CHAPTER 1

1

INTRODUCTION

Mutual Fund Industry which is a relatively of a post-economic reforms

phenomena in India, has been expanding during this Period in branch and bound Many

commercial banks, insurance companies entered into mutual fund industry apart from foreign

players. In the early years of evolution of mutual fund industry in the Indian financial market

it was a monopoly and continued to be the same till very recent time. Then many players

both foreign and Indian entered in the Mutual Fund Industry.

This increased the competition between the various firms working in the mutual

fund Industry. The need for developing various new schemes arises so as to attract investors

towards the firm and equally encouraging them to invest. This growth in the Mutual Fund

Industry and scope of increasing markets has further increased the competition between the

firms in the industry.

The competitions had given raise to demand for specialized products and skills of

various individuals who can contribute towards the containment and growth of individual

firms in the mutual firm industry. This gave rise to various related organizations and

individuals working as specialized teams in the various areas of mutual funds.

One such organization is INDIA INFO LINE PVT LTD it comes into pictures

where the investors apply for the units in a Mutual Fund schemes and verify the validity and

eligibility of the investor and allots the unit. The mutual fund companies now receive

millions of applications if a new scheme is launched.

This is due to the wide spread awareness created among the urban and rural

Population of India. It therefore becomes a Herculean task to manage the flooding

applications however it should be noted that this is a Onetime activity similar to that of a

short run project It is needless to State that a given mutual fund firm will not be possessing.

The technological, human and knowledge resources to take up such a gigantic task, it

is in fact not needed by a mutual fund firm to create such a vast organizational structure when

2

it is seen from the point of view scale of economies. Further to this problem, the mutual fund

industry does not know where it stands in the current volatile and turbulent environment.

This may be the reason they prefer to hire the services of professionals firm with specialized

knowledge and Expertise.

These developments have led to an outcome that today, launching of mutual fund

scheme has become a well organized activity which is accomplished through the coordinated

endeavors of task groups.

The asset management companies have designed various schemes in accordance with

the requirements of the various sections on investors on basis of equity linked, debt

instruments linked, commodities linked and specific industry linked instruments. The

investor today is given a wide range of options to invest in various types of funds according

to his interests and capabilities.

Mutual funds enable even a small investor to investor to invest, as most of the mutual

funds just start from a minimum amount of investment of RS. 5000 hence even a small

investor can invest into a mutual fund and reap returns in the same proportions as the other

big time investors. This shows that mutual fund industry is one which aims at every section

of the society. To deal with this large population of investors and the competition, the asset

management company has been forced to develop and design new schemes and hire the

services of professionals.

Mutual fund industry involves various operations from the stage of identification of

the target group or defining a market segment, designing a scheme which comes up to the

expectations and aspirations of the target group or market segment, reaching the selected

market through launching the scheme which is thereby called NFO, till the stage of investing

the amount raised in accordance with the norms stipulated with offer document and

distributing the returns to the investor by way of dividend, after making adequate provision

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for taxation and other operating costs. All this process is well organized and performed in a

specific order. There are various related organizations which specialize in the activities at

various stages of the functioning of the mutual funds.

It is therefore felt expedient to examine the various intricacies involved in the new

fund offer (NFO). Specifically the various documents that are being processed, the

parameters evolve either customarily or by legal mandate to scrutinize the applications.

Various stages involved in the scrutiny, the rejection criteria, the creation of human

organization to monitor the activities, the communication channel and the structure of the

organized activities and the legal environment of NFO to some extent. Such a dissertation

would help to come out with a comprehensive report which may serve as a guide for the

prospective entrants into mutual fund investment and to the existing mutual fund investors to

some extent.

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CHAPTER 2

STATEMENT OF THE PROBLEM

The mutual fund industry does not know where it stands in the current volatile and turbulent

environment. This may be the reason they prefer to hire the services of professionals firm

with specialized knowledge and Expertise.

5

On the plus side, some mutual funds do not have transaction fee making it a perfect

investment vehicle for someone that contribute a small amount on a regular basis — i.e.,

automatic investment. On the down side, mutual funds charges annual expense ratio on the

entire investment.

Mutual funds manager cannot hoard cash. When investors buy shares of a mutual fund, the

fund manager must turn around and buy shares of stocks that fit within certain guideline

specified by the prospectus.

Fund manager is forced to sell stocks when investors sell shares of mutual fund and the fund

doesn’t have enough cash reserve to meet the demand.

Mutual funds have a strange characteristic when it comes to taxes. You could owe tax even if

the value of your investment is going down! When a fund sells a stock for a profit — whether

it’s by design or forced — it passes the tax bill on to you in the form of annual capital gains

distribution.

6

CHAPTER 3

Objectives of the study:

* To study the technical, procedural, legal dimensions of the NFO

* To examine briefly the organizational structure, communication network,

resource requirements to launch a new fund

7

* To study a sample of application drawn from Reliance Mutual Fund.

Scope Of The Study

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.

A Mutual Fund is an ideal investment vehicle where a number of investors come

together to pool their money with common investment goal.

Each Mutual Fund with different type of schemes is managed by respective Asset

Management Company (AMC).

An investor can invest his money in one or more schemes of Mutual Fund according

to his choice and becomes the unit holder of the scheme.

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CHAPTER 4

REVIEW OF LITERATURE

New fund offer (NFO):

9

When a mutual fund asset management company announces Public issue of units of a new

fund/scheme it is called a New Fund Offer (NFO).

When a mutual fund company plans for a new fund offer it first informs to the registrar or the

back office functions provider like INDIA INFO LINE through email. This is called as

“NFO Launching Information Mail” send by the fund manager of the asset management

company to the NFO coordinator of the INDIA INFOLINE. In this Mail the fund manager

will ask the NFO coordinator to get ready for the new fund with the required man power and

software.

Later they send the sample application form, the key information memorandum (KIM) and

offer document to INDIA INFO LINE. This offer document sets forth concisely, necessary

information about the scheme for a prospective investor to make an informed investment

decision on the scheme described. The offer document contains the salient features of the

scheme like NFO opening date, NFO closing date, Scheme name, Scheme class, reopening

date, plans available banks involved, number of bank branches involved, minimum amount –

fresh purchase, maximum amount – fresh purchase, expected number of applications, entry

load and exit load. The unit manager or the NFO coordinator will arrange a meeting where

the AMC team, NFO expert’s team, Data entry team, Reconciliation team and the dispatch

team will discuss and fix the target dates by which the work has to be completed accordingly.

What is a mutual fund?

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Mutual fund is a mechanism for pooling the resources by issuing to the investors and

investing funds in securities in accordance with objectives as disclosed in offer document.

Investments in securities are spread across a wide cross-section of industries and sectors and

thus the risk is reduced, Diversification reduces the risk because all stocks may not move in

the same direction in the same proportion at the same time. Mutual fund issues units to the

investors in accordance with quantum of money invested by them. Investors of mutual funds

are known as unit holders.

The profits or losses are shared by the investors in proportion to their investment. The mutual

funds normally come out with a number of schemes with different investment objectives

which are launched from time to time. A mutual fund is required to be registered with

Securities and Exchange Board of India (SEBI) which regulates securities markets before it

can collect funds from the public.

Mutual fund is a collection of stocks and / bonds. A mutual fund as a company brings

together a group of people and invests their money in stocks, bonds and other securities. Each

investor owns shares, which represent a portion of the holdings of the fund.

With increased uncertainties or fluctuations in the primary market and decreasing bank

interest rates, mutual funds are gaining popularity day by day Now-a- day’s mutual funds are

performing well will high returns to the investors. There are various types of schemes and

plans available to all type of investors.

Let us assume that you inertia million rupees over night and want to invest the same

to get better returns you can consider the following investment avenues that are popular in

Indian context:

Company shares

Fixed deposits in banks

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Government bonds

Fixed deposits in NBFC

Chit fund

Real estate

Other local money lending options

Pros and cons of the investments:

SNO. InvestmentAvenue

Risk Return Effort required to track/maintain investment

1. Company shares and stocks

High High High

2. Fixed deposits in banks

Low Low Low

3. Govt. bonds Medium Medium Medium 4. Fixed deposits in

NBFCHigh Medium Medium

5. Chit funds High Medium Medium 6. Real estate Medium Medium Medium 7. Other money lending

options Medium Medium Depends

How you can make money from a mutual fund?

If the fund sells the securities that have increased in price, the fund has a capital gain Most of

the funds also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the funds shares

increase in price. You can then sell your mutual fund units for profit. Funds will also usually

give you a choice either to receive a check for distributions or to reinvest the earnings and get

more shares.

Income it earned from dividends on stocks and interest on bonds. A fund pays out nearly all

income it receives over the year to fund owners in the form of a distribution.

Types of Funds:

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Mutual funds also come in various sizes and shapes. There are about dozen fund classes but

all of them are derivatives of three basic classes are as follows.

Growth

Income

Liquidity

Growth: Long term growth, since these funds invest in equities, they are also called as

equity funds. Their risk level is high so is the return.

Income: This type of fund provides regular income by investing in debt instruments like

bonds, debentures etc., Because of their nature of investment, they are also called debt

schemes. Their risk and return levels are medium.

Liquidity: These are primarily invested in money market instruments and thus most

volatile, safer and give lower returns. These funds are also known as cash or money market

funds.

In addition to the above type there are other derivative classes as listed below.

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This type of fund... Invest in this area

Balanced fund Is an investment blend of equity and dept

Instruments

Index fund Invests in the companies that participate in stock market

indices in the same weight age comprising of an index

Sector fund Invests in companies pertaining to specific

sectors health care, banking, FMCG, technology etc.

Ells / Tax funds Invests is Government bonds and generally long term in

nature. They provide tax benefits.

These are called mutual fund schemes. It is based on the investment objective. There is

another Classification based on the capitalization of funds. If the fund offers purchase or

selling on a Continuous basis it is called open ended mutual fund. On the contrary, if the fund

is open only for a particular period, it is called closed ended fund.

Differences: Open ended and Closed ended funds

SNO. Feature Open ended Closed ended1. Capitalization Unlimited Limited 2. Any time entry Yes No 3. Any time exit Yes No 4. Tax advantage Yes No 5. Available for a fixed period No

(with exemption of FMP schemes)

Yes

6. Listed on the exchange Generally No Yes

Open ended funds gained popularity because of their flexibility and variety of features they

offer. For this reason, majority of the mutual funds are ‘open’ in nature.

Arms of a mutual fund:

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Primarily mutual fund is formed as a trust by a group of sponsors. They are the owners of the

mutual funds and forms trust by a group of sponsors. They are the owners of the mutual funds

and forms trustees who in turn appoint AMC and manage the mutual fund.

SEBI regulations require that at least two at least two thirds of the directors of trustee

company or board of trustees must be independent i.e. they should not be associated with the

sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are

required to be registered with SEBI before they launch any scheme.

This entity… Does this…Sponsor Forms Mf as a trust. Registers with

SEBI.Trustees Holds funds invested in a form of units.

Ensure compliance with SEBI. Appoints AMC

Asset management company Floats MF Schemes, Manages funds and cash.

Registrar Holds investor data. Do services to investors

Distributors Market various schemes of MF

Transaction types (commercial & non-commercial):

Let’s compare various transactions of mutual funds with those of banks.

In a bank, you will… In a mutual fund…Open an account with initial deposit You subscribe in a scheme and buy unitsDeposit money Do additional purchasesWith draw money You redeem unitsOpt for a recurring deposit Start a systematic investment plan

Since mutual fund offers many more options to investors, it will have many more transaction types as well. Let us see some popular transactions in mutual funds

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SNO. Transaction Description 1. New purchase New investment. Buying

units in a scheme2. Additional purchase Buying additional units in

a scheme3. Redemption Selling units and getting

money back.4. Switch/shift Transferring investment

from one scheme to other.5. Dividend When AMC announces

dividend in a scheme.6. Systematic investment Investing fixed amounts

periodically like a recurring deposit.

7. Systematic with drawl Reverse of systematic investment Selling units periodically

Rest are relating to general maintenance only. So they are non-commercial transactions.

Net asset value:

As you must have noticed, we always talk about ’units’ in a mutual fund and not money

itself. A unit is basic measure of investment n a mutual fund.

Each scheme / plan will have a different market value is called the Net asset value or simply

NAV. Since market value of the underlying securities changes every day, NAV of a scheme

also varies on a day to day basis.

SEBI Guidelines on New Fund Offer:

1. Procedure for launching of schemes:

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NAV = Total assets – Total liabilities/Number of units

(1) No scheme shall be launched by the asset management company unless such scheme is

approved by the trustees and a copy of the offer document has been filed with the Board.

(2) Every mutual fund shall along with the offer document of each scheme pay filing fees as

specified in the Second Schedule.

2. Disclosures in the offer document:

(1) The offer document shall contain disclosures which are adequate in order to enable the

investors to make informed investment decision [including the disclosure on maximum

investments proposed to be made by the scheme in the listed securities of the group

companies of the sponsor].

(2) The Board may in the interest of investors require the asset management company to

carry out such modifications in the offer document as it deems fit.

(3) In case no modifications are suggested by the Board in the offer document within 21

[working] days from the date of filing, the asset management company may issue the offer

document.

(4) No one shall issue any form of application for units of a mutual fund unless the form is

accompanied by the memorandum containing such information as may be specified by the

Board.

3. Advertisement material:

(1) Advertisements in respect of every scheme shall be in conformity with the Advertisement

Code as specified in the Sixth Schedule and shall be submitted to the Board within 7 days

from the date of issue.

(2) The advertisement for each scheme shall disclose [investment objective for each scheme]

4. Misleading statements:

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The offer document and advertisement materials shall not be misleading or contain any

statement or opinion, which are incorrect or false.

5. Listing of close ended schemes:

Every close ended scheme shall be listed in a recognized stock exchange within six months

from the closure of the subscription Provided that listing of close ended scheme shall not be

mandatory.

(a) If the said scheme provides for periodic repurchase facility to all the unit holders with

restriction, if any, on the extent of such repurchase; or

(b) if the said scheme provides for monthly income or caters to special classes of persons like

senior citizens, women, children, widows or physically handicapped or any special class of

persons providing for repurchase of units at regular intervals; or

(c) If the details of such repurchase facility are clearly disclosed in the offer document; or

(d) If the said scheme opens for repurchase within a period of six months from the closure of

subscription.

6. Repurchase of close ended scheme:

(1) The asset management company may at its option repurchase or reissue the repurchased

units of a close ended scheme.

(2) The units of close ended schemes referred to in the proviso to regulation may be open for

sale or redemption at fixed pre-determined intervals if the maximum and minimum amount of

sale or redemption of the units and the periodicity of such sale or redemption has been

disclosed in the offer document.

(3) The units of close ended scheme may be converted into open ended scheme.

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(a) If the offer document of such scheme discloses the option and the period of such

conversion; or

(b) The unit holders are provided with an option to redeem their units in full.

(4) A close ended scheme shall be fully redeemed at the end of the maturity period [Provided

that a close ended scheme may be allowed to be rolled over if the purpose, period and other

terms of the roll over and all other material details of the scheme including the likely

composition of assets immediately before the roll over, the net assets and net asset value of

the scheme, are disclosed to the unit holders and a copy of the same has been filed with the

Board.

Provided further, that such roll over will be permitted only in case of those unit holders who

express their consent in writing and the unit holders who do not opt for the roll over or have

not given written consent shall be allowed to redeem their holdings in full at net asset value

based price.

7. Offering Period:

No scheme of a mutual fund other than the [initial] offering period of any equity linked

savings schemes shall be open for subscription for more than 45 days

8. Allotment of Units and refund of money:

(1) The Asset management company shall specify in the offer document

(a) The minimum subscription amount it seeks to raise under the scheme and

(b) In case of over subscription the extent of subscription it may retain Provided that where

the asset management company retains the over subscription referred to in clause (b), all the

applicants applying up to five thousand units shall be given full allotment subject to the

oversubscription mentioned in clause (b).

(2) The mutual fund and asset Management Company shall be liable to refund the application

money to the applicants-

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(i) If the mutual fund fails to receive the minimum subscription amount referred to in clause

(a) of sub-regulation (1);

(ii) If the moneys received from the applicants for units are in excess of subscription as

referred to in clause (b) of sub-regulation (1).

(3) Any amount refundable under sub-regulation (2) shall be refunded within a period of six

Weeks from the date of closure of subscription list, by Registered A.D and by cheque or

Demand Draft marked "A/C Payee" to the applicants.

(4) In the event of failure to refund the amounts within the period specified in sub-regulation

(3), the asset management company shall be liable to pay interest to the applicants at a rate of

fifteen percent per annum on the expiry of six weeks from the date of closure of the

subscription list.

9. Unit certificates or Statement of Accounts:

The asset management company shall issue to the applicant whose application has been

accepted, unit certificates or a statement of accounts specifying the number of units allotted

to the applicant as soon as possible but not later than six weeks from the date of closure of the

[initial subscription list and or from the date of receipt of the request from the unit holders in

any open ended scheme].Provided that if an applicant so desires, the asset management

company shall issue the unit certificates to the applicant within six weeks of the receipt of

request for the certificate.

10. Transfer of units:

(1) A unit certificate unless otherwise restricted or prohibited under the scheme, shall be

freely transferable by act of parties or by operation of law.

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(2) The asset management company shall, on production of instrument of transfer together

with relevant unit certificates, register the transfer and return the unit certificate to the

transferee within thirty days from the date of such production. Provided that if the units are

with the depository such units will be transferable in accordance with the provisions of the

Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996.

11. Dispatch of warrants and proceeds:

Every mutual fund and asset management company shall,

(a) Dispatch to the unit holders the dividend warrants within [30 days] of the declaration of

the dividend.

(b) Dispatch the redemption or repurchase proceeds within 10 working days from the date of

redemption or repurchase.

(c) In the event of failure to dispatch the redemption or repurchase proceeds within the period

specified in sub-clause (b), the asset management company shall be liable to pay interest to

the unit holders at such rate as may be specified by Board for the period of such delay.

(d) Aside payment of such interest to the unit holders under sub-clause (c) the asset

management company may be liable for penalty for failure to dispatch the redemption or

repurchase proceeds within the stipulated time.

Wherever an application for a total value of RS. 50,000 or more, the applicant or in the case

of application in joint names, each of the applicants, should mention his/her permanent

account number (PAN) allotted under the Income Tax Act, 1961 or where the same has not

been allotted, the GIR number and the income-tax Circle/Ward/District should be mentioned.

In case where neither the PAN nor the GIR number has been allotted, the fact of non-

allotment should be mentioned in the application form. Any application form without these

details should not be accepted by the mutual fund. The above clarification is being issued in

accordance with Regulation 77 of the SEBI (Mutual Funds) Regulations, 1996.

21

12. Instructions for filing scheme offer document with SEBI:

As advised in SEBI circular MFD/CIR/06/275/2001 dated July 9, 2001, while filing offer

document for launching a new scheme/revising and filing existing offer document with SEBI,

the mutual funds should highlight and clearly mention the page number of the offer document

on which each of the following observation has been incorporated. In case of any amendment

to Regulations, the new provisions should be incorporated in the offer document

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CHAPTER 5

23

Methodology of study:

To fulfill the objective of the study both primary and secondary data has been collected.

Primary data is the data collected specifically for the study. Data is collected directly from

people and organizations via questionnaires or surveys before being analyzed to reach

conclusions concerning the issues covered in the questionnaire or survey.

In this study primary data was collected through interaction with staff of India info line Pvt

Ltd. and the applications of Reliance equity fund.

Secondary data is the data collected previously by someone else for some other purpose

which can be analyzed and interpreted according to requirements. For example, sources of

secondary data are government publications, newspapers, worldwide web etc.

In this study the Secondary data is mainly taken from

* The company’s training material.

* Reconciliation statements.

* Other documents generated with in the organization

Which have to Access?

* www. indiainfoline.com,

www. amfiindia.com,

www.sebi.com.

24

Limitations of study:

* Analysis of the applications is carried out by taking the applications from

Reliance equity Fund. The data available is therefore restricted by the

design of the application.

* The inspection of applications is done on the basis of a sample of 120

applications. Though the sample is drawn randomly, the possibility of

sampling fluctuations affecting the findings cannot be ruled out.

* Numerical data like number of applications received, total subscription

amount received, statement of accounts, investor details, etc are not

available and therefore a description of these aspects is given.

* NFO process may not be same for all mutual funds that are released. It may

differ from one fund to other depending upon the size like the no. of

applications received, subscription amount received, etc.

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CHAPTER 6

COMPANY PROFILE

26

COMPANY PROFILE:

Circa1995. A group of professional formed a company called Probity Research &

Services Pvt Ltd. The name was later changed to India Info line Ltd. The Objective was to

provide unbiased and independent information to market intermediaries and investors. The

quality of research soon caught the imagination of all major participants in the financial

market. In a span of 2 to 3 years the client list read like the who’s who of Indian Financial

market. The list included consulting firms like Mc Kinsey, companies like Hindustan Lever,

Banks like Citibank, Rating agencies like CRISIL, D&B, FIS, foreign brokers as well as

leading Indian brokers.

One fine morning in early 1999, a colleague had a crazy idea that if the company

made all the research available free on the web, the number of users may well jump from 250

to 2.5 million. To make it true, the business required a reincarnation. And the pre-requisite

was a death. It meant that the company put up all the information free on the website and let

go of all the revenues and profits. Worse, if the new avatar failed, there would be ‘no

comebacks’.

The company became heavily dependent on its e-broking business for survival. The

odds were against them. There was no money available from the private equity investors at

any valuation. The core promoters of the company had little experience of broking. To add to

it, the market was hit by a scam. They also had their share of price to pay and lessons to

learn. It was difficult to retain people. Although devastating for morale, but not surprising,

most market observers had written them off.

There was a core group who never lost hope. They cut all possible costs and worked on a

bare bones structure. They survived against all odds and started capturing market share. The

company rose from strength to strength to become the leading corporate agent in life

insurance and among the top retail players in mutual fund and broking space.

27

Our Key Milestones:

Incorporated on October 18, 1995 as Probity Research & Services.

Launched Internet portal www.indianinfoline.com in May 1999.

Commenced distribution of personal financial products like Mutual Funds and RBI

Bonds in April 2000.

Launched online trading in shares and securities branded as www.5paisa.com in July

2000.

Started life insurance agency business in December 2000 as a Corporate Agent of

ICICI Prudential Life Insurance.

Became a depository participant of NSDL in September 2001.

Launched stock messaging service in May 2003.

Acquired commodities broking license in March 2004.

Launched portfolio management services in August 2004.

Listed on NSE and BSE on May 17, 2005.

Acquired 75% stake holding in Money tree Consultancy services, which is a

distributor of Mortgages and other Loan products, in October 2005.

Acquired 100% equity of March Mont Capital Advisors Pvt Ltd in December 2005

through which we have ventured into Merchant Banking.

DSP Merrill Lynch Capital subscribed to convertible bonds aggregating Rs.80crores

in December 2005. Their current stake in India Info Line is a little over 14 % as on

31st March 2007.

Bennett Coleman & Co Ltd (BCCL) invested Rs.20crores in India Info line by way of

preferential allotment in December 2005.

Became a depository participant of CDSL in June 2006.

Merger of India Info line Securities Private Limited with India Info line Limited in

January 2007.

Entered into an alliance with Bank of Baroda for Baroda e-trading in February 2007.

IRDA license for Insurance Broking April 2007.

Our Management Team:

28

Mr. Nirmal Jain (Chairman and Managing Director)

Nirmal Jain is the founder and Chairman of India Info line Ltd.

He holds an MBA degree from IIM Ahmedabad, and is a Chartered Accountant (All

India Rank 2) and a Cost Accountant.

Mr. R.Venkataraman (Executive Director)

R. Venkataraman is the co-promoter and Executive Director of IndiaInfoline Ltd.

He holds a B tech degree in Electronics and Electrical Communications

Engineering from IIT Kharagpur and an MBA degree from IIM Bangalore.

He has held the position of Assistant Vice President with G E Capital Services

India Limited in their private equity division.

The Board of Directors:

Mr. Sat Pal Khattar (Non Executive Director)

Mr. Sat Pal Khattar joined the Board with effect from April 20, 2001.

Mr. Sat Pal Khattar is a lawyer by profession.

He is a director of a number of public companies in Singapore and India.

Mr. Sanjiv Ahuja (Independent Director)

Mr. Sanjiv Ahuja joined the Board with effect from August 28, 2002.

Mr. Ahuja graduated from National University of Singapore with a degree in

Computer Science and is also a Certified Public Accountant.

He started his own investment advisory and consulting company in 2001, named

Centennial Management Consultants Private Limited.

Mr. Nilesh Vikamsey (Independent Director)

Mr. Nilesh Shivji Vikamsey joined the Board with effect from February 11, 2005.

29

Mr. Vikamsey qualified as a Chartered Accountant in 1985 and has been a member of

the Institute of Chartered Accountants of India since 1985.

Mr. Kranti Sinha (Independent Director)

Mr. Kranti Sinha joined the Board with effect from January 27, 2005.

Mr. Sinha graduated from the Agra University with a Masters degree.

Mr. Sinha is also on the Board of Directors of Hindustan Motors Limited, Larsen &

Turbo Limited & LICHFL Care Homes Limited.

Our Vision:

Its vision will not be accomplished only by maintaining high growth alone. Our vision is to

emerge as the most respected financial services company in India. Needless to emphasize that

it is imperative for all us to align our personal goals and values to this vision.

Knowledge:

Always keep yourself up-to-date by reading newspapers like Economics Times,

Business standard and Business Line daily. Passing NCFM, AMFI, IRDA exams also

help you to get basic domain understanding.

We are in a knowledge industry and hence we cannot afford to go to a client and

appear ignorant and foolish by not even knowing basic things.

Technology:

By technology, we mean that as an organization, we leverage technology to deliver

best service to our clients at the least cost.

Our trading interface for broking is absolutely world class.

We expect our employees to be comfortable with and confident of using technology.

Service:

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Our customer service is warm, friendly and responsive that media cannot help but

rave about. Today, service is the key driver for growth in financial services. We take

pride in our ability to add value that our customers can feel and appreciate.

Remember we have to always ensure that simple things like ensuring customer

problems are solved, requests are catered to, giving him investment ideas etc.

Basically, whatever it takes to keep him served.

31

CHAPTER 7

32

ANALYICAL FRAME WORK

NFO process:

When a mutual fund Assets Management Company (AMC) announces a public issue of units

of & new fund/scheme, it is called a new fund offer (NFO).

The new fund is planned and sources from where it should be collected and where the amount

should be invested is planned by the AMC.

According to the SEBI rules any new fund launched should be approved by SEBI. Once the

AMC get the approval of SEBI for the fund it does the marketing of the fund by it self or

through brokers. The investors who are willing to invest in a particular fund deposit the

amount they plan to invest in the bank as directed by the AMC.

These banks collect the application and amount and direct it towards the registrar specified by

the AMC. From this point India info line came into the picture as the registrar.

The role, responsibilities, activities, forms and reports involved in this process of NFO is

general, are AMC, fund manager, SIP I/c, Switches I/c., NFO Coordinator. Internal auditor

systems (S/W) dept. IPO Centre coordinator, IPO-RTI, IPO-EDP, Scanning and Printing &

Dispatching.

Teams involved in the NFO process-

Mutual fund unit

Technology team

Data entry team

Verification team

External audit team

Scanning team

Franking and dispatching team

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Description of NFO process:

Bank wise segregation:

The India info line branches collect the applications of the investors across India and abroad

for all the branches of the bank that is involved in this NFO. These applications are sent to

India info line processing center, Hyderabad. After receiving, these applications are

segregated bank wise and branch wise.

IH Numbering:

IH numbering is also called as In house Numbering. India info line gives this IH numbering

to those applications. This is done for their convenience in doing back office functions

easily. All the data on the application is entered into systems through software developed by

India info line technology team called K-Bolt. Later on, we can get any information of a

particular application or investor that we require by entering this IH number.

Binding:

All the applications that are received are given for binding. Binding of application is done by

segregating them according to the bank and branch fro which they are received. India info

line does this Binding because to keep all these applications safe, out of any damage and

miss-place.

First Entry:

After finishing binding of applications they are sent to Date Entry team. Here the first time

entry is done. All the information or date of an investor that is available on the application

like name of the applicant, age, Address, PAN, Bank details, broker code, sub broker code,

email addresses, guardian name, amount invested, name of the scheme or plan invested in,

etc., are entered into the systems of India info line.

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Second Entry:

After first entry the data is again sent for the second entry. Here in second entry, the data that

is entered in first entry is checked and the information what ever is missing is entered.

Online Matching:

After entering the data like applicant, age, Address, PAN, Bank details, broker code, sub

broker code, email addresses, guardian name, amount invested, name of the scheme or plan

invested in, etc., in the first entry and once again in the second entry it is sent to the online

matching. Here in online matching the physical form of application are kept side by an

checking of data that was entered in the first entry and second entry is done.

First time verification:

Data from online matching is sent to the verification team. This team verifies mistakes that

are left in online matching. Mistakes like blank address, PAN blank for amount greater than

or equal to 50000 RS. Name blank, bank details blank, invalid or blank broker code etc., are

rectified in the first time verification.

First time CCL:

First time check clearing list is in short is called as first time CCL. First Time CCL is

prepared based on the data that is provided after first time verification.

External Audit:

First time check-clearing list is sent to an external audit team. India info line appoints this

team before the NFO processes. They are nowhere related to the organization. This external

audit team will mainly check name of the investor, amount invested, bank details PAN

number, name of the scheme/plan and mode of holding (MOH). But in total they will check

more than 30 characters

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Second time verification:

If the external auditing is not satisfied and if they find any mistakes or missing information

they will send the first time CCL for second time verification. Here they verify the check list

once again and mistakes like invalid mode of folding (MOH), invalid email address, status

minor without guardian name, invalid date of birth for minor, invalid existing account

number, blank/null application number, NRI with blank account type, saving or current,

investor signature missing are rectified.

Second time CCL:

Second check the verification team prepares clearing after verifying the mistakes that are

pointed out by the external audit team. After preparing second time CCL it is again sent to

external audit team.

Integrity Check (NFO team):

Check clearing list will be given by the external audit team to the NFO team in India info line

This NFO team in India info line will once again check further mistakes like spelling

mistakes in the name of the applicant etc., and rectify them.

Integrity Check (by Audit):

After integrity check by the NFO team it is once checked by the internal audit team of India

info line.

Scanning Default Values, Verification of Mismatch cases:

Entire data is filtered at each and every step and finally it is given to the scanning team for

scanning here scanning team will detect and rectify any further default values and mismatch

cases.

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Reconciliation, Rejections and Cheque returns:

Cheques of the investors are sent are sent by the balk to India info line Reconciliation team.

Here this team will verify bank details of the investor like PAN number, bank a/c number,

comparing the amount invested with that of the minimum amount that has to be invested

cheques with out hue signature of the investor bounced cheques etc., and they are rejected.

These rejected cheques are dispatched to the investors. A sample statement of accounts

(SOA) is prepared by this reconciliation team.

Handling over the data to MFS:

Entire data after getting filtered at each and every step will be handing over to mutual fund

services team. This MFS team will once again verify the data and the final data will come out

any mistakes and default values.

Porting in Task MF:

Task MF is the software developed by India info line Technology team. It is prepared

according to the suggestion given by AMC. This Task MF will resemble the style or

Performa or outlook of the statement of accounts. Final data that they got after filtering the

mistakes and default values is ported in the task MF.

Allotment of units:

Allotment of units is done as per the amount that is invested by investors. They will avail the

units taking the Net Asset Value (NAV) of that particular scheme as base.

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Sample SOA verification by audit:

Statement of accounts (SOA) is picked up randomly from a huge lot and the audit team does

verification. This verification will result in preparing a statement of accounts which in cent

percent correct and exact.

This SOA contains data like:

* Name of the investor

* Address

* Bank details

* Pan Number

* Guardian name

* Broker code

* Sub broker code

* Nominee name

* Nominee addresses

* 2nd and 3rd applicant name

* Amount invested

* No. Of units allotted

* Fund name, Scheme Name, Plan Name & A/c no

* Transaction type details

* Mode of redemption payment

* Mode of dividend payment

* Mode of dispatch

* Status, occupation.

* Current balance, average price, current cost, current NAV etc.,

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Dispatch of SOA:

Statement of accounts (SOA) once prepared is dispatched to the investor. SOA’s are neatly

packed in an envelope and dispatched to the investors by the dispatch team through courier.

New Fund Report:

India info line will finally prepare New Fund Report. This new fund report has to be

submitted to the AMC. Then AMC will submit a copy of the same to the SEBI, which is

mandatory. The new fund report details like

1) Scheme details

* Scheme name

* Scheme type

* Date of opening

* Date of closing the scheme / initial subscription period

* Target amount

* Minimum amount to be raised

2) Subscription / Allotment details

* Number of applications received with in the country

* Number of NRI applications received

* Subscription amount received with in the country

* Subscription amount received form NRI

* Date of allotment of units

3) Initial issue expenses

4) Date of dispatch of refund of refund orders

5) Unit holding pattern

6) Distribution schedule

7) Geographical Dispersion list

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Holding profile of applicant:

Particulars Single Joint Anyone Total

No. of applicants 89 0 31 120

% of applicants 74 0 26 100

Interpretation:

It can be seen that majority of the applicants prefer to hold the allotted units individually and

26% prefer to hold anyone/survivors. This corroborates with the age profile of the applicants.

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Occupation profile of applicants:

Particular Business Service Student Professional Retired Housewife Others TotalNo. of applicants

34 46 2 4 7 23 5 120

% of applicants

28 38 2 3 6 19 4 100

Interpretation:

Majority of the applicants are from services personnel at 38%, next comes business People are 28%.

The housewife occupy 3rd highest at 19%. It is found that professionals and retired are at the lowest.

STATUS:

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a) Residential status of individual applicants:

Particulars Resident NRI TotalNo. of applicants 104 4 108% of applicants 96 4 100

Interpretation:

It can be observed from the table and the chart that the majority of applicants are resident

individuals constituting 96% the applicants and remaining 4% are the Non-resident Indians.

b) Status of non-individuals :

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Particulars Partnership AOP/BOI Trust HUF Fll BanksNo. of applicants 1 0 0 10 0 0% of applicants 10 0 0 80 0 0

Particulars Company Society Fl SME Others TotalNo. of applicants 1 0 0 10 0 0% of applicants 10 0 0 80 0 0

Interpretation:

In the non-individuals category HUF occupied the highest at 80% and next 10% is for

partnerships. In others category 10% is found and all other non-individual entities have

recorded zero applications.

Age profile of the applicants:

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Particulars Below 18 18-30 31-60 Above 60 TotalNo. of applicants

0 30 72 18 120

% of applicants

0 25 60 15 100

Interpretation

The age profile of the applicants shows that the majority of the applicants fall into the age

Group 31-60 years and the percentage of them being 60. This is followed by the age Group

18-30 years and 15% of the applicants are above 60 years.

Investment profile of the applicants:

Particulars 5000-

25000

25001-

50000

50001-

100000

Above

100000

Total

No. of applicants 78 32 4 6 120

% of applicants 65 27 3 5 100

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Interpretation:

Amount of investment is high at 65% in the range 5000-25000 and it is very low at 3% in 50001-

100000, but the next slab. Above 100000 has registered 5%.

Scheme profile of applicants:

Particulars Growth

option

Bonus

option

Dividend

reinvestment

Dividend

payout

Total

No. of applicants 59 4 37 20 120

% of applicants 49 3 31 17 100

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Interpretation:

Majority of the applicants Opted the growth option and the option of dividend reinvestment is

31%. This means that 80% of the applicants are not investing for income sake rather they

look at the accumulation of profits.

Analysis of mode of payment:

Particulars Cheque DD TotalNo. of applicants 119 1 120% of applicants 99 1 100

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Interpretation:

The mode of payment reflects upon the quality of applicants. On an average 99% have paid

through cheques and therefore the NFO is able to attract good quality retail investors.

Analysis of type of account:

Particulars SB Current NRO NRE FCNR Total

No. of

applicants

119 1 0 0 0 120

% of

applicants

99 1 0 0 0 100

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Interpretation:

Majority of the payments have been made from Savings Bank account (SB). No payments

have been found from NRO, NRE, and FCNR even though 4% of the applicants are NRI s

Gender profile of the applicants:

Particulars Male Female Total

No. of applicants 89 31 120

% of applicants 74 26 100

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Interpretation:

The female participation in the NFO is low at 26%. The male applicants are very high at 76%

as is not normally found in found in institutional investments.

Geographical distribution of applicants:

Particulars Andhra

Pradesh

Bihar Chandighar Delhi Gujarat Karnataka

No. of applicants 4 1 1 17 11 5

% of applicants 3 1 1 14 9 4

Particulars Madhya

Pradesh

Maharastra Rajasthan Punjab Uttar

Pradesh

Tamilnadu

No. of applicants 1 48 2 2 5 6

% of applicants 1 40 2 2 4 5

Particulars West Bengal Others total

No. of applicants 10 6 120

% of applicants 8 5 100

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Interpretation:

A predominant feature is that 40% of the applications are from Maharastra and next highest

14% is registered for Delhi. Lowest numbers of applications are from Bihar and Chandighar.

CHAPTER 8

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FINDINGS

* The NFO is found to be a complex activity calling for creating an organization

polling the knowledge and expertise of people in different areas.

* The NFO process is simple and well structured as long as it is to investor to

investor, but thereafter the process is lengthy time consuming and found to be

overlapping at some stages.

* The SEBI regulations governing NFO are comprehensive and protect investor's

interest at each level.

* Different funds have been designing different forms of applications for NFO.

* An analysis of sample of applications revealed the following

O Majority applicants prefer to hold the units individually.

O Majority of the applicants are in service.

O NRI s share is about 4% of the total.

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O More than 2/3 rd of the applicants are HUF s.

O The model age group is 31-60.

O The most common investment amount is 5000-25000.

O About half of the applicants prefer Growth option.

O Almost all applicants make the payments by cheques.

O There were no NRO, NRE and FCNR accounts.

O Majority the applicants are male, and.

O Majority applications are from state of Maharastra

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CHAPTER 9

SUGGESTIONS AND RECOMMENDAIONS

* Different funds have been using different forms of applications. A standardized

form of application maybe designed by the competent authority and should be

made mandatory for all funds to use the standard application form.

* The NFO process is very complex and there is a need to simplify the process by

eliminating certain unnecessary steps in the process ie instead of carrying out audit

for three times and appropriate internal check system maybe devised to keep the

errors within the tolerance limits.

* The NRI subscribers to the fund maybe encouraged to make the payments from

NRO, NRE and FCNR accounts.

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* The application from institutional investors and foreign institutional investors are to

be encouraged through a package of incentives.

* The participation of senior citizens in the NFO s may be encouraged as they are

likely to hold more surpluses compared to others.

* The holding of units in joint names shall be encouraged.

* There is a need to investigate the reasons for HUF s occupying more than 2/3rd

share in the non-individual applications as its not a body corporate.

* A savings from all channels of India / World are to be tapped by the NFO rather

than one or two states applying for a loin share of the option.

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CHAPTER 10

QUESTIONNAIR E

1. ARE YOU INTERESTED IN MUTUAL FUNDS (A)YES (B)NO

(From the sampling of 100 people 70 percentage of people are really

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Interested in mutual funds)

2. WHAT IS YOUR AGE GROUP (A)25-35 (B)35-45 (C)45-55 (D)55-65

(From the above chart we can understand the age group 55-65 people

are more investing in to the mutual funds).

3. WHAT IS YOUR OCCUPATION(A)PRIVATE EMPLOYEE(B)GOVERNMENT EMPLOYEE(C)BUSINESS PERSON(D)RETIRED

(Here Number of Retired employees are investing more as they are

concerned about their future).

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4. IN WHICH TYPE OF MUTUAL FUND DO YOU LIKE TO INVEST (A)CLOSE ENDED (B) OPEN ENDED

(Here open ended schemes are more flexible compare to close so

Many people are interested into open ended schemes).

5. WHAT PERCENT OF RETURN DO YOU EXPECT (A) 10-15 (B) 20-25 (C) 30-40 (D) DOUBLING YOUR AMOUNT

(Here Number of people likes to double their amount.)

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6. WHICH TYPE OF FUND ALLOCATION DO YOU LIKE (A) 100 PERCENT EQUITY (B) 80 PERCENT EQUITY & 20 PERCENT DEBT (C) 70 PERCENT EQUITY 20 PERCENT DEBT & 10 PERCENT MONEY MARKET (D) 100 PERCENT DEBT

(Here many investors are love to invest in 100 percent equity fund

Allocation scheme.)

7. IN WHICH OF THE UTI SCHEME YOU HAVE INVESTED (A)UTI WEALTH BUILDER FUND (B)UTI INFRASTRUCTURE ADVANTAGE FUND (C)UTI LONG TERM ADVANTAGE FUND (D)NONE

(Here the investors are likely to invest in infrastructure advantage

Fund as this sector is in a booming stage.)

8. ARE YOU SATISFIED WITH THE RETURNS OF WHICH UTI IS GIVING

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(A)YES (B)NO (C)CANNOT SAY

(The above chart is clearly saying that today according to market

situation many people are quite satisfied with the return they are Getting.)

9. HAD YOU INVESTED IN ANY OTHER MUTUAL FUNDS (A)RELIANCE MUTUAL FUNDS (B)J M FINANCIAL (C)FEDILITY MUTUAL FUNDS (D)HSBC

(As people are specialized in market more the investors they all are

Investing in HSBC if not in UTI because HSBC is the world’s local bank

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And international old more than 200 year old company)

10. DO YOU ADVICE PEOPLE TO INVEST IN MUTUAL FUNDS (A)YES (B)NO (C)CANNOT SAY

NOTE:As mutual funds is the subject to market so people generally does not

Like to give advice to others as it is a risky business.

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CHAPTER 11

CONCLUSION

The NFO is found to be a complex activity calling for creating an organization polling the

knowledge and expertise of people in different areas. The NFO process is simple and well

structured as long as it is to investor to investor, but thereafter the process is lengthy time

consuming and found to be overlapping at some stages. The SEBI regulations governing

NFO are comprehensive and protect investor's interest at each level. Different funds have

been designing different forms of applications for NFO.

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CHAPTER 12

BIBILOGRAPHY

* www.Indiainfoline.com

* www.sebi.com

* www.amfiindia.com

* NFO propeller of India info line.

* NFO records of Reliance Mutual Fund.

* Mutual Funds in India by H SADHAK.

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