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Transcript of BUSINESS OPPORTUNITIES IN MUTUAL FUND IN INDIA”
8/3/2019 BUSINESS OPPORTUNITIES IN MUTUAL FUND IN INDIA”
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TABLE OF CONTENTS
No. Particular Page NO.1 Title page 12 Certificate 23 Declaration 34 Acknowledgement 45 Table of content 56 Table of charts and tables 67 Executive Summery 78 Introduction 99 Research methodology 10
10 Industry Profile 1311 Company Profile 6012 Data Analysis and Interpretation 6613 Findings 7514 Conclusion 7615 Recommendation 7716 Annexure 7817 Bibliography 8118 Glossary 82
TABLE OF CHARTS AND EXAMPLES2
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Sr
NoName Of Graphs Or Tables
Page
No
1 Growth In AUM 16
2. Investment Instruments Issued By The Company’s 25
3. Comparison Of Bank V/S Mutual Fund 26
4. Comparison Of FD ,Bond , Mutual Fund 27
5. Risk Return Trade Off In Mutual Fund 28
6. Mutual Fund Operation Flow Chart 31
7. Organisation Structure Of Mutual Fund 31
8 AMC’s with NJ IndiaInvest 63
9 Investment Option Suggested By IFA’s 66
10 Parameter Ranks Given By IFA’s 67
11 Services Provided By IFA’s 68
12 IFA’s Suggesting Mutual Fund 68
13 AMC Suggested By IFA’s For There Clients 69
14 IFA’s Reason For Working With A Particular Dealer 70
15 IFA’s Getting Online Valuation Report 71
16 IFA’s Interested In Providing Online Valuation Report To There Clients 71
17 IFA’s Interested In There Own Website 72
18 IFA’s Interested In Attending Business Opportunity Program Of NJ IndiaInvest 73
19 IFA’s Interested In Meeting Representatives Of NJ IndiaInvest 73
20 IFA’s Who Have Cleared AMFI(Advisory) Module 73
21 IFA’s Interested In Giving AMFI Exam 74
EXECUTIVE SUMMARY
The economy is highly influence d by the Financial System of the country. The
Indian Financial System has been broadly divided into two segments: the organized and
unorganised. An investor has a wide array of investment avenues available. Economic well being
in the long run depends significantly on how wise he invests.
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In present financial scenario where the economy is poised to grow at 7% ,as stated by our
finance minister P Chidambaram, and the present bulls run in the capital market ,where lot of
money is being pumped into the economy by FII, and increasing disposable income with the
generation next has created a problem of investment because there is lot money on hand but theydon’t know where to invest as there is no attractive return in the bank FD, PPF, KVP, NSC, MIS,
and other Post saving scheme. Due to uncertainty in share market and low returns due to low
interest rates has left investor are puzzled, i.e. to spend the money or save the money. If to save
the money then where to save it, so that they can get better return with flexibility, tax benefit and
as well as capital appreciation. So it is necessary for investor to find the answer and way of
capital growth with better return rather than uncertain share market and other low yield
investment avenues.
All investments involve risk in varying degrees, and hence it is necessary to understand
risk profile of each investment avenues and know how it can affect your investments. There
should be trade off between risk and return. There are also risks that are not in our control like
inflation risk, credit risk, risk of sudden rise in oil prices, risk pertaining to political environment
for instance. In present financial system, investment has lost their potential to earn additional
income, which can help for growth of their capital because the interest return which varies from
approx 4% to 8% and the inflation rate hovering in and around 5%-6% so the real return is
varying between (-)2% to 2% so this is the real return what a investor gets by investing in FIXED
DEPOSIT, GOVERNMENT SECURITY ,KVP,NSC,PPF,MIS and also blocking there money
for min of 2-5 years ,in these instruments ,which is not very encouraging for an investor to invest
in these instruments .So the investor is likely to spend his earnings than invest(save), which what
is happening in our country.
Mutual fund is indeed of great benefit in this respect. They provide the services of
experienced and skilled professionals who determine this risk and monitor them on going basisThey are also backed up by research ,done by individual asset management company based on
the fund objectives .
When investors are confronted with an outstanding range of products, form traditional
bank deposits to downright shady money-multiples schemes, it has to be judged on the yardsticks
of returns, liquidity, safety, convenience and tax efficiency. An important question facing many
investors across the country today is whether one should invest in a bank fixed deposit or in a
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debt-oriented Mutual Fund. Mutual fund gives an opportunity to the IFA’s to select from
different investment options ranging from liquid funds to diversified equity ,based on there
clients appetite for risk and and the return they want .
The data is contained from insurance advisors, income tax consultant, post office agent.So the basic objective of the study was to test the potentiality and develop the business of mutual
funds by obtaining the data form Independent financial advisors.
During the training period and interaction with people it was found that awareness of
Mutual Fund among IFA’s was there to a limited extent but there was lot of misconceptions
among them about mutual fund as I had meet few who had lost there money in UTI scam and
others though where aware of mutual fund where not suggesting this to there clients as they
thought it as to be to risky for there clients and those who where aware where really aggressive to
take the opportunity offered by mutual fund to earn a high return. On the whole if I have to
conclude my survey I would like to say that if we have to create awareness about diversified
portfolio, professional management and SEBI Regulations and benefits it offers to IFA’s and
there clients and also we have to clear few misconception which IFA’s have, to tap the huge
potential which mutual fund market has to offer .
The sample size is 100 for the survey of “ Behaviour Study Of Independent Financial Advisors And
Finding Awareness Of Mutual Fund Among Them ”. The researcher has used convenient samplings for
conducting survey on IFA, the data is being collected by contacting the person personally and interacting with them.
The communication approach is questionnaire .
INTRODUCTION
A Mutual fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is invested by the fund manager in different types of
securities depending upon the objective of the scheme. These could range from shares to
debentures to money market instruments. The income earned through these investments and the
capital appreciation realized by the scheme is shared by its units holders in proportion to the
number of units owned by them. Thus a mutual fund is the most suitable investment for the
common man as it offers an opportunity to invest in a diversified, professionally managed
portfolio at a relatively low cost. The small savings of all the investor are put together to increase
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the buying power and hire a professional manager to invest and monitor the money. Anybody
with an ingestible surplus of as a few thousand rupees can invest in mutual funds. Each mutual
fund scheme has a defined investment objective and strategy.
In the preset time stock market is more volatile at that time small investor invest its
money via mutual fund it gives safety and secure return. For the small investor mutual fund is the
best investment option.
Mutual fund is a one of the investment instrument in the global market special in USA,
more than 30% saving invested in mutual fund but in India only 1-2% saving mutual fund
investment. Size of the mutual fund industries % of GDP in USA 67% where in India only 6% so
its reflect mutual fund industries is good potential
RESEARCH METHODOLOGY
Research methodology give students the necessary training in gathering materials and arranging
them, participation in the field work when required and techniques for the collection of data
appropriate to a particular problem in the use of statistics questionnaire and controlledexperimentation and in recording evidence, sorting it out and interpreting it thereafter.
[1] Problem Formulation:
It has been perceived that there is a huge potential market in the Rajkot city. The
strategy0020is to know the awareness of mutual fund among the independent financial advisors.
And also to know investment options suggested by the IFA(independent financial advisors) to
there clients based on secured and risk taking investments
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This is analytical research. The awareness of mutual fund is to be found out after doing
the behavioral study of independent financial advisors and what are the various investment
options they are giving to there clients which are available in the market.
[2] Research Objectives:
Primary Objective:
• The study of Mutual Fund Market in Rajkot was conducted with the primary objective to
know awareness of mutual fund among the Independent Financial Advisers.
Secondary Objective :
• To study the perception of independent financial advisors about different investment
options available in the market.• To know priority level between different criteria of investment like safety level, retunes,
liquidity, tax benefit, maturity of investment.
• To study about different type of services provided by independent financial advisors to
their clients.
• To know the awareness of Mutual Funds in the market of Rajkot and its surrounding
areas.
• To study about the different types of services provided by professional Mutual Fund
Distributors.
• To find out how many independent financial advisors want to attain the Business
Opportunity program arranged by N.J. India Invest.
• To find how many independent financial advisors are AMFI certified and how many are
interested to become registered mutual fund advisor.
[3] Methods of data collectiona) Research Design:
A research design is simply the framework or plan for a study, used as a guide in
collecting and analyzing data. It is the blue print that is followed in completing the study.
Research design is the conceptual structure within which the research would be conducted. In
the context of this project report I have utilize descriptive research design This cover research
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design that is intended to produce accurate description of variable relevant to the decision face
without demonstrating relationship exists between variables.
b) Sampling Design:
• Sampling Method
In the context of this project the survey, which is of independent financial advisors, done
by convenient sampling method.
• Sample size
Our total sample size is 200
• Sample Area
The survey is done in the central city of Rajkot.
c) Sources of data
• Primary Data
In the context of this project report the resource of data used by researcher is primary
data. Researcher has collected the data by contacting personally the respondent and by
interviewing them.
• Secondary Data
To know the information about current market scenario making use of internet,
magazines, newspaper, periodicals and fact sheets of different AMCs and NJ IndiaInvest.
• Communication ``Approach .
Research tool is the questionnaire filled up by the independent financial advisors and informal
interview of independent financial advisors conducted by me.
[4] Limitations of Study:
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• Sample size is 200 that is not enough to study the awareness of Independent Financial
Advisors.
• As sampling technique is convenient sampling so it may result in personal bias.
• Even respondents may give bias answer.
• Time is main constraint of the research as we have been given training period of 8 weeks
is short for such studies.
• This research reflects the awareness of Independent Financial Advisor in Rajkot city. It
cannot be generalized for other cities.
INDUSTRY PROFILE
[1]A SHORT HISTORY OF MUTUAL FUNDS
Where did they come from?
Mutual funds are not an American invention. The first was started in the Netherlands in 1822,
and the second in Scotland in the 1880's.
Originally called investment trusts, the first American one was the New York Stock Trust,established in 1889. Most that followed were begun in Boston in the early 1920's, including the
State Street Fund, Massachusetts Investor's Trust (now called MFS), Fidelity, Scudder, Pioneer,
and the Putnum Fund. The Wellington Fund, the first balanced fund that included both stocks
and bonds, was founded in 1928, and today is part of the giant Vanguard Funds Group.
In the 1960's there was a phenomenal rise in aggressive growth funds (with very high risk).
Sometimes called "go-go" or "hot-shot" funds, they received the majority of the billions of
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dollars flowing into mutual funds at that time. In 1968 and 1969, over 100 of these new
aggressive growth funds were established.
A severe bear market began in the autumn of 1969. People became disillusioned with stocks and
mutual funds. "The market's toast. It’ll never get back to where it was!" was echoed by panicked
investors.
Unemployment grew; inflation went crazy, and investors pulled billions back out of the funds.
They should have hung in there! Many funds have risen 9,000% since then.
The 1970's saw a new kind of fund innovation: funds with no sales commission called "no load"
funds. The largest and most successful no load family of funds is the Vanguard Funds, created by
John Bogle in 1977.
At the end of the 1920's there were only 10 mutual funds. At the end of the 1960's there were
244. Today there are more than 6,500 unique funds and even thousands more that differ only by
their share class (how they are sold, and how their expenses are charged).
Before we continue with all you need to know about mutual funds, here is something that merits
your attention. Since 1940, no mutual fund has gone bankrupt. You sure can't say that about
banks and savings and loans!
History of mutual fund shown in Phases
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the
initiative of the Government of India and Reserve Bank the. The history of mutual funds in India
can be broadly divided into four distinct phases.
First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up
by the Reserve Bank of India and functioned under the Regulatory and administrative control of
the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and administrative control in place
of RBI. The first scheme launched by UTI was Unit 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)
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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 march 2006, there were 30 funds, which manage assets of Rs.231862 crores under 421 schemes.
The graph indicates the growth of assets over the years.
GROWTH IN ASSETS UNDER MANAGEMENT
Note:Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified
Undertaking of the Unit Trust of India effective from February 2003. TheAssets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as awhole from February 2003 onwards.
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IL & FS Asset Management Co. Ltd.
Jeevan Bima Sahayog Asset Management Co. Ltd
PRIVATE SECTOR
Benchmark Asset Management Co. Pvt. Ltd.
Cholamandalam Asset Management Co. Ltd.
Escorts Asset Management Ltd.
J.M. Capital Management Pvt. Ltd.
Kotak Mahindra Asset Management Co. Ltd.
Reliance Capital Asset Management Ltd.
Sahara Asset Management Co. Pvt. Ltd
Sundaram Asset Management Company Ltd.
Tata Asset Management Private Ltd.
JOINT VENTURES- PREDOMINANTLY INDIAN
Birla Sun Life Asset Management Co. Ltd.
Credit Capital Asset Management Co. Ltd.
DSP Merrill Lynch Fund Managers Ltd.
HDFC Asset Management Co. Ltd.
JOINT VENTURES - PREDOMINANTLY FOREIGN
Alliance Capital Asset Management (India) Pvt. Ltd.
Deutsche Asset Management (India) Pvt. Ltd.
Franklin Templeton Asset Management (India) Pvt. Ltd.
HSBC Asset Management (India) Private Ltd.
ING Investment Management (India) Pvt. Ltd.Morgan Stanley Investment Management Pvt. Ltd.
Prudential ICICI Asset Management Co. Ltd.
Principal Asset Management Co. Pvt. Ltd.
Standard Chartered Asset Mgmt Co. Pvt. Ltd.
GLOBAL SCENARIO
Some basic facts:14
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In US, every third household is a mutual fund investor.
In US, the MF Industry size is about 67% of the US GDP whereas the Indian MF
Industry is just 6% of our GDP.
In US,MF assets are 1.5 times the bank deposit.
In India the bank deposits are about 10.50 times the MF assets.
In India for the past 3 years its has been seen that nearly 2,500 crore is being transferd
from bank deposits to Mutual funds on a yearly basis .
75% of the core customer bases of mutual funds in the top 50-broking firms in the U.S.
are expected to trade on-line by 2004.
On- line trading is a great idea to reduce management expenses from the current 2 % of
total assets to about 0.75 % of the total assets and as we start using advanced technologyin this industry this cost will further cut down the administration cost.
Internationally, on-line investing continues its meteoric rise. Many have debated about
the success of e- commerce and its breakthroughs, but it is true that this aspect of technology
could and will change the way financial sectors function. However, mutual funds cannot be left
far behind. They have realized the potential of the Internet and are equipping themselves to
perform better.In fact in advanced countries like the U.S.A, mutual funds buy- sell transactions
have already begun on the net, while in India the Net is used as a source of Information and also
net is used for transaction purpose is on the initial stage but is catching up quickly with all
dealing in this industry as it helps in reducing administrative cost.
Such changes could facilitate easy access, lower intermediation costs and better services
for all. A research agency that specializes in internet technology estimates that over the next four
years Mutual Fund Assets traded on- line will grow ten folds from $ 128 billion to $ 1,227
billion; whereas equity assets traded on-line will increase during the period from $ 246 billion to
$ 1,561 billion. This will increase the share of mutual funds from 34% to 40% during the period.
Such increases in volumes are expected to bring about large changes in the way Mutual
Funds conduct their business.Here are some of the basic changes that have taken place since the
advent of the Net.
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Lower Costs: Distribution of funds will fall in the online trading regime by 2003. Mutual funds
could bring down their administrative costs to 0.75% if trading is done on- line. As per SEBI
regulations, bond funds can charge a maximum of 2.25% and equity funds can charge 2.5%
as administrative fees. Therefore if the administrative costs are low, the benefits are passeddown and hence Mutual Funds are able to attract more investors and increase their asset base.
Better advice: Mutual funds could provide better advice to their investors through the Net
rather than through the traditional investment routes where there is an additional channel to
deal with the Brokers. Direct dealing with the fund could help the investor with their
financial planning.
In India, brokers could get more Net savvy than investors and could help the investors with
the knowledge through get from the Net. New investors would prefer online: Mutual funds can target investors who are young
individuals and who are Net savvy, since servicing them would be easier on the Net.
India has around 1.6 million net users who are prime target for these funds and this could just
be the beginning. The Internet users are going to increase dramatically and mutual funds are
going to be the best beneficiary. With smaller administrative costs more funds would be
mobilized .A fund manager must be ready to tackle the volatility and will have to maintain
sufficient amount of investments which are high liquidity and low yielding investments to
honour redemption.
Net based advertisements: There will be more sites involved in ads and promotion of mutual
funds. In the U.S. sites like AOL offer detailed research and financial details about the
functioning of different funds and their performance statistics. a is witnessing a genesis in
this area.
FUTURE SCENARIO:
The asset base will continue to grow at an annual rate of about 30 to 35 % over the next
few years as investor’s shift their assets from banks and other traditional avenues. Some of the
older public and private sector players will either close shop or be taken over.
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Out of ten public sector players five will sell out, close down or merge with stronger
players in three to four years. In the private sector this trend has already started with two mergers
and one takeover. Here too some of them will down their shutters in the near future to come.
But this does not mean there is no room for other players. The market will witness a
flurry of new players entering the arena. There will be a large number of offers from various
asset management companies in the time to come. Some big names like Fidelity, Principal, Old
Mutual etc. are looking at Indian market seriously. One important reason for it is that most major
players already have presence here and hence these big names would hardly like to get left
behind.
In the U.S. most mutual funds concentrate only on financial funds like equity and debt.Some like real estate funds and commodity funds also take an exposure to physical assets. The
latter type of funds are preferred by Corporate’s who want to hedge their exposure to the
commodities they deal with.
For instance, a cable manufacturer who needs 100 tons of Copper in the month of January
could buy an equivalent amount of copper by investing in a copper fund. For Example,
Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed percentage of it’s
corpus in Gold, Silver, Swiss francs, specific stocks on various bourses around the world, short –
term and long-term U.S. treasuries etc.
In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real
estate funds (investing in real estate and other related assets as well.).In India, the Canada based
Dundee mutual fund is planning to launch a gold and a real estate fund before the year-end.
In developed countries like the U.S.A there are funds to satisfy everybody’s requirement, but in
India only the tip of the iceberg has been explored. In the near future India too will concentrate
on financial as well as physical funds.
The mutual fund industry is awaiting the introduction of DERIVATIVES in the country
as this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value
(NAV).
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SEBI is working out the norms for enabling the existing mutual fund schemes to trade in
Derivatives. Importantly, many market players have called on the Regulator to initiate the
process immediately, so that the mutual funds can implement the changes that are required to
trade in Derivatives.
INVESTMENT PRODUCTS
A. Physical Assets and Financial Assets.
Gold and real estate are example of physical assets, which have a physical form to them.
There is a strong preference for these assets as investments, as these assets can be purchased with
cash and held for the long term. The obvious disadvantages are :the physical form with the risk of loss and theft, lower level of return, illiquid secondary markets; and ad hoc valuations and
transactions costs.
Financial assets are securities which are certificates embodying a financial contract
between parties. Bonds, equity shares, deposits, and insurance policies are all financial assets,
where investors only hold the proof of their investment in the form of a certificate or account.
These products are usually liquid, transferable and in most cases, stored electronically with high
degree of safety.
B. Equity and debt.Investors can invest in debt products, which typically have a pre stated periodic interest
payment, and or for fix tenure. Equity investments do not guarantee a return and for perpetuity.
However, equity shares can be sold in the secondary markets, where they are listed and traded.
Investors’ returns are in the form of dividends and capital gains / loss from selling the shares
C. Government securities and non-Government securities.
The Government, all of these being debt instruments, issues Varity of investment
instruments. Some of these have pre determined a fixed rate of interest. Some of this is floating
rate instrument where the interest rate is fixed periodically. Securities issued by the Central Govt.
do not carry default risk.
The non-Govt. issuers can be classified into public sector and private sector. Securities
issued by many public sector units have a special tax features. Some of these securities are also
guaranteed by the central/state Govt.
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Other investment instruments
a) PPF (Public Provident Fund)
This is a 15-year deposit product of the Govt. offered through banks.
Interests are fixed by Govt. and are paid on monthly balances.
Current interest rate is 8.5 % per annum. There is a proposal to make the interest a
floating rate, linked to Govt. yields.
Minimum investment of Rs.100 per year has to be made and maximum investment has
been recently capped at Rs. 60,000 per year.
Investment up to Rs 1,00,000 is tax deductable is available for investors with taxable
income Irrespective of the amount of income earned. The investment has to be made from thetaxable income of the year.
Both interest receipts and withdrawal if principal is exempt from tax.
Limited liquidity is available. Investors can draw up to 50 % of their 4th year balances,
from the 7 th year onwards
b) RBI Relief Bonds:
Issued by banks on behalf of the RBI, these bonds are borrowings of the Central
Government.
Tenure of 5 years.
Interest is fixed by the Govt. and is paid semi-annually. Current interest rate is 8% per
annum. There is a proposal to make the interest a floating rate, linked to Govt. yields.
Investors can receive interests or choose to accumulate interest in the scheme.
Interest income is fully exempt from tax.
Transferable by endorsement and delivery.
C) Mutual Fund:
A Mutual Fund is a pool of money, collected from investors, and is invested according to
certain investment objective.
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A Mutual Fund is created when investors put their money together. It is therefore a pool
of the investors’ funds.
The most important characteristic of a mutual fund is that the contribution and the
beneficiaries of the funds are the same class of people, namely the investors.The term mutual fund means that investors contribute to the pool, and also benefit from
the pool. There are no other claimants to the funds. The pool of funds held mutually by
investors is the mutual fund.
Benefit of Mutual Fund :
• Portfolio Diversification
• Professional Management
• Reduction in Risk • Reduction of Transaction Cost
• Liquidity
• Convenience and Flexibility
d) Other Government Scheme:
Indira Vikas Patra and Kishan Vikas Patra are instrument with fixed interest issued by
Central Govt., and sold by Post Office. Interest is taxable. Investor identity is protected
and investment in cash is possible
Post Office saving and recurring deposits are Govt. guaranteed deposits, with fixed rate
of interest. They are not transferable. Attractive for their safety and cash investment
options.
e) Investment Instrument issued by Companies *:
Commercial Papers:
- Short term (usually 90 days)
- Credit rated
- Wholesale market for issuance and tradingDebenture : - Medium to long term
- Put and call options and various structures
* NJ IndiaInvest fact sheet dec 2004
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- Secured and unsecured
- Fixed or floating interest rate
- Credit rated
- Privately placed or listed- Limited secondary market trading
- Limited electronic holding
Equity Share:
- Listed and traded on markets
- Dividend and capital gains uncertain
- Investment return depends on future profitability of the company
- Historical return and risk are highest amongst investment options
Fixed Deposit :
- Medium term (1-5 years)
- Fixed rate of interest- Credit rating
- Unsecured
- Not listed or traded-limited liquidity
Bonds of PublicFinancial Institution
:
- Widely distributed to retail investors
- Tenure ranging from 5-25 years, with put and call option
- Various structures, including regular income, deep discount and monthly
income bonds.
- Credit rated
- Limited secondary market trading
- Some bonds eligible for tax rebate as infrastructure bonds (20 % rebate
on investment up to Rs. 80000 under section 88, depending on taxable
income of investor). 3 – year lock on this bond of NHB, NABARD,
NHAI and SIDBI eligible investments for investing capital gain.
Comparison between various investment options available
A. Banks v/s Mutual Funds *
Banks Mutual FundsReturns Low Better
Administrative Expenses High Low
*
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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 CalculationMin. balance between 10 th & 30 th
of every monthEveryday
Guarantee Max. Rs.1 lakhs on deposits None
Comparison between FD, Bonds and Mutual Fund – Features *
FD's Bonds Mutual FundsAccessibility Low Low High
Tenor Fixed(medium) Fixed(Long) No Lock-in
Min. Investment Rs.1000 Rs.5000 Rs.500
Tax Benefits None 80L, 88 Dividend Tax-FreeLiquidity Low Very Low Very High
Convenience Medium Tedious Very High
Transparency None None Very High
As can be seen from the above table mutual funds offer the maximum benefits in respect
of all the features of investment. The quality of the services and features of investment as
well as the interpersonal relationship between the customers and the organization
providing the services significantly influence the marketing of mutual funds. Mutualfunds play a significant role in servicing as in any other financial service industry.
Liquidity is an important consideration for any investor and mutual funds offer sufficient
liquidity. The units of a fund can be sold and repurchased on the basis of the NAV. Many
mutual funds also allow investors to switch from one fund to another. Thus, the absence
of a lock-in period serves to benefit the investors who might want to withdraw at any
* source: invest care for retirement Prudential icicic fact sheet 2004
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Risk
Liquid Funds
The Risk Return Trade -off
Growth Funds Aggressive, Value,
Growth
Balanced Funds
Sectoral Funds
Ratio of Debt : Equity
Potentialfor return
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moment of time. The amount a person has to invest in a mutual fund is usually very low.
There are also schemes that offer benefits by allowing payments in small denominations
better known as systematic investment plan (SIP).
Mutual fund investors all over the world enjoy certain tax benefits. The dividend receivedis tax exempt in the hands of the investor and this naturally augments the net yield of the
investments. The greatest benefit offered by mutual is the transparency it provides in the
form of fact sheets which clearly discloses the various companies in which the funds have
been invested and it also shows the percentage of the total amount invested into each
company. The fact sheet also provides the compounded annualized returns for the last 30
days till the last 5 years against the benchmark of the Bombay Stock Exchange. It also
provides for the benefits of the systematic investment plan.
Mutual Fund - One of the good options
Considering the almost all investment options as mentioned above, we can see that to
compensate for the increase in price, our wealth creation should be in proportion. Mutual
Fund is one of the better available options available. Though the risk is associated with the
returns are in accordance.
*
Return
* source: NJ IndiaInvest BOP PPt
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According to the investors psyche of taking risk, various options are available from this
products. The risk – return trade off as shown in the above figure is indicator of expected
return from risk taking capacity from the Mutual Fund.
PRODUCT DETAIL
A MUTUAL FUND IS A POOL OF MONEY THAT IS
INVESTED IN VARIOUS SECURITIES AND PROFESSIONALLY
MANAGED BY AN INVESTMENT MANAGER…
What is a Mutual Fund?
Like most developed and developing countries the mutual fund cult has been catching on
in India. There are various reasons for this. Mutual funds make it easy and less costly for
investors to satisfy their need for capital growth, income and/or income preservation.
And in addition to this a mutual fund brings the benefits of diversification and moneymanagement to the individual investor, providing an opportunity for financial success that was
once available only to a select few.
Understanding Mutual funds is easy as it's such a simple concept: a mutual fund is a
company that pools the money of many investors -- its shareholders -- to invest in a variety of
different securities. Investments may be in stocks, bonds, money market securities or some
combination of these. Those securities are professionally managed on behalf of the shareholders,
and each investor holds a pro rata share of the portfolio -- entitled to any profits when the
securities are sold, but subject to any losses in value as well.
A mutual fund, by its very nature, is diversified -- its assets are invested in many different
securities. Beyond that, there are many different types of mutual funds with different objectives
and levels of growth potential, furthering your chances to diversify
>> Definition of Mutual Fund
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Investor
FundManagerReturns
Securities
Passed back to
Invest inGenerates
Pooled theirmoney with
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ORGANISATION STRUCTURE OF A MUTUAL FUND *
* NJ IndiaInvest PPT Presentation
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SPONSOR TRUSTEE
SEBI
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In case of developed countries, Mutual Fund industry is highly regulated keeping in view the
protection of investors’ interest as well as to maintain operational transparency. There is a clear
demarcation between open-ended schemes and close-ended schemes for which usually two
different types of structural and management approaches are followed. Open-ended funds (unit
trusts) follows the ‘trust approach’ while close-ended schemes (investment trust) follow
‘corporate approach’. The management and operations are guided by separate regulatory
mechanisms, separate controlling authorities as well. With regards to India, there are no
distinctions to the followed and are integrated by Indian Regulatory Authority, SEBI.
SEBI Regulations Act, 1996, guides the formations and operations of Mutual Funds. A
Mutual Fund comprises of four separate entities, (a) Sponsor (b) Mutual Fund Trust (c) AMCand (d) Custodian. They are assisted by independent administrative entities like banks, registrars
and transfer agents.
Sponsor
Sponsor can be any person, acting alone or in a combination with another body corporate,
establishes the Mutual Funds and get it registered with SEBI. As per SEBI regulations, 1996:
Required to contribute 40% of minimum net worth (Rs. 10 crores) of the AMC.
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OPERATIONS
AMC
MKT./ SALES
DISTRIBUTER
MKT./ SALES
FUNDMANAGER
MUTUAL FUND
SCHEMES
INVESTORS
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Must have sound track record and general reputation of fairness and integrity in all
his/her transactions.
Mutual Fund shall be constituted in form of a trust and the instrument of trust shall be in
form of a deed, duly registered under the provisions of Indian Registration Act, 1908,executed by sponsor in favor of trustees.
Board of Trustees
Board of trustees manages a Mutual Fund and the sponsor executes the trust deeds.
Mutual Funds raise money through sale of units under one or more schemes, for investing in
securities. BoT sees to it that the schemes floated and managed by AMC appointed by trustees
are in accordance with trust deeds and SEBI guidelines. As per SEBI Regulations, 1996:The BoT has the right to obtain relevant information from the AMC and dismiss the
AMC under specific conditions also.
Half the trustees should be independent persons. Neither the AMC, not its employees can
act as a trustee.
As a trustee of Mutual Fund, he cannot be appointed as a trustee of another Mutual Fund,
until and unless he is an independent person or has permission from the Mutual Fund
where he is a trustee.Trustees have the right to appoint custodian and supervise their activities.
Trustees can be removed only by prior approval of SEBI.
Asset Management Company
AMC is appointed by the trustees to float the schemes and manage the funds raised by
selling units under the scheme. They are to act as per SEBI guidelines, trust deeds and
management agreement between the trustees and AMC.They should be registered under the SEBI.
Net worth of the AMC should be in cash and all assets should be in the name of AMC.
AMC cannot give or guarantee loans and is restricted from acquiring assets, which
involve the assumption of unlimited liability.
AMC are required to disclose scheme particulars and base of calculation of NAV.
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The director of AMC should be a person of reputed of high standing and at least have five
years experience in relevant field.
AMC can be terminated with 75% unit holders or majority of trustees.
Custodian
As per SEBI Regulations Mutual Funds shall have a custodian who is not any way
associated with the AMC. It carry outs the activity of safekeeping the securities or participating,
in any clearing system.
Custodian should have a sound track record and adequate relevant experience.
Should not be associated with AMC or act as a sponsor or trustee to any Mutual Fund.
Where do Mutual Funds invest?
Broadly mutual funds invest basically in 3 types of asset classes:
Stocks:
Stocks represents ownership or equity in a company, popularly known as shares.
Bonds:
These represents debt from companies, financial institutions or government agencies.
Money market instruments:
These includes short term debt instrument such as treasury bills, certificate of
deposits and inter-bank call money.
Valuation of units of Mutual Fund:
The units are available continuously for sale on all working days at NAV related prices
excepting during the period when there is a book closure.
The performance of a particular scheme of a mutual fund is denoted by Net Asset Value
(NAV).
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 securities changes every day, NAV of a scheme also varies on day to day basis.
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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 Rs 200 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. NAV is required to be disclosed bythe mutual funds on a regular basis - daily or weekly - depending on the type of scheme.
NAV of units under each scheme / plan shall be calculated as shown below:
Market or fair value of the scheme/plan’s investment
+ Current Assets (including accrued income)
– Current Liabilities and Provisions (including accruedexpenses)
NAV (Rs.) per unit =
Number of units outstanding under the scheme / plan
Types of Mutual Fund Schemes:
The various types of Mutual Funds can be classified according to various
investors’ objectives and their expectations. They can be segregated as under into the following
criteria.
By Investment Objectives.
By Duration/Constitution.
Load and No-Load Funds.
Other types of schemes.
Hereby, let us discuss the various types of Mutual Funds in detail.
By Investment Objectives
Growth/Equity Funds
These funds re high risk-high return funds, wherein major chunk of investment goes in
equity shares of companies. The NAV of such funds keep fluctuating, but the potential to earn in
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such funds is higher provided they are invested with long-term (more than 5 years) financial
goals. The leading examples of such funds are, Kothari Pioneer Prima Fund, Prudential ICICI
Equity Fund, Birla Sun Life Fund, etc.
Income/ Debt FundsThese funds are low risk-low return funds, where in the investments are made in income
bearing instruments such as bonds, debentures, government securities, commercial papers etc.
The share prices of these funds tend to be more stable in value and are best suitable for regular
income investment goals, provided minimum investment period is more than one year. The
leading examples are monthly income funds of UTI, Prudential ICICI Income Plan, JM Income,
Alliance Liquid Fund etc.
Balanced Funds
These funds invest in both, equity shares and income bearing instruments. The idea is to
reduce volatility of fund, while providing some upside for capital appreciation. In all, it is a
combination of income and growth funds, more return – more risk than income funds and less
return – less risk than growth funds. They are best suited for people looking for a combination
for capital appreciation and regular income and best time – span for such investments is more
than 3 years. The examples are PRUICICI Balanced Fund, IDBI-PRINCIPAL Balanced Fund,
and IDBI-PRINCIPAL Child Benefit Fund etc.
Money Market Funds
These funds invest in highly liquid instruments such as certificate of deposits and short-
term bonds. They have emerged as an alternative for savings and short-term fixed deposit
accounts. They are best suited for capital preservation investment objectives, where time-span is
least.
Gilt Funds
These funds are sort of government funds wherein the investments are made in debt
instruments of the government, which carry no risk of non-payment of interest as the RBI
manages the payment of interest and principal on the instruments. These funds are best suited to
the regular income and long-term investment objectives. The time-span matters a lot as there are
chances of price volatility, which may lead to possibility of loss of principal invested, if invested
for short-term. Examples are PRUICICI Gilt Fund, IDBI-PRINCIPAL Government Securities
Fund etc.
International Funds
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These are funds investing in international assets or shares of emerging market origin.
These are not possible in India due to regulation against investing overseas. Most of the foreign
institutional investors (FIIs) investing in India are actually funds of this type.
By Duration/By Constitution
Open – ended Funds
These funds are open for subscription and redemption every day at prices linked to the
daily net asset value per share. That means buying and selling is done directly with the fund.
From the investors’ perspective, these funds are more liquid compared to the close-ended funds.
The key features of such funds are there in fixed maturity, the corpus keeps on fluctuating and
they are typically not listed in any stock exchange.
Close – ended Funds
The investment in such funds is made during the initial issue period and the money gets
lock-in for a stipulated period (ranging from 2 to 15 years). After the initial issue, these funds
can be bought or sold on the stock exchange where the fund is listed. Generally, the close-ended
funds are traded at a discount to their NAV. Its key features are the maturity is fixed, the corpus
is also fixed and they are listed in stock exchange.
Interval Funds
Interval funds combine the features of open – ended and close – ended schemes. They
are open for sale or redemption during pre-determined intervals at NAV related prices.
By Entry/Exit Charges
Load Funds
Load funds are those funds wherein the investor has to incur a one-time charge at the
time of either entry or exit into the fund. The entry charge is called front – end load, whereas the
exit charge is called back – end load. This load is limited to a maximum of 6% of the investment
value.
No – load Funds
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No – load funds are those wherein the investor has to incur charges on every transaction
made by him, but then the investor is free from entry or exit fee as in the case of load funds.
Here the AMC is entitled to collect 1% additional management fees (this fee is less than load
funds but then the transaction made will be higher, so the actual amount incurred will be nearlysimilar). Thus, while the investor saves some upfront cost, he incurs high ongoing cost.
red return schemeAssured return schemes are those schemes that assure a specific return to the unit holders
irrespective of performance of the scheme. A scheme cannot promise returns unless such returns
are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer
document. Investors should carefully read the offer document whether return is assured for the
entire period of the scheme or only for a certain period. Some schemes assure returns one year ata time and they review and change it at the beginning of the next year.
Other Types of Schemes
Tax Saving Funds
These funds offer tax rebate to the investor along wit capital growth and steady returns.
An Equity United Savings Scheme is available wherein investments are made primarily in
stocks. The investment can be made any time, but it gets lock-in for a period of 3 years and inreturn tax rebate @ 20% is obtained if investments exceed Rs.1, 00,000. Another such scheme is
pension scheme, wherein tax rebate @ 20% can be obtained for investment up to Rs.60, 000.
Index Funds
Index funds invest only in stocks of a particular index such as BSE, S&P CNX 500 etc.
The principle is to duplicate performance of these widely followed indexes while keeping trading
and other costs to a minimum. The returns in case of such funds depend on the index’s
performance. It is best suited to the investors who are satisfied with the returns of an index.
Sector Funds
Sector funds primarily invest in companies of a particular sector/ industry such as
information technology, pharmaceuticals, FMCGs etc. These types of funds are subject to more
risk as the performance of funds depends on the performance of the industry as a whole and also
because the diversification of risk is reduced. Also with the new rule of government not
allowing investing more than 10% in a particular company, is a big problem as the number of
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companies are not very large and at the same time all of them are not very successful. It is best
suited to people willing to take high risk.
Special Purpose Funds
Special purpose funds are those fund that target a specific customer segments, suchas children, women, retired people etc. Making their fund oriented towards the need of the
group they are targeting.
Off Shore Funds
These funds will have non-residential investors and are regulated by the provision of the
foreign countries where they are registered. Further these funds are governed by the rules and
procedures laid down for the purpose of approving and monitoring their performance by the
department of economic affairs, Ministry of Finance and the directions of RBI.
Why Investors need Mutual Funds?
Mutual Funds offer benefits, which are too significant to miss out. Any investment has to
be judged on the yardsticks of return, liquidity and safety. Convenience and Tax efficiency are
the other benchmark relevant in Mutual Fund investments. In the wonderful game of finance
safety and return are two opposite goals and investor cannot be nearer to both at the same time.
Mutual Funds are pooled resources that get invested in a diversified portfolio. The crux of
Mutual Fund investing is averaging the risk. When risk are equalized so are the returns.
When investor are confronted with a mind-boggling range of products, from traditional
bank deposits to downright shady money-multiplier schemes-let alone the physical assets and
non-conventional investments. Investor choice perhaps normally falls somewhere amongst the
products shown in the table below:
(Source: Mutual Fund Review, Dec. 2003)
Option
Current
Yield
Capital
Appreciation Risk
Marketability
or Liquidity Convenience
Equity Low High High Variable High
Non Conv.
Debentures
High Negligible Low Average High
Growth
Schemes
Low High High High Very High
Income High Low Low High Very High
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Schemes
Bank
Deposits
Moderate Nil Negligible High Very High
PPF Nil High Nil Average Very HighLife Insur. Nil Moderate Nil Average Very High
Residential
House
Low High Negligible Low Fair
Gold and
ilver
Nil Moderate Average Average Average
Many investors possibly don’t know that considering returns alone, many Mutual Funds
have outperformed a host of other investment products. Mutual Funds have historically
delivered yields averaging between 9% to 25% over a medium to long time frame (source:
www.moneycontrol.com). The duration is important because like wise, Mutual Fund returns
taste better with the passage of time. Investor should be prepared to lock in your investments
preferably for 3 years in an income fund and 5 years in an equity fund. Liquid Funds of course,
generate returns even in a very short term.
Performance analysis of several funds show that depending on the scheme and the
duration returns from funds average between 9% to 25%. Such average may be misleading, as
some would have fared poorly while others would have posted phenomenally high returns. The
burden of intelligent choice therefore rests on investor. As the market matures and funds developequal capabilities – returns may however level out.
Besides, unlike in a bank deposit or an investment in bonds, returns in Mutual Funds may
fluctuate according to market volatility. A sufficiently longer time span will help Mutual Funds
yield their best returns.
Another critical benchmark for comparing investment options is liquidity. Liquidity
refers to the case with which investor can quickly convert investments back into cash at least
cost. Mutual Fund score high on this benchmark too. And depending on the schemes investor
chooses, Mutual Funds have diverse risk profiles high, medium and even low. Investor can
choose the scheme that best matches his risk appetite.
But the decisive charm of Mutual Funds lies not so much in their returns. It is the
convenience and tax efficiency that till the balance in favor of Mutual Funds. Convenience of
open-end funds is evident in their free entry and exits, systematic investment and withdrawal
plans.
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Step One - Identify your Investment needs
Your financial goals will vary, based on your age, lifestyle, financial independence,
family commitments, and level of income and expenses among many other factors. Therefore,
the first step is to assess your needs. You can begin by defining your investment objectives andneeds which could be regular income, buying a home or finance a wedding or educate your
children or a combination of all these needs, the quantum of risk you are willing to take and your
cash flow requirements.
Step Two - Choose the right Mutual Fund
The important thing is to choose the right mutual fund scheme which suits your
requirements. The offer document of the scheme tells you its objectives and provides
supplementary details like the track record of other schemes managed by the same FundManager. Some factors to evaluate before choosing a particular Mutual Fund are the track record
of the performance of the fund over the last few years in relation to the appropriate yardstick and
similar funds in the same category. Other factors could be the portfolio allocation, the dividend
yield and the degree of transparency as reflected in the frequency and quality of their
communications. For selecting the right scheme as per your specific requirements, click here.
Step Three - Select the ideal mix of Schemes
Investing in just one Mutual Fund scheme may not meet all your investment needs. You
may consider investing in a combination of schemes to achieve your specific goals.
Step Four - Invest regularly
The best approach is to invest a fixed amount at specific intervals, say every month. By
investing a fixed sum each month, you buy fewer units when the price is higher and more units
when the price is low, thus bringing down your average cost per unit. This is called rupee cost
averaging and is a disciplined investment strategy followed by investors all over the world. You
can also avail the systematic investment plan facility offered by many open end funds.
Step Five- Start early
It is desirable to start investing early and stick to a regular investment plan. If you start
now, you will make more than if you wait and invest later. The power of compounding lets you
earn income on income and your money multiplies at a compounded rate of return.
Step Six - The final step
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All you need to do now is to Click here for online application forms of various mutual
fund schemes and start investing. You may reap the rewards in the years to come. Mutual Funds
are suitable for every kind of investor - whether starting a career or retiring, conservative or risk
taking, growth oriented or income seekin
Benefits of Mutual Funds
Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a
dedicated investment research team that analyses the performance and prospects of companies
and selects suitable investments to achieve the objectives of the scheme.
Diversification
Mutual Funds invest in a number of companies across a broad cross-section of industries
and sectors. This diversification reduces the risk because all stock cannot go through a
downtrend at the same time and in the same proportion. You achieve this diversification through
a Mutual Fund with far less money than you can do on your own.
Conventional Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such
as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds
save your time and make investing easy and convenient. Return Potential Over a medium to
long-term, Mutual Funds have the potential to provide a higher return as they invest in a
diversified basket of selected securities
Low Costs
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Mutual Funds are a relatively less expensive way to invest compared to directly investing
in the capital markets because the benefits of scale in brokerage, custodial and other fees
translate into lower costs for investor
Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value related
prices from the Mutual Fund. They are also prompt in meeting redemption demands. In close-
end schemes, the units can be sold on a stock exchange at the prevailing market price or the
investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.
Thus, Mutual Funds can be easily converted into cash whenever required, highlighting its
function of high liquidity, whether open-ended or close-ended.
Transparency
You get regular information on the value of your investment in addition to disclosure on
the specific investments made by your scheme, the proportion invested in each class of assets and
the fund manager’s investment strategy and outlook.
Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend
reinvestment plans, you can systematically invest or withdraw funds according to your needs and
convenience.
Affordability
An added advantage of investing in Mutual Funds is an investor can invest money
whenever he has a surplus even when the amount is very small.
Investors individually may lack sufficient funds to invest in high-grade stocks. A Mutual
Fund because of its large corpus allows even a small investor to take the benefit of its investment
strategy.
Variety
Mutual Funds offer schemes to suit specific investment needs. For instance, there are
growth schemes for investors who are willing to bear a greater risk, gilt schemes for investors
who are risk-averse and retirement plans for those with an eye on the future.
Highly Regulated
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All Mutual Funds in India have to be regulated with the SEBI, and comply with its
regulations, which means strict safeguard of investors’ funds implying appropriate protection of
funds against fraud and misuse.
Tax BenefitsSection 88,88B,88C scraped. New section 80C introduced under which tax
payers can directly claim deduction upto Rs 1 lakh from their income .All
investments eligible U/S 88 are being placed under section 88C without any
sectoral caps.Amount invested under section 88CCC,88CCD to be included under
section 88C.
• NO changes in tax treatment on capital gains on Mutual fund
units .• Investment in ELLS can be done upto 1 lakh to claim deduction
under section 88C as against previous limit of on investment of Rs 10,000
under section 88
• Securities turnover tax would be 0.020% from FY2004-05 at the
tredemption /switch-out from equity/balance schemes.
• Taxation of mutual fund dividend
Dividend continue to tax free at the hands of the investors.Dividend distribution tax(DDT) has to be paid by the mutual funds
as follows :
Equity and
Balance schemes NIL
Debt schemes For HUF & Individuals-12.50%
For Others -20.00%
(Includes firms,corporates,trusts,socities etc)• Capital gains tax
LT capital gain in equity investment(including equity and balanced mutual funds) after October
1, 2004 would be tax free:
SET – OFF AGAINSTLTCG STCG
LTCL YES NOSTCL YES YES
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LTCL=Long Term Capital Loss STCL=Short Term Capital Loss
LTCG=Long Term Capital Gain STCG=Short Term Capital Gain
Limitations of Mutual Fund
Mutual Funds are a victim of their own success. When a large body like a fund invests in
shares, the concentrated buying or selling often results in adverse price movements i.e. at the
time of buying, the fund ends up paying a higher price and while selling it realizes a lower price.
For obvious reasons, this problem is even more severe for funds investing in small capitalization
stocks. However, given the large size of the debt market, excluding UTI, most debt funds do not
face this problem.
Waiting time before investment
It takes time for a Mutual Fund to invest money. Since it is difficult to invest all funds in
one day, there is dome money waiting to be invested. Further, there may be a time lag before
investment opportunities are identified. This ensures that the fund under performs the index. For
open-ended funds, there is the added problem of perpetually keeping some money in liquid assets
to meet redemption. The problem of impracticability of quick investments is likely to be reduced
to some extent with the introduction of index futures.
Fund management costsThe costs of the fund management process are deducted from the fund. This includes
marketing and initial costs deducted at the time of entry itself, called “load”. Then there is the
annual asset management fee and expenses, together called the expense ratio. Usually, the
former is not counted while measuring performance, while the later is. A standard 2% expense
ratio means that, everything else being equal, the Fund manager under performs the benchmark
index by an equal amount.
Cost of churningThe portfolio of a fund does not remain constant. The extent to which the portfolio
changes is a function of the style of the individual fund manager. It is also dependent on the
volatility of the fund size i.e. whether the fund constantly receives fresh subscriptions and
redemption. Such portfolio changes have associated costs of brokerage, custody fees, and
registration fees etc. that lowers the portfolio return commensurately.
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Change of index composition
The indices keep changing over the world to reflect changing market conditions. There is
an inherent survivorship bias in this process, with the bad stocks weeded out and replaced by
emerging blue chips. This is a severe problem in India with the Sensex having been changes
twice in the last five years, with each change being quite substantial. Another reasons for change
index composition is Mergers & Acquisitions. The weight age of the shares of a particular
company in the index changes if it acquires a large company not a part of the index.
Tendency to take conformist decisions
From the above points, it is quite clear that the only way a fund can beat the index is
through investment of some part of its portfolio in some shares where it gets excellent returns,
much more than the index. This will pull up the overall average return. In order to obtain suchexceptional returns, the fund manager has to take a strong view and invest in some uncommon or
unfenced investment options. Most people are unwilling to do that. They follow the principle
“No fund manager ever got fired for investing in Hindustan Lever” i.e. if something goes wrong
with an unusual investment, the fund manager will be questioned but if anything goes wrong
with the blue chip, then you can always blame it on the “environment” or “uncontrollable
Factors” knowing fully well that there are many other fund managers who have made the same
decision.
Unfortunately if the fund manager does the same thing as several other of his class,
chances are that he will produce average results. This does not mean that if a fund manager takes
“active” views and invests in heavily researched “uncommon” ideas, the fund will necessarily
out perform the index.
Challenges in Mutual Fund Industry
Today, the Mutual Funds have become the most favored investment vehicle across the
world. As in the history of the Indian financial system, the stock markets had not performed well
and the interest rates also stayed depressed, due to which even the Mutual Funds could not do
well. So earlier was the scenario where people did not preferred Mutual Funds and the only
industry that came to their minds while investing was the banking sector. But now the trends are
changing and the investors are making their investments the most in the Mutual Funds industry.
Today, the Mutual Funds industry is of about $18 –19 billion. Right now it is very small
with barely 11% of the net demand. But the scope of its development is very high, with the
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changing trends of more popularity of the Mutual Funds. There are certain challenges relating to
the Mutual Funds industry which are discussed as follows:
Customer Perspective
Today the customer profile is changing as they are more educated and are aware of
what’s happening in the markets. They want to invest only in those schemes where they know
where the money is going. Apart from this they want fair amount of returns with moderate risk
or rather low risk. And considering to these needs, it can be easily noted that Mutual Fund
fulfills these expectations of the customers, where their operations are pretty transparent and also
wide range of schemes are available for different investment objectives (right from high risk –
takers to no risk – takers). Earlier Mutual Fund meant high risk because of improper knowledge
of Mutual Funds, but today even this issue is taken care of and customers are satisfied with the performance of Mutual Funds which has made this instrument a hot spot.
Increasing Number Of Players
Earlier was the scenario where only one player, UTI was operating the Mutual Funds.
Later the market got monopolistic, where only few giants operated in the market. This scenario
continued for nearly 35 years. But now, large number of players has entered into this market,
coming up with better schemes, better services and superior performance. Today services like
redemption of units within 48 hours, toll-free telephone nos., cheque writing facility against
Mutual Fund account, ATM cards and switching between two accounts have been reduced for
high customer satisfaction. (And continuation to this scenario it won’t take long when the
transactions will take place on the Internet, with more customized services.)
Growing Market
The Mutual Funds market is growing at a very quick span, taking away major chunk of
financial savings from other instruments in the market. Currently, Mutual Funds are giving a big
threat to the banks by taking away share of savings from their fixed deposits, savings deposits
and other cash management products. This has led to banks, also entering into the Mutual Funds
markets.
Preference To Equity And Mixed Funds
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The investors are finding deals in the equity funds pretty profitable with good range of
returns. Though the risks are high in such investments the investors have started confiding in the
AMC which prefer equity funds (as against what happened earlier when people used to prefer
debt funds against equity fund due to low risk). Also moderate investors are going for mixed or balanced funds so as to obtain high gains of the equity stocks.
Marketing Of The Funds
This is a critical issue that is getting due importance these days. As such, there is no
much product differentiation and almost all the funds are offering similar services to the
investors. So the funds are now a days focusing on their core competence of managing money
and marketing their funds. Also the funds are changing their focus from scheme oriented tocustomer – oriented to tap the unexplored market for investments. They are trying to tap the
rural and semi urban markets where people are not much educated about the funds and their
savings are going to the banks, by spreading awareness of the added benefits of the Mutual Fund
schemes as well as the customer incentives that are offered these days.
Clear Investment Policies
This is the new approach adopted by the funds to attract more investments. Here the
objectives are clear and are properly communicated so that the fund is more transparent and it isalready noted that the more transparent the fund the better satisfied the customer.
Lower Cost
Distribution of funds will fall in the online trading regime by 2003. Mutual Funds could
bring down their administrative costs to 0.75% if trading is done on-line. Therefore if the
administrative costs are low, the benefits are passed down and hence Mutual Funds are able to
attract minor investors and increase their asset base.
Better AdviceMutual Funds could provide better advice to their investors through the Net rather than
through the traditional investment routes where there is an additional channel to deal with the
Brokers. Direct dealing with the fund could help the investor with their financial planning.
Net Based Advertisement
Mutual Funds can target investors who are young individuals and who are Net savvy, since
servicing them would easier on the Net. India has around 1.6 million net users who are prime
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target for these funds and this could just be the beginning. The Internet users are going to
increase dramatically and Mutual Funds are going to be the best beneficiary.
Safety Perspectives
Any Mutual Fund is as safe or unsafe as the assets that it invests in. There are two
categories of Mutual Funds with others being variations or mixtures of these. Firstly, there are
those that invest purely in equity shares (called equity funds or growth funds) and secondly, there
are those that invest purely in bonds, debentures and other interest bearing instruments called
Income or Debt funds. The NAV of growth funds fluctuates in line with the fluctuation of the
shares held by them. They can also witness face substantial erosion in value, which a much
lesser degree and an income fund is extremely unlikely to face erosion in value especially of the
permanent kind.
Most Mutual Funds have qualified and experienced personnel, who understand the risks
of investing. But, nobody is immune from making mistakes. However, funds diversify the
investment portfolio substantially so that default in any single investment (in the case of an
income fund) will not affect the overall performance of a fund in a significant manner. In the
event of default of a participant of the portfolio, an income fund is extremely unlikely to face
erosion in the face value.Generally, Mutual Funds are not guaranteed by anybody. However, in the Indian context,
some of the Mutual Funds have floated “guaranteed” or “assured” return schemes, which
guarantee certain annual return or guarantee a buyback at a specified price after some time.
Examples of these include funds floated by the UTI, Canbank Mutual Fund, SBI Mutual Fund,
LIC Mutual Fund etc. Many of these funds have not earned returns that they promised and the
AMCs of the respective Mutual Funds or their sponsors have made good their promises. The
biggest case pertains to the US 64, which never guaranteed any returns but is being bailed out by
the Government due to the millions of individuals who have invested in i
Risk Tolerance
The discussion on investment objectives would not be complete without a discussion on
the risks that investing in a Mutual Fund entails. At the cornerstone of investing is the basic
principal that the greater the risk you take, the greater the potential reward. Remember that the
value of all financial investments will fluctuate. Typically, risk is defined as short – term price
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variability. But on a long – term basis, risk is the possibility that your accumulated real capital
will be insufficient to meet your financial goals.
Managing Risk
Mutual Funds offer incredible flexibility in managing investment risk. Diversification
and Automatic Investing (SIP) are two key techniques you can use to reduce your investment
risk considerably and reach your long – term financial goals.
Diversification
When you invest in one Mutual Fund, you instantly spread your risk over a number of
different companies. You can also diversify over several different kinds of securities by
investing in different Mutual Funds, further reducing your potential risk. Diversification is a
basic risk management tool that you will want to use throughout your lifetime as you rebalanceyour portfolio to meet your changing needs and goals. Investors, who are willing to maintain a
mix of equity shares, bonds and money market securities have a greater chance of earning
significantly higher returns over time than those who invest in only the most conservative
investments. Additionally, a diversified approach to investing combining the growth potential of
equities with the higher income of bonds and the stability of money markets helps moderate your
risk and enhance your potential return.
Understanding how Systematic Investment Plan works?A SIP is a sensible way of investing money in a fluctuating market by reducing your average cost
. when you invest a fixed amount every month , the number of mutual funds units you actually
buy depends upon the market pricing (NAV) at that pint in time . therefore you tend to buy less
units when the market is moving up and more units when market is moving down. This means
your averaging your cost.
To illustrate this principle , let’s suppose you had invested Rs 1,000 on 10 th of every
month from January to December 2003 in suppose PruICICI Power.
On December 31 st 2003, what do you think would be average purchase cost per unit would have
been?
Is it average of 12 NAV’s at which you would be investing during the year?
No! It is infact lower since you where investing a fixed sum every month, you actually ended up
buying more units when the NAV is lower and less units when NAV was high.
Month NAV on Date You invested No of units Your average Average
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(in Rs) Allotted cost* price(NAV) +
10-jan-03 13.33 1,000 75.02 13.33 13.3310-feb-03 13.41 1,000 74.57 13.37 13.3710-nar-03 12.72 1,000 78.62 13.15 13.15
10-apr-03 13.56 1,000 73.75 13.25 13.2610-may-03 13.98 1,000 71.53 13.39 13.4010-jun-03 15.17 1,000 65.92 13.65 13.7010-jul-03 17.74 1,000 56.37 14.12 14.2710-aug-03 18.98 1,000 52.69 14.59 14.8610-sep-03 21.57 1,000 46.36 15.13 15.6110-oct-03 24.11 1,000 41.48 16.72 16.4610-nov-03 25.46 1,000 39.28 16.28 17.2810-dec-03 27.23 1,000 36.72 16.85 18.11
*Your average cost = total money invested/number of units
for eg as on 10 th dec 2003 , the average cost per unit =12,000/712.3=16.85
+Average price(NAV)=sum of all NAV’s at which you invested/number of months you have
invested.
For eg ,as on 10 th dec 2003 , the average price=217.2/12=18.11.
Types of Risk
All investments involve some form of risk. Even an insured bank account is subject to
the possibility that inflation will rise faster than your earnings, leaving you with less real
purchasing power than when you started (Rs.1000 gets you less than it got your father when he
was your age). Consider these common types of risk and evaluate them against potential rewards
when you select an investment.
Market Risk
At times the prices or yields of all the securities in a particular market rise or fall due to
broad outside influences. When this happens, the stock prices of both an outstanding, highly
profitable company and a fledgling corporation may be affected. This change in price is due to
“Market Risk”.
Inflation Risk
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Sometimes referred to as “Loss of Purchasing Power”. Whenever inflation sprints
forward faster than the earnings on your investment, you run the risk that you’ll actually be able
to buy less, not more. Inflation risk also occurs when prices rise faster than your returns.
Credit Risk In short, how stable is the company or entity to which you lend your money when you
invest? How certain are you that it will be able to pay the interest you are promised, or repay
your principal when the investment matures?
Interest Rate Risk
Changing interest rates affect both equities and bonds in many ways. Investors are
reminded that “predicting” which way rates will go is rarely successful. A diversified portfolio
can help in offsetting these changes.Employee Risk
An industries’ key asset is often the personnel who run the business i.e. intellectual
properties of the key employees of the respective companies. Given the ever – changing
complexion of few industries and the high obsolescence levels, availability of qualified, trained
and motivated personnel is very critical for the success of industries in few sectors.
Exchange Risk
A number of companies generate revenues in foreign currencies and may have
investments or expenses also denominated in foreign currencies. Changes in exchange rates
may, therefore, have a positive or negative impact on companies which in turn would have an
effect on the investment of the fund.
Investment Risk
The sectorial fund schemes, investments will be predominantly in equities of select
companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the
equity performance of such companies and may be more volatile than a more diversified
portfolio of equities.
Change in Government Policy
Changes in Government policy especially in regard to the tax benefits may impact the
business prospects of the companies leading to an impact on the investments made by the fund.
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H. Budget proposals- assessment year 2006-07
Highlights:
Corporate Tax reduced to 30%from 35%, though surcharge
increased to 10%.
Fringe Benefit tax introduced at the rate of 30% in the hand of
employer.
Basic exemption limit has been raised from existing Rs. 50,000 to
Rs. 1,00,000.
Education Cess to remain same at 2%.
Surcharge of 10%on Income more than Rs. 10 lac.
Standard Deduction abolished.
Section 88,88B,88C scraped. New section 80C introduced under
which taxpayers can directly claim deduction upto Rs. 1Lac. From their income.
All investments eligible u/s 88 are being placed u/s 80C without any sectoral caps.
Limit of rebate under section 88 upto income of Rs. 5 Lac for
home loans under section 80C. Amount invetsde under Section 80CCC,80CCD to
be included in Section 80C.
Deduction on Principal payment of Rs 1 lakh for home loans under Section 80C .Section 80L scraped-interest income would now taxable (u/s 80L
upto Rs.12,000 of interest income exempted upto FY2004-05)
Exemption limit for senior citizens and for woman raised to
Rs.185,000 and Rs. 135,000 Respectively.
Cash Transaction Tax introduced on current account holder, it will
be 0.1% for withdrawal of more than Rs
25,000/- for individual and 0.1% for withdrawal of more than Rs.1,00,000/- for
companies.
Regulatory Aspects of Mutual Funds:
Schemes of a Mutual Fund
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• The asset management company shall launch no scheme unless the trustees approve such
scheme and a copy of the offer document has been filed with the Board.
• Every mutual fund shall along with the offer document of each scheme pay filing fees.
• The offer document shall contain disclosures which are adequate in order to enable theinvestors to make informed investment decision including the disclosure on maximum
investments proposed to be made by the scheme in the listed securities of the group
companies of the sponsor
• The mutual fund and asset management company shall be liable to refund the application
money to the applicants,- (i) If the mutual fund fails to receive the minimum subscription
amount referred to in clause (a) of sub-regulation (1);
(ii) If the moneys received from the applicants for units are in excess of subscription as referred
to in clause (b) of sub-regulation (1).
• The asset management company shall issue to the applicant whose application has been
accepted, unit certificates or a statement of accounts specifying the number of units
allotted to the applicant as soon as possible but not later than six weeks from the date of
closure of the initial subscription list and or from the date of receipt of the request from
the unit holders in any open ended scheme.
• Rules Regarding Advertisement:
• The offer document and advertisement materials shall not be misleading or contain any
statement or opinion, which are incorrect or false.
Investment Objectives And Valuation Policies:
• The price at which the units may be subscribed or sold and the price at which such units
may at any time be repurchased by the mutual fund shall be made available to the
investors.
General Obligations:
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• Every asset management company for each scheme shall keep and maintain proper books
of accounts, records and documents, for each scheme so as to explain its transactions and
to disclose at any point of time the financial position of each scheme and in particular
give a true and fair view of the state of affairs of the fund and intimate to the Board the place where such books of accounts, records and documents are maintained.
• The financial year for all the schemes shall end as of March 31 of each year.
• Every mutual fund shall have the annual statement of accounts audited by an auditor who
is not in any way associated with the auditor of the asset management company.
Procedure For Action In Case Of Default:
• On and from the date of the suspension of the certificate or the approval, as the case may
be, the mutual fund, trustees or asset management company, shall cease to carry on any
activity as a mutual fund, trustee or asset management company, during the period of
suspension, and shall be subject to the directions of the Board with regard to any records,
documents, or securities that may be in its custody or control, relating to its activities as
mutual fund, trustees or asset management company.
Restrictions On Investments:
• A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments
issued by a single issuer, which are rated not below investment grade by a credit rating
agency authorized to carry out such activity under the Act. Such investment limit may be
extended to 20% of the NAV of the scheme with the prior approval of the Board of
Trustees and the Board of asset management company .
• A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt
instruments issued by a single issuer and the total investment in such instruments shall
not exceed 25% of the NAV of the scheme. All such investments shall be made with the
prior approval of the Board of Trustees and the Board of asset management company.
• No mutual fund under all its schemes should own more than ten per cent of any
company's paid up capital carrying voting rights.
• Such transfers are done at the prevailing market price for quoted instruments on spot
basis.
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The securities so transferred shall be in conformity with the investment objective of the
scheme to which such transfer has been made.
• A scheme may invest in another scheme under the same asset management company or
any other mutual fund without charging any fees, provided that aggregate interschemeinvestment made by all schemes under the same management or in schemes under the
management of any other asset management company shall not exceed 5% of the net
asset value of the mutual fund.
• The initial issue expenses in respect of any scheme may not exceed six per cent of the
funds raised under that scheme.
• Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all
cases of purchases, take delivery of relative securities and in all cases of sale, deliver the
securities and shall in no case put itself in a position whereby it
has to make short sale or carry forward transaction or engage in badla finance.
• Every mutual fund shall, get the securities purchased or transferred in the name of the
mutual fund on account of the concerned scheme, wherever investments are intended to
be of long-term nature.
• Pending deployment of funds of a scheme in securities in terms of investment objectives
of the scheme a mutual fund can invest the funds of the scheme in short term deposits of
scheduled commercial banks.• No mutual fund scheme shall make any investment in;
i. Any unlisted security of an associate or group company of the sponsor; or
ii. Any security issued by way of private placement by an associate or group
company of the sponsor; or
iii. The listed securities of group companies of the sponsor which is in excess
of 30% of the net assets [of all the schemes of a mutual fund
• No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares
or equity related instruments of any company. Provided that, the limit of 10 per cent shall
not be applicable for investments in index fund or sector or industry specific scheme.
• A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or equity related
investments in case of open-ended scheme and 10% of its NAV in case of close-ended scheme.
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COMPANY PROFILE :
NJ IndiaInvest Pvt. Ltd. Two dynamic young men after completing their education were about to start their career
when they sow the growing scope of the financial service sector. Both of them decided to jump
into the same field and came out with the dynamic concept of NJ Capitalstock now, which is
known as NJ IndiaInvest. The word NJ stands for the first letter of Neeraj Choksi and Jignesh
Desai the founder directors of NJ IndiaInvest.
This business was started in the year 1994 ; it was the period when private company was
entering the field of financial services. This is the time when NJ IndiaInvest evolved out as a
client focused need based investment advisory firm. NJ has achieved expertise in need base
investment of clients.
NJ has a very well trained men power to meet the need of the clients and market. With the
help of which the organization has achieved growth in past, is growing and will be growing in
future. At NJ we regard mutual fund as one of the best investment avenue available to satisfy
any kind of investment need. With a very well qualified work force we have gained expertise in
analyzing mutual fund schemes, and in-depth study on various parameters is carried out on a
regular basis.
NJ IndiaInvest is a company, which is involved in this business from past 11 years as a
client focused need based investment advisory firm. It has developed its own IT Industry known
as Finlogic India Pvt. Ltd. i.e. technology to support for client as well as its employees in their
daily routine work. There is a very qualified staff for IT who have prepared a website for theorganization known as www.njindiainvest.com which provides a valuable support to clients as
well as to the employees in trading. All the valuable information , are available on our above
mentioned web site.
NJ IndiaInvest is a modern concept organization that was growing in past, growing in
present and will be growing in future.
NJ IndiaInvest Process :
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The sole business of the organization is to manage clients’ investments and to fulfill their
need from cap-a-pie. At NJ the people are education centric, the relationship managers will help
you in identifying and understanding your need and help you develop a portfolio across different
asset classes commensurate to your needs. This practice is only performed at NJ and this is whatmakes it superior to other competition in this same field.
There are well-trained experts who will give a feel on the various asset classes and explain
you the risk associated with each in a simple and lucid manner to put you at calm. Once the
investment is planned and done we don’t leave our client in between, but we back them by
periodic valuation reports and regular relevant information through newsletters, mailers, e-mail,
road shows etc.
The prime concern of the people at NJ will be to help you attain peace of mind on the
investment front
Services provided to valuable Clients & Agents:
Dedicated portfolio planning & restructuring on demand
The Weekly Performance Sheet (it covers performance of leading mutual fund schemes)
The Monthly Fund Fact Sheet (it covers comprehensive analysis of various mutual fund)
Various Subscription services via e-mailSharing relevant information related to the Indian Investment world.
Over and all we also provide net-based services to our clients and agents. Our e-services
are powered by a comprehensive website http:/www.njindiainvest.com. It covers detailed
information about the Mutual industry, it passes various financial planners to satisfy investment
goals like retirement planning, child’s marriage planning etc, it also posses various analytical
tools to measure the performance of Mutual Fund schemes viz. Returns Calculators, SIP Returns
Calculator, and many others. There is a separate desk for the clients to get their portfolio
information on fingertips.
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THE CLIENT DESK @ njindiainvest.com
Transaction Summary Report (Mutual Funds, fixed Deposits, RBI Bonds &
others)
Portfolio Valuation Report
Portfolio performance Report
Profit & Loss Account (FY wise)
Consolidated sector & stock profile for equity investments through mutual funds
Consolidated rating & script – profile across debt funds through mutual funds.
Consolidate Asset Allocation Report Across various Assets
Alert processing facility across different parameters
Philosophy at NJ IndiaInvest:
To provide reliable information
To honor our service commitments
To maintain all records in privacy
To preserve client capital
To provide appropriate feedback
To guide their future investment
To restructure investment plan on demand
Finally to provide complete solution & peace of mind on the investment front .
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AMC’s with NJ IndiaInvest:
Alliance Capital Mutual Fund
Birla Mutual Fund
Cholamandalam Cazenove Mutual Fund
DSP Merrill Lynch Mutual Fund
Dundee Mutual Fund
Escorts Mutual Fund
First India Mutual Fund
Franklin Templeton Mutual Fund
Pioneer ITI
HDFC Mutual Fund
HSBC Mutual Fund
IDBI Principal
IL & FS Mutual Fund
ING Savings Trust
JM Mutual Fund
LIC Mutual Fund
Prudential ICICI Mutual Fund
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Reliance Capital
SBI Mutual
Standard Chartered Mutual FundSun F&C Mutual Fund
Sundaram Mutual Fund
Tata Mutual
Unit Trust Of India
Zurich India Mutual Fund
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Vision and Mission Statement of N J IndiaInvest Pvt. Ltd.
VISION STATEMENT
“To be the leader in our sector of business through:
Total Customer Satisfaction, Commitment to Excellence,
Determination to Succeed & Finally to provide
peace of mind on investment front to society.”
MISSION STATEMENT:
“Ensure creation of value by providing a
Differentiating edge to the activities of
Our customers, investors and distributors
through Technnovative solutions while
Fulfilling our social obligations and maintaining
high Professional and ethical Standards
along with the service standards.”
QUALITY POLICY OF NJ INDIAINVEST
NJ AIMS AT PROVIDING HIGH QUALITY SERVICE ONINVESTMENT FRONT
THROUGH SYSTEMATIC &PROFESSIONAL APPROACH BACKED BY TOTAL
MANAGEMENTCOMMITMENT & TEAM WORK. TO ACHIEVE CUSTOMER
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SATISFACTIONAT A COST THAT REPRESENTS VALUE. WE AS A WHOLE
ARE COMMITTED TO PRACTICE A POLICY
“RIGHT AT THE FIRST TIME”
& THEN CONTINEOUS IMPROVEMENT IN OUR
ACTION & DEALING
Organization Structure
59
Sales Dept.
Operations Dept.
Accounts Dept.
Research Depart.
Legal Compliances
HR Dept.
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DATA ANALYSIS & INTERPRETATION
ANALYSIS OF DATA
There are 15 questions in this questionnaire. Now we will see the analysis of the
questions included in this questionnaire.
1) Investment options suggested to clients by the IFA’s
SR. NO. Investment avenue No of IFA’s Recommending it1 Stocks 352 Insurance 1433 Fixed Deposit 174 Govt.Sec 135 KVP 486 NSC 38
7 PPF 348 MIS 529 OTHER 11
10 Mutual fund/unit link plan 68
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INVESTMENT OPTIONS
35
143
17 13
4838 34
52
1129
0
20
40
60
80
100
120
140
160
1 2 3 4 5 6 7 8 9 10
SR. NO.
N O
. O F P E O P L E
(2) Parameter ranks given by IFA’s
INVESTERRSPREFERENCE 1 2 3 4 5 Total
Safety 122 28 24 18 8 200
Liquidity 7 18 72 57 46 200
Returns 62 73 26 23 16 200
Tax Benefit 9 62 66 27 36 200
Maturity 0 19 12 75 94 200
(3) The services provided by the IFA’s to there clients.
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(4) IFA’s
suggesting
mutual fund.
If ‘YES’
Services No of Respondents
Pre Investment Service 192
Post Investment Service 195
Door Step Collection Service 189
Sharing Of Brokerage 15
Online Valuation Service 32
Answer Yes No Total
No of Respondents 72 128 200
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If “NO”
(5) Asset Management company
suggested by IFA’s .
Reasons No Of Respondents
Low Risk 29
Prof Mgmt 46
Tax Benefit 38Flexibility 29
Liquidity 32
Good Incentives 28
Reasons No Of Respondents
High Risk 90
Poor Incentives 36
Lack Of Knowledge 74
Poor Performance 18
Unassured Return 69
Amc’s No Of RespondentsFranklin 36
Tata 36Hdfc 28
Reliance 27Sbi 18
Birla 4Kotak 3Other 17
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There are IFA’s who suggest more than one AMC to there clients to invest in
Response about AMC
05
10152025303540
F r a n
k l i n T a
t a H d
f c
R e l i a n
c e S b i
B i r l a
K o t a k
O t h e
r
AMC
N u m
b e r Franklin
Tata
Hdfc
Reliance
Sbi
Birla
Kotak
Other
.
(6) Reasons for choosing a particular dealer:
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Reasons No Of RespondentsBetter Service 27
Good Amc 4
Good Reputation 36Better Incentive 18
Timely Brokerage 9
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PROVIDING ON LINE VALUATIONREPORT TO CLIENT
Yes
No
(9) Are you interested in your own website?
Answer No Of RespondentYes 49
No 151
Total 200
INTRESTED IN OWN WEBSITE
Yes
No
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(10) IFA’s interested in attending Business Opportunity Program of NJ IndiaInvest.
Answer No Of Respondents
Yes 128
No 72
Total 200
0
20
40
60
80
100
120
140
Yes
No
(11) IFA’s interested in NJ IndiaInvest representatives to meet them?
Answer No Of Respondents
Yes 109
No 91
Total 200
(12) IFA’s who have cleared AMFI exam?
Answer No Of Respondents
Yes 12
No 188
Total 200
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(13) IFA’s who are interested in giving AMFI exam?
Answer No Of Respondents
Yes 70
No 118
NOT APPLICABLE 12
Total 100
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FINDINGS
In analysis of Question -1 , about 72% of IFA’s suggest insurance as ainvestment option to there clients. insurance gives the tax benefits, and peopleprefer it because it is the safer than others and this is followed by post officeschemes because it gives 7-9% returns.
Most of the IFA’s think of safety of investment when suggesting any investmentoptions to there clients.
Almost 96% of IFA’s give Pre-investment services to there clients followed bypost investment services.
In analysis of question 34% of IFA’s like to suggest or do suggest mutual fund tothere clients. Those who suggest mutual fund recommend it, because they thinkit gives better liquidity and flexibility. Those who don’t suggest mutual fund
because of high risk and lack of knowledge.In analysis of question 5, Franklin & Tata are the most preferred fund by IFA’sfrom those who suggest mutual fund as an investment option.
In analysis of question6, IFA’s think of good reputation and better service whenworking with a dealer or broker.
In analysis of question 7 , 33% of IFA’s are getting Online Valuation report for there investment.
In analysis of question 8, 27% of IFA’s are interested in providing online valuationreport to there clients.
In analysis of question 9 ,25 % of IFA’s are interested in having there ownwebsite.
In analysis of question 10 , 64% of IFA’s are interested in attending BOPconducted by NJ IndiaInvest .
In analysis of question 11 , 55% of IFA’s want NJ IndiaInvest representatives besent to meet them because most of th IFA’s are very busy so they wont be ableto come to the office.
In analysis of question 12, 6% of IFA’s are pass AMFI exam
In analysis of question 13 , 59% of IFA’s are don’t want to give AMFI exam.
In analysis of question 13 , 35% of IFA’s are interested in giving AMFI exam NJIndiaInvest .
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RECOMMENDATIONS
• Give more stress on safety attributes because Independent Financial Advisors are more
concern about safety of the investments of their clients.
• 34% of Independent Financial Advisors who are not suggesting their clients to invest in
mutual funds due to their lack of knowledge of mutual funds. So NJ India Invest should
arrange mutual fund awareness Programme of Independent Financial Advisors on regular
basis and this program should not be restricted to just Independent Financial Advisors but
also general people and employees so by doing this they will create new investors andalso would be able to get IFA’s from this group there by increasing the reach of mutual
fund among people.
• By providing better service NJ India Invest should try to switch the Independent
Financial Advisors who are directly working with AMC to join with them.
• Majority of the Salaried class and business man take into consideration tax benefits
before making any investment. So NJ India Invest should highlight tax benefits in mutual
funds.
• NJ IndiaInvest should be lenient while interacting with potential people who want to sell
mutual fund and should have patience when interacting with them and should explain
things with the core basics.
• NJ indiainvest should interact with Pvt insurance companies and have a
presentation there and should highlight how both can benefit from this as there is
negative attitude towards NJ indiainvest and the way they approach there insurance
advisors. There is a great potential if they can tap this area as they will get lot of
advisors who will sell mutual fund .they can have tie-ups insurance Co’s and can let
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the insurance advisors of that insurance Co give AMFI exam from NJ indiainvest as
the insurance Co’s are selling Unit link plan which is based on mutual fund so by
giving this exam they can get better insight into mutual fund and can easily solve
customer queries and can get more money as investment from them so this way allthe parties will be in a win-win situation as the IFA will become One Window
service Center with wide portfolio to there clients .
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ANNEXURE
a. QUESTIONNAIRE
1. What investment option(s) do you suggest for your clients?
Stocks KVP
Insurance NSC
Fixed Deposit PPF
Government Securities MIS
Any other Specify___________________
2. Rank the parameters given below according to your client’s preferences?
Safety Tax benefit
Liquidity Maturity
Returns Any other Specify ___________________
3. The Services You provide for your clients are ::
Pre Investment advisory ServicePost investment advisory service
Door step collection service
Sharing of Brokerage
Online Valuation Services
Any other Specify___________________
Name ::___________________________________________
Address :: ___________________________________________
Profession::____________________________________________
Experience in your Profession::__________________________________
Telephone no ::_______________________________
Mobile No ::_______________________________
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4. Do you suggest mutual fund for your clients?
Yes No
5. In which asset management company do you generally recommend your clients to invest and
why?
If Yes If No
Low Risk High Risk
Professional management Poor Incentives Structure
Tax Benefit Lack Of Knowledge
Flexibility Poor Performance
LiquidityUnassured Returns
Good Incentives Any Other____________________
Any Other ____________________
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7. Reasons for selecting a Particular dealer?
Better service Better incentives
Good AMC’s Timely BrokerageGood Reputation Any other specify ___________________
8. Are you getting online valuation report?
Yes No
9. Are you interested in providing online valuation report to your clients?
Yes No
10. Are you interested in your own Website?
Yes No
11. Would you like to attend business opportunity program arranged by N.J.IndiaInvest?
Yes No
12. Can we send representatives from N.J.IndiaInvest for more information about mutual funds
for you?
Yes No
13. Have you cleared your AMFI exam?
Yes No
14. If No, would you like to give the exam?
Yes No
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BIBLIOGRAPHY
WEBSITES:
www.thebharat.com
www.indiainfoline.com
www.amfiindia.com
www.valueresearchonline.com
www.mutualfundindia.com
www.myris.com
www.moneycontrol.com
www.njindiainvest.com
www.njfundz.com
www.mostchoice.com
www.mutualfunds.about.com
www.rediff.com
www.business-standard.com
Others:
Fact Sheet of NJ IndiaInvest Pvt Ltd.
Fact sheets of other AMC’s
Pamphlets and other materials relating to mutual fund
Weekly Report of NJ Indiainvest Pvt. Ltd.
GLOSSARY
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Active Portfolio Management
Is a systematic and proactive approach to investment with the goal of beating the market. This
strategy is based on the premise that markets are not efficient and that there is scope to earn
abnormal profits through an active investment strategy.
Annualized Return
The return a fund would have generated over a year on a compounded basis. This method is the
best indicator to measure the performance of a fund.
Asset Management Company (AMC)
A Company registered with SEBI, which takes investment/ divestment decisions for the mutual
fund, and manages the assets of the mutual fund. e.g. for Sun F&C mutual fund , the AMC is Sun
F&C Asset Management (India) Pvt. Ltd.
Asset Allocation
It is the process of allocating the overall corpus to different assets like equities, bonds, real estate,
derivatives etc.
Back-end Load
A kind of redemption charge that an investor has to pay for withdrawing his money from the
mutual fund. It is basically imposed to discourage investors from exiting the fund. It is also
popularly referred to as an Exit Load.
Balanced fund
A fund that invests substantially both in debt and equity.
Bottom-up Investing
It is a strategy of selecting the company for investment first and then cross checking it by
evaluating factors pertaining to the industry and the economy. It is the opposite of the -down
approach to investing.
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Closed-ended fund
A fund where investors have to commit their money for a particular period. In India these closed-
ended funds have to necessarily be listed on recognized stock exchanges which provide an exit
route.
Contingent deferred sales charge (CDSC)
An exit charge permitted under the regulations for a no-load scheme.
Continuous Offer Period
Is the date from which the units are available for sale and repurchase at a price linked to NAV of
the scheme.
Corpus
The total investable funds available with a mutual fund scheme at any point of time.
Credit Risk
It is the risk that the issuer of a fixed income security may default on payment of interest and
repayment of principal. It is also referred to as default risk.
Dated Security
A debt instrument that is long term in nature and has a fixed date of redemption.
Debt fund
A fund that invests in debt securities like Government securities, Treasury Bills, corporate Bonds
etc. These funds are generally preferred by investors wanting steady income and not willing to
take higher risks.
Dematerialization
The process of converting the physical /paper shares in Electronic form. SEBI had made it
compulsory to get the shares of some companies dematerialized. In this process the investor
opens an account with a Depository Participant (DP) and the number of shares the investor holds
is shown in this account.
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Depository Participant
An authorized body who is involved in dematerialization of shares and maintaining of the
investors accounts.
Discount/Premium to (Net Asset Value) NAV
It is the difference between the unit price and NAV. If the price is higher than the NAV, the units
are trading at premium: if the price is lower, the units are trading at a discount.
Diversification
It is the investment strategy of not putting all one’s eggs in one basket. By diversifying a
portfolio across different industries, overall risk of the portfolio is reduced.
Dollar Cost Averaging
The strategy of dividing the investible amount into a number of equal parts and buying at regular
intervals to take advantage of lower prices. This strategy is more beneficial in a bear phase.
Efficient Portfolio
A portfolio which ensures maximum return for a given level of risk or a minimum level of risk
for an expected return.
Factor Fund
It is a mutual fund that has a core philosophy of investing in a particular factor or style in the
market. They are also referred to as Style Funds. Examples of factor funds are Mid-cap funds,
Low P/E funds, Growth funds etc.
Financial PyramidAn investment plan in the shape of a pyramid structure where the safest investments are at the
base and the riskiest investments at the peak.
Fixed Income Security
A type of security that pays fixed interest at regular intervals. These comprise gilt-edged
securities, bonds (taxable and tax-free), preference shares and debentures. Less risky than equity
shares and have little scope for capital appreciation.
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Front-End Load
An initial amount charged by a fund for its administrative expenses or for paying commissions to
brokers. If the charge is made at the termination or redemption, it becomes a back-end load.
Gilt-edged Security
Government securities and bonds, usually with a low interest rate. Considered safest investments,
as the government security is free from default risk. Originally such certificates were edged with
gold and hence the name.
Gilt fund
Funds that invest predominantly in government securities and treasury bills. It is good for
investors who desire safety of principal and adequate liquidity.
Go-Go Fund
A mutual fund which invests in highly risky but potentially profitable investments. Such a fund
usually has a short life.
Equity/Growth fund
A fund that invest primarily in equities and has capital appreciation as its investment objective
Fund Manager
A professional manager appointed by the Asset Management Company to invest money in
accordance with the objects of the scheme.
Fundamental Analysis
A method of investment analysis based on the fundamentals like turnover, net profit, growth, and
vision of a company. The boom or depression of the stock markets is not considered in this
analysis.
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Income Fund
A fund that usually invests in debentures, bonds, and high dividend shares. Preferred by investors
who wants regular income. It pays dividends to the investors out of its earnings.
Index Fund
A fund whose portfolio is benchmarked against a popular index like the BSE Sensex or the BSE
Natex . Such an investment philosophy reflects the belief that the market is efficient and trying to
beat the market over the long term is futile
Initial Offer Period
The dates on which the initial subscription to the units of the scheme can be made. It is similar to
the IPO of an equity issue. This initial offer period is followed by a continuous offer period.
Interest Rate Risk
The change in the price of a debt security due to changes in the market interest rates is the
interest rate risk. For debt oriented mutual fund schemes, this interest rate risk affects the NAV
of the fund. A rise in the interest rates leads to a fall in the price of a fixed income security.
Interim Dividend
An advance installment of the dividend finally declared. More often one, but sometimes two such
payments are made. The final dividend is often at least equal, and sometimes more. The interim
dividend is a fair indication of a company's profitability, during the working year.
Liquid Fund
A fund that invests its corpus in short term instruments like call markets, treasury bills,
Commercial Paper (CP), Certificate of Deposit (CD).
Liquidity Risk
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It is the risk in a fixed income security as well as in equities that these securities may not be sold
in the market at close to their value. Liquidity risk is characteristic of narrow markets like India.
LoadA charge by the fund when an investor buys (entry load) or sells (exit load) units in the fund.
Market Capitalization
Represents the market value of the company. It is a product of the current market price and the
number of shares outstanding.
Market Instrument
A fully negotiable instrument for short-term debt.
Market Lot
A fixed minimum number of shares, in which or in multiples of which, shares are bought and
sold on the stock exchange. The advent of dematerialization of shares will do away the
significance of market lot.
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Net Asset Value (NAV)
This is calculated as total assets minus all expenses and divided by the number of outstanding
units. This is the main performance indicator for a mutual fund, especially when viewed in terms
of appreciation over time.
No-Load Fund
Shares of an open-ended fund, which can be bought directly from the fund without any sales
charge or brokerage. US-64 is an example of a no-load fund.
Offer Price
The price at which units can be bought from a fund.
Offshore Fund
A fund domiciled outside the country where investments are made. It is often a tax haven, not
subject to the tax laws of the holder's country.
Pari Passu
Ranking equally. After conversion of debentures into shares, the new shares created carry the
same rights as the existing shares of the company to receive dividends, rights and bonus shares,
and to participate in the company's profit and loss.
Passive portfolio management
Exactly the reverse of active portfolio management. The portfolio manager assumes that markets
are efficient and all information is already analyzed and reflected in the prices of shares. This
strategy is based on the premise that it is impossible to consistently beat the market.
Rating
Evaluation of credit risk in fixed income securities. This evaluation is specific to the security
rated and is done in India by Crisil, Icra, Care and Duff & Phelps.
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Record Date
It is the date announced by the company/mutual fund, which is a cut-off date for corporate
benefits like dividends, rights, bonus etc. Only investors whose names appear in the company’s
registers on that date are eligible for the said benefits.
Reinvestment Plan
It is a plan where the earnings of a mutual fund scheme are reinvested back in the fund.
Reinvestment Risk
It is the risk that the interest on fixed income instruments cannot be reinvested at the same rate.
This problem becomes pronounced in a falling interest rate scenario.
Sector fund
Such funds invest only in stocks belonging to a specific industry usually aimed at growth. For
e.g. Kothari Pioneer Infotech Fund. Sector funds are generally considered to be risky in nature.
Securities
Financial documents which give the owner specific rights of ownership; these include: equity
and preference shares, debentures, treasury bills, government bonds, units of mutual fund, and
any other marketable documents.
Sinking Fund
Money regularly set aside in a separate fund and invested by a company for the repayment of
debt instruments (fixed deposits, debentures, other loans) or the redemption of preference shares,
or for replacement of assets.
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Sponsor
Sponsor is the parent organization that contributes the initial capital of the asset management
company (AMC). e.g. Kotak Mahindra Finance is the sponsor for Kotak Mahindra Mutual Fund.
Switching
Transferring from one scheme to another in a group of schemes operated by a Mutual Fund,
where the rules so permit. A switching fee may or may not be charged.
SWOT Analysis
A type of fundamental analysis of the health of a company by examining its strengths(S),
weakness (W), business opportunity (O), and any threat (T) or dangers it might be exposed to.
Systematic Risk
This is the market risk that a security faces and is essentially non-diversifiable in nature. This
risk is caused by macro level factors like changes in inflation, interest rates, budget
announcements etc.
Tax saving fund
Such funds allow the income tax payees to claim a rebate under the Income Tax Act.
Technical Analysis
A method of prediction of share price movements based on a study of price graphs or charts on
the assumption that share price trends are repetitive. Since investor psychology follows a certain
pattern, what is seen to have happened before is likely to be repeated. The technical analyst is not
concerned with the fundamental strength or weakness of a company or an industry; he only
studies price and volume behavior.
Transfer Agents
Professional firms, now mostly computerized, which maintain the records of shareholders of
their client companies.
Treasury Bills
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These are bills of exchange, i.e., IOUs, issued by the Reserve Bank of India for short-term loans,
91 days to 364 days.
TrusteeThe trustee is the legal owner of the mutual fund. The trustee takes into custody or under its
control all the capital and property of every scheme of the mutual fund and hold it in trust for the
unitholders of the scheme.
Unsystematic Risk
This is the proportion of risk that is specific to a particular company. This diversifiable risk could
arise due to company specific factors like operational factors, financial factors, labor unrest etc.
Value Investment
Investment in shares whose intrinsic value is above their market price. Fundamental analysts
often make recommendations of value investment, as they can spot undervalued shares.
Vulture Fund
It is a fund that takes over the non-performing assets of bank or financial institution at a discount
and issues pass-through units to the investors.
Venture Capital Fund
A limited company formed to provide venture or risk capital to new industries.
Zero Coupon Bond