Iqbal Shaikh Mutual Fund Hardcopy

8/3/2019 Iqbal Shaikh Mutual Fund Hardcopy

1/33

PROJECT REPORT

MUTUAL FUND

THE UNIVERSITY OF MUMBAI

B.COM (BANKING AND INSURANCE) (T.Y.B.B.I)

SHAHBAZ (13)MOHAMMAD (15)

IRFAN (18)

FAIZ (24)AFEEF (25)

PROF. SHAIKH IQBAL

RIZVI EDUCATION SOCIETYS

RIZVI COLLEGE

OF ARTS, SCIENCE & COMMERCE

1


2/33

MUTUAL FUND

INTRODUCTION

A mutual fund is a that pools together the resources of investors' tomake a foray into investments, in the capital market thereby makingthe investor to be a part owner of the assets of the mutual fund . If thevalue of the mutual fund goes up, the return on them increases andvice versa. the net income earned on the funds , along with capitalappreciation of the investment shared amongst the unit holders inproportion to the units owned by them .mutual is therefore an indirect

vehicle for the investor investing in capital markets. The mutual fund ismanaged by a professional investment manager who buys and sellssecurities for the most effective growth of the fund. As a mutual fundinvestor, you become a "shareholder" of the mutual fund company.

Mutual funds are, by definition, diversified, meaning they are made upa lot of different investments. That tends to lower your risk.

The total mutual fund (MFs) industry assets base grew by 6.48% forOctober, 2006 to rs.3098298.86 cores. The month saw the launch of25 new schemes, 22 in the income category and 3 in the growth

category.

WHO CAN INVEST IN THE MUTUAL FUND?

Anybody with an investible surplus of as little as a few thousandrupees can invest in mutual fund by buying units of a particular mutualscheme that has a defined investment objective and strategy.

HOW MUTUAL FUNDS WORKS FOR YOU

The money collected from the investors is invested by a fund manager

in different types of securities.

These could range from shares and debentures to money marketinstruments depending upon the schemes objectives

The income earn through these investments and capital appreciationrealized by the scheme and share by its unit holders in proportion inthe units owned by them

2


3/33

HISTORY OF MUTUAL FUND

WORLD

The first mutual fund may be credited to an enterprising Dutchmerchant Adrian Van Ketwich. In 1774 Van Ketwich introduced thefund, which he called Eendragt Maakt Magt ("unity makes strength") heseemed to feel that the increased diversification that would come frompooled assets would be appealing, and established what would todaybe called a closed end fund.

As people began to see the benefits, mutual funds gained popularity inWestern Europe through the 1800's. The first such American fund wascreated in 1893 in Boston Massachusetts, with the founding of the

Boston Personal Property Trust.

Mutual funds first became popular in the United States in the 1920s.The first funds were of the closed-end type with shares that trade onan exchange. The first open-end mutual fund, the MassachusettsInvestors Trust was established on March 21, 1924. It is now part ofthe. This was the first fund with redeemable shares. However, closed-end funds remained more popular than open-end funds throughout the1920s. By 1929, open-end funds accounted for only 5% of theindustry's $27 billion in total assets. After the, passed a series of actsregulating the securities markets in general and mutual funds in

particular. The requires that all investments sold to the public, includingmutual funds, be registered with the (SEC) and that they provideprospective investors with a discloses essential facts about theinvestment. The requires that issuers of securities, including mutualfunds, report regularly to their investors; this act also created the,which is the principal regulator of mutual funds. The establishedguidelines for the taxation of mutual funds, while the governs theirstructure.

When confidence in the stock market returned in the 1950s, the mutualfund industry began to grow again. By 1970, there were approximately

360 funds with $48 billion in assets. The introduction of money marketfunds in the high interest rate environment of the late 1970s boostedindustry growth dramatically. The first retail First Index InvestmentTrust, was formed in 1976 by, headed by it is now called the one ofthe world's largest mutual funds, with more than $100 billion in assetsas of January 31, 2011. Fund industry growth continued into the 1980sand 1990s, as a result of three factors: a for both stocks and bonds,new product introductions (including sector, international and and

3


4/33

wider distribution of fund shares. Among the new distribution channelswere retirement plans. Mutual funds are now the preferred investmentoption in certain types of fast-growing retirement plans, specifically inany other and in (IRAs), all of which surged in popularity in the 1980s.Total mutual fund assets fell in 2008 as a result of the At the end of

December 2009, there were 7,691 mutual funds in the United Stateswith combined assets of $11.121 trillion, according to the (ICI), anational trade association of investment companies in the UnitedStates. The ICI reports that worldwide mutual fund assets were$22.964 trillion on the same date.

INDIA

The mutual fund industry in INDIA started in 1963 with the formation ofUnit Trust of INDIA, at the initiative of the Government of INDIA andReserve Bank them. 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 ofParliament. It was set up by the Reserve Bank of INDIA and functionedunder the Regulatory and administrative control of the Reserve Bank ofINDIA. In 1978 UTI was de-linked from the RBI and the IndustrialDevelopment Bank of INDIA (IDBI) took over the regulatory andadministrative control in place of RBI. The first scheme launched byUTI 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 SECTORFUNDS)

1987 marked the entry of non- UTI, public sector mutual funds set upby public sector banks and Life Insurance Corporation of INDIA (LIC)and General Insurance Corporation of INDIA (GIC). SBI Mutual Fundwas the first non- UTI Mutual Fund established in June 1987 followedby Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of INDIA (Jun 90),

Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fundin June 1989 while GIC had set up its mutual fund in December1990.At the end of 1993, the mutual fund industry had assets undermanagement of Rs.47, 004 crores.

4


5/33

THIRD PHASE 1993-2003 (ENTRY OF PRIVATE SECTOR FUNDS)

With the entry of private sector funds in 1993, a new era started in theIndian mutual fund industry, giving the Indian investors a wider choiceof fund families. Also, 1993 was the year in which the first Mutual Fund

Regulations came into being, under which all mutual funds, except UTIwere to be registered and governed. The erstwhile Kothari Pioneer(now merged with Franklin Templeton) was the first private sectormutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a morecomprehensive and revised Mutual Fund Regulations in 1996.

The industry now functions under the SEBI (Mutual Fund) Regulations1996. The number of mutual fund houses went on increasing, withmany foreign mutual funds setting up funds in INDIA and also the

industry has witnessed several mergers and acquisitions. As at the endof January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of INDIA with Rs.44, 541 crores ofassets under management was way ahead of other mutual funds.

FOURTH PHASE SINCE FEBRUARY 2003

In February 2003, following the repeal of the Unit Trust of INDIA Act1963 UTI was bifurcated into two separate entities. One is theSpecified Undertaking of the Unit Trust of INDIA with assets undermanagement of Rs.29, 835 crores as at the end of January 2003,

representing broadly, the assets of US 64 scheme, assured return andcertain other schemes. The Specified Undertaking of Unit Trust ofINDIA, functioning under an administrator and under the rules framedby Government of INDIA and does not come under the purview of theMutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOBand LIC. It is registered with SEBI and functions under the MutualFund Regulations. With the bifurcation of the erstwhile UTI which hadin March 2000 more than Rs.76, 000 crores of assets undermanagement and with the setting up of a UTI Mutual Fund, conforming

to the SEBI Mutual Fund Regulations, and with recent mergers takingplace among different private sector funds, the mutual fund industryhas entered its current phase of consolidation and growth

5


6/33

ORGANIZATIONS OF A MUTUAL FUND

The mutual fund is constituted as a trust in accordance with the

provisions of Indian trust act, 1882 by the sponsor. The trust deed isregistered under the Indian registration act, 1908.

The institution commonly referred to as mutual funds is accompaniedcalled as asset management company (AMC). Its sole business is tomanage fund as a mutual fund. AMC is controlled by trustees. AMC ispromoted by the trustees are appointed by the entity which startsmutual fund. This entity is referred to as sponsor. For example, forKotak Mahindra Mutual fund, the sponsor is kotak Mahindra financeltd; the trustees is kotak Mahindra trustee company ltd and the assetmanagement company is kotak Mahindra asset management company

ltd. AMC gets management fee annually, based on quantum of fundsmanaged (1.25% up to Rs.100 crores and 1% above that)

SPONSORS

Sponsor of a mutual fund could be a registered company scheduledbank or financial institution. Sponsors or the person who acts alone orcombination with another body corporate and establishes a mutualfund.

Some examples of a sponsors are for Birla mutual funds the sponsor is

Birla growth funds in a joint venture like sun F & C mutual fund foreignand colonial emerging markets is sponsor and sun securities (INDIA)ltd the co sponsors. A sponsor is the satisfy certain condition.

sponsors must contribute at least 40% of the net worth of investmanaged and meet the eligibility criteria prescribed under thesecurities and exchange board of INDIA (Mutual Fund) regulation 1996

sponsor must have a track record (at least 5 yrs operation infinancial services) it should have a default-free dealing so far Sponsors should have a general reputation of fairness.

The sponsors appoint the trustees, AMC and custodian. Once theAMC is formed, the sponsor is just stakeholder. The sponsor is notresponsible or liable for any loss or shortfall resulting from theoperation if the scheme beyond the initial contribution made by ittowards setting up of the mutual fund. However, sponsors do play akey role in bailing out an AMC during a crisis (for egg. Canara bankrescue of Canbank mutual fund).

6


7/33

TRUSTEES

Trustee is a company (corporate body) or a board of trustees (body ofindividual)

ROLE OF TRUSTEES:

Trustees float and market schemes, and secure necessaryapprovals. Trustees also review any due diligence done by the AMC.

For major decisions concerning the fund, they have to take unitholders consent. They submit report every six month to SEBI; and an annualreport to the investors.

RESPONSIBILITIES OF TRUSTEES

To safeguard the interest of the unit holders.

To ensure that mutual funds are managed responsibly andethically. To ensure that AMC functions in accordance with the securitiesand exchange board of INDIA (mutual funds) SEBI regulations, 1996,the provisions of the trust deed and the offer documents of therespective schemes. To act as a 1st level regulators and are critical in helping toensure the profitability and progress of the mutual funds.

As per the SEBI regulations, at least 2/3rd directors of the trustee areindependent directors who are not associated with the sponsors in anymanner. Trustees are paid annually out of funds assets 0.05% of theweekly average net asset value.

Some examples of trustees: sometimes, as the Canara bank, thetrustees and the sponsors are the same. For others. Like SBI fundsmanagement, SBI is a sponsor of the SBI capital markets the trustees.

ASSET MANAGEMENT COMPANY (AMC)

The AMC is appointed by the trustees as the investment manager ofthe mutual fund. The AMC is required to be approved by the securitiesand exchange board of INDIA (SEBI) to act as an asset managementcompany of the mutual fund.

For such approval, the AMC should fulfill following requirement:

7


8/33

At least 50% of the directors of the AMC should be independentdirectors who are not associated with the sponsors in any manner. The AMC must have net worth of at least 10 crore at all times. A funds AMC can neither acts for any other neither funds norundertake any business other than asset management.

ROLE OF AMC

AMCs manage investors money i.e. is takes investmentdecisions AMC compensate investors through dividends

maintains proper accounting and information for pricing of units

calculates the NAV AMCs provide information on listed schemes and secondarymarket unit transactions

it also exercises due diligence on investment AMC submits quarterly report to the trustees

CUSTODIAN, REGISTRAR AND TRANSFER AGENTS:

The AMC if so authorized by the trust deed appoints the custodian,registrar and transfer agents to the mutual fund. Custodian is often anindependent organization; however, among public sector mutual funds,

the sponsors or trustee generally also acts as the custodian. Theircharges range between 0.15-0.2percent of the net value of the holding.Custodian can services more than one fund.

A custodians responsibilities include:

Custody of securities and other assets of the mutual fund

Receipt and delivery of securities

Collecting income

Distributing dividends

Safekeeping of units

Segregating assets and the settlements between schemes Custodians handle communications with investors and updateinvestors records.

SEBI (REGULATOR)

8


9/33

To protect the interest of the investors, SEBI formulates policies andregulates the mutual funds. It notified regulations in 1993 (fully revisedin 1996) and issues guidelines from time to time. Mutual fund eitherpromote by public or by private sectors entities including one promotedby foreign entities are governed by these regulations

AMFI (REGULATOR)

With the increase in mutual fund players in INDIA, a need for mutualfund association in INDIA was generated to function as a non-profitorganization. Association of mutual fund in INDIA was incorporated on22nd 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 thatlaunched mutual fund schemes are its members. Its functions underthe supervision and guidelines of its board of directors. Association ofmutual fund in INDIA has brought down the Indian mutual fund industryto a professional and healthy market with ethical lines enhancing andmaintaining standards. It follows the principle of both protecting andpromoting the interests of mutual funds as well as their unit holders.

WHAT IS THE NAME OF INDUSTRY ASSOCIATION FORTHE MUTUAL FUND INDUSTRY?

AMFI (Association of Mutual Funds in India) is the industry associationfor the Mutual fund industry in India which was incorporated in the year1995.

WHAT ARE THE OBJECTIVES OF AMFI?

The Principal objective of AMFI is to:

Promote the interests of the mutual funds and unit holders andInteract with regulators- SEBI/RBI/Govt./Regulators. To set and maintain ethical, commercial and professional

standards in The industry and to recommend and promote bestbusiness practices And code of conduct to be followed by membersand others engaged in The activities of mutual fund and assetmanagement. To increase public awareness and understanding of the conceptand Working of mutual funds in the country, to undertake investorAwareness programmes and to disseminate information on the mutualFund industry.

9


10/33

To develop a cadre of well trained distributors and to implementa Programmed of training and certification for all intermediaries andOthers engaged in the industry.

INVESTING IN THE MUTUAL FUND

Mutual fund AMCs launch a funds (a scheme) represents adesigned corpus to be invested with a predefined objectives. Corpus ofone scheme is treated separately from another. Therefore differentfunds (scheme) of the same AMC perform differently and offer differentreturns to the investors.

When a new fund or new schemes is started, it is open forinvestment for investors at the face value of unit i.e. Rs. 10 this initialoffer is offer as NFO-new fund offering. No entry load is charged if thesubscribed during NFO. As NFO closes, the corpus is systematicallyinvested as per the objectives of the fund, guided by the analyst

experts employed with AMC. Schemes of AMCs are called as funds in investment jargon.Thus while we use the term fund, it sometimes refers to that institutioni.e. AMC trustees and sometimes refers to a particular scheme.Schemes are titled as infrastructure fund, IPO opportunity fund,pharma sector fund and perhaps that is why the scheme are calledfunds in discussions. With reference to the context we can make outwhether it is referring to a scheme or AMC trusty.

10


11/33

CLASSIFICATION OF MUTUAL FUNDThere are three different types classification of mutual fund:

Functional

Portfolio

Special Fund

Non Classification Assets

Each classification is mutually exclusive.

FUNCTIONAL CLASSIFICATION

OPEN-END FUNDS

Open-end mutual funds must be willing to buy back their shares fromtheir investors at the end of every business day at the net asset valuecomputed that day. Most open-end funds also sell shares to the publicevery business day; these shares are also priced at net asset value. Aprofessional investment manager oversees the portfolio, buying andselling securities as appropriate. The total investment the in fund willvary based on share purchases, redemptions and fluctuation in marketvaluation.

CLOSED-END FUNDS

Closed-end funds generally issue shares to the public only once, whenthey are created through an Their shares are then listed for trading ona Investors who no longer wish to invest in the fund cannot sell theirshares back to the fund (as they can with an open-end fund). Instead,they must sell their shares to another investor in the market; the pricethey receive may be significantly different from net asset value. It maybe at a "premium" to net asset value (meaning that it is higher than netasset value) or, more commonly, at a "discount" to net asset value(meaning that it is lower than net asset value). A professionalinvestment manager oversees the portfolio, buying and selling

securities as appropriate.

PORTFOLIO CLASSIFICATION

Funds are divided into three types:

Equity funds,

11


12/33

Debt funds

1) STOCK OR EQUITY FUNDS

Equity funds allow investors to own a piece of the company that they

have invested in, like common stocks. Stocks have historically beenthe best investment bar none. They have outperformed all otherinvestment vehicles in the long term, but there is added risk. See thesection on stocks and bonds for more information about this.

Equity funds seek to produce a high level of current income byinvesting primarily in equity securities of companies with solidreputations and a record of good-paying dividends. Decatur andFidelity Puritan are examples of equityfun

2) DEBT FUNDS

DEBT Funds that invest in medium to long-term debt instrumentsissued by private companies, banks, financial institutions, governmentsand other entities belonging to various sectors (like infrastructurecompanies etc.) are known as Debt / Income Funds. Debt funds arelow risk profile funds that seek to generate fixed current income (andnot capital appreciation) to investors.

3) SPECIAL FUND

Special fund are four types:

Index Fund

International Fund

Offshore Fund Sector Fund

INDEX FUND

12
http://library.thinkquest.org/3298/doc/stockbond.htmlhttp://library.thinkquest.org/3298/doc/stockbond.html


13/33

Every stock market has a stock market has a stock index whichmeasures the upward and downward sentiment of the stocks market ,index fund are low cost fund and influwnce the stock market

INTERNATIONAL FUND

International funds invest in equity securities of companies located outside of

the United States. Two-thirds of their portfolios must be invested in these

companies at any one time. Many of these international funds invest in theemerging markets of nations around the world. They do not offer the

flexibility of the global funds because of the two-thirds minimum

requirement.

OFFSHORE FUND

A mutual fund located in INDIA to raise the money globally forinvesting in INDIA

SECTOR FUND

They invest their entire fund in a particular industry (e.g.) utility fund for

utility industry like power. Gas, public works

4) NON-FINANCIAL ASSET FUNDS

GOLD EXCHANGE TRADED FUND

Gold ETF would be a passive investment; so, when gold Prices moveup, the ETF appreciates and when gold prices move down, the ETFloses value. Gold ETF tracks the performance of Gold Bullion. GoldETFs provide returns that, before expenses, closely correspond to thereturns provided by physical Gold. Each unit is Approximately equal tothe price of 1 gram of Gold. But, there are Gold ETFs which also

13


14/33

provide a unit which is approximately equal to the price of gram ofGold

REAL ESTATE FUND

Real estate has often rivaled common stocks as amongst the mostprofitable of investments. A drawback to investing in real estate is that it isnot very liquid. In other words, an investor cannot pick and sell and turnaround and buy as quickly as with other investments. Mutual fundsprovide some of this liquidity. Real Estate Investment Trusts (REITs) aresold like stocks on an exchange. They are not exactly mutual funds.REITs provide the most liquidity, along with the lucrative benefits ofinvesting in real estate. T. Rowe Price, Vanguard and others have manyREITs that you can invest in

14


15/33

OTHER CLASSIFICATION OF FUNDS

ARBITRAGE FUNDS

Typically these funds promise safety of deposit, but better returns, tax

benefits and greater liquidity pru ICICI is the latest to join the list withits equity and derivatives funds

The open ended equity scheme aims to generate low volatility returnsby inverting in a mix of case equities, equity derivatives and debtmarkets. The funds seek to seek to provide better returns than typicallydebt instrument and lower volatility in comparison to equity.

These funds aimed at an investor who seeks the return of small savinginstrument, safety of bank deposit, tax benefits of RBI relief bonds andliquidity of mutual funds.

An arbitrage fund finally seeks to capitalize on the price differentbetween the spot and the future market.

The other scheme in the arbit5rage universe are benchmark derivative,JM Equity and derivatives, prudential ICICI Equity and derivatives

HEDGE FUND

A hedge fund (there are no hedge funds in INDIA) is a lightly regulatedinvestment fund that escapes most regulation by being a sort of a

private investment vehicle being offered to selected clients.

EQUITY LINKED TAXES SAVING SCHEME

ELSS is one of the options for investor to save taxes is under section80 C of the income tax Act. They also offer the perfect way toparticipate in the growth of the capital Market, having a

Lock in period of the year besides, ELSS has the potential to givebetter returns then any traditional tax saving instrument.

Moreover by investing in an ELSS through a systematic investmentplan (SIP), one can not only avoid the problem of investing a lump sumtowards the end of the year but also take advantage of averaging,

15


16/33

EXCHANGE-TRADED FUNDS

A relatively recent innovation, the exchange-traded fund or ETF isoften structured as an open-end investment company, though ETFsmay also be structured as unit investment trusts, partnerships,

investments trust, grantor trusts or bonds (as an ETFs combinecharacteristics of both closed-end funds and open-end funds. Likeclosed-end funds, ETFs are traded throughout the day on at a Pricedetermined by the market. However, as with open-end funds, investorsnormally receive a price that is close to net asset value. To keep themarket price close to net asset value, ETFs issue and redeem largeblocks of their shares with institutional investors.

.HYBRID FUNDS

Hybrid funds invest in both bonds and stocks or in convertible

securities. Balanced funds, asset allocation funds, target date or targetrisk funds and lifecycle or lifestyle funds are all types of hybrid funds.

Hybrid funds may be structured as funds of funds, meaning that they invest by

buying shares in other mutual funds that invest in securities. Most fund of

funds invest in affiliated funds (meaning mutual funds managed by the samefund sponsor), although some invest in unaffiliated funds (meaning those

managed by other fund sponsors) or in a combination of the two.

Money-Market Funds

Money market funds are generally the safest and most secure ofmutual fund investments. They invest in the largest, most stablesecurities, including Treasury bills. Money-market funds have beta co-efficient values of zero because the chances of your principle beingeroded are very minimal. How do these funds work? Money-marketfunds are like fancy checking accounts and the best part is that theyare risk-free. If you invest a thousand dollars, you will get that moneyback. It is simply a matter of when you get it back. A thousand dollarswill get you a thousand shares. Usually the prices of shares in money-market funds are kept at around $1. As an investor, you will be givenchecks which you can use against your deposit. The minimum amount

for these checks, however, is usually around $250 or $500.

When investing in a money-market fund, you should pay attention tothe interest rate that is being offered, along with the rules regardingcheck-writing. Money-markets have allowed investors to reap highyields on their deposits, and have made the entire investment processmore accessible to people.

16


17/33

The interest rates on money-market funds are changing nearly day today. In times of inflation, these funds have had high yields--like 18% inthe early 1980s. The interest rate is very important information. Manyinvestors believe that even 1% is not worth the trouble of shoppingaround. The graph below shows the difference 1% makes on $5000

invested for different duration.

P/ E RATIO FUND

A fund which invests in stocks based upon their P/E ratios. Thus whena stock is trading at a historically low P/E multiple, the fund will buy thestock, and When the P/E ratio is at the upper end of the band, thescheme will sell.

INTERNATIONAL EQUITIES FUND

This is a type of fund which invests in stocks of companies outsideINDIA. This can be a Fund of Fund, whereby, we invest in one fund,which acts as a Feeder fund for some other fund(s), i.e. invests inother mutual funds, or it can be a fund which directly invests inoverseas equities. These may be further designed as InternationalCommodities Securities Fund or World Bank Fund etc

SECTOR FUNDS

Funds that invest in stocks from a single sector or related sectors arecalled Sector funds. Examples of such funds are IT Funds, Pharma

Funds, infrastructure Funds, etc. Regulations do not permit funds toinvest over 10% of their Net Asset Value in a single company. This isto ensure that schemes are diversified enough and investors are notsubjected to undue risk.

FUND OF FUNDS

These are funds which do not directly invest in stocks and shares butinvest in Units of other mutual funds which they feel will perform welland give high Returns. In fact such funds are relying on the judgmentof other fund managers.

TAX SAVING MUTUAL FUNDS IN INDIA

Tax Saving Mutual Funds are one of the most preferred areas forinvestments. This is mainly because the investors treat the tax savingfunds at par with the regular diversified equity funds.

They would just follow the same process while choosing a tax saving

17


18/33

fund just as they would have done in case of equity fund. A properstudy on the performance of the tax saving mutual fund for at least aperiod of three years or five years is essential for every investor toavoid unnecessary hassles that might pop up later on. The lock-inperiod for the fund is determined by the fund manager so that the

investors cannot sell the stocks anytime they want as selling of stocksat wrong time, especially when the value of stocks lower down is quiteinexpedient for them

WHAT IS A SYSTEMATIC INVESTMENT PLAN(SIP)?

A way of setting up the regular deposit of funds into specificinvestments and thus allowing the investor to purchase shares atdifferent prices and then averaging out the overall share price paidover time. This is often referred to as the concept of dollar cost

averaging

FREQUENTLY USED TERMS

NET ASSET VALUE (NAV)

The purchase price is always linked to the net Asset value (NAV).TheNAV is nothing but the market price of each unit of a particular schemein relation to All the Assets of the scheme. It can otherwise be calledthe intrinsic value of each unit. This value is true indictor of the

performance of the fund. If the NAV is more than the face value of theunit has appreciated and the performed well.

illustration

For instance, fortune mutual fund has introduced a scheme size is 100crores. The value of each units Rs. 10/- it has invested all the funds inshares and debentures And value of the investment comes to rs. 200crores.

Now NAV =200 crores/100 crores*value of each unit.

=2*10=20

Thus, the value of each unit is Rs. 10/- is worth Rs. 20.

Hence the NAV =Rs. 20.

18
http://www.investorwords.com/11433/up.htmlhttp://www.investorwords.com/10859/regular.htmlhttp://www.businessdictionary.com/definition/deposit.htmlhttp://www.businessdictionary.com/definition/funds.htmlhttp://www.businessdictionary.com/definition/investment.htmlhttp://www.businessdictionary.com/definition/investor.htmlhttp://www.businessdictionary.com/definition/investor.htmlhttp://www.businessdictionary.com/definition/purchase.htmlhttp://www.businessdictionary.com/definition/share.htmlhttp://www.businessdictionary.com/definition/price.htmlhttp://www.businessdictionary.com/definition/averaging.htmlhttp://www.investorwords.com/10510/overall.htmlhttp://www.investorwords.com/5959/share_price.htmlhttp://www.investorwords.com/3569/paid.htmlhttp://www.businessdictionary.com/definition/concept.htmlhttp://www.businessdictionary.com/definition/dollar-cost-averaging.htmlhttp://www.businessdictionary.com/definition/dollar-cost-averaging.htmlhttp://www.investorwords.com/11433/up.htmlhttp://www.investorwords.com/10859/regular.htmlhttp://www.businessdictionary.com/definition/deposit.htmlhttp://www.businessdictionary.com/definition/funds.htmlhttp://www.businessdictionary.com/definition/investment.htmlhttp://www.businessdictionary.com/definition/investor.htmlhttp://www.businessdictionary.com/definition/purchase.htmlhttp://www.businessdictionary.com/definition/share.htmlhttp://www.businessdictionary.com/definition/price.htmlhttp://www.businessdictionary.com/definition/averaging.htmlhttp://www.investorwords.com/10510/overall.htmlhttp://www.investorwords.com/5959/share_price.htmlhttp://www.investorwords.com/3569/paid.htmlhttp://www.businessdictionary.com/definition/concept.htmlhttp://www.businessdictionary.com/definition/dollar-cost-averaging.htmlhttp://www.businessdictionary.com/definition/dollar-cost-averaging.html


19/33

This NAV forms the basis for fixing the repurchase price and reissueprice.

The investors can call up the fund anytime to find out the NAV. SomeMFs publish the NAV weekly in two or three leading daily newspapers.

AVERAGE ANNUAL TOTAL RETURN

The SEC requires that mutual funds report the average annualcompounded rates of return for 1-year, 5-year and 10-year periodsusing the following formula:

P (1+T) n = ERV

Where:

P = a hypothetical initial payment of $1,000.

T = average annual total return.

n = number of years.

ERV = ending redeemable value of a hypothetical $1,000 paymentmade at the beginning of the 1-, 5-, or 10-year periods at the end of the1-, 5-, or 10-year periods (or fractional portion).

TURNOVER

Turnover is a measure of the volume of a fund's securities trading. It isexpressed as a percentage of net asset value and is normallyannualized. Turnover equals the lesser of a fund's purchases or salesduring a given period (of no more than a year) divided by average netassets. If the period is less than a year, the turnover figure isannualized.

PUBLIC OFFERING PRICE (POP)

The public offering price (POP) is the price at which shares are sold tothe public. For funds that don't charge a sales commission (or "load"),the POP is simply equal to the Net Asset Value (NAV). For a load fund,the POP is equal to the NAV plus the sales charge. As with the NAV,the POP will typically change on a day to day basis.

19


20/33

SHARE CLASSES

Mutual funds shares are sometimes broken down into lettered"classes" that have different characteristics. Here's a brief rundown ofsome commonly used designations

A: Shares that have a front-end load. B: Shares that have a back-end load. Y: Shares for institutional investors; no front-end load. Z: Shares for employees of the mutual fund.

PORTFOLIO MANAGEMENT SERVICES

Professional investment managers review the funds position of aninvestor, his cash needs in future and also his risk appetite andaccordingly invest his investible surplus in various instruments. They

also continuously monitor and review such investments. Periodicalreallocation of assets is undertaken. These services charge fees forinvestment management. To avail of these services, a minimumcorpus has to be of reasonable amount. For instance, for Rs.10, 000worth investment, it is unviable for portfolio managers to undertakenthe assignment. Their percentage fees would be very low to handlesuch account. Minimum amount specified in INDIA by SEBI is Rs. 5lakh. However, most PMS insist on much bigger amount formanagement. Hence this is not suitable for investors having smallcorpus of funds

REGULATIONS

OVERVIEW

Regulations ensure that schemes do not invest beyond a certainpercent of Their NAVs in a single security. Some of the guidelinesregarding these are Given below:

No scheme can invest more than 15% of its NAV in rated debtInstruments of a single issuer. This limit may be increased to 20% with

Prior approval of Trustees. This restriction is not applicable toGovernment securities. No scheme can invest more than 10% of itsNAV in unrated paper of a Single issuer and total investment by anyscheme in unrated papers Cannot exceed 25% of NAV No fund, underall its schemes can hold more than 10% of companys paid up capital.No scheme can invest more than 10% of its NAV in a single company.If a scheme invests in another scheme of the same or different AMC,no fees will be charged. Aggregate inter scheme investment cannot

20


21/33

exceed 5% of net asset value of the mutual fund. No scheme caninvest in unlisted securities of its sponsor or its group entities.Schemes can invest in unlisted securities issued by entities other thanthe sponsor or sponsors group. Open ended schemes can investmaximum of 5% of net assets in such securities whereas close ended

schemes can invest up to 10% of net assets in such securities.Schemes cannot invest in listed entities belonging to the sponsorgroup beyond 25% of its net assets.

HOW TO GET REGISTERED AS A MUTUAL FUND

SEBI will guide the applicant step by step after getting application forregistration as a mutual fund. Normally, all replies are sent within 21working days from the date of getting each communication from theapplicant during the process of registration. Thus, the total time periodfor registration depends on how fast the requirements are complied

with by the applicant.

GRANT OF CERTIFICATE OF REGISTRATION

Once all above requirements have been complied with and a requisitefee as per Second Schedule of Regulations has been paid, SEBI willgrant certification of registration as a mutual fund and will approveAMC. SEBI may also conduct infrastructure inspection of the applicantbefore grant of certificate of registration.

Further, it may be noted that in case no Mutual Fund scheme is

launched within 12 months from the date of registration, theregistration granted would be treated as cancelled.

ADVANTAGES OF MUTUAL FUND

PROFESSIONAL MANAGEMENT

You avail of the services of experienced and skilled professionals who arebacked by a dedicated investment research team which analyses the

performance and prospects of companies and selects suitableinvestments to achieve the objectives of the scheme.

DIVERSIFICATION

21


22/33

Mutual Funds invest in a number of companies across a broad crosssection of industries and sectors. This diversification reduces the riskbecause seldom do all stocks decline at the same time and in the sameproportion. You achieve this diversification through a Mutual Fund with farless money than you can do on your own.

CONVENIENT ADMINISTRATION

Investing in a Mutual Fund reduces paperwork and helps you avoid manyproblems such as bad deliveries, delayed payments and unnecessaryfollow up with brokers and companies. Mutual Funds save your time andmake investing easy and convenient.

RETURN POTENTIAL

Over a medium to long term, Mutual Funds have the potential to provide ahigher return as they invest in a diversified basket of selected securities.

LOW COSTS

Mutual Funds are a relatively less expensive way to invest compared todirectly investing in the capital markets because the benefits of scale in

brokerage, custodial and other fees translate into lower costs for investors.

LIQUIDITY

22


23/33

In open-ended schemes, you can get your money back promptly at AssetValue (NAV) related prices from the Mutual Fund itself. With close-endedschemes, you can sell your units on a stock exchange at the prevailingmarket price or avail of the facility of repurchase through Mutual Funds atNAV related prices which some close-ended and interval schemes offer

you periodically.

TRANSPARENCY

You get regular information on the value of your investment in addition todisclosure on the specific investments made by your scheme, theproportion invested in each class of assets and the fund managers

investment strategy and outlook.

FLEXIBILITY

Through features such as Systematic Investment Plans (SIP), SystematicWithdrawal Plans (SWP) and dividend reinvestment plans, you cansystematically invest or withdraw funds according to your needs and

convenience.

CHOICE OF SCHEMES

Mutual Funds offer a variety of schemes to suit your varying needs over alifetime.

WELL REGULATED

23


24/33

All Mutual Funds are registered with SEBI and they function within theprovisions of strict regulations designed to protect the interests ofinvestors. The operations of Mutual Funds are regularly monitored by

SEBI

DISADVANTAGES OF MUTUAL FUNDS

FEES AND COMMISSIONS

The Mutual funds charge administrative fees to meet the daily expenses.Many funds charge brokerage or 'loads' to pay financial planners orfinancial consultants, brokers. In case a shareholder does not use theservices of financial adviser, he still has to pay a sales commission.

NO GUARANTEES

All investments bear risk factors. The Mutual Funds are no different. It

depends on the stock market. A fall in the stock market would trigger a fallin the value of the mutual fund shares. Although the risk factor pertainingto Mutual funds are much lower compared to Mutual Funds.

INEFFICIENCY OF CASH RESERVES

The Mutual Funds maintain big cash reserves, for situations such as anumber of large withdrawals. The investors are provided with liquidity, anda major portion of the financial resources is maintained as cash, and it isnot invested in some assets.

MANAGEMENT RISK

The investment pertaining to the Mutual Funds depends on the fundmanager and his selection of the mutual fund portfolio, which is based onspeculation. If things do not go as expected, the investments may not earnenough money.

TAXES

24


25/33

The proceeds from the sale of mutual funds are taxable, even if the sameis reinvested in mutual funds.

NO INSURANCE

The Mutual funds are regulated by the central government. Howevermutual funds are still not insured against losses.

TRADING LIMITATIONS

The Mutual Funds usually have high liquidity, but most of the mutualfunds, such as open-ended funds, are bought or sold at the end of the day

company to be announced regularly

LOSS OF CONTROL

In case, if the mutual funds are managed by the investor himself, theportfolio management may go bad and have an adverse effect on theearnings from the investment.

INVESTOR RIGHTS

Investors right the SEBI (MF) Regulations, 1993 contains specific

provisions with regard to investors servicing. Certain rights have beenguaranteed to the investor s per the above regulations. They are asfollows.

UNIT CERTIFICATES

An investor has a right to receive his unit certificates on allotment within aperiod of 10 weeks from the date of closure of the initial offer in the caseof an open ended scheme.

TRANSFERS OF UNITS

25


26/33

An investor is entitled to get the unit certificates transferred within a periodof 30 days from the date of lodgement of the certificates along withrelevant transfers forms.

REFUND OF APPLICATION MONEY

If a mutual fund is not able to collect the statutory minimum amount (closeended funds Rs. 20 crores, open ended funds Rs. 50 crores or 60% ofthe targeted amounts whichever is higher) it has to return the applicationmoney as refund within a period of 6 weeks from the date of closure ofsubscription lists. If the refund is delayed beyond this period, eachapplicant is entitled to get the refund with interest at the rate of 15% p. a.

for the period of the delay.

AUDITED ANNUAL REPORT

Every mutual fund is under an obligation to its investors to publish theaudited annual report and unaudited half yearly report through prominentnewspapers in respect of each of its schemes within 6 months and 3

months respectively of the date of closure of accounts

RISKS IN MUTUAL FUND:

Mutual fund mentions disclaimers in each promotional document. Mutualfunds are not risk free. Following is an indicative of risks factors in mutualfunds.

STOCK MARKET RISKS

Those schemes which invest in equities are exposed to uncertainties of

stock market. Share price move up and down and so also value ofholdings of a mutual fund. Each risks that makes overall market risky, isdiscussed as follows:

BUSINESS RISKS

Performance of a particular stock would depend upon business success ofthat company. We primarily bet on business success possibilities while we

26


27/33

invest in a specific stock. If company does not achieve sales/profit targetsor costs go out of control, the investor would suffer.

INTEREST RATE RISK

Interest rates determine whether the investors would prefer debt market orequity market money flows determine level of index. Recently, federalbank (USA) increased interest rates in the US and we had seen big crashin market here primarily because of exodus of FIIs.

SENTIMENTS RISKS

Stock market moves on sentiments. Death of politicians, change of rulingparty in governments, success / failure of diplomatic discussions,monsoon, all and many more affect stock market. Mutual fund investmentsare susceptible to these risks.

INDUSTRY RISKS

Some industries get sudden shocks. Some perform average consistency(defensive stocks, e.g. pharma, textile) some show extreme variations(aggressive stocks e.g. lifestyle, software).

POLITICAL RISKS

27


28/33

Political decisions affect markets. Tax related, subsidy related decisions,EXIM policies, and regulatory environment have direct bearing on themarket.

SCHEMES RISKS

Some schemes have pre-decided investment patterns. This could be thevery reason of the risks for instance; pharma sector fund is bound bypharma sector investment only. Any stocks to these industries wouldmean significant loss of wealth to this scheme. Debt funds depend uponinterest rate movements. These funds perceived to be less risky wouldalso suffer because of interest rate movements.

INVESTMENTS EXPERTISE (HUMAN RESOURCES) RISKS

Investment management is a service sector industry. Largely dependsupon their performance. A fund manager may poorly sometimes, or hemay quit the job. He may knowingly or unknowingly violate regulatoryguidelines. All this would result in loss to investor and also to an AMC.

INVESTORS CONFIDENCE RISKS

As markets crash or any wrong news comes, investors panic. They tend towithdraw and redeem their units. This results in sudden liquidity pressureon the fund and breaks desired diversification. Even though fundmanagers do not think a particular time as an appropriate time to sell

stocks, due to liquidity pressure, they have to sell it. This results in lossbooking. However, Indian had shown greater maturity in May 2006 crash.AUM (Asset under Management) of most mutual funds increased insteadof decrease.

EXPENSES RATIO OF MUTUAL FUND

28


29/33

TRANSACTION FEES

PURCHASE FEE

Purchase Fee a type of fee that some funds charge their

shareholders when they buy shares. Unlike a front-end sales load, apurchase fee is paid to the fund and is typically imposed to defraysome of the fund's costs associated with the purchase.

REDEMPTION FEE

Redemption Fee another type of fee that some funds charge theirshareholders when they sell or redeem shares. It is typically used todefray fund costs associated with a shareholder's redemption.

EXCHANGE FEE

Exchange Fee a fee that some funds impose on shareholders ifthey exchange (transfer) to another fund within the same Managementfees are fees that are paid out of fund assets to the fund's investmentadviser for investment portfolio management, any other managementfees payable to the fund's investment adviser or its affiliates, andadministrative fees payable to the investment adviser that are notincluded in the "Other Expenses" category (discussed below).. Theyare also called maintenance fees.

ACCOUNT FEE

Account fees are fees that some funds separately impose on investorsin connection with the maintenance of their accounts. For example,some funds impose an account maintenance fee on accounts whosevalue is less than a certain dollar amount.

OTHER OPERATING EXPENSES

TRANSACTION COSTS

These costs are incurred in the trading of the fund's assets. Funds with

a high or investing in illiquid or exotic markets usually face highertransaction costs. Unlike the costs are usually not reported.

LOADSDEFINITION OF A LOAD

Load funds exhibit a "Sales Load" with a percentage charge levied onpurchase or sale of shares. A load is a type of Depending on the type

29


30/33

of load a mutual fund exhibits, charges may be incurred at time ofpurchase, time of sale, or a mix of both. The different types of loadsare outlined below.

FRONT-END LOAD

Often associated with class 'A' shares of a mutual fund. Also known asSales Charge, this is a fee paid when shares are purchased. Alsoknown as a "front-end load," this fee typically goes to the brokers thatsell the fund's shares. Front-end loads reduce the amount of yourinvestment. For example, let's say you have $1,000 and want to investit in a mutual fund with a 5% front-end load. The $50 sales load youmust pay comes off the top, and the remaining $950 will be invested inthe fund. The Maximum sales load under the Investment Company Actof 1940 is 9%. The maximum sales load under NASD Rules is 8 1/2%.

BACK-END LOAD

Associated with class "B" mutual fund shares. Also known as DeferredSales Charge, this is a fee paid when shares are sold. Also known as a"back-end load," this fee typically goes to the sell the fund's shares.Back-end loads start with a fee about 5 to 6 percent, whichincrementally discounts for each year that the investors own the fundsshares. The rate at which the fee declines is disclosed. The amount ofthis type of load will depend on how long the investor holds his or hershares and typically decreases to zero if the investor holds his or hershares long enough.

LEVEL LOAD/LOW LOAD

It's similar to a back-end load in that no sales charges are paid whenbuying the fund. Instead a back-end load may be charged if the sharespurchased are sold within a given time frame. The distinction betweenlevel loads and low loads as opposed to back-end loads is that thistime frame where charges are levied is shorter.

NO-LOAD FUND

Associated with Class "C" Shares. As the name implies, this meansthat the fund does not charge any type of sales load. But, as outlinedabove, not every type of shareholder fee is a "sales load." A no-loadfund may charge fees that are not sales loads, such as purchase fees,redemption fees, exchange fees, and account fees. Class "C" shareshave the highest annual expense charges.

FUTURE OF MUTUAL FUNDS IN INDIA

30


31/33

Financial experts believe that the potential of Mutual Funds in INDIAwill be very brilliant. It has been predictable that by March-end of2012.The mutual fund industry of INDIA will reach Rs 99, 90,000 crore,taking into account the total assets of the Indian commercial banks. Inthe coming 10 years the annual multiple growth rates is expected to go

up by 14.5%. Since the last 5 years, the growth rate was recorded as9.3% annually. Based on the current rate of growth, it can beforecasted that the mutual fund assets will be double by 2012.

The Future of Mutual Funds in INDIA is quite bright. Mutual Funds areone of the most popular forms of investments as these funds arediversification, professional management, and liquidity. In the year2004, the mutual fund industry in INDIA was worth Rs 1, 50,537crores. The mutual fund industry is expected to grow at a rate of 13.4%over the next 10 years.

The growth rate was 100 % in 6 previous years.

The saving rate in INDIA is 23 %.

There is a huge scope in the future for the expansion of themutual funds industry. A number of foreign based assets management companies areventuring into Indian markets. The Securities Exchange Board of INDIA has allowed theintroduction of commodity mutual funds.

The emphasis is being given on the effective corporate

governance of Mutual Funds. The Mutual funds in INDIA has the scope of penetrating into therural and semi urban areas.

Financial planners are introduced into the market, which wouldprovide the people with better financial planning.

.

Summary

The Mutual Fund Industry in India is quite sophisticated and successful. It isdominated by good and reputable institutions, both Indian and international.Nevertheless improvements are always possible and desirable in order to enhancethe ability of mutual fund industry to mobilize savings on a wider scale and tocontribute to the further development of capital market.Although reforms in the financial sector since 1991 have been successful in creatinga competitive environment, the growth of mutual fund has slowed down, partly dueto problems faced by UTI.

31


32/33

Leading Asset Management Companies And

Mutual Funds in India

Name of Asset Management Company Mutual Fund

Sponsored by banks

Bank of Baroda Asset Management Company Bob Mutual FundCanbank Investment Services Ltd. Canara Bank

PNB Asset Management Company Ltd. PNB Mutual Fund

SBI Funds Management Ltd. SBI Mutual Fund

UTI Asset Management Company Pvt. Ltd. UTI Mutual Fund

Sponsored by Institution

GIC Asset Management Company Ltd. GIC Mutual Fund

IL & FS Asset Management Company Ltd. IL & FS Mutual Fund

32


33/33

Jevons Bema Sabayon Asset Management Company LIC Mutual Fund

Private Sector Companies

Benchmark Asset Management Co Pvt. Ltd. Benchmark Mutual Fund

Cholamandalam AMC Ltd. Cholamandalam Mutual Fund

Escorts Asset Management Ltd. Escorts mutual Fund

First India Asset Management Pvt. Ltd. First India Mutual Fund

JM Capital Management Pvt. Ltd. JM Mutual Fund

Kotak Mahindra Asset Management Company Ltd. Kotak Mahindra Mutual Fund

Reliance Capital Asset Management Ltd. Reliance Capital Mutual Fund

Sundaram Newton Asset Management Company Sundaram Mutual Fund

Birla Sunlife Asset Management Company Ltd. Birla Sunlife Mutual Fund

Credit Capital Asset Management Company Ltd. Taurus Mutual Fund

DSP Merrill Lynch Fund Managers Ltd. DSP Merrill Lynch Mutual Fund

HDFC Asset Management Company Ltd. HDFC Mutual Fund

Tata TD Waterhouse Asset Management Pvt. Ltd. Tata TD Mutual Fund

Joint Venture Companies

Alliance Capital Asset Management(India) Pvt. Ltd. Alliance Capital Mutual Fund

Deutsche Asset Management(India) Pvt. Ltd. Deutsche Mutual Fund

HSBC Asset Management(India) Pvt. Ltd. HSBC Mutual Fund

ING Investment Management(India) Pvt. Ltd. ING Vyasa Mutual Fund

Morgan Stanley Investment Management Pvt. Ltd. Morgan Stanley Mutual Fund

Prudential ICICI Asset management Company Ltd. Prudential ICICI Mutual Fund

Standard Chartered Asset Management CompanyPvt. Ltd

Standard Chartered Mutual Fund

Sun F&C Asset management(India) Pvt. Ltd. Sun F&C Mutual Fund

Templeton Asset Management(India) Pvt. Ltd Templeton India Mutual Fund

Foreign Company

Principal Asset Management Company Ltd. Principal Mutual Fund

Iqbal Shaikh Mutual Fund Hardcopy

Documents

Transcript of Iqbal Shaikh Mutual Fund Hardcopy