Comparitive Analysis of Balenced Fund

8/8/2019 Comparitive Analysis of Balenced Fund

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PREFACE

PGDM is a stepping-stone to the management carrier and to

develop good manager it is necessary that the theoretical must be

supplemented with exposure to the real environment.

Theoretical knowledge just provides the base and its not sufficient

to produce a good manager thats why practical knowledge is

needed.

Therefore the research product is an essential requirement for the

student of PGDM . This research project not only helps the student

to utilize his skills properly learn field realities but also provides a

chance to the organization to find out talent among the budding

managers in the very beginning.

In accordance with the requirement of subject we have project on

the topic Comparative Analysis of Mutual funds. The main

objective of the research project was to study the two instruments

and make a detailed comparison of the two.

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ACKNOWLEDGEMENT

This is to acknowledge all those who helped us in making this

project .we are heartily thankful to our professor sir Jairajsingh

Rana ,who has given us such a wonderful opportunity to make thisproject. Because of his wonderful guidance & support this project is

turned into success.

CERTIFICATE

This is to certify that Mangla,Sumit,Nimish,Rajeev ranjan

&Krishna of CIMR indore has successfully submitted the1


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project on topic Comparative analysis on TATA and UTI

balanced funds timely on 14th june 2010.

Signature Signature

(Director) (professor)

COMPARATIVE ANALYSIS OF

MUTUAL FUNDS

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TATA BALANCED FUND

UTI BALANCED FUND

SUBMITTED TO-

PROF.JAIRAJ SINGH RANA

SUBMITTED BY:

SUMIT CHORDIYA

NIMISH SHRIVASTAV

RAJEEV RANJAN SINGH

KRISHNA JAISWAL

MANGLA LAHOTI

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INDUSTRY PROFILE

The mutual fund industry is a lot like the film star of the finance

business.

Though it is perhaps the smallest segment of the industry, it is also

the most

glamorous in that it is a young industry where there are changes

in the rules

of the game everyday, and there are constant shifts and upheavals.

The mutual fund is structured around a fairly simple concept, the

mitigation

of risk through the spreading of investments across multiple

entities, which is

achieved by the pooling of a number of small investments into a

large bucket.

Yet it has been the subject of perhaps the most elaborate and

prolonged

regulatory effort in the history of the country.

A little history:

The mutual fund industry started in India in a small way with the UTI

Act

creating what was effectively a small savings division within the

RBI. Over a

period of 25 years this grew fairly successfully and gave investors a

good

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return, and therefore in 1989, as the next logical step, public sector

banks

and financial institutions were allowed to float mutual funds and

their success

emboldened the government to allow the private sector to foray

into this area.

The initial years of the industry also saw the emerging years of the

Indian

equity market, when a number of mistakes were made and hence

the mutual

fund schemes, which invested in lesser-known stocks and at very

high levels,

became loss leaders for retail investors. From those days to today

the retail

investor, for whom the mutual fund is actually intended, has not yet

returned

to the industry in a big way. But to be fair, the industry too has

focused on

brining in the large investor, so that it can create a significant basecorpus,

which can make the retail investor feel more secure.

The Indian MF industry has Rs 5.67 lakh crore of assets under

management. As per data released by Association of Mutual Funds

in India,

the asset base of all mutual fund combined has risen by 7.32% in

April, the

first month of the current fiscal. As of now, there are 33 fund houses

in

the country including 16 joint ventures and 3 whollyowned foreign

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managers.

According to a recent McKinsey report, the total AUM of the Indian

mutual

fund industry could grow to $350-440 billion by 2012, expanding

33%

annually. While the revenue and profit (PAT) pools of Indian AMCs

are pegged

at $542 million and $220 million respectively, it is at par with fund

houses

in developed economies. Operating profits for AMCs in India, as a

percentage

of average assets under management, were at 32 basis points in

2006-07,

while the number was 12 bps in UK, 17 bps in Germany and 18 bps

in the US,

in the same time frame.

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Major players in Indian mutual fund industry and their AU M

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Top of Form

Bottom of Form

HISTORY OF MUTUAL FUND

The mutual fund industry in India started in 1963 with the formation

of Unit Trust of India, at the initiative of the Government of India

and Reserve Bank. The history of mutual funds in India can be

broadly divided into four distinct phases: -

First Phase 1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. It

was set up by the Reserve Bank of India and functioned under the

Regulatory and administrative control of the Reserve Bank of India.

In 1978 UTI was de-linked from the RBI and the Industrial

Development Bank of India (IDBI) took over the regulatory and

administrative control in place of RBI. The first scheme launched by

UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set

up by public sector banks and Life Insurance Corporation of India

(LIC) and General Insurance Corporation of India (GIC). SBI Mutual

Fund was the first non- UTI Mutual Fund established in June 1987

followed by Can bank Mutual Fund (Dec 87), Punjab National Bank

Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of

India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established

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its mutual fund in June 1989 while GIC had set up its mutual fund in

December 1990.

At the end of 1993, the mutual fund industry had assets under

management of Rs.47,004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in

the Indian mutual fund industry, giving the Indian investors a wider

choice of fund families.

Also, 1993 was the year in which the first Mutual Fund Regulations

came into being, under which all mutual funds, except UTI were to

be registered and governed. The erstwhile Kothari Pioneer (now

merged with Franklin Templeton) was the first private sector mutual

fund registered in July 1993.

Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act

1963 UTI was bifurcated into two separate entities. One is the

Specified Undertaking of the Unit Trust of India with assets under

management of Rs.29,835 crores as at the end of January 2003,

representing broadly, the assets of US 64 scheme, assured return

and certain other schemes. The Specified Undertaking of Unit Trustof India, functioning under an administrator and under the rules

framed by Government of India and does not come under the

purview of the Mutual Fund Regulations.

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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB

and LIC. It is registered with SEBI and functions under the Mutual

Fund Regulations. With the bifurcation of the erstwhile UTI which

had in March 2000 more than Rs.76,000 crores of assets under

management and with the setting up of a UTI Mutual Fund,

conforming to the SEBI Mutual Fund Regulations, and with recent

mergers taking place among different private sector funds, the

mutual fund industry has entered its current phase of consolidation

and growth. As at the end of September, 2004, there were 29 funds,

which manage assets of Rs.153108 crores under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

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ECONOMIC ENVIRONMENT

GROWTH OF MUTUAL FUND INDUSTRY IN INDIA

While the Indian mutual fund industry has grown in size by about

320% from March, 1993 (Rs. 470 billion) to December, 2004 (Rs.

1505 billion) in terms of AUM, the AUM of the sector excluding UTI

has grown over 8 times from Rs. 152 billion in March 1999 to $ 148

billion as at March 2008.

Though India is a minor player in the global mutual fund industry, its

AUM as a proportion of the global AUM has steadily increased and

has doubled over its levels in 1999.

The growth rate of Indian mutual fund industry has been increasing

for the last few years. It was approximately 0.12% in the year of

1999 and it is noticed 0.25% in 2004 in terms of AUM as percentage

of global AUM.

Some facts for the growth of mutual funds in India

100% growth in the last 6 years.

Number of foreign AMCs is in the queue to enter the Indian

markets.

Our saving rate is over 23%, highest in the world. Only

channelizing these savings in mutual funds sector is required.

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We have approximately 29 mutual funds which is much less

than US having more than 800. There is a big scope for

expansion.

Mutual fund can penetrate rurals like the Indian insuranceindustry with simple and limited products.

SEBI allowing the MF's to launch commodity mutual funds.

Emphasis on better corporate governance.

Trying to curb the late trading practices.

Introduction of Financial Planners who can provide need

based advice.

Recent trends in mutual fund industry

The most important trend in the mutual fund industry is the

aggressive expansion of the foreign owned mutual fund

companies and the decline of the companies floated by the

nationalized banks and smaller private sector players.

Many nationalized banks got into the mutual fund business in

the early nineties and got off to a start due to the stock

market boom was prevailing. These banks did not really

understand the mutual fund business and they just viewed it

as another kind of banking activity. Few hired specialized staff

and generally chose to transfer staff from the parent

organizations. The performance of most of the schemes

floated by these funds was not good. Some schemes had

offered guaranteed returns and their parent organizations had

to bail out these AMCs by paying large amounts of money as a

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difference between the guaranteed and actual returns. The

service levels were also very bad. Most of these AMCs have

not been able to retain staff, float new schemes etc.

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Systematic Investment Plan (SIP) and Systematic Withdrawal Plan

(SWP) were options introduced which have come in very handy for

the investor to maximize their returns from their investments. SIP

ensures that there is a regular investment that the investor makes

on specified dates making his purchases to spread out reducing the

effect of the short term volatility of markets. SWP was designed to

ensure that investors who wanted a regular income or cash flow

from their investments were able to do so with a pre-defined

automated form. Today the SW facility has come in handy for the

investors to reduce their taxes.

LEGAL AND POLITICAL ENVIRONMENT

ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

With the increase in mutual fund players in India, a need for mutual

fund association in India was generated to function as a non-profit

organization. Association of Mutual Funds in India (AMFI) was

incorporated on 22nd August 1995.

AMFI is an apex body of all Asset Management Companies (AMC),

which has been registered with SEBI. Till date all the AMCs are that

have launched mutual fund schemes are its members. It functions

under the supervision and guidelines of board of directors. AMFI has

brought down the Indian Mutual Fund Industry to a professional and

healthy market with ethical lines enhancing and maintaining

standards. It follows the principle of both protecting and promoting

the interest of mutual funds as well as their unit holders.

It has been a forum where mutual funds have been able to present

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their views, debate and participate in creating their own regulatory

framework. The association was created originally as a body that

would lobby with the regulator to ensure that the fund viewpoint

was heard. Today, it is usually the body that is consulted on matters

long before regulations are framed, and it often initiates many

regulatory changes that prevent malpractices that emerge from

time to time.

AMFI works through a number of committees, some of which are

standing committees to address areas where there is a need for

constant vigil and improvements and other which are adhoc

committees constituted to address specific issues. These

committees consist of industry professionals from among the

member mutual funds. There is now some thought that AMFI should

become a self-regulatory organization since it has worked so

effectively as an industry body.

OBJECTIVES:

To define and maintain high professional and ethical standards

in all areas of operation of mutual fund industry

To recommend and promote best business practices and code of

conduct to be followed by members and others engaged in the

activities of mutual fund and asset management including agencies

connected or involved in the field of capital markets and financial

services.

To interact with the Securities and Exchange Board of India

(SEBI) and to represent to SEBI on all matters concerning the

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mutual fund industry.

To represent to the Government, Reserve Bank of India and

other bodies on all matters relating to the Mutual Fund Industry.

To develop a cadre of well trained Agent distributors and to

implement a programme of training and certification for all

intermediaries and other engaged in the industry.

To undertake nation wide investor awareness programme so as

to promote proper understanding of the concept and working of

mutual funds.

To disseminate information on Mutual Fund Industry and to

undertake studies and research directly and/or in association with

other bodies.

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MEMBERS OF AMFI:

Bank Sponsored

1. Joint Ventures - Predominantly Indian

1. Canara Robeco Asset Management Company Limited

2. SBI Funds Management Private Limited

2. Others

1. Baroda Pioneer Asset Management Company Limited

2. UTI Asset Management Company Ltd

Institutions

1. LIC Mutual Fund Asset Management Company Limited

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Private Sector

1. Indian

1. Benchmark Asset Management Company Pvt. Ltd.

2. DBS Cholamandalam Asset Management Ltd.

3. Deutsche Asset Management (India) Pvt. Ltd.

4. Edelweiss Asset Management Limited

5. Escorts Asset Management Limited

6. IDFC Asset Management Company Private Limited

7. JM Financial Asset Management Private Limited

8. Kotak Mahindra Asset Management Company

Limited(KMAMCL)

9. Quantum Asset Management Co. Private Ltd.

10.Reliance Capital Asset Management Ltd.

11.Sahara Asset Management Company Private

Limited

12.Tata Asset Management Limited

13.Taurus Asset Management Company Limited

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2. Foreign

1. AIG Global Asset Management Company (India)

Pvt. Ltd.

2. FIL Fund Management Private Limited

3. Franklin Templeton Asset Management (India)

Private Limited

4. Mirae Asset Global Investment Management

(India) Pvt. Ltd.

3. Joint Ventures - Predominantly Indian

1. Birla Sun Life Asset Management Company

Limited

2. DSP Merrill Lynch Fund Managers Limited

3. HDFC Asset Management Company Limited

4. ICICI Prudential Asset Mgmt.Company Limited

5. Sundaram BNP Paribas Asset Management

Company Limited

4. Joint Ventures - Predominantly Foreign

1. ABN AMRO Asset Management (India) Pvt. Ltd.

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2. Bharti AXA Investment Managers Private Limited

3. HSBC Asset Management (India) Private Ltd.

4. ING Investment Management (India) Pvt. Ltd.

5. JPMorgan Asset Management India Pvt. Ltd.

6. Lotus India Asset Management Co. Private Ltd.

7. Morgan Stanley Investment Management Pvt.Ltd.

8. Principal Pnb Asset Management Co. Pvt. Ltd.

REGULATORY MEASURES BY SEBI

Like Banking & Insurance up to the nineties of the last century,

Mutual Fund industry in India was set up and functioned exclusively

in the state monopoly represented by the Unit Trust of India. This

monopoly was diluted in the eighties by allowing nationalized banks

and insurance companies (LIC & GIC) to set up their institutions

under the Indian Trusts Act to transact mutual fund business,

allowing the Indian investor the option to choose between different

service providers. Unit Trust was a statutory corporation governed

by its own incorporating act. There was no separate regulatory

authority up to the time SEBI was made a statutory authority in

1992. but it was only in the year 1993, when a government took a

policy decision to deregulate Indian Economy from government

control and to transform it market oriented, that the industry was

opened to competition from private and foreign players. By the year

2000 there came to be established in the market 34 mutual fundsofferings a variety of about 550 schemes.

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SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL

FUNDS) REGULATIONS, 1996

The fast growing industry is regulated by Securities and Exchange

Board of India (SEBI) since inception of SEBI as a statutory body.

SEBI initially formulated SECURITIES AND EXCHANGE BOARD OF

INDIA (MUTUAL FUNDS) REGULATIONS, 1993 providing detailed

procedure for establishment, registration, constitution,

management of trustees, asset management company, about

schemes/products to be designed, about investment of funds

collected, general obligation of MFs, about inspection, audit etc.

based on experience gained and feedback received from the market

SEBI revised the guidelines of 1993 and issued fresh guidelines in

1996 titled SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL

FUNDS) REGULATIONS, 1996. The said regulations as amended

from time to time are in force even today.

The SEBI mutual fund regulations contain ten chapters and twelve

schedules. Chapters containing material subjects relating to

regulation and conduct of business by Mutual Funds.

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REGISTRATION OF MUTUAL FUND:

Application for registration

1. An application for registration of a mutual fund shall be made to

the Board in Form A by the sponsor.

Application fee to accompany the application

2. Every application for registration under regulation 3 shall be

accompanied by nonrefundable application fee as specified in the

Second Schedule.

Application to conform to the requirements

3. An application which is not complete in all respects shall be liable

to be rejected:

Provided that, before rejecting any such application, the applicant

shall be given an opportunity to complete such formalities within

such time as may be specified by the Board.

Furnishing information4.The Board may require the sponsor to furnish such further

information or clarification as may be required by it.

Eligibility criteria

5. For the purpose of grant of a certificate of registration, the

applicant has to fulfill the following, namely :

(a) the sponsor should have a sound track record and general

reputation of fairness and integrity in all his business transactions.

Explanation : For the purposes of this clause sound track record

shall mean the

sponsor should,

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(i) be carrying on business in financial services for a period of not

less than five

years; and

(ii) the networth is positive in all the immediately preceding five

years; and

(iii) the networth in the immediately preceding year is more than

the capital

contribution of the sponsor in the asset management company; and

(iv) the sponsor has profits after providing for depreciation, interest

and tax in three out of the immediately preceding five years,

including the fifth year;

(b) in the case of an existing mutual fund, such fund is in the form

of a trust and the trust deed has been approved by the Board;

(c) the sponsor has contributed or contributes at least 40% to the

net worth of the asset management company:

Provided that any person who holds 40% or more of the net worth

of an assetmanagement company shall be deemed to be a sponsor and will be

required to fulfill the eligibility criteria specified in these regulations;

(d) the sponsor or any of its directors or the principal officer to be

employed by the mutual fund should not have been guilty of fraud

or has not been convicted of an offence involving moral turpitude or

has not been found guilty of any economic

offence;

(e) appointment of trustees to act as trustees for the mutual fund in

accordance with the provisions of the regulations;

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(f) appointment of asset management company to manage the

mutual fund and operate the scheme of such funds in accordance

with the provisions of these regulations;

(g) appointment of a custodian in order to keep custody of the

securities 10[or gold and gold related instrumentsand carry out the

custodian activities as may be authorizedby the trustees.

Consideration of application

8.The Board, may on receipt of all information decide the

application.

Grant of Certificate of Registration

9.The Board may register the mutual fund and grant a certificate in

Form B on the applicant paying the registration fee as specified in

Second Schedule.

Terms and conditions of registration

10.The registration granted to a mutual fund under regulation 9,shall be subject to the following terms and conditions:

(a) the trustees, the sponsor, the asset management company and

the custodian shall comply with the provisions of these regulations;

(b) the mutual fund shall forthwith inform the Board, if any

information or particulars previously submitted to the Board was

misleading or false in any material respect;

(c) the mutual fund shall forthwith inform the Board, of any material

change in the

information or particulars previously furnished, which have a

bearing on the

registration granted by it;

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(d) payment of fees as specified in the regulations and the Second

Schedule.

Rejection of application

11. Where the sponsor does not satisfy the eligibility criteria

mentioned in regulation 7, the Board may reject the application and

inform the applicant of the same.

Payment of annual service fee:

12. A mutual fund shall pay before the 15th April each year a

service fee as specified in the Second Schedule for every financial

year from the year following the year of registration:

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Failure to pay annual service fee

13.The Board may not permit a mutual fund who has not paid

service fee to launch any scheme.

CONSTITUTION AND MANAGEMENT OF ASSET MANAGEMENT

COMPANY AND CUSTODIAN

Application by an asset management company

14. (1) The application for the approval of the asset management

company shall be made in Form D.(2) The provisions of regulations 5, 6 and 8 shall, so far as may be,

apply to the

application made under sub-regulation (1) as they apply to the

application for registration of a mutual fund.

Appointment of an asset management company

15. (1) The sponsor or, if so authorised by the trust deed, the

trustee, shall appoint an asset management company, which has

been approved by the Board under sub-regulation(2) of regulation

21.

(2) The appointment of an asset management company can be

terminated by majority of the trustees or by seventy-five per cent of

the unitholders of the scheme.

(3) Any change in the appointment of the asset management

company shall be subject to prior approval of the Board and the

unitholders.

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Eligibility criteria for appointment of asset management

company

16. (1) For grant of approval of the asset management company

the applicant has to fulfill the following :

(a) in case the asset management company is an existing asset

management company it has a sound track record, general

reputation and fairness in transactions.

Explanation: For the purpose of this clause sound track record

shall mean the

networth and the profitability of the asset management company;

(aa) the asset management company is a fit and proper person;

(b) the directors of the asset management company are persons

having adequate professional experience in finance and financial

services related field and not found guilty of moral turpitude or

convicted of any economic offence or violation of any securities

laws;

(c) the key personnel of the asset management company 27[have

not been found guilty of moral turpitude or convicted of economic

offence or violation of securities laws or worked for any assetmanagement company or mutual fund or any intermediary

29[during the period when its] registration has been suspended or

cancelled at any time by the Board;

(d) the board of directors of such asset management company has

at least fifty per cent directors, who are not associate of, or

associated in any manner with, the sponsor or any of its subsidiaries

or the trustees;

(e) the Chairman of the asset management company is not a

trustee of any mutual fund;

(f) the asset management company has a networth of not less than

rupees ten crores :

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Provided that an asset management company already granted

approval under the provisions of Securities and Exchange Board of

India (Mutual Funds) Regulations, 1993 shall within a period of

twelve months from the date of notification of these regulations

increase its networth to rupees ten crores :

Provided [further] that the period specified in the first proviso

may be extended in appropriate cases by the Board up to three

years for reasons to be recorded in writing :

Provided further that no new schemes shall be allowed to be

launched or managed by such asset management company till the

networth has been raised to rupees ten crores.

Explanation : For the purposes of this clause, networth means

the aggregate of the paid up capital and free reserves of the asset

management company after

deducting therefrom miscellaneous expenditure to the extent not

written off or

adjusted or deferred revenue expenditure, intangible assets and

accumulated losses.

(2) The Board may, after considering an application with referenceto the matters

specified in sub-regulation (1), grant approval to the asset

management company.

Terms and conditions to be complied with

17.The approval granted under sub-regulation (2) of regulation 21

shall be subject to the

following conditions, namely:

(a) any director of the asset management company shall not hold

the office of the

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director in another asset management company unless such person

is an independent director referred to in clause (d) of sub-regulation

(1) of regulation 21 and approval of the Board of asset management

company of which such person is a director, has been obtained;

(b) the asset management company shall forthwith inform the

Board of any material change in the information or particulars

previously furnished, which have a bearing on the approval granted

by it;

(c) no appointment of a director of an asset management company

shall be made without prior approval of the trustees;

(d) the asset management company undertakes to comply with

these regulations;

(e) no change in the controlling interest of the asset management

company shall be made unless,

(i) prior approval of the trustees and the Board is obtained;

(ii) a written communication about the proposed change is sent to

each unitholder and an advertisement is given in one English daily

newspaper having

nationwide circulation and in a newspaper published in thelanguage of the

region where the Head Office of the mutual fund is situated; and

(iii) the unitholders are given an option to exit on the prevailing Net

Asset Value

without any exit load;]

(f) the asset management company shall furnish such information

and documents to the trustees as and when required by the

trustees.

Procedure where approval is not granted

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18. Where an application made under regulation 19 for grant of

approval does not satisfy the eligibility criteria laid down in

regulation 21, the Board may reject the application.

Restrictions on business activities of the asset management

company

19.The asset management company shall

(1) not act as a trustee of any mutual fund;

(2) not undertake any other business activities except activities in

the nature of

portfolio management services,] management and advisory

services to offshore funds, pension funds, provident funds, venture

capital funds, management of insurance funds, financial

consultancy and exchange of research on commercial basis if any of

such activities are not in conflict with the activities of the mutual

fund :

Provided that the asset management company may itself orthrough its subsidiaries undertake such activities if it satisfies the

Board that the key personnel of the asset management company,

the systems, back office, bank and securities accounts are

segregated activity-wise and there exist systems to prohibit access

to inside information of various activities :

Provided further that asset management company shall meet

capital adequacy

requirements, if any, separately for each such activity and obtain

separate approval, if necessary under the relevant regulations.

(3) The asset management company shall not invest in any of its

schemes unless full disclosure of its intention to invest has been

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made in the offer documents 34[in case of schemes launched after

the notification of these regulations :

Provided that an asset management company shall not be entitled

to charge any fees on its investment in that scheme.

Asset management company and its obligations

20. (1)The asset management company shall take all reasonable

steps and exercise due diligence to ensure that the investment of

funds pertaining to any scheme is not contrary to the provisions of

these regulations and the trust deed.

(2) The asset management company shall exercise due diligence

and care in all its investment decisions as would be exercised by

other persons engaged in the same business.

(3) The asset management company shall be responsible for the

acts of commission or omission by its employees or the persons

whose services have been procured by the asset managementcompany.

(4) The asset management company shall submit to the trustees

quarterly reports of each year on its activities and the compliance

with these regulations.

(5) The trustees at the request of the asset management company

may terminate the assignment of the asset management company

at any time:

Provided that such termination shall become effective only after

the trustees have accepted the termination of assignment and

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communicated their decision in writing to the asset management

company.

(6) Notwithstanding anything contained in any contract or

agreement or termination, the asset management company or its

directors or other officers shall not be absolved of liability to the

mutual fund for their acts of commission or omission, while holding

such position or office.

(6A) The Chief Executive Officer (whatever his designation may be)

of the asset

management company shall ensure that the mutual fund complies

with all the provisions of these regulations and the guidelines or

circulars issued in relation thereto from time to time and that the

investments made by the fund managers are in the interest of the

unit holders and shall also be responsible for the overall risk

management function of the mutual fund.

Explanation.For the purpose of this sub-regulation, the words

these regulations shall mean and include the Securities andExchange Board of India (Mutual Funds) Regulations, 1996 as

amended from time to time.

(6B) The fund managers (whatever the designation may be) shall

ensure that the funds of the schemes are invested to achieve the

objectives of the scheme and in the interest of the unit holders.

(7) (a) An asset management company shall not through any

broker associated with the sponsor, purchase or sell securities,

which is average of 5 per cent or more of the aggregate purchases

and sale of securities made by the mutual fund in all its schemes :

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Provided that for the purpose of this sub-regulation, the aggregate

purchase and sale of securities shall exclude sale and distribution of

units issued by the mutual fund :

Provided further that the aforesaid limit of 5 per cent shall apply

for a block of any three months.

(b) An asset management company shall not purchase or sell

securities through any broker [other than a broker referred to in

clause (a) of sub-regulation (7) which is average of 5 per cent or

more of the aggregate purchases and sale of securities made by the

mutual fund in all its schemes, unless the asset management

company has recorded in writing the justification for exceeding the

limit of 5 per cent and reports of all such investments are sent to

the trustees on a quarterly basis :

Provided that the aforesaid limit shall apply for a block of three

months.

(8) An asset management company shall not utilise the services of

the sponsor or any of its associates, employees or their relatives, for

the purpose of any securities transaction and distribution and saleof securities :

Provided that an asset management company may utilise such

services if disclosure to that effect is made to the unitholders and

the brokerage or commission paid is also disclosed in the half-yearly

annual accounts of the mutual fund :

Provided further that the mutual funds shall disclose at the time

of declaring halfyearly and yearly results :

(i) any underwriting obligations undertaken by the schemes of the

mutual funds with respect to issue of securities associate

companies,

(ii) devolvement, if any,

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(iii) subscription by the schemes in the issues lead managed by

associate companies,

(iv) subscription to any issue of equity or debt on private placement

basis where the sponsor or its associate companies have acted as

arranger or manager.

(9) The asset management company shall file with the trustees the

details of transactions in securities by the key personnel of the

asset management company in their own name or on behalf of the

asset management company and shall also report to the Board, as

and when required by the Board.

(10) In case the asset management company enters into any

securities transactions with any of its associates a report to that

effect shall be sent to the trustees at its next meeting.

(11) In case any company has invested more than 5 per cent of the

net asset value of a scheme, the investment made by that scheme

or by any other scheme of the same mutual fund in that company orits subsidiaries shall be brought to the notice of the trustees by the

asset management company and be disclosed in the half-yearly and

annual accounts of the respective schemes with justification for

such investment 40[provided the latter

investment has been made within one year of the date of the

former investment calculated on either side.

(12) The asset management company shall file with the trustees

and the Board

(a) detailed bio-data of all its directors along with their interest in

other companies

within fifteen days of their appointment;5


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(b) any change in the interests of directors every six months; and

(c) a quarterly report to the trustees giving details and adequate

justification about the purchase and sale of the securities of the

group companies of the sponsor or the asset management

company, as the case may be, by the mutual fund during the said

quarter.

(13) Each director of the asset management company shall file the

details of his transactions of dealing in securities with the trustees

on a quarterly basis in accordance with guidelines issued by the

Board.

(14) The asset management company shall not appoint any person

as key personnel who has been found guilty of any economic

offence or involved in violation of securities laws.

(15) The asset management company shall appoint registrars and

share transfer agents who are registered with the Board:

Provided if the work relating to the transfer of units is processed

in-house, the charges at competitive market rates may be debitedto the scheme and for rates higher than the competitive market

rates, prior approval of the trustees shall be obtained and reasons

for charging higher rates shall be disclosed in the annual accounts.

(16) The asset management company shall abide by the Code of

Conduct as specified in the Fifth Schedule.

Appointment of custodian

21. (1) The mutual fund shall appoint a Custodian to carry out the

custodial services for the schemes of the fund and sent intimation

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of the same to the Board within fifteen days of the appointment of

the Custodian:

Provided that in case of a gold exchange traded fund scheme, the

assets of the scheme being gold or gold related instruments may be

kept in custody of a bank which is registered as a custodian with

the Board.

(2) No custodian in which the sponsor or its associates hold 50 per

cent or more of the voting rights of the share capital of the

custodian or where 50 per cent or more of the directors of the

custodian represent the interest of the sponsor or its associates

shall act as custodian for a mutual fund constituted by the same

sponsor or any of its associates or subsidiary company.

Agreement with custodian

22.The mutual fund shall enter into a custodian agreement with

the custodian, which shall contain the clauses which are necessaryfor the efficient and orderly conduct of the affairs of the custodian:

Provided that the agreement, the service contract, terms and

appointment of the

custodian shall be entered into with the prior approval of the

trustees.

CHARACTERISTICS OF MUTUAL FUNDS

The ownership is in the hands of the investors who have

pooled in their funds.

It is managed by a team of investment professionals and

other service providers.

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The pool of funds is invested in a portfolio of marketable

investments.

The investors share is denominated by units whose value is

called as Net Asset Value (NAV) which changes everyday. The investment portfolio is created according to the stated

investment objectives of the fund.

ADVANTAGES OF MUTUAL FUNDS

The advantages of mutual funds are given below: -

Portfolio Diversification

Mutual funds invest in a number of companies. This

diversification reduces the risk because it happens very rarely that

all the stocks decline at the same time and in the same proportion.

So this is the main advantage of mutual funds.

Professional Management

Mutual funds provide the services of experienced and skilled

professionals, assisted by investment research team that analysis

the performance and prospects of companies and select the

suitable investments to achieve the objectives of the scheme.

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Low Costs

Mutual funds are a relatively less expensive way to invest as

compare to directly investing in a capital markets because of less

amount of brokerage and other fees.Liquidity

This is the main advantage of mutual fund, that is whenever an

investor needs money he can easily get redemption, which is not

possible in most of other options of investment. In open-ended

schemes of mutual fund, the investor gets the money back at net

asset value and on the other hand in close-ended schemes the units

can be sold in a stock exchange at a prevailing market price.

Transparency

In mutual fund, investors get full information of the value of

their investment, the proportion of money invested in each class of

assets and the fund managers investment strategy

Flexibility

Flexibility is also the main advantage of mutual fund. Through

this investors can systematically invest or withdraw funds according

to their needs and convenience like regular investment plans,

regular withdrawal plans, dividend reinvestment plans etc.

Convenient Administration

Investing in a mutual fund reduces paperwork and helps

investors to avoid many problems like bad deliveries, delayedpayments and follow up with brokers and companies. Mutual funds

save time and make investing easy.

Affordability

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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.

Well RegulatedAll mutual funds are registered with SEBI and they function with

in the provisions of strict regulations designed to protect the

interest of investors. The operations of mutual funds are regularly

monitored by SEBI.

DISADVANTAGES OF MUTUAL FUNDS

Mutual funds have their following drawbacks:

No Guarantees

No investment is risk free. If the entire stock market declines in

value, the value of mutual fund shares will go down as well, no

matter how balanced the portfolio. Investors encounter fewer risks

when they invest in mutual funds than when they buy and sell

stocks on their own. However, anyone who invests through mutual

fund runs the risk of losing the money.

Fees and Commissions

All funds charge administrative fees to cover their day to day

expenses. Some funds also charge sales commissions or loads to

compensate brokers, financial consultants, or financial planners.

Even if you dont use a broker or other financial advisor, you will

pay a sales commission if you buy shares in a Load Fund.

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Taxes

During a typical year, most actively managed mutual funds sell

anywhere from 20 to 70 percent of the securities in their portfolios.

If your fund makes a profit on its sales, you will pay taxes on theincome you receive, even you reinvest the money you made.

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Management Risk

When you invest in mutual fund, you depend on fund manager to

make the right decisions regarding the funds portfolio. If the

manager does not perform as well as you had hoped, you might notmake as much money on your investment as you expected. Of

course, if you invest in index funds, you forego management risk

because these funds do not employ managers.

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STRUCTURE OF MUTUAL FUND

There are many entities involved and the diagram below illustrates t

he structure of mutual funds: -

Structure of Mutual Funds

SEBI

The regulation of mutual funds operating in India falls under the

preview of authority of the Securities and Exchange Board of

India (SEBI). Any person proposing to set up a mutual fund in

India is required under the SEBI (Mutual Funds) Regulations, 1996 tobe registered with the SEBI.

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Sponsor

The sponsor should contribute at least 40% to the net worth of

the AMC. However, if any person holds 40% or more of the net

worth of an AMC shall be deemed to be a sponsor and will berequired to fulfill the eligibility criteria in the Mutual Fund

Regulations. The sponsor or any of its directors or the principal

officer employed by the mutual fund should not be guilty of fraud or

guilty of any economic offence.

Trustees

The mutual fund is required to have an independent Board of

Trustees, i.e. two third of the trustees should be independent

persons who are not associated with the sponsors in any manner.

An AMC or any of its officers or employees are not eligible to act as

a trustee of any mutual fund. The trustees are responsible for - inter

alia ensuring that the AMC has all its systems in place, all key

personnel, auditors, registrar etc. have been appointed prior to the

launch of any scheme.

Asset Management Company

The sponsors or the trustees are required to appoint an AMC to

manage the assets of the mutual fund. Under the mutual fund

regulations, the applicant must satisfy certain eligibility criteria in

order to qualify to register with SEBI as an AMC.

1. The sponsor must have at least 40% stake in the AMC.

2. The chairman of the AMC is not a trustee of any mutual fund.

3. The AMC should have and must at all times maintain a

minimum net worth of Cr. 100 million.

4. The director of the AMC should be a person having adequate

professional experience.

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5. The board of directors of such AMC has at least 50% directors

who are not associate of or associated in any manner with the

sponsor or any of its subsidiaries or the trustees.

The Transfer Agents

The transfer agent is contracted by the AMC and is responsible

for maintaining the register of investors / unit holders and every day

settlements of purchases and redemption of units. The role of a

transfer agent is to collect data from distributors relating to daily

purchases and redemption of units.

Custodian

The mutual fund is required, under the Mutual Fund Regulations,

to appoint a custodian to carry out the custodial services for the

schemes of the fund. Only institutions with substantial

organizational strength, service capability in terms of

computerization and other infrastructure facilities are approved to

act as custodians. The custodian must be totally delinked from the

AMC and must be registered with SEBI.

Unit Holders

They are the parties to whom the mutual fund is sold. They are

ultimate beneficiary of the income earned by the mutual funds.

TYPES OF MUTUAL FUND SCHEMES

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In India, there are many companies, both public and private that are

engaged in the trading of mutual funds. Wide varieties of Mutual

Fund Schemes exist to cater to the needs such as financial position,

risk tolerance and return expectations etc. Investment can be made

either in the debt Securities or equity .The table below gives an

overview into the existing types of schemes in the Industry.

TYPES OF MUTUAL FUND SCHEME

1

By structure By Investment

Objectives

Other Schemes

Open-endedSchemes

Interval Schemes

Sector speciffund

Index Schem

Tax saving fu

Small capfund

EquitySchemes

DebtSchemes

Close EndedSchemes

MM Mutualfund

Other Debt

Schemes

FMP

Any OtherEquity Fund

Mid capFund

Large capfund


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Generally two options are available for every scheme

regarding dividend payout and growth option. By opting for growth

option an investor can have the benefit of long-term growth in the

stock market on the other side by opting for the dividend option an

investor can maintain his liquidity by receiving dividend time to

time. Some time people refer dividend option as dividend fund and

growth fund. Generally decisions regarding declaration of the

dividend depend upon the performance of stock market and

performance of the fund.

OPTION REGARDING DIVIDEND

2

Dividend Growth

ReinvestedPayout


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Systematic Investment Plan (SIP)

Systematic investment plan is like Recurring Deposit in which

investor invests in the particular scheme on regular intervals. In the

case it is convenient for salaried class and middle-income group. Inthis case on regular interval units of specified amount is created. An

investor can make payment by regular payments by issuing cheques,

post dated cheques, ECS, standing Mandate etc. SIP can be started in

the any open-ended fund if there is provision of it. There are some

entry and exit load barriers for discontinuation and redemption of the

fund before the said period.

According to Structure

Open Ended Funds

An open ended fund is one that is available for subscription all

through the year. These do not have a fixed maturity. Investors can

conveniently buy and sell units at Net Asset Value (NAV) relatedprices. The key feature of open ended schemes is liquidity.

Close Ended Funds

A close ended fund has a stipulated maturity period which

generally ranging from 3 to 15 years. The fund is open for

subscription only during a specified period. Investors can invest in

the scheme at the same time of the initial public issue and

thereafter they can buy and sell the units of the scheme on the

stock exchanges where they are listed. In order to provide an exit

route to the investors, some close ended funds give an option of

selling back the units to the mutual fund through periodic

repurchase at NAV related prices.

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Interval Funds

Interval funds combine the features of open ended and close

ended schemes. They are open for sales or redemption during pre-

determined intervals at their NAV.

According to Investment Objective:

Growth Funds

The aim of growth funds is to provide capital appreciation

over the medium to long term. Such schemes normally invest

a majority of their corpus in equities. It has been proven that

returns from stocks are much better than the other

investments had over the long term. Growth schemes are

ideal for investors having a long term outlook seeking growth

over a period of time.

Income Funds

The aim of the income funds is to provide regular and

steady income to investors. Such schemes generally invest in

fixed income securities such as bonds, corporate debentures

and government securities. Income funds are ideal for capital

stability and regular income.

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Balanced Funds

The aim of balanced funds is to provide both growth and

regular income. Such schemes periodically distribute a part of

their earning and invest both in equities and fixed incomesecurities in the proportion indicated in their offer documents.

In a rising stock market, the NAV of these schemes may not

normally keep pace or fall equally when the market falls.

These are ideal for investors looking for a combination of

income and moderate growth.

Money Market Funds

The main aim of money market funds is to provide easy

liquidity, preservation of capital and moderate income. These

schemes generally invest in safe short term instruments such

as treasury bills, certificates of deposit, commercial paper and

inter bank call money. Returns on these schemes may

fluctuate depending upon the interest rates prevailing in the

market. These are ideal for corporate and individual investors

as a means to park their surplus funds for short periods.

Other Schemes

Tax Saving Schemes

These schemes offer tax rebates to the investors under

specific provisions of the Indian Income Tax laws as the

government offers tax incentives for investment in specified

avenues. Investments made in Equity Linked Saving Schemes

(ELSS) and Pension Schemes are allowed as deduction u/s 88

of the Income Tax Act, 1961. The Act also provides

opportunities to investors to save capital gains.

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Special Schemes :

Index Schemes

Index funds attempt to replicate the performance of a

particular index such as the BSE Sensex or the NSE 50.

Sector Specific Schemes

Sector funds are those which invest exclusively in a

specified industry or a group of industries or various segments

such as A group shares or initial public offerings.

Bond Schemes

It seeks investment in bonds, debentures and debt related

instrument to generate regular income flow.

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FREQUENTLY USED TERMS

Advisor - Is employed by a mutual fund organization to give

professional advice on the funds investments and to supervise the

management of its asset.

Diversification The policy of spreading investments among a

range of different securities to reduce the risk.

Net Asset Value (NAV) - Net Asset Value is the market value of

the assets of the scheme minus its liabilities. The per unit NAV is the

net asset value of the scheme divided by the number of units

outstanding on the Valuation Date.

Sales Price - Is the price you pay when you invest in a scheme.

Also called Offer Price. It may include a sales load.

Repurchase Price - Is the price at which a close-ended scheme

repurchases its units and it may include a back-end load. This is

also called Bid Price.

Redemption Price - Is the price at which open-ended schemesrepurchase their units and close-ended schemes redeem their units

on maturity. Such prices are NAV related.

Sales Load - Is a charge collected by a scheme when it sells the

units. Also called Front-end load. Schemes that do not charge a

load are called No Load schemes.

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COMPARISON

BETWEEN ULIPS

AND MUTUAL

FUNDS

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This is in stark contrast to conventional insurance plans where the

sum assured is the starting point and premiums to be paid are

determined thereafter.

ULIP investors also have the flexibility to alter the premium amounts

during the policy's tenure. For example an individual with access to

surplus funds can enhance the contribution thereby ensuring that

his surplus funds are gainfully invested; conversely an individual

faced with a liquidity crunch has the option of paying a lower

amount (the difference being adjusted in the accumulated value of

his ULIP). The freedom to modify premium payments at one's

convenience clearly gives ULIP investors an edge over their mutual

fund counterparts.

2. Expenses

In mutual fund investments, expenses charged for various activities

like fund management, sales and marketing, administration amongothers are subject to pre-determined upper limits as prescribed by

the Securities and Exchange Board of India.

For example equity-oriented funds can charge their investors a

maximum of 2.5% per annum on a recurring basis for all their

expenses; any expense above the prescribed limit is borne by the

fund house and not the investors.

Similarly funds also charge their investors entry and exit loads (in

most cases, either is applicable). Entry loads are charged at the

timing of making an investment while the exit load is charged at the

time of sale.3


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Insurance companies have a free hand in levying expenses on their

ULIP products with no upper limits being prescribed by the

regulator, i.e. the Insurance Regulatory and Development Authority.

This explains the complex and at times 'unwieldy' expense

structures on ULIP offerings. The only restraint placed is that

insurers are required to notify the regulator of all the expenses that

will be charged on their ULIP offerings.

Expenses can have far-reaching consequences on investors since

higher expenses translate into lower amounts being invested and a

smaller corpus being accumulated. ULIP-related expenses have

been dealt with in detail in the article "Understanding ULIP

expenses".

3. Portfolio disclosure

Mutual fund houses are required to statutorily declare their

portfolios on a quarterly basis, albeit most fund houses do so on amonthly basis. Investors get the opportunity to see where their

monies are being invested and how they have been managed by

studying the portfolio.

There is lack of consensus on whether ULIPs are required to disclose

their portfolios. During our interactions with leading insurers we

came across divergent views on this issue.

While one school of thought believes that disclosing portfolios on a

quarterly basis is mandatory, the other believes that there is no

legal obligation to do so and that insurers are required to disclose

their portfolios only on demand.3


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Some insurance companies do declare their portfolios on a

monthly/quarterly basis. However the lack of transparency in ULIP

investments could be a cause for concern considering that the

amount invested in insurance policies is essentially meant to

provide for contingencies and for long-term needs like retirement;

regular portfolio disclosures on the other hand can enable investors

to make timely investment decisions.

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4. Flexibility in altering the asset allocation

As was stated earlier, offerings in both the mutual funds segment

and ULIPs segment are largely comparable. For example plans that

invest their entire corpus in equities (diversified equity funds), a

60:40 allotment in equity and debt instruments (balanced funds)

and those investing only in debt instruments (debt funds) can be

found in both ULIPs and mutual funds.

If a mutual fund investor in a diversified equity fund wishes to shift

his corpus into a debt from the same fund house, he could have to

bear an exit load and/or entry load.

On the other hand most insurance companies permit their ULIP

inventors to shift investments across various plans/asset classes

either at a nominal or no cost (usually, a couple of switches are

allowed free of charge every year and a cost has to be borne for

additional switches).

Effectively the ULIP investor is given the option to invest across

asset classes as per his convenience in a cost-effective manner.

This can prove to be very useful for investors, for example in a bull

market when the ULIP investor's equity component has appreciated,

he can book profits by simply transferring the requisite amount to a

debt-oriented plan.

5. Tax benefits

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ULIP investments qualify for deductions under Section 80C of the

Income Tax Act. This holds good, irrespective of the nature of the

plan chosen by the investor. On the other hand in the mutual funds

domain, only investments in tax-saving funds (also referred to as

equity-linked savings schemes) are eligible for Section 80C benefits.

Maturity proceeds from ULIPs are tax free. In case of equity-oriented

funds (for example diversified equity funds, balanced funds), if the

investments are held for a period over 12 months, the gains are tax

free; conversely investments sold within a 12-month period attract

short-term capital gains tax @ 10%.

Similarly, debt-oriented funds attract a long-term capital gains tax

@ 10%, while a short-term capital gain is taxed at the investor's

marginal tax rate.

Despite the seemingly similar structures evidently both mutual

funds and ULIPs have their unique set of advantages to offer. As

always, it is vital for investors to be aware of the nuances in bothofferings and make informed decisions.

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Investing in ulips ? Remember

The high returns (above 20 per cent) are definitely not

sustainable over a long term, as they have been generated during

the biggest bull run in recent stock market history.

The free hand given to ULIPs might prove risky if the timing of exit

happens to coincide with a bearish market phase, because of the

inherently high equity component of these schemes.

While a debt-oriented ULIP scheme might be superior to a debt

option in a conventional mutual fund due to tax concessions that

insurance companies enjoy, such tax incentives may not last.

Look beyond NAVs

The appreciation in the net asset value (NAV) of ULIPs barelyindicate the actual returns earned on your investment. The various

charges on your policy are deducted either directly from premiums

before investing in units or collected on a monthly basis by

knocking off units.

Either way, the charges do not affect the NAV; but the number of

units in your account suffers. You might have access to daily NAVs

but your real returns may be substantially lower.

A rough calculation shows that if our investments earn a 12 per cent

annualised return over a 20-year period in a growth fund, when

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measured by the change in NAV, the real pre- tax returns might be

only 9 per cent. The shorter the term, the lower the real returns.

How charges dent returns

An initial allocation charge is deducted from our premiums for

selling, marketing and broker commissions. These charges could be

as high as 65 per cent of the first year premiums. Premium

allocation charges are usually very high (5-65 per cent) in the first

couple of years, but taper off later. The high initial charges mainly

go towards funding agent commissions, which could be as high as

40 per cent of the initial premium as per IRDA (Insurance

Regulatory and Development Authority) regulations.

The charges are higher for a linked plan than a non-linked plan, as

the former require lot more servicing than the latter, such as

regular disclosure of investments, switches, re-direction ofpremiums, withdrawals, and so on. Insurance companies have the

discretion to structure their expenses structure whereas a mutual

fund does not have that luxury. The expense ratios in their case

cannot exceed 2.5 per cent for an equity plan and 2.25 per cent for

a debt plan respectively. The lack of regulation on the expense front

works to the detriment of investors in ULIPs.

The front-loading of charges does have an impact on overall

returns as we lose out on the compounding benefit. Insurance

companies explain that charges get evened out over a long term.

Thus we are forced to stay with the plan for a longer tenure to even

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out the effect of initial charges as the shorter the tenure, the lower

our real returns.

If we want to withdraw from the plan, you lose out, as you will have

to pay withdrawal charges up to a certain number of years.

In effect, when we lock in our money in a ULIP, despite the promise

of flexibility and liquidity, we are stuck with one fund management

style. This is all the more reason to look for an established track

record before committing our hard-earned money.

Evaluate alternative options

As an investor we have to evaluate alternative options that give

superior returns before considering ULIPs.

Insurance companies argue that comparing ULIPs with mutual funds

is like comparing oranges with apples, as the objectives aredifferent for both the products.

Most ULIPs give us the choice of a minimum investment cover so

that we can direct maximum premiums towards investments.

Thus, both ULIPs and mutual funds target the same

customers. If risk cover is your primary objective, pure insurance

plans are less expensive.

When we choose a mutual fund, we look for an established track

record of three to five years of consistent returns across various

market cycles to judge a fund's performance.2


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It is early days for insurance companies on this score; investing

substantially in linked plans might not be advisable at this juncture.

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Try top-ups

Insurance companies allow us to make lump-sum investments in

excess of the regular premiums. These top-ups are charged at a

much lower rate usually one to two per cent. The expenses

incurred on a top-up including agent commissions are much lower

than regular premiums.

Some companies also give a credit on top-ups. For instance, if you

pay in Rs 100 as a top up, the actual allocation to units will be Rs

101. If you keep the regular premiums to the minimum and increase

your top ups, you can save up on charges, enhancing returns in the

long run.

Reduce life cover

The price of the life cover attached to a ULIP is higher than a normalterm plan. Risk charges are charged on a daily or monthly basis

depending on the daily amount at risk. Rates are not locked and are

charged on a one-year renewal basis.

Our life cover charges would depend on the accumulation in your

investment account. As accumulation increases, the amount at risk

for the insurance company decreases. However, with increasing

age, the cost per Rs 1,000 sum assured increases, effectively

increasing your overall insurance costs. A lower life cover could

yield better returns.

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Stay away from riders

Any riders, such as accident rider or critical illness rider, are also

charged on a one-year renewal basis. Opting for these riders with a

plain insurance cover could provide better value for money.

ULIP's as an investment is a very good vehicle for wealth creation

,but way Unit Linked Insurance schemes are sold by insurance

company representative's and insurance advisors is not correct.

ULIP's usually have following charges built into it :

a) Up-front Charges

b) Mortality Charges ( Charges for providing the risk cover for life)

c) Administrative Charges

d) Fund Management Charges

Mutual Fund's have the following charges :

a) Up-front charges ( Marketing, Advertising, distributors fee etc.)

b) Fund Management Charges ( expenses for managing your fund)

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A few aspects of investing in ULIPs versus mutual funds.

Liquidity

ULIPs score low on liquidity. According to guidelines of the Insurance

Regulatory and Development Authority (IRDA), ULIPs have a

minimum term of five years and a minimum lockin of three years.

You can make partial withdrawals after three years. The surrender

value of a ULIP is low in the initial years, since the insurer deducts a

large part of your premium as marketing and distribution costs.

ULIPs are essentially long-term products that make sense only if

your time horizon is 10 to 20 years.

Mutual fund investments, on the other hand, can be redeemed at

any time, barring ELSS (equity-linked savings schemes). Exit loads,

if applicable , are generally for six months to a year in equity funds.

So mutual funds score substantially higher on liquidity.

Tax efficiency

ULIPs are often pitched as tax-efficient , because your investment is

eligible for exemption under Section 80C of the Income Tax Act

(subject to a limit of Rs 1 lakh). But investments in ELSS schemes

of mutual funds are also eligible for exemption under the same

section .Besides the premium, the maturity amount in ULIPs is also

tax-free , irrespective of whether the investment was in a balanced

or debt plan. So they do have an edge on mutual funds, as debt

funds are taxed at 10% without indexation benefits, and 20% with

indexation benefits. The point, though, is that if you invest in a debt

plan through a ULIP, despite its tax-efficiency your post-tax returns

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will be low, because of high front-end costs. Debt mutual funds

dont charge such costs.

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Expenses

Insurance agents get high commissions for ULIPs, and they get

them in the initial years, not staggered over the term. So the insurer

recovers most charges from you in the initial years, as it risks a loss

if the policy lapses. Typically , insurers levy enormous selling

charges, averaging more than 20% of the first years premium, and

dropping to 10% and 7.5% in subsequent years. (And this is after

investors balked when charges were as high as 65%!) Compare this

with mutual funds fees of 2.25% on entry, uniform for all schemes.

Different ULIPs have varying charges, often not made clear to

investors.

For instance, an agent who sells you a ULIP may get 25% of your

first years premium, 10% in the second year, 7.5% in the third and

fourth year and 5% thereafter. If your annual premium is Rs 10,000

and the agents commission in the first year is 25%, it means only

Rs 7,500 of your money is invested in the first year. So even if the

NAV of the fund rises, say 20%, that year, your portfolio would beworth only Rs 9,000much lower than the Rs 10,000 you paid. On

the other hand, if you invest Rs 10,000 in an equity scheme with a

2.25% entry load, Rs 225 is deducted , and the rest is invested. If

the schemes NAV rises 20%, your portfolio is worth Rs 11,730. This

shows how ULIPs work out expensive for investors. Deduct the cost

of a term policy from the mutual fund returns, and youre still left

with a sizeable difference.

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Tata mutual Fund

1) Overview of company

2) Fund type

3) Chair person

4) NAV of past one year

5) Index value of NIFTY

6) Calculation


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Overview

Backed by one of the most trusted and valued brands in India, Tata

Mutual Fund has earned the trust of lakhs of investors with its

consistent performance and world-class service.

Tata Mutual Fund manages around Rs. 22,673.00 crores (average

AUM for the month) as on May 31, 2010 worth of assets across its

varied offerings. Tata Mutual Fund offers an investment option for

everyone, whether you are a businessman or salaried professional,

a retired person or housewife, an aggressive investor or a

conservative capital builder.

The Tata Asset Management philosophy is centred on seeking

consistent, long-term results. Tata Asset Management aims at

overall excellence, within the framework of transparent and rigorous

risk controls.

We constantly benchmark our efforts against these tenets of

performance:

Consistency : We strive to deliver consistent results through our

value-based investing methodology, keeping alive the credo of the

late doyen of the Tata Group, Mr. J.R.D. Tata, that money received

from the people should go back to them several times over.

Flexibility :Tata Mutual Fund offers investors a broad range of

managed investment products in various asset classes and risk

parameters, with operational flexibility to suit their varied

investment needs.

Stability: Our commitment to the highest quality of service and

integrity is the foundation upon which we build trust with our

clients.

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Service: We offer a wide range of services to assist investors have

a fulfilling and rewarding financial planning experience with us. We

have designed our services keeping in mind the needs of our

investors, giving them a smooth and hassle-free financial planning

process.

A Proud Pedigree

Tata Asset Management Ltd is a part of the Tata group, one of

India's largest and most respected industrial groups, renowned for

its adherence to business ethics.

The Group has always believed in returning wealth to the society

that it serves. Thus, nearly two-thirds of the equity of Tata Sons, the

Group's promoter company, is held by philanthropic trusts, which

have created a host of national institutions in the natural sciences,medical care, energy and the arts. The trusts also give substantial

annual grants and endowments to deserving individuals and

institutions in the areas of education, healthcare and social uplift.

By combining ethical values with business acumen, globalisation

with national interests and core businesses with emerging ones, the

Tata Group aims to be the largest and most respected global brand

from India. This way, it fulfils its long-standing commitment to

improving the quality of life of its stakeholders.

Leadership With Trust

Our purpose at the Tata Group is to improve the quality of life of the

communities we serve. We do this by attaining leadership positions

in sectors of national economic significance, to which the Group

brings a unique set of capabilities. This requires us to grow

aggressively in focused areas of business.

Our heritage of returning to society what we earn evokes trust

among consumers, employees, shareholders and the community. Itis an ongoing process, continuously enriched by the formalisation of

the high standards of behaviour that we expect from employees

and companies.

The Tata name is a unique asset, representing leadership with trust.

Leveraging this asset to enhance Group synergy and becoming

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globally competitive is the route to sustained growth and long-term

success.

Core Values

The Tata Group has always sought to be a value-driven

organisation. These values continue to direct the Group's growth

and businesses. The five core Tata values that underpin the way we

do business are:

Integrity: We must conduct our business fairly, with honesty and

transparency. Everything we do must stand the test of public

scrutiny.

Understanding: We must be caring, show respect, compassion

and humanity for our colleagues and customers around the world,

and always work for the benefit of the communities we serve.

Excellence: We must constantly strive to achieve the highest

possible standards in our day-to-day work and in the quality of the

goods and services we provide.

Unity: We must work cohesively with our colleagues across the

Group and with our customers and partners around the world,

building strong relationships based on tolerance, understanding and

mutual cooperation.

Responsibility: We must continue to be responsible, sensitive to

the countries, communities and environments in which we work,

always ensuring that what comes from the people goes back to the

people many times over.

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Overview

At Tata Asset Management Company, we believe that your

investment needs depend on personal and financial goals.

Identifying your financial goals is the key to achieving the big things

in your life, be it your child's education or a carefree and

comfortable retired life.

After identifying and defining your financial goals, you now need to

plan for each of them in an organised and a professional way.

Investment experts around the world advise instruments like equity

funds and stocks for long-term (more than 5 years), income funds

for medium-term and liquid funds for short-term needs.

The investment matrix here depicts the entire available variety of

investment options. Those at the top provide for a greater

opportunity for long-term capital growth while those at the bottomtake care of current income and reasonable return & liquidity. Tata

Mutual Fund offers a wide range of funds for different investment

instruments designed to cater to your individual profile and life-

stage.

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Equity Fund Tata Tax Saving Fund

Tata Select Equity Fund

Tata Life Sciences & Technology Fund

Tata Equity Opportunities Fund

Tata Index Fund

Tata Growth Fund

Tata Equity P/E Fund

Tata Dividend Yield Fund Tata Infrastructure Fund

Tata Mid Cap Fund

Tata Contra Fund

Tata Tax Advantage Fund 1

Tata Equity Management Fund

Tata Capital Builder Fund

Tata Indo-Global Infrastructure Fund

Tata Growing Economies Infrastructure Fund

Tata Infrastructure Tax Saving Fund

Tata SIP Fund Scheme I

Tata SIP Fund Scheme II
http://www.tatamutualfund.com/product/tata-tax-saving-fund.aspxhttp://www.tatamutualfund.com/product/tata-select-equity-fund.aspxhttp://www.tatamutualfund.com/product/tata-life-sciences-technology-fund.aspxhttp://www.tatamutualfund.com/product/tata-equity-opportunities-fund.aspxhttp://www.tatamutualfund.com/product/tata-index-fund.aspxhttp://www.tatamutualfund.com/product/tata-growth-fund.aspxhttp://www.tatamutualfund.com/product/tata-equity-p-e-fund.aspxhttp://www.tatamutualfund.com/product/tata-dividend-yield-fund.aspxhttp://www.tatamutualfund.com/product/tata-infrastructure-fund.aspxhttp://www.tatamutualfund.com/product/tata-mid-cap-fund.aspxhttp://www.tatamutualfund.com/product/tata-contra-fund.aspxhttp://www.tatamutualfund.com/product/tata-tax-advantage-fund-1.asphttp://www.tatamutualfund.com/product/tata-equity-management-fund.aspxhttp://www.tatamutualfund.com/product/tata-capital-builder-fund.aspxhttp://www.tatamutualfund.com/product/tata-indo-global-infrastructure-fund.asphttp://www.tatamutualfund.com/product/tata-growing-economies-infrastructure-fund.aspxhttp://www.tatamutualfund.com/product/tata-infrastructure-tax-saving-fund.asphttp://www.tatamutualfund.com/product/tata-sip-fund-scheme-I.aspxhttp://www.tatamutualfund.com/product/tata-sip-fund-scheme-II.aspxhttp://www.tatamutualfund.com/product/tata-sip-fund-scheme-II.aspxhttp://www.tatamutualfund.com/product/tata-sip-fund-scheme-II.aspxhttp://www.tatamutualfund.com/product/tata-sip-fund-scheme-I.aspxhttp://www.tatamutualfund.com/product/tata-sip-fund-scheme-I.aspxhttp://www.tatamutualfund.com/product/tata-infrastructure-tax-saving-fund.asphttp://www.tatamutualfund.com/product/tata-infrastructure-tax-saving-fund.asphttp://www.tatamutualfund.com/product/tata-growing-economies-infrastructure-fund.aspxhttp://www.tatamutualfund.com/product/tata-growing-economies-infrastructure-fund.aspxhttp://www.tatamutualfund.com/product/tata-indo-global-infrastructure-fund.asphttp://www.tatamutualfund.com/product/tata-indo-global-infrastructure-fund.asphttp://www.tatamutualfund.com/product/tata-capital-builder-fund.aspxhttp://www.tatamutualfund.com/product/tata-capital-builder-fund.aspxhttp://www.tatamutualfund.com/product/tata-equity-management-fund.aspxhttp://www.tatamutualfund.com/product/tata-equity-management-fund.aspxhttp://www.tatamutualfund.com/product/tata-tax-advantage-fund-1.asphttp://www.tatamutualfund.com/product/tata-tax-advantage-fund-1.asphttp://www.tatamutualfund.com/product/tata-contra-fund.aspxhttp://www.tatamutualfund.com/product/tata-contra-fund.aspxhttp://www.tatamutualfund.com/product/tata-mid-cap-fund.aspxhttp://www.tatamutualfund.com/product/tata-mid-cap-fund.aspxhttp://www.tatamutualfund.com/product/tata-infrastructure-fund.aspxhttp://www.tatamutualfund.com/product/tata-infrastructure-fund.aspxhttp://www.tatamutualfund.com/product/tata-dividend-yield-fund.aspxhttp://www.tatamutualfund.com/product/tata-dividend-yield-fund.aspxhttp://www.tatamutualfund.com/product/tata-equity-p-e-fund.aspxhttp://www.tatamutualfund.com/product/tata-equity-p-e-fund.aspxhttp://www.tatamutualfund.com/product/tata-growth-fund.aspxhttp://www.tatamutualfund.com/product/tata-growth-fund.aspxhttp://www.tatamutualfund.com/product/tata-index-fund.aspxhttp://www.tatamutualfund.com/product/tata-index-fund.aspxhttp://www.tatamutualfund.com/product/tata-equity-opportunities-fund.aspxhttp://www.tatamutualfund.com/product/tata-equity-opportunities-fund.aspxhttp://www.tatamutualfund.com/product/tata-life-sciences-technology-fund.aspxhttp://www.tatamutualfund.com/product/tata-life-sciences-technology-fund.aspxhttp://www.tatamutualfund.com/product/tata-select-equity-fund.aspxhttp://www.tatamutualfund.com/product/tata-select-equity-fund.aspxhttp://www.tatamutualfund.com/product/tata-tax-saving-fund.aspxhttp://www.tatamutualfund.com/product/tata-tax-saving-fund.aspxhttp://www.tatamutualfund.com/product/tata-select-equity-fund.aspxhttp://www.tatamutualfund.com/product/tata-life-sc

Comparitive Analysis of Balenced Fund

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