard definition classifying

companies

Equity funds


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Equity mutual funds are also

known as stock mutual funds.

Equity mutual funds invest pooled

amounts of money in the stocks of

public companies.

Balanced funds

Balanced fund is also known as

hybrid fund. It is a type of mutual

fund that buys a combination of

common stock, preferred stock,

bonds, and short-term bonds

Growth funds


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Growth funds are those mutual

funds that aim to achieve capital

appreciation by investing in growth

stocks.

No load funds

Mutual funds can be classified into

two types - Load mutual funds and

No-Load mutual funds.

Exchange traded funds

Exchange Traded Funds (ETFs)

represent a basket of securities

that is traded on an exchange,


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similar to a stock. Hence, unlike

conventional mutual funds

Value funds

Value funds are those mutual

funds that tend to focus on safety

rather than growth, and often

choose investments providing

dividends as well as capital

appreciation.

Money market funds

A money market fund is a mutual

fund that invests solely in money

market instruments. Money


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market instruments are forms of

debt that mature in less than one

year and are very liquid.

International mutual funds

International mutual funds are

those funds that invest in non-

domestic securities markets

throughout the world.


Regional mutual fund is a mutual

fund that confines itself to

investments in securities from a


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specified geographical area,

usually, the fund's local region.

Sector funds

Sector mutual funds are those

mutual funds that restrict their

investments to a particular

segment or sector of the economy.

Index funds

An index fund is a a mutual fund or

exchange-traded fund) that aims to

replicate the movements of an

index of a specific financial market.


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Fund of funds

A fund of funds (FoF) is an

investment fund that holds a

portfolio of other investment funds

rather than investing directly inshares, bonds or other securities.


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CHAPTER 2

2.1 NEED FOR THE STUDY

The main purpose of doing this project

was to know about mutual fund and its

functioning. This helps to know in

details about mutual fund industry rightfrom its inception stage, growth and

future prospects.

It also helps in understanding different

schemes of mutual funds. Because my

study depends upon prominent funds in

India and their schemes like equity,

income, balance as well as the returns

associated with those schemes.


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The project study was done to ascertain

the asset allocation, entry load, exit

load, associated with the mutual funds.

Ultimately this would help in

understanding the benefits of mutual

funds to investors.


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2.2 OBJECTIVE

To give a brief idea about the benefits

available from Mutual Fund investment

To give an idea of the types of

schemes available.

To discuss about the market trends of

Mutual Fund investment.

To study some of the mutual fund

schemes and analyse them

Observe the fund management

process of mutual funds

Explore the recent developments in

the mutual funds in India


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To give an idea about the regulations

of mutual funds


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2.3 SCOPE OF THE STUDY

In my project the scope is limited to

some prominent mutual funds in the

mutual fund industry. I analyzed the

funds depending on their schemes likeequity, income, balance , type. the

project reflects the working of the

industry and also the best performing

mutual funds presently.


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METHODOLOGY

To achieve the objective of studying the

stock market data has been collected.

Research methodology carried for this

study can be two types

1. Primary

2. Secondary

PRIMARY:

The data, which has being collected for

the first time and it is the original data.

In this project the primary data hasbeen taken through a questionnaire.


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SECONDARY:

The secondary information is mostly

taken from websites, books, journals,

etc.


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Chapter-4

Analysis and findings

Four sequential steps will enable

investor to decide effectively.

1. Divide the spectrum of Mutual Funds

depending on major asset classes

invested in.

Presently there are only two.

Equity Funds investing in stocks.

Debt Funds investing in interest

paying securities issued by government,

semi-government bodies, public sector

units and corporates.

2. a) Categorizing equities


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Diversified invest in large capitalized

stocks belonging to multiple sectors.

Sectorial Invest in specific sectors

like technology, FMCG, Pharma, etc.

b) Categorized Debt.

Gilt Invest only in government

securities, long maturity securities with

average of 9 to 13 years, very sensitive

to interest rate movement.

Medium Term Debt (Income Funds)

Invest in corporate debt, government

securities and PSU bonds. Average

maturity is 5 to 7 years.


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Short Term Debt Average maturity is

1 year. Interest rate sensitivity is very

low with steady returns.

Liquid Invest in money market,

other short term paper, and cash.

Highly liquid. Average maturity is threemonths.

3. Review Categories

Diversified equity has done very well

while sectorial categories have fared

poorly in Indian market.

Index Funds have delivered much lesscompared to actively managed Funds.


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Gilt and Income Funds have

performed very well during the last

three years. They perform best in a

falling interest environment. Since

interest rates are now much lower,

short term Funds are preferable.

4. Specific scheme selection

Rankings are based on criteria including

past performance, risk and resilience in

unfavorable conditions, stability andinvestment style of Fund management,

cost and service levels. Some

recommended schemes are:

Diversified equity Zurich Equity,

Franklin India Bluechip, Sundaram


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Growth. These Funds show good

resilience giving positive results.

Gilt Funds DSP Merrill Lynch, Tata

GSF, HDFC Gilt have done well.

Income Fund HDFC, Alliance, Escorts

and Zurich are top performers

Short Term Funds Pru ICICI, Franklin

Templeton are recommended

Within debt class, presently more is

allocated towards short term Funds,

because of low prevailing interest rates.

However if interest rates go up investor

can allocate more to income Funds or

gilt Funds.


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BIBLIOGRAPHY

Websites:

www.hseindia.com

www.nseindia.com

www.amfiindia.com

www.hdfc.com

www.icicidirect.com

Reference books:

FINANCIAL INSTITUTIONS AND

MARKETS - L.M.BHOLE


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INVESTMENT MANAGEMENT -

V.K.BHALLA

Documents

Project on Mutual Funds Market in India-2