Introduction

of the

Mutual Fund

Industry in India

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MUTUAL FUNDS: AN INTRODUCTION

A Mutual Fund is an investment tool that allows small investors access to a well-

diversified portfolio of equities, bonds and other securities. Each shareholder participates

in the gain or loss of the fund. Units are issued and can be redeemed as needed. The

fund's Net Asset Value (NAV) is determined each day. The income earned through these

investments and the capital appreciations realized are shared by its unit holders in

proportion to the number of units owned by them. Thus a Mutual Fund is the most

suitable investment for the common man as it offers an opportunity to invest in a

diversified, professionally managed basket of securities at a relatively low cost.

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Mutual funds are financial intermediaries, which collect the savings of investors and

invest them in a large and well-diversified portfolio of securities such as money market

instruments, corporate and government bonds and equity shares of joint stock companies.

Mutual funds are conceived as institutions for providing small investors with avenues of

investments in the capital market.

Since small investors generally do not have adequate time, knowledge, experience and

resources for directly accessing the capital market, they have to rely on an intermediary,

which undertakes informed investment decisions and provides consequential benefits of

professional expertise. The raison d’être of mutual funds is their ability to bring down the

transaction costs. The advantages for the investors are reduction in risk, expert

professional management, diversified portfolios, and liquidity of investment and tax

benefits.

By pooling their assets through mutual funds, investors achieve economies of scale. The

advantage that such a investing logic offers to an individual investor is the advantage of

scale. A collected corpus can be used to procure a diversified portfolio, indicating greater

returns as also create economies of scale through cost reduction. This principle has been

effective world-wide as more and more investors are going the mutual fund way. This

portfolio diversification ensures risk minimization. The criticality of such a measure

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comes in when you factor in the fluctuations that characterize stock markets. The

interests of the investors are protected by the SEBI, which acts as a watchdog. Mutual

funds are governed by the SEBI (Mutual Funds) Regulations, 1993.

INTRODUCTION TO MUTUAL FUND INDUSTRY

The mutual fund industry in India began with the setting up of the Unit Trust In India

(UTI) in 1964 by the Government of India. During the last 36 years, UTI has grown to be

a dominant player in the industry with assets of over Rs.24,464 Crores as of March 31,

2000. The UTI is governed by a special legislation, the Unit Trust of India Act, 1963. In

1987 public sector banks and insurance companies were permitted to set up mutual funds

and accordingly since 1987, 6 public sector banks have set up mutual funds. Also the two

Insurance companies LIC and GIC established mutual funds. Securities Exchange Board

of India (SEBI) formulated the Mutual Fund (Regulation) 1993, which for the first time

established a comprehensive regulatory framework for the mutual fund industry. Since

then several mutual funds have been set up by the private and joint sectors.

Mutual funds have been a significant source of investment in both government and

corporate securities. It has been for decades the monopoly of the state with UTI being the

key player, with invested funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned

insurance companies also hold a portfolio of stocks. Presently, numerous mutual funds

exist, including private and foreign companies. Banks--- mainly state-owned too have

established Mutual Funds (MFs). Foreign participation in mutual funds and asset

management companies is permitted on a case by case basis.

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UTI, the largest mutual fund in the country was set up by the government in 1964, to

encourage small investors in the equity market. UTI has an extensive marketing network

of over 35, 000 agents spread over the country. The UTI scrips have performed relatively

well in the market, as compared to the Sensex trend. However, the same cannot be said of

all mutual funds.

All MFs are allowed to apply for firm allotment in public issues. SEBI regulates the

functioning of mutual funds, and it requires that all MFs should be established as trusts

under the Indian Trusts Act. The actual fund management activity shall be conducted

from a separate asset management company (AMC). The minimum net worth of an AMC

or its affiliate must be Rs. 50 million to act as a manager in any other fund. MFs can be

penalized for defaults including non-registration and failure to observe rules set by their

AMCs. MFs dealing exclusively with money market instruments have to be registered

with RBI. All other schemes floated by MFs are required to be registered with SEBI.

In 1995, the RBI permitted private sector institutions to set up Money Market Mutual

Funds (MMMFs). They can invest in treasury bills, call and notice money, commercial

paper, commercial bills accepted/co-accepted by banks, certificates of deposit and dated

government securities having unexpired maturity up to one year.

MUTUAL FUND INDUSTRY IN INDIA

The end of millennium marks 36 years of existence of mutual funds in this country. The

ride through these 36 years is not been smooth. Investors opinion is still divided. While

some are for mutual funds others are against it.

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UTI commenced its operation fom july 1964. The impetus for establishing a formal

institution came from the desire to increase the propensity of the middle and lower groups

to save and to invest. UTI came into existence during a period marked by great political

and economic uncertainity in India. With was on the borders and economic turmoil that

depressed the financial market, entrepreneurs were hesitant to enter capital market.

Though the growth was slow, But it accelerated from the year 1987, when non- UTI

players entered the industry.

In the past decade, Indian mutual fund industry had seen a dramatic improvement, both

qualities wise as well as quantity wise. Before, the monopoly of the market had seen an

ending phase: the Assent under Management(AUM) was Rs.67bn. The private sector

entry to the fund family raised the AUM to Rs.470bn in March 1993 and till April 2004;

it reached the height of 1,540bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is

less than the deposits of SBI alone, constitute less than 11% of the total depostits held by

the Indian banking industry.

The main reason of its poor growth is theat the mutual fund industry in India is new in the

country. Large sections of Indian investrors are yet to be intellect wih the concept. Hence,

it is the prime responsibility of all mutual fund companies, to market the product

correctly abreast of selling.

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The mutual fund industry can be broadly put into four phases according to the

development of the sector, Each phase is briefly described as under.

First Phase-1964-87

Unit Trust of India(UTI) was established on 1963 by Act of Parliament. It was set up by

the Reserve Bank of India and functioned uned the Regulatory and admisnistrative

control of the Reserve Bank f India. In 1978 UTI was de-linked from RBI and the

Industrial Development Bank of India(IDBI) took ove the regulatory and admistrative

control in place of RBI. The first scheme launched bye UTI was Unit Scheme 1964. At te

end of 1988 UTI had Rs.6,700 crores of assets under management.

Second phase 1987-1993(entry of public sector funds)

The period 1986-1993 can be termed as the period of public sector mutual funds (PMSs).

From one player in 1985 the number increased to 8 in 1993. Entry of non-UTI mutual

funds. SBI mutual fund was the first followed Canbank Mutual Fund (Dec 87), Punjab

National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Oct 90), Bank of

Baroda Mutual fund (oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.

47,000 as assets under management. The industry was one-entity show till 1986 when the

UTI monopoly was broken when SBI and BOI, LIC, GIC etc. sponsored by public sector

banks. Starting with an asset base of Rs. 0.25bn in 1964 the industry has grown at a

compounded average growth rate of 26.34% to its current size of Rs. 1130bn.

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Third phase 1990-2003 (entry of private sector funds)

When the private sector made its debut in 1993-94, the stock market was booming. 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. Other Private sector mutual funds are Morgan

Sanley, Jardine Fleming, JP Morgan, George Soros and Capital International along with

the host of domestic players join the party. The 1993 SEBI (Mutual Fund)

Regulations substituted by a more comprehensive and revised Mutual Find regulations

1996. But for the equity funds, the period of 1994-96 was one of the worst in the history

of Indian Mutual Funds, But the year 1999 saw immense future potential and

developments in this sector. This year signaled the year of resurgence of mutual funds

and the regaining of investor confidence in these MF’s. As at the end of January 2003,

There were 33 mutual fund with total assets of Rs.1,21,805 crores. The Unit Trust of

India with Rs. 44,541 crores of assets under management was way ahead of other mutual

funds.

Fourth Phase – Since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate entities. One

is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as

on January 2003). The specified undertaking of Unit Trust of India, functioning under an

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adminisratior and unde the rules framed by Government of India and Does not come

under the purview of the Mutual Fund Regulations.

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

registered with SEBI and functions under the Mutual Fund Regulations. With the

bifurcation of the erstwhile UTI which had in March 2000 more than Rs. 76,000 crores of

AUM 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 fund, Which manage assets of Rs.

153108 crores under 421 Structure of Mutual Funds in India. At the end of year 2006 the

AUM crossed 2,50,000 crores.

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GROWTH IN ASSETS UNDER MANAGEMENT

Growth of the Mutual Fund Industry in India

The mutual fund industry in India came into being in 1963 with the setting up of the Unit

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Trust of India (UTI). In 1987, Public Sector Banks and Insurance Companies opened

their own mutual funds, thus starting the second phase in the growth of the mutual funds

industry. By the end of 1988, the industry's total assets under management (AUM)

reached Rs.6billion.

The industry registered a major milestone in 1993 when the first private sector player, the

erstwhile Kothari Pioneer Mutual Fund (now merged with Franklin Templeton), was set

up. Since then, several international players have also entered the fray.

The industry has also witnessed a spate of mergers and acquisitions, the most recent ones

being the acquisition of Alliance Mutual by Birla Sun Life, GIC Mutual by Canbank

Mutual, and Sun F&C by Principal Mutual.

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

Rs.1295 billion as at December 2004 (See Chart 1).

The latest phase in the industry's evolution began with the bifurcation of UTI. The Indian

mutual fund industry has grown by about 4.2 times from 1993 (Rs. 470 billion) to 2005

(Rs. 1992 billion) in terms of AUM. The private sector was allowed entry to set up asset

management companies in 1993. There was a brief period of five years during which the

asset growth was slow. The AUM for the mutual fund industry started to grow rapidly

after 1998. Between 1998 and 2005 the AUM of the sector excluding UTI grew by over

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15 times from Rs.114 billion in 1998 to Rs.1738 billion as at 2005. Though India is a

minor player in the global mutual funds industry, its AUM as a proportion of the global

AUM has steadily increased, doubling from 1999 levels

MUTUAL FUND A GLOBALLY PROVEN INVESTMENT AVENUE

Worldwide, Mutual Fund or Unit Trust as it is referred to in some parts of the world, has

a long and.successful history. The popularity of Mutual Funds has increased manifold in

developed financial markets, like the United states. As at the end of March 2006, in the

US alone there were 8,002 mutual funds with total assets of over US$ 9.36 trillion

(Rs.427Iakh crores).In India, the mutual fund industry started with the setting up of the

Unit Trust of India In 1964. Public sector banks and financial institutions were allowed to

establish mutual funds in 1987. Since 1993, private sector and foreign institutions were

permitted to set up mutual funds. In February 2003, following the repeal of the Unit Trust

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of India Act 1963 the erstwhile UTI was bifurcated into two separate entities viz. The

Specified Undertaking of the Unit Trust of India, representing broadly, the assets of US

64 scheme, assured returns and certain other schemes and UTI Mutual Fund conforming

to SEBI Mutual Fund Regulations. As at the end of March 2006, there were 29 mutual

funds, which managed assets of Rs. 2,31,862 crores (US$52 Billion) under 592 schemes.

This fast growing industry is regulated by the Securities and Exchange Board of

India(SEBI).

STRUCTURE OF THE INDIAN MUTUAL FUND INDUSTRY

The Indian Mutual Fund industry is dominated by the Unit Trust of India which has a

total corpus of 700 Billion collected from over 20 million investors. The UTI has many

funds/ schemes in all categories i.e. Equity, balanced, income etc. With some being open

ended and some being closed ended. The Unit scheme 1964 commonly referred to as US

64, which is a balanced fund, is the biggest scheme with a corpus of about 200 billion.

UTI was floated by financial institutions and is governed by a special act of Parliament. 13

Most of its investors believe that the UTI is government owned and controlled, which,

while legally incorrect, is true for all practical purposes.

The second largest category of mutual funds are the ones floated by nationalized banks.

Canbank asset management floated by Canara Bank and SBI Funds Management floated

by State Bank of India are the largest of these. GIC AMC floated by General Insurance

Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other

prominent ones. The aggregate corpus of the funds managed by this category of AMC’s

is around Rs.150

The third largest category of mutual funds are the ones floated by the private sector and

by foreign asset management companies. The largest of these are Birla Capital AMC and

Kotak AMC . The aggregate corpus of the assets managed by this category of AMC’s is

about Rs. 60 billion.

Organization of A Mutual Fund

There are many entities involved in organization of Mutual Fund. Diagram given below

illustrates the organization set-up of a mutual fund.

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The structure of mutual fund in India is governed by SEBI (Mutual fund) Regulation,

1996.

The Sponsor These regulation make it mandatory to a mutual fund to have three-tier

structure of Sponsor-Trustees-Asset Management Company.

is promoter of the mutual fund appoints trustees, custodians and the AMC with prior

approval of SEBI. The sponsor establishes the mutual fund and registers the same with

SEBI. Sponsors must contribute at least 40% of the capital of the AMC.

Trust/ Board of Trustees: Trustees hold a fiduciary responsibility towards unit

holders by protecting their interests. Trustees float and

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market schemes, and secure necessary approvals. They check if the AMC’s investments

are within well-defined limits, whether the fund’s assets are protected, and also ensure

that unitholders get their due returns. They also review any due diligence by the AMC.

For major decisions concerning the fund, they have to take the unitholders’consent. They

submit reports every six months to SEBI; investors get an annual report. Trustees are paid

annually out of the fund’s assets – 0.5 percent of the weekly net asset value

Fund Managers/ AMC: They are the ones who manage money of the investors. An

AMC takes decisions, compensates investors through dividends, maintains proper

accounting and information for pricing of units, calculates the NAV, and provides

information on listed schemes. It also exercises due diligence on investments, and

submits quarterly reports to the trustees. A fund’s AMC can neither act for any other fund

nor undertake any business other than asset management. Its net worth should not fall

below Rs. 10 crore. And, its fee should not exceed 1.25 percent if collections are below

Rs. 100 crore and 1 percent if collections are above Rs. 100 crore. SEBI can pull up an

AMC if it deviates from its prescribed role.

Custodian: Often an independent organization, it takes custody of securities and other

assets of mutual fund. Its responsibilities include receipt and delivery of securities,

collecting income-distributing dividends, safekeeping of the units and segregating assets

and settlements between schemes. Their charges range between 0.15-0.2 percent of the

net value of the holding. Custodians can service more than one fund.

Mutual Fund is managed either trust company or board of trustees. Provisions of Indian

Trust Act govern board of trustees and trust. If trustee is a company , it is also subject to

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Indian Company Act. Trustees appoint AMC in consultation with the sponsors and

according to SEBI regulation. All mutual fund scheme floated by AMC have to be

approved by trustees. Trustees review and ensure that net worth of the company is

according to stipulated norms, every quarter.

Though the trust is the mutual fund, the AMC is its operational face. The AMC is the first

functionary to be appointed , and is involved in appointment of all other functionaries.

The AMC structures the mutual fund products, markets them and mobilizes fund,

manages the funds and services the investors. It seeks the service other functionaries in

carrying out these functions.

A draft offer document is to be prepared at the time of launching the fund. Typically, it

pre specifies the investment objectives of the fund, the risk associated, the costs involved

in the process and the broad rules for entry into and exit from the fund and other areas of

operation. In India, as in most countries, these sponsors need approval from a regulator,

SEBI (Securities exchange Board of India) in our case.

A sponsor then hires an asset management company to invest the funds according to the

investment objective. It also hires another entity to be the custodian of the assets of the

fund and perhaps a third one to handle registry work for the unit holders (subscribers) of

the fund.

In the Indian context, the sponsors promote the Asset Management Company also, in

which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the

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Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the

Birla Sun Life Asset Management Company Ltd., which has floated different mutual

funds schemes and also acts as an asset manager for the funds collected under the

schemes.

Types of AMCs in Indian Context

The following are the types of AMCs we have in India

AMCs owned by banks

AMCs owned by financial institutions

AMCs owned by the Indian private sector companies

AMCs owned jointly by Indian and foreign investors.

Different AMCs Working in India are

Name of the AMC Nature of Ownership

Alliance Capital Private Foreign

Anagram Wellington Private Indian

Apple Private Indian

Birla Capital International Private Indian

Bank of Baroda Banks

Bank of India Banks

Canbank Investment Banks

Cholamandalam Cazenove Private Foreign

Dundee Private Foreign

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DSP Merrill Lynch Private Foreign

Escorts Private Indian

First India Private Indian

GIC Institutions

IDBI Investment Institutions

Indfund Management Ltd. Banks

ING Investment Private Foreign

aITC Threadneedle Private Foreign

RELIANCE Capital Management

Ltd.

Private Indian

Jardine Fleming Private Foreign

Kotak Mahindra Private Indian

Morgan Stanley Private Foreign

Punjab National Bank Banks

Reliance Capital Private Indian

State Bank of India Banks

Shriram Private Indian

Sun F&C Private Foreign

Sundaram Newton Private Foreign

Tata Private Indian

Credit Capital Private Indian

Templeton Private Foreign

UTI Institutions

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COMPARISON OF MUTUAL FUNDS WITH THE BANKS

Banks v/s Mutual Funds

BANKS MUTUAL FUNDS

Returns Low Better

Administrative exp. High Low

Risk Low Moderate

Investment options Less More

Network High penetration Low but improving

Liquidity At a cost Better

Quality of assets Not transparent Transparent

Interest calculation Minimum balance between

10th.&30th.Of every month

Everyday

Guarantee Max Rs.1 lakh on deposits None

Capital flow in the economy

MFs make it possible for investors to assume risks in the expectation of the higher returns

even if the investor cannot actively manage these investments and the associated risks.

This increases the level of risk capital that is available in the economy for funding

enterprise. The MFs also add depth to the security markets where they invest, thus

contributing to liquidity and price discovery. This again is a significant factor in

channelling more money into the markets, instead of this being locked up in unproductive

physical capital like gold, real estate etc.

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Schemes and Units

Investment in a company is normally represented by a certain number of shares. People

invest in a company by acquiring its shares; they disinvest by selling its shares. The total

outstanding shares of a company multiplied by the face value of each share, constitutes

the share capital of the company.

What shares are for a company, units are for a mutual fund scheme. Thus investors

invest in a scheme by buying its units. They disinvest by selling its units. The total

outstanding units of a scheme multiplied by the face value of its units, constitutes the unit

capital of the scheme.

Every scheme has an investment objective or philosophy i.e. a promise by the AMC on

how the funds would be managed. Investors in a scheme are essentially buying into this

investment objective or philosophy.

In reality, the distinction among some of the stock fund objectives discussed is not clear-

cut. The actual stocks that constitute a specific mutual fund portfolio depend on the

analysis and perspective of the fund’s manager. Hence, a generic investment objective

(e.g. growth, income) can be interpreted and executed differently by different managers.

One company’s aggressive growth fund may look like another company’s specialty fund,

which may look like another company’s world fund. It is important to read the fund’s

prospectus and review the list of its top holdings before making your final investment

decision.

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Company Profiles of

SBI and ICICI22

STATE BANK OF INDIA

SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable

track record in judicious investments and consistent wealth creation.

The fund traces its lineage to SBI - India’s largest banking enterprise. The

institution has grown immensely since its inception and today it is India's largest

bank, patronised by over 80% of the top corporate houses of the country.

SBI Mutual Fund is a joint venture between the State Bank of India and Society

General Asset Management,  one  of  the  world’s  leading  fund  management 

companies  that  manages  over

US$ 330 Billion worldwide.

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In eighteen years of operation, the fund has launched thirty-two schemes and

successfully redeemed fifteen of them. In the process it has rewarded it’s investors

handsomely with consistently high returns.

A total of over 3.5 million investors have reposed their faith in the wealth

generation expertise of the Mutual Fund.

Schemes of the Mutual fund have consistently outperformed benchmark indices and

have emerged as the preferred investment for millions of investors and HNI’s.

Today, the fund manages over Rs. 20000 crores of assets and has a diverse profile

of investors actively parking their investments across 40 active schemes.

The fund serves this vast family of investors by reaching out to them through

network of over 100 points of acceptance, 26 investor service centers, 33 investor

service desks and 52 district organizers.

SBI Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent

India Opportunities Fund. Growth through innovation and stable investment

policies is the SBI MF credo.

KEY PERSONNEL

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Mr. Syed Shahabuddin

Managing Director

Mr. G.S. Subramanian

SR. Vice President Cross Selling

Mr. Didier Turpin

Dy. Chief Executive Officer

Mr. G. Kandasubramanian

Asst. Vice President - Customer Service

Mr. Achal K. Gupta

Chief Operating Officer

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Mr. Ganti N. Murthy

Fund Manager - Debt

Mr. Sanjay Sinha

Chief Investment Officer

Ms. Aparna Nirgude

Chief Risk Officer

Mr. R. S. Srinivas Jain

Chief Marketing Officer

Mr. Ashutosh P Vaidya

Company Secretary & Compliance Office

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IMPORTANCE OF SBI MUTUAL FUND

1) SBI Mutual Fund helps in introducing a high degree of professional management

and marketing concept in to banking

2) SBI Mutual Fund creates Healthy competition on general efficiency levels in the

industry

3) SBI Mutual Fund is always trying to innovate the new products avenues, new

schemes, services etc.

More about SBI Mutual Fund

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SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an

enviable track record in judicious investments and consistent wealth creation.

The fund traces its lineage to SBI - India’s largest banking enterprise. The

institution has grown immensely since its inception and today it is India's largest

bank, patronized by over 80% of the top corporate houses of the country.

SBI Mutual Fund is a joint venture between the State Bank of India and Society

General Asset Management,  one  of  the  world’s  leading  fund  management 

companies  that  manages  over US$ 330 Billion worldwide.

AWARDS AND ACHIEVEMENTS

1)

LIPPER AWARD- lipper India fund award –2007

2)

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ICRA MUTUAL FUND AWARD -2007

3)

CNBC TV 18 - CRISIL MUTUAL FUND OF YEAR

AWARD -2007

4)

CNBC AWAAZ CONSUMER AWARD – 2006

5)

LIPPER AWARD- lipper India fund award -2006

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6)

CNBC TV 18 - CRISIL MUTUAL FUND OF YEAR

AWARD -2006

7)

ICRA MUTUAL FUND AWARD -2006

Business Objectives.

The Primary Objective of SBI Mutual Fund is to Enhance the Investments in the

country through the Provision of Different Mutual Fund Schemes in a systematic and

Professional Manner, and to Promote the Investments In the Mutual Fund

Organizational goal

SBI Mutual Fund Main goals are to

a) Develop a Close Relationship with Customer

b) Transform Ideas in to Viable and Creative Solutions30

c) Provide Consistently high Returns to Shareholders,

d) To Grow through diversification by leveraging off the existing client base.

Business Focus

SBI Mutual Fund mission is to be world class Mutual Fund its Main aim is to build

Customer Franchises across distinct business So as to be the Preferred Provider of

services in the Segments

That Fund Operates in and to achieve healthy growth in profitability, and consistency

The SBI Mutual Fund is Committed to maintain the highest level of ethical standards,

professional integrity and regulatory compliance

Subsidiaries and Associates

SBI Bank

SBI Mutual Fund

SBI Life insurance Company

SBI Securities

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SBI NRI Services

Other Companies co- promoted by SBI

SBI Mutual Fund is Professionally managed organization with a board of directors

consisting of eminent persons who represent various fields including finance, taxation,

construction and Urban policy and development. The board primarily focuses on strategy

Formulation, policy and control, designed to deliver increasing value to the share holders

S B I MUTUAL FUND SCHEMES

1 EQUITY SCHEMES

The investments of these schemes will predominantly be in the stock markets and

endeavor will be to provide investors the opportunity to benefit from the higher

returns which stock markets can provide. However they are also exposed to the

volatility and attendant risks of stock markets and hence should be chosen only by

such investors who have high risk taking capacities and are willing to think long

term. Equity Funds include diversified Equity Funds, Sectoral Funds and Index

Funds. Diversified Equity Funds invest in various stocks across different sectors

while sectoral funds which are specialized Equity Funds restrict their investments

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only to shares of a particular sector and hence, are riskier than Diversified Equity

Funds. Index Funds invest passively only in the stocks of a particular index and

the performance of such funds move with the movements of the index.

Magnum COMMA Fund

Magnum Equity Fund

Magnum Global Fund

Magnum Index Fund

Magnum MidCap Fund

Magnum Multicap Fund

Magnum Multiplier Plus 1993

Magnum Sector Funds Umbrella MSFU - FMCG Fund     

     MSFU - Emerging

Businesses Fund          MSFU - IT Fund         

MSFU - Pharma Fund   

 MSFU - Contra Fund

SBI Arbitrage Opportunities Fund

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SBI Blue chip Fund

SBI Infrastructure Fund - Series I

SBI Magnum Taxgain Scheme 1993

SBI ONE India Fund

2 DEBT SCHEMES

Debt Funds invest only in debt instruments such as Corporate Bonds, Government

Securities and Money Market instruments either completely avoiding any

investments in the stock markets as in Income Funds or Gilt Funds or having a

small exposure to equities as in Monthly Income Plans or Children's Plan. Hence

they are safer than equity funds. At the same time the expected returns from debt

funds would be lower. Such investments are advisable for the risk-averse investor

and as a part of the investment portfolio for other investors.

Magnum Children`s Benefit Plan

Magnum Gilt Fund34

Magnum Gilt Fund (Long Term)

Magnum Gilt Fund (Short Term)

Magnum Income Fund

Magnum Income Plus Fund

Magnum Income Plus Fund (Saving Plan)

Magnum Income Plus Fund (Investment Plan)

Magnum Insta Cash Fund

Magnum InstaCash Fund -Liquid Floater Plan

Magnum Institutional Income Fund

Magnum Monthly Income Plan

Magnum Monthly Income Plan Floater

Magnum NRI Investment Fund

SBI Debt Fund Series

SDFS 15 Months Fund

   SDFS 90 Days Fund

   SDFS 13 Months Fund

   SDFS 18 Months Fund

   SDFS 24 Months Fund

   SDFS 60 Days Fund

   SDFS 180 Days Fund35

SBI Premier Liquid Fund

3 BALANCED SCHEMES

Magnum Balanced Fund invest in a mix of equity and debt investments. Hence they are

less risky than equity funds, but at the same time provide commensurately lower returns.

They provide a good investment opportunity to investors who do not wish to be

completely exposed to equity markets, but is looking for higher returns than those

provided by debt funds.

Magnum Balanced Fund

Magnum NRI Investment Fund - FlexiAsset Plan

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SBI EQUITY SCHEMES DETAILS

MAGNUM GLOBAL FUND

Investment Objective

To provide the investors maximum growth opportunity through well researched

investments in Indian equities, PCDs and FCDs from selected industries with high

growth potential and Bonds.

Asset Allocation

Instrument %of portfolio Risk Profile

Equity, Partly Convertible Debentures, Fully 80-100% HIGH

Convertible Debentures and Bonds

Money Market instruments 0-20% LOW

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Scheme Highlights

1.An open-ended equity scheme investing in stocks from selected industries with

high growth potential.

2. Minimum Investment Rs. 2000 and in multiples of Rs. 1000 with Dividend and

Growth options available. ^ Money Market Instruments will include Commercial

Paper, Commercial Bills, Certificate of Deposit, Treasury Bills, Bills

Rediscounting, Repos, Government securities having an unexpired maturity of less

than 1 year, call or notice money, usance bills and any other such short-term

instruments as may be allowed under the regulations prevailing from time to time.

Launch Date:September 30, 1994

Entry Load

Investments below Rs. 5 crores - 2.25% Investments of Rs.5 crores and above –

NIL

Exit Load

Investments below Rs 5 crores <= 6 months - 1.00% and NIL thereafter.

Investments of Rs 5 crores and above - NIL

38

SBI GILT FUND DETAILS

SBI MAGNUM GILT FUND

Investment Objective

To provide the investors with returns generated through investments in government

securities issued by the Central Government and / or a State Government

Asset Allocation

Instrument %of portfolio Risk Profile

Government of India Dated Securities 100% Sovereign

State Governments Dated Securities 100% Low

Government of India Treasury Bills 100% Sovereign

39

Scheme Highlights

1. Open ended Gilt Scheme.

2. The scheme will invest in government securities only with the exception of

investments made in the call money markets. Investment in Government Securities

signifies no risk of default (zero credit risk) either in payment of principal or even

interest on the investments made by the scheme. Long-Term Plan - for investors

with a long-term investment horizon. This Plan will have two options (a) Quarterly

Dividend option and (b) Growth option The Long Term Plan Dividend Plan and the

Growth Plan will each have three options for investment 1. Regular Dividend /

Growth Option : This option will be the existing option in this Plan wherein

investments in this option would be subject to a Contingent Deferred Sales Charge

(CDSC) of 0.25% for exit within 90 days from the date of investment. 2. PF

(Regular) Option : This option under both the Dividend and Growth Plans would be

a no-load option. 3. PF (Fixed Period) Option : This option under both the

Dividend and Growth Plan provides prospective investors with an option to lock-in

their investments for a period of 1 year, 2 years or 3 years from the date of their

investment Facility to reinvest dividend is available under both the Plans. Both the

Plans will have separate investment portfolios and separate NAVs. Under the Long-

Term Plan, the funds will normally be managed to an average portfolio-maturity

longer than three years.

Launch Date: January 1, 2003

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Entry Load: Nil

Exit Load: Regular Plan (Long Term) - CDSC of 0.25% for exit within 90 days

from date of investment

SBI BALANCED FUND

Investment Objective

To provide investors long term capital appreciation along with the liquidity of an

open-ended scheme by investing in a mix of debt and equity. The scheme will

invest in a diversified portfolio of equities of high growth companies and balance

the risk through investing the rest in a relatively safe portfolio of debt.

Asset Allocation

Instrument %of portfolio Risk Profile

Equities At least 50% MED-HIGH

Debt Instruments like debentures, bonds,khokhas. UP TO 40%

Securitized Debt 10% MED-HIGH

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Money Market Instruments Balance Low

Scheme Highlights

1. An open-ended scheme investing in a mix of debt and equity instruments.

Investors get the benefit of high expected-returns of equity investments with the

safety of debt investments in one scheme.

2. On an ongoing basis, magnums will be allotted at an entry load of 2.25% to the

NAV.

3. Scheme open for Resident Indians, Trusts, Indian Corporates, on a fully

repatriable basis for NRIs and, Overseas Corporate Bodies.

4. Facility to reinvest dividend proceeds into the scheme at NAV available.

5. Switchover facility to any other open-ended schemes of SBI Mutual Fund at

NAV related prices.

6. The scheme will declare NAV, Sale and repurchase price on a daily basis.

7. Nomination facility available for individuals applying on their behalf either

singly or jointly upto three.

Launch Date: May 1, 1996

Entry Load: Investments below Rs. 5 crores - 2.25% Investments of Rs.5 crores

and above - NIL

Exit Load: Investments below Rs.5 crores < = 6 months - 1.00%, > 6 months but

< 12 months - 0.50% Investments of Rs.5 crores and above - NIL

42

ICICI PRUDENTIAL MUTULE FUND

ICICI Prudential Asset Management Company enjoys the strong parentage of Prudential

plc, one of UK's largest players in the insurance & fund management sectors and ICICI

Bank, a well-known and trusted name in financial services in India. ICICI Prudential

Asset Management Company, in a span of just over eight years, has forged a position of

pre-eminence in the Indian Mutual Fund industry as one of the largest asset

management companies in the country with assets under management of Rs. 37,906.24

crores (as of March 31, 2007). The Company manages a comprehensive range of

schemes to meet the varying investment needs of its investors spread across 68 cities in

the country.

PRUDENTIAL

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Established in London in 1848, Prudential plc, through its businesses in the UK, US and Asia,

provides retail financial services products and services to more than 21 million customers,

policyholders and unit holders worldwide with over US$400 (as of 31st December, 2005) billion

in funds under management. Prudential employs some 23,000 staff worldwide.

In Asia, Prudential has life insurance and funds management operations across twelve countries -

China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore,

Taiwan, Thailand and Vietnam. Prudential has championed customer-centric products and

services for over 80 years, supported by an extensive network of over 145,000 staff and agents

across the region

ICICI BANK

ICICI Bank is India's second-largest bank with total assets of about Rs. 2,513.89 bn (US$ 56.3

bn) at March 31, 2006 and profit after tax of Rs. 25.40 bn (US$ 569 mn) for the year ended

March 31, 2006 (Rs. 20.05 bn (US$ 449 mn) for the year ended March 31, 2005). ICICI Bank

has a network of about 614 branches and extension counters and over 2,200 ATMs. ICICI Bank

offers a wide range of banking products and financial services to corporate and retail customers

through a variety of delivery channels and through its specialised subsidiaries and affiliates in the

areas of investment banking, life and non-life insurance, venture capital and asset management.

ICICI Bank set up its international banking group in fiscal 2002 to cater to the cross border needs

of clients and leverage on its domestic banking strengths to offer products internationally. ICICI

Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in

Singapore, Bahrain, Hong Kong, Sri Lanka and Dubai International Finance Centre and

representative offices in the United States, United Arab Emirates, China, South Africa and

44

Bangladesh. Our UK subsidiary has established a branch in Belgium. ICICI Bank is the most

valuable bank in India in terms of market capitalisation.

ICICI PRUDENTIAL MUTUAL FUND SCHEMES

ICICI Prudential Infrastructure Fund

ICICI Prudential Services Industries Fund

ICICI Prudential FMCG Fund

ICICI Prudential Technology Fund

ICICI Prudential Discovery Fund

ICICI Prudential Power

ICICI Prudential Dynamic Plan

ICICI Prudential Emerging S.T.A.R Fund

ICICI Prudential Tax Plan

ICICI Prudential Growth Plan

ICICI Prudential Index Fund

ICICI Prudential Spice Fund

ICICI Prudential Child Care Plan

45

ICICI Prudential Banlanced Fund

ICICI Prudential Income Multiplier Fund

ICICI Prudential Monthly Income Plan

ICICI Prudential Gilt Fund-Investment Option

ICICI Prudential Income Plan

ICICI Prudential Flexible Income Plan

ICICI Prudential Long Term Floating Rate Plan

ICICI Prudential Blended Plan

ICICI Prudential Short Term Plan

ICICI Prudential Gilt Fund-Treasury Option

ICICI Prudential Short Term Floater

ICICI Prudential Liquid Plan

ICICI PRUDENTIAL PRODUCT DETAILS

EQUITY SCHEME

ICICI PRUDENTIAL DYNAMIC PLAN is a diversified equity fund that

could be your ideal choice to make the most of dynamic changes in the market. It has the

agility to capture upside opportunities across value and growth , large and midcap , index

and non-index stocks. On the flip side it also has ability to move into cash as markets get

overvalued

Investment Objective

46

To generate capital appreciation by actively investing in equity / equity related securities.

For defensive considerations, the Scheme may invest in debt, money market instruments,

to the extent permitted under the Regulations. The AMC will have the discretion to

completely or partially invest in any of the type of securities stated above so as to

maximize the returns.

INVESTMENT PHILOSOPHY

ICICI PRUDENTIAL DYNAMIC PLAN is a diversified equity plan that follows the

growth investment philosophy to invest in a portfolio of large, mid and small-cap stocks.

It has the ability to move gradually into cash as the market gets over-valued. It offers a

portfolio of stocks selected through rigorous bottom-up fundamental analysis across

market capitalisations on a diversified basis for long-term capital appreciation.

BENEFITS

1.Has the agility, aimed at capturing upside opportunities in the market across market

capitalizations.

47

2.On the flip side, in case stock markets get into an over valued position, the plan has the

ability to switch to cash thus seeking to limit the downside

PERFORMANCE

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Entry Load: (i) For investments of less than Rs. 5 Crores : Entry load at 2.25% of

applicable NAV. (ii)For investments of Rs. 5 crores and Above : Nil

Exit Load: Ni

ICICI PRUDENTIAL GUILT FUND

Investment Objective

To generate income through investment in Gilts of various maturities.

INVESTMENT PHILOSOPHY

ICICI PRUDENTIAL GILT FUND is a pure debt fund that invests in short tenure

Government securities (G-Secs). These securities are essentially liquid and carry no

credit risk. Having said that, the portfolio's exposed to some interest rate risk as the

securities are marked to market, and therefore, respond to changes in market interest

rates. The portfolio seeks to limit volatility by deploying funds in short-term G-Secs, with

an average maturity not exceeding 3 years. The objective is to closely manage the

downside risks of the portfolio arising out of changes in the market rates, by actively

managing the duration of the portfolio.

BENEFITS

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1.Enables exposure to a pure Government security portfolio.

2.Facilitates participation in the wholesale market for Government debt, even for smaller

ticket-size exposures.

3.Provides the benefits of professional management of investment portfolios.

PERFORMANCE OF THE FUND

Entry Load:Nil

Exit Load: Nil

ICICI PRUDENTIAL BALANCED FUND: Asset allocation is the key to investing

success. It helps to reduce the volatility of returns. A Balanced Fund takes care of this

asset allocation by investing in equity for capital appreciation and debt for stable returns.

It focuses on reducing volatility of returns by increasing / decreasing equity exposure

based on the market outlook and using a core debt portfolio to do the rebalancing.

Investment Objective

50

To seek to generate long-term capital appreciation and current income from a portfolio

that is invested in equity and equity related securities as well as in fixed income

securities.

INVESTMENT PHILOSOPHY

an open-ended fund that allocates to both equity and debt markets, reflects this wisdom.

In a bullish market equity allocation can go upto 80%. In a bearish market equity

allocation can go down to

65%. This dynamic

allocation along with core

debt portfolio reduces the

volatility of return.

BENEFITS

Balanced fund brings you

the twin benefits of growth

from equity markets and steady income from debt markets

51

PERFORMANC

Entry Load: (i) For investments of less than Rs. 5 Crores : 2.25% of applicable NAV.

(ii) For investments of Rs. 5 crores and Above : Nil

Exit Load: Nil

Key Information52

CATEGORIES OF MUTUAL FUND SCHEMES

1.SCHEMES ACCORDING TO MATURITY PERIOD

A mutual fund scheme can be classified into open-ended scheme or close-ended

scheme depending on its maturity period.

1.1OPEN-ENDED FUND/ SCHEME

An open-ended fund or scheme is one that is available for subscription and

repurchase on a continuous basis. These schemes do not have a fixed maturity period.

Investors can conveniently buy and sell units at Net Asset Value (NAV) related

prices, which are declared on a daily basis. The key feature of open-end schemes is

liquidity.

1.2CLOSE-ENDED FUND/ SCHEME

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The

fund is open for subscription only during a specified period at the time of launch of

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the scheme. Investors can invest in the scheme at the time of the initial public issue

and thereafter they can buy or sell the units of the scheme on the stock exchanges

where the units 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. SEBI Regulations stipulate that at least

one of the two exit routes is provided to the investor i.e. either repurchase facility or

through listing on stock exchanges. These mutual funds schemes disclose NAV

generally on weekly basis.

2 .SCHEMES ACCORDING TO INVESTMENT OBJECTIVE:

A scheme can also be classified as growth scheme, income scheme, or balanced

scheme considering its investment objective. Such schemes may be open-ended or

close-ended schemes as described earlier. Such schemes may be classified mainly as

follows:

2.1GROWTH / EQUITY ORIENTED SCHEME

The aim of growth funds is to provide capital appreciation over the medium to long-

term. Such schemes normally invest a major part of their corpus in equities. Such

funds have comparatively high risks. These schemes provide different options to the

investors like dividend option, capital appreciation, etc. and the investors may choose

an option depending on their preferences. The investors must indicate the option in

the application form. The mutual funds also allow the investors to change the options

at a later date. Growth schemes are good for investors having a long-term outlook

seeking appreciation over a period of time.

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2.2INCOME / DEBT ORIENTED SCHEME

The aim of income funds is to provide regular and steady income to investors. Such

schemes generally invest in fixed income securities such as bonds, corporate debentures,

Government securities and money market instruments. Such funds are less risky

compared to equity schemes. These funds are not affected because of fluctuations in

equity markets. However, opportunities of capital appreciation are also limited in such

funds. The NAVs of such funds are affected because of change in interest rates in the

country. If the interest rates fall, NAVs of such funds are likely to increase in the short

run and vice versa. However, long-term investors may not bother about these

fluctuations.

2.3BALANCED FUND

The aim of balanced funds is to provide both growth and regular income as such

schemes invest both in equities and fixed income securities in the proportion

indicated in their offer documents. These are appropriate for investors looking for

moderate growth. They generally invest 40-60% in equity and debt instruments.

These funds are also affected because of fluctuations in share prices in the stock

markets. However, NAVs of such funds are likely to be less volatile compared to pure

equity funds.

2.4MONEY MARKET OR LIQUID FUND

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These funds are also income funds and their aim is to provide easy liquidity,

preservation of capital and moderate income. These schemes invest exclusively in

safer short-term instruments such as treasury bills, certificates of deposit, commercial

paper and inter-bank call money, government securities, etc. Returns on these

schemes fluctuate much less compared to other funds. These funds are appropriate for

corporate and individual investors as a means to park their surplus funds for short

periods.

2.5GILT FUND

These funds invest exclusively in government securities. Government securities have

no default risk. NAVs of these schemes also fluctuate due to change in interest rates

and other economic factor as is the case with income or debt oriented schemes.

2.6INDEX FUNDS

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive

index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the

same weightage comprising of an index. NAVs of such schemes would rise or fall in

accordance with the rise or fall in the index, though not exactly by the same

percentage due to some factors known as "tracking error" in technical terms.

Necessary disclosures in this regard are made in the offer document of the mutual

fund scheme.

There are also exchange traded index funds launched by the mutual funds, which are

traded on the stock exchanges.

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Other Schemes

Tax Saving Schemes

These schemes offer tax rebates to the investors under tax laws as prescribed from time to

time. This is made possible because the Government offers

tax incentives for investment in specified avenues. For example, Equity Linked Savings

Schemes (ELSS) and Pension Schemes. The details of such tax saving schemes are

provided in the relevant offer documents.

Ideal for: . Investors seeking tax rebates.

Special Schemes

This category includes index schemes that attempt to replicate the erformance of a

particular index such as the SSE Sensex or the NSE 50, or industry specific schemes

(which invest in specific industries) or sectoral schemes (which invest exclusively in

segments such as 'IXGroup shares or initial public offerings).

Index fund schemes are ideal for investors who are satisfied with a return

approximately equal to that of an index.

Sectoral fund schemes are ideal for investors who have already decided to invest in a

particular sector or segment. Keep in mind that anyone scheme may not meet all your 57

requirements for all time. You need to place your money judiciously in different schemes

to be able to get the combination of growth, income and stability that is right for you.

Remember, as always, higher the return you seek higher the risk you should be prepared

to take.

A few frequently used terms are explained here

FREQUENTLY USED TERMS

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

outstanding on the Valuation date. Net Asset Value is the market value of securities of

scheme divided by the total number of units of the scheme on any particular date. For

example, if the market value of the securities of a mutual fund scheme is Rs 200 lakhs

and the mutual fund has issued 10 lakhs units at Rs. 10 each to the investors, then the

NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds

on a regular basis- daisy or weekly- depending on the type of scheme

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Sale Price

Is the price you pay when you invest in a scheme or NAV a unit holder is charged while

investing in an open-ended scheme is sale price. Also called Offer Price. It may include a

Sale load, if applicable.

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 schemes repurchase 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 when it sells the units also called, ‘Front-

end’ load. A Load is one that charges a percentage of NAV for entry or exit. That is,

each time one buys or sells units in the fund, a charge will be payable. This charge is

59

used by the mutual fund for marketing and distribution expenses. Suppose the NAV per

unit is Rs. 10. If the entry as well as exit load charged were 1%, then the investors who

buy would be required to pay Rs. 10.10 and those who offer their unit for repurchase to

the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into

consideration while making investment as these affect their yields/returns

“Whether a mutual fund impose fresh load or increase the load beyond the level

mentioned in the offer documents”

Mutual funds cannot increase the load beyond the leel mentioned in the offer document.

Any change in the load will be applicable only to prospective investments and not to the

original investments. In case of imposition of fresh loads or increase in existing loads,

the mutual funds are required to amend their offer documents so that the new investors

are aware of loads at the time of investments.

No load

Schemes that do not charge a load are called ‘No Load’ schemes. A no load fund is one

that does not charge for entry or exit. It means the investors can enter the fund/scheme at

NAV and not additional charges are payable on purchase or sale of units.

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BENEFITS OF MUTUAL FUNDS

PROFESSIONAL MANAGEMENT:

Mutual Funds are backed by experienced and skilled professionals, a dedicated

investment research team that analyses the performance and prospects of companies and

selects investments.

CONVENIENT ADMINISTRATION:

Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such

as bad deliveries, delayed payments and follow up with brokers and companies. This is

important when you want to have a diversified portfolio through direct equity

investments.

DIVERSIFICATION :

Mutual Funds always have an investment mix. The diversity in this mix spreads out the

probability of profits and losses, reducing the risk of a substantial fall in the money you

have invested.

RETURN POTENTIAL :

Over a medium to long-term, Mutual Funds have the potential to provide a higher net

return as they invest in a diversified basket of selected securities.

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ECONOMIES:

Mutual Funds are a relatively less expensive way to invest compared to directly

investing in the capital markets because the benefits of scale in brokerage, custodial and

other fees translate into lower costs for investors.

LIQUIDITY:

In open-end schemes, the investor gets the money back promptly at net NAV pegged

prices. In closed-end schemes, the units can be sold on a stock exchange at the prevailing

market price. The fund also repurchases from the investors at NAV pegged prices. There

is scope to speedily disinvest assets and obtain disinvestments proceeds.

FLEXIBILITY:

Through features such as regular investment plans, regular withdrawal plans and

dividend reinvestment plans, you can systematically invest or withdraw funds according

to your needs and convenience.

TRANSPARENCY:

You get regular information on the value of your investment in addition to disclosure on

the specific investments made by your scheme, the proportion invested in each class of

assets and the fund manager's investment strategy and outlook.

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AFFORDABILITY:

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.

OPTIONS:

Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

INVESTOR SAFETY:

All Mutual Funds are registered with SEBI and they function within the provisions of

strict regulations designed to protect the interests of investors. The operations of Mutual

Funds are regularly monitored by SEBI.

LIMITATIONS OF MUTUAL FUND

No Guarantee:

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

63

stocks on their own. However, anyone who invests through a mutual fund runs the risk

of losing 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 don’t use a broker or other financial adviser, you will pay

a sales commission if you buy shares in a load fund.

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 the income you receive, even if you reinvest the money you made.

Management Risk:

When you invest in a mutual fund, you depend on the fund manager to make the right

decisions regarding the fund’s portfolio. If the manager does not perform as well as you

had hoped, you might not make as much money on your investments as you expected. Of

course, if you invest in Index Funds, you forego management risk, because these funds

do not employ managers.

1. ROLE OF INTERMEDIARIES IN THE INDIAN MUTUAL64

FUND INDUSTRY

1.1 The mutual fund industry in India started in 1964 with the formation of the Unit

Trust of India (UTI). In 1987, other public sector institutions entered this business, and it

was in 1993 that the first of the private sector participants commenced its operations.

1.2 From the beginning, UTI and other mutual funds have relied extensively on

intermediaries to market their schemes to investors. It would be accurate to say that

without intermediaries, the mutual fund industry would not have achieved the depth and

breadth of coverage amongst investors that it enjoys today. Intermediaries have played a

pivotal and valuable role in popularizing the concept of mutual funds across India. They

make the forms available to clients, explain the schemes and provide administrative and

paperwork support to investors, making it easy and convenient for the clients to invest.

1.3 Intermediation itself has undergone a change over the past few decades. While

individual agents provided the foundation for growth in the early years, institutional

agents, distribution companies and national brokers soon started to play an active role in

promoting mutual funds. Recently, banks, finance companies, secondary market brokers

and even post offices have also begun to market mutual funds to their existing and

potential client bases.

1.4 It is, thus clear that all types of intermediaries are required for the growth of the

industry, and their wellbeing, quality orientation and ways of doing business

65

will have a significant impact on how the mutual fund industry in India

evolves in the future.

HOW SAFE ARE MUTUAL FUNDS

By investing in mutual funds, the risk is not totally removed but one will have the

benefits of diversification.

Any mutual fund is as safe or unsafe as the assets that it invests in.

NAV of growth funds mirrors the fluctuations of the share prices of its constituents.

Sometimes there is permanent erosion in value too.

Bond funds, in which the constituents are debt instruments, don't waver so much. Income

funds seldom face permanent value erosion.

Despite professional setups for both investment decisions and research, funds cannot be

immune to fluctuating market health. However, funds diversify the investment portfolio

substantially so that default in any single investment (in the case of an income fund) will

not affect the overall performance of a fund in a significant manner. In the event of

default of a part of the portfolio, an income fund is extremely unlikely to face erosion in

face value.

Generally, mutual funds are not guaranteed by anybody. However, in the Indian context,

some of the mutual funds have floated "guaranteed" or "assured" return schemes that

guarantee a certain annual return or guarantee a buyback at a specified price after some

time. Examples of these include funds floated by the TI, Cannabis Mutual Fund, BSI

Mutual Fund, etc. Many of these funds have not earned returns that they promised and

66

the asset management companies of the respective mutual funds or their sponsors have

made good their promises

Ground Rules of Mutual Fund Investing

Assess yourself: Self-assessment of one’s needs; expectations and risk profile is of prime

importance failing which, one will make more mistakes in putting money in right places

than otherwise. One should identify the degree of risk bearing capacity one has and also

clearly state the expectations from the investments. Irrational expectations will only bring

pain.

Try to understand where the money is going: It is important to identify the nature of

investment and to know if one is compatible with the investment. One can lose

substantially if one picks the wrong kind of mutual fund. In order to avoid any confusion

it is better to go through the literature such as offer document and fact sheets that mutual

fund companies provide on their funds.

Don't rush in picking funds, think first: one first has to decide what he wants the

money for and it is this investment goal that should be the guiding light for all

investments done. It is thus important to know the risks associated with the fund and

align it with the quantum of risk one is willing to take. One should take a look at the

portfolio of the funds for the purpose. Excessive exposure to any specific sector should

be avoided, as it will only add to the risk of the entire portfolio. Mutual funds invest with

a certain ideology such as the "Value Principle" or "Growth Philosophy". Both have their

67

share of critics but both philosophies work for investors of different kinds. Identifying the

proposed investment philosophy of the fund will give an insight into the kind of risks that

it shall be taking in future.

Invest. Don’t speculate: A common investor is limited in the degree of risk that he is

willing to take. It is thus of key importance that there is thought given to the process of

investment and to the time horizon of the intended investment. One should abstain from

speculating which in other words would mean getting out of one fund and investing in

another with the intention of making quick money. One would do well to remember that

nobody can perfectly time the market so staying invested is the best option unless there

are compelling reasons to exit.

Don’t put all the eggs in one basket: This old age adage is of utmost importance. No

matter what the risk profile of a person is, it is always advisable to diversify the risks

associated. So putting one’s money in different asset classes is generally the best option

as it averages the risks in each category. Thus, even investors of equity should be

judicious and invest some portion of the investment in debt. Diversification even in any

particular asset class (such as equity, debt) is good. Not all fund managers have the same

acumen of fund management and with identification of the best man being a tough task, it

is good to place money in the hands of several fund managers. This might reduce the

maximum return possible, but will also reduce the risks.

Be regular: Investing should be a habit and not an exercise undertaken at one’s wishes, if

one has to really benefit from them. As we said earlier, since it is extremely difficult to

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know when to enter or exit the market, it is important to beat the market by being

systematic.

The basic philosophy of Rupee cost averaging would suggest that if one invests regularly

through the ups and downs of the market, he would stand a better chance of generating

more returns than the market for the entire duration. The SIPs (Systematic Investment

Plans) offered by all funds helps in being systematic. All that one needs to do is to give

post-dated cheques to the fund and thereafter one will not be harried later. The Automatic

investment Plans offered by some funds goes a step further, as the amount can be

directly/electronically transferred from the account of the investor.

Do your homework:

It is important for all investors to research the avenues available to them irrespective of

the investor category they belong to. This is important because an informed investor is in

a better decision to make right decisions. Having identified the risks associated with the

investment is important and so one should try to know all aspects associated with it.

Asking the intermediaries is one of the ways to take care of the problem.

Find the right funds

Finding funds that do not charge much fees is of importance, as the fee charged

ultimately goes from the pocket of the investor. This is even more important for debt

funds as the returns from these funds are not much. Funds that charge more will reduce

the yield to the investor

Risks involved in investing in Mutual Funds

Mutual Funds do not provide assured returns. Their returns are linked to their

performance. They invest in shares, debentures, bonds etc. All these investments involve

an element of risk. The unit value may vary depending upon the performance of the

69

company and if a company defaults in payment of interest/principal on their

debentures/bonds the performance of the fund may get affected. Besides incase there is a

sudden downturn in an industry or the government comes up with new a regulation which

affects a particular industry or company the fund can again be adversely affected. All

these factors influence the performance of Mutual Funds.

Some of the Risk to which Mutual Funds are exposed to is given below:

Market risk

If the overall stock or bond markets fall on account of overall economic factors,

the value of stock or bond holdings in the fund's portfolio can drop, thereby impacting the

fund performance.

Non-market risk

Bad news about an individual company can pull down its stock price, which can

negatively affect fund holdings. This risk can be reduced by having a diversified portfolio

that consists of a wide variety of stocks drawn from different industries.

Interest rate risk

Bond prices and interest rates move in opposite directions. When interest rates rise, bond

prices fall and this decline in underlying securities affects the fund negatively.

Credit risk

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Bonds are debt obligations. So when the funds invest in corporate bonds, they run the risk

of the corporate defaulting on their interest and principal payment obligations and when

that risk crystallizes, it leads to a fall in the value of the bond causing the NAV of the

fund to take a beating.

Performance Measures or Risk Measurement Of Mutual Funds

Mutual Fund industry today, with about 34 players and more than five hundred schemes,

is one of the most preferred investment avenues in India. However, with a plethora of

schemes to choose from, the retail investor faces problems in selecting funds. Factors

such as investment strategy and management style are qualitative, but the funds record is

an important indicator too. Though past performance alone can not be indicative of future

performance, it is, frankly, the only quantitative way to judge how good a fund is at

present. Therefore, there is a need to correctly assess the past performance of different

mutual funds.

Worldwide, good mutual fund companies over are known by their AMCs and this fame is

directly linked to their superior stock selection skills. For mutual funds to grow, AMCs

must be held accountable for their selection of stocks. In other words, there must be some

performance indicator that will reveal the quality of stock selection of various AMCs.

Return alone should not be considered as the basis of measurement of the performance of

a mutual fund scheme, it should also include the risk taken by the fund manager because

different funds will have different levels of risk attached to them. Risk associated with a

fund, in a general, can be defined as variability or fluctuations in the returns generated by

it. The higher the fluctuations in the returns of a fund during a given period, higher will

be the risk associated with it. These fluctuations in the returns generated by a fund are

resultant of two guiding forces. First, general market fluctuations, which affect all the

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securities present in the market, called market risk or systematic risk and second,

fluctuations due to specific securities present in the portfolio of the fund, called

unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in

terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is

measured in terms of Beta, which represents fluctuations in the NAV of the fund vis-à-

vis market. The more responsive the NAV of a mutual fund is to the changes in the

market; higher will be its beta. Beta is calculated by relating the returns on a mutual fund

with the returns in the market. While unsystematic risk can be diversified through

investments in a number of instruments, systematic risk can not. By using the risk return

relationship, we try to assess the competitive strength of the mutual funds vis-à-vis one

another in a better way.

In order to determine the risk-adjusted returns of investment portfolios, several eminent

authors have worked since 1960s to develop composite performance indices to evaluate a

portfolio by comparing alternative portfolios within a particular risk class.

The most important and widely used measures of performance are:

Ø The Treynor Measure

Ø The Sharpe Measure

Ø Jenson Model

Ø Fama Model

The Treynor Measure

Developed by Jack Treynor, this performance measure evaluates funds on the basis of

Treynor's Index. This Index is a ratio of return generated by the fund over and above risk

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free rate of return (generally taken to be the return on securities backed by the

government, as there is

no credit risk associated), during a given period and systematic risk associated with it

(beta). Symbolically, it can be represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where, Ri represents return on fund, Rf is risk free rate of return and Bi is

beta of the fund.

All risk-averse investors would like to maximize this value. While a high and positive

Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative

Treynor's Index is an indication of unfavorable performance.

The Sharpe Measure

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a

ratio of returns generated by the fund over and above risk free rate of return and the total

risk associated with it. According to Sharpe, it is the total risk of the fund that the

investors are concerned about. So, the model evaluates funds on the basis of reward per

unit of total risk. Symbolically, it can be written as:

Sharpe Index (Si) = (Ri - Rf)/Si

Where, Si is standard deviation of the fund.

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While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a

fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

Comparison of Sharpe and Treynor

Sharpe and Treynor measures are similar in a way, since they both divide the risk

premium by a numerical risk measure. The total risk is appropriate when we are

evaluating the risk return relationship for well-diversified portfolios. On the other hand,

the systematic risk is the relevant measure of risk when we are evaluating less than fully

diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is

equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic

risk (Treynor measure) should be identical for a well-diversified portfolio, as the total

risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher

on Treynor measure, compared with another fund that is highly diversified, will rank

lower on Sharpe Measure.

Jenson Model

Jenson's model proposes another risk adjusted performance measure. This measure was

developed by Michael Jenson and is sometimes referred to as the Differential Return

Method. This measure involves evaluation of the returns that the fund has generated vs.

the returns actually expected out of the fund given the level of its systematic risk. The

surplus between the two returns is called Alpha, which measures the performance of a

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fund compared with the actual returns over the period. Required return of a fund at

agiven level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf)

Where, Rm is average market return during the given period. After calculating it, alpha

can be obtained by subtracting required return from

the actual return of the fund.

Higher alpha represents superior performance of the fund and vice versa. Limitation of

this model is that it considers only systematic risk not the entire risk associated with the

fund and an ordinary investor can not mitigate unsystematic risk, as his knowledge of

market is primitive.

Fama Model

The Eugene Fama model is an extension of Jenson model. This model compares the

performance, measured in terms of returns, of a fund with the required return

commensurate with the total risk associated with it. The difference between these two is

taken as a measure of the performance of the fund and is called net selectivity.

The net selectivity represents the stock selection skill of the fund manager, as it is the

excess return over and above the return required to compensate for the total risk taken by

the fund manager. Higher value of which indicates that fund manager has earned returns

well above the return commensurate with the level of risk taken by him.

Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)

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Where, Sm is standard deviation of market returns. The net selectivity is then calculated

by subtracting this required return from the actual return of the fund.

Among the above performance measures, two models namely, Treynor measure and

Jenson model use systematic risk based on the premise that the unsystematic risk is

diversifiable. These models are suitable for large investors like institutional investors

with high risk taking capacities as they do not face paucity of funds and can invest in a

number of options to dilute some risks. For them, a portfolio can be spread across a

number of

stocks and sectors. However, Sharpe measure and Fama model that consider the entire

risk associated with fund are suitable for small investors, as the ordinary investor lacks

the necessary skill and resources to diversified. Moreover, the selection of the fund on the

basis of superior stock selection ability of the fund manager will also help in safeguarding

the money invested to a great extent. The investment in funds that have generated big

returns at higher levels of risks leaves the money all the more prone to risks of all kinds

that may exceed the individual investors' risk appetite

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Project

Details

Main Objective

To make Comparative performance analysis of SBI Mutual Fund with ICICI Prudential

Mutual Fund.

Sub-objectives

1. To study the different kinds of schemes provided by each of Mutual funds.

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2. Comparative performance analysis of SBI Equity - Diversified with ICICI

Prudential Equity – Diversified Fund.

3. Comparative performance analysis of SBI Gilt Fund with ICICI Prudential Gilt

Fund

4. Comparative performance analysis of SBI Balance Fund with ICICI Prudential

Balance Fund.

The study Comprises of

1. Comparative analysis of Returns from SBI Mutual Fund and ICICI Prudential

Mutual fund.

2. Comparative analysis of Risk associated with SBI and ICICI Prudential fund, with

the use of Sharpe ratio, Expense ratio, Beta, Treynor Ratio and Standard

deviation..

3. To compare Mutual Fund Average Return with NIFTY Average Return

4. Comparative analysis of corpus of the funds.

METHODOLOGY

o Information is collected from the managers of Selected firms who deal in mutual

funds.79

o Information is collected from the officials of SBI Mutual Fund officials.

o Information is also collected from the secondary sources like the offer documents,

fact sheets, key information memorandum, web sites, magazines, newspapers etc.

o In case of corpus size, lock in period, entry and exit load the information is

collected from SBI & ICICI Prudential the offer documents.

o In case of returns, minimum investment and performance (Track Record’s) is

collected from the offer documents & fact sheets.

o Extensive use of Mutual Fund Related magazines like “ Mutual Fund Review”,

“Mutual Fund Insight by value researchers” is being made.

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Analysis of

The Data

SOURCES OF INFORMATION

SECONDARY SOURCES OF INFORMATION81

Offer documents of SBI and ICICI Prudential Mutual Funds.

Mutual Fund related magazines like Mutual Fund Review, Mutual Fund Insight by value

researchers, Outlook Money.

Fact Sheets of SBI Mutual Fund and ICICI Prudential Mutual Fund

Web sites, mainly www.mutualfundsindia.com, sbimf.com

www.valueresearchersonline.com, www.indiainfoline.com. icicipruamc.com

LIMITATIONS OF THE STUDY

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The analysis is done on the basis of past performance of the funds. But the past

performance may not be an indicator of future performance.

Performance of mutual funds is largely affected by environmental factors, which are

beyond the control of investors.

PORTFOLIO COMPOSITION OF

SBI GILT FUND

PORTFOLIO COMPOSITION OF BALANCED FUND

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PORTFOLIO COMPOSITION OF SBI Magnum Global Equity Fund

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Findings&

Recommendations

Balanced Funds

Returns from ICICI Prudential Balanced Fund for the past one year period is 23.16% and

returns from SBI Magnum Balanced Fund is higher at 25.96% for the same period

SBI Magnum Balance Fund is more consistently increasing than ICICI Balanced Funds

and it’s standard deviation is higher than ICICI Prudential Balanced Fund. SBI Magnum

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Balanced Fun has standard deviation of 0.20% and ICICI Prudential Balanced Fund has

standard deviation of 0.15%.

Sharpe Ratio is comparatively favorable in case of ICICI Prudential Balance Fund.

Treynor ratio is comparatively favourable in case of SBI Magnum Balance Fund.Sharpe

Ratio and Treynor Ratio of SBI Magnum Balanced fund are 0.91, 34.95 respectively.

Sharpe Ratio and Treynor Ratio of ICICI Prudential Balanced Fund are 1.01, and 27.74%

respectively.

Beta coefficient of ICICI Prudential Balanced Fund is -0.0003, which is lower than SBI

Magnum Balance Fund’s Beta coefficient of 0.003.

GILT FUNDS

The present NAV of SBI Magnum Gilt and ICICI Prudential are Rs. Rs.17.26 and

Rs.22.62 respectively. Returns for the past one-year period for SBI Magnum Gilt Fund is

5.36%, which is lower than ICICI Prudential Gilt Fund Returns 8.09%.

SBI Magnum Gilt Fund’s NAV is more consistently increasing than ICICI Prudential

Gilt Fund. Standard Deviation of SBI Magnum Gilt Fund and ICICI Prudential Gilt Fund

is 0.35 and 0.31 respectively.

Sharpe Ratio is comparatively favorable in case of SBI Magnum Gilt Fund. ICICI

Prudential is having a good treynor ratio compared to SBI Magnum Fund. Sharpe Ratio

and Treynor Ratio of SBI Magnum Gilt Fund are -0.45, and -3.82. Sharpe Ratio and

Treynor Ratio of ICICI Prudential are -0.76 and -2.71 respectively.

Beta coefficient of SBI Magnum Gilt Fund 0.0004 which is lower than ICICI Prudential

Gilt Fund Beta coefficient of 0.00035

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EQUITY FUND

NAV of SBI Magnum global Fund is Rs.48.48, and NAV of ICICI Prudential Dynamic

Fund is Rs.67.18.

Returns from SBI Magnum global Fund Fund are 17.93% and ICICI Prudential

Dynamic Fund returns are 43.56% for the past one year.

Returns and NAV of both the funds are very much fluctuating.

Sharpe Ratio and Treynor Ratio are comparatively favorable in case of ICICI Prudential

Dynamic Fund. Sharpe ratio and treynor ratio of SBI Mutual fund are 0.066 and 9.93

respectively. Sharpe ratio and treynor ratio of ICICI Prudential Dynamic fund are 1.40

and 35.5 respectively

Standard deviation of SBI Magnum Global Fund is 1.51 and ICICI Prudential has

standard deviation of 0.25

SUGGESTIONS

BALANCED FUNDS

It is favorable for the SBI Mutual fund to promote more of SBI Magnum Balanced Fund

over ICICI Prudential Balance Fund, because SBI Magnum balanced fund is giving

consistent returns since inception.

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Supporting analysis for the above statement:

Returns of SBI Magnum Balanced Fund are marginally higher than ICICI Prudential

Balance Fund. Returns from SBI Magnum Balanced Fund for the past one-year period

were 25.96% and returns from ICICI Prudential Balanced Fund are lower at 23.16% for

the same period. Even the standard deviation of SBI Magnum Balanced Fund is higher

than ICICIC Prudential Balanced Fund’s Standard Deviation. SBI Magnum Balanced

Fund has a standard deviation of 0.20 where as ICICI Prudential Balanced Fund has

standard deviation of 0.15. It shows justified returns against risk in case of SBI Magnum

Balance Fund, the high fluctuation, higher the returns for SBI Magnum Balance Fund.

The Treynor ratio of SBI Magnum Balanced Fund is also high as compared to ICICI

Prudential Balanced Fund. The Treynor Ratio of SBI Magnum Balanced Fund and ICICI

Prudential Balanced Fund are 34.95 and 27.74 respectively

GILT FUNDS

Its better to invest more in High yield Government Securities than investing in short term

Deposits with lower rate of interest

Supporting analysis for the above statement:

As everyone know the rate of return on short term deposits is obviously low however the

only advantage is the liquidity. It would, therefore, necessary to invest higher percentage

of corpus into Government Gilt Edged securities. With a view to maximize return on

funds the fund may consider to invest in certificate of deposits. The Portfolio of SBI

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Magnum global is showing that 50% of the corpus is invested in short term deposits, the

percentage should be brought down, and invest more and more in High yield government

securities.

EQUITY FUND

As the Portfolio of the SBI Magnum Global is holding More of cash balance, The cash

balance should be reduced and invest same in Mid Cap and Small Cap.

Supporting analysis for the above statement:

As the portfolio of SBI Magnum Global Fund is showing that lot cash is idle i.e 30% only

70% of the corpus is utilized. Portfolio composition of SBI Magnum Global is 11% in

large cap, 52% in small cap, 9% in small cap and rest of the 30% is cash. To yield more

the cash balance should be reduced and invest the same in mid cap and small cap which

yield abnormal returns.

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BIBLIOGRAPHY

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BIBLIOGRAPHY

AMFI Work Book

Mutual Fund review by ICICI Bank Ltd.

Mutual Fund Insight by Value Researcher.

Marketing Management by Philip Kotler

www.mutualfundsindia.com

www.indiainfoline.com

www.valueresearcersonline.com

www.icicidirect.com

www.amfi.com

www.sbimf.com

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