Mutual Fund

the time of issue of bonus, the NAV of the fund drops in a proportion that is identical to the ratio at which bonus funds are issued. This fall in the NAV is a capital loss as faras the original units are concerned and it is here that tax benefits can be realized. The original units can be sold off with a capital loss, which can be used to set off other capital gains. The bonus units carry a high tax liability though since you will pay taxeson the entire sale price.

Here's an example. Suppose you hold 10,000 units of a fund whose NAV is Rs15? Youmade the purchase less than a year ago at an NAV of Rs.12. If today you decide to sellthese units, you will fetch Rs.1.5 lakh, out of which Rs.30, 000 will be short-termcapital gain. On this, you are likely to pay a tax of Rs.9, 000—30 per cent of gains.

1.1.9 ROLE OF MUTUAL FUND IN STOCK EXCHANGE:-Mutual funds are an ideal vehicle for investment by retail investors in the stock marketfor several reasons.i. It pools investments of small investors together increasingly thereby the

participation in the stock market.ii. Mutual funds being institutional investors, can invest in market analysis generally

not available or accessible to individual investors, providing therefore informeddecisions to small investors.

iii. Mutual fund can diversify the portfolio in better way as compared with individualinvestors due to the expertise and availability of funds.

Mutual funds in India, because of their mall size and slower growth in the recent past,have tended to play only a limited role in the stock market the share of mutual funds intotal turnover of the stock market (BSE+NSE), which was 4.9% in January 2000,declined to 3.6% by January 2003.

1.1.10 Mutual Funds :-

FAQs:-

(NAV)Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.

Sale Price:-Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.

Repurchase Price:-Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.

Redemption PriceIs 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 the units. Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.

Repurchase or ‘Back-end’ Load:-Is a charge collected by a scheme when it buys back the units from the unit holders.

1.1.11 COST INVOLVED IN MUTUAL FUNDS:

An investor must know that there are certain costs involved while investing in mutualfunds.

OPERATING EXPENSES:

These refer to cost incurred to operate a mutual fund. Advisory fee is paid toinvestment managers, audit fees to charted accountant, custodial fees, register andtransfer agent fees, trustee fees, agent commission. Operating expenses also known asexpenses ratio which is annual expenses expressed as a percentage of these expenses isrequired to be reported in the schemes offer document or prospectus.

Operating expensesAverage net assets

Expenses ratio =

For instant, if funds Rs.100crores and expenses Rs.20 lakhs. Then expenses ratio is2% expenses ratio is available in the offer document and fro historical per unit

statistics included in the financial results of the fund which are published by annually,un audited for the half year ending September 30th and audited for the physically yearend 1st March.

Depending upon scheme and net asset, operating expenses are determined by limitsmandated by SEBI mutual funds regulation act. Any excess over specified limits as toborn by Management Company, the trustees or sponsors.

SALES CHARGES:-

These are known commonly sale loads, these are charged directly to investor. Salesloads are used by mutual fund for the payment of agent’s commission, distribution andmarketing expenses. These charges have no effect on the performance of the scheme.Sales loads are usually expression percentage and or of two types front-end and back-end.

FRONT-END LOAD:-

It is a onetime fixed fee paid by an investor when buying a Mutual funds scheme. Itdetermines public offer price which intern decides how much of your initial investmentactually get invested the standard practice of arriving a public offer price is as follows.

Net asset value (1-front end load)

Public offer price =

Let us assume, an investor invests Rs.10,000 in a scheme that charges it 2% front endload at a NAV per unit Rs.10 using the formula public offer price = 10/(1-0.02) isRs.10,20. So only 980 units are allowed to the investor.

Amount invested

Public offer price

Number of units allotted =

10,000/10,20= 980 units at a NAV of Rs.10.

This means units worth 9800 are allotted to him an initial investment Rs.10,000 frontend loads tend to decrease as initial investment amount increase.

BACK END LOAD :-

May be fixed fee redemption or a contingent differed sales charged a redemption soload continues so long as the redeeming or selling of the units of a fund does not takeplace in the event of a back end load is applied. The redemption price is arrive orusing following formula.

Net asset value(1+back end load)

Redemption price =

Let us assume an investor redeems units valued at Rs.10,000 in a scheme that chargesa 2% back, end load at a NAV per units of Rs.10 using the formula Redemption price10/(1+0.02)= Rs.9.8 s, what the investor gets in hand is 9800(9.8*1000).

CONTINGENT DEFERRED SALES CHARGES (CDSC):-

Contingent differed sales charges of a structured back end load. It is paid when theunits are reading during the initial years of ownership. It is for a predetermined periodonly and reduced over the time you invested for a fund. The longer remains in a fundthe lower the CDSC.

The SEBI stipulate the a CDSC may be charge only for first four years after purchaseof units and also stipulate the maximum CDSC that can we charge every year. This isthe SEBI mutual funds regulations 1996 do not allow either the front end load or backend load to any combination is higher than 7%.

TRANSACTION COST:-

Some funds may also impose a switch over fee which is charge on transfer ofinvestment from one scheme to another within a same mutual funds family and also toswitch from one plan to another within same scheme. The real estate mutual fundssector is now being considered as the engine of economic growth.

1.1.12 The objectives of Association of Mutual Funds in India :-

The Association of Mutual Funds of India works with 30 registered AMCs of thecountry. It has certain defined objectives which juxtaposes the guidelines of its Boardof Directors. The objectives are as follows:

This mutual fund association of India maintains a high professional and ethicalstandards in all areas of operation of the industry.

It also recommends and promotes the top class business practices and code ofconduct which is followed by members and related people engaged in the

activities of mutual fund and asset management. The agencies who are by anymeans connected or involved in the field of capital markets and financialservices also involved in this code of conduct of the association.

AMFI interacts with SEBI and works according to SEBIs guidelines in themutual fund industry.

Association of Mutual Fund of India do represent the Government of India, theReserve Bank of India and other related bodies on matters relating to theMutual Fund Industry.

It develops a team of well qualified and trained Agent distributors. Itimplements a program of training and certification for all intermediaries andother engaged in the mutual fund industry.

AMFI undertakes all India awareness program for investors in order topromote proper understanding of the concept and working of mutual funds.

At last but not the least association of mutual fund of India also disseminateinformation on Mutual Fund Industry and undertakes studies and researcheither directly or in association with other bodies.

1.1.13 The sponsors of Association of Mutual Funds in India:-Bank Sponsored :

SBI Fund Management Ltd.

BOB Asset Management Co. Ltd.

Can bank Investment Management Services Ltd.

UTI Asset Management Company Pvt. Ltd.

Institutions:- GIC Asset Management Co. Ltd.

Jeevan Bima Sahayog Asset Management Co. Ltd.

Private Sector:-Indian:-

BenchMark Asset Management Co. Pvt. Ltd.

Cholamandalam Asset Management Co. Ltd.

Credit Capital Asset Management Co. Ltd.

Escorts Asset Management Ltd.

JM Financial Mutual Fund

Kotak Mahindra Asset Management Co. Ltd.

Reliance Capital Asset Management Ltd.

Sahara Asset Management Co. Pvt. Ltd

Sundaram Asset Management Company Ltd.

Tata Asset Management Private Ltd.

Predominantly India Joint Ventures:-

Birla Sun Life Asset Management Co. Ltd.

DSP Merrill Lynch Fund Managers Limited

HDFC Asset Management Company Ltd.

Predominantly Foreign Joint Ventures:-

ABN AMRO Asset Management (I) Ltd.

Alliance Capital Asset Management (India) Pvt. Ltd.

Deutsche Asset Management (India) Pvt. Ltd.

Fidelity Fund Management Private Limited

Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.

HSBC Asset Management (India) Private Ltd.

ING Investment Management (India) Pvt. Ltd.

Morgan Stanley Investment Management Pvt. Ltd.

Principal Asset Management Co. Pvt. Ltd.

Prudential ICICI Asset Management Co. Ltd.

Standard Chartered Asset Mgmt Co. Pvt. Ltd.

1.1.14 Performance of Mutual Funds in India : -Let us start the discussion of the performance of mutual funds in India from theday the concept of mutual fund took birth in India. The year was 1963. Unit Trust of India invited investors or rather to those who believed in savings, to park their money in UTI Mutual Fund. For 30 years it goaled without a single second player. Though the 1988 year saw some new mutual fund companies, but UTI remained in a monopoly position. The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yes, some 24 million shareholders was accustomed with guaranteed high returns by the beginning of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations of investors touched the sky in profitability factor. However, people were miles away from the preparedness of risks

The 1992 stock market scandal, the losses by disinvestments and of courses thelack of transparent rules in the where about rocked confidence among the investors. Partly owing to a relatively weak stock market performance, mutual funds have not yet recovered, with funds trading at an average discount of 1020percent of their net asset value.At last to mention, as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time, more and more people will be inclined to invest.

1.1.15 MARKET TREND:-

A lone UTI with just one scheme in 1964, now competes with as many as 400 oddproducts and 34 players in the market. In spite of the stiff competition and losingmarket share, UTI still remains a formidable force to reckon with.

Last six years have been the most turbulent as well as exiting ones for the industry.New players have come in, while others have decided to close shop by either sellingoff or merging with others. Those directly associated with the fund managementindustry like distributors, registrars and transfer agents, and even the regulators havebecome more mature and responsible.

The industry is also having a profound impact on financial markets. While UTI hasalways been a dominant player on the bourses as well as the debt markets, the newgeneration of private funds which have gained substantial mass are now seen flexingtheir muscles. By rewarding honest and transparent management with highervaluations, a system of risk-reward has been created where the corporate sector ismore transparent then before.

Funds have shifted their focus to the recession free sectors like pharmaceuticals,FMCG and technology sector. Funds collection, which averaged at less than Rs.100bnper annum over five-year period spanning 1993-98 doubled to Rs.210bn in 1998-99. Inthe current year mobilization till now have exceeded Rs.300bn. Total collection for thecurrent financial year ending March 2000 is expected to reach Rs.450bn.towardsmutual funds has become obvious. The coming few years will show that the traditionalsaving avenues are losing out in the current scenario. The fund mobilization trend bymutual funds in the current year indicates that money is going to mutual funds in a bigway. The collection in the first half of the financial year 1999-2000 matches the wholeof 1998-99.

India is at the first stage of a revolution that has already peaked in the U.S. The U.S.boasts of an Asset base that is much higher than its bank deposits. In India, mutualfund assets are not even 10% of the bank deposits, but this trend is beginning tochange. Recent figures indicate that in the first quarter of the current fiscal year mutualfund assets went up by 115% whereas bank deposits rose by only 17%. (Source: Thinktank, The Financial Express September, 99) This is forcing a large number of banksto adopt the concept of narrow banking wherein the deposits are kept in Gilts and someother assets which improves liquidity and reduces risk. The basic fact lies that bankscannot be ignored and they will not close down completely. Their role asintermediaries cannot be ignored. It is just that Mutual Funds are going to change theway banks do business in the future.

PARTICULAR BANKS MUTUAL FUND

RETURN LOW BETTER

RISK HIGH LOW

INVESTMENT OPTION 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 AND 30TH OF EVERY

MONTH.

EVERY DAY

ADMINISTRATION EXPENSES HIGH LOW

GUARANTEE MAX. RS 1LACK ON DEPOSIT NONE

Table 1.1

1.1.16 FUTURE OF MUTUAL FUND:-

Indian mutual fund industry reached Rs.1,50,537crore by March 2004. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be R. 40,90,000crore. The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years there is an annual growth rate of 9%. According to the current growth rate, by year 2010,

Mutual fund India assets will be double:-

100% growth in the last 6 years.

Number of foreign AMC's are in the queue to enter the Indian markets like FidelityInvestments, US based, with over US$1trillion assets under managementworldwide

Our saving rate is over 23%, highest in the world. Only channelizing these savingsin mutual funds sector is required.

We have approximately 29 mutual funds, which is much less than US having morethan 800. There is a big scope for expansion.

'B' and 'C' class cities are growing rapidly. Today most of the mutual funds areconcentrating on the 'A' class cities. Soon they will find scope in the growingcities.

Mutual fund can penetrate rural like the Indian insurance industry with simple andlimited products.

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

Emphasis on better corporate governance.

trying to curb the late trading practices

The asset base will continue to grow at an annual rate of about 30 to 35 % over thenext few years as investor’s shift their assets from banks and other traditional avenues.Some of the older public and private sector players will either close shop or be takenover.

1.2 PROFILE OF THE ORGANIZATION

Religare Securities Ltd. (RSL) is a wholly owned subsidiary of Religare FinancialServices Ltd. (RFSL), a Company promoted by the late Dr. Parvinder Singh, Ex-CMDof Ranbaxy Laboratories Ltd.

The primary focus of Religare Securities Ltd. is to cater to services inCapital Market Operations to Institutional Investors. The Company is a member of theNational Stock Exchange (NSE) and OTCEI. The growing list of financial institutionswith whom RSL is empanelled as approved Broker is a reflection of the high levels ofservices maintained by the Company. Religare was founded with the vision ofproviding integrated financial care driven by the relationship of trust. The bouquet ofservices offered by RELIGARE includes Broking (Stocks and Commodities),Depository Participant Service, Advisory on Mutual Fund Investments and PortfolioManagement Services.

RELIGARE is a pioneer in the concept of partnership to reach multiple locations inorder to effectively service its large base of individual clients. Besides the reach ofRELIGARE, the clients of the company greatly benefit by its strong researchcapability, which encompasses fundamentals as well as technical knowledge.

Religare is driven by ethical and dynamic process for wealth creation. Based onthis, the company started its endeavor in the financial market.Religare Enterprises Limited (A Ranbaxy Promoter Group Company) through ReligareSecurities Limited, Religare Finevest Limited, Religare Commodities Limited and Religare Insurance Broking Limited provides integrated financial solutions to its corporate, retail and wealth management clients. Today, it provides various financial services, which include Investment Banking, Corporate Finance, Portfolio Management Services, Equity & Commodity Broking, Insurance and Mutual Funds.

Plus, there’s a lot more to come your way.

Religare is proud of being a truly professional financial service provider managed by ahighly skilled team, who have proven track record in their respective domains. Religare operations are managed by more than 3000 highly skilled professionals who subscribe to Religare philosophy and are spread across its countrywide branches.

Today, it has a growing network of more than 300 branches and more than 580 business partners spread across more than 300 cities/towns in India and a fully operational international office at London. Unlike a traditional broking firm, Religare group works on the philosophy of partnering for wealth creation. We not only execute trades for our clients but also provide them critical and timely investment advice. The growing list of financial institutions with which Religare is empanelled as an approvedbroker is a reflection of the high-level service standard maintained by the company.

GROUP COMPANIES:-

Religare Enterprises Limited group comprises of Religare Securities Limited, Religare Commodities Limited, Religare Finvest Limited and Religare Insurance Broking Limited which deal in equity, commodity and financial services business.

Religare Securities Limited:-RSL is one of the leading broking houses of India and are dealing into Equity Broking,Depository Services, Portfolio Management Services, Internet Trading, Institutional Equity Brokerage & Research, Investment Banking, Merchant Banking and Corporate Finance.To facilitate free and fare trading process Religare is a member of major financial institutions like, National Stock Exchange of India, Bombay Stock Exchange of India, Depository Participant with National Securities Depository Limited and Central Depository Services (I) Limited, and a SEBI approved Portfolio Manager.RSL serves a platform to all segments of investors to avail the opportunities offered byinvesting in Indian equities either on their own or through managed funds in Portfolio Management.

Religare Commodities Limited:-Religare is a member of NCDEX and MCX and provides platform for trading in

commodities, which is an online facility also.RCL provides platform to both agro and non-agro commodity traders to derive the actual price of the commodity and also to trade and hedge actively in the growing commodity trading market in India.With this realization, Religare Commodities is coming up with its branches at mandi locations. It is a flagship effort from our team which would be helpful in facilitating trade and speculating price of commodities in future.

Religare Finevest:-

Religare Finevest Limited (RFL), a Non Banking Finance Company (NBFC) is aggressively making a name in theFinancial services arena in India. In a fast paced, constantly changing dynamic business environment, RFL has delivered the most competitive products and services. RFL is primarily engaged in the business of providing finance against securities in thesecondary market. It also provides finance for application in Initial Public Offers to non-retail clients in the primary market.RFL is also planning to initiate personal loan portfolio as fund based activity and mutual fund distribution as fee based activities. Along with this, the company also undertakes non-fund based advisory operations in the field of Corporate Financing in the nature of Credit Syndication which includes inter alias, bills discounting, inter corporate deposit, working capital loan syndication, placement of private equity and other structured products.

Religare Insurance Broking Ltd.:-

Religare has been taking care of financial services for long but there was a missing link. Financial planning is incomplete without protective measure i.e. structured products to take care of event of things that may go wrongReligare Insurance Broking Limited. As composite insurance broker, deals in both insurance and reinsurance, providing our clients risk transfer solutions on life and non-life sides.This service will take benefit of Religare vast business empire spread throughout the country -- providing our valued clients insurance services across India. We aim to havea wide reach with our services – literally! That’s why we are catering the insurance requirements of both retail and corporate segments with products of all the insurance companies on life and non-life Still, there is more in store. We also cater individuals with a complete suite of insurance solutions, both life and general to mitigate risks to life and assets through our existing network side.For corporate clients, we will be offering value based customized solutions to cover allrisks, which their business is exposed to. Our clients will be supported by an operations team equipped with the best of technology supportReligare Insurance Broking aims to provide neutral, transparent and professional risk transfer advice to become the first choice of India.

Mission:-To be India's first Multinational providing complete financial services solution across the globe.

Vision:-Providing integrated financial care driven by the relationship of trust and confidence.

Why customer trade with Religare?

Personal Assistance:-

Dedicated dealers for facilitating trading and post trade needs. Dedicated Relationship Managers for assisting multiple investments

needs.

Research & Advisory:-

Regular news and updates on market. Research service over SMS to keep you abreast. Daily and weekly technical reports. A complete information report on results and performance individual

companies. Complete reports on various economic sectors and their performance along with analysis of few major companies in that sector.

Trading calls in Futures & Options. Daily capsule of Market indices and index movement, national and

international corporate news, and their performance along with forth coming IPO tracker.

.

Add-Ons:-

Access to all your accounts through your Customer Relationship Number (CRN).

Access your ledger balances and account information over internet, branch and call center.

PRODUCT & SERVICES:-

Equity & Derivatives Commodity Depository Portfolio Management Services International Equity & Commodity NRI Services

Investment Banking Corporate Advisory Group Mutual Fund

1.3 PROBLEMS OF THE ORGANIZATION:-

Since Religare Securities is a private player in the insurance industry, it has not yetreached break-even. Hence, it has high cost due to which its premiums are high ascompared to other market players.

It has to create credibility in the public.

It has to compete with the wide range of products that its competitors offer.

It has to focus towards rural segment also which has a great scope of growth.

It has to decide on the strategies to be adopted which will help to countercompetition.

It has to increase its no. of branches and also enhance its network of agents so thatit can compete with other market players.

It has to focus on providing effective training to its agents so that the customerbase can be increased and moreover customer satisfaction can be ensured.

1.4 COMPETITION INFORMATION

Bank Sponsored:-

SBI Fund Management Ltd.

BOB Asset Management Co. Ltd.

Canbank Investment Management Services Ltd.

UTI Asset Management Company Pvt. Ltd.

Institutions:-

GIC Asset Management Co. Ltd.

Jeevan Bima Sahayog Asset Management Co. Ltd.

Private Sector:-Indian:-

BenchMark Asset Management Co. Pvt. Ltd.

Cholamandalam Asset Management Co. Ltd.

Credit Capital Asset Management Co. Ltd.

Escorts Asset Management Ltd.

JM Financial Mutual Fund

Kotak Mahindra Asset Management Co. Ltd.

Reliance Capital Asset Management Ltd.

Sahara Asset Management Co. Pvt. Ltd

Sundaram Asset Management Company Ltd.

Tata Asset Management Private Ltd.

Predominantly India Joint Ventures:-

Birla Sun Life Asset Management Co. Ltd.

DSP Merrill Lynch Fund Managers Limited

HDFC Asset Management Company Ltd.

Predominantly Foreign Joint Ventures:-

ABN AMRO Asset Management (I) Ltd.

Alliance Capital Asset Management (India) Pvt. Ltd.

Deutsche Asset Management (India) Pvt. Ltd.

Fidelity Fund Management Private Limited

Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.

HSBC Asset Management (India) Private Ltd.

ING Investment Management (India) Pvt. Ltd.

Morgan Stanley Investment Management Pvt. Ltd.

Principal Asset Management Co. Pvt. Ltd.

Prudential ICICI Asset Management Co. Ltd.

Standard Chartered Asset Mgmt. Co. Pvt. Ltd.

1.5 S.W.O.T. ANALYSIS OF THE ORGANIZATION

STRENGTHS:-

Diverse Branch Network

Since Company inception in FY 1992 Company and its subsidiaries have grown from a single location to a nationwide network spread over 900 offices in 320 cities. They have a pan India distribution networks for the purpose of distribution of financial products and services. Such a diverse and integrated network provides a centralized platform to their clients.

Bouquet of financial products and services:-

Company and its subsidiaries offer various financial services and products ranging from equity, F & O and wholesale debt, mutual fund an distribution, equity research analysis, depository services to cater to the specific needs of the retail and institutional investors thus providing all these services in single platform.

Advanced Technology team that delivers market leading product innovation:-

Their ongoing investment in technology is a key element in expanding their product and service offerings, enhancing their delivery systems, providing fast and consistent client service, reducing processing costs, and facilitating their ability to handle significant increases in client activity without a corresponding rise in risk and staff. Company and its subsidiaries have an in-house technology team of 27 people comprising of several engineers. The in-house technology team has been responsible for developing the technology products for operating at a large scale with efficient back office systems. The application of technology allows Company and its subsidiaries.

To build scalable product and service offerings. The in-house technology team developed one of the first Internet trading platforms in India, one of the first in-house real-time CTCL link with NSE. Company and its subsidiaries introduced integrated accounts with automated gateways with client bank accounts so that they can transfer

funds to and from their bank account to their brokerage account with the Company. This has enhanced customer ability to access their funds for market related activities. The in-house technology team has good expertise to create mission critical applications and in the maintenance and upkeep of high transaction processing of thereweb-site.

Strong Sales and Marketing Teams with continuous reinvestment and training:-

Company’s relationship manager channel (through a team of 1050 Relationship Managers as on April 30, 2004) offers a single point contact to retail customers whereby their high net worth clients have separate relationship managers catering to them. These managers offer personalized services to the customers helping build strong and continuing relationships with them. Also, our marketing associate channel helps Company and its subsidiaries in client acquisitions at minimal costs with client loyalty. The marketing associate’s channel also helps Company and its subsidiaries in increasing their penetration in smaller town and cities.

Weakness

Customer Satisfaction:- As far as customer satisfaction goes Religare has to tighten their socks. Many broking houses catering to heavy investors or small segment of the market can afford to and does provide relationship managers for their customers,who can understand the trading needs of individual customers, and advise accordingly.However, a broking house like Religare that caters to the mass segment will find difficult to provide relationship managers for individual customers.

Branding :- Yet to obtain approval of Trademark for developing into brand though the company has a efficient products but large part of investment interested population does not know the company. The most basic expectation for a trader or investor when one begins trading is that one must get timely delivery of shares and proceeds from sale of shares. Also ones cash balances with the broker must be safe and secure. Though this confidence in the broker comes with time and experience, good and transparent practices also play a major role in imbibing confidence in traders.

Competition from banks:- Most of the banks due to good branding have the faith of the customers of their banking database. So they enjoy the liberty of huge database and customers find it more reliable to trade there rather than with a unknown broker. Also banks like HDFC Bank and ICICI Bank have the advantage of linking thetrading accounts of their customers to saving accounts. This makes trading easier, and

at the same time a trader withdraws exactly as much money from his account as is needed to complete the trade. Similarly sales proceeds are credited directly to saving account.

Localized presence due to insufficient investments for countrywide expansion. Lack of awareness among customers because of non-aggressive promotional

strategies (print media, newspapers, etc). Lesser emphasis on customer retention. Focuses more on HNIs than retail investors which results in meager market-share

as compared to close competitors.

Opportunities

With the booming capital market it can successfully launch new services and raise its client’s base.

It can easily tap the retail investors with small saving through promotional channels like print media, electronic media, etc.

As interest on fixed deposits with post office and banks are all time low, more and more small investors are entering into stock market.

Abolition of long-term capital gain tax on shares and reduction in short term capital gain is making stock market as hot destination for investment among small investors.

Increasing usage of Internet through broadband connectivity may boost a whole new breed of investors for trading in securities.

Additional centers will increase the clientele base and in-turn will increase revenue Retail sector is expected to grow due to reduction in interest rate and opting for

new opportunities in equity and related instruments Rapid penetration of Internet and computers will be instrumental in increasing e-

broking business

Ever-increasing market :- After the NSE brought the screen based trading system stock markets are now more secured which has attracted lot of retail investors and the demand is increasing day by day. This has resulted in improved liquidity and heavy volumes on transactions. Religare is one of the early entrants here. As to how much it will roar and how swift it can swoop on the market, the future alone can answer such queries. Religare has been a mega player and is known for being a mover of stocks. It is also known for putting big deals through and enjoys good networking with the FIIs. It has been dynamic enough to move with the times and capture the opportunities that the market throws up from time to time.

Improving Technology :- In country like India technology is always improving which gives the company a chance to keep on improving their product with time whereas for the small players like local brokers it will be difficult to keep the same pace as the changing technology. Also with SEBI lying down some strict guidelines small brokers are finding it harder to retain the customers with no research department and small capital. The traditional business model is highly dependent on a large network of sub-brokers, and many established players may not have systems (technology, customer service, etc.) capable of directly servicing so many retail customers.

Unfulfilled needs of the customers:- With so many competitors offering their products in the market but no one is able to completely satisfy the customers. Some have the problem of lack of information or some were scared of volatility of the stock markets. Share khan has the opportunity to tap this unsatisfied set of customers and to make hold in the market. The Internet serves to break all barriers to information, as it offers an extremely hassle-free investing platform. And, Share khan hopes to fully utilize and capitalize on this platform. This original idea by Share khan itself was born out of the consumer's need for a more transparent, easy to understand and convenient option of investing in stocks.

Education Level:- The education level in the country is improving year after year as far as technology goes. With that the understanding of the stock market is also

increasing and a lot of retail investors are steeping in the markets which are being shown by increasing volumes, transactions and indices.

Threat:-

Aggressive promotional strategies by close competitors may hamper Religare acceptance by new clients.

Lack of sufficient branch-offices for speedy delivery of services.

More and more players are venturing into this domain, which can further reduce the earnings of Religare.

Downturn or volatility of securities and commodities market.

Slowdown of Indian and global economy

Change in government and economic policies including personal taxation may affect our volume and fund mobilization.

New Competitors:- A lot of new competitors are trying to enter the market in this bullish run to taste the flavor of this cherry. This is creating a lot of competition for large players like Religare and it is creating little confusion in the minds of the customers about the services provided by the broker. Also many banking firms are entering into the market with huge investment. Competitors like ICICI, Kotak, HDFC, 5-paisa etc. are posing a lot of threats to the company.

Technology based business:-

Online trading is totally based on the technology which is quite complex. Typically, the technology solution has to start from the Internet front-end (or the screen that you see when you begin trading). Then it needs to get into the 'middle tier' of risk management systems that assess data from banks and depository participants (DP), calculate client risk at that point in time, and give the 'Go/No go' advice to the trade. So technology is a kind of threat because unless until it is working properly it is good but internet is not that safe. Though a lot of cyber laws are being made but not yet executed.

OBJECTIVE AND METHODOLGY

2.1 Significance:-

1. It helps in creating the investors’ confidence.

2. It helps to find out prospect investors of Mutual Funds and also to provide key information about the investor’s perception and preferences by Mutual Fund industry.

3. It helps in getting information about their performance at distributors as well as at their own investment center or why people go for Mutual Fund for investments.

4. It helps in finding out the problems related to distribution.

2.2 Managerial usefulness of the study:- helps to have sale experience. helps to deal with different customers. helps to overcome the objections of the customers. helps to understand the problems of agents in a broader prospect. It provides a platform where managerial role can be played effectively and

efficiently.

2.3 Objectives:- To studying the various mutual fund schemes offered by Religare Securities Ltd.

and then comparing it with the other schemes available in the current market. To study various needs and expectations of small investors from different types of

mutual funds To studying and analyzing the mutual fund industry of the country. To study the Indian market and identify the risk return perception with the

purchase of mutual funds. To study the Accounting and Valuation methods of Mutual Funds. To study in brief various Mutual funds promoted by Religare. To study the investors Preference regarding Investment in Mutual Funds.

2.4 Scope of the study:-

In current scenario, the bank rates have been cut down rapidly due to severecompetition, so people are not going for contemporary deposits because that

cannot provide them the better returns or the desired interest rates. So, they canlook for some other investment options like Mutual Funds, which can provide themhigher returns in medium to long term and can easily meet their financial goals.

To look out for new prospective customers who are willing to invest in MutualFunds.

Methodology

1. QUESTIONNAIRE:-

The study is based on a survey of 100 respondents through a questionnaire coveringdifferent groups of investors

Sample Size; N=100

With the help of this project, I have attempted to study various needs and expectationsof small investors from different types of mutual funds available in Indian market andidentify the risk return perception with the purchase of mutual funds.

Various sophisticated multivariate techniques like Factor Analysis, Chi Square Test etc.will then be applied to identify important characteristics being considered by theIndian investors in the purchase decision.

The questionnaire has been developed on the basis of five major components. Theseare:

1. Demographic Attributes like age, Income, No. of years until retirement,expectations from future earning, Family Size and knowledge of financialproducts & the financial market.

2. Risk Attitude of the customers

3. Latest Investment in Mutual Fund E.g. Amount invested in the mutual fundrecently, type of mutual fund, priority while investing in mutual fund and whymutual funds.

4. Time Horizon: This component has been included in order to identify the timeperiod in which the customer withdraws his money from the investment madeby him.

5. Investment objective: This will help in identifying the investment objective ofthe customer i.e. for travel, for his children, for further investment or foravailing retirement benefit.

Demographic Attributes:-

The various demographic attributes like Age, Income, and No. Of years till retirement,Family size, knowledge of finance influence the decisions being made by the investorswhile investing in Mutual Funds.

Risk Attitude of Customers:-

This component has been included in order to identify the proximity of a person totake risk while investing. An analysis of this section would help in identifying theneeds and expectations of small investors keeping in mind their risk attitude.

The section would help in answering the following section:-

Choices made while investing big amounts (> Rs.50000)

Sustainability of a customer to invest in share market when the market is notperforming very well

Latest Investment In Mutual Funds:-

This section would help in identifying the latest investment done by a particularcustomer in the last one year.

This section would help in identifying the following:

Amount invested in Mutual Funds, Shares, Fixed Deposits, Govt. securities etc.

The mutual funds the customers have invested in currently available in themarket

Priority while investing in Mutual Funds. E.g. for some investors the currentNAV must be a criteria. For some liquidity and lock in period must be a criteria

What are the major benefits that the customers get while investing in a mutualfund

Time Horizon & Investment Objective:-

This section would help in identifying the following:

The time period of the investment

Their expectation of the money after 10 years

The future use of their investment

After how many years will they start using their money

Thus, data collection from the various customers has been done with the help ofquestionnaires.

2. TELEPHONIC INTERVIEWS:-

The summer project also helped me in gaining an experience to sell the various mutualfund schemes over the telephone. It only helped me improve my communication skillsbut also gave me an in depth knowledge about the various schemes offered by ReligareSecurities Ltd., ICICI, HDFC, HSBC, Fidelity, etc.

This would further help me in doing a sophisticated and detailed comparison betweenthe various schemes.

3. APPOINMENTS WITH COMPANIES:-

The project also gave me an opportunity to fix appointments with corporateorganization and allowed me to explain the various products to the company officials.

The various organizations covered were:

OZONE PHARMACEUTICALS, AMBIKA PILLAI’s Beauty Saloon, APOLLOClinic etc…

The data from such organization has also been collected.

4. NEWSPAPER ARTICLES:-

The preparation of the project report also required data from various journals,newspapers etc…

Data from the various newspapers (like The Economic Times, The Times Of Indiaetc..) and journals has been done.

5. COLLECTION OF DATA FROM OTHER AMCs

The preparation of the project report required me to visit the various other companies like HDFC, LIC, and Standard Chartered etc. in order to collect data.

CONCEPTUAL DISCUSSION

INTRODUCTION OF MUTUAL FUND:-

Overview:-

A Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal. The money thus collected is then invested in capital marketinstruments such as shares, debentures and other securities. The income earnedthrough these investments and the capital appreciation realized is then shared by itsunit holders in proportion to the number of units owned by them. Thus a Mutual Fundis the most suitable investment for the common man as it offers an opportunity toinvest in a diversified, professionally managed basket of securities at a relatively lowcost. The flow chart below describes broadly the working of a mutual fund:

MUTUAL FUND OPERATION FLOW CHART

Constituents of Mutual Fund:-

There are many entities involved and the diagram below illustrates the organizationalset up of a mutual fund.

The Securities and Exchange Board of India (Mutual Funds) Regulations 1993 definea mutual fund (MF) as a fund established in the form of a trust by a sponsor to raisemoney by the trustees through the sale of units to the public under one or moreschemes for investing in securities in accordance with these regulations.

These regulations have since been replaced by the SEBI (Mutual Funds) Regulations,1996. The structure indicated by the new regulations is indicated as under.

A mutual fund comprises four separate entities. These are: Sponsor, Mutual FundTrust, AMC and Custodian.

The sponsor establishes the mutual fund and gets it registered with SEBI. The mutualfund needs to be constituted in the form of a trust and the instrument of the trust shouldbe in the form of a deed registered under the provisions of the Indian Registration Act,1908. The sponsor is required to contribute at least 40% of the minimum net worth(Rs. 10 crores) of the asset management company. The board of trustees manages theMF and the sponsor executes the trust deeds in favor of the trustees. It is the job of theMF trustees to see that schemes floated and managed by the AMC appointed by thetrustees are in accordance with the trust deed and SEBI guidelines.

Functions of the Various Constituents in the Organization ofMutual Fund History:-

The origin of mutual fund industry in India is with the introduction of the concept ofmutual fund by UTI in the year 1963. Though the growth was slow, but it acceleratedfrom the year 1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen dramatic improvements, bothquality wise as well as quantity wise. Before, the monopoly of the market had seen anending phase; the Assets under Management (AUM) were Rs. 67bn. The private sectorentry to the fund family rose the AUM to Rs. 470 bn in March 1993 and till April2004; it reached the height of 1,540 bn. Putting the AUM of the Indian Mutual FundsIndustry into comparison, the total of it is less than the deposits of SBI alone,constitute less than 11% of the total deposits held by the Indian banking industry. Themain reason of its poor growth is that the mutual fund industry in India is new in thecountry. Large sections of Indian investors are yet to be intellectuated with theconcept. Hence, it is the prime responsibility of all mutual fund companies, to marketthe product correctly abreast of selling.

The mutual fund industry can be broadly put into four phases according to thedevelopment of the sector. Each phase is briefly described as under.

First Phase – 1964-87:-

The Unit Trust of India (UTI) was established in 1963 by an Act of Parliament. It wasset up by the Reserve Bank of India and functioned under the Regulatory andadministrative control of the Reserve Bank of India. In 1978 UTI was de-linked fromthe RBI and the Industrial Development Bank of India (IDBI) took over the regulatoryand administrative control in place of RBI. The first scheme launched by UTI was UnitScheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets undermanagement.

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

This was marked by the entry of non-UTI mutual funds. SBI Mutual Fund was the firstfollowed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of BarodaMutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management.

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

With the entry of private sector funds in 1993, a new era started in the Indian mutualfund industry, giving the Indian investors a wider choice of fund families. Also, 1993was the year in which the first Mutual Fund Regulations came into being, under whichall mutual funds, except UTI were to be registered and governed. The erstwhileKothari Pioneer (now merged with Franklin Templeton) was the first private sectormutual fund registered in July 1993.The 1993 SEBI (Mutual Fund) Regulations weresubstituted by a more comprehensive and revised Mutual Fund Regulations in 1996.The industry now functions under the SEBI (Mutual Fund) Regulations 1996. As aresult, at the end of 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 of assets undermanagement 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.29,835crores (as on January 2003). The Specified Undertaking of Unit Trust of India,

functioning under an administrator and under the rules framed by Government of Indiaand 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 isregistered with SEBI and functions under the Mutual Fund Regulations. With thebifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 croresof AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBIMutual Fund Regulations, and with recent mergers taking place among differentprivate sector funds, the mutual fund industry has entered its current phase ofconsolidation and growth. As at the end of September 2004, there were 29 funds,which manage assets of Rs.153108 crores under 421 schemes.

GROWTH OF AMU

VARIOUS SCHEMES OF MUTUAL FUNDS:-

There are a no. of Mutual Fund schemes that cater to investor needs, depending on theage, financial position, risk tolerance and return expectations. The mutual fundschemes can be classified according to both the investment objective (like income,growth, tax saving) as well as the number of units (if these are unlimited then the fundis an open-ended one while if there are limited units then the fund is close-ended).

Various Schemes of Mutual Funds:-

Open-Ended Schemes

These funds are sold at the NAV based prices, generally calculated on every businessday. These schemes have unlimited capitalization, open-ended schemes do not have afixed maturity - i.e. there is no cap on the amount you can buy from the fund and theunit capital can keep growing. These funds are not generally listed on any exchange.

These funds have a no. of benefits. These are:

a) Any time exit option

b) Tax advantage

c) Any time entry option

Close Ended Schemes:-

Schemes that have a stipulated maturity period, limited capitalization and the units arelisted on the stock exchange are called close-ended schemes. These schemes havehistorically seen a lot of subscription. This popularity is estimated to be on account offirstly, public sector MFs having floated a lot of close-ended income schemes withguaranteed returns and secondly easy liquidity on account of listing on the stockexchanges.

Growth Funds:-

These funds seek to provide growth of capital with secondary emphasis on dividend.They invest in shares with a potential for growth and capital appreciation. Becausethey invest in well-established companies where the company itself and the industry inwhich it operates are thought to have good long-term growth potential, growth fundsprovide low current income.

Growth and Income Funds:-

Growth and income funds seek long-term growth of capital as well as current income.The investment strategies used to reach these goals vary among funds. Some invest ina dual portfolio consisting of growth stocks and income stocks, or a combination ofgrowth stocks, stocks paying high dividends, preferred stocks, convertible securities orfixed-income securities such as corporate bonds and money market instruments.

Fixed-Income Funds:-

The goal of fixed income funds is to provide current income consistent with thepreservation of capital. These funds invest in corporate bonds or government-backedmortgage securities that have a fixed rate of return.

Balanced:-

The Balanced fund aims to provide both growth and income. These funds invest inboth shares and fixed income securities in the proportion indicated in their offer

documents.

These are ideal for investors who are looking for a combination of income andmoderate growth.

Money Market Funds/Liquid Funds:-

These invest in highly liquid, virtually risk-free, short-term debt securities of agenciesof the Indian Government, banks and corporations and Treasury

Specialty/Sector Funds:-

These funds invest in securities of a specific industry or sector of the economy such ashealth care, technology, leisure, utilities or precious metals. The funds enable investorsto diversify holdings among many companies within an industry, a more conservativeapproach than investing directly in one particular company.

A summary is presented in the table below of the various funds and their investmentobjectives:

SCHEME TYPE TIMEHORIZON

RISKPROFILE

TYPICAL INVESTMENT PATTERN

OBJECTIVE OPEN CLOSE EQUITY

(%)

DEBT

(%)

MONEYMARKETINST/ OTHERS

(%)

MONEY

MARKET

YES NO Short term Low 0 0 - 20 80 -100

INCOME YES YES MediumLong Term

Low toMedium

0 80-100 0 - 20

GROWTH YES YES Long Term High 80 -100 0-20 0 - 20

BALANCED YES YES Long Term Medium toHigh

0 - 60 0 – 40 0 - 20

TAX SAVING YES YES Long Term High 80 -100 80-100 0 - 20

CURRENT SCENARIO OF MUTUAL FUND:-

The mutual funds industry in India has grown at a strong pace of 16.4 per cent for thelast 8 years which is better compared to the growth rate of the mutual fund industryworldwide, which was about 13 per cent for the same period. The Indian mutual fundsindustry has Rs 204,519-crore worth of assets under management as on November 30,

2006, which is an impressive growth of 37 per cent from last year, thanks to thebooming equity markets in majority of the countries across the globe.

As on June 30, 2006, the mutual funds globally manage assets worth $16.41 trillion,while India has a small share of 0.22 per cent. The huge participation of investors inthe NFOs (New Funds offer) recently demonstrates the increased acceptance levels ofequity mutual funds in the country. As on November 30, 2006 the equity assets haveincreased to almost 36 per cent of the total Indian mutual fund assets bringing it closeto the global levels. The year 2006 is also important year for Indian mutual fundinvestors as many schemes paid excellent dividends. Almost 99 mutual funds schemespaid dividends to their investors against 75 schemes in year 2005.

From the graph we can see the growing importance of Mutual Funds.

MUTUAL FUNDS: RISING SHARE OF HOUSEHOLDFINANCIAL ASSETS:-

RECENT TRENDS IN MUTUAL FUND MARKETING:-

The mutual fund industry in India has evolved little over three decades but the real

impetus has come after the changes in the mutual fund regulations in early 1980s.Private and foreign mutual funds are operating in the Indian market and constitute asubstantial portion of the mutual fund industry.

Today the industry consists of Unit Trust of India, mutual funds sponsored by publicsector banks and insurance corporations, private and foreign mutual funds.

Investors are constantly being bombarded by questions concerning their risk profile.Such investors often invest their money in a guilt fund or money market fund. Bankslike Citibank, ANZ Grind lays, Deutsche bank, Hong Kong bank, Commerce bank,Banque nationale de Paris, Religare Securities Ltd. is not only aggressively marketingfunds but have also launched their own mutual funds.

The mutual fund product designers have identified a strategic gap in the productoffering in the capital market and now are fighting a losing battle with governmentsavings plans, bank deposits and provident funds. They are providing cheque facilityon money market mutual funds to make them more enticing and guilt funds for the riskaverse. Product innovations and new product combinations have started rolling in tothe Indian market. E.g. GIC mutual fund in the year 2000 had launched an open-endedscheme named as GIC D’MAT in which 71 demat scripts having a weight of nearlyseventy- percent in the Sensex and the Nifty are being marked for trading. Thespecialty of this new product is that investors will have an opportunity to exchangetheir holdings of scrip, which are available for dematerialization with units of thisscheme.

A large no. of companies are today launching a no. of mutual funds schemes in orderto attract small investors. And the reason for launching of these large numbers ofmutual fund products is the distributed pattern of investment behavior of Indian smallinvestor.

The purchase decision of a mutual fund is largely dependant upon investor’s level ofsavings, investment pattern and the risk profile. Many managers are now takinginterest in designing mutual fund products with multi feature options for investors.Customers are often benefited from the improvements that are offered by new features,for example by enhanced quality products [Garvin (1984)]. These additions of featuresalso offer advantages to others in the value chain. For the mutual fund agents newfeatures provide new sales arguments in seller buyer interaction. New features do notonly infuse single products but also entire product categories periodically with newlease of life.

DISADVANTAGES OF MUTUAL FUNDS

The following are important disadvantages of investing through mutual funds:

NO CONTROL OVER COSTS :-

Since investors do not directly monitor the funds operations they cannot control thecosts effectively. Regulations therefore usually limit the expenses of mutual funds.

NO TAILOR MADE PORTFOLIOS :-

Mutual fund portfolios are created and marked by AMCs, into which investor invest.They cannot create tailor made portfolios.

MANAGING A PORTFOLIO OF FUNDS :-

As the number of mutual funds increases in order to tailor a portfolio for him, aninvestor may be holding a portfolio of funds with the cost of monitoring them andusing them, being incurred by him.

RISK FACTORS OF INVESTMENTS IN MUTUAL FUNDS:-

Mutual funds like securities investments are subject to market and other risks and therecan be no assurance that the objectives of any of the schemes of the Fund will beachieved.

The NAV of units issued under the Schemes can go up or down depending onthe factors and forces affecting capital markets and may also be affected bychanges in the general level of interest rates.

The past performance of the mutual funds managed by the Sponsors and theiraffiliates/ associates is not necessarily indicative of the future performance ofthe schemes.

The Sponsors are not responsible or liable for any loss resulting from theoperation of the schemes beyond the initial contribution of an amount of Rs.1lakh made by the Sponsors towards setting up the Fund or such other accretionsand additions that may be made to the initial corpus set up by the Sponsors.

The liquidity of the Scheme's investments may be restricted by trading volumessettlement periods and transfer procedures. In the event of an inordinately largenumber of redemption requests or of a restructuring of any of the Schemes'portfolios, the time taken by the Fund for redemption of units may becomesignificant. Investors are also requested to peruse the Risk Factors and SpecialConsiderations. Right to Limit Redemptions in the Offer Documents of the

respective schemes of the Fund.

The Risk-Return Trade-off:-

The most important relationship to understand is the risk-return trade-off. Higher therisk greater the returns/loss and lower the risk lesser the returns/loss.

Hence it is up to you, the investor to decide how much risk you are willing to take. Inorder to do this you must first be aware of the different types of risks involved withyour investment decision.

Market Risk:-

Sometimes prices and yields of all securities rise and fall. Broad outside influencesaffecting the market in general lead to this. This is true, may it be big corporations orsmaller mid-sized companies. This is known as Market Risk. A Systematic InvestmentPlan (“SIP”) that works on the concept of Rupee Cost Averaging (“RCA”) might helpmitigate this risk.

Credit Risk:-

The debt servicing ability (may it be interest payments or repayment of principal) of acompany through its cash flows determines the Credit Risk faced by you. This credit

risk is measured by independent rating agencies like CRISIL who rate companies andtheir paper. A ‘AAA’ rating is considered the safest whereas a ‘D’ rating is consideredpoor credit quality. A well-diversified portfolio might help mitigate this risk.

Inflation Risk:-

Inflation is the loss of purchasing power over time. A lot of times people makeconservative investment decisions to protect their capital but end up with a sum ofmoney that can buy less than what the principal could at the time of the investment.This happens when inflation grows faster than the return on your investment. A well-diversified portfolio with some investment in equities might help mitigate this risk.

Interest Rate Risk:-

In a free market economy interest rates are difficult if not impossible to predict.Changes in interest rates affect the prices of bonds as well as equities. If interest ratesrise the prices of bonds fall and vice versa. Equity might be negatively affected as wellin a rising interest rate environment. A well-diversified portfolio might help mitigatethis risk.

Political/Government Policy Risk:-

Changes in government policy and political decision can change the investmentenvironment. They can create a favorable environment for investment or vice versa.

Liquidity Risk:-

Liquidity risk arises when it becomes difficult to sell the securities that one haspurchased. Liquidity Risk can be partly mitigated by diversification, staggering ofmaturities as well as internal risk controls that lean towards purchase of liquidsecurities.

You have been reading about diversification above, but what is it?

TYPES OF MUTUAL FUND SCHEMES:-

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financialposition, risk tolerance and return expectations etc. The table below gives an overviewinto the existing types of schemes in the Industry.

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 the net asset value of the scheme divided by the number of unitsoutstanding on the Valuation Date.

Sale Price

Is the price you pay when you invest in a scheme. Also called Offer Price. It mayinclude a sales load.

Repurchase Price :-

Is the price at which a close-ended scheme repurchases its units and it may include aback-end load. This is also called Bid Price.

Redemption Price :-

Is the price at which open-ended schemes repurchase their units and close-endedschemes redeem their units on maturity? Such prices are NAV related.

Sales Load :-

Is a charge collected by a scheme when it sells the units? Also called, ‘Front-end’ load.Schemes that do not charge a load are called ‘No Load’ schemes.

Repurchase or ‘Back-end’ Load:-

Is a charge collected by a scheme when it buys back the units from the unit holders.

CRISIL’s composite performance ranking (CPR) measures the performance for each ofthe open ended schemes of mutual fund. There are four parameters considered tomeasure the performance of a mutual fund such as Risk adjusted returns of theschemes, NAV, Diversification of portfolio, Liquidity and Asset size. Today, mutualfunds collectively manage almost as much as or more money as compared to 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 butimproving

Liquidity At a cost Better

Quality of assets Not transparent Transparent

Interest calculation Minimum balance between 10th. & 30th. Ofevery month

Everyday

Guarantee Maximum Rs.1 lakh on deposits None

FACTORS AFFECTING THE NAV OF A FUND:-

Following are the major factor that affects the NAV of a fund:

Sale and purchase of securities.

Sale and repurchase of units.

Valuation of assets.

Accrual of income and expenses.

The NAV of a fund is primarily affected by the market value of the investmentportfolio. The number of units outstanding, the accrual of expenses and income, areother factors that impact the NAV of a fund.

HOW DOES A MUTUAL FUND WORK ?A mutual fund is managed by an Asset Management Company (AMC). The AMCcreates a mutual fund, and invites the public to subscribe in the mutual fund with their

investment. Units of the funds are allotted on Net Asset Value (NAV) of the fund at thepoint of time. Unlike other investments, the mutual fund itself is not traded nor does itoffer guaranteed returns like a deposit. The mutual fund's Net Asset Value (NAV)determines the value of the investment. Investors redeem their investments in themutual fund on the basis of the NAV from the mutual fund itself (this is repurchase ofunits by AMC).

Some other related terminologies:-

Custodians:-The bank or trust company that maintains a mutual fund’s assets, including itsportfolio of securities or some record of them. Provides safe keeping of securitiesbut has no role in portfolio management.

Distributors and agents:- Sell units on behalf of funds and are generally appointed by the AMC.

Corpus:-

The total amount of money invested in a scheme by all the investors.

Entry/Exit load:-

Entry load is the load on purchase or switch-out of units

Exit load is load on redemptions Dividend switch out of units.

Net Asset Value:-

Net Asset Value (NAV) is the actual value of one unit of a given scheme on anygiven business day. The NAV reflects the liquidation value of the fund'sinvestments on that particular day after accounting for all expenses. It is calculatedby deducting all liabilities (except unit capital) of the fund from the realizablevalue of all assets and dividing it by number of units outstanding.

Systematic Investment Plan (SIP):-

A Systematic Investment Plan (SIP) is a simple method of investing, used acrossthe world as a means to accumulate wealth. It works the same way as a recurringdeposit account. SIP involves investing a fixed sum of money in a specificinvestment scheme, on a regular basis, for a pre-determined number of periods.The various options available are weekly, fortnightly, monthly, quarterly and aslow as Rs.250.

SIP is a disciplined approach to investing, and:-

» Helps investor to invest disposable funds each month.» Gives investor the benefits of rupee-cost averaging» Relieves investor of trying to time the market

Legal and regulatory framework

Regulators in India

SEBI – the Capital Markets Regulator:- It requires all mutual funds to be registered with them Issues guidelines for all mutual fund operations including where they can

invest, what investment limits and restrictions are to be implied with. Acts in the interest of the investor.

RBI – Money Markets Regulator:-

Supervisor of bank owned funds Banks come under the joint regulatory jurisdiction of RBI and SEBI.

Supervisor of money market mutual funds:- Money market mutual funds were regulated by RBI guidelines dated

23/11/1995 specially issued for the purpose. Recently it has been decided that Money Market Mutual Funds will be

regulated by SEBI through the same guidelines issued for other mutual funds.

Ministry of Finance:-It is charged with implementing the government policies, supervises both the RBIand SEBI.

Stock Exchange:-Stock exchanges are self regulatory organizations supervised by SEBIClose ended schemes are listed on one or more stock exchanges through a listingagreement between the fund and the stock exchange.

Association of Mutual Funds in India (1995):-

Incorporated in1995 in India with the objectives of To promote interest of mutual funds and unit holders To set ethical, commercial and professional standards in the industry. To increase public awareness of mutual funds in the country.

The Offer Document:-

The legal document containing the details of a new scheme that the AMC or Sponsor prepares for and circulates to the prospective investor is called the Prospectus or Offer Document.It serves the purpose of inviting investors and giving them the information about the new issue.It is the most important source of information from the prospective of the prospective investor, is the operating document and describes the product.It contains the following details: Details of the sponsor and the AMC. Description of the scheme and the investment objective/strategy. Terms of issue Historical statistics. Investors’ rights and services.

History of Mutual Fund Industry:-The mutual fund industry in India started in 1963 with the formation of Unit Trust ofIndia, at the initiative of the Government of India and Reserve Bank the. The history ofmutual funds in India can be broadly divided into four distinct phases.

First Phase – 1964-87:- Unit Trust of India (UTI) was established on 1963 by an Act of Parliament, set

up by the Reserve Bank of India. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management

Second Phase – 1987-1993 (Entry of Public Sector Funds):- 1987,entry of non- UTI, public sector mutual funds set up by public sector

banks and Life Insurance Corporation of India (LIC) and General InsuranceCorporation of India (GIC).

LIC established its mutual fund in June 1989 while GIC had set up its mutualfund in December 1990.At the end of 1993, the mutual fund industry had assetsunder management of Rs.47, 004 crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds):- 1993 - Entry of private sector funds. Also, first Mutual Fund Regulations came into being, under which all mutual

funds, except UTI were to be registered and governed. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. as at the end of 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 of assets 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 Act 1963 UTI

was bifurcated into two separate entities. One is the Specified Undertaking ofthe Unit Trust of India with assets under management of Rs.29,835 crores as atthe end of January 2003

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB andLIC. It is registered with SEBI and functions under the Mutual FundRegulations.

As at the end of September, 2004, there were 29 funds, which manage assets ofRs.153108 crores under 421 schemes.

On a Growth Trajectory:-

During the current year, while initially there had been a decline in the AUMuntil April 2004, the situation reversed as, riding on a positive marketsentiment, a Slew of new offerings from mutual fund houses swelled the AUM,which stands at Rs. 2,31,862 cr as on March 2006. This is remarkable increasefor the industry which according to AMFI was Rs. 1, 52,280 cr as on January2007. Which in 1993 had less than 10 schemes, today has 521 schemes offeredby mutual funds. The schemes are more diverse and offer a wide array ofchoices to investors.

DATA ANALYSIS AND INTERPRETATION Following graph shows the factors influencing the decision of a

person to invest into mutual funds.

INTERPRETATION:-

Above factors have been evaluated on a scale of 10. Number ‘1’ means least aware andnumber ‘10’ means most aware.

It is observed from the survey that people generally come to know about theinvestment options through news papers and magazines. Mass media options liketelevision and radio options are also coming up but still a lot of promotional campaignis to be done to make this channel an effective one.

These options are mainly present in front of any financial institution like bank etc forinstant appeal.

Following graph shows the relationship between annual income and the type of investment made

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

MutualFunds

Shares FixedDeposits

Insurance

Under -Rs100000 10

Rs.100000 - 200000 26

Rs.200001-500000 46

Rs.500001-1000000 12

OverRs.1000000 6

Income group below 1 lakh :-This category invest major amount into bank’s FD or post office schemes. They do not go for equity related investments because of fund shortage. Although insurance is given some weight age but it is generally life insurance without investment options. Now it is observed that this segment has also started investing into mutual funds although it is a small investment.

Income group between 1 - 2 lakh:- This category invest major amount into bank’s FD or bonds. They also don’t go for equity related investments because of fund shortage. Although insurance, shares and mutual funds are given some weight age but it is generally life insurance without investment options.

Income group between 2 – 5 lakhs: This category’s major area of investment is in mutual funds and insurance. Since they have enough disposable income so considerable amount is invested into equity related funds. An investment in bank FDs is made automatically since the salary comes in the account otherwise no specific direct investment is made into such options. By increasing the awareness about MF they can be potential customers.

Income group between 5 – 10 lakhs: -They have enough disposable income so major investment is made into both equity and mutual funds. Insurance is also given due weight age but with the equity related

options for better returns. They are updated with the features so thorough knowledge isneeded before advising them any fund.

Income group above 10 lakh:- They too have enough disposable income so major investment is made into both equity and mutual funds. This category also demands for portfolio facility. They are important customers so specific relationship executives are assigned to them. They are continuously updated about new fund schemes.

0

5

10

15

20

25

Under30

31-40 41-50 51-60 Over 60

Tax Benefit 26

ProfessionalManagement 9

Less Time Consuming16

Diversification And ThusLess Risky 7

All The Above 42

0

5

10

15

20

25

Under30

31-40 41-50 51-60 Over 60

Tax Benefit 26

ProfessionalManagement 9

Less Time Consuming16

Diversification And ThusLess Risky 7

All The Above 42

Following graph describes the relationship between the age and

the options

Under age group 30:-

In this age group it was observed that customers give importance to all factors butmuch importance is given to Professional Management. It is also perceived that themoney invested is diversified so it less risky

Under age group 31-40 years:-

This age group people lay stress on both Professional Management and time savingoption.


People under this category people start planning for retirement so they look for timesaving option to be a better one. Moreover they also start seeking for Tax benefit.


The inclination of people is more on Tax Benefit as risk taking capacity is low andmost of the knowledge acquired by them is through newspapers and journals etc. timesaving option is also considered.


As this category people don’t have their regular income so they go for Tax benefit only.However they want returns early so time saving is also taken into consideration.Moreover people are averse to take risk so they feel like investing in GovernmentSecurities also.

Following graph describes the relationship between the age and the kind of investments people make:

012

34567

89

10

Under30

31-40 41-50 51-60 Over 60

Age

Investments

Bank Deposits andBonds 15

Mutual Funds 15

Shares 13

Combination ofBanks,FDs,Bonds 25

Combination of MutualFunds and Shares 32

Combination of MutualFunds and Shares 32

Age group under 30: -

Largely investment is made into mutual funds and shares. This age group has largedisposable income and is therefore ready to take the risk. It is also observed that stillbank fixed deposits are made by this age group, because they have salary account soFD’s are created. Company bonds are also a preferred option.

Age group 31 – 40 years :-

This age group lay stress on both the returns and tax planning. For tax purpose it isobserved that “unit linked investment plans are preferred as they also provide theinsurance cover. Their investment into mutual funds and shares is less in comparison tprevious age group.

Age group 41 – 50 years: - In this age group inclination towards Bank FDs, Bonds and mutual fund has increased. The reason observed is in this age group, peoplestart planning for their retirement.

Age group 51 - 60 years: - In this age group inclination towards Bank

FDs, Bonds has increased and Mutual Funds has decreased. The reasonobserved is in this age group, people are almost near to retirement and plan tospend their money on travel and leisure

Age group under 60 years: - In this age group people start investing in

Banks FDs , as it is believed to be the safer options with fix returns. It was alsofound that almost none were interested for investment in shares because ofperception of risky market trend

Following graph shows the preferences of the customer whileselecting for investment in any Mutual Fund company:-

0

10

20

30

40

50

60UTI Mutual Fund

SBI

Standard Charted MutualFund

Franklin Templeton

HSBC Mutual Fund

Fidelity Equity Fund

Prudentil ICICI MutualFund

ABN Amro

RelianceIt is observed from the survey that people generally give much preference to invest in Religare Securities Ltd. Mutual Fund. It is observed that Religare Securities Ltd. has outperformed every other fund with annual return of 100.42% for the past 1 year and UTI is least performing fund with return of 50.12% for past 3 years. Religare Securities Ltd. Mutual Fund invest in 22 sectors and UTI invest in 14 sectors still it is giving higher returns which attracts the customers to invest more in it.Franklin Templeton is considered to be the second best company for investment

purpose. Strong FII flows along with inflows from domestic investors helped the Indian equity markets close the quarter and the financial year on a strong note. It is drastically increasing its portfolio. The main additions to the portfolio have been TCS, Hindustan Lever, Jet Airways, Dr.Reddy’s, Union Bank of India. The exposure to the company in sectors like metals, auto and cement has gone up. The company is continuously earning profit and giving good returns. Standard Charted Mutual Fund and HSBC Mutual Fund are also giving good returns so people are highly satisfied with both of the company’s.

Following graph shows that how people of different age group use their money from investment.

0

2

4

6

8

10

12

14

Under30

31-40 41-50 51-60 Over 60

Travel or Leisure 16

Child (education ormarriage) 30

Further investments 34

Retirement Benefit 20


This age group of people generally does have large disposable income and they arewilling to take higher risk as such they keep themselves updated with the prevailingmarket trends so they use their money for further investments. It was also found thatthey spend in Travel or Leisure.

Under age group 31 - 40:-

This age group of people gives least importance to travel and leisure but they showtheir interest in investments.

Under age group 41 - 50 :-

This age group of people not only is interested in further investments and travel butthey start investing for their child education or marriage. They are found to have quiteproficient knowledge of finance and can take risk so they utilize their money forfurther investment.

Under age group 51 - 60:-

People of this age group start planning for retirement so they are not very muchinterested in further investments in mutual funds. But they prefer to go for investing inFDs and life insurance.

Over 60:-

While having interaction with the people of this age group most of them respondedthat they would like to spend their earnings on travel and leisure .They don’t go forfurther investments0 as they already relieve from the burdens of life.

CONCLUSION

CONCLUSION:-

Through the study I finally reached to the conclusion that Investment is the bestutilization of the earnings and leads to the improvement in the living standard of thepeople.

It was found that people of different age groups have different perception s regardinginvestments in Mutual Fund schemes.

High risk takers are generally interested in investing in Mutual Fund and shares. Theybasically go for Equity Shares. Whereas those who can take calculated risk aregenerally interested in investing in Balanced Schemes. These schemes invest theirfunds in equity shares and debt in apportion of 60:40 ratio. And those who are notwilling to take risk at all go for a Debt Scheme or Money Market Scheme.

It is observed that Mutual Fund gives better returns in comparison to banks. MutualFund provides better liquidity and moderate risk. Mutual Funds offer their investors anumber of facilities such as inter-fund transfers, online checking of holding status, etcMutual Fund offers investors a valuable tool for Asset ALLOCATION. Competitionhas made mutual funds improve their services towards the investors. Most mutualfunds have now speeded up their redemptions giving the investors the satisfaction ofreceiving his money on time.

RECOMMENDATION AND SUGGETIONS

RECOMMENDATION AND SUGGETIONS:-

1) Investors should always keep a photocopy of the application form. which canbe filed to know the manner in which application was made single, jointownership and order of ownership. Investors will also be able to see how theyhave signed the forms , many investors change their signatures over time; somehave a different signatures for banking and investment transactions; someinvestors use both Hindi and English signatures). Investors will also know thechoice they have exercised (dividend and redemption options).

2) Investors should preserve the counterfoil acknowledgement issued by thecollecting agency. This acknowledgement usually also has the applicationnumber. If account statement or certificate is not received, theacknowledgement is the proof of purchase, with which investors can approachthe registrar and transfer agent.

3) It is preferable to have joint ownership, so that investments will pass on to thejoint owner in the event of death of the first holder.

4) It is important to fill up nomination details in the application. This will enablelegal heirs to claim the holdings without procedural delays. Nominations thatdo not indicate the guardian of a minor are not valid. Guardian indicated willhave to be a person other than the holders of the investment.

5) Cheques should be crossed and application number and name should be writtenon the back of the cheque. Most mutual funds do not accept outstation cheques,post dated cheques (with the exception of specific investment plans) or postalorders.

6) Existing investors can quote their unique account or folio numbers so that theirholdings will be consolidated. This is helpful in tax matters and in keepinginvestment information in a consolidated manner.

LIMITATION OF THE STUDY

LIMITATION OF THE STUDY:-

The various limitations of the study are:-

Conservative attitude of the customer:

The Indian investor is beginning to reconsider mutual funds as a possible investmentavenue. The current perception of the investor is that in general, mutual funds are

o Risky investments

o Have high costs

Collection of data from other AMCs

Coalition of huge amounts of data at one place. In this data would be collectedfrom various sources. And thus bringing together all data might lead toduplication and redundancy.

Collection of that data to which we do not have access. Data that is notpublished by the bank in any of the periodicals is difficult to obtain.

While selling the products to the customers, many asked for commission theywill receive. But since I am not an agent and is working directly with the bank,I was unable to provide them with the same. This led to the cancellation of thedeal.

APPENDIXQUESTIONNAIRE

Dear Sir/ Madam,

The title of my project is “A Study of Mutual Funds in Religare Securities Ltd.” I request you to kindly fill this survey, as it would help me in successful completion of my project. I assure that the information given by you will be confidential and will be utilized for research purposes only.

1. Your Age is

Under 30

31-40

41-50

51-60

Over 60

2. Your take home income is:

Under Rs.100000

Between Rs.100000- 200000

Between Rs.200001- 500000

Between Rs.500001- 1000000

Over Rs.1000000

3. The no. Of years you have until retirement:

3 years or less

3 to 5 years

5 to 10 years

10 to 15 years

4. What is your expectation of how your future earnings would perform?

It would far outpace inflation

It would be somewhat ahead of inflation

It would keep pace with inflation

It would not be able to keep pace with inflation

5. You are financially responsible for?

Only yourself

1 person beside yourself

2 to 3 persons beside yourself

4 to 5 persons beside yourself

More than 5 persons beside yourself

6. Who influences your decision to invest in MF?

Friends/Family/Relatives

Newspaper/Magazines

TV/Radio advertising

Banners/Bill Board/Hoarding.

7. Have you ever invested in Mutual Funds, Shares/ Stocks etc.?

Yes

No

RISK ATTITUDE:-

8. How would you describe yourself as a risk-taker?

Careless

Willing to take risk for higher returns

Can take calculated risk

Low risk taking capability

Extremely averse to risk

9. Your feelings about the risks can be summed up as follows:

I want the highest long-term growth and I am comfortable with largevariations in the NAV in the short term

I can accept minor variations in the NAV in the short term if it means Ican potentially earn more over the long run.

I had rather accept lower long-term return than worry about losing mycapital in the short-term

10. If you had R.50000 to invest, which of the following choices would you

make?

put the money in Bank Fixed Deposits and Bonds

Invest in Mutual Funds

Invest in Shares

Invest in a combination of the above with a higher proportion of BankFDs and Bonds

Invest in a combination of the above with a higher portion of Mutual Fundsand Shares.

11. The stock market has dropped 25% and the Mutual Fund you invested

also dropped 25%, but the market expects the Mutual Fund to go up again.What do you do?

Sell Mutual Fund

Buy more of it

Keep it as it is, as you expect it to rise later

Keep it you are afraid of booking a loss

MUTUAL FUNDS:-

12. Your latest investment involves:

Mutual Funds Only

Shares Only

Bank Fixed Deposits Only

Combination Of All the above

13. Amount invested in:

Mutual Funds (Rs.) Shares (Rs.) Bank Fixed Deposits (Rs.)

.

14. If you have invested in the Mutual Funds then which of the following

(Pls tick all those in which you have invested)

UTI Mutual Fund Fidelity Equity Fund

SBI Mutual Fund Religare Securities Ltd. Mutual Fund

Standard Chartered Mutual Fund Birla Sun Life Mutual Fund

DSP Merrill Lynch Mutual Fund Principal Mutual Fund- PNB

HSBC Mutual Fund Franklin Templeton

15. While investing in a Mutual Fund, what is your priority? (Please rank

the following in the order of preference)

Current NAV _____________

Company Image _____________

Past Returns _____________

Fund Manager _____________

Minimum amount in the Fund _____________

Risk Profile _____________

Liquidity _____________

Lock In Period _____________

Entry Load/ Exit Load _____________

Dividend Policy _____________

Asset Allocation _____________

16. Why do you invest in a Mutual Fund?

Tax Benefit

Professional Management

Less Time Consuming

Diversification and thus less risk

All the above

TIME HORIZON:-

17. In how many years do you expect to start using the latest investment

done by you in last 1 year?

More than 20 years

10 to 20 years

5 to 9 years

Less than 5 years

INVESTMENT OBJECTIVE:-

18. Which of the following best describes your plans for this money during

the next 10 years?

I do not plan to withdraw any of my account value/

I plan to withdraw less than 15% of my account, at one time

I plan to withdraw more than 15% of my account, at one time

Not sure

19. How do you expect to use the money from this investment in the

future?

For travel or leisure

For my child (education or marriage)

For further investments

For availing retirement benefit

BIBLIOGRAPHY Books

1. W.B. Werther and Keith Davis, Human Resources and Personnel Management, McGraw Hill, New York, 1996

2. P.F.Drucker, the Practice of Management, Allied, New Delhi 1970.3. M. Armstrong, a Handbook of Personnel Management, Koran page,

London,19914. J.Storey, Developments in the management of Human Resources, Blackwell,

Oxford, 1992.5. Dales S.Beach, Personnel, Macmillan, New York,1985.

Newspaper

1 The Economic Times, Business Standard, Business Line 2 Securities Market (Basic) Module:--NCFM 3 Training Kit Provided by the Religare. 4 Indian financial systems by M.Y KHAN 5 NSDL Depository operations module:--NCFM

Websites

1 www.indiainfoline.com2 www.economics times.com 3 http://www.investopedia.com/articles/4 Www. nseindia.com5 www.bseindia.com6 www.moneycontrol.com7 Www. Religare .in8 www.livemint.com

http://www.investopedia.com/articles/

Mutual Fund

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