1. BILASPUR (C.G.) 495009
DEPARTMENT OF MANAGEMENT
STUDIES
M.B.A. IV SEM.
SESSION: 2012-13
SUBJECT: MANAGEMENT OF FINANCIAL SERVICES
PRESENTATION TOPIC:
“MUTUAL FUND”
Submitted To: Submitted By:
H. L. YADAV RAJU KUMAR
Associate Professor ABHISHEK LAL
BRIJESH LAKHO
1

2. INTRODUCTION
Mutual funds are financial intermediaries which collect the savings of investors and invest
them in a large and well diversified portfolio of securities such as money market instruments,
corporate and Government bonds arid equity shares of joint stock companies. A mutual fund
is a pool of commingle funds invested by different investors, who have no contact with each
other. Mutual funds are conceived as institutions for providing small investors with avenues of
investment in the capital market. Since small investors generally do not have adequate time,
knowledge, experience and resources for directly accessing the capital market, they have to
rely on an intermediary which undertakes informed investment decisions and provides the
consequential benefits of professional expertise. The raison dieter of mutual funds is their
ability to bring down the transaction costs. The advantages for the investors are reduction in
risk, expert professional management, diversified portfolios, liquidity of investment and tax
benefits. By pooling their assets through mutual funds, investors achieve economies of
scale. The interests of the investors are protected by the SEBI which acts as a watch dog.
Mutual funds are governed by the SEBI (Mutual Funds) Regulations, 1993
Definition of Mutual Fund:
“A Mutual fund is a financial service organization that receives money, from
shareholders, invests it, earns return on it, attempts to make it grow and agrees to
pay the shareholders cash on demand for current value of his investment”
_____ _______Investment Company Institute of the U.S
“An investment vehicle that is made up of a pool of funds collected from many
investors for the purpose of investing in securities such as stocks, bonds, money
market instruments and similar assets. Mutual funds are operated by money
mangers, who invest the fund's capital and attempt to produce capital gains and
income for the fund's investors. A mutual fund's portfolio is structured and
maintained to match the investment objectives stated in its prospectus.”
OBJECTIVES OF MUTUAL FUNDS
Mutual funds have specific investment objectives, which are stated in their prospectus.
The main objectives are
• Growth: Growth funds strive for large capital gains; In general, growth funds
seem to have the highest risk
• Growth-income: while growth-income funds seek both dividend income and
capital gains from the common stocks. Income growth funds and intermediate risk.
• Balanced income: The balanced fund generally holds a portfolio of
diversified common stocks, preferred stocks and bonds with the hope of realizing capital
gains, dividend and interest income, while at the same time, conserving the principal
Income funds concentrate heavily on high interest and high dividend yielding securities.
balanced funds, the lowest risk
• Industry specific funds: The industry specific mutual funds obviously
specialize in selected industries such as chemicals, petroleum or power stocks.
2

3. TYPES OF MUTUAL FUNDS
Two major fund categories of mutual funds are closed-end funds and the open-end funds.
Open-end funds are commonly referred to as the mutual funds.
Closed-end Funds
Closed-end mutual funds have the following characteristics.
 Firstly, closed-end fund investment company cannot sell share units after its initial
offering. Its growth in terms of the number of share is limited. The shares are issued
like the new issues of any other company; listed and quoted on a stock exchange.
Secondly, the shares of the closed-end funds are not redeemable at their NAV as in
the case of open-end funds. On the other hand, these shares are traded in the
secondary market on a stock change, at market prices that may be above or
below their Net Asset Value (NAV).
 Thirdly, the objectives of the closed-end funds may differ from that of the open-end
funds.
 Fourthly, closed-end funds are channelised into the secondary market, for the
acquisition of corporate securities.
 Finally, the prices of closed-end mutual funds' shares are determined by demand
and supply and not by NAV as in the case of open-end mutual fund shares. The
minimum amount of the fund is Rs.20 crores or 60% of targeted amount. Redemption
is after a specified period (4 to 7 years). Morgan Stanley's scheme is for 15 years.
 Examples are UTI's master share, SBI's Magnum and Canbank's Candouble.
Open-end Funds
The open-end mutual funds are characterised by the continual selling and redeeming of
shares. In other words, mutual funds do not have a fixed capitalisation. It sells its shares to the
investing public, whenever it can, at their Net Asset Value per share (NAV) and stands ready to
repurchase the same, directly from the investing public, at the net asset value per share. 1
Minimum amount of the fund is Rs.50 crores or 60% of targeted amount. Examples are
UTFs Unit 64, Kothari/ Pioneer, Prima and LIC schemes.
Net Asset Value is the value of one unit of the scheme, say, Rs. 10 which is normally the
face value of the unit. If the NAV is more than the face value, it means that the unit has
appreciated and vice versa. Mutual funds sell their units in their schemes to the public
and redeem at the current net asset value which is calculated by NAV of MF = Total
market value of all MF holding-all liabilities / No. of units. The NAV of a mutual fund
scheme is the per unit market value of all the assets of the scheme.
3

4. TYPES OF SCHEMES
A mutual fund has several schemes you can invest in. there are structure based
schemes distinguished by their maturity periods. Then there are objective based
schemes that offer different risk-reward options. Lastly, you have special schemes that
invest in specific sectors
 Structure Based Schemes
• Open-ended Schemes
These have no fixed maturity period. Open-ended schemes are available for
subscription and redemption (purchase and sale) on an ongoing basis. The units are
bought and sold at NAV related prices
• Close-ended Schemes
These schemes have stipulated maturity period. Typically, you can invest in them for
between 3 to 10 years. These schemes are open for subscription only during a
specified period at the time of their launch. In case of listed schemes, you can invest in
the scheme at the time of the initial issue and thereafter units of the scheme can be
bought or sold on the stock exchange where the scheme is listed.
• Interval Schemes
Interval schemes are a combination of open-ended and close-ended schemes. These
schemes remain open for sale and repurchase only during a specified period
 Objective Based Schemes
4

5. • Growth Schemes
Growth schemes are designed to provide optimum returns through capital appreciation over
medium to long term. A major part of their funds are invested in equities. So, though there
could be a decline in their value in the short- term these schemes deliver results in the long
run. It is an ideal option for those in their prime earning years
• Income Schemes
If you are looking for regular and steady returns go for income schemes. These schemes
generally invest in fixed income securities such as bond and corporate debentures. Their
returns may not be as attractive as growth schemes but they are steady and less risky as
compared to equity schemes. If you have retired or need capital stability and income to
supplement your current earning opt for an income scheme.
• Balanced Schemes
Balanced funds give you the best of growth and income schemes. A balanced fund invests
both in equities and fixed income securities. Their returns are generally less volatile as
compared to pure equity fund.
• Liquid Schemes
Liquid schemes are also known as money market schemes. These schemes generally
invest in safer short-term instruments such as treasury bills, certificated of deposit,
commercial paper and government securities. It is a good idea to invest your surplus funds
for short periods in liquid schemes.
• Gilt Fund
If you are among the safe players, invest in a gilt fund. These funds invest exclusively in
government securities which have zero credit risk. The NAVs of these schemes are
determined by changes in interest rates and other economic factors as is the case with
income or debt oriented schemes
• Tax Saving Schemes
If you are investing because you want to save tax, go for these schemes. They offer
deduction from gross total income to the investors, at present, under Sec. 80C of the Income
Tax Act. The investment made to any Equity Linked Saving Scheme (ELSS) are eligible for
deduction up to Rs. 100000 every financial year. Tax saving schemes are growth oriented
and invest predominantly in equities.
5

6.  Special Schemes
• Index Funds
Index Funds replicate the portfolio index such as the BSE Sensitive index, S&P NSE 50
index (Nifty), etc. These schemes invest in the securities in the same weightage comprising
of an index.
• Sector Specific Funds
Sector specific funds take advantage of the boom or expected upturn in a particular industry
or sector by investing in them. So if software or pharmaceuticals is expected to do well, you
have funds that invest in the stocks of only these sectors. The returns in these funds are
dependent on the performance of the respective sectors or industries. While these funds
may give optimized returns, they are riskier as compared to diversified equity funds that
invest across different sectors.
• Hedge Funds
A hedge fund is a fund that can take both long and short positions, use arbitrage, buy and
sell undervalued securities, trade options or bonds, and invest in almost any opportunity in
any market where it foresees impressive gains at reduced risk.
MUTUAL FUNDS IN INDIA
The first mutual fund to be set up was the Unit Trust of India in 1964 under an Act of Parliament.
During the years 1987-1992, seven new mutual funds were established in the public sector. In
1993, the government changed its policy to allow the entry of private corporates and foreign
institutional investors into the mutual fund segment. By the end of March 2000, apart from UTI
there were 36 mutual funds, 9 in the public sector and 27 in the private sector. The UTI
dominated the mutual fund sector until 1994-95, accounting for 76.5 per cent of the total
mobilisation. The Indian mutual fund industry is dominated by the Unit Trust of India, which has
a total corpus of Rs700bn collected from more than 20 million investors. The UTI has many
funds/schemes in all categories i.e. equity, balanced, income etc with some being open-ended
and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which is
a balanced fund, is the biggest scheme with a corpus of about Rs200bn. Most of its investors
believe that the UTI is government owned and controlled, which, while legally incorrect, is true
for all practical purposesThe second largest category of mutual funds is the ones floated by
nationalized banks. Can bank Asset Management floated by Canara Bank and SBI Funds
Management floated by the State Bank of India are the largest of these. GIC AMC floated by
General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of
the other prominent ones.
6

7. STRUCTURE OF THE INDIAN MUTUAL FUND INDUSTRY
Mutual Fund Industry
SEBI Association of
MFs
MFs
Sponsor Board of Asset Management Custodian Investors
Trustees Company
Private Sector Public Sector
UTI Bank FI sponsored
Sponsored
Schemes
Domestic Offshore
Open—Ended Closed-Ended
Growth Income Income & Growth Sectoral Special Purpose Tax Saving Others
Equity Bonds Metals Real Money market Security price indices
Others
Estate instruments
7

8. SEBI'S DIRECTIVES FOR MUTUAL FUNDS
The Government brought mutual funds in the sewity market under the regulatory framework of
the Securities and Exchange Board of India (SEBI) in the year 1993.
SEBI issued guidelines in the year 1991 and a comprehensive set of regulations relating to the
organisation and management of mutual funds in 1993.
SEBI Regulations for Mutual Funds (20.1.1993)
The regulations bar mutual funds from options trading, short selling and carrying forward
transactions in securities. The mutual funds have been permitted to invest only in transferable
securities in the money and capital markets or any privately placed debentures or securities
debt. Restrictions have also been placed on them to ensure that investments under an indi -
vidual scheme, do not exceed five per cent and investment in all the schemes put together does
not exceed 10 per cent of the corpus. Investments under all the schemes cannot exceed 15 per-
cent of the funds in the shares and debentures of a single company.
SEBI grants registration to only those mutual funds that can prove an efficient and or derly
conduct of business. The track record of sponsors, a minimum experience of five years in the
relevant field of financial services, integrity in business transactions and financial sound ness are
taken into account.
The regulations also prescribe the advertisement code for the marketing schemes of mutual
funds, the contents of the trust deed, the investment management agreement and the scheme-
wise balance sheet. Mutual funds are required to be formed as trusts and managed by
separately formed Asset Management Companies (AMC). The minimum networth of such AMC is
stipulated at Rs.5 crores of which, the minimum contribution of the sponsor should be 40 per
cent. Furthermore, the mutual fund should have a custodian who is not associated in any way
with the asset management company and registered with the SEBI.
The minimum amount raised in closed-ended scheme should be Rs.20 crores and for the open-
ended scheme, Rs.50 crores. In case, the amount collected falls short of the minimum
prescribed, the entire amount should be refunded not later than six weeks from the date of
closure of the scheme. If this is not done, the fund is required to pay an interest at the rate of 15 per
cent per annum from the date of expiry of six weeks. In addition to these, the mutual funds are
obliged to maintain books of accounts and provision for depreciation and bad debts.
Further, the mutual funds are now under the obligation to publish scheme-wise annual reports,
furnish six month unaudited accounts, quarterly statements of the movements of the net asset
value and quarterly portfolio statements to the SEBI. There is also a stipulation that the mutual
funds should ensure adequate disclosures to the investors. SEBI prohibits the par ticipation of
mutual funds in the promoter's quota shares. SEBI has agreed to let the mutual funds buy back
the,units of their schemes. However, the funds cannot advertise this facility in their prospectus.
SEBI is also empowered to appoint an auditor to investigate into the books of accounts or the
affairs of the mutual funds.SEBI can suspend the registration of mutual funds in the case of
deliberate manipulation, price rigging or deterioration of the financial position of mutual funds.
8

9.  PUBLIC MUTUAL FUNDS
Unit Trust of India (UTI) has been functioning in the arena of mutual-Fund-business in India since
1963-64.However ,it was only after 23 years ,in 1987 that second fund was established in India by the
state Bank of India .SBI-Mutual Fund was the first among all the public sector commercial banks that
started operations during November 1987.
 PRIVATE MUTUAL FUNDS
Another key development in the financial sector was the opening up of mutual funds to private
sectors in early 1992. Though quite a.few industrial groups and financial majors evinced a keen
interest in the setting up of mutual funds, it took nearly two years for the first private mutual fund to
be launched. The first private sector mutual fund was launched by the Madras based- H.C. Kothari
group which, in collaboration with the Pioneer group of the US offered two schemes in 1994. This was
followed by several mutual funds having foreign tie-ups with renowned asset management
companies—20th century has a collaboration with Kemper Financial Services, the Tata with
Kleinwort Bonson and ICICI with J.P.Morgan.
 Sponsor with Track Record
A mutual fund in a private sector has to be sponsored by a limited company having a track
record. The mutual fund has to be established as a trust under the Indian Trust Act, 1882. The
sponsoring company should have at least a 40 per cent stake in the paid-up capital of the asset
management company. Mutual funds are required to avail off the services of a custodian who has
secured the necessary authorization from the SEBI.
 ASSET MANAGEMENT COMPANY (AMC)
A mutual fund is managed by an Asset Management Company that is appointed by the sponsor
company or by the trustees. The asset management company has be to registered under the
Companies Act and has to be approved by the SEBI. The AMC manages the affairs of the mutual
funds and its schemes. AMCs are registered by the Registrar of Companies only after a draft
memorandum and articles of association are cleared by the SEBI.
 Overseas Investment Opportunity (22.10.1 997)
The busy season credit policy announced on October 21, 1997 has allowed mutual funds regis-
tered with the SEBI, to invest abroad with an overall capital of $500 million with a sub ceiling of
10% of the net assets managed by individual funds subject to a maximum of US $50 millions. RBI
has also to put in place, a proper framework with regard to remittance of funds overseas .
 NAV Committee Recommendations (3.7.1996)
The Committee's recommendations for standardisation of valuation norms, computation of NAV,
accounting practices and fee structures, have been accepted by the SEBI. Mutual funds (MFs)
can invest up to 10 per cent of the capital of single company. MFs are allowed to invest in asset
backed securities, securitised debt instruments and specialised schemes like money market
instrument and gilt-edged securities.*MFs have also been allowed to borrow up to 20 per cent of
their scheme, for six months, fqr the purpose of meeting redemption. For strict entry, a maxi mum
networth of Rs.10 crores fdr the AMC is provided.AMCs are allowed to diversify into the
management of other funds like offshore funds, venture capital funds and pension funds with
9

10. additional disclosure requirements. MFs have to file offer documents with the SEBI which will
become effective after 21 days. SEBI does not do any vetting.
 UNIT TRUST OF INDIA
Unit Trust of India was set up under an Act of Parliament in 1964 known as the Unit Trust of
India Act. It was a closed-end mutual fund to mobilise the resources/savings of small investors. The
Unit Linked Scheme was the first of its kind in the Indian financial market and it registered
considerable success.Unit Trust of India is an unique organisation, combining the elements of a
unit trust as well as a financial institution. It is recognised as a financial institution under
Section 4 of the Companies Act and has been able to create enormous synergy because of the
combination of these two functions. In the interests of the investor's protection, it has been
argued that the UTI should be subjected to the same discipline as applicable to the other mutual
funds and this would include supervision by the SEBI. The mutual fund operations of the UTI are
subject to the guidelines of the SEBI.UTI mutual fund and schemes should be treated by SEBI,
on par with other funds and collective investment schemes for the purpose of registration,
regulation and control. The Committee also suggested that a provision should be inserted so
that, in the case of any inconsistency between the UTI Act and the SEBI Act, not withstanding
any provisions in the UTI Act,he SEBI Act should prevail.
Closed-end Country Funds
Closed-end country funds are attracting investors' attention at the international level since
their returns are high. It is the best way to invest in emerging markets. Chile, one of the World's
sophisticated emerging markets, limits most investors to closed-end funds. At the end of March
1993, Lipper Analytical Services, a New York firm was tracking 174 closed-end funds with a $18
billion invested in the emerging markets. This compared with a 494 open-end funds with $23
billion that was invested.
A closed-end fund's performance in an emerging market, unlike that of an open-end-mutual fund,
differs significantly from the performance of the securities, in which the fund invests. The price
depends on supply and demand, not just on the funds' net asset value (NAV). Closed-end funds
have two sources of risk and return. There is a movement in the NAV and a movement in the
discount or premium. Analysis at Lipper had found that in the year 1992, the average NAV of
closed-end funds rose by 7 per cent but the fund's share price climbed 10 per cent, as dis counts
narrowed, or as the premium decreased.
 MONEY MARKET MUTUAL FUNDS (MMMF)
After the remarkable success of the mutual funds set up by the banks and financial institutions in
India, the Reserve Bank of India (RBI) permitted the establishment of the Money Market Mutual
Funds (MMMF) in the year 1992. The basic idea is the deployment of mutual funds' surplus funds
in the money market. The guidelines have been revised on November 1995. MMMF ensures high
liquidity, adequate surety and high returns. What distinguishes the money market mutual funds
from the existing mutual funds is the difference in their investment portfolios. A money market
mutual fund invariably and exclusively invests its resources in high quality money market
instruments, whereas, a mutual fund largely invests in capital market securities and "parks" its
surplus funds in money market instruments for short periods.
10

11.  RBI GUIDELINES (23.11.1995)
MMMFs can be launched by banks, public financial institutions and private sector MFs. Units of
MMMF can be issued to individuals only. NRI's can subscribe and repatriate the dividend (not
the principal). No minimum return can be assured by the MMMF. Minimum lock-in period is 15
days (May 19998). MMMF can be set up with the approval of the RBI only while private sector
ones with the approval of the SEBI. Shares and units issued by the MMMF are subject to stamp
duty. Funds received by the MMMF can be invested only in Treasury Bills, Government of India
securities dated with an unexpired maturity up to one year, call loans to banks, CDs and CPs.
MMMF should have a minimum investment of 25 per cent in the Treasury Bills and dated
government securities minimum investment in call loans 30%, commercial bills 20% and CPS
15% (maximum exposure to a single company cannot be more than 3 per cent). For CDs, no
limit is fixed. With a view to making the scheme of MMMF more flexible, the RBI announced on
22-10-1997 that they can invest in rated corporate bonds and debentures, with residual maturity
of up to one year. Bonds and debentures are now included along with CP to ensure that the
exposure of MMMF does not exceed 3 per cent of the resources of the MMMF. Cheque writing
facility can be offered (since 1999-2000) to unit holders, which has a nature of tie-up
arrangement with a bank. Since 1999-2000 MMMFs have come under the purview of the SEBI
regulations and are allowed to be set up as a separate entity in the form of a 'Trust'. Banks and
FRs were required to seek clearance from RBI for setting up a mutual fund.
 UTI's Money Market Mutual Fund (23.4.1997)
The Unit Trust of India (UTI) launched its Maiden Money Market Mutual fund (MMMF) on
23.4.1997. The trust has decided to take the help of the UTI Bank, in order to effect repurchase
facility, on the same day lending liquidity to the fund. The minimum subscription amount has been
pegged at Rs.10,000. The tie-up with the UTI Bank enables the trust to issue cheques up to a sum
of Rs.l crore, on the same day and between Rs.l crore and Rs.5 crores, the next day. UTI's money
market fund, the second of its kind in the country after ITI Kothari Pioneer, is likely to attract
investment from corporates with retail investors entering at a later date.The returns will be given
at the time of exit and therefore, it will function as a growth fund and not as an income fund. The
fund comes without a sale and redemption load with a nominal fee of Rs.20 charged for redemption
transactions.According to the RBI guidelines, MMMF can invest in money market instruments, but
it has to have a lock-in period of 30 days. This is done to prevent competition to bank deposits.
 Collective Investment Schemes (CIS)
SEBI's regulations for CIS were notified on October 14, 1999. Under the SEBI Act and Regula-
tions, no person can carry on any CIS unless he obtains a certificate of registration from SEBI.
All existing collective investment schemes were required to apply for registration by December
14,1999. An existing scheme which does not obtain registration from SEBI shall have to wind-up
and repay the money to the investors. Failure to do so would attract penal action, which may
include ban on collection of money from investors and launching any scheme, ban on disposal of
property, etc.
11

12. The salient features of collective investment schemes are:
 CIS includes any schemes or arrangement with respect to property of any descrip -
tion, which enables investors to participate in the scheme by way of subscriptions
and to receive profits or income or produce arising from the management of such
property.
 Schemes structured for investment in shares/bonds and other marketable securi -
ties would not be treated as CIS.
 CIS can be floated only by companies registered under the Companies Act, 1956; the
company floating CIS has to seek registration with SEBI as
 Collective Investment Management Company (CIMC).
 CIS shall be constituted as a two-tier structure comprising a Trust and a CII the time
of registration as'CIMC, the company should have a minimum networth of Rs.3
rore, which has to be raised to Rs.5 crore.
 The CIS is prohibited from guaranteeing assured returns; indicative returns, if any,
should be based on the projections in the appraisal report.
 The duration of the scheme shall be for a minimum period of three years.
 The assets of the scheme would be covered by compulsory insurance.
 Units issued under CIS should be listed on recognised stock exchanges.in India
12

13. List of Mutual Fund companies in India
Some of the popular firms that deal in mutual funds in India are:
Public Sector Private Sector
• UTI (1964 • Kotak Mahindra
• State Bank of India (SBI) (1987) • ING saving MF
• Reliance Mutual Funds • DSP MerrillLynch
• AIG • IL&FS MF
• ABN Amro • Escort India MF
• Bank of Baroda • Dundee MF
• Canara Bank • Templeton MF
• Birla Sun Life • CEAT MF
• DBS Chola Mandalam AMC • Indus Ind MF
• Deutsche Bank • Anagram MF
• HSBC
• ICICI Prudential
• LIC MF (1989)
• JP Morgan
• Lotus India
• JM Financial
• Morgan Stanley
• IDBI MF
• TATA MF
13

14. • PNB MF
Recent trends in mutual fund industry
The most important trend in the mutual fund industry is the aggressive expansion of the
foreign owned mutual fund companies and the decline of the companies floated by
nationalized banks and smaller private sector players. Many nationalized banks got into the
mutual fund business in the early nineties and got off to a good start due to the stock market
boom prevailing then. These banks did not really understand the mutual fund business and
they just viewed it as another kind of banking activity. Few hired specialized staff and
generally chose to transfer staff from the parent organizations. The performance of most of
the schemes floated by these funds was not good. Some schemes had offered guaranteed
returns and their parent organizations had to bail out these AMCs by paying large amounts of
money as the difference between the guaranteed and actual returns.The service levels were
also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc.
and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the
activity in a major way. The experience of some of the AMCs floated by private sector Indian
companies was also very similar. They quickly realized that the AMC business is a business,
which makes money in the long term and requires deep-pocketed support in the intermediate
years. Some have sold out to foreign owned companies, some have merged with others and
there is general restructuring going on. They can be credited with introducing many new
practices such as new product innovation, sharp improvement in service standards and
disclosure, usage of technology, broker education and support etc. In fact, they have forced
the industry to upgrade itself and service levels of organizations like UTI have improved
dramatically in the last few years in response to the competition provided by these.
Performance of Mutual Funds in India
Let us start the discussion of the performance of mutual funds in India from the day the
concept of mutual fund took birth in India. The year was 1963. Unit Trust of India invited
investors or rather to those who believed in savings, to park their money in UTI Mutual Fund.
The performance of mutual funds in India in the initial phase was not even closer to
satisfactory level. People rarely understood, and of course investing was out of question. But
yes, some 24 million shareholders were accustomed with guaranteed high returns by the
beginning of liberalization of the industry in 1992. This good record of UTI became marketing
tool for new entrants. The expectations of investors touched the sky in profitability factor.
However, people were miles away from the preparedness of risks factor after the
liberalization.
The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate
about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets
Under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher
performance by April 2004. It rose as high as Rs. 1,540bn. The net asset value (NAV) of
mutual funds in India declined when stock prices started falling in the year 1992. Those days,
the market regulations did not allow portfolio shifts into alternative investments. There was
rather no choice apart from holding the cash or to further continue investing in shares. One
more thing to be noted, since only closed-end funds were floated in the market, the investors
14

15. disinvested by selling at a loss in the secondary market.
The performance of mutual funds in India suffered qualitatively. The 1992 stock market
scandal, the losses by disinvestments and of course the lack of transparent rules in the
whereabouts rocked confidence among the investors. Partly owing to a relatively weak stock
market performance, mutual funds have not yet recovered, with funds trading at an average
discount of 1020 percent of their net asset value.
The measure was taken to make mutual funds the key instrument for long-term saving. The
more the variety offered, the quantitative will be investors. At last to mention, as long as
mutual fund companies are performing with lower risks and higher profitability within a short
span of time, more and more people will be inclined to invest until and unless they are fully
educated with the dos and don'ts of mutual funds.
RETURN FROM MUTUAL FUNDS
Investors in mutual funds obtain return in the form of dividends, capital gains and apprecia -
tion in NAV.
• Dividends
The dividend income of a mutual fund company from its investments in shares, both equity
and preference, are passed on to the unit holders. All income received by investors from
mutual funds is exe mpt from tax.
• Capital Gains
Mutual fund unit holders or owners also got benefits of capital gains which are realised
and distributed to them in cash or kind.
• Increase or Decrease in NAV
The increase or decrease in the NAV are the result of unrealised gains or losses on the
portfolio holdings of the mutual fund. Although mutual funds do not earn high rates of
return, they are able to reduce risk to the systematic level of market fluctuations. Most
mutual funds earn in long run, an average rate of return that exceeds the return on
bank term deposits .
• MUTUAL FUND HOLDER'S ACCOUNT
There are three types of accounts offered by most of the mutual funds. The investors select
the type that matches their objectives. The various accounts are:
 Regular Account
An investor is permitted to purchase any number of shares of the mutual fund, at any time
he chooses. An investor is paid the dividend either monthly, quarterly, or half as he chooses
as per the scheme. This income can be reinvested to acquire additional units by the
investors.
 Accumulation Account
15

16. An investor is allowed to open an account, with a very small initial investment and
continue adding to the fund, periodically. Accumulation account may be voluntary or
contractual. In the voluntary accumulation plan, an investor has flexibility to make
periodic investment at his choice. But in the contractual plan, the investor has to make
investments at regular intervals.
 Withdrawal Account
Under this plan, the individual investor can withdraw the amount of funds on a regular
basis, which suits elderly people to supplement their pension benefits.
 Setting up Mutual Funds
To set up a mutual fund, a sponsor, a trustee, an Asset Management Company (AMC)
and a custodian are required. With regard to the regulatory framework, the Reserve Bank
has issued guidelines for bank sponsored mutual funds in the year 1987, which was followed
by guidelines laid down by the Ministry of Finance in 1991s.
FREQUENTLY USED TERMS
 Net Asset Value (NAV)
Net Asset Value 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.
 Sale Price
Is the price you pay when you invest in a scheme. Also called Offer Price. It may
include a sales load.
 Repurchase Price
Is the price at which a close-ended scheme repurchases its units and it may include
a back-end load. This is also called Bid Price.
Valuation of Unit
In dealing with MFs,it is necessary to understand the value of their units .The NAV of the unit is an
important relevant concept in this context :it is the basis for unit pricing ,In case of both OEFs and
CEFs ,the NAV per unit is basically arrived at by calculating the total market value of investment or
asset of the Mutual Fund ,subtracting Liabilities ,and dividing by the number of units currently
outstanding, Thus
Total market value of assets, or securities in the portfolio, of the fund – Liabilities
NAV =
Number of fund’s units (shares) outstanding
In the case of unit of OEFs, the NAV is calculated daily and the sales and repurchases on each
day at the most recently calculated NAV. The approximate formula used to calculate the sale and
purchase prices of units are follows:
(Market value of assets –Liabilities excluding contingent liabilities, initial
share capital, reserves & unit capital)+ (brokerage charges, commission .tax,
stamp duties, other management & administrative expenses)
16

17. Sale Price =
Number of units outstanding
(Market value of assets –Liabilities excluding contingent liabilities, initial
share capital, reserves & unit capital)+ (brokerage charges, commission,etc)
Repurchase price =
Number of units issued or outstanding
The expected rate of return on units can be calculated as,
(NAV1-NAV2) + Dividends+ Capital1 gains
RRU =
NAVt-1
Where
RRU = expected rate of return on units
NAV = net asset value ; t = current year; t-1 = previous year
In case of unit of CEFs ,the daily prices are determined on the stock market by the forces of supply
and demand .However ,it has been found that their market prices are seldom equal to their NAVs.
Buying Mutual Funds
• Contacting the Asset Management Company directly
o Web Site
o Request for agent
• Agents/Brokers
o Locate one on AMFI site
• Financial planners
o Bajaj Capital etc.
• Insurance agents
• Banks
o Net-Banking
o Phone-Banking
17

18. o ATMs
• Online Trading Account
o ICICI Direct
o Motilal Oswal, Indiabulls- Send agents
BEST MUTUAL FUNDS IN INDIA
Before knowing about the arguably best mutual funds in India, it is important to know the factors
that actually decide their fate in the market.In order to get an actual ideal of the best performing
mutual funds in the market, one need to track its current Net Asset Value or NAV. NAV stands
for the latest market value of the holdings of a fund that brings down the fund's liabilities, which
are generally indicated in terms of per share amount. On a daily basis, most of the funds' NAV
is decided. This is determined after the trade closes on certain financial exchanges. The net
asset value of the mutual funds is ascertained at the end of the trading day. An increase in NAV
signifies rise in the holdings of the shareholder. The Fund Firm will then do the transaction on
the shares along with the sales fees. While open-ended net asset value of the mutual funds is
issued daily, the close-ended NAV of the mutual fund is released on a weekly basis.You can
calculate net asset value of the mutual fund easily. Track the latest market value of the net
assets of the fund and then subtract that by the number of outstanding shares.
Top mutual funds in India
• Reliance Mutual Fund
• The DSP ML Tiger Fund
• SBI Magnum Contra Fund
• HDFC Equity Fund
• Prudential ICICI Dynamic Fund
• SBI Mutual Fund
ICICI MUTUAL FUNDS SCHEMES
Prudential ICICI Dynamic Fund : Scheme Details
• Senior Citizens Savings Scheme (SCSS) is a Government of India
Product.
• 9% interest offered to depositors.
• Since the product is offered by Govt of India, this product is one of the
most Safest Investment Option.
• Premature closure of account is possible after one year from the date
of opening the account.(Charges applicable).
18

19. Advantages of Opening an SCSS Account with ICICI Bank:
• Large number of Branches.
• Facility of Direct Credit of Interest to ICICI Bank Account.
• In case the investor does not want to avail Direct Credit facility or ECS
facility, 4 Post Dated Cheques will be sent to Investor every year.
• Account Statement containing the details of Deposit Balance &
transactions.
• Phone Banking Facility (for Queries).
UTI MUTUAL FUND SCHEMES
• Unit Linked Insurance Plan
• Senior Citizen Plan Children’s Career Plan
• Retirement Benefit Plan
SBI MUTUAL FUND SCHEMES
SBI Mutual Fund is India's largest bank sponsored mutual fund with an investor base of over 3
million. SBI Mutual Fund is a joint venture between the State Bank of India, India's largest
banking enterprise and Societe Generale Asset Management of France, one of the world's
leading fund management companies. Since its inception SBI Mutual Fund has launched thirty-
two schemes and successfully redeemed fifteen of them. SBI Mutual Fund schemes have
consistently outperformed benchmark indices. SBI Mutual is the first bank-sponsored fund to
launch an offshore fund - Resurgent India Opportunities Fund.Presently, SBI Mutual Fund
manages over Rs. 17000 crores of assets. The fund has a network of 100 collection branches, 26
investor service centres, 28 investor service desks and 40 district organisers.
Open Ended Schemes Close Ended
Schemes
• SBI Arbitrage Opportunities Fund SBI ONE India Fund
19

20. • SBI Magnum Balanced Fund
• SBI Magnum Blue Chip Fund
• SBI Magnum Children's Benefit Plan
• SBI Magnum COMMA Fund
• SBI Magnum Emerging Businesses Fund
• SBI Magnum Equity Fund
• SBI Magnum FMCG Fund
• SBI Magnum Gilt Fund Long Term & Short Term Plan
• SBI Magnum Global Fund
• SBI Magnum Income Fund
• SBI Magnum Income Plus Fund Investment & Saving Plan
• SBI Magnum Index Fund
ADVANTAGES OF MUTUAL FUNDS
 Professional Money Management & Research
Mutual funds are managed by professional fund managers who regularly monitor
market trends and economic trends for taking investment decisions. They also have
dedicated research professionals working with them who make an in depth study of the
investment option to take an informed decision
 Convenience
With features like dematerialized account statements, easy subscription and redemption
processes, availability of NAVs and performance details through journals, newspapers
and updates and lot more; Mutual Funds are sure a convenient way of investing
 Risk Diversification
Diversification reduces risk contained in a portfolio by spreading it. It is about not putting
all your eggs in one basket. As mutual funds have huge corpuses to invest in, one can
be part of a large and well-diversified portfolio with very little investment.
 Liquidity
One of the greatest advantages of Mutual Fund investment is liquidity. Open-ended
funds provide option to redeem on demand, which is extremely beneficial especially
during rising or falling Markets
 Reduction in Costs
Mutual funds have a pool of money that they have to invest. So they are often involved
in buying and selling of large amounts of securities that will cost much lower than when
you invest on your own
20

21.  Tax Advantages
Investment in mutual funds also enjoys several tax advantages. Dividends from Mutual
Funds are tax-free in the hands of the investor (This however depends upon changes in
Finance Act). Also Capital Gain accrued from Mutual Fund investment for a period of
over one year is treated as long term capital appreciation and is tax free.
 Other Advantages
Indian Mutual fund industry also presents several other benefits to the investor like:
transparency - as funds have to make full disclosure of investments on a periodic basis,
flexibility in terms of needs based choices, very well regulated by SEBI with very strict
compliance requirements to investor friendly norms.
DISADVANTAGES OF MUTUAL FUNDS
 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.
• Fees and commissions: All funds charge administrative fees to cover
their day-to-day 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.
• 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.
• 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
21

22. Index Funds, you forego management risk, because these funds do not employ
managers.
CONCLUSION
Mutual funds are funds that pool the money of several investors to invest in
equity or debt markets. Mutual Funds could be Equity funds, Debt funds or
balanced funds.
Fund are selected on quantitative parameters like volatility, FAMA Model,
risk adjusted returns, and rolling return coupled with a qualitative analysis of
fund performance and investment styles through regular interactions / due
diligence processes with fund managers.
22

23. BIBLIOGRAPHY
 INDIAN FINANCIAL SYSTEM
“HR Machiraju”
 FINANCIAL INSTITUTIONS AND MARKETS
“LM Bhole”
INTERNET
“www.google.com”
*********************************END********************
23

24. 24

25. 24

26. 24

27. 24