12. Tax Saving Schemes In Mutual Funds.doc

8/11/2019 12. Tax Saving Schemes In Mutual Funds.doc

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SUBMITTED BY: PRAVAKAR DASH | ROLL NO: 11MBAS21542

Project submitted in partial fulfillment for the award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

In Guidance With

Pravas Satpat!

Submitted By:

PRAVAKAR DASH

R"## N"$ : 11MBAS21542

DD%E& SAMBALPUR UNIVERSITY

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DE)*ARATION

( here by declare that the project report titled Study of Tax Saving Schemes in Mutua

Funds+ prepared under the guidance of Pra'as %atpathy and submitted by me to the

Department of DD"#$ %ambalpur &ni'ersity$ is a bonafied wor, underta,en by me and it is

not submitted to any other &ni'ersity or (nstitution for the award of any degree-certificate or

published any time before

"#ava$a# Dash

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TO 'HOM SO EVER IT MAY %ON%ERNTO 'HOM SO EVER IT MAY %ON%ERN

This is to certify that the project titled Study of Tax Saving

Schemes in Mutua Funds an original piece of worked done by

Prava(ar Dasand is submitted in the partial fulllment of

Mast)r I* B+s,*)ss A-.,*,strat,"*. This project has been

carried out under my guidance and supervision.

I am pleased to record here that his performance during the

project was extremely satisfactory.

ish his all !uccess in future endeavors.

Pravas Satpat!

&nit Manager

("("( Prudential /ife (nsurance "o!/td

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)ERTIFI)ATE OF A""RO+A*

This is to Certify that the Project Entitled:Study of Tax Saving Schemes in Mutua Funds

%ubmitted by Pravakar Dash Roll o! 11MBA%*120*3$ %ambalpur &ni'ersity$ Burla

towards partial fulfillment of the re4uirements for the award of the degree of Master of

Business Administration MBA3 is a bona fide record of the wor, carried out by him under

the able guidance of M#, Mani$ )hand -hosh$ 5aculty$ RD "omputer 6 Management$

Talcher!

Appro'al of the "enter Director3

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A).NO/*ED-EMENT

( ta,e this opportunity to e)press my deep and sincere gratitude to "#avas Sat0at#hy&nit

Manager3 of ("("( Prudential /ife (nsurance "o!/td!$ Bhubaneswar Branch for his gesture

of allowing me to underta,e this project and its 'arious employees who lent their hands

towards the completion of this study

( would li,e to than,s and gratitude to my 5aculty of Mani$ )hand -hoshfor their ,ind

cooperation and made it easy for me to complete this assignment!

7e wish and e)press my heart full gratitude to the project guide for the guidance andsuggestions throughout the project$ without which we would not ha'e been able to complete

this project successfully!

7e e)tend my than,s to all my friends for their moral support and encouragement! /ast but

not least we than, my parents and relati'e who inspired us always to do the best!

"#ava$a# Dash

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)1A"TER I

INTRODU)TION

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MUTUA* FUND INDUSTR2

An Ove#vie3

The mutual fund industry in india began with the setting up of the &nit Trust of india &T(3

in 1:8. by the ;o'ernment of (ndia! Till the year *

companies were permitted to set up mutual funds! Also the two insurance companies /(" and ;("

established mutual funds! %ecurities #)change Board of (ndia %#B(3 formulated the Mutual 5und

Regulation3 1::.$ which for the first time established a comprehensi'e regulatory framewor, for

the mutual fund industry! %ince then se'eral mutual funds ha'e been set up by the pri'ate and the

joint sectrors!

-#o3th of Mutua Funds

The (ndian Mutual 5und has passed through three phases! The first phase was between 1:80

and 1:=9 and the only player was the &nit Trust of (ndia$ which had a total assets of Rs! 89


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INTRODU)TION

The third phase began with the entry of pri'ate and foreign sectors in the Mutual 5und

industry in 1::.! >othari Pioneer Mutual 5und was the first fund to be established the pri'ate

sector in association with a foreign fund! At the end of financial year *


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OB4E)TI+ES

To study the ta) sa'ings scheme on mutual funds$ its performance in the mar,et$ and its

e)posure to stoc,! To study the potential of mutual funds in ("("( Prudential life insurance co!ltd!

To analyse the performance of 'arious mutual funds schemes and suggests the best one!

RESEAR)1 MET1ODO*O-2

SOUR)ES OF DATA5

%econdary dataEThis data has been collected from the financial reports and statements of the

company,

*IMITATIONSE

The study is limited to the mutual 5und of ("("( prudential life insurance!

(t studies about its performance and ta) sa'ings!

The duration of the study is limited!

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)1A"TER6&

*ITERATURE RE+IE/

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1isto#y of the Indian Mutua Fund Indust#y

The mutual fund industry in (ndia started in 1:8. with the formation of &nit Trust of (ndia$

at the initiati'e of the ;o'ernment of (ndia and Reser'e Ban,! The history of mutual funds in (ndia

can be broadly di'ided into four distinct phases

Fi#st "hase 7 %89(6:;

industry$ gi'ing the (ndian in'estors a wider choice of fund families! Also$ 1::. was the year in

which the first Mutual 5und Regulations came into being$ under which all mutual funds$ e)cept &T(

were to be registered and go'erned! The erstwhile

>othari Pioneer now merged with 5ran,lin Templeton3 was the first pri'ate sector mutual fund

registered in uly 1::.!

1*


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The 1::. %#B( Mutual 5und3 Regulations were substituted by a more comprehensi'e and

re'ised Mutual 5und Regulations in 1::8! The industry now functions under the %#B( Mutual

5und3 Regulations 1::8!

The number of mutual fund houses went on increasing$ with many foreign mutual funds setting up

funds in (ndia and also the industry has witnessed

%e'eral mergers and ac4uisitions! As at the end of anuary *


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F 1


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marB82

Phase(

MarB=9

Phase((

12


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Phase ( %ince 5eb


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Pri'ate sector mutual funds$ which were permitted along with foreign partners in 1::.$ now

enjoy a dominant position in the country! >othari Pioneer Mutual fund was the first fund to be

established in the pri'ate sector with foreign fund! The pri'ate sector now controls around R%

02$=1= crore assets under management$ almost half the siIe of the industry!

The mutual fund industry has become a fastest growing sector in the countryKs capital and

financial mar,et with an a'erage compounded growth rate of *< percent o'er the past fi'e years!

This is despite increasing competition with more than .< asset management companies for

in'estorKs money! As on une *a'ita Lurry$ "#C (; (n'estment Management$ further$ currently$ (; (n'estments manages

around Rs!.80 crore as on une *


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/ast si) years ha'e been the most turbulent as well as e)iting ones for the industry! ew

players ha'e come in$ while others ha'e decided to close shop by either selling off or merging with

others! Product inno'ation is now pass with the game shifting to performance deli'ery in fund

management as well as ser'ice! Those directly associated with the fund management industry li,e

distributors$ registrars and transfer agents$ and e'en the regulators ha'e become more mature and

responsible!

The industry is also ha'ing a profound impact on financial mar,ets! 7hile &T( has always

been a dominant player on the bourses as well as the debt mar,ets$ the new generations of pri'ate

funds$ which ha'e gained substantial mass$ are now seen fle)ing their muscles! 5und managers by

their selection criteria for stoc,s ha'e forced corporate go'ernance on the industry! By rewarding

honest and transparent management with higher 'aluations$ a system of ris,reward has been

created where the corporate sector is more transparent then before!

5unds ha'e shifted their focus to the recession free sectors li,e pharmaceuticals$ 5M"; and

technology sector! 5unds performances are impro'ing! 5unds collection$ which a'eraged at less

than Rs1


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ASSET MANA-EMENT )OM"ANIES

( 1 &T( Asset Management "o! /td!

(( BA> %PC%CR#D

1 BCB Asset Management %er'ices /td!

* "anban, (n'estment Management %er'ices /td!

. PB Asset Management "o! /td!

0 %B( 5unds Management /td!

((( (%T(T&T(C%

1 ;(" Asset Management "o /tdN

* (dbi Principal Asset Management "o! /td!

. (/ 6 5% Asset Management "o! /td!

0 ee'an Bima %ahayoog Asset Management "o! /td!

( PR(AT# %#"TCR

1 Benchmar, Asset Management co! /td!

* "holamandalam Asset Management "o! /td!

1:


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. #scorts Asset Management /td!

0 !M!"apital Management P't! /td!

2 >ota, Mahindra Asset Management "o! /td!

8 Reliance "apital Asset Management /td!

9 %undaram Asset Management "ompany /td!

C(T #T&R#%PR#DCM(AT/H (D(A

1 Birla %un /ife Asset Management "o! /td!

* "redit "apital Asset Management "o! /td!

. D%P Merrill /ynch 5und Managers /td!

0 5irst (ndian Management Pri'ate /td!

2 LD5" Asset Management "o! /td!

8 Tata TD 7aterhouse Asset Management Pri'ate /td!

( C(T #T&R#%PR#DCM(AT/H 5CR#(;

1 Alliance "apital Asset Management (ndia3 P't! /td!

* Deutsche Asset Management (ndia3 P't! /td!

. Dundee (n'estment management 6 Research P't!3 /td!

0 L%B" Asset Management (ndia3 P't! /td!

2 (; (n'estment Management (ndia3 P't! /td!

8 Morgan %tanley Dean 7riter (n'estment Management P't! /td!

9 Prudential ("("( Asset management "o! /td!

= %tandard "hartered Asset Management "o! P't! /td!

: %un 5 6 " Asset Management (ndia3 P't! /td!

1< Templeton Asset Management (ndia3 P't! /td!

11 Ourich Asset Management "o! (ndia3 P't! /td!

+A*UE )1AIN

As a business organisation$ a mutual fund management company or fund comple) firm3

underta,es a series of acti'ities designed to generate 'alue ofr its customers! By arraying a firmKs

strategically important acti'ities$ one can construct a firmKs 'alue chain representation! This

analytic tool has been ad'anced by Micheae "o#te#, (n grouping a firmKs acti'ities the analyst

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%ecurity selection within asset classes asset allocation can best be characteriIed as the

blending together of major asset classes to obtain the highest longrun return at the lowest ris,!

Managers can ma,e opportnistic shifts in asset class weightings in order to impro'e return prospects

o'er the longterm objecti'e! Also managers can impro'e return prospects by selecting securities

that ha'e abo'e a'erage e)pected return within the indi'idual asset classes!

F Investment manage#s

Multitudes of in'estment management organiIation offer portfolio management ser'ices to

clients including mutual funds! (n'estments organiIation differ not only in siIe and degree of

specialiIation but also in their approaches to in'estment analysis and portfolio management! Cn the

whole$ howe'er the business portfolio management has tended toward greater structure and

discipline in the in'estment process and toward greater use of systematic approaches to in'esting!

Those organiIations at the forefront in implementing systematic approaches to portfolio

management ha'e gained mar,et share at the e)pense of other firms$ in large part because they ha'e

been more effecti'e in addressing client needs and achie'ing in'estment objecti'es!

F "a#tici0ants

%e'eral groups other than professional portfolio managers are important participants in the

portfolio management process!

(n mar,eting the asset allocation decision$ major portfolio in'estors employ the ser'ice of

in'estment management consultants! These are organiIations that specialiIe in not only ad'ising on

asset allocation but other critical aspects$ such as setting of goal and selection of in'estment

managers!

F Asset casses

De'eloping the appropriate asset allocation is a critical phase of the portfolio management

process!

#4uities$ bonds and money mar,et instruments are major asset categories that are large$ are

generally highly mar,etable and ha'e tradionally been used e)tensi'ely by longterm portfolio

in'estors!

Asset classes for portfolio in'estment

"orporates

"ommon stoc,s

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Domestic e4uities

/argecapitaliIation

%mallcapitaliIation

(nternational e4uities

Majorcountry mar,ets

#merging mar,ets

Bonds

;o'ernment and agencies

AAArated

Lighlyyield jun,3 bonds

Mortgagebac,ed securities

(nternational bonds

Money mar,et instruments

Treasury bills

"Ds and commercial paper

;uaranteed in'estment contracts

Real estate

enture capital

The portfolio management industry has e'ol'ed o'er the last two decades into a structure

with se'eral distinct groupings of highly professional participants! Although the current structure

differs from the past$ the critical components of the in'estment decision process remain the same!

(n'estors need to establish goals and be aware of the capital mar,et tradeoff in de'eloping an asset

allocation that the best meets the return target at an acceptable le'el!

There are three based areaswhich in'esting styles differ! All influence the ris,$ returns and

period of in'estment and in'ol'e finding a sport between the e)tremes that suits the fund and

in'estors the best!

Attitude5 does it follow a topdown approach first list industries or sectors for in'estment and then

select specific companies within these industries3 or a bottomup approach indi'idual stoc,s which

are li,ely to outperform the mar,et are identified first and only then study the industry or macro

le'el factors3

Intensity of management5 is the scheme acti'ely re'iew the portfolios regularly3 or passi'ely

less intensely managed stoc,s3

Dist#i?ution net3o#$5

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The rapid accumulation in assets of mutual funds creates more challenges$ most important

among them being the distribution networ,! 5or the longterm health of the industry$ it is crucial

that in'estors who come into a fund come with a full understanding of the ris,s in'ol'ed in the

in'estment! And distributors play an important role in dissemination of such information! At

present$ the majority of funds rely on branch networ, of ban,s in order to sell their products since

the branch networ, of most fund houses is restricted to a few cities!

Afte#6saes se#vice5

(n (ndia typically the distributorKs role comes to an end as soon as the product is sold to the

in'estor! 5or subse4uent transactionsredemption or switcho'ersthe in'estors often has to get bac,

to the fund itself! An in'estorKs interface with a fund would be simpler if the whole range of

ser'ices$ from deciding on the right product to processing the final redemption re4uest$ is handled

by a singled entity!

BASI) MUTUA* FUND IN+ESTMENT INSTRUMENT

Mutua Funds a#e investing in > ty0es of funds5

%toc,s

Bonds

Money mar,et instruments

B#oady Mutua Funds invest ?asicay in > ty0es of asset casses,

%, Stoc$s56 %toc,s represent ownership or e4uity in a company popularly ,nown as shares!

&, Bonds56 These represent debt from companies$ financial institutions or go'ernment

agencies!

>, Money Ma#$et Inst#uments56 These include short G term dent instrument such as treasury

bills$ certificate of deposits$ and inter ban, call money!

Mutua Fund can ?e cassified ?ased on thei# o?ectives as5

Secto# euity schemes56 These schemes in'est in share of companies in as specific sector!

Dive#sified euity schemes56 These schemes in'est in shares and fi)ed income of the

economy of companies across different sectors!

1y?#id economy schemes56 These schemes in'est in a mi) shares and fi)ed income

instruments!

Income schemes56 These schemes in'est in fi)ed income instruments such as bonds issued

by corporate and financial institutions$ and go'ernment securities!

*0


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Money Ma#$et schemes56 These schemes in'est in short G term instrument such as

certificate of deposits$ treasury bills and short G term bonds!

ANA*2SIS OF MUTUA* FUNDB#oady the anaysis catego#ies in > ty0es5

5undamental analysis

Technical analysis

Beta-Modern portfolio theory MPT3

FUNDAMENTA* ANA*2SIS5

The analysis of such fundamental factor general business conditions$ industry

outloo,$ earnings$ di'idends$ 4uality of management etc!$In this ta$e conside#ation on the some foo3ing facto#s56

1! "ompany net asset 'alue!

*! #stimation of True+!

.! alue of profit earning ratio!

0! #stimating the mar,et 'alue of current and forecasting!

2! "ompare with 'arious ratios li,e &%$ &>!

8! #stimate the future yield di'idends!

Stoc$ #ating5

The rating for common stoc, depends o'er the certain of di'idend in ta,e the

consideration followingsQ!

1! (ngredients of security analysis!

*! (t include historical data$ sales$ capital etc!$

Economic anaysis5

1! "yclic effect

*! #conomic analysis fashions3

Financia anaysis5

%, #P%

&, #B(T

>, RC(

*2


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(, PAT

Bond #ating

%, AAA 7 high investment g#ade5 Debentures rated AAA+ are judged to offer highestsafety of timely payment and interest and principles!

&, AA 7 high safety5 (t is offer highest safety of timely payment and interest and

principles!

Investment g#ades

>, A 7 adeuate safety5 Debentures rates A+ are judged offer highest safety of timely

payment and interest and principles!

(, BBB 7mode#ate safety BBB are judged to offer sufficient safety of timely payment and

interest and principles!

S0ecuative g#ade5

', BB 7 Inadeuate safety5 Debentures rated BB+ are judged to offer timely payment and

interest and principles!

9, B 7 high #is$

;, ) 7 su?stantia #is$5 Timely payment possible only in fa'orable circumstances

continues!

:, D6 In defaut

BETA M"T ANA*2SIS

Analysis the responsi'eness of the price of a particular company stoc, to

change in the 'alue some mar,et a'erage!

TE)1NI)A* ANA*2SIS5

An analysis of mar,et based factors such as %toc, price mo'ements$ charts

etc!$

T2"ES OF MUTUA* FUND S)1EMES

B2 STRU)TURE5

O"EN 7 ENDED S)1EME

*8


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)*OSED 7 ENDED S)1EME

INTER+A* S)1EME

B2 IN+ESTMENT OB4E)TI+E5

-RO/T1 S)1EME

IN)OME S)1EME

MONE2 MAR.ET S)1EME

OT1ER S)1EMES5

TAG SA+IN- S)1EME

S"E)IA* S)1EME

INDEG S)1EME

Mutua Fund ?#oady cassified into T/O catego#ies5

%, O0en 7 Ended Scheme funds

&, )osed 7 Ended Scheme funds

ow discuss details regarding abo'e funds

O"EN 6 ENDED S)1EME FUND5

The concept of these funds is that the in'estors are free to enter or e)it the scheme at

any point of time during the fund period! The in'estors can purchase- sale units of mutual fundthrough mutual fund trust! The prices at which the units are purchased- sold depend on the A of

the fund! At that point of time as specified by the funds! The A of fund is the current mar,et

'alue of their in'estments! Besides the et Asset alue$ certain funds ta,e an additional charge from

the in'estors in the form of #ntry load or #)it load! %ome #)amples of Cpen G #nded scheme funds

areE

Templeton (ndia ;rowth 5und!

Pru("("( Disco'ery 5und!

>ota, Cpportunities

*9


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Principal Di'idend Hield 5und!

Reliance ;rowth 5und!

)*OSED 7 ENDED S)1EME FUND5

(n the care of close ended fund$ the in'estors ha'e to loo, their funds with the trust

for particular periods of time as a specified y the terms of the offer! The main problem for the

in'estor is that they cannot mo'e in out of the fund freely! (n the case of "losed G#nded schemes

the prices of the units are calculated in the same manner as in the case of Cpen G #nded schemes!

Lowe'er these schemes do not charge an #ntry- #)it load as in the case of open G ended scheme!

INTER+A* S)1EME FUND5

The concept of these funds is that the in'estors are free to #nter- #)it the scheme at

any point of time during the fund period and the in'estors ha'e to loc, their funds with the trust for

a particular periods of time as a specified by the terms of the offer!

-RO/T1 FUND5

(t is primarily loo, for growth of capital such funds in'ests in shorter with potential

for growth and capital appreciation! They in'est in well G established companies where the

company it self and the industry in which it operates are thought to ha'e well long G term growth

potential and hence growth fund pro'ide low current income! ;rowth potential generally incurred

higher ris,s than (ncome 5und$ in an effort to secure more pronounced growth! %ome growth funds

concentrate on one or more industry sectors and also in'est in a Broad range of industries! ;rowth

funds are suitable for in'estors who can offer to assume the ris, of potential loss in 'alue their

in'estment in the short G term in the hope of achie'ing substantial and risings gains!

*=


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#'entually they are not suitable for in'estors who must conser'e their principal or

who must ma)imiIe current income!

-RO/T1 AND IN)OME FUND5

;rowth and (ncome funds see, long G term growth of capital as well as current

income! The in'estment strategies used to reach there goals 'ery among funds! %ome in'est in a

dual portfolio consisting of growth stoc, and income stoc,s$ or a combination of growth stoc,s

paying high di'idends preferred stoc,$ con'ertible securities or fi)ed income securities such as

corporate bonds and money mar,et instruments!

;rowth and (ncome funds ha'e low to moderate stability of principal and moderate

potential for current income and growth they are suitable for in'estors who can assume some ris, to

achie'e growth of capital but who also want to maintain a moderate le'el of current income!

MONE2 MAR.ET S)1EME5

(t is in'ested only in high li4uidityN short term top G rated money mar,et

instruments! Money mar,et funds are suitable for in'estors who want high stability of principal and

current income with immediate li4uidity!

*A/ RE*ATIN- TO TAG SA+IN-S US :@

B!Deductions in respect of certain payments

92Deduction in respect of life insurance premia$ deferred annuity$ contributions to pro'ident fund$

subscription to certain e4uity shares or debentures$ etc!

98=


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section$ the whole of the amount paid or deposited in the pre'ious year$ being the aggregate of the

sums referred to in subsection *3$ as does not e)ceed one la,h rupees!

*3 The sums referred to in subsection 13 shall be any sums paid or deposited in the pre'ious year

by the assessee

i3 to effect or to ,eep in force an insurance on the life of persons specified in subsection 03N

ii3 to effect or to ,eep in force a contract for a deferred annuity$ not being an annuity plan referred

to in clause )ii3$ on the life of persons specified in subsection 03E

Pro'ided that such contract does not contain a pro'ision for the e)ercise by the insured of an option

to recei'e a cash payment in lieu of the payment of the annuityN

iii3 by way of deduction from the salary payable by or on behalf of the ;o'ernment to any

indi'idual being a sum deducted in accordance with the conditions of his ser'ice$ for the purpose of

securing to him a deferred annuity or ma,ing pro'ision for his spouse or children$ in so far as the

sum so deducted does not e)ceed onefifth of the salaryN

i'3 as a contribution by an indi'idual to any pro'ident fund to which the Pro'ident 5unds Act$ 1:*2

1: of 1:*23 appliesN

'3 as a contribution to any pro'ident fund set up by the "entral ;o'ernment and notified9= by it in

this behalf in the Cfficial ;aIette$ where such contribution is to an account standing in the name of

any person specified in subsection 03N

'i3 as a contribution by an employee to a recognised pro'ident fundN

'ii3 as a contribution by an employee to an appro'ed superannuation fundN

'iii3 as subscription to any such security of the "entral ;o'ernment or any such deposit scheme as

that ;o'ernment may$ by notification in the Cfficial ;aIette$ specify in this behalfN

.


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i)3 as subscription to any such sa'ings certificate as defined in clause c3 of section *9: of the

;o'ernment %a'ings "ertificates Act$ 1:2: 08 of 1:2:3$ as the "entral ;o'ernment may$ by

notification=< in the Cfficial ;aIette$ specify in this behalfN

)3 as a contribution$ in the name of any person specified in subsection 03$ for participation in the

&nitlin,ed (nsurance Plan$ 1:91 hereafter in this section referred to as the &nitlin,ed (nsurance

Plan3 specified in %chedule (( of the &nit Trust of (ndia Transfer of &nderta,ing and Repeal3 Act$

*


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a3 a public sector company which is engaged in pro'iding longterm finance for construction or

purchase of houses in (ndia for residential purposesN or

b3 any authority constituted in (ndia by or under any law enacted either for the purpose of dealing

with and satisfying the need for housing accommodation or for the purpose of planning$

de'elopment or impro'ement of cities$ towns and 'illages$ or for both$

as the "entral ;o'ernment may$ by notification in the Cfficial ;aIette$ specify in this behalfN

)'ii3 as tuition fees e)cluding any payment towards any de'elopment fees or donation or payment

of similar nature3$ whether at the time of admission or thereafter$

a3 to any uni'ersity$ college$ school or other educational institution situated within (ndiaN

b3 for the purpose of fulltime education of any of the persons specified in subsection 03N

)'iii3 for the purposes of purchase or construction of a residential house property the income from

which is chargeable to ta) under the head (ncome from house property or which would$ if it had not

been used for the assessees own residence$ ha'e been chargeable to ta) under that head3$ where such

payments are made towards or by way of

a3 any instalment or part payment of the amount due under any selffinancing or other scheme of

any de'elopment authority$ housing board or other authority engaged in the construction and sale of

house property on ownership basisN or

b3 any instalment or part payment of the amount due to any company or cooperati'e society of

which the assessee is a shareholder or member towards the cost of the house property allotted to

himN or

c3 repayment of the amount borrowed by the assessee from

13 the "entral ;o'ernment or any %tate ;o'ernment$ or

*3 any ban,$ including a cooperati'e ban,$ or

.*


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)i)3 as subscription to e4uity shares or debentures forming part of any eligible issue of capital

appro'ed by the Board on an application made by a public company or as subscription to any

eligible issue of capital by any public financial institution in the prescribed form=0a!

#)planation!5or the purposes of this clause$

i3 eligible issue of capital means an issue made by a public company formed and registered in (ndia

or a public financial institution and the entire proceeds of the issue are utilised wholly and

e)clusi'ely for the purposes of any business referred to in subsection 03 of section =


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#)planation!5or the purposes of this clause$ scheduled ban, means the %tate Ban, of (ndia

constituted under the %tate Ban, of (ndia Act$ 1:22 *. of 1:223$ or a subsidiary ban, as defined in

the %tate Ban, of (ndia %ubsidiary Ban,s3 Act$ 1:2: .= of 1:2:3$ or a corresponding new ban,

constituted under section . of the Ban,ing "ompanies Ac4uisition and Transfer of &nderta,ings3

Act$ 1:9< 2 of 1:9


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i3 terminates his contract of insurance referred to in clause i3 of subsection *3$ by notice to that

effect or where the contract ceases to be in force by reason of failure to pay any premium$ by not

re'i'ing contract of insurance$

a3 in case of any single premium policy$ within two years after the date of commencement of

insuranceN or

b3 in any other case$ before premiums ha'e been paid for two yearsN or

ii3 terminates his participation in any unitlin,ed insurance plan referred to in clause )3 or clause

)i3 of subsection *3$ by notice to that effect or where he ceases to participate by reason of failure

to pay any contribution$ by not re'i'ing his participation$ before contributions in respect of such

participation ha'e been paid for fi'e yearsN or

iii3 transfers the house property referred to in clause )'iii3 of subsection *3 before the e)piry of

fi'e years from the end of the financial year in which possession of such property is obtained by

him$ or recei'es bac,$ whether by way of refund or otherwise$ any sum specified in that clause$then$

a3 no deduction shall be allowed to the assessee under subsection 13 with reference to any of the

sums$ referred to in clauses i3$ )3$ )i3 and )'iii3 of subsection *3$ paid in such pre'ious yearN

and

b3 the aggregate amount of the deductions of income so allowed in respect of the pre'ious year or

years preceding such pre'ious year$ shall be deemed to be the income of the assessee of such

pre'ious year and shall be liable to ta) in the assessment year rele'ant to such pre'ious year!

83 (f any e4uity shares or debentures$ with reference to the cost of which a deduction is allowed

under subsection 13$ are sold or otherwise transferred by the assessee to any person at any time

within a period of three years from the date of their ac4uisition$ the aggregate amount of the

deductions of income so allowed in respect of such e4uity shares or debentures in the pre'ious year

or years preceding the pre'ious year in which such sale or transfer has ta,en place shall be deemed

to be the income of the assessee of such pre'ious year and shall be liable to ta) in the assessment

year rele'ant to such pre'ious year!

.8


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#)planation!A person shall be treated as ha'ing ac4uired any shares or debentures on the date on

which his name is entered in relation to those shares or debentures in the register of members or of

debentureholders$ as the case may be$ of the public company!

93 5or the purposes of this section$

a3 the insurance$ deferred annuity$ pro'ident fund and superannuation fund referred to in clauses i3

to 'ii3N

b3 unitlin,ed insurance plan and annuity plan referred to in clauses )ii3 to )iiia3N

c3 pension fund and subscription to deposit scheme referred to in clauses )iiic3 to )i'a3N

d3 amount borrowed for purchase or construction of a residential house referred to in clause )'3$

of subsection *3 of section == shall be eligible for deduction under the corresponding pro'isions of

this section and the deduction shall be allowed in accordance with the pro'isions of this section!

=3 (n this section$

i3 Administrator means the Administrator as referred to in clause a3 of section * of the &nit Trust

of (ndia Transfer of &nderta,ing and Repeal3 Act$ *


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'3 public company shall ha'e the same meaning as in section .=9 of the "ompanies Act$ 1:28 1 of

1:283N

'i3 security means a ;o'ernment security as defined in clause *3 of section *== of the Public Debt

Act$ 1:00 1= of 1:003N

'ii3 specified company means a company as referred to in clause h3 of section * of the &nit Trust

of (ndia Transfer of &nderta,ing and Repeal3 Act$ *


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rebate reduced with e'ery rise in the income slabN indi'iduals earning o'er Rs 2


40/78


Hou can Jmo'eK into a lower ta) brac,et by in'esting in a ta) sa'ing instrument! Low does

this wor, Read on!

1o3 much can you save5

The go'ernment has made a host of indi'idual sa'ings Ta) G deductible+ under one

umbrella called %ection =


41/78


defines your ta) brac,et which could actually be lower than the amount of money you ha'e earned

o'er the year! The current income ta) determined four main ta) brac,ets$ which are as followsE

/ower /imit &pper limit Ta) Payable

< Rs!1$1

Rs3

Amount

in'ested under

%ection =


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DOHS AND DONTHS /1I*E SE*E)TIN- A MUTUA* FUND5

DOHS5

"hec, the trac, record of the asset management company!

%ee what is offered in terms of aftersales ser'ice!

Cpt for an income or growth scheme on the basis of income re4uirements!

"onsider your li4uidity needs to choose between an openorcloseended fund!

#)amine redemption and repurchase facilities!

DONTHS5

e'er judge a mutual fund by the name of the group that is floating it!

DonKt in'est in a mutual fund when the mar,et is on an upswing!

Do not opt for a fund where the A independently on the sense)!

Do not 'iew A independently of the sense)!

e'er but when the unit is 4uoted at a premium to A!

AD+ANTA-ES OF MUTUA* FUND5

"ROFESSIONA* MANA-EMENT5

#)perienced fund managers supported by research team$ select appropriate securities

to the fund! The forecasting of the mar,et is done effecti'ely!

DI+ERSIFI)ATION5

Mutual 5und in'ests in a di'erse range of securities and o'er many industries!

Lence$ all the eggs are not played in one bas,et! ormally an in'estor has to ha'e large sump of

money to achie'e this objecti'e! (f he in'ests directly in the stoc, mar,et! Through Mutual 5und$ he

can achie'e di'ersification of portfolio at a fraction at of the cost!

)ON+INIENT ADMINISTRATION5

5or the in'estors there is reduction in paper wor, and sa'ing in time! (t is also 'ery

con'enient! Mutual 5und helps in o'ercoming the problems relating to bad deli'eries delayed

payments and the li,e!

0*


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RETURN "OTENTIA*5

Medium and the long term Mutual 5und ha'e the potential to pro'ide high return!

*O/ )OST5

The funds handle the in'estments of a large number of peopleN they are in a position

to pass on relati'ely low bro,erage and other costs! This is because the funds can ta,e ad'antage of

the economics of scale!

*IUIDIT25

M&T&A/ 5und pro'ides li4uidity in two ways! (n open Gended schemes$ the

in'estors can get bac, this money at any time by selling bac, the units to the fund at A relatedprices! (n closed G ended schemes fund$ he has the option to sell the units through the stoc,

e)change!

F*EGIBI*IT25

"urrently most funds ha'e regular in'estment plans$ regular withdrawal plans and

di'ided rein'estment schemes! A great deal of fle)ibility is assured in the process!

)1OI)E OF S)1EME5

Mutual 5und offers a 'ariety of schemes to suit 'arying needs of the in'estors!

/E** RE-U*ATED5

The funds are registered with the securities and e)change of board in (ndia and their

operations are continuously monitored!

TRANS"ARAN)25

Mutual 5unds pro'ide information on each scheme about the specific in'estmentsmade there under and so on!

SE*E)TION OF A FUND

O?ective of the fund5

The 5und whether income oriented or growth oriented! "onsistency of performanceE

a mutual fund is always intended to gi'e steady long term returnsN hence the in'estors should

measure the performance of a fund o'er a period of at least three years!

0.


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1isto#ica ?ac$g#ound5

The success of any fund depends upon the competence of the management$ its

integrity$ periodicity and e)perience!

)ost of O0e#ation5

Mutual funds see, to do a better job of the in'estible funds at a lower cost the he

in'estible fund at lower cost! The in'estors compare with their funds with others!

)a0acity of innovation5

%ome companiesK introduced inno'ation schemes to meet the di'erse needs of

in'estors! (n'estors will loo, for funds which are capable of introducing inno'ation in the financial

mar,et!

Investo# se#vicing5

The most important factor is prompt and efficient ser'icing! %er'ice li,e 4uic,

response to in'estors 4ueries$ prompt dispatch of unit certificates$ 4uic, transfer of units etc!$

FA)I*ITIES A+AI*AB*E TO IN+ESTORS

Re purchase facilities

Reissue facilities

Roll o'er facilities

/ateral shifting facilities

Ta) G %a'ing 5undsE

%ection =


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an upper limit of Rs 9


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There are certain ris,s inherent in the scheme itself! T all depends upon the nature of

the scheme! 5or instance$ in a pure growth scheme$ ris,s are greater! (t is ob'ious because if one

e)pects more returns an in the case of a growth scheme$ one has to ta,e more ris,s!

Investment Ris$s5

7hether the Mutual 5und ma,es money in shares or loses depends upon the

in'estment e)pertise of the Asset management "ompany AM"3! (f the in'estment ad'ice goes

wrong$ the fund has to suffer a lot! The in'estment e)pertises of 'arious funds are different and

it is reflected on the returns which they offer to in'estors!

Business Ris$5

The corpus of a Mutual 5und might ha'e been in'ested in companyKs shares! (f the

business of that company suffers any set bac,$ it cannot declare any di'idend!

"oitica Ris$5

%uccessi'e ;o'ernments bring with them fancy new economy ideologies and

policies! (t is often said that many economy decisions are politically moti'ated! "hanged in

;o'ernment bring in the ris, of uncertainty which e'ery player in the financial ser'ice industry

has to face! %o Mutual 5unds are no e)ception to it!

08


47/78


)1A"TER6>

)OM"AN2 "ROFI*E

I)I)I Ban$

I)I)I Ban$is (ndia@s second largest ban, and largest pri'ate sector ban, with assets of Rs!

*:2=!.* billion as on December .1$ *


48/78


49/78


length and breadth of the country$ and also partners with leading ban,s$ corporate agents and

bro,ers to distribute our products

.! Robust ris, management and underwriting practices form the core of our business! 7ith clear

guidelines in place$ we ensure e4uitable costing of ris,s$ and thereby ensure a smooth and hassle

free claims process!

0! #ntrusted with helping our customers meet their longterm goals$ we adopt an in'estment

philosophy that aims to achie'e ris, adjusted returns o'er the longterm!

2! /ast but definitely not the least$ our 12$ingdom! Total

capital infusion stands at Rs! 1=!12 billion$ with ("("( Ban, holding a sta,e of 90 and Prudential

plc holding *8!

7e began our operations in December *


50/78


T1E )om0any

("("( Prudential /ife (nsurance "ompany is a joint 'enture between ("("( Ban,$ a premier

financial powerhouse$ and Prudential plc$ a leading international financial ser'ices group

head4uartered in the &nited >ingdom! ("("( Prudential was amongst the first pri'ate sector

insurance companies to begin operations in December *


51/78


52/78


Prudential ("("( AM" has emerged as the largest (ndian mutual fund ha'ing recorded assets

under management A&M3 of Rs! 0.$*=

Mutual 5unds of (ndia AM5(3 for the month ended 5ebruary *

(n order to address the issue of penetration and to offer customer con'enience$ the company has

e)panded its networ, from a presence in merely * cities to more than =< cities across (ndia!

The following table depicts Prudential ("("( AM"Ks A&M growth o'er the years!

"#udentia I)I)I MF is no3 I)I)I

"#udentia MF

Prudential ("("( Mutual 5und$ changed its name to ("("( Prudential Mutual 5und with effect from

Apr! *$ *


53/78


The fund changed its name$ owing to the change in the shareholding pattern of ("("( Ban, and

Prudential Plc effected in August * ac4uired 22 sta,e in the erstwhile ("("( Asset Management

"ompany subse4uent to which$ it was renamed as Prudential ("("( Asset Management "ompany!

The remaining 02 share were with ("("( ;roup!

Lowe'er$ (n August *


54/78


Definition5

%#B( M5s3 Regulation 1::.$ defines Mutual 5und as followsN

Mutual fund means a fund established in the form of a trust by a sponsor to raise money by the

Trustees through the sale of units to the public under one or more schemes for in'esting in

%ecurities in accordance with these Regulations!

A mutual fund is a special type of company that pools together money from many in'estors

and in'ests it on behalf of the group$ in accordance with a stated set of objecti'es! Mutual funds

raise the money by selling shares of trhe fund to the public$ much li,e any other company can sell

stoc, in itself to the public! 5unds then ta,e the money they recei'e from the sales of their shares

along with any money from pre'ious in'estments3 and use it to purchase 'arious in'estments'ehicles$ such as stoc,s$ bonds and money mar,et instruments! (n return for the money they gi'e to

the fund and$ in effect$ in each of its underlying securities! 5or most mutual funds$ shareholders are

free to sell their share at anytime$ although the price of a share in a mutual fund will fluctuate daily$

depending upon the performance of the securities held by the fund!

Mutual fund units are in'estment 'ehicles that pro'ide a means! A large number of

in'estors pool their money in order to obtain a spread of professionally managed %toc, #)change

in'estments that they cannot obtain indi'idually! According to 7eston !5red and Bridgham$

#ugene$ 5!$ &nit Trusts are "orporations which accept dollars from sa'ers and then use these

dollars to buy stoc,$ long term bonds$ short term debt instruments issued by business of go'ernment

unitsN these corporations pool funds and thus reduce ris, by di'ersification!

20


55/78


)1A"TER6(

DATA ANA*2SISAND

INTER"RETATION

22


56/78


/eading Ta)%a'ing funds

Ta)%a'ing 5unds A

"rKs3

1yr

3

.yr

3

2yr

3

%td

De'

3

%harpe

Ratio

3

MA;&M TAZ ;A(08!:= 118!= :1!9 *:!2 =!=1

LD5" TAZ %A#R ;3 1PR& ("("( TAZ P/A ;3 88!=: 98!= 9=!2 0

LD5" /T ADATA;# ;3 89!29 81!* 92!< 9!=1

B(R/A #[&(TH P/A 02!08 2=!: 9*!< *:!. 9!:2

TATA TAZ %A(; .1!20 2.!1 9*!. .

%&DARAM TAZ %A#R 19!:0 2:!: 8.!2 .1!2 =!22

5RA>/( (D(A TAZ

%L(#/D;3

==!*0 2

Inte#0#etation5

MA;&M TAZ ;A( has A of Rs! 08!:= crs! (t has standard de'iation =!=1 by using

sharpe ratio it has

LD5" TAZ %A#R has A of Rs! 1

using sharpe ratio it has

LD5" /T ADATA;# has A of Rs! 89!29 crs! (t has standard de'iation 9!=1 by


B(R/A #[&(TH P/A has A of Rs! 02!08 crs! (t has standard de'iation 9!:2 by


TATA TAZ %A(; has A of Rs! .1!20 crs! (t has standard de'iation 9!*1 by using

sharpe ratio it has

28


57/78


%&DARAM TAZ %A#R has A of Rs! 19!:0 crs! (t has standard de'iation =!22 by


5RA>/( (D(A TAZ %L(#/D has A of Rs! ==!*0 crs! (t has standard de'iation

8!99 by using sharpe ratio it has

"#uI)I)I Tax "an

Sna0shot5

Fund Manage#s 5 %an,aran aren

Indicative Investment 1o#iJon5 . yrs 6 more

Ince0tion date5 1:


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"e#fo#mance Reco#dK5

-#o3th O0tion5

Secto# Aocation5

2=


59/78


"o#tfoio56

)om0any Issue#Ma#$et +aue &',;( %,>(

Lero Londa /imited .*2!90 1!.0

Auto Ancia#ies >@%9,8& %&,(&

F %undaram "layton /imited :08!=2 .!:esoram (ndustries /imited *8*!== 1!Rane Loldings /imited *2

Rane Bra,e /inings /td *.2!9<

Ban$s ;98,(' >,%;

"orporation Ban, .90!)ement %>;>,&% ',9'F "entury Te)tiles 6 (ndustries /td :9*!:8 0!Andhra %ugars /td 9**!1< *!:9

(ndia ;lycols /imited ..0!98 1!.=

a'in 5lourine (nternational /td *80!.* 1!)onsume# Non6Du#a?e &@%>,8( :,&8

F Mawana %ugars /td =2

Pidilite (ndustries /imited 292!.< *!.9

;odrej "onsumers 090!0: 1!:2

Larrisons Malayalam /imited :=!82

&nited Breweries /td 10!:0

Fe##ous Metas (8,8( @,&%

Tayo Rolls /td 0:!:0

Fe#tiiJe#s &@&>,>( :,>>

F D"M %hriram "onsolidated /imited =0*!1* .!09

;ujarat %tate 5ert 6 "hem /imited 9*0!1. *!:=Ouari (ndustries /imited 029!


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Finance %8,@; @,@:

Reliance "apital entures /td 1:!)om0any Issue#Ma#$et +aue @,('

Lindustan Cil #)ploration /td 1Reliance atural Resources /td .!:9

"et#oeum "#oducts '9;,@% &,>>

Reliance (ndustries /imited 289!

;ujarat (ndustries Power "o /imited 8:!99

Soft3a#e :(:,&% >,(8

%ube) %ystems /imited 29

>P(T (nfosystems *9=!*< 1!10

Teecom Se#vices %&8,>; @,'>

Reliance "ommunications entures /td 1*:!.9

Texties 6 )otton 8:%,&& (,@(

Precot Mills /td 9*0!0< *!:=

Maral C'erseas /imited *28!=* 1!


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)om0any Issue#Ma#$et +aue ! ;! Denim /imited 11*!*2

itin %pinners /td .!=1

Texties 6 Synthetic :&:,>@ >,(%

F %R5 /imited =*=!.< .!01

)ash )a )B*O Reve#se Re0o &(',@9 %,@%

Othe# )u##ent Assets :;@,@: >,':

Tota Net Assets &(&8;,(> %@@,@@

F Top Ten Loldings

uantitative Indicato#s5

A'erage P-# E 18!2% &@@; Rs %(&;; )#s

#4uity 2: =$015 (ndia /td (ndustrial Products *!*1

Punjab ational Ban, Ban,s *!* Power 6 (nfrastructure /td! Power

%adbha' #ngineering /td! "onstruction

Tota 8%,@> 8%,@>

Money Ma#$et Inst#uments

)omme#cia "a0e#s)e#tificate of De0osits

)o#0o#ate De?t Financia Institutions

"itifinancial "onsumer 5inance (ndia /td! P1U

Tota @,:;

"ollateral Borrowing 6 /ending Cbligation 1!92

Net )u##ent Assets


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An Cpen G #nded #4uity /in,ed %a'ing %chemes

FUND FEATURES

/ho shoud invest5

The Scheme is suita?e fo# investo#s see$ing income tax deduction

unde# Section :@)


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Secto# St#ategy5

0o#tfoio5

88


67/78


Inst#ument Indust#y of NA+

BL#/ (ndustrial "apital ;oods 2!.*

Reliance (ndustries /td Petroeum Products 0!:2

;odrej (ndustries /td "hemicals 0!*0

Maharashtra %eamless /td 5errous Metals .!::C;" /td Cil .!.8

;odrej "onsumer Products /td "onsumer on Durables .!*=

&nited Breweries Lolding /td 5inance .!*8

"rompton ;rea'es /td (ndustrial "apital ;oods .!18

Automati'e A)les /td Auto Ancillaries .!10

%B( Ban,s .!1

12. Tax Saving Schemes In Mutual Funds.doc

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Transcript of 12. Tax Saving Schemes In Mutual Funds.doc