A PROJECT REPORT ON MUTUAL FUND AN ATTRACTIVE INVESTMENT OPTION

Submitted By Akhilesh Kumar Pandey M.B.A. (2006-08) Roll No.-0606170011

Under the guidance Of Mr. NEERAJ Mr. Nagendra Maurya (Relationship Manager) (Senior Faculty) ANANDRATHI (S.C.M. ) Nioda SHERWOOD COLLEGE OF MANAGEMENT

Lucknow
PREFACE
Practical and Theory are the two aspects of Management education. The practical training in the domain of management courses has received vital importance. It exposes to the potential manager towards the actual work situation and gives a student rich insight into what practically is going on inside the industries, infect it is the implementation of theory into practices which is the life force of management. In the partial fulfillment of the Master of Business Administration from I completed my summer training at Anand Rathi Securities Pvt. Ltd., Noida for 2 months (From 7thof Jun to 7th of August 2007). In this 2 months period I have learnt a lot about Mutual Funds working, concepts, Mutual Fund structure, and basic terminology, about SEBI guidelines, consumer behavior & the most important practical knowledge about the market. The work was bit tough & challenging but the display to understand the behavior, awareness, preferences and nature of the customers but still it was interesting, valuable and knowledgeable. I have tried my best to collect, analyze and present all the informations as per respondents feedback in spite of some limitations. My work was an attempt to study the investors buying behavior which can be beneficial for the company and if company could get some benefit from this report then my hard work may result.

ACKNOWLEDGEMENT
Before getting into the theme of summer training project provided to me, I would like to add few heartfelt words for those persons who provided me the opportunity to do the summer training, who guided me, helped me during my summer training and without whom support this project couldnt be completed. I would like to thanks Mr. Neeraj Kumar Barnwal, my Mentor for lending his helping hand for completing my summer training project. I deem it my privilege to express deepness of gratitude to Mr. Pankaj Rai (Branch Manager), Mr. Vijay Kumar Pathak (Asst. Branch Manager), Mr. Ghanshyam Kumar Yadav (Relationship Manager), Mr. Prashant Singh(Relationship Manager), Mr. Vaibhav Singh & Miss. Neha Rai of AnandRathi Securities Ltd. for their kind help, support and enough facility for doing my summer training in their organization. Besides it I also to thanks Mr. S.P. SINGH Director of SHERWOOD COLLEGE OF MANAGEMENT LUCKNOW and Mr. NAGENDRA MAURYA who guided me to make this report. I am also thankful to Mrs.PALLAVI LAL ASTHANA who is placement head in my college And at last I would like to acknowledge my deep thanks to my colleague Mr. Akshay Kumar, Mr. Naveen Jaiswal, Miss. Nisha Tripathi, Miss. Sabita Katoch who have done training with me, for their kind help and without whom support this summer training project couldnt be completed.

DECLARATION

I, Akhilesh Kumar Pandey, student of MBA III sem. (2006-08), hereby, declare that the work Mutual Fund An Attractive Investment Option at ANANDRATHI, Noida presented in the form of this report is my own effort and is genuine to the best of my knowledge.

Name: Akhilesh Kumar Pandey Place: Lucknow Date:

TABLE OF CONTENTS INDEX

CONTENTS
Preface Acknowledgement Declaration Executive Summery

Page No.
01 02 03 05

CHAPTER NO. 01
Introduction Objective of the study Scope & Limitations of the study Methodology 07 52 53 55

CHAPTER NO. 02
Company Profile 60

CHAPTER NO. 03
Data Analysis & Interpretation 87

CHAPTER NO. 04
Recommendations & Suggestions 108

CHAPTER NO. 05
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Conclusion Bibliography Annexure

112 113 114

Executive Summary

The project, which I undertook, was regarding. On MUTUAL FUNDSAn Attractive Investment Option the objective of the study to analysis the customer awareness and interest in mutual fund. For collection of primary data I prepared questionnaire and collected information form general public, potential customers. After obtaining required information, I compiled and analyzed whole information; summarize the findings and all other things. During my research I learnt a lot about the practical realities of working in the stock and simultaneously in the corporate world of AnandRathi Securities Pvt. Ltd.

CHAPTER 1
7

INTRODUCTION
A mutual fund is financial intermediary that pools the saving of investors for collective investment in a diversified portfolio of securities. A fund is mutual as all of its returns, minus its expenses, are shared by the fund investors. The securities and Exchange Board of India(Mutual Fund) Regulation, 1996 defines a mutual fund as a a fund established in the form of a trust to raise money through the sale of units to the public or a section of the public under one or more schemes for investing in securities, including money market instrument. According to this definition, a mutual fund in India can raise resources through the sale of units to the public. It can be set up in the form of Trust under the Indian Trust Act, 1882. The definition has been further extended by allowing mutual fund to diversify their activities in the areas under: Portfolio management services Management of offshore funds Providing advice to offshore funds Management of pension or provident funds Management of venture capital funds Management of money market funds Management of real estate funds

A mutual fund serves as a link between the investors and the securities market by mobilizing savings from the investors and investing them in the securities to generate returns. Thus, a mutual fund is akin to portfolio management services (PMS). Although, both are conceptually same, they are different from each other. Portfolio management services are offered to high net worth individuals; taking into account their risk profile, 8

their investment are managed separately. In the case of mutual funds, saving of small investors is pooled under a scheme and the returns are distributed in the same proportion in which the investments are made by the investors/unit holders. Mutual Fund is collective saving scheme. Mutual Fund plays an important role in mobilizing the savings of small investors and channelising the same for productive venture in the Indian economy.

HISTORY OF MUTUALFUNDS INDUSTRY

The history of Mutual Funds, dates back to 19th century Europe, in particular, Great Britain. Robert Fleming set up in 1868th first investment trust called Foreign and Colonial Investment Trust which promised to manage the finances of the moneyed classes of Scotland by spreading the investment over a number of different stocks. This investment trust and other investment trusts which were subsequently set up in Britain and the US, resembled toadys close-ended mutual funds. The first mutual fund in the US, Massachusetts Investors trust, was set up in March1924. This was the first openended mutual fund. The stock market crash in 1929, the Great Depression, and the outbreak of Second World War slackened the pace of growth of the mutual fund industry. Innovations in products and services increased the popularity of mutual funds in the 1950s and 1960s.The first international stock mutual fund was introduced in the U.S. in the 1940s.In 1976,the first tax- exempt municipal bond funds emerged and in 1979,the first money market mutual fund were created. The latest additions are the international bond fund in 1986 and arm funds in 1990s.This industry witnessed substantial growth in the eighties and nineties when there was a significant increase in the number of mutual fund, schemes, assets and shareholders. In the U.S.,the mutual fund industry registered a ten fold growth in the eighties (1980-1990) only, with 25 percent of the household sectors 9

investment in financial assets made through them. Fund assets increased from less than $150 billion in 1980 to over $4trillion by the end of1997.Since 1996, mutual fund assets have exceeded bank deposits. The mutual fund industry and the banking industry virtually rival each other in size.

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:

1. 2. 3. 4.

Phase 1 (1964-1987) Phase 2 (1987-1993) Phase 3 (1993-2003) Phase 4 (Since February 2003)

First Phase 1964-87: Unit Trust of India

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

10

Scheme 1964. Over the years, US-64 attracted, and probably still has, the largest number of investors in any single investment scheme. It was also at least partially the first openend scheme in the country. Later in 1970s and 80s, UTI started innovating and offering different schemes to suit the needs of different classes of investors. Unit Linked Insurance Plan (ULIP) was launched in 1971. Six new schemes were introduced between 1981 and 1984. During 1984-87, new schemes like Childrens Gift Growth Fund (1986) and Mastershare (1987) were launched. Mastershare could be termed as the first diversified equity investment scheme in India. The first Indian offshore fund, India Fund, was launched in 1986. During 1990s, UTI catered to the demand for incomeoriented schemes by launching Monthly Income Schemes, a somewhat unusual mutual fund product offering assured returns. The Mutual fund industry in India not only started with UTI, but still counts UTI as its largest player with the largest corpus of investible funds among all mutual funds currently operating in India. Until 1980s, UTIs operations in the stock market often determined the direction of market movements. Now, many Indian investors have taken to direct investing on the stock markets. Foreign and other institutional players have brought in. So direct influence of UTI on the markets may be less than before, though it remains the largest player in the fund industry. In absolute terms, the investible funds corpus of even UTI was still relatively small at about Rs. 600 crores in 1984. But, at the end of this Phase One, UTI had grown large as evidenced by the following statistics: 1987-1988 Amount Mobilised UTI Total (Rs. Crores) 2,175 2,175

Assets Under Management (Rs. Crores) 6,700 6,700

At the end of 1988 UTI had Rs.6,700 crores of assets under management

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Second Phase 1987-1993 : Entry of Public Sector Funds

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. These mutual funds helped enlarge the investor community and the investible funds. From 1987 to 1992-93, the fund industry expanded nearly seven times in terms of Assets under Management, as seen in the following figures:
1992-1993 Amount Mobilised UTI Public Sector Total (Rs. Crores) 11,057 1,964 13,021 Assets Under Management (Rs. Crores) 38,247 8,757 47,004

Third Phase 1993-2003: Entry of Private Sector Funds & SEBI Regulation for Mutual 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 and increasing competition for the existing public sector funds. Quite significantly, foreign fund management companies were also allowed to operate mutual funds, most of 12

them coming into India through joint ventures with Indian promoters. These private funds have brought in with them the latest product innovations, investment management techniques and investor servicing technology that make the Indian mutual fund industry today a vibrant and growing financial intermediary. 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. During the year 1993-94, five private sector mutual funds launched their schemes followed by six others in 1994-95. Initially, the mobilization of funds by the private mutual funds was slow. But, this segment of the fund industry now has been witnessing much greater investor confidence in them. One influencing factor has been the development of a SEBI driven regulatory framework for mutual funds. But another important factor has been the steadily improving performance of several funds themselves. Investors in India now clearly see the benefits of investing through mutual funds and have started becoming selective. 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 entire mutual fund industry in India, despite initial hiccups, has since scaled new heights in terms of mobilization of funds and number of players. Deregulation and liberalization of the Indian economy has introduced competition and provided impetus to the growth of the industry. Finally, most investors small or large have started shifting towards mutual funds as opposed to banks or direct market investments. More investor friendly regulatory measures have been taken both by SEBI to protect the investor and by the government to enhance investors returns through tax benefits. A comprehensive set of regulations for all mutual funds operating in India was introduced with SEBI (Mutual Fund) Regulations, 1996. These regulations set uniform standards for all mutual funds and will eventually be applied in full to Unit Trust of India as well, even though UTI is governed by its own UTI Act. In fact, UTI has been

13

voluntarily adopting SEBI guidelines for most of its schemes. Similarly, the 1999 Union Government Budget took a big step in exempting all mutual fund dividends from income tax in the hands of the investors. Both the 1996 regulations and the 1999 Budget must be considered historic importance, given their far-reaching impact on the fund industry and investors. 1999 marks the beginning of a new phase in the history of the mutual fund industry in India, a phase of significant growth in terms of both amounts mobilized from investors and assets under management. Consider the growth in assets as seen in the figures below: Gross Amount Mobilised (Rs. Crores) 1998-1999 1999-2000 11,679 13,536 1,732 7,966 21,377 4,039 42,173 59,748 Assets Under Management (Rs. Crores) 1998-1999 1999-2000 53,320 76,547 (77.87%) (67.75%) 8,292 11,412 (12.11%) (10.09%) 6,860 25,046 (10.02%) (22.16%) 68,472 113,005

UTI Public Sector Private Sector Total

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.

MUTUAL FUND MOBILIZATION AND ASSETS UNDER MANAGEMENT

14

Mutual Fund Mobilisation

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1987-88 1992-93 1998-99 1999-00 Public Sector Private Sector UTI

Period

Mutual Fund Assets Under Management

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Public Sector Private Sector UTI

1987-88

1992-93

1998-99

1999-00

Period

Fourth Phase:

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Since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

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.

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THE INDIAN MUTUAL FUND INDUSTRY

Mutual Funds

UTI

Public Sector
JVs with foreign partners

Private Sector

Foreign Houses

Indian Houses

Global Scenario
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Some basic facts The money market mutual fund segment has a total corpus of $ 1.48 trillion in the U.S. against a corpus of $ 100 million in India. Out of the top 10 mutual funds worldwide, eight are bank- sponsored. Only Fidelity and Capital are non-bank mutual funds in this group. In the U.S. the total number of schemes is higher than that of the listed companies while in India we have just 277 schemes Internationally, mutual funds are allowed to go short. In India fund managers do not have such leeway. In the U.S. about 9.7 million households will manage their assets on-line by the year 2003, such a facility is not yet of avail in India. In- line trading is a great idea to reduce management expenses from the current 2 % of total assets to about 0.75 % of the total assets. 72% of the core customer base of mutual funds in the top 50-broking firms in the U.S. is expected to trade on-line by 2003.

CHARACTERISTICS OF
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MUTUAL FUNDS
A Mutual fund actually belongs to the investors who have pooled their funds. The ownership of the mutual fund is in the hands of investors. Investment professionals and other service providers, who earn a fee for their
service, from the fund, manage a mutual fund.

The pool of funds is invested in a portfolio of marketable investments. The value

of the portfolio is updated everyday.

The investors share in the fund is denoted by units. Net Asset Value (NAV) is the market value of the assets of the scheme minus its
liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.

The investment portfolio of the Mutual fund is created according to the stated
investment objectives of the fund.

BENEFITS OF MUTUAL FUNDS

Mutual funds are emerging as the favorite investment vehicle, because of the many advantages they have over other forms and avenues of investing. Following are the various advantages of mutual funds to all the investors:

1) Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

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2)Diversification
Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

3) Convenient Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

4) Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

5) Low Costs
Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

6) Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.

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7) Transparency
You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

8) Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

9) Affordability
Investors individually may lack sufficient funds to invest in highgrade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.

10) Choice of Schemes

Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

11) Well Regulated

All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

12) Reduction/Diversification of Risk

An investor in a mutual fund acquires a diversified portfolio, no matter how small his investment. Diversification reduces the risk of loss, as compared to investing directly in one or two shares or debentures or other instruments.

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13) Tax Benefits

The investor in a mutual fund is exempt from paying any tax on the dividend received by him from the mutual fund, irrespective of the type of the mutual fund. And on the basis of the Union Budget for that particular year the investor is given a percentage or amount of deduction from the tax.

DRAWBACKSOFMUTUAL FUNDS
Mutual funds have their drawbacks and may not be for everyone, which are as follows:

1) No Guarantees
No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money.

2) Fees and commissions

All funds charge administrative fees to cover their day-today expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund.

3) Taxes
During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made.

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4) Management risk
When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers.

THE GROUND RULES OF MUTUAL FUND INVESTING

Moses gave to his followers 10 commandments that were to be followed till eternity. The world of investments too has several ground rules meant for investors who are novices in their own right and wish to enter the myriad world of investments. These come in handy for there is every possibility of losing what one has if due care is not taken.

1. Assess yourself
Self-assessment of ones needs; expectations and risk profile is of prime importance failing which; one will make more mistakes in putting money in right places than otherwise. One should identify the degree of risk bearing capacity one has and also clearly state the expectations from the investments. Irrational expectations will only bring pain.

2. Identify the money movement

It is important to identify the nature of investment and to know if one is compatible with the investment. One can lose substantially if one picks the wrong kind of mutual fund. In order to avoid any confusion it is better to go through the literature such as offer document and fact sheets that mutual fund companies provide on their funds

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3. Don't rush in picking funds, think first

One first has to decide what he wants the money for and it is this investment goal that should be the guiding light for all investments done. It is thus important to know the risks associated with the fund and align it with the quantum of risk one is willing to take. One should take a look at the portfolio of the funds for the purpose. Excessive exposure to any specific sector should be avoided, as it will only add to the risk of the entire portfolio. Mutual funds invest with a certain ideology such as the "Value Principle" or "Growth Philosophy". Both have their share of critics but both philosophies work for investors of different kinds. Identifying the proposed investment philosophy of the fund will give an insight into the kind of risks that it shall be taking in future.

4. Invest. Dont speculate

A common investor is limited in the degree of risk that he is willing to take. It is thus of key importance that there is thought given to the process of investment and to the time horizon of the intended investment. One should abstain from speculating which in other words would mean getting out of one fund and investing in another with the intention of making quick money. One would do well to remember that nobody can perfectly time the market so staying invested is the best option unless there are compelling reasons to exit.

5. Dont put all the eggs in one basket

This old age adage is of utmost importance. No matter what the risk profile of a person is, it is always advisable to diversify the risks associated. So putting ones money in different asset classes is generally the best option as it averages the risks in each category. Thus, even investors of equity should be judicious and invest some portion of the investment in debt. Diversification even in any particular asset class (such as equity, debt) is good. Not all fund managers have the same acumen of fund management and with identification of the best man being a tough task, it is good to place money in the hands of several fund managers. This might reduce the maximum return possible, but will also reduce the risks.

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6. Be regular
Investing should be a habit and not an exercise undertaken at ones wishes, if one has to really benefit from them. As we said earlier, since it is extremely difficult to know when to enter or exit the market, it is important to beat the market by being systematic. The basic philosophy of Rupee cost averaging would suggest that if one invests regularly through the ups and downs of the market, he would stand a better chance of generating more returns than the market for the entire duration. The SIPs (Systematic Investment Plans) offered by all funds helps in being systematic. All that one needs to do is to give post-dated cheques to the fund and thereafter one will not be harried later. The Automatic investment Plans offered by some funds goes a step further, as the amount can be directly/electronically transferred from the account of the investor.

7. Do your homework
It is important for all investors to research the avenues available to them irrespective of the investor category they belong to. This is important because an informed investor is in a better decision to make right decisions. Having identified the risks associated with the investment is important and so one should try to know all aspects associated with it. Asking the intermediaries is one of the ways to take care of the problem.

8. Find the right funds

Finding funds that do not charge much fees is of importance, as the fee charged ultimately goes from the pocket of the investor. This is even more important for debt funds as the returns from these funds are not much. Funds that charge more will reduce the yield to the investor. Finding the right funds is important and one should also use these funds for tax efficiency. Investors of equity should keep in mind that all dividends are currently tax-free in India and so their tax liabilities can be reduced if the dividend payout option is used. Investors of debt will be charged a tax on dividend distribution and so can easily avoid the payout options.

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9. Keep track of your investments

Finding the right fund is important but even more important is to keep track of the way they are performing in the market. If the market is beginning to enter a bearish phase, then investors of equity too will benefit by switching to debt funds as the losses can be minimized. One can always switch back to equity if the equity market starts to show some buoyancy.

10. Know when to sell your mutual funds

Knowing when to exit a fund too is of utmost importance. One should book profits immediately when enough has been earned i.e. the initial expectation from the fund has been met with. Other factors like nonperformance, hike in fee charged and change in any basic attribute of the fund etc. are some of the reasons for to exit. For more on it, read "When to say goodbye to your mutual fund." Investments in mutual funds too are not risk-free and so investments warrant some caution and careful attention of the investor. Investing in mutual funds can be a dicey business for people who do not remember to follow these rules diligently, as people are likely to commit mistakes by being ignorant or adventurous enough to take risks more than what they can absorb. This is the reason why people would do well to remember these rules before they set out to invest their hard-earned money.

(NAV) NET ASSET VALUE

The Net Asset Value of a fund is the market value of the assets minus the liabilities on the day of valuation. In other words, it is the amount which the shareholders will collectively get if the fund is dissolved or liquidated. The Net Asset Value of a unit is the Net Asset Value of the fund divided by the number of outstanding units. Thus, NVA = Market Price of Securities + Other assets Total Liabilities + Units Outstanding as at the NVA date.

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NVA = Net Assets of the Scheme + Number of units Outstanding, that is, Market value of investments + Receivables + Other Accrued Income + Other Assets Accrued Expenses Other Payables Other Liabilities + No. of units outstanding as at the NVA date. A funds NVA is affected by four sets of factors: purchase and sales of investment securities, valuation of all securities held, other assets and liabilities, and units sold or redeemed.

TYPES OF MUTUAL FUND SCHEME

Functional Open-Ended Scheme Close-Ended Scheme Interval Scheme

Portfolio Income Funds Growth Funds Balanced Funds MoneyMarket Mutual Funds

Geographical Domestic Off-shore

Others Sectoral Specific Tax Saving ELSS Special Gilt Funds Load Funds Index Funds ETFs Funds P/E Ratio Fund

Functional Classification of Mutual Funds 1. Open-ended schemes:

In case of open-ended schemes, the mutual fund continuously offers to sell and repurchase its units at net asset value or NAV-related price .Open-ended schemes do not have to be listed on the stock exchange and can also offer repurchase soon after allotment. Investors can enter and exit the schemes any time

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during the life of the fund. Open-ended schemes do not have a fixed corpus. There is no fixed redemption period in open-ended schemes. The key feature of open-ended fund is liquidity.UTIs US-64 scheme is an example of such a fund.

2. Close-ended schemes:
Close-ended schemes have a fixed corpus and a stipulated maturity period ranging between 2 to 5 years. Investors can invest in the schemes when it is launched. The schemes remain open for a maximum of 45 days. Investors in close-ended schemes can buy units only from the market, once initial subscriptions are over and thereafter the units are listed on the stock exchange where they can be bought and sold. The funds have no interaction with investors till redemption except for paying dividends.

3. Interval schemes:
Interval schemes combine the features of open-ended and close-ended schemes. They are open for sale or redemption during predetermined intervals at NAV-related price.

Portfolio Classification 1. Income funds:

The aim of income funds is to provide safety of investment and regular income to investors. Such schemes invest predominantly in income-bearing instruments like bonds; debentures, G-sec., and commercial paper. The returns as well as the risk are lower in income funds as compared to growth funds.

2. Growth funds:
The main objective of growth funds is capital appreciation over the medium-to-long-term. They invest most of the corpus in equity shares with significant growth potential and they offer higher return to investors in long term. There is no guarantee or assurance of returns.

3. Balanced funds:
The aim of balanced fund is to provide both capital appreciation and regular income. They divide their investment between equity shares and fixed-interest bearing instruments in such a proportion that the portfolio is balanced. The portfolio of such funds usually comprises of companies with good profit and dividend track record. Their exposure to risk is moderate.

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4. Money market mutual funds:

They specialize in investing in short-term money market instruments like treasury bills, certificate of deposits etc.The objective of such funds is high liquidity with low rate of return.

Geographical Classification 1. Domestic funds:

Funds, which mobilize resources from a particular geographical locality like a country or region, are domestic funds. The market is limited and confined to the boundaries of a nation in which the fund operates. They can invest only in the securities, which are issued and traded in the domestic financial markets.

2. Offshore funds:
Offshore funds attract foreign capital for investment in the country of the issuing company. They facilitate cross-border fund flow which leads to an increase in foreign currency and foreign exchange reserves. Such mutual funds can invest in securities of foreign companies. They open domestic capital market to international investors

Others: 1. Sectoral:
These funds invest in specific core sectors like energy, telecommunications, IT, construction, transportation, and financial services .Some of these newly opened up sectors offer good investment potential.

2. Tax saving schemes:

Tax saving schemes is designed on the basis of tax policy with special tax incentives to investors. Mutual funds have introduced a number of taxsaving schemes. These are close-ended schemes and investments are made for ten years, albeit investors can avail of encashment facilities after 3 years.

3. Equity-linked saving schemes (ELSS):

In order to encourage investors to invest in equity market, the government has given tax-concessions through special schemes. Investment in these schemes entitles the investor to claim an income tax rebate,

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but these schemes carry a lock-in period before the end of which funds cannot be withdrawn.

4. Special schemes:
Mutual funds have launched special schemes to cater to the special needs of investors.UTI has launched special schemes such as Childrens Gift Growth Fund,1986,Housing Unit Scheme,1992,and Venture Capital Funds.

5. Gilt fund:
Mutual funds which deal exclusively in gilts are called gilt funds. With a view to creating a wider investor base for government securities, the Reserve Bank of India encouraged setting up of gilt funds.

6. Load funds:
Mutual funds incur certain expenses such as brokerage, marketing expenses and communication expenses. These expenses are known as `load and are recovered by the fund when it sells the units to investors or repurchases the units from withholders. In other words, load is a sales charge, or commission, assessed by certain mutual funds to cover their selling costs.

7. Index fund
An index fund is a mutual fund which invest in securities in the index on which it is basedBSE Sensex or S&P CNX Nifty. It invests only in those securities which comprises the market index and in the same proportion as the companies /weightage in the index so that the value of such index fund varies with the market index.

8. P/E Ratio fund:

P/E ratio fund is another mutual fund variant that is offered by Pioneer ITI Mutual fund. The P/E ratio is the ratio of the price of the stock of a company to its earnings per share (EPS).The P/E ratio of the index is the weighted average priceearning ratio of all its constituents stocks.

9. Exchange Traded Fund:

These are the hybrid of open-ended mutual funds and listed individual stocks. They are listed on stock exchanges and trade like individual stocks on the stock exchanges.ETFs do not sell their shares directly to investors for cash. The shares are offered to investors over the stock exchange. Since they are listed on stock

31

exchanges, it is possible to buy and sell them through the day and their price is determined by demand-supply force in the market.

A COMPARATIVE STUDY OF THE VARIOUS INVESTMENT OPTIONS

Particulars Risk Previously Current FDRs PO schemes Governme nt Bonds Insurance Gold Real Estate Mutual Fund Low Low Low Low Moderate High Moderate Low Low Low Low Interest Rates Previousl Current y High Low High High High Modera te Low Low Modera te Modera te High Liquidity Previou Current sly High High Modera te Low Low High Modera te High Modera te Low Modera te High Modera te High Tax Previousl y High High Low Low Tax slab High Low Current Hi gh Hi gh Tax free Tax free Hi gh Hi gh L o w

Moderat Moderate e High Moderate Moderat High e

BANKS V/S MUTUAL FUNDS

BANKS MUTUAL FUNDS

Returns

Low

Better Low Moderate More Low but improving Better Transparent

Administrative exp. High Risk Investment options Network Liquidity Quality of assets Interest calculation Guarantee Low Less High penetration At a cost Not transparent

Minimum balance between 10th. & 30th. Everyday Of every month Maximum Rs.1 lakh on deposits None

32

A COMPARISON BETWEEN DIFFERENT SCHEMES

Scheme Type

Time Horizon

Risk Profile

Typical Investment Pattern

Objective

Open

Close

Equity (%)

Debt (%)

Money Market Ins./Others(%)

Money Market

Yes

No

Short Term

Low

0-20

80-100

Income

Yes

Yes

MediumLong Term

Low to Medium

80-100

0-20

Growth

Yes

Yes

Long Term

High

80-100

0-20

0-20

Balanced

Yes

Yes

Long Term

Medium to High

0-60

0-40

0-20

Tax Saving

Yes

Yes

Long Term

High

80-100

80-100

0-20

MUTUAL FUND STRUCTURE & CONSTITUENTS

Mutual funds have a unique structure not shared with other entities such as companies or firms. It is important for all of us to be aware of the special nature of this structure,

33

because it determines the rights and responsibilities of the funds constituents viz. sponsors, trustees , custodians, transfer agent and of course, the fund and the asset management company(AMC). The legal structure also drives the inter-relationships between the constituents.

Structure of MUTUAL Funds in India:

Like other countries, India has a legal framework within which mutual funds must be constituted. Unlike in the UK, where two distinct trust and corporate structures are followed with separate regulations, in India, open and closed-end funds operate under the same regulatory structure, and are constituted along one unique structure- as unit trusts. A mutual fund in India is allowed to issue open-end and closed-end schemes under a common legal structure. The structure which is required to be followed by mutual funds in India is laid down under SEBI (Mutual Fund) Regulations, 1996. Following are the main fund constituents:

The Fund Sponsor:

Sponsor is defined under SEBI regulations as any person who, acting alone or in the combination with another body corporate, establishes a mutual fund. The sponsor of a fund is akin to promoter of a company as he gets the funds registered with SEBI. The

34

sponsor will form a trust and appoint a Board of Trustees. The sponsor will also generally appoint an Asset Management Company as fund managers. The sponsor, either directly or acting through the Trustees, will also appoint a Custodian to hold the fund assets. All these appointments are made in accordance with SEBI Regulations. As per the existing SEBI Regulations, for a person to qualify as a sponsor, he must contribute at least 40% of the net worth of the AMC and possesses a sound financial track record over five years prior to registration.

Mutual Funds as Trusts:

A mutual fund in India is constituted in the form of a public Trust created under the Indian Trust Act, 1882. The Fund Sponsor acts as the Settler of the Trust, contributing to its initial capital and appoints a Trustee to hold the assets of the Trust for the benefit of the unit-holders, who are the beneficiaries of the Trust. The fund then invites investors to contribute their money in common pool, by subscribing to units issued by various schemes established by the trust, units being the evidence of their beneficial interest in the fund. Under the Indian Trusts Act, the Trust or the Fund has no independent legal capacity itself, rather it is the Trustee or Trustees who have the legal capacity and therefore all acts in relation to the Trust are taken on its behalf by the Trustees.

Trustees:
A Board of Trustees a body of individuals, or a Trust Company a corporate body, may manage the Trust the mutual fund . The Board of Trustees manages most of the funds in India. While the provisions of the Indian Trusts Act, govern the Board of Trustees where the Trustee is a corporate body, it would also be required to comply it would also be required to comply with the provisions of the Companies Act, 1956, The Board or the Trustee Company, as an independent body, acts as protector of the unitholders interests. The Trustees do not directly manage the portfolio of securities. For this specialist function, they appoint an Asset Management Company. They ensure that the fund is managed by the AMC as per the defined objectives and in accordance with the Trust Deed and SEBI Regulations. The trust is created through a document called the Trust Deed that is executed by the Fund Sponsor in favour of the Trustees. The Trust Deed is required to be stamped as registered under the provisions of the Indian Registration Act and registered with 35

SEBI. Clauses in the Trust Deed, inter-alia, deal with the establishment of the Trust, the appointment of Trustees, their powers and duties, and the obligations of the Trustees towards the unit-holders and the AMC. These clauses also specify activities that the fund/AMC cannot undertake. The Third Schedule of the SEBI (MF) Regulations, 1996 specifies the contents of the Trust Deed. The Trustees being the primary guardians of the unit-holders' funds and assets, a Trustee has to be a person of high repute and integrity. SEBI has laid down a set of conditions to be fulfilled by the individuals being proposed as trustees of mutual funds - both independent and non-independent. Besides specifying the "disqualifications", SEBI has also set down the Rights and Obligations of the Trustees. Broadly, the Trustees must ensure that the investors interests are safeguarded and that the AMC's operations are along professional lines. They must also ensure that the management of the fund is in accordance with SEBI Regulations. Some important rights and obligations are listed below. For details, please refer to Chapter IIIL of the SEBI (MF) Regulations-1996.

Rights of Trustees:
The trustees appoint the AMC with the prior approval of SEBI. They also approve each of the schemes floated by the AMC. They have the right request any necessary information from the AMC concerning the operations of various schemes managed by the AMC as often as required, to ensure that the AMC is in compliance with the Trust Deed and the regulations. The trustees may take remedial action if they believe that the conduct of the fund's business is not in accordance with SEBI Regulations. In certain specific events, the Trustees have the right to dismiss the AMC, with the approval of SEBI and in accordance with the regulations. The trustees have the right to ensure that, based on their quarterly review of the AMC'S net worth, any shortfall in the net worth is made up by the AMC.

36

Obligations of Trustees:
The trustees must enter into an investment management agreement with the AMC. This agreement must be in accordance with the Fourth Schedule of SEBI (MF) Regulations, 1996. They must ensure that the fund's transactions are in accordance with the Trust Deed. The trustees are responsible for ensuring that the AMC has proper systems and procedures in place and has appointed key personnel including Fund Managers and a Compliance Officer, besides other constituents such as the auditors and registrars. The trustees must ensure due diligence on the part of the AMC for empanelment of brokers. The trustees must ensure that the AMC is managing schemes independent of other activities and that the interests of unit-holders of one scheme are not compromised with those of other schemes/activities. For example, the trustees must ensure that AMC has not given any undue advantage to any associates. The trustees must furnish to SEBI on a half-yearly basis, a report on the fund's activities and a certificate stating that the AMC has been managing the schemes independently of other activities. On an ongoing basis, SEBI expects the Trustee/s to play a critical role in ensuring full compliance with SEBI's requirements, and protecting the interest of investors. Accordingly, SEBI has specified the obligations of Trustees as regards the compliance function, and categorized them as General Due Diligence and Specific Due Diligence. As part of General Due Diligence obligations, Trustees need to be discerning in the appointment of AMC Directors, desirability of continuing the AMC in case any irregularities are observed in its functioning, ensuring the protection of the trust property by competent persons, making sure that all service providers/constituents hold required registrations with SEBI/regulators, even periodically reviewing the service contracts, and generally report to the Board any special developments with the mutual fund.

37

As part of Specific Due Diligence, trustees must appoint independent auditors and obtain from them periodic internal audit reports, obtain Compliance Certificates from the AMC, discuss and record these reports at frequent meetings of trustees, communicate any deficiencies in writing to the AMC and ensure corrective action is taken. Trustees should also prescribe a Code of Ethics for Trustees and AMC personnel.

The Asset Management Company its Appointment & Functions:

The role of an AMC is to act as the Investment Manager of the Trust. The sponsors, or the Trustees, if so authorized by the Trust Deed, appoint the AMC. The AMC so appointed is required to be approved by SEBI. Once approved, the AMC functions under the supervision of its own Board of Directors, and also under the direction of the Trustees and SEBI. The Trustees are empowered to terminate the appointment of the AMC by majority and appoint a new AMC with the prior approval of SEBI and unit-holders. The AMC would, in the name of the Trust, float and then manage the different investment "schemes" as per SEBI Regulations and as per the Investment Management Agreement it signs with the Trustees. Chapter IV of SEBI (MF) Regulations, 1996 describes the issues relevant to appointment, eligibility criteria, and restrictions on business activities and obligations of the AMC. The AMC of a mutual fund must have a net worth of at least Rs.10 crores at all times. Directors of the AMC, both independent and non-independent, should have adequate professional experience in financial services and should be individuals of high moral standing, a condition also applicable to other key personnel of the AMC. The AMC cannot act as a trustee of any other mutual fund. Besides its role as the fund manager, it may undertake specified activities such as advisory services and financial consulting, provided these activities are run independently of one another and the AMC's resources (such as personnel, systems, etc.) are properly segregated by activity. The AMC must always act in the interest of the unit-holders and report to the trustees with respect to its activities.

38

Obligations of The AMC and its Directors:

The AMC and its Directors must ensure that

Investment of funds is in accordance with SEBI Regulations and the Trust Deed. They take responsibility for the acts of its employees and others whose services it has procured. They are answerable to the trustees and must submit quarterly reports to them on AMC activities and compliance with SEBI Regulations. If me AMC uses the services of a sponsor, associate or employee, it must make appropriate disclosure to unit-holders, including the amount of brokerage or commission paid. They do not undertake any other activity conflicting with managing the fund. They will float schemes only after obtaining the prior approval, of the Trustees and SEBI. They will make the required disclosures to the investors in areas such as calculation of NAV and repurchase price. They file the details of securities transactions by AMC Directors with the Trustees on a quarterly basis. As in the case of Trustees, they may report only those transactions which exceed the value of Rs.l lakh. Each day's NAV is updated on AMFI's website by 8.00 p.m. of the relevant day. Any ongoing open-end scheme proposing to launch additional plans, other than dividend and growth plans, will launch these plans as separate schemes, if they differ from the main scheme in terms of portfolio, maturity or any other characteristic. They may however be launched as a part of the existing offer document by issuing an addendum subject to each such Plan following all disclosure requirements prescribed by the Regulations.

39

Independent Directors and Trustees:

SEBI places certain obligations on independent directors on boards of the Trust and the AMC. They must pay specific attention to the Investment Management Agreement and the compensation paid under it, any service contracts with affiliates to ensure higher than market-level fees have not been charged by the AMC to the fund, any securities transactions with affiliates if permitted, principal underwriting contracts, and any service contracts with the associates of the AMC. The broad purpose of these obligations is to ensure the reasonability of all fees paid to sponsors, AMC and their associates for services provided? The independent directors/trustees must also design a code of ethics for the AMC and Trust personnel for any personal securities transactions. They must also oversee the selection of other independent directors' appointments

Other Fund Constituents

In this we take a look at the role of the other fund constituents- the custodian, the bankers, the transfer agents and the marketing/distribution participants.

Custodian and Depositories

Mutual funds are in the business of buying and selling of securities in large volumes. Handling these securities in terms of physical delivery and eventual safekeeping is therefore a specialized activity. The (custodian) is appointed by the Board of Trustees for safekeeping of physical securities or participating in any clearing system through approved depository companies on behalf of the mutual fund in case of dematerialized securities. A custodian must fulfill its responsibilities in accordance with its agreement with the mutual fund. The custodian should be an entity independent of the sponsors and is required to be registered with SEBL (Please refer to ~ Chapter IV of SEBI (MF) Regulations, 1996). Note that the Indian capital markets are moving away from having physical certificates for securities, to ownership of these securities in dematerialized" form with a Depository. Thus, a Depository through a Depository Participant will hold a mutual funds dematerialized securities holdings. A funds physical security will continue to be held by a Custodian. Thus, deliveries of a fund's securities are given or received by a 40

custodian or a depository participant, at the instruction of the AMC, although under the overall direction and responsibility of the Trustees.

Bankers:
A fund's activities involve dealing with money on a continuous basis primarily with respect to buying and selling units, paying for investments made, receiving the proceeds on sale of investments and discharging its obligations towards operating expenses. A fund's bankers therefore play a crucial role with respect to its financial dealings by holding its bank accounts and providing it with remittance services.

Transfer Agents:
Transfer agents are responsible for issuing and redeeming units of the mutual fund and provide other related services such as preparation of transfer documents and updating investor records. A fund may choose to carry out this activity in-house and charge the scheme for the service at a competitive market rate. Where an outside Transfer Agent is used, the fund investor will find the agent to be an important interface to deal with, since all of the investor services that a fund provides (besides the investment management) are going to be dependent on the transfer agent.

Distributors:
Mutual funds operate as collective investment vehicles, on the principle of accumulating funds from a large number of investors and then investing on a big scale. For a fund to sell units across a wide retail base of individual investors, an established network of distribution agents is essential.

Investors' Rights And Obligations Investors Rights:

The offer document of a scheme lays down the investors' rights. Investors are the owners of the scheme's assets, and it is therefore imperative that they are aware of their rights with respect to the scheme's assets, its management, and recourse to the trustees, the AMC and other constituents. The important rights of the unit-holders are outlined below:

41

Right of Proportionate Beneficial Ownership:

Unit-holders have the right to beneficial ownership of the scheme's assets, otherwise held in trust for them by the Trustees of the fund. They also have the right to any dividend or income declared under the scheme. The right to assets, income etc. is in proportion that the units held by the unit holder bears to the total number of the Fund units issued and outstanding.

Right to Timely Service:

Unit-holders are entitled to receive dividend warrant within 30 Days' of the date of dividend declaration. Unit-holders have the right to payment of interest at 15% per annum in the event of failure on the part of the mutual fund to dispatch the-redemption or repurchase proceeds ) within 10 working days. Such interest must be borne by the AMC. Where any investor has failed to claim redemption proceeds or dividends due to him, he has the right to do so within a period of three years of the due date at the prevailing NAV. After three years he will be paid at the NAV applicable at the end of the third year. For initial offers in case of open-end schemes, investors have a right to expect the allotment of units and dispatch of account statement to be completed within 30 days from the closure of the issue. Besides the scheme must open ongoing sale and repurchase within 30 days from the closure of the initial offer period

Right to Information:
Unit-holders have the right to obtain from the trustees any information that may have an adverse bearing on their investments. Unit-holders have the right to inspect major documents of the fund. Such documents include material contracts (the trust deed, the investment management agreement, the custodian services agreement and the registrar and transfer agency agreement), memorandum and articles of association of the AMC, recent audited

42

financial statements, the texts of SEBI (MF) Regulations, Indian Trusts Act and the offer document of the scheme.

Each unit-holder has the right to receive a copy of the annual financial statements. Each unit-holder has the right to receive a complete statement of scheme portfolio before the expiry of one month from the close of each half year (that is 31 st March and 30th September), unless such statement of portfolio is published in one English daily circulating in the whole of India and in a newspaper published in the language of the region where the head office of the mutual fund is situated.

Right to Approve Changes in Fundamental Attributes of the Scheme :

A change in 'Fundamental attributes' of a scheme (type of scheme, investment objective and terms of issue), or trust or fees and expenses payable or any other change which would modify the scheme and affects the interest of unit holders, cannot be carried put unless investors are individually informed in writing and advertisements about the proposed change are given in an news paper. English daily newspaper having nationwide circulation and in a newspaper published in the language of the region where the Head office of a mutual fund is situated and the unit holders are given an option to redeem, their holdings in the fund without any exit load.

Right to Wind Up a Scheme:

Investors can demand the Trustees to wind up a scheme prior to its earlier fixed duration and repay the investors, if 75% of the investors pass a resolution to this effect. This right applies to both closed-end funds and closed-end or open-end fixed term plan series.

Right to Terminate the AMC:

The appointment of an AMC of a fund can be terminated by 75% of the unitholders of the scheme with the prior approval of SEBI.

43

Legal Limitations to Investors Rights:

Investors need to note that while they enjoy several rights as outlined above, they are also subject to certain limitations in their capacity as unit-holders. Unit-holders are not distinct from the trust and therefore cannot sue the trust i.e. they do not have legal recourse to the trust, as, under Indian law, the Trust is not a distinct or separate legal entity. However, an investor can initiate legal proceedings against the trustees who are the protectors of the investors' interests, if they feel aggrieved by any action of the trustees that is seen not to be in their interest. Also, the fundamental concept of a mutual fund is that the investors invest at their own risk and cannot force the AMC to assure a specified level of return. In other countries, mutual funds do not offer "assured return" schemes, as any profits or losses on fund investments in any case belong to the investors. In India, in the initial stages of development of the fund industry, some of the fund sponsors have, however, offered such assured returns to investors. But, the investors need to understand that except in certain circumstances the sponsors of a mutual fund do not have any legal obligation to meet the shortfall in case the assured return is not achieved. Since assured return schemes do exist in India, an exception has been made by SEBI in case of schemes here such assurance is provided in the offer document, with a guarantee from the sponsor to meet anyshortfall. Only if the offer document has specifically provided such guarantee by a named sponsor, the investors will have the right to sue the sponsors to make good any shortfall in promised returns. A prospective investor does not enjoy any standing or rights with respect to the fund, the AMC or any other constituent. It is only after he has invested in a scheme that he becomes entitled to the rights. The courts have also upheld this view in relevant cases in India. In case a unit-holder is aggrieved by any actions of the Fund or AMC, the appropriate forum for him to approach is SEBI as below.

Investors Obligations:
It is the investor's duty to carefully study the offer document before investing in units of a scheme. He must appreciate the fundamental attributes of the scheme, the risk factors, his rights and the fund's and the sponsors' track record. Failure to effectively

44

study the offer document does not entitle him later to have recourse to the fund, the trustees or the AMC. The investor must also monitor his investment in a scheme by carefully studying the scheme's financial statements, its portfolio composition and research reports published by mutual fund tracking agencies a He can certainly exercise in a reasonable way his right to ask the trustees for information that he requires. But, the monitoring is entirely the investors own responsibility.

Investor Complaints Redressal Mechanism:

SEBI does entertain receipt of complaints against mutual funds and intervenes with fund management to help the investor resolve his complaints. Another manner in which SEBI helps the investor in a new scheme is by requiring the sponsors of a new scheme to appoint a Compliance Office who must issue a Due Diligence Certificate to the effect that all relevant SEBI and other regulation have been complied with by the fund managers and sponsors. In rare cases involving frauds by the Directors of an Asset Management Company, investors may have the recourse to the regulators under the Companies Act such as the Department of Company Affair even the Company Law Board. These regulators have helped with the cases of investors who did not receive the refunds of company deposits. However, the fund investors are neither shareholder in the AMC nor depositors. Hence, their investments cannot be protected by any of the Companies Act regulators. Investors can at best remove the AMC with 75% vote to this effect. And they may be able to get the fraudulent directors of AMCs prosecuted. But, clearly, such recourse would be very rare. In any case, SEBI and all other regulators take great care to ensure that only persons integrity serve as AMC Directors or Fund Trustees, and only companies with track record in investment management are given recognition to manage funds. That is why Mutual Funds are probably the most highly regulated intermediary in financial markets, and a prime purpose of a regulating; agency like SEBI is Investor Protection.

45

Tax Benefits
Tax Implications to Unit holders
The following summary outlines the key tax implications applicable to unit holders based on the relevant provisions under the Income-tax Act, 1961 ('Act'), the Wealth-tax Act, 1957 and the Finance (No 2) Act 2004 (collectively called 'the relevant provisions'), subsequent to the amendments proposed by the Finance Bill, 2005.

Under The Income-Tax Act, 1961

The following summary outlines the key tax implications applicable to unit holders based on the relevant provisions under the Act subsequent to the amendments proposed by the Finance Bill, 2005.

The tax implications of the following income received by the investors are :
Income on units (other than sale/redemption) Income on sale/redemption of the units

Taxability of Income on Units (Other Than Sale)

The income received by an investor (other than income on sale/redemption) in respect of units of a mutual fund specified under Section 10(23D) of the Act is exempt under the provisions of the Act. As the income is exempt from tax, no tax is withheld by the Mutual Fund upon distribution of such income. Taxability of Income on Sale/Redemption of Units The taxability of the income on sale/redemption of units and the rates at which such income is taxed as: If the units are held as stock-in-trade. OR If the units are held by an investor as stock-in-trade of a business, the said income will be taxed at the rates at which the normal income of that investor is taxed. On sale of the units of an equity oriented fund on a recognized stock exchange or to the Mutual Fund, the investor will also be charged with Securities Transaction Tax ('STT') as per the rates specified in Para Securities Transaction Tax, provided the transaction is also considered as a taxable securities transaction (the transactions on which securities 46

transaction tax (STT) is levied under provisions of Chapter VII of the Finance (No 2) Act, 2004). In other cases, STT is not levied. Further, the investor is not allowed any deduction of STT paid for the purposes of computing his business income. However, a rebate under Section 88E of the Act is available in respect of STT paid. The rebate is available in form of a deduction of the STT paid from the tax payable on the income from the taxable securities transaction. The tax payable on the income from taxable securities transaction is computed by applying the average rate of income tax on the total income. The rebate in respect of STT paid cannot, however, exceed the tax payable. Also, this rebate can be claimed by an investor only if appropriate evidences are furnished in Form No. 10DB along with the Return of Income. A fund where the investible funds are invested by way of equity shares in domestic companies to the extent of more than fifty percent of the total proceeds of such fund. Which has been set up under a scheme of a Mutual Fund specified in section 10 (23D) of the Act If the units are held as investments, the tax rates applicable will depend on whether the gain on sale of units is classified as a short-term capital gain or a long-term capital gain. As per section 2(42A) of the Act, units of the scheme held as a capital asset, for a period of more than 12 months immediately preceding the date of transfer, will be treated as long-term capital assets for the computation of capital gains; in all other cases, they would be treated as short-term capital assets The tax rates applicable on short term or long term capital gains arising on transfer of units of an equity oriented fund are stated in the following table

Nature of income

Tax rate
to all investors including

Short-term capital gains on sale either to Capital gains tax payable at 10 percent* the Mutual Fund or on a recognized stock (applicable exchange Foreign Institutional Investors FII)

Long- term capital gains on sale either to No capital gains tax payable by any

47

the Mutual Fund or on a recognized stock investor. exchange * Plus surcharge and education as may be applicable. In case of non-resident investors, the above rates would be subject to applicable treaty relief. The withholding tax implication (i.e. TDS) in respect of the capital gains explained above is discussed below

Resident Investors
No tax is required to be deducted at source from capital gains arising to resident investors at the time of repurchase or redemption of the units.

Non-Resident Investors
As per the provisions of Act (Section 195), tax is required to be deducted at source from the sale proceeds or redemption proceeds paid to non-resident investors. This withholding is in addition to the STT payable, if any, by the investor. The rates are Foreign Institutional Investors. No tax has to be deducted (Section 196D(2)) on redemption/sale proceeds. Non-Resident Indian ('NRI')/Person of Indian Origin ('PIO'). Tax, on short-term capital gains arising out of redemption of units is deducted at the rate of 10% (plus surcharge) for equity oriented fund and at 30% (plus surcharge) for non-equity oriented fund. Tax, on long-term capital gains is deducted at the rate of 20% (plus surcharge). However, in case of long-term capital gains on redemption of units of an equity-oriented fund, no tax would be deducted. All the above Non-Resident investors may also claim the tax treaty benefits available, if any. For details of applicability and eligibility of such benefits, the investors are requested to consult their tax advisors. For administrative purpose the Fund will deduct 10 percent surcharge. Dividend stripping. According to the provisions of the Act (Section 94(7)), losses arising from the sale/redemption of units purchased within 3 months prior to the record date (for 48

entitlement of dividends) and sold within 9 months after such date, is disallowed to the extent of income on such units (other than on sale/redemption) claimed as tax exempt

Bonus Stripping
According to the provisions of the Act (Section 94(8)), if an investor purchases units within 3 months before the record date (for entitlement of bonus) and sells/redeems the units within 9 months after that date, and by virtue of holding the original units, he becomes entitled to bonus units, then the loss arising on transfer of original units shall be ignored for the purpose of computing his income chargeable to tax. In fact, the loss so ignored will be treated as cost of acquisition of such bonus units. Note 1. The individuals (including NRIs/PIOs) and HUFs, are proposed to be taxed in respect of their total income at the following rates Slab Total income up to Rs.1,00,000# More than Rs.100,000# but up to Nil 10 percent of excess over Rs.100,000 Tax rate *

Rs.150,000 More than Rs.150,000 but up to 20 percent of excess over Rs.150,000 + Rs.5,000$ 30 percent of excess over Rs.250,000 +

Rs.250,000 Exceeding Rs.250,000

Rs.25,000$. * Plus surcharge and education cess as may be applicable (refer Note # for females below sixty-five years of age, Rs.100,000 has to be read as Rs.125,000 and for senior citizens above sixty-five years of age, Rs.100,000 has to be read as Rs.150,000. $for females below sixty-five years of age, Rs.5,000 has to be read as Rs.2,500 and Rs.25,000 has to be read as Rs.22,500. Similarly for senior citizens above sixty-five years of age, Rs.5,000 has to be read as nil and Rs.25,000 has to be read as Rs.20,000. The corporate tax rate for domestic companies is 30 per cent (plus applicable surcharge (as per note 2) and education cess). However, the tax rate applicable to foreign companies is 40 per cent.

49

Assesses

Rate of Surcharge Applicable

Individuals (including NRIS/ PIOs), HUFs, A surcharge by way of education cess of 2 Non-Corporate FIIs where the taxable percent is payable on the total amount of income is up to Rs.1,000,000 per annum. tax.

Individuals (including NRIs/ PIOs), HUFs 10 percent basic surcharge. An additional and Non-corporate FIIs where the taxable surcharge by way of education cess of 2 income is in excess of Rs.1,000,000 per percent is payable on the total amount of annum. tax plus surcharge.

Domestic Companies

10 percent basic surcharge. An additional surcharge by way of education cess of 2 percent is payable on the total amount of tax plus surcharge.

Foreign Companies (including corporate 2.5 percent basic surcharge. An additional FII) surcharge by way of education cess of 2 percent is payable on the total amount of tax plus surcharge.

Under The Wealth-Tax Act, 1957

Units are not to be treated as assets as defined under Section 2(ea) of the Wealth-Tax Act, 1957 and hence will not be liable to wealth-tax.

Tax Implications On Mutual Fund

Income Earned or Received By the Mutual Fund. Such as Franklin Templeton Mutual Fund is registered with SEBI and as such, the entire income of the Fund is exempt from income tax under Section 10(23D) of the Act. In view of the provisions of Section 196(iv) of the Act, no income tax is deductible at source on the income earned by the mutual fund. 50

Income Distributed By the Mutual Fund

As per provisions of the Act (Section 115R), any mutual fund such as Franklin Templeton Mutual Fund will be required to pay dividend distribution tax ('DDT') as follows : No DDT to be paid on open-ended equity oriented funds

DDT to be paid on other funds at the following rates 1.at 14.025 percent (including a surcharge of 10 percent and an additional surcharge by way of education cess of 2 percent on the amount of tax plus surcharge) on dividend distributed to individuals and HUFs and 3. At 22.44 percent (including a surcharge of 10 percent and an additional surcharge by way of education cess of 2 percent on the amount of tax plus surcharge) on dividend distributed to persons other than individuals and HUFs, for instance, corporate. Securities Transaction Tax

Any mutual fund such as Franklin Templeton Mutual Fund is liable to pay securities transaction tax as follows: Sr.No
1

Taxable securities transaction

Purchase of an equity share in a company or a unit of an equity oriented fund, where (a) the transaction of such purchase is entered into in a recognized stock exchange; and (b) the contract for the purchase of such share or unit is settled by the actual delivery or transfer of such share or unit.

Rate (per cent)

0.10

Sale of an equity share in a company or a unit of an equity oriented fund, where (a) the transaction of such sale is entered into in a recognized stock exchange; and (b) the contract for the sale of such share or unit is settled by the actual delivery or transfer of such share or unit. 51

0.10

Sale of a derivative, where the transaction of such sale is entered into in a recognized stock exchange .

0.0133

Sale of unit of an equity oriented fund to the Mutual Fund.

0.20

T he value of a taxable securities transaction will be as follows in the case of a taxable securities transaction relating to "option in securities", the aggregate of the strike price and the option premium of such "option in securities" in the case of taxable securities transaction relating to "futures", the price at which such "futures" are traded in the case of any other taxable securities transaction, the price at which such securities are purchased or sold.

"Taxable securities transaction" has been defined as a purchase or sale of an equity share in a company or a derivative or a unit of an equity oriented fund, entered into in a recognized stock exchange; or sale of a unit of an equity oriented fund to the Mutual Fund. Religious And Charitable Trusts
Investments in the units of the Fund by Religious and Charitable Trusts is an eligible investment under Section 11(5) of the Act, read with Rule 17C of the Income-tax Rules, 1962. For more details the investors are requested to refer to the offer document.

Others Equity Linked Saving Schemes and Pension Plan.

The rebate under Section 88 (2)clause(xiii)b and clause (xiii)c of the Income Tax Act, 1961 is proposed to be deleted with effect from April 1, 2005, by the Finance Bill, 2005.

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The Finance Bill, 2005 proposes to insert a new section, section 80C, with effect from 1 April 2005 which provides for a deduction in respect of inter alia, investment in notified schemes of Mutual Funds. The notifications will be gazette once the Finance Bill, 2005 receives the assent of the president of India.

OBJECTIVE OF THE PROJECT

Primary objective:
To assess the investment behavior of the Investor m, this includes the following: To ascertain the profile of the investor. To find the reasons for investing in Mutual Fund. To seek the reasons of the criteria of investment. To ascertain the investors preference according to facilities provided by any fund house. To example the preference of investment in different segments like, Fixed Deposit, Mutual fund, Insurance and alike. To find the parameters that investors take into account while investing in different investment options. To find the relationship between risk and return from investors point of view.

SCOPE
There are wide scopes in the filed in which I have done my summer training. There are necessary to meet for promoting the mutual fund. When I meet people and tell him about mutual fund .Then people know about mutual fund and company growth was increase quickly. to increase the consumer awareness about Mutual Fund product of company . So

53

people aware about mutual fund product. To increase the sales of mutual fund product we distribute the pamphlet. We increase the distribute center of mutual fund for increase service facilities to customer. To know the feed back to the customer in Lucknow city more consumer are not awer about mutual fund &awer people are not interested for investment in mutual fund.

LIMITATIONS
As every aspect of life has its own limitation the same goes with research. The few limitations attached to this research are:

54

1.

As time and tide waits for none so is the case with this research. A much more detailed analysis could be done had three been more time spent for data collection. Due to lack of time data from the all places could not be collected.

2.

Management of all the activities from one place limited the research with in it self as appropriate data, which was required, was not available.

3.

Giving

instruction

through

telecommunications

as

caused

communication gap due to which the cream of data has not been available. 4. Results indicate responses from a carefully selected bunch of respondents. However they may vary for others. 5. The views of respondents are likely to change as human nature is very dynamic. 6. The result figure may be biased since the subjects/investors may provide wrong information. The survey may not give the whole scenario of Indian market. The research is restricted to the Noida market and houses only. The investor data collected was on random basis.

The researcher has drawn the conclusions from 200 data samples. So there may be some variation from the actual position.

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RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. It is necessary for the researcher to know not only the research methods/techniques but also the methodology. Researchers not only need to know how to develop certain indices or tests, how to calculate the mean, the mode, the median or the standard deviation or chi-square, how to apply particular research techniques, but they also need to know which of these methods or techniques, are relevant and which are not, and what would they mean and indicate and why. Thus when we talk of research methodology we not only talk of the research methods but also consider the logic behind the methods we use in the context of our research study and explains why we are using a particular method or technique and why we are not using others so that research results are capable of being evaluated either by the researcher himself or by others. This section contains the methodological issues in research. It focuses primarily on providing help with the tools and techniques used in the research. These tools and techniques differ from discipline to discipline. Researchers also have specific blazes. Some will prefer Qualitative to Quantitative approaches or vice-versa. Generally speaking, an integrated approach is advisable. A study that contains only qualitative data or solely quantitative data messes the rich texture of interpretation that an integrated approach makes possible. While this section may be organized in a way that suggests a defined process, this is not the intention.

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RESEARCH DESIGN
A research design is arrangement of condition for collation and analysis of data in the manner that aims to combine relevance to the research purpose with economy in procedure. Research design is a conceptual structure within a research is conducted. While developing the research design, the research pays attention on some points such as :

UNIVERSE:
The first step in developing any research design is to clearly define set of objects , technically called the Universe which is to be studied. The universe was decided as some specific area of Noida.

SAMPLING UNIT:
A decision has to be taken concerning a sampling unit before selecting a sample. The sampling unit was decided as the occupational unit Businessmen, Professionals, Executives and others. The data was collected through these units.

SIZE OF SAMPLE:
This refers to number of items that were selected from the universe to constitute a sample. This is a major problem before any researcher. The size of the sample should be neither large nor small. It should be at an optimum. One more thing which is to be considered is the budget available in the sample design, which the researcher has decided to be 200.

SAMPLING PROCEDURE:
Finally the research decided the type of sample and the techniques involved in sampling. The criterion which was followed is: 1. Sample must be true representative of the Universe 2. Sample must be of such nature that results small errors. 3. Sample must be that basis which can controlled.

57

4. Sample study should view general applicable view with reasonable level of confidence.

SAMPLE DESIGN:
The researcher in the way to data collection uses Non probability sampling. It is also known as deliberate sampling, opposite sampling, judgment sampling. In this type of sampling, researcher chooses any person in the population who can solve his problem. However, in this sampling, there is no assurance that every element has some specific chance of being included in the sample. Sampling error can no be estimated and the elements of bias are always there. This type of sampling is adopted because of its relative time and money inherent

SAMPLING DESIGN:
The method of sample selection executed for the purpose of drawing out conclusion is stratified random sampling method. Stratified random sampling is a form of systematic sampling in which the population is first divided into a number of strata on the basis of different criteria. A simple random sample is taken from each stratum and such samples are brought together to from the total sample. The proportion in which these elements appear in the total sample is different from the proportion in which the strata from which they have been drawn and appear in the population.

CONSTRUCTING QUESTIONNAIRE
Construction of appropriate and questionnaire needs a lot of attention clear view of the problem in study. After having a clear view of the problem, the researcher decides to have some objective type of questions and some open ended questions. Questions should be small and must be constructed with view of their forming a logical part of well throughout tabulation plan.

58

Then the questions were arranged in logical form and the rough draft was check for technical faults. The defaults identified were removed. Then the pilot study was undertaken for pre-testing of the questionnaire may be edited in the light of the results of the pilot studying. After the test necessary amendments were made and final questionnaire was prepared for research work to be carried out.

FIELD WORK
The test of data collection is always a challenging job. The researcher adds interview method for the purpose.

INTERVIEW METHOD
The research used personal interview method for data collection. The interview was carried out in a structured way where each and every question had a purpose was no pre-determined order set for the questions. The interviewer was free to ask supplementary question if needed. He was also allowed to change the sequence of the questions. The researcher found personal view of each respondent and also observed very things, which made the work of data collation a bit easier. Supplementary information was also collected which made interpretation work valuable.

59

CHAPTER 2

60

ABOUT ANANDRATHI
AnandRathi (AR) is a leading full service securities firm providing the entire gamut of financial services. The firm, founded in 1994 by Mr. AnandRathi, today has a pan India presence as well as an international presence through offices in Dubai and Bangkok. AR provides a breadth of financial and advisory services including wealth management, investment banking, corporate advisory, brokerage & distribution of equities, commodities, mutual funds and insurance, structured products - all of which are supported by powerful research teams. The firm's philosophy is entirely client centric, with a clear focus on providing long term value addition to clients, while maintaining the highest standards of excellence, ethics and professionalism. The entire firm activities are divided across distinct client groups: Individuals, Private Clients, Corporate and Institutions and was recently ranked by Asia Money 2006 poll amongst South Asia's top 5 wealth managers for the ultra-rich.

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In year 2007 Citigroup Venture Capital International joined the group as a financial partner.

Milestones

1994:
Started activities in consulting and Institutional equity sales with staff of 15

1995:
Set up a research desk and empanelled with major institutional investors

1997:
Introduced investment banking businesses Retail brokerage services launched

1999:
Lead managed first IPO and executed first M & A deal

2001:
Initiated Wealth Management Services

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2002:
Retail business expansion recommences with ownership model

2003:
Wealth Management assets cross Rs1500 crores Insurance broking launched Launch of Wealth Management services in Dubai Retail Branch network exceeds 50

2004:
Commodities brokerage and real estate services introduced Wealth Management assets cross Rs3000crores Institutional equities business relaunched and senior research team put in place Retail Branch network expands across 100 locations within India

2005:
Real Estate Private Equity Fund Launched Retail Branch network expands across 200 locations within India

2006:
AR Middle East, WOS acquires membership of Dubai Gold & Commodity Exchange (DGCX) Ranked amongst South Asia's top 5 wealth managers for the ultra-rich by Asia Money 2006 poll Ranked 6th in FY2006 for All India Broker Performance in equity distribution in the 63

High Networth Individuals (HNI) Category Ranked 9th in the Retail Category having more than 5% market share Completes its presence in all States across the country with offices at 300+ locations within India

2007:
Citigroup Venture Capital International picks up 19.9% equity stake Retail customer base crosses 100 thousand Establishes presence in over 350 locations

Core Strength of AnandrathiBreadth of Services In line with its client-centric philosophy, the firm offers to its clients the entire spectrum of financial services ranging from brokerage services in equities and commodities, distribution of mutual funds, IPOs and insurance products, real estate, investment banking, merger and acquisitions, corporate finance and corporate advisory. Clients deal with a relationship manager who leverages and brings together the product specialists from across the firm to create an optimum solution to the client needs.

Management Team:
AR brings together a highly professional core management team that comprises of individuals with extensive business as well as industry experience.

In-Depth Research:

64

Our research expertise is at the core of the value proposition that we offer to our clients. Research teams across the firm continuously track various markets and products. The aim is however common - to go far deeper than others, to deliver incisive insights and ideas and be accountable for results.

Private Wealth Management (PWM)

Introduction:
Affluent individuals need sophisticated advice and strategic guidance to capitalize on opportunities to preserve, grow and transfer their wealth. In addition, a desire exists within wealthy families to simplify the management of multigenerational needs and lessen the profound emotional impact of wealth on family members. AR offers the most extensive platform of customized servicing, individual strategies and products to help meet the requirements of the affluent private investor. We provide comprehensive, integrated investment strategies to address your wealth management needs. Working closely with specialists across firm PWM offers an array of products & services, which includes AR's highly-rated research.

Philosophy:

65

We at AnandRathi try and understand your financial needs; to offer you personal advice and expert analysis that you need to make your assets go the Xtra mile. Our ability to think far ahead and formulate a long-term strategy, coupled with long hours of practice and research are the key drivers, which make your wealth work harder for you. We believe that the key to build wealth lies in allocating assets across various markets, financial instruments and industry sectors. Keeping this in mind we leverage our expertise in scientific asset allocation, to help you maximize returns and minimize risks.

Process:
We realize the need to simplify the complexities of the investment strategies and we achieve this by offering highly customized wealth management product - LaXmi TM (let your Assets go the Xtra MileTM)

Our Personalized Relationship Managers along with the expert team of analysts and advisors will assist you in analyzing all your investment needs and advice you on specialized solutions created exclusively for you.

We have a dedicated research team who constantly screens the market for investment prospects. The team provides support in fine-tuning the investment strategy & suggests how to capitalize on these opportunities.

Products:

Equity & Derivatives Mutual Funds

66

Depository Services Commodities Insurance Broking IPOs

Brokerage & Distribution

Equity & Derivatives Brokerage:
AnandRathi provides end-to-end equity solutions to institutional and individual investors. Consistent delivery of high quality advice on individual stocks, sector trends and investment strategy has established us a competent and reliable research unit across the country. Clients can trade through us online on BSE and NSE for both equities and derivatives. They are supported by dedicated sales & trading teams in our trading desks across the country. Research and investment ideas can be accessed by clients either through their designated dealers, email, web or SMS. For more information contact [email protected]

Mutual Funds:
AR is one of India's top mutual fund distribution houses. Our success lies in our philosophy of providing consistently superior, independent and unbiased advice to our clients backed by in-depth research. We firmly believe in the importance of selecting appropriate asset allocations based on the client's risk profile. We have a dedicated mutual fund research cell for mutual funds that consistently churns out superior investment ideas, picking best performing funds across asset classes and providing insights into performances of select funds. 67

Depository Services:
AR Depository Services provides you with a secure and convenient way for holding your securities on both CDSL and NSDL. Our depository services include settlement, clearing and custody of securities, registration of shares and dematerialization. We offer you daily updated internet access to your holding statement and transaction summary.

Commodities:
Commodities broking - a whole new opportunity to hedge business risk and an attractive investment opportunity to deliver superior returns for investors. Our commodities broking services include online futures trading through NCDEX and MCX and depository services through CDSL. Commodities broking is supported by a dedicated research cell that provides both technical as well as fundamental research. Our research covers a broad range of traded commodities including precious and base metals, Oils and Oilseeds, agri-commodities such as wheat, chana, guar, guar gum and spices such as sugar, jeera and cotton. In addition to transaction execution, we provide our clients customized advice on hedging strategies, investment ideas and arbitrage opportunities.

Insurance Broking:
As an insurance broker, we provide to our clients comprehensive risk management techniques, both within the business as well as on the personal front. Risk management includes identification, measurement and assessment of the risk and handling of the risk, of which insurance is an integral part. The firm deals with both life insurance and general insurance products across all insurance companies. Our guiding philosophy is to manage the clients' entire risk set by providing the optimal

68

level of cover at the least possible cost. The entire sales process and product selection is research oriented and customized to the client's needs. We lay strong emphasis on timely claim settlement and post sales services.

Our services:

Risk Management Due diligence and research on policies available Recommendation on a comprehensive insurance cover based on clients needs Maintain proper records of client policies Assist client in paying premiums Continuous monitoring of client account Assist client in claim negotiation and settlement

IPOs:
We are a leading primary market distributor across the country. Our strong performance in IPOs has been a result of our vast experience in the Primary Market, a wide network of branches across India, strong distribution capabilities and a dedicated research team. We have been consistently ranked among the top 10 distributors of IPOs on all major offerings. Our IPO research team provides clients with indepth overviews of forthcoming IPOs as well as investment recommendations. Online filling of forms is also available.

IPOs handled Name of Company

Technocraft Industries (India) Limited XL Telecom Limited Hanung Toys and Textiles Limited Plethico Pharmaceuticals Limited Gallantt Metal Limited

Date of Issue
Jan 23, 2007 Dec 07, 2006 Oct 05, 2006 Apr 17, 2006 Mar 10, 2006

69

Bombay Rayon Fashions Limited Prithvi Information Solutions Ltd Shri Ramrupai Balaji Steels Limited Provogue (India) Limited Emami Limited

Nov 17, 2005 Oct 28, 2005 Jul 14, 2005 Jun 16, 2005 Mar 10, 2005

Non-Resident Indians
Introduction:
AR is the perfect gateway to the wealth of investment opportunities in India for NonResident Indians. With our dedicated NRI desk in India and Relationship Managers in your own country, you get the best of both worlds - real understanding of your investment needs as well on-the-ground expertise. Why choose AR?

Superior understanding of the Indian economy & markets Ability to structure and manage your tax and regulatory compliances Dedicated relationship team Unparalleled product range - Indian and Global

For more information contact [email protected]

70

Indian Products:

Equity & Derivatives Mutual Funds Depository Services Commodities Insurance IPOs

Global Products:

Structuring of trusts / investment companies Offshore Mutual Funds Structured Products / Deposits including capital-guaranteed notes on Trading in global markets (Equities, Bonds, Commodities) Real Estate investments Alternative investments (including hedge funds and fund-of-hedge funds)

NRIs FAQs
Who is a Non-Resident Indian [NRI]? Non- Resident Indian [NRI] means a 'person resident outside India' who is a citizen of India or is a 'person of Indian origin' Who is a 'person resident outside India'? Under the Foreign Exchange Management Act, 1999 [FEMA], a person who is NOT a 'person resident in India', as defined under Section 2 (v) of the Act is considered as a 'person

71

resident outside India'. The most important change in definition [since FERA 1973] is that the citizenship of a person no longer has a bearing in determination of residential status. Does an NRI need any RBI permission to open a demat account? No permission is required from RBI to open a demat account. However, credits and debits from demat account may require general or specific permissions as the case may be, from designated authorised dealers. Where can an NRI/PIO open a demat account? NRI/PIO can open a demat account with any Depository Participant [DP] of NSDL. The NRI/PIO needs to mention the type ['NRI' as compared to 'Resident'] and the sub-type ['Repatriable' or 'Non-Repatriable'] in the account opening form collected from the DP. If NRI/PIO desires to make investments under different schemes, can he hold all such securities in a single demat account? No. Securities received against investments under 'Foreign Direct Investment scheme (FDI)', 'Portfolio Investment scheme (PIS)' and 'Scheme for Investment' on non - repatriation basis have to be credited into separate demat accounts. Investment under PIS could be on repatriation or non - repatriation basis. Investment under FDI scheme is on repatriation basis. Does an NRI require RBI permission for dematerialiation / rematerialisation of securities? No special permission is required. Holding securities in demat only constitutes change in form and does not need any special permission. However, only those physical securities which already have the status as NR - Repatriable / NR- Non-Repatriable can be dematerialised in the corresponding Depository Accounts. Can securities purchased under repatriable and non-repatriable category be held in a single demat account? No. An NRI must open separate demat accounts for holding 'repatriable' and 'non-repatriable' securities. 72

In case a person who is resident in India becomes a non-resident, will he/she be required to change the status of his/her holding from Resident to Non-Resident? As per section 6(5) of FEMA, NRI can continue to hold the securities which he/she had purchased as a resident Indian, even after he/she has become a non resident Indian, on a nonrepatriable basis. In case a non-resident Indian becomes a resident in India, will he/she be required to change the status of his/her holding from Non-Resident to Resident? Yes. It is the responsibility of the NRI to inform the change of status to the designated authorised dealer branch, through which the investor had made the investments in Portfolio Investment Scheme and the DP with whom he/she has opened the demat account. Subsequently, a new demat account in the resident status will have to be opened, securities should be transferred from the NRI demat account to resident account and then close the NRI demat account. Can NRIs invest in shares, debentures and units of mutual funds in India? NRIs are permitted to make direct investments in shares/ debentures of Indian companies/ units of mutual fund. They are also permitted to make portfolio investments i.e. purchase of share / debentures of Indian Companies through stock exchange. These facilities are granted both on repatriation and non-repatriation basis. Can an NRI purchase securities by subscribing to public issue? What are the permissions/approvals required? Yes. The issuing company is required to issue shares to NRI on the basis of specific or general permission from GoI/RBI. Therefore, individual NRI need not obtain any permission. Does an NRI require any permission to receive bonus/rights shares? No. What is Portfolio Investment Scheme?

73

Under this scheme, NRIs are permitted to acquire shares/debentures of Indian companies or units of domestic Mutual Funds through the stock exchange(s) in India. Investment can be made both on repatriation or non-repatriation basis. For making investment on repatriation basis, it will be necessary to make payments by way of inward remittance or by debit to the NRE / FCNR account of the NRI / PIO. Investment on nonrepatriation basis can also be made by way of inward remittance or by debit to the NRE / FCNR / NRO accounts. The sale proceeds of the repatriable investments can be credited to the NRE / NRO accounts of the NRI / PIO at the option of the investor, whereas the sale proceeds of non-repatriable investment can be credited only to NRO accounts. The sale of shares will be subject to payment of applicable taxes. What is the procedure for making applications for Portfolio Investment Scheme? The application is to be submitted to a designated branch of an authorised dealer in India in the prescribed form. No permission is required from RBI. Reserve Authorised dealer issues general permission for a period of five years, which can be renewed further by designated branch, concerned for a period of five years at a time. What is a designated branch? Reserve Bank has authorised a few branches of each authorised dealer to conduct the business under Portfolio Investment Scheme on behalf of NRIs. These branches are the main branches of major commercial banks. NRIs will have to route their applications through any of the designated authorised dealer branches who have authorisation from Reserve Bank.

Whether NRI can apply through more than one designated branchauthorised ?dealer? No. NRI can select only one authorised dealer branch for the purpose of investment under Portfolio Investment Scheme and route the transactions through the branch designated by the authorised dealer. Can an NRI purchase or sell shares or convertible debentures on a stock exchange in India on repatriation or non-repatriation basis under portfolio investment scheme?

74

NRIs / PIOs can purchase / sell shares / convertible debentures of Indian companies on Stock Exchanges under the Portfolio Investment Scheme. The rules relating to this scheme are as given below:

Shares purchased under PIS on Stock Exchange shall be sold on stock exchanges only. Prior approval of RBI is required if such shares are proposed to be transferred either by way of gift or under private arrangement to a non-resident/ resident.

These trades can be done only through a registered broker on a recognised stock exchange

NRI shall designate a branch of an authorised dealer and route all his/her transactions through this branch of the authorised dealer

NRI takes delivery of the shares purchased and gives delivery of shares sold. NRI shall abide by the directions given by RBI/SEBI or such authority if the transaction results in the breach of ceilings stipulated for NRI holding in the company/scheme.

The sale of shares will be subject to payment of applicable taxes

An NRI or a PIO can purchase shares up to 5% of the paid up capital of an Indian company. All NRIs / PIOs (also the OCBs who had purchased shares under the earlier scheme) taken together cannot purchase more than 10% of the paid up value of the company. (This limit can be increased by an Indian company to 24% by passing a General Body resolution). Can an NRI nominate or be nominated in depository account? Whether such nominee can be person resident in India? Yes. What are the tax obligations applicable to NRIs? Income on investments (capital gains) forming part of sales proceeds is subject to Capital Gains tax. The rate of tax depends upon the period of holding. Currently the tax rate

75

applicable for short-term capital gains and long-term capital gains is 31.5% and 10.5% respectively. These tax rates are inclusive of 5% surcharge. What is "Tax Deduction at Source (TDS)" on capital gains arising out of sale of holdings by NRIs? As per Indian tax laws, all the capital gains arising out of sale transactions are subject to tax. In the case of NRIs, the capital gain arising out of sale transaction is subject to deduction of tax at source (TDS) i.e. at the time of crediting the sale proceeds to the respective NRE/NRO account by the concerned bank branch. Accordingly, the concerned bank shall determine the tax liability and tax will be deducted at source. The concerned bank, which has deducted tax at source, shall issue a certificate in this regard. Is TDS deductible if the sale proceeds are credited to NRO Bank account? No TDS is deductible if the sale proceeds are credited to NRO Bank account. What is 'Double Taxation Avoidance Treaty'? India has entered into Double Taxation Avoidance Treaties with certain countries under which NRIs who are residing in any of these countries, are liable to pay income tax at the rate applicable in India or in the country where they are residing, which ever is lower. How can NRIs, residing in any of these countries, take benefit of 'Double Tax Avoidance Treaty'? To avail benefit of lower rates of tax as per double taxation avoidance treaty entered in by India, NRIs need to submit the Residency Certificate issued by Tax Authorities of the country of his residence. These documents should be submitted to the designated bank branch at the time of opening the bank account or subsequently. New TDS rate shall be applied only after the acceptance of the Residency Certificate by the designated bank.

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Location:
UAE Office Synergy Portflio Management Consultancy M - 14, AI Attar Grand Khalid Bin Waleed St. P.O. Box 120830 Dubai, U.A.E. Tel: +971 4 351 7098 Fax: +971 4 351 7198 Thailand Office 24, Prime Office Building,12th, B-1 Floor Sukhumvit Soi 21, Asoke Road Klong Toey Nur, Wattana, Bangkok Thailand Tel : +662 02-2604960-3 Fax : +662 02-2604964

Institutional Equities
Introduction:
The institutional sales and trading team provides cutting edge market information and investment advice to clients, coupled with excellent execution capabilities. A highly experienced and reputed team of equity analysts supports the sales team. There is an

77

extensive focus on research on companies, sectors and macro-economy. The institutional equity team tracks nearly 250 large and mid-sized companies to give clients an unparalleled breadth of ideas. We also provide Investment Advisory Services for institutional clients in India and overseas for investment in the Indian equity markets.

Managed Investment Services

Portfolio Management Services (PMS):
AR Portfolio Management Service is a discretionary investment service created to meet the demand for more targeted investment styles and opportunities. It offers a range of specialized investment strategies designed to capture opportunities across the market spectrum. The range of products varies from the highly defensive, capital-protected to the most aggressive strategies in the equities and derivatives markets. Our investment process ensures that your strategy and portfolio are built on solid foundations. Together you and your relationship manager select the strategy in line with your individual goals. AR investment specialists then construct and manage your portfolio in accordance with the chosen investment strategy.

Real Estate Opportunities Fund:

AR Real Estate Opportunities Fund is a private equity fund for high net-worth individuals, corporates and institutions, to invest in equity-linked instruments in the Indian real estate and infrastructure sectors. As part of the structural reforms to further boost India's economic growth, the government has recognized the need for institutional finance in the real estate sector. In early 2005, the government has relaxed the FDI guidelines in real estate and also allowed the setting up of real estate investment funds under SEBI guidelines. These developments are expected to provide much needed capital to provide for the increasing demand for quality real estate in 78

major urban centers across the country. To capture this opportunity, AR has brought together a team of specialists and advisors to guide the fund's investments who bring together expertise in the areas of real estate consulting, development, legal and financial structuring.

Institutional Wealth Management

Introduction:
Corporate and Institutional treasuries need ever more sophisticated advice that is backed by serious and credible research. AR IWM provides its institutional clients integrated wealth management solutions across global markets, which are backed by proprietary global economic & investment research. We understand that your needs could range from finding short-term surplus management strategies to higher yielding and long term investments. The IWM team brings together the highly-rated AR research across fixed income, currencies and equities markets to provide investment solutions that meet your complex needs - from simple money-market mutual funds to complex arbitrage strategies in the equities or commodities markets.

Products:

Equity & Derivatives Mutual Funds Depository Services Commodities Insurance IPOs

79

Client List:

ACC Bayer Century Textiles Clariant CRISIL Crompton Greaves Dabur Datamatics GE Shipping Godrej Goodlass Nerolac Grasim Gujarat Ambuja Cements Gujarat Pipavav Port Heinz India Hindalco Hindustan Lever

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H&R Johnson IDFC Indian Rayon Jindal Group Larsen & Toubro Mastek Mahindra & Mahindra Raymonds Sterlite Group Syngenta Tata Iron & Steel Trent VSNL Wartsila

Research:
Our research expertise is at the core of the value proposition that we offer to our clients. Research teams across the firm continuously track various markets and products. The aim is however common - to go far deeper than others, to deliver incisive insights and ideas and be accountable for results. AR research processes incorporate quantitative areas well as qualitative analyses. This multi-pronged approach helps us to provide superior risk- adjusted returns for our clients. AR analysts provide objective and decisive research that is designed to enable clients to make informed investment decisions. The team covers entire spectrum of financial markets from equities, fixed income, and

81

commodities to currencies. They also cover the global markets, to give clients an unparalleled macro-view of the investment opportunities across the globe.

Investment Banking & Corporate Finance

Introduction:
Investment Banking:
AR Investment Banking provides comprehensive services to clients including raising money in the equity capital markets to identifying strategic alliances, mergers and acquisition opportunities and debt financing & restructuring advisory.

Corporate Finance:
The AR Corporate Finance team helps clients manage their debt-financing needs by profiling business and cash-flow risks, defining the alternative sources of funding , building in multiple variables such as currencies, fixed-floating, tenure, collateral etc. in a comprehensive manner and finally negotiating with the prospective lenders / buyers. The team has also built an impressive track-record in debt restructuring based on its superior understanding of business needs and relationships with key lenders. The Corporate Finance team has handled assignments in businesses like paper, hospitality, telecom, textiles and sugar.

Services:
Merchant Banking:
A highly experienced equity capital markets team, a pan-India distribution presence and a high level of quality and integrity in executing client's transactions has enabled us to provide tangible value to our clients' businesses. We bring quality independent advice and excellent execution capabilities to create landmark transactions for clients. Our track record of successfully lead managed IPOs includes Tips Industries, Emami, HCL Infosystems and Provogue.

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M&A, Private Equity:

Our Mergers & Acquisition team works with clients in creating lasting stakeholder value through advice on mergers, acquisitions, divestitures and private equity financing. The team leverages on the firm's superior understanding of businesses and tax and regulatory environments as well as a deep network of relationships across the professional and corporate world. We have worked extensively with clients in industries like cement, sugar, chemicals, power and textiles for mergers and acquisition deals, valuation and business restructuring.

Corporate Finance :

Raising Cost-effective debt resources in Rupee and Foreign Currency for Projects, Working Capital and Specific needs.

Financial Restructuring, CDR, OTS, Interest Cost Reduction, Long-term Corporate Loans for Working Capital Margins.

Financial products and services in hedging of interest and currency risks.

Distribution Capabilities:

Strong pan- India distribution network, with presence at over 130 locations across India. Leading distributor of equity related products including IPOs & mutual fund Have been consistently amongst the top 8 brokers, inspite of not being a lead manager. 50000 plus captive Institutional clients and HNIs, Strong after market support

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To know more about our distribution strength, please see table below.

All India 9th rank for 2004-05 on basis of procurement Month of IPO All India Rank issue Suzlon Sep-05 7th Talbros Sep-05 3rd Sasken Comm Aug-05 5th IDFC Jul-05 8th Shri Ramrupai Jul-05 1st Balaji ILFS investsmart Jul-05 5th Yes Bank Jun-05 5th Provogue Jun-05 3rd Gokaldas Exports Apr-05 6th Emami Mar-05 2nd Jet Airways Feb-05 11th Bharati Shipyard Dec-04 7th NTPC Oct-04 7th TCS Aug-04 11th Dishman Pharma Apr-04 4th NDTV Apr-04 7th Patni Computer Feb-04 7th TV Today Dec-03 7th Indraprastha Gas Dec-03 6th Maruti Udyog Jun-03 8th 2003-04 Full Year 8th 2004-05 Full Year 9th 2005-06 Till Oct-05 7th

Corporate Advisory Services

Introduction:
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AnandRathi Advisors assists companies in realizing tangible improvements in various facets of their businesses by providing a range of corporate advisory services that includes the entire gamut from financial, organizational and operational restructuring, to profit improvement and business turnaround strategies. Highly qualified and thoroughly professional, our specialists, experts and associates assist you in conceptualizing problems and devising effective solutions, whatever be your need. Successful assignments undertaken for leading organizations in India as well as overseas bear ample testimony to our wide-ranging capabilities, utilizing our unparalleled business know-how to give you the competitive edge. We have successfully handled various assignments under industry segments like refinery, cement, mining, power, paper, metals, airlines and optic fiber.

Services:

Performance Improvement and Cost Reduction Business Strategy and Re-engineering Financial, Business & Organizational restructuring Business Turn-around Strategies Management Systems: MIS, Review & Control Mechanism.

Case Studies:

TPI

Bharat Aluminium Co Ltd.

Thai Airways.

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Cross Border Advisory

Introduction:
Dynamic Orbits is the international interface of Anand Rathi Group, inter alia Dynamic Orbits is engaged in building strategic alliances, outsourcing contracts, contract manufacturing alliances, cross border joint ventures and cross border acquisitions.

Management Team
Our senior Management comprises a diverse talent pool that brings together rich experience from across industry as well as financial services. Mr. Anand Rathi - Group Chairman Chartered Accountant Former President, BSE Held several Senior Management positions with one of India's largest industrial groups Mr. Pradeep Gupta - Vice Chairman Plus 17 years of experience in Financial Services Mr. Amit Rathi - Managing Director Chartered Accountant & MBA Plus 11 years of experience in Financial Services.

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CHAPTER 3
87

Data Analysis & Interpretation

The investment behavior of any investor is guided by certain factor which is someway of the other arouses a feeling to invest in a particular mutual fund. A market research was conducted and the following questions were floated to about 200 people. Just as each of us has an Intelligence Quotient (I.Q.) that is unique to each individual, so also we have Safety Quotient (S.Q.) that is unique to each one of us. It gives us a hint as to what of investors we are, how much risk we can bear etc. The kind of Questionnaire, which was floated for research purpose, is given as follows: SNAPSHOT OF THE QUESTIONNAIRE FLOATED TO THE INVESTORS:

1.

Age
a. b. c. d. Below 25 Between 25-35 Between 35-45 Above 45 ( ) ( ) ( ) ( )

2.

Occupation
a. b. c. d. Businessman Private Sector Employees Other ( ) ( ) ( ) Government Sector Employees ( )

3.

Monthly House hold Income

a. b. c. d. Less than 5000 Between 5000 10,000 Between 10,000 25,000 Above 25,000 ( ( ) ) ( ) ( )

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4.

No. of dependents
a. b. c. d. One Two More than Two None ( ) ( ) ( ) ( )

5.

Of the income earned, your investment is upto

a. b. c. 5% 5% - 10% More than 10% ( ) ( ) ( )

6.

Where do you invent your savings

a. b. c. d. e. Banks Post office Stock Market Mutual fund Insurance ( ) ( ) ( ) ( ) ( )

7.

Are you satisfied with present investment?

a. b. Yes No ( ) ( )

8.

If not, where would you like to invest in future?

a. b. c. d. Share Bonds Debentures Mutual fund. ( ) ( ) ( ) ( )

9.

What do you prefer more.

a. b. Liquidity Profitability ( ) ( )

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10.

You prefer to invent money to get

a. b. c. Higher returns. Tax benefit Safety of money ( ) ( ) ( )

11.

Do you want to know the investment portfolio of the company?

a. b. Yes No ( ) ( )

12.

Do you go to the past records of the various schemes provided by the fund houses you are investing in
a. b. Yes No ( ) ( )

13.

Which of the following is preferred mode of payment.

a. b. c.
d.

Cash Cheque Credit card Internet banking.

( ) ( ) ( ) ( )

14.

How many mutual fund houses are you aware of?

a. b. c. d. One Two More that Two None ( ) ( ) ( ) ( )

15.

Which of the following products would you like to know more about?
a. b. c. Stock market Mutual fund Insurance ( ) ( ) ( )

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1. Age of the investors

Age of the investors Below 25 Between 25-35 Between 35-45 Above 45 Number of Investors 20 60 36 84

Sample of 200 investors

10% 42% 30% 18%

Below 25 Between 25-35 Between 35-45 Above 45

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2. Occupation of the investors

Occupation of the Investors Business man Government sector employee Private sector employee Others No. Of the investors 116 44 24 16

Sample of 200 investors 8%

12%

Business man

22%

58%

Government sector employee private sector employee others

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3. Monthly Household Income

Monthly Household income Less than 5000 Between 5000 -10000 Between 10000-25000 25000 and above

No. of investors 16 76 92 16

Sampleof 200 investors

8%

8%

Less than 5000 Between 5000 10000 Between 1000025000 25000 and above

46%

38%

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4. No. of Dependents of Investors

Dependents One Two More than two None No. of Investors 32 44 92 32

sample of 200 Investors

16%

16% One Two 22% More than two none

46%

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5. Of the income earned your investment is upto

Investment level 5% 5% - 10% More than 10%
sample of 200 Investors

No. Of investors 64 84 52

26%

32% 5% 5% - 10% More than 10% 42%

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6. At the moment, invested my money in

Investment options Banks Post office Stock market Mutual fund Insurance No. of investors 64 20 36 28 52

sample of 200 Investors

26%

32%

Banks Postoffice Stock market Mutualfund

14% 18%

10%

Insurance

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7. Are the investors satisfy with present investment

Satisfaction level Yes No No. of investors 140 60

sample of 200 investors

30% Yes No 70%

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8. If no, where would investors like to invest in future?

Future investment options Shares Government bonds Debentures Mutual fund No. of investors 24 4 4 28

sample oe 60 investors

46%

40%

Shares Government bonds Debenturs Mutualfund

7%

7%

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9.What investor prefer

Investor preference Liquidity Profitability

No. of investors 84 116

sample of 200 investors

42% Liquidity Profitability 58%

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10. Investor invest money to get

Investment criteria Higher returns Tax benefit Safety of money

No. of investors 76 44 80

sample of 200 investors

40%

38%

Higher returns Taxbenefit Safty of money

22%

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11. Do the investors want to know the investment portfolio of the companies?
Portfolio of the companies Yes NO No. of investors 152 48

SAMPLE OF 200 INVESTORS

24% Yes NO 76%

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12. Do the investors want to know the past records of the various schemes provided by the fund houses?
Past records of the various schemes No. of investors 132 68

Yes
No

sample of 200 investors

34% Yes No 66%

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13. Which of the following is Preferred Mode of payment.

Mode of Payment Cash Cheque Credit cards Internet Banking

No. Of Investors 40 136 12 12

Sample of 200 Investors

6% 6%

20%

68%

Cash Cheque Credit cards Internet Banking

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14. Awareness of mutual funds houses among the investors

Awareness One Two More than two None

No. of Investors 32 36 112 20

Sample of 200 investors

10%

16% One Two More than two None

18% 56%

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15. Which of the following products would investors like to know more about?

Products Stock Market Mutual funds Insurance

No. of Investors 47 78 75

Sample of 200 investors

Insurance 38%

Stock Market 24%

Mutualfunds 38%

Stock Market Mutualfunds Insurance

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OBSERVATION
1. 2. 3. 4. 5. The people who were above the age of 50 wanted to be on truly safe position and not want to invest in the risky ventures. Most of the investors belong to the group of those who having their monthly income lying in the range of 10,000 to 25,000. Of the income earned a very small portion of is actually invested in the mutual funds. However the amount of investment is increasing but at a low pace. Most of the investors have invested in some scheme or the other in which the Bank Fixed Deposit was most preferred the several schemes. Prior to investing the investors were more aware of various aspects and wanted to have a more detailed knowledge before they were investing. They use to carefully evaluate among the various alternative available. 6. Majority of investors take into consideration the service provided by the fund houses. Further investment decision was followed availability of update information, financial planning and easy access respectively. 7. 8. 9. The investors were more comfortable with the investments, which had a predictable fixed rate of return followed by safety with liquidity. In the present situation most of the people have aware of at least few investment option although hardly anyone was fully aware of it. When the stock market is supposed to drop the investors were more in favors of adopting a wait and watch policy where as some investors who are interested their money back and a small group who belong to young and daring section intended to invest more in it. 10. 11. Seeing the volatility of the market the investors were not in a mood to invest directly in the stock market and would rather invest in the mutual fund.3 The major segment of the investor seems to be quit aware of only three-four Mutual Fund Houses. Only a handful of them were aware of more than four Mutual Fund House.

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12.

Generally a major segment of the investor was interested in going for a detailed research before putting their money to the particular fund houses. They were eager to go for the passed records of the performance of the Fund Houses.

13. 14.

Payment by check was the most preferred mode of payment followed by cash and credit card. A very small portion of the investors goes for Internet banking. The investors were more in favors of knowing about insurance and mutual fund followed by stock market.

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CHAPTER 4

108

SUGGESTIONS & Recommendation

1. Thus, from the above observations, we infer that most of the people are unaware of the various alternatives available for investment. Many still dont know about insurance, stock market operations and mutual fund. Investor hardly knows about2-3 Mutual Funds houses and different aspects related to them. Investment in Mutual fund is low and most of the investor go for the Bank deposits and postal saving due to their assured and predictable rates of returns. Intact, investment in mutual funds has become the best option now a day. Awareness and investment in this field can be encouraged by: Investors should be made aware about the votality of market and thus not to directly invest their hard earned money in stock market but adopt Mutual Fund schemes. Prospective investor/customer must be educated about the mutual fund especially about the limited shared risk in investment in MFs through advertisement procedure. Related fund house personnel may be utilized for advertisement and increasing awareness among investors. Special feature regarding mutual Funds may be published in local newspapers to create awareness among investors. Agents to be substantially increased with immaculate training thus culminating in investor mobilization. 2. While choosing a particular stream for investment the investor should certainly see for the abridged offer document, which contains very useful information, is required to be analyzed by the pre operative investor. The application form for subscription to a scheme is an integral part of the offer document. Securities and Exchange Board of India has prescribed minimum disclosure in the offer document. An investor, before investing in a scheme, should carefully read a offer document. Due care must be given to apportion relating to main feature of the scheme, risk factor, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit load,

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sponsored track record, education qualification and work experience of key personnel mutual fund managers, performance of other scheme launched by the mutual fund in the part, pending litigations and penalties imposed etc. 3. Investment in mutual fund should be done through SIP (systematic investment plan), which enables even the small investor to invest their money in mutual fund. Investments in SIP can even be made with a very low amount that is Rs.500 (for Franklin Templeton MF) and Rs. 1,000 invested at a regular frequency. SIP the time tested investment approach helps bring in the much-needed discipline and has shown good result the word over. In addition to getting the investor in to the habit of the saving regularly, SIP puts to powerful forces to work for him : Rupee cost averaging The power of compounding

Investment in SIP can be done with the auto debit facility a post-dated cheque facility. More over the new budget allows investing Rs. 1,00,000 in an ELSS (equity link saving it) and claims tax benefit under section 80. 4. An investor should go into detailed research about the past performance of Mutual Fund Houses. They should also look into past track record of performance of the schemes of the same mutual fund. They should also compare the performance with schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making investment decision. In case is one dept-oriented schemes, apart from looking into past records, the investors should also see the quality of debt instruments, which is reflected in their rating. A scheme with lower rate of return but having investments in better rated instruments may be safer. Similarly in equities schemes also, investors may look for quality of portfolio and may also seek advice of experts. 5. Since frequency of transacting in a year in the equity market is very less, an attempt should be made to increase its number by making available better facilities. 6. Many investors generally make 1-3 years financial planning regarding future investments. They dont want their money to get invested for a longer duration. Where as historical data proves that investing in the equity market becomes less risky 110

in the long term. Remaining invested for the long term can mellow the peaks and throughs of returns. Therefore, investors must be encouraged for a long term financial planning regarding investment decisions. 7. The investors should see the Crisil Rating before investing in any portfolio. 8. In order to encourage investments, fund houses must keep update information with them along with enhancing service facilities. Each and every city or even village must its branch so as to have easy access to all. 9. At the same time they should see the Net Asset Value of the past three years before investing and while their units they should not only see the existing Net Asset Value but also the economic scenario and whether there are any chances of boom in the future. The investors should always be on look-out of the Net Value (NAV) of there Fund House and at appropriate time while giving them high yield they should be wittily enough to sell there respective units. 10. The investors should certainly investigate as to how the other fund houses are performing and accordingly make respective investment plan. 11. Cheques and cash are still the most preferred mode of payment by investor and a very few of them use debit and credit cards. Credit card facility along with e banking must be developed and encouraged in this era. 12. If the investor faces any problem he can redress respective complaints to securities and Exchange Board of India in the mutual funds department.

111

CHAPTER 5

112

Conclusion
In India, the mutual funds have a lot of potential to grow. Mutual fund companies have to create and market innovative products and frame distinct marketing strategies. Product innovation will be one of the key determinants to success. The mutual fund industry has to bring many innovative concepts such as high yield bond fund, principal protected fund, long short fund, arbitrate funds, dynamic funds, precious metal fund, and so on. The penetration of mutual funds can be increased through investor education, providing investor oriented value added services, and innovative distribution channels. Mutual funds have failed during the bearish market conditions. To sell successfully during the bear market, there is no need to educate the investor about risk-adjusted return and total portfolio return to enable them to take informed decision. Mutual funds need to develop a wide distribution network to increase its reach and tap investment from all corners and segments. Increased use of internet and development of alternative channels such as financial advisors can play a vital role in increasing the penetration of mutual funds. Mutual funds have come a long way, but a lot more can be done.

113

Bibliography
Books: 1. 2. 3. 4. M.Y.Khan- Indian Financial System R.Bhattacharya-Financial Market Operation H.Sadak-Mutual Fund In India L.M.Bhole- Financial Institutions And Market Structure

Newspaper/ Magazines: 1. 2. 3. 4. Investment in Mutual funds-by SEBI Business World Economics Times Business Today

News Channel: 1. 2. Websites: 1.

2. 3. 4. 5. 6. 7.

CNBC NDTV 24*7

www.indiainfoline.com www.eastindiavyapaar.com www.mutualfundofindia.com www.businessstandard.com www.amfiindia.com www.nseindia.com www.rediff.com

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ANNEXURE
Questionnaire on Mutual Funds
Q.1. What are the parameters (rank wise) that investors take into account while investing in different investment options (Direct Equity, Mutual Funds, Deposits, Real Estate, Gold, Commodities, etc.)(Rank 1-4, 1being the highest) 1) Stock Market Condition 2) Rate of Return from different Option 3) Risk Profile 4) Liquidity Q.2. What are the parameters (rank wise) that are considered by investors while investing in a particular Equity Mutual Fund Scheme? (Rank 1-7, 1 being the highest) 1) Mutual Fund House 2) Investment Objective (growth, income, specialty, sector, tax saving etc) 3) Rate of Return. 4) Market Condition 5) Risk Profile of the Scheme. 6) Portfolio composition (w.r.t sector/company size).. 7) Others (please mention).. Q.3. Which scheme do investors prefer to invest in? Why? 1) Existing Scheme 2) New Fund Offer 115 ..

................................................................................................................................ If the answer to Q2. is (2) then proceed to Q3 else go to Q4. Q.4. What is (are) the main factor(s) for investors to invest in a New Fund Offer? (Rank them 1-5, 1 being the highest) 1) 2) 3) 4) 5) Mutual Fund Name Existing Scheme of the Mutual Fund and their Rate of Return. Investment Objective (growth, income, specialty, sector, tax saving)... Fund Manager. Others (please mention)..

Q.5. How much weightage does Rate of Return hold while selecting a particular mutual fund scheme (for Equity)? (Give a number out of 10:min 0/10 to max 10/10) If the weightage given is more than 5,proceed to Q5 else stop. Q.6. Rank the following while considering the period of Rate of Return for Equity Mutual Fund Schemes, (Rank 1-5, 1 being the highest) 1) 2) 3) 4) 5) One-Month return Three-Month return. Six-Month return. Annual return.. More than a years return

Name Designation: Name of the company..

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