A PROJECT REPORT ON STUDY OF MUTUAL FUND GROTH AND COMPARISIONIN INDIA SUBMITTED BY RAMAN TALWARROLL NO 1208029358

University Centre : Neev Education Pvt Ltd.ADDRESS: 11 HARGOVIND ENCLAVE ,METRO PILLAR NO 118 ,OPPOSITE SHANTI MUKUND HOSPITAL, NEW DELHICENTRE CODE 03486

FOR THE PARTIAL FULL FILLMENT OF MBA DEGREE IN FINANCE LC NAME - ADDRESS-

Sikkim Manipal University of health, Medical and technological science Distance Education wing, Syndicate House, Manipal 576104

DECLARATION CERTIFICATE

I RAMAN TALWAR ,ROLL NO 1208029358,student of Masters of Business Administration from SIKKIM MANIPAL UNIVERSITY As part of the course requirement. I further declare that the information presentedin this Project is true and original to the best of my knowledge and not submitted to any other institutefor any kind of degree and award

Date: 19th June 2014.Name: RAMAN TALWAREnrolment No -1208029358Program: MBA 4th Semester Finance.3

Examiners Certificate)

The Project Report of

NAME Raman Talwar

{Registration No-1208029358 }

{Course: MBA 4TH Semester Finance (2012-2014)}

STUDY OF MUTUAL FUND GROTH AND COMPARISION IN INDIA Is approved and is acceptable in quality and form.

Internal Examiner External Examiner

Name:Name: Qualification:Qualification: Designation:

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BONAFIDE CERTIFICATE

It is Certified that this project report titledSTUDY OF MUTUAL FUND GROTH AND COMPARISIONIN INDIA is the bona-fide work of NAME RAMAN TALWAR,RID 1208029358 who carried out the project work under my supervision .

SIGNATURE SIGNATUREHEAD OF THE DEPARTMENT FACULTY IN CHARGE

University Centre : Neev Education Pvt Ltd.Address : 11 Hargobind Encalve, Metro pillar no.118 , opposite Shanti Mukund Hospital , New DelhiCode no: 03486

ACKNOWLEDGEMENTFirstly I would like to express our immense gratitude towards our institution SIKKIM MANIPALUNIVERSITY , which created a great platform to attain profound technical skills in the field of MBA,thereby fulfilling our most cherished goal I would thank all the FINANCE department of INDIABULLSSECURITIES LIMITED specially Mr. GVN RAMA RAO Branch Manager , and the employees in theFinance department for guiding me and helping me in successful completion of the project.I am very much thankful to our Anand Bibhor forextending his cooperation in doing this project. I am also thankful to our project coordinator Mr. RAJANChary for extending His cooperation in completion of Project.. I wish to express sincere gratitude toour Director for providing the opportunity to pursue my management course in this college.I convey my thanks to my beloved parents and my faculty who helped me directly or indirectly in bringingthis project.

THANKING YOU

Raman TalwarINDEXS.No:CHAPTER-1IntroductionObjectives of the StudyScope of the StudyMethodology of the StudyLimitations of the StudyCHAPTER-2Review of LiteratureCHAPTER-3Industry ProfileCompany Profile1-635-30CONTENTSPAGE NO.1-4CHAPTER-4Data Analysis and InterpretationCHAPTER-5FindingsSuggestionsConclusionsBibiliography64-7576-836

CHAPTER-IINTRODUCTION7

INTRODUCTIONA mutual fund is just the connecting bridge or a financial intermediary that allows agroup of investors to pool their money together with a predetermined investment objective.The mutual fund will have a fund manager who is responsible for investing the gatheredmoney into specific securities (stocks or bonds). When you invest in a mutual fund, you arebuying units or portions of the mutual fund and thus on investing becomes a shareholder orunit holder of the fund.Mutual funds are considered as one of the best available investments as compare to othersthey are very cost efficient and also easy to invest in, thus by pooling money together in amutual fund, investors can purchase stocks or bonds with much lower trading costs than ifthey tried to do it on their own. But the biggest advantage to mutual funds is diversification,by minimizing risk & maximizing returns.NEED OF THE STUDYMutual funds are dynamic financial intuitions which play crucial role in an economy bymobilizing savings and investing them in the capital market. The activities of mutual fundshave both short and long term impact on the savings in the capital market and the nationaleconomy. Mutual funds, trust, assist the process of financial deepening & intermediation. Tobanking at the same time they also compete with banks and other financial intuitions. India isone of the few countries to day maintain a study growth rate is domestic savings.8

OBJECTIVES1. To study the risk and return of growth funds of selected AMCs (SBI Magnum EquityFund Growth, Birla Sun life 95 Growth, Kotak 30 Growth, TATA Equity ManagementFund Growth).2. To study the systematic risk ().3. To evaluate and compare the performance of growth funds (Treynors Ratio, SharpesRatio)4.To suggest an investor to make a right choice of investment, while considering the inherent riskfactors.SCOPE THE STUDYThe study is limited to the analysis made for a Growth scheme offered by selectedAMCs (SBI Magnum Equity Fund Growth, Birla Sun life 95 Growth, Kotak 30 Growth,TATA Equity Management Fund Growth). Calculated risk and return of growth funds usingdifferent performance measurement theories.RESEARCH METHODOLOGY & TOOLSThis study is basically depends on Secondary Data. The secondary data collected from thedifferent sites, broachers, news papers, company offer documents, different books andthrough suggestions from the project guide and from the faculty members of our college.TOOLS USED IN THIS PROJECTThe following parameters were considered for analysis:BetaCorrelation coefficientTreynors RatioSharpes Ratio9

ADVANTAGES OF THE MUTUAL FUNDS1.2.3.The investors risk is reduced to the minimum.The funds managers maximize the income of the funds.To achieve a similar degree of diversification, an individual investor as to spendconsiderable and money.4.5.In a mutual fund, it is possible to reinvest the dividend and capital gains.Selection of shares debentures etc and timing is made available to investors.LIMITATIONS OF THE STUDY:1. The study is conducted in short period, due to which the study may not be detailed in allaspects.2. The study is limited only to the analysis of different schemes and its suitability to differentinvestors according to their risk-taking ability. 3. The study is based on secondary dataavailable from monthly fact sheets, web sites; offer documents, magazines and newspapersetc., as primary data was not accessible.4. The study is limited by the detailed study of various schemes.5. The NAVS are not uniform.6. The data collected for this study is not proper because some mutual funds are notdisclosing the correct information.7. The study is not exempt from limitations of Sharpe Treynor and Jenson measure.8. Unique risk is completely ignored in all the measure.10

CHAPTER-IIREVIEW OF LITERATURE11

CONCEPT OF MUTUAL FUNDSA Mutual Fund is a financial intermediary which acts as an instrument of investment.It collects the funds from different investors to a common pool of investible funds and theninvest these funds in a wide variety of investment opportunities in diversified portfolios ofsecurities such as Money Markets instrument, corporate and government bonds and equityshares of joint stock companies.The investment may be diversified to spread risk and to ensure good return to theinvestors. The Mutual Funds employ professional, experts and investment consultants toconduct investment analysis and then to select the portfolio of securities where the funds areto be invested.Each investor owns units, which represent a portion of the holdings of the fund. You canmake money from a MF in three ways:-1. Income is earned from dividends on stocks and interest on bonds. A Fund pays out nearlyall income it receives over the year to fund owners in the form of a distribution.2. If the fund sells securities that have increased in price, the fund has a capital gain. Mostfunds also pass on these gains to investors in the form of dividends.3. If fund holdings increase in price but are not sold by the fund manager, the funds sharesincrease in price. You can then sell your Mutual Fund units for a profit. Funds will alsousually give you a choice either to receive a cheque for dividends or to re-invest the sameand get more units.12

FIGURE SHOWING THE WORKING OF MUTUAL FUNDSTRUCTURE AND CONSTITUENTS OF FUNDMUTUAL FUNDSponsorSPONSOR:TrusteeAMCCustodianEstablishes the MUTUAL FUND Need to have sound financial track record. Appoints TRUSTEES. Appoints Asset Management Company. Must contribute 40% of the net worth of the AMC.Sometimes this power is given by the sponsor to the trustees through the trust deed.At least 50% of directors on the board of Asset Management Company should beindependent of the sponsor.13

Asset Management Company shall not deal with any broker or firm associated withsponsor beyond 5% of daily gross business of the Mutual Fund.All securities transactions of the Asset Management Company with its associates shouldbe disclosed.TRUSTEE:Manages the Mutual Fund and look after the operation of the appointed AMC.The investments are held by the Trustees, in a fiduciary responsibility.Trustees approve each Mutual Fund Scheme floated by AMC.Furnish report to SEBI on half yearly basis on AMC and Fund Functioning.ASSET MANAGEMENT COMPANY:AMC acts as investment manager of the trust under the board supervision and direction ofthe trustees.AMC floats the different Mutual Fund schemes.Submits report to the Trustees on quarterly basis, mentioning activity and compliancefactor.AMC is responsible to the trustees.AMC fees have a ceiling, decided by SEBI.Should have a net worth of at least Rs.10 crores at all the times.CUSTODIAN:Appointed by board of trustees for safekeeping of securities.Its an entity independent of sponsors.SEBI regulates the securities market in India. According to SEBI every Mutual Fund requirethat at least two thirds of the directors of trustee company or board of trustees must beindependent i.e. they should not be associated with the sponsors. Also, 50% of the directorsof AMC must be independent. All Mutual Fund are required to be registered with SEBIbefore they launch any Scheme.14

ORGANISATION OF MUTUAL FUND:CHARACTERISTICS OF MUTUAL FUNDS:A Mutual Fund actually belongs to the investors who have pooled their funds. Theownership of the Mutual Fund is in the hands of the investors.Mutual funds are trusts or registered associations managed by investment professionalsand other service providers, who earn a fee for their services from the fund.The pools of the funds are invested in a portfolio of marketable investments (Shares andSecurities). The value of the portfolio is updated everyday.Mutual funds collect money from small investors and in return, they will issue acertificate in units.The investors share in the fund is denoted by UNITS". The value of the units changeswith the change in the portfolios value every day.The profits of investments will be distributed to the unit holders. The unit holders can selltheir units in the open market at Net Asset Value (NAV).NET ASSET VALUE (NAV):Mutual Funds invest the money collected from the investors in securities markets. Insimple words, Net Asset Value is the market value of the securities scheme also varies on dayto day basis. The NAV per unit is the market value of securities of a scheme divided by thetotal number of units of the scheme on any particular date. The performance of a particularscheme of a Mutual Fund is denoted by Net Asset Value.15

For example; if the market value of securities of a MF Scheme is Rs. 200 lakhs and theMutual Fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unitof the fund is Rs. 20. NAV is required to be disclosed by the MF on a regular basis daily orweekly depending on the type of scheme.NAV = Market value of the funds investments + Receivables + Accrued Income Liabilities Accrued ExpensesNumber of Outstanding unitsOBJECTIVES OF MUTUAL FUNDS:The objectives sought to be achieved by Mutual funds are as follows:-To provide an opportunity for lower income groups to acquire without much difficultyproperty in the form of shares.To cater mainly to the need of individual investors whose means are small?To manage investors portfolios in a manner that provides regular income, growth,safety, liquidity and diversification.SCHEMES OF MUTUAL FUNDS:Mutual fund schemes are usually open-ended (Perpetually open for investors andredemption) or close-ended (with a fixed term). A Mutual Fund scheme issues units that arenormally priced at Rs.10/- during the initial offer. The number of units you own against thetotal number of units issued by a Mutual Fund scheme determines your share in the profits orlosses in the scheme.16

TYPES OF MUTUAL FUND SCHEMES:The Mutual Funds can be classified under the following types:ACCORDING TO STRUCTURE:STRUCTUREOPEN-ENDED SCHEMECLOSED-ENDED SCHEMEINTERVAL SCHEMEOPEN - ENDED SCHEMEAn open-ended scheme is a scheme in which an investor can buy and sell units on adaily basis. The scheme has a perpetual existence and flexible, ever changing corpus. Open-Ended schemes do not have a fixed maturity period. The investors are free to buy and sellany number of units, at any point of time, at prices that are linked to the NAV of the units.In these schemes the investor can invest and disinvest any amount, any time after ashort initial lock in period. This scheme gives investors with instant liquidity and fundannounces sale and repurchase price from time to time. The units can be bought from andsold to any Mutual Fund.17

Advantages of Open-ended funds over Close-ended funds:Any time Entry Option.This provides ready liquidity to the investors and avoids reliance on transfer deeds,signature verifications and bad deliveries.Allows to enter the fund at any time and even to invest at regular intervals.Any time Exit Option.CLOSE ENDED SCHEMEA Close-ended scheme has a stipulated maturity period. E.g. 5-7 years. A Close-endedscheme is one in which the subscription period for the Mutual Fund remains open only for aspecific period, called the redemption period. At the end of this period, the entire corpus isdisinvested and the proceeds distributed to unit holders. After final distribution the schemeceases to exist. Such schemes can be rolled over by approval of unit holders.Reasons for fluctuations in NAVInvestors doubts about the abilities of the funds management.Lack of sales effort (Brokers earn less commission on closed end schemes than on openended schemes).Riskiness of the fund.Lack of marketability of the funds units.INTERVAL SCHEMESInterval schemes are those that combine both the features of both open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for saleredemption during predetermined intervals at NAV related prices.18

ACCORDING TO INVESTMENT OBJECTIVEEQUITY SCHEMEDEBT OR BOND SCHEMEBALANCED SCHEMEINVESTMENT OBJECTIVEMONEY MARKETSCHEMEGROWTH & INCOME FUNDOTHER SCHEMESADVANTAGES OF MUTUAL FUNDSThe key advantages of both open and close-end Mutual Funds is that they put professionalmanagers with experience and access to sophisticated financial research to work for you this,and other wide range of key benefits are as follows :-1) Professional ManagementExperienced portfolio managers carefully select a funds holdings according to the fundsseated investment objective. The portfolio management team continuously monitors andevaluates the funds holdings to help make sure it keeps pace with changing marketconditions. The team decides when to buy and sell securities. There is a fee associatedwith this professional management.19

2) DiversificationA Single diversified Mutual Fund may invest in dozens even hundreds of differentholdings. This approach may reduce the impact on your return if any one investment heldby the fund declines. Diversification spreads your assets among different types ofholdings and may be one of the best ways to protect yourself amid the complexity anduncertainty of the financial markets.3) CompoundingIn a Mutual Fund, you may choose to reinvest your earnings automatically to buy moreshares. When you reinvest, not only do you have the potential to earn money on yourinitial investment, you may also have the opportunity to earn money on the dividends andcapital gains you accumulate. Compounding may increase the impact of what youcontribute and can help your money grow faster. And the longer you invest, the greaterthe potential growth.4) Systematic InvestingYou can invest in most mutual funds automatically through regular payments directlyfrom your bank account; you can start building a long-term investment program. Withsystematic investing you invest a fixed amount of money at regular intervals regardless ofmarket conditions, helping out market fluctuations.5) Hassle-free operationsWith most Mutual Funds, buying and selling shares, changing distribution options, andobtaining information can be accomplished conveniently by telephone, by mail, or online.Although a funds shareholder is relieved of the day-to-day tasks involved in researching,buying and selling securities, an investor will still need to evaluate a Mutual Fund basedon investment goals and risk tolerance before making a purchase decision. Investorsshould always read the prospectus carefully before investing in any Mutual Fund.6) Buying PowerWhen you invest in a mutual fund, you join the other investors in a pool of investmentmoney. The result is that you have a partial stake in each company the fund holds for a20

relatively small amount of principal invested, while potentially offsetting some of the riskassociated with holding individual securities.7) ChoiceThere is an incredible array of mutual funds more than 10,000 available to meet yourspecific Investment objective. Funds have different investment objectives and degrees ofinvestment risk often indicated through asset classes and sub-classes, such as moneymarket funds, fixed income funds, balanced funds, growth and income funds, growthfunds and aggressive growth funds.8) LiquidityMutual fund shares are liquid and orders to buy or sell are placed during market hours.However, orders are not executed until the close of business when the NAV (Net AssetValue) of the fund can be determined. Fees or commissions may or may not beapplicable. Fees and commissions are determined by the specific fund and the Institutionthat executes the order.9) TransparencyYou get regular information on the value of your investments in addition to disclosure onthe specific investments made by your scheme, the proportion invested in each class ofassets and the fund managers investment strategy and outlook.DISADVANTAGE OF MUTUAL FUNDS:1) Over DiversificationDiversification is usually a good thing because it reduces risk, but Mutual Fundssometimes make small investments in so many securities that they become overdiversified. In other words, the Mutual Funds holdings in each security may be so smallthat it is difficult to realize substantial return from any of those holdings, which in turnmeans that the overall return for each investor is small.2) Unused CashYour cash may occasionally serve as liquidity insurance rather than work for you as aninvestment. The constant availability of shares is certainly convenient for investors in a21

mutual fund, but it can also operate as a disadvantage. A Mutual Fund manager mustalways prepare for the possibility than an investor will cash in his or her shares. As aresult Mutual Funds must maintain a ready cash supply at all times.3) Fluctuating ReturnsMutual funds are like many other investments without a guaranteed return. There isalways the possibility that the value of your mutual fund will depreciate. Unlike fixed-income products, such as Bonds and Treasury Bills, mutual funds experience pricefluctuations along with stocks that make up the fund.4) Costs Despite Negative ReturnsInvestors must pay sales charges, annual fees, service charges and other expensesregardless of how the fund performs. In addition, depending on the timing of theirinvestment, investors may also have to pay taxes on any capital gains distribution theyreceive even if the fund went on to perform poorly after they bought shares.5) Misleading AdvertisementsThe misleading advertisements of different funds can guide investors down the wrongpath. Some funds may be incorrectly labeled as growth funds, while others are classifiedas small-cap or income.6) Evaluating FundsNot offer investors the opportunity to compare the P/E ratio, sales growth, earnings share,etc. A Mutual Funds Net Asset Value gives the investors the total value of the Anotherlimitation of mutual fund is the difficulty they pose for investors interested in researchingand evaluating the different funds. Unlike stocks, mutual funds do funds portfolio lessliabilities.7) Poor TransparencyTechnology used for servicing of investors and for portfolio management and investmentdecision making is poor and general efficiency and timeliness are lacking as a result ofantiquated methods of operation. Telex, telephone and communication systems are poorand antiquated.22

RISK ASSOCIATED WITH MUTUAL FUND INVESTMENTThe Principal that the greater risk you take, the greater the potential reward.Typically, risk is defined as short term price variability. But on a long term basis, risk isthe possibility that your accumulated real capital will be insufficient to meet your financialgoals. And if you want to reach your financial goals, you must start with an honest.At the cornerstone or investing is the basic appraisal of your own personal comfortzone with regard to risk. Individual tolerance for risk varies, creating a distinct investmentpersonality for each investor. Some investors can accept short-term volatility with ease,others with near panic. So whether you consider you investment temperament to beconservative, moderate or aggressive, you need to focus on how comfortable oruncomfortable you will be as the value of your investment moves up or down23

TYPES OF RISKAll investments involve some form of risk. Even an insured band account is subject to thepossibility that inflation will rise faster than your earnings, leaving you with less realpurchasing power than when you started (Rs.1000 gets you less than it got your father whenhe was your age). Consider these common types of risks and evaluate them against potentialrewards when you select an investment.MarketInflationCreditInterest RateTYPE OF RISKSEmployeesExchange RateInvestmentGovernment Policies1) Market Risk: At times the prices or yields of the all the securities in a particular market riseor fall due to broad outside influences. When this happens, the stock prices of both an24

outstanding, highly profitable company and a fledging corporation may be affected. This

change in price is due to Market Risk.

2) Inflation Risk:

Some times referred to as loss of purchasing power. Whenever

inflation sprints forward faster than the earnings on your investment, you run the risk that

youll actually be able to buy less, not more. Inflation risk also occurs when prices rise

faster than your return.

In short, how stable is the company or entity to which you lend your

3) Credit Risk:

money when you invest. How certain are you that it will be able to pay the interest you

are promised, or repay your principal when the investment matures.

4) Interest Risk:

Changing interest rates affect both equities and bonds in many ways.

Investors are minded that predicting which way rates Effect of loss rev professionals

and inability to adapt:

An industries key asset is often the personnel who run the business i.e. intellectual

properties or the key employees of the respective companies. Given the ever-changing

complexion of few industries and the high obsolescence levels, availability of qualified,

trained and motivated personnel is very critical for the success of industries in few

sectors. It is, therefore, necessary to attract key personnel and also to retain them to meet

the changing environment and challenges the sector offers. Failure or inability to

attract/retain such qualified key personnel may impact the prospects of the companies in

the particular sector in which fund invests.

5) Exchange risk:

A number of companies generate revenues in foreign currencies and

may have investments or expenses also denominated in foreign currencies. Changes in

exchange rates may, therefore, have a positive negative impact on companies which in

turn would have an effect on the investment of the fund.

6). Changes in government policy:

Changes in government policy especially in regard to

the tax benefits may impact business prospects of the companies leading to an impact on

the investments made by the fund.

25

RISK RETURN GRIDRISKTOLERANCE/RETURNEXPECTEDLowDebtBank/company FD, Debtbased FundsBalanced Funds, somePartially Debt,Partially EquityDiversified EquityFunds are some debtFunds, Mix of share andFixed DepositsCapital Market, EquityFunds (Diversified asHighEquitywell as Sector)Diversification,Expertise in stockpicking, Liquidity,Tax free dividendsFOCUSSUITABLEPRODUCTSBENEFITSOFFERED BYMFSLiquidity, BetterPost-Tax returnLiquidity, BetterPost-Tax returns,Better Management,DiversificationMediumCOST INVOLVED IN MUTUAL FUNDSAn investor must know that there are certain costs can be classified into 2 broad categories:Operating expenses - Which are paid out of the funds earningsSales charges- That are directly deducted from your investment. It is notcompulsory that every mutual fund levy sales charges butthey certainly have operating expenses. No doubt theyinfluence returns on investment in a fund.Operating expensesThese referred to cost incurred to operate a mutual fund. Advisory fees paid toinvestment mangers, Audit fees to chartered accountant, custodial fees, register and transferagent fees, trustee fee, agent commission. Operating expenses also known as expenses ratiowhich is annual expenses expressed as a percentage of the funds average daily net assetsmutual funds. The break up of these expenses is required to be reported in the schemes offerdocument (or) prospectus26

Operating expensesExpenses Ratio =-----------------------------Average Net AssetsFor instant, if funds Rs. 100 Crores and expenses 20 lakhs. Then expenses ratio is 2%expenses ratio is available in the offer document and from historical per unit statisticsincluded in the financial results of the fund which are published by annually. UN audited forthe half year ending Sep30 and audited for the physically year end in March 30.Depending upon schemes and net asset, operating expenses are determined by limitsmandated by SEBI Mutual fund regulation Act. Any excess over specified limits as to beborn by Asset Management Company, the trustees or sponsors.Sales charges:These are known commonly sales loads; these are charged directly to investor. Salesloads are used by mutual fund for the payment of agents commission, distribution andmarketing expensed. These charges have not effect on the performance of the scheme. Salesloads are usually express in percentage and or of two types front-end and back end.Front-end load:It is a one time fixed fee paid by an investor when buying a mutualfund scheme. It determines public offer price which intern decides how much of your initialinvestment actually get invested the standard practice of arriving a public offer price is asfollows:Net Asset ValuePublic offer price = ---------------------------(1- front end load)Let us assume, an investor invests Rs.10, 000 in a scheme that charges a 2%front endload at a NAV per unit RS. 10 using the formula public offer price =10/ (1-0.02) is Rs. 10.20.So only 980 units are allotted to the investor Amount investedNumber of units allotted =--------------------------Public offer price10,000/10..20= 980 units at a NAV of Rs. 10 27

This means units worth 9800 are allotted to him on an initial investment of Rs. 10,000. Frontend loads tent to decrease as initial investment amount increase.Back end load:May be a fixed fee redemption (or) a contingent deferred sales charges-a redemptionload continues so long as the redeeming or selling of the units of the units of a fund does nottake place in the event of back end load is applied. The redemption price is arriving at usingfollowing formula.Net Asset ValueRedemption price = ------------------------------(1+ back end load)Let us assume an investor redeems units valued at Rs. 10,000 in a scheme that charges a 2%back end load at a NAV per unit of Rs. 10. Using the formula redemption price 10/ (1+0.02)= Rs. 9.8So, what the investor gets in hand is 9800(908*1000)Contingent Deferred Sales Charges (CDSC):Contingent deferred sales charges are a structured back end load. It is paid when theunits are redeemed during the initial years of ownership. It is for a pre determined period onlyand reduced over the time youre invested for a fund. The longer the investor remains in fundthe lower the CDSC.The SEBI (mutual fund Regulation 1996) stipulate that a CDSC may becharge only for first 4 years after purchase of units and also stipulate the maximum CDSCthat can we charge every year. The SEBI Mutual funds Regulation 1996 do not allow eitherthe front end load or back end load to any combination is higher that 7%.28

Transaction cost:Some funds may also impose a switch over fee which is a charge on transfer ofinvestment from one scheme to another with in a same mutual fund family and also to switchfrom on plan (short term) to another (long term) within same scheme.SYSTEMATIC INVESTING PLANS (SIPs)It is an investment vehicle, where you need to deposit a fixed amount at regularintervals (monthly, quarterly, etc.) in a MF scheme; just like you do in a recurring depositaccount with a bank or the post office.Regular Investing is not easy. Owing to lack of time, most people invest sporadically.The result? The returns are rarely optimal. However, there is a foolproof way of investing afixed amount of money at regular intervals: Chola Mutual Funds Systematic InvestmentPlan (SIP). SIP uses the concept of rupee cost averaging, ensuring investors buy more whenprices are low; and fewer units when prices are high.Benefits of Systematic Investment PlansDiscipline Saving:Inculcating discipline in your investment has been easier. Your investment is done ona regular basis by the mutual fund without any intervention required by you. The best part isthat you will not feel the pain of having to save since the money will move from your bankaccount automatically.Rupee Cost Averaging:The SIP helps you take advantage of the fluctuation in the stocks market by rupeecost averaging. The investor buys more units when the prices are low and fewer unitscost. Assume you are investing Rs.1000/- each for next four months.29

Month1234Amount Invested1000100010001000Purchase Price100910 11Table 2 (b)No of Units Purchased100111.1110090.9Total Investment = Rs. 4000; No of units purchased is 402.21. The average cost per unitswork out to be Rs9.95.As illustrated, over time you have a lower average cost per unit. By investing a fixedamount of money at regular intervals, you as an investor stand to gain reasonable returns andcreate significantly wealth-over time.Lower Cost of Investing:Getting into SIP program does not required large investment amounts at regularintervals. Even as small as Rs. 1000 can be invested at regular intervals.Builds Investment Kitty:You have to give Post-Dated cheque (PDCs) to the mutual fund for deposit onspecific dates, for the amount you want to invest. These cheques are presented to your bankaccount on these dates and the funds are withdrawn from your account for investment in themutual fund scheme at the prevailing NAV. Other than making the initial investment andissuing the cheques at the beginning, no further efforts are required from you.Overcoming market volatility:SIPs help you avoid missing market falls because of lack of time to track the market.You dont have the responsibility of actively monitoring market movement to be able to enterduring falls.30

Market timing doesnt work:Trying to time the markets, i.e. entering when the markets fall and exiting when themarkets rise, usually does not work. It is best to take the systematic investment approach tostay above marketRedemption of Units:The units can be redeemed (i.e. sold back to the mutual fund) or switched-out subjectto completion of lock in period, on every business day at the redemption price. Theredemption/switch out request can be made by way of a written request, on a pre printed formor by using the relevant tear off section of the transaction slip enclosed with the accountstatement, which should be submitted at/may be sent by mail to any of the ISCs.Redemption price:Redemption price will be calculated on the basis of the loads of different plans/options. Theredemption price per unit will be calculated using the following formula:Redemption Price = Application NAV * (1 exit Load, if any)Example for calculation of redemption PriceIf the application NAV is Rs.10.00; Exit/redemption load is 2%, then the redemption pricewill be calculated as follows:= Rs.10.00 *(1-0.02)= Rs.10.00 * (0.98)= Rs.9.80PARAMETERS DESCRIPTIONThe following parameters were considered for analysis:BetaAlphaCorrelation coefficientTreynors RatioSharpes Ratio31

Jensens RatioBetaBeta is a measure of volatility, or systematic risk, of a security or portfolio in comparison tothe market as a whole. Beta measures a stock's volatility, the degree to which a stock pricefluctuates in relation to the overall market. Investment analysts use the Greek letter beta, . Itis calculated using regression analysis. A beta of 1 indicates that the security's price willmove with the market. A beta greater than 1 indicates that the security's price will be morevolatile than the market, and a beta less than 1 means that it will be less volatile than themarket.While standard deviation determines the volatility of a fund according to the disparity of itsreturns over a period of time, beta, another useful statistical measure, determines thevolatility, or risk, of a fund in comparison to that of its index.Investors expecting the market to be bullish may choose funds exhibiting high betas, whichincrease investors' chances of beating the market. If an investor expects the market to bebearish in the near future, the funds that have betas less than 1 are a good choice because theywould be expected to decline less in value than the index. For example, if a fund had a beta of0.5 and the S&P 500 declined 6%, the fund would be expected to decline only 3%. Be awareof the fact that beta by itself is limited and can be skewed due to factors of other than themarket risk affecting the fund's volatility.Here is a basic guide to various betas:Negative beta - A beta less than 0 is possible but highly unlikely. People used to think thatgold and gold stocks should have negative betas because they tended to do better when thestock market declined, but this hasn't been true overall.Beta = 0 - Basically this is cash (assuming no inflation).Beta between 0 and 1 - Low-volatility investments, such as utilities, are usually in this rangeBeta = 1 - This is the same as an index, such as the S&P 500 or some other index fund.Beta greater than 1 - This denotes anything more volatile than the broad-based index, like asector fund.Beta greater than 100 - This is impossible because the stock would be expected go to zeroon any decline in the stock market. The beta never gets higher than two to three.32

The beta value for an index itself is taken as one. Equity funds can have beta values, whichcan be above one, less than one or equal to one. By multiplying the beta value of a fund withthe expected percentage movement of an index, the expected movement in the fund can bedetermined. Thus if a fund has a beta of 1.2 and the market is expected to move up by ten percent, the fund should move by 12 per cent Similarly if the market loses ten per cent, the fundshould lose 12 per cent.This shows that a fund with a beta of more than one will rise more than the market and alsofall more than market. Clearly, if you'd like to beat the market on the upside, it is best toinvest in a high-beta fund. But you must keep in mind that such a fund will also fall morethan the market on the way down. So, over an entire cycle, returns may not be much higherthan the market.Similarly, a low-beta fund will rise less than the market on the way up and lose less on theway down. When safety of investment is important, a fund with a beta of less than one is abetter option. Such a fund may not gain much more than the market on the upside; it willprotect returns better when market falls.AlphaA measure of risk, used for mutual funds with regards to their relation and the market. Apositive alpha is the extra return awarded to the investor for taking a risk, instead of acceptingthe market return.The formula for alpha is:Alpha = [ (sum of y) - ((b)(sum of x)) ] / nn =number of observations (36 mos.)b = beta of the fundx = rate of return for the markety = rate of return for the fundAlpha measures how much if any of this extra risk helped the fund outperform itscorresponding benchmark. Using beta, alpha's computation compares the fund's performanceto that of the benchmark's risk-adjusted returns and establishes if the fund's returnsoutperformed the market's, given the same amount of risk. 33

For example, if a fund has an alpha of 1, it means that the fund outperformed the benchmarkby 1%. Negative alphas are bad in that they indicate that the fund under performed for theamount of extra, fund-specific risk that the fund's investors undertook.STANDARD DEVIATION:Standard deviation is probably used more than any other measure to describe the risk of asecurity (or portfolio ofsecurities). If you read an academic study on investmentperformance, chances are that standard deviation will be used to gauge risk. It's not just afinancial tool, though. Standard deviation is one of the most commonly used statistical toolsin the sciences and social sciences. It provides a precise measure of the amount of variation inany group of numbers--the returns of a mutual fund.Measure of the dispersion of a set of data from its mean. The more spread apart the data is,the higher the deviation. Standard deviation is applied to the annual rate of return of aninvestment to measure the investment's volatility (risk).A volatile stock would have a high standard deviation. In mutual funds, the standarddeviation tells us how much the return on the fund is deviating from the expected normalreturns. Standard deviation is a statistical measure of the range of a fund's performance.When a fund has a high standard deviation, its range of performance has been very wide,indicating that there is a greater potential for volatility.Technically speaking, standard deviation provides a quantification of the variance of thereturns of the security, not its risk. After all, a fund with a high standard deviation of returnsis not necessarily "riskier" than one with a low-standard deviation of returns.Correlation:Correlation is a useful tool for determining if relationships exist between securities. Acorrelation coefficient is the result of a mathematical comparison of how closely related twovariables are.The relationship between two variables is said to be highly correlated if a movement in onevariable results or takes place at the same time as a similar movement in another variable. A 34

useful feature of correlation analysis is the potential to predict the movement in one securitywhen another security moves. Sometimes, there are securities that lead other securities. Inother words a change in price in one results in a later change in price of the other. A highnegative correlation means that when a securities price changes, the other security orindicator or otherwise financial vehicle, will often move in the opposite direction.Correlation analysis is a measure of the degree to which a change in the independent variablewill result in a change in the dependent variable. A low correlation coefficient (e.g., 0.1)suggests that the relationship between the two variables is weak or non-existent. A highcorrelation coefficient (e.g., 0.80) indicates that the dependent variable will most likelychange when the Independent variable changes. Correlation can also be used for a studybetween an indicator and a stock or index to help determine the predictive abilities of changesin the indicator. Correlation is not static. In other words, the correlation between two thingsin the markets does change over time and so a careful understanding that what has happenedin the past may not predict what will happen in the future should be part of any basis intrading financial instruments in the market.PORTFOLIO MEASUREMENT METHODS:We are interested in discovering if the management of a mutual fund is performing well; thatis, has management done better through its selective buying and selling of securities thanwould have been achieved through merely buying the market picking a large number ofsecurities randomly and holding them throughout the period?The most popular ways of measuring managements performance are1. Sharpes Performance Measure2. Treynors Performance Measure3. Jensens Performance MeasureSHARPES RATIOSharpes is the summary measure of portfolio performance which properly adjustsperformance for risk. It measures the risk premiums of the portfolio relative to the totalamount of risk in the portfolio.35

The Sharpes index is given by:Sharpes Index =(Average return on portfolio Risk less rate of interest)(Deviation of returns on portfolio)Graphifically the index measures the slope of the line emanating from the risk less rateoutward to the portfolio in question. Thus, the Sharpe Index summarizes the risk and returnof a portfolio in a single measure that categorizes the performance of the fund on a risk-adjusted basis. The larger the value of Sharpe Index the better the portfolio has performed.TREYNORS RATIOTreynors ratio measures the risk premium of the portfolio, where risk premium equals thedifference between the return of the portfolio and the risk less rate. The risk premium isrelated to the amount of systematic risk assumed in the portfolio. Graphically; the indexmeasures the slope of the line emanating outward from risk less rate to the portfolio underconsideration.Treynors ratio is given as(Average return of portfolio Risk less rate of interest)Treynor Index = -------------------------------------------------------Beta coefficient of portfolioJensens Performance Measure (Michael)It refers the actual return earned in portfolio and return expected out of portfolio given itslevel of risk.CAPM is used to calculate the expected return. The difference between the expected returnand act retain can be said the return earned out of the mandatory of systematic risk.This excess return refers the managers predictive ability and managerial skills.CAPMrp = rf + (rm rf)Differential return is calculated as follows:p = rp - rpp =positive > Superior returnsp=Negative > Unskilled management (worse portfolio)p = 0 > Neutral performanceHigher alpha represents superior performance of a fund and vice versa.36

CHAPTER-IIIINDUSTRY PROFILE&COMPANY PROFILE37

INDUSTRY PROFILEGROWTH AND HISTORY OF MUTUAL FUNDSThe First investment trust (now called Mutual Fund) began in the Netherlands in theearly 1800s. The first in the U.S. was the New York Stock Trust, which started in 1889. SinceBoston was the economic center of the nation until the turn of the century, the majority offunds started thereFidelity, Pioneer and Putnum Fund, to name a few. A Fund that wascomprised of both stocks and bonds (the Wellington Fund) started in 1928 and is still part ofVanguard. As the 20's crashed to a close, there were 10 Mutual Funds in the nation.Foundation for the Mutual Fund in India was laid by the parliament in 1963. With theenactmentofUnitTrustofIndia(UTI)ActthethenFinanceMinisterMr.T.T.Krishnamacharya who initiated the act made it clear to the parliament act UTIwould provide an opportunity for the middle and lower income groups to acquireproperty in the form of share. Thus UTI came out with the mission of catering to theneeds of individuals investors whose means are small, with its maiden fund, an open endedfund in 1964.The Indian Mutual Fund Industry can be studied in four phases:-FIRST PHASE BETWEEN 1964 1987The genesis of the Mutual Fund industry in India can be traced back to 1964 with thesetting up of the Unit Trust of India (UTI) by the Government of India. Since then UTI hasgrown to be a dominant player in the industry. UTI is governed by a special legislation, theUnit Trust of India Act, 1963. It was setup by the Reserve Bank of India and functionedunder the regulatory and administrative control of RBI. In 1978, UTI was de-linked from theRBI and the administrative control in place of RBI. The first scheme launched by UTI wasunit Scheme 1964. At the end of 1988, UTI had Rs. 6700 crores of assets under themanagement.38

SECOND PHASE 1987-1993(Entry of Public Sector Funds)Till 1986, UTI was the only mutual player in India. The industry was opened up forwider participation in 1987 when public sector banks and insurance companies werepermitted to setup Mutual Funds.Since then, many public sector banks have setup Mutual Funds. SBI Mutual Fund wasthe first non-UTI Mutual Funds established in June 1987 followed by can bank MutualFunds, Punjab National Bank Mutual Fund, India bank Mutual Funds, Bank of India, Bank ofBoroda Mutual Funds. Also the two Insurance companies LIC (June 1987) and GIC(December 1990) have established Mutual Funds. At the end of 1993, the Mutual Fundindustry had assets under management of Rs. 47004 crores. This phase changed the mind setof the investors.THIRD PHASE 1993-2003With 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, 1993 wasthe year in which the first Mutual Funds regulations came into being, under which all MutualFunds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (nowmerged with Franklin Templeton) was the first sector Mutual Fund registered in July 1993.Securities Exchange Board of India (SEBI) formulated the Mutual Fund (Regulation)1993, which for the first time established a comprehensive regulatory framework for theMutual Fund Industry. Since then several Mutual Funds have been setup by the private andjoint sectors.FOURTH PHASE - Since February 2003In February 2003, following the repeal of the Unit Trust of India act 1963, UTI wasbifurcated into separate entities. One is the specified undertaking of the UTI with asset undermanagement of Rs. 29835 crores as at the end of January 2003, representing broadly, theassets of US 64 schemes, assured return and certain other schemes.The second is UTI Mutual Fund ltd, sponsored by SBI, PNB, BOB and LIC. It isregistered in SEBI and functions under the Mutual Fund regulations. With the bifurcation ofthe erstwhile UTI which had in March 2000 more than Rs. 76000 crores of assets under39

management and with the setting up of the UTI Mutual Fund. At the end of October 31, 2006there were 39 funds which manage assets of Rs. 176726 crores under 426 schemes.EvolutionIndian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 yearsago. The earliest records of security dealings in India are meager and obscure. The East IndiaCompany was the dominant institution in those days and business in its loan securities usedto be transacted towards the close of the eighteenth century.By 1830's business on corporate stocks and shares in Bank and Cotton presses took place inBombay. Though the trading list was broader in 1839, there were only half a dozen brokersrecognized by banks and merchants during 1840 and 1850.The 1850's witnessed a rapid development of commercial enterprise and brokerage businessattracted many men into the field and by 1860 the number of brokers increased into 60.In 1860-61 the American Civil War broke out and cotton supply from United States ofEurope was stopped; thus, the 'Share Mania' in India begun. The number of brokers increasedto about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrousslump began (for example, Bank of Bombay Share which had touched Rs 2850 could only besold at Rs. 87).At the end of the American Civil War, the brokers who thrived out of Civil War in 1874,found a place in a street (now appropriately called as Dalal Street) where they wouldconveniently assemble and transact business. In 1887, they formally established in Bombay,the "Native Share and Stock Brokers' Association" (which is alternatively known as " TheStock Exchange "). In 1895, the Stock Exchange acquired a premise in the same street and itwas inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.Other leading cities in stock market operationsAhmadabad gained importance next to Bombay with respect to cotton textile industry. After1880, many mills originated from Ahmadabad and rapidly forged ahead. As new mills werefloated, the need for a Stock Exchange at Ahmadabad was realized and in 1894 the brokersformed "The Ahmadabad Share and Stock Brokers' Association".40

What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was toCalcutta. Also tea and coal industries were the other major industrial groups in Calcutta.After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares, whichwas followed by a boom in tea shares in the 1880's and 1890's; and a coal boom between1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock ExchangeAssociation".In the beginning of the twentieth century, the industrial revolution was on the way in Indiawith the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel CompanyLimited in 1907, an important stage in industrial advancement under Indian enterprise wasreached.Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies generallyenjoyed phenomenal prosperity, due to the First World War.In 1920, the then demure city of Madras had the maiden thrill of a stock exchangefunctioning in its midst, under the name and style of "The Madras Stock Exchange" with 100members. However, when boom faded, the number of members stood reduced from 100 to 3,by 1923, and so it went out of existence.In 1935, the stock market activity improved, especially in South India where there was arapid increase in the number of textile mills and many plantation companies were floated. In1937, a stock exchange was once again organized in Madras - Madras Stock ExchangeAssociation (Pvt) Limited. (In 1957 the name was changed to Madras Stock ExchangeLimited).Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with thePunjab Stock Exchange Limited, which was incorporated in 1936.Indian Stock Exchanges - An Umbrella GrowthThe Second World War broke out in 1939. It gave a sharp boom which was followed by aslump. But, in 1943, the situation changed radically, when India was fully mobilized as asupply base.41

On account of the restrictive controls on cotton, bullion, seeds and other commodities, thosedealing in them found in the stock market as the only outlet for their activities. They wereanxious to join the trade and their number was swelled by numerous others. Many newassociations were constituted for the purpose and Stock Exchanges in all parts of the countrywere floated.The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940)and Hyderabad Stock Exchange Limited (1944) were incorporated.In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and theDelhi Stocks and Shares Exchange Limited - were floated and later in June 1947,amalgamated into the Delhi Stock Exchnage Association Limited.Post-independence ScenarioMost of the exchanges suffered almost a total eclipse during depression. Lahore Exchangewas closed during partition of the country and later migrated to Delhi and merged with DelhiStock Exchange.Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.Most of the other exchanges languished till 1957 when they applied to the CentralGovernment for recognition under the Securities Contracts (Regulation) Act, 1956. OnlyBombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well establishedexchanges, were recognized under the Act. Some of the members of the other Associationswere required to be admitted by the recognized stock exchanges on a concessional basis, butacting on the principle of unitary control, all these pseudo stock exchanges were refusedrecognition by the Government of India and they thereupon ceased to function.Thus, during early sixties there were eight recognized stock exchanges in India (mentionedabove). The number virtually remained unchanged, for nearly two decades. During eighties,however, many stock exchanges were established: Cochin Stock Exchange (1980), UttarPradesh Stock Exchange Association Limited (at Kanpur, 1982), and Pune Stock ExchangeLimited (1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati StockExchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore, 1985), MagadhStock Exchange Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989),42

Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra Kutch Stock ExchangeLimited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at Baroda, 1990) and recentlyestablished exchanges - Coimbatore and Meerut. Thus, at present, there are totally twenty onerecognized stock exchanges in India excluding the Over The Counter Exchange of IndiaLimited (OTCEI) and the National Stock Exchange of India Limited (NSEIL).The Table given below portrays the overall growth pattern of Indian stock markets sinceindependence. It is quite evident from the Table that Indian stock markets have not onlygrown just in number of exchanges, but also in number of listed companies and in capital oflisted companies. The remarkable growth after 1985 can be clearly seen from the Table, andthis was due to the favouring government policies towards security market industry.Trading Pattern of the Indian Stock MarketTrading in Indian stock exchanges are limited to listed securities of public limited companies.They are broadly divided into two categories, namely, specified securities (forward list) andnon-specified securities (cash list). Equity shares of dividend paying, growth-orientedcompanies with a paid-up capital of atleast Rs.50 million and a market capitalization ofatleast Rs.100 million and having more than 20,000 shareholders are, normally, put in thespecified group and the balance in non-specified group.Two types of transactions can be carried out on the Indian stock exchanges: (a) spot deliverytransactions "for delivery and payment within the time or on the date stipulated when enteringinto the contract which shall not be more than 14 days following the date of the contract" :and (b) forward transactions "delivery and payment can be extended by further period of 14days each so that the overall period does not exceed 90 days from the date of the contract".The latter is permitted only in the case of specified shares. The brokers who carry over theoutstandings pay carry over charges (cantango or backwardation) which are usuallydetermined by the rates of interest prevailing.A member broker in an Indian stock exchange can act as an agent, buy and sell securities forhis clients on a commission basis and also can act as a trader or dealer as a principal, buy andsell securities on his own account and risk, in contrast with the practice prevailing on NewYork and London Stock Exchanges, where a member can act as a jobber or a broker only.43

The nature of trading on Indian Stock Exchanges are that of age old conventional style offace-to-face trading with bids and offers being made by open outcry. However, there is agreat amount of effort to modernize the Indian stock exchanges in the very recent times.Over The Counter Exchange of India (OTCEI)The traditional trading mechanism prevailed in the Indian stock markets gave way to manyfunctional inefficiencies, such as, absence of liquidity, lack of transparency, unduly longsettlement periods and benami transactions, which affected the small investors to a greatextent. To provide improved services to investors, the country's first ringless, scripless,electronic stock exchange - OTCEI - was created in 1992 by country's premier financialinstitutions - Unit Trust of India, Industrial Credit and Investment Corporation of India,Industrial Development Bank of India, SBI Capital Markets, Industrial Finance Corporationof India, General Insurance Corporation and its subsidiaries and CanBank Financial Services.Trading at OTCEI is done over the centres spread across the country. Securities traded on theOTCEI are classified into:Listed Securities - The shares and debentures of the companies listed on the OTC canbe bought or sold at any OTC counter all over the country and they should not belisted anywhere elsePermitted Securities - Certain shares and debentures listed on other exchanges andunits of mutual funds are allowed to be tradedInitiated debentures - Any equity holding atleast one lakh debentures of a particularscrip can offer them for trading on the OTC.OTC has a unique feature of trading compared to other traditional exchanges. That is,certificates of listed securities and initiated debentures are not traded at OTC. The originalcertificate will be safely with the custodian. But, a counter receipt is generated out at thecounter which substitutes the share certificate and is used for all transactions.In the case of permitted securities, the system is similar to a traditional stock exchange. Thedifference is that the delivery and payment procedure will be completed within 14 days.44

Compared to the traditional Exchanges, OTC Exchange network has the followingadvantages:OTCEI has widely dispersed trading mechanism across the country which providesgreater liquidity and lesser risk of intermediary charges.Greater transparency and accuracy of prices is obtained due to the screen-basedscripless trading.Since the exact price of the transaction is shown on the computer screen, the investorgets to know the exact price at which s/he is trading.Faster settlement and transfer process compared to other exchanges.In the case of an OTC issue (new issue), the allotment procedure is completed in amonth and trading commences after a month of the issue closure, whereas it takes alonger period for the same with respect to other exchanges.Thus, with the superior trading mechanism coupled with information transparency investorsare gradually becoming aware of the manifold advantages of the OTCEI.National Stock Exchange (NSE)With the liberalization of the Indian economy, it was found inevitable to lift the Indian stockmarket trading system on par with the international standards. On the basis of therecommendations of high powered Pherwani Committee, the National Stock Exchange wasincorporated in 1992 by Industrial Development Bank of India, Industrial Credit andInvestment Corporation of India, Industrial Finance Corporation of India, all InsuranceCorporations, selected commercial banks and others.Trading at NSE can be classified under two broad categories:(a) Wholesale debt market and(b) Capital market.Wholesale debt market operations are similar to money market operations - institutions andcorporate bodies enter into high value transactions in financial instruments such as45

government securities, treasury bills, public sector unit bonds, commercial paper, certificateof deposit, etc.There are two kinds of players in NSE:(a) trading members and(b) participants.Recognized members of NSE are called trading members who trade on behalf of themselvesand their clients. Participants include trading members and large players like banks who takedirect settlement responsibility.Trading at NSE takes place through a fully automated screen-based trading mechanism whichadopts the principle of an order-driven market. Trading members can stay at their offices andexecute the trading, since they are linked through a communication network. The prices atwhich the buyer and seller are willing to transact will appear on the screen. When the pricesmatch the transaction will be completed and a confirmation slip will be printed at the officeof the trading member.NSE has several advantages over the traditional trading exchanges. They are as follows:NSE brings an integrated stock market trading network across the nation.Investors can trade at the same price from anywhere in the country since inter-marketoperations are streamlined coupled with the countrywide access to the securities.Delays in communication, late payments and the malpractices prevailing in thetraditional trading mechanism can be done away with greater operational efficiencyand informational transparency in the stock market operations, with the support oftotal computerized network.Unless stock markets provide professionalized service, small investors and foreign investorswill not be interested in capital market operations. And capital market being one of the majorsource of long-term finance for industrial projects, India cannot afford to damage the capitalmarket path. In this regard NSE gains vital importance in the Indian capital market system.PreambleOften, in the economic literature we find the terms development and growth are usedinterchangeably. However, there is a difference. Economic growth refers to the sustained46

increase in per capita or total income, while the term economic development impliessustained structural change, including all the complex effects of economic growth. In otherwords, growth is associated with free enterprise, where as development requires some sort ofcontrol and regulation of the forces affecting development. Thus, economic development is aprocess and growth is a phenomenon.Economic planning is very critical for a nation, especially a developing country like India totake the country in the path of economic development to attain economic growth.Why Economic Planning for India?One of the major objective of planning in India is to increase the rate of economicdevelopment, implying that increasing the rate of capital formation by raising the levels ofincome, saving and investment. However, increasing the rate of capital formation in India isbeset with a number of difficulties. People are poverty ridden. Their capacity to save isextremely low due to low levels of income and high propensity to consume. Therefor, the rateof investment is low which leads to capital deficiency and low productivity. Low productivitymeans low income and the vicious circle continues. Thus, to break this vicious economiccircle, planning is inevitable for India.The market mechanism works imperfectly in developing nations due to the ignorance andunfamiliarity with it. Therefore, to improve and strengthen market mechanism planning isvery vital. In India, a large portion of the economy is non-monitised; the product, factors ofproduction, money and capital markets is not organized properly. Thus the prevailing pricemechanism fails to bring about adjustments between aggregate demand and supply of goodsand services. Thus, to improve the economy, market imperfections has to be removed;available resources has to be mobilized and utilized efficiently; and structural rigidities has tobe overcome. These can be attained only through planning.In India, capital is scarce; and unemployment and disguised unemployment is prevalent.Thus, where capital was being scarce and labour being abundant, providing usefulemployment opportunities to an increasing labour force is a difficult exercise. Only acentralized planning model can solve this macro problem of India.Further, in a country like India where agricultural dependence is very high, one cannot ignorethis segment in the process of economic development. Therefore, an economic developmentmodel has to consider a balanced approach to link both agriculture and industry and lead for aparalleled growth. Not to mention, both agriculture and industry cannot develop without47

adequate infrastructural facilities which only the state can provide and this is possible onlythrough a well carved out planning strategy. The governments role in providinginfrastructure is unavoidable due to the fact that the role of private sector in infrastructuraldevelopment of India is very minimal since these infrastructure projects are considered asunprofitable by the private sector.Further, India is a clear case of income disparity. Thus, it is the duty of the state to reduce theprevailing income inequalities. This is possible only through planning.Planning History of IndiaThe development of planning in India began prior to the first Five Year Plan of independentIndia, long before independence even. The idea of central directions of resources to overcomepersistent poverty gradually, because one of the main policies advocated by nationalists earlyin the century. The Congress Party worked out a program for economic advancement duringthe 1920s, and 1930s and by the 1938 they formed a National Planning Committee underthe chairmanship of future Prime Minister Nehru. The Committee had little time to doanything but prepare programs and reports before the Second World War which put an end toit. But it was already more than an academic exercise remote from administration.Provisional government had been elected in 1938, and the Congress Party leaders heldpositions of responsibility. After the war, the Interim government of the pre-independenceyears appointed an Advisory Planning Board. The Board produced a number of somewhatdisconnected Plans itself. But, more important in the long run, it recommended theappointment of a Planning Commission.The Planning Commission did not start work properly until 1950. During the first three yearsof independent India, the state and economy scarcely had a stable structure at all, whilemillions of refugees crossed the newly established borders of India and Pakistan, and whileex-princely states (over 500 of them) were being merged into India or Pakistan. The PlanningCommission as it now exists, was not set up until the new India had adopted its Constitutionin January 1950.48

Objectives of Indian PlanningThe Planning Commission was set up the following Directive principles :To make an assessment of the material, capital and human resources of the country,including technical personnel, and investigate the possibilities of augmenting such ofthese resources as are found to be deficient in relation to the nations requirement.To formulate a plan for the most effective and balanced use of the countrysresources.Having determined the priorities, to define the stages in which the plan should becarried out, and propose the allocation of resources for the completion of each stage.To indicate the factors which are tending to retard economic development, anddetermine the conditions which, in view of the current social and political situation,should be established for the successful execution of the Plan.To determine the nature of the machinery this will be necessary for securing thesuccessful implementation of each stage of Plan in all its aspects.To appraise from time to time the progress achieved in the execution of each stage ofthe Plan and recommend the adjustments of policy and measures that such appraisalsmay show to be necessary.To make such interim or auxiliary recommendations as appear to it to be appropriateeither for facilitating the discharge of the duties assigned to it or on a consideration ofthe prevailing economic conditions, current policies, measures and developmentprograms; or on an examination of such specific problems as may be referred to it foradvice by Central or State Governments.The long-term general objectives of Indian Planning are as follows:Increasing National IncomeReducing inequalities in the distribution of income and wealthElimination of poverty49

Providing additional employment; andAlleviating bottlenecks in the areas of : agricultural production, manufacturingcapacity for producers goods and balance of payments.Economic growth, as the primary objective has remained in focus in all Five Year Plans.Approximately, economic growth has been targeted at a rate of five per cent per annum. Highpriority to economic growth in Indian Plans looks very much justified in view of long periodof stagnation during the British rule50

COMPANY PROFILE51

COMPANY PROFILEIntroduction to IndiabullsIndiabulls Group is one of the top business house in the country with business interests inReal Estate, Infrastructure, Financial Services, Retail, Multiplex and Power Sectors.Indiabulls Group companies are listed in Indian and overseas financial markets. The networth of the Group exceeds USD 2 billion.The companys vision is to be the largest and most profitable financial services organizationin Indian retail market and become one stop shop for all non banking financial products andservices for the retail customers.The companys mission is to rapidly increase the number of client relationships by providinga broad array of product offering to emerge as a clear market leader.Indiabulls Financial Services Limited was incorporated on January 10, 2000 as M/sOrbisInfotech Private Limited at New Delhi under the Companies Act, 1956. The name ofcompany was changed to M/s. Indiabulls Financial Services Private Limited on March 16,2001. In the year 2004, Indiabulls came up with it own public issue & became a publiclimited company on February 27, 2004. The name of company was changed to M/s.IndiabullsFinancialServiceLimited.The company was promoted by three engineers from IIT Delhi, and has attracted more thanRs.700 million as investments from venture capital, private equity and institutional investorsand has developed significant relationships with large commercial banks such as Citibank,HDFC Bank, Union Bank, ICICI Bank, ABN Amro Bank, Standard Chartered Bank andIL&FS.The company headquarters are co-located in Mumbai and Delhi, allowing it to access the twomost important regions for Indian financial markets, The marketing and sales efforts areheadquartered out of Mumbai, with a regional headquarter in Delhi. Back office, risk52

management, internal finances etc. are headquartered out of Delhi/NCR allowing thecompany to scale these processes efficiently for the nationwide network.Company is listed on:National Stock ExchangeBombay Stock ExchangeLuxemburg Stock ExchangeMarket capitalization:USD 6,300 million (31st December, 2007)Net worthUSD 905 million (31st December, 2007)Broad array of product offering1. Loans & mortgageooooHome Loans/Home EquitySmall Medium EnterprisesCommercial VehicleCommercial Credit2. Life Insurance3. Advisory Services4. IPO FinancingTop Strategic UpdatesIndiabulls Financial Services limited (IBFSL) completed the de-merger of its realestate business into a separate publicly traded company, (IBREL) unlocked over Rs.10000 crore of shareholder wealth.53

De-merger: De-merger of Indiabulls Securities Limited from Indiabulls financialservices limited. Each shareholder of Indiabulls Financial Services Limited received ashare of Indiabulls Securities Limited.SARFAESI Act Notification: Indiabulls Housing Finance Limited, a wholly ownedsubsidiary of Indiabulls Financial Services Limited has been notified as a FinancialInstitution for the purpose of SARFAESI Act, 2002. This notification is beingeffectively used by the Company to yield positive results in speedy recoveries ofdelinquent mortgage loans.New Business Venture Update:Life Insurance Venture: Indiabulls Financial Services Limited (IBFSL) has enteredinto an MOU with Sogecap, the insurance arm of SocieteGenerale (SocGen) for itsupcoming life insurance joint venture. Sogecap will invest Rs 150 crore to subscribeto 26% of the paid up capital in the joint venture.Commodities Exchange: Indiabulls Financial Services Limited has entered into aMOU with MMTC Limited, the largest commodity trading business in India toestablish a Commodities Exchange with 26% ownership with MMTC. Ministry ofCommerce, Govt. of India has given its in-principle approval and the formal approvalof the Forward Markets Commission is awaited.Asset Management Business: Indiabulls Financial Services Limited proposes to setup an asset management company to manage mutual funds and has applied to SEBIfor its approval and the same is awaited.IndiabullsRealEstateLimitedIndiabulls stepped into the real estate market as Indiabulls Real Estate Limited (IREL) in2005. A joint venture between Indiabulls and a US based investment major Farallon CapitalManagement LLC resulted in bringing FDI (Foreign Direct Investment) for the first time inthe Indian Real Estate Market. Another joint venture amongst Indiabulls and DLF, KennethBuilders and Developers (KBD), has brought up projects for development of residentialapartments.Projects:54

Indiabulls is currently evaluating many large-scale projects worth several hundred milliondollars.1. Jupiter Mills2. Elphinstone Mills3. Sonepat Township4. Castlewood5. Raigarh SEZ6. Gurgaon Housing7. Goa Luxury Resort8. Nashik SEZ9. Chennai Housing10. Thane SEZ11. Chennai Township12. Mumbai TownshipIndiabulls Securities LimitedIndiabulls Securities Limited is the jewel in the crown of Indiabulls group.The products and services offered include securities, credit services, demat account for sharetrading, mutual fund news, commodity and review along with technical analysis of themarket.Indiabulls also provide commodity brokerage services under Indiabulls Commodities Limited(ICL). It deals in research work and formation of reports on agri-commodites and metals. ICLhas one of the largest retail branch networks in the country.55

Products offeredEquities and DerivativesOffers purchase and sale of securities (stock, bonds, debentures etc.)Broker assisted trade executionAutomated online investingAccess to all IPO'sEquity AnalysisHelps to build ideal portfolioSatisfies need by rating stocks based on facts-based measuresFree of cost for all securities clientsDepository ServicesDepository participant with NSDL and CDSL.Helps in trading and settlement of dematerialized sharesPerforms clearing services for all securities transactionsOffers platform to execute trade and settle transactionIndiabulls ensure convenience and reliability in all their products and services. Indiabulls hasover 640 branches all over India. The customers of Indiabulls are more than 4,50,000 whichcovers from a wide range of financial services and products from securities, derivativestrading, depositary services, research & advisory services, consumer secured & unsecuredcredit, loan against shares and mortgage & housing finance. The company employs around4000 Relationship managers who help the clients to satisfy their customized financial goals.Indiabulls entered the Real Estate business in the year 2005 with its group of companies.Large scale projects worth several hundred million dollars are evaluated by them.Indiabulls and its group companies have attracted USD 500 million of equity capital inForeign Direct Investment (FDI) since March 2000. Some of the large shareholders of56

Indiabulls are the largest financial institutions of the world such as Fidelity Funds, GoldmanSachs, Merrill Lynch, Morgan Stanley and Farallon Capital.In middle of 1999, when e-commerce was just about starting in India, Sameer Gehlaut andhis close IIT Delhi friend Rajiv Rattan got together and bought a defunct securities companywith a NSE membership and started offering brokerage services . A Few months later, theirfriend Saurabh Mittal also joined them. By December 1999, the company embarked on itsjourney to build one of the first online platforms in India for offering internet brokerageservices. In January 2000, the 3 founders incorporated Indiabulls Financial Services andmade it as the flagship company.In mid 2000, Indiabulls Financial Services received venture capital funding from Mr L.N.Mittal & Mr Harish Fabiani. In late 2000, Indiabulls Securities, a subsidiary of IndiabullsFinancial Services started offering online brokerage services and simultaneously openedphysical offices across India. By 2003, Indiabulls securities had established a strong panIndia presence and client base through its offices and on the internet.In September 2004, Indiabulls Financial Services went public with an IPO at Rs 19 a share.In late 2004, Indiabulls Financial Services started its financing business with consumer loans.In March 2005, Indiabulls Properties Private Ltd, a subsidiary of Indiabulls FinancialServices, participated in government auction of Jupiter Mills, a defunct 11 acre textile millowned by NTC in Lower Parel, Mumbai. Indiabulls Properties private Ltd won the mill inauction and that purchase started Indiabulls real estate business. A few months later,Indiabulls Real Estate company pvt. ltd bought Elphinstone mill in Lower Parel, anothertextile mill auctioned by NTC.With real estate business gaining size, Indiabulls Financial Services demerged the real estatebusiness under Indiabulls Real Estate and each shareholder of Indiabulls Financial Servicesreceived additional share of Indiabulls Real Estate through the demerger. Subsequently,Indiabulls Financial Services also demerged Indiabulls Securities and each shareholder ofIndiabulls Financial Services also received a share of Indiabulls Securities.In year 2007, Indiabulls Real Estate incorporated a 100% subsidiary, Indiabulls Power, tobuild power plants and started work on building Nashik&Amrawati thermal power plants.Indiabulls Power went public in September 2009.57

Today, Indiabulls Group has a networth of Rs 16,796 Crore& has a strong presence inimportant sectors like financial services, power & real estate through independently listedcompanies and Indiabulls Group continues its journey of building businesses with strong cashflows.MANAGEMENT TEAMIndiabulls GroupMr Rajiv Rattan- Co-Founder &Vice ChairmanMr. Sameer Gelhaut-ChairmanMr Saurabh Mittal - DirectorMr GaganBanga - Group SpokespersonMr Ashok Kacker - Group PresidentMr SaketBahuguna - Group CLOMr Ashok Sharma - Group CFOMr Ajit Mittal - Group DirectorMr Gurbans Singh - Group DirectorMr Tejinderpal Singh Miglani - Group CIOIndiabulls Financial Services LimitedMr GaganBanga - CEOMr Ashwini Kumar Hooda - DMDIndiabulls Real Estate LimitedMr VipulBansal - CEOMr NarendraGehlaut - Joint MDIndiabulls Power LimitedMr Ranjit Gupta - CEOMr Murali Subramanian - COOIndiabulls Securities Limited58

Mr Divyesh Shah - CEOMr Vijay Babbar DMDIndiabulls supports Money life Foundation in Empowering InvestorsMoneylife Foundation in collaboration with Indiabulls, recently organized an Investor,Empower Yourself seminar, which was held at the lush Town & Country Club at NewGurgaon, in the National Capital Region (NCR), on Saturday, 7th May 2011. This was thefirst occasion for Moneylife Foundation to venture into other territories outside Maharashtra.Indiabulls played a major role in helping this event happen successfully.The event witnessed over 300 attendees not only from Gurgaon but also from other parts ofNational Capital Region (NCR), Delhi, Allahabad, Ludhiana, Chandigarh & other cities fromnorthern region of India. The venue was fully packed with eager & curious investors.Moneylife Foundation expressed its gratitude towards helpful team of Indiabulls led byMr.GaganBanga, CEO - Indiabulls Financial Services Ltd, for making this event such a hugesuccess.The event started with introductory remarks & guidance by Mr.GaganBanga, CEO -Indiabulls Financial Services Ltd. Mr.Veeresh Malik, Consulting Editor, Moneylife, Delhigave a brief introduction about MoneylifeFoundation.Then audience was guided bySuchetaDalal, Trustee - Moneylife Foundation and Managing Editor- Moneylife, on How tobe Safe with your money &DebashisBasu, Trustee - Moneylife Foundation and Editor-Moneylife about How to be smart with your investments. Mr. Sachin Choudhary, Director &Business Head - Indiabulls Housing Finance Ltd, talked about Do's and Donts of HousingMortgages. Ms.SuchetaDalal also explained the importance & procedure of Wills &Nominations.This event helped people in understanding how to become an aware and empowered investor.The attendees included both finically literate & new investors. They posted number ofintelligent questions which were adequately answered by all the speakers. Empoweringtodays investors by creating awareness and guiding them in taking wise decisions when it59

comes to money or investments was the main objective of Investor, Empower Yourselfseminar. During the Panel Discussion with the panel members SuchetaDalal, DebashisBasu&Sachin Choudhary, quite a few interesting & informative issues regarding Investments werediscussed. Mr.MonuRatra, National Sales Manager - Indiabulls housing Finance Ltd gaveVote of Thanks.This event received many request and suggestions from audience about continuing with suchevents all over India so that citizens of India will be more empowered investors & ultimatelynation will benefit from it. There were some requests from audience to telecast further eventslive on television & internet so that those who are unable to attend the event will also get theguidance. The knowledge shared about the investments during the event was well appreciatedby all.Moneylife Foundation has been instrumental in promoting financial literacy & pro-customeradvocacy in India. Moneylife Foundation has been organizing such events at the MoneylifeKnowledge Centre in Mumbai, and also in various cities across Maharashtra. The Foundationhas completed 15 months of spreading financial literacy & has hosted around 49 speakers and61 events. Currently, more than 5,000 people are members of the Foundation.After the seminar, Indiabulls received feedbacks from some attendees congratulatingIndiabulls team about the success of seminar. Many of the attendees mentioned that they arelooking forward to such seminars in future.Indiabulls has been participating in such Corporate Social Activities with many other sociallyaware groups and trusts &Indiabulls is committed to continue in doing so in future.THE HUBThe Hub at One Indiabulls Centre at Lower Parel is an intelligently designed business centrein MumbaiIn the past few years serviced office industry has been maturing in India and today is amainstream occupancy option for businesses of all sizes. Whether a start-up, SME or a multi-national, companies are now opting for viable alternative to leasing or the outright purchaseof commercial workspace.60

Thus managed business centers have emerged as an innovative solution to these workspacerequirements. The Hub at One Indiabulls Centre at Lower Parel is one such intelligentlydesigned business centre in Mumbai that offers 25,000sqft of fully equipped, servicedworkspace not only suitable for large corporations but also for small businesses and lean teamset ups due to the option of small customized spaces.The real advantage of The Hub is not just that it is more cost effective but also it offers bestpossible working environment by offering conveniences such as advanced security, pantryand maintenance services including IT and utility bills for electricity, water & HVAC.Whats more, those moving into The Hub serviced offices enjoy the added benefit of cuttingedge IT and telecom infrastructure, reception and secretarial support, hi-tech meeting roomsand video conferencing suites as well as business lounge, food courts and state of the artfitness centre.Not to forget among various factors that can affect a business and its success and growth, isthe address or the location of the office especially those of newly established enterprises. TheHub within a world class contemporary business complex located between Nariman Pointand BandraKurla Complex and in close proximity to BandraWorli Sea Link is undeniably inthe finest commercial location in Mumbais upcoming central business district- Lower Parel.Undeniably, The Hub is a new age business centre that provides a very attractive propositionto businesses of all sizes to help their own business grow and prosper.Indiabulls CSR Initiative - Drug Access Program for cancer patients in partnershipwith NovartisAs part of our deep commitment to social causes, Indiabulls has taken up this noble projectnamed Novartis Oncology Access in partnership with Novartis (manufacturer of drugs) &Max foundation (NGO). We as the financial partner are helping them assess actual income ofpatient & family & based on assessed income; recommend the drugs donation slab as perapproved guidelines & SOP.Novartis are the developers & makers of Glivec (Imatinib) - a medication for the treatmentof Ph+ chronic myeloid leukemia (CML) in chronic phase, accelerated phase and blast crisisfor both pediatric and adult patients. This drug is also indicated for adult patients with61

adjuvant, unresectable and/or metastatic c-kit / cd-117 gastrointestinal stromal tumors(GIST). Tasigna (nilotinib) a drug recently launched by Novartis is used as medication for thetreatment of Ph+ chronic myeloid leukemia (CML) in chronic phase, accelerated phase andblast crisis for only adult patients.NOA program:The NOA program is a drug access program for to help patients who have been prescribedGlivec and Tasigna but cannot afford to pay for the entire treatment cost. This program is runby Novartis along with its partner Physicians- enrolls patient under this program afterdiagnosis, The MAX Foundation- independent NGO Assist patient throughout theprogram in completing formalities & procurement of medicines, Indiabulls FinancialServices - independent body for financial evaluation of patient, collection & safekeeping thesubmitted documents with confidentiality and C&F outlets Independent pharmacist,dispenses drugs to patients & manage drug inventory.Indiabulls Financial Services: As a NOA partner we are performing task of the local creditevaluation agency which works as an independent and unbiased body for the financialanalysis and assessment of the patient and family members earning capacity to affordmedical expenses on critical disease. The analysis bases on income levels assessment by wayof financial evaluation ,field verification, living standard, personal discussion with patient/care taker & guidelines as per standard operating procedure (SOP) which is prepared byNovartis based on the WHO guidelines for drug donation programs using Business for SocialResponsibilitys (BSR) cost of living index, a well-established international guide often usedas eligibility criteria for determining access to drug assistance programs. Based on the familycomposite Income a suitable donation decision is given.ContractibilityIndiabulls has designated a dedicated Help-Line Number: 022 30491720 that will receivepatient calls during office hours (9:00 a.m. to 6.00 p.m.) so it may handle in-bound calls inresponse only to queries regarding the submission of requirements for the NOA. For anymedical or clinical queries, Indiabulls Financial Services refer patients to their treatingphysician.62

BusinessesIndiabulls Group is one of the country's leading business houses with business interests inPower, Financial Services, Real Estate and Infrastructure . Indiabulls Group companies arelisted in Indian and overseas financial markets. The Net worth of the Group is Rs 16,796Crore and the total planned capital expenditure of the Group by 2013-14 is Rs 35,000 Crore.Indiabulls Power is currently developing Thermal Power Projects with an aggregatecapacity of 5400 MW. The first unit is expected to go on stream in May 2012. The net worthof Indiabulls Power is Rs 3,917 Crore. The company has a total capital expenditure of Rs27,500 Crore. The company has been assigned 'BBB' rating.Indiabulls Financial Services is one of Indias leading non-banking finance companiesproviding Home Loans, Commercial Vehicle Loans and Secured SME Loans. The companyhas a net worth of Rs 4,680 crore with an asset book of over Rs 18,500 Crore. The companyhas disbursed loans over Rs 45,000 Crore to over 3,00,000 customers till date. Amongst itsfinancial services and banking peers, India