This 3-paragraph document provides an acknowledgement and thanks for those involved in a project on mutual funds as an investment avenue. [1] It begins by thanking the project guide and mentor for their support and guidance throughout the project. Their wisdom and commitment were credited for helping the project get started and reach completion. [2] Thanks are also given to staff members of DSP Blackrock Mutual Funds for their help and cooperation. Additionally, the author's guide from IIPM is thanked for their full support in completing the project work. [3] The document closes by thanking family and friends for their cooperation and support during the course of the assignment. The project is dedicated to

1. 1|Page
DSP BLACKROCK MUTUAL FUNDS
1 1
Mutual funds
[Type the document subtitle]
Surabhi Agarwal
2011
[TYPE THE COMPANY ADDRESS]

2. Mutual funds
August 10, 2011
ACKNOWLEDGEMENT
Before we get into thick of things, I would like to add a few words of appreciation for
the people who have been a part of this project right from its inception. The writing of this
project has been one of the significant academic challenges I have faced and without the
support, patience, and guidance of the people involved, this task would not have been
completed. It is to them I owe my deepest gratitude.
It gives me Immense pleasure in presenting this project report on “Mutual Funds as
an Investment Avenue”. It has been my privilege to have a team of project guide who have
assisted me from the commencement of this project. The success of this project is a result of
sheer hard work, and determination put in by me with the help of my project guide. I hereby
take this opportunity to add a special note of thanks for Mr Rizwan Aziz, who undertook to
act as my mentor despite his many other professional commitments. His wisdom,
knowledge, and commitment to the highest standards inspired and motivated me. Without his
insight, support, and energy, this project wouldn't have kick-started and neither would have
reached fruitfulness.
I convey my heart full thanks to the staff members of DSP Blackrock Mutual funds,
with their help and corporation.
I am very thankful to my guide Prof. Yash Sridhar (IIPM , Lko) for his full support in
completing this project work.
Last but not least, I would like to thank My family and Friends for their full cooperation &
continuous support during the course of this assignment.
The project is dedicated to all those people, who helped me while doing this project.
TABLE OF CONTENTS
Page 2

3. Mutual funds
August 10, 2011
Contents page no.
Certificate 2
Acknowledgement 3
Table of content 4,5
Executive summary 6
Objectives of Study 7
Recommendation & Suggetions 8
Introduction to the Project 9
 Introduction to Investment
 Investment strategy.
 Types of investments.
 Introduction of mutual fund 10
 Advantages and disadvantages 11-14
 Types of mutual fund schemes 16-18
 Pointers to measure mutual fund performance 19
 Tax rules for mutual fund investors 20,21
 History of mutual funds 22,23
 Procedure of registered mutual funds 24
 Evaluating portfolio performance 25
 Investors financial planning and its results 25
 7 investment tips to improve your returns 28,29
 How to reduce risk while investing 30
Page 3

4. Mutual funds
August 10, 2011
Introduction to the company 32
 Snapshot of DSP BlackRock Mutual Funds 33
 Unique approaches 34
 Milestone keys 35
 History of DSP BlackRock Mutual Funds
36
Objectives of the study and research methodology 37
Objectives of Study 38
Data Presentation, Analysis and Interpretation 41
 Comparison of 4 major mutual funds 42
Suggestions 63
Conclusion 65
Annexure 66
 Questionnaire 67
 Glossary 72
Bibliography
Page 4

5. Mutual funds
August 10, 2011
EXECUTIVE SUMMARY
Role of financial system is to enthusiast economic development. As investors are getting
more educated, aware and prudent they look for innovative investment instruments so that
they are able to reduce investment risk, minimize transaction costs, and maximize returns
along with certain level of convenience as a result there has been as advent of numerous
innovative financial instrument such as bonds, company deposits, insurance, and mutual
finds. All of which could be matched with individual‘s investment needs. In few years
Mutual Fund has emerged as a tool for ensuring one‘s financial wellbeing. Mutual Funds
have not only contributed to the India growth story but have also helped families tap into
the success of Indian Industry. As information and awareness is rising more and more
people are enjoying the benefits of investing in mutual funds. The main reason the number
of retail mutual fund investors remains small is that nine in ten people with incomes in India
do not know that mutual funds exist. But once people are aware of mutual fund investment
opportunities, the number who decide to invest in mutual funds increases to as many as one
in five people.
Mutual funds score over all other investment options in terms of safety, liquidity, returns,
and are as transparent, convenient as it can get. Goal of a mutual fund is to provide an
efficient way to make money. In India there are 36 mutual funds with different Investment
strategies and goals to choose from .different mutual funds have different risks, which differ
because of fund‘s goals, funds manager, and investment styles. The trick for converting a
person with no knowledge of mutual funds to a new Mutual Fund customer is to understand
which of the potential investors are more likely to buy mutual funds and to use the right
arguments in the sales process that customers will accept as important and relevant to their
decision.
This Project gave me a great learning experience and at the same time it gave me enough
scope to implement my ability. The recommendation presented in this Project Report is
Page 5

6. Mutual funds
August 10, 2011
based on market research on the investors for investment in Mutual Funds. This Report will
help to know about the investors‘ Preferences in Mutual Fund means Do they prefer any
particular Asset Management Company (AMC), Which type of Product they prefer, Which
Option (Growth or Dividend) they prefer or Which Investment Strategy they follow
(Systematic Investment Plan or One time Plan). The first part gives an insight about Mutual
Fund and its various aspects, the Company Profile, Objectives of the study, Research
Methodology. One can have a brief knowledge about Mutual Fund and its basics through
the Project.
This Project covers the topic ―THE MUTUAL FUND AS INVESTMETN AVENUE‖. The
data collected has been well presented. I hope the conclusion will be of use.
Page 6

7. Mutual funds
August 10, 2011
OBJECTIVES OF THE STUDY
1. The objective of the research is to study and analyze the awareness level of investors of
mutual funds.
2. To measure the satisfaction level of investors regarding mutual funds.
3. An attempt has been made to measure various variable‘s playing in the minds of
investors in terms of safety, liquidity, service, returns, and tax saving.
4. To get insight knowledge about mutual funds
5. Understanding the different ratios & portfolios so as to tell the distributors about these
terms, by this, managing the relationship with the distributors
6. To know the mutual funds performance levels in the present market
7. To analyze the comparative study between other leading mutual funds in the present
market.
8. To know the awareness of mutual funds among different groups of investors.
9. Finding out ways and means to improve on the services by DSP BlackRock Mutual
Funds Ltd.
10. To find out what should be done to boost Mutual Fund Industry.
INVESTMENT
Page 7

8. Mutual funds
August 10, 2011
Investment refers to the concept of deferred consumption, which involves purchasing an
asset, giving a loan or keeping funds in a bank account with the aim of generating future
returns. In finance, investment is the commitment of funds through collateralized lending, or
making a deposit into a secured institution.
In contrast to investment; dollar cost averaging, market timing, and diversification are
phrases associated with speculation.
Investments are often made indirectly through intermediaries, such as banks, Credit
Unions, Brokers, Lenders, and insurance companies. Though their legal and procedural
details differ, an intermediary generally makes an investment using money from many
individuals, each of whom receives a claim on the intermediary.Various
investment options are available, offering differing risk-reward tradeoffs. An understanding
of the core concepts and a thorough analysis of the options can help an investor create a
portfolio that maximizes returns while minimizing risk exposure.
INVESTMENT STRATEGY
An investment strategy is a set of rules, behaviors or procedures, designed to guide an
investor's selection of an investment portfolio. Usually the strategy will be designed around
the investor's risk-return tradeoff: some investors will prefer to maximize expected returns by
investing in risky assets, others will prefer to minimize risk, but most will select a strategy
somewhere in between.
One of the better known investment strategies is buy and hold. Buy and hold is a long
term investment strategy, based on the concept that in the long run equity markets give a
good rate of return despite periods of volatility or decline. A purely passive variant of this
strategy is indexing where an investor buys a small proportion of all the shares in a market
index or more likely, in a mutual fund called an index fund or an exchange-traded
fund (ETF).
TYPES OF INVESTMENT
There are many different types of investment.
 Short term Deposits
Page 8

9. Mutual funds
August 10, 2011
 Bonds
 Property
 Shares
Short term deposits
Bank savings accounts
The simplest kind of short term (or cash) investment is a savings account. Returns are low
compared to other investments, but returns are guaranteed by the bank - so your investment
won't drop in value in the short term like others might.
Bank fixed term investments
You give the bank a lump sum for a set period (a fixed term) usually three, six or 12 months.
Your money is locked away for the fixed term. In return, you get a higher interest rate than
you could get in a straight savings account. You may be able to withdraw your money, but
you will get a lower rate.
Bonds
A bond is like an IOU issued by a government or a company. You give them money for a
certain period, and they promise to pay a certain interest rate and re-pay you on maturity.
Bonds lock your money away for a set period of time, but they can sometimes be traded.
Generally, they aren't a good short term investment. Small investors don't usually invest
directly in bonds, it's more usual to go through a managed fund.
Property
Real Estate
Real Estate is a tangible kind of investment. It includes your land and anything permanently
attached to your piece of property. This may include your home, rental properties, your
Page 9

10. Mutual funds
August 10, 2011
company or empty pieces of land. Real estate is typically a smart and can make you a lot of
money over time
Shares
By investing in shares in a public company listed on a stock exchange you get the right to
share in the future income and value of that company. Your return can come in two ways:
Dividends paid out of the profits made by the company.
Capital gains made because you're able at some time to sell your shares for more than you
paid. Gains may reflect the fact that the company has grown or improved its performance or
that the investment community see that it has improved future prospects.
Others kinds are :-
Mutual funds
In a managed fund your money is pooled with other investors, and a professional fund
manager invests it in a variety of investments. Managed funds come in many forms - different
funds invest in different types of assets for different objectives. Some funds target all-out
growth and invest more in high risk shares than others - they could rise dramatically or just as
easily drop dramatically. These are funds for money that isn't absolutely vital to your future
plans. Other funds look for solid long term growth from a range of deposits, bonds, and
shares - a better place for a lump sum intended for your retirement. Financial advisers, banks
and insurance companies can all advise you on managed funds that match your investment
needs.
Life Insurance
Life Insurance policies are another kind of investment that is fairly popular. It is a way to
ensure income for your family when you die. It allows you a sense of security and
provides a valuable tax deduction.
Money Market Funds
A good short-term investment is a Money Market Fund. With this kind of investment
you can earn interest as an independent shareholder.
INTRODUCTION TO MUTUAL FUND
GENERAL INTRODUCTION
In today‘s market people invest money to gain more. So when they take into account,
they mostly look out for Investment Company where they can get more income.
Page
10

11. Mutual funds
August 10, 2011
Mutual funds now represent the most appropriate investment opportunity for all the
investors whether small or big. As financial markets become more sophisticated and
complex, investors need a financial intermediary who provides the required knowledge
and professional expertise on successful investing. Investment companies can be classified
into Close-end is when it is readily transferable in the market. Open-end funds sell their own
shares to investors and ready to buy back their old shares. These days‘ people mainly look for
avoiding tax so normally they look out for some
investments, which will help them to do so. When it comes to this point of view, people
mainly look for mutual fund.
What is a Mutual fund?
Mutual fund is an investment company that pools money from shareholders and invests in a
variety of securities, such as stocks, bonds and money market instruments. Most open-end
Mutual funds stand ready to buy back (redeem) its shares at their current net asset value,
which depends on the total market value of the fund's investment portfolio at the time of
redemption. Most open-end Mutual funds continuously offer new shares to investors. Also
known as an open-end investment company, to differentiate it from a closed-end investment
company. Mutual funds invest pooled cash of many investors to meet the fund's stated
investment objective. Mutual funds stand ready to sell and redeem their shares at any time at
the fund's current net asset value: total fund assets divided by shares outstanding.
In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units to
the investors and investing funds in securities in accordance with objectives as disclosed in
offer document. Investments in securities are spread across a wide cross-section of industries
and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks
may not move in the same direction in the same proportion at the same time. Mutual fund
issues units to the investors in accordance with quantum of money invested by them.
Page
11

12. Mutual funds
August 10, 2011
Investors of Mutual funds are known as unit holders. The profits or losses are shared by the
investors in proportion to their investments. The Mutual funds normally come out with a
number of schemes with different investment objectives which are launched from time to
time. In India, A Mutual fund is required to be registered with Securities and Exchange Board
of India (SEBI) which regulates securities markets before it can collect funds from the public.
In Short, a Mutual fund is a common pool of money in to which investors with common
investment objective place their contributions that are to be invested in accordance with the
stated investment objective of the scheme. The investment manager would invest the money
collected from the investor in to assets that are defined/ permitted by the stated objective of
the scheme. For example, an equity fund would invest equity and equity related instruments
and a debt fund would invest in bonds, debentures, gilts etc. Mutual fund is a suitable
investment for the common man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost.
ADVANTAGES OF MUTUAL FUNDS
Page
12

13. Mutual funds
August 10, 2011
Professional Management.
The major advantage of investing in a mutual fund is that you get a professional
money manager to manage your investments for a small fee. You can leave the
investment decisions to him and only have to monitor the performance of the fund at
regular intervals.
Diversification.
Considered the essential tool in risk management, mutual funds make it possible for
even small investors to diversify their portfolio. A mutual fund can effectively
diversify its portfolio because of the large corpus. However, a small investor cannot
have a well-diversified portfolio because it calls for large investment. For example, a
modest portfolio of 10 bluechip stocks calls for a few a few thousands.
Convenient Administration.
Mutual funds offer tailor-made solutions like systematic investment plans and
systematic withdrawal plans to investors, which is very convenient to investors.
Investors also do not have to worry about investment decisions, they do not have to
deal with brokerage or depository, etc. for buying or selling of securities. Mutual
funds also offer specialized schemes like retirement plans, children‘s plans, industry
specific schemes, etc. to suit personal preference of investors. These schemes also
help small investors with asset allocation of their corpus. It also saves a lot of paper
work.
Costs Effectiveness
A small investor will find that the mutual fund route is a cost-effective method (the
AMC fee is normally 2.5%) and it also saves a lot of transaction cost as mutual funds
get concession from brokerages. Also, the investor gets the service of a financial
professional for a very small fee. If he were to seek a financial advisor's help directly,
he will end up paying significantly more for investment advice. Also, he will need to
have a sizeable corpus to offer for investment management to be eligible for an
investment adviser‘s services.
Page
13

14. Mutual funds
August 10, 2011
Liquidity.
You can liquidate your investments within 3 to 5 working days (mutual funds
dispatch redemption cheques speedily and also offer direct credit facility into your
bank account i.e. Electronic Clearing Services).
Transparency.
Mutual funds offer daily NAVs of schemes, which help you to monitor your
investments on a regular basis. They also send quarterly newsletters, which give
details of the portfolio, performance of schemes against various benchmarks, etc.
They are also well regulated and Sebi monitors their actions closely.
Tax benefits.
You do not have to pay any taxes on dividends issued by mutual funds. You also have
the advantage of capital gains taxation. Tax-saving schemes and pension schemes
give you the added advantage of benefits under section 88.
Affordability
Mutual funds allow you to invest small sums. For instance, if you want to buy a portfolio of
blue chips of modest size, you should at least have a few lakhs of rupees. A mutual fund
gives you the same portfolio for meager investment of Rs.1,000-5,000. A mutual fund can do
that because it collects money from many people and it has a large corpus.
DISADVANTAGES OF MUTUAL FUNDS:
Professional Management- Did you notice how we qualified the advantage of
professional management with the word "theoretically"? Many investors debate over
whether or not the so-called professionals are any better than you or I at picking
stocks. Management is by no means infallible, and, even if the fund loses money, the
manager still takes his/her cut. We'll talk about this in detail in a later section.
Costs - Mutual funds don't exist solely to make your life easier--all funds are in it for
a profit. The Mutual fund industry is masterful at burying costs under layers of jargon.
These costs are so complicated that in this tutorial we have devoted an entire section
to the subject.
Dilution - It's possible to have too much diversification (this is explained in our
article entitled "Are You Over-Diversified?"). Because funds have small holdings in
Page
14

15. Mutual funds
August 10, 2011
so many different companies, high returns from a few investments often don't make
much difference on the overall return. Dilution is also the result of a successful fund
getting too big. When money pours into funds that have had strong success, the
manager often has trouble finding a good investment for all the new money.
Taxes - When making decisions about your money, fund managers don't consider
your personal tax situation. For example, when a fund manager sells a security, a
capital-gain tax is triggered, which affects how profitable the individual is from the
sale. It might have been more advantageous for the individual to defer the capital
gains liability.
Equity funds, if selected in the right manner and in the right proportion, have the ability to
play an important role in achieving most long-term objectives of investors in different
segments. While the selection process becomes much easier if you get advice from
professionals, it is equally important to know certain aspects of equity investing yourself to
do justice to your hard earned money.
Page
15

16. Mutual funds
August 10, 2011
Page
16

17. Mutual funds
August 10, 2011
TYPES OF MUTUAL FUND
There are many types of mutual funds available to the investor. These different types of funds
can be grouped into certain classifications:
A. ON THE BASIS OF STUCTURE:
i. Open ended funds:
An open-ended mutual fund is one that has units available for purchase and sale at all time at
NAV related prices. There is free entry and exit of investors. An open-ended fund rarely
denies to its investors the facility to redeem existing units subject to certain obvious
conditions
ii. Close ended funds:
Close-ended funds do not provide the facility of subscription throughout the year. It is open
for a subscription for a fixed duration as specified in the prospective of the fund. Investor can
apply for shares only during initial offer period, following which units can be bought & sold
only at
the stock exchange where they are listed at market price.
iii. Interval Funds
This is a mix of both open ended and close-ended schemes.For a certain stipulated period, an
investor can buy and sell NAV related
prices, while at some times it is traded at stock exchange where it is listed.
B) ON THE BASIS OF OBJECTIVES
1. Growth funds
Growth funds aim to achieve capital appreciation in the medium to long term. These funds do
not pay dividends, instead they reinvest the returns. Their assets usually comprises of equity,
as it has been proved that equity markets provide the maximum growth in returns among
all other assets classes
2. Income funds
Income funds aim at generating and distributing
regular income to the members on a periodical basis. Fund invests in fixed income assets
such as corporate debentures, government securities, bonds etc. it concentrate on short-term
gains.
3 Balanced fund:
Balanced fund provided both growth as well as
regular income to the investor. It aims at distributing regular income as well as capital
appreciation. This can be achieved by balancing the investments between the high growth
equity shares and fixed income securities.
Page
17

18. Mutual funds
August 10, 2011
4 Tax saving funds:
These schemes offer tax rebates to investors under specific provision of income tax act1961.
It is suitable to salaried people who want to enjoy tax rebates. Government offers tax
incentives for investment in specified avenues.
C) ON THE BASIS OF COMPOSITION OF FUNDS:
1 Equity funds:
Equity funds invest a major portion of their corpus in equity shares issued by companies.
They are riskiest, as they do not offer any guaranteed repayment NAV of equity funds
fluctuates with price moments caused by external factors like political, economical and social
factors. Investors who want capital appreciation should invest in these funds.
2 Debt funds:
Debt funds invest in debt investment issued by government, private companies, banks,
financial instruments etc. These funds provide low risks and stable income to the investors.
3 Money market mutual funds:
They invest in highly liquid and safe securities like commercial papers, certificates of
deposits, treasury bills etc. Money market funds offer liquidity and safety of principal that an
investor can expect from short-term funds.
4 Gilt funds:
Gilt funds invest in government securities and treasury bill. These funds have less risk of
default and hence offer better protection of principal. These fund provide timely payment of
principal and interest.
5 Index fund:
Index funds are those funds where the portfolio are designed in such a way that they reflect
the composition of some broad market index. It holds securities in the same proportion as
index. The value of these indexes goes up whenever market index goes up and vice verse.
The performance of index fund exactly follows the performance stock index.
6 Sector funds:
Sector funds invest only in the stocks of particular industry or sector. These funds are riskier
as they are not diversified. Those investors who understand the industry or sector very well
may invest in these funds.
D) OTHER SCHEMES:
1) Loan funds:
Loan fund charge entry or exit load every time the investor buys or sells the units of funds.
These charges cover distribution, sales and marketing expenses. The load charges to the
investor at the time his entry into a scheme is called entry load. The load charged to the
investor at the time of exit from the scheme is called exit load.
2) No load funds:
The fund that do not charge entry or exit load on sale or purchase of their units.
Page
18

19. Mutual funds
August 10, 2011
NET ASSET VALUE
Net asset value is the market value of the asset 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.
Net Asset Value (NAV) denotes th performance of a particular scheme of a mutual fund.
Mutual funds invest the money collected from the investors in securities markets. In simple
words, Net Asset Value is the market value of the securities held by the scheme. Since
market value of the securities changes everyday, NAV of a scheme also varies on day-to-day
basis. The NAV per unit is the market value of securities of a scheme divided by the total
number of units of the scheme on any particular date. For example, if the market value of
securities of a mutual fund scheme is Rs200 lakhs and the mutual fund has issued 10 lakhs
units of Rs 10 each to the investors, then the NAV per unit of the fund is Rs 20.
Sale price
It is the price you pay when you invest in a scheme. Also called as 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.
Redemption price
Is the price at which open- ended scheme repurchase their units and closeended
schemes redeem their units on maturity. Such prices are NAV related.
Sales load
Is a charge collected by a scheme when it sells the units. Also called ,‗Front-end‘ load.
Schemes that do not charge a load are called ‗No Load‘
schemes.
Repurchases or „Back-end‟ load
Is a charge collected by a scheme when it buys back the units from the unit holders .
Page
19

20. Mutual funds
August 10, 2011
COMPETITION IN MUTUAL FUND INDUSTRY:
Mutual fund is the industry, which is facing severe competition from the other financial
products. The four types of competition in the mutual fund industry is as follows,
Inter-industry competition
Intra- industry competition
Competition between the different mutual fund schemes
Competition between the different asset management companies.
Page
20

21. Mutual funds
August 10, 2011
Some major players on the Indian mutual
ABN AMRO Mutual Fund
Benchmark Mutual Fund
Birla Mutual Fund
BOB Mutual Fund
Canbank Mutual Fund
Chola Mutual Fund
Deutsche Mutual Fund
DSP Merrill Lynch Mutual Fund
Escorts Mutual Fund
Fidelity Mutual Fund
Franklin Templeton Investments
HDFC Mutual Fund
HSBC Mutual Fund
ING Vysya Mutual Fund
JM Financial Mutual Fund
Kotak Mahindra Mutual Fund
LIC Mutual Fund
Morgan Stanley Mutual Fund
PRINCIPAL Mutual Fund
Prudential ICICI Mutual Fund
Reliance Mutual Fund
Sahara Mutual Fund
SBI Mutual Fund
Standard Chartered Mutual Fund
Sundaram Mutual Fund
Tata Mutual Fund
Page
21

22. Mutual funds
August 10, 2011
Taurus Mutual Fund
Unit Trust of India
UTI Mutual Fund
Page
22

23. Mutual funds
August 10, 2011
Strategies of mutual fund investing
Risks
Capital Gains Distributions are one of the most confusing stumbling blocks for Mutual Fund
Investors. Mutual Fund Investors try to limit capital gain distribution expenses by avoiding
buying a fund right before its distribution date and by holding funds for a long period of time so
that they also receive the return and profit rather than just the additional tax liability.
Successful Mutual Fund Investors always put every fund through their mutual fund checklist
and review the fund's historical performance. If something seems too good to be true, it
probably is.
Benefits
Mutual Funds have two advantages over stocks when it comes to size. A stock that performs
well for several years in a row will inevitably get to a point where it is nearly impossible to top
last year's performance or meet analyst projections. Conversely, the longer a fund manager runs
a fund, the more savvy and experienced he becomes so in most cases performance constantly
improves. In addition, as a fund grows your returns actually improve because the management
fees become a smaller percentage of total assets (economies of scale). Admittedly, it can be
tough to manage the mega funds that get up into the billions but every fund manager has the
option to close the fund to new investment if they feel that performance is deteriorating.
Mutual Funds are becoming the investment of choice for online investors because you can trade
them for free through the major online brokerages, there are no fees or loads. Transaction fees
add up quickly for most strategies, free trading is a significant perk for Mutual Fund Investors,
especially those investors that trade a lot. Mutual Fund Investors also try to avoid funds with
high expense ratios or they will have squandered this advantage. A good rule of thumb is to
avoid fees with expense ratios > 1.5% unless you expect extraordinary returns.
Diversification is one of the greatest strengths of mutual funds. Each fund represents an entire
portfolio, not just one stock.
Long-Term Outlook
Mutual Fund Investing is a very popular strategy that is already huge and will continue to grow.
It is the only strategy that will allow you to test drive any of the other strategies without actually
having to master them yourself. Today, there are over 10,000 funds to choose from and they
cover every industry and investing strategy imaginable.
Investor Profile
There are several types of investors that naturally gravitate towards Mutual Fund Investing.
This is a great strategy for anyone that likes to change strategies frequently or wants to test a
new strategy out before they spend an enormous amount of time and energy trying to master it.
Another investor type that is a good fit is anyone that doesn't want to spend a lot of time
Page
23

24. Mutual funds
August 10, 2011
managing their portfolio. These investors would rather spend a little time identifying strong
funds with talented fund managers and then let a professional manage their money.
Page
24

25. Mutual funds
August 10, 2011
MUTUAL FUND COMBINES SAFETY AND HIGH RISK RETURN
A mutual fund is a professionally managed pool of money formed by collecting money
from many investors.
It combines safety with good return on investment. The pooled money is invested in
various securities-either debt securities such as bonds and debentures or equities
(stocks).
As the money is managed by experienced people the risk is greatly minimized. However
this does not mean that any particular level of return on investment is guaranteed. The
fund manager diversifies the pool so that loss in one security is compensated by profit in
others. Because of this an investor has the advantage of investing in different securities
with a relatively smaller amount of money which cannot be done with stock market
investing .
Investors purchase units of mutual funds. This does not reflect the value of any
particular security but gives an idea of the Net Asset Value (NAV) of that particular
fund. The NAV of the fund is the total market value of the assets of that particular
scheme minus its liabilities. If the NAV of the scheme is divided by the total number of
the units we get the NAV per unit.
Conversely if we multiply the NAV per unit of the scheme by the number of units held
by an investor we get the market value of the units of that particular investor. For
example if you have 100 units of a scheme and its NAV is 100 the market value of your
investment is 10,000. The NAV is subjected to variation and is regularly announced by
the fund manager. If you can sell it at a higher price than you purchased you make a
profit.
Some fancy terms are used by mutual fund companies
and it is better you know what they mean so that you do
not get confused or carried away. Some name is given to the scheme. Often the name is
such that you get a feeling that investing in that scheme will solve all your financial
problems.
Page
25

26. Mutual funds
August 10, 2011
HISTORY OF MUTUAL FUND
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 history of mutual funds in
India can be broadly divided into four distinct phases: -
First Phase – 1964-87
An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the
Reserve Bank of India and functioned under the Regulatory and administrative control of the
Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and administrative control in
place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988
UTI had Rs.6,700 crores of assets under management.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks
and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India
(GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987
followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),
Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund
(Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund
in December 1990.
At the end of 1993, the mutual fund industry had assets under management of Rs.47,004
crores.
Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year
in which the first Mutual Fund Regulations came into being, under which all mutual funds,
Page
26

27. Mutual funds
August 10, 2011
except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged
with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI
(Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and acquisitions.
As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805
crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way
ahead of other mutual funds.
Fourth Phase – 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.
Page
27

28. Mutual funds
August 10, 2011
Growth in Assets Under Management
Source: Association of Mutual in India
Page
28

29. Mutual funds
August 10, 2011
Why Select Mutual Fund?
The risk return trade-off indicates that if investor is willing to take higher risk then
correspondingly he can expect higher returns and vise versa if he pertains to lower risk
instruments, which would be satisfied by lower returns. For example, if an investors opt for
bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest
in capital protected funds and the profit-bonds that give out more return which is slightly
higher as compared to the bank deposits but the risk involved also increases in the same
proportion. Thus investors choose mutual funds as their primary means of investing, as
Mutual funds provide professional management, diversification, convenience and liquidity.
That doesn‘t mean mutual fund investments risk free. This is because the money that is
pooled in are not invested only in debts funds which are less riskier but are also invested in
the stock markets which involves a higher risk but can expect higher returns. Hedge fund
involves a very high risk since it is mostly traded in the derivatives market which is
considered very volatile.
Page
29

30. Mutual funds
August 10, 2011
SELECTION PARAMETERS FOR MUTUAL FUND
Your objective:
The first point to note before investing in a fund is to find out whether your objective matches
with the scheme. It is necessary, as any conflict would directly affect your prospective
returns. Similarly, you should pick schemes that meet your specific needs. Examples: pension
plans, children‘s plans, sector-specific schemes, etc. Your risk capacity and capability: This
dictates the choice of schemes. Those with no risk tolerance should go for debt schemes, as
they are relatively safer. Aggressive investors can go for equity investments. Investors that
are even more aggressive can try schemes that invest in specific industry or sectors. Fund
Manager‘s and scheme track record: Since you are giving your hard earned money to
someone to manage it, it is imperative that he manages it well. It is also essential that the fund
house you choose has excellent track record. It also should be professional and maintain high
transparency in operations. Look at the performance of the scheme against relevant market
benchmarks and its competitors. Look at the performance of a longer period, as it will give
you how the scheme fared in different market conditions.
Cost factor:
Though the AMC fee is regulated, you should look at the expense ratio of the fund before
investing. This is because the money is deducted from your investments. A higher entry load
or exit load also will eat into your returns. A higher expense ratio can be justified only by
superlative returns. It is very crucial in a debt fund, as it will devour a few percentages from
your modest returns. Also, Morningstar rates mutual funds. Each year end, many financial
publications list the year‘s best performing mutual funds. Naturally, very eager investors will
rush out to purchase shares of last years top performers. That‘s a big mistake. Remember,
changing market conditions make it rare that last years top performer repeats that ranking for
the current year. Mutual fund investors would be well advised to consider the fund
prospectus, the fund manager, and the current market conditions. Never rely on last years top
performers. Types of Returns on Mutual Fund: There are three ways, where the total returns
provided by mutual funds can be enjoyed by investors:
• Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all
income it receives over the year to fund owners in the form of a distribution.
• If the fund sells securities that have increased in price, the fund has a capital gain. Most
funds also pass on these gains to investors in a distribution. If fund holdings increase in price
but are not sold by the fund manager, the funds shares increase in price. You can then sell
your mutual fund shares for a profit.
Funds will also usually give you a choice either to receive a check for distributions or to
reinvest the earnings and get more shares.
Page
30

31. Mutual funds
August 10, 2011
RISK FACTORS OF MUTUAL FUNDS:
1. The Risk-Return Trade-Off:
The most important relationship to understand is the risk-return trade-off. Higher the risk
greater the returns / loss and lower the risk lesser the returns/loss. Hence it is up to you,
the investor to decide how much risk you are willing to take. In order to do this you must
first be aware of the different types of risks involved with your investment decision.
2. Market Risk:
Sometimes prices and yields of all securities rise and fall. Broad outside influences
affecting the market in general lead to this. This is true, may it be big corporations or
smaller mid-sized companies. This is known as Market Risk. A Systematic Investment
Plan (―SIP‖) that works on the concept of Rupee Cost Averaging (―RCA‖) might help
mitigate this risk.
3. Credit Risk:
The debt servicing ability (may it be interest payments or repayment of principal) of a
company through its cash flows determines the Credit Risk faced by you. This credit risk
is measured by independent rating agencies like CRISIL who rate companies and their
paper. A‗AAA‘ rating is considered the safest whereas a ‗D‘ rating is considered poor
credit quality. A well-diversified portfolio might help mitigate this risk.
4. Inflation Risk:
Things you hear people talk about:"Rs. 100 today is worth more than Rs. 100
tomorrow.""Remember the time when a bus ride coasted 50 paisa?""Mehangai Ka
Jamana Hai."The root cause, Inflation. Inflation is the loss of purchasing power over
time. A lot of times people make conservative investment decisions to protect their capital
but end up with a sum of money that can buy less than what the principal could at the
time of the investment. This happen when inflation grows faster than the return on your
investment. A well-diversified portfolio with some investment in equities might help
mitigate this risk.
5. Interest Rate Risk:
In a free market economy interest rates are difficult if not impossible to predict. Changes
in interest rates affect the prices of bonds as well as equities. If interest rates rise the
prices of bonds fall and vice versa. Equity might be negatively affected as well in a rising
interest rate environment. A well-diversified portfolio might help mitigate this risk.
6.Political / Government Policy Risk:
Page
31

32. Mutual funds
August 10, 2011
Changes in government policy and political decision can change the investment
Environment. They can create a favorable environment for investment or vice versa.
6. Liquidity Risk:
Liquidity risk arises when it becomes difficult to sell the securities that one has
purchased. Liquidity Risk can be partly mitigated by diversification, staggering of
maturities as well as internal risk controls that lean towards purchase of liquid securities
Page
32

33. Mutual funds
August 10, 2011
WORKING OF MUTUAL FUNDS
The mutual fund collects money directly or through brokers from investors. The money is
invested in various instruments depending on the objective of the scheme. The income
generated by selling securities or capital appreciation of these securities is passed on to
the investors in proportion to their investment in the scheme. The investments are divided
into units and the value of the units will be reflected in Net Asset Value or NAV of the
unit. 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. Mutual fund companies provide daily net asset value of their
schemes to their investors.NAV is important, as it will determine the price at which you
buy or redeem the units of a scheme. Depending on the load structure of the scheme, you
have to pay entry or exit load.
Page
33

34. Mutual funds
August 10, 2011
STRUCTURE OF A MUTUAL FUND:
India has a legal framework within which Mutual Fund have to be constituted. In India
open and close-end funds operate under the same regulatory structure i.e. as unit Trusts.
A Mutual Fund in India is allowed to issue open-end and close-end schemes under a
common legal structure. The structure that is required to be followed by any Mutual Fund
in India is laid down under SEBI (Mutual Fund) Regulations, 1996.
The Fund Sponsor:
Sponsor is defined under SEBI regulations as any person who, acting alone or in
combination of another corporate body establishes a Mutual Fund. The sponsor of the
fund is akin to the promoter of a company as he gets the fund registered with SEBI. The
sponsor forms a trust and appoints a Board of Trustees. The sponsor also appoints the
Asset Management Company as fund managers. The sponsor either directly or acting
through the trustees will also appoint a custodian to hold funds assets. All these are made
in accordance with the regulation and guidelines of SEBI.As per the SEBI regulations, for
the person to qualify as a sponsor, he must contribute at least40% of the net worth of the
Asset Management Company and possesses a sound financial track record over 5 years
prior to registration.
Mutual Funds as Trusts: A Mutual Fund in India is constituted in the form of Public trust
Act, 1882. The Fund sponsor acts as a 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 scribing to ―units‖ issued by various schemes established by
the Trusts as evidence of their beneficial interest in the fund. It should be understood that
the fund should be just a ―pass through‖ vehicle. Under the Indian Trusts Act, the trust of
the fund has no independent legal capacity itself, rather it is the Trustee or the Trustees
who have the legal capacity and therefore all acts in relation to the trusts are taken on its
behalf by the Trustees. In legal parlance the investors or the unit-holders are the
beneficial owners of the investment held by the Trusts, even as these investments are held
in the name of the Trustees on a day-to-day basis. Being public trusts, Mutual Fund can
invite any number of investors as beneficial owners in their investment schemes.
Trustees: A Trust is created through a document called the Trust Deed that is executed by
the fund sponsor in favor of the trustees. The Trust- the Mutual Fund – may be managed
by a board of trustees- a body of individuals, or a trust company- a corporate body. Most
of the funds in India are managed by Boards of Trustees. While the boards of trustees are
governed by the Indian Trusts Act, where the trusts are a corporate body, it would also
require to comply with the Companies Act, 1956. The Board or the Trust company as an
independent body, acts as a protector of the of the unit-holders interests. The Trustees do
not directly manage the portfolio of securities. For this specialist function, the appoint an
Asset Management Company. They ensure that the Fund is managed by ht AMC as per
Page
34

35. Mutual funds
August 10, 2011
the defined objectives and in accordance with the trusts deeds and SEBI regulations. The
Asset Management Companies: The role of an Asset Management Company (AMC) is to
act as the investment manager of the Trust under the board supervision and the guidance
of the Trustees. The AMC is required to be approved and registered with SEBI as an
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 expertise in financial services and should be individuals of high
morale standing, a condition also applicable to other key personnel of the AMC. The
AMC cannot act as a Trustee of any other Mutual Fund. Beside sits role as a fund
manager, it may undertake specified activities such as advisory services and financial
consulting, provided these activities are run independent of one another and the AMC‘s
resources (such as personnel, systems etc.) are properly segregated by the activity. The
AMC must always act in the interest of the unit-holders and reports to the trustees with
respect to its activities.
Custodian and Depositories:
Mutual Fund is in the business of buying and selling of securities in large volumes.
Handling these securities in terms of physical delivery and eventual safekeeping is a
specialized activity. The custodian is appointed by the Board of Trustees for safekeeping
of securities or participating in any clearance system through approved depository
companies on behalf of the Mutual Fund and it 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 SEBI. With the
introduction of the concept of dematerialization of shares the dematerialized shares are
kept with the Depository participant while the custodian holds the physical securities.
Thus, deliveries of a fund‘s securities are given or received by a custodian or a depository
participant, at the instructions of the AMC, although under the overall direction and
responsibilities of the Trustees .
Bankers :
A Fund‘s activities involve dealing in money on a continuous basis primarily with respect
to buying and selling units, paying for investment made, receiving the proceeds from sale
of the investments and discharging its obligations towards operating expenses. Thus the
Fund‘s banker plays an important role to determine quality of service that the fund gives
in timely delivery of remittances etc
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 its 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
Page
35

36. Mutual funds
August 10, 2011
all of the investor services that a fund provides are going to be dependent on the transfer
agent.
Page
36

37. Mutual funds
August 10, 2011
REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA:
The structure of mutual funds in India is guided by the SEBI. Regulations,
1996.Theseregulations make it mandatory for mutual fund to have three structures of
sponsor trustee and asset Management Company. The sponsor of the mutual fund and
appoints the trustees. The trustees are responsible to the investors in mutual fund and
appoint the AMC for managing the investment portfolio. The AMC is the business face of
the mutual fund, as it manages all the affairs of the mutual fund. The AMC and the
mutual fund have to be registered with SEBI.
SEBI REGULATIONS
:• As far as mutual funds are concerned, SEBI formulates policies and regulates the
mutual funds to protect the interest of the investors.
• SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds
sponsored by private sector entities were allowed to enter the capital market
.• The regulations were fully revised in 1996 and have been amended thereafter from time
to time.
• SEBI has also issued guidelines to the mutual funds from time to time to protect the
interests of investors.
• All mutual funds whether promoted by public sector or private sector entities including
those promoted by foreign entities are governed by the same set of Regulations. The risks
associated with the schemes launched by the mutual funds sponsored by these entities are
of similar type. There is no distinction in regulatory requirements for these mutual funds
and all are subject to monitoring and inspections by SEBI.
• SEBI Regulations require that at least two thirds of the directors of trustee company or
board of trustees must be independent i.e. they should not be associated with the
sponsors.
• Also, 50% of the directors of AMC must be independent. All mutual funds are required
to be registered with SEBI before they launch any scheme.• Further SEBI Regulations,
inter-alia, stipulate that MFs cannot guarantee returns in any scheme and that each
scheme is subject to 20 : 25 condition [I.e. minimum 20 investors per scheme and one
investor can hold more than 25% stake in the corpus in that one scheme].
•Also SEBI has permitted MFs to launch schemes overseas subject various restrictions
and also to launch schemes linked to Real Estate, Options and Futures, Commodities, etc.
Page
37

38. Mutual funds
August 10, 2011
ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)
With the increase in mutual fund players in India, a need for mutual fund association in
India was generated to function as a non-profit organization. Association of Mutual Funds
in India(AMFI) was incorporated on 22nd August, 1995.AMFI is an apex body of all
Asset Management Companies (AMC) which has been registered with Mutual Funds
India has brought down the Indian Mutual Fund Industry to a professional SEBI. Till date
all the AMCs are that have launched mutual fund schemes are its members. It functions
under the supervision and guidelines of its Board of Directors. Association of and healthy
market with ethical lines enhancing and maintaining standards. It follows the principle of
both protecting and promoting the interests of mutual funds as well as their unit holders.
The Objectives of Association of Mutual Funds in India:
The Association of Mutual Funds of India works with 30 registered AMCs of the country.
It has certain defined objectives which juxtaposes the guidelines of its Board of Directors.
The objectives are as follows:
•This mutual fund association of India maintains high professional and ethical standards
in all areas of operation of the industry.
• It also recommends and promotes the top class business practices and code of conduct
which is followed by members and related people engaged in the activities of mutual fund
and asset management. The agencies who are by any means connected or involved in the
field of capital markets and financial services also involved in this code of conduct of the
association.
• AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund
industry.
• Association of Mutual Fund of India do represent the Government of India, the Reserve
Bank of India and other related bodies on matters relating to the Mutual Fund Industry.
• It develops a team of well qualified and trained Agent distributors. It implements a
programme of training and certification for all intermediaries and other engaged in the
mutual fund industry.
• AMFI undertakes all India awareness programme for investors in order to promote
proper understanding of the concept and working of mutual funds.
• At last but not the least association of mutual fund of India also disseminate
informations on Mutual Fund Industry and undertakes studies and research either directly
or in association with other bodies.
AMFI Publications: AMFI publish mainly two types of bulletin. One is on the monthly
basis and the other is quarterly. These publications are of great support for the investors to
get intimation of the knowhow of their parked money.
Page
38

39. Mutual funds
August 10, 2011
MUTUAL FUNDS VS. OTHER INVESTMENTS
From investors‘ viewpoint mutual funds have several advantages such as:
• Professional management and research to select quality securities.
• Spreading risk over a larger quantity of stock whereas the investor has limited to buy
only a hand full of stocks. The investor is not putting all his eggs in one basket.
• Ability to add funds at set amounts and smaller quantities such as $100 per month
• Ability to take advantage of the stock market which has generally outperformed other
investment in the long run.
• Fund manager are able to buy securities in large quantities thus reducing brokerage fees.
However there are some disadvantages with mutual funds such as:
• The investor must rely on the integrity of the professional fund manager.
• Fund management fees may be unreasonable for the services rendered.
• The fund manager may not pass transaction savings to the investor.
• The fund manager is not liable for poor judgment when the investors fund loses value.
• There may be too many transactions in the fund resulting in higher fee/cost to the
investor -This is sometimes call "Churn and Earn".
• Prospectus and Annual report are hard to understand.
• Investor may feel a lost of control of his investment dollars. There may be restrictions
on when and how an investor sells/redeems his mutual fund shares.
Page
39

40. Mutual funds
August 10, 2011
Company Fixed Deposits versus Mutual Funds:
Fixed deposits are unsecured borrowings by the company accepting the deposit. Credit
rating of the fixed deposit program is an indication of the inherent default risk in the
investment. The moneys of investors in a mutual fund scheme are invested by the AMC
in specific investments under that scheme. These investments are held and managed in-
trust for the benefit of scheme‘s investors. On the other hand, there is no such direct
correlation between a company‘s fixed deposit mobilisation, and the avenues where these
resources are deployed. A corollary of such linkage between mobilisation and investment
is that the gains and losses from the mutual fund scheme entirely flow through to the
investors. Therefore, there can be no certainty of yield, unless a named guarantor assures
a return or, to a lesser extent, if the investment is in a serial gilt scheme. On the other
hand, the return under a fixed deposit is certain, subject only to the default risk of the
borrower.
Both fixed deposits and mutual funds offer liquidity, but subject to some differences:
The provider of liquidity in the case of fixed deposits is the borrowing company. In
mutual funds, the liquidity provider is the scheme itself (for open-end schemes) or the
market (in the case of closed-end schemes)
The basic value at which fixed deposits are enchased is not subject to a market risk.
However, the value at which units of a scheme are redeemed depends on the market. If
securities have gained in value during the period, then the investor can even earn a return
that is higher than what he anticipated when he invested. But he could also end up with a
loss. Early encashment of fixed deposits is always subject to a penalty charged by the
company that accepted the fixed deposit. Mutual fund schemes also have the option of
charging a penalty on ―early‖ redemption of units (through by way of an ‗exit load‘) If the
NAV has appreciated adequately, then even after the exit load, the investor could earn a
capital gain on his investment.
Page
40

41. Mutual funds
August 10, 2011
Bank Fixed Deposits verses Mutual Fund:
Bank fixed deposits are similar to company fixed deposits. The major difference is that
banks are generally more stringently regulated than companies. They even operate under
stricter requirements regarding Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio
(CRR).While the above are causes for comfort, bank deposits too are subject to default
risk. However, given the political and economic impact of bank defaults, the government
as well as Reserve Bank of India (RBI) try to ensure that banks do not fail. Further, bank
deposits up to Rs 100,000 are protected by the Deposit Insurance and Credit Guarantee
Corporation (DICGC), so long as the bank has paid the required insurance premium of 5
paisa per annum for every Rs 100 of deposits. The monetary ceiling of Rs100,000 is for
all the deposits in all the branches of a bank, held by the depositor in the same capacity
and right.
Banks Mutual funds
Returns Low Better
Administrative Expenses High Low
Risk Low Moderate
Investment options Less More
Network High Penetration Low but Improving
Liquidity At a Cost Better
Quality of assets Not Transparent Transparent
Interest Calculation Quarterly i.e. 3rd,6th,9th,12th Every Month
Guarantor Is Needed Not Needed
Account Needed Not Needed
.
Page
41

42. Mutual funds
August 10, 2011
Bonds and Debentures versus Mutual Funds:
As in the case of fixed deposits, credit rating of the bond / debenture is an indication of
the inherent default risk in the investment. However, unlike FD, bonds and debentures are
transferable securities. While an investor may have an early encashment option from the
issuer (for instance through a ―put‖ option), generally liquidity is through a listing in the
market.
Implications of this are:
•If the security does not get traded in the market, then the liquidity remains on paper. In
this respect, an open-end scheme offering continuous sale / re-purchase option is superior.
• The value that the investor would realise in an early exit is subject to market risk. The
investor could have a capital gain or a capital loss. This aspect is similar to a MF scheme.
It is possible for a professional investor to earn attractive returns by directly investing in
the debt market, and actively managing the positions. Given the market realities in India,
it is difficult for most investors to actively manage their debt portfolio. Further, at times,
it is difficult to execute trades in the debt market even when the transaction size is as high
as Rs 1crore. In this respect, investment in a debt scheme would be beneficial. Debt
securities could be backed by a hypothecation or mortgage of identified fixed and / or
current assets (secured bonds / debentures). In such a case, if there is a default, the
identified assets become available for meeting redemption requirements. An unsecured
bond /debenture is for all practical purposes like a fixed deposit, as far as access to assets
is concerned. The investments of a mutual fund scheme are held by a custodian for the
benefit of investors in the scheme. Thus, the securities that relate to a scheme are ring-
fenced for the benefit of its investors.
Page
42

43. Mutual funds
August 10, 2011
Advantages of Mutual Funds over Stocks:
• A mutual fund offers a great deal of diversification starting with the very first dollar
invested, because a mutual fund may own tens or hundreds of different securities. This
diversification helps reduce the risk of loss because even if any one holding tanks, the
over all value doesn‘t drop by much. If you‘re buying individual stocks, you cant get
much diversity unless you have $10K or so.
• Small sums of money get you much further in mutual funds than in stocks. First, you
can setup an automatic investment plan with many fund companies that lets you put in as
little as$50 per month. Second, the commissions for stock purchases will be higher than
the cost of buying no-load fund (Of course, the funds various expenses like commissions
are already taken out of the NAV). Smaller sized purchases of stocks will have relatively
high commissions on a percentage basis, although with the $10 trade becoming common,
this is a bit less of a concern than it once was.
• You can exit a fund without getting caught on the bid/ask spread.
• Funds provide a cheap and easy method for reinvesting dividends.
• Last but most certainly not least, when you buy a fund you‘re in essence hiring a
professional to manage your money for you. That professional is (presumably) monitor in
the economy and the markets to adjust the funds holdings appropriately.
Advantages of Stock over Mutual Funds:
•The opposite of the diversification issue: If you own just one stock and it doubles, you
are up 100%. If a mutual fund owns 50 stocks and one doubles, it is up 2%. On the other
hand, if you own just one stock and it drops in half, you are down 50% but the mutual
fund is down1%. Cuts both ways.
• If you hold your stocks several years, you aren‘t nicked a 1% or so management fee
every year (although some brokerage firms charge if there aren‘t enough trades).
• You can take your profits when you want to and wont inadvertently buy a tax
liability.(This refers to the common practice among funds of distributing capital gains
around November or December of each year. See the article elsewhere in this FAQ for
more details.)
•You can do a covered write option strategy. (See the article on options on stocks for
more details.)
• You can structure your portfolio differently from any existing mutual fund
portfolio.(Although with the current universe of funds I‘m not certain what could possibly
be missing out there!)
• You can buy smaller cap stocks which aren‘t suitable for mutual funds to invest in.
Page
43

44. Mutual funds
August 10, 2011
• You have a potential profit opportunity by shorting stocks. (You cannot, in general,
short mutual funds.)
• The argument is offered that the funds have a "herd" mentality and they all end up
owning the same stocks. You may be able to pick stocks better.
Page
44

45. Mutual funds
August 10, 2011
Life Insurance versus Mutual Fund:
Life insurance is a hedge against risk – and not really an investment option. So, it would
be wrong to compare life insurance against any other financial product. Occasionally on
account of market inefficiencies or miss-pricing of products in India, life insurance
products have offered a return that is higher than a comparable ―safe‖ fixed return
security – thus, you are effectively paid for getting insured! Such opportunities are not
sustainable in the long run.
Page
45

46. Mutual funds
August 10, 2011
FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA
Financial experts believe that the future of Mutual Funds in India will be very bright.
It has been estimated that by March-end of 2010, the mutual fund industry of India will reach
Rs 40,90,000 crore, taking into account the total assets of the Indian commercial banks. In the
coming 10 years the annual composite growth rate is expected to go up by 13.4%.
100% growth in the last 6 years.
Number of foreign AMC's are in the queue to enter the Indian markets like Fidelity
Investments, US based, with over US$1trillion assets under management worldwide.
Our saving rate is over 23%, highest in the world. Only channelizing these savings in
mutual funds sector is required.
We have approximately 29 mutual funds which is much less than US having more
than 800. There is a big scope for expansion.
'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are
concentrating on the 'A' class cities. Soon they will find scope in the growing cities.
Mutual fund can penetrate rurals like the Indian insurance industry with simple and
limited products.
SEBI allowing the MF's to launch commodity mutual funds.
Emphasis on better corporate governance.
Trying to curb the late trading practices.
Introduction of Financial Planners who can provide need based advice.
Looking at the past developments and combining it with the current trends it can be
concluded that the future of Mutual Funds in India has lot of positive things to offer to its
investors.
Page
46

47. Mutual funds
August 10, 2011
BlackRock is a truly global enterprise
combining worldwide reach with localized
service to help clients achieve a better
financial future
Page
47

48. Mutual funds
August 10, 2011
ABOUT BLACK ROCK
BlackRock is one of the world's leading providers of investment, advisory and risk
management solutions.
BlackRock offers a range of solutions — from rigorous fundamental and quantitative active
management approaches aimed at maximizing outperformance to highly efficient indexing
strategies designed to gain broad exposure to the world's capital markets. Our clients can
access our investment solutions through a variety of product structures, including individual
and institutional separate accounts, mutual funds and other pooled investment vehicles.
The foundation of BlackRock's business is a belief that their clients‘ needs are of paramount
importance. Our commitment to investment excellence is anchored in a shared culture that
always places a client‘s interests first, from individual investors to the world‘s largest
institutions . BlackRock‘s investment approach is based on our conviction that we can
combine our market insights, our global reach and scale, our proprietary technology, our
culture of information sharing and our unwavering focus on risk management into an ability
to deliver performance in all market environments. BlackRock is committed to providing a
broad set of investment solutions for our clients, striving to achieve the best balance between
risk and opportunity.
BlackRock is a truly global firm that combines the benefits of worldwide reach with local
service and relationships. We manage assets for clients in North and South America, Europe,
Asia, Australia, the Middle East and Africa. The firm employs more than 9,300 talented
professionals and maintains offices in 26 countries around the world. Our client base includes
corporate, public, union and industry pension plans; governments; insurance companies;
third-party mutual funds; endowments; foundations; charities; corporations; official
institutions; sovereign wealth funds; banks; financial professionals; and individuals
worldwide.
As of March 31, 2011, BlackRock's assets under management total US$3.65 trillion across
equity, fixed income, cash management, alternative investment, real estate and advisory
strategies. Through BlackRock Solutions® — the natural evolution of our long-standing
investment in developing sophisticated and highly integrated systems — we offer risk
management, strategic advisory and enterprise investment system services to a broad base of
clients with portfolios totaling approximately US$10 trillion.
Our firm's ownership structure is designed to maintain the independence we believe is
necessary to retain our commitments to client focus and investment excellence. BlackRock,
Inc. (NYSE: BLK) has no single majority stockholder and has a majority of independent
directors.
Page
48

49. Mutual funds
August 10, 2011
BlackRock's road to success and growth in asset management
Assets Under Management ($ Billions)
1988 11988: Founded Blackstone Financial Management
1989 2
1990 4
1991 8
1992 171992: Changed name to BlackRock
1993 23
CLIENTS
1994 53
1995 691995: Merged with PNC, offered common vision &
platform
We are 1996 83 committed
to always doing
what is in 1997 105 our
clients‘ best long-
term 1998 131 interests.
Since our 1999 1651999: IPO (NYSE: BLK) Broad employee founding,
ownership
2000 2042000: Launched BlackRock Solutions®
2001 239
2002 273
2003 309
2004 342
2005 4522005: State Street Research acquisition
2006 1,125Sept. 29: Combination of
BlackRock and MLIM
2007 1,357Oct. 1: Acquired Quellos
Group, LLC
2008 1,310
2009
3,190Dec. 1: Merged with Barclays Global Investors
2010 3,560
Page
49

50. Mutual funds
August 10, 2011
Clients Services
BlackRock‘s core philosophy has been grounded in the belief that our clients‘ needs are of
paramount importance and our sole business is managing our clients‘ assets on their behalf.
With this as a framework, BlackRock has assembled teams of investment professionals with
significant expertise in global capital markets. Our focus on investment excellence and state-
of-the-art analytics is complemented by an unwavering, senior-level commitment to service;
this results in dynamic client relationships and enables us to assist clients with a range of
services, including an understanding of liabilities and asset allocation needs.
BlackRock takes a three dimensional approach to the management of the organization,
incorporating functional, product and regional elements in support of our clients‘ goals. The
functional dimension looks at our operations by specific task, such as portfolio management,
account management or operations. The product dimension brings together the cross-
disciplinary expertise critical to managing client assets in each class. Finally, the regional
aspect of our model recognizes the unique, geography-specific needs of clients as well as the
importance of local regulatory issues.
Distinct but interconnected, these factors work together to inform all of our business
decisions and result in a firm that is globally efficient and locally effective. With our three-
dimensional approach to managing the organization, we seek to:
ensure consistency on a global basis;
allow for the tailoring of products and services according to client or local needs;
promote teamwork among our employees worldwide; and
facilitate operational integrity and efficiency
Given our size, scope and global footprint we strive for a consistent, interconnected approach
"One BlackRock."
Page
50

51. Mutual funds
August 10, 2011
Institutional and Retail Investors
Institutional Investors
BlackRock has built a diversified business by developing institutional-quality products that
seek to meet the needs of taxable and tax-exempt investors worldwide. Clients select us not
only for our expertise and flexibility, but also for our creativity in tackling business- and
industry-specific challenges. The depth and breadth of our product offerings reflects our
proactive approach to solving client problems. So, too, does the evolution of our business—
we are continually searching for ways to add value to our client relationships.
Retail Investors
The investment and risk management expertise that BlackRock brings to the management of
institutional products is also available globally through separately managed accounts, open-
end and closed-end funds, offshore funds, unit trusts and alternative investment vehicles. At
BlackRock, coordinated marketing and client service efforts are tailored to ensure the
delivery of the firm‘s resources to help meet the unique needs of financial intermediaries and
their clients throughout the world.
Page
51

52. Mutual funds
August 10, 2011
BLACK ROCK “ROCK” SOLUTION
BlackRock has long been recognized for its disciplined investment process and
rigorous bottom-up approach to risk management. Since its inception, BlackRock has
focused on the need to assess security-and portfolio-level risks, to make investment
decisions in rapidly changing markets, and to execute transactions efficiently, while
ensuring strict adherence to risk management and compliance guidelines. As a result,
BlackRock developed an integrated suite of investment management tools.
As of 30 September 2010, BlackRock Solutions provides services for approximately
US$9.5 trillion in securities and derivatives across more than 140 clients, many of
whom are among the largest and most sophisticated financial institutions in the world.
Wards & Recognition
Shareholder Information
Exchange
New York Stock Exchange
Listed Security
BLK Common Stock
Transfer Agent
Mellon Investor Services
Stock Transfer Department
P.O. Box 3312
South Hackensack, NJ 07606
Phone: (800) 851-9677
Individual Investor Contacts:
To change your registered name or address, and for inquiries regarding share balances, lost certificates
and all other account related matters, please contact:
Mellon Investor Services
Account Maintenance
P.O. Box 3316
South Hackensack, NJ 07606
Page
52

53. Mutual funds
August 10, 2011
Awards and Achievements
BlackRock Chief Operating Officer Sue Wagner rises through the ranks on Fortune's 12th
annual list of "50 Most Powerful Women in Business."
BlackRock receives an award from City Harvest, a non-profit organization founded in 1982
- the world's first and New York City's only food rescue program.
Financial News Asset Management Awards names Larry Fink CEO of the Year.
Larry Fink listed on Smart Money‘s Power 30: Finance and Wall Street List in October
2009.
Wall Street & Technology selected BlackRock as the recipient of the "Best Analytics
Award" for their Gold Book 2009 issue published in October.
Managing Director Bob Connolly, BlackRock's General Counsel, receives Fund Titan
Award for "Inside Counsel of the Year" by Ignites in September 2009.
Global Pensions, a magazine for the institutional pension industry, honored BlackRock
with awards for Liability Driven Investments Manager of the Year and Derivatives
Manager of the Year, while iShares won the ETF Provider of the Year award. March 2010.
BlackRock honored as Global Fund House of the Year by Asian Investor Magazine.
Page
53

54. Mutual funds
August 10, 2011
The Asset Management Company
DSP BlackRock Investment Managers Pvt. Ltd. is the investment manager to DSP
BlackRock Mutual Fund.
The philosophy of DSP BlackRock Investment Managers Pvt. Ltd. has been grounded in the
belief that experienced investment professionals, using a disciplined process and
sophisticated analytical tools, can consistently add value to client portfolios.
With our three-dimensional approach to managing the organization, we seek to:
Ensure consistency on a global basis;
Allow for the tailoring of products and services according to client or local needs;
Promote teamwork among our employees worldwide; and
Facilitate operational integrity and efficiency
Sponsors
DSP HMK Holdings Pvt. Ltd. and DSP ADIKO Holdings Pvt. Ltd.
DSP HMK Holdings Pvt. Ltd. and DSP ADIKO Holdings Pvt. Ltd. are companies
incorporated in 1983 under the Companies Act, 1956 and are also registered with the Reserve
Bank of India as non deposit taking Non-banking Finance Companies. These companies have
been functioning as investment companies.
BlackRock
BlackRock is a premier provider of global investment management services to institutional
and retail clients around the world managing total assets of US$ 3.45 trillion as on September
30, 2010. Headquartered in New York, BlackRock serves clients from offices in 24 countries,
maintaining a major presence in North America, Europe, Asia-Pacific, and the Middle East.
With approximately 8,500 employees, including more than 700 investment professionals
worldwide, BlackRock offers clients in-depth local knowledge and understanding, while
leveraging the strength of their global presence and infrastructure to deliver focused
investment solutions. Today, BlackRock services clients in over 60 countries.
Page
54

55. Mutual funds
August 10, 2011
Trustees
DSP BlackRock Trustee Company Private Ltd., a company incorporated under the
Companies Act, 1956, is the trustee for the Fund vide Trust Deed dated December 16, 1996.
The shareholding of the Trustee is as follows: BlackRock Advisors Singapore Pte. Ltd., a
wholly owned subsidiary of BlackRock Inc., holds 49% and the balance 51% is held by Mr.
Hemendra Kothari.
AMC Director
Mr. Hemendra M. Kothari, Chairman
Mr. Laurence D Fink
Ms. Susan L. Wagner
Mr. K R V Subrahmanian
Mr. Ranjan Pant
Dr. Omkar Goswami
Mr. Piyush Mankad
Mr. Quintin Price (Alternate Director to Mr. Laurence D Fink)
Mr. John R Kushel (Alternate Director to Ms. Susan L. Wagner)
Mr. Rakesh Mohan
Mr. David Rowley Graham
Mr. Rohit Bhagat
Page
55

56. Mutual funds
August 10, 2011
PRODUCTS OF DSPBLACK ROCK MUTUAL FUND
DSP BlackRock Natural Resources and New Energy Fund
The primary investment objective of the Scheme is to seek to generate
capital appreciation and provide long term growth opportunities by
investing in equity and equity related securities of companies domiciled in
India whose predominant economic activity is in the:-
(a) discovery, development, production, or distribution of natural resources,
viz., energy, mining etc; (b) alternative energy and energy technology sectors, with emphasis
given to renewable energy, automotive and on-site power generation, energy storage and
enabling energy technologies.
DSP BlackRock Micro Cap Fund
An Open equity growth scheme that seeks to generate long-term capital
appreciation from a portfolio that is substantially consituted of equity and
equity related securities, which are not part of the top 300 companies by
market captalisation. The Scheme was launched as a three year close
ended scheme and has been converted into an open ended scheme with
effect from June 15, 2010.
DSP BlackRock Equity Fund
An Open Ended growth Scheme, seeking to generate long term capital
appreciation, from a portfolio that is substantially constituted of equity
securities and equity related securities of issuers domiciled in India
DSP BlackRock Top 100 Equity Fund
An Open Ended growth Scheme, seeking to generate capital appreciation,
from a portfolio that is substantially constituted of equity securities and
equity related securities of the 100 largest corporates, by market
capitalisation, listed in India.
Page
56

57. Mutual funds
August 10, 2011
DSP BlackRock Opportunities Fund
An Open Ended growth Scheme, seeking to generate long term capital
appreciation and whose secondary objective is income generation and the
distribution of dividend from a portfolio constituted of equity and equity
related securities concentrating on the investment focus of the Scheme.
DSP BlackRock India T.I.G.E.R. Fund
An open ended diversified equity Scheme, seeking to generate capital
appreciation, from a portfolio that is substantially constituted of equity
securities and equity related securities of corporates, which could benefit
from structural changes brought about by continuing liberalization in
economic policies by the Government and/or from continuing investments
in infrastructure, both by the public and private sector.
DSP BlackRock Technology.com Fund
An Open Ended growth Scheme, seeking to generate long term capital
appreciation, and whose secondary objective is income generation and the
distribution of dividend from a portfolio constituted of equity and equity
related securities concentrating on the investment focus of the Scheme.
DSP BlackRock Small And Mid Cap Fund
An open Ended equity growth scheme, primarily seeking to generate long
term capital appreciation from a portfolio substantially constituted of equity
Page
57

58. Mutual funds
August 10, 2011
and equity related securities, which are not part of top 100 stocks by market capitalisation.
DSP BlackRock Tax Saver Fund
An open Ended equity linked savings scheme, whose primary investment
objective is to seek to generate medium to long-term capital appreciation
from a diversified portfolio that is substantially constituted of equity and
equity related securities of corporates, and to enable investors avail of a
deduction from total income, as permitted under the Income Tax Act, 1961
from time to time.
DSP BlackRock Focus 25 Fund
The primary investment objective of the Scheme is to generate long-term
capital growth from a portfolio of equity and equity-related securities
including equity derivatives. The portfolio will largely consist of
companies, which are amongst the top 200 companies by market
capitalisation.
DSP BlackRock Savings Manager Fund
An Open Ended income Scheme, seeking to generate income, consistent
with prudent risk, from a portfolio which is substantially constituted of
quality debt securities. The scheme will also seek to generate capital
appreciation by investing a smaller portion of its corpus in equity and
equity related securities of issues domiciled in India.
DSP BlackRock Balanced Fund
An Open Ended balanced Scheme, seeking to generate long term capital
appreciation and current income from a portfolio constituted of equity and
Page
58